# UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

# FORM 10-Q

(Mark One)

|(X) | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
|--- | -------------------------------------------------------------------------------------------------------------------------------------

or

|(   ) | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from____________ to ____________
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------

|CommissionFile Number | Registrant, State of Incorporation,Address and Telephone Number                                                            | I.R.S. EmployerIdentification No.
|--------------------- | -------------------------------------------------------------------------------------------------------------------------- | ---------------------------------
|                      |                                                                                                                            |                                  
|1-11377               | CINERGY CORP.(A Delaware Corporation)139 East Fourth StreetCincinnati, Ohio 45202
(513) 421-9500                           | 31-1385023                       
|                      |                                                                                                                            |                                  
|1-1232                | THE CINCINNATI GAS & ELECTRIC COMPANY(An Ohio Corporation)139 East Fourth Street
Cincinnati, Ohio 45202(513) 421-9500      | 31-0240030                       
|                      |                                                                                                                            |                                  
|1-3543                | PSI ENERGY, INC.(An Indiana Corporation)1000 East Main StreetPlainfield, Indiana 46168
(513) 421-9500                      | 35-0594457                       
|                      |                                                                                                                            |                                  
|2-7793                | THE UNION LIGHT, HEAT AND POWER COMPANY(A Kentucky Corporation)139 East Fourth Street
Cincinnati, Ohio 45202(513) 421-9500 | 31-0473080                       

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

---

This combined Form 10-Q is separately filed by Cinergy Corp., The Cincinnati Gas & Electric Company, PSI Energy, Inc., and The Union
Light, Heat and 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.

The Union Light, Heat and Power Company meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is
therefore filing its company specific information with the reduced disclosure format specified in General Instruction H(2) of Form 10-Q.

As of April 30, 2001, shares of Common Stock outstanding for each registrant were as listed:

|Registrant                              | Description                                   | Shares     
|--------------------------------------- | --------------------------------------------- | -----------
|                                        |                                               |            
|Cinergy Corp.                           | Par value $.01 per share                      | 159,008,514
|                                        |                                               |            
|The Cincinnati Gas & Electric Company   | Par value $8.50 per share                     | 89,663,086 
|                                        |                                               |            
|PSI Energy, Inc.                        | Without par value, stated value$.01 per share | 53,913,701 
|                                        |                                               |            
|The Union Light, Heat and Power Company | Par value $15.00 per share                    | 585,333    

---

### TABLE OF CONTENTS

### ItemNumber

### PART 1 FINANCIAL INFORMATION

1          Financial Statements
                 Cinergy Corp.
                    Consolidated Statements of Income
                    Consolidated Balance Sheets
                    Consolidated Statements of Changes in Common Stock Equity
                    Consolidated Statements of Cash Flows

                 The Cincinnati Gas & Electric Company
                    Consolidated Statements of Income and Comprehensive Income
                    Consolidated Balance Sheets
                    Consolidated Statements of Cash Flows

                 PSI Energy, Inc.
                    Consolidated Statements of Income and Comprehensive Income
                    Consolidated Balance Sheets
                    Consolidated Statements of Cash Flows

                 The Union Light, Heat and Power Company
                    Statements of Income
                    Balance Sheets
                    Statements of Cash Flows

             Notes to Financial Statements

             Cautionary Statements Regarding Forward-Looking Information

  2         Managements Discussion and Analysis of Financial Condition and                Results of
Operations
                 Introduction
                 Organization
                 Liquidity
                 Capital Resources
                 First Quarter 2001 Results of Operations- Historical
                 Results of Operations- Future

  3         Quantitative and Qualitative Disclosures About Market Risk

### PART II OTHER INFORMATION

1         Legal Proceedings

  4         Submissions of Matters to a Vote of Security Holders

  6         Exhibits and Reports on Form 8-K

             Signatures

---

`CINERGY CORP.
                        CONSOLIDATED STATEMENTS OF INCOME

                                                                Quarter Ended
                                                                   March 31
                                                       2001                  2000
                                                         (dollars in thousands,
                                                        except per share amounts)
                                                   (unaudited)
Operating Revenues
   Electric                                        $1,874,685           $1,066,697
   Gas                                              1,813,822              498,728
   Other                                               18,022               17,652
        Total Operating Revenues                    3,706,529            1,583,077


Operating Expenses
   Fuel and purchased and exchanged power           1,345,881              500,778
   Gas purchased                                    1,710,610              406,145
   Operation and maintenance                          249,490              252,927
   Depreciation and amortization                       88,564               82,631
   Taxes other than income taxes                       63,092               66,131
        Total Operating Expenses                    3,457,637            1,308,612


Operating Income                                      248,892              274,465



Equity in Earnings of Unconsolidated Subsidiaries      (1,239)               1,842
Miscellaneous - Net                                    (4,694)              (2,503)
Interest                                               63,550               51,430


Income Before Taxes                                   179,409              222,374


Income Taxes                                           58,304               82,572
   Preferred Dividend Requirements of Subsidiaries        858                1,363
Net Income                                          $ 120,247            $ 138,439


Average Common Shares Outstanding                     158,989              158,923


Earnings Per Common Share
   Net Income                                       $    0.76            $    0.87


Earnings Per Common Share - Assuming Dilution
   Net Income                                       $    0.75            $    0.87


Dividends Declared Per Common Share                 $    0.45            $    0.45

The accompanying notes as they relate to Cinergy Corp. are an integral part of
these consolidated financial statements.`

`CINERGY CORP.
                           CONSOLIDATED BALANCE SHEETS

ASSETS
                                                             March 31       December 31
                                                               2001             2000
                                                           (unaudited)
                                                              (dollars in thousands)

Current Assets
   Cash and cash equivalents                                $  187,491      $   93,054
   Restricted deposits                                           8,021           4,195
   Notes receivable                                             31,655          35,945
   Accounts receivable less accumulated provision for
        doubtful accounts of $39,480 at March 31, 2001,
        and $29,951 at December 31, 2000                     1,853,313       1,623,402
   Materials, supplies, and fuel - at average cost             161,952         159,340
   Energy risk management current assets (Note 1(c))         1,044,763       1,413,281
   Prepayments and other                                       133,028         129,666
                Total Current Assets                         3,420,223       3,458,883


Property, Plant, and Equipment  - at Cost
   Utility plant in service                                  7,772,840       7,681,612
   Construction work in progress                               358,452         323,350
        Total Utility Plant                                  8,131,292       8,004,962
   Non-regulated property, plant, and equipment              3,975,889       3,401,203
   Accumulated depreciation                                  4,642,983       4,586,089
                Net Property, Plant, and Equipment           7,464,198       6,820,076



Other Assets
   Regulatory assets                                           972,705         976,614
   Investments in unconsolidated subsidiaries                  529,339         538,322
   Energy risk management non-current assets (Note 1(c))        65,984          37,228
   Other investments                                           150,327         146,986
   Other                                                       334,760         351,619
                Total Other Assets                           2,053,115       2,050,769


Total Assets                                               $12,937,536     $12,329,728


The  accompanying  notes as they relate to Cinergy Corp. are an integral part of
these consolidated financial statements.`

`CINERGY CORP.
                           CONSOLIDATED BALANCE SHEETS

LIABILITIES AND SHAREHOLDERS' EQUITY
                                                                           March 31         December 31
                                                                             2001              2000
                                                                          (unaudited)
                                                                             (dollars in thousands)

Current Liabilities
   Accounts payable                                                         $1,708,847      $1,496,494
   Accrued taxes                                                               286,263         247,006
   Accrued interest                                                             59,211          47,351
   Notes payable and other short-term obligations                            1,809,080       1,128,657
   Long-term debt due within one year  (Note 2)                                 44,149          40,545
   Energy risk management current liabilities (Note 1(c))                    1,073,819       1,456,375
   Other                                                                        81,078         106,679
               Total Current Liabilities                                     5,062,447       4,523,107



Non-Current Liabilities
   Long-term debt (Note 2)                                                   2,887,702       2,876,367
   Deferred income taxes                                                     1,190,221       1,185,968
   Unamortized investment tax credits                                          134,134         137,965
   Accrued pension and other postretirement benefit costs                      410,308         404,764
   Energy risk management non-current liabilities (Note 1(c))                  121,529          97,507
   Other                                                                       233,209         252,255
               Total Non-Current Liabilities                                 4,977,103       4,954,826


Total Liabilities                                                            10,039,550      9,477,933


Cumulative Preferred Stock of Subsidiaries
   Not subject to mandatory redemption                                          62,834          62,834


Common Stock Equity
   Common Stock -  $.01 par value; authorized shares  -  600,000,000;
     outstanding shares - 159,001,531 at March 31, 2001 and 158,967,661
     at December 31, 2000                                                        1,590           1,590
   Paid-in capital                                                           1,619,366       1,619,153
   Retained earnings                                                         1,229,552       1,179,113
   Accumulated other comprehensive loss                                        (15,356)        (10,895)
               Total Common Stock Equity                                     2,835,152       2,788,961


Commitments and Contingencies (Note 3)

Total Liabilities and Shareholders' Equity                                 $12,937,536     $12,329,728

The  accompanying  notes as they relate to Cinergy Corp. are an integral part of
these consolidated financial statements.`

`CINERGY CORP.
            CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY

                                                                                                   Accumulated     Total
                                                                                                      Other       Common
                                                                    Common   Paid-in   Retained   Comprehensive    Stock
                                                                    Stock    Capital   Earnings   Income (Loss)   Equity
                                                                                   (dollars in thousands)
                                                                                           (unaudited)

Quarter Ended March 31, 2001

Balance at January 1, 2001                                         $1,590   $1,619,153  $1,179,113  $ (10,895)  $2,788,961

Comprehensive income:
   Net income                                                                              120,247                 120,247
  Other comprehensive income (loss), net of tax effect of ($817)
        Foreign currency translation adjustment                                                           696          696
     Minimum pension liability adjustment                                                                  91           91
     Unrealized gain (loss) on investment trusts                                                         (683)        (683)
     FAS 133 transition charge (Note 1(b))                                                             (2,500)      (2,500)
     Cash flow hedges (Note 1(b))                                                                      (2,065)      (2,065)
   Total comprehensive income                                                                                      115,786

Issuance of 33,870 shares of common stock-net                                      826                                 826
Treasury shares purchased                                                       (2,191)                             (2,191)
Treasury shares reissued                                                           378                                 378
Dividends on common stock ($.45 per share)                                                 (71,541)                (71,541)
Other                                                                            1,200       1,733                   2,933

Ending balance at March 31, 2001                                   $1,590   $1,619,366  $1,229,552  $ (15,356)  $2,835,152`

---

`Quarter Ended March 31, 2000

Balance at January 1, 2000                                         $1,589   $1,597,554  $1,064,319  $  (9,741)  $2,653,721

Comprehensive income:
  Net income                                                                               138,439                 138,439
  Other comprehensive income (loss), net of tax effect of $534
     Foreign currency translation adjustment                                                           (1,728)      (1,728)
     Unrealized gain (loss) on investment trusts                                                          957          957
   Total comprehensive income                                                                                      137,668

Treasury shares reissued                                                         4,570                               4,570
Dividends on common stock ($.45 per share)                                                 (71,077)                (71,077)
Other                                                                            1,972          14                   1,986

Ending balance at March 31, 2000                                   $1,589   $1,604,096  $1,131,695  $ (10,512)  $2,726,868


The  accompanying  notes as they relate to Cinergy Corp. are an integral part of
these consolidated financial statements.`

`CINERGY CORP.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                        Quarter Ended
                                                                                          March 31
                                                                                2001             2000
                                                                                (dollars in thousands)
                                                                                      (unaudited)
Operating Activities
   Net income                                                                  $120,247        $138,439
   Items providing or (using) cash currently:
     Depreciation and amortization                                               88,564          82,631
     Unrealized gain from energy risk management activities                     (18,772)        (18,182)
     Deferred income taxes and investment tax credits - net                      (1,418)           (841)
     Equity in earnings of unconsolidated subsidiaries                            1,239          (1,842)
     Allowance for equity funds used during construction                         (1,143)           (902)
     Regulatory assets - net                                                      4,556           6,853
     Changes in other current assets and current liabilities:
        Restricted deposits                                                      (1,375)            (30)
        Accounts and notes receivable, net of reserves on receivables sold     (231,528)         35,226
        Materials, supplies, and fuel                                            (2,605)         30,763
        Accounts payable                                                        209,709        (130,662)
        Accrued taxes and interest                                               51,117          39,628
     Other items-net                                                            (33,289)          7,072

               Net cash provided by operating activities                        185,302         188,153

Financing Activities
   Change in short-term debt                                                    680,423          89,127
   Issuance of long-term debt                                                    28,148               -
   Redemption of long-term debt                                                 (27,599)           (594)
   Retirement of preferred stock of subsidiaries                                      -            (105)
   Issuance of common stock                                                         826               -
   Dividends on common stock                                                    (71,541)        (71,077)

               Net cash provided by financing activities                        610,257          17,351

Investing Activities
   Construction expenditures (less allowance for equity funds used during
     construction)                                                             (187,184)       (102,635)
   Acquisitions and other investments                                          (513,938)       (108,184)

               Net cash used in investing activities                           (701,122)       (210,819)

Net increase (decrease) in cash and cash equivalents                             94,437          (5,315)

Cash and cash equivalents at beginning of period                                 93,054          81,919

Cash and cash equivalents at end of period                                     $187,491        $ 76,604


The  accompanying  notes as they relate to Cinergy Corp. are an integral part of
these consolidated financial statements.`

`THE CINCINNATI GAS & ELECTRIC COMPANY
           CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

                                                                              Quarter Ended
                                                                                March 31
                                                                    2001           2000
                                                                     (dollars in thousands)
                                                                          (unaudited)

Operating Revenues
   Electric                                                       $ 932,745      $538,018
   Gas                                                              325,093       178,462
     Total Operating Revenues                                     1,257,838       716,480


Operating Expenses
   Fuel and purchased and exchanged power                           660,680       240,352
   Gas purchased                                                    238,291        89,616
   Operation and maintenance                                        111,625       112,283
   Depreciation and amortization                                     45,607        43,757
   Taxes other than income taxes                                     47,371        49,931
     Total Operating Expenses                                     1,103,574       535,939


Operating Income                                                    154,264       180,541


Miscellaneous - Net                                                  (2,404)       (1,973)
Interest                                                             27,396        25,749


Income Before Taxes                                                 124,464       152,819


Income Taxes                                                         42,889        56,855

Net Income                                                        $  81,575      $ 95,964

Preferred Dividend Requirement                                          211           213

Net Income Applicable to Common Stock                             $  81,364      $ 95,751


Net Income                                                        $  81,575      $ 95,964

Other Comprehensive Income (Loss), Net of Tax Effect of $2,537       (3,915)            -

Comprehensive Income                                              $  77,660      $ 95,964

The  accompanying  notes as they relate to The Cincinnati Gas & Electric Company
are an integral part of these consolidated financial statements.`

`THE CINCINNATI GAS & ELECTRIC COMPANY
                           CONSOLIDATED BALANCE SHEETS

ASSETS
                                                            March 31      December 31
                                                              2001           2000
                                                           (unaudited)
                                                             (dollars in thousands)

Current Assets
   Cash and cash equivalents                                 $  18,961     $  20,637
   Restricted deposits                                             604           160
   Notes receivable from affiliated companies                  186,393        91,732
   Accounts receivable less accumulated provision for
     doubtful accounts of $27,020 at March 31, 2001,
     and $19,044 at December 31, 2000                          657,202       494,501
   Accounts receivable from affiliated companies                 8,648        26,743
   Materials, supplies, and fuel - at average cost              85,555        99,061
   Energy risk management current assets (Note 1(c))           515,601       697,488
   Prepayments and other                                        43,940        39,320
                Total Current Assets                         1,516,904     1,469,642

Property, Plant, and Equipment - at Cost
   Utility plant in service
     Electric                                                1,958,691     1,905,795
     Gas                                                       883,495       865,303
     Common                                                    212,427       211,424
       Total Utility Plant In Service                        3,054,613     2,982,522
   Construction work in progress                                95,691       132,577
       Total Utility Plant                                   3,150,304     3,115,099
   Non-regulated property, plant, and equipment              3,201,873     3,181,076
   Accumulated depreciation                                  2,473,781     2,444,867
                Net Property, Plant, and Equipment           3,878,396     3,851,308

Other Assets
   Regulatory assets                                           510,219       502,328
   Energy risk management non-current assets                    23,684         7,000
   Other                                                       138,390       156,692
                Total Other Assets                             672,293       666,020


Total Assets                                                $6,067,593    $5,986,970

The  accompanying  notes as they relate to The Cincinnati Gas & Electric Company
are an integral part of these consolidated financial statements.`

`THE CINCINNATI GAS & ELECTRIC COMPANY
                           CONSOLIDATED BALANCE SHEETS

LIABILITIES AND SHAREHOLDER'S EQUITY
                                                                         March 31      December 31
                                                                           2001           2000
                                                                       (unaudited)
                                                                           (dollars in thousands)

Current Liabilities
   Accounts payable                                                       $ 667,069     $ 543,006
   Accounts payable to affiliated companies                                  20,564        23,927
   Accrued taxes                                                            165,819       152,750
   Accrued interest                                                          24,098        17,645
   Notes payable and other short-term obligations                           184,000       264,000
   Notes payable to affiliated companies                                    376,190       163,478
   Long-term debt due within one year                                         1,200         1,200
   Energy risk management current liabilities (Note 1(c))                   529,087       717,902
   Other                                                                     41,254        37,603
       Total Current Liabilities                                          2,009,281     1,921,511


Non-Current Liabilities
   Long-term debt                                                         1,205,147     1,205,061
   Deferred income taxes                                                    728,800       735,799
   Unamortized investment tax credits                                        95,611        98,624
   Accrued pension and other postretirement benefit costs                   163,544       164,901
   Energy risk management non-current liabilities (Note 1(c))                40,885        26,337
   Other                                                                    102,096       118,421
       Total Non-Current Liabilities                                      2,336,083     2,349,143


Total Liabilities                                                         4,345,364     4,270,654


Cumulative Preferred Stock
   Not subject to mandatory redemption                                       20,486        20,486


Common Stock Equity
   Common Stock - $8.50 par value; authorized shares-120,000,000;
     outstanding shares-89,663,086 at March 31, 2001 and December 31,
     2000                                                                   762,136       762,136
   Paid-in capital                                                          565,777       565,777
   Retained earnings                                                        378,739       368,911
   Accumulated other comprehensive loss                                      (4,909)         (994)
       Total Common Stock Equity                                          1,701,743     1,695,830


Commitments and Contingencies (Note 3)

Total Liabilities and Shareholder's Equity                               $6,067,593    $5,986,970

The  accompanying  notes as they relate to The Cincinnati Gas & Electric Company
are an integral part of these consolidated financial statements.`

`THE CINCINNATI GAS & ELECTRIC COMPANY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                Quarter Ended
                                                                                  March 31
                                                                              2001          2000
                                                                             (dollars in thousands)
                                                                                  (unaudited)

Operating Activities
   Net income                                                             $   81,575    $   95,964
   Items providing or (using) cash currently:
    Depreciation and amortization                                             45,607        43,757
    Deferred income taxes and investment tax credits - net                    (5,890)        1,660
    Unrealized gain from energy risk management activities                    (9,064)      (10,542)
    Allowance for equity funds used during construction                         (427)         (734)
    Regulatory assets - net                                                   (6,530)        4,182
    Changes in other current assets and current liabilities:
       Restricted deposits                                                      (444)            -
       Accounts and notes receivable, net of reserves on receivables sold   (243,936)       12,569
       Materials, supplies, and fuel                                          13,506        13,254
       Accounts payable                                                      120,700       (68,046)
       Accrued taxes and interest                                             19,522        22,456
    Other items-net                                                           (6,000)       (2,664)

               Net cash provided by operating activities                       8,619       111,856

Financing Activities
   Change in short-term debt                                                 132,712        (7,199)
   Retirement of preferred stock                                                   -           (68)
   Dividends on preferred stock                                                 (212)         (214)
   Dividends on common stock                                                 (71,535)      (53,600)

               Net cash provided by (used in) financing activities            60,965       (61,081)

Investing Activities
   Construction expenditures (less allowance for equity funds used during
     construction)                                                           (71,260)      (56,143)

               Net cash used in investing activities                         (71,260)      (56,143)

Net decrease in cash and cash equivalents                                     (1,676)       (5,368)

Cash and cash equivalents at beginning of period                              20,637         9,554

Cash and cash equivalents at end of period                                $   18,961    $    4,186

The  accompanying  notes as they relate to The Cincinnati Gas & Electric Company
are an integral part of these consolidated financial statements.`

`PSI ENERGY, INC.
           CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

                                                                   Quarter Ended
                                                                      March 31
                                                                  2001        2000
                                                               (dollars in thousands)
                                                                    (unaudited)
Operating Revenues
      Electric                                                  $915,544    $533,752


Operating Expenses
    Fuel and purchased and exchanged power                       688,091     271,429
    Operation and maintenance                                     90,862     111,343
    Depreciation and amortization                                 36,793      34,692
    Taxes other than income taxes                                 14,984      14,609
     Total Operating Expenses                                    830,730     432,073


Operating Income                                                  84,814     101,679


Miscellaneous - Net                                               (1,770)       (859)
Interest                                                          17,940      20,084


Income Before Taxes                                               65,104      80,736


Income Taxes                                                      23,672      30,523

Net Income                                                      $ 41,432    $ 50,213

Preferred Dividend Requirement                                       647       1,150

Net Income Applicable to Common Stock                           $ 40,785    $ 49,063


Net Income                                                      $ 41,432    $ 50,213

Other Comprehensive Income (Loss), Net of Tax Effect of $134        (465)        632

Comprehensive Income                                            $ 40,967    $ 50,845

The accompanying  notes as they relate to PSI Energy,  Inc. are an integral part
of these consolidated financial statements.`

`PSI ENERGY, INC.
                           CONSOLIDATED BALANCE SHEETS

ASSETS
                                                                          March 31    December 31
                                                                            2001          2000
                                                                          (unaudited)
                                                                            (dollars in thousands)
Current Assets
   Cash and cash equivalents                                             $   7,098   $   1,311
   Restricted deposits                                                         810         341
   Notes receivable                                                              3           3
   Notes receivable from affiliated companies                                6,618      12,798
   Accounts receivable less accumulated provision for doubtful accounts
     of $10,342 at March 31, 2001, and $9,317  at December 31, 2000        655,218     464,930
   Accounts receivable from affiliated companies                             4,843       5,385
   Materials, supplies, and fuel - at average cost                          72,495      53,838
   Energy risk management current assets (Note 1(c))                       515,601     697,488
   Prepayments and other                                                    49,308      49,049
                Total Current Assets                                     1,311,994   1,285,143


Property, Plant, and Equipment - at Cost
   Utility plant in service                                              4,718,227   4,699,090
   Construction work in progress                                           262,761     190,773
       Total Utility Plant                                               4,980,988   4,889,863
   Accumulated depreciation                                              2,134,149   2,110,747
                Net Property, Plant, and Equipment                       2,846,839   2,779,116


Other Assets
   Regulatory assets                                                       462,486     474,286
   Energy risk management non-current assets (Note 1(c))                    23,684       7,000
   Other investments                                                        53,175      51,343
   Other                                                                    37,251      32,887
                Total Other Assets                                         576,596     565,516


Total Assets                                                            $4,735,429  $4,629,775

The accompanying  notes as they relate to PSI Energy,  Inc. are an integral part
of these consolidated financial statements.`

`PSI ENERGY, INC.
                           CONSOLIDATED BALANCE SHEETS

LIABILITIES AND SHAREHOLDER'S EQUITY
                                                                    March 31    December 31
                                                                      2001         2000
                                                                   (unaudited)
                                                                    (dollars in thousands)

Current Liabilities
   Accounts payable                                                 $ 580,865   $ 392,206
   Accounts payable to affiliated companies                            23,555      32,448
   Accrued taxes                                                      115,592      80,995
   Accrued interest                                                    18,782      23,708
   Notes payable and other short-term obligations                     152,600     188,391
   Notes payable to affiliated companies                              237,277     146,381
   Long-term debt due within one year                                  42,423      38,325
   Energy risk management current liabilities (Note 1(c))             529,087     717,902
   Other                                                               13,365      12,748
       Total Current Liabilities                                    1,713,546   1,633,104


Non-Current Liabilities
   Long-term debt  (Note 2)                                         1,050,491   1,074,255
   Deferred income taxes                                              461,820     458,593
   Unamortized investment tax credits                                  38,523      39,341
   Accrued pension and other postretirement benefit costs             147,499     143,990
   Energy risk management non-current liabilities (Note 1(c))          40,885      26,337
   Other                                                               66,302      78,112
       Total Non-Current Liabilities                                1,805,520   1,820,628


Total Liabilities                                                   3,519,066   3,453,732


Cumulative Preferred Stock
   Not subject to mandatory redemption                                 42,348      42,348


Common Stock Equity
   Common Stock - without par value;  $.01 stated value;
     authorized shares-60,000,000; outstanding shares-53,913,701
     at March 31, 2001 and December 31, 2000                              539         539
   Paid-in capital                                                    413,523     413,523
   Retained earnings                                                  760,938     720,153
   Accumulated other comprehensive loss                                  (985)       (520)
       Total Common Stock Equity                                    1,174,015   1,133,695


Commitments and Contingencies (Note 3)

Total Liabilities and Shareholder's Equity                         $4,735,429  $4,629,775

The accompanying  notes as they relate to PSI Energy,  Inc. are an integral part
of these consolidated financial statements.`

`PSI ENERGY, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                        Quarter Ended
                                                                                           March 31
                                                                                   2001         2000
                                                                                 (dollars in thousands)
                                                                                      (unaudited)

Operating Activities
   Net income                                                                  $  41,432    $  50,213
   Items providing or (using) cash currently:
     Depreciation and amortization                                                36,793       34,692
     Deferred income taxes and investment tax credits - net                        2,467       (2,166)
     Unrealized gain from energy risk management activities                       (9,064)     (10,542)
     Allowance for equity funds used during construction                            (716)        (168)
     Regulatory assets - net                                                      11,086        2,671
     Changes in other current assets and current liabilities:
        Restricted deposits                                                         (469)         (52)
        Accounts and notes receivable, net of reserves on receivables sold      (177,278)      48,533
        Materials, supplies, and fuel                                            (18,657)      17,804
        Accounts payable                                                         179,766       42,897
        Accrued taxes and interest                                                29,671       (7,637)
     Other items - net                                                           (20,114)      (4,027)

               Net cash provided by operating activities                          74,917      172,218

Financing Activities
   Change in short-term debt                                                      55,105      (83,796)
   Redemption of long-term debt                                                  (19,825)        (150)
   Retirement of preferred stock                                                       -          (37)
   Dividends on preferred stock                                                     (647)      (1,150)
   Dividends on common stock                                                           -      (18,000)

               Net cash provided by (used in) financing activities                34,633     (103,133)

Investing Activities
   Construction expenditures (less allowance for equity funds used during       (101,931)
     construction)                                                                            (51,091)
   Other investments                                                              (1,832)      (2,919)

               Net cash used in investing activities                            (103,763)     (54,010)

Net increase in cash and cash equivalents                                          5,787       15,075

Cash and cash equivalents at beginning of period                                   1,311        8,842

Cash and cash equivalents at end of period                                     $   7,098    $  23,917

The accompanying  notes as they relate to PSI Energy,  Inc. are an integral part
of these consolidated financial statements.`

`THE UNION LIGHT, HEAT AND POWER COMPANY
                              STATEMENTS OF INCOME

                                                                  Quarter Ended
                                                                     March 31
                                                               2001            2000
                                                               (dollars in thousands)
                                                                    (unaudited)

Operating Revenues
   Electric                                                  $  54,602       $ 49,288
   Gas                                                          59,162         33,487
     Total Operating Revenues                                  113,764         82,775


Operating Expenses
   Electricity purchased from parent company for resale         36,844         35,211
   Gas purchased                                                42,912         17,994
   Operation and maintenance                                     9,247          9,228
   Depreciation and amortization                                 4,165          3,736
   Taxes other than income taxes                                 1,107          1,098
     Total Operating Expenses                                   94,275         67,267


Operating Income                                                19,489         15,508


Miscellaneous - Net                                               (469)          (191)
Interest                                                         1,693          1,571


Income Before Taxes                                             17,327         13,746


Income Taxes                                                     3,472          5,600

Net Income                                                   $  13,855       $  8,146

The accompanying notes as they relate to The Union Light, Heat and Power Company
are an integral part of these financial statements.`

`THE UNION LIGHT, HEAT AND POWER COMPANY
                                                  BALANCE SHEETS


ASSETS
                                                                   March 31    December 31
                                                                     2001         2000
                                                                  (unaudited)
                                                                   (dollars in thousands)

Current Assets
   Cash and cash equivalents                                        $  6,896    $  6,460
    Accounts receivable less accumulated provision for
     doubtful accounts of $2,262 at March 31, 2001, and $1,492 at
     December 31, 2000                                                22,844      28,518
   Accounts receivable from affiliated companies                         697       2,279
   Materials, supplies, and fuel - at average cost                     2,982       6,300
   Prepayments and other                                                 137         274
                Total Current Assets                                  33,556      43,831


Property, Plant, and Equipment - at Cost
   Utility plant in service
     Electric                                                        241,668     234,482
     Gas                                                             186,913     184,878
     Common                                                           44,949      44,603
         Total Utility Plant In Service                              473,530     463,963
   Construction work in progress                                      12,078      15,069
         Total Utility Plant                                         485,608     479,032
   Accumulated depreciation                                          172,879     169,403
                Net Property, Plant, and Equipment                   312,729     309,629


Other Assets
   Regulatory assets                                                  10,362      10,177
   Other                                                               6,614       5,110
                Total Other Assets                                    16,976      15,287


Total Assets                                                        $363,261    $368,747

The accompanying notes as they relate to The Union Light, Heat and Power Company
are an integral part of these financial statements.`

`THE UNION LIGHT, HEAT AND POWER COMPANY
                                 BALANCE SHEETS



LIABILITIES AND SHAREHOLDER'S EQUITY
                                                                  March 31    December 31
                                                                    2001         2000
                                                                  (unaudited)
                                                                    (dollars in thousands)

Current Liabilities
   Accounts payable                                                $ 10,426    $ 24,249
   Accounts payable to affiliated companies                          13,629      20,192
   Accrued taxes                                                      1,098      (5,760)
   Accrued interest                                                   1,188       1,215
   Notes payable to affiliated companies                             24,275      29,403
   Other                                                             13,846      11,669
       Total Current Liabilities                                     64,462      80,968


Non-Current Liabilities
   Long-term debt                                                    74,597      74,589
   Deferred income taxes                                             35,625      35,822
   Unamortized investment tax credits                                 3,615       3,684
   Accrued pension and other postretirement benefit costs            13,007      13,041
   Amounts due to customers - income taxes                            7,439       7,439
   Other                                                              3,474       6,016
       Total Non-Current Liabilities                                137,757     140,591


Total Liabilities                                                   202,219     221,559


Common Stock Equity
   Common Stock - $15.00 par value; authorized shares-1,000,000;
     outstanding shares-585,333 at March 31, 2001
     and December 31, 2000                                            8,780       8,780
   Paid-in capital                                                   20,305      20,305
   Retained earnings                                                131,957     118,103
       Total Common Stock Equity                                    161,042     147,188


Commitments and Contingencies (Note 3)

Total Liabilities and Shareholder's Equity                         $363,261    $368,747

The accompanying notes as they relate to The Union Light, Heat and Power Company
are an integral part of these financial statements.`

`THE UNION LIGHT, HEAT AND POWER COMPANY
                            STATEMENTS OF CASH FLOWS

                                                                                   Quarter Ended
                                                                                     March 31
                                                                                  2001        2000
                                                                                (dollars in thousands)
                                                                                    (unaudited)

Operating Activities
   Net income                                                                   $ 13,855    $ 8,146
   Items providing or (using) cash currently:
     Depreciation and amortization                                                 4,165      3,736
     Deferred income taxes and investment tax credits - net                         (266)      (536)
     Allowance for equity funds used during construction                              14          -
     Regulatory assets - net                                                        (270)       169
     Changes in other current assets and current liabilities:
         Accounts and notes receivable, net of reserves on receivables sold        6,474      7,351
         Materials, supplies, and fuel                                             3,318      4,438
         Accounts payable                                                        (20,386)    (8,242)
         Accrued taxes and interest                                                6,831      5,367
     Other items - net                                                            (1,112)     3,514

               Net cash provided by operating activities                          12,623     23,943

Financing Activities
   Change in short-term debt                                                      (5,128)   (18,615)

               Net cash used in financing activities                              (5,128)   (18,615)

Investing Activities
   Construction expenditures (less allowance for equity funds used during
     construction)                                                                (7,059)    (7,069)

               Net cash used in investing activities                              (7,059)    (7,069)

Net increase (decrease) in cash and cash equivalents                                 436     (1,741)

Cash and cash equivalents at beginning of period                                   6,460      3,641

Cash and cash equivalents at end of period                                      $  6,896    $ 1,900

The accompanying notes as they relate to The Union Light, Heat and Power Company
are an integral part of these financial statements.`

---

### NOTES TO FINANCIAL STATEMENTS

In this report Cinergy
(which includes Cinergy Corp. and all of our regulated and non-regulated
subsidiaries) is, at times, referred to in the first person as we,
our, or us.

### 1.     Summary of Significant Accounting Policies

(a)     Presentation     Our
Financial Statements reflect all adjustments (which include normal, recurring
adjustments) necessary in the opinion of the registrants for a fair presentation
of the interim results. These statements should be read in conjunction with the
Financial Statements and the notes thereto included in the combined 2000 Form
10-K of the registrants. Certain amounts in the 2000 Financial Statements have
been reclassified to conform to the 2001 presentation.

(b)     Financial Derivatives     We use derivative financial instruments to manage:

- funding costs;
- exposure to fluctuations in interest rates; and
- exposure to foreign currency exchange rates.

We account for derivatives
under Statement of Financial Accounting Standards No. 133, Accounting for
Derivatives and Hedging Activities (Statement 133), which requires all
derivatives that are not exempted to be accounted for at fair value. Changes in
the derivatives fair value must be recognized currently in earnings unless
specific hedge accounting criteria are met. Gains and losses on derivatives that
qualify as hedges can (a) offset related fair value changes on the hedged item
in the income statement for fair value hedges; or (b) be recorded in other
comprehensive income for cash flow hedges. To qualify for hedge accounting,
financial instruments must be designated as a hedge (for example, an offset of
foreign exchange or interest rate risks) at the inception of the contract and
must be effective at reducing the risk associated with the hedged item.
Accordingly, changes in the fair values or cash flows of instruments designated
as hedges must be highly correlated with changes in the fair values or cash
flows of the related hedged items.

From time to time, we may
use foreign exchange forward contracts (for example, a contract obligating one
party to buy, and the other to sell, a specified quantity of a foreign currency
for a fixed price at a future date) and currency swaps (for example, a contract
whereby two parties exchange principal and interest cash flows denominated in
different currencies) to hedge foreign currency denominated purchase and sale
commitments (cash flow hedges) and certain of our net investments in foreign
operations (net investment hedges) against currency exchange rate fluctuations.
At March 31, 2001, the fair value, and ineffectiveness, of instruments that we
have classified as foreign currency cash flow hedges was not material.
Reclassification of unrealized gains or losses on foreign currency cash flow
hedges from other comprehensive income occurs when the underlying hedged item is
recorded in income.

We also use interest rate
swaps (an agreement by two parties to exchange fixed-interest rate cash flows
for floating-interest rate cash flows). Through December 31, 2000, we utilized
the accrual method to account for these interest rate swaps. Accordingly, gains
and losses were calculated based on the difference between the fixed-rate and
the floating-rate interest amounts, using agreed upon notional amounts. These
gains and losses were recognized in our Consolidated Statements of Income as a
component of Interest over the life of the agreement. Effective with our
adoption of Statement 133 in the first quarter of 2001, we began accounting for
interest rate swaps using mark-to-market accounting and are assessing the
effectiveness of any swaps used in hedging activities. At March 31, 2001, the
fair value, and ineffectiveness, of instruments that we have classified as cash
flow hedges of variable rate debt instruments was not material. Reclassification
of unrealized gains or losses on cash flow hedges of variable rate debt
instruments occurs from other comprehensive income as interest payments are made
on the debt instrument. See Note 1(d) below for further discussion of Statement
133.

(c)     Energy Marketing and
Trading      We market and trade electricity, natural gas, and other energy-related
products. We designate transactions as physical or trading at the time they are
originated. Physical refers to our intent and projected ability to fulfill
substantially all obligations from company-owned assets. We sell generation to
third parties when it is not required to meet native load requirements (end-use
customers within our public utilities companies franchise service
territory). All other energy contracts (including most natural gas contracts)
are classified as trading. We account for physical transactions on a settlement
basis and trading transactions using the mark-to-market method of accounting,
consistent with our application of EITF 98-10, Accounting for Contracts Involved
in Energy Trading and Risk Management Activities. To the extent that physical
transactions constitute derivatives under Statement 133, we typically apply the
normal purchases and sales exemption. To the extent trading transactions
constitute derivatives under Statement 133, we typically do not attempt to
identify them as a hedging instrument. Under the mark-to-market method of
accounting, trading transactions are shown at fair value in our Consolidated
Balance Sheets as Energy risk management assets  and Energy risk
management liabilities  current and non-current. We reflect changes in
fair value resulting in unrealized gains and losses in Fuel and purchased and
exchanged power and Gas purchased. We record the revenues and costs for all
transactions in our Consolidated Statements of Income when the contracts are
settled. We recognize revenues in Operating revenues; costs are recorded in Fuel
and purchased and exchanged power and Gas purchased.

Although we intend to
settle physical contracts with company-owned generation, occasionally we settle
these contracts with power purchased on the open trading markets. The cost of
these purchases could be in excess of the associated revenues. We recognize the
gains or losses on these transactions as the power is delivered. Due to the
infrequency of such settlements, both historical and projected, and the fact
that physical power settlement to the customer still occurs, we continue to
apply the normal purchases and sales exemptions to such physical contracts that
constitute derivatives. Open market purchases may occur for the following
reasons:

- generating station outages;
- least-cost alternative;
- native load requirements; and
- extreme weather.

We value contracts in the trading portfolio using end-of-the-period market prices, utilizing the following factors
(as applicable):

- closing exchange prices (that is, closing prices for standardized electricity
and natural gas products traded on an organized exchange such as the New York
Mercantile Exchange);
- broker-dealer and over-the-counter price quotations; and
- model pricing (which considers time value and historical volatility factors of
electricity and natural gas pricing underlying any options and contractual
commitments).

We anticipate that some of
the electricity obligations, even though considered trading contracts, will
ultimately be settled using company-owned generation. The cost of this
generation is usually below the market price at which the trading portfolio has
been valued. We expect earnings volatility from period to period due to the
risks associated with marketing and trading electricity, natural gas, and other
energy-related products.

During the first quarter,
our natural gas trading volumes increased substantially. Because of this volume
change and the increasing volatility of gas prices, our risk exposure to these
markets has increased. However, we continue to employ value-at-risk analysis and
other methodologies to mitigate our risks in all trading operations, including
natural gas trading.

(d)     Accounting Changes     
During 1998, the Financial Accounting Standards Board (FASB) issued Statement
133. This standard is effective for fiscal years beginning after June 15, 2000,
and requires companies to record derivative instruments which are not exempt
under certain provisions of Statement 133 as assets or liabilities, measured at
fair value (i.e., marked-to-market). Our financial statements reflect the
adoption of Statement 133 in January 2001. Since many of our derivatives were
previously required to use mark-to-market accounting, the effects of
implementation are immaterial.

These effects do not
reflect the potential impact of applying mark-to-market accounting to selected
call options and forwards we use to hedge peak period exposure to electricity
demand. We have not historically marked these instruments to market because they
are intended as hedges of peak period exposure and are not considered trading
instruments. We currently classify these types of instruments as normal
purchases under Statement 133. However, the FASB-sponsored Derivatives
Implementation Group (DIG) has yet to issue final guidance on these types of
instruments. In April 2001, the DIG posted tentative guidance that would
preclude these contracts from qualifying for the normal purchases and sales
exemption. This guidance will not be final until the FASB staff considers all
comments provided during a 35-day comment period. These instruments will require
mark-to-market accounting unless the FASB staff reconsiders its guidance based
on the comments provided. The FASB has scheduled an open meeting with utility
industry representatives to discuss these issues. If ultimately required to mark
these instruments to market, this could result in additional earnings
volatility. At March 31, 2001, the fair value of these instruments was $14
million.

### 2.     Long-Term Debt

In January 2001, PSI
Energy, Inc. (PSI) retired $19.8 million principal amount of non-interest
bearing Series 1994 Promissory Note, which had matured. The securities were not
replaced by new issues of debt. In March 2001, Cinergy Global Resources, Inc., a
subsidiary of Cinergy, borrowed $26 million at a fixed interest rate of 6.10%,
maturing on March 31, 2003.

### 3.     Commitments and Contingencies

(a)     Ozone Transport
Rulemaking      In June 1997, the Ozone Transport Assessment Group, which consisted
of 37 states, made a wide range of recommendations to the U.S. Environmental
Protection Agency (EPA) to address the impact of ozone transport on serious
non-attainment areas (geographic areas defined by the EPA as non-compliant with
ozone standards) in the Northeast, Midwest, and South. Ozone transport refers to
wind-blown movement of ozone and ozone-causing materials across city and state
boundaries. In late 1997, the EPA published a proposed call for revisions to
State Implementation Plans (SIPs) for achieving emissions reductions to address
air quality concerns. The EPA must approve all SIPs.

Nitrogen Oxide (NOx) SIP
Call     In October 1998, the EPA finalized its ozone transport rule, also known as
the NOx SIP Call. It applied to 22 states in the eastern half of the United
States (U.S.), including the three states in which our electric utilities
operate, and also proposed a model NOx emission allowance-trading program. This
rule recommended states reduce NOx emissions primarily from industrial and
utility sources to a certain level by May 2003. The EPA gave the affected states
until September 30, 1999, to incorporate NOx reductions and, at the discretion
of the state, a NOx trading program into their SIPs. The EPA proposed to
implement a federal plan to accomplish the equivalent NOx reductions by May 1,
2003, if states failed to revise their SIPs.

Ohio, Indiana, a number of
other states, and various industry groups (some of which we are a member), filed
legal challenges to the NOx SIP Call in late 1998. On May 25, 1999, the U.S.
Circuit Court of Appeals for the District of Columbia (Court of Appeals) granted
a request for a deferral of the rule and indefinitely suspended the September 30
filing deadline, pending further review by the Court of Appeals.

In March 2000, the Court of
Appeals substantially upheld the EPAs rule. On April 11, 2000, the EPA
asked the Court of Appeals to remove its May 25, 1999 suspension of the rule and
also directed states to submit SIP revisions by September 1, 2000. On April 17,
2000, various states and industry groups (some of which we are a member) filed a
request with the Court of Appeals for a rehearing of the NOx SIP Call decisions.
On April 24, 2000, the same group filed a request with the Court of Appeals to
require a rulemaking and a comment period to determine a new compliance date.
The states also filed a request to obtain more time to file their SIPs. On June
23, 2000, the Court of Appeals denied both requests and directed the states to
submit their SIP revisions by October 30, 2000. The states of Indiana, Kentucky,
and Ohio subsequently submitted letters stating their intent to revise their
SIPs in response to the NOx SIP Call. On December 26, 2000, the EPA took final
action against Indiana, Kentucky, Ohio, and most other SIP Call affected states
for failing to make complete SIP revisions. This action triggers an 18-month
time clock for mandatory sanctions under a Federal Implementation Plan. The
states of Indiana, Kentucky, and Ohio now anticipate final adoption of compliant
SIP Call rules by late summer 2001.

In August 2000, the Court
of Appeals extended the May 1, 2003, deadline for NOx reductions to May 31,
2004. The states and other groups appealed the Court of Appeals ruling to the
U.S. Supreme Court (Supreme Court). In March 2001, the Supreme Court decided not
to accept their appeal.

On September 25, 2000,
Cinergy announced a plan to invest approximately $700 million in pollution
control equipment and other methods to reduce NOx emissions. This expected
investment includes the following:

- install up to 11 selective catalytic reduction units (SCRs) at several different generating
                stations;
- install other pollution control technologies, including new computer software, at all generating
                stations;
- make combustion improvements; and
- utilize market opportunities to buy and sell NOx allowances.

SCRs are the most proven technology currently available for reducing NOX emissions produced in coal-fired
generating stations.

Section 126 Petitions In
February 1998, the northeast states filed petitions seeking the EPAs
assistance in reducing ozone in the eastern U.S. under Section 126 of the Clean
Air Act (CAA). The EPA believes that Section 126 petitions allow a state to
claim that sources in another state are contributing to its air quality problem
and request that the EPA require the upwind sources to reduce their emissions.

In December 1999, the EPA
granted four Section 126 petitions relating to NOx emissions.

This ruling affected all of
our Ohio and Kentucky facilities, as well as some of our Indiana facilities, and
requires us to reduce our NOx emissions to a certain level by May 2003. The
EPA's action granting the Section 126 petitions was appealed to the Court of
Appeals. Oral arguments were held in this case on December 15, 2000. A final
decision is expected some time within the next few months.

State Ozone Plans     On
November 15, 1999, the State of Indiana and the Commonwealth of Kentucky (along
with Jefferson County, Kentucky) jointly filed an amendment to their attainment
demonstration on how they intend to bring the greater Louisville area, including
Floyd and Clark Counties in Indiana, into attainment with the one-hour ozone
standard. The SIP amendments call for, among other things, statewide NOx
reductions from utilities in Indiana, Kentucky, and surrounding states which are
less stringent than the EPAs NOx SIP Call. Indiana and Kentucky committed
to adopt utility NOx control rules by December 2000, that would require controls
be installed by May 2003. However, Indiana halted the rulemaking for NOx
controls at this level, but continues to develop NOx SIP Call level reduction
regulations. Kentucky did complete their rulemaking, but has issued a proposed
rule to change the compliance deadline to mirror the NOx SIP Call (May 31,
2004).

See Note 3(d) below for a discussion of the tentative EPA settlement, which relates to matters discussed within
this note.

(b)     New Source Review (NSR)     
The CAAs NSR provisions require that a company obtain a pre-construction
permit if it plans to build a new stationary source of pollution or make a major
modification to an existing facility unless the changes are exempt. In July
1998, the EPA requested comments on proposed revisions to the NSR rules that
would change NSR applicability by eliminating exemptions contained in the
current regulation.

Since July 1999, The
Cincinnati Gas & Electric Company (CG&E) and PSI have received
requests from the EPA (Region 5), under Section 114 of the CAA, seeking
documents and information regarding capital and maintenance expenditures at
several of their respective generating stations. These requests were part of an
industry-wide investigation assessing compliance with the NSR and the New Source
Performance Standards (NSPS) of the CAA at electric generating stations.

On September 15, 1999,
November 3, 1999, and February 2, 2001, the Attorneys General of New York,
Connecticut, and New Jersey, respectively, issued letters notifying Cinergy and
CG&E of their intent to sue under the citizens suit provisions of
the CAA. These states allege violations of the CAA by constructing and
continuing to operate a major modification to CG&Es W.C. Beckjord
Generating Station (Beckjord Station) without obtaining the required NSR
pre-construction permits.

On November 3, 1999, the
EPA sued a number of holding companies and electric utilities, including
Cinergy, CG&E, and PSI, in various U.S. District Courts (District
Court). The Cinergy, CG&E, and PSI suit alleged violations of the CAA at
two of our generating stations relating to NSR and NSPS requirements. The suit
sought (1) injunctive relief to require installation of pollution control
technology on each of the generating units at Beckjord Station and at PSIs
Cayuga Generating Station (Cayuga Station), and (2) civil penalties in amounts
of up to $27,500 per day for each violation.

On March 1, 2000, the EPA
filed an amended complaint against Cinergy, CG&E, and PSI. The amended
complaint added alleged violations of the NSR requirements of the CAA at two of
our generating stations contained in a notice of violation (NOV) filed by the
EPA on November 3, 1999. It also added claims for relief of alleged violations
of nonattainment NSR, Indiana and Ohio SIPs, and particulate matter emission
limits (as discussed below in the Beckjord Station NOV section).

The amended complaint
sought (1) injunctive relief to require installation of pollution control
technology on each of the generating units at Beckjord Station, Cayuga Station,
and PSIs Wabash River Generating Station and Gallagher Generating Station,
and such other measures as necessary, and (2) civil penalties in amounts of up
to $27,500 per day for each violation.

On March 1, 2000, the EPA
also filed an amended complaint in a separate lawsuit alleging violations of the
CAA relating to NSR, Prevention of Significant Deterioration (PSD), and Ohio SIP
requirements regarding various generating stations, including a generating
station operated by the Columbus Southern Power Company (CSP) and jointly-owned
by CSP, the Dayton Power and Light Company (DP&L), and CG&E. The
EPA is seeking injunctive relief and civil penalties of up to $27,500 per day
for each violation. This suit is being defended by CSP. On April 4, 2001, the
District Court in that case ruled that neither the Government nor the
intervening plaintiff environmental groups could obtain civil penalties for any
alleged violations that occurred more than five years prior to the filing of the
complaint, but that both parties could seek injunctive relief for alleged
violations that occurred more than five years before the filing of the
complaint. Thus, if the plaintiffs prevail in their claims, any calculation for
penalties will not start on the date of the alleged violations unless those
alleged violations occurred after November 3, 1994, but CSP would be forced to
install the controls required under the CAA. There is no indication at this time
if any party intends to appeal this decision.

On June 28, 2000, the EPA
issued a NOV to Cinergy, CG&E, and PSI for alleged violations of NSR,
PSD, and SIP requirements at CG&Es Miami Fort Generating Station
and PSIs Gibson Generating Station. In addition, Cinergy and CG&E
have been informed by DP&L, the operator of J.M. Stuart Generating
Station (Stuart Station), that on June 30, 2000, the EPA issued a NOV for
alleged violations of NSR, PSD, and SIP requirements at this station.
CG&E owns 39% of Stuart Station. The NOVs indicated that the EPA may (1)
issue an order requiring compliance with the requirements of the SIP, or (2)
bring a civil action seeking injunctive relief and civil penalties of up to
$27,500 per day for each violation.

See Note 3(d) below for a discussion of the tentative EPA settlement, which relates to matters discussed within
this note.

(c)     Beckjord Station NOV      On
November 30, 1999, the EPA filed a NOV against Cinergy and CG&E alleging
that emissions of particulate matter at the Beckjord Station exceeded the
allowable limit. The NOV indicated that the EPA may (1) issue an administrative
penalty order, or (2) file a civil action seeking injunctive relief and civil
penalties of up to $27,500 per day for each violation. The allegations contained
in this NOV were incorporated within the March 1, 2000 amended complaint, as
discussed in section (b). On June 22, 2000, the EPA issued a NOV and a Finding
of Violation (FOV) alleging additional particulate emission violations at
Beckjord Station and offered us an opportunity to meet and discuss the
allegations and corrective measures. The NOV/FOV indicated the EPA may issue an
administrative compliance order, issue an administrative penalty order, or bring
a civil or criminal action.

See Note 3(d) below for a discussion of the tentative EPA settlement, which relates to matters discussed within
this note.

(d)     EPA Agreement      On
December 21, 2000, Cinergy, CG&E, and PSI reached an agreement in
principle with the EPA, the U.S. Department of Justice, three northeast states,
and two environmental groups that could serve as the basis for a negotiated
resolution of CAA claims and other related matters brought against coal-fired
power plants owned and operated by Cinergys operating subsidiaries. The
complete resolution of these issues is contingent upon establishing a final
agreement with the EPA and other parties. If a final agreement is reached with
these parties, this would resolve past claims of NSR violations as well as the
Beckjord Station NOVs/FOV discussed above.

Under the terms of the
tentative agreement, the EPA and the other plaintiffs have agreed to drop all
challenges of past maintenance and repair activities at our coal-fired
generation plants. In addition, the intent of the tentative agreement is that we
would be allowed to continue on-going activities to maintain reliability and
availability without subjecting the plants to future litigation regarding
federal permitting requirements.

In return for resolution of past claims, future operational certainty, and protection of system wide demand
growth, we have tentatively agreed to:

- shut down or repower with natural gas nine small coal-fired boilers at three power plants
                beginning in 2004;
- build four additional sulfur dioxide (SO2) scrubbers, the first of which must be operational by
                December 31, 2007;
- upgrade existing pollution control systems;
- phase in the operation of
NOX reduction technology year-round starting in 2004;
- retire 50,000 tons of
SO2 allowances between 2001 and 2005 and reduce our SO2 cap by 35% in 2013;
- pay a civil penalty of $8.5 million to the U.S. government; and
- implement $21.5 million in environmental mitigation projects.

The estimated cost for
these capital expenditures is expected to be approximately $700 million. These
capital expenditures are in addition to our previously announced commitment to
install NOX controls over the next five years at an estimated cost of
approximately $700 million as previously discussed in Ozone Transport
Rulemaking.

In reaching the tentative
agreement, we did not admit any wrongdoing and remain free to continue our
current maintenance practices, as well as implement future projects for improved
reliability. If the settlement is not completed, we intend to defend the suit
vigorously in court. In such an event, it is not possible to determine the
likelihood that the plaintiffs would prevail on their claims or whether
resolution of this matter would have a material effect on our financial
condition or results of operations.

(e)     Manufactured Gas Plant (MGP) Sites

(i)     General     Prior to the 1950s, gas was produced at MGP sites through a process that involved
the heating of coal and/or oil.  The gas produced from this process was sold for residential, commercial, and
industrial uses.

(ii)     PSI     Coal tar residues, related hydrocarbons, and various metals associated with MGP sites
have been found at former MGP sites in Indiana, including at least 21 sites which PSI or its predecessors
previously owned.  PSI acquired four of the sites from Northern Indiana Public Service Company (NIPSCO) in 1931.
At the same time, PSI sold NIPSCO the sites located in Goshen and Warsaw, Indiana.  In 1945, PSI sold 19 of these
sites (including the four sites it acquired from NIPSCO) to the predecessor of the Indiana Gas Company, Inc.
(IGC).  IGC later sold the site located in Rochester, Indiana, to NIPSCO.

IGC (in 1994) and NIPSCO
(in 1995) both made claims against PSI. The basis of these claims was that PSI
is a Potentially Responsible Party with respect to the 21 MGP sites under the
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA).
The claims further asserted that PSI was legally responsible for the costs of
investigating and remediating the sites. In August 1997, NIPSCO filed suit
against PSI in federal court claiming recovery (pursuant to CERCLA) of
NIPSCOs past and future costs of investigating and remediating MGP-related
contamination at the Goshen MGP site.

In November 1998, NIPSCO,
IGC, and PSI entered into a Site Participation and Cost Sharing Agreement. This
agreement allocated CERCLA liability for past and future costs at seven MGP
sites in Indiana among the three companies. As a result of the agreement,
NIPSCOs lawsuit against PSI was dismissed. The parties have assigned lead
responsibility for managing further investigation and remediation activities at
each of the sites to one of the parties. Similar agreements were reached between
IGC and PSI that allocate CERCLA liability at 14 MGP sites with which NIPSCO was
not involved. These agreements concluded all CERCLA and similar claims between
the three companies related to MGP sites. The parties continue to investigate
and remediate the sites, as appropriate under the agreements and applicable
laws. The Indiana Department of Environmental Management (IDEM) oversees
investigation and cleanup of some of the sites.

PSI notified its insurance
carriers of the claims related to MGP sites raised by IGC, NIPSCO, and the IDEM.
In April 1998, PSI filed suit in Hendricks County Circuit Court in the State of
Indiana (Court) against its general liability insurance carriers. Subsequently,
PSI sought a declaratory judgment to obligate its insurance carriers to (1)
defend MGP claims against PSI, or (2) pay PSIs costs of defense and
compensate PSI for its costs of investigating, preventing, mitigating, and
remediating damage to property and paying claims related to MGP sites. The Court
rescheduled the trial date for the case from May 2001 to January 2002. The Court
ordered the parties to submit the case to mediation in February 2001. The
mediation was not successful in resolving PSIs claims against all of the
insurance carriers. Settlement discussions with some of the insurance carriers
have been ongoing. At the present time, PSI cannot predict either the progress
or outcome of these discussions or the outcome of this litigation.

PSI has accrued costs for
the sites related to investigation, remediation, and groundwater monitoring to
the extent such costs are probable and can be reasonably estimated. PSI does not
believe it can provide an estimate of the reasonably possible total remediation
costs for any site before a remedial investigation/feasibility study has been
completed. To the extent remediation is necessary, the timing of the remediation
activities impacts the cost of remediation. Therefore, PSI currently cannot
determine the total costs that may be incurred in connection with the
remediation of all sites, to the extent that remediation is required. According
to current information, these future costs at the 21 Indiana MGP sites are not
material to our financial condition or results of operations. As further
investigation and remediation activities are performed at these sites, the
potential liability for the 21 Indiana MGP sites could be material to our
financial position or results of operations.

(iii)     CG&E     CG&E and its utility subsidiaries are aware of potential sites where MGP
activities have occurred at some time in the past.  None of these sites is known to present a risk to the
environment.  CG&E and its utility subsidiaries have begun preliminary site assessments to obtain information
about some of these MGP sites.

(f)     Gas Customer Choice      In
January 2000, Cinergy Investments, Inc. (Investments) sold Cinergy Resources,
Inc. (CRI), a former subsidiary, to Licking Rural Electrification, Inc. doing
business as The Energy Cooperative (Energy Cooperative). In February 2001,
Cinergy, CG&E and CRI were named as defendants in three class actions
lawsuits. These lawsuits are in connection with Energy Cooperative's removal
from the Ohio Gas Customer Choice program and the failure to deliver gas to
customers. Subsequently, these class action suits were amended and consolidated
into one suit. CG&E has been dismissed as a defendant in the
consolidated suit. On March 30, 2001, Cinergy, CG&E and Investments were
named as defendants in a lawsuit filed by both Energy Cooperative and CRI. This
lawsuit concerns any obligations or liability Investments may have to Energy
Cooperative following its sale of CRI. We intend to vigorously defend these
lawsuits. At the present time, Cinergy cannot predict the outcome of these
suits.

(g)     Other     In compliance
with an electric wholesale rate case settlement adopted by the Federal Energy
Regulatory Commission (FERC) effective February 2000, CG&E reduced the
cost of fuel reflected in its wholesale base rates and revised its wholesale
fuel adjustment factor. Beginning March 1, 2000, The Union Light, Heat and Power
Company (ULH&P) began passing through to retail customers the fuel costs
incurred pursuant to the revised wholesale fuel adjustment factor but did not
synchronize the cost of fuel reflected in retail base rates with the reduced
cost of fuel reflected in wholesale base rates. As a result, on an annual basis,
ULH&P is recovering and recognizing as revenue approximately $18 million
more in costs than it incurred. While ULH&P believes its position is
consistent with applicable rate regulation, the issue was brought to the
Kentucky Public Service Commission (KPSC) for a final determination. In March
2001, a tentative settlement with the KPSC staff was reached which, if approved
by the KPSC, would allow ULH&P to retain the revenues collected to date
and maintain retail base rates at their current level. On May 11, 2001, the
settlement was approved by the KPSC.

### 4.     Financial Information by Business Segment

As discussed in the 2000
Form 10-K, in early 2001, Cinergy announced certain organizational changes which
further aligned the business units to reflect Cinergys strategic vision.
The revised structure has three business units, as follows:

- Energy Merchant Business Unit (Energy Merchant);
- Regulated Businesses Business Unit (Regulated Businesses); and
- Power Technology and Infrastructure Services Business Unit (PTIS).

Energy Merchant manages
wholesale generation and the buying and selling of energy commodities. Energy
Merchant earns revenues from the electric generation and the operation of power
plants; wholesale energy trading, marketing, and risk management; and customized
energy solutions.

Regulated Businesses
consists of a regulated, integrated utility, and regulated electric and gas
transmission and distribution services. Regulated Businesses plans, constructs,
operates, and maintains the Cinergy operating companies' transmission and
distribution systems and delivers gas and electric energy to consumers.
Regulated Businesses also earns revenues from wholesale customers primarily by
transmitting electric power through Cinergys transmission system.

PTIS primarily manages the
development, marketing, and sales of our non-regulated retail energy and
energy-related products and services. Products and services offered by PTIS
include energy management and consulting services to commercial customers that
operate retail facilities; utility operations and infrastructure services to
utilities; and building and maintaining fiber optic telecommunication networks
for businesses, municipalities, telecommunications carriers, and schools. PTIS
also manages Cinergy Ventures, LLC (Ventures), the company's venture capital
subsidiary. Ventures invests in emerging energy technologies with promising
commercial applications that can benefit future PTIS business development
activities.

Financial results by
business unit for the quarters ended March 31, 2001 and 2000, are as indicated
below. Amounts for the prior year have been restated to reflect segment
restructuring which includes the consolidation of the former International
Business unit into the Energy Merchant and Regulated Businesses business units.
This restructuring became effective January 1, 2001.

---

`Business Units
                                          Cinergy Business Units
                                 Energy          Regulated                                                     Reconciling
                              Merchant(5)      Businesses(5)       PTIS           Total       All Other (1)    Eliminations (2)  Consolidated
                                             (in thousands)
                                                                                       2001
Operating revenues -
  External customers          $2,874,277 (4)    $ 817,811         $ 14,441      $3,706,529      $     -        $       -          $3,706,529
  Intersegment revenues          35,203                 -                -          35,203            -          (35,203)                  -
Segment profit (loss) (3)        39,295            85,750           (4,798)        120,247            -                -             120,247

                                                                                       2000
Operating revenues -
  External customers          $ 704,642 (4)     $ 859,948         $ 18,487      $1,583,077      $     -        $       -          $1,583,077
  Intersegment revenues         241,588                 -                -         241,588            -         (241,588)                  -
Segment profit (loss) (3)        51,277            87,772             (610)        138,439            -                -             138,439


(1)  The All Other category represents miscellaneous corporate items, which are not allocated to business units for purposes of segment performance measurement.
(2)  The Reconciling Eliminations category eliminates the intersegment revenues of Energy Merchant.
(3)  Management utilizes segment profit (loss) to evaluate segment performance.
(4)  The increase in 2001 as compared to 2000 is primarily due to the increase in volumes and average price realized on non-firm wholesale transactions.
(5)  Effective January 2001, electric customer choice legislation was implemented in Ohio.  For comparative purposes, the estimated pro forma adjustment to reflect
    this effect on first quarter 2000 results would be as follows:`

`Regulated
                                             Energy Merchant   Businesses
                    Operating revenues           (31,297)        31,297
                    Segment profit (loss)        (11,091)        11,091`

---

Total segment assets at
March 31, 2001 and December 31, 2000, are as indicated below.

---

`Business Units
                                                           Cinergy Business Units
                                                     Energy        Regulated
                                                    Merchant      Businesses         PTIS            Total        All Other (1)        Consolidated
                                                                (in thousands)

Total segment assets at March 31, 2001            $5,921,620        $6,794,748     $184,118        $12,900,486       $37,050             $12,937,536
Total segment assets at December 31, 2000          5,947,824         6,162,141      177,275         12,287,240        42,488              12,329,728

(1)  The All Other category represents miscellaneous corporate items, which are not allocated to business units for purposes of segment performance
measurement.`

---

### 5.     Earnings Per Common Share

A reconciliation of earnings per common share (EPS) to earnings per common share assuming dilution (diluted EPS)
is presented below:

---

`Income        Shares      EPS
                                           (in thousands, except per share amounts)

Quarter ended March 31, 2001
EPS:
   Net income                                $120,247      158,989     $0.76

Effect of dilutive securities:
   Common stock options                                       961
   Share saver plan common stock                               33
   Directors' compensation plans                              140
   Contingently issuable common stock                         300

EPS-assuming dilution:
   Net income plus assumed conversions       $120,247      160,423     $0.75

Quarter ended March 31, 2000
EPS:
   Net income                                $138,439      158,923     $0.87

Effect of dilutive securities:
   Common stock options                                         9
   Contingently issuable common stock                         343

EPS-assuming dilution:
   Net income plus assumed conversions       $138,439      159,275     $0.87`

---

Options to purchase shares
of common stock are excluded from the calculation of diluted EPS when the
exercise prices of these options are greater than the average market price of
the common shares during the period. For the quarters ended March 31, 2001, and
2000, approximately two million and seven million shares, respectively, were
excluded from the diluted EPS calculation.

### 6.     Ohio Deregulation

As discussed in the 2000
Form 10-K, on July 6, 1999, Ohio Governor Robert Taft signed Amended Substitute
Senate Bill No. 3 (Electric Restructuring Bill), beginning the transition to
electric deregulation and customer choice for the state of Ohio. The Electric
Restructuring Bill created a competitive electric retail service market
effective January 1, 2001. The legislation provided for a market development
period that began January 1, 2001, and ends no later than December 31, 2005.

On May 8, 2000,
CG&E reached a stipulated agreement with the Public Utilities Commission
of Ohio (PUCO) staff and various other interested parties with respect to its
proposal to implement electric customer choice in Ohio effective January 1,
2001. On August 31, 2000, the PUCO approved CG&Es stipulation
agreement. Two parties filed applications for rehearing with the PUCO. On
October 18, 2000, the PUCO denied these applications. One of the parties
appealed to the Ohio Supreme Court in the fourth quarter of 2000 and
CG&E subsequently intervened in that case. On April 6, 2001,
CG&E filed for dismissal of this appeal. CG&E is unable to
predict the outcome of this proceeding.

As previously discussed,
the August 31, 2000 order authorizes CG&E to transfer its generation
assets to one or more non-regulated corporate subsidiary(ies). This transfer may
require the approval or consent of one or more of the following regulatory
agencies: the Indiana Utility Regulatory Commission, the KPSC, the FERC, the
Securities and Exchange Commission under the Public Utility Holding Company Act
of 1935, as amended, and various third parties. As the transfer is contingent
upon CG&E receiving various consents and approvals, the timing and
receipt of which are unknown, the completion date of the transfer of generation
assets to the non-regulated subsidiary(ies) is uncertain.

### 7.     Power Trading

Contracts within the
trading portfolio of the power marketing and trading operations are primarily
with power marketers and other investor-owned utilities. The majority of these
contracts are for terms of one year or less. Electric power prices can be
extremely volatile, and the market can, at times, lack liquidity. Because of
these issues, credit risk is generally greater than with other commodity
trading, especially when dealing with new market entrants. Credit discounts are
included in the determination of fair value for all open positions in the
power-trading portfolio.

As stated in our 2000 Form
10-K, in 2000 the Western U.S., primarily California, began experiencing
unprecedented price levels for wholesale electricity. Because of the nature of
deregulation in California, Californias two largest utilities have
accumulated significant unpaid obligations, are having difficulty obtaining
capital, and one of these utilities has declared bankruptcy. We continue to
maintain a balanced Western U.S. portfolio and have no unrealized gain positions
directly with these utilities. A significant portion of our Energy risk
management assets and Energy risk management liabilities-current are with
counterparties in the Western U.S. If prices continue at elevated levels or
should these utilities be unable to fund their unpaid obligations, credit
failures by power marketers could result. Given these issues, the fair values of
our positions in the Western U.S. have been adjusted to reflect a higher level
of credit discount. Nonperformance by any of the Western U.S. counterparties
could have a material effect on the operating results of Cinergy, CG&E,
and PSI.

---

### CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION

In this report we discuss
various matters that may make managements corporate vision of the future
clearer for you. This report outlines managements goals and projections
for the future. These goals and projections are considered forward-looking
statements and are based on managements beliefs and assumptions.

Forward-looking statements
involve risks and uncertainties that may cause actual results to be materially
different from the results predicted. Factors that could cause actual results to
differ are often presented with forward-looking statements. In addition, other
factors could cause actual results to differ materially from those indicated in
any forward-looking statement. These include:

- Factors affecting operations, such as:unusual weather conditions;catastrophic weather-related damage;unscheduled generation outages;unusual maintenance or repairs;unanticipated changes in fossil fuel costs, gas supply costs, or availability constraints;environmental incidents; andelectric transmission or gas pipeline system constraints.
- unusual weather conditions;
- catastrophic weather-related damage;
- unscheduled generation outages;
- unusual maintenance or repairs;
- unanticipated changes in fossil fuel costs, gas supply costs, or availability constraints;
- environmental incidents; and
- electric transmission or gas pipeline system constraints.
- Legislative and regulatory initiatives regarding deregulation of the industry,
potential national deregulation legislation and the potential repeal of the
Public Utility Holding Company Act of 1935 (PUHCA).
- The timing and extent of the entry of additional competition in electric or gas
markets and the effects of continued industry consolidation through the pursuit
of mergers, acquisitions, and strategic alliances.
- Regulatory factors such as changes in the policies or procedures that set rates;
changes in our ability to recover capital expenditures for environmental
compliance, purchased power costs and investments made under traditional
regulation through rates; and changes to the frequency and timing of rate
increases.
- Financial or regulatory
accounting principles or policies imposed by governing bodies.
- Political, legal, and economic conditions and developments in the United States
(U.S.) and the foreign countries in which we have a presence. This would include
inflation rates and monetary fluctuations.
- Changing market conditions and other factors related to physical energy and
financial trading activities. These would include price, basis, credit,
liquidity, volatility, capacity, transmission, currency exchange rates, interest
rates, and warranty risks.
- The performance of projects undertaken by our non-regulated businesses and the
success of efforts to invest in and develop new opportunities.
- Availability of, or cost of, capital.
- Employee workforce factors, including changes in key executives, collective
bargaining agreements with union employees, and work stoppages.
- Legal and regulatory delays and other obstacles associated with mergers,
acquisitions, and investments in joint ventures.
- Costs and effects of legal and administrative proceedings, settlements, investigations, and
                claims.  Examples can be found in Note 3 of the "Notes to Financial Statements" in "Part I.
                Financial Information."
- Changes in international, federal, state, or local legislative requirements,
such as changes in tax laws, tax rates, and environmental laws and regulations.

Unless we otherwise have a
duty to do so, the Securities and Exchange Commissions (SEC) rules do not
require forward-looking statements to be revised or updated (whether as a result
of changes in actual results, changes in assumptions, or other factors affecting
the statements). Our forward-looking statements reflect our best beliefs as of
the time they are made and may not be updated for subsequent developments.

### ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In this report Cinergy
(which includes Cinergy Corp. and all of our regulated and non-regulated
subsidiaries) is, at times, referred to in the first person as we,
our, or us.

### INTRODUCTION

In Managements
Discussion and Analysis (MD&A), we explain our general operating
environment, as well as our liquidity, capital resources, and results of
operations. Specifically, we discuss the following:

- factors affecting current and future operations;
- why revenues and expenses changed from period to period; and
- how the above items affect our overall financial condition.

### ORGANIZATION

Cinergy Corp., a Delaware
corporation created in October 1994, owns all outstanding common stock of The
Cincinnati Gas & Electric Company (CG&E) and PSI Energy, Inc.
(PSI), both of which are public utility subsidiaries (operating companies). As a
result of this ownership, we are considered a utility holding company. Because
we are a holding company whose utility subsidiaries operate in multiple states,
we are registered with and are subject to regulation by the SEC under the PUHCA.
Our other principal subsidiaries are:

- Cinergy Services, Inc. (Services) - is a service company that provides our regulated and
                non-regulated subsidiaries with a variety of centralized administrative, management, and support
                services;
- Cinergy Investments, Inc. (Investments) - holds most of our domestic non-regulated,
                energy-related businesses and investments;
- Cinergy Global Resources, Inc. - holds our international businesses and investments and directs
                our renewable energy investing activities (for example, wind farms);
- Cinergy Technologies, Inc. - primarily holds our portfolio of technology related investments; and
- Cinergy Wholesale Energy, Inc. - was formed to act as a holding company for Cinergy's energy
                merchant businesses, including production, as the generation assets eventually become unbundled
                from the utility subsidiaries.

CG&E an Ohio
corporation, is a combination electric and gas public utility company that
provides service in the southwestern portion of Ohio and, through its
subsidiaries, in nearby areas of Kentucky and Indiana. It has three wholly-owned
utility subsidiaries and two wholly-owned non-utility subsidiaries.
CG&Es principal utility subsidiary, The Union Light, Heat and
Power Company (ULH&P), is a Kentucky corporation that provides electric
and gas service in northern Kentucky. CG&Es other subsidiaries are
insignificant to its results of operations.  PSI, an Indiana corporation, is an
electric utility that provides service in north central, central, and southern
Indiana.

The majority of our operating revenues are derived from the sale of electricity and the sale and/or
transportation of natural gas.

In early 2001, we announced
certain organizational changes which further aligned the business units to
reflect Cinergys strategic vision. The revised structure reflects three
business units, as follows:

- Energy Merchant Business Unit  operates power plants, both domestically
and abroad, and conducts all wholesale energy marketing, trading, origination
and risk management services;
- Regulated Businesses Business Unit  operates all gas and electric
transmission and distribution services, both domestically and abroad, and is
responsible for all regulatory planning for the regulated utility businesses of
CG&E, PSI, and ULH&P; and
- Power Technology and Infrastructure Services Business Unit  originates and
manages a portfolio of emerging energy businesses.

See Note 4 of the "Notes to Financial Statements" in "Part I.  Financial Information," for financial information
by business unit.

### LIQUIDITY

In the
Liquidity section, we discuss environmental issues as they relate to
our current and future cash needs. In the Capital Resources section,
we discuss how we intend to meet these capital requirements.

### Environmental Issues

### Ambient Air Standards

As discussed in the 2000
Form 10-K, in 1997 the U.S. Environmental Protection Agency (EPA) revised the
National Ambient Air Quality Standards for ozone and fine particulate matter.
The EPA estimated that it will take up to five years to collect sufficient
ambient air monitoring data to determine fine particulate matter non-attainment
areas. The states will then determine the sources of the particulates and
determine a regional emission reduction plan. We currently cannot predict the
exact amount and timing of required reductions.

On May 14, 1999, the U.S.
Circuit Court of Appeals for the District of Columbia (Court of Appeals) ruled
that both the new eight-hour ozone standard and the fine particulate matter
standard were questionable and were determined to be unenforceable by the EPA.
In June 1999, the EPA appealed the decision. On October 29, 1999, the full Court
of Appeals rejected the EPAs request for reconsideration. In January 2000,
the EPA appealed to the U.S. Supreme Court (Supreme Court) and on February 27,
2001 the Supreme Court upheld the standards in question. However, the Supreme
Court invalidated the EPAs implementation procedure for the portion of the
case dealing with the eight-hour ozone standard. Neither the Court of Appeals
nor the EPA has responded to the ruling to date. We currently cannot determine
the outcome of the future rulings and the effects on future emissions reduction
requirements.

See also Notes 3(a), (b), (c), (d), and (e), respectively, of the "Notes to Financial Statements" in "Part I.
Financial Information."

### CAPITAL RESOURCES

We meet our capital
requirements through a combination of internally generated funds and debt
issuances. We expect to meet our future capital needs through a combination of
internally and externally generated funds, including the issuance of debt and/or
equity securities.

In early May 2001, Cinergy Corp.'s certificate of incorporation was amended to authorize the issuance of preferred
securities in addition to common stock, following approval by the SEC under the PUHCA and the shareholders of
Cinergy Corp.

### Debt

Cinergy Corp. has current
authorization from the SEC under the PUHCA to increase its total capitalization
at December 31, 1999 (excluding retained earnings and accumulated other
comprehensive income) by an additional $5 billion, through issuance of any
combination of equity and debt securities. This increased authorization is
subject to certain conditions, including, among others, that common equity
comprises at least 30% of Cinergy Corp.s consolidated capital structure
and that Cinergy Corp., under certain circumstances, maintains an investment
grade rating on its senior debt obligations.

Short-term Debt     In
connection with the current SEC authorization, Cinergy Corp. has $1.7 billion in
established lines of credit. As of March 31, 2001, $233 million was unused and
available on these lines.

As of March 31, 2001, our
operating companies had regulatory authority to borrow up to a total of $853
million in short-term debt ($453 million for CG&E and its subsidiaries,
including $50 million for ULH&P, and $400 million for PSI). On April 6,
2001, Cinergy Corp. filed an application with the SEC to increase PSIs
authority to $600 million and ULH&Ps authority to $65 million. In
connection with the current authority, CG&E and PSI have established
lines of credit of $15 million and $60 million respectively, of which $15
million for CG&E remained unused and available at March 31, 2001.

On March 21, 2001, Cinergy
Corp. placed a $500 million, 364-day senior revolving credit facility. The
facility is intended to provide short-term, interim financing. Also, on May 4,
2001, Cinergy Corp. placed a $400 million, three-year senior revolving credit
facility. The facility replaced Cinergy Corp.s $400 million, five-year
revolving credit facility that expired on May 6, 2001. Cinergy Corp.s $200
million, three-year revolving credit facility will expire July 20, 2001.

Certain of our
non-regulated subsidiaries also have established lines of credit. As of March
31, 2001, $3 million was unused and available on these established lines. Our
non-regulated subsidiaries have the availability of funds from Cinergy Corp. if
the need arises.

Commercial Paper     As of
March 31, 2001, the commercial paper program is limited to a maximum outstanding
principal amount of $800 million for Cinergy Corp. In early 2001, Cinergy Corp.
expanded the commercial paper program to this amount and reduced the established
lines of credit at CG&E and PSI. The expansion of the commercial paper
program at the Cinergy Corp. level will, in part, support the short-term
borrowing needs of CG&E and PSI and will eliminate the need for
commercial paper programs at CG&E and PSI. The Cinergy Corp. commercial
paper program expansion is supported by the new $400 million, 364-day revolving
credit facility that was placed in early 2001. As of March 31, 2001, Cinergy
Corp. had issued $309 million in commercial paper.

Long-term Debt     Under the
PUHCA authorization mentioned above, we are able to issue and sell long-term
debt at the parent holding company level. As of March 31, 2001, Cinergy Corp.
had $400 million of long-term debt outstanding. As of March 31, 2001,
CG&E, PSI, and ULH&P have remaining state regulatory authority
for long-term debt issuances of $200 million, $346 million, and $30 million,
respectively. We may, at any time, request additional long-term debt
authorization, which is subject to regulatory approval.

Variable Rate Pollution
Control Notes     CG&E and PSI have issued variable rate pollution control
notes (tax-exempt notes obtained to finance equipment or land development for
pollution control purposes). Because the holders of these notes have the right
to redeem their notes on any business day, they are reflected in Notes payable
and other short-term obligations in the Consolidated Balance Sheets for Cinergy
(Cinergy Corp. and all of its regulated and non-regulated subsidiaries),
CG&E, and PSI. At March 31, 2001, CG&E and PSI had $184 million
and $83 million, respectively, outstanding in pollution control notes.

Money Pool     Cinergy Corp.,
Services, and our operating companies and their subsidiaries participate in a
money pool arrangement to better manage cash and working capital requirements.
Under this arrangement, those companies with surplus short-term funds provide
short-term loans to others. This surplus cash may be from internal or external
sources. The amounts outstanding under this money pool arrangement are shown as
Notes receivable from affiliated companies or Notes payable to affiliated
companies on the Consolidated Balance Sheets for CG&E and PSI and on the
Balance Sheets for ULH&P.

### Guarantees

We are subject to a SEC
order under the PUHCA, which limits the amounts Cinergy Corp. can have
outstanding under guarantees (promises to pay by one party in the event of
default by another party) at any one time to $2 billion. As of March 31, 2001,
we had $1.1 billion outstanding under the guarantees issued. This amount
represents Cinergy Corp.s guarantees of liabilities and commitments of our
consolidated subsidiaries, unconsolidated subsidiaries, and joint ventures.

### 2001 RESULTS OF OPERATIONS

### SUMMARY OF RESULTS

Electric and gas margins and net income for Cinergy, CG&E, and PSI for the quarters ended March 31, 2001 and 2000
were as follows:

---

`Cinergy (1)       CG&E and subsidiaries           PSI
                                2001         2000     2001          2000       2001        2000
                                                        (in thousands)

   Electric gross margin      $ 528,804   $ 565,919  $ 272,065   $ 297,666   $ 227,453   $ 262,323
   Gas gross margin             103,212      92,583     86,802      88,846           -           -
   Net income                   120,247     138,439     81,575      95,964      41,432      50,213

     (1) The results of Cinergy also include amounts related to non-registrants.`

---

Diluted earnings per share
for the first quarter 2001 was $.75 per share as compared to $.87 per share for
the same period last year. The decrease in earnings is primarily attributable to
the effects of implementation of customer choice legislation in Ohio, reduced
industrial demand and higher interest and depreciation expenses, reflecting
increased investment activity over the past twelve months.

The explanations below
follow the line items on the Statements of Income for Cinergy, CG&E, and
PSI. However, only the line items that varied significantly from prior periods
are discussed.

---

`ELECTRIC OPERATING REVENUES


                      Cinergy (1)               CG&E and subsidiaries                PSI
              2001      2000     % Change    2001      2000      % Change    2001   2000   % Change
                                                    (in millions)
Retail       $   628  $   650       (3)     $ 339     $ 351         (3)     $ 289  $ 298      (3)
Wholesale      1,170      384      205        586       182        222        619    227     173
Other             77       33      133          8         5         60          8      9     (11)
  Total      $ 1,875  $ 1,067       76      $ 933     $ 538         73      $ 916  $ 534      72

     (1) The results of Cinergy also include amounts related to non-registrants.`

---

Electric operating revenues
for Cinergy, CG&E, and PSI increased for the quarter ended March 31,
2001, as compared to 2000, mainly due to an increase in volumes on non-firm
wholesale transactions related to energy marketing and trading activity.
Non-firm power is power without a guaranteed commitment for physical delivery.
Partially offsetting this increase was a decrease in the average realization on
retail sales, reflecting, in part, the expiration of certain interim tariff
adjustments (riders).

---

`GAS OPERATING REVENUES


                           Cinergy (1)              CG&E and subsidiaries
                   2001       2000   % Change       2001    2000  % Change
                                         (in millions)
 Non-regulated    $ 1,489    $ 321     364          $   -   $   -     -
 Retail               307      154      99            307     154    99
 Transportation        16       22     (27)            16      22   (27)
 Other                  2        2       -              2       2     -
    Total         $ 1,814    $ 499     264          $ 325   $ 178    83

     (1) The results of Cinergy also include amounts related to non-registrants.`

---

Gas operating revenues for
Cinergy increased in the first quarter of 2001, when compared to the same period
last year. This increase is primarily the result of increased volumes and a
higher price received per thousand cubic feet (mcf) sold by Cinergy Marketing
and Trading, LLC.

CG&Es retail
gas revenues increased primarily due to a higher price received per mcf sold and
an increase in retail gas sales resulting from colder weather in the first
quarter of 2001. The higher price reflects a substantial increase in the
wholesale gas commodity cost, which is passed directly to the retail customer
dollar-for-dollar under the state mandated gas cost recovery mechanism. Retail
sales increased and transportation revenues decreased as a result of
approximately 30,000 customers switching back to CG&E gas service.

---

`OPERATING EXPENSES


                                    Cinergy (1)           CG&E and subsidiaries                PSI

                              2001     2000   % Change    2001      2000   % Change  2001      2000  % Change
                                                               (in millions)
Fuel                          $  200  $  186       8    $   96     $  82       17   $  99     $  99       -
Purchased and
  exchanged power              1,146     315     264       565       158      258     589       172     242
Gas purchased                  1,711     406     321       238        90      164       -         -       -
Operation and maintenance        249     252      (1)      112       112        -      91       111     (18)
Depreciation and
  amortization                    89      83       7        46        44        5      37        35       6
Taxes other than income           63      66      (5)       47        50       (6)     15        15
   taxes                                                                                                  -
  Total                       $3,458  $1,308     164    $1,104     $ 536     106    $ 831     $ 432      92

     (1) The results of Cinergy also include amounts related to non-registrants.`

---

Fuel represents the cost of coal, natural gas, and oil that is used to generate electricity.   The following
table details the changes to fuel expense from the quarter ended March 31, 2000, to the quarter ended March 31,
2001:

---

`Cinergy (1)       CG&E        PSI
                                                   (in millions)
Fuel expense - March 31, 2000          $ 186           $ 82        $ 99

Increase (Decrease) due to changes in:
Price of fuel                             21             12           9
Deferred fuel cost                        (1)             -          (1)
MWh generation                            (6)             2          (8)
Fuel expense - March 31, 2001          $ 200           $ 96        $ 99

     (1) The results of Cinergy also include amounts related to non-registrants.`

---

Purchased and exchanged
power increased for Cinergy, CG&E, and PSI for the first quarter of 2001
as compared to last year, primarily due to an increase in purchases of non-firm
wholesale power, reflecting higher sales volumes in the energy marketing and
trading operations.

Gas purchased expense
increased for Cinergy and CG&E for the first quarter of 2001, when
compared to the same period last year, primarily due to increased gas commodity
trading volumes and an increase in the average cost per mcf of gas purchased.
The wholesale commodity cost is passed directly to the retail customer
dollar-for-dollar under the gas cost recovery mechanism.

PSIs Operation and
maintenance expense decreased for the quarter ended March 31, 2001, as compared
to the same period last year, due in part to the discontinuation of contract
fees associated with the coal gasification services agreement that was
terminated in 2000. Also contributing to this decrease was a reduction in the
amortization of demand-side management costs, resulting from the expiration of
the agreement in May 2000.

Cinergys,
CG&Es, and PSIs Depreciation and amortization costs
increased for the quarter ended March 31, 2001, as compared to the same period
last year, primarily due to additions to depreciable plant.

### INTEREST

Cinergys Interest
expense increased $12.1 million for the first quarter of 2001, when compared to
the same period last year. This increase is primarily due to the financing
activities related to our non-regulated affiliates. PSIs expense decreased
$2.1 million, when compared to the first quarter of 2000, primarily due to the
net redemption of long-term debt and an increase in the allowance for funds used
during construction. Partially offsetting this decrease was an increase in
interest related to borrowings under the money pool.

### ULH&P

The Results of Operations
discussion for ULH&P is presented only for the quarter ended March 31,
2001, in accordance with General Instruction H(2)(a) of Form 10-Q.

Electric and gas margins
and net income for ULH&P for the quarters ended March 31, 2001 and 2000
were as follows:

---

`ULH&P
                                         2001          2000
                                          (in thousands)

    Electric gross margin             $ 17,758      $ 14,077
    Gas gross margin                    16,250        15,493
    Net income                          13,855         8,146`

---

Electric operating revenues
for the quarter ended March 31, 2001, compared to last year, increased mainly
due to higher megawatt hour (MWh) sales. Also contributing to this increase was
the effects of a Federal Energy Regulatory Commission (FERC) wholesale rate case
that became effective during 2000. For further information see Note 3(g) in the
Notes to Financial Statements in Part I. Financial
Information. Electricity purchased from parent company for resale
increased due to higher MWh sales.

The increase in Gas
operating revenues for the quarter ended March 31, 2001, compared to last year,
was mainly due to a higher price received per mcf sold. Gas purchased expense
increased due to an increase in the average cost per mcf of gas purchased. The
market price of natural gas has increased significantly since the first quarter
of 2000, which has caused ULH&P to pay more for the gas it delivers to
customers. The wholesale gas commodity cost is passed directly to the retail
customer dollar-for-dollar under the gas cost recovery mechanism that is
mandated under state law.

The increase in
Depreciation and amortization costs for the quarter ended March 31, 2001, as
compared to the same period last year, was primarily due to an increase in
depreciable plant.

### ELECTRIC INDUSTRY

### Wholesale Market Developments

Supply-side Actions     As
discussed in the 2000 Form 10-K, on September 30, 1999, one of our non-regulated
subsidiaries formed a partnership (each party having a 50 percent ownership)
with Duke Energy North America LLC, to increase the available generating
capacity for use during peak demand periods. The partnership was formed for the
purpose of jointly constructing and owning three wholesale generating
facilities.

On March 9, 2000, the
Indiana Utility Regulatory Commission (IURC) issued an order, requiring the
partnership to immediately suspend all construction activities at the site
located near Cadiz, (Henry County) Indiana (a peaking plant with a total
capacity of 129 megawatts (MW) of which we own 65 MW). In making this decision
the IURC found that it needed additional information related to the project
before issuing a final decision. The issues raised were air quality, water
supply, noise control, landscaping, plant abandonment, and emergency services
training. The IURC held a hearing on this matter on November 17, 2000, and a
favorable ruling was received on April 23, 2001. Construction has resumed and is
expected to be completed by July 2001. With regard to this facility, we have
entered into a contract with the Wabash Valley Power Association, Inc. to
provide 50 MW of capacity from the facility for the next 20 years.

On March 23, 2001, Cinergy
Capital & Trading, Inc., an energy merchant-focused affiliate of Cinergy
Corp., announced that it had completed the acquisition of two merchant
generating facilities in the Southeast U.S. from Enron. The acquisition consists
of the 494 MW Brownsville generation facility located in Haywood County,
Tennessee and the 504 MW Caledonia generation facility located in Lowndes
County, Mississippi. Brownsville has four natural gas-fired combustion turbines
and Caledonia has six.

In addition to the above
mentioned facilities, CG&E and PSI also have an additional 856 MW of
natural gas-fired peaking capacity. These units are used to meet the demand for
electric commodity in periods of high electric use by our customers. In the
latter part of 2000, natural gas was selling at record prices. If it is
necessary for Cinergy to call upon the use of our natural gas-fired peakers, the
cost of natural gas will directly affect Cinergys cost to supply the
electric commodity to our customers.

As stated in the 2000 Form
10-K, Cinergy has 9,764 MW of coal-fired generation and we consume approximately
27 million tons of coal annually. Cinergy procures the majority of its coal
through long-term supply contracts. The remainder is purchased in the spot
market, which recently has experienced significant price increases. These price
increases will have a direct effect upon Cinergys cost to supply the
electric commodity to our customers.

With the implementation of
electric deregulation in the state of Ohio and the associated termination of the
fuel cost recovery mechanism, CG&E may not fully recover its retail
related fuel costs.

### Retail Market Developments

Federal Update     President
Bush has indicated that legislation addressing the energy security needs of
America deserves prompt consideration. He has appointed Vice President Cheney to
head an interagency-task force to recommend a course of action. The task force
is looking into ways to increase the supply of electricity, oil and natural gas.
The task force is also looking at the energy shortages in California. The start
of a new congressional session and presidential administration makes
comprehensive electric industry deregulation uncertain in the near future.

Ohio     As discussed in the
2000 Form 10-K, on July 6, 1999, Ohio Governor Robert Taft signed Amended
Substitute Senate Bill No. 3 (Electric Restructuring Bill), beginning the
transition to electric deregulation and customer choice for the state of Ohio.
The Electric Restructuring Bill created a competitive electric retail service
market effective January 1, 2001. The legislation provided for a market
development period that began January 1, 2001, and ends no later than December
31, 2005.

On May 8, 2000,
CG&E reached a stipulated agreement with the Public Utilities Commission
of Ohio (PUCO) staff and various other interested parties with respect to its
proposal to implement electric customer choice in Ohio effective January 1,
2001. On August 31, 2000, the PUCO approved CG&Es stipulation
agreement. Two parties filed applications for rehearing with the PUCO. On
October 18, 2000, the PUCO denied these applications. One of the parties
appealed to the Ohio Supreme Court in the fourth quarter of 2000 and
CG&E subsequently intervened in that case. On April 6, 2001,
CG&E filed for dismissal of this appeal. CG&E is unable to
predict the outcome of this proceeding.

The August 31, 2000 order
authorizes CG&E to transfer its generation assets to one or more
non-regulated corporate subsidiary(ies). This transfer may require the approval
or consent of one or more of the following regulatory agencies: the IURC, the
Kentucky Public Service Commission (KPSC), the FERC, the SEC under the PUHCA,
and various third parties. As the transfer is contingent upon CG&E
receiving various consents and approvals, the timing and receipt of which are
unknown, the completion date of the transfer of generation assets to the
non-regulated subsidiary(ies) is uncertain.

### Midwest Independent Transmission System Operator, Inc. (Midwest ISO)

As discussed in the 2000
Form 10-K, in the fall of 2000, three transmission owners (Departing Companies)
announced their intent to leave the Midwest ISO and join the proposed Alliance
Regional Transmission Organization (Alliance) by the end of 2001. On December
13, 2000, six additional transmission owners, including Cinergy, announced a
plan for conditional withdrawal from the Midwest ISO if the Departing Companies
left the organization.

On January 24, 2001, the
FERC issued an order providing 30 days of confidential settlement talks between
the Alliance and the Midwest ISO and its stakeholders, in an effort to resolve
issues related to such withdrawals. Cinergy actively participated in the
settlement process. On February 23, 2001, the settlement judge reported to the
FERC that settlement talks produced a unanimous comprehensive settlement between
all related parties. The settlement includes three major components:

- a commitment by the Midwest ISO and the Alliance to establish compatible/common operating
                practices and protocols to promote a seamless market within the Midwest;
- a commitment by the three Departing Companies to pay the Midwest ISO $60 million
as their share of the Midwest ISOs startup costs as well as other
commercial considerations; and
- agreement upon a methodology to establish a single within rate for
energy transactions that take place entirely within the Midwest ISO-Alliance
Super Region, and a commitment by the Midwest ISO, Alliance, and PJM
Interconnection, L.L.C. to establish a single through and out rate
for transactions among the three regional transmission organizations.

The settlement, which was
signed by Cinergy, was filed on March 21, 2001. On May 8, 2001 the FERC approved
the settlement. With the FERC approved settlement, the Departing Companies will
be permitted to leave the Midwest ISO, and the other transmission owner members
of the Midwest ISO, including Cinergy, will remain as members of the Midwest ISO
until at least December 31, 2002. Also, as part of the settlement, both
organizations have committed to begin operations by the end of 2001.

### Repeal of PUHCA

Early in 2001, S.206, a bill to repeal the PUHCA was introduced in the U.S. Senate (Senate).  It has been
referred to the Senate Committee on Banking, Housing and Urban Affairs for action.  Consequently, a hearing was
held in the Subcommittee on Securities and Investment to identify support and opposition to this legislation.  S.
206 is now awaiting action by the full Senate Committee on Banking, Housing and Urban Affairs.  In addition,
PUHCA repeal is part of Title VIII of S. 388, a bill introduced in the Senate that deals with a multitude of
issues concerning national energy security.  S. 388 is now pending before the Senate Committee on Energy and
Natural Resources.

In March 2001 H.R. 1101, a bill to repeal the PUHCA, was introduced in the U.S. House of Representatives as a
companion piece of legislation to S. 206.  It has been referred to the House Committee on Energy and Commerce for
action.

President Bush has
identified the need for the repeal of the PUHCA as a priority of the federal
energy legislation. We support the repeal of the PUHCA either as part of broader
restructuring of the electricity industry or as separate legislation.

### Significant Rate Developments

Purchased Power Tracker     As
discussed in the 2000 Form 10-K, in May 1999, PSI filed a petition with the IURC
seeking approval of a purchased power tracking mechanism (Tracker). This request
was designed to provide for the recovery of costs related to purchases of power
necessary to meet native load requirements to the extent such costs are not
sought through the existing fuel adjustment clause.

Amounts relating to
PSIs 2000 purchases (approximately $20 million) have been deferred for
subsequent recovery. A hearing was held on March 15, 2001 to review PSIs
2000 purchases and rule on its associated request for recovery of costs. An IURC
order in this continuing phase is expected in the second quarter of 2001.

A hearing was held on
February 15, 2001 to determine whether it was appropriate for PSI to continue
the Tracker for future periods. On April 11, 2001, a favorable order was
received. The Tracker was extended for two years, through the summer of 2002.
PSI is authorized to recover 90% of its purchased power expenses through the
Tracker (net of the displaced energy portion recovered through the fuel recovery
process and net of the mitigation credit portions), with the remaining 10%
deferred for subsequent recovery in PSI's next general rate case (subject to a
showing of prudence).

Purchased Power Agreement     
ULH&P purchases its energy from CG&E pursuant to a FERC-approved
contract that is due to expire on December 31, 2001. On March 20, 2001, a
hearing was held before the KPSC on a proposed new five-year wholesale power
supply agreement that provides for the collection of the wholesale amounts
through retail rates. The power supply pass-through to retail rates will be
frozen until December 31, 2006, and the transmission and distribution portion of
retail rates cannot be changed before January 1, 2004.  On May, 11, 2001, the agreement was approved
by the KPSC.

Termination of Operating
Agreement     Upon consummation of the merger between CG&E and PSI Resources
Inc. in 1994, an operating agreement entered into between CG&E, PSI, and
Services was filed with and approved by the FERC. This agreement was established
to provide for the coordinated planning and operation of the two regulated
entities' generation and transmission systems, and addressed issues such as
joint dispatch of the generating systems, joint capacity and environmental
compliance planning, and coordinated planning and operation of the joint
transmission system.

In October 2000,
CG&E, PSI, and Services filed a notice of termination of the operating
agreement with the FERC. The reason for the termination filing is that, with the
introduction of deregulation in the state of Ohio, the companies no longer share
the common characteristics that formed the basis for the operating agreement. On
December 22, 2000, the FERC ruled that the companies have the contractual right
to terminate the operating agreement. Additionally, the FERC established a
termination effective date of May 22, 2001, and set a May 1, 2001, hearing date
on the issue of the reasonableness of termination.

Certain parties have
initiated an appeal of the FERC's December 22, 2000 decision. Additionally, on
March 14, 2001, the IURC initiated an investigation into the termination of the
operating agreement. The parties filed a settlement with the FERC on May 9,
2001, resolving termination issues and certain compensation and damage issues.
This settlement, which is pending FERC approval, extends the termination of the
existing operating agreement until a new successor agreement has been allowed to
become effective by the FERC. The settlement also provides that the parties will
engage in negotiations concerning such a successor agreement and that PSI will
file a proposed successor agreement with the IURC in the IURC investigation
proceeding. As of October 15, 2001, pursuant to the settlement, Cinergy has the
right to file the proposed successor agreement with the FERC for approval. The
parties would then be free to contest the new agreement at the FERC. Also as
part of the settlement, the parties agreed to ultimately dismiss the appeals of
the December 2000 FERC decision, with prejudice, after holding such appeals in
abeyance pending Cinergy's compliance with the terms of the settlement. The
settlement is subject to FERC approval. At this time, we cannot predict the
outcome of this matter.

### MARKET RISK SENSITIVE INSTRUMENTS AND POSITIONS

We market and trade
electricity, natural gas, and other energy-related products. We use
over-the-counter forward and option contracts for the purchase and sale of
electricity and also trade exchange-traded futures contracts.

As stated in our 2000 Form
10-K, in 2000 the Western U.S., primarily California, began experiencing
unprecedented price levels for wholesale electricity. Because of the nature of
deregulation in California, Californias two largest utilities have
accumulated significant unpaid obligations, are having difficulty obtaining
capital, and one of these utilities has declared bankruptcy. We continue to
maintain a balanced Western U.S. portfolio and have no unrealized gain positions
directly with these utilities. A significant portion of our Energy risk
management assets and Energy risk management liabilities-current are with
counterparties in the Western U.S. If prices continue at elevated levels or
should these utilities be unable to fund their unpaid obligations, credit
failures by power marketers could result. Given these issues, the fair values of
our positions in the Western U.S. have been adjusted to reflect a higher level
of credit discount. Nonperformance by any of the Western U.S. counterparties
could have a material effect on the operating results of Cinergy, CG&E,
and PSI.

During the first quarter,
our natural gas trading volumes increased substantially. Because of this volume
change and the increasing volatility of gas prices, our risk exposure to these
markets has increased. However, we continue to employ value-at-risk analysis and
other methodologies to mitigate our risks in all trading operations, including
natural gas trading.

From time to time, we may utilize foreign exchange forward contracts and currency swaps to hedge certain of our
net investments in foreign operations.

Our net exposure to changes
in interest rates primarily consists of debt instruments with floating interest
rates that are benchmarked to various market indices. To manage the exposure to
fluctuations in interest rates and to lower funding costs, we evaluate the use
of, and have entered into, interest rate swaps.

See Notes 1(b) and (c) of
the Notes to Financial Statements in Part I. Financial
Information for our accounting policies for certain derivative
instruments. Our market risks have not changed materially from the market risks
reported in the 2000 Form 10-K.

### GAS INDUSTRY

ULH&P Gas Rate Case     On May 4, 2001, ULH&P filed an application with the KPSC seeking to
increase base rates for natural gas distribution services by approximately $7
million annually, or 8% overall. We expect that any rate change as a result of
this filing will be effective in late 2001. Simultaneously, ULH&P
announced a major gas main replacement program with a capital cost of
approximately $112 million over the next ten years. ULH&P has requested
recovery of the costs of this program through a tracking mechanism.

Gas Customer Choice     In
January 2000, Investments sold Cinergy Resources, Inc. (CRI), a former
subsidiary, to Licking Rural Electrification, Inc. doing business as The Energy
Cooperative (Energy Cooperative). In February 2001, Cinergy, CG&E and
CRI were named as defendants in three class actions lawsuits. These lawsuits are
in connection with Energy Cooperative's removal from the Ohio Gas Customer
Choice program and the failure to deliver gas to customers. Subsequently, these
class action suits were amended and consolidated into one suit. CG&E has
been dismissed as a defendant in the consolidated suit. On March 30, 2001,
Cinergy, CG&E and Investments were named as defendants in a lawsuit
filed by both Energy Cooperative and CRI. This lawsuit concerns any obligations
or liability Investments may have to Energy Cooperative following its sale of
CRI. We intend to vigorously defend these lawsuits. At the present time, Cinergy
cannot predict the outcome of these suits.

### ACCOUNTING CHANGES

During 1998, the Financial
Accounting Standards Board (FASB) issued Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities (Statement 133).
This standard is effective for fiscal years beginning after June 15, 2000, and
requires companies to record derivative instruments which are not exempt under
certain provisions of Statement 133 as assets or liabilities, measured at fair
value (i.e., marked-to-market). Our financial statements reflect the adoption of
Statement 133 in January 2001. Since many of our derivatives were previously
required to use mark-to-market accounting, the effects of implementation are
immaterial.

These effects do not
reflect the potential impact of applying mark-to-market accounting to selected
call options and forwards we use to hedge peak period exposure to electricity
demand. We have not historically marked these instruments to market because they
are intended as hedges of peak period exposure and are not considered trading
instruments. We currently classify these types of instruments as normal
purchases under Statement 133. However, the FASB-sponsored Derivatives
Implementation Group (DIG) has yet to issue final guidance on these types of
instruments. In April 2001, the DIG posted tentative guidance that would
preclude these contracts from qualifying for the normal purchases and sales
exemption. This guidance will not be final until the FASB staff considers all
comments provided during a 35-day comment period. These instruments will require
mark-to-market accounting unless the FASB staff reconsiders its guidance based
on the comments provided. The FASB has scheduled an open meeting with utility
industry representatives to discuss these issues. If ultimately required to mark
these instruments to market, this could result in additional earnings
volatility. At March 31, 2001, the fair value of these instruments was $14
million.

### ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
                                ABOUT MARKET RISK

This information is
provided in, and incorporated by reference from, the Market Risk Sensitive
Instruments and Positions section in Item 2. Managements
Discussion and Analysis of Financial Condition and Results of Operations
in Part I. Financial Information and Notes 1(b) and (c) and Note 7
of the Notes to Financial Statements in Part I. Financial
Information.

---

### PART II. OTHER INFORMATION

### ITEM 1. LEGAL PROCEEDINGS

### NEW SOURCE REVIEW AND NOTICES OF VIOLATION

See Notes 3(b), (c) and (d)
of the Notes to Financial Statements in Part I. Financial
Information for a discussion of the lawsuit and notices of violation filed
by the U.S. Environmental Protection Agency (EPA) against Cinergy, CG&E
and PSI.

### MANUFACTURED GAS PLANT SITES

See Notes 3(e) of the
Notes to Financial Statements in Part I. Financial
Information for a discussion of manufactured gas plant sites as they
relate to our operating companies.

### M METALS SUPERFUND SITE

On July 6, 2000, the EPA
identified PSI and Indianapolis Power and Light Company (IPL) as Potentially
Responsible Parties for the release of hazardous substances at the M Metals
Superfund Site (Site) located in Indianapolis, Indiana. The EPA advised that it
had taken response actions relating to the Site and had incurred costs of
approximately $500,000. The EPA has demanded reimbursement of these costs
incurred related to the Site and has encouraged PSI and IPL to work out an
allocation between themselves for the payment of the costs. On April 19, 2001,
PSI reached an agreement in principle with the EPA. Specific details of the
settlement are still being negotiated.

### GAS CUSTOMER CHOICE

### ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

---

`Class I              Votes For       Votes Withheld

              James K. Baker               136,738,313       3,830,186
              Michael G. Browning          136,815,180       3,753,319
              John A. Hillenbrand II       136,728,275       3,840,224
              George C. Juilfs             136,875,154       3,693,345`

---

Additionally, an amendment
to Article FOURTH of the Certificate of Incorporation of Cinergy Corp.
authorizing the issuance of up to 10,000,000 shares of preferred stock, $.01 par
value, was approved. Cinergy Corp.s Board of Directors will have the right
to establish, for each series of preferred stock issued from time to time, the
series designation and number of shares; dividend rights and rates;
voting, conversion and redemption rights, if any; liquidation rights; powers,
preferences and relative, participating, optional or other special rights, if
any; and any qualifications, limitations or restrictions on those rights.
Cinergy Corp.s Board of Directors believes that the availability of
preferred stock will provide the corporation with increased flexibility in
connection with future financing and similar corporate transactions. The Board
of Directors has adopted resolutions that state that the preferred stock: (i) is
not to be used for the principal purpose of acting as an anti-takeover device
without prior shareholder approval; and (ii) is not to be given super-majority
voting rights. There were 101,007,026 common shares voted for the amendment,
18,708,002 voted against the amendment, 1,864,279 abstentions, and 18,989,192
broker non-votes.

In lieu of the annual
meeting of shareholders of CG&E, a resolution was duly adopted via
unanimous written consent of Cinergy Corp., CG&Es sole
shareholder, effective April 30, 2001, electing the following members of the
Board of Directors for one-year terms expiring in 2002:

- James E. Rogers
- R. Foster Duncan
- William J. Grealis

The annual meeting of
shareholders of PSI was held May 1, 2001, in Cincinnati, Ohio. Proxies were not
solicited for the annual meeting. Cinergy Corp. owns all of the 53,913,701
outstanding shares, representing a like number of votes, of the common stock of
PSI. By unanimous vote, the following members of the Board of Directors were
re-elected at the annual meeting for one-year terms expiring in 2002:

- Vicky A. Bailey
- James K. Baker
- Michael G. Browning
- John A. Hillenbrand II
- James E. Rogers

None of the 651,136 outstanding shares, representing 423,478 votes, of the preferred stock of PSI, were present
or voted at the annual meeting.

### ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)     The documents listed below are being filed or have previously been filed on
behalf of Cinergy Corp., CG&E, PSI, and ULH&P and are
incorporated herein by reference from the documents indicated and made a part
hereof. Exhibits not identified as previously filed are filed herewith:

---

|ExhibitDesignationArticles ofIncorporation/By-Laws
3a3b4aMaterialContracts10a | RegistrantCinergyCinergy Corp.Cinergy Corp.CG&E
Cinergy Corp.CG&EPSI | Nature of ExhibitBy-Laws of Cinergy as amended December 14, 2000.
Certificate of Incorporation of Cinergy Corp., a DelawareCorporation.Thirty-eighth Supplemental Indenture between CG&E andThe Bank of New York dated as of February 1, 2001.Employment Agreement dated February 12, 2001, among Cinergy Corp., Cinergy Services, Inc., CG&E, and PSI, and R. Foster Duncan. | Previously Filedas Exhibit to:Cinergy Corp.2000 Form 10-K.
|----------------------------------------------------------------------------- | -------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------

(b)     No reports on Form 8-K were filed during the quarter.

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### SIGNATURES

Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although Cinergy Corp., The
Cincinnati Gas & Electric Company (CG&E), PSI Energy Inc. (PSI),
and The Union Light, Heat and Power Company (ULH&P) believe that the
disclosures are adequate to make the information presented not misleading. In
the opinion of Cinergy Corp., CG&E, PSI, and ULH&P, these
statements reflect all adjustments (which include normal, recurring adjustments)
necessary to reflect the results of operations for the respective periods. The
unaudited statements are subject to such adjustments as the annual audit by
independent public accountants may disclose to be necessary.

Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrants have duly caused this report to be signed by an officer and the
chief accounting officer on their behalf by the undersigned thereunto duly
authorized.

|Date: May 15, 2001 | CINERGY CORP.THE CINCINNATI GAS & ELECTRIC COMPANYPSI ENERGY, INC.THE UNION LIGHT, HEAT AND POWER COMPANY(Registrants)/s/ Bernard F. RobertsBernard F. RobertsDuly Authorized Officerand
Chief Accounting Officer | 
|------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |