**UNITED        STATES**

**SECURITIES        AND EXCHANGE COMMISSION**

**WASHINGTON,        D.C. 20549**

**FORM        10-Q**

**June        30, 2006**

*For        The Transition Period from ____ to ____*

| Commission                       |   | Registrant,                  State of Incorporation,                            |   | I.R.S.                  Employer    |
|----------------------------------|--------|---------------------------------------------------------------------------------|--------|-------------------------------------|
| File                  Number     |   | Address                  of Principal Executive Offices, and Telephone Number   |   | Identification                  No. |
|                             |   |                                                                            |   |                                |
| 1-3525                           |   | AMERICAN                  ELECTRIC POWER COMPANY, INC. (A New York Corporation) |   | 13-4922640                          |
| 0-18135                          |   | AEP                  GENERATING COMPANY (An Ohio Corporation)                   |   | 31-1033833                          |
| 0-346                            |   | AEP                  TEXAS CENTRAL COMPANY (A Texas Corporation)                |   | 74-0550600                          |
| 0-340                            |   | AEP                  TEXAS NORTH COMPANY (A Texas Corporation)                  |   | 75-0646790                          |
| 1-3457                           |   | APPALACHIAN                  POWER COMPANY (A Virginia Corporation)             |   | 54-0124790                          |
| 1-2680                           |   | COLUMBUS                  SOUTHERN POWER COMPANY (An Ohio Corporation)          |   | 31-4154203                          |
| 1-3570                           |   | INDIANA                  MICHIGAN POWER COMPANY (An Indiana Corporation)        |   | 35-0410455                          |
| 1-6858                           |   | KENTUCKY                  POWER COMPANY (A Kentucky Corporation)                |   | 61-0247775                          |
| 1-6543                           |   | OHIO                  POWER COMPANY (An Ohio Corporation)                       |   | 31-4271000                          |
| 0-343                            |   | PUBLIC                  SERVICE COMPANY OF OKLAHOMA (An Oklahoma Corporation)   |   | 73-0410895                          |
| 1-3146                           |   | SOUTHWESTERN                  ELECTRIC POWER COMPANY (A Delaware Corporation)   |   | 72-0323455                          |
|                             |   |                                                                            |   |                                |
| All                  Registrants |   | 1                  Riverside Plaza, Columbus, Ohio 43215-2373                   |   |                                |
|                             |   | Telephone                  (614) 716-1000                                       |   |                                |

| *Indicate                  by check mark whether the registrants (1) have filed all reports                  required                  to be filed by Section 13 or 15(d) of the Securities Exchange Act                  of 1934                  during the preceding 12 months (or for such shorter period that                  the                  registrants were required to file such reports), and (2) have been                  subject                  to such filing requirements for the past 90 days.* |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| *Yes**  X  *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | *No** __        * |

| *Indicate                  by check mark whether American Electric Power Company, Inc. is                  a large                  accelerated filer, an accelerated filer, or a non-accelerated filer.                  See                  definition of ‘accelerated filer and large accelerated filer’ in Rule                  12b-2 of the Exchange Act. (Check One)* |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| *Large                  accelerated filer**  X  **                    Accelerated filer** ___   **Non-accelerated                  filer**  ___    *                                                                                                                                                      |

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

*AEP        Generating Company, AEP Texas North Company, Columbus Southern Power Company,        Kentucky Power Company and Public Service Company of Oklahoma meet the        conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q        and are        therefore filing this Form 10-Q with the reduced disclosure format specified        in        General Instruction H(2) to Form 10-Q.*

----

|                                                   |   | **Aggregate                  market value of voting and non-voting common equity held by non-affiliates                  of the registrants** **as                  of June 30, 2006, the last trading date of the registrants’ most recently                  completed second fiscal quarter** |   |   **Number                  of shares of common stock outstanding of the registrants                  at****July                  31, 2006** |
|--------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                   |   |                                                                                                                                                                                                                                                                                                        |   |                                                                                                                                                   |
| AEP                  Generating Company                |   | None                                                                                                                                                                                                                                                                                                        |   | 1,000                                                                                                                                                  |
|                                                   |   |                                                                                                                                                                                                                                                                                                        |   | ($1,000                  par value)                                                                                                                    |
| AEP                  Texas Central Company             |   | None                                                                                                                                                                                                                                                                                                        |   | 2,211,678                                                                                                                                              |
|                                                   |   |                                                                                                                                                                                                                                                                                                        |   | ($25                  par value)                                                                                                                       |
| AEP                  Texas North Company               |   | None                                                                                                                                                                                                                                                                                                        |   | 5,488,560                                                                                                                                              |
|                                                   |   |                                                                                                                                                                                                                                                                                                        |   | ($25                  par value)                                                                                                                       |
| American                  Electric Power Company, Inc. |   | $13,492,667,933                                                                                                                                                                                                                                                                                             |   | 393,975,064                                                                                                                                            |
|                                                   |   |                                                                                                                                                                                                                                                                                                        |   | ($6.50                  par value)                                                                                                                     |
| Appalachian                  Power Company             |   | None                                                                                                                                                                                                                                                                                                        |   | 13,499,500                                                                                                                                             |
|                                                   |   |                                                                                                                                                                                                                                                                                                        |   | (no                  par value)                                                                                                                        |
| Columbus                  Southern Power Company       |   | None                                                                                                                                                                                                                                                                                                        |   | 16,410,426                                                                                                                                             |
|                                                   |   |                                                                                                                                                                                                                                                                                                        |   | (no                  par value)                                                                                                                        |
| Indiana                  Michigan Power Company        |   | None                                                                                                                                                                                                                                                                                                        |   | 1,400,000                                                                                                                                              |
|                                                   |   |                                                                                                                                                                                                                                                                                                        |   | (no                  par value)                                                                                                                        |
| Kentucky                  Power Company                |   | None                                                                                                                                                                                                                                                                                                        |   | 1,009,000                                                                                                                                              |
|                                                   |   |                                                                                                                                                                                                                                                                                                        |   | ($50                  par value)                                                                                                                       |
| Ohio                  Power Company                    |   | None                                                                                                                                                                                                                                                                                                        |   | 27,952,473                                                                                                                                             |
|                                                   |   |                                                                                                                                                                                                                                                                                                        |   | (no                  par value)                                                                                                                        |
| Public                  Service Company of Oklahoma    |   | None                                                                                                                                                                                                                                                                                                        |   | 9,013,000                                                                                                                                              |
|                                                   |   |                                                                                                                                                                                                                                                                                                        |   | ($15                  par value)                                                                                                                       |
| Southwestern                  Electric Power Company   |   | None                                                                                                                                                                                                                                                                                                        |   | 7,536,640                                                                                                                                              |
|                                                   |   |                                                                                                                                                                                                                                                                                                        |   | ($18                  par value)                                                                                                                       |

----

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

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

**June        30, 2006**

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

| **Kentucky                  Power Company:**                                                                     |                                                                                                                    |                                                                         |
|------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------|
|                                                                                                             | Management’s                  Narrative Financial Discussion and Analysis                                         |                                                                         |   |
|                                                                                                             | Quantitative                  and Qualitative Disclosures About Risk Management                  Activities             |                                                                         |   |
|                                                                                                             | Condensed                  Financial Statements                                                                         |                                                                         |   |
|                                                                                                             | Index                  to Condensed Notes to Condensed Financial Statements of Registrant                  Subsidiaries |                                                                         |   |
|                                                                                                             |                                                                                                                    |                                                                         |   |
| **Ohio                  Power Company Consolidated:**                                                            |                                                                                                                    |                                                                         |
|                                                                                                             | Management’s                  Financial Discussion and Analysis                                                   |                                                                         |   |
|                                                                                                             | Quantitative                  and Qualitative Disclosures About Risk Management                  Activities             |                                                                         |   |
|                                                                                                             | Condensed                  Consolidated Financial Statements                                                            |                                                                         |   |
|                                                                                                             | Index                  to Condensed Notes to Condensed Financial Statements of Registrant                  Subsidiaries |                                                                         |   |
|                                                                                                             |                                                                                                                    |                                                                         |   |
| **Public                  Service Company of Oklahoma:**                                                         |                                                                                                                    |                                                                         |
|                                                                                                             | Management’s                  Narrative Financial Discussion and Analysis                                         |                                                                         |   |
|                                                                                                             | Quantitative                  and Qualitative Disclosures About Risk Management                  Activities             |                                                                         |   |
|                                                                                                             | Condensed                  Financial Statements                                                                         |                                                                         |   |
|                                                                                                             | Index                  to Condensed Notes to Condensed Financial Statements of Registrant                  Subsidiaries |                                                                         |   |
|                                                                                                             |                                                                                                                    |                                                                         |   |
| **Southwestern                  Electric Power Company Consolidated:**                                           |                                                                                                                    |                                                                         |
|                                                                                                             | Management’s                  Financial Discussion and Analysis                                                   |                                                                         |   |
|                                                                                                             | Quantitative                  and Qualitative Disclosures About Risk Management                  Activities             |                                                                         |   |
|                                                                                                             | Condensed                  Consolidated Financial Statements                                                            |                                                                         |   |
|                                                                                                             | Index                  to Condensed Notes to Condensed Financial Statements of Registrant                  Subsidiaries |                                                                         |   |
|                                                                                                             |                                                                                                                    |                                                                         |   |
| Condensed                  Notes to Condensed Financial Statements of Registrant                  Subsidiaries   |                                                                                                                    |                                                                         |
|                                                                                                             |                                                                                                                    |                                                                         |   |
| Combined                  Management’s Discussion and Analysis of Registrant                  Subsidiaries |                                                                                                                    |                                                                         |
|                                                                                                             |                                                                                                                    |                                                                         |   |
|                                                                                                             | Item                  4.                                                                                                | Controls                  and Procedures                                     |   |   |
|                                                                                                             |                                                                                                                    |                                                                         |   |   |
| Part                  II. OTHER INFORMATION                                                                      |                                                                                                                    |                                                                         |
|                                                                                                             |                                                                                                                    |                                                                         |
|                                                                                                             | Item                  1.                                                                                                | Legal                  Proceedings                                           |   |   |
|                                                                                                             | Item                  1A.                                                                                               | Risk                  Factors                                                |   |   |
|                                                                                                             | Item                  2.                                                                                                | Unregistered                  Sales of Equity Securities and Use of Proceeds |   |   |
|                                                                                                             | Item                  4.                                                                                                | Submission                  of Matters to a Vote of Security Holders         |   |   |
|                                                                                                             | Item                  5.                                                                                                | Other                  Information                                           |   |   |
|                                                                                                             | Item                  6.                                                                                                | Exhibits:                                                                    |   |   |
|                                                                                                             |                                                                                                                    |                                                                         |   |   | Exhibit                  10(a) |   |   |
|                                                                                                             |                                                                                                                    |                                                                         |   |   | Exhibit                  12 |   |   |
|                                                                                                             |                                                                                                                    |                                                                         |   |   | Exhibit                  31(a) |   |   |
|                                                                                                             |                                                                                                                    |                                                                         |   |   | Exhibit                  31(b) |   |   |
|                                                                                                             |                                                                                                                    |                                                                         |   |   | Exhibit                  31(c) |   |   |
|                                                                                                             |                                                                                                                    |                                                                         |   |   | Exhibit                  31(d) |   |   |
|                                                                                                             |                                                                                                                    |                                                                         |   |   | Exhibit                  32(a) |   |   |
|                                                                                                             |                                                                                                                    |                                                                         |   |   | Exhibit                  32(b) |   |   |
|                                                                                                             |                                                                                                                    |                                                                         |   |   |   |   |   |
| SIGNATURE                                                                                                        |                                                                                                                    |                                                                         |   |

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

----

**GLOSSARY        OF TERMS**

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

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

| ADFIT                                                                                      |   | Accumulated                  Deferred Federal Income Taxes.                                                                                                                                                                                                         |
|--------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ADITC                                                                                      |   | Accumulated                  Deferred Investment Tax Credits.                                                                                                                                                                                                       |
| AEGCo                                                                                      |   | AEP                  Generating Company, an AEP electric generating                  subsidiary.                                                                                                                                                                    |
| AEP                  or Parent                                                             |   | American                  Electric Power Company, Inc.                                                                                                                                                                                                              |
| AEP                  Consolidated                                                          |   | AEP                  and its majority owned consolidated subsidiaries and consolidated                  entities.                                                                                                                                                   |
| AEP                  East companies                                                        |   | APCo,                  CSPCo, I&M, KPCo and OPCo.                                                                                                                                                                                                               |
| AEPES                                                                                      |   | AEP                  Energy Services, Inc., a subsidiary of AEP Resources,                  Inc.                                                                                                                                                                    |
| AEP                  System or the System                                                  |   | American                  Electric Power System, an integrated electric utility system, owned                  and                  operated by AEP’s electric utility subsidiaries.                                                                          |
| AEP                  System Power Pool or AEP                    Power Pool |   | Members                  are APCo, CSPCo, I&M, KPCo and OPCo. The Pool shares the generation,                  cost of generation and resultant wholesale off-system sales of                  the member                  companies.                           |
| AEPSC                                                                                      |   | American                  Electric Power Service Corporation, a service subsidiary providing                  management and professional services to AEP and its                  subsidiaries.                                                                    |
| AEP                  West companies                                                        |   | PSO,                  SWEPCo, TCC and TNC.                                                                                                                                                                                                                          |
| AFUDC                                                                                      |   | Allowance                  for Funds Used During Construction.                                                                                                                                                                                                      |
| ALJ                                                                                        |   | Administrative                  Law Judge.                                                                                                                                                                                                                          |
| APCo                                                                                       |   | Appalachian                  Power Company, an AEP electric utility subsidiary.                                                                                                                                                                                     |
| CAA                                                                                        |   | Clean                  Air Act.                                                                                                                                                                                                                                     |
| Cook                  Plant                                                                |   | Donald                  C. Cook Nuclear Plant, a two-unit, 2,110 MW nuclear plant owned                  by                  I&M.                                                                                                                               |
| CSPCo                                                                                      |   | Columbus                  Southern Power Company, an AEP electric utility                  subsidiary.                                                                                                                                                              |
| CSW                                                                                        |   | Central                  and South West Corporation, a subsidiary of AEP (Effective January                  21,                  2003, the legal name of Central and South West Corporation was                  changed to                  AEP Utilities, Inc.). |
| CSW                  Operating Agreement                                                   |   | Agreement,                  dated January 1, 1997, by and among PSO, SWEPCo, TCC and TNC governing                  their generating capacity allocation. AEPSC acts as the                  agent.                                                                 |
| CTC                                                                                        |   | Competition                  Transition Charge.                                                                                                                                                                                                                     |
| DETM                                                                                       |   | Duke                  Energy Trading and Marketing L.L.C., a risk management                  counterparty.                                                                                                                                                         |
| EDFIT                                                                                      |   | Excess                  Deferred Federal Income Taxes.                                                                                                                                                                                                              |
| EITF                                                                                       |   | Financial                  Accounting Standards Board’s Emerging Issues Task                  Force.                                                                                                                                                          |
| EPACT                                                                                      |   | Energy                  Policy Act of 2005.                                                                                                                                                                                                                         |
| ERCOT                                                                                      |   | Electric                  Reliability Council of Texas.                                                                                                                                                                                                             |
| FASB                                                                                       |   | Financial                  Accounting Standards Board.                                                                                                                                                                                                              |
| Federal                  EPA                                                               |   | United                  States Environmental Protection Agency.                                                                                                                                                                                                     |
| FERC                                                                                       |   | Federal                  Energy Regulatory Commission.                                                                                                                                                                                                              |
| GAAP                                                                                       |   | Accounting                  Principles Generally Accepted in the United States of                  America.                                                                                                                                                         |
| HPL                                                                                        |   | Houston                  Pipe Line Company LP, a former AEP subsidiary that was sold in                  January                  2005.                                                                                                                             |
| IGCC                                                                                       |   | Integrated                  Gasification Combined Cycle, technology that turns coal into a                  cleaner-burning gas.                                                                                                                                    |
| I&M                                                                                    |   | Indiana                  Michigan Power Company, an AEP electric utility                  subsidiary.                                                                                                                                                               |
| IRS                                                                                        |   | Internal                  Revenue Service.                                                                                                                                                                                                                          |
| IPP                                                                                        |   | Independent                  Power Producers.                                                                                                                                                                                                                       |
| IURC                                                                                       |   | Indiana                  Utility Regulatory Commission.                                                                                                                                                                                                             |
| KPCo                                                                                       |   | Kentucky                  Power Company, an AEP electric utility subsidiary.                                                                                                                                                                                        |
| KPSC                                                                                       |   | Kentucky                  Public Service Commission.                                                                                                                                                                                                                |
| kV                                                                                         |   | Kilovolt.                                                                                                                                                                                                                                                           |
| KWH                                                                                        |   | Kilowatthour.                                                                                                                                                                                                                                                       |
| MISO                                                                                       |   | Midwest                  Independent Transmission System Operator.                                                                                                                                                                                                  |
|                                                                                       |

| MTM                                                   |   | Mark-to-Market.                                                                                                                                                                                                                                 |
|-------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| MW                                                    |   | Megawatt.                                                                                                                                                                                                                                       |
| MWH                                                   |   | Megawatthour.                                                                                                                                                                                                                                   |
| NOx                                                   |   | Nitrogen                  oxide.                                                                                                                                                                                                                |
| Nonutility                  Money Pool                |   | AEP                  System’s Nonutility Money Pool.                                                                                                                                                                                      |
| NRC                                                   |   | Nuclear                  Regulatory Commission.                                                                                                                                                                                                 |
| NSR                                                   |   | New                  Source Review.                                                                                                                                                                                                             |
| NYMEX                                                 |   | New                  York Mercantile Exchange.                                                                                                                                                                                                  |
| OATT                                                  |   | Open                  Access Transmission Tariff.                                                                                                                                                                                               |
| OCC                                                   |   | Corporation                  Commission of the State of Oklahoma.                                                                                                                                                                               |
| OPCo                                                  |   | Ohio                  Power Company, an AEP electric utility subsidiary.                                                                                                                                                                        |
| OTC                                                   |   | Over                  the counter.                                                                                                                                                                                                              |
| PJM                                                   |   | Pennsylvania                  - New Jersey - Maryland regional transmission                  organization.                                                                                                                                      |
| PSO                                                   |   | Public                  Service Company of Oklahoma, an AEP electric utility                  subsidiary.                                                                                                                                       |
| PTB                                                   |   | Price-to-Beat.                                                                                                                                                                                                                                  |
| PUCO                                                  |   | Public                  Utilities Commission of Ohio.                                                                                                                                                                                           |
| PUCT                                                  |   | Public                  Utility Commission of Texas.                                                                                                                                                                                            |
| PURPA                                                 |   | Public                  Utility Regulatory Policies Act of 1978.                                                                                                                                                                                |
| Registrant                  Subsidiaries              |   | AEP                  subsidiaries which are SEC registrants; AEGCo, APCo, CSPCo, I&M, KPCo,                  OPCo, PSO, SWEPCo, TCC and TNC.                                                                                                |
| REP                                                   |   | Texas                  Retail Electric Provider.                                                                                                                                                                                                |
| Risk                  Management Contracts            |   | Trading                  and nontrading derivatives, including those derivatives designated                  as cash                  flow and fair value hedges.                                                                               |
| Rockport                  Plant                       |   | A                  generating plant, consisting of two 1,300 MW coal-fired generating                  units                  near Rockport, Indiana owned 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 FASB.                                                                                                                                                                |
| SFAS                  133                             |   | Statement                  of Financial Accounting Standards No. 133, “Accounting for Derivative                  Instruments and Hedging Activities.”                                                                              |
| SIA                                                   |   | System                  Integration Agreement.                                                                                                                                                                                                  |
| SO2                                                   |   | Sulfur                  Dioxide.                                                                                                                                                                                                                |
| SPP                                                   |   | Southwest                  Power Pool.                                                                                                                                                                                                          |
| STP                                                   |   | South                  Texas Project Nuclear Generating Plant.                                                                                                                                                                                  |
| Sweeny                                                |   | Sweeny                  Cogeneration Limited Partnership, owner and operator of a four                  unit, 480                  MW gas-fired generation facility, owned 50% by AEP.                                                          |
| SWEPCo                                                |   | Southwestern                  Electric Power Company, an AEP electric utility                  subsidiary.                                                                                                                                      |
| TCC                                                   |   | AEP                  Texas Central Company, an AEP electric utility subsidiary.                                                                                                                                                                 |
| TEM                                                   |   | SUEZ                  Energy Marketing NA, Inc. (formerly known as Tractebel Energy Marketing,                  Inc.).                                                                                                                          |
| Texas                  Restructuring Legislation |   | Legislation                  enacted in 1999 to restructure the electric utility industry in                  Texas.                                                                                                                            |
| TNC                                                   |   | AEP                  Texas North Company, an AEP electric utility subsidiary.                                                                                                                                                                   |
| True-up                  Proceeding                   |   | A                  filing made under the Texas Restructuring Legislation to finalize                  the                  amount of stranded costs and other true-up items and the recovery                  of such                  amounts. |
| Utility                  Money Pool                   |   | AEP                  System’s Utility Money Pool.                                                                                                                                                                                         |
| VaR                                                   |   | Value                  at Risk, a method to quantify risk exposure.                                                                                                                                                                             |
| Virginia                  SCC                         |   | Virginia                  State Corporation Commission.                                                                                                                                                                                         |
| WPCo                                                  |   | Wheeling                  Power Company, an AEP electric distribution subsidiary.                                                                                                                                                               |
| WVPSC                                                 |   | Public                  Service Commission of West                  Virginia.                                                                                                                                                                   |

|   |   |
|--------|--------|

----

**FORWARD-LOOKING        INFORMATION**

| · | Electric                  load and customer growth.                                                                                                                                                                                                                                                      |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Weather                  conditions, including storms.                                                                                                                                                                                                                                                   |
| · | Available                  sources and costs of, and transportation for, fuels and the                  creditworthiness of fuel suppliers and transporters.                                                                                                                                             |
| · | Availability                  of generating capacity and the performance of our generating                  plants.                                                                                                                                                                                      |
| · | Our                  ability to recover regulatory assets and stranded costs in connection                  with                  deregulation.                                                                                                                                                          |
| · | Our                  ability to recover increases in fuel and other energy costs through                  regulated or competitive electric rates.                                                                                                                                                       |
| · | Our                  ability to build or acquire generating capacity when needed at                  acceptable                  prices and terms and to recover those costs through                  applicablerate                  cases or competitive                  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. and related                  matters).                                                                          |
| · | Our                  ability to constrain operation and maintenance costs.                                                                                                                                                                                                                               |
| · | Our                  ability to sell assets at acceptable prices and other acceptable                  terms.                                                                                                                                                                                            |
| · | The                  economic climate and growth in our service territory and changes                  in market                  demand and demographic patterns.                                                                                                                                       |
| · | Inflationary                  and interest rate trends.                                                                                                                                                                                                                                                  |
| · | Our                  ability to develop and execute a strategy based on a view regarding                  prices                  of electricity, natural gas and other energy-related                  commodities.                                                                                     |
| · | Changes                  in the creditworthiness of the counterparties with whom we have                  contractual arrangements, including participants in the energy                  trading                  market.                                                                               |
| · | Changes                  in the financial markets, particularly those affecting the availability                  of                  capital and our ability to refinance existing debt at attractive                  rates.                                                                           |
| · | Actions                  of rating agencies, including changes in the ratings of                  debt.                                                                                                                                                                                                  |
| · | Volatility                  and changes in markets for electricity, natural gas and other                  energy-related commodities.                                                                                                                                                                   |
| · | Changes                  in utility regulation, including implementation of EPACT and membership                  in                  and integration into regional transmission structures.                                                                                                             |
| · | Accounting                  pronouncements periodically issued by accounting standard-setting                  bodies.                                                                                                                                                                                   |
| · | The                  performance of our pension and other postretirement benefit                  plans.                                                                                                                                                                                                 |
| · | Prices                  for power that we generate and sell at wholesale.                                                                                                                                                                                                                                |
| · | Changes                  in technology, particularly with respect to new, developing or                  alternative                  sources of generation.                                                                                                                                             |
| · | Other                  risks and unforeseen events, including wars, the effects of terrorism                  (including increased security costs), embargoes and other catastrophic                  events.                                                                                            |

----

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

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

**EXECUTIVE        OVERVIEW**

***Regulatory        Activity***

| · | In                  April 2006, the PUCO approved our recovery of the pre-construction                  costs                  for the IGCC clean-coal plant in Meigs County, Ohio. We subsequently                  submitted tariffs and received PUCO approval to recover $24 million                  of our                  IGCC pre-construction costs beginning July 1, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | In                  May 2006, we filed a base rate case in Virginia requesting a net                  rate                  increase of $198 million. Rates will be effective, subject to refund,                  on                  October 2, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| · | In                  May 2006, the PUCO approved a two-step increase in transmission                  rates with                  an over/under recovery mechanism effective April 1, 2006. We subsequently                  submitted tariffs and received PUCO approval to implement the rates                  in                  June 2006. We expect this order to increase 2006 revenues by $63                  million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| · | In                  June 2006, we received a financing order from the PUCT to issue                  $1.7                  billion in securitization bonds. We anticipate issuing the bonds                  and                  receiving the proceeds by the end of September 2006. We intend                  to use the                  proceeds to reduce a portion of TCC’s debt and equity, which would include                  a dividend payment to AEP.                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| · | In                  July 2006, an ALJ rendered an initial decision to the FERC recommending                  that current transmission rates in PJM are unjust and unreasonable                  and                  should be redesigned to replace the PJM license plate rates effective                  April 1, 2006. If approved by the FERC, the new regional rates                  should                  result in parties outside of the AEP zone in PJM contributing a                  significant portion of AEP’s transmission revenue requirement, some of                  which may be treated as a credit to retail customers. The favorable                  impact                  of the initial ALJ decision is not determinable pending the decision                  of                  the FERC and subject to analysis of credits to retail customers,                  if                  any. |
| · | In                  July 2006, the FERC approved our request for use of an incentive                  rate                  treatment for our proposed 550-mile I-765 transmission line project.                  The                  approval is conditioned upon PJM including the project in its formal                  Regional Transmission Expansion Plan, which should be finalized                  in 2006 or                  early 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| · | In                  July 2006, the West Virginia Public Service Commission approved                  a                  settlement agreement in APCo and WPCo’s base rate case, providing for a                  $44 million annual increase in rates effective July 28, 2006. These                  rates                  include a surcharge for recovery of the cost of the Wyoming-Jacksons                  Ferry                  765 kV line, which was energized and placed in service in June                  2006.                                                                                                                                                                                                                                                                                                                                                                                                 |

***Fuel        Costs***

***Barging        Operations***

***Stock          Option Grant Practices***

**RESULTS        OF OPERATIONS**

| **    Utility                  Operations**                   |
|-----------------------------------------------------------------------------------|
|                                                                              | · | Generation                  of electricity for sale to U.S. retail and wholesale                  customers. |
|                                                                              | · | Electricity                  transmission and distribution in the U.S. |
| **    Investments                  -                  Other** |
|                                                                              | · | Bulk                  commodity barging operations, wind farms, IPPs and other energy                  supply-related businesses. |

|                                                                                                          |   | **Three                  Months Ended June 30,** |   | **Six                  Months Ended June 30,** |   |
|---------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------|--------|------------------------------------------------|--------|
|                                                                                                          |   | **2006**                                         |   | **2005**                                       |   | **2006** |   | **2005** |   |
|                                                                                                          |   | **Earnings**                                     |   | **EPS                  (c)**                   |   | **Earnings** |   | **EPS                  (c)** |   | **Earnings** |   | **EPS                  (c)** |   | **Earnings** |   | **EPS                  (c)** |   |
| Utility                  Operations                                                                           |   | $                                                | 160    |                                           | $      | 0.41 |   | $ | 247 |   | $ | 0.64 |   | $ | 525 |   | $ | 1.33 |   | $ | 600 |   | $ | 1.54 |   |
| Investments                  - Other                                                                          |   |                                             | 13     |                                           |   | 0.03 |   |   | (1 | ) |   | - |   |   | 29 |   |   | 0.08 |   |   | 4 |   |   | 0.01 |   |
| All                  Other (a)                                                                                |   |                                             | (3     | )                                              |   | - |   |   | (26 | ) |   | (0.06 | ) |   | (5 | ) |   | (0.01 | ) |   | (40 | ) |   | (0.10 | ) |
| Investments                  - Gas Operations (b)                                                             |   |                                             | 2      |                                           |   | - |   |   | (2 | ) |   | (0.01 | ) |   | 1 |   |   | - |   |   | 8 |   |   | 0.02 |   |
| **Income                  Before Discontinued Operations**                                                    |   | $                                                | 172    |                                           | $      | 0.44 |   | $ | 218 |   | $ | 0.57 |   | $ | 550 |   | $ | 1.40 |   | $ | 572 |   | $ | 1.47 |   |
|                                                                                                          |   |                                             |   |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Weighted                  Average Number of Basic****                   Shares Outstanding** |   |                                             |   |                                           |   | 394 |   |   |   |   |   | 384 |   |   |   |   |   | 394 |   |   |   |   |   | 389 |   |

| (a) | All                  Other includes the parent company’s interest income and expense, as well                  as other nonallocated costs.                                                                                                                                                                                 |   |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| (b) | We                  sold our remaining gas pipeline and storage assets in                  2005.                                                                                                                                                                                                                                  |   |
| (c) | The                  earnings per share of any segment does not represent a direct legal                  interest in the assets and liabilities allocated to any one segment                  but                  rather represents a direct equity interest in AEP’s assets and liabilities                  as a whole. |   |

**Utility        Operations**

|                                                                              | **Three                  Months Ended****June                  30,** |   | **Six                  Months Ended****June                  30,** |   |
|-----------------------------------------------------------------------------------|----------------------------------------------------------------------|--------|--------------------------------------------------------------------|--------|
|                                                                              | **2006**                                                             |   | **2005**                                                           |   | **2006** |   | **2005** |   |
|                                                                              | **(in                  millions)**                                   |   |
| Revenues                                                                          | $                                                                    | 2,799  |                                                               | $      | 2,702 |   | $ | 5,768 |   | $ | 5,386 |   |
| Fuel                  and Purchased Energy                                        |                                                                 | 1,126  |                                                               |   | 988 |   |   | 2,253 |   |   | 1,911 |   |
| **Gross                  Margin**                                                 |                                                                 | 1,673  |                                                               |   | 1,714 |   |   | 3,515 |   |   | 3,475 |   |
| Depreciation                  and Amortization                                    |                                                                 | 339    |                                                               |   | 317 |   |   | 672 |   |   | 635 |   |
| Other                  Operating Expenses                                         |                                                                 | 987    |                                                               |   | 938 |   |   | 1,833 |   |   | 1,743 |   |
| **Operating                  Income**                                             |                                                                 | 347    |                                                               |   | 459 |   |   | 1,010 |   |   | 1,097 |   |
| Other                  Income, Net                                                |                                                                 | 43     |                                                               |   | 49 |   |   | 85 |   |   | 79 |   |
| Interest                  Expense and Preferred Stock Dividend  Requirements |                                                                      | 160    |                                                                    |        | 156 |  |  | 314 |  |  | 300 |  |
| Income                  Tax Expense                                               |                                                                 | 70     |                                                               |   | 105 |   |   | 256 |   |   | 276 |   |
| **Income                  Before Discontinued Operations**                        | $                                                                    | 160    |                                                               | $      | 247 |   | $ | 525 |   | $ | 600 |   |

**Summary        of Selected Sales and Weather Data**

**For        Utility Operations**

**For        the Three and Six Months Ended June 30, 2006 and 2005**

|                                                                                                                      | **Three                  Months Ended****June                  30,** |   | **Six                  Months Ended****June                  30,** |   |
|---------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------|--------|--------------------------------------------------------------------|--------|
|                                                                                                                      | **2006**                                                             |   | **2005**                                                           |   | **2006** |   | **2005** |   |
|                                                                                                                      | **(in                  millions of KWH)**                            |
| **Energy                  Summary**                                                                                       |                                                                 |   |                                                               |   |   |   |   |   |   |   |   |   |
| Retail:                                                                                                                   |                                                                 |   |                                                               |   |   |   |   |   |   |   |   |   |
|                                                                                                                      | Residential                                                          |   | 9,590                                                              |   |   | 9,956 |   |   | 22,528 |   |   | 23,180 |   |
|                                                                                                                      | Commercial                                                           |   | 9,440                                                              |   |   | 9,573 |   |   | 18,349 |   |   | 18,305 |   |
|                                                                                                                      | Industrial                                                           |   | 13,716                                                             |   |   | 13,480 |   |   | 26,937 |   |   | 26,253 |   |
|                                                                                                                      | Miscellaneous                                                        |   | 625                                                                |   |   | 639 |   |   | 1,214 |   |   | 1,284 |   |
| Subtotal                                                                                                                  |                                                                 | 33,371 |                                                               |   | 33,648 |   |   | 69,028 |   |   | 69,022 |   |
| Texas                  Retail and Other                                                                                   |                                                                 | 138    |                                                               |   | 161 |   |   | 206 |   |   | 389 |   |
| Total                  Retail                                                                                             |                                                                 | 33,509 |                                                               |   | 33,809 |   |   | 69,234 |   |   | 69,411 |   |
|                                                                                                                      |                                                                 |   |                                                               |   |   |   |   |   |   |   |   |   |
| Wholesale                                                                                                                 |                                                                 | 10,822 |                                                               |   | 11,745 |   |   | 21,667 |   |   | 24,380 |   |
|                                                                                                                      |                                                                 |   |                                                               |   |   |   |   |   |   |   |   |   |
| Texas                  Wires Delivery                                                                                     |                                                                 | 6,915  |                                                               |   | 6,736 |   |   | 12,461 |   |   | 12,254 |   |
|                                                                                                                      |                                                                 |   |                                                               |   |   |   |   |   |   |   |   |   |
| Total                KWHs                 |                                                                 | 51,246 |                                                               |   | 52,290 |   |   | 103,362 |   |   | 106,045 |   |

|                                                 | **Three                  Months Ended****June                  30,** |   | **Six                  Months Ended****June                  30,** |   |
|------------------------------------------------------|----------------------------------------------------------------------|--------|--------------------------------------------------------------------|--------|
|                                                 | **2006**                                                             |   | **2005**                                                           |   | **2006** |   | **2005** |   |
|                                                 | **(in                  degree days)**                                |
| **Weather                  Summary**                 |                                                                 |   |                                                               |   |   |   |   |   |   |   |   |   |
| Eastern                  Region                      |                                                                 |   |                                                               |   |   |   |   |   |   |   |   |   |
| Actual                  - Heating (a)                |                                                                 | 107    |                                                               |   | 165 |   |   | 1,563 |   |   | 1,939 |   |
| Normal                  - Heating (b)                |                                                                 | 175    |                                                               |   | 177 |   |   | 1,992 |   |   | 1,988 |   |
|                                                 |                                                                 |   |                                                               |   |   |   |   |   |   |   |   |   |
| Actual                  - Cooling (c)                |                                                                 | 228    |                                                               |   | 288 |   |   | 229 |   |   | 288 |   |
| Normal                  - Cooling (b)                |                                                                 | 279    |                                                               |   | 278 |   |   | 282 |   |   | 281 |   |
|                                                 |                                                                 |   |                                                               |   |   |   |   |   |   |   |   |   |
| Western                  Region                  (d) |                                                                 |   |                                                               |   |   |   |   |   |   |   |   |   |
| Actual                  - Heating (a)                |                                                                 | 5      |                                                               |   | 26 |   |   | 663 |   |   | 795 |   |
| Normal                  - Heating (b)                |                                                                 | 33     |                                                               |   | 33 |   |   | 1,005 |   |   | 1,005 |   |
|                                                 |                                                                 |   |                                                               |   |   |   |   |   |   |   |   |   |
| Actual                  - Cooling (c)                |                                                                 | 815    |                                                               |   | 681 |   |   | 858 |   |   | 701 |   |
| Normal                  - Cooling (b)                |                                                                 | 652    |                                                               |   | 644 |   |   | 669 |   |   | 662 |   |

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

**Second        Quarter of 2006 Compared to Second Quarter of 2005**

**Reconciliation        of Second Quarter of 2005 to Second Quarter of 2006**

**Income        from Utility Operations Before Discontinued Operations**

**(in        millions)**

| **Second                  Quarter of 2005**                       |   |   |   |   | $      | 247    |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                  Margins                                   |   |   | 56     |   |   |   |   |
| Off-system                  Sales                                 |   |   | (49    | )      |   |   |   |
| Transmission                  Revenues                            |   |   | (55    | )      |   |   |   |
| Other                                                             |   |   | 7      |   |   |   |   |
| **Total                  Change in Gross Margin**                 |   |   |   |   |   | (41    | )      |
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Maintenance                  and Other Operation                  |   |   | (34    | )      |   |   |   |
| Depreciation                  and Amortization                    |   |   | (22    | )      |   |   |   |
| Taxes                  Other Than Income Taxes                    |   |   | (15    | )      |   |   |   |
| Other                  Income, Net                                |   |   | (6     | )      |   |   |   |
| Interest                  and Other Charges                       |   |   | (4     | )      |   |   |   |
| **Total                  Change in Operating Expenses and Other** |   |   |   |   |   | (81    | )      |
|                                                              |   |   |   |   |   |   |   |
| Income                  Tax Expense                               |   |   |   |   |   | 35     |   |
|                                                              |   |   |   |   |   |   |   |
| **Second                  Quarter of 2006**                       |   |   |   |   | $      | 160    |   |

| · | Retail                  Margins increased $56 million primarily due to the                  following:                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | A                  $55 million increase related to new rates implemented in our Ohio                  jurisdictions as approved by the PUCO in our Rate Stabilization                  Plans                  (RSPs) and a $10 million increase related to new rates implemented                  in                  Kentucky as approved in our base rate case;                                                                                                                                                                                                        |
| · | A                  $30 million increase in financial transmission rights revenue,                  net of                  congestion costs, due to improved management of price risk related                  to                  serving retail load within PJM under current transmission constraints;                                                                                                                                                                                                                                                                |
| · | An                  $18 million increase related to reduced off-system sales margins                  shared                  with customers due to lower off-system sales; and                                                                                                                                                                                                                                                                                                                                                                                          |
| · | A                  $14 million increase related to increased usage and customer growth                  in the                  industrial and commercial classes of which $11 million relates                  to the                  purchase of the Ohio service territory of Monongahela Power in                  December                  2005; partially offset by                                                                                                                                                                                              |
| · | A                  $68 million increase in delivered fuel costs, which relates to                  the AEP                  East companies with inactive, capped or frozen fuel clauses;                  and                                                                                                                                                                                                                                                                                                                                                            |
| · | An                  $11 million decrease in usage related to mild weather. As compared                  to the                  prior year, our eastern region experienced a 21% decrease in cooling                  degree days, partially offset by a 20% increase in cooling degree                  days in                  the western region.                                                                                                                                                                                                                    |
| · | Margins                  from Off-system Sales for 2006 decreased $49 million due to lower                  volumes                  in part from the sale of STP in May 2005, a forced outage in 2006                  at the                  Oklaunion plant, various eastern fleet outages in 2006 for boiler                  tube                  inspections and lower optimization activities.                                                                                                                                                                  |
| · | Transmission                  Revenues decreased $55 million primarily due to the elimination                  of SECA                  revenues as of April 1, 2006 and a provision of $18 million recorded                  in                  the second quarter of 2006 related to potential SECA refunds pending                  settlement negotiations with various intervenors. At this time,                  SECA                  revenues have not been replaced. See the “SECA Revenue Subject to Refund”                  section of Note 3. |

| · | Maintenance                  and Other Operation expenses increased $34 million primarily due                  to                  increases in generation expenses for planned and forced plant outages,                  increases in transmission and distribution expenses related to                  tree                  trimming and storm restoration and the establishment of a regulatory                  asset                  for PJM administrative fees in 2005 which reduced expenses in the                  prior                  period, offset by decreases related to the sale of STP in May                  2005. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Depreciation                  and Amortization expense increased $22 million primarily due to                  increased                  Ohio regulatory asset amortization in conjunction with rate increases                  as                  well as higher depreciable property balances.                                                                                                                                                                                                                                                                                                                                           |
| · | Taxes                  Other Than Income Taxes increased $15 million primarily due to                  increased                  real and personal property taxes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| · | Income                  Tax Expense decreased $35 million due to the decrease in pretax                  income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |

**Six        Months Ended June 30, 2006 Compared to Six Months Ended June 30,        2005**

**Reconciliation        of Six Months Ended June 30, 2005 to Six Months Ended June 30,        2006**

**Income        from Utility Operations Before Discontinued Operations**

**(in        millions)**

| **Six                  Months Ended June 30, 2005**               |   |   |   |   | $      | 600    |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                  Margins                                   |   |   | 168    |   |   |   |   |
| Off-system                  Sales                                 |   |   | (73    | )      |   |   |   |
| Transmission                  Revenues                            |   |   | (54    | )      |   |   |   |
| Other                                                             |   |   | (1     | )      |   |   |   |
| **Total                  Change in Gross Margin**                 |   |   |   |   |   | 40     |   |
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Maintenance                  and Other Operation                  |   |   | (28    | )      |   |   |   |
| Gain                  on Sales of Assets, Net                     |   |   | (46    | )      |   |   |   |
| Depreciation                  and Amortization                    |   |   | (37    | )      |   |   |   |
| Taxes                  Other Than Income Taxes                    |   |   | (16    | )      |   |   |   |
| Other                  Income, Net                                |   |   | 6      |   |   |   |   |
| Interest                  and Other Charges                       |   |   | (14    | )      |   |   |   |
| **Total                  Change in Operating Expenses and Other** |   |   |   |   |   | (135   | )      |
|                                                              |   |   |   |   |   |   |   |
| Income                  Tax Expense                               |   |   |   |   |   | 20     |   |
|                                                              |   |   |   |   |   |   |   |
| **Six                  Months Ended June 30, 2006**               |   |   |   |   | $      | 525    |   |

| · | Retail                  Margins increased $168 million primarily due to the                  following:                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | A                  $103 million increase related to new rates implemented in our Ohio                  jurisdictions as approved by the PUCO in our RSPs, a $10 million                  increase                  related to new rates implemented in Kentucky as approved in our                  base rate                  case and a $7 million increase related to new rates implemented                  in                  Oklahoma in June 2005;                                                                                         |
| · | A                  $76 million increase in financial transmission rights revenue,                  net of                  congestion costs, due to improved management of price risk related                  to                  serving retail load within PJM under current transmission                  constraints;                                                                                                                                                                                                                         |
| · | A                  $41 million increase related to increased usage and customer growth                  in the                  industrial and commercial classes of which $21 million relates                  to the                  purchase of the Ohio service territory of Monongahela Power in                  December                  2005;                                                                                                                                                                                            |
| · | An                  $18 million increase related to reduced off-system sales margins                  shared                  with customers due to lower off-system sales; and                                                                                                                                                                                                                                                                                                                                                                    |
| · | A                  $29 million increase related to increased sales to municipal, cooperative                  and other wholesale customers primarily as a result of new power                  supply                  contracts; partially offset by                                                                                                                                                                                                                                                                                             |
| · | A                  $109 million increase in delivered fuel cost, which relates to                  AEP East                  companies with inactive, capped or frozen fuel clauses;                  and                                                                                                                                                                                                                                                                                                                                          |
| · | A                  $37 million decrease in usage related to mild weather. As compared                  to the                  prior year, our eastern region and western region experienced 19%                  and 17%                  declines, respectively, in heating degree days. These decreases                  were                  partially offset by an increase of 22% in cooling degree days in                  the                  western region.                                                                           |
| · | Margins                  from Off-system Sales for 2006 were $73 million lower than in 2005                  due to                  lower volumes in part from the sale of STP in May 2005, a forced                  outage in                  2006 at the Oklaunion plant, various eastern fleet outages in 2006                  for                  boiler tube inspections and lower optimization                  activities.                                                                                                             |
| · | Transmission                  Revenues decreased $54 million primarily due to the elimination                  of SECA                  revenues as of April 1, 2006 and a provision of $19 million recorded                  in                  2006 related to potential SECA refunds pending settlement negotiations                  with various intervenors. At this time, SECA revenues have not                  been                  replaced. See the “SECA Revenue Subject to Refund” section of Note                  3. |

| · | Maintenance                  and Other Operation expenses increased $28 million primarily due                  to                  increases in generation expenses related to base operations, maintenance                  and planned and forced plant outages, distribution expenses related                  to                  tree trimming and the establishment of a regulatory asset for PJM                  administrative fees in 2005 which reduced expenses in the prior                  period,                  offset by favorable variances related to expenses from the January                  2005                  ice storm in Ohio and Indiana and decreases related to the sale                  of STP in                  May 2005. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Gain                  on Sales of Assets, Net decreased $46 million resulting from revenues                  related to the earnings sharing agreement with Centrica as stipulated                  in                  the purchase-and-sale agreement from the sale of our REPs in 2002.                  In                  2005, we reached a settlement with Centrica and received $112 million                  related to two years of earnings sharing whereas in 2006 we received                  $70                  million related to one year of earnings sharing.                                                                                                                                                                                 |
| · | Depreciation                  and Amortization expense increased $37 million primarily due to                  increased                  Ohio regulatory asset amortization in conjunction with rate increases                  as                  well as higher depreciable property balances.                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| · | Taxes                  Other Than Income Taxes increased $16 million primarily due to                  increased                  real and personal property taxes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| · | Interest                  and Other Charges increased $14 million from the prior period primarily                  due to additional debt issued in late 2005 and early 2006 and increasing                  interest rates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| · | Income                  Tax Expense decreased $20 million due to the decrease in pretax                  income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |

**Investments        - Other**

**Second        Quarter of 2006 Compared to Second Quarter of 2005**

**Six        Months Ended June 30, 2006 Compared to Six Months Ended June 30,        2005**

**Other**

*Parent*

**Second        Quarter of 2006 Compared to Second Quarter of 2005**

**Six        Months Ended June 30, 2006 Compared to Six Months Ended June 30,        2005**

*Investments        - Gas Operations*

**Second        Quarter of 2006 Compared to Second Quarter of 2005**

**Six        Months Ended June 30, 2006 Compared to Six Months Ended June 30,        2005**

**AEP        System Income Taxes**

**FINANCIAL        CONDITION**

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

|                                                                   |   | **June                  30, 2006** |   | **December                  31, 2005** |   |
|------------------------------------------------------------------------|--------|------------------------------------|--------|----------------------------------------|--------|
| Long-term                  Debt, including amounts due within one year |   | $                                  | 12,645 |                                   |   | 56.7 | % | $ | 12,226 |   |   | 57.2 | % |
| Short-term                  Debt                                       |   |                               | 159    |                                   |   | 0.7 |   |   | 10 |   |   | 0.0 |   |
| Total                  Debt                                            |   |                               | 12,804 |                                   |   | 57.4 |   |   | 12,236 |   |   | 57.2 |   |
| Common                  Equity                                         |   |                               | 9,426  |                                   |   | 42.3 |   |   | 9,088 |   |   | 42.5 |   |
| Preferred                  Stock                                       |   |                               | 61     |                                   |   | 0.3 |   |   | 61 |   |   | 0.3 |   |
|                                                                   |   |                               |   |                                   |   |   |   |   |   |   |   |   |   |
| **Total                  Debt and Equity Capitalization**              |   | $                                  | 22,291 |                                   |   | 100.0 | % | $ | 21,385 |   |   | 100.0 | % |

**Liquidity**

***Credit        Facilities***

|                                                      |   | **Amount**                          |   |  **Maturity** |   |
|-----------------------------------------------------------|--------|------------------------------------------|--------|--------------------|--------|
|                                                      |   | **(in                  millions)**  |   |          |   |
| Commercial                    Paper Backup:               |   |                                |   |          |   |
| Revolving                    Credit Facility              |   | $                                        | 1,500  |               |   | March                    2010 |   |
| Revolving                    Credit Facility              |   |                                     | 1,500  |               |   | April                    2011 |   |
| **Total**                                                 |   |                                     | 3,000  |               |   |   |   |
| Cash                    and Cash Equivalents              |   |                                     | 249    |               |   |   |   |
| **Total                    Liquidity Sources**            |   |                                     | 3,249  |               |   |   |   |
| Less:                    AEP Commercial Paper Outstanding |   |                                     | 144    |               |   |   |   |
| Letter                    of Credit Drawn                 |   |                                     | 31     |               |   |   |   |
| **Net                    Available Liquidity**            |   | $                                        | 3,074  |               |   |   |   |

***Debt        Covenants and Borrowing Limitations***

***Credit        Ratings***

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

**Cash        Flow**

|                                                                      |   | **Six                  Months Ended****June                  30,** |   |
|---------------------------------------------------------------------------|--------|--------------------------------------------------------------------|--------|
|                                                                      |   | **2006**                                                           |   | **2005** |   |
|                                                                      |   | **(in                  millions)**                                 |   |
| **Cash                  and Cash Equivalents at Beginning of Period**     |   | $                                                                  | 401    |   | $ | 320 |   |
| Net                  Cash Flows From Operating Activities                 |   |                                                               | 1,137  |   |   | 982 |   |
| Net                  Cash Flows From (Used For) Investing Activities      |   |                                                               | (1,586 | ) |   | 458 |   |
| Net                  Cash Flows From (Used For) Financing Activities      |   |                                                               | 297    |   |   | (1,153 | ) |
| **Net                  Increase (Decrease) in Cash and Cash Equivalents** |   |                                                               | (152   | ) |   | 287 |   |
| **Cash                  and Cash Equivalents at End of Period**           |   | $                                                                  | 249    |   | $ | 607 |   |

***Operating        Activities***

|                                                          |   | **Six                  Months Ended****June                  30,** |   |
|---------------------------------------------------------------|--------|--------------------------------------------------------------------|--------|
|                                                          |   | **2006**                                                           |   | **2005** |   |
|                                                          |   | **(in                  millions)**                                 |   |
| **Net                  Income**                               |   | $                                                                  | 556    |   | $ | 576 |   |
| Less:                  Income From Discontinued Operations    |   |                                                               | (6     | ) |   | (4 | ) |
| **Income                  From Continuing Operations**        |   |                                                               | 550    |   |   | 572 |   |
| Noncash                  Items Included in Earnings           |   |                                                               | 634    |   |   | 611 |   |
| Changes                  in Assets and Liabilities            |   |                                                               | (47    | ) |   | (201 | ) |
| **Net                  Cash Flows From Operating Activities** |   | $                                                                  | 1,137  |   | $ | 982 |   |

***Investing        Activities***

|                                                                     |   | **Six                  Months Ended****June                  30,** |   |
|--------------------------------------------------------------------------|--------|--------------------------------------------------------------------|--------|
|                                                                     |   | **2006**                                                           |   | **2005** |   |
|                                                                     |   | **(in                  millions)**                                 |   |
| Investment                  Securities:                                  |   |                                                          |   |    |   |
| Purchases                  of Investment Securities                      |   | $                                                                  | (5,647 | ) | $ | (2,141 | ) |
| Sales                  of Investment Securities                          |   |                                                               | 5,596  |   |   | 2,213 |   |
| Change                  in Investment Securities, Net                    |   |                                                               | (51    | ) |   | 72 |   |
| Construction                  Expenditures                               |   |                                                               | (1,625 | ) |   | (1,020 | ) |
| Change                  in Other Temporary Cash Investments, Net         |   |                                                               | 3      |   |   | (103 | ) |
| Proceeds                  from Sales of Assets                           |   |                                                               | 123    |   |   | 1,500 |   |
| Other                                                                    |   |                                                               | (36    | ) |   | 9 |   |
| **Net                  Cash Flows From (Used for) Investing Activities** |   | $                                                                  | (1,586 | ) | $ | 458 |   |

***Financing        Activities***

|                                                                     |   | **Six                  Months Ended****June                  30,** |   |
|--------------------------------------------------------------------------|--------|--------------------------------------------------------------------|--------|
|                                                                     |   | **2006**                                                           |   | **2005** |   |
|                                                                     |   | **(in                  millions)**                                 |   |
| Issuance                  of Common Stock                                |   | $                                                                  | 6      |   | $ | 28 |   |
| Repurchase                  of Common Stock                              |   |                                                               | -      |   |   | (427 | ) |
| Issuance/Retirement                  of Debt, Net                        |   |                                                               | 552    |   |   | (389 | ) |
| Dividends                  Paid on Common Stock                          |   |                                                               | (291   | ) |   | (273 | ) |
| Other                                                                    |   |                                                               | 30     |   |   | (92 | ) |
| **Net                  Cash Flows From (Used for) Financing Activities** |   | $                                                                  | 297    |   | $ | (1,153 | ) |

**Off-balance        Sheet Arrangements**

|                                        |   | **June                  30,****2006** |   | **December                  31,****2005** |   |
|----------------------------------------|--------|---------------------------------------|--------|-------------------------------------------|--------|
|                                   |   | **(in                  millions)**    |   |
| AEP                  Credit            |   | $                                     | 560    |                                      | $      | 516 |   |
| Rockport                  Plant Unit 2 |   |                                  | 2,437  |                                      |   | 2,511 |   |
| Railcars                               |   |                                  | 31     |                                      |   | 31 |   |

**Summary        Obligation Information**

**Other**

***Cook        Plant Outage***

***Texas        REPs***

***New        Generation***

**SIGNIFICANT        FACTORS**

**AEP        Interstate Project**

**Texas        Regulatory Activity**

***Texas        Restructuring***

|                                                                                 |   | **(in                  millions)** |   |
|--------------------------------------------------------------------------------------|--------|------------------------------------|--------|
| Stranded                  Generation Plant Costs                                     |   | $                                  | 974    |   |
| Net                  Generation-related Regulatory Asset                             |   |                               | 249    |   |
| Excess                  Earnings                                                     |   |                               | (49    | ) |
| **Recorded                  Net Stranded Generation Plant Costs**                    |   |                               | 1,174  |   |
| Recorded                  Debt Carrying Costs on Net Stranded Generation Plant Costs |   |                               | 375    |   |
| **Recorded                  Securitizable True-up Regulatory Asset**                 |   |                               | 1,549  |   |
| Unrecorded                  But Recoverable Equity Carrying Costs                    |   |                               | 217    |   |
| Unrecorded                  Estimated July 2006 - August 2006 Debt Carrying Costs    |   |                               | 17     |   |
| Unrecorded                  Excess Earnings, Related Carrying Costs and Other        |   |                               | 52     |   |
| Settlement                  Reduction                                                |   |                               | (77    | ) |
| Reduction                  for ADITC and EDFIT Benefits                              |   |                               | (61    | ) |
| **Approved                  Securitizable Amount**                                   |   |                               | 1,697  |   |
| Unrecorded                  Securitization Issuance Costs                            |   |                               | 23     |   |
| **Amount                  to be Securitized**                                        |   | $                                  | 1,720  |   |

**:**

|                                                                           |   | **(in                  millions)** |   |
|--------------------------------------------------------------------------------|--------|------------------------------------|--------|
| Wholesale                  Capacity Auction True-up                            |   | $                                  | 61     |   |
| Carrying                  Costs on Wholesale Capacity Auction True-up          |   |                               | 28     |   |
| Retail                  Clawback including Carrying Costs                      |   |                               | (63    | ) |
| Deferred                  Over-recovered Fuel Balance                          |   |                               | (181   | ) |
| Retrospective                  ADFIT Benefit                                   |   |                               | (70    | ) |
| Other                                                                          |   |                               | (4     | ) |
| **Recorded                  Net Regulatory Liabilities - Other True-up Items** |   |                               | (229   | ) |
| Unrecorded                  Prospective ADFIT Benefit                          |   |                               | (240   | ) |
| Unrecorded                  Estimated July 2006 - August 2006 Carrying Costs   |   |                               | (6     | ) |
| **Gross                  CTC Refund**                                          |   |                               | (475   | ) |
| FERC                  Jurisdictional Fuel Refund Deferral                      |   |                               | 16     |   |
| ADITC                  and EDFIT Benefit Refund Deferral                       |   |                               | 97     |   |
| **Net                  CTC Refund Proposed, After Deferrals**                  |   |                               | (362   | ) |
| Rate                  Case Expense Surcharge                                   |   |                               | 7      |   |
| **Net                  Refund Proposed, After Deferrals and Expenses**         |   | $                                  | (355   | ) |

|                                                                                      |   | **(in                  millions)** |   |
|-------------------------------------------------------------------------------------------|--------|------------------------------------|--------|
| ADITC                  and EDFIT Benefits Reducing Securitization                         |   | $                                  | 97     |   |
| ADFIT                  Benefit Applied to Reduce 2002 Securitization of Regulatory Assets |   |                               | (64    | ) |
| Securitization                  Settlement                                                |   |                               | (77    | ) |
| Unrecorded                  Prospective ADFIT Benefit Increasing the CTC Refund           |   |                               | (240   | ) |
| Unrecorded                  Equity Carrying Costs Recognized as Collected                 |   |                               | 217    |   |
| Future                  Carrying Cost Payable on Proposed CTC Refund                      |   |                               | (113   | ) |
| Deferred                  Fuel - Federal Jurisdictional Issue                             |   |                               | 16     |   |
| **Net                  Adverse Earnings Impact Over 14 Years**                            |   | $                                  | (164   | ) |

**Litigation**

**Environmental        Matters**

| · | Requirements                  under the CAA to reduce emissions of SO2,                  NOx,                  particulate matter (PM), and mercury from fossil fuel-fired power                  plants;                |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Requirements                  under the Clean Water Act (CWA) 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 (CO2)                  emissions to address concerns about global climate                  change.                                                |

***Clean        Air Act Requirements***

***Estimated        Air Quality Environmental Investments***

***Potential        Regulation of CO***
***2***

***Emissions***

***Environmental        Litigation***

***Other        Environmental Concerns***

**Critical        Accounting Estimates**

**Adoption        of New Accounting Pronouncements**

----

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

**Market        Risks**

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

**Reconciliation        of MTM Risk Management Contracts to**

**Condensed        Consolidated Balance Sheet**

**June        30, 2006**

**(in        millions)**

|                                                                                                                             | **Utility                  Operations** |   | **Investments                  - Gas Operations** |   | **Sub-Total                  MTM Risk Management Contracts** |   | **PLUS:                  MTM of Cash Flow and Fair Value Hedges** |   | **Total** |   |
|----------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------|--------|---------------------------------------------------|--------|--------------------------------------------------------------|--------|-------------------------------------------------------------------|--------|-----------|--------|
| Current                  Assets                                                                                                  | $                                       | 431    |                                              | $      | 123                                                          |   | $                                                                 | 554    |      | $      | 65 |   | $ | 619 |   |
| Noncurrent                  Assets                                                                                               |                                    | 390    |                                              |   | 175                                                          |   |                                                              | 565    |      |   | 12 |   |   | 577 |   |
| **Total                  Assets**                                                                                                |                                    | 821    |                                              |   | 298                                                          |   |                                                              | 1,119  |      |   | 77 |   |   | 1,196 |   |
|                                                                                                                             |                                    |   |                                              |   |                                                         |   |                                                              |   |      |   |   |   |   |   |   |
| Current                  Liabilities                                                                                             |                                    | (338   | )                                                 |   | (126                                                         | )      |                                                              | (464   | )         | (16    | ) |   | (480 | ) |
| Noncurrent                  Liabilities                                                                                          |                                    | (235   | )                                                 |   | (181                                                         | )      |                                                              | (416   | )         |   | (2 | ) |   | (418 | ) |
| **Total                  Liabilities**                                                                                           |                                    | (573   | )                                                 |   | (307                                                         | )      |                                                              | (880   | )         |   | (18 | ) |   | (898 | ) |
|                                                                                                                             |                                    |   |                                              |   |                                                         |   |                                                              |   |      |   |   |   |   |   |   |
| **Total                  MTM** **Derivative                  Contract Net****                   Assets (Liabilities)** | $                                       | 248    |                                              | $      | (9                                                           | )      | $                                                                 | 239    |      | $      | 59 |   | $ | 298 |   |

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

**Six        Months Ended June 30, 2006**

**(in        millions)**

|                                                                                                                                                                                             |   | **Utility                  Operations** |   | **Investments-Gas                  Operations** |   | **Total** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|--------|-------------------------------------------------|--------|-----------|--------|
| **Total                  MTM Risk Management****Contract                  Net Assets (Liabilities) at****  December                  31, 2005**                                        |   | $                                       | 215    |                                            | $      | (19       | )      | $ | 196 |   |
| (Gain)                  Loss from Contracts Realized/Settled During                  the Period and Entered in a Prior                     Period                            |   |                                    | (8     | )                                               |   | 8         |   |   | - |   |
| Fair                  Value of New Contracts at Inception When                  Entered During the Period (a)                                                                                    |   |                                    | 1      |                                            |   | -         |   |   | 1 |   |
| Net                  Option Premiums Paid/(Received) for Unexercised                  or Unexpired Option Contracts                    Entered During                  The Period |   |                                    | 13     |                                            |   | -         |   |   | 13 |   |
| Changes                  in Fair Value Due to Valuation Methodology                  Changes on Forward Contracts                                                                                |   |                                    | 1      |                                            |   | -         |   |   | 1 |   |
| Changes                  in Fair Value due to Market Fluctuations During the Period                  (b)                                                                                    |   |                                    | 13     |                                            |   | 2         |   |   | 15 |   |
| Changes                  in Fair Value Allocated to Regulated                  Jurisdictions (c)                                                                                                 |   |                                    | 13     |                                            |   | -         |   |   | 13 |   |
| **Total                  MTM Risk Management Contract****Net                  Assets (Liabilities) at****                    June 30, 2006**                                           |   | $                                       | 248    |                                            | $      | (9        | )      |   | 239 |   |
| Net                  Cash Flow and Fair Value Hedge Contracts                                                                                                                                    |   |                                    |   |                                            |   |      |   |   | 59 |   |
| **Ending                  Net Risk Management Assets at****June                  30, 2006**                                                                                                      |   |                                    |   |                                            |   |      |   | $ | 298 |   |

| (a) | Most                  of the fair value comes from longer term fixed price contracts                  with                  customers that seek to limit their risk against fluctuating energy                  prices.                  Inception value is only recorded if observable market data can                  be obtained                  for valuation inputs for the entire contract term. The contract                  prices are                  valued against market curves associated with the delivery location                  and                  delivery term.                                                                                                                                                                                                                                               |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Market                  fluctuations are attributable to various factors such as supply/demand,                  weather, storage, etc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| (c) | “Change                  in Fair Value Allocated to Regulated Jurisdictions” relates to the net                  gains (losses) of those contracts that are not reflected in the                  Condensed                  Consolidated Statements of Operations. These net gains (losses)                  are                  recorded as regulatory assets/liabilities for those subsidiaries                  that                  operate in regulated jurisdictions. Approximately $7 million of                  the                  regulatory deferral change is due to the change in the SIA. See                  the                  “Allocation Agreement between AEP East companies and AEP West companies                  and CSW Operating Agreement” section of Note                  3. |

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

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

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

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

**Fair        Value of Contracts as of June 30, 2006**

**(in        millions)**

|                                                                                                |   | ** Remainder****2006** |   | **2007**     |   | **2008**     |   | **2009**     |   | **2010**     |   | **After                  2010** |   | **Total**    |   |
|-----------------------------------------------------------------------------------------------------|--------|-----------------------------|--------|--------------|--------|--------------|--------|--------------|--------|--------------|--------|---------------------------------|--------|--------------|--------|
| **Utility                  Operations:**                                                            |   |                   |   |    |   |    |   |    |   |    |   |                       |   |    |   |
| Prices                  Actively Quoted -  Exchange Traded Contracts                           |   | $                           | (11    | )            | $      | 1            |   | $            | 14     |         | $      | -                               |   | $            | -      |   | $ | - |   | $ | 4 |   |
| Prices                  Provided by Other External Sources                  - OTC Broker Quotes (a) |   |                        | 43     |         |   | 68           |   |         | 33     |         |   | 25                              |   |         | -      |   |   | - |   |   | 169 |   |
| Prices                  Based on Models and Other Valuation                  Methods (b)            |   |                        | 20     |         |   | (1           | )      |         | 6      |         |   | 13                              |   |         | 28     |   |   | 9 |   |   | 75 |   |
| **Total**                                                                                           |   | $                           | 52     |         | $      | 68           |   | $            | 53     |         | $      | 38                              |   | $            | 28     |   | $ | 9 |   | $ | 248 |   |
|                                                                                                |   |                        |   |         |   |         |   |         |   |         |   |                            |   |         |   |   |   |   |   |   |   |   |
| **Investments**-                  **Gas                  Operations:**                              |   |                        |   |         |   |         |   |         |   |         |   |                            |   |         |   |   |   |   |   |   |   |   |
| Prices                  Actively Quoted -  Exchange Traded Contracts                           |   | $                           | (1     | )            | $      | 11           |   | $            | -      |         | $      | -                               |   | $            | -      |   | $ | - |   | $ | 10 |   |
| Prices                  Provided by Other External Sources                  - OTC Broker Quotes (a) |   |                        | (3     | )            |   | (8           | )      |         | -      |         |   | -                               |   |         | -      |   |   | - |   |   | (11 | ) |
| Prices                  Based on Models and Other Valuation                  Methods (b)            |   |                        | (1     | )            |   | -            |   |         | (1     | )            |   | (4                              | )      |         | (3     | ) |   | 1 |   |   | (8 | ) |
| **Total**                                                                                           |   | $                           | (5     | )            | $      | 3            |   | $            | (1     | )            | $      | (4                              | )      | $            | (3     | ) | $ | 1 |   | $ | (9 | ) |
|                                                                                                |   |                        |   |         |   |         |   |         |   |         |   |                            |   |         |   |   |   |   |   |   |   |   |
| **Total:**                                                                                          |   |                        |   |         |   |         |   |         |   |         |   |                            |   |         |   |   |   |   |   |   |   |   |
| Prices                  Actively Quoted -  Exchange Traded Contracts                           |   | $                           | (12    | )            | $      | 12           |   | $            | 14     |         | $      | -                               |   | $            | -      |   | $ | - |   | $ | 14 |   |
| Prices                  Provided by Other External Sources                  - OTC Broker Quotes (a) |   |                        | 40     |         |   | 60           |   |         | 33     |         |   | 25                              |   |         | -      |   |   | - |   |   | 158 |   |
| Prices                  Based on Models and Other Valuation                  Methods (b)            |   |                        | 19     |         |   | (1           | )      |         | 5      |         |   | 9                               |   |         | 25     |   |   | 10 |   |   | 67 |   |
| **Total**                                                                                           |   | $                           | 47     |         | $      | 71           |   | $            | 52     |         | $      | 34                              |   | $            | 25     |   | $ | 10 |   | $ | 239 |   |

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

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

**As        of June 30, 2006**

| **Commodity**                |   | **Transaction                  Class**           |                                     | **Market/Region**                                                  |   | **Tenor**                        |
|------------------------------|--------|--------------------------------------------------|------------------------------------------|--------------------------------------------------------------------|--------|----------------------------------|
|                         |   |                                             |                                     |                                                               |   | **(in                  Months)** |
| Natural                  Gas |   | Futures                                          |                                     | NYMEX                  / Henry Hub                                 |   | 60                               |
|                         |   |                                             |                                     |                                                               |   |                             |
|                         |   | Physical                  Forwards               |                                     | Gulf                  Coast, Texas                                 |   | 21                               |
|                         |   |                                             |                                     |                                                               |   |                             |
|                         |   | Swaps                                            |                                     | Northeast,                  Mid-Continent, Gulf  Coast, Texas |   | 21                               |
|                         |   |                                             |                                     |                                                               |   |                             |
|                         |   | Exchange                  Option Volatility      |                                     | NYMEX                  / Henry Hub                                 |   | 12                               |
|                         |   |                                             |                                     |                                                               |   |                             |
| Power                        |   | Futures                                          |                                     | AEP                  East - PJM                                    |   | 36                               |
|                         |   |                                             |                                     |                                                               |   |                             |
|                         |   | Physical                  Forwards               |                                     | AEP                  East                                          |   | 42                               |
|                         |   |                                             |                                     |                                                               |   |                             |
|                         |   | Physical                  Forwards               |                                     | AEP                  West                                          |   | 42                               |
|                         |   |                                             |                                     |                                                               |   |                             |
|                         |   | Physical                  Forwards               |                                     | West                  Coast                                        |   | 42                               |
|                         |   |                                             |                                     |                                                               |   |                             |
|                         |   | Peak                  Power Volatility (Options) | AEP                  East - Cinergy, PJM |                                                               | 12     |
|                         |   |                                             |                                     |                                                               |   |                             |
| Emissions                    |   | Credits                                          |                                     | SO2,                  NOx                                          |   | 30                               |
|                         |   |                                             |                                     |                                                               |   |                             |
| Coal                         |   | Physical                  Forwards               |                                     | PRB,                  NYMEX, CSX                                   |   | 30                               |
|                         |   |                                             |                                     |                                                               |   |                             |

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

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

**Six        Months Ended June 30, 2006**

**(in        millions)**

|                                                                                                                                                            |   |  **Power                  and Gas** |   |  **Interest                  Rate** |   |  **Total** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|--------|------------------------------------------|--------|-----------------|--------|
| **Beginning                  Balance in AOCI, December 31, 2005**                                                                                               |   | $                                        | (6     | )                                        | $      | (21             | )      | $ | (27 | ) |
| Changes                  in Fair Value                                                                                                                          |   |                                     | 37     |                                     |   | 12              |   |   | 49 |   |
| Reclassifications                  from AOCI to Net Income for Cash                  Flow                     Hedges Settled                     |   |                                     | 3      |                                     |   | 2               |   |   | 5 |   |
| **Ending                  Balance in AOCI, June 30, 2006**                                                                                                      |   | $                                        | 34     |                                     | $      | (7              | )      | $ | 27 |   |
|                                                                                                                                                            |   |                                     |   |                                     |   |            |   |   |   |   |
| **After-Tax                  Portion Expected to be Reclassified to****                    Earnings ****During                  Next 12 Months** |   | $                                        | 30     |                                     | $      | (1              | )      | $ | 29 |   |

**Credit        Risk**

| **Counterparty                  Credit Quality** |   | **Exposure                  Before Credit Collateral** |   | **Credit                  Collateral** |   | **Net ****Exposure** |   | **Number****of                  Counterparties >10%** |   | **Net                  Exposure****of                  Counterparties >10%** |   |
|--------------------------------------------------|--------|--------------------------------------------------------|--------|----------------------------------------|--------|---------------------------|--------|----------------------------------------------------------|--------|---------------------------------------------------------------------------------|--------|
| Investment                  Grade                |   | $                                                      | 883    |                                   | $      | 156                       |   | $                                                        | 727    |                                                                            |   | 1 |   | $ | 107 |   |
| Split                  Rating                    |   |                                                   | 2      |                                   |   | -                         |   |                                                     | 2      |                                                                            |   | 2 |   |   | 2 |   |
| Noninvestment                  Grade             |   |                                                   | 109    |                                   |   | 106                       |   |                                                     | 3      |                                                                            |   | 1 |   |   | 3 |   |
| No                  External Ratings:            |   |                                                   |   |                                   |   |                      |   |                                                     |   |                                                                            |   |   |   |   |   |   |
| Internal                  Investment Grade       |   |                                                   | 28     |                                   |   | -                         |   |                                                     | 28     |                                                                            |   | 1 |   |   | 10 |   |
| Internal                  Noninvestment Grade    |   |                                                   | 58     |                                   |   | 13                        |   |                                                     | 45     |                                                                            |   | 3 |   |   | 43 |   |
| **Total                  as of June 30, 2006**   |   | $                                                      | 1,080  |                                   | $      | 275                       |   | $                                                        | 805    |                                                                            |   | 8 |   | $ | 165 |   |
|                                             |   |                                                   |   |                                   |   |                      |   |                                                     |   |                                                                            |   |   |   |   |   |   |
| **As                of December 31, 2005**       |   | $                                                      | 1,366  |                                   | $      | 484                       |   | $                                                        | 882    |                                                                            |   | 10 |   |   | 322 |   |

**Generation        Plant Hedging Information**

**Generation        Plant Hedging Information**

**Estimated        Next Three Years**

**As        of June 30, 2006**

|                                           |   | **Remainder****2006** |   | **2007** |   | **2008** |
|------------------------------------------------|--------|-----------------------|--------|----------|--------|----------|
| Estimated                  Plant Output Hedged |   | 91%                   |   | 90%      |   | 88%      |

**VaR        Associated with Risk Management Contracts**

***Commodity        Price Risk***

**VaR        Model**

| **Six                  Months Ended****June                  30, 2006** |   |     |   |        | **Twelve                  Months Ended****December                  31, 2005** |
|-------------------------------------------------------------------------|--------|----------|--------|-------------|--------------------------------------------------------------------------------|
| **(in                  millions)**                                      |   |     |   |        | **(in                  millions)**                                             |
| **End**                                                                 |   | **High** |   | **Average** |                                                                           | **Low** |   |   |   |   | **End** |   | **High** |   | **Average** |   | **Low** |
| $2                                                                      |   | $7       |   | $3          |                                                                           | $1 |   |   |   |   | $3 |   | $5 |   | $3 |   | $1 |

***Interest        Rate Risk***

----

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

**CONDENSED        CONSOLIDATED STATEMENTS OF OPERATIONS**

**For        the Three and Six Months Ended June 30, 2006 and 2005**

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

**(Unaudited)**

|                                                                                                                               |   | **Three                  Months Ended** |   | **Six                  Months Ended** |   |
|------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|--------|---------------------------------------|--------|
|                                                                                                                               |   | **2006**                                |   | **2005**                              |   | **2006** |   | **2005** |   |
| **REVENUES**                                                                                                                       |   |                               |   |                             |   |   |   |   |   |
| Utility                  Operations                                                                                                |   | $                                       | 2,810  |                                  | $      | 2,680 |   | $ | 5,797 |   | $ | 5,285 |   |
| Gas                  Operations                                                                                                    |   |                                    | (15    | )                                     |   | 19 |   |   | (33 | ) |   | 376 |   |
| Other                                                                                                                              |   |                                    | 141    |                                  |   | 120 |   |   | 280 |   |   | 223 |   |
| **TOTAL**                                                                                                                          |   |                                    | 2,936  |                                  |   | 2,819 |   |   | 6,044 |   |   | 5,884 |   |
|                                                                                                                               |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| **EXPENSES**                                                                                                                       |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| Fuel                  and Other Consumables Used for Electric Generation                                                           |   |                                    | 888    |                                  |   | 804 |   |   | 1,849 |   |   | 1,593 |   |
| Purchased                  Energy for Resale                                                                                       |   |                                    | 237    |                                  |   | 183 |   |   | 403 |   |   | 313 |   |
| Purchased                  Gas for Resale                                                                                          |   |                                    | -      |                                  |   | 1 |   |   | - |   |   | 250 |   |
| Maintenance                  and Other Operation                                                                                   |   |                                    | 902    |                                  |   | 878 |   |   | 1,730 |   |   | 1,715 |   |
| Gain/Loss                  on Disposition of Assets, Net                                                                           |   |                                    | -      |                                  |   | - |   |   | (68 | ) |   | (115 | ) |
| Depreciation                  and Amortization                                                                                     |   |                                    | 348    |                                  |   | 325 |   |   | 689 |   |   | 652 |   |
| Taxes                  Other Than Income Taxes                                                                                     |   |                                    | 190    |                                  |   | 173 |   |   | 381 |   |   | 361 |   |
| **TOTAL**                                                                                                                          |   |                                    | 2,565  |                                  |   | 2,364 |   |   | 4,984 |   |   | 4,769 |   |
|                                                                                                                               |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| **OPERATING                  INCOME**                                                                                              |   |                                    | 371    |                                  |   | 455 |   |   | 1,060 |   |   | 1,115 |   |
|                                                                                                                               |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| Interest                  and Investment Income                                                                                    |   |                                    | 11     |                                  |   | 14 |   |   | 19 |   |   | 25 |   |
| Carrying                  Costs Income                                                                                             |   |                                    | 33     |                                  |   | 36 |   |   | 63 |   |   | 56 |   |
| Allowance                  For Equity Funds Used During Construction                                                               |   |                                    | 7      |                                  |   | 6 |   |   | 13 |   |   | 12 |   |
| Gain                  on Disposition of Equity Investments, Net                                                                    |   |                                    | -      |                                  |   | - |   |   | 3 |   |   | - |   |
|                                                                                                                               |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| **INTEREST                  AND OTHER CHARGES**                                                                                    |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| Interest                  Expense                                                                                                  |   |                                    | 176    |                                  |   | 188 |   |   | 344 |   |   | 361 |   |
| Preferred                  Stock Dividend Requirements of Subsidiaries                                                             |   |                                    | -      |                                  |   | 3 |   |   | 1 |   |   | 5 |   |
| **TOTAL**                                                                                                                          |   |                                    | 176    |                                  |   | 191 |   |   | 345 |   |   | 366 |   |
|                                                                                                                               |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| **INCOME                  BEFORE INCOME TAX EXPENSE, MINORITY  INTEREST EXPENSE AND EQUITY                  EARNINGS (LOSS)** |   |                                    | 246    |                                  |   | 320 |   |   | 813 |   |   | 842 |   |
|                                                                                                                               |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| Income                  Tax Expense                                                                                                |   |                                    | 72     |                                  |   | 103 |   |   | 261 |   |   | 275 |   |
| Minority                  Interest Expense                                                                                         |   |                                    | 1      |                                  |   | 1 |   |   | 1 |   |   | 2 |   |
| Equity                  Earnings (Loss) of Unconsolidated Subsidiaries                                                             |   |                                    | (1     | )                                     |   | 2 |   |   | (1 | ) |   | 7 |   |
|                                                                                                                               |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| **INCOME                  BEFORE DISCONTINUED OPERATIONS**                                                                         |   |                                    | 172    |                                  |   | 218 |   |   | 550 |   |   | 572 |   |
|                                                                                                                               |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| **DISCONTINUED                  OPERATIONS, Net of Tax**                                                                           |   |                                    | 3      |                                  |   | 3 |   |   | 6 |   |   | 4 |   |
|                                                                                                                               |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| **NET                  INCOME**                                                                                                    |   | $                                       | 175    |                                  | $      | 221 |   | $ | 556 |   | $ | 576 |   |
|                                                                                                                               |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| **WEIGHTED                  AVERAGE NUMBER OF BASIC SHARES  OUTSTANDING**                                                     |   |                                    | 394    |                                  |   | 384 |   |   | 394 |   |   | 389 |   |
|                                                                                                                               |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| **BASIC                  EARNINGS PER SHARE**                                                                                      |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| Income                  Before Discontinued Operations                                                                             |   | $                                       | 0.44   |                                  | $      | 0.57 |   | $ | 1.40 |   | $ | 1.47 |   |
| Discontinued                  Operations, Net of Tax                                                                               |   |                                    | -      |                                  |   | 0.01 |   |   | 0.01 |   |   | 0.01 |   |
| **TOTAL                  BASIC EARNINGS PER SHARE**                                                                                |   | $                                       | 0.44   |                                  | $      | 0.58 |   | $ | 1.41 |   | $ | 1.48 |   |
|                                                                                                                               |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| **WEIGHTED                  AVERAGE NUMBER OF DILUTED  SHARES                  OUTSTANDING**                                  |   |                                    | 396    |                                  |   | 385 |   |   | 396 |   |   | 390 |   |
|                                                                                                                               |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| **DILUTED                  EARNINGS PER SHARE**                                                                                    |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| Income                  Before Discontinued Operations                                                                             |   | $                                       | 0.43   |                                  | $      | 0.57 |   | $ | 1.39 |   | $ | 1.47 |   |
| Discontinued                  Operations, Net of Tax                                                                               |   |                                    | 0.01   |                                  |   | 0.01 |   |   | 0.02 |   |   | 0.01 |   |
| **TOTAL                  DILUTED EARNINGS PER SHARE**                                                                              |   | $                                       | 0.44   |                                  | $      | 0.58 |   | $ | 1.41 |   | $ | 1.48 |   |
|                                                                                                                               |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| **CASH                  DIVIDENDS PAID PER SHARE**                                                                                 |   | $                                       | 0.37   |                                  | $      | 0.35 |   | $ | 0.74 |   | $ | 0.70 |   |
|                                                                                                                               |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |

*See        Condensed Notes to Condensed Consolidated Financial        Statements.*

----

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

**CONDENSED        CONSOLIDATED BALANCE SHEETS**

**ASSETS**

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

**(in        millions)**

**(Unaudited)**

|                                                             |   | **2006**     |   | **2005**     |   |
|------------------------------------------------------------------|--------|--------------|--------|--------------|--------|
| **CURRENT                  ASSETS**                              |   |    |   |    |   |
| Cash                  and Cash Equivalents                       |   | $            | 249    |         | $      | 401 |   |
| Other                  Temporary Cash Investments                |   |         | 173    |         |   | 127 |   |
| Accounts                  Receivable:                            |   |         |   |         |   |   |   |
| Customers                                                        |   |         | 659    |         |   | 826 |   |
| Accrued                  Unbilled Revenues                       |   |         | 347    |         |   | 374 |   |
| Miscellaneous                                                    |   |         | 45     |         |   | 51 |   |
| Allowance                  for Uncollectible Accounts            |   |         | (34    | )            |   | (31 | ) |
| Total                  Receivables                               |   |         | 1,017  |         |   | 1,220 |   |
| Fuel,                  Materials and Supplies                    |   |         | 865    |         |   | 726 |   |
| Risk                  Management Assets                          |   |         | 619    |         |   | 926 |   |
| Margin                  Deposits                                 |   |         | 154    |         |   | 221 |   |
| Regulatory                  Asset for Under-Recovered Fuel Costs |   |         | 74     |         |   | 197 |   |
| Other                                                            |   |         | 104    |         |   | 127 |   |
| **TOTAL**                                                        |   |         | 3,255  |         |   | 3,945 |   |
|                                                             |   |         |   |         |   |   |   |
| **PROPERTY,                  PLANT AND EQUIPMENT**               |   |         |   |         |   |   |   |
| Electric:                                                        |   |         |   |         |   |   |   |
| Production                                                       |   |         | 16,877 |         |   | 16,653 |   |
| Transmission                                                     |   |         | 6,915  |         |   | 6,433 |   |
| Distribution                                                     |   |         | 11,073 |         |   | 10,702 |   |
| Other                  (including coal mining and nuclear fuel)  |   |         | 3,203  |         |   | 3,116 |   |
| Construction                  Work in Progress                   |   |         | 2,423  |         |   | 2,217 |   |
| **Total**                                                        |   |         | 40,491 |         |   | 39,121 |   |
| Accumulated                  Depreciation and Amortization       |   |         | 15,093 |         |   | 14,837 |   |
| **TOTAL                  - NET**                                 |   |         | 25,398 |         |   | 24,284 |   |
|                                                             |   |         |   |         |   |   |   |
| **OTHER                  NONCURRENT ASSETS**                     |   |         |   |         |   |   |   |
| Regulatory                  Assets                               |   |         | 3,234  |         |   | 3,262 |   |
| Securitized                  Transition Assets and Other         |   |         | 572    |         |   | 593 |   |
| Spent                  Nuclear Fuel and Decommissioning Trusts   |   |         | 1,159  |         |   | 1,134 |   |
| Investments                  in Power and Distribution Projects  |   |         | 45     |         |   | 97 |   |
| Goodwill                                                         |   |         | 76     |         |   | 76 |   |
| Long-term                  Risk Management Assets                |   |         | 577    |         |   | 886 |   |
| Employee                  Benefits and Pension Assets            |   |         | 1,075  |         |   | 1,105 |   |
| Other                                                            |   |         | 747    |         |   | 746 |   |
| **TOTAL**                                                        |   |         | 7,485  |         |   | 7,899 |   |
|                                                             |   |         |   |         |   |   |   |
| **Assets                  Held for Sale**                        |   |         | 46     |         |   | 44 |   |
|                                                             |   |         |   |         |   |   |   |
| **TOTAL                  ASSETS**                                |   | $            | 36,184 |         | $      | 36,172 |   |

*See        Condensed Notes to Condensed Consolidated Financial        Statements.*

----

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

**CONDENSED        CONSOLIDATED BALANCE SHEETS**

**LIABILITIES        AND SHAREHOLDERS’ EQUITY**

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

**(Unaudited)**

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | **2006**                             |        | **2005** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|-------------|----------|--------|
| **CURRENT                    LIABILITIES**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | **(in                    millions)** |        |
| Accounts                    Payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | $      | 1,191                                |        | $        | 1,144  |   |
| Short-term                    Debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | 159                                  |        |     | 10     |   |
| Long-term                    Debt Due Within One Year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | 800                                  |        |     | 1,153  |   |
| Risk                    Management Liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | 480                                  |        |     | 906    |   |
| Accrued                    Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | 742                                  |        |     | 651    |   |
| Accrued                    Interest                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | 183                                  |        |     | 183    |   |
| Customer                    Deposits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | 382                                  |        |     | 571    |   |
| Other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | 624                                  |        |     | 842    |   |
| **TOTAL**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | 4,561                                |        |     | 5,460  |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                 |        |     |   |   |
| **NONCURRENT                    LIABILITIES**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                                 |        |     |   |   |
| Long-term                    Debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | 11,845                               |        |     | 11,073 |   |
| Long-term                    Risk Management Liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | 418                                  |        |     | 723    |   |
| Deferred                    Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | 4,792                                |        |     | 4,810  |   |
| Regulatory                    Liabilities and Deferred Investment Tax Credits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | 2,819                                |        |     | 2,747  |   |
| Asset                    Retirement Obligations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | 962                                  |        |     | 936    |   |
| Employee                    Benefits and Pension Obligations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | 339                                  |        |     | 355    |   |
| Deferred                    Gain on Sale and Leaseback - Rockport Plant Unit 2                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | 152                                  |        |     | 157    |   |
| Deferred                    Credits and Other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | 809                                  |        |     | 762    |   |
| **TOTAL**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | 22,136                               |        |     | 21,563 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                 |        |     |   |   |
| **TOTAL                    LIABILITIES**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | 26,697                               |        |     | 27,023 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                 |        |     |   |   |
| Cumulative                    Preferred Stock Not Subject to Mandatory Redemption                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | 61                                   |        |     | 61     |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                 |        |     |   |   |
| Commitments                    and Contingencies (Note 5)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                 |        |     |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                 |        |     |   |   |
| **COMMON                    SHAREHOLDERS’ EQUITY**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                 |        |     |   |   |
| Common                    Stock Par Value $6.50:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                 |        |     |   |   |
|                                                                                                                                               2006                           2005 |   |                                 |        |     |   |   |
| Shares                    Authorized                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                 | 600,000,000 |     |   | 600,000,000 |   |   |   |   |   |   |   |
| Shares                    Issued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                 | 415,446,501 |     |   | 415,218,830 |   |   |   |   |   |   |   |
| (21,499,992                    shares were held in treasury at June 30, 2006 and** **December                    31**,**** **2005)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | 2,700                                |        |     | 2,699  |   |
| Paid-in                    Capital                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | 4,138                                |        |     | 4,131  |   |
| Retained                    Earnings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | 2,550                                |        |     | 2,285  |   |
| Accumulated                    Other Comprehensive Income (Loss)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | 38                                   |        |     | (27    | ) |
| **TOTAL**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | 9,426                                |        |     | 9,088  |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                 |        |     |   |   |
| **TOTAL                    LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | $      | 36,184                               |        | $        | 36,172 |   |

*See        Condensed Notes to Condensed Consolidated Financial        Statements.*

----

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

**CONDENSED        CONSOLIDATED STATEMENTS OF CASH FLOWS**

**For        the Six Months Ended June 30, 2006 and 2005**

**(in        millions)**

**(Unaudited)**

|                                                                                                    |   | **2006**     |   | **2005**     |   |
|---------------------------------------------------------------------------------------------------------|--------|--------------|--------|--------------|--------|
| **OPERATING                  ACTIVITIES**                                                               |   |    |   |    |   |
| **Net                  Income**                                                                         |   | $            | 556    |         | $      | 576 |   |
| Less:                  Income from Discontinued Operations                                              |   |         | (6     | )            |   | (4 | ) |
| **Income                  from Continuing Operations**                                                  |   |         | 550    |         |   | 572 |   |
| **Adjustments                  for Noncash Items:**                                                     |   |         |   |         |   |   |   |
| Depreciation                  and Amortization                                                          |   |         | 689    |         |   | 652 |   |
| Accretion                  of Asset Retirement Obligations                                              |   |         | 30     |         |   | 35 |   |
| Deferred                  Income Taxes                                                                  |   |         | 10     |         |   | (75 | ) |
| Deferred                  Investment Tax Credits                                                        |   |         | (14    | )            |   | (15 | ) |
| Carrying                  Costs Income                                                                  |   |         | (63    | )            |   | (56 | ) |
| Mark-to-Market                  of Risk Management Contracts                                            |   |         | (43    | )            |   | 43 |   |
| Amortization                  of Nuclear Fuel                                                           |   |         | 25     |         |   | 27 |   |
| Deferred                  Property Taxes                                                                |   |         | 12     |         |   | 10 |   |
| Pension                  Contributions to Qualified Plan Trusts                                         |   |         | -      |         |   | (204 | ) |
| Fuel                  Over/Under-Recovery, Net                                                          |   |         | 128    |         |   | (45 | ) |
| Gain                  on Sales of Assets and Equity Investments, Net                                    |   |         | (71    | )            |   | (115 | ) |
| Change                  in Other Noncurrent Assets                                                      |   |         | 109    |         |   | (59 | ) |
| Change                  in Other Noncurrent Liabilities                                                 |   |         | (42    | )            |   | (83 | ) |
| **Changes                  in Certain Components of Working Capital:**                                  |   |         |   |         |   |   |   |
| Accounts                  Receivable, Net                                                               |   |         | 202    |         |   | 155 |   |
| Fuel,                  Materials and Supplies                                                           |   |         | (140   | )            |   | (29 | ) |
| Accounts                  Payable                                                                       |   |         | (17    | )            |   | 63 |   |
| Accrued                  Taxes                                                                          |   |         | 90     |         |   | 172 |   |
| Customer                  Deposits                                                                      |   |         | (189   | )            |   | (34 | ) |
| Other                  Current Assets                                                                   |   |         | 86     |         |   | 63 |   |
| Other                  Current Liabilities                                                              |   |         | (215   | )            |   | (95 | ) |
| **Net                  Cash Flows From Operating Activities**                                           |   |         | 1,137  |         |   | 982 |   |
|                                                                                                    |   |         |   |         |   |   |   |
| **INVESTING                  ACTIVITIES**                                                               |   |         |   |         |   |   |   |
| Construction                  Expenditures                                                              |   |         | (1,625 | )            |   | (1,020 | ) |
| Change                  in Other Temporary Cash Investments, Net                                        |   |         | 3      |         |   | (103 | ) |
| Purchases                  of Investment Securities                                                     |   |         | (5,647 | )            |   | (2,141 | ) |
| Sales                  of Investment Securities                                                         |   |         | 5,596  |         |   | 2,213 |   |
| Proceeds                  from Sales of Assets                                                          |   |         | 123    |         |   | 1,500 |   |
| Other                                                                                                   |   |         | (36    | )            |   | 9 |   |
| **Net                  Cash Flows From (Used For) Investing Activities**                                |   |         | (1,586 | )            |   | 458 |   |
|                                                                                                    |   |         |   |         |   |   |   |
| **FINANCING                  ACTIVITIES**                                                               |   |         |   |         |   |   |   |
| Issuance                  of Common Stock                                                               |   |         | 6      |         |   | 28 |   |
| Repurchase                  of Common Stock                                                             |   |         | -      |         |   | (427 | ) |
| Change                  in Short-term Debt, Net                                                         |   |         | 147    |         |   | (9 | ) |
| Issuance                  of Long-term Debt                                                             |   |         | 1,081  |         |   | 1,660 |   |
| Retirement                  of Long-term Debt                                                           |   |         | (676   | )            |   | (2,040 | ) |
| Dividends                  Paid on Common Stock                                                         |   |         | (291   | )            |   | (273 | ) |
| Other                                                                                                   |   |         | 30     |         |   | (92 | ) |
| **Net                  Cash Flows From (Used For) Financing Activities**                                |   |         | 297    |         |   | (1,153 | ) |
|                                                                                                    |   |         |   |         |   |   |   |
| **Net                  Increase (Decrease) in Cash and Cash Equivalents**                               |   |         | (152   | )            |   | 287 |   |
| **Cash                  and Cash Equivalents at Beginning of Period**                                   |   |         | 401    |         |   | 320 |   |
| **Cash                  and Cash Equivalents at End of Period**                                         |   | $            | 249    |         | $      | 607 |   |
|                                                                                                    |   |         |   |         |   |   |   |
| **SUPPLEMENTARY                  INFORMATION**                                                          |   |         |   |         |   |   |   |
| Cash                  Paid for Interest, Net of Capitalized Amounts                                     |   | $            | 316    |         | $      | 322 |   |
| Cash                  Paid for Income Taxes, Net of Refunds                                             |   |         | 123    |         |   | 86 |   |
| Noncash                  Acquisitions Under Capital Leases                                              |   |         | 37     |         |   | 22 |   |
| Construction                  Expenditures Included in Accounts Payable at June 30,                     |   |         | 273    |         |   | 123 |   |
| Acquisition                  of Nuclear Fuel in Accounts Payable at June 30,                            |   |         | 26     |         |   | - |   |
| Disposition                  of Liabilities Related to Divestitures                                     |   |         | -      |         |   | 22 |   |
|                                                                                                    |   |         |   |         |   |   |   |
| *See                  Condensed Notes to Condensed Consolidated Financial                  Statements.* |   |         |   |         |   |   |   |

----

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

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

**COMPREHENSIVE        INCOME (LOSS)**

**For        the Six Months Ended June 30, 2006 and 2005**

**(in        millions)**

**(Unaudited)**

|                                                         |                                                                                                     | **Common                  Stock** |   |       |   |                                 |   | **Accumulated                  Other Comprehensive Income (Loss)** |   |   |      |
|--------------------------------------------------------------|----------------------------------------------------------------------------------------------------------|-----------------------------------|--------|------------|--------|--------------------------------------|--------|--------------------------------------------------------------------|--------|--------|-----------|
|                                                         |                                                                                                     | **Shares**                        |   | **Amount** |   | **Paid-in                  Capital** |   | **Retained                  Earnings**                             |   |   | **Total** |   |
| **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 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 |   |
|                                                         |                                                                                                     |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   |   |   |   |   |
| **DECEMBER                  31, 2005**                       |                                                                                                     |                              | 415    |       | $      | 2,699                                |   | $                                                                  | 4,131  |   | $         | 2,285 |   | $ | (27 | ) | $ | 9,088 |   |
| Issuance                  of Common Stock                    |                                                                                                     |                              |   |       |   | 1                                    |   |                                                               | 5      |   |      |   |   |   |   |   |   | 6 |   |
| Common                  Stock Dividends                      |                                                                                                     |                              |   |       |   |                                 |   |                                                               |   |   |      | (291 | ) |   |   |   |   | (291 | ) |
| Other                                                        |                                                                                                     |                              |   |       |   |                                 |   |                                                               | 2      |   |      |   |   |   |   |   |   | 2 |   |
| **TOTAL**                                                    |                                                                                                     |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   |   |   | 8,805 |   |
|                                                         |                                                                                                     |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   |   |   |   |   |
| **COMPREHENSIVE                  INCOME**                    |                                                                                                     |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   |   |   |   |   |
| **Other                  Comprehensive Income, Net of Tax:** |                                                                                                     |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   |   |   |   |   |
|                                                         | Cash                  Flow Hedges, Net of Tax of $29                                                     |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   | 54 |   |   | 54 |   |
|                                                         | Securities                  Available for Sale, Net of Tax of $6                                         |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   | 11 |   |   | 11 |   |
| **NET                  INCOME**                              |                                                                                                     |                              |   |       |   |                                 |   |                                                               |   |   |      | 556 |   |   |   |   |   | 556 |   |
| **TOTAL                  COMPREHENSIVE INCOME**              |                                                                                                     |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   |   |   | 621 |   |
| **JUNE                  30, 2006**                           |                                                                                                     |                              | 415    |       | $      | 2,700                                |   | $                                                                  | 4,138  |   | $         | 2,550 |   | $ | 38 |   | $ | 9,426 |   |

*   See        Condensed Notes to Condensed Consolidated Financial        Statements.*

----

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

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

|  1. |   | Significant                  Accounting Matters                                 |
|----------|--------|---------------------------------------------------------------------------------|
|  2. |   | New                  Accounting Pronouncements                                  |
|  3. |   | Rate                  Matters                                                   |
|  4. |   | Customer                  Choice and Industry Restructuring                     |
|  5. |   | Commitments                  and Contingencies                                  |
|  6. |   | Guarantees                                                                      |
|  7. |   | Company-wide                  Staffing and Budget Review                        |
| 8.       |   | Dispositions,                  Discontinued Operations and Assets Held for Sale |
| 9.       |   | Benefit                  Plans                                                  |
| 10.      |   | Stock-Based                  Compensation                                       |
| 11.      |   | Income                  Taxes                                                   |
| 12.      |   | Business                  Segments                                              |
| 13.      |   | Financing                  Activities                                           |

----

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

**CONDENSED        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

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

***General***

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

|                                                       |   | **June                  30,**      |   | **December                  31,** |   |
|------------------------------------------------------------|--------|------------------------------------|--------|-----------------------------------|--------|
|                                                       |   | **2006**                           |   | **2005**                          |   |
| **Components**                                             |   | **(in                  millions)** |   |
| Securities                  Available for Sale, Net of Tax |   | $                                  | 30     |                              | $      | 19 |   |
| Cash                  Flow Hedges, Net of Tax              |   |                               | 27     |                              |   | (27 | ) |
| Minimum                  Pension Liability, Net of Tax     |   |                               | (19    | )                                 |   | (19 | ) |
| **Total**                                                  |   | $                                  | 38     |                              | $      | (27 | ) |

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

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

* *

|                                                                                                                                                                                                                    |   | **Three                  Months****Ended**                |   | **Six                  Months****Ended** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------|--------|------------------------------------------|--------|
|                                                                                                                                                                                                                    |   | **(in                  millions, except per share data)** |   |
|                                                                                                                                                                                                                    |   |                                                 |   |                                |   |
| Net                  Income, as reported                                                                                                                                                                                |   | $                                                         | 221    |                                     | $      | 576 |   |
| Add:                  Stock-based compensation expense included in reported Net Income, net                  of related tax effects                                                                                |   |                                                      | 4      |                                     |   | 6 |   |
| Deduct:                  Stock-based compensation expense determined under fair value based                  method for all awards,                     net of related                  tax effects |   |                                                      | (4     | )                                        |   | (6 | ) |
| Pro                  Forma Net Income                                                                                                                                                                                   |   | $                                                         | 221    |                                     | $      | 576 |   |
|                                                                                                                                                                                                                    |   |                                                      |   |                                     |   |   |   |
| Earnings                  Per Share:                                                                                                                                                                                    |   |                                                      |   |                                     |   |   |   |
| Basic                  - as Reported                                                                                                                                                                                    |   | $                                                         | 0.58   |                                     | $      | 1.48 |   |
| Basic                  - Pro Forma (a)                                                                                                                                                                                  |   | $                                                         | 0.58   |                                     | $      | 1.48 |   |
|                                                                                                                                                                                                                    |   |                                                      |   |                                     |   |   |   |
| Diluted                  - as Reported                                                                                                                                                                                  |   | $                                                         | 0.58   |                                     | $      | 1.48 |   |
| Diluted                  - Pro Forma (a)                                                                                                                                                                                |   | $                                                         | 0.58   |                                     | $      | 1.48 |   |

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

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

|                                                          |   | **Three                  Months Ended June 30,**          |   |
|---------------------------------------------------------------|--------|-----------------------------------------------------------|--------|
|                                                          |   | **2006**                                                  |   | **2005** |   |
|                                                          |   | **(in                  millions, except per share data)** |   |
|                                                          |   |                                                 |   | **$/share** |   |    |   | **$/share** |   |
| Earnings                  applicable to common stock          |   | $                                                         | 175    |   |   |   |   | $ | 221 |   |   |   |   |
|                                                          |   |                                                      |   |   |   |   |   |   |   |   |   |   |   |
| Average                  number of basic shares outstanding   |   |                                                      | 393.7  |   | $ | 0.44 |   |   | 384.2 |   | $ | 0.58 |   |
| Average                  dilutive effect of:                  |   |                                                      |   |   |   |   |   |   |   |   |   |   |   |
| Performance                  Share Units                      |   |                                                      | 1.4    |   |   | - |   |   | 0.8 |   |   | - |   |
| Stock                  Options                                |   |                                                      | 0.2    |   |   | - |   |   | 0.3 |   |   | - |   |
| Restricted                  Stock Units                       |   |                                                      | 0.1    |   |   | - |   |   | 0.1 |   |   | - |   |
| Restricted                  Shares                            |   |                                                      | 0.1    |   |   | - |   |   | - |   |   | - |   |
| Average                  number of diluted shares outstanding |   |                                                      | 395.5  |   | $ | 0.44 |   |   | 385.4 |   | $ | 0.58 |   |

|                                                          |   | **Six                  Months Ended June 30,**            |   |
|---------------------------------------------------------------|--------|-----------------------------------------------------------|--------|
|                                                          |   | **2006**                                                  |   | **2005** |   |
|                                                          |   | **(in                  millions, except per share data)** |   |
|                                                          |   |                                                 |   | **$/share** |   |    |   | **$/share** |   |
| Earnings                  applicable to common stock          |   | $                                                         | 556    |   |   |   |   | $ | 576 |   |   |   |   |
|                                                          |   |                                                      |   |   |   |   |   |   |   |   |   |   |   |
| Average                  number of basic shares outstanding   |   |                                                      | 393.7  |   | $ | 1.41 |   |   | 388.6 |   | $ | 1.48 |   |
| Average                  dilutive effect of:                  |   |                                                      |   |   |   |   |   |   |   |   |   |   |   |
| Performance                  Share Units                      |   |                                                      | 1.4    |   |   | - |   |   | 0.8 |   |   | - |   |
| Stock                  Options                                |   |                                                      | 0.2    |   |   | - |   |   | 0.3 |   |   | - |   |
| Restricted                  Stock Units                       |   |                                                      | 0.1    |   |   | - |   |   | 0.1 |   |   | - |   |
| Restricted                  Shares                            |   |                                                      | 0.1    |   |   | - |   |   | - |   |   | - |   |
| Average                  number of diluted shares outstanding |   |                                                      | 395.5  |   | $ | 1.41 |   |   | 389.8 |   | $ | 1.48 |   |

***Related        Party Transactions***

|                                                                                                                                                                                                                            | **Three                  Months Ended****June                  30,** |   | **Six                  Months Ended****June                  30,** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------|--------|--------------------------------------------------------------------|--------|
|                                                                                                                                                                                                                            | **2006**                                                             |   | **2005**                                                           |   | **2006** |   | **2005** |   |
|                                                                                                                                                                                                                            | **(in                  millions)**                                   |   | **(in                  millions)**                                 |   |
| AEP                  Consolidated Purchased Energy:                                                                                                                                                                             |                                                                 |   |                                                               |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                            | Ohio                  Valley Electric Corporation (43.47% Owned)     | $      | 58                                                                 |   | $ | 48 |   | $ | 113 |   | $ | 91 |   |
|                                                                                                                                                                                                                            | Sweeny                  Cogeneration Limited Partnership (50% Owned) |   | 28                                                                 |   |   | 31 |   |   | 62 |   |   | 60 |   |
| AEP                  Consolidated Other Revenues - Barging and Other Transportation                                      Services - Ohio Valley Electric Corporation   (43.47%                  Owned) |                                                                 | 8      |                                                               |   | 4 |   |   | 15 |   |   | 8 |   |

***Reclassifications***

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

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

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

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

***Future        Accounting Changes***

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

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

***APCo        Virginia Base Rate Case***

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

| · | A                  $56 million increase in Expanded Net Energy Cost (ENEC) for fuel                  and                  purchased power expenses;                                                                                                                                                                                                                                               |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | A                  $23 million special construction surcharge providing recovery of                  the costs                  of scrubbers and the Wyoming-Jacksons Ferry 765 kV line to                  date;                                                                                                                                                                                 |
| · | An                  $18 million general base rate reduction based on a return on equity                  of                  10.5%, of which $9 million relates to a reduction in depreciation                  expense                  which affects cash flows but not earnings; and                                                                                                           |
| · | A                  $17 million credit to refund a portion of deferred prior over-recoveries                  of ENEC costs of $51 million, currently recorded in regulatory                  liabilities                  on the Condensed Consolidated Balance Sheets. Therefore, this item                  impacts                  cash flows but has no effect on                  earnings. |

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

***KPCo        Environmental Surcharge Filing***

***KPCo        Rate Filing***

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

***SWEPCo        Louisiana Fuel Inquiry***

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

***SWEPCo        Louisiana Compliance Filing***

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

***RTO        Formation/Integration Costs***

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

*SECA        Revenue Subject to Refund *

|                                                                  |   | **(in                  millions)** |   |
|-----------------------------------------------------------------------|--------|------------------------------------|--------|
| Three                  Months Ended June 30, 2006                     |   | $                                  | -      |   |
| Three                  Months Ended June 30, 2005                     |   |                               | 32     |   |
| Six                  Months Ended June 30, 2006                       |   |                               | 35     |   |
| Six                  Months Ended June 30, 2005                       |   |                               | 57     |   |
| Total                  Net SECA Revenues Recognized Through June 2006 |   |                               | 174    |   |

*AEP        East Transmission Revenue Requirement and Rates *

*The        Elimination of T&O and SECA Rates and the FERC PJM Regional Transmission        Rate Proceeding *

| · | AEP/AP                  proposed a Highway/Byway rate design in which:                                                                                                                                                                                                                |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | The                  cost of all transmission facilities in the PJM region operated                  at 345 kV                  or higher would be included in a “Highway” rate that all load serving                  entities (LSEs) would pay based on peak demand.    |
| · | The                  cost of transmission facilities operating at lower voltages would                  be                  collected in the zones where those costs are presently charged                  under PJM’s                  existing rate design.                  |
| · | In                  a competing Highway/Byway proposal, a group of LSEs proposed rates                  that                  would include 500 kV and higher existing facilities and some facilities                  at                  lower voltages in the Highway rate.        |
| · | Another                  proposal uses facilities 200 kV or higher in the Highway rate.                                                                                                                                                                                               |
| · | In                  January 2006, the FERC staff issued testimony and exhibits supporting                  a                  PJM-wide flat rate or “Postage Stamp” type of rate design that would                  include all transmission                  facilities. |

| · | The                  AEP/AP Highway/Byway rate design would result in incremental net                  revenues                  of approximately $125 million per year for the transmission-owning                  AEP                  East companies.                                                                               |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | The                  competing Highway/Byway proposals filed by others would also produce                  incremental net revenues to the AEP East transmission-owning companies,                  but at a much lower level.                                                                                                          |
| · | The                  staff rate design would produce slightly more net revenue for AEP                  than the                  original AEP/AP proposal, when fully effective; however, the staff                  recommended a phase-in plan that would take an estimated six years                  to                  complete. |

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

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

**   **

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

**TEXAS        RESTRUCTURING **

***TCC        Securitization Proceeding***

|                                                                                 |   | **(in                  millions)** |   |
|--------------------------------------------------------------------------------------|--------|------------------------------------|--------|
| Stranded                  Generation Plant Costs                                     |   | $                                  | 974    |   |
| Net                  Generation-related Regulatory Asset                             |   |                               | 249    |   |
| Excess                  Earnings                                                     |   |                               | (49    | ) |
| **Recorded                  Net Stranded Generation Plant Costs**                    |   |                               | 1,174  |   |
| Recorded                  Debt Carrying Costs on Net Stranded Generation Plant Costs |   |                               | 375    |   |
| **Recorded                  Securitizable True-up Regulatory Asset**                 |   |                               | 1,549  |   |
| Unrecorded                  But Recoverable Equity Carrying Costs                    |   |                               | 217    |   |
| Unrecorded                  Estimated July 2006 - August 2006 Debt Carrying Costs    |   |                               | 17     |   |
| Unrecorded                  Excess Earnings, Related Carrying Costs and Other        |   |                               | 52     |   |
| Settlement                  Reduction                                                |   |                               | (77    | ) |
| Reduction                  for the ADITC and EDFIT Benefits                          |   |                               | (61    | ) |
| **Approved                  Securitizable Amount**                                   |   |                               | 1,697  |   |
| Unrecorded                  Securitization Bond Issuance Costs                       |   |                               | 23     |   |
| **Amount                  to be Securitized**                                        |   | $                                  | 1,720  |   |

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

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

|                                                                           |   | **(in                  millions)** |   |
|--------------------------------------------------------------------------------|--------|------------------------------------|--------|
| Wholesale                  Capacity Auction True-up                            |   | $                                  | 61     |   |
| Carrying                  Costs on Wholesale Capacity Auction True-up          |   |                               | 28     |   |
| Retail                  Clawback including Carrying Costs                      |   |                               | (63    | ) |
| Deferred                  Over-recovered Fuel Balance                          |   |                               | (181   | ) |
| Retrospective                  ADFIT Benefit                                   |   |                               | (70    | ) |
| Other                                                                          |   |                               | (4     | ) |
| **Recorded                  Net Regulatory Liabilities - Other True-up Items** |   |                               | (229   | ) |
| Unrecorded                  Prospective ADFIT Benefit                          |   |                               | (240   | ) |
| Unrecorded                  Estimated July 2006 - August 2006 Carrying Costs   |   |                               | (6     | ) |
| **Gross                  CTC Refund Proposed**                                 |   |                               | (475   | ) |
| FERC                  Jurisdictional Fuel Refund Deferral                      |   |                               | 16     |   |
| ADITC                  and EDFIT Benefit Refund Deferral                       |   |                               | 97     |   |
| **Net                  CTC Refund Proposed, After Deferrals**                  |   |                               | (362   | ) |
| Rate                  Case Expense Surcharge                                   |   |                               | 7      |   |
| **Net                  Refund Proposed, After Deferrals and Expenses**         |   | $                                  | (355   | ) |

***Fuel        Balance Recoveries***

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

***Summary***

***Texas        Restructuring - SPP***

**OHIO        RESTRUCTURING **

***Rate        Stabilization Plans***

***IGCC        Plant***

***Transmission        Rate Filing***

** **

***Storm        Cost Recovery Filing***

***PUCO        Staff Report on Service Reliability***

***Customer        Choice Deferrals***

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

**ENVIRONMENTAL**

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

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

***Carbon        Dioxide Public Nuisance Claims***

***Ontario        Litigation***

**OPERATIONAL**

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

***Enron        Bankruptcy***

***Shareholder        Lawsuits***

***Natural        Gas Markets Lawsuits***

***Cornerstone        Lawsuit***

***FERC        Long-term Contracts***

**6.**
**GUARANTEES**

**LETTERS        OF CREDIT**

**GUARANTEES        OF THIRD-PARTY OBLIGATIONS**

***SWEPCo***

**INDEMNIFICATIONS        AND OTHER GUARANTEES**

***Contracts***

***Master        Operating Lease***

***Railcar        Lease***

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

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

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

**DISPOSITIONS**

**2006**

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

**2005**

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

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

**DISCONTINUED        OPERATIONS**

| **Three                  Months ended June 30, 2006 and 2005:** |   |
|-----------------------------------------------------------------|--------|
|                                                            |   | **SEEBOARD                  (a)** |   | **U.K.                  Generation** **(b)** |   | **Total** |   |
| 2006                  Revenue                                   |   | $ | - |   | $ | - |   | $ | - |   |
| 2006                  Pretax Income                             |   |   | - |   |   | 4 |   |   | 4 |   |
| 2006                  Earnings, Net of Tax                 |   |   | - |   |   | 3 |   |   | 3 |   |
|                                                            |   |   |   |   |   |   |   |   |   |   |
| 2005                  Revenue                                   |   | $ | - |   | $ | - |   | $ | - |   |
| 2005                  Pretax Income                             |   |   | - |   |   | - |   |   | - |   |
| 2005                  Earnings, Net of Tax                 |   |   | 3 |   |   | - |   |   | 3 |   |
|                                                            |
| **Six                  Months ended June 30, 2006 and 2005:**   |
|                                                            |   |  **SEEBOARD                  (a)**  |   |   | **U.K.                  Generation****(c)** |   |   | **Total** |   |
| 2006                  Revenue                                   |   | $ | - |   | $ | - |   | $ | - |   |
| 2006                  Pretax Income                             |   |   | - |   |   | 9 |   |   | 9 |   |
| 2006                  Earnings, Net of Tax                 |   |   | - |   |   | 6 |   |   | 6 |   |
|                                                            |   |   |   |   |   |   |   |   |   |   |
| 2005                  Revenue (Expense)                         |   | $ | - |   | $ | (8 | ) | $ | (8 | ) |
| 2005                  Pretax Loss                               |   |   | - |   |   | (8 | ) |   | (8 | ) |
| 2005                  Earnings (Loss), Net of Tax          |   |   | 9 |   |   | (5 | ) |   | 4 |   |

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

**ASSETS        HELD FOR SALE**

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

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

**9. BENEFIT        PLANS**

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

|                                                            |   | **Pension                  Plans** |   | **Other                  Postretirement****Benefit                  Plans** |   |
|-----------------------------------------------------------------|--------|------------------------------------|--------|-----------------------------------------------------------------------------|--------|
| **Three                  Months Ended June 30, 2006 and 2005:** |   | **2006**                           |   | **2005**                                                                    |   | **2006** |   | **2005** |   |
|                                                            |   | **(in                  millions)** |   |
| Service                  Cost                                   |   | $                                  | 24     |                                                                        | $      | 23 |   | $ | 10 |   | $ | 10 |   |
| Interest                  Cost                                  |   |                               | 57     |                                                                        |   | 56 |   |   | 25 |   |   | 26 |   |
| Expected                  Return on Plan Assets                 |   |                               | (83    | )                                                                           |   | (78 | ) |   | (23 | ) |   | (22 | ) |
| Amortization                  of Transition Obligation          |   |                               | -      |                                                                        |   | - |   |   | 7 |   |   | 7 |   |
| Amortization                  of Net Actuarial Loss             |   |                               | 19     |                                                                        |   | 14 |   |   | 5 |   |   | 7 |   |
| **Net                  Periodic Benefit Cost**                  |   | $                                  | 17     |                                                                        | $      | 15 |   | $ | 24 |   | $ | 28 |   |

|                                                          |   | **Pension                  Plans** |   | **Other                  Postretirement****Benefit                  Plans** |   |
|---------------------------------------------------------------|--------|------------------------------------|--------|-----------------------------------------------------------------------------|--------|
| **Six                  Months Ended June 30, 2006 and 2005:** |   | **2006**                           |   | **2005**                                                                    |   | **2006** |   | **2005** |   |
|                                                          |   | **(in                  millions)** |   |
| Service                  Cost                                 |   | $                                  | 48     |                                                                        | $      | 46 |   | $ | 20 |   | $ | 21 |   |
| Interest                  Cost                                |   |                               | 114    |                                                                        |   | 112 |   |   | 50 |   |   | 53 |   |
| Expected                  Return on Plan Assets               |   |                               | (166   | )                                                                           |   | (155 | ) |   | (46 | ) |   | (45 | ) |
| Amortization                  of Transition Obligation        |   |                               | -      |                                                                        |   | - |   |   | 14 |   |   | 14 |   |
| Amortization                  of Net Actuarial Loss           |   |                               | 39     |                                                                        |   | 27 |   |   | 10 |   |   | 14 |   |
| **Net                  Periodic Benefit Cost**                |   | $                                  | 35     |                                                                        | $      | 30 |   | $ | 48 |   | $ | 57 |   |

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

**Stock        Options**

|                                                      |   | **Three                  Months Ended** |   | **Six                  Months Ended** |   |
|-----------------------------------------------------------|--------|-----------------------------------------|--------|---------------------------------------|--------|
|                                                      |   | **2006**                                |   | **2005**                              |   | **2006** |   | **2005** |   |
| **Stock                  Options**                        |   | **(in                  thousands)**     |   |
| Fair                  Value of Stock Options Vested       |   | $                                       | -      |                                  | $      | 6 |   | $ | 3,665 |   | $ | 5,036 |   |
| Intrinsic                  Value of Options Exercised (a) |   |                                    | 148    |                                  |   | 3,337 |   |   | 1,537 |   |   | 7,657 |   |

|                                                  |   | **Three                  Months Ended** |   | **Six                  Months Ended**                |   |
|-------------------------------------------------------|--------|-----------------------------------------|--------|------------------------------------------------------|--------|
|                                                  |   | **Options**                             |   | **Weighted                  Average Exercise Price** |   | **Options** |   | **Weighted                  Average Exercise Price** |   |
|                                                  |   | **(in                  thousands)**     |   |                                            |   | **(in                  thousands)** |   |    |   |
| Outstanding                  at beginning of period   |   |                                    | 5,962  |                                                 | $      | 34.11 |   |   | 6,222 |   | $ | 34.16 |   |
| Granted                                               |   |                                    | -      |                                                 |   | N/A |   |   | - |   |   | N/A |   |
| Exercised/converted                                   |   |                                    | (22    | )                                                    |   | 27.27 |   |   | (195 | ) |   | 28.51 |   |
| Expired                                               |   |                                    | -      |                                                 |   | N/A |   |   | - |   |   | N/A |   |
| Forfeited                                             |   |                                    | (88    | )                                                    |   | 37.77 |   |   | (175 | ) |   | 43.10 |   |
| Outstanding                  at June 30, 2006         |   |                                    | 5,852  |                                                 |   | 34.08 |   |   | 5,852 |   |   | 34.08 |   |
|                                                  |   |                                    |   |                                                 |   |   |   |   |   |   |   |   |   |
| Options                  exercisable at June 30, 2006 |   |                                    | 5,587  |                                                 | $      | 34.33 |   |   | 5,587 |   | $ | 34.33 |   |

** **
**Options        Outstanding**

| **2006                  Range of Exercise Prices** |   |  **Number                  Outstanding** |   |  **Weighted                  Average****Remaining                  Life** |   | **Weighted                  Average****Exercise                  Price** |   | **Aggregate                  Intrinsic Value** |   |
|----------------------------------------------------|--------|-----------------------------------------------|--------|--------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------|--------|------------------------------------------------|--------|
|                                               |   |  **(in                  thousands)**     |   |  **(in                  years)**                                          |   |                                                                |   | **(in                  thousands)**            |   |
| $25.73                  - $27.95                   |   |                                          | 1,443  |                                                                           |   | 6.1                                                                      |   | $                                              | 27.37  |   | $ | 9,924 |   |
| $30.76                  - $38.65                   |   |                                          | 4,039  |                                                                           |   | 3.5                                                                      |   |                                           | 35.44  |   |   | 520 |   |
| $43.79                  - $49.00                   |   |                                          | 370    |                                                                           |   | 4.9                                                                      |   |                                           | 45.43  |   |   | - |   |
|                                               |   |                                          | 5,852  |                                                                           |   | 4.2                                                                      |   |                                           | 34.08  |   | $ | 10,444 |   |

** **
**Options        Exercisable**

| **2006                  Range of Exercise Prices** |   |  **Number                  Exercisable** |   |  **Weighted                  Average****Remaining                  Life** |   | **Weighted                  Average****Exercise                  Price** |   | **Aggregate                  Intrinsic Value** |   |
|----------------------------------------------------|--------|-----------------------------------------------|--------|--------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------|--------|------------------------------------------------|--------|
|                                               |   |  **(in                  thousands)**     |   |  **(in                  years)**                                          |   |                                                                |   | **(in                  thousands)**            |   |
| $25.73                  - $27.95                   |   |                                          | 1,238  |                                                                           |   | 5.9                                                                      |   | $                                              | 27.29  |   | $ | 8,621 |   |
| $30.76                  - $35.63                   |   |                                          | 3,979  |                                                                           |   | 3.4                                                                      |   |                                           | 35.50  |   |   | 347 |   |
| $43.79                  - $49.00                   |   |                                          | 370    |                                                                           |   | 4.9                                                                      |   |                                           | 45.43  |   |   | - |   |
|                                               |   |                                          | 5,587  |                                                                           |   | 4.1                                                                      |   |                                           | 34.33  |   | $ | 8,968 |   |

**Performance        Units**

|                                                                                                         |   | **Three                  Months Ended** |   | **Six                  Months Ended** |   |
|--------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|--------|---------------------------------------|--------|
|                                                                                                         |   | **2006**                                |   | **2005**                              |   | **2006** |   | **2005** |   |
| **Performance                  Units**                                                                       |   |                               |   |                             |   |    |   |    |   |
| Awarded                  Units (in thousands)                                                                |   |                                    | -      |                                  |   | - |   |   | 864 |   |   | 1,013 |   |
| Unit                  Fair Value at Grant Date                                                               |   | $                                       | N/A    |                                  | $      | N/A |   | $ | 37.36 |   | $ | 34.02 |   |
| Vesting                  Period (years)                                                                      |   |                                    | N/A    |                                  |   | N/A |   |   | 3 |   |   | 3 |   |
|                                                                                                         |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| **Performance                  Units and AEP Career Shares (Reinvested Dividends                  Portion)** |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| Awarded                  Units (in thousands)                                                                |   |                                    | 31     |                                  |   | 22 |   |   | 61 |   |   | 46 |   |
| Weighted                  Average Grant Date Fair Value                                                      |   | $                                       | 34.90  |                                  | $      | 35.73 |   | $ | 35.10 |   | $ | 34.94 |   |
| Vesting                  Period (years) (a)                                                                  |   |                                    | 3      |                                  |   | 3 |   |   | 3 |   |   | 3 |   |

|                                                             |   | **Three                  Months Ended** |   | **Six                  Months Ended** |   |
|------------------------------------------------------------------|--------|-----------------------------------------|--------|---------------------------------------|--------|
|                                                             |   | **2006**                                |   | **2005**                              |   | **2006** |   | **2005** |   |
|                                                             |   | **(in                  thousands)**     |   |
| Cash                  payouts for Performance Units              |   | $                                       | -      |                                  | $      | - |   | $ | 2,630 |   | $ | - |   |
| Cash                  payouts for AEP Career Share distributions |   |                                    | 479    |                                  |   | 463 |   |   | 955 |   |   | 1,028 |   |

** **

**Restricted        Shares and Restricted Stock Units **

|                                                    |   | **Three                  Months Ended** |   | **Six                  Months Ended** |   |
|---------------------------------------------------------|--------|-----------------------------------------|--------|---------------------------------------|--------|
|                                                    |   | **2006**                                |   | **2005**                              |   | **2006** |   | **2005** |   |
| **Restricted                  Stock Units**             |   |                                    |   |
| Awarded                  Units (in thousands)           |   |                                    | 8      |                                  |   | 99 |   |   | 45 |   |   | 126 |   |
| Weighted                  Average Grant Date Fair Value |   | $                                       | 34.49  |                                  | $      | 35.55 |   | $ | 35.57 |   | $ | 35.03 |   |

|                                                                                                                                         |   | **Three                  Months Ended** |   | **Six                  Months Ended** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|--------|---------------------------------------|--------|
|                                                                                                                                         |   | **2006**                                |   | **2005**                              |   | **2006** |   | **2005** |   |
| **Restricted                  Shares and Restricted Stock Units**                                                                            |   | **(in                  thousands)**     |   |
| Fair                  Value of Restricted Shares and Restricted Stock                  Units Vested                                          |   | $                                       | 609    |                                  | $      | 26 |   | $ | 2,889 |   | $ | 2,159 |   |
| Intrinsic                  Value of Restricted Shares and Restricted                  Stock Units                     Vested  |   |                                    | 571    |                                  |   | 30 |   |   | 3,515 |   |   | 2,608 |   |

|                                                                        |   | **Three                  Months Ended** |   | **Six                  Months Ended**                                |   |
|-----------------------------------------------------------------------------|--------|-----------------------------------------|--------|----------------------------------------------------------------------|--------|
|                                                                        |   |                               |   |  **Weighted                  Average**                          |   |    |   | **Weighted****Average** |   |
| **Nonvested                  Restricted Shares and Restricted Stock Units** |   | **Shares/Units**                        |   |  **Grant                  Date****Fair                  Value** |   | **Shares/Units** |   | **Grant                  Date****Fair                  Value** |   |
|                                                                        |   | **(in                  thousands)**     |   |                                                            |   | **(in                  thousands)** |   |    |   |
| Nonvested                  at beginning of period                           |   |                                    | 454    |                                                                 | $      | 33.06 |   |   | 497 |   | $ | 32.19 |   |
| Granted                                                                     |   |                                    | 8      |                                                                 |   | 34.49 |   |   | 45 |   |   | 35.57 |   |
| Vested                                                                      |   |                                    | (17    | )                                                                    |   | 35.36 |   |   | (96 | ) |   | 30.04 |   |
| Forfeited                                                                   |   |                                    | (15    | )                                                                    |   | 35.59 |   |   | (16 | ) |   | 35.49 |   |
| Nonvested                  at June 30, 2006                                 |   |                                    | 430    |                                                                 |   | 32.91 |   |   | 430 |   |   | 32.91 |   |

***Share-based        Compensation Plans***

|                                                                    |   | **Three                  Months Ended** |   | **Six                  Months Ended** |   |
|-------------------------------------------------------------------------|--------|-----------------------------------------|--------|---------------------------------------|--------|
|                                                                    |   | **2006**                                |   | **2005**                              |   | **2006** |   | **2005** |   |
| **Share-based                  Compensation Plans**                     |   | **(in                  thousands)**     |   |
| Compensation                  cost for share-based payment arrangements |   | $                                       | 1,209  |                                  | $      | 5,352 |   | $ | 3,639 |   | $ | 8,268 |   |
| Actual                  tax benefit realized                            |   |                                    | 424    |                                  |   | 1,873 |   |   | 1,274 |   |   | 2,894 |   |
| Total                  compensation cost capitalized                    |   |                                    | 42     |                                  |   | 995 |   |   | 620 |   |   | 1,396 |   |

|                                                                                                                                      |   | **Three                  Months Ended** |   | **Six                  Months Ended** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|--------|---------------------------------------|--------|
|                                                                                                                                      |   | **2006**                                |   | **2005**                              |   | **2006** |   | **2005** |   |
| **Share-based                  Compensation Plans**                                                                                       |   | **(in                  thousands)**     |   |
| Cash                  received from stock options exercised                                                                               |   | $                                       | 609    |                                  | $      | 13,260 |   | $ | 5,561 |   | $ | 28,413 |   |
| Actual                  tax benefit realized for the tax deductions                  from stock options                    exercised |   |                                    | 52     |                                  |   | 1,160 |   |   | 538 |   |   | 2,675 |   |

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

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

**Utility        Operations**

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

**Investments        - Gas Operations **

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

**Investments        - UK Operations**

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

**Investments        - Other **

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

|                                                            |   |                                                                                                                |   | **Investments**                             |   |                                  |   |       |   |                                  |   |
|-----------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------|--------|--------------------------------------------|--------|-----------------|--------|--------------------------------------------|--------|
|                                                            |   | **Utility                    Operations**                                                                           |   | **Gas                    Operations**  |   | **UK                    Operations**  |   | **Other**  |   | **All                    Other (a)**  |   | **Reconciling                    Adjustments**  |   | **Consolidated**  |   |
|                                                            |   | **(in                    millions)**               |
| **Three                    Months Ended**                       |   |                                                                                                                |   |                                   |   |                                  |   |       |   |                                  |   |    |   |    |   |
| **June                    30, 2006**                            |   |                                                                                                                |   |                                   |   |                                  |   |       |   |                                  |   |    |   |    |   |
| Revenues                    from:                               |   |                                                                                                                |   |                                   |   |                                  |   |       |   |                                  |   |    |   |    |   |
| External                    Customers                           |   | $                                                                                                                        | 2,810  |                                        | $      | (15                                        | )      | $               | -      |                                       | $      | 141 |   | $ | - |   | $ | - |   | $ | 2,936 |   |
| Other                    Operating Segments                     |   |                                                                                                                     | (11    | )                                           |   | 17                                         |   |            | -      |                                       |   | 2 |   |   | - |   |   | (8 | ) |   | - |   |
| Total                    Revenues                               |   | $                                                                                                                        | 2,799  |                                        | $      | 2                                          |   | $               | -      |                                       | $      | 143 |   | $ | - |   | $ | (8 | ) | $ | 2,936 |   |
|                                                            |   |                                                                                                                     |   |                                        |   |                                       |   |            |   |                                       |   |   |   |   |   |   |   |   |   |   |   |   |
| Income                    (Loss) Before Discontinued Operations |   | $                                                                                                                        | 160    |                                        | $      | 2                                          |   | $               | -      |                                       | $      | 13 |   | $ | (3 | ) | $ | - |   | $ | 172 |   |
| Discontinued                    Operations, Net of Tax          |   |                                                                                                                     | -      |                                        |   | -                                          |   |            | 3      |                                       |   | - |   |   | - |   |   | - |   |   | 3 |   |
| Net                    Income (Loss)                            |   | $                                                                                                                        | 160    |                                        | $      | 2                                          |   | $               | 3      |                                       | $      | 13 |   | $ | (3 | ) | $ | - |   | $ | 175 |   |

|                                                               |   |                                                                                                              |   | **Investments**                           |   |                                |    |       |   |                                |   |
|---------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|--------|------------------------------------------|---------|-----------------|--------|------------------------------------------|--------|
|                                                          |   | **Utility                  Operations**                                                                           |   | **Gas                  Operations**  |   | **UK                  Operations**  |    | **Other**  |   | **All                  Other (a)**  |   | **Reconciling                  Adjustments**  |   | **Consolidated**  |   |
|                                                          |   | **(in                  millions)              ** |
| **Three                  Months Ended**                       |   |                                                                                                              |   |                                 |   |                                |    |       |   |                                |   |    |   |    |   |
| **June                  30, 2005**                            |   |                                                                                                              |   |                                 |   |                                |    |       |   |                                |   |    |   |    |   |
| Revenues                  from:                               |   |                                                                                                              |   |                                 |   |                                |    |       |   |                                |   |    |   |    |   |
| External                  Customers                           |   | $                                                                                                                      | 2,680  |                                      | $      | 19                                       |    | $               | -      |                                     | $      | 120 |   | $ | - |   | $ | - |   | $ | 2,819 |   |
| Other                  Operating Segments                     |   |                                                                                                                   | 22     |                                      |   | (17                                      | )  |            | -      |                                     |   | 3 |   |   | - |   |   | (8 | ) |   | - |   |
| Total                  Revenues                               |   | $                                                                                                                      | 2,702  |                                      | $      | 2                                        |    | $               | -      |                                     | $      | 123 |   | $ | - |   | $ | (8 | ) | $ | 2,819 |   |
|                                                          |   |                                                                                                                   |   |                                      |   |                                     |    |            |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |
| 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 |   |

|                                                               |   |                                                                                                              |   | **Investments**                           |   |                                |   |       |   |                                |   |
|---------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|--------|------------------------------------------|--------|-----------------|--------|------------------------------------------|--------|
|                                                          |   | **Utility                  Operations**                                                                           |   | **Gas                  Operations**  |   | **UK                  Operations**  |   | **Other**  |   | **All                  Other (a)**  |   | **Reconciling                  Adjustments**  |   | **Consolidated**  |   |
|                                                          |   | **(in                  millions)              ** |
| **Six Months                  Ended**                    |   |                                                                                                              |   |                                 |   |                                |   |       |   |                                |   |    |   |    |   |
| **June                  30, 2006**                            |   |                                                                                                              |   |                                 |   |                                |   |       |   |                                |   |    |   |    |   |
| Revenues                  from:                               |   |                                                                                                              |   |                                 |   |                                |   |       |   |                                |   |    |   |    |   |
| External                  Customers                           |   | $                                                                                                                      | 5,797  |                                      | $      | (33                                      | )      | $               | -      |                                     | $      | 280 |   | $ | - |   | $ | - |   | $ | 6,044 |   |
| Other                  Operating Segments                     |   |                                                                                                                   | (29    | )                                         |   | 38                                       |   |            | -      |                                     |   | 5 |   |   | 1 |   |   | (15 | ) |   | - |   |
| Total                  Revenues                               |   | $                                                                                                                      | 5,768  |                                      | $      | 5                                        |   | $               | -      |                                     | $      | 285 |   | $ | 1 |   | $ | (15 | ) | $ | 6,044 |   |
|                                                          |   |                                                                                                                   |   |                                      |   |                                     |   |            |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |
| Income                  (Loss) Before Discontinued Operations |   | $                                                                                                                      | 525    |                                      | $      | 1                                        |   | $               | -      |                                     | $      | 29 |   | $ | (5 | ) | $ | - |   | $ | 550 |   |
| Discontinued                  Operations, Net of Tax          |   |                                                                                                                   | -      |                                      |   | -                                        |   |            | 6      |                                     |   | - |   |   | - |   |   | - |   |   | 6 |   |
| Net                  Income (Loss)                            |   | $                                                                                                                      | 525    |                                      | $      | 1                                        |   | $               | 6      |                                     | $      | 29 |   | $ | (5 | ) | $ | - |   | $ | 556 |   |

|                                                               |   |                                                                                                              |   | **Investments**                           |   |                                |    |       |   |                                |   |
|---------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|--------|------------------------------------------|---------|-----------------|--------|------------------------------------------|--------|
|                                                          |   | **Utility                  Operations**                                                                           |   | **Gas                  Operations**  |   | **UK                  Operations**  |    | **Other**  |   | **All                  Other (a)**  |   | **Reconciling                  Adjustments**  |   | **Consolidated**  |   |
|                                                          |   | **(in                  millions)              ** |
| **Three                  Months Ended**                       |   |                                                                                                              |   |                                 |   |                                |    |       |   |                                |   |    |   |    |   |
| **June                  30, 2005**                            |   |                                                                                                              |   |                                 |   |                                |    |       |   |                                |   |    |   |    |   |
| Revenues                  from:                               |   |                                                                                                              |   |                                 |   |                                |    |       |   |                                |   |    |   |    |   |
| External                  Customers                           |   | $                                                                                                                      | 5,285  |                                      | $      | 376                                      |    | $               | -      |                                     | $      | 223 |   | $ | - |   | $ | - |   | $ | 5,884 |   |
| Other                  Operating Segments                     |   |                                                                                                                   | 101    |                                      |   | (90                                      | )  |            | -      |                                     |   | 9 |   |   | 1 |   |   | (21 | ) |   | - |   |
| Total                  Revenues                               |   | $                                                                                                                      | 5,386  |                                      | $      | 286                                      |    | $               | -      |                                     | $      | 232 |   | $ | 1 |   | $ | (21 | ) | $ | 5,884 |   |
|                                                          |   |                                                                                                                   |   |                                      |   |                                     |    |            |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |
| 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 |   |

|                                                         |                                                                                                                     |                                            |   |  **Investments**                 |   |                                 |      |               |   |                                      |   |
|--------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------|--------|---------------------------------------|--------|--------------------------------------|-----------|--------------------|--------|-------------------------------------------|--------|
|                                                         |                                                                                                                     | **Utility                    Operations**  |   | **Gas                    Operations** |   | **UK                    Operations** |      | **Other**          |   | **All                    Other(b)**  |   | **Reconciling                    Adjustments (b)**  |   |  **Consolidated** |   |
|                                                         |  **(in                    millions)**              |                                            |
| **As                    of June 30, 2006**                   |                                                                                                                     |                                  |   |                        |   |                       |      |     |   |                            |   |     |   |     |   |
| Total                    Property, Plant and Equipment       |                                                                                                                     | $                                               | 39,653 |                                  | $      | 1                                    |      | $                  | -      |                                      | $      | 834 |   | $ | 3 |   | $ | - |   | $ | 40,491 |   |
| Accumulated                    Depreciation and Amortization |                                                                                                                     |                                            | 14,965 |                                  |   | -                                    |      |               | -      |                                      |   | 126 |   |   | 2 |   |   | - |   |   | 15,093 |   |
| Total                    Property, Plant and Equipment - Net |                                                                                                                     | $                                               | 24,688 |                                  | $      | 1                                    |      | $                  | -      |                                      | $      | 708 |   | $ | 1 |   | $ | - |   | $ | 25,398 |   |
|                                                         |                                                                                                                     |                                            |   |                                  |   |                                 |      |               |   |                                      |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                    Assets                              |                                                                                                                     | $                                               | 34,689 |                                  | $      | 735                                  | (c)  | $                  | 630    | (d)                                  | $      | 577 |   | $ | 10,400 |   | $ | (10,847 | ) | $ | 36,184 |   |
| Assets                    Held for Sale                      |                                                                                                                     |                                            | 46     |                                  |   | -                                    |      |               | -      |                                      |   | - |   |   | - |   |   | - |   |   | 46 |   |

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

| (a) | All                  Other includes the parent company’s interest income and expense, as well                  as other nonallocated costs.                                                                                                                                                                                                                                                                                                                                                                                                       |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Reconciling                  Adjustments for Total Assets primarily include the elimination                  of                  intercompany advances to affiliates and intercompany accounts receivable                  along with the elimination of AEP’s investments (included in All Other) in                  subsidiary companies.                                                                                                                                                                                                      |
| (c) | Total                  Assets of $735 million for the Investments-Gas Operations segment                  include                  $344 million in affiliated accounts receivable related to the corporate                  borrowing program and risk management contracts that are eliminated                  in                  consolidation. The majority of the remaining $391 million in assets                  represents third party risk management contracts, margin deposits,                  and                  accounts receivable. |
| (d) | Total                  Assets of $630 million for the Investments-UK Operations segment                  include                  $614 million in affiliated accounts receivable related mainly to                  federal                  income taxes that are eliminated in consolidation. The majority                  of the                  remaining $16 million in assets represents value-added tax                  receivables.                                                                                                          |
| (e) | Total                  Assets of $1.2 billion for the Investments-Gas Operations segment                  include                  $429 million in affiliated accounts receivable related to the corporate                  borrowing program and risk management contracts that are eliminated                  in                  consolidation. The majority of the remaining $770 million in assets                  represents third party risk management contracts, margin deposits,                  and                  accounts receivable. |
| (f) | Total                  Assets of $632 million for the Investments-UK Operations segment                  include                  $613 million in affiliated accounts receivable related to federal                  income                  taxes that are eliminated in consolidation. The majority of the                  remaining                  $19 million in assets represents cash equivalents and value-added                  tax                  receivables.                                                                           |

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

***Short-term        Debt***

|                                         |   | **June                  30,**      |   | **December                  31,** |   |
|----------------------------------------------|--------|------------------------------------|--------|-----------------------------------|--------|
| **Type                  of Debt**            |   | **2006**                           |   | **2005**                          |   |
|                                         |   | **(in                  millions)** |   |
|                                         |   |                          |   |                         |   |
| Commercial                  Paper - AEP (a)  |   | $                                  | 144    |                              | $      | - |   |
| Commercial                  Paper - JMG (b)  |   |                               | 5      |                              |   | 10 |   |
| Line                  of Credit - Sabine (c) |   |                               | 10     |                              |   | - |   |
|                                         |   | $                                  | 159    |                              | $      | 10 |   |

| (a)    | The                  interest rate at June 30, 2006 was 5.37%.                                                                                 |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                           |
| (b)    | The                  interest rate at June 30, 2006 and December 31, 2005 was 5.47%                  and 4.47%,                  respectively. |
|   |                                                                                                                                           |
| (c)    | The                  interest rate at June 30, 2006 was                  6.38%.                                                                |

***Long-term        Debt***

|                                                  |   | **June                  30,**      |   | **December                  31,** |   |
|-------------------------------------------------------|--------|------------------------------------|--------|-----------------------------------|--------|
| **Type                  of Debt**                     |   | **2006**                           |   | **2005**                          |   |
|                                                  |   | **(in                  millions)** |   |
|                                                  |   |                          |   |                         |   |
| Pollution                  Control Bonds              |   | $                                  | 2,051  |                              | $      | 1,935 |   |
| Senior                  Unsecured Notes               |   |                               | 8,677  |                              |   | 8,226 |   |
| First                  Mortgage Bonds                 |   |                               | 96     |                              |   | 196 |   |
| Defeased                  First Mortgage Bonds (a)    |   |                               | 26     |                              |   | 26 |   |
| Notes                  Payable                        |   |                               | 886    |                              |   | 904 |   |
| Securitization                  Bonds                 |   |                               | 617    |                              |   | 648 |   |
| Notes                  Payable To Trust               |   |                               | 113    |                              |   | 113 |   |
| Other                  Long-Term Debt (b)             |   |                               | 244    |                              |   | 236 |   |
| Unamortized                  Discount (net)           |   |                               | (65    | )                                 |   | (58 | ) |
| **Total                  Long-term Debt Outstanding** |   |                               | 12,645 |                              |   | 12,226 |   |
| **Less                  Portion Due Within One Year** |   |                               | 800    |                              |   | 1,153 |   |
| **Long-term                  Portion**                |   | $                                  | 11,845 |                              | $      | 11,073 |   |

| (a)    | In                  May 2004, we deposited cash and treasury securities with a trustee                  to                  defease all of TCC’s outstanding First Mortgage Bonds. The defeased TCC                  First Mortgage Bonds had a balance of $18 million at both June                  30, 2006                  and December 31, 2005. Trust fund assets related to this obligation                  of $2                  million are included in Other Temporary Cash Investments at both                  June 30,                  2006 and December 31, 2005 and $21 million is included in Other                  Noncurrent                  Assets in the Condensed Consolidated Balance Sheets at both June                  30, 2006                  and December 31, 2005. In December 2005, we deposited cash and                  treasury                  securities with a trustee to defease the remaining TNC outstanding                  First                  Mortgage Bond. The defeased TNC First Mortgage Bond had a balance                  of $8                  million at both June 30, 2006 and December 31, 2005. Trust fund                  assets                  related to this obligation of $9 million and $1 million at June                  30, 2006                  and December 31, 2005, respectively, are included in Other Temporary                  Cash                  Investments and $0 and $8 million are included in Other Noncurrent                  Assets                  in the Condensed Consolidated Balance Sheets at June 30, 2006 and                  December                  31, 2005, respectively. Trust fund assets are restricted for exclusive                  use                  in funding the interest and principal due on the First Mortgage                  Bonds. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| (b)    | Pursuant                  to the Nuclear Waste Policy Act of 1982, I&M (a nuclear licensee) has                  an obligation with the United States Department of Energy for spent                  nuclear fuel disposal. The obligation includes a one-time fee for                  nuclear                  fuel consumed prior to April 7, 1983. Trust fund assets of $267                  million                  and $264 million related to this obligation are included in Spent                  Nuclear                  Fuel and Decommissioning Trusts in the Condensed Consolidated Balance                  Sheets at June 30, 2006 and December 31, 2005,                  respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |

| **Company**                          |   | **Type                  of Debt**        |   | **Principal                  Amount** |   | **Interest                  Rate** |     | **Due                  Date** |   |
|--------------------------------------|--------|------------------------------------------|--------|---------------------------------------|--------|------------------------------------|----------|-------------------------------|--------|
|                                 |   |                                     |   | **(in                  millions)**    |   | **(%)**                            |     |                          |   |
| **Issuances:**                       |   |                                     |   |                                  |   |                               |     |                          |   |
| APCo                                 |   | Pollution                  Control Bonds |   | $                                     | 50     |                               | Variable |                          | 2036   |   |
| APCo                                 |   | Senior                  Unsecured Note   |   |                                  | 250    |                               | 5.55     |                          | 2011   |   |
| APCo                                 |   | Senior                  Unsecured Note   |   |                                  | 250    |                               | 6.375    |                          | 2036   |   |
| I&M                              |   | Pollution                  Control Bonds |   |                                  | 50     |                               | Variable |                          | 2025   |   |
| OPCo                                 |   | Pollution                  Control Bonds |   |                                  | 65     |                               | Variable |                          | 2036   |   |
| OPCo                                 |   | Senior                  Unsecured Note   |   |                                  | 350    |                               | 6.00     |                          | 2016   |   |
| SWEPCo                               |   | Pollution                  Control Bonds |   |                                  | 82     |                               | Variable |                          | 2018   |   |
| **Total                  Issuances** |   |                                     |   | $                                     | 1,097  | (a)                                |     |                          |   |   |

| (a) | Amount                  indicated on statement of cash flows of $1,081 million is net of                  issuance                  costs and unamortized premium or                  discount. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **Company**                                                                                                  |   | **Type                  of Debt**        |   | **Principal                  Amount Paid** |   | **Interest                  Rate** |     | **Due                  Date** |   |
|--------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|--------|--------------------------------------------|--------|------------------------------------|----------|-------------------------------|--------|
|                                                                                                         |   |                                     |   | **(in                  millions)**         |   | **(%)**                            |     |                          |   |
| **Retirements                  and Principal Payments:**                                                     |   |                                     |   |                                       |   |                               |     |                          |   |
| AEP                                                                                                          |   | Senior                  Unsecured Note   |   | $                                          | 396    |                               | 6.125    |                          | 2006   |   |
| APCo                                                                                                         |   | First                  Mortgage Bonds    |   |                                       | 100    |                               | 6.80     |                          | 2006   |   |
| I&M                                                                                                      |   | Pollution                  Control Bonds |   |                                       | 50     |                               | 6.55     |                          | 2025   |   |
| OPCo                                                                                                         |   | Notes                  Payable           |   |                                       | 3      |                               | 6.81     |                          | 2008   |   |
| OPCo                                                                                                         |   | Notes                  Payable           |   |                                       | 3      |                               | 6.27     |                          | 2009   |   |
| SWEPCo                                                                                                       |   | Notes                  Payable           |   |                                       | 3      |                               | 4.47     |                          | 2011   |   |
| SWEPCo                                                                                                       |   | Notes                  Payable           |   |                                       | 1      |                               | Variable |                          | 2008   |   |
| SWEPCo                                                                                                       |   | Pollution                  Control Bonds |   |                                       | 82     |                               | 6.10     |                          | 2018   |   |
| TCC                                                                                                          |   | Securitization                  Bonds    |   |                                       | 31     |                               | 5.01     |                          | 2010   |   |
| **Non-Registrant:**                                                                                          |   |                                     |   |                                       |   |                               |     |                          |   |   |
| AEP                  Subsidiaries                                                                            |   | Notes                  Payable           |   |                                       | 3      |                               | Variable |                          | 2017   |   |
| CSW                  Energy                                                                                  |   | Notes                  Payable           |   |                                       | 4      |                               | 5.88     |                          | 2011   |   |
| **Total                  Retirements****and                  Principal****                   Payments** |   |                                     |   | $                                          | 676    |                               |     |                          |   |   |

***Credit        Facilities***

----

**AEP        GENERATING COMPANY**

----

**AEP        GENERATING COMPANY**

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

**Results        of Operations**

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

**(in        millions)**

| **Second                  Quarter of 2005**                       |   |   |   |   | $      | 2.1    |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                              |   |   |   |   |   |   |   |
| **Change                  in Gross Margin:**                      |   |   |   |   |   |   |   |
| Wholesale                  Sales                                  |   |   |   |   |   | 0.3    |   |
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                  Operation and Maintenance                  |   |   | 0.3    |   |   |   |   |
| Interest                  Expense                                 |   |   | (0.1   | )      |   |   |   |
| **Total                  Change in Operating Expenses and Other** |   |   |   |   |   | 0.2    |   |
|                                                              |   |   |   |   |   |   |   |
| Income                  Tax Expense                               |   |   |   |   |   | (0.4   | )      |
|                                                              |   |   |   |   |   |   |   |
| **Second                  Quarter of 2006**                       |   |   |   |   | $      | 2.2    |   |

*Income        Taxes*

**Reconciliation        of Six Months Ended June 30, 2005 to Six Months Ended June 30, 2006 Net        Income**

**(in        millions)**

| **Six                  Months Ended June 30, 2005**               |   |   |   |   | $      | 4.6    |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                              |   |   |   |   |   |   |   |
| **Change                  in Gross Margin:**                      |   |   |   |   |   |   |   |
| Wholesale                  Sales                                  |   |   |   |   |   | 3.0    |   |
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                  Operation and Maintenance                  |   |   | (1.4   | )      |   |   |   |
| Interest                  Expense                                 |   |   | (0.2   | )      |   |   |   |
| **Total                  Change in Operating Expenses and Other** |   |   |   |   |   | (1.6   | )      |
|                                                              |   |   |   |   |   |   |   |
| Income                  Tax Expense                               |   |   |   |   |   | (0.9   | )      |
|                                                              |   |   |   |   |   |   |   |
| **Six                  Months Ended June 30, 2006**               |   |   |   |   | $      | 5.1    |   |

*Income        Taxes*

**Off-Balance        Sheet Arrangements**

**Summary        Obligation Information**

**Significant        Factors**

**Critical        Accounting Estimates**

----

**AEP        GENERATING COMPANY**

**CONDENSED        STATEMENTS OF INCOME**

**For        the Three and Six Months Ended June 30, 2006 and 2005**

**(Unaudited)**

**(in        thousands)**

|                                                                      |   | **Three                  Months Ended**  | **Six                  Months Ended** |
|----------------------------------------------------------------------|--------|-----------------------------------------------|---------------------------------------|
|                                                                 |   |                                          | **2006**                              |   |   | **2005** |   |   | **2006** |   |   | **2005** |   |
|                                                                 |   |                                          |                                  |   |   |   |   |   |   |   |   |   |   |
| **OPERATING                  REVENUES**                              |   | $                                             | 77,195                                |   | $ | 65,082 |   | $ | 155,346 |   | $ | 131,628 |   |
|                                                                 |   |                                          |                                  |   |   |   |   |   |   |   |   |   |   |
| **EXPENSES**                                                         |   |                                          |                                  |   |   |   |   |   |   |   |   |   |   |
| Fuel                  for Electric Generation                        |   |                                          | 45,087                                |   |   | 33,233 |   |   | 89,048 |   |   | 68,368 |   |
| Rent                  - Rockport Plant Unit 2                        |   |                                          | 17,071                                |   |   | 17,071 |   |   | 34,142 |   |   | 34,142 |   |
| Other                  Operation                                     |   |                                          | 3,122                                 |   |   | 3,126 |   |   | 6,217 |   |   | 5,573 |   |
| Maintenance                                                          |   |                                          | 1,930                                 |   |   | 2,272 |   |   | 4,716 |   |   | 3,990 |   |
| Depreciation                  and Amortization                       |   |                                          | 5,959                                 |   |   | 5,989 |   |   | 11,907 |   |   | 11,945 |   |
| Taxes                  Other Than Income Taxes                       |   |                                          | 1,028                                 |   |   | 1,051 |   |   | 2,098 |   |   | 2,075 |   |
| **TOTAL**                                                            |   |                                          | 74,197                                |   |   | 62,742 |   |   | 148,128 |   |   | 126,093 |   |
|                                                                 |   |                                          |                                  |   |   |   |   |   |   |   |   |   |   |
| **OPERATING                  INCOME**                                |   |                                          | 2,998                                 |   |   | 2,340 |   |   | 7,218 |   |   | 5,535 |   |
|                                                                 |   |                                          |                                  |   |   |   |   |   |   |   |   |   |   |
| **Other                  Income (Expense):**                         |   |                                          |                                  |   |   |   |   |   |   |   |   |   |   |
| Interest                  Income                                     |   |                                          | -                                     |   |   | 24 |   |   | - |   |   | 24 |   |
| Allowance                  for Equity Funds Used During Construction |   |                                          | 24                                    |   |   | 60 |   |   | 24 |   |   | 60 |   |
| Interest                  Expense                                    |   |                                          | (641                                  | ) |   | (562 | ) |   | (1,363 | ) |   | (1,196 | ) |
|                                                                 |   |                                          |                                  |   |   |   |   |   |   |   |   |   |   |
| **INCOME                  BEFORE INCOME TAXES**                      |   |                                          | 2,381                                 |   |   | 1,862 |   |   | 5,879 |   |   | 4,423 |   |
| Income                  Tax Expense (Credit)                         |   |                                          | 161                                   |   |   | (211 | ) |   | 731 |   |   | (166 | ) |
|                                                                 |   |                                          |                                  |   |   |   |   |   |   |   |   |   |   |
| **NET                  INCOME**                                      |   | $                                             | 2,220                                 |   | $ | 2,073 |   | $ | 5,148 |   | $ | 4,589 |   |

**CONDENSED        STATEMENTS OF RETAINED EARNINGS**

**For        the Three and Six Months Ended June 30, 2006 and 2005**

**(Unaudited)**

**(in        thousands)**

|                                                |   | **Three                  Months Ended** |   | **Six                  Months Ended** |   |
|-----------------------------------------------------|--------|-----------------------------------------|--------|---------------------------------------|--------|
|                                                |   |  **2006**                          |   |  **2005**                        |   |  **2006** |   |  **2005** |   |
| **BALANCE                  AT BEGINNING OF PERIOD** |   | $                                       | 26,968 |                                  | $      | 25,813 |   | $ | 26,038 |   | $ | 24,237 |   |
| Net                  Income                         |   |                                    | 2,220  |                                  |   | 2,073 |   |   | 5,148 |   |   | 4,589 |   |
| Cash                  Dividends Declared            |   |                                    | 2,012  |                                  |   | 939 |   |   | 4,010 |   |   | 1,879 |   |
| **BALANCE                  AT END OF PERIOD**       |   | $                                       | 27,176 |                                  | $      | 26,947 |   | $ | 27,176 |   | $ | 26,947 |   |

| *The                  common stock of AEGCo is wholly-owned by AEP.*                                                  |
|-----------------------------------------------------------------------------------------------------------------------|
|                                                                                                                  |
| *See                  Condensed Notes to Condensed Financial Statements of Registrant                  Subsidiaries.* |

----

**AEP        GENERATING COMPANY**

**CONDENSED        BALANCE SHEETS**

**ASSETS**

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

**(Unaudited)**

**(in        thousands)**

|                                                        |   |   | **2006** |   |   | **2005** |   |
|-------------------------------------------------------------|--------|--------|----------|--------|--------|----------|--------|
| **CURRENT                  ASSETS**                         |   |   |     |   |   |     |   |
| Accounts                  Receivable - Affiliated Companies |   | $      | 26,930   |   | $      | 29,671   |   |
| Fuel                                                        |   |   | 18,513   |   |   | 14,897   |   |
| Materials                  and Supplies                     |   |   | 7,614    |   |   | 7,017    |   |
| Accrued                  Tax Benefits                       |   |   | 1,311    |   |   | 2,074    |   |
| Prepayments                  and Other                      |   |   | 88       |   |   | 9        |   |
| **TOTAL**                                                   |   |   | 54,456   |   |   | 53,668   |   |
|                                                        |   |   |     |   |   |     |   |
| **PROPERTY,                  PLANT AND EQUIPMENT**          |   |   |     |   |   |     |   |
| Electric                  - Production                      |   |   | 689,407  |   |   | 684,721  |   |
| Other                                                       |   |   | 2,342    |   |   | 2,369    |   |
| Construction                  Work in Progress              |   |   | 9,759    |   |   | 12,252   |   |
| **Total**                                                   |   |   | 701,508  |   |   | 699,342  |   |
| Accumulated                  Depreciation and Amortization  |   |   | 393,630  |   |   | 382,925  |   |
| **TOTAL                  - NET**                            |   |   | 307,878  |   |   | 316,417  |   |
|                                                        |   |   |     |   |   |     |   |
| Noncurrent                  Assets                          |   |   | 8,409    |   |   | 6,618    |   |
|                                                        |   |   |     |   |   |     |   |
| **TOTAL                  ASSETS**                           |   | $      | 370,743  |   | $      | 376,703  |   |

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

----

**AEP        GENERATING COMPANY**

**CONDENSED        BALANCE SHEETS**

**LIABILITIES        AND SHAREHOLDER’S EQUITY**

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

**(Unaudited)**

|                                                                                                                                        |   |                                | **2006** |   |   | **2005** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------|----------|--------|--------|----------|--------|
| **CURRENT                  LIABILITIES**                                                                                                    |   | **(in                  thousands)** |
| Advances                  from Affiliates                                                                                                   |   | $                                   | 36,989   |   | $      | 35,131   |   |
| Accounts                  Payable:                                                                                                          |   |                                |     |   |   |     |   |
| General                                                                                                                                     |   |                                | 494      |   |   | 926      |   |
| Affiliated                  Companies                                                                                                       |   |                                | 17,351   |   |   | 22,161   |   |
| Long-term                  Debt Due Within One Year                                                                                         |   |                                | -        |   |   | 44,828   |   |
| Accrued                  Taxes                                                                                                              |   |                                | 5,486    |   |   | 3,055    |   |
| Accrued                  Rent - Rockport Plant Unit 2                                                                                       |   |                                | 4,963    |   |   | 4,963    |   |
| Other                                                                                                                                       |   |                                | 1,319    |   |   | 1,228    |   |
| **TOTAL**                                                                                                                                   |   |                                | 66,602   |   |   | 112,292  |   |
|                                                                                                                                        |   |                                |     |   |   |     |   |
| **NONCURRENT                  LIABILITIES**                                                                                                 |   |                                |     |   |   |     |   |
| Long-term                  Debt                                                                                                             |   |                                | 44,833   |   |   | -        |   |
| Deferred                  Income Taxes                                                                                                      |   |                                | 21,765   |   |   | 23,617   |   |
| Asset                  Retirement Obligations                                                                                               |   |                                | 1,400    |   |   | 1,370    |   |
| Regulatory                  Liabilities and Deferred Investment Tax Credits                                                                 |   |                                | 81,154   |   |   | 82,689   |   |
| Deferred                  Gain on Sale and Leaseback - Rockport Plant Unit 2                                                                |   |                                | 91,548   |   |   | 94,333   |   |
| Obligations                  Under Capital Leases                                                                                           |   |                                | 11,831   |   |   | 11,930   |   |
| **TOTAL**                                                                                                                                   |   |                                | 252,531  |   |   | 213,939  |   |
|                                                                                                                                        |   |                                |     |   |   |     |   |
| **TOTAL                  LIABILITIES**                                                                                                      |   |                                | 319,133  |   |   | 326,231  |   |
|                                                                                                                                        |   |                                |     |   |   |     |   |
| Commitments                  and Contingencies (Note 5)                                                                                     |   |                                |     |   |   |     |   |
|                                                                                                                                        |   |                                |     |   |   |     |   |
| **COMMON                  SHAREHOLDER’S EQUITY**                                                                                      |   |                                |     |   |   |     |   |
| Common                  Stock - $1,000 Par Value Per Share   Authorized                  and Outstanding - 1,000 Shares |   |                                | 1,000    |   |   | 1,000    |   |
| Paid-in                  Capital                                                                                                            |   |                                | 23,434   |   |   | 23,434   |   |
| Retained                  Earnings                                                                                                          |   |                                | 27,176   |   |   | 26,038   |   |
| **TOTAL**                                                                                                                                   |   |                                | 51,610   |   |   | 50,472   |   |
|                                                                                                                                        |   |                                |     |   |   |     |   |
| **TOTAL                  LIABILITIES AND SHAREHOLDER’S EQUITY**                                                                       |   | $                                   | 370,743  |   | $      | 376,703  |   |

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

----

**AEP        GENERATING COMPANY**

**CONDENSED        STATEMENTS OF CASH FLOWS**

**For        the Six Months Ended June 30, 2006 and 2005**

**(in        thousands)**

**(Unaudited)**

|                                                                                                               |   |   | **2006** |   |   | **2005** |   |
|--------------------------------------------------------------------------------------------------------------------|--------|--------|----------|--------|--------|----------|--------|
| **OPERATING                  ACTIVITIES**                                                                          |   |   |     |   |   |     |   |
| **Net                  Income**                                                                                    |   | $      | 5,148    |   | $      | 4,589    |   |
| **Adjustments                  for Noncash Items:**                                                                |   |   |     |   |   |     |   |
| Depreciation                  and Amortization                                                                     |   |   | 11,907   |   |   | 11,945   |   |
| Deferred                  Income Taxes                                                                             |   |   | (2,298   | )      |   | (2,379   | )      |
| Deferred                  Investment Tax Credits                                                                   |   |   | (1,655   | )      |   | (1,668   | )      |
| Amortization                  of Deferred Gain on Sale and Leaseback                  - Rockport Plant Unit 2 |   |   | (2,785   | )      |   | (2,785   | )      |
| Deferred                  Property Taxes                                                                           |   |   | (1,813   | )      |   | (1,950   | )      |
| Changes                  in Other Noncurrent Assets                                                                |   |   | (456     | )      |   | (1,270   | )      |
| Changes                  in Other Noncurrent Liabilities                                                           |   |   | 579      |   |   | 1,648    |   |
| **Changes                  in Components of Working Capital:**                                                     |   |   |     |   |   |     |   |
| Accounts                  Receivable                                                                               |   |   | 2,741    |   |   | (1,081   | )      |
| Fuel,                  Materials and Supplies                                                                      |   |   | (4,213   | )      |   | 4,265    |   |
| Accounts                  Payable                                                                                  |   |   | (5,242   | )      |   | (2,405   | )      |
| Accrued                  Taxes, Net                                                                                |   |   | 3,194    |   |   | (2,042   | )      |
| Other                  Current Assets                                                                              |   |   | (79      | )      |   | (26      | )      |
| Other                  Current Liabilities                                                                         |   |   | 91       |   |   | 354      |   |
| **Net                  Cash Flows From Operating Activities**                                                      |   |   | 5,119    |   |   | 7,195    |   |
|                                                                                                               |   |   |     |   |   |     |   |
| **INVESTING                  ACTIVITIES**                                                                          |   |   |     |   |   |     |   |
| Construction                  Expenditures                                                                         |   |   | (2,816   | )      |   | (2,882   | )      |
|                                                                                                               |   |   |     |   |   |     |   |
| **FINANCING                  ACTIVITIES**                                                                          |   |   |     |   |   |     |   |
| Change                  in Advances from Affiliates, Net                                                           |   |   | 1,858    |   |   | (2,294   | )      |
| Principal                  Payments for Capital Lease Obligations                                                  |   |   | (151     | )      |   | (140     | )      |
| Dividends                  Paid                                                                                    |   |   | (4,010   | )      |   | (1,879   | )      |
| **Net                  Cash Flows Used For Financing Activities**                                                  |   |   | (2,303   | )      |   | (4,313   | )      |
|                                                                                                               |   |   |     |   |   |     |   |
| **Net                  Change in Cash and Cash Equivalents**                                                       |   |   | -        |   |   | -        |   |
| **Cash                  and Cash Equivalents at Beginning of Period**                                              |   |   | -        |   |   | -        |   |
| **Cash                  and Cash Equivalents at End of Period**                                                    |   | $      | -        |   | $      | -        |   |
|                                                                                                               |   |   |     |   |   |     |   |
| **SUPPLEMENTARY                  INFORMATION**                                                                     |   |   |     |   |   |     |   |
| Cash                  Paid for Interest, Net of Capitalized Amounts                                                |   | $      | 1,230    |   | $      | 1,063    |   |
| Cash                  Paid for Income Taxes, Net of Refunds                                                        |   |   | 3,624    |   |   | 8,080    |   |
| Noncash                  Acquisitions Under Capital Leases                                                         |   |   | 74       |   |   | 26       |   |

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

----

**AEP        GENERATING COMPANY**

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

|                                                     | **Footnote                  Reference** |
|----------------------------------------------------------|-----------------------------------------|
| Significant                  Accounting Matters          | Note                  1                 |
| New                  Accounting Pronouncements           | Note                  2                 |
| Commitments                  and Contingencies           | Note                  5                 |
| Guarantees                                               | Note                  6                 |
| Company-wide                  Staffing and Budget Review | Note                  7                 |
| Business                  Segments                       | Note                  11                |
| Financing                  Activities                    | Note                  12                |

----

**AEP        TEXAS CENTRAL COMPANY AND SUBSIDIARY**

----

**AEP        TEXAS CENTRAL COMPANY AND SUBSIDIARY**

**MANAGEMENT’S        FINANCIAL DISCUSSION AND ANALYSIS**

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

**Results        of Operations**

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

**(in        millions)**

| **Second                  Quarter of 2005**                       |   |   |   |   | $      | 28     |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Gross Margin:**                     |   |   |   |   |   |   |   |
| Texas                  Supply                                     |   |   | (30    | )      |   |   |   |
| Texas                  Wires                                      |   |   | 8      |   |   |   |   |
| Off-system                  Sales                                 |   |   | (2     | )      |   |   |   |
| Transmission                  Revenues                            |   |   | (4     | )      |   |   |   |
| Other                                                             |   |   | (1     | )      |   |   |   |
| **Total                  Change in Gross Margin**                 |   |   |   |   |   | (29    | )      |
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                  Operation and Maintenance                  |   |   | 17     |   |   |   |   |
| Depreciation                  and Amortization                    |   |   | (2     | )      |   |   |   |
| Taxes                  Other Than Income Taxes                    |   |   | 4      |   |   |   |   |
| Other                  Income (Expense), Net                      |   |   | (1     | )      |   |   |   |
| **Total                  Change in Operating Expenses and Other** |   |   |   |   |   | 18     |   |
|                                                              |   |   |   |   |   |   |   |
| **Second                  Quarter of 2006**                       |   |   |   |   | $      | 17     |   |

| · | Texas                  Supply margins decreased $30 million primarily due to the sale                  of STP,                  which resulted in lower nonaffiliated sales of $38 million, and                  a $5                  million provision for refund primarily due to the fuel reconciliation                  adjustment in 2005. These decreases were partially offset by lower                  fuel                  and purchased power expenses of $12 million. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Texas                  Wires revenues increased $8 million primarily due to an increase                  in sales                  volumes resulting mainly from a 23% increase in cooling degree                  days.                                                                                                                                                                                                                                                             |
| · | Margins                  from Off-system Sales decreased $2 million primarily due to lower                  optimization activities.                                                                                                                                                                                                                                                                                                                                                 |
| · | Transmission                  Revenues decreased $4 million primarily due to lower ERCOT transmission                  rates and reduced affiliated transmission fees resulting from the                  elimination of the affiliated OATT.                                                                                                                                                                                                                                        |

| · | Other                  Operation and Maintenance expenses decreased $17 million primarily                  due to                  a $7 million decrease in power plant operations, a $4 million decrease                  in                  plant maintenance and the absence of $3 million in accretion expense                  all                  related to the sale of the STP. Customer service and administrative                  and                  general expenses decreased $6 million partially offset by increased                  transmission-related expense of $3 million. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Taxes                  Other than Income Taxes decreased $4 million due to the favorable                  settlement of a state use tax audit in                  2006.                                                                                                                                                                                                                                                                                                                                                                                                                              |

*Income        Taxes*

**Reconciliation        of Six Months Ended June 30, 2005 to Six Months Ended June 30, 2006 Net        Income**

**(in        millions)**

| **Six                  Months Ended June 30, 2005**               |   |   |   |   | $      | 30     |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Gross Margin:**                     |   |   |   |   |   |   |   |
| Texas                  Supply                                     |   |   | (74    | )      |   |   |   |
| Texas                  Wires                                      |   |   | 11     |   |   |   |   |
| Off-system                  Sales                                 |   |   | (2     | )      |   |   |   |
| Transmission                  Revenues                            |   |   | (9     | )      |   |   |   |
| Other                                                             |   |   | (3     | )      |   |   |   |
| **Total                  Change in Gross Margin**                 |   |   |   |   |   | (77    | )      |
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                  Operation and Maintenance                  |   |   | 48     |   |   |   |   |
| Depreciation                  and Amortization                    |   |   | (6     | )      |   |   |   |
| Taxes                  Other Than Income Taxes                    |   |   | 6      |   |   |   |   |
| Interest                  Income and Expense, Net                 |   |   | (3     | )      |   |   |   |
| Carrying                  Costs on Stranded Cost Recovery         |   |   | 25     |   |   |   |   |
| **Total                  Change in Operating Expenses and Other** |   |   |   |   |   | 70     |   |
|                                                              |   |   |   |   |   |   |   |
| Income                  Tax Expense                               |   |   |   |   |   | (2     | )      |
|                                                              |   |   |   |   |   |   |   |
| **Six                  Months Ended June 30, 2006**               |   |   |   |   | $      | 21     |   |

| · | Texas                  Supply margins decreased $74 million primarily due to the sale                  of STP                  which resulted in lower nonaffiliated sales of $98 million and                  a $6                  million provision for refund primarily due to the fuel reconciliation                  adjustment in 2005. These decreases were partially offset by lower                  fuel                  and purchased power expenses of $30 million. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Texas                  Wires revenues increased $11 million primarily due to an increase                  in sales                  volumes resulting mainly from a 28% increase in cooling degree                  days.                                                                                                                                                                                                                                                          |
| · | Margins                  from Off-system Sales decreased $2 million primarily due to lower                  optimization activities.                                                                                                                                                                                                                                                                                                                                               |
| · | Transmission                  Revenues decreased $9 million primarily due to lower ERCOT transmission                  rates and reduced affiliated transmission fees resulting from the                  elimination of the affiliated OATT.                                                                                                                                                                                                                                      |
| · | Other                  revenues decreased $3 million primarily due to lower third party                  construction project revenues related to work performed for the                  Lower                  Colorado River Authority.                                                                                                                                                                                                                                         |

| · | Other                  Operation and Maintenance expenses decreased $48 million primarily                  due to                  a $14 million decrease in power plant operations, a $13 million                  decrease                  in plant maintenance and the absence of $8 million in accretion                  expense                  all related to the sale of STP. An additional $5 million decrease                  resulted                  from lower expenses related to construction activities performed                  for third                  parties, primarily the Lower Colorado River Authority. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Depreciation                  and Amortization expense increased $6 million primarily related                  to the                  refund and amortization of excess earnings credits in 2005 partially                  offset by the recovery and amortization of securitized                  assets.                                                                                                                                                                                                                                                                                                                             |
| · | Taxes                  Other Than Income Taxes decreased $6 million primarily due to lower                  property-related taxes as a result of the sale of STP in 2005 and                  the                  favorable settlement of a state use tax audit in 2006.                                                                                                                                                                                                                                                                                                                                                               |
| · | Interest                  Income and Expense, Net changed unfavorably $3 million primarily                  due to                  higher interest on long-term debt and interest related to the Texas                  competition transition charge liability (See “Texas Restructuring” section                  of Note 4) partially offset by lower short-term interest                  expense.                                                                                                                                                                                                                      |
| · | Carrying                  Costs on Stranded Cost Recovery increased $25 million primarily                  due to a                  $27 million negative adjustment related to prior years, recorded                  in the                  first quarter of 2005**.**                                                                                                                                                                                                                                                                                                                                                           |

*Income        Taxes*

**Financial        Condition**

**Credit        Ratings**

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

**Cash        Flow**

|                                                                  |   |                                      | **2006** |   |   | **2005** |   |
|-----------------------------------------------------------------------|--------|-------------------------------------------|----------|--------|--------|----------|--------|
|                                                                       |   | **(in                  thousands)**  |
| **Cash                  and Cash Equivalents at Beginning of Period** |   | $                                         | -        |   | $      | 26       |   |
| Net                  Cash Flows From (Used For):                      |   |                                      |     |   |   |     |   |
| Operating                  Activities                                 |   |                                      | 81,341   |   |   | (105,434 | )      |
| Investing                  Activities                                 |   |                                      | (121,052 | )      |   | 140,683  |   |
| Financing                  Activities                                 |   |                                      | 39,711   |   |   | (33,181  | )      |
| Net                  Increase in Cash and Cash Equivalents            |   |                                      | -        |   |   | 2,068    |   |
| **Cash                  and Cash Equivalents at End of Period**       |   | $                                         | -        |   | $      | 2,094    |   |

*Operating        Activities*

*Investing        Activities*

*Financing        Activities*

**Financing        Activity**

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

|                                  |   | **Principal****Amount** |                                | **Interest** |     | **Due** |
|---------------------------------------|--------|-------------------------|-------------------------------------|--------------|----------|---------|
| **Type                  of Debt**     |   |                    | **Rate**                            |         | **Date** |
|                                  |   |                    | **(in                  thousands)** |         | **(%)**  |    |   |
|                                  |   |                    |                                |         |     |    |   |
| Securitization                  Bonds |   | $                       | 30,641                              |         | 5.01     |    | 2010 |

**Liquidity**

**Summary        Obligation Information**

**Significant        Factors**

***Texas        Restructuring***

|                                                                                 |   | **(in                  millions)** |   |
|--------------------------------------------------------------------------------------|--------|------------------------------------|--------|
| Stranded                  Generation Plant Costs                                     |   | $                                  | 974    |   |
| Net                  Generation-related Regulatory Asset                             |   |                               | 249    |   |
| Excess                  Earnings                                                     |   |                               | (49    | ) |
| **Recorded                  Net Stranded Generation Plant Costs**                    |   |                               | 1,174  |   |
| Recorded                  Debt Carrying Costs on Net Stranded Generation Plant Costs |   |                               | 375    |   |
| **Recorded                  Securitizable True-up Regulatory Asset**                 |   |                               | 1,549  |   |
| Unrecorded                  But Recoverable Equity Carrying Costs                    |   |                               | 217    |   |
| Unrecorded                  Estimated July 2006 - August 2006 Debt Carrying Costs    |   |                               | 17     |   |
| Unrecorded                  Excess Earnings, Related Carrying Costs and Other        |   |                               | 52     |   |
| Settlement                  Reduction                                                |   |                               | (77    | ) |
| Reduction                  for ADITC and EDFIT Benefits                              |   |                               | (61    | ) |
| **Approved                  Securitizable Amount**                                   |   |                               | 1,697  |   |
| Unrecorded                  Securitization Issuance Costs                            |   |                               | 23     |   |
| **Amount                  to be Securitized**                                        |   | $                                  | 1,720  |   |

**:**

|                                                                           |   | **(in                  millions)** |   |
|--------------------------------------------------------------------------------|--------|------------------------------------|--------|
| Wholesale                  Capacity Auction True-up                            |   | $                                  | 61     |   |
| Carrying                  Costs on Wholesale Capacity Auction True-up          |   |                               | 28     |   |
| Retail                  Clawback including Carrying Costs                      |   |                               | (63    | ) |
| Deferred                  Over-recovered Fuel Balance                          |   |                               | (181   | ) |
| Retrospective                  ADFIT Benefit                                   |   |                               | (70    | ) |
| Other                                                                          |   |                               | (4     | ) |
| **Recorded                  Net Regulatory Liabilities - Other True-up Items** |   |                               | (229   | ) |
| Unrecorded                  Prospective ADFIT Benefit                          |   |                               | (240   | ) |
| Unrecorded                  Estimated July 2006 - August 2006 Carrying Costs   |   |                               | (6     | ) |
| **Gross                  CTC Refund**                                          |   |                               | (475   | ) |
| FERC                  Jurisdictional Fuel Refund Deferral                      |   |                               | 16     |   |
| ADITC                  and EDFIT Benefit Refund Deferral                       |   |                               | 97     |   |
| **Net                  CTC Refund Proposed, After Deferrals**                  |   |                               | (362   | ) |
| Rate                  Case Expense Surcharge                                   |   |                               | 7      |   |
| **Net                  Refund Proposed, After Deferrals and Expenses**         |   | $                                  | (355   | ) |

|                                                                                      |   | **(in                  millions)** |   |
|-------------------------------------------------------------------------------------------|--------|------------------------------------|--------|
| ADITC                  and EDFIT Benefits Reducing Securitization                         |   | $                                  | 97     |   |
| ADFIT                  Benefit Applied to Reduce 2002 Securitization of Regulatory Assets |   |                               | (64    | ) |
| Securitization                  Settlement                                                |   |                               | (77    | ) |
| Unrecorded                  Prospective ADFIT Benefit Increasing the CTC Refund           |   |                               | (240   | ) |
| Unrecorded                  Equity Carrying Costs Recognized as Collected                 |   |                               | 217    |   |
| Future                  Carrying Cost Payable on Proposed CTC Refund                      |   |                               | (113   | ) |
| Deferred                  Fuel - Federal Jurisdictional Issue                             |   |                               | 16     |   |
| **Net                  Adverse Earnings Impact Over 14 Years**                            |   | $                                  | (164   | ) |

***Litigation        and Regulatory Activity***

**Critical        Accounting Estimates**

----

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

**Market        Risks**

**MTM        Risk Management Contract Net Assets**

**MTM        Risk Management Contract Net Assets**

**Six        Months Ended June 30, 2006**

**(in        thousands)**

| **Total                  MTM Risk Management Contract Net Assets at December 31,                  2005**                                           |   | $      | 5,426  |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| (Gain)                  Loss from Contracts Realized/Settled During the Period and Entered                  in a                  Prior Period     |   |   | (1,362 | )      |
| Fair                  Value of New Contracts at Inception When Entered During the Period                  (a)                                      |   |   | -      |   |
| Net                  Option Premiums Paid/(Received) for Unexercised or Unexpired Option                  Contracts Entered During the Period |   |   | -      |   |
| Changes                  in Fair Value Due to Valuation Methodology Changes on Forward                  Contracts                                  |   |   | -      |   |
| Changes                  in Fair Value Due to Market Fluctuations During the Period                  (b)                                           |   |   | (3,681 | )      |
| Changes                  Due to SIA and CSW Operating Agreement (c)                                                                                |   |   | (383   | )      |
| Changes                  in Fair Value Allocated to Regulated Jurisdictions (d)                                                                    |   |   | -      |   |
| **Total                  MTM Risk Management Contract Net Assets**                                                                                 |   |   | -      |   |
| Net                  Cash Flow Hedge Contracts                                                                                                     |   |   | -      |   |
| **Total                  MTM Risk Management Contract Net Assets at June 30,                  2006**                                               |   | $      | -      |   |

| (a) | Most                  of the fair value comes from longer term fixed price contracts                  with                  customers that seek to limit their risk against fluctuating energy                  prices.                  Inception value is only recorded if observable market data can                  be obtained                  for valuation inputs for the entire contract term. The contract                  prices are                  valued against market curves associated with the delivery location                  and                  delivery term. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Market                  fluctuations are attributable to various factors such as supply/demand,                  weather, etc.                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| (c) | See                  “Allocating Agreement between AEP East companies and AEP West companies”                  section of this Management’s Financial Discussion and                  Analysis.                                                                                                                                                                                                                                                                                                                                                                          |
| (d) | “Changes                  in Fair Value Allocated to Regulated Jurisdictions” relates to the net                  gains (losses) of those contracts that are not reflected in the                  Condensed                  Consolidated Statements of Income. These net gains (losses) are                  recorded                  as regulatory liabilities/assets for those subsidiaries that operate                  in                  regulated jurisdictions.                                                                                                    |

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

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

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

**Six        Months Ended June 30, 2006**

**(in        thousands)**

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

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

**Credit        Risk**

**VaR        Associated with Risk Management Contracts**

| **Six                  Months Ended****June                  30, 2006** |   |     |   |        | **Twelve                  Months Ended****December                  31, 2005** |
|-------------------------------------------------------------------------|--------|----------|--------|-------------|--------------------------------------------------------------------------------|
| **(in                  thousands)**                                     |   |     |   |        | **(in                  thousands)**                                            |
| **End**                                                                 |   | **High** |   | **Average** |                                                                           | **Low** |   |   |   |   | **End** |   | **High** |   | **Average** |   | **Low** |
| $-                                                                      |   | $11      |   | $3          |                                                                           | $- |   |   |   |   | $111 |   | $184 |   | $88 |   | $32 |

**VaR        Associated with Debt Outstanding**

----

**AEP        TEXAS CENTRAL COMPANY AND SUBSIDIARY**

**CONDENSED        CONSOLIDATED STATEMENTS OF INCOME**

**For        the Three and Six Months Ended June 30, 2006 and 2005**

**(in        thousands)**

**(Unaudited)**

|                                                                 |   | **Three                  Months Ended** |     | **Six                  Months Ended** |   |
|----------------------------------------------------------------------|--------|-----------------------------------------|----------|---------------------------------------|--------|
|                                                                 |   |                                    | **2006** |                                  |   | **2005** |   |   | **2006** |   |   | **2005** |   |
| **REVENUES**                                                         |   |                                    |     |                                  |   |   |   |   |   |   |   |   |   |
| Electric                  Generation, Transmission and Distribution  |   | $                                       | 149,688  |                                  | $      | 184,743 |   | $ | 272,899 |   | $ | 366,890 |   |
| Sales                  to AEP Affiliates                             |   |                                    | 1,546    |                                  |   | 5,302 |   |   | 3,144 |   |   | 10,266 |   |
| Other                  - Nonaffiliated                               |   |                                    | 10,255   |                                  |   | 12,281 |   |   | 20,734 |   |   | 26,527 |   |
| **TOTAL**                                                            |   |                                    | 161,489  |                                  |   | 202,326 |   |   | 296,777 |   |   | 403,683 |   |
|                                                                 |   |                                    |     |                                  |   |   |   |   |   |   |   |   |   |
| **EXPENSES**                                                         |   |                                    |     |                                  |   |   |   |   |   |   |   |   |   |
| Fuel                  and Other Consumables for Electric Generation  |   |                                    | 996      |                                  |   | 4,034 |   |   | 2,722 |   |   | 10,132 |   |
| Purchased                  Electricity for Resale                    |   |                                    | 1,152    |                                  |   | 9,996 |   |   | 2,832 |   |   | 25,366 |   |
| Other                  Operation                                     |   |                                    | 63,257   |                                  |   | 76,584 |   |   | 122,184 |   |   | 157,333 |   |
| Maintenance                                                          |   |                                    | 8,787    |                                  |   | 12,433 |   |   | 16,576 |   |   | 29,472 |   |
| Depreciation                  and Amortization                       |   |                                    | 37,215   |                                  |   | 35,434 |   |   | 70,550 |   |   | 64,720 |   |
| Taxes                  Other Than Income Taxes                       |   |                                    | 16,671   |                                  |   | 20,923 |   |   | 37,034 |   |   | 43,454 |   |
| **TOTAL**                                                            |   |                                    | 128,078  |                                  |   | 159,404 |   |   | 251,898 |   |   | 330,477 |   |
|                                                                 |   |                                    |     |                                  |   |   |   |   |   |   |   |   |   |
| **OPERATING                  INCOME**                                |   |                                    | 33,411   |                                  |   | 42,922 |   |   | 44,879 |   |   | 73,206 |   |
|                                                                 |   |                                    |     |                                  |   |   |   |   |   |   |   |   |   |
| **Other                  Income (Expense):**                         |   |                                    |     |                                  |   |   |   |   |   |   |   |   |   |
| Interest                  Income                                     |   |                                    | 527      |                                  |   | 5,929 |   |   | 1,032 |   |   | 7,427 |   |
| Carrying                  Costs Income                               |   |                                    | 20,413   |                                  |   | 19,938 |   |   | 39,836 |   |   | 14,797 |   |
| Allowance                  for Equity Funds Used During Construction |   |                                    | 631      |                                  |   | 149 |   |   | 1,004 |   |   | 700 |   |
| Interest                  Expense                                    |   |                                    | (29,882  | )                                     |   | (32,642 | ) |   | (56,655 | ) |   | (59,721 | ) |
|                                                                 |   |                                    |     |                                  |   |   |   |   |   |   |   |   |   |
| **INCOME                  BEFORE INCOME TAXES**                      |   |                                    | 25,100   |                                  |   | 36,296 |   |   | 30,096 |   |   | 36,409 |   |
|                                                                 |   |                                    |     |                                  |   |   |   |   |   |   |   |   |   |
| Income                  Tax Expense                                  |   |                                    | 8,125    |                                  |   | 7,928 |   |   | 9,348 |   |   | 6,904 |   |
|                                                                 |   |                                    |     |                                  |   |   |   |   |   |   |   |   |   |
| **NET                  INCOME**                                      |   |                                    | 16,975   |                                  |   | 28,368 |   |   | 20,748 |   |   | 29,505 |   |
|                                                                 |   |                                    |     |                                  |   |   |   |   |   |   |   |   |   |
| Preferred                  Stock Dividend Requirements               |   |                                    | 61       |                                  |   | 61 |   |   | 121 |   |   | 121 |   |
|                                                                 |   |                                    |     |                                  |   |   |   |   |   |   |   |   |   |
| **EARNINGS                  APPLICABLE TO COMMON STOCK**             |   | $                                       | 16,914   |                                  | $      | 28,307 |   | $ | 20,627 |   | $ | 29,384 |   |

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

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

----

**AEP        TEXAS CENTRAL COMPANY AND SUBSIDIARY**

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

**EQUITY        AND COMPREHENSIVE INCOME (LOSS)**

**For        the Six Months Ended June 30, 2006 and 2005**

**(in        thousands)**

**(Unaudited)**

|                                                                                     |   |   | **Common                  Stock**  |   |   | **Paid-in                  Capital** |   |   | **Retained                  Earnings** |   |   | **Accumulated                  Other Comprehensive Income (Loss)** |   |   | **Total** |   |
|------------------------------------------------------------------------------------------|--------|--------|-----------------------------------------|--------|--------|--------------------------------------|--------|--------|----------------------------------------|--------|--------|--------------------------------------------------------------------|--------|--------|-----------|--------|
|                                                                                     |   |   |                                    |   |   |                                 |   |   |                                   |   |   |                                                               |   |   |      |   |
| **DECEMBER                  31, 2004**                                                   |   | $      | 55,292                                  |   | $      | 132,606                              |   | $      | 1,084,904                              |   | $      | (4,159                                                             | )      | $      | 1,268,643 |   |
|                                                                                     |   |   |                                    |   |   |                                 |   |   |                                   |   |   |                                                               |   |   |      |   |
| Common                  Stock Dividends                                                  |   |   |                                    |   |   |                                 |   |   | (150,000                               | )      |   |                                                               |   |   | (150,000  | )      |
| Preferred                  Stock Dividends                                               |   |   |                                    |   |   |                                 |   |   | (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 |   |
|                                                                                     |   |   |                                    |   |   |                                 |   |   |                                   |   |   |                                                               |   |   |      |   |
| **DECEMBER                  31, 2005**                                                   |   | $      | 55,292                                  |   | $      | 132,606                              |   | $      | 760,884                                |   | $      | (1,152                                                             | )      | $      | 947,630   |   |
|                                                                                     |   |   |                                    |   |   |                                 |   |   |                                   |   |   |                                                               |   |   |      |   |
| Preferred                  Stock Dividends                                               |   |   |                                    |   |   |                                 |   |   | (121                                   | )      |   |                                                               |   |   | (121      | )      |
| **TOTAL**                                                                                |   |   |                                    |   |   |                                 |   |   |                                   |   |   |                                                               |   |   | 947,509   |   |
|                                                                                     |   |   |                                    |   |   |                                 |   |   |                                   |   |   |                                                               |   |   |      |   |
| **COMPREHENSIVE                  INCOME**                                                |   |   |                                    |   |   |                                 |   |   |                                   |   |   |                                                               |   |   |      |   |
| **Other                  Comprehensive Income,**** Net                  of Taxes:** |   |   |                                    |   |   |                                 |   |   |                                   |   |   |                                                               |   |   |      |   |
| Cash                  Flow Hedges, Net of Tax of $121                                    |   |   |                                    |   |   |                                 |   |   |                                   |   |   | 224                                                                |   |   | 224       |   |
| **NET                  INCOME**                                                          |   |   |                                    |   |   |                                 |   |   | 20,748                                 |   |   |                                                               |   |   | 20,748    |   |
| **TOTAL                  COMPREHENSIVE INCOME**                                          |   |   |                                    |   |   |                                 |   |   |                                   |   |   |                                                               |   |   | 20,972    |   |
|                                                                                     |   |   |                                    |   |   |                                 |   |   |                                   |   |   |                                                               |   |   |      |   |
| **JUNE                  30, 2006**                                                       |   | $      | 55,292                                  |   | $      | 132,606                              |   | $      | 781,511                                |   | $      | (928                                                               | )      | $      | 968,481   |   |

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

----

**AEP        TEXAS CENTRAL COMPANY AND SUBSIDIARY**

**CONDENSED        CONSOLIDATED BALANCE SHEETS**

**ASSETS**

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

**(in        thousands)**

**(Unaudited)**

|                                                                |   |   | **2006**  |   |   | **2005**  |   |
|---------------------------------------------------------------------|--------|--------|-----------|--------|--------|-----------|--------|
| **CURRENT                  ASSETS**                                 |   |   |      |   |   |      |   |
| Cash                  and Cash Equivalents                          |   | $      | -         |   | $      | -         |   |
| Other                  Cash Deposits                                |   |   | 57,456    |   |   | 66,153    |   |
| Accounts                  Receivable:                               |   |   |      |   |   |      |   |
| Customers                                                           |   |   | 64,155    |   |   | 209,957   |   |
| Affiliated                  Companies                               |   |   | 4,002     |   |   | 23,486    |   |
| Accrued                  Unbilled Revenues                          |   |   | 26,481    |   |   | 25,606    |   |
| Allowance                  for Uncollectible Accounts               |   |   | (185      | )      |   | (143      | )      |
|                     Total Accounts Receivable             |   |   | 94,453    |   |   | 258,906   |   |
| Unbilled                  Construction Costs                        |   |   | 13,177    |   |   | 19,440    |   |
| Materials                  and Supplies                             |   |   | 20,951    |   |   | 13,897    |   |
| Risk                  Management Assets                             |   |   | -         |   |   | 14,311    |   |
| Prepayments                  and Other                              |   |   | 6,822     |   |   | 5,231     |   |
| **TOTAL**                                                           |   |   | 192,859   |   |   | 377,938   |   |
|                                                                |   |   |      |   |   |      |   |
| **PROPERTY,                  PLANT AND EQUIPMENT**                  |   |   |      |   |   |      |   |
| Electric:                                                           |   |   |      |   |   |      |   |
| Transmission                                                        |   |   | 892,979   |   |   | 817,351   |   |
| Distribution                                                        |   |   | 1,543,035 |   |   | 1,476,683 |   |
| Other                                                               |   |   | 229,915   |   |   | 233,361   |   |
| Construction                  Work in Progress                      |   |   | 97,407    |   |   | 129,800   |   |
| **Total**                                                           |   |   | 2,763,336 |   |   | 2,657,195 |   |
| Accumulated                  Depreciation and Amortization          |   |   | 627,669   |   |   | 636,078   |   |
| **TOTAL                  - NET**                                    |   |   | 2,135,667 |   |   | 2,021,117 |   |
|                                                                |   |   |      |   |   |      |   |
| **OTHER                  NONCURRENT ASSETS**                        |   |   |      |   |   |      |   |
| Regulatory                  Assets                                  |   |   | 1,688,536 |   |   | 1,688,787 |   |
| Securitized                  Transition Assets                      |   |   | 572,157   |   |   | 593,401   |   |
| Long-term                  Risk Management Assets                   |   |   | -         |   |   | 11,609    |   |
| Employee                  Benefits and Pension Assets               |   |   | 113,299   |   |   | 114,733   |   |
| Deferred                  Charges and Other                         |   |   | 67,292    |   |   | 53,011    |   |
| **TOTAL**                                                           |   |   | 2,441,284 |   |   | 2,461,541 |   |
|                                                                |   |   |      |   |   |      |   |
| **Assets                  Held for Sale - Texas Generation Plants** |   |   | 45,608    |   |   | 44,316    |   |
|                                                                |   |   |      |   |   |      |   |
| **TOTAL                  ASSETS**                                   |   | $      | 4,815,418 |   | $      | 4,904,912 |   |

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

----

**AEP        TEXAS CENTRAL COMPANY AND SUBSIDIARY**

**CONDENSED        CONSOLIDATED BALANCE SHEETS**

**LIABILITIES        AND SHAREHOLDERS’ EQUITY**

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

**(Unaudited)**

|                                                                            |   |                                | **2006**  |   |   | **2005**  |   |
|---------------------------------------------------------------------------------|--------|-------------------------------------|-----------|--------|--------|-----------|--------|
| **CURRENT                  LIABILITIES**                                        |   | **(in                  thousands)** |
| Advances                  from Affiliates                                       |   | $                                   | 27,926    |   | $      | 82,080    |   |
| Accounts                  Payable:                                              |   |                                |      |   |   |      |   |
| General                                                                         |   |                                | 32,661    |   |   | 82,666    |   |
| Affiliated                  Companies                                           |   |                                | 16,960    |   |   | 65,574    |   |
| Long-term                  Debt Due Within One Year - Nonaffiliated             |   |                                | 154,384   |   |   | 152,900   |   |
| Risk                  Management Liabilities                                    |   |                                | -         |   |   | 13,024    |   |
| Accrued                  Taxes                                                  |   |                                | 50,221    |   |   | 54,566    |   |
| Accrued                  Interest                                               |   |                                | 31,767    |   |   | 32,497    |   |
| Other                                                                           |   |                                | 26,606    |   |   | 45,927    |   |
| **TOTAL**                                                                       |   |                                | 340,525   |   |   | 529,234   |   |
|                                                                            |   |                                |      |   |   |      |   |
| **NONCURRENT                  LIABILITIES**                                     |   |                                |      |   |   |      |   |
| Long-term                  Debt - Nonaffiliated                                 |   |                                | 1,518,580 |   |   | 1,550,596 |   |
| Long-term                  Debt - Affiliated                                    |   |                                | 275,000   |   |   | 150,000   |   |
| Long-term                  Risk Management Liabilities                          |   |                                | -         |   |   | 7,857     |   |
| Deferred                  Income Taxes                                          |   |                                | 1,014,520 |   |   | 1,048,372 |   |
| Regulatory                  Liabilities and Deferred Investment Tax Credits     |   |                                | 674,269   |   |   | 652,143   |   |
| Deferred                  Credits and Other                                     |   |                                | 18,104    |   |   | 13,140    |   |
| **TOTAL**                                                                       |   |                                | 3,500,473 |   |   | 3,422,108 |   |
|                                                                            |   |                                |      |   |   |      |   |
| **TOTAL                  LIABILITIES**                                          |   |                                | 3,840,998 |   |   | 3,951,342 |   |
|                                                                            |   |                                |      |   |   |      |   |
| Cumulative                  Preferred Stock Not Subject to Mandatory Redemption |   |                                | 5,939     |   |   | 5,940     |   |
|                                                                            |   |                                |      |   |   |      |   |
| Commitments                  and Contingencies (Note 5)                         |   |                                |      |   |   |      |   |
|                                                                            |   |                                |      |   |   |      |   |
| **COMMON                  SHAREHOLDER’S EQUITY**                          |   |                                |      |   |   |      |   |
| Common                  Stock - $25 Par Value Per Share:                        |   |                                |      |   |   |      |   |
| Authorized                  - 12,000,000 Shares                                 |   |                                |      |   |   |      |   |
| Outstanding                  - 2,211,678 Shares                                 |   |                                | 55,292    |   |   | 55,292    |   |
| Paid-in                  Capital                                                |   |                                | 132,606   |   |   | 132,606   |   |
| Retained                  Earnings                                              |   |                                | 781,511   |   |   | 760,884   |   |
| Accumulated                  Other Comprehensive Income (Loss)                  |   |                                | (928      | )      |   | (1,152    | )      |
| **TOTAL**                                                                       |   |                                | 968,481   |   |   | 947,630   |   |
|                                                                            |   |                                |      |   |   |      |   |
| **TOTAL                  LIABILITIES AND SHAREHOLDERS’ EQUITY**           |   | $                                   | 4,815,418 |   | $      | 4,904,912 |   |

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

----

**AEP        TEXAS CENTRAL COMPANY AND SUBSIDIARY**

**CONDENSED        CONSOLIDATED STATEMENTS OF CASH FLOWS**

**For        the Six Months Ended June 30, 2006 and 2005**

**(in        thousands)**

**(Unaudited)**

|                                                                                                                   |   |   | **2006** |   |   | **2005** |   |
|------------------------------------------------------------------------------------------------------------------------|--------|--------|----------|--------|--------|----------|--------|
| **OPERATING                  ACTIVITIES**                                                                              |   |   |     |   |   |     |   |
| **Net                  Income**                                                                                        |   | $      | 20,748   |   | $      | 29,505   |   |
| **Adjustments                  for Noncash Items:**                                                                    |   |   |     |   |   |     |   |
| Depreciation                  and Amortization                                                                         |   |   | 70,550   |   |   | 64,720   |   |
| Accretion                  of Asset Retirement Obligations                                                             |   |   | 37       |   |   | 7,549    |   |
| Deferred                  Income Taxes                                                                                 |   |   | 6,095    |   |   | (83,369  | )      |
| Carrying                  Costs on Stranded Cost Recovery                                                              |   |   | (39,836  | )      |   | (14,797  | )      |
| Mark-to-Market                  of Risk Management Contracts                                                           |   |   | 5,426    |   |   | 7,085    |   |
| Over/Under                  Fuel Recovery                                                                              |   |   | 3,908    |   |   | (2,400   | )      |
| Deferred                  Property Taxes                                                                               |   |   | (16,592  | )      |   | (15,450  | )      |
| Change                  in Other Noncurrent Assets                                                                     |   |   | 21,686   |   |   | (1,908   | )      |
| Change                  in Other Noncurrent Liabilities                                                                |   |   | (25,338  | )      |   | 9        |   |
| **Changes                  in Components of Working Capital:**                                                         |   |   |     |   |   |     |   |
| Accounts                  Receivable, Net                                                                              |   |   | 164,453  |   |   | 28,976   |   |
| Fuel,                  Materials and Supplies                                                                          |   |   | (7,652   | )      |   | (969     | )      |
| Accounts                  Payable                                                                                      |   |   | (102,422 | )      |   | (45,594  | )      |
| Accrued                  Taxes, Net                                                                                    |   |   | (9,596   | )      |   | (69,046  | )      |
| Customer                  Deposits                                                                                     |   |   | (6,876   | )      |   | (733     | )      |
| Accrued                  Interest                                                                                      |   |   | (730     | )      |   | (2,555   | )      |
| Other                  Current Assets                                                                                  |   |   | 9,924    |   |   | (8,279   | )      |
| Other                  Current Liabilities                                                                             |   |   | (12,444  | )      |   | 1,822    |   |
| **Net                  Cash Flows From (Used For) Operating Activities**                                               |   |   | 81,341   |   |   | (105,434 | )      |
|                                                                                                                   |   |   |     |   |   |     |   |
| **INVESTING                  ACTIVITIES**                                                                              |   |   |     |   |   |     |   |
| Construction                  Expenditures                                                                             |   |   | (136,475 | )      |   | (60,972  | )      |
| Change                  in Other Cash Deposits, Net                                                                    |   |   | 9,340    |   |   | (107,494 | )      |
| Purchases                  of Investment Securities                                                                    |   |   | -        |   |   | (154,364 | )      |
| Sales                  of Investment Securities                                                                        |   |   | -        |   |   | 149,804  |   |
| Proceeds                  from Sale of Assets                                                                          |   |   | 6,083    |   |   | 313,709  |   |
| **Net                  Cash Flows From (Used For) Investing Activities**                                               |   |   | (121,052 | )      |   | 140,683  |   |
|                                                                                                                   |   |   |     |   |   |     |   |
| **FINANCING                  ACTIVITIES**                                                                              |   |   |     |   |   |     |   |
| Issuance                  of Long-term Debt - Nonaffiliated                                                            |   |   | -        |   |   | 276,690  |   |
| Issuance                  of Long-term Debt - Affiliated                                                               |   |   | 125,000  |   |   | -        |   |
| Change                  in Advances from Affiliates, Net                                                               |   |   | (54,154  | )      |   | 119,857  |   |
| Retirement                  of Long-term Debt                                                                          |   |   | (30,641  | )      |   | (279,386 | )      |
| Retirement                  of Preferred Stock                                                                         |   |   | (1       | )      |   | -        |   |
| Principal                  Payments for Capital Lease Obligations                                                      |   |   | (372     | )      |   | (221     | )      |
| Dividends                  Paid on Cumulative Preferred Stock                                                          |   |   | (121     | )      |   | (121     | )      |
| Dividends                  Paid on Common Stock                                                                        |   |   | -        |   |   | (150,000 | )      |
| **Net                  Cash From (Used For) Financing Activities**                                                     |   |   | 39,711   |   |   | (33,181  | )      |
|                                                                                                                   |   |   |     |   |   |     |   |
| **Net                  Increase in Cash and Cash Equivalents**                                                         |   |   | -        |   |   | 2,068    |   |
| **Cash                  and Cash Equivalents at Beginning of Period**                                                  |   |   | -        |   |   | 26       |   |
| **Cash                  and Cash Equivalents at End of Period**                                                        |   | $      | -        |   | $      | 2,094    |   |
|                                                                                                                   |   |   |     |   |   |     |   |
| **SUPPLEMENTAL                  DISCLOSURE**                                                                           |   |   |     |   |   |     |   |
| Cash                  Paid for Interest, Net of Capitalized Amounts                                                    |   | $      | 51,577   |   | $      | 52,441   |   |
| Cash                  Paid for Income Taxes, Net of Refunds                                                            |   |   | 13,440   |   |   | 161,372  |   |
| Noncash                  Acquisitions Under Capital Leases                                                             |   |   | 2,145    |   |   | 261      |   |
| Construction                  Expenditures Included in Accounts Payable at June 30,                                    |   |   | 14,840   |   |   | 3,970    |   |
|                                                                                                                   |   |   |     |   |   |     |   |
| *See                  Condensed Notes to Condensed Financial Statements of Registrant                  Subsidiaries .* |

----

**AEP        TEXAS CENTRAL COMPANY AND SUBSIDIARY**

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

|                                                        | **Footnote                  Reference** |
|-------------------------------------------------------------|-----------------------------------------|
| Significant                  Accounting Matters             | Note                  1                 |
| New                  Accounting Pronouncements              | Note                  2                 |
| Rate                  Matters                               | Note                  3                 |
| Customer                  Choice and Industry Restructuring | Note                  4                 |
| Commitments                  and Contingencies              | Note                  5                 |
| Guarantees                                                  | Note                  6                 |
| Company-wide                  Staffing and Budget Review    | Note                  7                 |
| Assets                  Held for Sale                       | Note                  8                 |
| Benefit                  Plans                              | Note                  9                 |
| Income                  Taxes                               | Note                  10                |
| Business                  Segments                          | Note                  11                |
| Financing                  Activities                       | Note                  12                |

----

**AEP        TEXAS NORTH COMPANY**

----

**AEP        TEXAS NORTH COMPANY**

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

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

**Results        of Operations**

**Reconciliation        of Second Quarter of 2005 to Second Quarter of 2006 Net Income        (Loss)**

**(in        millions)**

| **Second                  Quarter of 2005**                   |   |   |   |   | $      | 12     |   |
|---------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                          |   |   |   |   |   |   |   |
| **Changes                  in Gross Margin:**                 |   |   |   |   |   |   |   |
| Texas                  Supply                                 |   |   | (14    | )      |   |   |   |
| Texas                  Wires                                  |   |   | (1     | )      |   |   |   |
| Off-system                  Sales                             |   |   | (2     | )      |   |   |   |
| Transmission                  Revenues                        |   |   | (3     | )      |   |   |   |
| Other                                                         |   |   | (3     | )      |   |   |   |
| **Total                  Change in Gross Margin**             |   |   |   |   |   | (23    | )      |
|                                                          |   |   |   |   |   |   |   |
| **Changes                  in Operating Expenses and Other:** |   |   |   |   |   |   |   |
| Other                  Operation and Maintenance              |   |   |   |   |   | 3      |   |
|                                                          |   |   |   |   |   |   |   |
| Income                  Tax** **Expense                  |   |   |   |   |   | 7      |   |
|                                                          |   |   |   |   |   |   |   |
| **Second                  Quarter of 2006**                   |   |   |   |   | $      | (1     | )      |

| · | Texas                  Supply margins decreased $14 million primarily due to a $19 million                  decrease in dedicated ERCOT energy sales, offset by $9 million                  of lower                  fuel and purchased power costs. This decrease in Texas Supply margins                  was                  affected by increased generation outages and market conditions                  within                  ERCOT. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Transmission                  Revenues decreased $3 million primarily due to reduced affiliated                  transmission fees resulting from the elimination of the affiliated                  OATT.                                                                                                                                                                                                                                       |
| · | Other                  revenues decreased $3 million primarily due to the completion of                  certain                  third party construction projects, primarily related to work performed                  for                  the Lower Colorado River Authority.                                                                                                                                                               |

| · | Other                  Operation and Maintenance expenses decreased $3 million primarily                  due to                  lower expenses related to the completion of certain third party                  construction projects, primarily related to work performed for                  the Lower                  Colorado River Authority. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Income        Taxes*

**Reconciliation        of **
**Six        Months Ended June 30, **
**2005        to **
**Six        Months Ended June 30, **
**2006        Net Income**

**(in        millions)**

| **Six                  Months Ended June 30,****2005**            |   |   |   |   | $      | 19     |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Gross Margin:**                     |   |   |   |   |   |   |   |
| Texas                  Supply                                     |   |   | (17    | )      |   |   |   |
| Texas                  Wires                                      |   |   | (1     | )      |   |   |   |
| Off-system                  Sales                                 |   |   | (1     | )      |   |   |   |
| Transmission                  Revenues                            |   |   | (5     | )      |   |   |   |
| Other                                                             |   |   | (40    | )      |   |   |   |
| **Total                  Change in Gross Margin**                 |   |   |   |   |   | (64    | )      |
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                  Operation and Maintenance                  |   |   | 37     |   |   |   |   |
| Interest                  Expense                                 |   |   | 1      |   |   |   |   |
| **Total                  Change in Operating Expenses and Other** |   |   |   |   |   | 38     |   |
|                                                              |   |   |   |   |   |   |   |
| Income                  Tax** **Expense                      |   |   |   |   |   | 10     |   |
|                                                              |   |   |   |   |   |   |   |
| **Six                  Months Ended June 30,****2006**            |   |   |   |   | $      | 3      |   |

| · | Texas                  Supply margins decreased $17 million primarily due to a $25 million                  decrease in dedicated ERCOT energy sales, offset by $12 million                  of lower                  fuel and purchased power costs. This decrease in Texas Supply margins                  was                  affected by increased generation outages and market conditions                  within                  ERCOT. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Transmission                  Revenues decreased $5 million primarily due to reduced affiliated                  transmission fees resulting from the elimination of the affiliated                  OATT.                                                                                                                                                                                                                                        |
| · | Other                  revenues decreased $40 million primarily resulting from the completion                  of                  certain third party construction projects, primarily related to                  work                  performed for the Lower Colorado River                  Authority.                                                                                                                                      |

| · | Other                  Operation and Maintenance expenses decreased $37 million primarily                  due to                  lower expenses related to the completion of certain third party                  construction projects, primarily related to work performed for                  the Lower                  Colorado River Authority. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Income        Taxes*

**Financial        Condition**

**Credit        Ratings**

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

**Financing        Activity**

**Liquidity**

**Summary        Obligation Information**

**Significant        Factors**

***Litigation        and Regulatory Activity***

**Critical        Accounting Estimates**

----

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

**Market        Risks**

**MTM        Risk Management Contract Net Assets**

**Reconciliation        of MTM Risk Management Contracts to**

**Condensed        Balance Sheet**

**As        of June 30, 2006**

**(in        thousands)**

|                                                           |   |   | **MTM                  Risk Management Contracts**  |   |   | **Cash                  Flow Hedges** |   |   | **Total** |   |
|----------------------------------------------------------------|--------|--------|----------------------------------------------------------|--------|--------|---------------------------------------|--------|--------|-----------|--------|
| Current                  Assets                                |   | $      | -                                                        |   | $      | 552                                   |   | $      | 552       |   |
| Noncurrent                  Assets                             |   |   | -                                                        |   |   | 4,027                                 |   |   | 4,027     |   |
| **Total                  MTM Derivative Contract Assets**      |   |   | -                                                        |   |   | 4,579                                 |   |   | 4,579     |   |
|                                                           |   |   |                                                     |   |   |                                  |   |   |      |   |
| Current                  Liabilities                           |   |   | -                                                        |   |   | (843                                  | )      |   | (843      | )      |
| Noncurrent                  Liabilities                        |   |   | -                                                        |   |   | -                                     |   |   | -         |   |
| **Total                  MTM Derivative Contract Liabilities** |   |   | -                                                        |   |   | (843                                  | )      |   | (843      | )      |
|                                                           |   |   |                                                     |   |   |                                  |   |   |      |   |
| **Total                  MTM Derivative Contract Net Assets**  |   | $      | -                                                        |   | $      | 3,736                                 |   | $      | 3,736     |   |

**MTM        Risk Management Contract Net Assets**

**Six        Months Ended June 30, 2006**

**(in        thousands)**

| **Total                  MTM Risk Management Contract Net Assets at December 31,                  2005**                                           |   | $      | 2,698  |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| (Gain)                  Loss from Contracts Realized/Settled During the Period and Entered                  in a                  Prior Period     |   |   | (678   | )      |
| Fair                  Value of New Contracts at Inception When Entered During the Period                  (a)                                      |   |   | -      |   |
| Net                  Option Premiums Paid/(Received) for Unexercised or Unexpired Option                  Contracts Entered During the Period |   |   | -      |   |
| Change                  in Fair Value Due to Valuation Methodology Changes on Forward                  Contracts                                   |   |   | -      |   |
| Changes                  in Fair Value Due to Market Fluctuations During the Period                  (b)                                           |   |   | (1,206 | )      |
| Changes                  Due to SIA and CSW Operating Agreement (c)                                                                                |   |   | (814   | )      |
| Changes                  in Fair Value Allocated to Regulated Jurisdictions (d)                                                                    |   |   | -      |   |
| **Total                  MTM Risk Management Contract Net Assets**                                                                                 |   |   | -      |   |
| Net                  Cash Flow Hedge Contracts                                                                                                     |   |   | 3,736  |   |
| **Total                  MTM Risk Management Contract Net Assets at June 30,                  2006**                                               |   | $      | 3,736  |   |

| (a) | Most                  of the fair value comes from longer term fixed price contracts                  with                  customers that seek to limit their risk against fluctuating energy                  prices.                  Inception value is only recorded if observable market data can                  be obtained                  for valuation inputs for the entire contract term. The contract                  prices are                  valued against market curves associated with the delivery location                  and                  delivery term. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Market                  fluctuations are attributable to various factors such as supply/demand,                  weather, etc.                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| (c) | See                  “Allocation Agreement between AEP East companies and AEP West companies”                  section of this Management's Financial Discussion and                  Analysis.                                                                                                                                                                                                                                                                                                                                                                                |
| (d) | “Changes                  in Fair Value Allocated to Regulated Jurisdictions” relates to the net                  gains (losses) of those contracts that are not reflected in the                  Condensed                  Statements of Income. These net gains (losses) are recorded as                  regulatory                  liabilities/assets for those subsidiaries that operate in regulated                  jurisdictions.                                                                                                                                  |

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

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

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

**Six        Months Ended June 30, 2006**

**(in        thousands)**

|                                                                                    |   |   | **Power**  |   |
|-----------------------------------------------------------------------------------------|--------|--------|-----------------|--------|
| **Beginning                  Balance in AOCI December 31, 2005**                        |   | $      | (111            | )      |
| Changes                  in Fair Value                                                  |   |   | 2,429           |   |
| Impact                  Due to Change in SIA (a)                                        |   |   | 98              |   |
| Reclassifications                  from AOCI to Net Income for Cash Flow Hedges Settled |   |   | 13              |   |
| **Ending                  Balance in AOCI June 30, 2006**                               |   | $      | 2,429           |   |

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

**Credit        Risk**

**VaR        Associated with Risk Management Contracts**

| **Six                  Months Ended****June                  30, 2006** |   |     |   |        | **Twelve                  Months Ended****December                  31, 2005** |
|-------------------------------------------------------------------------|--------|----------|--------|-------------|--------------------------------------------------------------------------------|
| **(in                  thousands)**                                     |   |     |   |        | **(in                  thousands)**                                            |
| **End**                                                                 |   | **High** |   | **Average** |                                                                           | **Low** |   |   |   |   | **End** |   | **High** |   | **Average** |   | **Low** |
| $-                                                                      |   | $23      |   | $6          |                                                                           | $- |   |   |   |   | $55 |   | $92 |   | $44 |   | $16 |

**VaR        Associated with Debt Outstanding**

----

**AEP        TEXAS NORTH COMPANY**

**CONDENSED        STATEMENTS OF OPERATIONS**

**For        the Three and Six Months Ended June 30, 2006 and 2005**

**(in        thousands)**

**(Unaudited)**

|                                                                        |   | **Three                  Months Ended** |     | **Six                  Months Ended** |   |
|-----------------------------------------------------------------------------|--------|-----------------------------------------|----------|---------------------------------------|--------|
|                                                                        |   |                                    | **2006** |                                  |   | **2005** |   |   | **2006** |   |   | **2005** |   |
| **REVENUES**                                                                |   |                                    |     |                                  |   |   |   |   |   |   |   |   |   |
| Electric                  Generation, Transmission and Distribution         |   | $                                       | 71,051   |                                  | $      | 97,199 |   | $ | 139,876 |   | $ | 169,088 |   |
| Sales                  to AEP Affiliates                                    |   |                                    | 11,860   |                                  |   | 12,880 |   |   | 17,885 |   |   | 24,170 |   |
| Other                                                                       |   |                                    | 87       |                                  |   | 4,625 |   |   | (97 | ) |   | 40,353 |   |
| **TOTAL**                                                                   |   |                                    | 82,998   |                                  |   | 114,704 |   |   | 157,664 |   |   | 233,611 |   |
|                                                                        |   |                                    |     |                                  |   |   |   |   |   |   |   |   |   |
| **EXPENSES**                                                                |   |                                    |     |                                  |   |   |   |   |   |   |   |   |   |
| Fuel                  and Other Consumables for Electric Generation         |   |                                    | 7,044    |                                  |   | 11,356 |   |   | 19,159 |   |   | 24,339 |   |
| Purchased                  Electricity for Resale                           |   |                                    | 32,883   |                                  |   | 37,604 |   |   | 47,279 |   |   | 53,964 |   |
| Other                  Operation                                            |   |                                    | 21,633   |                                  |   | 24,587 |   |   | 40,189 |   |   | 78,257 |   |
| Maintenance                                                                 |   |                                    | 5,216    |                                  |   | 4,920 |   |   | 10,417 |   |   | 9,139 |   |
| Depreciation                  and Amortization                              |   |                                    | 10,182   |                                  |   | 10,362 |   |   | 20,405 |   |   | 20,517 |   |
| Taxes                  Other Than Income Taxes                              |   |                                    | 5,856    |                                  |   | 5,713 |   |   | 11,396 |   |   | 11,418 |   |
| **TOTAL**                                                                   |   |                                    | 82,814   |                                  |   | 94,542 |   |   | 148,845 |   |   | 197,634 |   |
|                                                                        |   |                                    |     |                                  |   |   |   |   |   |   |   |   |   |
| **OPERATING                  INCOME**                                       |   |                                    | 184      |                                  |   | 20,162 |   |   | 8,819 |   |   | 35,977 |   |
|                                                                        |   |                                    |     |                                  |   |   |   |   |   |   |   |   |   |
| **Other                  Income (Expense):**                                |   |                                    |     |                                  |   |   |   |   |   |   |   |   |   |
| Interest                  Income                                            |   |                                    | 120      |                                  |   | 542 |   |   | 339 |   |   | 798 |   |
| Allowance                  for Equity Funds Used During Construction        |   |                                    | 108      |                                  |   | 156 |   |   | 490 |   |   | 229 |   |
| Interest                  Expense                                           |   |                                    | (4,517   | )                                     |   | (4,869 | ) |   | (8,879 | ) |   | (9,853 | ) |
|                                                                        |   |                                    |     |                                  |   |   |   |   |   |   |   |   |   |
| **INCOME                  (LOSS) BEFORE INCOME TAXES**                      |   |                                    | (4,105   | )                                     |   | 15,991 |   |   | 769 |   |   | 27,151 |   |
|                                                                        |   |                                    |     |                                  |   |   |   |   |   |   |   |   |   |
| Income                  Tax Expense (Credit)                                |   |                                    | (3,513   | )                                     |   | 3,987 |   |   | (2,473 | ) |   | 7,753 |   |
|                                                                        |   |                                    |     |                                  |   |   |   |   |   |   |   |   |   |
| **NET                  INCOME (LOSS)**                                      |   |                                    | (592     | )                                     |   | 12,004 |   |   | 3,242 |   |   | 19,398 |   |
|                                                                        |   |                                    |     |                                  |   |   |   |   |   |   |   |   |   |
| Preferred                  Stock Dividend Requirements                      |   |                                    | 26       |                                  |   | 26 |   |   | 52 |   |   | 52 |   |
| Gain                  on Reacquired Preferred Stock                         |   |                                    | -        |                                  |   | - |   |   | 2 |   |   | - |   |
|                                                                        |   |                                    |     |                                  |   |   |   |   |   |   |   |   |   |
| **EARNINGS                  (LOSS) APPLICABLE TO COMMON   STOCK** |   | $                                       | (618     | )                                     | $      | 11,978 |   | $ | 3,192 |   | $ | 19,346 |   |

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

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

----

**AEP        TEXAS NORTH COMPANY**

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

**EQUITY        AND COMPREHENSIVE INCOME (LOSS)**

**For        the Six Months Ended June 30, 2006 and 2005**

**(in        thousands)**

**(Unaudited)**

|                                                                |   |   | **Common                  Stock**  |   |   | **Paid-in                  Capital** |   |   | **Retained                  Earnings** |   |   | **Accumulated                  Other Comprehensive Income (Loss)** |   |   | **Total** |   |
|---------------------------------------------------------------------|--------|--------|-----------------------------------------|--------|--------|--------------------------------------|--------|--------|----------------------------------------|--------|--------|--------------------------------------------------------------------|--------|--------|-----------|--------|
| **DECEMBER                  31, 2004**                              |   | $      | 137,214                                 |   | $      | 2,351                                |   | $      | 170,984                                |   | $      | (128                                                               | )      | $      | 310,421   |   |
|                                                                |   |   |                                    |   |   |                                 |   |   |                                   |   |   |                                                               |   |   |      |   |
| Common                  Stock Dividends                             |   |   |                                    |   |   |                                 |   |   | (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   |   |
|                                                                |   |   |                                    |   |   |                                 |   |   |                                   |   |   |                                                               |   |   |      |   |
| **DECEMBER                  31, 2005**                              |   | $      | 137,214                                 |   | $      | 2,351                                |   | $      | 174,858                                |   | $      | (504                                                               | )      | $      | 313,919   |   |
|                                                                |   |   |                                    |   |   |                                 |   |   |                                   |   |   |                                                               |   |   |      |   |
| Common                  Stock Dividends                             |   |   |                                    |   |   |                                 |   |   | (12,750                                | )      |   |                                                               |   |   | (12,750   | )      |
| Preferred                  Stock Dividends                          |   |   |                                    |   |   |                                 |   |   | (52                                    | )      |   |                                                               |   |   | (52       | )      |
| Gain                  on Reacquired Preferred Stock                 |   |   |                                    |   |   |                                 |   |   | 2                                      |   |   |                                                               |   |   | 2         |   |
| **TOTAL**                                                           |   |   |                                    |   |   |                                 |   |   |                                   |   |   |                                                               |   |   | 301,119   |   |
|                                                                |   |   |                                    |   |   |                                 |   |   |                                   |   |   |                                                               |   |   |      |   |
| **COMPREHENSIVE                  INCOME**                           |   |   |                                    |   |   |                                 |   |   |                                   |   |   |                                                               |   |   |      |   |
| **Other                  Comprehensive Income, Net of Taxes:** |   |   |                                    |   |   |                                 |   |   |                                   |   |   |                                                               |   |   |      |   |
| Cash                  Flow Hedges, Net of Tax of $1,368             |   |   |                                    |   |   |                                 |   |   |                                   |   |   | 2,540                                                              |   |   | 2,540     |   |
| **NET                  INCOME**                                     |   |   |                                    |   |   |                                 |   |   | 3,242                                  |   |   |                                                               |   |   | 3,242     |   |
| **TOTAL                  COMPREHENSIVE INCOME**                     |   |   |                                    |   |   |                                 |   |   |                                   |   |   |                                                               |   |   | 5,782     |   |
|                                                                |   |   |                                    |   |   |                                 |   |   |                                   |   |   |                                                               |   |   |      |   |
| **JUNE                  30, 2006**                                  |   | $      | 137,214                                 |   | $      | 2,351                                |   | $      | 165,300                                |   | $      | 2,036                                                              |   | $      | 306,901   |   |

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

----

**AEP        TEXAS NORTH COMPANY**

**CONDENSED        BALANCE SHEETS**

**ASSETS**

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

**(in        thousands)**

**(Unaudited)**

|                                                       |   |   | **2006**  |   |   | **2005**  |   |
|------------------------------------------------------------|--------|--------|-----------|--------|--------|-----------|--------|
| **CURRENT                  ASSETS**                        |   |   |      |   |   |      |   |
| Cash                  and Cash Equivalents                 |   | $      | -         |   | $      | -         |   |
| Other                  Cash Deposits                       |   |   | 8,993     |   |   | 1,432     |   |
| Advances                  to Affiliates                    |   |   | -         |   |   | 34,286    |   |
| Accounts                  Receivable:                      |   |   |      |   |   |      |   |
| Customers                                                  |   |   | 24,702    |   |   | 77,678    |   |
| Affiliated                  Companies                      |   |   | 8,176     |   |   | 26,149    |   |
| Accrued                  Unbilled Revenues                 |   |   | 4,383     |   |   | 5,016     |   |
| Allowance                  for Uncollectible Accounts      |   |   | (23       | )      |   | (18       | )      |
|                     Total Accounts Receivable    |   |   | 37,238    |   |   | 108,825   |   |
| Fuel                                                       |   |   | 7,000     |   |   | 2,636     |   |
| Materials                  and Supplies                    |   |   | 7,743     |   |   | 6,858     |   |
| Risk                  Management Assets                    |   |   | 552       |   |   | 7,114     |   |
| Prepayments                  and Other                     |   |   | 3,665     |   |   | 3,772     |   |
| **TOTAL**                                                  |   |   | 65,191    |   |   | 164,923   |   |
|                                                       |   |   |      |   |   |      |   |
| **PROPERTY,                  PLANT AND EQUIPMENT**         |   |   |      |   |   |      |   |
| Electric:                                                  |   |   |      |   |   |      |   |
| Production                                                 |   |   | 290,261   |   |   | 288,934   |   |
| Transmission                                               |   |   | 324,294   |   |   | 289,029   |   |
| Distribution                                               |   |   | 502,917   |   |   | 492,878   |   |
| Other                                                      |   |   | 164,500   |   |   | 167,849   |   |
| Construction                  Work in Progress             |   |   | 23,223    |   |   | 46,424    |   |
| **Total**                                                  |   |   | 1,305,195 |   |   | 1,285,114 |   |
| Accumulated                  Depreciation and Amortization |   |   | 479,043   |   |   | 478,519   |   |
| **TOTAL                  - NET**                           |   |   | 826,152   |   |   | 806,595   |   |
|                                                       |   |   |      |   |   |      |   |
| **OTHER                  NONCURRENT ASSETS**               |   |   |      |   |   |      |   |
| Regulatory                  Assets                         |   |   | 9,078     |   |   | 9,787     |   |
| Long-term                  Risk Management Assets          |   |   | 4,027     |   |   | 5,772     |   |
| Employee                  Benefits and Pension Assets      |   |   | 45,702    |   |   | 46,289    |   |
| Deferred                  Charges and Other                |   |   | 10,930    |   |   | 10,468    |   |
| **TOTAL**                                                  |   |   | 69,737    |   |   | 72,316    |   |
|                                                       |   |   |      |   |   |      |   |
| **TOTAL                  ASSETS**                          |   | $      | 961,080   |   | $      | 1,043,834 |   |

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

----

**AEP        TEXAS NORTH COMPANY**

**CONDENSED        BALANCE SHEETS**

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

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

**(Unaudited)**

|                                                                            |   |                                | **2006** |   |   | **2005**  |   |
|---------------------------------------------------------------------------------|--------|-------------------------------------|----------|--------|--------|-----------|--------|
| **CURRENT                  LIABILITIES**                                        |   | **(in                  thousands)** |
| Advances                  from Affiliates                                       |   | $                                   | 6,005    |   | $      | -         |   |
| Accounts                  Payable:                                              |   |                                |     |   |   |      |   |
| General                                                                         |   |                                | 13,767   |   |   | 19,739    |   |
| Affiliated                  Companies                                           |   |                                | 27,450   |   |   | 84,923    |   |
| Long-term                  Debt Due Within One Year - Nonaffiliated             |   |                                | 8,151    |   |   | -         |   |
| Risk                  Management Liabilities                                    |   |                                | 843      |   |   | 6,475     |   |
| Accrued                  Taxes                                                  |   |                                | 19,904   |   |   | 21,212    |   |
| Other                                                                           |   |                                | 11,926   |   |   | 21,050    |   |
| **TOTAL**                                                                       |   |                                | 88,046   |   |   | 153,399   |   |
|                                                                            |   |                                |     |   |   |      |   |
| **NONCURRENT                  LIABILITIES**                                     |   |                                |     |   |   |      |   |
| Long-term                  Debt - Nonaffiliated                                 |   |                                | 268,739  |   |   | 276,845   |   |
| Long-term                  Risk Management Liabilities                          |   |                                | -        |   |   | 3,906     |   |
| Deferred                  Income Taxes                                          |   |                                | 127,114  |   |   | 132,335   |   |
| Regulatory                  Liabilities and Deferred Investment Tax Credits     |   |                                | 146,653  |   |   | 139,732   |   |
| Deferred                  Credits and Other                                     |   |                                | 21,278   |   |   | 21,341    |   |
| **TOTAL**                                                                       |   |                                | 563,784  |   |   | 574,159   |   |
|                                                                            |   |                                |     |   |   |      |   |
| **TOTAL                  LIABILITIES**                                          |   |                                | 651,830  |   |   | 727,558   |   |
|                                                                            |   |                                |     |   |   |      |   |
| Cumulative                  Preferred Stock Not Subject to Mandatory Redemption |   |                                | 2,349    |   |   | 2,357     |   |
|                                                                            |   |                                |     |   |   |      |   |
| Commitments                  and Contingencies (Note 5)                         |   |                                |     |   |   |      |   |
|                                                                            |   |                                |     |   |   |      |   |
| **COMMON                  SHAREHOLDER’S EQUITY**                          |   |                                |     |   |   |      |   |
| Common                  Stock - $25 Par Value Per Share:                        |   |                                |     |   |   |      |   |
| Authorized                  - 7,800,000 Shares                                  |   |                                |     |   |   |      |   |
| Outstanding                  - 5,488,560 Shares                                 |   |                                | 137,214  |   |   | 137,214   |   |
| Paid-in                  Capital                                                |   |                                | 2,351    |   |   | 2,351     |   |
| Retained                  Earnings                                              |   |                                | 165,300  |   |   | 174,858   |   |
| Accumulated                  Other Comprehensive Income (Loss)                  |   |                                | 2,036    |   |   | (504      | )      |
| **TOTAL**                                                                       |   |                                | 306,901  |   |   | 313,919   |   |
|                                                                            |   |                                |     |   |   |      |   |
| **TOTAL                  LIABILITIES AND SHAREHOLDERS’ EQUITY**           |   | $                                   | 961,080  |   | $      | 1,043,834 |   |

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

----

**AEP        TEXAS NORTH COMPANY**

**CONDENSED        STATEMENTS OF CASH FLOWS**

**For        the Six Months Ended June 30, 2006 and 2005**

**(in        thousands)**

**(Unaudited)**

|                                                                                                                  |   |   | **2006** |   |   | **2005** |   |
|-----------------------------------------------------------------------------------------------------------------------|--------|--------|----------|--------|--------|----------|--------|
| **OPERATING                  ACTIVITIES**                                                                             |   |   |     |   |   |     |   |
| **Net                  Income**                                                                                       |   | $      | 3,242    |   | $      | 19,398   |   |
| **Adjustments                  for Noncash Items:**                                                                   |   |   |     |   |   |     |   |
| Depreciation                  and Amortization                                                                        |   |   | 20,405   |   |   | 20,517   |   |
| Deferred                  Income Taxes                                                                                |   |   | (3,183   | )      |   | (1,742   | )      |
| Mark-to-Market                  of Risk Management Contracts                                                          |   |   | 2,698    |   |   | 3,062    |   |
| Deferred                  Property Taxes                                                                              |   |   | (8,408   | )      |   | (8,145   | )      |
| Change                  in Other Noncurrent Assets                                                                    |   |   | (3,302   | )      |   | (1,937   | )      |
| Change                  in Other Noncurrent Liabilities                                                               |   |   | 1,904    |   |   | 2,202    |   |
| **Changes                  in Components of Working Capital:**                                                        |   |   |     |   |   |     |   |
| Accounts                  Receivable, Net                                                                             |   |   | 71,587   |   |   | 4,654    |   |
| Fuel,                  Materials and Supplies                                                                         |   |   | (5,249   | )      |   | (2,495   | )      |
| Accounts                  Payable                                                                                     |   |   | (62,323  | )      |   | 11,893   |   |
| Accrued                  Taxes, Net                                                                                   |   |   | (4,046   | )      |   | (11,847  | )      |
| Customer                  Deposits                                                                                    |   |   | (3,571   | )      |   | (388     | )      |
| Other                  Current Assets                                                                                 |   |   | 2,845    |   |   | 14,577   |   |
| Other                  Current Liabilities                                                                            |   |   | (4,582   | )      |   | (710     | )      |
| **Net                  Cash Flows From Operating Activities**                                                         |   |   | 8,017    |   |   | 49,039   |   |
|                                                                                                                  |   |   |     |   |   |     |   |
| **INVESTING                  ACTIVITIES**                                                                             |   |   |     |   |   |     |   |
| Construction                  Expenditures                                                                            |   |   | (36,675  | )      |   | (24,177  | )      |
| Change                  in Other Cash Deposits, Net                                                                   |   |   | 1,073    |   |   | -        |   |
| Change                  In Advances to Affiliates, Net                                                                |   |   | 34,286   |   |   | (12,161  | )      |
| Proceeds                  from Sale of Assets                                                                         |   |   | 250      |   |   | 1,033    |   |
| **Net                  Cash Flows Used For Investing Activities**                                                     |   |   | (1,066   | )      |   | (35,305  | )      |
|                                                                                                                  |   |   |     |   |   |     |   |
| **FINANCING                  ACTIVITIES**                                                                             |   |   |     |   |   |     |   |
| Change                  in Advances from Affiliates, Net                                                              |   |   | 6,005    |   |   | -        |   |
| Retirement                  of Preferred Stock                                                                        |   |   | (6       | )      |   | -        |   |
| Principal                  Payments for Capital Lease Obligations                                                     |   |   | (148     | )      |   | (118     | )      |
| Dividends                  Paid on Common Stock                                                                       |   |   | (12,750  | )      |   | (12,626  | )      |
| Dividends                  Paid on Cumulative Preferred Stock                                                         |   |   | (52      | )      |   | (52      | )      |
| **Net                  Cash Flows Used For Financing Activities**                                                     |   |   | (6,951   | )      |   | (12,796  | )      |
|                                                                                                                  |   |   |     |   |   |     |   |
| **Net                  Increase in Cash and Cash Equivalents**                                                        |   |   | -        |   |   | 938      |   |
| **Cash                  and Cash Equivalents at Beginning of Period**                                                 |   |   | -        |   |   | -        |   |
| **Cash                  and Cash Equivalents at End of Period**                                                       |   | $      | -        |   | $      | 938      |   |
|                                                                                                                  |   |   |     |   |   |     |   |
| **SUPPLEMENTAL                  DISCLOSURE**                                                                          |   |   |     |   |   |     |   |
| Cash                  Paid for Interest, Net of Capitalized Amounts                                                   |   | $      | 7,809    |   | $      | 9,014    |   |
| Cash                  Paid for Income Taxes, Net of Refunds                                                           |   |   | 6,079    |   |   | 21,865   |   |
| Noncash                  Acquisitions Under Capital Leases                                                            |   |   | 749      |   |   | 171      |   |
| Construction                  Expenditures Included in Accounts Payable at June 30,                                   |   |   | 2,037    |   |   | 1,726    |   |
|                                                                                                                  |   |   |     |   |   |     |   |
| *See                  Condensed Notes to Condensed Financial Statements of Registrant                  Subsidiaries.* |

----

**AEP        TEXAS NORTH COMPANY**

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

|                                                        | **Footnote                  Reference** |
|-------------------------------------------------------------|-----------------------------------------|
| Significant                  Accounting Matters             | Note                  1                 |
| New                  Accounting Pronouncements              | Note                  2                 |
| Rate                  Matters                               | Note                  3                 |
| Customer                  Choice and Industry Restructuring | Note                  4                 |
| Commitments                  and Contingencies              | Note                  5                 |
| Guarantees                                                  | Note                  6                 |
| Company-wide                  Staffing and Budget Review    | Note                  7                 |
| Benefit                  Plans                              | Note                  9                 |
| Income                  Taxes                               | Note                  10                |
| Business                  Segments                          | Note                  11                |
| Financing                  Activities                       | Note                  12                |

----

**APPALACHIAN        POWER COMPANY**

**AND        SUBSIDIARIES**

----

**APPALACHIAN        POWER COMPANY AND SUBSIDIARIES**

**MANAGEMENT’S        FINANCIAL DISCUSSION AND ANALYSIS**

**Results        of Operations**

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

**(in        millions)**

| **Second                  Quarter of 2005**                       |   |   |   |   | $      | 24     |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                  Margins                                   |   |   | 5      |   |   |   |   |
| Off-system                  Sales                                 |   |   | 1      |   |   |   |   |
| Transmission                  Revenues                            |   |   | (17    | )      |   |   |   |
| Other                                                             |   |   | (1     | )      |   |   |   |
| **Total                  Change in Gross Margin**                 |   |   |   |   |   | (12    | )      |
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                  Operation and Maintenance                  |   |   | (10    | )      |   |   |   |
| Depreciation                  and Amortization                    |   |   | (2     | )      |   |   |   |
| Taxes                  Other Than Income Taxes                    |   |   | 1      |   |   |   |   |
| Carrying                  Costs Income                            |   |   | 4      |   |   |   |   |
| Interest                  Expense                                 |   |   | (4     | )      |   |   |   |
| Other                  Income                                     |   |   | 4      |   |   |   |   |
| **Total                  Change in Operating Expenses and Other** |   |   |   |   |   | (7     | )      |
|                                                              |   |   |   |   |   |   |   |
| Income                  Tax Expense                               |   |   |   |   |   | 5      |   |
|                                                              |   |   |   |   |   |   |   |
| **Second                  Quarter of 2006**                       |   |   |   |   | $      | 10     |   |

| · | Retail                  Margins increased $5 million in comparison to 2005 primarily due                  to an $8                  million reduction in capacity settlement payments under the                  Interconnection Agreement due to our lower member load ratio (MLR)                  share                  and our increased capacity, an $8 million increase in revenues                  related to                  financial transmission rights, net of congestion, and a $7 million                  increase in retail revenues primarily related to two new industrial                  customers. The increase in financial transmission rights revenue                  is due to                  improved management of price risk related to serving retail load                  under                  current transmission constraints. These increases were partially                  offset by                  a $15 million decline in fuel margins caused primarily by higher                  fuel                  costs. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Transmission                  Revenues decreased $17 million primarily due to the elimination of                  SECA revenues as of April 1, 2006 and a $5 million provision for                  potential                  SECA refunds pending settlement negotiations with various intervenors.                  See                  the “SECA Revenue Subject to Refund” section of Note 3 - Rate                  Matters.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |

| · | Other                  Operation and Maintenance expenses increased $10 million mainly                  due to a                  $5 million increase in planned maintenance outages and an increase                  of $4                  million related to increased expenses for overhead line right-of-way                  clearing and overhead line repairs. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Carrying                  Costs Income increased $4 million primarily due to the establishment                  of a                  regulatory asset for carrying costs related to the Virginia environmental                  and reliability costs incurred.                                                                                                       |
| · | Interest                  Expense increased $4 million primarily due to long-term debt issuances                  in                  2006, partially offset by an increase in allowance for borrowed                  funds used                  during construction.                                                                                                |
| · | Other                  Income increased $4 million primarily due to interest income related                  to an                  increase in Advances to Affiliates.                                                                                                                                                                                                |

*Income        Taxes*

**Reconciliation        of Six Months Ended June 30, 2005 to Six Months Ended June 30, 2006 Net        Income**

**(in        millions)**

| **Six                  Months Ended June 30, 2005**               |   |   |   |   | $      | 71     |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                  Margins                                   |   |   | 33     |   |   |   |   |
| Transmission                  Revenues                            |   |   | (16    | )      |   |   |   |
| Other                                                             |   |   | 1      |   |   |   |   |
| **Total                  Change in Gross Margin**                 |   |   |   |   |   | 18     |   |
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                  Operation and Maintenance                  |   |   | 3      |   |   |   |   |
| Taxes                  Other Than Income Taxes                    |   |   | 2      |   |   |   |   |
| Carrying                  Costs Income                            |   |   | 10     |   |   |   |   |
| Interest                  Expense                                 |   |   | (11    | )      |   |   |   |
| Other                  Income                                     |   |   | 4      |   |   |   |   |
| **Total                  Change in Operating Expenses and Other** |   |   |   |   |   | 8      |   |
|                                                              |   |   |   |   |   |   |   |
| Income                  Tax Expense                               |   |   |   |   |   | (14    | )      |
|                                                              |   |   |   |   |   |   |   |
| **Six                  Months Ended June 30, 2006**               |   |   |   |   | $      | 83     |   |

| · | Retail                  Margins increased $33 million in comparison to 2005 primarily due                  to a $24                  million increase in revenues related to financial transmission                  rights, net                  of congestion, a $17 million increase in retail revenues primarily                  related                  to two new industrial customers and a $12 million reduction in                  capacity                  settlement payments under the Interconnection Agreement due to                  our lower                  MLR share and our increased capacity. These increases were partially                  offset by a $14 million decline in fuel margins caused primarily                  by higher                  fuel costs. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Transmission                  Revenues decreased $16 million primarily due to the elimination of                  SECA revenues as of April 1, 2006 and a $5 million provision for                  potential                  SECA refunds pending settlement negotiations with various intervenors.                  See                  the “SECA Revenue Subject to Refund” section of Note 3 - Rate                  Matters.                                                                                                                                                                                                                                                                                                                                               |

| · | Carrying                  Costs Income increased $10 million primarily due to the establishment                  of a                  regulatory asset for carrying costs related to the Virginia environmental                  and reliability costs incurred.        |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Interest                  Expense increased $11 million primarily due to long-term debt issuances                  in                  2006, partially offset by an increase in allowance for borrowed                  funds used                  during construction. |
| · | Other                  Income increased $4 million primarily due to interest income related                  to an                  increase in Advances to Affiliates.                                                                                                  |

*Income        Taxes*

**Financial        Condition**

**Credit        Ratings**

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

**Cash        Flow **

|                                                                    |   | **2006**                              |     | **2005** |   |
|-------------------------------------------------------------------------|--------|---------------------------------------|----------|----------|--------|
|                                                                    |   | **(in                    thousands)** |     |
| **Cash                    and Cash Equivalents at Beginning of Period** |   | $                                     | 1,741    |     | $      | 1,543 |   |
| Net                    Cash Flows From (Used For):                      |   |                                  |     |     |   |   |   |
| Operating                    Activities                                 |   |                                  | 320,554  |     |   | 87,588 |   |
| Investing                    Activities                                 |   |                                  | (622,504 | )        |   | (269,487 | ) |
| Financing                    Activities                                 |   |                                  | 301,555  |     |   | 181,637 |   |
| Net                    Decrease in Cash and Cash Equivalents            |   |                                  | (395     | )        |   | (262 | ) |
| **Cash                    and Cash Equivalents at End of Period**       |   | $                                     | 1,346    |     | $      | 1,281 |   |

*Operating        Activities *

*Investing        Activities*

*Financing        Activities*

**Financing        Activity**

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

|                                  |   | **Principal****Amount** |                                | **Interest** |     | **Due** |
|---------------------------------------|--------|-------------------------|-------------------------------------|--------------|----------|---------|
| **Type                  of Debt**     |   |                    | **Rate**                            |         | **Date** |
|                                  |   |                    | **(in                  thousands)** |         | **(%)**  |    |   |
|                                  |   |                    |                                |         |     |    |   |
| First                  Mortgage Bonds |   | $                       | 100,000                             |         | 6.80     |    | 2006 |
| Other                  Debt           |   |                    | 5                                   |         | 13.718   |    | 2026 |

**Liquidity**

**Summary        Obligation Information**

**Significant        Factors**

***Coal        Contract Amendment***

***Litigation        and Regulatory Activity***

**Critical        Accounting Estimates**

----

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

**Market        Risks**

**MTM        Risk Management Contract Net Assets**

**Reconciliation        of MTM Risk Management Contracts to**

**Condensed        Consolidated Balance Sheet**

**As        of June 30, 2006**

**(in        thousands)**

|                                                                        |   |   | **MTM                  Risk Management Contracts **  |   |   | **Cash                  Flow &****Fair                  Value Hedges** |   |   | **DETM                  Assignment (a)** |   |   | **Total** |   |
|-----------------------------------------------------------------------------|--------|--------|----------------------------------------------------------------|--------|--------|----------------------------------------------------------------------------|--------|--------|------------------------------------------|--------|--------|-----------|--------|
| Current                  Assets                                             |   | $      | 71,996                                                         |   | $      | 18,587                                                                     |   | $      | -                                        |   | $      | 90,583    |   |
| Noncurrent                  Assets                                          |   |   | 126,964                                                        |   |   | 989                                                                        |   |   | -                                        |   |   | 127,953   |   |
| **Total                  MTM Derivative Contract Assets**                   |   |   | 198,960                                                        |   |   | 19,576                                                                     |   |   | -                                        |   |   | 218,536   |   |
|                                                                        |   |   |                                                           |   |   |                                                                       |   |   |                                     |   |   |      |   |
| Current                  Liabilities                                        |   |   | (54,973                                                        | )      |   | (4,849                                                                     | )      |   | (1,610                                   | )      |   | (61,432   | )      |
| Noncurrent                  Liabilities                                     |   |   | (88,104                                                        | )      |   | (936                                                                       | )      |   | (10,331                                  | )      |   | (99,371   | )      |
| **Total                  MTM Derivative Contract Liabilities**              |   |   | (143,077                                                       | )      |   | (5,785                                                                     | )      |   | (11,941                                  | )      |   | (160,803  | )      |
|                                                                        |   |   |                                                           |   |   |                                                                       |   |   |                                     |   |   |      |   |
| **Total                  MTM Derivative Contract Net Assets (Liabilities)** |   | $      | 55,883                                                         |   | $      | 13,791                                                                     |   | $      | (11,941                                  | )      | $      | 57,733    |   |

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

**MTM        Risk Management Contract Net Assets**

**Six        Months Ended June 30, 2006**

**(in        thousands)**

| **Total                  MTM Risk Management Contract Net Assets at December 31,                  2005**                                       |   | $      | 56,407  |   |
|------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|
| (Gain)                  Loss from Contracts Realized/Settled During the Period and Entered                  in a                  Prior Period |   |   | (4,766  | )      |
| Fair                  Value of New Contracts at Inception When Entered During the Period                  (a)                                  |   |   | 137     |   |
| Net                  Option Premiums Paid/(Received) for Unexercised or Unexpired Option                  Contracts Entered During the Period  |   |   | (1,234  | )      |
| Change                  in Fair Value Due to Valuation Methodology Changes on Forward                  Contracts                               |   |   | 359     |   |
| Changes                  in Fair Value Due to Market Fluctuations During the Period                  (b)                                       |   |   | 4,968   |   |
| Changes                  due to SIA Agreement (c)                                                                                              |   |   | (6,533  | )      |
| Changes                  in Fair Value Allocated to Regulated Jurisdictions (d)                                                                |   |   | 6,545   |   |
| **Total                  MTM Risk Management Contract Net Assets**                                                                             |   |   | 55,883  |   |
| Net                  Cash Flow & Fair Value Hedge Contracts                                                                                |   |   | 13,791  |   |
| DETM                  Assignment (e)                                                                                                           |   |   | (11,941 | )      |
| **Total                  MTM Risk Management Contract Net Assets at June 30,                  2006**                                           |   | $      | 57,733  |   |

| (a) | Most                  of the fair value comes from longer term fixed price contracts                  with                  customers that seek to limit their risk against fluctuating energy                  prices.                  Inception value is only recorded if observable market data can                  be obtained                  for valuation inputs for the entire contract term. The contract                  prices are                  valued against market curves associated with the delivery location                  and                  delivery term. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Market                  fluctuations are attributable to various factors such as supply/demand,                  weather, storage, etc.                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (c) | See                  “Allocation Agreement between AEP East companies and AEP West companies                  and CSW Operating Agreement” section of Note 3.                                                                                                                                                                                                                                                                                                                                                                                                                  |
| (d) | “Changes                  in Fair Value Allocated to Regulated Jurisdictions” relates to the net                  gains (losses) of those contracts that are not reflected in the                  Condensed                  Consolidated Statements of Income. These net gains (losses) are                  recorded                  as regulatory liabilities/assets for those subsidiaries that operate                  in                  regulated jurisdictions.                                                                                                    |
| (e) | See                  “Natural Gas Contracts with DETM” section of Note 17 of the 2005 Annual                  Report.                                                                                                                                                                                                                                                                                                                                                                                                                                                          |

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

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

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

**Risk        Management Contract Net Assets**

**Fair        Value of Contracts as of June 30, 2006**

**(in        thousands)**

|                                                                                                                                                         |   | **Remainder****2006** |   | **2007** |   | **2008** |   | **2009** |   | **2010** |   | **After****2010** |   | **Total** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|-------------------|--------|-----------|--------|
| Prices                  Actively Quoted - Exchange Traded                  Contracts                                                                    |   | $                     | (3,470 | )        | $      | 3,878    |   | $        | 3,971  |     | $      | -                 |   | $         | -      |   | $ | - |   | $ | 4,379 |   |
| Prices                  Provided by Other External Sources                  - OTC                     Broker Quotes                  (a) |   |                  | 11,195 |     |   | 10,112   |   |     | 3,861  |     |   | 7,480             |   |      | -      |   |   | - |   |   | 32,648 |   |
| Prices                  Based on Models and Other Valuation                  Methods (b)                                                                |   |                  | 276    |     |   | 450      |   |     | 2,585  |     |   | 4,118             |   |      | 8,704  |   |   | 2,723 |   |   | 18,856 |   |
| **Total**                                                                                                                                                    |   | $                     | 8,001  |     | $      | 14,440   |   | $        | 10,417 |     | $      | 11,598            |   | $         | 8,704  |   | $ | 2,723 |   | $ | 55,883 |   |

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

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

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

**Six        Months Ended June 30, 2006**

**(in        thousands)**

|                                                                                                                            |   |   | **Power**  |   |   | **Foreign****Currency** |   |   | **Interest****Rate** |   |   | **Total** |   |
|----------------------------------------------------------------------------------------------------------------------------|--------|--------|-----------------|--------|--------|-------------------------|--------|--------|----------------------|--------|--------|-----------|--------|
| **Beginning                  Balance in AOCI December 31, 2005**                                                           |   | $      | (1,480          | )      | $      | (171                    | )      | $      | (14,770              | )      | $      | (16,421   | )      |
| Changes                  in Fair Value                                                                                     |   |   | 10,987          |   |   | -                       |   |   | 4,951                |   |   | 15,938    |   |
| Impact                  due to Changes in SIA (a)                                                                          |   |   | (442            | )      |   | -                       |   |   | -                    |   |   | (442      | )      |
| Reclassifications                  from AOCI to Net Income for Cash Flow                     Hedges Settled |   |   | 1,089           |   |   | 3                       |   |   | 1,410                |   |   | 2,502     |   |
| **Ending                  Balance in AOCI June 30, 2006**                                                                  |   | $      | 10,154          |   | $      | (168                    | )      | $      | (8,409               | )      | $      | 1,577     |   |

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

**Credit        Risk**

**VaR        Associated with Risk Management Contracts**

| **Six                  Months Ended****June                  30, 2006** |   |     |   |        | **Twelve                  Months Ended****December                  31, 2005** |
|-------------------------------------------------------------------------|--------|----------|--------|-------------|--------------------------------------------------------------------------------|
| **(in                  thousands)**                                     |   |     |   |        | **(in                  thousands)**                                            |
| **End**                                                                 |   | **High** |   | **Average** |                                                                           | **Low** |   |   |   |   | **End** |   | **High** |   | **Average** |   | **Low** |
| $685                                                                    |   | $1,604   |   | $695        |                                                                           | $401 |   |   |   |   | $732 |   | $1,216 |   | $579 |   | $209 |

**VaR        Associated with Debt Outstanding**

----

**APPALACHIAN        POWER COMPANY AND SUBSIDIARIES**

**CONDENSED        CONSOLIDATED STATEMENTS OF INCOME**

**For        the Three and Six Months Ended June 30, 2006 and 2005**

**(in        thousands)**

**(Unaudited)**

|                                                                                                                                               |   | **Three                  Months Ended**  | **Six                  Months Ended** |
|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|---------------------------------------|
|                                                                                                                                               |   |                                          | **2006**                              |   |   | **2005** |   |   | **2006** |   |   | **2005** |   |
| **REVENUES**                                                                                                                                       |   |                                          |                                  |   |   |   |   |   |   |   |   |   |   |
| Electric                  Generation, Transmission and Distribution                                                                                |   | $                                             | 464,058                               |   | $ | 436,343 |   | $ | 1,024,051 |   | $ | 912,370 |   |
| Sales                  to AEP Affiliates                                                                                                           |   |                                          | 48,608                                |   |   | 58,927 |   |   | 120,380 |   |   | 138,097 |   |
| Other                                                                                                                                              |   |                                          | 1,922                                 |   |   | 1,832 |   |   | 4,598 |   |   | 4,330 |   |
| **TOTAL**                                                                                                                                          |   |                                          | 514,588                               |   |   | 497,102 |   |   | 1,149,029 |   |   | 1,054,797 |   |
|                                                                                                                                               |   |                                          |                                  |   |   |   |   |   |   |   |   |   |   |
| **EXPENSES**                                                                                                                                       |   |                                          |                                  |   |   |   |   |   |   |   |   |   |   |
| Fuel                  and Other Consumables for Electric Generation                                                                                |   |                                          | 155,240                               |   |   | 125,759 |   |   | 322,093 |   |   | 240,903 |   |
| Purchased                  Electricity for Resale                                                                                                  |   |                                          | 29,979                                |   |   | 26,732 |   |   | 57,595 |   |   | 54,965 |   |
| Purchased                  Electricity from AEP Affiliates                                                                                         |   |                                          | 103,457                               |   |   | 107,023 |   |   | 225,856 |   |   | 233,986 |   |
| Other                  Operation                                                                                                                   |   |                                          | 77,458                                |   |   | 76,722 |   |   | 147,655 |   |   | 150,495 |   |
| Maintenance                                                                                                                                        |   |                                          | 46,668                                |   |   | 37,266 |   |   | 84,507 |   |   | 84,456 |   |
| Depreciation                  and Amortization                                                                                                     |   |                                          | 48,386                                |   |   | 46,491 |   |   | 96,358 |   |   | 96,450 |   |
| Taxes                  Other Than Income Taxes                                                                                                     |   |                                          | 22,799                                |   |   | 23,357 |   |   | 45,891 |   |   | 47,431 |   |
| **TOTAL**                                                                                                                                          |   |                                          | 483,987                               |   |   | 443,350 |   |   | 979,955 |   |   | 908,686 |   |
|                                                                                                                                               |   |                                          |                                  |   |   |   |   |   |   |   |   |   |   |
| **OPERATING                  INCOME**                                                                                                              |   |                                          | 30,601                                |   |   | 53,752 |   |   | 169,074 |   |   | 146,111 |   |
|                                                                                                                                               |   |                                          |                                  |   |   |   |   |   |   |   |   |   |   |
| **Other                  Income (Expense):**                                                                                                       |   |                                          |                                  |   |   |   |   |   |   |   |   |   |   |
| Interest                  Income                                                                                                                   |   |                                          | 2,814                                 |   |   | 443 |   |   | 3,765 |   |   | 1,005 |   |
| Carrying                  Costs Income                                                                                                             |   |                                          | 7,773                                 |   |   | 3,967 |   |   | 13,784 |   |   | 4,065 |   |
| Allowance                  for Equity Funds Used During Construction                                                                               |   |                                          | 4,083                                 |   |   | 2,557 |   |   | 6,559 |   |   | 4,768 |   |
| Interest                  Expense                                                                                                                  |   |                                          | (31,653                               | ) |   | (27,145 | ) |   | (61,921 | ) |   | (51,344 | ) |
|                                                                                                                                               |   |                                          |                                  |   |   |   |   |   |   |   |   |   |   |
| **INCOME                  BEFORE INCOME TAXES**                                                                                                    |   |                                          | 13,618                                |   |   | 33,574 |   |   | 131,261 |   |   | 104,605 |   |
|                                                                                                                                               |   |                                          |                                  |   |   |   |   |   |   |   |   |   |   |
| Income                  Tax Expense                                                                                                                |   |                                          | 3,971                                 |   |   | 9,361 |   |   | 48,020 |   |   | 33,720 |   |
|                                                                                                                                               |   |                                          |                                  |   |   |   |   |   |   |   |   |   |   |
| **NET                  INCOME**                                                                                                                    |   |                                          | 9,647                                 |   |   | 24,213 |   |   | 83,241 |   |   | 70,885 |   |
|                                                                                                                                               |   |                                          |                                  |   |   |   |   |   |   |   |   |   |   |
| Preferred                  Stock Dividend Requirements Including Capital                    Stock** **Expense                  and Other |   |                                          | 238                                   |   |   | 905 |   |   | 476 |   |   | 1,702 |   |
|                                                                                                                                               |   |                                          |                                  |   |   |   |   |   |   |   |   |   |   |
| **EARNINGS                  APPLICABLE TO COMMON STOCK**                                                                                           |   | $                                             | 9,409                                 |   | $ | 23,308 |   | $ | 82,765 |   | $ | 69,183 |   |

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

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

----

**APPALACHIAN        POWER COMPANY AND SUBSIDIARIES**

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

**EQUITY        AND COMPREHENSIVE INCOME (LOSS)**

**For        the Six Months Ended June 30, 2006 and 2005**

**(in        thousands)**

**(Unaudited)**

|                                                                              |   | **Common                  Stock** |    | **Paid-in                  Capital** |   | **Retained                  Earnings** |   | **Accumulated                  Other Comprehensive Income (Loss)** |    | **Total** |   |
|-----------------------------------------------------------------------------------|--------|-----------------------------------|---------|--------------------------------------|--------|----------------------------------------|--------|--------------------------------------------------------------------|---------|-----------|--------|
|                                                                              |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| **DECEMBER                  31, 2004**                                            |   | $                                 | 260,458 |                                 | $      | 722,314                                |   | $                                                                  | 508,618 |      | $      | (81,672 | ) | $ | 1,409,718 |   |
|                                                                              |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| Capital                  Contribution From Parent                                 |   |                              |    |                                 |   | 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 |   |
|                                                                              |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| **DECEMBER                  31, 2005**                                            |   | $                                 | 260,458 |                                 | $      | 924,837                                |   | $                                                                  | 635,016 |      | $      | (16,610 | ) | $ | 1,803,701 |   |
|                                                                              |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| Common                  Stock Dividends                                           |   |                              |    |                                 |   |                                   |   |                                                               | (5,000  | )         |   |   |   |   | (5,000 | ) |
| Preferred                  Stock Dividends                                        |   |                              |    |                                 |   |                                   |   |                                                               | (400    | )         |   |   |   |   | (400 | ) |
| Capital                  Stock Expense and Other                                  |   |                              |    |                                 |   | 80                                     |   |                                                               | (76     | )         |   |   |   |   | 4 |   |
| **TOTAL**                                                                         |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   | 1,798,305 |   |
|                                                                              |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                  INCOME**                                         |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| **Other                  Comprehensive Income, Net of Taxes:**               |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| Cash                  Flow Hedges, Net of Tax** **of                  $9,692 |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   | 17,998 |   |   | 17,998 |   |
| **NET                  INCOME**                                                   |   |                              |    |                                 |   |                                   |   |                                                               | 83,241  |      |   |   |   |   | 83,241 |   |
| **TOTAL                  COMPREHENSIVE INCOME**                                   |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   | 101,239 |   |
|                                                                              |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| **JUNE                  30, 2006**                                                |   | $                                 | 260,458 |                                 | $      | 924,917                                |   | $                                                                  | 712,781 |      | $      | 1,388 |   | $ | 1,899,544 |   |

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

----

**APPALACHIAN        POWER COMPANY AND SUBSIDIARIES**

**CONDENSED        CONSOLIDATED BALANCE SHEETS**

**ASSETS**

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

**(in        thousands)**

**(Unaudited)**

|                                                       |   |   | **2006**  |   |   | **2005**  |   |
|------------------------------------------------------------|--------|--------|-----------|--------|--------|-----------|--------|
| **CURRENT                  ASSETS**                        |   |   |      |   |   |      |   |
| Cash                  and Cash Equivalents                 |   | $      | 1,346     |   | $      | 1,741     |   |
| Advances                  to Affiliates                    |   |   | 218,702   |   |   | -         |   |
| Accounts                  Receivable:                      |   |   |      |   |   |      |   |
| Customers                                                  |   |   | 168,893   |   |   | 141,810   |   |
| Affiliated                  Companies                      |   |   | 86,461    |   |   | 153,453   |   |
| Accrued                  Unbilled Revenues                 |   |   | 30,571    |   |   | 51,201    |   |
| Miscellaneous                                              |   |   | 3,658     |   |   | 527       |   |
| Allowance                  for Uncollectible Accounts      |   |   | (4,742    | )      |   | (1,805    | )      |
|                     Total Accounts Receivable    |   |   | 284,841   |   |   | 345,186   |   |
| Fuel                                                       |   |   | 72,947    |   |   | 64,657    |   |
| Materials                  and Supplies                    |   |   | 55,288    |   |   | 54,967    |   |
| Risk                  Management Assets                    |   |   | 90,583    |   |   | 132,247   |   |
| Accrued                  Tax Benefits                      |   |   | -         |   |   | 32,979    |   |
| Prepayments                  and Other                     |   |   | 37,559    |   |   | 75,129    |   |
| **TOTAL**                                                  |   |   | 761,266   |   |   | 706,906   |   |
|                                                       |   |   |      |   |   |      |   |
| **PROPERTY,                  PLANT AND EQUIPMENT**         |   |   |      |   |   |      |   |
| Electric:                                                  |   |   |      |   |   |      |   |
| Production                                                 |   |   | 2,826,293 |   |   | 2,798,157 |   |
| Transmission                                               |   |   | 1,585,714 |   |   | 1,266,855 |   |
| Distribution                                               |   |   | 2,202,696 |   |   | 2,141,153 |   |
| Other                                                      |   |   | 337,359   |   |   | 323,158   |   |
| Construction                  Work in Progress             |   |   | 593,062   |   |   | 647,638   |   |
| **Total**                                                  |   |   | 7,545,124 |   |   | 7,176,961 |   |
| Accumulated                  Depreciation and Amortization |   |   | 2,556,021 |   |   | 2,524,855 |   |
| **TOTAL                  - NET**                           |   |   | 4,989,103 |   |   | 4,652,106 |   |
|                                                       |   |   |      |   |   |      |   |
| **OTHER                  NONCURRENT ASSETS**               |   |   |      |   |   |      |   |
| Regulatory                  Assets                         |   |   | 452,651   |   |   | 457,294   |   |
| Long-term                  Risk Management Assets          |   |   | 127,953   |   |   | 176,231   |   |
| Deferred                  Charges and Other                |   |   | 252,291   |   |   | 261,556   |   |
| **TOTAL**                                                  |   |   | 832,895   |   |   | 895,081   |   |
|                                                       |   |   |      |   |   |      |   |
| **TOTAL                  ASSETS**                          |   | $      | 6,583,264 |   | $      | 6,254,093 |   |

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

----

**APPALACHIAN        POWER COMPANY AND SUBSIDIARIES**

**CONDENSED        CONSOLIDATED BALANCE SHEETS**

**LIABILITIES        AND SHAREHOLDERS’ EQUITY**

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

**(Unaudited)**

|                                                                            |   |                                | **2006**  |   |   | **2005**  |   |
|---------------------------------------------------------------------------------|--------|-------------------------------------|-----------|--------|--------|-----------|--------|
| **CURRENT                  LIABILITIES**                                        |   | **(in                  thousands)** |
| Advances                  from Affiliates                                       |   | $                                   | -         |   | $      | 194,133   |   |
| Accounts                  Payable:                                              |   |                                |      |   |   |      |   |
| General                                                                         |   |                                | 276,383   |   |   | 230,570   |   |
| Affiliated                  Companies                                           |   |                                | 78,307    |   |   | 85,941    |   |
| Long-term                  Debt Due Within One Year - Nonaffiliated             |   |                                | 171,645   |   |   | 146,999   |   |
| Risk                  Management Liabilities                                    |   |                                | 61,432    |   |   | 121,165   |   |
| Customer                  Deposits                                              |   |                                | 55,030    |   |   | 79,854    |   |
| Accrued                  Taxes                                                  |   |                                | 59,211    |   |   | 49,833    |   |
| Other                                                                           |   |                                | 113,883   |   |   | 108,746   |   |
| **TOTAL**                                                                       |   |                                | 815,891   |   |   | 1,017,241 |   |
|                                                                            |   |                                |      |   |   |      |   |
| **NONCURRENT                  LIABILITIES**                                     |   |                                |      |   |   |      |   |
| Long-term                  Debt - Nonaffiliated                                 |   |                                | 2,325,465 |   |   | 1,904,379 |   |
| Long-term                  Debt - Affiliated                                    |   |                                | 100,000   |   |   | 100,000   |   |
| Long-term                  Risk Management Liabilities                          |   |                                | 99,371    |   |   | 147,117   |   |
| Deferred                  Income Taxes                                          |   |                                | 943,008   |   |   | 952,497   |   |
| Regulatory                  Liabilities and Deferred Investment Tax Credits     |   |                                | 208,725   |   |   | 201,230   |   |
| Deferred                  Credits and Other                                     |   |                                | 173,494   |   |   | 110,144   |   |
| **TOTAL**                                                                       |   |                                | 3,850,063 |   |   | 3,415,367 |   |
|                                                                            |   |                                |      |   |   |      |   |
| **TOTAL                  LIABILITIES**                                          |   |                                | 4,665,954 |   |   | 4,432,608 |   |
|                                                                            |   |                                |      |   |   |      |   |
| Cumulative                  Preferred Stock Not Subject to Mandatory Redemption |   |                                | 17,766    |   |   | 17,784    |   |
|                                                                            |   |                                |      |   |   |      |   |
| Commitments                  and Contingencies (Note 5)                         |   |                                |      |   |   |      |   |
|                                                                            |   |                                |      |   |   |      |   |
| **COMMON                  SHAREHOLDER’S EQUITY**                          |   |                                |      |   |   |      |   |
| Common                  Stock - No Par Value:                                   |   |                                |      |   |   |      |   |
| Authorized                  - 30,000,000 Shares                                 |   |                                |      |   |   |      |   |
| Outstanding                  - 13,499,500 Shares                                |   |                                | 260,458   |   |   | 260,458   |   |
| Paid-in                  Capital                                                |   |                                | 924,917   |   |   | 924,837   |   |
| Retained                  Earnings                                              |   |                                | 712,781   |   |   | 635,016   |   |
| Accumulated                  Other Comprehensive Income (Loss)                  |   |                                | 1,388     |   |   | (16,610   | )      |
| **TOTAL**                                                                       |   |                                | 1,899,544 |   |   | 1,803,701 |   |
|                                                                            |   |                                |      |   |   |      |   |
| **TOTAL                  LIABILITIES AND SHAREHOLDERS’ EQUITY**           |   | $                                   | 6,583,264 |   | $      | 6,254,093 |   |

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

----

**APPALACHIAN        POWER COMPANY AND SUBSIDIARIES**

**CONDENSED        CONSOLIDATED STATEMENTS OF CASH FLOWS**

**For        the Six Months Ended June 30, 2006 and 2005**

**(in        thousands)**

**(Unaudited)**

|                                                                                                                  |   |   | **2006** |   |   | **2005** |   |
|-----------------------------------------------------------------------------------------------------------------------|--------|--------|----------|--------|--------|----------|--------|
| **OPERATING                  ACTIVITIES**                                                                             |   |   |     |   |   |     |   |
| **Net                  Income**                                                                                       |   | $      | 83,241   |   | $      | 70,885   |   |
| **Adjustments                  for Noncash Items:**                                                                   |   |   |     |   |   |     |   |
| Depreciation                  and Amortization                                                                        |   |   | 96,358   |   |   | 96,450   |   |
| Deferred                  Income Taxes                                                                                |   |   | (1,466   | )      |   | 18,206   |   |
| Carrying                  Costs Income                                                                                |   |   | (13,784  | )      |   | (4,065   | )      |
| Mark-to-Market                  of Risk Management Contracts                                                          |   |   | 147      |   |   | (13,473  | )      |
| Pension                  Contributions to Qualified Plan Trusts                                                       |   |   | -        |   |   | (39,875  | )      |
| Over/Under                  Fuel Recovery, Net                                                                        |   |   | 3,636    |   |   | (8,759   | )      |
| Change                  in Other Noncurrent Assets                                                                    |   |   | 9,872    |   |   | (11,224  | )      |
| Change                  in Other Noncurrent Liabilities                                                               |   |   | 17,986   |   |   | (20,276  | )      |
| **Changes                  in Components of Working Capital:**                                                        |   |   |     |   |   |     |   |
| Accounts                  Receivable, Net                                                                             |   |   | 60,345   |   |   | 16,710   |   |
| Fuel,                  Materials and Supplies                                                                         |   |   | (8,611   | )      |   | (25,875  | )      |
| Margin                  Deposits                                                                                      |   |   | 27,872   |   |   | (4,899   | )      |
| Accounts                  Payable                                                                                     |   |   | 14,993   |   |   | 36,157   |   |
| Customer                  Deposits                                                                                    |   |   | (24,824  | )      |   | 15,447   |   |
| Accrued                  Taxes, Net                                                                                   |   |   | 42,357   |   |   | (29,847  | )      |
| Other                  Current Assets                                                                                 |   |   | 7,295    |   |   | (4,394   | )      |
| Other                  Current Liabilities                                                                            |   |   | 5,137    |   |   | (3,580   | )      |
| **Net                  Cash Flows From Operating Activities**                                                         |   |   | 320,554  |   |   | 87,588   |   |
|                                                                                                                  |   |   |     |   |   |     |   |
| **INVESTING                  ACTIVITIES**                                                                             |   |   |     |   |   |     |   |
| Construction                  Expenditures                                                                            |   |   | (404,252 | )      |   | (277,177 | )      |
| Change                  in Other Cash Deposits, Net                                                                   |   |   | -        |   |   | (41      | )      |
| Change                  in Advances to Affiliates, Net                                                                |   |   | (218,702 | )      |   | -        |   |
| Proceeds                  from Sales of Assets                                                                        |   |   | 450      |   |   | 7,731    |   |
| **Net                  Cash Flows Used For Investing Activities**                                                     |   |   | (622,504 | )      |   | (269,487 | )      |
|                                                                                                                  |   |   |     |   |   |     |   |
| **FINANCING                  ACTIVITIES**                                                                             |   |   |     |   |   |     |   |
| Capital                  Contributions from Parent                                                                    |   |   | -        |   |   | 100,000  |   |
| Issuance                  of Long-term Debt - Nonaffiliated                                                           |   |   | 544,364  |   |   | 594,717  |   |
| Issuance                  of Long-term Debt - Affiliated                                                              |   |   | -        |   |   | 100,000  |   |
| Change                  in Advances from Affiliates, Net                                                              |   |   | (194,133 | )      |   | (34,368  | )      |
| Retirement                  of Long-term Debt - Nonaffiliated                                                         |   |   | (100,005 | )      |   | (575,005 | )      |
| Retirement                  of Preferred Stock                                                                        |   |   | (14      | )      |   | -        |   |
| Principal                  Payments for Capital Lease Obligations                                                     |   |   | (2,768   | )      |   | (3,307   | )      |
| Funds                  From Amended Coal Contract, Net                                                                |   |   | 59,511   |   |   | -        |   |
| Dividends                  Paid on Common Stock                                                                       |   |   | (5,000   | )      |   | -        |   |
| Dividends                  Paid on Cumulative Preferred Stock                                                         |   |   | (400     | )      |   | (400     | )      |
| **Net                  Cash Flows From Financing Activities**                                                         |   |   | 301,555  |   |   | 181,637  |   |
|                                                                                                                  |   |   |     |   |   |     |   |
| **Net                  Decrease in Cash and Cash Equivalents**                                                        |   |   | (395     | )      |   | (262     | )      |
| **Cash                  and Cash Equivalents at Beginning of Period**                                                 |   |   | 1,741    |   |   | 1,543    |   |
| **Cash                  and Cash Equivalents at End of Period**                                                       |   | $      | 1,346    |   | $      | 1,281    |   |
|                                                                                                                  |   |   |     |   |   |     |   |
| **SUPPLEMENTAL                  DISCLOSURE**                                                                          |   |   |     |   |   |     |   |
| Cash                  Paid for Interest, Net of Capitalized Amounts                                                   |   | $      | 51,558   |   | $      | 45,064   |   |
| Cash                  Paid for Income Taxes, Net of Refunds                                                           |   |   | 4,562    |   |   | 47,461   |   |
| Noncash                  Acquisitions Under Capital Leases                                                            |   |   | 2,287    |   |   | 748      |   |
| Construction                  Expenditures Included in Accounts Payable at June 30,                                   |   |   | 105,826  |   |   | 36,339   |   |
|                                                                                                                  |
| *See                  Condensed Notes to Condensed Financial Statements of Registrant                  Subsidiaries.* |

----

**APPALACHIAN        POWER COMPANY AND SUBSIDIARIES**

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

|                                                     | **Footnote                  Reference** |
|----------------------------------------------------------|-----------------------------------------|
| Significant                  Accounting Matters          | Note                  1                 |
| New                  Accounting Pronouncements           | Note                  2                 |
| Rate                  Matters                            | Note                  3                 |
| Commitments                  and Contingencies           | Note                  5                 |
| Guarantees                                               | Note                  6                 |
| Company-wide                  Staffing and Budget Review | Note                  7                 |
| Benefit                  Plans                           | Note                  9                 |
| Business                  Segments                       | Note                  11                |
| Financing                  Activities                    | Note                  12                |

----

**COLUMBUS        SOUTHERN POWER COMPANY**

**AND        SUBSIDIARIES**

----

**COLUMBUS        SOUTHERN POWER COMPANY AND SUBSIDIARIES**

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

**Results        of Operations**

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

**(in        millions)**

| **Second                  Quarter of 2005**                       |   |   |   |   | $      | 35     |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                  Margins                                   |   |   | 32     |   |   |   |   |
| Off-system                  Sales                                 |   |   | 2      |   |   |   |   |
| Transmission                  Revenues                            |   |   | (9     | )      |   |   |   |
| Other                                                             |   |   | 2      |   |   |   |   |
| **Total                  Change in Gross Margin**                 |   |   |   |   |   | 27     |   |
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                  Operation and Maintenance                  |   |   | (1     | )      |   |   |   |
| Depreciation                  and Amortization                    |   |   | (19    | )      |   |   |   |
| Taxes                  Other Than Income Taxes                    |   |   | (9     | )      |   |   |   |
| Carrying                  Costs Income                            |   |   | (3     | )      |   |   |   |
| Interest                  Expense                                 |   |   | (2     | )      |   |   |   |
| **Total                  Change in Operating Expenses and Other** |   |   |   |   |   | (34    | )      |
|                                                              |   |   |   |   |   |   |   |
| Income                  Tax Expense                               |   |   |   |   |   | 4      |   |
|                                                              |   |   |   |   |   |   |   |
| **Second                  Quarter of 2006**                       |   |   |   |   | $      | 32     |   |

| · | Retail                  Margins were $32 million higher than the prior period primarily                  due to                  Rate Stabilization Plan (RSP) and Transition Regulatory Asset rate                  increases effective January 1, 2006 as well as the addition of                  Monongahela                  Power’s Ohio customers on December 31, 2005, partially offset by an                  increase in delivered fuel costs.  |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Transmission                  Revenues decreased $9 million primarily due to the elimination                  of SECA                  revenues as of April 1, 2006 and a $3 million provision for potential                  SECA                  refunds pending settlement negotiations with various intervenors.                  See the                  “SECA Revenue Subject to Refund” section of Note 3 - Rate                  Matters. |

| · | Depreciation                  and Amortization expense increased $19 million due to the 2005                  RSP order                  that resulted in the 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. Depreciation                  expense also increased due to a greater depreciable base resulting                  primarily from the acquisitions of the Waterford Plant and Monongahela                  Power’s Ohio assets in the second half of 2005. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Taxes                  Other Than Income Taxes increased $9 million due to an increase                  in real                  and personal property taxes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

*Income        Tax*

**Reconciliation        of Six Months Ended June 30, 2005 to Six Months Ended June 30, 2006 Net        Income**

**(in        millions)**

| **Six                  Months Ended June 30, 2005**               |   |   |   |   | $      | 82     |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                  Margins                                   |   |   | 56     |   |   |   |   |
| Off-system                  Sales                                 |   |   | 9      |   |   |   |   |
| Transmission                  Revenues                            |   |   | (7     | )      |   |   |   |
| Other                                                             |   |   | 9      |   |   |   |   |
| **Total                  Change in Gross Margin**                 |   |   |   |   |   | 67     |   |
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                  Operation and Maintenance                  |   |   | (16    | )      |   |   |   |
| Depreciation                  and Amortization                    |   |   | (27    | )      |   |   |   |
| Taxes                  Other Than Income Taxes                    |   |   | (12    | )      |   |   |   |
| Carrying                  Costs Income                            |   |   | (5     | )      |   |   |   |
| Interest                  Expense                                 |   |   | (6     | )      |   |   |   |
| **Total                  Change in Operating Expenses and Other** |   |   |   |   |   | (66    | )      |
|                                                              |   |   |   |   |   |   |   |
| Income                  Tax Expense                               |   |   |   |   |   | 1      |   |
|                                                              |   |   |   |   |   |   |   |
| **Six                  Months Ended June 30, 2006**               |   |   |   |   | $      | 84     |   |

| · | Retail                  Margins increased $56 million primarily due to the RSP and Transition                  Regulatory Asset rate increases effective January 1, 2006 as well                  as the                  addition of Monongahela Power Ohio customers on December 31, 2005,                  partially offset by an increase in delivered fuel                  costs.                                                             |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Off-system                  Sales increased $9 million due to higher physical sales partially                  offset                  by lower optimization activity.                                                                                                                                                                                                                                                                              |
| · | Transmission                  Revenues decreased $7 million primarily due to the elimination of                  SECA revenues as of April 1, 2006 and a $3 million provision for                  potential                  SECA refunds pending settlement negotiations with various intervenors.                  See                  the “SECA Revenue Subject to Refund” section of Note 3 - Rate                  Matters. |
| · | Other                  revenues increased $9 million primarily due to higher gains on                  sales of                  emission allowances.                                                                                                                                                                                                                                                                                               |

| · | Other                  Operation and Maintenance increased $16 million due to the 2005                  establishment of a regulatory asset for PJM administrative fees,                  an                  increase in transmission expenses related to the AEP Transmission                  Equalization Agreement and favorable adjustments in the prior year                  related                  to the corporate-owned life insurance policy.                                                                                                                                                                                                                                                                               |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Depreciation                  and Amortization expense increased $27 million primarily due to                  the 2005                  RSP order that resulted in the 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.                  Depreciation expense also increased due to a greater depreciable                  base                  resulting primarily from the acquisitions of the Waterford Plant                  and                  Monongahela Power’s Ohio assets in the second half of                  2005. |
| · | Taxes                  Other Than Income Taxes increased $12 million due to increases                  in real and                  personal property taxes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| · | Carrying                  Costs Income decreased $5 million primarily due to the completion                  of                  deferrals of the environmental carrying costs from 2004 and 2005                  that are                  now recovered during 2006 through 2008 according to                  RSP.                                                                                                                                                                                                                                                                                                                                                                                                                    |
| · | Interest                  Expense increased $6 million primarily due to a new long-term debt                  issuance during the fourth quarter of                  2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |

*Income        Tax*

**Financial        Condition**

**Credit        Ratings**

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

**Financing        Activity**

**Liquidity**

**Summary        Obligation Information**

**Significant        Factors**

***Litigation        and Regulatory Activity***

**Critical        Accounting Estimates**

----

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

**Market        Risks**

**MTM        Risk Management Contract Net Assets**

**Reconciliation        of MTM Risk Management Contracts to**

**Condensed        Consolidated Balance Sheet**

**As        of June 30, 2006**

**(in        thousands)**

|                                                                             |   |   | **MTM                  Risk Management Contracts **  |   |   | **Cash                  Flow Hedges** |   |   | **DETM                  Assignment (a)** |   |   | **Total** |   |
|-----------------------------------------------------------------------------|--------|--------|----------------------------------------------------------------|--------|--------|---------------------------------------|--------|--------|------------------------------------------|--------|--------|-----------|--------|
| Current                  Assets                                             |   | $      | 42,197                                                         |   | $      | 10,989                                |   | $      | -                                        |   | $      | 53,186    |   |
| Noncurrent                  Assets                                          |   |   | 74,861                                                         |   |   | 585                                   |   |   | -                                        |   |   | 75,446    |   |
| **Total                  MTM Derivative Contract Assets**                   |   |   | 117,058                                                        |   |   | 11,574                                |   |   | -                                        |   |   | 128,632   |   |
|                                                                        |   |   |                                                           |   |   |                                  |   |   |                                     |   |   |      |   |
| Current                  Liabilities                                        |   |   | (31,803                                                        | )      |   | (2,354                                | )      |   | (952                                     | )      |   | (35,109   | )      |
| Noncurrent                  Liabilities                                     |   |   | (51,549                                                        | )      |   | -                                     |   |   | (6,108                                   | )      |   | (57,657   | )      |
| **Total                  MTM Derivative Contract Liabilities**              |   |   | (83,352                                                        | )      |   | (2,354                                | )      |   | (7,060                                   | )      |   | (92,766   | )      |
|                                                                        |   |   |                                                           |   |   |                                  |   |   |                                     |   |   |      |   |
| **Total                  MTM Derivative Contract Net Assets (Liabilities)** |   | $      | 33,706                                                         |   | $      | 9,220                                 |   | $      | (7,060                                   | )      | $      | 35,866    |   |

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

**MTM        Risk Management Contract Net Assets**

**Six        Months Ended June 30, 2006**

**(in        thousands)**

| **Total                  MTM Risk Management Contract Net Assets at December 31,                  2005**                                       |   | $      | 33,322 |   |
|------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| (Gain)                  Loss from Contracts Realized/Settled During the Period and Entered                  in a                  Prior Period |   |   | (4,894 | )      |
| Fair                  Value of New Contracts at Inception When Entered During the Period                  (a)                                  |   |   | 139    |   |
| Net                  Option Premiums Paid/(Received) for Unexercised or Unexpired Option                  Contracts Entered During the Period  |   |   | (673   | )      |
| Change                  in Fair Value Due to Valuation Methodology Changes on Forward                  Contracts                               |   |   | 364    |   |
| Changes                  in Fair Value Due to Market Fluctuations During the Period                  (b)                                       |   |   | 9,198  |   |
| Changes                  Due to SIA (c)                                                                                                        |   |   | (3,864 | )      |
| Changes                  in Fair Value Allocated to Regulated Jurisdictions (d)                                                                |   |   | 114    |   |
| **Total                  MTM Risk Management Contract Net Assets**                                                                             |   |   | 33,706 |   |
| Net                  Cash Flow Hedge Contracts                                                                                                 |   |   | 9,220  |   |
| DETM                  Assignment (e)                                                                                                           |   |   | (7,060 | )      |
| **Total                  MTM Risk Management Contract Net Assets at June 30,                  2006**                                           |   | $      | 35,866 |   |

| (a) | Most                  of the fair value comes from longer term fixed price contracts                  with                  customers that seek to limit their risk against fluctuating energy                  prices.                  Inception value is only recorded if observable market data can                  be obtained                  for valuation inputs for the entire contract term. The contract                  prices are                  valued against market curves associated with the delivery location                  and                  delivery term. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Market                  fluctuations are attributable to various factors such as supply/demand,                  weather, storage, etc.                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (c) | See                  “Allocation Agreement between AEP East companies and AEP West companies                  and CSW Operating Agreement” section of Note 3.                                                                                                                                                                                                                                                                                                                                                                                                                  |
| (d) | “Changes                  in Fair Value Allocated to Regulated Jurisdictions” relates to the net                  gains (losses) of those contracts that are not reflected in the                  Condensed                  Consolidated Statements of Income. These net gains (losses) are                  recorded                  as regulatory liabilities/assets for those subsidiaries that operate                  in                  regulated jurisdictions.                                                                                                    |
| (e) | See                  “Natural Gas Contracts with DETM” section of Note 17 of the 2005 Annual                  Report.                                                                                                                                                                                                                                                                                                                                                                                                                                                          |

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

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

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

**Risk        Management Contract Net Assets**

**Fair        Value of Contracts as of June 30, 2006**

**(in        thousands)**

|                                                                                                                                 |   |  **Remainder                  2006**  |   |   | **2007** |   |   | **2008** |   |   | **2009** |   |   | **2010** |   |   | **After****2010** |   |   | **Total** |   |
|--------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------|--------|--------|----------|--------|--------|----------|--------|--------|----------|--------|--------|----------|--------|--------|-------------------|--------|--------|-----------|--------|
| Prices                  Actively Quoted - Exchange Traded                  Contracts                                            |   | $                                               | (2,051 | )      | $        | 2,293  |   | $        | 2,348  |   | $        | -      |   | $        | -      |   | $                 | -      |   | $         | 2,590  |   |
| Prices                  Provided by Other External Sources                  - OTC Broker  Quotes                  (a) |   |                                            | 6,669  |   |     | 6,064  |   |     | 2,261  |   |     | 4,422  |   |     | -      |   |              | -      |   |      | 19,416 |   |
| Prices                  Based on Models and Other Valuation                  Methods (b)                                        |   |                                            | 178    |   |     | 618    |   |     | 1,714  |   |     | 2,434  |   |     | 5,146  |   |              | 1,610  |   |      | 11,700 |   |
| **Total**                                                                                                                            |   | $                                               | 4,796  |   | $        | 8,975  |   | $        | 6,323  |   | $        | 6,856  |   | $        | 5,146  |   | $                 | 1,610  |   | $         | 33,706 |   |

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

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

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

**Six        Months Ended June 30, 2006**

**(in        thousands)**

|                                                                                                          |   |   | **Power**  |   |
|---------------------------------------------------------------------------------------------------------------|--------|--------|-----------------|--------|
| **Beginning                  Balance in AOCI December 31, 2005**                                              |   | $      | (859            | )      |
| Changes                  in Fair Value                                                                        |   |   | 6,479           |   |
| Impact                  due to Changes in SIA (a)                                                             |   |   | (261            | )      |
| Reclassifications                  from AOCI to Net Income for Cash Flow                  Hedges Settled |   |   | 643             |   |
| **Ending                  Balance in AOCI June 30, 2006**                                                     |   | $      | 6,002           |   |

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

**Credit        Risk**

**VaR        Associated with Risk Management Contracts**

| **Six                  Months Ended****June                  30, 2006** |   |     |   |        | **Twelve                  Months Ended****December                  31, 2005** |
|-------------------------------------------------------------------------|--------|----------|--------|-------------|--------------------------------------------------------------------------------|
| **(in                  thousands)**                                     |   |     |   |        | **(in                  thousands)**                                            |
| **End**                                                                 |   | **High** |   | **Average** |                                                                           | **Low** |   |   |   |   | **End** |   | **High** |   | **Average** |   | **Low** |
| $405                                                                    |   | $948     |   | $411        |                                                                           | $237 |   |   |   |   | $424 |   | $705 |   | $335 |   | $121 |

**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, 2006 and 2005**

**(in        thousands)**

**(Unaudited)**

|                                                                 |   | **Three                  Months Ended**  | **Six                  Months Ended** |
|----------------------------------------------------------------------|--------|-----------------------------------------------|---------------------------------------|
|                                                                 |   |                                          | **2006**                              |   |   | **2005** |   |   | **2006** |   |   | **2005** |   |
| **REVENUES**                                                         |   |                                          |                                  |   |   |   |   |   |   |   |   |   |   |
| Electric                  Generation, Transmission and Distribution  |   | $                                             | 395,347                               |   | $ | 337,563 |   | $ | 810,346 |   | $ | 669,882 |   |
| Sales                  to AEP Affiliates                             |   |                                          | 21,762                                |   |   | 22,427 |   |   | 35,531 |   |   | 57,241 |   |
| **TOTAL**                                                            |   |                                          | 417,109                               |   |   | 359,990 |   |   | 845,877 |   |   | 727,123 |   |
|                                                                 |   |                                          |                                  |   |   |   |   |   |   |   |   |   |   |
| **EXPENSES**                                                         |   |                                          |                                  |   |   |   |   |   |   |   |   |   |   |
| Fuel                  and Other Consumables for Electric Generation  |   |                                          | 71,213                                |   |   | 52,203 |   |   | 141,033 |   |   | 118,638 |   |
| Purchased                  Electricity for Resale                    |   |                                          | 27,688                                |   |   | 8,703 |   |   | 52,453 |   |   | 17,906 |   |
| Purchased                  Electricity from AEP Affiliates           |   |                                          | 87,188                                |   |   | 95,172 |   |   | 169,665 |   |   | 174,947 |   |
| Other                  Operation                                     |   |                                          | 57,866                                |   |   | 53,328 |   |   | 113,827 |   |   | 96,557 |   |
| Maintenance                                                          |   |                                          | 23,502                                |   |   | 26,700 |   |   | 41,436 |   |   | 42,084 |   |
| Depreciation                  and Amortization                       |   |                                          | 46,534                                |   |   | 27,333 |   |   | 92,346 |   |   | 65,531 |   |
| Taxes                  Other Than Income Taxes                       |   |                                          | 41,787                                |   |   | 32,993 |   |   | 81,289 |   |   | 69,235 |   |
| **TOTAL**                                                            |   |                                          | 355,778                               |   |   | 296,432 |   |   | 692,049 |   |   | 584,898 |   |
|                                                                 |   |                                          |                                  |   |   |   |   |   |   |   |   |   |   |
| **OPERATING                  INCOME**                                |   |                                          | 61,331                                |   |   | 63,558 |   |   | 153,828 |   |   | 142,225 |   |
|                                                                 |   |                                          |                                  |   |   |   |   |   |   |   |   |   |   |
| **Other                  Income (Expense):**                         |   |                                          |                                  |   |   |   |   |   |   |   |   |   |   |
| Interest                  Income                                     |   |                                          | 475                                   |   |   | 711 |   |   | 930 |   |   | 1,628 |   |
| Carrying                  Costs Income                               |   |                                          | 1,320                                 |   |   | 4,159 |   |   | 2,036 |   |   | 6,916 |   |
| Allowance                  for Equity Funds Used During Construction |   |                                          | 343                                   |   |   | 528 |   |   | 807 |   |   | 807 |   |
| Interest                  Expense                                    |   |                                          | (16,914                               | ) |   | (15,669 | ) |   | (34,434 | ) |   | (28,581 | ) |
|                                                                 |   |                                          |                                  |   |   |   |   |   |   |   |   |   |   |
| **INCOME                  BEFORE INCOME TAXES**                      |   |                                          | 46,555                                |   |   | 53,287 |   |   | 123,167 |   |   | 122,995 |   |
|                                                                 |   |                                          |                                  |   |   |   |   |   |   |   |   |   |   |
| Income                  Tax Expense                                  |   |                                          | 14,293                                |   |   | 18,636 |   |   | 39,568 |   |   | 40,876 |   |
|                                                                 |   |                                          |                                  |   |   |   |   |   |   |   |   |   |   |
| **NET                  INCOME**                                      |   |                                          | 32,262                                |   |   | 34,651 |   |   | 83,599 |   |   | 82,119 |   |
|                                                                 |   |                                          |                                  |   |   |   |   |   |   |   |   |   |   |
| Capital                  Stock Expense                               |   |                                          | 40                                    |   |   | 1,858 |   |   | 79 |   |   | 2,112 |   |
|                                                                 |   |                                          |                                  |   |   |   |   |   |   |   |   |   |   |
| **EARNINGS                  APPLICABLE TO COMMON  STOCK**       |   | $                                             | 32,222                                |   | $ | 32,793 |   | $ | 83,520 |   | $ | 80,007 |   |

| *The                  common stock of CSPCo is wholly-owned by AEP.*                                                  |
|-----------------------------------------------------------------------------------------------------------------------|
|                                                                                                                  |
| *See                  Condensed Notes to Condensed Financial Statements of Registrant                  Subsidiaries.* |

----

**COLUMBUS        SOUTHERN POWER COMPANY AND SUBSIDIARIES**

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

**EQUITY        AND COMPREHENSIVE INCOME (LOSS)**

**For        the Six Months Ended June 30, 2006 and 2005**

**(in        thousands)**

**(Unaudited)**

|                                                                     |   |   | **Common                  Stock**  |   |   | **Paid-in                  Capital** |   |   | **Retained                  Earnings** |   |   | **Accumulated                  Other Comprehensive Income (Loss)** |   |   | **Total** |   |
|---------------------------------------------------------------------|--------|--------|-----------------------------------------|--------|--------|--------------------------------------|--------|--------|----------------------------------------|--------|--------|--------------------------------------------------------------------|--------|--------|-----------|--------|
| **DECEMBER                  31, 2004**                              |   | $      | 41,026                                  |   | $      | 577,415                              |   | $      | 341,025                                |   | $      | (60,816                                                            | )      | $      | 898,650   |   |
|                                                                |   |   |                                    |   |   |                                 |   |   |                                   |   |   |                                                               |   |   |      |   |
| Common                  Stock Dividends                             |   |   |                                    |   |   |                                 |   |   | (57,000                                | )      |   |                                                               |   |   | (57,000   | )      |
| Capital                  Stock Expense                              |   |   |                                    |   |   | 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   |   |
|                                                                |   |   |                                    |   |   |                                 |   |   |                                   |   |   |                                                               |   |   |      |   |
| **DECEMBER                  31, 2005**                              |   | $      | 41,026                                  |   | $      | 580,035                              |   | $      | 361,365                                |   | $      | (880                                                               | )      | $      | 981,546   |   |
|                                                                |   |   |                                    |   |   |                                 |   |   |                                   |   |   |                                                               |   |   |      |   |
| Common                  Stock Dividends                             |   |   |                                    |   |   |                                 |   |   | (45,000                                | )      |   |                                                               |   |   | (45,000   | )      |
| Capital                  Stock Expense                              |   |   |                                    |   |   | 79                                   |   |   | (79                                    | )      |   |                                                               |   |   | -         |   |
| **TOTAL**                                                           |   |   |                                    |   |   |                                 |   |   |                                   |   |   |                                                               |   |   | 936,546   |   |
|                                                                |   |   |                                    |   |   |                                 |   |   |                                   |   |   |                                                               |   |   |      |   |
| **COMPREHENSIVE                  INCOME**                           |   |   |                                    |   |   |                                 |   |   |                                   |   |   |                                                               |   |   |      |   |
| **Other                  Comprehensive Income, Net of Taxes:** |   |   |                                    |   |   |                                 |   |   |                                   |   |   |                                                               |   |   |      |   |
| Cash                  Flow Hedges, Net of Tax of $3,695             |   |   |                                    |   |   |                                 |   |   |                                   |   |   | 6,861                                                              |   |   | 6,861     |   |
| **NET                  INCOME**                                     |   |   |                                    |   |   |                                 |   |   | 83,599                                 |   |   |                                                               |   |   | 83,599    |   |
| **TOTAL                  COMPREHENSIVE INCOME**                     |   |   |                                    |   |   |                                 |   |   |                                   |   |   |                                                               |   |   | 90,460    |   |
|                                                                |   |   |                                    |   |   |                                 |   |   |                                   |   |   |                                                               |   |   |      |   |
| **JUNE                  30, 2006**                                  |   | $      | 41,026                                  |   | $      | 580,114                              |   | $      | 399,885                                |   | $      | 5,981                                                              |   | $      | 1,027,006 |   |

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

----

**COLUMBUS        SOUTHERN POWER COMPANY AND SUBSIDIARIES**

**CONDENSED        CONSOLIDATED BALANCE SHEETS**

**ASSETS**

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

**(in        thousands)**

**(Unaudited)**

|                                                       |   |   | **2006**  |   |   | **2005**  |   |
|------------------------------------------------------------|--------|--------|-----------|--------|--------|-----------|--------|
| **CURRENT                  ASSETS**                        |   |   |      |   |   |      |   |
| Cash                  and Cash Equivalents                 |   | $      | 810       |   | $      | 940       |   |
| Advances                  to Affiliates                    |   |   | 12,616    |   |   | -         |   |
| Accounts                  Receivable:                      |   |   |      |   |   |      |   |
| Customers                                                  |   |   | 52,106    |   |   | 43,143    |   |
| Affiliated                  Companies                      |   |   | 30,840    |   |   | 67,694    |   |
| Accrued                  Unbilled Revenues                 |   |   | 8,361     |   |   | 10,086    |   |
| Miscellaneous                                              |   |   | 2,592     |   |   | 2,012     |   |
| Allowance                  for Uncollectible Accounts      |   |   | (1,320    | )      |   | (1,082    | )      |
|                     Total Accounts Receivable    |   |   | 92,579    |   |   | 121,853   |   |
| Fuel                                                       |   |   | 40,277    |   |   | 28,579    |   |
| Materials                  and Supplies                    |   |   | 30,485    |   |   | 27,519    |   |
| Emission                  Allowances                       |   |   | 11,283    |   |   | 20,181    |   |
| Risk                  Management Assets                    |   |   | 53,186    |   |   | 76,507    |   |
| Accrued                  Tax Benefits                      |   |   | 4,360     |   |   | 36,838    |   |
| Margin                  Deposits                           |   |   | 584       |   |   | 16,832    |   |
| Prepayments                  and Other                     |   |   | 8,529     |   |   | 6,714     |   |
| **TOTAL**                                                  |   |   | 254,709   |   |   | 335,963   |   |
|                                                       |   |   |      |   |   |      |   |
| **PROPERTY,                  PLANT AND EQUIPMENT**         |   |   |      |   |   |      |   |
| Electric:                                                  |   |   |      |   |   |      |   |
| Production                                                 |   |   | 1,883,890 |   |   | 1,874,652 |   |
| Transmission                                               |   |   | 470,586   |   |   | 457,937   |   |
| Distribution                                               |   |   | 1,441,468 |   |   | 1,380,722 |   |
| Other                                                      |   |   | 186,456   |   |   | 184,096   |   |
| Construction                  Work in Progress             |   |   | 179,675   |   |   | 129,246   |   |
| **Total**                                                  |   |   | 4,162,075 |   |   | 4,026,653 |   |
| Accumulated                  Depreciation and Amortization |   |   | 1,564,597 |   |   | 1,500,858 |   |
| **TOTAL                  - NET**                           |   |   | 2,597,478 |   |   | 2,525,795 |   |
|                                                       |   |   |      |   |   |      |   |
| **OTHER                  NONCURRENT ASSETS**               |   |   |      |   |   |      |   |
| Regulatory                  Assets                         |   |   | 223,554   |   |   | 231,599   |   |
| Long-term                  Risk Management Assets          |   |   | 75,446    |   |   | 101,512   |   |
| Deferred                  Charges and Other                |   |   | 208,185   |   |   | 237,925   |   |
| **TOTAL**                                                  |   |   | 507,185   |   |   | 571,036   |   |
|                                                       |   |   |      |   |   |      |   |
| **TOTAL                  ASSETS**                          |   | $      | 3,359,372 |   | $      | 3,432,794 |   |

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

----

**COLUMBUS        SOUTHERN POWER COMPANY AND SUBSIDIARIES**

**CONDENSED        CONSOLIDATED BALANCE SHEETS**

**LIABILITIES        AND SHAREHOLDER’S EQUITY**

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

**(Unaudited)**

|                                                                        |   |                                | **2006**  |   |   | **2005**  |   |
|-----------------------------------------------------------------------------|--------|-------------------------------------|-----------|--------|--------|-----------|--------|
| **CURRENT                  LIABILITIES**                                    |   | **(in                  thousands)** |
| Advances                  from Affiliates                                   |   | $                                   | -         |   | $      | 17,609    |   |
| Accounts                  Payable:                                          |   |                                |      |   |   |      |   |
| General                                                                     |   |                                | 85,945    |   |   | 59,134    |   |
| Affiliated                  Companies                                       |   |                                | 50,801    |   |   | 59,399    |   |
| Risk                  Management Liabilities                                |   |                                | 35,109    |   |   | 69,036    |   |
| Customer                  Deposits                                          |   |                                | 32,170    |   |   | 47,013    |   |
| Accrued                  Taxes                                              |   |                                | 103,342   |   |   | 157,729   |   |
| Accrued                  Interest                                           |   |                                | 19,395    |   |   | 18,908    |   |
| Other                                                                       |   |                                | 29,772    |   |   | 31,321    |   |
| **TOTAL**                                                                   |   |                                | 356,534   |   |   | 460,149   |   |
|                                                                        |   |                                |      |   |   |      |   |
| **NONCURRENT                  LIABILITIES**                                 |   |                                |      |   |   |      |   |
| Long-term                  Debt - Nonaffiliated                             |   |                                | 1,097,121 |   |   | 1,096,920 |   |
| Long-term                  Debt - Affiliated                                |   |                                | 100,000   |   |   | 100,000   |   |
| Long-term                  Risk Management Liabilities                      |   |                                | 57,657    |   |   | 84,291    |   |
| Deferred                  Income Taxes                                      |   |                                | 501,286   |   |   | 498,232   |   |
| Regulatory                  Liabilities and Deferred Investment Tax Credits |   |                                | 173,058   |   |   | 165,344   |   |
| Deferred                  Credits and Other                                 |   |                                | 46,710    |   |   | 46,312    |   |
| **TOTAL**                                                                   |   |                                | 1,975,832 |   |   | 1,991,099 |   |
|                                                                        |   |                                |      |   |   |      |   |
| **TOTAL                  LIABILITIES**                                      |   |                                | 2,332,366 |   |   | 2,451,248 |   |
|                                                                        |   |                                |      |   |   |      |   |
| Commitments                  and Contingencies (Note 5)                     |   |                                |      |   |   |      |   |
|                                                                        |   |                                |      |   |   |      |   |
| **COMMON                  SHAREHOLDER’S EQUITY**                      |   |                                |      |   |   |      |   |
| Common                  Stock - No Par Value Per Share:                     |   |                                |      |   |   |      |   |
| Authorized                  - 24,000,000 Shares                             |   |                                |      |   |   |      |   |
| Outstanding                  - 16,410,426 Shares                            |   |                                | 41,026    |   |   | 41,026    |   |
| Paid-in                  Capital                                            |   |                                | 580,114   |   |   | 580,035   |   |
| Retained                  Earnings                                          |   |                                | 399,885   |   |   | 361,365   |   |
| Accumulated                  Other Comprehensive Income (Loss)              |   |                                | 5,981     |   |   | (880      | )      |
| **TOTAL**                                                                   |   |                                | 1,027,006 |   |   | 981,546   |   |
|                                                                        |   |                                |      |   |   |      |   |
| **TOTAL                  LIABILITIES AND SHAREHOLDER’S EQUITY**       |   | $                                   | 3,359,372 |   | $      | 3,432,794 |   |

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

----

**COLUMBUS        SOUTHERN POWER COMPANY AND SUBSIDIARIES**

**CONDENSED        CONSOLIDATED STATEMENTS OF CASH FLOWS**

**For        the Six Months Ended June 30, 2006 and 2005**

**(in        thousands)**

**(Unaudited)**

|                                                                                                                  |   |   | **2006** |   |   | **2005** |   |
|-----------------------------------------------------------------------------------------------------------------------|--------|--------|----------|--------|--------|----------|--------|
| **OPERATING                  ACTIVITIES**                                                                             |   |   |     |   |   |     |   |
| **Net                  Income**                                                                                       |   | $      | 83,599   |   | $      | 82,119   |   |
| **Adjustments                  for Noncash Items:**                                                                   |   |   |     |   |   |     |   |
| Depreciation                  and Amortization                                                                        |   |   | 92,346   |   |   | 65,531   |   |
| Deferred                  Income Taxes                                                                                |   |   | (250     | )      |   | (1,593   | )      |
| Mark-to-Market                  of Risk Management Contracts                                                          |   |   | (466     | )      |   | (5,171   | )      |
| Deferred                  Property Taxes                                                                              |   |   | 30,201   |   |   | 32,210   |   |
| Change                  in Other Noncurrent Assets                                                                    |   |   | (17,206  | )      |   | (55,746  | )      |
| Change                  in Other Noncurrent Liabilities                                                               |   |   | 7,111    |   |   | 4,287    |   |
| **Changes                  in Components of Working Capital:**                                                        |   |   |     |   |   |     |   |
| Accounts                  Receivable, Net                                                                             |   |   | 29,274   |   |   | 21,688   |   |
| Fuel,                  Materials and Supplies                                                                         |   |   | (14,664  | )      |   | (2,493   | )      |
| Accounts                  Payable                                                                                     |   |   | 16,866   |   |   | (1,220   | )      |
| Accrued                  Taxes, Net                                                                                   |   |   | (21,909  | )      |   | (93,089  | )      |
| Customer                  Deposits                                                                                    |   |   | (14,843  | )      |   | 7,618    |   |
| Other                  Current Assets                                                                                 |   |   | 24,796   |   |   | 334      |   |
| Other                  Current Liabilities                                                                            |   |   | (1,062   | )      |   | 948      |   |
| **Net                  Cash Flows From Operating Activities**                                                         |   |   | 213,793  |   |   | 55,423   |   |
|                                                                                                                  |   |   |     |   |   |     |   |
| **INVESTING                  ACTIVITIES**                                                                             |   |   |     |   |   |     |   |
| Construction                  Expenditures                                                                            |   |   | (137,728 | )      |   | (79,013  | )      |
| Change                  in Advances to Affiliates, Net                                                                |   |   | (12,616  | )      |   | 79,378   |   |
| Other                                                                                                                 |   |   | 600      |   |   | 3,663    |   |
| **Net                  Cash Flows From (Used For) Investing Activities**                                              |   |   | (149,744 | )      |   | 4,028    |   |
|                                                                                                                  |   |   |     |   |   |     |   |
| **FINANCING                  ACTIVITIES**                                                                             |   |   |     |   |   |     |   |
| Change                  in Advances from Affiliates, Net                                                              |   |   | (17,609  | )      |   | -        |   |
| Principal                  Payments for Capital Lease Obligations                                                     |   |   | (1,570   | )      |   | (1,815   | )      |
| Dividends                  Paid on Common Stock                                                                       |   |   | (45,000  | )      |   | (57,000  | )      |
| **Net                  Cash Flows Used For Financing Activities**                                                     |   |   | (64,179  | )      |   | (58,815  | )      |
|                                                                                                                  |   |   |     |   |   |     |   |
| **Net                  Increase (Decrease) in Cash and Cash Equivalents**                                             |   |   | (130     | )      |   | 636      |   |
| **Cash                  and Cash Equivalents at Beginning of Period**                                                 |   |   | 940      |   |   | 58       |   |
| **Cash                  and Cash Equivalents at End of Period**                                                       |   | $      | 810      |   | $      | 694      |   |
|                                                                                                                  |   |   |     |   |   |     |   |
| **SUPPLEMENTARY                  INFORMATION**                                                                        |   |   |     |   |   |     |   |
| Cash                  Paid for Interest, Net of Capitalized Amounts                                                   |   | $      | 32,374   |   | $      | 27,390   |   |
| Cash                  Paid for Income Taxes, Net of Refunds                                                           |   |   | 10,713   |   |   | 78,019   |   |
| Noncash                  Acquisitions Under Capital Leases                                                            |   |   | 1,648    |   |   | 343      |   |
| Construction                  Expenditures Included in Accounts Payable at June 30,                                   |   |   | 12,601   |   |   | 4,426    |   |
|                                                                                                                  |   |   |     |   |   |     |   |
| *See                  Condensed Notes to Condensed Financial Statements of Registrant                  Subsidiaries.* |

----

**COLUMBUS        SOUTHERN POWER COMPANY AND SUBSIDIARIES**

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

|                                                        | **Footnote****Reference** |
|-------------------------------------------------------------|---------------------------|
| Significant                  Accounting Matters             | Note                  1   |
| New                  Accounting Pronouncements              | Note                  2   |
| Rate                  Matters                               | Note                  3   |
| Customer                  Choice and Industry Restructuring | Note                  4   |
| Commitments                  and Contingencies              | Note                  5   |
| Guarantees                                                  | Note                  6   |
| Company-wide                  Staffing and Budget Review    | Note                  7   |
| Benefit                  Plans                              | Note                  9   |
| Business                  Segments                          | Note                  11  |
| Financing                  Activities                       | Note                  12  |

----

**INDIANA        MICHIGAN POWER COMPANY**

**AND        SUBSIDIARIES**

----

**INDIANA        MICHIGAN POWER COMPANY AND SUBSIDIARIES**

**MANAGEMENT’S        FINANCIAL DISCUSSION AND ANALYSIS**

**Results        of Operations**

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

**(in        millions)**

| **Second                  Quarter of 2005**                       |   |   |   |   | $      | 36     |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                  Margins                                   |   |   | (18    | )      |   |   |   |
| Off-system                  Sales (a)                             |   |   | 16     |   |   |   |   |
| Transmission                  Revenues                            |   |   | (9     | )      |   |   |   |
| Other                                                             |   |   | (4     | )      |   |   |   |
| **Total                  Change in Gross Margin**                 |   |   |   |   |   | (15    | )      |
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                  Operation and Maintenance                  |   |   | 8      |   |   |   |   |
| Depreciation                  and Amortization                    |   |   | (2     | )      |   |   |   |
| Taxes                  Other Than Income Taxes                    |   |   | (3     | )      |   |   |   |
| Interest                  Expense                                 |   |   | (1     | )      |   |   |   |
| **Total                  Change in Operating Expenses and Other** |   |   |   |   |   | 2      |   |
|                                                              |   |   |   |   |   |   |   |
| Income                  Tax Expense                               |   |   |   |   |   | 6      |   |
|                                                              |   |   |   |   |   |   |   |
| **Second                  Quarter of 2006**                       |   |   |   |   | $      | 29     |   |

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

| · | Retail                  Margins decreased $18 million primarily due to lower fuel recovery                  as fuel                  cost increases could not be recovered due to the Indiana fuel cap                  and a                  reduction in capacity settlement revenues of $8 million under the                  Interconnection Agreement.                                                                                                    |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Off-system                  Sales increased $16 million primarily due to the addition of new                  municipal                  contracts including new rates and increased demand beginning January                  2006.                                                                                                                                                                                                                            |
| · | Transmission                  Revenues decreased $9 million primarily due to the elimination                  of SECA                  revenues as of April 1, 2006 and a $3 million provision for potential                  SECA                  refunds pending settlement negotiations with various intervenors.                  See the                  “SECA Revenue Subject to Refund” section of Note 3 - Rate                  Matters. |

| · | Other Operation                  and Maintenance expenses decreased $8 million primarily due to                  a reduction                  in maintenance expenses for coal and nuclear generation                  facilities. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Income        Taxes*

**Reconciliation        of Six Months Ended June 30, 2005 to Six Months Ended June 30, 2006 Net        Income**

**(in        millions)**

| **Six                  Months Ended June 30, 2005**               |   |   |   |   | $      | 75     |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                  Margins                                   |   |   | (11    | )      |   |   |   |
| Off-system                  Sales (a)                             |   |   | 29     |   |   |   |   |
| Transmission                  Revenues                            |   |   | (7     | )      |   |   |   |
| Other                                                             |   |   | 9      |   |   |   |   |
| **Total                  Change in Gross Margin**                 |   |   |   |   |   | 20     |   |
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                  Operation and Maintenance                  |   |   | 5      |   |   |   |   |
| Depreciation                  and Amortization                    |   |   | (4     | )      |   |   |   |
| Taxes                  Other Than Income Taxes                    |   |   | (3     | )      |   |   |   |
| Other                  Income (Expense), Net                      |   |   | (2     | )      |   |   |   |
| **Total                  Change in Operating Expenses and Other** |   |   |   |   |   | (4     | )      |
|                                                              |   |   |   |   |   |   |   |
| Income                  Tax Expense                               |   |   |   |   |   | (5     | )      |
|                                                              |   |   |   |   |   |   |   |
| **Six                  Months Ended June 30, 2006**               |   |   |   |   | $      | 86     |   |

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

| · | Retail                  Margins decreased $11 million primarily due to lower fuel recovery                  as fuel                  cost increases could not be recovered due to the Indiana fuel cap                  and a                  reduction in capacity settlement revenues of $5 million under the                  Interconnection Agreement.                                                                                                                                                                  |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Off-system                  Sales increased $29 million primarily due to the addition of new                  municipal                  contracts including new rates and increased demand beginning January                  2006.                                                                                                                                                                                                                                                                                          |
| · | Transmission                  Revenues decreased $7 million primarily due to the elimination                  of SECA                  revenues as of April 1, 2006 and a $3 million provision for potential                  SECA                  refunds pending settlement negotiations with various intervenors.                  See the                  “SECA Revenue Subject to Refund” section of Note 3 - Rate                  Matters.                                                               |
| · | Other increased                  $9 million primarily due to increased River Transportation Division                  (RTD)                  revenues for barging coal and gains on sales of emission allowances.                  Related expenses which offset the RTD revenue increase are included                  in                  Other Operation on the Condensed Consolidated Statements of Income                  resulting in our earning only a return approved under regulatory                  order. |

| · | Other Operation                  and Maintenance expenses decreased $5 million primarily due to                  a reduction                  in distribution maintenance expense. Prior year distribution maintenance                  expense for overhead power lines included the costs of a January                  2005 ice                  storm. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Income        Taxes*

**Financial        Condition**

**Credit        Ratings**

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

**Cash        Flow**

|                                                                  |   | **2006**                            |     | **2005**     |   |
|-----------------------------------------------------------------------|--------|-------------------------------------|----------|--------------|--------|
|                                                                  |   | **(in                  thousands)** |     |
|                                                                  |   |                           |     |    |   |
| **Cash                  and Cash Equivalents at Beginning of Period** |   | $                                   | 854      |         | $      | 511 |   |
| Net                  Cash Flows From (Used For):                      |   |                                |     |         |   |   |   |
| Operating                  Activities                                 |   |                                | 291,722  |         |   | 123,693 |   |
| Investing                  Activities                                 |   |                                | (232,525 | )            |   | (159,964 | ) |
| Financing                  Activities                                 |   |                                | (59,517  | )            |   | 36,298 |   |
| Net                  Increase (Decrease) in Cash and Cash Equivalents |   |                                | (320     | )            |   | 27 |   |
| **Cash                  and Cash Equivalents at End of Period**       |   | $                                   | 534      |         | $      | 538 |   |

*Operating        Activities*

*Investing        Activities*

*Financing        Activities*

**Financing        Activity**

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

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

**Liquidity**

**Off-Balance        Sheet Arrangements**

**Summary        Obligation Information**
** **

**Significant        Factors**

**Cook        Plant Outage**

***Litigation        and Regulatory Activity***

**Critical        Accounting Estimates**

----

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

**Market        Risks**

**MTM        Risk Management Contract Net Assets**

**Reconciliation        of MTM Risk Management Contracts to**

**Condensed        Consolidated Balance Sheet**

**As        of June 30, 2006**

**(in        thousands)**

|                                                                        |   | **MTM                  Risk Management Contracts** |    | **Cash                  Flow &****Fair                  Value Hedges** |   | **DETM                  Assignment (a)** |   | **Total** |   |
|-----------------------------------------------------------------------------|--------|----------------------------------------------------|---------|----------------------------------------------------------------------------|--------|------------------------------------------|--------|-----------|--------|
| Current                  Assets                                             |   | $                                                  | 43,070  |                                                                       | $      | 13,934                                   |   | $         | -      |   | $ | 57,004 |   |
| Noncurrent                  Assets                                          |   |                                               | 76,447  |                                                                       |   | 597                                      |   |      | -      |   |   | 77,044 |   |
| **Total                  MTM Derivative Contract Assets**                   |   |                                               | 119,517 |                                                                       |   | 14,531                                   |   |      | -      |   |   | 134,048 |   |
|                                                                        |   |                                               |    |                                                                       |   |                                     |   |      |   |   |   |   |   |
| Current                  Liabilities                                        |   |                                               | (32,426 | )                                                                          |   | (3,126                                   | )      |      | (972   | ) |   | (36,524 | ) |
| Noncurrent                  Liabilities                                     |   |                                               | (52,608 | )                                                                          |   | -                                        |   |      | (6,239 | ) |   | (58,847 | ) |
| **Total                  MTM Derivative Contract Liabilities**              |   |                                               | (85,034 | )                                                                          |   | (3,126                                   | )      |      | (7,211 | ) |   | (95,371 | ) |
|                                                                        |   |                                               |    |                                                                       |   |                                     |   |      |   |   |   |   |   |
| **Total                  MTM Derivative Contract Net Assets (Liabilities)** |   | $                                                  | 34,483  |                                                                       | $      | 11,405                                   |   | $         | (7,211 | ) | $ | 38,677 |   |

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

**MTM        Risk Management Contract Net Assets**

**Six        Months Ended June 30, 2006**

**(in        thousands)**

| **Total                  MTM Risk Management Contract Net Assets at December 31,                  2005**                                                            |   | $      | 33,932 |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| (Gain)                  Loss from Contracts Realized/Settled During the Period and Entered                  in a                  Prior Period                      |   |   | 1,321  |   |
| Fair                  Value of New Contracts at Inception When Entered During the Period                  (a)                                                       |   |   | -      |   |
| Net                  Option Premiums Paid/(Received) for Unexercised or Unexpired Option                  Contracts Entered During                  the Period |   |   | (682   | )      |
| Change                  in Fair Value Due to Valuation Methodology Changes on Forward                  Contracts                                                    |   |   | -      |   |
| Changes                  in Fair Value Due to Market Fluctuations During the Period                  (b)                                                            |   |   | (1,356 | )      |
| Changes                  Due to SIA (c)                                                                                                                             |   |   | (3,940 | )      |
| Changes                  in Fair Value Allocated to Regulated Jurisdictions (d)                                                                                     |   |   | 5,208  |   |
| **Total                  MTM Risk Management Contract Net Assets**                                                                                                  |   |   | 34,483 |   |
| Net                  Cash Flow & Fair Value Hedge Contracts                                                                                                     |   |   | 11,405 |   |
| DETM                  Assignment (e)                                                                                                                                |   |   | (7,211 | )      |
| **Total                  MTM Risk Management Contract Net Assets at June 30,                  2006**                                                                |   | $      | 38,677 |   |

| (a) | Most                  of the fair value comes from longer term fixed price contracts                  with                  customers that seek to limit their risk against fluctuating energy                  prices.                  Inception value is only recorded if observable market data can                  be obtained                  for valuation inputs for the entire contract term. The contract                  prices are                  valued against market curves associated with the delivery location                  and                  delivery term. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Market                  fluctuations are attributable to various factors such as supply/demand,                  weather, storage, etc.                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (c) | See                  “Allocation Agreement between AEP East companies and AEP West companies                  and CSW Operating Agreement” section of Note 3.                                                                                                                                                                                                                                                                                                                                                                                                                  |
| (d) | “Changes                  in Fair Value Allocated to Regulated Jurisdictions” relates to the net                  gains (losses) of those contracts that are not reflected in our                  Condensed                  Consolidated Statements of Income. These net gains (losses) are                  recorded                  as regulatory liabilities/assets for those subsidiaries that operate                  in                  regulated jurisdictions.                                                                                                    |
| (e) | See                  “Natural Gas Contracts with DETM” section of Note 17 of the 2005 Annual                  Report.                                                                                                                                                                                                                                                                                                                                                                                                                                                          |

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

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

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

**Risk        Management Contract Net Assets**

**Fair        Value of Contracts as of June 30, 2006**

**(in        thousands)**

|                                                                                                |   | **Remainder                  2006** |   | **2007** |   | **2008** |   | **2009** |   | **2010** |   | **After****2010** |   | **Total** |   |
|-----------------------------------------------------------------------------------------------------|--------|-------------------------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|-------------------|--------|-----------|--------|
| Prices                  Actively Quoted - Exchange Traded                  Contracts                |   | $                                   | (2,096 | )        | $      | 2,343    |   | $        | 2,398  |     | $      | -                 |   | $         | -      |   | $ | - |   | $ | 2,645 |   |
| Prices                  Provided by Other External Sources                  - OTC Broker Quotes (a) |   |                                | 6,816  |     |   | 6,201    |   |     | 2,308  |     |   | 4,517             |   |      | -      |   |   | - |   |   | 19,842 |   |
| Prices                  Based on Models and Other Valuation                  Methods (b)            |   |                                | 183    |     |   | 660      |   |     | 1,766  |     |   | 2,487             |   |      | 5,256  |   |   | 1,644 |   |   | 11,996 |   |
| **Total**                                                                                           |   | $                                   | 4,903  |     | $      | 9,204    |   | $        | 6,472  |     | $      | 7,004             |   | $         | 5,256  |   | $ | 1,644 |   | $ | 34,483 |   |

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

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

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

**Six        Months Ended June 30, 2006**

**(in        thousands)**

|                                                                                                          |   | **Power** |   | **Interest                  Rate** |   | **Total** |   |
|---------------------------------------------------------------------------------------------------------------|--------|-----------|--------|------------------------------------|--------|-----------|--------|
| **Beginning                  Balance in AOCI December 31, 2005**                                              |   | $         | (877   | )                                  | $      | (2,590    | )      | $ | (3,467 | ) |
| Changes                  in Fair Value                                                                        |   |      | 6,619  |                               |   | 1,532     |   |   | 8,151 |   |
| Impact                  due to Changes in SIA (a)                                                             |   |      | (267   | )                                  |   | -         |   |   | (267 | ) |
| Reclassifications                  from AOCI to Net Income for Cash Flow                  Hedges Settled |   |      | 657    |                               |   | 160       |   |   | 817 |   |
| **Ending                  Balance in AOCI June 30, 2006**                                                     |   | $         | 6,132  |                               | $      | (898      | )      | $ | 5,234 |   |

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

**Credit        Risk**

**VaR        Associated with Risk Management Contracts**

| **Six                  Months Ended****June                  30, 2006** |   |     |   |        | **Twelve                  Months Ended****December                  31, 2005** |
|-------------------------------------------------------------------------|--------|----------|--------|-------------|--------------------------------------------------------------------------------|
| **(in                  thousands)**                                     |   |     |   |        | **(in                  thousands)**                                            |
| **End**                                                                 |   | **High** |   | **Average** |                                                                           | **Low** |   |   |   |   | **End** |   | **High** |   | **Average** |   | **Low** |
| $414                                                                    |   | $968     |   | $420        |                                                                           | $242 |   |   |   |   | $433 |   | $720 |   | $343 |   | $124 |

**VaR        Associated with Debt Outstanding**

----

**INDIANA        MICHIGAN POWER COMPANY AND SUBSIDIARIES**

**CONDENSED        CONSOLIDATED STATEMENTS OF INCOME**

**For        the Three and Six Months Ended June 30, 2006 and 2005**

**(in        thousands)**

**(Unaudited)**

|                                                                                   |   | **Three                  Months Ended** |    | **Six                  Months Ended** |   |
|----------------------------------------------------------------------------------------|--------|-----------------------------------------|---------|---------------------------------------|--------|
|                                                                                   |   | **2006**                                |    | **2005**                              |   | **2006** |   | **2005** |   |
| **REVENUES**                                                                           |   |                               |    |                             |   |   |   |   |   |
| Electric                  Generation, Transmission and Distribution                    |   | $                                       | 371,581 |                                  | $      | 355,907 |   | $ | 775,350 |   | $ | 704,260 |   |
| Sales                  to AEP Affiliates                                               |   |                                    | 80,401  |                                  |   | 81,544 |   |   | 168,935 |   |   | 174,082 |   |
| Other                  - Affiliated                                                    |   |                                    | 9,841   |                                  |   | 12,131 |   |   | 24,935 |   |   | 22,470 |   |
| Other                  - Nonaffiliated                                                 |   |                                    | 7,631   |                                  |   | 7,978 |   |   | 16,013 |   |   | 14,307 |   |
| **TOTAL**                                                                              |   |                                    | 469,454 |                                  |   | 457,560 |   |   | 985,233 |   |   | 915,119 |   |
|                                                                                   |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| **EXPENSES**                                                                           |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| Fuel                  and Other Consumables for Electric Generation                    |   |                                    | 96,147  |                                  |   | 80,461 |   |   | 185,599 |   |   | 159,698 |   |
| Purchased                  Electricity for Resale                                      |   |                                    | 15,533  |                                  |   | 12,730 |   |   | 26,543 |   |   | 24,002 |   |
| Purchased                  Electricity from AEP Affiliates                             |   |                                    | 80,830  |                                  |   | 71,984 |   |   | 167,252 |   |   | 145,993 |   |
| Other                  Operation                                                       |   |                                    | 115,506 |                                  |   | 115,910 |   |   | 232,712 |   |   | 220,312 |   |
| Maintenance                                                                            |   |                                    | 40,352  |                                  |   | 48,366 |   |   | 85,571 |   |   | 102,688 |   |
| Depreciation                  and Amortization                                         |   |                                    | 44,660  |                                  |   | 42,224 |   |   | 88,786 |   |   | 84,969 |   |
| Taxes                  Other Than Income Taxes                                         |   |                                    | 18,965  |                                  |   | 16,296 |   |   | 37,871 |   |   | 34,978 |   |
| **TOTAL**                                                                              |   |                                    | 411,993 |                                  |   | 387,971 |   |   | 824,334 |   |   | 772,640 |   |
|                                                                                   |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| **OPERATING                  INCOME**                                                  |   |                                    | 57,461  |                                  |   | 69,589 |   |   | 160,899 |   |   | 142,479 |   |
|                                                                                   |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| **Other                  Income (Expense):**                                           |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| Interest                  Income                                                       |   |                                    | 663     |                                  |   | 418 |   |   | 1,357 |   |   | 851 |   |
| Allowance                  for Equity Funds Used During Construction                   |   |                                    | 1,440   |                                  |   | 1,040 |   |   | 3,364 |   |   | 2,689 |   |
| Interest                  Expense                                                      |   |                                    | (17,902 | )                                     |   | (16,478 | ) |   | (35,435 | ) |   | (32,084 | ) |
|                                                                                   |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| **INCOME                  BEFORE INCOME TAXES**                                        |   |                                    | 41,662  |                                  |   | 54,569 |   |   | 130,185 |   |   | 113,935 |   |
|                                                                                   |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| Income                  Tax Expense                                                    |   |                                    | 13,137  |                                  |   | 18,976 |   |   | 43,782 |   |   | 38,673 |   |
|                                                                                   |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| **NET                  INCOME**                                                        |   |                                    | 28,525  |                                  |   | 35,593 |   |   | 86,403 |   |   | 75,262 |   |
|                                                                                   |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| Preferred                  Stock Dividend Requirements including Capital Stock Expense |   |                                    | 85      |                                  |   | 107 |   |   | 170 |   |   | 225 |   |
|                                                                                   |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| **EARNINGS                  APPLICABLE TO COMMON STOCK**                               |   | $                                       | 28,440  |                                  | $      | 35,486 |   | $ | 86,233 |   | $ | 75,037 |   |

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

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

----

**INDIANA        MICHIGAN POWER COMPANY AND SUBSIDIARIES**

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

**EQUITY        AND COMPREHENSIVE INCOME (LOSS)**

**For        the Six Months Ended June 30, 2006 and 2005**

**(in        thousands)**

**(Unaudited)**

|                                                                               |   | **Common                  Stock** |   | **Paid-in                  Capital** |   | **Retained                  Earnings** |   | **Accumulated                  Other Comprehensive Income (Loss)** |    | **Total** |   |
|------------------------------------------------------------------------------------|--------|-----------------------------------|--------|--------------------------------------|--------|----------------------------------------|--------|--------------------------------------------------------------------|---------|-----------|--------|
| **DECEMBER                  31, 2004**                                             |   | $                                 | 56,584 |                                 | $      | 858,835                                |   | $                                                                  | 221,330 |      | $      | (45,251 | ) | $ | 1,091,498 |   |
|                                                                               |   |                              |   |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| Common                  Stock Dividends                                            |   |                              |   |                                 |   |                                   |   |                                                               | (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 |   |
|                                                                               |   |                              |   |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| **DECEMBER                  31, 2005**                                             |   | $                                 | 56,584 |                                 | $      | 861,290                                |   | $                                                                  | 305,787 |      | $      | (3,569 | ) | $ | 1,220,092 |   |
|                                                                               |   |                              |   |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| Common                  Stock Dividends                                            |   |                              |   |                                 |   |                                   |   |                                                               | (20,000 | )         |   |   |   |   | (20,000 | ) |
| Preferred                  Stock Dividends                                         |   |                              |   |                                 |   |                                   |   |                                                               | (170    | )         |   |   |   |   | (170 | ) |
| **TOTAL**                                                                          |   |                              |   |                                 |   |                                   |   |                                                               |    |      |   |   |   |   | 1,199,922 |   |
|                                                                               |   |                              |   |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                  INCOME**                                          |   |                              |   |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| **Other                  Comprehensive Income,****Net                  of Taxes:** |   |                              |   |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| Cash                  Flow Hedges, Net of Tax of $4,685                            |   |                              |   |                                 |   |                                   |   |                                                               |    |      |   | 8,701 |   |   | 8,701 |   |
| **NET                  INCOME**                                                    |   |                              |   |                                 |   |                                   |   |                                                               | 86,403  |      |   |   |   |   | 86,403 |   |
| **TOTAL                  COMPREHENSIVE INCOME**                                    |   |                              |   |                                 |   |                                   |   |                                                               |    |      |   |   |   |   | 95,104 |   |
|                                                                               |   |                              |   |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| **JUNE                  30, 2006**                                                 |   | $                                 | 56,584 |                                 | $      | 861,290                                |   | $                                                                  | 372,020 |      | $      | 5,132 |   | $ | 1,295,026 |   |

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

----

**INDIANA        MICHIGAN POWER COMPANY AND SUBSIDIARIES**

**CONDENSED        CONSOLIDATED BALANCE SHEETS**

**ASSETS**

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

**(in        thousands)**

**(Unaudited)**

|                                                                                                  |   | **2006**     |      | **2005**     |   |
|-------------------------------------------------------------------------------------------------------|--------|--------------|-----------|--------------|--------|
| **CURRENT                  ASSETS**                                                                   |   |    |      |    |   |
| Cash                  and Cash Equivalents                                                            |   | $            | 534       |         | $      | 854 |   |
| Accounts                  Receivable:                                                                 |   |         |      |         |   |   |   |
| Customers                                                                                             |   |         | 61,036    |         |   | 62,614 |   |
| Affiliated                  Companies                                                                 |   |         | 72,909    |         |   | 127,981 |   |
| Miscellaneous                                                                                         |   |         | 1,928     |         |   | 1,982 |   |
| Allowance                  for Uncollectible Accounts                                                 |   |         | (1,088    | )            |   | (898 | ) |
| Total                  Accounts Receivable                                                            |   |         | 134,785   |         |   | 191,679 |   |
| Fuel                                                                                                  |   |         | 32,333    |         |   | 25,894 |   |
| Materials                  and Supplies                                                               |   |         | 123,692   |         |   | 118,039 |   |
| Risk                  Management Assets                                                               |   |         | 57,004    |         |   | 78,134 |   |
| Accrued                  Tax Benefits                                                                 |   |         | 27,467    |         |   | 51,846 |   |
| Prepayments                  and Other                                                                |   |         | 6,031     |         |   | 31,303 |   |
| **TOTAL**                                                                                             |   |         | 381,846   |         |   | 497,749 |   |
|                                                                                                  |   |         |      |         |   |   |   |
| **PROPERTY,                  PLANT AND EQUIPMENT**                                                    |   |         |      |         |   |   |   |
| Electric:                                                                                             |   |         |      |         |   |   |   |
| Production                                                                                            |   |         | 3,216,765 |         |   | 3,128,078 |   |
| Transmission                                                                                          |   |         | 1,033,311 |         |   | 1,028,496 |   |
| Distribution                                                                                          |   |         | 1,073,159 |         |   | 1,029,498 |   |
| Other                  (including nuclear fuel and coal mining)                                       |   |         | 478,450   |         |   | 465,130 |   |
| Construction                  Work in Progress                                                        |   |         | 288,913   |         |   | 311,080 |   |
| **Total**                                                                                             |   |         | 6,090,598 |         |   | 5,962,282 |   |
| Accumulated                  Depreciation, Depletion and Amortization                                 |   |         | 2,875,115 |         |   | 2,822,558 |   |
| **TOTAL                  - NET**                                                                      |   |         | 3,215,483 |         |   | 3,139,724 |   |
|                                                                                                  |   |         |      |         |   |   |   |
| **OTHER                  NONCURRENT ASSETS**                                                          |   |         |      |         |   |   |   |
| Regulatory                  Assets                                                                    |   |         | 209,751   |         |   | 222,686 |   |
| Nuclear                  Decommissioning and Spent Nuclear Fuel Disposal Trust                  Funds |   |         | 1,158,538 |         |   | 1,133,567 |   |
| Long-term                  Risk Management Assets                                                     |   |         | 77,044    |         |   | 103,645 |   |
| Deferred                  Charges and Other                                                           |   |         | 159,570   |         |   | 164,938 |   |
| **TOTAL**                                                                                             |   |         | 1,604,903 |         |   | 1,624,836 |   |
|                                                                                                  |   |         |      |         |   |   |   |
| **TOTAL                  ASSETS**                                                                     |   | $            | 5,202,232 |         | $      | 5,262,309 |   |

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

----

**INDIANA        MICHIGAN POWER COMPANY AND SUBSIDIARIES**

**CONDENSED        CONSOLIDATED BALANCE SHEETS**

**LIABILITIES        AND SHAREHOLDERS’ EQUITY**

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

**(Unaudited)**

|                                                                            |   | **2006**                            |      | **2005** |   |
|---------------------------------------------------------------------------------|--------|-------------------------------------|-----------|----------|--------|
| **CURRENT                  LIABILITIES**                                        |   | **(in                  thousands)** |      |
| Advances                  from Affiliates                                       |   | $                                   | 57,749    |     | $      | 93,702 |   |
| Accounts                  Payable:                                              |   |                                |      |     |   |   |   |
| General                                                                         |   |                                | 135,405   |     |   | 139,334 |   |
| Affiliated                  Companies                                           |   |                                | 49,742    |     |   | 60,324 |   |
| Long-term                  Debt Due Within One Year                             |   |                                | 414,632   |     |   | 364,469 |   |
| Risk                  Management Liabilities                                    |   |                                | 36,524    |     |   | 71,032 |   |
| Customer                  Deposits                                              |   |                                | 34,391    |     |   | 49,258 |   |
| Accrued                  Taxes                                                  |   |                                | 60,444    |     |   | 56,567 |   |
| Other                                                                           |   |                                | 92,317    |     |   | 112,839 |   |
| **TOTAL**                                                                       |   |                                | 881,204   |     |   | 947,525 |   |
|                                                                            |   |                                |      |     |   |   |   |
| **NONCURRENT                  LIABILITIES**                                     |   |                                |      |     |   |   |   |
| Long-term                  Debt                                                 |   |                                | 1,036,038 |     |   | 1,080,471 |   |
| Long-term                  Risk Management Liabilities                          |   |                                | 58,847    |     |   | 86,159 |   |
| Deferred                  Income Taxes                                          |   |                                | 349,595   |     |   | 335,264 |   |
| Regulatory                  Liabilities and Deferred Investment Tax Credits     |   |                                | 684,865   |     |   | 710,015 |   |
| Asset                  Retirement Obligations                                   |   |                                | 761,890   |     |   | 737,959 |   |
| Deferred                  Credits and Other                                     |   |                                | 126,683   |     |   | 136,740 |   |
| **TOTAL**                                                                       |   |                                | 3,017,918 |     |   | 3,086,608 |   |
|                                                                            |   |                                |      |     |   |   |   |
| **TOTAL                  LIABILITIES**                                          |   |                                | 3,899,122 |     |   | 4,034,133 |   |
|                                                                            |   |                                |      |     |   |   |   |
| Cumulative                  Preferred Stock Not Subject to Mandatory Redemption |   |                                | 8,084     |     |   | 8,084 |   |
|                                                                            |   |                                |      |     |   |   |   |
| Commitments                  and Contingencies (Note 5)                         |   |                                |      |     |   |   |   |
|                                                                            |   |                                |      |     |   |   |   |
| **COMMON                  SHAREHOLDER’S EQUITY**                          |   |                                |      |     |   |   |   |
| Common                  Stock - No Par Value:                                   |   |                                |      |     |   |   |   |
| Authorized                  - 2,500,000 Shares                                  |   |                                |      |     |   |   |   |
| Outstanding                  - 1,400,000 Shares                                 |   |                                | 56,584    |     |   | 56,584 |   |
| Paid-in                  Capital                                                |   |                                | 861,290   |     |   | 861,290 |   |
| Retained                  Earnings                                              |   |                                | 372,020   |     |   | 305,787 |   |
| Accumulated                  Other Comprehensive Income (Loss)                  |   |                                | 5,132     |     |   | (3,569 | ) |
| **TOTAL**                                                                       |   |                                | 1,295,026 |     |   | 1,220,092 |   |
|                                                                            |   |                                |      |     |   |   |   |
| **TOTAL                  LIABILITIES AND SHAREHOLDERS’ EQUITY**           |   | $                                   | 5,202,232 |     | $      | 5,262,309 |   |

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

----

**INDIANA        MICHIGAN POWER COMPANY AND SUBSIDIARIES**

**CONDENSED        CONSOLIDATED STATEMENTS OF CASH FLOWS**

**For        the Six Months Ended June 30, 2006 and 2005**

**(in        thousands)**

**(Unaudited)**

|                                                                                                                  |   | **2006**     |     | **2005**     |   |
|-----------------------------------------------------------------------------------------------------------------------|--------|--------------|----------|--------------|--------|
| **OPERATING                  ACTIVITIES**                                                                             |   |    |     |    |   |
| **Net                  Income**                                                                                       |   | $            | 86,403   |         | $      | 75,262 |   |
| **Adjustments                  for Noncash Items:**                                                                   |   |         |     |         |   |   |   |
| Depreciation                  and Amortization                                                                        |   |         | 88,786   |         |   | 84,969 |   |
| Accretion                  of Asset Retirement Obligations                                                            |   |         | 24,009   |         |   | 23,632 |   |
| Deferred                  Income Taxes                                                                                |   |         | 9,562    |         |   | 3,476 |   |
| Deferred                  Investment Tax Credits                                                                      |   |         | (3,640   | )            |   | (3,664 | ) |
| Amortization                  (Deferral) of Incremental Nuclear Refueling Outage Expenses,                  Net       |   |         | (12,111  | )            |   | (758 | ) |
| Amortization                  of Nuclear Fuel                                                                         |   |         | 24,928   |         |   | 27,234 |   |
| Mark-to-Market                  of Risk Management Contracts                                                          |   |         | (634     | )            |   | (5,598 | ) |
| Pension                  Contributions to Qualified Plan Trusts                                                       |   |         | -        |         |   | (30,701 | ) |
| Change                  in Other Noncurrent Assets                                                                    |   |         | 20,953   |         |   | 12,660 |   |
| Change                  in Other Noncurrent Liabilities                                                               |   |         | (9,308   | )            |   | 2,533 |   |
| **Changes                  in Components of Working Capital:**                                                        |   |         |     |         |   |   |   |
| Accounts                  Receivable, Net                                                                             |   |         | 56,894   |         |   | 25,058 |   |
| Fuel,                  Materials and Supplies                                                                         |   |         | (12,092  | )            |   | 561 |   |
| Accounts                  Payable                                                                                     |   |         | 4,221    |         |   | (11,426 | ) |
| Accrued                  Taxes, Net                                                                                   |   |         | 28,256   |         |   | (68,896 | ) |
| Customer                  Deposits                                                                                    |   |         | (14,867  | )            |   | 5,713 |   |
| Other                  Current Assets                                                                                 |   |         | 21,921   |         |   | (3,646 | ) |
| Other                  Current Liabilities                                                                            |   |         | (21,559  | )            |   | (12,716 | ) |
| **Net                  Cash Flows From Operating Activities**                                                         |   |         | 291,722  |         |   | 123,693 |   |
|                                                                                                                  |   |         |     |         |   |   |   |
| **INVESTING                  ACTIVITIES**                                                                             |   |         |     |         |   |   |   |
| Construction                  Expenditures                                                                            |   |         | (169,491 | )            |   | (119,709 | ) |
| Change                  in Advances to Affiliates, Net                                                                |   |         | -        |         |   | 5,093 |   |
| Purchases                  of Investment Securities                                                                   |   |         | (434,212 | )            |   | (299,692 | ) |
| Sales                  of Investment Securities                                                                       |   |         | 405,716  |         |   | 272,654 |   |
| Acquisitions                  of Nuclear Fuel                                                                         |   |         | (35,195  | )            |   | (27,778 | ) |
| Proceeds                  from Sales of Assets                                                                        |   |         | 657      |         |   | 9,468 |   |
| **Net                  Cash Flows Used For Investing Activities**                                                     |   |         | (232,525 | )            |   | (159,964 | ) |
|                                                                                                                  |   |         |     |         |   |   |   |
| **FINANCING                  ACTIVITIES**                                                                             |   |         |     |         |   |   |   |
| Issuance                  of Long-term Debt                                                                           |   |         | 49,745   |         |   | - |   |
| Change                  in Advances from Affiliates, Net                                                              |   |         | (35,953  | )            |   | 143,126 |   |
| Retirement                  of Long-term Debt                                                                         |   |         | (50,000  | )            |   | - |   |
| Retirement                  of Cumulative Preferred Stock                                                             |   |         | -        |         |   | (61,445 | ) |
| Principal                  Payments for Capital Lease Obligations                                                     |   |         | (3,139   | )            |   | (3,214 | ) |
| Dividends                  Paid on Common Stock                                                                       |   |         | (20,000  | )            |   | (42,000 | ) |
| Dividends                  Paid on Cumulative Preferred Stock                                                         |   |         | (170     | )            |   | (169 | ) |
| **Net                  Cash Flows From (Used For) Financing Activities**                                              |   |         | (59,517  | )            |   | 36,298 |   |
|                                                                                                                  |   |         |     |         |   |   |   |
| **Net                  Increase (Decrease) in Cash and Cash Equivalents**                                             |   |         | (320     | )            |   | 27 |   |
| **Cash                  and Cash Equivalents at Beginning of Period**                                                 |   |         | 854      |         |   | 511 |   |
| **Cash                  and Cash Equivalents at End of Period**                                                       |   | $            | 534      |         | $      | 538 |   |
|                                                                                                                  |   |         |     |         |   |   |   |
| **SUPPLEMENTAL                  DISCLOSURE**                                                                          |   |         |     |         |   |   |   |
| Cash                  Paid for Interest, Net of Capitalized Amounts                                                   |   | $            | 32,959   |         | $      | 29,427 |   |
| Cash                  Paid for Income Taxes, Net of Refunds                                                           |   |         | 12,031   |         |   | 106,891 |   |
| Noncash                  Acquisitions Under Capital Leases                                                            |   |         | 3,185    |         |   | 652 |   |
| Construction                  Expenditures Included in Accounts Payable at June 30,                                   |   |         | 18,031   |         |   | 14,640 |   |
| Acquisition                  of Nuclear Fuel in Accounts Payable at June 30,                                          |   |         | 25,780   |         |   | - |   |
|                                                                                                                  |   |         |     |         |   |   |   |
| *See                  Condensed Notes to Condensed Financial Statements of Registrant                  Subsidiaries.* |

----

**INDIANA        MICHIGAN POWER COMPANY AND SUBSIDIARIES**

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

|                                                     | **Footnote****Reference** |
|----------------------------------------------------------|---------------------------|
| Significant                  Accounting Matters          | Note                  1   |
| New                  Accounting Pronouncements           | Note                  2   |
| Rate                  Matters                            | Note                  3   |
| Commitments                  and Contingencies           | Note                  5   |
| Guarantees                                               | Note                  6   |
| Company-wide                  Staffing and Budget Review | Note                  7   |
| Benefit                  Plans                           | Note                  9   |
| Business                  Segments                       | Note                  11  |
| Financing                  Activities                    | Note                  12  |

----

**KENTUCKY        POWER COMPANY**

----

**KENTUCKY        POWER COMPANY**

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

**Results        of Operations**

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

**(in        millions)**

| **Second                  Quarter of 2005**                   |   |   |   |   | $      | 2      |   |
|---------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                          |   |   |   |   |   |   |   |
| **Changes                  in Gross Margin:**                 |   |   |   |   |   |   |   |
| Retail                  Margins                               |   |   | 10     |   |   |   |   |
| Off-system                  Sales                             |   |   | 1      |   |   |   |   |
| Transmission                  Revenues                        |   |   | (4     | )      |   |   |   |
| Other                                                         |   |   | (2     | )      |   |   |   |
| **Total                  Change in Gross Margin**             |   |   |   |   |   | 5      |   |
|                                                          |   |   |   |   |   |   |   |
| Total                  Change in Operating Expenses and Other |   |   |   |   |   | (1     | )      |
|                                                          |   |   |   |   |   |   |   |
| Income                  Tax Expense                           |   |   |   |   |   | (1     | )      |
|                                                          |   |   |   |   |   |   |   |
| **Second                  Quarter of 2006**                   |   |   |   |   | $      | 5      |   |
|                                                          |   |   |   |   |   |   |   |

| · | Retail                  Margins increased $10 million primarily due to rate relief from                  the March                  2006 approval of the settlement agreement in our base rate case.                                                                                                                                                                                                                                                            |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Transmission                  Revenues decreased $4 million primarily due to the elimination                  of SECA                  revenues as of April 1, 2006 and a $1 million provision for potential                  SECA                  refunds pending settlement negotiations with various intervenors.                  See the                  “SECA Revenue Subject to Refund” section of Note 3 - Rate                  Matters. |

*Income        Taxes*

**Reconciliation        of Six Months Ended June 30, 2005 to Six Months Ended June 30, 2006 Net        Income**

**(in        millions)**

| **Six                  Months Ended June 30, 2005**               |   |   |   |   | $      | 12     |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                  Margins                                   |   |   | 6      |   |   |   |   |
| Off-system                  Sales                                 |   |   | 1      |   |   |   |   |
| Transmission                  Revenues                            |   |   | (3     | )      |   |   |   |
| Other                                                             |   |   | 3      |   |   |   |   |
| **Total                  Change in Gross Margin**                 |   |   |   |   |   | 7      |   |
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                  Operation and Maintenance                  |   |   | (1     | )      |   |   |   |
| Depreciation                  and Amortization                    |   |   | (1     | )      |   |   |   |
| **Total                  Change in Operating Expenses and Other** |   |   |   |   |   | (2     | )      |
|                                                              |   |   |   |   |   |   |   |
| Income                  Tax Expense                               |   |   |   |   |   | (2     | )      |
|                                                              |   |   |   |   |   |   |   |
| **Six                  Months Ended June 30, 2006**               |   |   |   |   | $      | 15     |   |
|                                                              |   |   |   |   |   |   |   |

| · | Retail                  Margins increased $6 million primarily due to rate relief from                  the March                  2006 approval of the settlement agreement in our base rate case                  as well as                  favorable financial transmission rights revenue. The above was                  partially                  offset by increased capacity charges due to changes in the relative                  peak                  demands and generating capacity of the AEP Power Pool                  members. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Transmission                  Revenues decreased $3 million primarily due to the elimination                  of SECA                  revenues as of April 1, 2006 and a $1 million provision for potential                  SECA                  refunds pending settlement negotiations with various intervenors.                  See the                  “SECA Revenue Subject to Refund” section of Note 3 - Rate                  Matters.                                                                                       |
| · | Other                  revenues increased                  $3 million due primarily to a $3 million unfavorable adjustment                  of the                  Demand Side Management Program regulatory asset in March                  2005.                                                                                                                                                                                                                                                                                              |

*Income        Taxes*

**Financial        Condition**

**Credit        Ratings**

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

**Financing        Activities**

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

**Liquidity**

**Summary        Obligation Information**

**Significant        Factors**

***Big        Sandy Plant Scrubber***

***Litigation        and Regulatory Activity***

**Critical        Accounting Estimates**

----

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

**Market        Risks**

**MTM        Risk Management Contract Net Assets**

**Reconciliation        of MTM Risk Management Contracts to**

**Condensed        Balance Sheet**

**As        of June 30, 2006**

**(in        thousands)**

|                                                                        |   | **MTM                  Risk Management Contracts** |    | **Cash                  Flow &****Fair                  Value Hedges** |   | **DETM                  Assignment (a)** |   | **Total** |   |
|-----------------------------------------------------------------------------|--------|----------------------------------------------------|---------|----------------------------------------------------------------------------|--------|------------------------------------------|--------|-----------|--------|
| Current                  Assets                                             |   | $                                                  | 17,224  |                                                                       | $      | 4,457                                    |   | $         | -      |   | $ | 21,681 |   |
| Noncurrent                  Assets                                          |   |                                               | 30,424  |                                                                       |   | 237                                      |   |      | -      |   |   | 30,661 |   |
| **Total                  MTM Derivative Contract Assets**                   |   |                                               | 47,648  |                                                                       |   | 4,694                                    |   |      | -      |   |   | 52,342 |   |
|                                                                        |   |                                               |    |                                                                       |   |                                     |   |      |   |   |   |   |   |
| Current                  Liabilities                                        |   |                                               | (13,106 | )                                                                          |   | (1,671                                   | )      |      | (386   | ) |   | (15,163 | ) |
| Noncurrent                  Liabilities                                     |   |                                               | (21,068 | )                                                                          |   | (484                                     | )      |      | (2,477 | ) |   | (24,029 | ) |
| **Total                  MTM Derivative Contract Liabilities**              |   |                                               | (34,174 | )                                                                          |   | (2,155                                   | )      |      | (2,863 | ) |   | (39,192 | ) |
|                                                                        |   |                                               |    |                                                                       |   |                                     |   |      |   |   |   |   |   |
| **Total                  MTM Derivative Contract Net Assets (Liabilities)** |   | $                                                  | 13,474  |                                                                       | $      | 2,539                                    |   | $         | (2,863 | ) | $ | 13,150 |   |

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

**MTM        Risk Management Contract Net Assets**

**Six        Months Ended June 30, 2006**

**(in        thousands)**

| **Total                  MTM Risk Management Contract Net Assets at December 31,                  2005**                                       |   | $      | 13,518 |   |
|------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| (Gain)                  Loss from Contracts Realized/Settled During the Period and Entered                  in a                  Prior Period |   |   | 681    |   |
| Fair                  Value of New Contracts at Inception When Entered During the Period                  (a)                                  |   |   | -      |   |
| Net                  Option Premiums Paid/(Received) for Unexercised or Unexpired Option                  Contracts Entered During the Period  |   |   | (290   | )      |
| Change                  in Fair Value Due to Valuation Methodology Changes on Forward                  Contracts                               |   |   | -      |   |
| Changes                  in Fair Value Due to Market Fluctuations During the Period                  (b)                                       |   |   | (688   | )      |
| Changes                  Due to SIA (c)                                                                                                        |   |   | (1,565 | )      |
| Changes                  in Fair Value Allocated to Regulated Jurisdictions (d)                                                                |   |   | 1,818  |   |
| **Total                  MTM Risk Management Contract Net Assets**                                                                             |   |   | 13,474 |   |
| Net                  Cash Flow & Fair Value Hedge Contracts                                                                                |   |   | 2,539  |   |
| DETM                  Assignment (e)                                                                                                           |   |   | (2,863 | )      |
| **Total                  MTM Risk Management Contract Net Assets at June 30, 2006**                                                            |   | $      | 13,150 |   |

| (a) | Most                  of the fair value comes from longer term fixed price contracts                  with                  customers that seek to limit their risk against fluctuating energy                  prices.                  Inception value is only recorded if observable market data can                  be obtained                  for valuation inputs for the entire contract term. The contract                  prices are                  valued against market curves associated with the delivery location                  and                  delivery term. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Market                  fluctuations are attributable to various factors such as supply/demand,                  weather, storage, etc.                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (c) | See                  “Allocation Agreement between AEP East companies and AEP West companies                  and CSW Operating Agreement” section of Note 3.                                                                                                                                                                                                                                                                                                                                                                                                                  |
| (d) | “Changes                  in Fair Value Allocated to Regulated Jurisdictions” relates to the net                  gains (losses) of those contracts that are not reflected in the                  Condensed                  Statements of Income. These net gains (losses) are recorded as                  regulatory                  liabilities/assets for those subsidiaries that operate in regulated                  jurisdictions.                                                                                                                                  |
| (e) | See                  “Natural Gas Contracts with DETM” section of Note 17 of the 2005 Annual                  Report.                                                                                                                                                                                                                                                                                                                                                                                                                                                          |

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

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

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

**Risk        Management Contract Net Assets**

**Fair        Value of Contracts as of June 30, 2006**

**(in        thousands)**

|                                                                                                |   | **Remainder****2006** |   | **2007** |   | **2008** |   | **2009** |   | **2010** |   | **After****2010** |   | **Total** |   |
|-----------------------------------------------------------------------------------------------------|--------|-----------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|-------------------|--------|-----------|--------|
| Prices                  Actively Quoted - Exchange Traded                  Contracts                |   | $                     | (832   | )        | $      | 930      |   | $        | 952    |     | $      | -                 |   | $         | -      |   | $ | - |   | $ | 1,050 |   |
| Prices                  Provided by Other External Sources                  - OTC Broker Quotes (a) |   |                  | 2,691  |     |   | 2,434    |   |     | 923    |     |   | 1,794             |   |      | -      |   |   | - |   |   | 7,842 |   |
| Prices                  Based on Models and Other Valuation                  Methods (b)            |   |                  | 67     |     |   | 147      |   |     | 641    |     |   | 987               |   |      | 2,087  |   |   | 653 |   |   | 4,582 |   |
| **Total**                                                                                           |   | $                     | 1,926  |     | $      | 3,511    |   | $        | 2,516  |     | $      | 2,781             |   | $         | 2,087  |   | $ | 653 |   | $ | 13,474 |   |

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

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

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

**Six        Months Ended June 30, 2006**

**(in        thousands)**

|                                                                                         |   | **Power** |   | **Interest                  Rate** |   | **Total** |   |
|----------------------------------------------------------------------------------------------|--------|-----------|--------|------------------------------------|--------|-----------|--------|
| **Beginning                  Balance in AOCI December 31, 2005**                             |   | $         | (352   | )                                  | $      | 158       |   | $ | (194 | ) |
| Changes                  in Fair Value                                                       |   |      | 2,632  |                               |   | -         |   |   | 2,632 |   |
| Impact                  Due to Changes in SIA (a)                                            |   |      | (106   | )                                  |   | -         |   |   | (106 | ) |
| Reclassifications                  from AOCI to Net Income for Cash Flow Hedges Settled |   |      | 262    |                               |   | (44       | )      |   | 218 |   |
| **Ending                  Balance in AOCI June 30, 2006**                                    |   | $         | 2,436  |                               | $      | 114       |   | $ | 2,550 |   |

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

**Credit        Risk**

**VaR        Associated with Risk Management Contracts**

| **Six                  Months Ended****June                  30, 2006** |   |     |   |        | **Twelve                  Months Ended****December                  31, 2005** |
|-------------------------------------------------------------------------|--------|----------|--------|-------------|--------------------------------------------------------------------------------|
| **(in                  thousands)**                                     |   |     |   |        | **(in                  thousands)**                                            |
| **End**                                                                 |   | **High** |   | **Average** |                                                                           | **Low** |   |   |   |   | **End** |   | **High** |   | **Average** |   | **Low** |
| $164                                                                    |   | $385     |   | $167        |                                                                           | $96 |   |   |   |   | $174 |   | $289 |   | $138 |   | $50 |

**VaR        Associated with Debt Outstanding**

----

**KENTUCKY        POWER COMPANY**

**CONDENSED        STATEMENTS OF INCOME**

**For        the Three and Six Months Ended June 30, 2006 and 2005**

**(in        thousands)**

**(Unaudited)**

|                                                                     |   | **Three                  Months Ended** |    | **Six                  Months Ended** |   |
|--------------------------------------------------------------------------|--------|-----------------------------------------|---------|---------------------------------------|--------|
|                                                                     |   | **2006**                                |    | **2005**                              |   | **2006** |   | **2005** |   |
| **REVENUES**                                                             |   |                               |    |                             |   |   |   |   |   |
| Electric                  Generation, Transmission and Distribution      |   | $                                       | 121,074 |                                  | $      | 108,510 |   | $ | 258,694 |   | $ | 217,591 |   |
| Sales                  to AEP Affiliates                                 |   |                                    | 14,109  |                                  |   | 13,709 |   |   | 28,077 |   |   | 32,257 |   |
| Other                                                                    |   |                                    | 120     |                                  |   | 490 |   |   | 379 |   |   | 921 |   |
| **TOTAL**                                                                |   |                                    | 135,303 |                                  |   | 122,709 |   |   | 287,150 |   |   | 250,769 |   |
|                                                                     |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| **EXPENSES**                                                             |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| Fuel                  and Other Consumables for Electric Generation |   |                                    | 31,790  |                                  |   | 31,989 |   |   | 75,756 |   |   | 60,668 |   |
| Purchased                  Electricity for Resale                        |   |                                    | 1,991   |                                  |   | 1,786 |   |   | 2,964 |   |   | 3,910 |   |
| Purchased                  Electricity from AEP Affiliates               |   |                                    | 50,923  |                                  |   | 43,010 |   |   | 100,449 |   |   | 85,749 |   |
| Other                  Operation                                         |   |                                    | 13,738  |                                  |   | 14,255 |   |   | 27,486 |   |   | 28,197 |   |
| Maintenance                                                              |   |                                    | 9,293   |                                  |   | 8,482 |   |   | 16,434 |   |   | 14,398 |   |
| Depreciation                  and Amortization                           |   |                                    | 11,572  |                                  |   | 11,225 |   |   | 23,029 |   |   | 22,377 |   |
| Taxes                  Other Than Income Taxes                           |   |                                    | 2,442   |                                  |   | 2,219 |   |   | 4,954 |   |   | 4,644 |   |
| **TOTAL**                                                                |   |                                    | 121,749 |                                  |   | 112,966 |   |   | 251,072 |   |   | 219,943 |   |
|                                                                     |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| **OPERATING                  INCOME**                                    |   |                                    | 13,554  |                                  |   | 9,743 |   |   | 36,078 |   |   | 30,826 |   |
|                                                                     |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| Other                  Income                                            |   |                                    | 105     |                                  |   | 207 |   |   | 372 |   |   | 439 |   |
| Interest                  Expense                                        |   |                                    | (7,440  | )                                     |   | (7,068 | ) |   | (14,736 | ) |   | (14,438 | ) |
|                                                                     |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| **INCOME                  BEFORE INCOME TAXES**                          |   |                                    | 6,219   |                                  |   | 2,882 |   |   | 21,714 |   |   | 16,827 |   |
|                                                                     |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| Income                  Tax Expense                                      |   |                                    | 1,168   |                                  |   | 436 |   |   | 6,833 |   |   | 4,496 |   |
|                                                                     |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| **NET                  INCOME**                                          |   | $                                       | 5,051   |                                  | $      | 2,446 |   | $ | 14,881 |   | $ | 12,331 |   |

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

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

----

**KENTUCKY        POWER COMPANY**

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

**EQUITY        AND COMPREHENSIVE INCOME (LOSS)**

**For        the Six Months Ended June 30, 2006 and 2005**

**(in        thousands)**

**(Unaudited)**

|                                                                                         |   | **Common                    Stock** |   | **Paid-in                    Capital** |   | **Retained                    Earnings** |   | **Accumulated                    Other Comprehensive Income                    (Loss)** |   | **Total** |   |
|----------------------------------------------------------------------------------------------|--------|-------------------------------------|--------|----------------------------------------|--------|------------------------------------------|--------|-----------------------------------------------------------------------------------------|--------|-----------|--------|
| **DECEMBER                    31, 2004**                                                     |   | $                                   | 50,450 |                                   | $      | 208,750                                  |   | $                                                                                       | 70,555 |      | $      | (8,775 | ) | $ | 320,980 |   |
|                                                                                         |   |                                |   |                                   |   |                                     |   |                                                                                    |   |      |   |   |   |   |   |   |
| **COMPREHENSIVE                    INCOME**                                                  |   |                                |   |                                   |   |                                     |   |                                                                                    |   |      |   |   |   |   |   |   |
| **Other                    Comprehensive Loss, Net of                    Taxes:**            |   |                                |   |                                   |   |                                     |   |                                                                                    |   |      |   |   |   |   |   |   |
| Cash                    Flow Hedges, Net of Tax of $1,053                                    |   |                                |   |                                   |   |                                     |   |                                                                                    |   |      |   | (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 |   |
|                                                                                         |   |                                |   |                                   |   |                                     |   |                                                                                    |   |      |   |   |   |   |   |   |
| **DECEMBER                    31, 2005**                                                     |   | $                                   | 50,450 |                                   | $      | 208,750                                  |   | $                                                                                       | 88,864 |      | $      | (223 | ) | $ | 347,841 |   |
|                                                                                         |   |                                |   |                                   |   |                                     |   |                                                                                    |   |      |   |   |   |   |   |   |
| Common                    Stock Dividends                                                    |   |                                |   |                                   |   |                                     |   |                                                                                    | (5,000 | )         |   |   |   |   | (5,000 | ) |
| **TOTAL**                                                                                    |   |                                |   |                                   |   |                                     |   |                                                                                    |   |      |   |   |   |   | 342,841 |   |
|                                                                                         |   |                                |   |                                   |   |                                     |   |                                                                                    |   |      |   |   |   |   |   |   |
| **COMPREHENSIVE                    INCOME**                                                  |   |                                |   |                                   |   |                                     |   |                                                                                    |   |      |   |   |   |   |   |   |
| **Other                    Comprehensive Income,** **Net                    of Taxes:** |   |                                |   |                                   |   |                                     |   |                                                                                    |   |      |   |   |   |   |   |   |
| Cash                    Flow Hedges, Net of Tax of $1,478                                    |   |                                |   |                                   |   |                                     |   |                                                                                    |   |      |   | 2,744 |   |   | 2,744 |   |
| **NET                    INCOME**                                                            |   |                                |   |                                   |   |                                     |   |                                                                                    | 14,881 |      |   |   |   |   | 14,881 |   |
| **TOTAL                    COMPREHENSIVE INCOME**                                            |   |                                |   |                                   |   |                                     |   |                                                                                    |   |      |   |   |   |   | 17,625 |   |
|                                                                                         |   |                                |   |                                   |   |                                     |   |                                                                                    |   |      |   |   |   |   |   |   |
| **JUNE                    30, 2006**                                                         |   | $                                   | 50,450 |                                   | $      | 208,750                                  |   | $                                                                                       | 98,745 |      | $      | 2,521 |   | $ | 360,466 |   |

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

----

**KENTUCKY        POWER COMPANY**

**CONDENSED        BALANCE SHEETS**

**ASSETS**

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

**(in        thousands)**

**(Unaudited)**

|                                                       |   | **2006**     |      | **2005**     |   |
|------------------------------------------------------------|--------|--------------|-----------|--------------|--------|
| **CURRENT                  ASSETS**                        |   |    |      |    |   |
| Cash                  and Cash Equivalents                 |   | $            | 432       |         | $      | 526 |   |
| Accounts                  Receivable:                      |   |         |      |         |   |   |   |
| Customers                                                  |   |         | 27,009    |         |   | 26,533 |   |
| Affiliated                  Companies                      |   |         | 13,884    |         |   | 23,525 |   |
| Accrued                  Unbilled Revenues                 |   |         | 3,322     |         |   | 6,311 |   |
| Miscellaneous                                              |   |         | 715       |         |   | 35 |   |
| Allowance                  for Uncollectible Accounts      |   |         | (211      | )            |   | (147 | ) |
| Total                  Accounts Receivable                 |   |         | 44,719    |         |   | 56,257 |   |
| Fuel                                                       |   |         | 15,924    |         |   | 8,490 |   |
| Materials                  and Supplies                    |   |         | 9,170     |         |   | 10,181 |   |
| Risk                  Management Assets                    |   |         | 21,681    |         |   | 31,437 |   |
| Accrued                  Tax Benefits                      |   |         | 4,539     |         |   | 6,598 |   |
| Margin                  Deposits                           |   |         | 250       |         |   | 6,895 |   |
| Prepayments                  and Other                     |   |         | 1,352     |         |   | 6,324 |   |
| **TOTAL**                                                  |   |         | 98,067    |         |   | 126,708 |   |
|                                                       |   |         |      |         |   |   |   |
| **PROPERTY,                  PLANT AND EQUIPMENT**         |   |         |      |         |   |   |   |
| Electric:                                                  |   |         |      |         |   |   |   |
| Production                                                 |   |         | 475,177   |         |   | 472,575 |   |
| Transmission                                               |   |         | 389,766   |         |   | 386,945 |   |
| Distribution                                               |   |         | 465,343   |         |   | 456,063 |   |
| Other                                                      |   |         | 61,465    |         |   | 63,382 |   |
| Construction                  Work in Progress             |   |         | 25,591    |         |   | 35,461 |   |
| **Total**                                                  |   |         | 1,417,342 |         |   | 1,414,426 |   |
| Accumulated                  Depreciation and Amortization |   |         | 433,097   |         |   | 425,817 |   |
| **TOTAL                  - NET**                           |   |         | 984,245   |         |   | 988,609 |   |
|                                                       |   |         |      |         |   |   |   |
| **OTHER                  NONCURRENT ASSETS**               |   |         |      |         |   |   |   |
| Regulatory                  Assets                         |   |         | 110,275   |         |   | 117,432 |   |
| Long-term                  Risk Management Assets          |   |         | 30,661    |         |   | 41,810 |   |
| Deferred                  Charges and Other                |   |         | 56,947    |         |   | 45,467 |   |
| **TOTAL**                                                  |   |         | 197,883   |         |   | 204,709 |   |
|                                                       |   |         |      |         |   |   |   |
| **TOTAL                  ASSETS**                          |   | $            | 1,280,195 |         | $      | 1,320,026 |   |

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

----

**KENTUCKY        POWER COMPANY**

**CONDENSED        BALANCE SHEETS**

**LIABILITIES        AND SHAREHOLDER’S EQUITY**

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

**(Unaudited)**

|                                                                        |   | **2006**                            |      | **2005** |   |
|-----------------------------------------------------------------------------|--------|-------------------------------------|-----------|----------|--------|
| **CURRENT                  LIABILITIES**                                    |   | **(in                  thousands)** |      |
| Advances                  from Affiliates                                   |   | $                                   | 36,991    |     | $      | 6,040 |   |
| Accounts                  Payable:                                          |   |                                |      |     |   |   |   |
| General                                                                     |   |                                | 29,393    |     |   | 32,454 |   |
| Affiliated                  Companies                                       |   |                                | 22,677    |     |   | 29,326 |   |
| Long-term                  Debt Due Within One Year - Affiliated            |   |                                | -         |     |   | 39,771 |   |
| Risk                  Management Liabilities                                |   |                                | 15,163    |     |   | 28,770 |   |
| Customer                  Deposits                                          |   |                                | 15,975    |     |   | 21,643 |   |
| Accrued                  Taxes                                              |   |                                | 9,926     |     |   | 8,805 |   |
| Accrued                  Interest                                           |   |                                | 7,419     |     |   | 7,428 |   |
| Other                                                                       |   |                                | 11,483    |     |   | 14,096 |   |
| **TOTAL**                                                                   |   |                                | 149,027   |     |   | 188,333 |   |
|                                                                        |   |                                |      |     |   |   |   |
| **NONCURRENT                  LIABILITIES**                                 |   |                                |      |     |   |   |   |
| Long-term                  Debt - Nonaffiliated                             |   |                                | 427,354   |     |   | 427,219 |   |
| Long-term                  Debt - Affiliated                                |   |                                | 20,000    |     |   | 20,000 |   |
| Long-term                  Risk Management Liabilities                      |   |                                | 24,029    |     |   | 35,302 |   |
| Deferred                  Income Taxes                                      |   |                                | 241,482   |     |   | 234,719 |   |
| Regulatory                  Liabilities and Deferred Investment Tax Credits |   |                                | 48,434    |     |   | 56,794 |   |
| Deferred                  Credits and Other                                 |   |                                | 9,403     |     |   | 9,818 |   |
| **TOTAL**                                                                   |   |                                | 770,702   |     |   | 783,852 |   |
|                                                                        |   |                                |      |     |   |   |   |
| **TOTAL                  LIABILITIES**                                      |   |                                | 919,729   |     |   | 972,185 |   |
|                                                                        |   |                                |      |     |   |   |   |
| Commitments                  and Contingencies (Note 5)                     |   |                                |      |     |   |   |   |
|                                                                        |   |                                |      |     |   |   |   |
| **COMMON                  SHAREHOLDER’S EQUITY**                      |   |                                |      |     |   |   |   |
| Common                  Stock - $50 Par Value Per Share:                    |   |                                |      |     |   |   |   |
| Authorized                  - 2,000,000 Shares                              |   |                                |      |     |   |   |   |
| Outstanding                  - 1,009,000 Shares                             |   |                                | 50,450    |     |   | 50,450 |   |
| Paid-in                  Capital                                            |   |                                | 208,750   |     |   | 208,750 |   |
| Retained                  Earnings                                          |   |                                | 98,745    |     |   | 88,864 |   |
| Accumulated                  Other Comprehensive Income (Loss)              |   |                                | 2,521     |     |   | (223 | ) |
| **TOTAL**                                                                   |   |                                | 360,466   |     |   | 347,841 |   |
|                                                                        |   |                                |      |     |   |   |   |
| **TOTAL                  LIABILITIES AND SHAREHOLDER’S EQUITY**       |   | $                                   | 1,280,195 |     | $      | 1,320,026 |   |

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

----

**KENTUCKY        POWER COMPANY**

**CONDENSED        STATEMENTS OF CASH FLOWS**

**For        the Six Months Ended June 30, 2006 and 2005**

**(in        thousands)**

**(Unaudited)**

|                                                                                                                  |   | **2006**     |    | **2005**     |   |
|-----------------------------------------------------------------------------------------------------------------------|--------|--------------|---------|--------------|--------|
| **OPERATING                  ACTIVITIES**                                                                             |   |    |    |    |   |
| **Net                  Income**                                                                                       |   | $            | 14,881  |         | $      | 12,331 |   |
| **Adjustments                  for Noncash Items:**                                                                   |   |         |    |         |   |   |   |
| Depreciation                  and Amortization                                                                        |   |         | 23,029  |         |   | 22,377 |   |
| Deferred                  Income Taxes                                                                                |   |         | 3,044   |         |   | 2,482 |   |
| Mark-to-Market                  of Risk Management Contracts                                                          |   |         | (25     | )            |   | (3,330 | ) |
| Pension                  Contributions to Qualified Plan Trusts                                                       |   |         | -       |         |   | (6,092 | ) |
| Over/Under                  Fuel Recovery                                                                             |   |         | 3,173   |         |   | (7,181 | ) |
| Change                  in Other Noncurrent Assets                                                                    |   |         | 1,898   |         |   | 1,611 |   |
| Change                  in Other Noncurrent Liabilities                                                               |   |         | 1,396   |         |   | 4,483 |   |
| **Changes                  in Components of Working Capital:**                                                        |   |         |    |         |   |   |   |
| Accounts                  Receivable, Net                                                                             |   |         | 11,538  |         |   | 7,653 |   |
| Fuel,                  Materials and Supplies                                                                         |   |         | (6,423  | )            |   | (2,830 | ) |
| Accounts                  Payable                                                                                     |   |         | (7,679  | )            |   | 10,926 |   |
| Accrued                  Taxes, Net                                                                                   |   |         | 3,180   |         |   | (1,531 | ) |
| Customer                  Deposits                                                                                    |   |         | (5,668  | )            |   | 3,995 |   |
| Other                  Current Assets                                                                                 |   |         | 8,531   |         |   | (2,340 | ) |
| Other                  Current Liabilities                                                                            |   |         | (1,993  | )            |   | (1,695 | ) |
| **Net                  Cash Flows From Operating Activities**                                                         |   |         | 48,882  |         |   | 40,859 |   |
|                                                                                                                  |   |         |    |         |   |   |   |
| **INVESTING                  ACTIVITIES**                                                                             |   |         |    |         |   |   |   |
| Construction                  Expenditures                                                                            |   |         | (34,458 | )            |   | (23,450 | ) |
| Change                  in Advances to Affiliates, Net                                                                |   |         | -       |         |   | 3,480 |   |
| Other                                                                                                                 |   |         | 191     |         |   | (1 | ) |
| **Net                  Cash Flows Used For Investing Activities**                                                     |   |         | (34,267 | )            |   | (19,971 | ) |
|                                                                                                                  |   |         |    |         |   |   |   |
| **FINANCING                  ACTIVITIES**                                                                             |   |         |    |         |   |   |   |
| Change                  in Advances from Affiliates, Net                                                              |   |         | 30,951  |         |   | - |   |
| Retirement                  of Long-term Debt - Affiliated                                                            |   |         | (40,000 | )            |   | (20,000 | ) |
| Principal                  Payments for Capital Lease Obligations                                                     |   |         | (660    | )            |   | (782 | ) |
| Dividends                  Paid on Common Stock                                                                       |   |         | (5,000  | )            |   | - |   |
| **Net                  Cash Flows Used For Financing Activities**                                                     |   |         | (14,709 | )            |   | (20,782 | ) |
|                                                                                                                  |   |         |    |         |   |   |   |
| **Net                  Increase (Decrease) in Cash and Cash Equivalents**                                             |   |         | (94     | )            |   | 106 |   |
| **Cash                  and Cash Equivalents at Beginning of Period**                                                 |   |         | 526     |         |   | 132 |   |
| **Cash                  and Cash Equivalents at End of Period**                                                       |   | $            | 432     |         | $      | 238 |   |
|                                                                                                                  |   |         |    |         |   |   |   |
| **SUPPLEMENTARY                  INFORMATION**                                                                        |   |         |    |         |   |   |   |
| Cash                  Paid for Interest, Net of Capitalized Amounts                                                   |   | $            | 14,543  |         | $      | 13,942 |   |
| Cash                  Paid for Income Taxes, Net of Refunds                                                           |   |         | 185     |         |   | 3,761 |   |
| Noncash                  Acquisitions Under Capital Leases                                                            |   |         | 485     |         |   | 230 |   |
| Construction                  Expenditures Included in Accounts Payable at June 30,                                   |   |         | 4,522   |         |   | 2,107 |   |
|                                                                                                                  |   |         |    |         |   |   |   |
| *See                  Condensed Notes to Condensed Financial Statements of Registrant                  Subsidiaries.* |

----

**KENTUCKY        POWER COMPANY**

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

|                                                     | **Footnote                  Reference** |
|----------------------------------------------------------|-----------------------------------------|
| Significant                  Accounting Matters          | Note                  1                 |
| New                  Accounting Pronouncements           | Note                  2                 |
| Rate                  Matters                            | Note                  3                 |
| Commitments                  and Contingencies           | Note                  5                 |
| Guarantees                                               | Note                  6                 |
| Company-wide                  Staffing and Budget Review | Note                  7                 |
| Benefit                  Plans                           | Note                  9                 |
| Business                  Segments                       | Note                  11                |
| Financing                  Activities                    | Note                  12                |
|                                                     |                                    |

----

**OHIO        POWER COMPANY CONSOLIDATED**

----

**OHIO        POWER COMPANY CONSOLIDATED**

**MANAGEMENT’S        FINANCIAL DISCUSSION AND ANALYSIS**

**Results        of Operations**

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

**(in        millions)**

| **Second                  Quarter of 2005**                       |   |   |   |   | $      | 71     |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                  Margins                                   |   |   | (30    | )      |   |   |   |
| Off-system                  Sales                                 |   |   | 3      |   |   |   |   |
| Transmission                  Revenues                            |   |   | (12    | )      |   |   |   |
| Other                                                             |   |   | 8      |   |   |   |   |
| **Total                  Change in Gross Margin**                 |   |   |   |   |   | (31    | )      |
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                  Operation and Maintenance                  |   |   | (37    | )      |   |   |   |
| Depreciation                  and Amortization                    |   |   | 2      |   |   |   |   |
| Taxes                  Other Than Income Taxes                    |   |   | (5     | )      |   |   |   |
| Carrying                  Costs Income                            |   |   | (4     | )      |   |   |   |
| Interest                  Expense                                 |   |   | 2      |   |   |   |   |
| **Total                  Change in Operating Expenses and Other** |   |   |   |   |   | (42    | )      |
|                                                              |   |   |   |   |   |   |   |
| Income                  Tax Expense                               |   |   |   |   |   | 25     |   |
|                                                              |   |   |   |   |   |   |   |
| **Second                  Quarter of 2006**                       |   |   |   |   | $      | 23     |   |

| · | Retail                  Margins decreased $30 million primarily due to a decrease in retail                  revenue primarily related to the transfer of two industrial customers                  to                  APCo and mild weather, increased delivered fuel costs and the receipt                  of                  SO2                  allowances from Buckeye Power, Inc. under the Cardinal Station                  Allowance                  Agreement in the second quarter of 2005. The decrease was partially                  offset                  by the Rate Stabilization Plan (RSP) rate increase effective January                  1,                  2006. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Transmission                  Revenues decreased $12 million primarily due to the elimination                  of SECA                  revenues as of April 1, 2006 and a $4 million provision for potential                  SECA                  refunds pending settlement negotiations with various intervenors.                  See the                  “SECA Revenue Subject to Refund” section of Note 3 - Rate                  Matters.                                                                                                                                                                                                                                |
| · | Other                  revenues increased $8 million partially due to an increase in Cook                  Coal Terminal (CCT) revenues. Related expenses, which offset the                  CCT                  revenue increase, are included in Other Operation on the Condensed                  Consolidated Statements of Income.                                                                                                                                                                                                                                                                                                                                                   |

| · | Other                  Operation and Maintenance Expense increased $37 million primarily                  due to                  an increase in maintenance from planned and forced outages at the                  Gavin,                  Muskingum, Kammer, and Sporn plants related to major boiler overhauls,                  boiler tube inspections and related removal costs. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Taxes                  Other Than Income Taxes increased $5 million primarily due to an                  increase                  in property taxes.                                                                                                                                                                                                                                   |
| · | Carrying                  Costs Income decreased $4 million primarily due to the completion                  of the                  establishment of a regulatory asset for environmental carrying                  costs from                  2004 and 2005 that are now recovered during 2006 through 2008 according                  to                  the RSP.                  |

*Income        Taxes*

**Reconciliation        of Six Months Ended June 30, 2005 to Six Months Ended June 30, 2006 Net        Income**

**(in        millions)**

| **Six                  Months Ended June 30, 2005**               |   |   |   |   | $      | 171    |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                  Margins                                   |   |   | (5     | )      |   |   |   |
| Off-system                  Sales                                 |   |   | 6      |   |   |   |   |
| Transmission                  Revenues                            |   |   | (10    | )      |   |   |   |
| Other                                                             |   |   | 11     |   |   |   |   |
| **Total                  Change in Gross Margin**                 |   |   |   |   |   | 2      |   |
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                  Operation and Maintenance                  |   |   | (60    | )      |   |   |   |
| Depreciation                  and Amortization                    |   |   | (3     | )      |   |   |   |
| Taxes                  Other than Income Taxes                    |   |   | (4     | )      |   |   |   |
| Carrying                  Costs Income                            |   |   | (23    | )      |   |   |   |
| Interest                  Expense                                 |   |   | 4      |   |   |   |   |
| **Total                  Change in Operating Expenses and Other** |   |   |   |   |   | (86    | )      |
|                                                              |   |   |   |   |   |   |   |
| Income                  Tax Expense                               |   |   |   |   |   | 31     |   |
|                                                              |   |   |   |   |   |   |   |
| **Six                  Months Ended June 30, 2006**               |   |   |   |   | $      | 118    |   |

| · | Retail                  Margins decreased $5 million primarily due to an increase in delivered                  fuel costs, decreased capacity settlement receipts under the                  Interconnection Agreement related to an increase in the generating                  capacity of the AEP Power Pool members and the transfer of two                  industrial                  customers to APCo. The decrease was partially offset by the RSP                  rate                  increase effective January 1, 2006. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Off-System                  Sales increased $6 million primarily due to an increase in AEP                  Power Pool                  physical sales partially offset by lower optimization                  activities.                                                                                                                                                                                                                                                                                                               |
| · | Transmission                  Revenues decreased $10 million primarily due to the elimination                  of SECA                  revenues as of April 1, 2006 and a $4 million provision for potential                  SECA                  refunds pending settlement negotiations with various intervenors.                  See the                  “SECA Revenue Subject to Refund” section of Note 3 - Rate                  Matters.                                                                         |
| · | Other                  revenues increased $11 million partially due to an increase in                  gains on                  sales of emission allowances to                  affiliates.                                                                                                                                                                                                                                                                                                                                            |

| · | Other                  Operation and Maintenance expense increased $60 million primarily                  due to                  an increase in maintenance from planned and forced outages at the                  Gavin,                  Muskingum, Kammer, and Sporn plants related to major boiler overhauls,                  boiler tube inspections and related removal costs and the establishment                  of                  a regulatory asset for PJM administrative fees which reduced expenses                  in                  the prior period, partially offset by major ice storm expense incurred                  in                  the prior period. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Taxes                  Other Than Income Taxes increased $4 million primarily due to an                  increase                  in property taxes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| · | Carrying                  Costs Income decreased $23 million primarily due to the completion                  of the                  establishment of a regulatory asset for environmental carrying                  costs from                  2004 and 2005 that are recovered during 2006 through 2008 according                  to the                  RSP. We recorded $16 million in environmental carrying costs in                  the first                  quarter of 2005 related to 2004.                                                                                                                                                                                |
| · | Interest                  Expense decreased $4 million primarily due to an increase in allowance                  for                  borrowed funds used during construction partially offset by interest                  on                  long-term debt issuances subsequent to June 2005 and an increase                  in                  advances from affiliate.                                                                                                                                                                                                                                                                                                            |

*Income        Taxes*

**Financial        Condition**

**Credit        Ratings**

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

**Cash        Flow**

|                                                                  |   | **2006**                            |     | **2005** |   |
|-----------------------------------------------------------------------|--------|-------------------------------------|----------|----------|--------|
|                                                                  |   | **(in                  thousands)** |     |
| **Cash                  and Cash Equivalents at Beginning of Period** |   | $                                   | 1,240    |     | $      | 9,337 |   |
| Net                  Cash Flows From (Used For):                      |   |                                |     |     |   |   |   |
| Operating                  Activities                                 |   |                                | 326,354  |     |   | 179,555 |   |
| Investing                  Activities                                 |   |                                | (516,878 | )        |   | (155,651 | ) |
| Financing                  Activities                                 |   |                                | 190,274  |     |   | (31,887 | ) |
| Net                  Decrease in Cash and Cash Equivalents            |   |                                | (250     | )        |   | (7,983 | ) |
| **Cash                  and Cash Equivalents at End of Period**       |   | $                                   | 990      |     | $      | 1,354 |   |

*Operating        Activities*

*Investing        Activities*

*Financing        Activities*

**Financing        Activity**

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

|                                        |   |  **Principal**                       |    | **Interest** |   | **Due**  |   |
|---------------------------------------------|--------|-------------------------------------------|---------|--------------|--------|----------|--------|
| **Type                  of Debt**           |   |  **Amount**                          |    | **Rate**     |   | **Date** |   |
|                                        |   |  **(in                  thousands)** |    | **(%)**      |   |     |   |
| Notes                  Payable              |   | $                                         | 2,927   |         |   | 6.81     |   |   | 2008 |   |
| Notes                  Payable              |   |                                      | 3,250   |         |   | 6.27     |   |   | 2009 |   |
| Notes                  Payable - Affiliated |   |                                      | 200,000 |         |   | 3.32     |   |   | 2006 |   |

**Liquidity**

**Summary        Obligation Information**

**Significant        Factors**

***Litigation        and Regulatory Activity***

***Muskingum        River Project Deferral (Effective in the third quarter of 2006)***

**Critical        Accounting Estimates**

----

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

**Market        Risks**

**MTM        Risk Management Contract Net Assets**

**Reconciliation        of MTM Risk Management Contracts to**

**Condensed        Consolidated Balance Sheet**

**As        of June 30, 2006**

**(in        thousands)**

|                                                                                              |   | **MTM                  Risk Management Contracts** |     | **Cash                  Flow Hedges** |   | **DETM                  Assignment (a)** |   | **Total** |   |
|---------------------------------------------------------------------------------------------------|--------|----------------------------------------------------|----------|---------------------------------------|--------|------------------------------------------|--------|-----------|--------|
| Current                  Assets                                                                   |   | $                                                  | 58,410   |                                  | $      | 14,156                                   |   | $         | -      |   | $ | 72,566 |   |
| Noncurrent                  Assets                                                                |   |                                               | 97,794   |                                  |   | 753                                      |   |      | -      |   |   | 98,547 |   |
| **Total                  MTM Derivative Contract Assets**                                         |   |                                               | 156,204  |                                  |   | 14,909                                   |   |      | -      |   |   | 171,113 |   |
|                                                                                              |   |                                               |     |                                  |   |                                     |   |      |   |   |   |   |   |
| Current                  Liabilities                                                              |   |                                               | (47,796  | )                                     |   | (3,033                                   | )      |      | (1,226 | ) |   | (52,055 | ) |
| Noncurrent                  Liabilities                                                           |   |                                               | (69,493  | )                                     |   | -                                        |   |      | (7,868 | ) |   | (77,361 | ) |
| **Total                  MTM Derivative Contract****Liabilities**                                 |   |                                               | (117,289 | )                                     |   | (3,033                                   | )      |      | (9,094 | ) |   | (129,416 | ) |
|                                                                                              |   |                                               |     |                                  |   |                                     |   |      |   |   |   |   |   |
| **Total                  MTM Derivative Contract Net Assets                  (Liabilities)** |   | $                                                  | 38,915   |                                  | $      | 11,876                                   |   | $         | (9,094 | ) | $ | 41,697 |   |

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

**MTM        Risk Management Contract Net Assets**

**Six        Months Ended June 30, 2006**

**(in        thousands)**

| **Total                  MTM Risk Management Contract Net Assets at December 31,                  2005**                                       |   | $      | 40,894 |   |
|------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| (Gain)                  Loss from Contracts Realized/Settled During the Period and Entered                  in a                  Prior Period |   |   | (2,870 | )      |
| Fair                  Value of New Contracts at Inception When Entered During the Period                  (a)                                  |   |   | 180    |   |
| Net                  Option Premiums Paid/(Received) for Unexercised or Unexpired Option                  Contracts Entered During the Period  |   |   | (1,161 | )      |
| Change                  in Fair Value Due to Valuation Methodology Changes on Forward                  Contracts                               |   |   | 469    |   |
| Changes                  in Fair Value Due to Market Fluctuations During the Period                  (b)                                       |   |   | 6,247  |   |
| Changes                  Due to SIA (c)                                                                                                        |   |   | (4,984 | )      |
| Changes                  in Fair Value Allocated to Regulated Jurisdictions (d)                                                                |   |   | 140    |   |
| **Total                  MTM Risk Management Contract Net Assets**                                                                             |   |   | 38,915 |   |
| Net                  Cash Flow Hedge Contracts                                                                                                 |   |   | 11,876 |   |
| DETM                  Assignment (e)                                                                                                           |   |   | (9,094 | )      |
| **Total                  MTM Risk Management Contract Net Assets at June 30, 2006**                                                            |   | $      | 41,697 |   |

| (a) | Most                  of the fair value comes from longer term fixed price contracts                  with                  customers that seek to limit their risk against fluctuating energy                  prices.                  Inception value is only recorded if observable market data can                  be obtained                  for valuation inputs for the entire contract term. The contract                  prices are                  valued against market curves associated with the delivery location                  and                  delivery term. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Market                  fluctuations are attributable to various factors such as supply/demand,                  weather, storage, etc.                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (c) | See                  “Allocation Agreement between AEP East companies and AEP West companies                  and CSW Operating Agreement” section of Note 3.                                                                                                                                                                                                                                                                                                                                                                                                                  |
| (d) | “Changes                  in Fair Value Allocated to Regulated Jurisdictions” relates to the net                  gains (losses) of those contracts that are not reflected in the                  Condensed                  Consolidated Statements of Income. These net gains (losses) are                  recorded                  as regulatory liabilities/assets for those subsidiaries that operate                  in                  regulated jurisdictions.                                                                                                    |
| (e) | See                  “Natural Gas Contracts with DETM” section of Note 17 of the 2005 Annual                  Report.                                                                                                                                                                                                                                                                                                                                                                                                                                                          |

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

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

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

**Risk        Management Contract Net Assets**

**Fair        Value of Contracts as of June 30, 2006**

**(in        thousands)**

|                                                                                                    |   | **Remainder****2006** |   | **2007** |   | **2008** |   | **2009** |   | **2010** |   | **After****2010** |   | **Total** |   |
|---------------------------------------------------------------------------------------------------------|--------|-----------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|-------------------|--------|-----------|--------|
| Prices                    Actively Quoted - Exchange Traded                    Contracts                |   | $                     | (2,643 | )        | $      | 2,953    |   | $        | 3,025  |     | $      | -                 |   | $         | -      |   | $ | - |   | $ | 3,335 |   |
| Prices                    Provided by Other External Sources                    - OTC Broker Quotes (a) |   |                  | 7,274  |     |   | 7,395    |   |     | 3,025  |     |   | 5,697             |   |      | -      |   |   | - |   |   | 23,391 |   |
| Prices                    Based on Models and Other Valuation                    Methods (b)            |   |                  | 129    |     |   | (1,026   | )      |     | 1,247  |     |   | 3,136             |   |      | 6,629  |   |   | 2,074 |   |   | 12,189 |   |
| **Total**                                                                                               |   | $                     | 4,760  |     | $      | 9,322    |   | $        | 7,297  |     | $      | 8,833             |   | $         | 6,629  |   | $ | 2,074 |   | $ | 38,915 |   |

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

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

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

**Six        Months Ended June 30, 2006**

**(in        thousands)**

|                                                                                         |   | **Power** |   | **Foreign****Currency** |   | **Interest                  Rate** |   | **Total** |   |
|----------------------------------------------------------------------------------------------|--------|-----------|--------|-------------------------|--------|------------------------------------|--------|-----------|--------|
| **Beginning                  Balance in AOCI December 31, 2005**                             |   | $         | (392   | )                       | $      | (344                               | )      | $         | 1,491  |   | $ | 755 |   |
| Changes                  in Fair Value                                                       |   |      | 8,405  |                    |   | -                                  |   |      | 2,761  |   |   | 11,166 |   |
| Impact                  due to Change in SIA (a)                                             |   |      | (337   | )                       |   | -                                  |   |      | -      |   |   | (337 | ) |
| Reclassifications                  from AOCI to Net Income for Cash Flow Hedges Settled |   |      | 57     |                    |   | 7                                  |   |      | (293   | ) |   | (229 | ) |
| **Ending                  Balance in AOCI June 30, 2006**                                    |   | $         | 7,733  |                    | $      | (337                               | )      | $         | 3,959  |   | $ | 11,355 |   |

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

**Credit        Risk**

**VaR        Associated with Risk Management Contracts**

| **Six                  Months Ended****June                  30, 2006** |   |     |   |        | **Twelve                  Months Ended****December                  31, 2005** |
|-------------------------------------------------------------------------|--------|----------|--------|-------------|--------------------------------------------------------------------------------|
| **(in                  thousands)**                                     |   |     |   |        | **(in                  thousands)**                                            |
| **End**                                                                 |   | **High** |   | **Average** |                                                                           | **Low** |   |   |   |   | **End** |   | **High** |   | **Average** |   | **Low** |
| $522                                                                    |   | $1,221   |   | $529        |                                                                           | $306 |   |   |   |   | $583 |   | $968 |   | $461 |   | $166 |

**VaR        Associated with Debt Outstanding**

----

**OHIO        POWER COMPANY CONSOLIDATED**

**CONDENSED        CONSOLIDATED STATEMENTS OF INCOME**

**For        the Three and Six Months Ended June 30, 2006 and 2005**

**(in        thousands)**

**(Unaudited)**

|                                                                                                                                                               |   | **Three                  Months Ended** |    | **Six                  Months Ended** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|---------|---------------------------------------|--------|
|                                                                                                                                                               |   | **2006**                                |    | **2005**                              |   | **2006** |   | **2005** |   |
| **REVENUES**                                                                                                                                                       |   |                               |    |                             |   |   |   |   |   |
| Electric                  Generation, Transmission and Distribution                                                                                                |   | $                                       | 453,064 |                                  | $      | 473,991 |   | $ | 997,703 |   | $ | 945,001 |   |
| Sales                  to AEP Affiliates                                                                                                                           |   |                                    | 154,648 |                                  |   | 166,227 |   |   | 303,907 |   |   | 339,953 |   |
| Other                  - Affiliated                                                                                                                                |   |                                    | 3,866   |                                  |   | 3,747 |   |   | 7,575 |   |   | 7,201 |   |
| Other                  - Nonaffiliated                                                                                                                             |   |                                    | 4,429   |                                  |   | 7,034 |   |   | 9,428 |   |   | 13,998 |   |
| **TOTAL**                                                                                                                                                          |   |                                    | 616,007 |                                  |   | 650,999 |   |   | 1,318,613 |   |   | 1,306,153 |   |
|                                                                                                                                                               |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| **EXPENSES**                                                                                                                                                       |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| Fuel                  and Other Consumables for Electric Generation                                                                                                |   |                                    | 211,538 |                                  |   | 222,042 |   |   | 446,668 |   |   | 449,091 |   |
| Purchased                  Electricity for Resale                                                                                                                  |   |                                    | 26,313  |                                  |   | 22,423 |   |   | 48,027 |   |   | 41,185 |   |
| Purchased                  Electricity from AEP Affiliates                                                                                                         |   |                                    | 28,091  |                                  |   | 25,093 |   |   | 56,663 |   |   | 50,711 |   |
| Other                  Operation                                                                                                                                   |   |                                    | 99,196  |                                  |   | 81,279 |   |   | 185,833 |   |   | 145,849 |   |
| Maintenance                                                                                                                                                        |   |                                    | 71,416  |                                  |   | 52,479 |   |   | 118,940 |   |   | 98,954 |   |
| Depreciation                  and Amortization                                                                                                                     |   |                                    | 77,848  |                                  |   | 79,941 |   |   | 156,661 |   |   | 153,888 |   |
| Taxes                  Other Than Income Taxes                                                                                                                     |   |                                    | 48,536  |                                  |   | 43,841 |   |   | 95,689 |   |   | 91,140 |   |
| **TOTAL**                                                                                                                                                          |   |                                    | 562,938 |                                  |   | 527,098 |   |   | 1,108,481 |   |   | 1,030,818 |   |
|                                                                                                                                                               |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| **OPERATING                  INCOME**                                                                                                                              |   |                                    | 53,069  |                                  |   | 123,901 |   |   | 210,132 |   |   | 275,335 |   |
|                                                                                                                                                               |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| **Other                  Income (Expense):**                                                                                                                       |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| Interest                  Income                                                                                                                                   |   |                                    | 595     |                                  |   | 585 |   |   | 1,232 |   |   | 1,472 |   |
| Carrying                  Costs Income                                                                                                                             |   |                                    | 3,451   |                                  |   | 7,512 |   |   | 6,834 |   |   | 29,549 |   |
| Allowance                  for Equity Funds Used During Construction                                                                                               |   |                                    | 398     |                                  |   | 305 |   |   | 1,136 |   |   | 732 |   |
| Interest                  Expense                                                                                                                                  |   |                                    | (24,437 | )                                     |   | (25,839 | ) |   | (47,851 | ) |   | (52,002 | ) |
|                                                                                                                                                               |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| **INCOME                  BEFORE INCOME TAXES**                                                                                                                    |   |                                    | 33,076  |                                  |   | 106,464 |   |   | 171,483 |   |   | 255,086 |   |
|                                                                                                                                                               |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| Income                  Tax Expense                                                                                                                                |   |                                    | 9,677   |                                  |   | 34,983 |   |   | 53,052 |   |   | 84,122 |   |
|                                                                                                                                                               |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| **NET                  INCOME**                                                                                                                                    |   |                                    | 23,399  |                                  |   | 71,481 |   |   | 118,431 |   |   | 170,964 |   |
|                                                                                                                                                               |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| Preferred                  Stock Dividend Requirements including Capital Stock Expense                  and                      Other Expense |   |                                    | 183     |                                  |   | 357 |   |   | 366 |   |   | 540 |   |
|                                                                                                                                                               |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| **EARNINGS                  APPLICABLE TO COMMON STOCK**                                                                                                           |   | $                                       | 23,216  |                                  | $      | 71,124 |   | $ | 118,065 |   | $ | 170,424 |   |

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

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

----

**OHIO        POWER COMPANY CONSOLIDATED**

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

**EQUITY        AND COMPREHENSIVE INCOME (LOSS)**

**For        the Six Months Ended June 30, 2006 and 2005**

**(in        thousands)**

**(Unaudited)**

|                                                                |   | **Common                  Stock** |    | **Paid-in                  Capital** |   | **Retained                  Earnings** |   | **Accumulated                  Other Comprehensive Income (Loss)** |      | **Total** |   |
|---------------------------------------------------------------------|--------|-----------------------------------|---------|--------------------------------------|--------|----------------------------------------|--------|--------------------------------------------------------------------|-----------|-----------|--------|
| **DECEMBER                  31, 2004**                              |   | $                                 | 321,201 |                                 | $      | 462,485                                |   | $                                                                  | 764,416   |      | $      | (74,264 | ) | $ | 1,473,838 |   |
|                                                                |   |                              |    |                                 |   |                                   |   |                                                               |      |      |   |   |   |   |   |   |
| Common                  Stock Dividends                             |   |                              |    |                                 |   |                                   |   |                                                               | (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 |   |
|                                                                |   |                              |    |                                 |   |                                   |   |                                                               |      |      |   |   |   |   |   |   |
| **DECEMBER                  31, 2005**                              |   | $                                 | 321,201 |                                 | $      | 466,637                                |   | $                                                                  | 979,354   |      | $      | 755 |   | $ | 1,767,947 |   |
| Capital                  Contribution From Parent                   |   |                              |    |                                 |   | 70,000                                 |   |                                                               |      |      |   |   |   |   | 70,000 |   |
| Preferred                  Stock Dividends                          |   |                              |    |                                 |   |                                   |   |                                                               | (366      | )         |   |   |   |   | (366 | ) |
| Gain                  on Reacquired Preferred Stock                 |   |                              |    |                                 |   | 2                                      |   |                                                               |      |      |   |   |   |   | 2 |   |
| **TOTAL**                                                           |   |                              |    |                                 |   |                                   |   |                                                               |      |      |   |   |   |   | 1,837,583 |   |
|                                                                |   |                              |    |                                 |   |                                   |   |                                                               |      |      |   |   |   |   |   |   |
| **COMPREHENSIVE                  INCOME**                           |   |                              |    |                                 |   |                                   |   |                                                               |      |      |   |   |   |   |   |   |
| **Other                  Comprehensive Income, Net of Taxes:** |   |                              |    |                                 |   |                                   |   |                                                               |      |      |   |   |   |   |   |   |
| Cash                  Flow Hedges, Net of Tax of $5,708             |   |                              |    |                                 |   |                                   |   |                                                               |      |      |   | 10,600 |   |   | 10,600 |   |
| **NET                  INCOME**                                     |   |                              |    |                                 |   |                                   |   |                                                               | 118,431   |      |   |   |   |   | 118,431 |   |
| **TOTAL                  COMPREHENSIVE INCOME**                     |   |                              |    |                                 |   |                                   |   |                                                               |      |      |   |   |   |   | 129,031 |   |
|                                                                |   |                              |    |                                 |   |                                   |   |                                                               |      |      |   |   |   |   |   |   |
| **JUNE                  30, 2006**                                  |   | $                                 | 321,201 |                                 | $      | 536,639                                |   | $                                                                  | 1,097,419 |      | $      | 11,355 |   | $ | 1,966,614 |   |

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

----

**OHIO        POWER COMPANY CONSOLIDATED**

**CONDENSED        CONSOLIDATED BALANCE SHEETS**

**ASSETS**

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

**(in        thousands)**

**(Unaudited)**

|                                                       |   | **2006**     |      | **2005**     |   |
|------------------------------------------------------------|--------|--------------|-----------|--------------|--------|
| **CURRENT                  ASSETS**                        |   |    |      |    |   |
| Cash                  and Cash Equivalents                 |   | $            | 990       |         | $      | 1,240 |   |
| Advances                  to Affiliates                    |   |         | 36,787    |         |   | - |   |
| Accounts                  Receivable:                      |   |         |      |         |   |   |   |
| Customers                                                  |   |         | 111,742   |         |   | 125,404 |   |
| Affiliated                  Companies                      |   |         | 98,590    |         |   | 167,579 |   |
| Accrued                  Unbilled Revenues                 |   |         | 12,749    |         |   | 14,817 |   |
| Miscellaneous                                              |   |         | 3,665     |         |   | 15,644 |   |
| Allowance                  for Uncollectible Accounts      |   |         | (2,651    | )            |   | (1,517 | ) |
| Total                  Accounts Receivable                 |   |         | 224,095   |         |   | 321,927 |   |
| Fuel                                                       |   |         | 148,342   |         |   | 97,600 |   |
| Materials                  and Supplies                    |   |         | 66,270    |         |   | 60,937 |   |
| Emission                  Allowances                       |   |         | 22,308    |         |   | 39,251 |   |
| Risk                  Management Assets                    |   |         | 72,566    |         |   | 115,020 |   |
| Accrued                  Tax Benefits                      |   |         | 1,863     |         |   | 39,965 |   |
| Margin                  Deposits                           |   |         | 1,488     |         |   | 23,053 |   |
| Prepayments                  and Other                     |   |         | 8,697     |         |   | 4,386 |   |
| **TOTAL**                                                  |   |         | 583,406   |         |   | 703,379 |   |
|                                                       |   |         |      |         |   |   |   |
| **PROPERTY,                  PLANT AND EQUIPMENT**         |   |         |      |         |   |   |   |
| Electric:                                                  |   |         |      |         |   |   |   |
| Production                                                 |   |         | 4,341,360 |         |   | 4,278,553 |   |
| Transmission                                               |   |         | 1,007,723 |         |   | 1,002,255 |   |
| Distribution                                               |   |         | 1,296,690 |         |   | 1,258,518 |   |
| Other                                                      |   |         | 295,114   |         |   | 293,794 |   |
| Construction                  Work in Progress             |   |         | 999,227   |         |   | 690,168 |   |
| **Total**                                                  |   |         | 7,940,114 |         |   | 7,523,288 |   |
| Accumulated                  Depreciation and Amortization |   |         | 2,776,072 |         |   | 2,738,899 |   |
| **TOTAL                  - NET**                           |   |         | 5,164,042 |         |   | 4,784,389 |   |
|                                                       |   |         |      |         |   |   |   |
| **OTHER                  NONCURRENT ASSETS**               |   |         |      |         |   |   |   |
| Regulatory                  Assets                         |   |         | 364,411   |         |   | 398,007 |   |
| Long-term                  Risk Management Assets          |   |         | 98,547    |         |   | 144,015 |   |
| Deferred                  Charges and Other                |   |         | 263,959   |         |   | 300,880 |   |
| **TOTAL**                                                  |   |         | 726,917   |         |   | 842,902 |   |
|                                                       |   |         |      |         |   |   |   |
| **TOTAL                  ASSETS**                          |   | $            | 6,474,365 |         | $      | 6,330,670 |   |

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

----

**OHIO        POWER COMPANY CONSOLIDATED**

**CONDENSED        CONSOLIDATED BALANCE SHEETS**

**LIABILITIES        AND SHAREHOLDERS’ EQUITY**

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

**(Unaudited)**

|                                                                            |   | **2006**                            |      | **2005** |   |
|---------------------------------------------------------------------------------|--------|-------------------------------------|-----------|----------|--------|
| **CURRENT                  LIABILITIES**                                        |   | **(in                  thousands)** |      |
| Advances                  from Affiliates                                       |   | $                                   | -         |     | $      | 70,071 |   |
| Accounts                  Payable:                                              |   |                                |      |     |   |   |   |
| General                                                                         |   |                                | 228,869   |     |   | 210,752 |   |
| Affiliated                  Companies                                           |   |                                | 109,016   |     |   | 147,470 |   |
| Short-term                  Debt - Nonaffiliated                                |   |                                | 5,272     |     |   | 10,366 |   |
| Long-term                  Debt Due Within One Year - Affiliated                |   |                                | -         |     |   | 200,000 |   |
| Long-term                  Debt Due Within One Year - Nonaffiliated             |   |                                | 12,354    |     |   | 12,354 |   |
| Risk                  Management Liabilities                                    |   |                                | 52,055    |     |   | 108,797 |   |
| Customer                  Deposits                                              |   |                                | 29,857    |     |   | 51,209 |   |
| Accrued                  Taxes                                                  |   |                                | 113,439   |     |   | 158,774 |   |
| Accrued                  Interest                                               |   |                                | 38,969    |     |   | 36,298 |   |
| Other                                                                           |   |                                | 106,345   |     |   | 111,480 |   |
| **TOTAL**                                                                       |   |                                | 696,176   |     |   | 1,117,571 |   |
|                                                                            |   |                                |      |     |   |   |   |
| **NONCURRENT                  LIABILITIES**                                     |   |                                |      |     |   |   |   |
| Long-term                  Debt - Nonaffiliated                                 |   |                                | 2,190,481 |     |   | 1,787,316 |   |
| Long-term                  Debt - Affiliated                                    |   |                                | 200,000   |     |   | 200,000 |   |
| Long-term                  Risk Management Liabilities                          |   |                                | 77,361    |     |   | 119,247 |   |
| Deferred                  Income Taxes                                          |   |                                | 986,010   |     |   | 987,386 |   |
| Regulatory                  Liabilities and Deferred Investment Tax Credits     |   |                                | 176,868   |     |   | 168,492 |   |
| Deferred                  Credits and Other                                     |   |                                | 146,830   |     |   | 154,770 |   |
| **TOTAL**                                                                       |   |                                | 3,777,550 |     |   | 3,417,211 |   |
|                                                                            |   |                                |      |     |   |   |   |
| **TOTAL                  LIABILITIES**                                          |   |                                | 4,473,726 |     |   | 4,534,782 |   |
|                                                                            |   |                                |      |     |   |   |   |
| Minority                  Interest                                              |   |                                | 17,394    |     |   | 11,302 |   |
|                                                                            |   |                                |      |     |   |   |   |
| Cumulative                  Preferred Stock Not Subject to Mandatory Redemption |   |                                | 16,631    |     |   | 16,639 |   |
|                                                                            |   |                                |      |     |   |   |   |
| Commitments                  and Contingencies (Note 5)                         |   |                                |      |     |   |   |   |
|                                                                            |   |                                |      |     |   |   |   |
| **COMMON                  SHAREHOLDER’S EQUITY**                          |   |                                |      |     |   |   |   |
| Common                  Stock - No Par Value Per Share:                         |   |                                |      |     |   |   |   |
| Authorized                  - 40,000,000 Shares                                 |   |                                |      |     |   |   |   |
| Outstanding                  - 27,952,473 Shares                                |   |                                | 321,201   |     |   | 321,201 |   |
| Paid-in                  Capital                                                |   |                                | 536,639   |     |   | 466,637 |   |
| Retained                  Earnings                                              |   |                                | 1,097,419 |     |   | 979,354 |   |
| Accumulated                  Other Comprehensive Income                         |   |                                | 11,355    |     |   | 755 |   |
| **TOTAL**                                                                       |   |                                | 1,966,614 |     |   | 1,767,947 |   |
|                                                                            |   |                                |      |     |   |   |   |
| **TOTAL                  LIABILITIES AND SHAREHOLDERS’ EQUITY**           |   | $                                   | 6,474,365 |     | $      | 6,330,670 |   |

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

----

**OHIO        POWER COMPANY CONSOLIDATED**

**CONDENSED        CONSOLIDATED STATEMENTS OF CASH FLOWS**

**For        the Six Months Ended June 30, 2006 and 2005**

**(in        thousands)**

**(Unaudited)**

|                                                                                                                  |   | **2006**     |     | **2005**     |   |
|-----------------------------------------------------------------------------------------------------------------------|--------|--------------|----------|--------------|--------|
| **OPERATING                  ACTIVITIES**                                                                             |   |    |     |    |   |
| **Net                  Income**                                                                                       |   | $            | 118,431  |         | $      | 170,964 |   |
| **Adjustments                  for Noncash Items:**                                                                   |   |         |     |         |   |   |   |
| Depreciation                  and Amortization                                                                        |   |         | 156,661  |         |   | 153,888 |   |
| Deferred                  Income Taxes                                                                                |   |         | (8,073   | )            |   | 9,923 |   |
| Carrying                  Costs Income                                                                                |   |         | (6,834   | )            |   | (29,549 | ) |
| Mark-to-Market                  of Risk Management Contracts                                                          |   |         | 1,263    |         |   | (2,271 | ) |
| Pension                  Contributions to Qualified Plan Trusts                                                       |   |         | -        |         |   | (40,013 | ) |
| Deferred                  Property Taxes                                                                              |   |         | 35,550   |         |   | 32,254 |   |
| Change                  in Other Noncurrent Assets                                                                    |   |         | 9,323    |         |   | (17,618 | ) |
| Change                  in Other Noncurrent Liabilities                                                               |   |         | 16,355   |         |   | 3,462 |   |
| **Changes                  in Components of Working Capital:**                                                        |   |         |     |         |   |   |   |
| Accounts                  Receivable, Net                                                                             |   |         | 97,832   |         |   | (6,457 | ) |
| Fuel,                  Materials and Supplies                                                                         |   |         | (56,075  | )            |   | (44,097 | ) |
| Accounts                  Payable                                                                                     |   |         | (42,878  | )            |   | (35,434 | ) |
| Accrued                  Taxes, Net                                                                                   |   |         | (7,233   | )            |   | (93,300 | ) |
| Other                  Current Assets                                                                                 |   |         | 35,848   |         |   | 53,872 |   |
| Other                  Current Liabilities                                                                            |   |         | (23,816  | )            |   | 23,931 |   |
| **Net                  Cash Flows From Operating Activities**                                                         |   |         | 326,354  |         |   | 179,555 |   |
|                                                                                                                  |   |         |     |         |   |   |   |
| **INVESTING                  ACTIVITIES**                                                                             |   |         |     |         |   |   |   |
| Construction                  Expenditures                                                                            |   |         | (481,541 | )            |   | (288,921 | ) |
| Change                  in Advances to Affiliates, Net                                                                |   |         | (36,787  | )            |   | 125,971 |   |
| Other                                                                                                                 |   |         | 1,450    |         |   | 7,299 |   |
| **Net                  Cash Flows Used For Investing Activities**                                                     |   |         | (516,878 | )            |   | (155,651 | ) |
|                                                                                                                  |   |         |     |         |   |   |   |
| **FINANCING                  ACTIVITIES**                                                                             |   |         |     |         |   |   |   |
| Capital                  Contributions from Parent Company                                                            |   |         | 70,000   |         |   | - |   |
| Issuance                  of Long-term Debt - Nonaffiliated                                                           |   |         | 405,839  |         |   | 214,120 |   |
| Change                  in Short-term Debt, Net - Nonaffiliated                                                       |   |         | (5,094   | )            |   | (9,146 | ) |
| Change                  in Advances from Affiliates, Net                                                              |   |         | (70,071  | )            |   | 11,528 |   |
| Retirement                  of Long-term Debt - Nonaffiliated                                                         |   |         | (6,177   | )            |   | (224,177 | ) |
| Retirement                  of Long-term Debt - Affiliated                                                            |   |         | (200,000 | )            |   | - |   |
| Retirement                  of Preferred Stock                                                                        |   |         | (8       | )            |   | (5,000 | ) |
| Principal                  Payments for Capital Lease Obligations                                                     |   |         | (3,849   | )            |   | (3,847 | ) |
| Dividends                  Paid on Common Stock                                                                       |   |         | -        |         |   | (14,999 | ) |
| Dividends                  Paid on Cumulative Preferred Stock                                                         |   |         | (366     | )            |   | (366 | ) |
| **Net                  Cash Flows From (Used For) Financing Activities**                                              |   |         | 190,274  |         |   | (31,887 | ) |
|                                                                                                                  |   |         |     |         |   |   |   |
| **Net                  Decrease in Cash and Cash Equivalents**                                                        |   |         | (250     | )            |   | (7,983 | ) |
| **Cash                  and Cash Equivalents at Beginning of Period**                                                 |   |         | 1,240    |         |   | 9,337 |   |
| **Cash                  and Cash Equivalents at End of Period**                                                       |   | $            | 990      |         | $      | 1,354 |   |
|                                                                                                                  |   |         |     |         |   |   |   |
| **SUPPLEMENTARY                  INFORMATION**                                                                        |   |         |     |         |   |   |   |
| Cash                  Paid for Interest, Net of Capitalized Amounts                                                   |   | $            | 43,794   |         | $      | 52,403 |   |
| Cash                  Paid for Income Taxes, Net of Refunds                                                           |   |         | 24,077   |         |   | 114,782 |   |
| Noncash                  Acquisitions Under Capital Leases                                                            |   |         | 1,662    |         |   | 7,210 |   |
| Construction                  Expenditures Included in Accounts Payable at June 30,                                   |   |         | 97,389   |         |   | 51,850 |   |
|                                                                                                                  |   |         |     |         |   |   |   |
| *See                  Condensed Notes to Condensed Financial Statements of Registrant                  Subsidiaries.* |

----

**OHIO        POWER COMPANY CONSOLIDATED**

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

|                                                        | **Footnote****Reference**      |
|-------------------------------------------------------------|--------------------------------|
| Significant                  Accounting Matters             | Note                  1        |
| New                  Accounting Pronouncements              | Note                  2        |
| Rate                  Matters                               | Note                  3        |
| Customer                  Choice and Industry Restructuring | Note                  4        |
| Commitments                  and Contingencies              | Note                  5        |
| Guarantees                                                  | Note                  6        |
| Company-wide                  Staffing and Budget Review    | Note                  7        |
| Benefit                  Plans                              | Note                  9        |
| Business                  Segments                          |  Note                  11 |
| Financing                  Activities                       | Note                  12       |

----

**PUBLIC        SERVICE COMPANY OF OKLAHOMA**

----

**PUBLIC        SERVICE COMPANY OF OKLAHOMA**

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

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

**Results        of Operations**

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

**(in        millions)**

| **Second                  Quarter of 2005**                       |   |   |   |   | $      | 19     |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                  and Off-system Sales Margins              |   |   | 11     |   |   |   |   |
| Other                                                             |   |   | 1      |   |   |   |   |
| **Total                  Change in Gross Margin**                 |   |   |   |   |   | 12     |   |
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                  Operation and Maintenance                  |   |   | (11    | )      |   |   |   |
| Taxes                  Other Than Income Taxes                    |   |   | (4     | )      |   |   |   |
| Interest                  Expense                                 |   |   | (1     | )      |   |   |   |
| **Total                  Change in Operating Expenses and Other** |   |   |   |   |   | (16    | )      |
|                                                              |   |   |   |   |   |   |   |
| **Second                  Quarter of 2006**                       |   |   |   |   | $      | 15     |   |

| · | Retail                  and Off-system Sales Margins increased $11 million primarily due                  to higher                  retail margins from an increase in sales volumes, partially offset                  by                  decreased off-system sales margins due to lower optimization activities                  and a reduction in physical off-system sales under the SIA. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Other                  Operation and Maintenance expenses increased $11 million due to                  a $7                  million increase in scheduled overhead line maintenance and a $3                  million                  increase primarily due to slightly higher power plant operations                  and                  factoring of accounts receivable. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Taxes                  Other Than Income Taxes increased $4 million primarily due to the                  absence                  of a 2004 adjustment for property-related taxes recorded in                  2005.                                                                                                                                                             |

**Reconciliation        of Six Months Ended June 30, 2005 to Six Months Ended June 30, 2006 Net        Income**

**(in        millions)**

| **Six                  Months Ended June 30, 2005**               |   |   |   |   | $      | 19     |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                  and Off-system Sales Margins              |   |   | 14     |   |   |   |   |
| Transmission                  Revenues                            |   |   | 1      |   |   |   |   |
| Other                                                             |   |   | 3      |   |   |   |   |
| **Total                  Change in Gross Margin**                 |   |   |   |   |   | 18     |   |
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                  Operation and Maintenance                  |   |   | (27    | )      |   |   |   |
| Depreciation                  and Amortization                    |   |   | 2      |   |   |   |   |
| Taxes                  Other Than Income Taxes                    |   |   | (4     | )      |   |   |   |
| Interest                  Expense                                 |   |   | (2     | )      |   |   |   |
| **Total                  Change in Operating Expenses and Other** |   |   |   |   |   | (31    | )      |
|                                                              |   |   |   |   |   |   |   |
| Income                  Tax Expense                               |   |   |   |   |   | 3      |   |
|                                                              |   |   |   |   |   |   |   |
| **Six                  Months Ended June 30, 2006**               |   |   |   |   | $      | 9      |   |

| · | Retail                  and Off-system Sales Margins increased $14 million                  primarily due to higher retail margins from an increase in sales                  volumes,                  partially offset by decreased off-system sales margins due to lower                  optimization activities and a reduction in physical off-system                  sales under                  the SIA. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Other increased                $3 million primarily due to a 2006 settlement received from an electric                cooperative.                                                                                                                                                                                                                                                                            |

| · | Other                  Operation and Maintenance expenses increased $27 million due to                  a $6                  million increase in forced and scheduled power plant maintenance,                  a $10                  million increase in scheduled overhead line maintenance and a $10                  million                  increase primarily due to higher power plant operations, customer-related                  expenses, factoring of accounts receivable and outside                  services. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Depreciation                  and Amortization decreased $2 million primarily due to a change                  in                  depreciation rates implemented in June 2005, resulting from the                  settlement                  of our 2005 rate review proceedings.                                                                                                                                                                                                                                             |
| · | Taxes                  Other Than Income Taxes increased $4 million primarily due to the                  absence                  of a 2004 adjustment for property-related taxes recorded in                  2005.                                                                                                                                                                                                                                                                                                            |
| · | Interest                  Expense increased $2 million primarily due to increased affiliated                  short-term borrowings.                                                                                                                                                                                                                                                                                                                                                                                             |

*Income        Taxes*

** **

**Financial        Condition**

**Credit        Ratings**

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

**Financing        Activity**

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

**Liquidity**

**Summary        Obligation Information**

**Significant        Factors**

***Litigation        and Regulatory Activity***

***New        Generation***

**Critical        Accounting Estimates**

----

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

**Market        Risks**

**MTM        Risk Management Contract Net Assets**

**Reconciliation        of MTM Risk Management Contracts to**

**Condensed        Balance Sheet**

**As        of June 30, 2006**

**(in        thousands)**

|                                                           |   | **MTM                  Risk Management Contracts** |    | **Cash                  Flow Hedges** |   | **Total** |   |
|----------------------------------------------------------------|--------|----------------------------------------------------|---------|---------------------------------------|--------|-----------|--------|
| Current                  Assets                                |   | $                                                  | 71,817  |                                  | $      | -         |   | $ | 71,817 |   |
| Noncurrent                  Assets                             |   |                                               | 40,199  |                                  |   | -         |   |   | 40,199 |   |
| **Total                  MTM Derivative Contract Assets**      |   |                                               | 112,016 |                                  |   | -         |   |   | 112,016 |   |
|                                                           |   |                                               |    |                                  |   |      |   |   |   |   |
| Current                  Liabilities                           |   |                                               | (55,332 | )                                     |   | -         |   |   | (55,332 | ) |
| Noncurrent                  Liabilities                        |   |                                               | (30,491 | )                                     |   | -         |   |   | (30,491 | ) |
| **Total                  MTM Derivative Contract Liabilities** |   |                                               | (85,823 | )                                     |   | -         |   |   | (85,823 | ) |
|                                                           |   |                                               |    |                                  |   |      |   |   |   |   |
| **Total                  MTM Derivative Contract Net Assets**  |   | $                                                  | 26,193  |                                  | $      | -         |   | $ | 26,193 |   |

**MTM        Risk Management Contract Net Assets**

**Six        Months Ended June 30, 2006**

**(in        thousands)**

| **Total                  MTM Risk Management Contract Net Assets at December 31,                  2005**                                           |   | $      | 14,214 |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| (Gain)                  Loss from Contracts Realized/Settled During the Period and Entered                  in a                  Prior Period     |   |   | 140    |   |
| Fair                  Value of New Contracts at Inception When Entered During the Period                  (a)                                      |   |   | -      |   |
| Net                  Option Premiums Paid/(Received) for Unexercised or Unexpired Option                  Contracts Entered During the Period |   |   | 7,621  |   |
| Change                  in Fair Value Due to Valuation Methodology Changes on Forward                  Contracts                                   |   |   | -      |   |
| Changes                  in Fair Value Due to Market Fluctuations During the Period                  (b)                                           |   |   | (162   | )      |
| Changes                  Due to SIA and CSW Operating Agreement (c)                                                                                |   |   | 10,185 |   |
| Changes                  in Fair Value Allocated to Regulated Jurisdictions (d)                                                                    |   |   | (5,805 | )      |
| **Total                  MTM Risk Management Contract Net Assets**                                                                                 |   |   | 26,193 |   |
| Net                  Cash Flow Hedge Contracts                                                                                                     |   |   | -      |   |
| **Total                  MTM Risk Management Contract Net Assets at June 30,                  2006**                                               |   | $      | 26,193 |   |

| (a) | Most                  of the fair value comes from longer term fixed price contracts                  with                  customers that seek to limit their risk against fluctuating energy                  prices.                  Inception value is only recorded if observable market data can                  be obtained                  for valuation inputs for the entire contract term. The contract                  prices are                  valued against market curves associated with the delivery location                  and                  delivery term. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Market                  fluctuations are attributable to various factors such as supply/demand,                  weather, etc.                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| (c) | See                  “Allocation Agreement between AEP East companies and AEP West companies                  and CSW Operating Agreement” section of Note 3.                                                                                                                                                                                                                                                                                                                                                                                                                  |
| (d) | “Changes                  in Fair Value Allocated to Regulated Jurisdictions” relates to the net                  gains (losses) of those contracts that are not reflected in the                  Condensed                  Statements of Operations. These net gains (losses) are recorded                  as                  regulatory liabilities/assets for those subsidiaries that operate                  in                  regulated jurisdictions.                                                                                                             |

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

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

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

**Risk        Management Contract Net Assets**

**Fair        Value of Contracts as of June 30, 2006**

**(in        thousands)**

|                                                                                                |   | **Remainder2006** |   | **2007** |   | **2008** |   | **2009** |   | **2010** |   | **After****2010** |   | **Total** |   |
|-----------------------------------------------------------------------------------------------------|--------|-------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|-------------------|--------|-----------|--------|
| Prices                  Actively Quoted - Exchange Traded                  Contracts                |   | $                 | (880   | )        | $      | (1,879   | )      | $        | 595    |     | $      | (123              | )      | $         | -      |   | $ | - |   | $ | (2,287 | ) |
| Prices                  Provided by Other External Sources                  - OTC Broker Quotes (a) |   |              | 5,961  |     |   | 6,348    |   |     | 9,343  |     |   | 398               |   |      | -      |   |   | - |   |   | 22,050 |   |
| Prices                  Based on Models and Other Valuation                  Methods (b)            |   |              | 9,081  |     |   | (676     | )      |     | (1,945 | )        |   | (26               | )      |      | (3     | ) |   | (1 | ) |   | 6,430 |   |
| **Total**                                                                                           |   | $                 | 14,162 |     | $      | 3,793    |   | $        | 7,993  |     | $      | 249               |   | $         | (3     | ) | $ | (1 | ) | $ | 26,193 |   |

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

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

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

**Six        Months Ended June 30, 2006**

**(in        thousands)**

|                                                                                                          |   | **Power** |   | **Interest                  Rate** |   | **Total** |   |
|---------------------------------------------------------------------------------------------------------------|--------|-----------|--------|------------------------------------|--------|-----------|--------|
| **Beginning                  Balance in AOCI December 31, 2005**                                              |   | $         | (629   | )                                  | $      | (483      | )      | $ | (1,112 | ) |
| Changes                  in Fair Value                                                                        |   |      | 12     |                               |   | -         |   |   | 12 |   |
| Impact                  Due to Change in SIA (a)                                                              |   |      | 506    |                               |   | -         |   |   | 506 |   |
| Reclassifications                  from AOCI to Net Income for Cash                  Flow Hedges Settled |   |      | 123    |                               |   | 55        |   |   | 178 |   |
| **Ending                  Balance in AOCI June 30, 2006**                                                     |   | $         | 12     |                               | $      | (428      | )      | $ | (416 | ) |

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

**Credit        Risk**

**VaR        Associated with Risk Management Contracts**

| **Six                  Months Ended****June                  30, 2006** |   |     |   |        | **Twelve                  Months Ended****December                  31, 2005** |
|-------------------------------------------------------------------------|--------|----------|--------|-------------|--------------------------------------------------------------------------------|
| **(in                  thousands)**                                     |   |     |   |        | **(in                  thousands)**                                            |
| **End**                                                                 |   | **High** |   | **Average** |                                                                           | **Low** |   |   |   |   | **End** |   | **High** |   | **Average** |   | **Low** |
| $603                                                                    |   | $1,432   |   | $546        |                                                                           | $58 |   |   |   |   | $311 |   | $517 |   | $246 |   | $89 |

**VaR        Associated with Debt Outstanding**

----

**PUBLIC        SERVICE COMPANY OF OKLAHOMA**

**CONDENSED        STATEMENTS OF INCOME**

**For        the Three and Six Months Ended June 30, 2006 and 2005**

**(in        thousands)**

**(Unaudited)**

|                                                                |   | **Three                  Months Ended** |    | **Six                  Months Ended** |   |
|---------------------------------------------------------------------|--------|-----------------------------------------|---------|---------------------------------------|--------|
|                                                                |   | **2006**                                |    | **2005**                              |   | **2006** |   | **2005** |   |
| **REVENUES**                                                        |   |                               |    |                             |   |   |   |   |   |
| Electric                  Generation, Transmission and Distribution |   | $                                       | 333,313 |                                  | $      | 272,329 |   | $ | 672,914 |   | $ | 522,427 |   |
| Sales                  to AEP Affiliates                            |   |                                    | 12,545  |                                  |   | 13,650 |   |   | 26,613 |   |   | 16,282 |   |
| Other                                                               |   |                                    | 1,188   |                                  |   | 623 |   |   | 2,248 |   |   | 975 |   |
| **TOTAL**                                                           |   |                                    | 347,046 |                                  |   | 286,602 |   |   | 701,775 |   |   | 539,684 |   |
|                                                                |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| **EXPENSES**                                                        |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| Fuel                  and Other Consumables for Electric Generation |   |                                    | 150,976 |                                  |   | 129,544 |   |   | 364,149 |   |   | 263,722 |   |
| Purchased                  Electricity for Resale                   |   |                                    | 56,358  |                                  |   | 30,132 |   |   | 89,575 |   |   | 44,925 |   |
| Purchased                  Electricity from AEP Affiliates          |   |                                    | 15,880  |                                  |   | 15,389 |   |   | 37,111 |   |   | 38,234 |   |
| Other                  Operation                                    |   |                                    | 40,098  |                                  |   | 36,641 |   |   | 76,965 |   |   | 67,139 |   |
| Maintenance                                                         |   |                                    | 22,033  |                                  |   | 14,153 |   |   | 42,340 |   |   | 25,512 |   |
| Depreciation                  and Amortization                      |   |                                    | 21,600  |                                  |   | 22,247 |   |   | 42,621 |   |   | 44,866 |   |
| Taxes                  Other Than Income Taxes                      |   |                                    | 10,077  |                                  |   | 6,061 |   |   | 20,153 |   |   | 15,738 |   |
| **TOTAL**                                                           |   |                                    | 317,022 |                                  |   | 254,167 |   |   | 672,914 |   |   | 500,136 |   |
|                                                                |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| **OPERATING                  INCOME**                               |   |                                    | 30,024  |                                  |   | 32,435 |   |   | 28,861 |   |   | 39,548 |   |
|                                                                |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| Other                  Income                                       |   |                                    | 211     |                                  |   | 242 |   |   | 780 |   |   | 407 |   |
| Interest                  Expense                                   |   |                                    | (9,634  | )                                     |   | (8,621 | ) |   | (18,769 | ) |   | (16,496 | ) |
|                                                                |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| **INCOME                  BEFORE INCOME TAXES**                     |   |                                    | 20,601  |                                  |   | 24,056 |   |   | 10,872 |   |   | 23,459 |   |
|                                                                |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| Income                  Tax Expense                                 |   |                                    | 5,963   |                                  |   | 5,486 |   |   | 1,591 |   |   | 4,384 |   |
|                                                                |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| **NET                  INCOME**                                     |   |                                    | 14,638  |                                  |   | 18,570 |   |   | 9,281 |   |   | 19,075 |   |
|                                                                |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| Preferred                  Stock Dividend Requirements              |   |                                    | 53      |                                  |   | 53 |   |   | 106 |   |   | 106 |   |
|                                                                |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| **EARNINGS                  APPLICABLE TO COMMON STOCK**       |   | $                                       | 14,585  |                                  | $      | 18,517 |   | $ | 9,175 |   | $ | 18,969 |   |

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

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

----

**PUBLIC        SERVICE COMPANY OF OKLAHOMA**

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

**EQUITY        AND COMPREHENSIVE INCOME (LOSS)**

**For        the Six Months Ended June 30, 2006 and 2005**

**(in        thousands)**

**(Unaudited)**

|                                                                                     |   | **Common                  Stock** |    | **Paid-in                  Capital** |   | **Retained                  Earnings** |   | **Accumulated                  Other Comprehensive Income (Loss)** |    | **Total** |   |
|------------------------------------------------------------------------------------------|--------|-----------------------------------|---------|--------------------------------------|--------|----------------------------------------|--------|--------------------------------------------------------------------|---------|-----------|--------|
| **DECEMBER                  31, 2004**                                                   |   | $                                 | 157,230 |                                 | $      | 230,016                                |   | $                                                                  | 141,935 |      | $      | 75 |   | $ | 529,256 |   |
|                                                                                     |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| Common                  Stock Dividends                                                  |   |                              |    |                                 |   |                                   |   |                                                               | (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 |   |
|                                                                                     |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| **DECEMBER                  31, 2005**                                                   |   | $                                 | 157,230 |                                 | $      | 230,016                                |   | $                                                                  | 162,615 |      | $      | (1,264 | ) | $ | 548,597 |   |
|                                                                                     |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| Preferred                  Stock Dividends                                               |   |                              |    |                                 |   |                                   |   |                                                               | (106    | )         |   |   |   |   | (106 | ) |
| **TOTAL**                                                                                |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   | 548,491 |   |
|                                                                                     |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                  INCOME**                                                |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| **Other                  Comprehensive Income,** **Net                  of Taxes:** |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| Cash                  Flow Hedges, Net of Tax of $375                                    |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   | 696 |   |   | 696 |   |
| **NET                  INCOME**                                                          |   |                              |    |                                 |   |                                   |   |                                                               | 9,281   |      |   |   |   |   | 9,281 |   |
| **TOTAL                  COMPREHENSIVE INCOME**                                          |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   | 9,977 |   |
|                                                                                     |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| **JUNE                  30, 2006**                                                       |   | $                                 | 157,230 |                                 | $      | 230,016                                |   | $                                                                  | 171,790 |      | $      | (568 | ) | $ | 558,468 |   |

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

----

**PUBLIC        SERVICE COMPANY OF OKLAHOMA**

**CONDENSED        BALANCE SHEETS**

**ASSETS**

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

**(in        thousands)**

**(Unaudited)**

|                                                             |   | **2006**     |      | **2005** |   |
|------------------------------------------------------------------|--------|--------------|-----------|----------|--------|
| **CURRENT                  ASSETS**                              |   |    |      |
| Cash                  and Cash Equivalents                       |   | $            | 2,001     |     | $      | 1,520 |   |
| Accounts                  Receivable:                            |   |         |      |     |   |   |   |
| Customers                                                        |   |         | 58,481    |     |   | 37,740 |   |
| Affiliated                  Companies                            |   |         | 45,649    |     |   | 73,321 |   |
| Miscellaneous                                                    |   |         | 9,360     |     |   | 10,501 |   |
| Allowance                  for Uncollectible Accounts            |   |         | (248      | )        |   | (240 | ) |
|                     Total Accounts Receivable          |   |         | 113,242   |     |   | 121,322 |   |
| Fuel                                                             |   |         | 18,157    |     |   | 16,431 |   |
| Materials                  and Supplies                          |   |         | 43,635    |     |   | 38,545 |   |
| Risk                  Management Assets                          |   |         | 71,817    |     |   | 40,383 |   |
| Accrued                  Tax Benefits                            |   |         | -         |     |   | 11,972 |   |
| Regulatory                  Asset for Under-Recovered Fuel Costs |   |         | 33,635    |     |   | 108,732 |   |
| Margin                  Deposits                                 |   |         | 56,968    |     |   | 10,051 |   |
| Prepayments                  and Other                           |   |         | 2,575     |     |   | 4,236 |   |
| **TOTAL**                                                        |   |         | 342,030   |     |   | 353,192 |   |
|                                                             |   |         |      |     |   |   |   |
| **PROPERTY,                  PLANT AND EQUIPMENT**               |   |         |      |     |   |   |   |
| Electric:                                                        |   |         |      |     |   |   |   |
| Production                                                       |   |         | 1,082,122 |     |   | 1,072,928 |   |
| Transmission                                                     |   |         | 490,629   |     |   | 479,272 |   |
| Distribution                                                     |   |         | 1,181,226 |     |   | 1,140,535 |   |
| Other                                                            |   |         | 235,026   |     |   | 211,805 |   |
| Construction                  Work in Progress                   |   |         | 71,305    |     |   | 90,455 |   |
| **Total**                                                        |   |         | 3,060,308 |     |   | 2,994,995 |   |
| Accumulated                  Depreciation and Amortization       |   |         | 1,185,635 |     |   | 1,175,858 |   |
| **TOTAL                  - NET**                                 |   |         | 1,874,673 |     |   | 1,819,137 |   |
|                                                             |   |         |      |     |   |   |   |
| **OTHER                  NONCURRENT ASSETS**                     |   |         |      |     |   |   |   |
| Regulatory                  Assets                               |   |         | 85,178    |     |   | 50,723 |   |
| Long-term                  Risk Management Assets                |   |         | 40,199    |     |   | 33,566 |   |
| Employee                  Benefits and Pension Assets            |   |         | 80,654    |     |   | 82,559 |   |
| Deferred                  Charges and Other                      |   |         | 34,035    |     |   | 16,287 |   |
| **TOTAL**                                                        |   |         | 240,066   |     |   | 183,135 |   |
|                                                             |   |         |      |     |   |   |   |
| **TOTAL                  ASSETS**                                |   | $            | 2,456,769 |     | $      | 2,355,464 |   |

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

----

**PUBLIC        SERVICE COMPANY OF OKLAHOMA **

**CONDENSED        BALANCE SHEETS**

**LIABILITIES        AND SHAREHOLDERS’ EQUITY**

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

**(Unaudited)**

|                                                                            |   | **2006**                            |      | **2005** |   |
|---------------------------------------------------------------------------------|--------|-------------------------------------|-----------|----------|--------|
| **CURRENT                  LIABILITIES**                                        |   | **(in                  thousands)** |      |
| Advances                  from Affiliates                                       |   | $                                   | 139,831   |     | $      | 75,883 |   |
| Accounts                  Payable:                                              |   |                                |      |     |   |   |   |
| General                                                                         |   |                                | 135,395   |     |   | 130,627 |   |
| Affiliated                  Companies                                           |   |                                | 110,983   |     |   | 89,786 |   |
| Long-term                  Debt Due Within One Year - Affiliated                |   |                                | -         |     |   | 50,000 |   |
| Risk                  Management Liabilities                                    |   |                                | 55,332    |     |   | 38,243 |   |
| Customer                  Deposits                                              |   |                                | 55,339    |     |   | 53,844 |   |
| Accrued                  Taxes                                                  |   |                                | 44,424    |     |   | 22,420 |   |
| Other                                                                           |   |                                | 32,327    |     |   | 51,548 |   |
| **TOTAL**                                                                       |   |                                | 573,631   |     |   | 512,351 |   |
|                                                                            |   |                                |      |     |   |   |   |
| **NONCURRENT                  LIABILITIES**                                     |   |                                |      |     |   |   |   |
| Long-term                  Debt - Nonaffiliated                                 |   |                                | 521,101   |     |   | 521,071 |   |
| Long-term                  Risk Management Liabilities                          |   |                                | 30,491    |     |   | 22,582 |   |
| Deferred                  Income Taxes                                          |   |                                | 415,090   |     |   | 436,382 |   |
| Regulatory                  Liabilities and Deferred Investment Tax Credits     |   |                                | 327,532   |     |   | 284,640 |   |
| Deferred                  Credits and Other                                     |   |                                | 25,194    |     |   | 24,579 |   |
| **TOTAL**                                                                       |   |                                | 1,319,408 |     |   | 1,289,254 |   |
|                                                                            |   |                                |      |     |   |   |   |
| **TOTAL                  LIABILITIES**                                          |   |                                | 1,893,039 |     |   | 1,801,605 |   |
|                                                                            |   |                                |      |     |   |   |   |
| Cumulative                  Preferred Stock Not Subject to Mandatory Redemption |   |                                | 5,262     |     |   | 5,262 |   |
|                                                                            |   |                                |      |     |   |   |   |
| Commitments                  and Contingencies (Note 5)                         |   |                                |      |     |   |   |   |
|                                                                            |   |                                |      |     |   |   |   |
| **COMMON                  SHAREHOLDER’S EQUITY**                          |   |                                |      |     |   |   |   |
| Common                  Stock - $15 Par Value Per Share:                        |   |                                |      |     |   |   |   |
| Authorized                  - 11,000,000 Shares                                 |   |                                |      |     |   |   |   |
| Issued                  - 10,482,000 Shares                                     |   |                                |      |     |   |   |   |
| Outstanding                  - 9,013,000 Shares                                 |   |                                | 157,230   |     |   | 157,230 |   |
| Paid-in                  Capital                                                |   |                                | 230,016   |     |   | 230,016 |   |
| Retained                  Earnings                                              |   |                                | 171,790   |     |   | 162,615 |   |
| Accumulated                  Other Comprehensive Income (Loss)                  |   |                                | (568      | )        |   | (1,264 | ) |
| **TOTAL**                                                                       |   |                                | 558,468   |     |   | 548,597 |   |
|                                                                            |   |                                |      |     |   |   |   |
| **TOTAL                  LIABILITIES AND SHAREHOLDERS’ EQUITY**           |   | $                                   | 2,456,769 |     | $      | 2,355,464 |   |

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

----

**PUBLIC        SERVICE COMPANY OF OKLAHOMA**

**CONDENSED        STATEMENTS OF CASH FLOWS**

**For        the Six Months Ended June 30, 2006 and 2005**

**(in        thousands)**

**(Unaudited)**

|                                                                                                                      |   | **2006**     |    | **2005**     |   |
|---------------------------------------------------------------------------------------------------------------------------|--------|--------------|---------|--------------|--------|
| **OPERATING                    ACTIVITIES**                                                                               |   |    |    |    |   |
| **Net                    Income**                                                                                         |   | $            | 9,281   |         | $      | 19,075 |   |
| **Adjustments                    for Noncash Items:**                                                                     |   |         |    |         |   |   |   |
| Depreciation                    and Amortization                                                                          |   |         | 42,621  |         |   | 44,866 |   |
| Deferred                    Income Taxes                                                                                  |   |         | (22,319 | )            |   | 2,998 |   |
| Mark-to-Market                    of Risk Management Contracts                                                            |   |         | (11,979 | )            |   | 10,934 |   |
| Deferred                    Property Taxes                                                                                |   |         | (16,196 | )            |   | (16,245 | ) |
| Change                    in Other Noncurrent Assets                                                                      |   |         | 9,665   |         |   | (18,943 | ) |
| Change                    in Other Noncurrent Liabilities                                                                 |   |         | (8,232  | )            |   | (2,529 | ) |
| **Changes                    in Components of Working Capital:**                                                          |   |         |    |         |   |   |   |
| Accounts                    Receivable, Net                                                                               |   |         | 8,080   |         |   | 19,705 |   |
| Fuel,                    Materials and Supplies                                                                           |   |         | (6,816  | )            |   | (6,755 | ) |
| Accounts                    Payable                                                                                       |   |         | 28,517  |         |   | 52,198 |   |
| Accrued                    Taxes, Net                                                                                     |   |         | 33,976  |         |   | 11,161 |   |
| Over/Under                    Fuel Recovery                                                                               |   |         | 75,097  |         |   | 1,551 |   |
| Margin                    Deposits                                                                                        |   |         | (46,917 | )            |   | 1,753 |   |
| Other                    Current Assets                                                                                   |   |         | 1,655   |         |   | 535 |   |
| Other                    Current Liabilities                                                                              |   |         | (17,726 | )            |   | (9,008 | ) |
| **Net                    Cash Flows From Operating Activities**                                                           |   |         | 78,707  |         |   | 111,296 |   |
|                                                                                                                      |   |         |    |         |   |   |   |
| **INVESTING                    ACTIVITIES**                                                                               |   |         |    |         |   |   |   |
| Construction                    Expenditures                                                                              |   |         | (91,617 | )            |   | (55,697 | ) |
| Change                    in Other Cash Deposits, Net                                                                     |   |         | 6       |         |   | (6 | ) |
| Change                    in Advances to Affiliates, Net                                                                  |   |         | -       |         |   | (7,084 | ) |
| **Net                    Cash Flows Used For Investing Activities**                                                       |   |         | (91,611 | )            |   | (62,787 | ) |
|                                                                                                                      |   |         |    |         |   |   |   |
| **FINANCING                    ACTIVITIES**                                                                               |   |         |    |         |   |   |   |
| Issuance                    of Long-term Debt - Nonaffiliated                                                             |   |         | -       |         |   | 74,408 |   |
| Retirement                    of Long-term Debt - Nonaffiliated                                                           |   |         | -       |         |   | (50,000 | ) |
| Retirement                    of Long-term Debt - Affiliated                                                              |   |         | (50,000 | )            |   | - |   |
| Change                    in Advances from Affiliates, Net                                                                |   |         | 63,948  |         |   | (55,002 | ) |
| Principal                    Payments for Capital Lease Obligations                                                       |   |         | (457    | )            |   | (310 | ) |
| Dividends                    Paid on Common Stock                                                                         |   |         | -       |         |   | (17,000 | ) |
| Dividends                    Paid on Cumulative Preferred Stock                                                           |   |         | (106    | )            |   | (106 | ) |
| **Net                    Cash Flows From (Used For) Financing Activities**                                                |   |         | 13,385  |         |   | (48,010 | ) |
|                                                                                                                      |   |         |    |         |   |   |   |
| **Net                    Increase in Cash and Cash Equivalents**                                                          |   |         | 481     |         |   | 499 |   |
| **Cash                    and Cash Equivalents at Beginning of Period**                                                   |   |         | 1,520   |         |   | 279 |   |
| **Cash                    and Cash Equivalents at End of Period**                                                         |   | $            | 2,001   |         | $      | 778 |   |
|                                                                                                                      |   |         |    |         |   |   |   |
| **SUPPLEMENTARY                    INFORMATION**                                                                          |   |         |    |         |   |   |   |
| Cash                    Paid for Interest, Net of Capitalized Amounts                                                     |   | $            | 17,461  |         | $      | 15,028 |   |
| Cash                    Paid for Income Taxes, Net of Refunds                                                             |   |         | 5,656   |         |   | 3,590 |   |
| Noncash                    Acquisitions Under Capital Leases                                                              |   |         | 1,780   |         |   | 738 |   |
| Construction                    Expenditures Included in Accounts Payable at June 30,                                     |   |         | 5,943   |         |   | 1,635 |   |
|                                                                                                                      |   |         |    |         |   |   |   |
| *See                    Condensed Notes to Condensed Financial Statements of Registrant                    Subsidiaries.* |

----

**PUBLIC        SERVICE COMPANY OF OKLAHOMA**

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

|                                                     | **Footnote                  Reference**                                               |
|----------------------------------------------------------|---------------------------------------------------------------------------------------|
| Significant                  Accounting Matters          | Note                  1                                                               |
| New                  Accounting Pronouncements           | Note                  2                                                               |
| Rate                  Matters                            | Note                  3                                                               |
| Commitments                  and Contingencies           | Note                  5                                                               |
| Guarantees                                               | Note                  6                                                               |
| Company-wide                  Staffing and Budget Review | Note                  7                                                               |
| Benefit                  Plans                           | Note                  9                                                               |
| Income                  Taxes                            | Note                  10                                                              |
| Business Segments                                   |                             Note 11 |
| Financing                  Activities                    | Note                  12                                                              |

----

**SOUTHWESTERN        ELECTRIC POWER COMPANY CONSOLIDATED**

----

**SOUTHWESTERN        ELECTRIC POWER COMPANY CONSOLIDATED**

**MANAGEMENT’S        FINANCIAL DISCUSSION AND ANALYSIS**

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

**Results        of Operations**

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

**(in        millions)**

| **Second                  Quarter of 2005**                       |   |   |   |   | $      | 19     |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                  and Off-system Sales Margins (a)          |   |   | 9      |   |   |   |   |
| Transmission                  Revenues                            |   |   | 2      |   |   |   |   |
| Other                                                             |   |   | 7      |   |   |   |   |
| **Total                  Change in Gross Margin**                 |   |   |   |   |   | 18     |   |
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                  Operation and Maintenance                  |   |   | (1     | )      |   |   |   |
| Interest                  Expense                                 |   |   | (1     | )      |   |   |   |
| **Total                  Change in Operating Expenses and Other** |   |   |   |   |   | (2     | )      |
|                                                              |   |   |   |   |   |   |   |
| Income                  Tax Expense                               |   |   |   |   |   | (7     | )      |
|                                                              |   |   |   |   |   |   |   |
| **Second                  Quarter of 2006**                       |   |   |   |   | $      | 28     |   |

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

| · | Retail                  and Off-system Sales Margins increased $9 million due to an increase                  in                  wholesale margins resulting from higher prices, partially offset                  by                  decreased off-system sales margins due to lower optimization activities                  and a reduction in physical off-system sales under the SIA. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Transmission                  Revenues increased $2 million primarily due to higher rates within                  SPP.                                                                                                                                                                                                                                                                       |
| · | Other                  revenues increased $7 million primarily due to gains on sales of                  emission                  allowances.                                                                                                                                                                                                                                               |

*Income        Taxes*

**Reconciliation        of Six Months Ended June 30, 2005 to Six Months Ended June 30, 2006 Net        Income**

**(in        millions)**

| **Six                  Months Ended June 30, 2005**               |   |   |   |   | $      | 32     |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                  and Off-system Sales Margins (a)          |   |   | 25     |   |   |   |   |
| Transmission                  Revenues                            |   |   | 2      |   |   |   |   |
| Other                                                             |   |   | 15     |   |   |   |   |
| **Total                  Change in Gross Margin**                 |   |   |   |   |   | 42     |   |
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                  Operation and Maintenance                  |   |   | (15    | )      |   |   |   |
| Interest                  Expense                                 |   |   | (1     | )      |   |   |   |
| **Total                  Change in Operating Expenses and Other** |   |   |   |   |   | (16    | )      |
|                                                              |   |   |   |   |   |   |   |
| Income                  Tax Expense                               |   |   |   |   |   | (12    | )      |
|                                                              |   |   |   |   |   |   |   |
| **Six                  Months Ended June 30, 2006**               |   |   |   |   | $      | 46     |   |

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

| ·       | Retail                  and Off-system Sales Margins increased $25 million primarily due                  to an                  increase in wholesale margins resulting from higher prices, partially                  offset by decreased off-system sales margins due to lower optimization                  activities and a reduction in physical off-system sales under the                  SIA. |
|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·       | Transmission                  Revenues increased $2 million primarily due to higher rates within                  SPP.                                                                                                                                                                                                                                                                                  |
| ·  | Other                  revenues increased $15 million primarily due to gains on sales                  of emission                  allowances.                                                                                                                                                                                                                                                         |

| · | Other                  Operation and Maintenance expenses increased $15 million primarily                  due to                  an $11 million increase in power production and higher administrative                  and                  general expenses and a $4 million increase in maintenance performed                  at                  power plants during scheduled                  outages. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Income        Taxes*

**Financial        Condition**

**Credit        Ratings**

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

**Cash        Flow**

|                                                                    |   | **2006**                              |     | **2005** |   |
|-------------------------------------------------------------------------|--------|---------------------------------------|----------|----------|--------|
|                                                                    |   | **(in                    thousands)** |     |
| **Cash                    and Cash Equivalents at Beginning of Period** |   | $                                     | 3,049    |     | $      | 3,715 |   |
| Net                    Cash Flows From (Used For):                      |   |                                  |     |     |   |   |   |
| Operating                    Activities                                 |   |                                  | 76,154   |     |   | 99,285 |   |
| Investing                    Activities                                 |   |                                  | (123,275 | )        |   | (216,468 | ) |
| Financing                    Activities                                 |   |                                  | 46,180   |     |   | 118,059 |   |
| Net                    Increase (Decrease) in Cash and Cash Equivalents |   |                                  | (941     | )        |   | 876 |   |
| **Cash                    and Cash Equivalents at End of Period**       |   | $                                     | 2,108    |     | $      | 4,591 |   |

*Operating        Activities*

*Investing        Activities*

*Financing        Activities*

**Financing        Activity**

**Issuances**

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

**Retirements        and Principal Payments**

|                                     |   | **Principal****Amount** |                                | **Interest** |     | **Due** |
|------------------------------------------|--------|-------------------------|-------------------------------------|--------------|----------|---------|
| **Type                  of Debt**        |   |                    | **Rate**                            |         | **Date** |
|                                     |   |                    | **(in                  thousands)** |         | **(%)**  |    |   |
|                                     |   |                    |                                |         |     |    |   |
| Notes                  Payable           |   | $                       | 3,394                               |         | 4.47     |    | 2011 |
| Notes                  Payable           |   |                    | 1,500                               |         | Variable |    | 2008 |
| Pollution                  Control Bonds |   |                    | 81,700                              |         | 6.10     |    | 2018 |

**Liquidity**

**Summary        Obligation Information**

**Significant        Factors**

***Litigation        and Regulatory Activity***

***New        Generation***

**Critical        Accounting Estimates**

----

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

**Market        Risks**

**MTM        Risk Management Contract Net Assets**

**Reconciliation        of MTM Risk Management Contracts to**

**Condensed        Consolidated Balance Sheet**

**As        of June 30, 2006**

**(in        thousands)**

|                                                                        |   | **MTM                  Risk Management Contracts** |     | **Cash                  Flow Hedges** |   | **Total** |   |
|-----------------------------------------------------------------------------|--------|----------------------------------------------------|----------|---------------------------------------|--------|-----------|--------|
| Current                  Assets                                             |   | $                                                  | 83,938   |                                  | $      | -         |   | $ | 83,938 |   |
| Noncurrent                  Assets                                          |   |                                               | 46,983   |                                  |   | -         |   |   | 46,983 |   |
| **Total                  MTM Derivative Contract Assets**                   |   |                                               | 130,921  |                                  |   | -         |   |   | 130,921 |   |
|                                                                        |   |                                               |     |                                  |   |      |   |   |   |   |
| Current                  Liabilities                                        |   |                                               | (64,677  | )                                     |   | (90       | )      |   | (64,767 | ) |
| Noncurrent                  Liabilities                                     |   |                                               | (35,644  | )                                     |   | (20       | )      |   | (35,664 | ) |
| **Total                  MTM Derivative Contract Liabilities**              |   |                                               | (100,321 | )                                     |   | (110      | )      |   | (100,431 | ) |
|                                                                        |   |                                               |     |                                  |   |      |   |   |   |   |
| **Total                  MTM Derivative Contract Net Assets (Liabilities)** |   | $                                                  | 30,600   |                                  | $      | (110      | )      | $ | 30,490 |   |

**MTM        Risk Management Contract Net Assets**

**Six        Month Ended June 30, 2006**

**(in        thousands)**

| **Total                  MTM Risk Management Contract Net Assets at December 31,                  2005**                                           |   | $      | 16,387 |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| (Gain)                  Loss from Contracts Realized/Settled During the Period and Entered                  in a                  Prior Period     |   |   | (305   | )      |
| Fair                  Value of New Contracts at Inception When Entered During the Period                  (a)                                      |   |   | 52     |   |
| Net                  Option Premiums Paid/(Received) for Unexercised or Unexpired Option                  Contracts Entered During the Period |   |   | 8,907  |   |
| Change                  in Fair Value Due to Valuation Methodology Changes on Forward                  Contracts                                   |   |   | 139    |   |
| Changes                  in Fair Value Due to Market Fluctuations During the Period                  (b)                                           |   |   | (1,694 | )      |
| Changes                  Due to SIA and CSW Operating Agreement (c)                                                                                |   |   | 11,900 |   |
| Changes                  in Fair Value Allocated to Regulated Jurisdictions (d)                                                                    |   |   | (4,786 | )      |
| **Total                  MTM Risk Management Contract Net Assets**                                                                                 |   |   | 30,600 |   |
| Net                  Cash Flow Hedge Contracts                                                                                                     |   |   | (110   | )      |
| **Total                  MTM Risk Management Contract Net Assets at June 30,                  2006**                                               |   | $      | 30,490 |   |

| (a) | Most                  of the fair value comes from longer term fixed price contracts                  with                  customers that seek to limit their risk against fluctuating energy                  prices.                  Inception value is only recorded if observable market data can                  be obtained                  for valuation inputs for the entire contract term. The contract                  prices are                  valued against market curves associated with the delivery location                  and                  delivery term. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Market                  fluctuations are attributable to various factors such as supply/demand,                  weather, etc.                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| (c) | See                  “Allocation Agreement between AEP East companies and AEP West companies                  and CSW Operating Agreement” section of Note 3.                                                                                                                                                                                                                                                                                                                                                                                                                  |
| (d) | “Changes                  in Fair Value Allocated to Regulated Jurisdictions” relates to the net                  gains (losses) of those contracts that are not reflected in the                  Condensed                  Consolidated Statements of Income. These net gains (losses) are                  recorded                  as regulatory liabilities/assets for those subsidiaries that operate                  in                  regulated jurisdictions.                                                                                                    |

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

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

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

**Risk        Management Contract Net Assets**

**Fair        Value of Contracts as of June 30, 2006**

**(in        thousands)**

|                                                                                                |   | **Remainder                  2006** |   | **2007** |   | **2008** |   | **2009** |   | **2010** |   | **After****2010** |   | **Total** |   |
|-----------------------------------------------------------------------------------------------------|--------|-------------------------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|-------------------|--------|-----------|--------|
| Prices                  Actively Quoted - Exchange Traded                  Contracts                |   | $                                   | (1,028 | )        | $      | (2,196   | )      | $        | 695    |     | $      | (143              | )      | $         | -      |   | $ | - |   | $ | (2,672 | ) |
| Prices                  Provided by Other External Sources                  - OTC Broker Quotes (a) |   |                                | 6,966  |     |   | 7,419    |   |     | 10,919 |     |   | 465               |   |      | -      |   |   | - |   |   | 25,769 |   |
| Prices                  Based on Models and Other Valuation                  Methods (b)            |   |                                | 10,611 |     |   | (796     | )      |     | (2,276 | )        |   | (31               | )      |      | (3     | ) |   | (2 | ) |   | 7,503 |   |
| **Total**                                                                                           |   | $                                   | 16,549 |     | $      | 4,427    |   | $        | 9,338  |     | $      | 291               |   | $         | (3     | ) | $ | (2 | ) | $ | 30,600 |   |

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

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

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

**Six        Months Ended June 30, 2006**

**(in        thousands)**

|                                                                                                          |   | **Power** |   |   | **Interest                  Rate** |   |   | **Total** |   |
|---------------------------------------------------------------------------------------------------------------|--------|-----------|--------|--------|------------------------------------|--------|--------|-----------|--------|
| **Beginning                  Balance in AOCI December 31, 2005**                                              |   | $         | (736   | )      |                               | $      | (5,116 | )         |   | $ | (5,852 | ) |
| Changes                  in Fair Value                                                                        |   |      | 14     |   |                               |   | (54    | )         |   |   | (40 | ) |
| Impact                  due to Change in SIA (a)                                                              |   |      | 591    |   |                               |   | -      |      |   |   | 591 |   |
| Reclassifications                  from AOCI to Net Income for Cash                  Flow Hedges Settled |   |           | 144    |   |                               |   | 269    |      |   |   | 413 |   |
| **Ending                  Balance in AOCI June 30, 2006**                                                     |   | $         | 13     |   |                               | $      | (4,901 | )         |   | $ | (4,888 | ) |

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

**Credit        Risk**

**VaR        Associated with Risk Management Contracts**

| **Six                  Months Ended****June                  30, 2006** |   |     |   |        | **Twelve                  Months Ended****December                  31, 2005** |
|-------------------------------------------------------------------------|--------|----------|--------|-------------|--------------------------------------------------------------------------------|
| **(in                  thousands)**                                     |   |     |   |        | **(in                  thousands)**                                            |
| **End**                                                                 |   | **High** |   | **Average** |                                                                           | **Low** |   |   |   |   | **End** |   | **High** |   | **Average** |   | **Low** |
| $705                                                                    |   | $1,674   |   | $638        |                                                                           | $68 |   |   |   |   | $363 |   | $604 |   | $287 |   | $104 |

**VaR        Associated with Debt Outstanding**

----

**SOUTHWESTERN        ELECTRIC POWER COMPANY CONSOLIDATED**

**CONDENSED        CONSOLIDATED STATEMENTS OF INCOME**

**For        the Three and Six Months Ended June 30, 2006 and 2005**

**(in        thousands)**

**(Unaudited)**

|                                                                                                          |   | **Three                  Months Ended** |    | **Six                  Months Ended** |   |
|---------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|---------|---------------------------------------|--------|
|                                                                                                          |   | **2006**                                |    | **2005**                              |   | **2006** |   | **2005** |   |
| **REVENUES**                                                                                                  |   |                               |    |                             |   |   |   |   |   |
| Electric                  Generation, Transmission and Distribution                                           |   | $                                       | 349,650 |                                  | $      | 326,046 |   | $ | 643,643 |   | $ | 555,854 |   |
| Sales                  to AEP Affiliates                                                                      |   |                                    | 9,414   |                                  |   | 6,837 |   |   | 20,179 |   |   | 23,959 |   |
| Other                                                                                                         |   |                                    | 420     |                                  |   | (32 | ) |   | 794 |   |   | 249 |   |
| **TOTAL**                                                                                                     |   |                                    | 359,484 |                                  |   | 332,851 |   |   | 664,616 |   |   | 580,062 |   |
|                                                                                                          |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| **EXPENSES**                                                                                                  |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| Fuel                  and Other Consumables for Electric Generation                                           |   |                                    | 118,271 |                                  |   | 116,397 |   |   | 208,932 |   |   | 206,815 |   |
| Purchased                  Electricity for Resale                                                             |   |                                    | 44,884  |                                  |   | 32,803 |   |   | 74,102 |   |   | 46,183 |   |
| Purchased                  Electricity from AEP Affiliates                                                    |   |                                    | 16,826  |                                  |   | 22,003 |   |   | 40,163 |   |   | 27,867 |   |
| Other                  Operation                                                                              |   |                                    | 53,299  |                                  |   | 47,496 |   |   | 103,082 |   |   | 92,111 |   |
| Maintenance                                                                                                   |   |                                    | 22,231  |                                  |   | 27,645 |   |   | 46,888 |   |   | 43,360 |   |
| Depreciation                  and Amortization                                                                |   |                                    | 32,876  |                                  |   | 33,257 |   |   | 65,410 |   |   | 65,650 |   |
| Taxes                  Other Than Income Taxes                                                                |   |                                    | 16,165  |                                  |   | 15,887 |   |   | 32,147 |   |   | 31,550 |   |
| **TOTAL**                                                                                                     |   |                                    | 304,552 |                                  |   | 295,488 |   |   | 570,724 |   |   | 513,536 |   |
|                                                                                                          |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| **OPERATING                  INCOME**                                                                         |   |                                    | 54,932  |                                  |   | 37,363 |   |   | 93,892 |   |   | 66,526 |   |
|                                                                                                          |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| Other                  Income                                                                                 |   |                                    | 840     |                                  |   | 1,146 |   |   | 1,568 |   |   | 2,250 |   |
| Interest                  Expense                                                                             |   |                                    | (14,073 | )                                     |   | (12,901 | ) |   | (26,844 | ) |   | (25,681 | ) |
|                                                                                                          |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| **INCOME                  BEFORE INCOME TAXES AND MINORITY****                   INTEREST EXPENSE** |   |                                    | 41,699  |                                  |   | 25,608 |   |   | 68,616 |   |   | 43,095 |   |
|                                                                                                          |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| Income                  Tax Expense                                                                           |   |                                    | 12,491  |                                  |   | 5,490 |   |   | 21,314 |   |   | 9,886 |   |
| Minority                  Interest Expense                                                                    |   |                                    | 896     |                                  |   | 814 |   |   | 1,118 |   |   | 1,700 |   |
|                                                                                                          |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| **NET                  INCOME**                                                                               |   |                                    | 28,312  |                                  |   | 19,304 |   |   | 46,184 |   |   | 31,509 |   |
|                                                                                                          |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| Preferred                  Stock Dividend Requirements                                                        |   |                                    | 58      |                                  |   | 58 |   |   | 115 |   |   | 115 |   |
|                                                                                                          |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| **EARNINGS                  APPLICABLE TO COMMON STOCK**                                                      |   | $                                       | 28,254  |                                  | $      | 19,246 |   | $ | 46,069 |   | $ | 31,394 |   |

| *The                  common stock of SWEPCo is owned by a wholly-owned subsidiary of                  AEP.*          |
|-----------------------------------------------------------------------------------------------------------------------|
|                                                                                                                  |
| *See                  Condensed Notes to Condensed Financial Statements of Registrant                  Subsidiaries.* |

----

**SOUTHWESTERN        ELECTRIC POWER COMPANY CONSOLIDATED**

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

**EQUITY        AND COMPREHENSIVE INCOME (LOSS)**

**For        the Six Months Ended June 30, 2006 and 2005**

**(in        thousands)**

**(Unaudited)**

|                                                                                     |   | **Common                  Stock** |    | **Paid-in                  Capital** |   | **Retained                  Earnings** |   | **Accumulated                  Other Comprehensive Income (Loss)** |    | **Total** |   |
|------------------------------------------------------------------------------------------|--------|-----------------------------------|---------|--------------------------------------|--------|----------------------------------------|--------|--------------------------------------------------------------------|---------|-----------|--------|
| **DECEMBER                  31, 2004**                                                   |   | $                                 | 135,660 |                                 | $      | 245,003                                |   | $                                                                  | 389,135 |      | $      | (1,180 | ) | $ | 768,618 |   |
|                                                                                     |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| Common                  Stock Dividends                                                  |   |                              |    |                                 |   |                                   |   |                                                               | (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 |   |
|                                                                                     |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| **DECEMBER                  31, 2005**                                                   |   | $                                 | 135,660 |                                 | $      | 245,003                                |   | $                                                                  | 407,844 |      | $      | (6,129 | ) | $ | 782,378 |   |
|                                                                                     |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| Common                  Stock Dividends                                                  |   |                              |    |                                 |   |                                   |   |                                                               | (20,000 | )         |   |   |   |   | (20,000 | ) |
| Preferred                  Stock Dividends                                               |   |                              |    |                                 |   |                                   |   |                                                               | (115    | )         |   |   |   |   | (115 | ) |
| **TOTAL**                                                                                |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   | 762,263 |   |
|                                                                                     |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                  INCOME**                                                |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| **Other                  Comprehensive Income,** **Net                  of Taxes:** |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| Cash                  Flow Hedges, Net of Tax of $519                                    |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   | 964 |   |   | 964 |   |
| **NET                  INCOME**                                                          |   |                              |    |                                 |   |                                   |   |                                                               | 46,184  |      |   |   |   |   | 46,184 |   |
| **TOTAL                  COMPREHENSIVE INCOME**                                          |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   | 47,148 |   |
|                                                                                     |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| **JUNE                  30, 2006**                                                       |   | $                                 | 135,660 |                                 | $      | 245,003                                |   | $                                                                  | 433,913 |      | $      | (5,165 | ) | $ | 809,411 |   |

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

----

**SOUTHWESTERN        ELECTRIC POWER COMPANY CONSOLIDATED**

**CONDENSED        CONSOLIDATED BALANCE SHEETS**

**ASSETS**

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

**(in        thousands)**

**(Unaudited)**

|                                                             |   | **2006**     |      | **2005**     |   |
|------------------------------------------------------------------|--------|--------------|-----------|--------------|--------|
| **CURRENT                  ASSETS**                              |   |    |      |    |   |
| Cash                  and Cash Equivalents                       |   | $            | 2,108     |         | $      | 3,049 |   |
| Accounts                  Receivable:                            |   |         |      |         |   |   |   |
| Customers                                                        |   |         | 75,318    |         |   | 47,515 |   |
| Affiliated                  Companies                            |   |         | 35,105    |         |   | 49,226 |   |
| Miscellaneous                                                    |   |         | 9,596     |         |   | 7,984 |   |
| Allowance                  for Uncollectible Accounts            |   |         | (180      | )            |   | (548 | ) |
|                     Total Accounts Receivable          |   |         | 119,839   |         |   | 104,177 |   |
| Fuel                                                             |   |         | 59,540    |         |   | 40,333 |   |
| Materials                  and Supplies                          |   |         | 38,617    |         |   | 34,821 |   |
| Risk                  Management Assets                          |   |         | 83,938    |         |   | 47,319 |   |
| Regulatory                  Asset for Under-Recovered Fuel Costs |   |         | 11,595    |         |   | 51,387 |   |
| Margin                  Deposits                                 |   |         | 66,578    |         |   | 13,740 |   |
| Prepayments                  and Other                           |   |         | 17,369    |         |   | 20,270 |   |
| **TOTAL**                                                        |   |         | 399,584   |         |   | 315,096 |   |
|                                                             |   |         |      |         |   |   |   |
| **PROPERTY,                  PLANT AND EQUIPMENT**               |   |         |      |         |   |   |   |
| Electric:                                                        |   |         |      |         |   |   |   |
| Production                                                       |   |         | 1,677,767 |         |   | 1,660,392 |   |
| Transmission                                                     |   |         | 659,965   |         |   | 645,297 |   |
| Distribution                                                     |   |         | 1,185,955 |         |   | 1,153,026 |   |
| Other                                                            |   |         | 450,255   |         |   | 443,749 |   |
| Construction                  Work in Progress                   |   |         | 121,433   |         |   | 104,175 |   |
| **Total**                                                        |   |         | 4,095,375 |         |   | 4,006,639 |   |
| Accumulated                  Depreciation and Amortization       |   |         | 1,801,261 |         |   | 1,776,216 |   |
| **TOTAL                  - NET**                                 |   |         | 2,294,114 |         |   | 2,230,423 |   |
|                                                             |   |         |      |         |   |   |   |
| **OTHER                  NONCURRENT ASSETS**                     |   |         |      |         |   |   |   |
| Regulatory                  Assets                               |   |         | 105,906   |         |   | 81,776 |   |
| Long-term                  Risk Management Assets                |   |         | 46,983    |         |   | 39,796 |   |
| Employee                  Benefits and Pension Assets            |   |         | 80,967    |         |   | 83,330 |   |
| Deferred                  Charges and Other                      |   |         | 64,634    |         |   | 46,926 |   |
| **TOTAL**                                                        |   |         | 298,490   |         |   | 251,828 |   |
|                                                             |   |         |      |         |   |   |   |
| **TOTAL                  ASSETS**                                |   | $            | 2,992,188 |         | $      | 2,797,347 |   |

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

----

**SOUTHWESTERN        ELECTRIC POWER COMPANY CONSOLIDATED**

**CONDENSED        CONSOLIDATED BALANCE SHEETS**

**LIABILITIES        AND SHAREHOLDERS’ EQUITY**

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

**(Unaudited)**

|                                                                            |   |  **2006**                      |      | **2005** |   |
|---------------------------------------------------------------------------------|--------|-------------------------------------|-----------|----------|--------|
| **CURRENT                  LIABILITIES**                                        |   | **(in                  thousands)** |      |
| Advances                  from Affiliates                                       |   | $                                   | 93,083    |     | $      | 28,210 |   |
| Accounts                  Payable:                                              |   |                                |      |     |   |   |   |
| General                                                                         |   |                                | 100,275   |     |   | 71,138 |   |
| Affiliated                  Companies                                           |   |                                | 82,145    |     |   | 53,019 |   |
| Short-term                  Debt - Nonaffiliated                                |   |                                | 10,249    |     |   | 1,394 |   |
| Long-term                  Debt Due Within One Year - Nonaffiliated             |   |                                | 19,470    |     |   | 15,755 |   |
| Risk                  Management Liabilities                                    |   |                                | 64,767    |     |   | 45,098 |   |
| Customer                  Deposits                                              |   |                                | 54,611    |     |   | 50,848 |   |
| Accrued                  Taxes                                                  |   |                                | 61,952    |     |   | 42,799 |   |
| Other                                                                           |   |                                | 60,368    |     |   | 82,699 |   |
| **TOTAL**                                                                       |   |                                | 546,920   |     |   | 390,960 |   |
|                                                                            |   |                                |      |     |   |   |   |
| **NONCURRENT                  LIABILITIES**                                     |   |                                |      |     |   |   |   |
| Long-term                  Debt - Nonaffiliated                                 |   |                                | 670,457   |     |   | 678,886 |   |
| Long-term                  Debt - Affiliated                                    |   |                                | 50,000    |     |   | 50,000 |   |
| Long-term                  Risk Management Liabilities                          |   |                                | 35,664    |     |   | 27,083 |   |
| Deferred                  Income Taxes                                          |   |                                | 389,969   |     |   | 409,513 |   |
| Regulatory                  Liabilities and Deferred Investment Tax Credits     |   |                                | 355,092   |     |   | 320,066 |   |
| Deferred                  Credits and Other                                     |   |                                | 128,790   |     |   | 131,477 |   |
| **TOTAL**                                                                       |   |                                | 1,629,972 |     |   | 1,617,025 |   |
|                                                                            |   |                                |      |     |   |   |   |
| **TOTAL                  LIABILITIES**                                          |   |                                | 2,176,892 |     |   | 2,007,985 |   |
|                                                                            |   |                                |      |     |   |   |   |
| Minority                  Interest                                              |   |                                | 1,185     |     |   | 2,284 |   |
|                                                                            |   |                                |      |     |   |   |   |
| Cumulative                  Preferred Stock Not Subject to Mandatory Redemption |   |                                | 4,700     |     |   | 4,700 |   |
|                                                                            |   |                                |      |     |   |   |   |
| Commitments                  and Contingencies (Note 5)                         |   |                                |      |     |   |   |   |
|                                                                            |   |                                |      |     |   |   |   |
| **COMMON                  SHAREHOLDER’S EQUITY**                          |   |                                |      |     |   |   |   |
| Common                  Stock - $18 Par Value Per Share:                        |   |                                |      |     |   |   |   |
| Authorized                  - 7,600,000 Shares                                  |   |                                |      |     |   |   |   |
| Outstanding                  - 7,536,640 Shares                                 |   |                                | 135,660   |     |   | 135,660 |   |
| Paid-in                  Capital                                                |   |                                | 245,003   |     |   | 245,003 |   |
| Retained                  Earnings                                              |   |                                | 433,913   |     |   | 407,844 |   |
| Accumulated                  Other Comprehensive Income (Loss)                  |   |                                | (5,165    | )        |   | (6,129 | ) |
| **TOTAL**                                                                       |   |                                | 809,411   |     |   | 782,378 |   |
|                                                                            |   |                                |      |     |   |   |   |
| **TOTAL                  LIABILITIES AND SHAREHOLDERS’ EQUITY**           |   | $                                   | 2,992,188 |     | $      | 2,797,347 |   |

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

----

**SOUTHWESTERN        ELECTRIC POWER COMPANY CONSOLIDATED**

**CONDENSED        CONSOLIDATED STATEMENTS OF CASH FLOWS**

**For        the Six Months Ended June 30, 2006 and 2005**

**(in        thousands)**

**(Unaudited)**

|                                                                                                                  |   | **2006**     |     | **2005**     |   |
|-----------------------------------------------------------------------------------------------------------------------|--------|--------------|----------|--------------|--------|
| **OPERATING                  ACTIVITIES**                                                                             |   |    |     |    |   |
| **Net                  Income**                                                                                       |   | $            | 46,184   |         | $      | 31,509 |   |
| **Adjustments                  for Noncash Items:**                                                                   |   |         |     |         |   |   |   |
| Depreciation                  and Amortization                                                                        |   |         | 65,410   |         |   | 65,650 |   |
| Deferred                  Income Taxes                                                                                |   |         | (15,511  | )            |   | 176 |   |
| Mark-to-Market                  of Risk Management Contracts                                                          |   |         | (14,213  | )            |   | 13,031 |   |
| Deferred                  Property Taxes                                                                              |   |         | (18,593  | )            |   | (19,047 | ) |
| Change                  in Other Noncurrent Assets                                                                    |   |         | 16,704   |         |   | 3,269 |   |
| Change                  in Other Noncurrent Liabilities                                                               |   |         | (16,419  | )            |   | (20,799 | ) |
| **Changes                  in Components of Working Capital:**                                                        |   |         |     |         |   |   |   |
| Accounts                  Receivable, Net                                                                             |   |         | (15,662  | )            |   | 13,224 |   |
| Fuel,                  Materials and Supplies                                                                         |   |         | (23,003  | )            |   | 1,562 |   |
| Accounts                  Payable                                                                                     |   |         | 60,158   |         |   | 27,729 |   |
| Accrued                  Taxes, Net                                                                                   |   |         | 19,153   |         |   | 959 |   |
|    Over/Under Fuel                Recovery, Net                                                             |   |         | 37,377   |         |   | (24,890 | ) |
| Margin                  Deposits                                                                                      |   |         | (52,838  | )            |   | 2,078 |   |
| Other                  Current Assets                                                                                 |   |         | 3,560    |         |   | 3,670 |   |
| Other                  Current Liabilities                                                                            |   |         | (16,153  | )            |   | 1,164 |   |
| **Net                  Cash Flows From Operating Activities**                                                         |   |         | 76,154   |         |   | 99,285 |   |
|                                                                                                                  |   |         |     |         |   |   |   |
| **INVESTING                  ACTIVITIES**                                                                             |   |         |     |         |   |   |   |
| Construction                  Expenditures                                                                            |   |         | (122,616 | )            |   | (72,490 | ) |
| Change                  in Advances to Affiliates, Net                                                                |   |         | -        |         |   | (148,971 | ) |
| Other                                                                                                                 |   |         | (659     | )            |   | 4,993 |   |
| **Net                  Cash Flows Used For Investing Activities**                                                     |   |         | (123,275 | )            |   | (216,468 | ) |
|                                                                                                                  |   |         |     |         |   |   |   |
| **FINANCING                  ACTIVITIES**                                                                             |   |         |     |         |   |   |   |
| Issuance                  of Long-term Debt - Nonaffiliated                                                           |   |         | 80,593   |         |   | 148,895 |   |
| Change                  in Short-term Debt, Net - Nonaffiliated                                                       |   |         | 8,855    |         |   | - |   |
| Retirement                  of Long-term Debt - Nonaffiliated                                                         |   |         | (86,594  | )            |   | (4,915 | ) |
| Change                  in Advances from Affiliates, Net                                                              |   |         | 64,873   |         |   | - |   |
| Principal                  Payments for Capital Lease Obligations                                                     |   |         | (1,432   | )            |   | (806 | ) |
| Dividends                  Paid on Common Stock                                                                       |   |         | (20,000  | )            |   | (25,000 | ) |
| Dividends                  Paid on Cumulative Preferred Stock                                                         |   |         | (115     | )            |   | (115 | ) |
| **Net                  Cash Flows From Financing Activities**                                                         |   |         | 46,180   |         |   | 118,059 |   |
|                                                                                                                  |   |         |     |         |   |   |   |
| **Net                  Increase (Decrease) in Cash and Cash Equivalents**                                             |   |         | (941     | )            |   | 876 |   |
| **Cash                  and Cash Equivalents at Beginning of Period**                                                 |   |         | 3,049    |         |   | 3,715 |   |
| **Cash                  and Cash Equivalents at End of Period**                                                       |   | $            | 2,108    |         | $      | 4,591 |   |
|                                                                                                                  |   |         |     |         |   |   |   |
| **SUPPLEMENTARY                  INFORMATION**                                                                        |   |         |     |         |   |   |   |
| Cash                  Paid for Interest, Net of Capitalized Amounts                                                   |   | $            | 24,840   |         | $      | 22,279 |   |
| Cash                  Paid for Income Taxes, Net of Refunds                                                           |   |         | 42,788   |         |   | 35,969 |   |
| Noncash                  Acquisitions Under Capital Leases                                                            |   |         | 5,537    |         |   | 2,035 |   |
| Construction                  Expenditures Included in Accounts Payable at June 30,                                   |   |         | 8,326    |         |   | 2,759 |   |
|                                                                                                                  |   |         |     |         |   |   |   |
| *See                  Condensed Notes to Condensed Financial Statements of Registrant                  Subsidiaries.* |

----

**SOUTHWESTERN        ELECTRIC POWER COMPANY CONSOLIDATED**

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

|                                                        | **Footnote                  Reference** |
|-------------------------------------------------------------|-----------------------------------------|
| Significant                  Accounting Matters             | Note                  1                 |
| New                  Accounting Pronouncements              | Note                  2                 |
| Rate                  Matters                               | Note                  3                 |
| Customer                  Choice and Industry Restructuring | Note                  4                 |
| Commitments                  and Contingencies              | Note                  5                 |
| Guarantees                                                  | Note                  6                 |
| Company-wide                  Staffing and Budget Review    | Note                  7                 |
| Benefit                  Plans                              | Note                  9                 |
| Income                  Taxes                               | Note                  10                |
| Business                  Segments                          | Note                  11                |
| Financing                  Activities                       | Note                  12                |

----

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

| The                condensed notes to condensed financial statements that follow are                a                combined presentation for the Registrant Subsidiaries. The following                list                indicates the registrants to which the footnotes apply: |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                 |   |   |
| 1.                                                                                                                                                                                                                                                                                   | Significant                Accounting Matters | AEGCo,                APCo, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, TCC, TNC |
| 2.                                                                                                                                                                                                                                                                                   | New                Accounting Pronouncements | AEGCo,                APCo, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, TCC, TNC |
| 3.                                                                                                                                                                                                                                                                                   | Rate                Matters | APCo,                CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, TCC, TNC |
| 4.                                                                                                                                                                                                                                                                                   | Customer                Choice and Industry                Restructuring | CSPCo,                OPCo, SWEPCo, TCC, TNC |
| 5.                                                                                                                                                                                                                                                                                   | Commitments                and Contingencies | AEGCo,                APCo, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, TCC, TNC |
| 6.                                                                                                                                                                                                                                                                                   | Guarantees | AEGCo,                APCo, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, TCC, TNC |
| 7.                                                                                                                                                                                                                                                                                   | Company-wide                Staffing and Budget Review | AEGCo,                APCo, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, TCC, TNC |
| 8.                                                                                                                                                                                                                                                                                   | Assets                Held for Sale | TCC |
| 9.                                                                                                                                                                                                                                                                                   | Benefit                Plans | APCo,                CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, TCC, TNC |
| 10.                                                                                                                                                                                                                                                                                  | Income                Taxes | PSO,                SWEPCo, TCC, TNC |
| 11.                                                                                                                                                                                                                                                                                  | Business                Segments | AEGCo,                APCo, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, TCC, TNC |
| 12.                                                                                                                                                                                                                                                                                  | Financing                Activities | AEGCo,                APCo, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, TCC,                TNC |

----

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

***General***

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

| **            ** |   |                                    | **June                30,**  |   |   | **December                31,** |   |
|------------------------------------------------------------------------------|--------|-----------------------------------------|-----------------------------------|--------|--------|---------------------------------|--------|
|                                                                         |   |                                    | **2006**                          |   |   | **2005**                        |   |
|                                                                         |   | **(in                thousands)**  |
| **Components**                                                               |   |                                    |                              |   |   |                            |   |
| **Cash                Flow Hedges:**                                         |   |                                    |                              |   |   |                            |   |
| APCo                                                                         |   | $                                       | 1,577                             |   | $      | (16,421                         | )      |
| CSPCo                                                                        |   |                                    | 6,002                             |   |   | (859                            | )      |
| I&M                                                                      |   |                                    | 5,234                             |   |   | (3,467                          | )      |
| KPCo                                                                         |   |                                    | 2,550                             |   |   | (194                            | )      |
| OPCo                                                                         |   |                                    | 11,355                            |   |   | 755                             |   |
| PSO                                                                          |   |                                    | (416                              | )      |   | (1,112                          | )      |
| SWEPCo                                                                       |   |                                    | (4,888                            | )      |   | (5,852                          | )      |
| TCC                                                                          |   |                                    | -                                 |   |   | (224                            | )      |
| TNC                                                                          |   |                                    | 2,429                             |   |   | (111                            | )      |
|                                                                         |   |                                    |                              |   |   |                            |   |
| **Minimum                Pension Liability:**                                |   |                                    |                              |   |   |                            |   |
| APCo                                                                         |   | $                                       | (189                              | )      | $      | (189                            | )      |
| CSPCo                                                                        |   |                                    | (21                               | )      |   | (21                             | )      |
| I&M                                                                      |   |                                    | (102                              | )      |   | (102                            | )      |
| KPCo                                                                         |   |                                    | (29                               | )      |   | (29                             | )      |
| PSO                                                                          |   |                                    | (152                              | )      |   | (152                            | )      |
| SWEPCo                                                                       |   |                                    | (277                              | )      |   | (277                            | )      |
| TCC                                                                          |   |                                    | (928                              | )      |   | (928                            | )      |
| TNC                                                                          |   |                                    | (393                              | )      |   | (393                            | )      |

***Related      Party Transactions***

|        |   | **Three                Months Ended****June                30,** |   | **Six                Months Ended****June                30,** |   |
|-------------|--------|------------------------------------------------------------------|--------|----------------------------------------------------------------|--------|
| **Company** |   | **2006**                                                         |   | **2005**                                                       |   | **2006** |   | **2005** |   |
|        |   | **(in                thousands)**                                |   |
| APCo        |   | $                                                                | 20,680 |                                                           | $      | 18,311 |   | $ | 42,654 |   | $ | 35,263 |   |
| CSPCo       |   |                                                             | 5,899  |                                                           |   | 5,054 |   |   | 11,564 |   |   | 9,648 |   |
| I&M     |   |                                                             | 10,512 |                                                           |   | 8,671 |   |   | 19,064 |   |   | 14,784 |   |
| OPCo        |   |                                                             | 20,693 |                                                           |   | 16,091 |   |   | 39,323 |   |   | 31,054 |   |

|        |   | **Three                Months Ended****June                30,** |   | **Six                Months Ended****June                30,** |   |
|-------------|--------|------------------------------------------------------------------|--------|----------------------------------------------------------------|--------|
| **Company** |   | **2006**                                                         |   | **2005**                                                       |   | **2006** |   | **2005** |   |
|        |   | **(in                thousands)**                                |   |
| PSO         |   | $                                                                | 14,443 |                                                           | $      | 10,152 |   | $ | 26,136 |   | $ | 23,449 |   |
| SWEPCo      |   |                                                             | 13,208 |                                                           |   | 12,164 |   |   | 30,755 |   |   | 19,658 |   |
| TCC         |   |                                                             | 121    |                                                           |   | 1,285 |   |   | 703 |   |   | 3,357 |   |
| TNC         |   |                                                             | 398    |                                                           |   | 8,025 |   |   | 4,229 |   |   | 13,677 |   |

***Reclassifications***

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

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

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

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

***Future      Accounting Changes***

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

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

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

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

| · | A                $50 million increase in Expanded Net Energy Cost (ENEC) for fuel                and                purchased power expenses;                                                                                                                                                                                                         |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | A                $21 million special construction surcharge providing recovery of                the costs                of scrubbers and the Wyoming-Jacksons Ferry 765 kV line to                date;                                                                                                                                             |
| · | A                $16 million general base rate reduction based on a return of equity                of                10.5%, of which $9 million relates to a reduction in depreciation                expense                which affects cash flows but not earnings; and                                                                          |
| · | A                $15 million credit to refund a portion of deferred prior over-recoveries                of ENEC costs, currently recorded in regulatory liabilities on the                Condensed Consolidated Balance Sheets. Therefore, this item impacts                cash                flows but has no effect on                earnings. |

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

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

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

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

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

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

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

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

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

|    |   | **June                30, 2006**                |   | **December                31, 2005**                           |   |
|---------|--------|-------------------------------------------------|--------|----------------------------------------------------------------|--------|
|    |   | **PJM-Billed                Integration Costs** |   | **Non-PJM                Billed Formation/ Integration Costs** |   | **PJM-Billed                Integration Costs** |   | **Non-PJM                Billed Formation/ Integration Costs** |   |
|    |   |  **(in                millions)**          |   |
| APCo    |   | $                                               | 3.8    |                                                           | $      | 4.9 |   | $ | 4.1 |   | $ | 4.9 |   |
| CSPCo   |   |                                            | 1.5    |                                                           |   | 1.9 |   |   | 1.7 |   |   | 1.9 |   |
| I&M |   |                                            | 3.0    |                                                           |   | 3.5 |   |   | 3.2 |   |   | 3.7 |   |
| KPCo    |   |                                            | 0.9    |                                                           |   | 1.1 |   |   | 1.0 |   |   | 1.1 |   |
| OPCo    |   |                                            | 4.4    |                                                           |   | 5.1 |   |   | 4.7 |   |   | 5.1 |   |

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

*SECA      Revenue Subject to Refund *

|         |   | **Three                Months Ended** |                        | **Six                Months Ended** |   | **Total                Net SECA Revenues** |
|---------|--------|---------------------------------------|-----------------------------|-------------------------------------|--------|--------------------------------------------|
|    |   | **June                30,**           | **June                30,** | **Through**                         |
|    |   | **2006**                              |                        | **2005**                            |   | **2006**                                   |   | **2005** |   | **June                2006** |
|    |   | **(in                millions)**      |
| APCo    |   | $                                     | -                           |                                | $      | 10.4                                       |   | $ | 11.0 |   | $ | 19.0 |   | $ | 55.5 |
| CSPCo   |   |                                  | -                           |                                |   | 5.3                                        |   |   | 6.5 |   |   | 9.6 |   |   | 30.8 |
| I&M |   |                                  | -                           |                                |   | 5.9                                        |   |   | 6.7 |   |   | 10.8 |   |   | 32.7 |
| KPCo    |   |                                  | -                           |                                |   | 2.5                                        |   |   | 2.7 |   |   | 4.5 |   |   | 13.2 |
| OPCo    |   |                                  | -                           |                                |   | 7.4                                        |   |   | 8.6 |   |   | 13.5 |   |   | 42.2 |

|    |   | **Three                  Months Ended** |   | **Six                  Months Ended** |   |
|---------|--------|-----------------------------------------|--------|---------------------------------------|--------|
|    |   | **June                  30,**           |   | **June                  30,**         |   |
|    |   | **2006**                                |   | **2005**                              |   | **2006** |   | **2005** |   |
| APCo    |   | $                                       | 5.7    |                                  | $      | 0.4 |   | $ | 6.1 |   | $ | 0.4 |   |
| CSPCo   |   |                                    | 3.2    |                                  |   | 0.2 |   |   | 3.4 |   |   | 0.2 |   |
| I&M |   |                                    | 3.4    |                                  |   | 0.2 |   |   | 3.6 |   |   | 0.2 |   |
| KPCo    |   |                                    | 1.4    |                                  |   | 0.1 |   |   | 1.4 |   |   | 0.1 |   |
| OPCo    |   |                                    | 4.3    |                                  |   | 0.3 |   |   | 4.6 |   |   | 0.3 |   |

*AEP      East Transmission Revenue Requirement and Rates*

*The      Elimination of T&O and SECA Rates and the FERC PJM Regional Transmission      Rate Proceeding *

| · | AEP/AP                proposed a Highway/Byway rate design in which:                                                                                                                                                                                                        |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | The                cost of all transmission facilities in the PJM region operated at                345 kV                or higher would be included in a “Highway” rate that all load serving                entities (LSEs) would pay based on peak demand.  |
| · | The                cost of transmission facilities operating at lower voltages would                be                collected in the zones where those costs are presently charged under                PJM’s                existing rate design.                  |
| · | In                a competing Highway/Byway proposal, a group of LSEs proposed rates                that                would include 500 kV and higher existing facilities and some facilities                at                lower voltages in the Highway rate.        |
| · | Another                proposal uses facilities 200 kV or higher in the Highway rate.                                                                                                                                                                                       |
| · | In                January 2006, the FERC staff issued testimony and exhibits supporting                a                PJM-wide flat rate or “Postage Stamp” type of rate design that would                include all transmission                facilities. |

| · | The                AEP/AP Highway/Byway rate design would result in incremental net                revenues                of approximately $125 million per year for the transmission-owning                AEP                East companies.                                                                             |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | The                competing Highway/Byway proposals filed by others would also produce                incremental net revenues to the AEP East transmission-owning companies,                but at a much lower level.                                                                                                    |
| · | The                staff rate design would produce slightly more net revenue for AEP                than the                original AEP/AP proposal, when fully effective; however, the staff                recommended a phase-in plan that would take an estimated six years                to                complete. |

| · | In                Kentucky, KPCo settled a rate case, which provided for the recovery                of its                share of the transmission revenue reduction starting March 30,                2006.                                                              |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | In                Ohio, CSPCo and OPCo are recovering the FERC approved OATT, which                reflects                their share of the full transmission revenue requirement retroactive                to                April 1, 2006 under a May 2006 PUCO order. |
| · | In                West Virginia, APCo settled a rate case, which provided for the recovery                of its share of the T&O/SECA transmission revenue reductions beginning                July 28, 2006.                                                          |
| · | In                Virginia, APCo filed a request for revised rates, which includes                recovery                of its share of the T&O/SECA transmission revenue reductions starting                October 2, 2006, subject to refund.                      |
| · | In                Indiana, I&M is precluded by a rate cap from raising its rates until                July 1, 2007.                                                                                                                                                     |

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

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

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

***TCC      Securitization Proceeding***

|                                                                                    |   |   | (**in                millions)**** ** |   |
|------------------------------------------------------------------------------------|--------|--------|--------------------------------------------|--------|
| Stranded                Generation Plant Costs                                     |   | $      | 974                                        |   |
| Net                Generation-related Regulatory Asset                             |   |   | 249                                        |   |
| Excess                Earnings                                                     |   |   | (49                                        | )      |
| **Recorded                Net Stranded Generation Plant Costs**                    |   |   | 1,174                                      |   |
| Recorded                Debt Carrying Costs on Net Stranded Generation Plant Costs |   |   | 375                                        |   |
| **Recorded                Securitizable True-up Regulatory Asset**                 |   |   | 1,549                                      |   |
| Unrecorded                But Recoverable Equity Carrying Costs                    |   |   | 217                                        |   |
| Unrecorded                Estimated July 2006 - August 2006 Debt Carrying Costs    |   |   | 17                                         |   |
| Unrecorded                Excess Earnings, Related Carrying Costs and Other        |   |   | 52                                         |   |
| Settlement                Reduction                                                |   |   | (77                                        | )      |
| Reduction                for the ADITC and EDFIT Benefits                          |   |   | (61                                        | )      |
| **Approved                Securitizable Amount**                                   |   |   | 1,697                                      |   |
| Unrecorded                Securitization Bond Issuance Costs                       |   |   | 23                                         |   |
| **Amount                to be Securitized**                                        |   | $      | 1,720                                      |   |

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

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

|                                                                         |   |   | **(in                millions)**  |   |
|------------------------------------------------------------------------------|--------|--------|----------------------------------------|--------|
| Wholesale                Capacity Auction True-up                            |   | $      | 61                                     |   |
| Carrying                Costs on Wholesale Capacity Auction True-up          |   |   | 28                                     |   |
| Retail                Clawback including Carrying Costs                      |   |   | (63                                    | )      |
| Deferred                Over-recovered Fuel Balance                          |   |   | (181                                   | )      |
| Retrospective                ADFIT Benefit                                   |   |   | (70                                    | )      |
| Other                                                                        |   |   | (4                                     | )      |
| **Recorded                Net Regulatory Liabilities - Other True-up Items** |   |   | (229                                   | )      |
| Unrecorded                Prospective ADFIT Benefit                          |   |   | (240                                   | )      |
| Unrecorded                Estimated July 2006 - August 2006 Carrying Costs   |   |   | (6                                     | )      |
| **Gross                CTC Refund Proposed**                                 |   |   | (475                                   | )      |
| FERC                Jurisdictional Fuel Refund Deferral                      |   |   | 16                                     |   |
| ADITC                and EDFIT Benefit Refund Deferral                       |   |   | 97                                     |   |
| **Net                CTC Refund Proposed, After Deferrals**                  |   |   | (362                                   | )      |
| Rate                Case Expense Surcharge                                   |   |   | 7                                      |   |
| **Net                Refund Proposed, After Deferrals and Expenses**         |   | $      | (355                                   | )      |

***Fuel      Balance Recoveries***

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

***Summary***

***Texas      Restructuring - SPP***

**OHIO      RESTRUCTURING - Affecting CSPCo and OPCo**

***Rate      Stabilization Plans***

***IGCC      Plant***

***Transmission      Rate Filing***

** **

***Storm      Cost Recovery Filing***

***PUCO      Staff Report on Service Reliability***

***Customer      Choice Deferrals***

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

**ENVIRONMENTAL**

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

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

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

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

**OPERATIONAL**

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

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

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

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

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

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

**              6.**
**GUARANTEES**

***Letters      of Credit***

***SWEPCo***

***Indemnifications      and Other Guarantees***

**Contracts**

**Master      Operating Lease**

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

**           7.**
**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                                         |   |

**           8.**
**ASSETS      HELD FOR SALE**

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

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

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

| **Three                Months Ended June 30, 2006 and 2005:** |   | **Pension                Plans**       | **Other                Postretirement Benefit Plans** |
|---------------------------------------------------------------|--------|----------------------------------------|-------------------------------------------------------|
|                                                          |   |                                   | **2006**                                              |   |   | **2005** |   |   | **2006** |   |   | **2005** |   |
|                                                          |   | **(in                millions)**  |
| Service                Cost                                   |   | $                                      | 24                                                    |   | $ | 23 |   | $ | 10 |   | $ | 10 |   |
| Interest                Cost                                  |   |                                   | 57                                                    |   |   | 56 |   |   | 25 |   |   | 26 |   |
| Expected                Return on Plan Assets                 |   |                                   | (83                                                   | ) |   | (78 | ) |   | (23 | ) |   | (22 | ) |
| Amortization                of Transition Obligation          |   |                                   | -                                                     |   |   | - |   |   | 7 |   |   | 7 |   |
| Amortization                of Net Actuarial Loss             |   |                                   | 19                                                    |   |   | 14 |   |   | 5 |   |   | 7 |   |
| **Net                Periodic Benefit Cost**                  |   | $                                      | 17                                                    |   | $ | 15 |   | $ | 24 |   | $ | 28 |   |

| **Six                Months Ended June 30, 2006 and 2005:** |   | **Pension                Plans**       | **Other                Postretirement Benefit Plans** |
|-------------------------------------------------------------|--------|----------------------------------------|-------------------------------------------------------|
|                                                        |   |                                   | **2006**                                              |   |   | **2005** |   |   | **2006** |   |   | **2005** |   |
|                                                        |   | **(in                millions)**  |
| Service                Cost                                 |   | $                                      | 48                                                    |   | $ | 46 |   | $ | 20 |   | $ | 21 |   |
| Interest                Cost                                |   |                                   | 114                                                   |   |   | 112 |   |   | 50 |   |   | 53 |   |
| Expected                Return on Plan Assets               |   |                                   | (166                                                  | ) |   | (155 | ) |   | (46 | ) |   | (45 | ) |
| Amortization                of Transition Obligation        |   |                                   | -                                                     |   |   | - |   |   | 14 |   |   | 14 |   |
| Amortization                of Net Actuarial Loss           |   |                                   | 39                                                    |   |   | 27 |   |   | 10 |   |   | 14 |   |
| **Net                Periodic Benefit Cost**                |   | $                                      | 35                                                    |   | $ | 30 |   | $ | 48 |   | $ | 57 |   |

| **Three                Months Ended June 30, 2006 and 2005:** |   | **Pension                Plans**        | **Other                Postretirement Benefit Plans** |
|---------------------------------------------------------------|--------|-----------------------------------------|-------------------------------------------------------|
|                                                          |   |                                    | **2006**                                              |   |   | **2005** |   |   | **2006** |   |   | **2005** |   |
|                                                          |   | **(in                thousands) ** |
| APCo                                                          |   | $                                       | 1,469                                                 |   | $ | 1,848 |   | $ | 4,489 |   | $ | 5,147 |   |
| CSPCo                                                         |   |                                    | 205                                                   |   |   | 534 |   |   | 1,805 |   |   | 2,123 |   |
| I&M                                                       |   |                                    | 2,330                                                 |   |   | 2,365 |   |   | 2,953 |   |   | 3,464 |   |
| KPCo                                                          |   |                                    | 358                                                   |   |   | 376 |   |   | 513 |   |   | 571 |   |
| OPCo                                                          |   |                                    | 829                                                   |   |   | 1,206 |   |   | 3,396 |   |   | 3,632 |   |
| PSO                                                           |   |                                    | 979                                                   |   |   | 72 |   |   | 1,588 |   |   | 1,799 |   |
| SWEPCo                                                        |   |                                    | 1,225                                                 |   |   | 364 |   |   | 1,578 |   |   | 1,765 |   |
| TCC                                                           |   |                                    | 772                                                   |   |   | (219 | ) |   | 1,696 |   |   | 1,935 |   |
| TNC                                                           |   |                                    | 327                                                   |   |   | 41 |   |   | 715 |   |   | 846 |   |

| **Six                Months Ended June 30, 2006 and 2005:** |   | **Pension                Plans**        | **Other                Postretirement Benefit Plans** |
|-------------------------------------------------------------|--------|-----------------------------------------|-------------------------------------------------------|
|                                                        |   |                                    | **2006**                                              |   |   | **2005** |   |   | **2006** |   |   | **2005** |   |
|                                                        |   | **(in                thousands) ** |
| APCo                                                        |   | $                                       | 2,937                                                 |   | $ | 3,696 |   | $ | 8,978 |   | $ | 10,492 |   |
| CSPCo                                                       |   |                                    | 410                                                   |   |   | 1,068 |   |   | 3,610 |   |   | 4,345 |   |
| I&M                                                     |   |                                    | 4,661                                                 |   |   | 4,730 |   |   | 5,906 |   |   | 7,095 |   |
| KPCo                                                        |   |                                    | 716                                                   |   |   | 752 |   |   | 1,026 |   |   | 1,174 |   |
| OPCo                                                        |   |                                    | 1,655                                                 |   |   | 2,412 |   |   | 6,792 |   |   | 7,459 |   |
| PSO                                                         |   |                                    | 1,956                                                 |   |   | 144 |   |   | 3,176 |   |   | 3,668 |   |
| SWEPCo                                                      |   |                                    | 2,450                                                 |   |   | 728 |   |   | 3,156 |   |   | 3,602 |   |
| TCC                                                         |   |                                    | 1,545                                                 |   |   | (438 | ) |   | 3,392 |   |   | 3,943 |   |
| TNC                                                         |   |                                    | 652                                                   |   |   | 82 |   |   | 1,430 |   |   | 1,723 |   |

**              10.**
**INCOME      TAXES (Affecting PSO, SWEPCo, TCC and TNC)**

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

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

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

***Long-term      Debt***

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

| **Company**                                                  |   | **Type                of Debt**        |   | **Principal                Amount** |    | **Interest                Rate** |     | **Due                Date** |
|--------------------------------------------------------------|--------|----------------------------------------|--------|-------------------------------------|---------|----------------------------------|----------|-----------------------------|
|                                                         |   |                                   |   | **(in                thousands)**   |    | **(%)**                          |     |                        |
| **Retirements                and  Principal Payments:** |   |                                   |   |                                |    |                             |     |                        |   |
| APCo                                                         |   | First                Mortgage Bonds    |   | $                                   | 100,000 |                             | 6.80     |                        | 2006 |
| APCo                                                         |   | Other                                  |   |                                | 5       |                             | 13.718   |                        | 2026 |
| I&M                                                      |   | Pollution                Control Bonds |   |                                | 50,000  |                             | 6.55     |                        | 2025 |
| OPCo                                                         |   | Notes                Payable           |   |                                | 2,927   |                             | 6.81     |                        | 2008 |
| OPCo                                                         |   | Notes                Payable           |   |                                | 3,250   |                             | 6.27     |                        | 2009 |
| SWEPCo                                                       |   | Notes                Payable           |   |                                | 3,394   |                             | 4.47     |                        | 2011 |
| SWEPCo                                                       |   | Notes                Payable           |   |                                | 1,500   |                             | Variable |                        | 2008 |
| SWEPCo                                                       |   | Pollution                Control Bonds |   |                                | 81,700  |                             | 6.10     |                        | 2018 |
| TCC                                                          |   | Securitization                Bonds    |   |                                | 30,641  |                             | 5.01     |                        | 2010 |

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

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

**Six      Months Ended June 30, 2006:**

| **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,                2006** |   |   | **Authorized                Short-Term Borrowing Limit** |   |
|-------------|--------|-----------------------------------------|---------------------------------------------------------------|--------|--------|--------------------------------------------------------|--------|--------|---------------------------------------------------------------|--------|--------|--------------------------------------------------------|--------|--------|-----------------------------------------------------------------------------------------------------|--------|--------|----------------------------------------------------------|--------|
|        |   | **(in                thousands)**  |
| AEGCo       |   | $                                       | 58,209                                                        |   | $      | 2,247                                                  |   | $      | 19,213                                                        |   | $      | 2,247                                                  |   | $      | (36,989                                                                                             | )      | $      | 125,000                                                  |   |
| APCo        |   |                                    | 283,872                                                       |   |   | 314,064                                                |   |   | 200,248                                                       |   |   | 252,627                                                |   |   | 218,702                                                                                             |   |   | 600,000                                                  |   |
| CSPCo       |   |                                    | 48,337                                                        |   |   | 24,779                                                 |   |   | 15,133                                                        |   |   | 7,719                                                  |   |   | 12,616                                                                                              |   |   | 350,000                                                  |   |
| I&M     |   |                                    | 128,071                                                       |   |   | -                                                      |   |   | 71,724                                                        |   |   | -                                                      |   |   | (57,749                                                                                             | )      |   | 500,000                                                  |   |
| KPCo        |   |                                    | 46,156                                                        |   |   | 11,993                                                 |   |   | 20,478                                                        |   |   | 4,384                                                  |   |   | (36,991                                                                                             | )      |   | 200,000                                                  |   |
| OPCo        |   |                                    | 351,302                                                       |   |   | 36,787                                                 |   |   | 127,955                                                       |   |   | 15,886                                                 |   |   | 36,787                                                                                              |   |   | 600,000                                                  |   |
| PSO         |   |                                    | 167,456                                                       |   |   | -                                                      |   |   | 90,702                                                        |   |   | -                                                      |   |   | (139,831                                                                                            | )      |   | 300,000                                                  |   |
| SWEPCo      |   |                                    | 127,291                                                       |   |   | -                                                      |   |   | 59,388                                                        |   |   | -                                                      |   |   | (93,083                                                                                             | )      |   | 350,000                                                  |   |
| TCC         |   |                                    | 117,429                                                       |   |   | 49,193                                                 |   |   | 46,872                                                        |   |   | 27,343                                                 |   |   | (27,926                                                                                             | )      |   | 600,000                                                  |   |
| TNC         |   |                                    | 14,513                                                        |   |   | 34,574                                                 |   |   | 4,571                                                         |   |   | 8,680                                                  |   |   | (6,005                                                                                              | )      |   | 250,000                                                  |   |

| **Company** |   |                                     | **Average                Interest Rate for Funds Borrowed from the Utility Money Pool****for                Six Months****Ended****June                30, 2006** |   |   | **Average                Interest****Rate                for Funds****Borrowed                from the****Utility                Money Pool****for                Six Months****Ended****June                30,****2005** |   |   | **Average                Interest Rate for Funds Loaned to the Utility Money Pool for Six                Months                Ended June 30, 2006** |   |   | **Average                Interest Rate for Funds Loaned to the Utility Money Pool for Six                Months                Ended June 30, 2005** |   |
|-------------|--------|------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|        |   | **(in                percentage)**  |
| AEGCo       |   |                                     | 4.78                                                                                                                                                              |   |   | 2.40                                                                                                                                                                                                                       |   |   | 5.11                                                                                                                                                 |   |   | 3.14                                                                                                                                                 |   |
| APCo        |   |                                     | 4.62                                                                                                                                                              |   |   | 2.65                                                                                                                                                                                                                       |   |   | 5.05                                                                                                                                                 |   |   | 2.69                                                                                                                                                 |   |
| CSPCo       |   |                                     | 4.73                                                                                                                                                              |   |   | -                                                                                                                                                                                                                          |   |   | 4.91                                                                                                                                                 |   |   | 2.44                                                                                                                                                 |   |
| I&M     |   |                                     | 4.76                                                                                                                                                              |   |   | 2.96                                                                                                                                                                                                                       |   |   | -                                                                                                                                                    |   |   | 2.12                                                                                                                                                 |   |
| KPCo        |   |                                     | 4.98                                                                                                                                                              |   |   | 2.96                                                                                                                                                                                                                       |   |   | 4.97                                                                                                                                                 |   |   | 2.42                                                                                                                                                 |   |
| OPCo        |   |                                     | 4.86                                                                                                                                                              |   |   | 3.32                                                                                                                                                                                                                       |   |   | 5.30                                                                                                                                                 |   |   | 2.39                                                                                                                                                 |   |
| PSO         |   |                                     | 4.91                                                                                                                                                              |   |   | 2.50                                                                                                                                                                                                                       |   |   | -                                                                                                                                                    |   |   | 3.19                                                                                                                                                 |   |
| SWEPCo      |   |                                     | 4.92                                                                                                                                                              |   |   | 3.21                                                                                                                                                                                                                       |   |   | -                                                                                                                                                    |   |   | 2.54                                                                                                                                                 |   |
| TCC         |   |                                     | 4.64                                                                                                                                                              |   |   | 2.91                                                                                                                                                                                                                       |   |   | 4.74                                                                                                                                                 |   |   | 2.12                                                                                                                                                 |   |
| TNC         |   |                                     | 4.81                                                                                                                                                              |   |   | -                                                                                                                                                                                                                          |   |   | 4.62                                                                                                                                                 |   |   | 2.65                                                                                                                                                 |   |

----

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

**Construction      Expenditures**

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

**Environmental      Matters**

| · | Requirements                under the CAA to reduce emissions of SO2,                NOx,                particulate matter (PM), and mercury from fossil fuel-fired power                plants; |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Requirements                under the Clean Water Act (CWA) to reduce the impacts of water intake                structures on aquatic species at certain power plants;                and        |
| · | Possible                future requirements to reduce carbon dioxide (CO2)                emissions to address concerns about global climate                change.                               |

***Clean      Air Act Requirements***

***Estimated      Air Quality Environmental Investments***

***Potential      Regulation of CO***
***2***

***Emissions***

***Environmental      Litigation***

***Other      Environmental Concerns***

**Adoption      of New Accounting Pronouncements**

----

**CONTROLS      AND PROCEDURES**

----

**PART      II. OTHER INFORMATION**

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

*Commitments      and Contingencies, *

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

**General      Risks of Our Regulated Operations**

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

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

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

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

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

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

| · | In                Kentucky, KPCo settled a rate case, which provided for the recovery                of its                share of the transmission revenue shortfall starting March 30,                2006.                                         |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | In                Ohio, recovery of CSPCo’s and OPCo’s share of lost T&O/SECA                transmission revenues began retroactive to April 1, 2006 under a                May 2006                PUCO order.                       |
| · | In                West Virginia, APCo settled a rate case, which provided for the recovery                of its share of the T&O/SECA transmission revenue reductions beginning                July 28, 2006.                                     |
| · | In                Virginia, APCo filed a request for revised rates, which includes                recovery                of its share of the T&O/SECA transmission revenue reductions starting                October 2, 2006, subject to refund. |
| · | In                Indiana, I&M is precluded by a rate cap from requesting an increase to                its rates until July 1, 2007.                                                                                                              |

**Risks      Relating to State Restructuring**

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

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

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

| **Period**                         |   | **Total                Number****of                Shares****Purchased** |   | **Average                Price****Paid                per Share** |   | **Total                Number of Shares Purchased as Part of Publicly Announced Plans or                Programs** |   | **Maximum                Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased                Under the Plans or Programs** |   |
|------------------------------------|--------|--------------------------------------------------------------------------|--------|-------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| 04/01/06                - 04/30/06 |   |                                                                     | 87     | (a)                                                               | $      | 75.48                                                                                                              |   |                                                                                                                                           | -      |   | $ | - |   |
| 05/01/06                - 05/31/06 |   |                                                                     | 182    | (b)(c)                                                            |   | 79.12                                                                                                              |   |                                                                                                                                           | -      |   |   | - |   |
| 06/01/06                - 06/30/06 |   |                                                                     | 13     | (d)                                                               |   | 89.00                                                                                                              |   |                                                                                                                                           | -      |   |   | - |   |

| (a) | OPCo                repurchased 87 shares of its 4.50% cumulative preferred stock, in                privately-negotiated transactions outside of an announced                program.                   |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | APCo                repurchased 172 shares of its 4.50% cumulative preferred stock, in                privately-negotiated transactions outside of an announced                program.                  |
| (c) | TCC                repurchased 10 shares of its 4.00% cumulative preferred stock, in                a                privately-negotiated transaction outside of an announced                program.    |
| (d) | SWEPCo                repurchased 13 shares of its 5.00% 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 thirteen 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          |   |   | 326,978,463                                  |   |   | 16,644,553                              |   |
| Donald                M. Carlton     |   |   | 337,696,430                                  |   |   | 5,926,586                               |   |
| Ralph                D. Crosby, Jr.  |   |   | 338,248,329                                  |   |   | 5,374,687                               |   |
| John                P. DesBarres     |   |   | 338,149,560                                  |   |   | 5,473,456                               |   |
| Robert                W. Fri         |   |   | 334,047,720                                  |   |   | 9,575,296                               |   |
| Linda                A Goodspeed     |   |   | 336,739,164                                  |   |   | 6,883,852                               |   |
| William                R. Howell     |   |   | 337,392,774                                  |   |   | 6,230,242                               |   |
| Lester                A. Hudson, Jr. |   |   | 332,505,104                                  |   |   | 11,117,912                              |   |
| Michael                G. Morris     |   |   | 334,335,800                                  |   |   | 9,287,216                               |   |
| Lionel                L. Nowell, III |   |   | 336,703,400                                  |   |   | 6,919,616                               |   |
| Richard                L. Sandor     |   |   | 334,137,756                                  |   |   | 9,485,260                               |   |
| Donald                G. Smith       |   |   | 334,080,282                                  |   |   | 9,542,734                               |   |
| Kathryn                D. Sullivan   |   |   | 337,753,755                                  |   |   | 5,869,261                               |   |

| 2.   | Ratification                of the appointment of the firm of Deloitte & Touche LLP as the                independent registered public accounting firm for 2006. The proposal                was                approved by a vote of the shareholders as                follows: |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Votes                FOR       |   | 314,948,910 |   |
|--------------------------------|--------|-------------|--------|
| Votes                AGAINST   |   | 25,137,761  |   |
| Votes                ABSTAINED |   | 3,536,345   |   |

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

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

| Karl                G. Boyd       |   | Venita                McCellon-Allen   |   |
|-----------------------------------|--------|----------------------------------------|--------|
| Carl                L. English    |   | Susanne                M. Moorman Rowe |   |
| Allen                R. Glassburn |   | Michael                G. Morris       |   |
| JoAnn                M. Grevenow  |   | Robert                P. Powers        |   |
| Patrick                C. Hale    |   | Marsha                P. Ryan          |   |
| Holly                K. Koeppel   |   | Susan                Tomasky           |   |
| Marc                E. Lewis      |   |                                   |   |

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

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

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

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

*AEP,      APCo and OPCo*

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

*AEP*

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

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

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**SIGNATURE**

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