**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**WASHINGTON,      D.C.  20549**

**FORM      10-Q**

**September 30, 2007**

*For      The Transition Period from ____ to ____*

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

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

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

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

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

----

|                                                 |   |   |   **Number                of shares of common stock outstanding of the registrants                at****October                31, 2007** |
|------------------------------------------------------|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                 |   |   |                                                                                                                                                |
| American                Electric Power Company, Inc. |   |   |       400,006,022                                                                                                     |
|                                                 |   |   | ($6.50                par value)                                                                                                                    |
| Appalachian                Power Company             |   |   | 13,499,500                                                                                                                                          |
|                                                 |   |   | (no                par value)                                                                                                                       |
| Columbus                Southern Power Company       |   |   | 16,410,426                                                                                                                                          |
|                                                 |   |   | (no                par value)                                                                                                                       |
| Indiana                Michigan Power Company        |   |   | 1,400,000                                                                                                                                           |
|                                                 |   |   | (no                par value)                                                                                                                       |
| Ohio                Power Company                    |   |   | 27,952,473                                                                                                                                          |
|                                                 |   |   | (no                par value)                                                                                                                       |
| Public                Service Company of Oklahoma    |   |   | 9,013,000                                                                                                                                           |
|                                                 |   |   | ($15                par value)                                                                                                                      |
| Southwestern                Electric Power Company   |   |   | 7,536,640                                                                                                                                           |
|                                                 |   |   | ($18                par value)                                                                                                                      |

----

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

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

**September      30, 2007**

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

|                                                                 |
|----------------------------------------------------------------------|
| **Ohio                Power Company Consolidated:**                  |
|                                                                 | Management’s                Financial Discussion and Analysis |
|                                                                 | Quantitative                and Qualitative Disclosures About Risk Management                Activities |
|                                                                 | Condensed                Consolidated Financial Statements |
|                                                                 | Index                to Condensed Notes to Condensed Financial Statements of Registrant                Subsidiaries |
|                                                                 |   |
| **Public                Service Company of Oklahoma:**               |
|                                                                 | Management’s                Narrative Financial Discussion and Analysis |
|                                                                 | Quantitative                and Qualitative Disclosures About Risk Management                Activities |
|                                                                 | Condensed                Financial Statements |
|                                                                 | Index                to Condensed Notes to Condensed Financial Statements of Registrant                Subsidiaries |
|                                                                 |   |
| **Southwestern                Electric Power Company Consolidated:** |
|                                                                 | Management’s                Financial Discussion and Analysis |
|                                                                 | Quantitative                and Qualitative Disclosures About Risk Management                Activities |
|                                                                 | Condensed                Consolidated Financial Statements |
|                                                                 | Index                to Condensed Notes to Condensed Financial Statements of Registrant                Subsidiaries |
|                                                                 |   |

| Condensed                Notes to Condensed Financial Statements of Registrant                Subsidiaries   |
|--------------------------------------------------------------------------------------------------------------|
|                                                                                                         |   |
| Combined                Management’s Discussion and Analysis of Registrant                Subsidiaries |
|                                                                                                         |   |
| Controls                and Procedures                                                                       |
|                                                                                                         |   |   |
| Part                II.  OTHER INFORMATION                                                         |
|                                                                                                         |
|                                                                                                         | Item                1. | Legal                Proceedings |
|                                                                                                         | Item                1A. | Risk                Factors |
|                                                                                                         | Item                2. | Unregistered                Sales of Equity Securities and Use of Proceeds |
|                                                                                                         | Item                4. | Submission                of Matters to a Vote of Security Holders |
|                                                                                                         | Item                5. | Other                Information |
|                                                                                                         | Item                6. | Exhibits: |
|                                                                                                         |   |   |   |   | Exhibit                12 |
|                                                                                                         |   |   |   |   | Exhibit                31(a) |
|                                                                                                         |   |   |   |   | Exhibit                31(b) |
|                                                                                                         |   |   |   |   | Exhibit                31(c) |
|                                                                                                         |   |   |   |   | Exhibit                31(d) |
|                                                                                                         |   |   |   |   | Exhibit                32(a) |
|                                                                                                         |   |   |   |   | Exhibit                32(b) |
|                                                                                                         |   |   |   |   |   |
| SIGNATURE                                                                                                    |   |

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

----

**GLOSSARY      OF TERMS**

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

| **Term** |   | **Meaning** |
|----------|--------|-------------|

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

| IGCC                                     |   | Integrated                Gasification Combined Cycle, technology that turns coal into a                cleaner-burning gas.                                               |
|------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| IRS                                      |   | Internal                Revenue Service.                                                                                                                                   |
| IURC                                     |   | Indiana                Utility Regulatory Commission.                                                                                                                      |
| I&M                                  |   | Indiana                Michigan Power Company, an AEP electric utility                subsidiary.                                                                          |
| JMG                                      |   | JMG                Funding LP.                                                                                                                                             |
| KPCo                                     |   | Kentucky                Power Company, an AEP electric utility subsidiary.                                                                                                 |
| KPSC                                     |   | Kentucky                Public Service Commission.                                                                                                                         |
| kV                                       |   | Kilovolt.                                                                                                                                                                  |
| KWH                                      |   | Kilowatthour.                                                                                                                                                              |
| LPSC                                     |   | Louisiana                Public Service Commission.                                                                                                                        |
| MISO                                     |   | Midwest                Independent Transmission System Operator.                                                                                                           |
| MTM                                      |   | Mark-to-Market.                                                                                                                                                            |
| MW                                       |   | Megawatt.                                                                                                                                                                  |
| MWH                                      |   | Megawatthour.                                                                                                                                                              |
| NOx                                      |   | Nitrogen                oxide.                                                                                                                                             |
| Nonutility                Money Pool     |   | AEP                System’s Nonutility Money Pool.                                                                                                                   |
| NRC                                      |   | Nuclear                Regulatory Commission.                                                                                                                              |
| NSR                                      |   | New                Source Review.                                                                                                                                          |
| NYMEX                                    |   | New                York Mercantile Exchange.                                                                                                                               |
| OATT                                     |   | Open                Access Transmission Tariff.                                                                                                                            |
| OCC                                      |   | Corporation                Commission of the State of Oklahoma.                                                                                                            |
| OPCo                                     |   | Ohio                Power Company, an AEP electric utility subsidiary.                                                                                                     |
| OTC                                      |   | Over                the counter.                                                                                                                                           |
| PJM                                      |   | Pennsylvania                – New Jersey – Maryland regional transmission                organization.                                                         |
| PSO                                      |   | Public                Service Company of Oklahoma, an AEP electric utility                subsidiary.                                                                      |
| PUCO                                     |   | Public                Utilities Commission of Ohio.                                                                                                                        |
| PUCT                                     |   | Public                Utility Commission of Texas.                                                                                                                         |
| Registrant                Subsidiaries   |   | AEP                subsidiaries which are SEC registrants; APCo, CSPCo, I&M, OPCo, PSO,                SWEPCo.                                                         |
| Risk                Management Contracts |   | Trading                and nontrading derivatives, including those derivatives designated                as cash                flow and fair value hedges.                |
| Rockport                Plant            |   | A                generating plant, consisting of two 1,300 MW coal-fired generating                units                near Rockport, Indiana owned by AEGCo and I&M. |
| RSP                                      |   | Ohio                Rate Stabilization Plan.                                                                                                                               |
| RTO                                      |   | Regional                Transmission Organization.                                                                                                                         |
| S&P                                  |   | Standard                and Poor’s.                                                                                                                                  |
| SEC                                      |   | United                States Securities and Exchange Commission.                                                                                                           |
| SECA                                     |   | Seams                Elimination Cost Allocation.                                                                                                                          |
| SFAS                                     |   | Statement                of Financial Accounting Standards issued by the Financial Accounting                Standards Board.                                              |
| SFAS                71                   |   | Statement                of Financial Accounting Standards No. 71, “Accounting for the Effects of                Certain Types of Regulation.”                 |
| SFAS                133                  |   | Statement                of Financial Accounting Standards No. 133, “Accounting for Derivative                Instruments and Hedging Activities.”             |
| SFAS                157                  |   | Statement                of Financial Accounting Standards No. 157, “Fair Value                Measurements.”                                                  |

| SFAS                158                        |   | Statement                of Financial Accounting Standards No. 158, “Employers’ Accounting for                Defined Benefit Pension and Other Postretirement                Plans.”                               |
|------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| SFAS                159                        |   | Statement                of Financial Accounting Standards No. 159, “The Fair Value Option for                Financial Assets and Financial Liabilities.”                                                                |
| SIA                                            |   | System                Integration Agreement.                                                                                                                                                                                          |
| SO2                                            |   | Sulfur                Dioxide.                                                                                                                                                                                                        |
| SPP                                            |   | Southwest                Power Pool.                                                                                                                                                                                                  |
| Stall                Unit                      |   | J.                Lamar Stall Unit at Arsenal Hill Plant.                                                                                                                                                                             |
| Sweeny                                         |   | Sweeny                Cogeneration Limited Partnership, owner and operator of a four unit,                480                MW gas-fired generation facility, owned 50% by AEP.                                                      |
| SWEPCo                                         |   | Southwestern                Electric Power Company, an AEP electric utility                subsidiary.                                                                                                                                |
| TCC                                            |   | AEP                Texas Central Company, an AEP electric utility                subsidiary.                                                                                                                                          |
| TEM                                            |   | SUEZ                Energy Marketing NA, Inc. (formerly known as Tractebel Energy Marketing,                Inc.).                                                                                                                    |
| Texas                Restructuring Legislation |   | Legislation                enacted in 1999 to restructure the electric utility industry in                Texas.                                                                                                                      |
| TNC                                            |   | AEP                Texas North Company, an AEP electric utility                subsidiary.                                                                                                                                            |
| True-up                Proceeding              |   | A                filing made under the Texas Restructuring Legislation to finalize                the                amount of stranded costs and other true-up items and the recovery                of such                amounts. |
| Turk                Plant                      |   | John                W. Turk Jr. Plant.                                                                                                                                                                                                |
| Utility                Money Pool              |   | AEP                System’s Utility Money Pool.                                                                                                                                                                                 |
| VaR                                            |   | Value                at Risk, a method to quantify risk exposure.                                                                                                                                                                     |
| Virginia                SCC                    |   | Virginia                State Corporation Commission.                                                                                                                                                                                 |
| WPCo                                           |   | Wheeling                Power Company, an AEP electric distribution subsidiary.                                                                                                                                                       |
| WVPSC                                          |   | Public                Service Commission of West                Virginia.                                                                                                                                                             |

----

**FORWARD-LOOKING      INFORMATION**

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

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

----

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

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

**EXECUTIVE      OVERVIEW**

**Regulatory      Activity**

| **Operating****Company** |   | **Jurisdiction** |   | **Revised                Annual Rate Increase Request** |   | **Implemented                Annual Rate Increase** |   | **Projected                or****Effective                Date of Rate Increase** |   | **Date                of****Final                Order** |   |
|--------------------------|--------|------------------|--------|---------------------------------------------------------|--------|-----------------------------------------------------|--------|-----------------------------------------------------------------------------------|--------|----------------------------------------------------------|--------|
|                     |   |             |   | **(in                millions)**                        |   |                                                |   |                                                                              |   |
| APCo                     |   | Virginia         |   | $                                                       | 198    | (a)                                                 | $      | 24                                                                                | (a)    | October                2006                              |   | May                2007 |   |
| OPCo                     |   | Ohio             |   |                                                    | 8      |                                                |   | 4                                                                                 | (b)    | May                2007                                  |   | October                2007 |   |
| CSPCo                    |   | Ohio             |   |                                                    | 24     |                                                |   | 19                                                                                | (b)    | May                2007                                  |   | October                2007 |   |
| TCC                      |   | Texas            |   |                                                    | 70     |                                                |   | 47                                                                                |   | June                2007                                 |   | October                2007 |   |
| TNC                      |   | Texas            |   |                                                    | 22     |                                                |   | 14                                                                                |   | June                2007                                 |   | May                2007 |   |
| PSO                      |   | Oklahoma         |   |                                                    | 48     |                                                |   | 10                                                                                | (c)    | July                2007                                 |   | October                2007 |   |
| OPCo                     |   | Ohio             |   |                                                    | 12     |                                                |   | NA                                                                                |   | January                2008                              |   | NA |   |
| CSPCo                    |   | Ohio             |   |                                                    | 35     |                                                |   | NA                                                                                |   | January                2008                              |   | NA |   |

| (a) | The                difference between the requested and implemented amounts of annual                rate                increase is partially offset by approximately $35 million of incremental                E&R costs which APCo has reflected as a regulatory                asset.  APCo will file for recovery through the E&R                surcharge mechanism in 2008.  APCo also implemented, beginning                September 1, 2007 subject to refund, a net $50 million reduction                in                credits to customers for off-system sales margins as part of its                July 2007                fuel clause filing under the new re-regulation                legislation. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Management                plans to seek rehearing of the PUCO decision.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| (c) | Implemented                $9 million in July 2007, increased to $10 million upon OCC order                in                October 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |

|   **Operating****Company** |   |    **Jurisdiction** |   |    **Cost                Type** |   |    **Request**    |   | **Implemented                Annual Rate Increase** |   | **Projected                or Effective Date of Rate Increase** |   | **Date                of****Final                Order** |
|--------------------------------------|--------|------------------------------------|--------|------------------------------------------------|--------|----------------------------------|--------|-----------------------------------------------------|--------|-----------------------------------------------------------------|--------|----------------------------------------------------------|
|                                 |   |                               |   |                                           |   | **(in                millions)** |   |                                                |   |                                                            |
| APCo                                 |   | Virginia                           |   | Incremental                E&R             |   | $                                | 60     |                                                | $      | NA                                                              |   | December                2007                             |   | NA |
| APCo                                 |   | Virginia                           |   | Fuel,                Off-system Sales          |   |                             | 33     |                                                |   | 33                                                              | (a)    | September                2007                            |   | (a) |

| (a) | Subject                to refund.  Proceeding is                on-going. |
|-----|-------------------------------------------------------------------------------------|

***Ohio      Restructuring***

***SWEPCo      and PSO Construction Costs***

***Michigan      Depreciation Study Filing***

**Dividend      Increase**

**Investment      Activity**

**Environmental      Litigation**

**RESULTS      OF OPERATIONS**

**Utility      Operations**

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

**MEMCO      Operations**

| · | Barging                operations that annually transport approximately 34 million tons                of coal                and dry bulk commodities primarily on the Ohio, Illinois and lower                Mississippi rivers.  Approximately 35% of the barging operations                relates to the transportation of coal, 30% relates to agricultural                products, 18% relates to steel and 17% relates to other                commodities. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Generation      and Marketing**

| · | IPPs,                wind farms and marketing and risk management activities primarily                in                ERCOT.  Our 50% interest in the Sweeny Cogeneration Plant was                sold in October 2007. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                                          |   | **Three                Months Ended September 30,** |   |   | **Nine                Months Ended September 30,** |   |
|---------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------|--------|--------|----------------------------------------------------|--------|
|                                                                                                          |   | **2007**                                            |   |   | **2006**                                           |   |   | **2007** |   |   | **2006** |   |
|                                                                                                          |   | **(in                millions)**                    |   |
| Utility                Operations                                                                             |   | $                                                   | 388    |   |                                               | $      | 378 |   |   | $ | 879 |   |   | $ | 902 |   |
| MEMCO                Operations                                                                               |   |                                                | 18     |   |                                               |   | 19 |   |   |   | 40 |   |   |   | 54 |   |
| Generation                and Marketing                                                                       |   |                                                | 3      |   |                                               |   | 4 |   |   |   | 17 |   |   |   | 10 |   |
| All                Other (a)                                                                                  |   |                                                | (2     | )      |                                               |   | (136 | ) |   |   | (1 | ) |   |   | (151 | ) |
| **Income                Before Discontinued Operations****  and                Extraordinary Loss** |   | $                                                   | 407    |   |                                               | $      | 265 |   |   | $ | 935 |   |   | $ | 815 |   |

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

**Utility      Operations**

**Utility      Operations Income Summary**

**For      the Three and Nine Months Ended September 30, 2007 and      2006**

|                                                                                              |   | **Three                Months Ended****September                30,** |   |   | **Nine                Months Ended****September                30,** |   |
|---------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|--------|--------|----------------------------------------------------------------------|--------|
|                                                                                              |   | **2007**                                                              |   |   | **2006**                                                             |   |   | **2007** |   |   | **2006** |   |
|                                                                                              |   | **(in                millions)**                                      |   |
| Revenues                                                                                          |   | $                                                                     | 3,600  |   |                                                                 | $      | 3,437 |   |   | $ | 9,587 |   |   | $ | 9,199 |   |
| Fuel                and Purchased Power                                                           |   |                                                                  | 1,413  |   |                                                                 |   | 1,384 |   |   |   | 3,641 |   |   |   | 3,633 |   |
| **Gross                Margin**                                                                   |   |                                                                  | 2,187  |   |                                                                 |   | 2,053 |   |   |   | 5,946 |   |   |   | 5,566 |   |
| Depreciation                and Amortization                                                      |   |                                                                  | 374    |   |                                                                 |   | 374 |   |   |   | 1,122 |   |   |   | 1,060 |   |
| Other                Operating Expenses                                                           |   |                                                                  | 1,037  |   |                                                                 |   | 962 |   |   |   | 2,985 |   |   |   | 2,781 |   |
| **Operating                Income**                                                               |   |                                                                  | 776    |   |                                                                 |   | 717 |   |   |   | 1,839 |   |   |   | 1,725 |   |
| Other                Income, Net                                                                  |   |                                                                  | 27     |   |                                                                 |   | 18 |   |   |   | 72 |   |   |   | 103 |   |
| Interest                Charges and Preferred Stock Dividend Requirements                    |   |                                                                  | 213    |   |                                                                 |   | 160 |   |   |   | 599 |   |   |   | 475 |   |
| Income                Tax Expense                                                                 |   |                                                                  | 202    |   |                                                                 |   | 197 |   |   |   | 433 |   |   |   | 451 |   |
| **Income                Before Discontinued Operations and****Extraordinary                Loss** |   | $                                                                     | 388    |   |                                                                 | $      | 378 |   |   | $ | 879 |   |   | $ | 902 |   |

**Summary      of Selected Sales and Weather Data**

**For      Utility Operations**

**For      the Three and Nine Months Ended September 30, 2007 and      2006**

|                                                                                                                                   |   | **Three                Months Ended****September                30,** |   |   | **Nine                Months Ended****September                30,** |   |
|----------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|--------|--------|----------------------------------------------------------------------|--------|
| **Energy/Delivery                Summary**                                                                                             |   | **2007**                                                              |   |   | **2006**                                                             |   |   | **2007** |   |   | **2006** |   |
|                                                                                                                                   |   | **(in                millions of KWH)**                               |   |
| **Energy**                                                                                                                             |   |                                                                  |   |   |                                                                 |   |   |   |   |   |   |   |
| Retail:                                                                                                                                |   |                                                                  |   |   |                                                                 |   |   |   |   |   |   |   |
| Residential                                                                                                                            |   |                                                                  | 13,749 |   |                                                                 |   | 13,482 |   |   |   | 38,015 |   |   |   | 36,010 |   |
| Commercial                                                                                                                             |   |                                                                  | 11,164 |   |                                                                 |   | 10,799 |   |   |   | 30,750 |   |   |   | 29,149 |   |
| Industrial                                                                                                                             |   |                                                                  | 14,697 |   |                                                                 |   | 13,468 |   |   |   | 43,110 |   |   |   | 40,405 |   |
| Miscellaneous                                                                                                                          |   |                                                                  | 686    |   |                                                                 |   | 719 |   |   |   | 1,932 |   |   |   | 1,991 |   |
| Total                Retail                                                                                                            |   |                                                                  | 40,296 |   |                                                                 |   | 38,468 |   |   |   | 113,807 |   |   |   | 107,555 |   |
|                                                                                                                                   |   |                                                                  |   |   |                                                                 |   |   |   |   |   |   |   |   |   |   |   |
| Wholesale                                                                                                                              |   |                                                                  | 13,493 |   |                                                                 |   | 13,464 |   |   |   | 31,648 |   |   |   | 35,132 |   |
|                                                                                                                                   |   |                                                                  |   |   |                                                                 |   |   |   |   |   |   |   |   |   |   |   |
| **Delivery**                                                                                                                           |   |                                                                  |   |   |                                                                 |   |   |   |   |   |   |   |   |   |   |   |
| Texas                Wires – Energy delivered to customers served  by                AEP’s Texas Wires Companies |   |                                                                  | 7,721  |   |                                                                 |   | 7,877 |   |   |   | 20,297 |   |   |   | 20,338 |   |
| **Total                KWHs**                                                                                                          |   |                                                                  | 61,510 |   |                                                                 |   | 59,809 |   |   |   | 165,752 |   |   |   | 163,025 |   |

**Summary      of Heating and Cooling Degree Days for Utility Operations**

**For      the Three and Nine Months Ended September 30, 2007 and      2006**

|                                      |   | **Three                Months Ended****September                30,** |   |   | **Nine                Months Ended****September                30,** |   |
|-------------------------------------------|--------|-----------------------------------------------------------------------|--------|--------|----------------------------------------------------------------------|--------|
|                                      |   | **2007**                                                              |   |   | **2006**                                                             |   |   | **2007** |   |   | **2006** |   |
|                                      |   | **(in                degree days)**                                   |   |
| **Weather                Summary**        |   |                                                                  |   |   |                                                                 |   |   |   |   |   |   |   |
| Eastern                Region             |   |                                                                  |   |   |                                                                 |   |   |   |   |   |   |   |
| Actual                – Heating (a) |   |                                                                  | 2      |   |                                                                 |   | 10 |   |   |   | 2,041 |   |   |   | 1,573 |   |
| Normal                – Heating (b) |   |                                                                  | 7      |   |                                                                 |   | 7 |   |   |   | 1,973 |   |   |   | 1,999 |   |
|                                      |   |                                                                  |   |   |                                                                 |   |   |   |   |   |   |   |   |   |   |   |
| Actual                – Cooling (c) |   |                                                                  | 808    |   |                                                                 |   | 685 |   |   |   | 1,189 |   |   |   | 914 |   |
| Normal                – Cooling (b) |   |                                                                  | 685    |   |                                                                 |   | 688 |   |   |   | 963 |   |   |   | 970 |   |
|                                      |   |                                                                  |   |   |                                                                 |   |   |   |   |   |   |   |   |   |   |   |
| Western                Region (d)         |   |                                                                  |   |   |                                                                 |   |   |   |   |   |   |   |   |   |   |   |
| Actual                – Heating (a) |   |                                                                  | 0      |   |                                                                 |   | 0 |   |   |   | 994 |   |   |   | 664 |   |
| Normal                – Heating (b) |   |                                                                  | 2      |   |                                                                 |   | 2 |   |   |   | 993 |   |   |   | 1,007 |   |
|                                      |   |                                                                  |   |   |                                                                 |   |   |   |   |   |   |   |   |   |   |   |
| Actual                – Cooling (c) |   |                                                                  | 1,406  |   |                                                                 |   | 1,468 |   |   |   | 2,084 |   |   |   | 2,325 |   |
| Normal                – Cooling (b) |   |                                                                  | 1,411  |   |                                                                 |   | 1,410 |   |   |   | 2,084 |   |   |   | 2,079 |   |

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

**Reconciliation      of Third Quarter of 2006 to Third Quarter of 2007**

**Income      from Utility Operations Before Discontinued Operations and Extraordinary      Loss**

**(in      millions)**

| **Third                Quarter of 2006**                        |   |   |   |   | $      | 378    |   |
|-----------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                Margins                                   |   |   | 155    |   |   |   |   |   |
| Off-system                Sales                                 |   |   | 36     |   |   |   |   |   |
| Transmission                Revenues, Net                       |   |   | (58    | )      |   |   |   |   |
| Other                Revenues                                   |   |   | 1      |   |   |   |   |   |
| **Total                Change in Gross Margin**                 |   |   |   |   |   |   | 134    |   |
|                                                            |   |   |   |   |   |   |   |   |
| **Changes                in Operating Expenses and Other:**     |   |   |   |   |   |   |   |   |
| Other                Operation and Maintenance                  |   |   | (69    | )      |   |   |   |   |
| Taxes                Other Than Income Taxes                    |   |   | (6     | )      |   |   |   |   |
| Carrying                Costs Income                            |   |   | 11     |   |   |   |   |   |
| Other                Income, Net                                |   |   | (2     | )      |   |   |   |   |
| Interest                and Other Charges                       |   |   | (53    | )      |   |   |   |   |
| **Total                Change in Operating Expenses and Other** |   |   |   |   |   |   | (119   | ) |
|                                                            |   |   |   |   |   |   |   |   |
| Income                Tax Expense                               |   |   |   |   |   |   | (5     | ) |
|                                                            |   |   |   |   |   |   |   |   |
| **Third                Quarter of 2007**                        |   |   |   |   |   | $      | 388    |   |

| · | Retail                Margins increased $155 million primarily due to the                following:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | A                $29 million increase at APCo related to the Virginia base rate case                and                the West Virginia construction surcharge. |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | A                $29 million increase related to Ormet, a new industrial customer                in Ohio,                effective January 1, 2007.  See “Ormet” section of Note                3. |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | A                $23 million increase related to increased residential and commercial                usage                and customer growth. |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | A                $16 million increase in usage related to weather.  As compared                to the prior year, our eastern region experienced an 18% increase                in                cooling degree days partially offset by a 4% decrease in cooling                degree                days in our western region. |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | A                $15 million increase related to new rates implemented in our Ohio                jurisdictions as approved by the PUCO in our RSPs. |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | A                $15 million increase related to new rates in Texas. |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | A                $14 million increase related to increased sales to municipal, cooperative                and other customers primarily resulting from new power supply                contracts. |
|   | These                increases were partially offset by:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | A                $15 million decrease in financial transmission rights revenue, net                of                congestion, primarily due to fewer transmission constraints within                the PJM                market. Financial                transmission rights are financial instruments which entitle the holder                to                receive compensation for transmission charges that arise when the                PJM                market is congested. |
| · | Margins                from Off-system Sales increased $36 million primarily due to favorable                fuel reconciliations in our western territory, benefits from our                eastern                natural gas fleet, higher power prices, and higher sales volumes                in the                east.                                                                                                                                                                                                                                                      |
| · | Transmission                Revenues, Net decreased $58 million primarily due to PJM’s revision of its                pricing methodology for transmission line losses to marginal-loss                pricing                effective June 1, 2007.  See “PJM Marginal-Loss Pricing” section                of Note 3.                                                                                                                                                                                                                                 |
| · | Other                Revenues were essentially flat as a result of higher securitization                revenue at TCC from the $1.7 billion securitization in October 2006                partially offset by lower gains on sale of emission                allowances.  Securitization revenue represents amounts collected                to recover securitization bond principal and interest payments related                to                TCC’s securitized transition assets and are fully offset by amortization                and interest expenses. |

| · | Other                Operation and Maintenance expenses increased $69 million primarily                due to                the NSR settlement partially offset by an abandonment of digital                turbine                control equipment at the Cook Plant recorded in the prior                year.  See “Federal EPA Complaint and Notice of Violation”                section in Note 4.                                                                                                                                                                                                                                                                                                |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Depreciation                and Amortization expense was flat as a result of increased Texas                amortization of the securitized transition assets and overall higher                depreciable property balances, offset by lower depreciation expense                at                I&M and APCo.  The decrease at I&M relates to the lower                depreciation rates approved by the IURC in June 2007.  The                decrease at APCo relates to the lower depreciation rates approved                by the                Virginia SCC in May 2007 and adjustments in the prior period related                to                the 2006 Virginia E&R case. |
| · | Carrying                Costs Income increased $11 million primarily due to higher carrying                cost                income related to APCo’s Virginia E&R cost deferrals offset by TCC’s                start in recovering stranded costs in October 2006, thus eliminating                future TCC carrying costs income.                                                                                                                                                                                                                                                                                                                                                                       |
| · | Interest                and Other Charges increased $53 million primarily due to additional                debt                issued in the twelve months ended September 30, 2007 including TCC                securitization bonds as well as higher rates on variable rate                debt.                                                                                                                                                                                                                                                                                                                                                                                                                            |
| · | Income                Tax Expense increased $5 million due to an increase in pretax                income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

**Reconciliation      of Nine Months Ended September 30, 2006 to Nine Months Ended September 30,      2007**

**Income      from Utility Operations Before Discontinued Operations and Extraordinary      Loss**

**(in      millions)**

| **Nine                Months Ended September 30, 2006**         |   |   |   |   | $      | 902    |   |
|-----------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                Margins                                   |   |   | 383    |   |   |   |   |   |
| Off-system                Sales                                 |   |   | 49     |   |   |   |   |   |
| Transmission                Revenues, Net                       |   |   | (87    | )      |   |   |   |   |
| Other                Revenues                                   |   |   | 35     |   |   |   |   |   |
| **Total                Change in Gross Margin**                 |   |   |   |   |   |   | 380    |   |
|                                                            |   |   |   |   |   |   |   |   |
| **Changes                in Operating Expenses and Other:**     |   |   |   |   |   |   |   |   |
| Other                Operation and Maintenance                  |   |   | (154   | )      |   |   |   |   |
| Gain                on Dispositions of Assets, Net              |   |   | (47    | )      |   |   |   |   |
| Depreciation                and Amortization                    |   |   | (62    | )      |   |   |   |   |
| Taxes                Other Than Income Taxes                    |   |   | (3     | )      |   |   |   |   |
| Carrying                Costs Income                            |   |   | (28    | )      |   |   |   |   |
| Other                Income, Net                                |   |   | (3     | )      |   |   |   |   |
| Interest                and Other Charges                       |   |   | (124   | )      |   |   |   |   |
| **Total                Change in Operating Expenses and Other** |   |   |   |   |   |   | (421   | ) |
|                                                            |   |   |   |   |   |   |   |   |
| Income                Tax Expense                               |   |   |   |   |   |   | 18     |   |
|                                                            |   |   |   |   |   |   |   |   |
| **Nine                Months Ended September 30, 2007**         |   |   |   |   |   | $      | 879    |   |

| · | Retail                Margins increased $383 million primarily due to the                following:                                                                                                       |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ·                                                                                                                                                                                                    | An                $84 million increase related to new rates implemented in our Ohio                jurisdictions as approved by the PUCO in our RSPs, a $51 million                increase                related to new rates implemented in our other east jurisdictions                of                Virginia, West Virginia and Kentucky and a $23 million increase related                to                new rates in Texas and a $9 million increase related to new rates                in                Oklahoma. |
|   | ·                                                                                                                                                                                                    | A                $93 million increase related to increased residential and commercial                usage                and customer growth. |
|   | ·                                                                                                                                                                                                    | An                $83 million increase in usage related to weather.  As compared                to the prior year, our eastern region and western region experienced                30%                and 50% increases, respectively, in heating degree days.  Also,                our eastern region experienced a 30% increase in cooling degree days                which                was offset by a 10% decrease in cooling degree days in our western                region. |
|   | ·                                                                                                                                                                                                    | A                $66 million increase related to Ormet, a new industrial customer                in Ohio,                effective January 1, 2007.  See “Ormet” section of Note                3. |
|   | ·                                                                                                                                                                                                    | A                $35 million increase related to increased sales to municipal, cooperative                and other wholesale customers primarily resulting from new power                supply                contracts. |
|   | These                increases were partially offset by:                                                                                                                                                  |
|   | ·                                                                                                                                                                                                    | A                $63 million decrease in financial transmission rights revenue, net                of                congestion, primarily due to fewer transmission constraints within                the PJM                market. |
|   | ·                                                                                                                                                                                                    | A                $25 million decrease due to a second quarter 2007 provision related                to a                SWEPCo Texas fuel reconciliation proceeding.  See “SWEPCo Fuel                Reconciliation – Texas” section of Note 3. |
|   | ·                                                                                                                                                                                                    | A                $14 million decrease related to increased PJM ancillary                costs. |
| · | Margins                from Off-system Sales increased $49 million primarily due to strong                trading performance and favorable fuel reconciliations in our western                territory. |

| · | Transmission                Revenues, Net decreased $87 million primarily due to PJM’s revision of its                pricing methodology for transmission line losses to marginal-loss                pricing                effective June 1, 2007.  See “PJM Marginal-Loss Pricing” section                of Note 3.                                                                                                                                                                              |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Other                Revenues increased $35 million primarily due to higher securitization                revenue at TCC resulting from the $1.7 billion securitization in                October                2006.  Securitization revenue represents amounts collected to                recover securitization bond principal and interest payments related                to                TCC’s securitized transition assets and are fully offset by amortization                and interest expenses. |

| · | Other                Operation and Maintenance expenses increased $154 million primarily                due to                a $77 million expense resulting from the NSR settlement.  The                remaining increases relate to generation expenses from plant outages                and                base operations and distribution expenses associated with service                reliability and storm restoration primarily in                Oklahoma.              |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Gain                on Disposition of Assets, Net decreased $47 million primarily related                to                the earnings sharing agreement with Centrica from the sale of our                REPs in                2002.  In 2006, we received $70 million from Centrica for                earnings sharing and in 2007 we received $20 million as the earnings                sharing agreement expired.                                                         |
| · | Depreciation                and Amortization expense increased $62 million primarily due to increased                Ohio regulatory asset amortization related to recovery of IGCC                pre-construction costs, increased Texas amortization of the securitized                transition assets and higher depreciable property balances, partially                offset by commission-approved lower depreciation rates in Indiana                and                Virginia. |
| · | Carrying                Costs Income decreased $28 million primarily due to TCC’s start in                recovering stranded costs in October 2006, thus eliminating future                TCC                carrying costs income, offset by higher carrying costs income related                to                APCo’s Virginia E&R cost deferrals.                                                                                                                    |
| · | Interest                and Other Charges increased $124 million primarily due to additional                debt                issued in the twelve months ended September 30, 2007 including TCC                securitization bonds as well as higher rates on variable rate                debt.                                                                                                                                                                                         |
| · | Income                Tax Expense decreased $18 million due to a decrease in pretax                income.                                                                                                                                                                                                                                                                                                                                                                                   |

**MEMCO      Operations**

**Generation      and Marketing**

**All      Other**

**AEP      System Income Taxes**

**FINANCIAL      CONDITION**

**Debt      and Equity Capitalization**

|                                                                                             |   | **September                30, 2007** |   |   | **December                31, 2006** |   |
|--------------------------------------------------------------------------------------------------|--------|---------------------------------------|--------|--------|--------------------------------------|--------|
|                                                                                             |   | **($                in millions)**    |   |
| Long-term                Debt, Including Amounts Due                   Within One Year |   | $                                     | 14,776 |   |                                 |   | 58.3 | % |   | $ | 13,698 |   |   |   | 59.1 | % |
| Short-term                Debt                                                                   |   |                                  | 587    |   |                                 |   | 2.3 |   |   |   | 18 |   |   |   | 0.0 |   |
| Total                Debt                                                                        |   |                                  | 15,363 |   |                                 |   | 60.6 |   |   |   | 13,716 |   |   |   | 59.1 |   |
| Common                Equity                                                                     |   |                                  | 9,909  |   |                                 |   | 39.1 |   |   |   | 9,412 |   |   |   | 40.6 |   |
| Preferred                Stock                                                                   |   |                                  | 61     |   |                                 |   | 0.3 |   |   |   | 61 |   |   |   | 0.3 |   |
|                                                                                             |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| **Total                Debt and Equity Capitalization**                                          |   | $                                     | 25,333 |   |                                 |   | 100.0 | % |   | $ | 23,189 |   |   |   | 100.0 | % |

**Liquidity**

***Credit      Facilities***

|                                                  |                                     |   | **Amount**                       |   | **Maturity** |
|-------------------------------------------------------|------------------------------------------|--------|----------------------------------|--------|--------------|
|                                                  |                                     |   | **(in                millions)** |   |         |
| Commercial                Paper Backup:               |                                     |   |                             |   |         |   |
|                                                  | Revolving                Credit Facility |   |                             | $      | 1,500        |   | March                2011 |
|                                                  | Revolving                Credit Facility |   |                             |   | 1,500        |   | April                2012 |
| **Total**                                             |                                     |   |                             | 3,000  |         |   |
| Cash                and Cash Equivalents              |                                     |   |                             | 196    |         |   |
| **Total                Liquidity Sources**            |                                     |   |                             | 3,196  |         |   |
| Less:                AEP Commercial Paper Outstanding |                                     |   |                             | 559    |         |   |
|                                                  | Letters                of Credit Drawn   |   |                             |   | 69           |   |   |
|                                                  |                                     |   |                             |   |         |   |
| **Net                Available Liquidity**            |                                     |   | $                                | 2,568  |         |   |

***Sale      of Receivables***

***Debt      Covenants and Borrowing Limitations***

***Credit      Ratings***

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

**Cash      Flow**

|                                                                  |   | **Nine                  Months Ended** |   |
|-----------------------------------------------------------------------|--------|----------------------------------------|--------|
|                                                                  |   | **September                  30,**     |   |
|                                                                  |   | **2007**                               |   |   | **2006** |   |
|                                                                  |   | **(in                  millions)**     |   |
| **Cash                  and Cash Equivalents at Beginning of Period** |   | $                                      | 301    |   |   | $ | 401 |   |
| Net                  Cash Flows From Operating Activities             |   |                                   | 1,630  |   |   |   | 2,196 |   |
| Net                  Cash Flows Used For Investing Activities         |   |                                   | (2,935 | ) |   |   | (2,457 | )  |
| Net                  Cash Flows From Financing Activities             |   |                                   | 1,200  |   |   |   | 119 |   |
| **Net                  Decrease in Cash and Cash Equivalents**        |   |                                   | (105   | ) |   |   | (142 | )  |
| **Cash                  and Cash Equivalents at End of Period**       |   | $                                      | 196    |   |   | $ | 259 |   |

***Operating      Activities***

|                                                                |   | **Nine                Months Ended** |   |
|---------------------------------------------------------------------|--------|--------------------------------------|--------|
|                                                                |   | **September                30,**     |   |
|                                                                |   | **2007**                             |   |   | **2006** |   |
|                                                                |   | **(in                millions)**     |   |
| **Net                Income**                                       |   | $                                    | 858    |   |   | $ | 821 |   |
| Less:  Discontinued                Operations, Net of Tax |   |                                 | (2     | ) |   |   | (6 | ) |
| **Income                Before Discontinued Operations**            |   |                                 | 856    |   |   |   | 815 |   |
| Depreciation                and Amortization                        |   |                                 | 1,144  |   |   |   | 1,084 |   |
| Other                                                               |   |                                 | (370   | ) |   |   | 297 |   |
| **Net                Cash Flows From Operating Activities**         |   | $                                    | 1,630  |   |   | $ | 2,196 |   |

***Investing      Activities***

|                                                                 |   | **Nine                Months Ended** |   |
|----------------------------------------------------------------------|--------|--------------------------------------|--------|
|                                                                 |   | **September                30,**     |   |
|                                                                 |   | **2007**                             |   |   | **2006** |   |
|                                                                 |   | **(in                millions)**     |   |
| Construction                Expenditures                             |   | $                                    | (2,595 | ) |   | $ | (2,428 | )  |
| Acquisition                of Darby, Dresden and Lawrenceburg Plants |   |                                 | (512   | ) |   |   | - |   |
| Proceeds                from Sales of Assets                         |   |                                 | 78     |   |   |   | 120 |   |
| Other                                                                |   |                                 | 94     |   |   |   | (149 | )  |
| **Net                Cash Flows Used For Investing Activities**      |   | $                                    | (2,935 | ) |   | $ | (2,457 | )  |

***Financing      Activities***

|                                                        |   | **Nine                Months Ended** |   |
|-------------------------------------------------------------|--------|--------------------------------------|--------|
|                                                        |   | **September                30,**     |   |
|                                                        |   | **2007**                             |   |   | **2006** |   |
|                                                        |   | **(in                millions)**     |   |
| Issuance/Retirement                of Debt, Net             |   | $                                    | 1,623  |   |   | $ | 529 |   |
| Dividends                Paid on Common Stock               |   |                                 | (467   | ) |   |   | (437 | )  |
| Other                                                       |   |                                 | 44     |   |   |   | 27 |   |
| **Net                Cash Flows From Financing Activities** |   | $                                    | 1,200  |   |   | $ | 119 |   |

**Off-balance      Sheet Arrangements**

|                                                                |   | **September                30,****2007** |   |   | **December                31,****2006** |   |
|---------------------------------------------------------------------|--------|------------------------------------------|--------|--------|-----------------------------------------|--------|
|                                                                |   | **(in                millions)**         |   |
| AEP                Credit Accounts Receivable Purchase Commitments  |   | $                                        | 530    |   |                                    | $      | 536 |   |
| Rockport                Plant Unit 2 Future Minimum Lease Payments  |   |                                     | 2,290  |   |                                    |   | 2,364 |   |
| Railcars                Maximum Potential Loss From Lease Agreement |   |                                     | 30     |   |                                    |   | 31 |   |

**Summary      Obligation Information**

**Other**

***Texas      REPs***

**SIGNIFICANT      FACTORS**

**Ohio      Restructuring**

**Texas      Restructuring**

**Virginia      Restructuring**

**SECA      Revenue Subject to Refund**

**PJM      Marginal-Loss Pricing**

**New      Generation**

|          |   |                      |   |                         |   |                             |   |                             |   |                         |   |                          |   |                |   |            | **Commercial** |
|---------------|--------|---------------------------|--------|------------------------------|--------|----------------------------------|--------|----------------------------------|--------|------------------------------|--------|-------------------------------|--------|---------------------|--------|-----------------|----------------|
|          |   |                      |   |                         |   | **Total**                        |   |                             |   |                         |   |                          |   |                |   |            | **Operation**  |
| **Operating** |   | **Project**               |   |                         |   | **Projected**                    |   |                             |   |                         |   |                          |   |                | **MW** |            | **Date**       |
| **Company**   |   | **Name**                  |   | **Location**                 |   | **Cost                (a)**      |   | **CWIP**                         |   | **Fuel                Type** |   | **Plant                Type** |   | **Capacity**        |   | **(Projected)** |
|          |   |                      |   |                         |   | **(in                millions)** |   | **(in                millions)** |   |                         |   |                          |   |                |   |            |
| SWEPCo        |   | Mattison                  |   | Arkansas                     |   | $                                | 122    | (b)                              | $      | 52                           |   | Gas                           |   | Simple-cycle        |   | 340             | (b)            | 2007 |
| PSO           |   | Southwestern              |   | Oklahoma                     |   |                             | 59     | (c)                              |   | 45                           |   | Gas                           |   | Simple-cycle        |   | 170             |           | 2008 |
| PSO           |   | Riverside                 |   | Oklahoma                     |   |                             | 58     | (c)                              |   | 45                           |   | Gas                           |   | Simple-cycle        |   | 170             |           | 2008 |
| AEGCo         |   | Dresden                   | (d)    | Ohio                         |   |                             | 265    | (d)                              |   | 88                           |   | Gas                           |   | Combined-cycle      |   | 580             |           | 2009 |
| SWEPCo        |   | Stall                     |   | Louisiana                    |   |                             | 375    |                             |   | 15                           |   | Gas                           |   | Combined-cycle      |   | 480             |           | 2010 |
| SWEPCo        |   | Turk                      | (e)    | Arkansas                     |   |                             | 1,300  | (e)                              |   | 206                          |   | Coal                          |   | Ultra-supercritical |   | 600             | (e)            | 2011 |
| APCo          |   | Mountaineer               |   | West                Virginia |   |                             | 2,230  |                             |   | -                            |   | Coal                          |   | IGCC                |   | 629             |           | 2012 |
| CSPCo/OPCo    |   | Great                Bend |   | Ohio                         |   |                             | 2,230  | (f)                              |   | -                            |   | Coal                          |   | IGCC                |   | 629             |           | 2017 |

| (a) | Amount                excludes AFUDC.                                                                                                                                                                                                                                                                                                                                      |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Includes                Units 3 and 4, 150 MW, declared in commercial operation on July 12,                2007                with construction costs totaling $55 million.                                                                                                                                                                                               |
| (c) | In                April 2007, the OCC approved that PSO will recover through a rider,                subject to a $135 million cost cap, all of the traditional costs                associated with plant in service at the time these units are placed                in                service.                                                                         |
| (d) | In                September 2007, AEGCo purchased the under-construction Dresden plant                from                Dresden Energy LLC, a subsidiary of Dominion Resources, Inc., for                $85                million, which is included in the “Total Projected Cost” section                above.                                           |
| (e) | SWEPCo                plans to own approximately 73%, or 438 MW, totaling about $950 million                in                capital investment.  See “Turk Plant” section                below.                                                                                                                                                    |
| (f) | Front-end                engineering and design study is complete.  Cost estimates are                not yet filed with the PUCO due to the pending appeals to the Supreme                Court of Ohio resulting from the PUCO’s April 2006 opinion and                order.  See “Ohio IGCC Plant” section                below. |

|          |   |                          |   |         |   |                             |   |                         |   |                          |           |         |   |         |
|---------------|--------|-------------------------------|--------|--------------|--------|----------------------------------|--------|------------------------------|--------|-------------------------------|----------------|--------------|--------|--------------|
| **Operating** |   |                          |   |         |   |                             |   |                         |   |                          |           | **MW**       |   | **Purchase** |
| **Company**   |   | **Plant                Name** |   | **Location** |   | **Cost**                         |   | **Fuel                Type** |   | **Plant                Type** |           | **Capacity** |   | **Date**     |
|          |   |                          |   |         |   | **(in                millions)** |   |                         |   |                          |           |         |   |         |
| CSPCo         |   | Darby                         | (a)    | Ohio         |   | $                                | 102    |                         | Gas    |                          | Simple-cycle   |         | 480    |         | April                2007 |
| AEGCo         |   | Lawrenceburg                  | (b)    | Indiana      |   |                             | 325    |                         | Gas    |                          | Combined-cycle |         | 1,096  |         | May                2007 |

| (a) | CSPCo                purchased Darby Electric Generating Station (Darby) from DPL Energy,                LLC,                a subsidiary of The Dayton Power and Light Company.                                                                                                                                                               |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | AEGCo                purchased Lawrenceburg Generating Station (Lawrenceburg), adjacent                to                I&M’s Tanners Creek Plant, from an affiliate of Public Service                Enterprise Group (PSEG).  AEGCo sells the power to CSPCo under a                FERC-approved unit power agreement. |

***Ohio      IGCC Plant***

***Red      Rock Generating Facility***

***Turk      Plant***

**Electric      Transmission Texas LLC Joint Venture (Utility Operations      segment)**

**Potomac-Appalachian      Transmission Highline (PATH) (Utility Operations      segment)**

**Litigation**

**Environmental      Matters**

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

***Environmental      Litigation***

***Clean      Water Act Regulations***

**Critical      Accounting Estimates**

**Adoption      of New Accounting Pronouncements**

*Settlement*

----

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

**Market      Risks**

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

**Reconciliation      of MTM Risk Management Contracts to**

**Condensed      Consolidated Balance Sheet**

**September      30, 2007**

**(in      millions)**

|                                                                                                                                                                                                  |   | **Utility                Operations** |   |   | **Generation                and****Marketing** |   |   | **All                Other** |   |   | **Sub-Total                MTM Risk Management Contracts** |   |   | **PLUS:                MTM of Cash Flow and Fair Value Hedges** |   |   | **Total** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|--------|--------|------------------------------------------------|--------|--------|------------------------------|--------|--------|------------------------------------------------------------|--------|--------|-----------------------------------------------------------------|--------|--------|-----------|--------|
| Current                Assets                                                                                                                                                                         |   | $                                     | 233    |   |                                           | $      | 47     |                         |   | $      | 62                                                         |   |   | $                                                               | 342    |   |      | $      | 9 |   |   | $ | 351 |   |
| Noncurrent                Assets                                                                                                                                                                      |   |                                  | 199    |   |                                           |   | 63     |                         |   |   | 79                                                         |   |   |                                                            | 341    |   |      |   | 6 |   |   |   | 347 |   |
| **Total                Assets**                                                                                                                                                                       |   |                                  | 432    |   |                                           |   | 110    |                         |   |   | 141                                                        |   |   |                                                            | 683    |   |      |   | 15 |   |   |   | 698 |   |
|                                                                                                                                                                                                  |   |                                  |   |   |                                           |   |   |                         |   |   |                                                       |   |   |                                                            |   |   |      |   |   |   |   |   |   |   |
| Current                Liabilities                                                                                                                                                                    |   |                                  | (148   | )      |                                           |   | (53    | )                            |   |   | (64                                                        | )      |   |                                                            | (265   | )      |      |   | (2 | ) |   |   | (267 | ) |
| Noncurrent                Liabilities                                                                                                                                                                 |   |                                  | (101   | )      |                                           |   | (21    | )                            |   |   | (85                                                        | )      |   |                                                            | (207   | )      |      |   | (3 | ) |   |   | (210 | ) |
| **Total                Liabilities**                                                                                                                                                                  |   |                                  | (249   | )      |                                           |   | (74    | )                            |   |   | (149                                                       | )      |   |                                                            | (472   | )      |      |   | (5 | ) |   |   | (477 | ) |
|                                                                                                                                                                                                  |   |                                  |   |   |                                           |   |   |                         |   |   |                                                       |   |   |                                                            |   |   |      |   |   |   |   |   |   |   |
| **Total                MTM****                  Derivative****                  Contract Net****                  Assets****                  (Liabilities)** |   | $                                     | 183    |   |                                           | $      | 36     |                         |   | $      | (8                                                         | )      |   | $                                                               | 211    |   |      | $      | 10 |   |   | $ | 221 |   |

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

**Nine      Months Ended September 30, 2007**

**(in      millions)**

|                                                                                                                                                                      |   | **Utility                Operations** |   |   | **Generation****and****Marketing** |   |   | **All                Other** |   |   | **Total** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|--------|--------|------------------------------------|--------|--------|------------------------------|--------|--------|-----------|--------|
| **Total                MTM Risk Management Contract Net Assets   (Liabilities) at                December 31, 2006**                                            |   | $                                     | 236    |   |                               | $      | 2      |                         |   | $      | (5        | )      |   | $ | 233 |   |
| (Gain)                Loss from Contracts Realized/Settled During   the Period                and Entered in a Prior Period                      |   |                                  | (50    | )      |                               |   | (1     | )                            |   |   | (2        | )      |   |   | (53 | ) |
| Fair                Value of New Contracts at Inception When Entered  During                the Period (a)                                            |   |                                  | 6      |   |                               |   | 49     |                         |   |   | -         |   |   |   | 55 |   |
| Net                Option Premiums Paid/(Received) for Unexercised or                  Unexpired Option Contracts Entered During The                Period |   |                                  | 2      |   |                               |   | -      |                         |   |   | -         |   |   |   | 2 |   |
| Changes                in Fair Value Due to Valuation Methodology  Changes                on Forward Contracts                                             |   |                                  | -      |   |                               |   | -      |                         |   |   | -         |   |   |   | - |   |
| Changes                in Fair Value Due to Market Fluctuations During   the                Period (b)                                                |   |                                  | 7      |   |                               |   | (14    | )                            |   |   | (1        | )      |   |   | (8 | ) |
| Changes                in Fair Value Allocated to Regulated Jurisdictions                (c)                                                                         |   |                                  | (18    | )      |                               |   | -      |                         |   |   | -         |   |   |   | (18 | ) |
| **Total                MTM Risk Management Contract Net Assets ****                 (Liabilities) at September 30, 2007**                             |   | $                                     | 183    |   |                               | $      | 36     |                         |   | $      | (8        | )      |   |   | 211 |   |
| Net                Cash Flow and Fair Value                Hedge** **Contracts                                                                                       |   |                                  |   |   |                               |   |   |                         |   |   |      |   |   |   | 10 |   |
| **Total                MTM Risk Management Contract Net Assets at****  September                30, 2007**                                                      |   |                                  |   |   |                               |   |   |                         |   |   |      |   |   | $ | 221 |   |

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

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

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

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

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

**Fair      Value of Contracts as of September 30, 2007**

**(in      millions)**

|                                                                                                               |   | **Remainder****2007** |   | **2008** |   | **2009** |   | **2010** |   | **2011** |   | **After****2011                (c)** |   | **Total** |   |
|--------------------------------------------------------------------------------------------------------------------|--------|-----------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|--------------------------------------|--------|-----------|--------|
| **Utility                Operations:**                                                                             |   |                  |   |     |   |     |   |     |   |     |   |                                 |   |      |   |   |   |   |   |   |   |   |
| Prices                Actively Quoted – Exchange                    Traded Contracts     |   | $                     | 5      |     | $      | (15      | )      | $        | 3      |     | $      | -                                    |   | $         | -      |   | $ | - |   | $ | (7 | ) |
| Prices                Provided by Other External  Sources                – OTC Broker Quotes (a)   |   |                  | 29     |     |   | 66       |   |     | 40     |     |   | 31                                   |   |      | -      |   |   | - |   |   | 166 |   |
| Prices                Based on Models and Other  Valuation                Methods (b)                    |   |                  | 1      |     |   | (1       | )      |     | 6      |     |   | 5                                    |   |      | 7      |   |   | 6 |   |   | 24 |   |
| **Total**                                                                                                          |   |                  | 35     |     |   | 50       |   |     | 49     |     |   | 36                                   |   |      | 7      |   |   | 6 |   |   | 183 |   |
|                                                                                                               |   |                  |   |     |   |     |   |     |   |     |   |                                 |   |      |   |   |   |   |   |   |   |   |
| **Generation                and Marketing:**                                                                       |   |                  |   |     |   |     |   |     |   |     |   |                                 |   |      |   |   |   |   |   |   |   |   |
| Prices                Actively Quoted – Exchange                  Traded Contracts       |   |                  | (3     | )        |   | 2        |   |     | 1      |     |   | -                                    |   |      | -      |   |   | - |   |   | - |   |
| Prices                Provided by Other External  Sources                – OTC Broker Quotes (a)   |   |                  | -      |     |   | (6       | )      |     | 3      |     |   | -                                    |   |      | -      |   |   | - |   |   | (3 | ) |
| Prices                Based on Models and Other  Valuation                Methods (b)                    |   |                  | -      |     |   | (3       | )      |     | (2     | )        |   | 8                                    |   |      | 7      |   |   | 29 |   |   | 39 |   |
| **Total**                                                                                                          |   |                  | (3     | )        |   | (7       | )      |     | 2      |     |   | 8                                    |   |      | 7      |   |   | 29 |   |   | 36 |   |
|                                                                                                               |   |                  |   |     |   |     |   |     |   |     |   |                                 |   |      |   |   |   |   |   |   |   |   |
| **All                Other:**                                                                                      |   |                  |   |     |   |     |   |     |   |     |   |                                 |   |      |   |   |   |   |   |   |   |   |
| Prices                Actively Quoted – Exchange                  Traded  Contracts |   |                  | -      |     |   | -        |   |     | -      |     |   | -                                    |   |      | -      |   |   | - |   |   | - |   |
| Prices                Provided by Other External  Sources                – OTC Broker Quotes (a)   |   |                  | -      |     |   | (2       | )      |     | -      |     |   | -                                    |   |      | -      |   |   | - |   |   | (2 | ) |
| Prices                Based on Models and Other  Valuation                Methods (b)                    |   |                  | -      |     |   | -        |   |     | (4     | )        |   | (4                                   | )      |      | 2      |   |   | - |   |   | (6 | ) |
| **Total**                                                                                                          |   |                  | -      |     |   | (2       | )      |     | (4     | )        |   | (4                                   | )      |      | 2      |   |   | - |   |   | (8 | ) |
|                                                                                                               |   |                  |   |     |   |     |   |     |   |     |   |                                 |   |      |   |   |   |   |   |   |   |   |
| **Total:**                                                                                                         |   |                  |   |     |   |     |   |     |   |     |   |                                 |   |      |   |   |   |   |   |   |   |   |
| Prices                Actively Quoted – Exchange  Traded                Contracts             |   |                  | 2      |     |   | (13      | )      |     | 4      |     |   | -                                    |   |      | -      |   |   | - |   |   | (7 | ) |
| Prices                Provided by Other External  Sources                – OTC Broker Quotes (a)   |   |                  | 29     |     |   | 58       |   |     | 43     |     |   | 31                                   |   |      | -      |   |   | - |   |   | 161 |   |
| Prices                Based on Models and Other  Valuation                Methods (b)                    |   |                  | 1      |     |   | (4       | )      |     | -      |     |   | 9                                    |   |      | 16     |   |   | 35 |   |   | 57 |   |
| **Total**                                                                                                          |   | $                     | 32     |     | $      | 41       |   | $        | 47     |     | $      | 40                                   |   | $         | 16     |   | $ | 35 |   | $ | 211 |   |

| (a) | Prices                Provided by Other External Sources – OTC Broker Quotes reflects                information obtained from over-the-counter brokers (OTC), industry                services, or multiple-party online platforms.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Prices                Based on Models and Other Valuation Methods is used in the absence                of                independent information from external sources.  Modeled                information is derived using valuation models developed by the reporting                entity, reflecting when appropriate, option pricing theory, discounted                cash flow concepts, valuation adjustments, etc. and may require projection                of prices for underlying commodities beyond the period that prices                are                available from third-party sources.  In addition, where external                pricing information or market liquidity is limited, such valuations                are                classified as modeled.  Contract values that are measured using                models or valuation methods other than active quotes or OTC broker                quotes                (because of the lack of such data for all delivery quantities, locations                and periods) incorporate in the model or other valuation methods,                to the                extent possible, OTC broker quotes and active quotes for deliveries                in                years and at locations for which such quotes are available including                values determinable by other third party transactions. |
| (c) | There                is mark-to-market value of $35 million in individual periods beyond                2011.  $14 million of this mark-to-market value is in 2012, $8                million is in 2013, $7 million is in 2014, $2 million is in 2015,                $2                million is in 2016 and $2 million is in                2017.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |

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

**As      of September 30, 2007**

| **Commodity**              |   | **Transaction                Class**           |                                   | **Market/Region**                                          |   | **Tenor**                      |
|----------------------------|--------|------------------------------------------------|----------------------------------------|------------------------------------------------------------|--------|--------------------------------|
|                       |   |                                           |                                   |                                                       |   | **(in                Months)** |
| Natural                Gas |   | Futures                                        |                                   | NYMEX                / Henry Hub                           |   | 60                             |
|                       |   | Physical                Forwards               |                                   | Gulf                Coast, Texas                           |   | 18                             |
|                       |   | Swaps                                          |                                   | Northeast,                Mid-Continent, Gulf Coast, Texas |   | 18                             |
|                       |   | Exchange                Option Volatility      |                                   | NYMEX                / Henry Hub                           |   | 12                             |
| Power                      |   | Futures                                        |                                   | AEP                East - PJM                              |   | 27                             |
|                       |   | Physical                Forwards               |                                   | AEP                East - Cinergy                          |   | 39                             |
|                       |   | Physical                Forwards               |                                   | AEP                - PJM West                              |   | 39                             |
|                       |   | Physical                Forwards               |                                   | AEP                - Dayton (PJM)                          |   | 39                             |
|                       |   | Physical                Forwards               |                                   | AEP                - ERCOT                                 |   | 27                             |
|                       |   | Physical                Forwards               |                                   | AEP                - Entergy                               |   | 15                             |
|                       |   | Physical                Forwards               |                                   | West                Coast                                  |   | 39                             |
|                       |   | Peak                Power Volatility (Options) | AEP                East - Cinergy, PJM |                                                       | 12     |
| Emissions                  |   | Credits                                        |                                   | SO2,                NOx                                    |   | 39                             |
| Coal                       |   | Physical                Forwards               |                                   | PRB,                NYMEX, CSX                             |   | 39                             |

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

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

**Nine      Months Ended September 30, 2007**

**(in      millions)**

|                                                                                                                              |   |      |   |   | **Interest**                |   |   |      |   |
|-----------------------------------------------------------------------------------------------------------------------------------|--------|-----------|--------|--------|-----------------------------|--------|--------|-----------|--------|
|                                                                                                                              |   |      |   |   | **Rate                and** |   |   |      |   |
|                                                                                                                              |   |      |   |   | **Foreign**                 |   |   |      |   |
|                                                                                                                              |   | **Power** |   |   | **Currency**                |   |   | **Total** |   |
| **Beginning                Balance in AOCI, December 31, 2006**                                                                   |   | $         | 17     |   |                        | $      | (23    | )         |   | $ | (6 | ) |
| Changes                in Fair Value                                                                                              |   |      | 4      |   |                        |   | (2     | )         |   |   | 2 |   |
| Reclassifications                from AOCI to Net Income for  Cash                Flow Hedges Settled                   |   |      | (15    | )      |                        |   | 2      |      |   |   | (13 | ) |
| **Ending                Balance in AOCI, September 30, 2007**                                                                     |   | $         | 6      |   |                        | $      | (23    | )         |   | $ | (17 | ) |
|                                                                                                                              |   |      |   |   |                        |   |   |      |   |   |   |   |
| **After                Tax Portion Expected to be Reclassified ****                 to Earnings During Next 12 Months** |   | $         | 4      |   |                        | $      | (2     | )         |   | $ | 2 |   |

**Credit      Risk**

|                                              |   | **Exposure**   |   |   |           |   |   |         |   |   | **Number                of**    |   |   | **Net                Exposure** |   |
|---------------------------------------------------|--------|----------------|--------|--------|----------------|--------|--------|--------------|--------|--------|---------------------------------|--------|--------|---------------------------------|--------|
|                                              |   | **Before**     |   |   |           |   |   |         |   |   | **Counterparties**              |   |   | **of**                          |   |
|                                              |   | **Credit**     |   |   | **Credit**     |   |   | **Net**      |   |   | **>10%                of**   |   |   | **Counterparties**              |   |
| **Counterparty                Credit Quality**    |   | **Collateral** |   |   | **Collateral** |   |   | **Exposure** |   |   | **Net                Exposure** |   |   | **>10%**                     |   |
| Investment                Grade                   |   | $              | 649    |   |           | $      | 60     |         |   | $      | 589                             |   |   |                            | -      |   |   | $ | - |   |
| Split                Rating                       |   |           | 25     |   |           |   | 11     |         |   |   | 14                              |   |   |                            | 2      |   |   |   | 13 |   |
| Noninvestment                Grade                |   |           | 24     |   |           |   | 3      |         |   |   | 21                              |   |   |                            | 2      |   |   |   | 19 |   |
| No                External Ratings:               |   |           |   |   |           |   |   |         |   |   |                            |   |   |                            |   |   |   |   |   |   |
| Internal                Investment Grade          |   |           | 68     |   |           |   | -      |         |   |   | 68                              |   |   |                            | 1      |   |   |   | 39 |   |
| Internal                Noninvestment Grade       |   |           | 13     |   |           |   | 2      |         |   |   | 11                              |   |   |                            | 3      |   |   |   | 8 |   |
| **Total                as of September 30, 2007** |   | $              | 779    |   |           | $      | 76     |         |   | $      | 703                             |   |   |                            | 8      |   |   | $ | 79 |   |
|                                              |   |           |   |   |           |   |   |         |   |   |                            |   |   |                            |   |   |   |   |   |   |
| **Total                as of December 31, 2006**  |   | $              | 998    |   |           | $      | 161    |         |   | $      | 837                             |   |   |                            | 9      |   |   | $ | 169 |   |

**Generation      Plant Hedging Information**

**Generation      Plant Hedging Information**

**Estimated      Next Three Years**

**As      of September 30, 2007**

|                                         | **Remainder** |   |     |   |     |
|----------------------------------------------|---------------|--------|----------|--------|----------|
|                                         | **2007**      |   | **2008** |   | **2009** |
| Estimated                Plant Output Hedged | 95%           |   | 88%      |   | 91%      |

**VaR      Associated with Risk Management Contracts**

***Commodity      Price Risk***

**VaR      Model**

| **Nine                Months Ended**  |   |     |   |        | **Twelve                Months Ended** |
|---------------------------------------|--------|----------|--------|-------------|----------------------------------------|
| **September                30, 2007** |   |     |   |        | **December                31, 2006**   |
| **(in                millions)**      |   |     |   |        | **(in                millions)**       |
| **End**                               |   | **High** |   | **Average** |                                   | **Low** |   |   |   |   | **End** |   | **High** |   | **Average** |   | **Low** |
| $1                                    |   | $6       |   | $2          |                                   | $1 |   |   |   |   | $3 |   | $10 |   | $3 |   | $1 |

***Interest      Rate Risk***

----

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

**CONDENSED      CONSOLIDATED STATEMENTS OF INCOME**

**For      the Three and Nine Months Ended September 30, 2007 and      2006**

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

**(Unaudited)**

|                                                                                                                                                                       |   | **Three                Months Ended** |        | **Nine                Months Ended** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|-------------|--------------------------------------|--------|
|                                                                                                                                                                       |   | **2007**                              |        | **2006**                             |   | **2007** |   | **2006** |   |
| **REVENUES**                                                                                                                                                               |   |                                  |        |                                 |   |   |   |   |   |   |   |
| Utility                Operations                                                                                                                                          |   | $                                     | 3,423       |                                 | $      | 3,478 |   | $ | 9,127 |   | $ | 9,259 |   |
| Other                                                                                                                                                                      |   |                                  | 366         |                                 |   | 116 |   |   | 977 |   |   | 379 |   |
| **TOTAL**                                                                                                                                                                  |   |                                  | 3,789       |                                 |   | 3,594 |   |   | 10,104 |   |   | 9,638 |   |
|                                                                                                                                                                       |   |                                  |        |                                 |   |   |   |   |   |   |   |   |   |
| **EXPENSES**                                                                                                                                                               |   |                                  |        |                                 |   |   |   |   |   |   |   |   |   |
| Fuel                and Other Consumables Used for Electric Generation                                                                                                     |   |                                  | 1,099       |                                 |   | 1,113 |   |   | 2,853 |   |   | 2,962 |   |
| Purchased                Energy for Resale                                                                                                                                 |   |                                  | 358         |                                 |   | 271 |   |   | 895 |   |   | 674 |   |
| Other                Operation and Maintenance                                                                                                                             |   |                                  | 964         |                                 |   | 898 |   |   | 2,783 |   |   | 2,615 |   |
| Gain                on Disposition of Assets, Net                                                                                                                          |   |                                  | (2          | )                                    |   | - |   |   | (28 | ) |   | (68 | ) |
| Asset                Impairments and Other Related Charges                                                                                                                 |   |                                  | -           |                                 |   | 209 |   |   | - |   |   | 209 |   |
| Depreciation                and Amortization                                                                                                                               |   |                                  | 381         |                                 |   | 382 |   |   | 1,144 |   |   | 1,084 |   |
| Taxes                Other Than Income Taxes                                                                                                                               |   |                                  | 191         |                                 |   | 186 |   |   | 565 |   |   | 567 |   |
| **TOTAL**                                                                                                                                                                  |   |                                  | 2,991       |                                 |   | 3,059 |   |   | 8,212 |   |   | 8,043 |   |
|                                                                                                                                                                       |   |                                  |        |                                 |   |   |   |   |   |   |   |   |   |
| **OPERATING                INCOME**                                                                                                                                        |   |                                  | 798         |                                 |   | 535 |   |   | 1,892 |   |   | 1,595 |   |
|                                                                                                                                                                       |   |                                  |        |                                 |   |   |   |   |   |   |   |   |   |
| Interest                and Investment Income                                                                                                                              |   |                                  | 8           |                                 |   | 22 |   |   | 39 |   |   | 41 |   |
| Carrying                Costs Income                                                                                                                                       |   |                                  | 14          |                                 |   | 3 |   |   | 38 |   |   | 66 |   |
| Allowance                For Equity Funds Used During Construction                                                                                                         |   |                                  | 9           |                                 |   | 12 |   |   | 23 |   |   | 25 |   |
| Gain                on Disposition of Equity Investments, Net                                                                                                              |   |                                  | -           |                                 |   | - |   |   | - |   |   | 3 |   |
|                                                                                                                                                                       |   |                                  |        |                                 |   |   |   |   |   |   |   |   |   |
| **INTEREST                AND OTHER CHARGES**                                                                                                                              |   |                                  |        |                                 |   |   |   |   |   |   |   |   |   |
| Interest                Expense                                                                                                                                            |   |                                  | 216         |                                 |   | 174 |   |   | 615 |   |   | 518 |   |
| Preferred                Stock Dividend Requirements of Subsidiaries                                                                                                       |   |                                  | 1           |                                 |   | 1 |   |   | 2 |   |   | 2 |   |
| **TOTAL**                                                                                                                                                                  |   |                                  | 217         |                                 |   | 175 |   |   | 617 |   |   | 520 |   |
|                                                                                                                                                                       |   |                                  |        |                                 |   |   |   |   |   |   |   |   |   |
| **INCOME                BEFORE INCOME TAX EXPENSE, MINORITY ****                   INTEREST ****EXPENSE AND                EQUITY EARNINGS** |   |                                  | 612         |                                 |   | 397 |   |   | 1,375 |   |   | 1,210 |   |
|                                                                                                                                                                       |   |                                  |        |                                 |   |   |   |   |   |   |   |   |   |
| Income                Tax Expense                                                                                                                                          |   |                                  | 205         |                                 |   | 133 |   |   | 443 |   |   | 394 |   |
| Minority                Interest Expense                                                                                                                                   |   |                                  | 1           |                                 |   | 1 |   |   | 3 |   |   | 2 |   |
| Equity                Earnings of Unconsolidated Subsidiaries                                                                                                              |   |                                  | 1           |                                 |   | 2 |   |   | 6 |   |   | 1 |   |
|                                                                                                                                                                       |   |                                  |        |                                 |   |   |   |   |   |   |   |   |   |
| **INCOME                BEFORE DISCONTINUED OPERATIONS AND****                   EXTRAORDINARY LOSS**                                                       |   |                                  | 407         |                                 |   | 265 |   |   | 935 |   |   | 815 |   |
|                                                                                                                                                                       |   |                                  |        |                                 |   |   |   |   |   |   |   |   |   |
| **DISCONTINUED                OPERATIONS, NET OF TAX**                                                                                                                     |   |                                  | -           |                                 |   | - |   |   | 2 |   |   | 6 |   |
|                                                                                                                                                                       |   |                                  |        |                                 |   |   |   |   |   |   |   |   |   |
| **INCOME                BEFORE EXTRAORDINARY LOSS**                                                                                                                        |   |                                  | 407         |                                 |   | 265 |   |   | 937 |   |   | 821 |   |
|                                                                                                                                                                       |   |                                  |        |                                 |   |   |   |   |   |   |   |   |   |
| **EXTRAORDINARY                LOSS, NET OF TAX**                                                                                                                          |   |                                  | -           |                                 |   | - |   |   | (79 | ) |   | - |   |
|                                                                                                                                                                       |   |                                  |        |                                 |   |   |   |   |   |   |   |   |   |
| **NET                INCOME**                                                                                                                                              |   | $                                     | 407         |                                 | $      | 265 |   | $ | 858 |   | $ | 821 |   |
|                                                                                                                                                                       |   |                                  |        |                                 |   |   |   |   |   |   |   |   |   |
| **WEIGHTED                AVERAGE NUMBER OF BASIC****                   SHARES OUTSTANDING**                                                           |   |                                  | 399,222,569 |                                 |   | 393,913,463 |   |   | 398,412,473 |   |   | 393,763,946 |   |
|                                                                                                                                                                       |   |                                  |        |                                 |   |   |   |   |   |   |   |   |   |
| **BASIC                EARNINGS PER SHARE**                                                                                                                                |   |                                  |        |                                 |   |   |   |   |   |   |   |   |   |
| Income                Before Discontinued Operations and Extraordinary Loss                                                                                                |   | $                                     | 1.02        |                                 | $      | 0.67 |   | $ | 2.35 |   | $ | 2.07 |   |
| Discontinued                Operations, Net of Tax                                                                                                                         |   |                                  | -           |                                 |   | - |   |   | - |   |   | 0.01 |   |
| Income                Before Extraordinary Loss                                                                                                                            |   |                                  | 1.02        |                                 |   | 0.67 |   |   | 2.35 |   |   | 2.08 |   |
| Extraordinary                Loss, Net of Tax                                                                                                                              |   |                                  | -           |                                 |   | - |   |   | (0.20 | ) |   | - |   |
| **TOTAL                BASIC EARNINGS PER SHARE**                                                                                                                          |   | $                                     | 1.02        |                                 | $      | 0.67 |   | $ | 2.15 |   | $ | 2.08 |   |
|                                                                                                                                                                       |   |                                  |        |                                 |   |   |   |   |   |   |   |   |   |
| **WEIGHTED                AVERAGE NUMBER OF DILUTED****                   SHARES OUTSTANDING**                                                              |   |                                  | 400,215,911 |                                 |   | 396,266,250 |   |   | 399,552,630 |   |   | 395,783,241 |   |
|                                                                                                                                                                       |   |                                  |        |                                 |   |   |   |   |   |   |   |   |   |
| **DILUTED                EARNINGS PER SHARE**                                                                                                                              |   |                                  |        |                                 |   |   |   |   |   |   |   |   |   |
| Income                Before Discontinued Operations and Extraordinary Loss                                                                                                |   | $                                     | 1.02        |                                 | $      | 0.67 |   | $ | 2.34 |   | $ | 2.06 |   |
| Discontinued                Operations, Net of Tax                                                                                                                         |   |                                  | -           |                                 |   | - |   |   | 0.01 |   |   | 0.01 |   |
| Income                Before Extraordinary Loss                                                                                                                            |   |                                  | 1.02        |                                 |   | 0.67 |   |   | 2.35 |   |   | 2.07 |   |
| Extraordinary                Loss, Net of Tax                                                                                                                              |   |                                  | -           |                                 |   | - |   |   | (0.20 | ) |   | - |   |
| **TOTAL                DILUTED EARNINGS PER SHARE**                                                                                                                        |   | $                                     | 1.02        |                                 | $      | 0.67 |   | $ | 2.15 |   | $ | 2.07 |   |
|                                                                                                                                                                       |   |                                  |        |                                 |   |   |   |   |   |   |   |   |   |
| **CASH                DIVIDENDS PAID PER SHARE**                                                                                                                           |   | $                                     | 0.39        |                                 | $      | 0.37 |   | $ | 1.17 |   | $ | 1.11 |   |

*See      Condensed Notes to Condensed Consolidated Financial      Statements.*

----

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

**CONDENSED      CONSOLIDATED BALANCE SHEETS**

**ASSETS**

**September      30, 2007 and December 31, 2006**

**(in      millions)**

**(Unaudited)**

|                                                           |   | **2007** |   | **2006** |   |
|----------------------------------------------------------------|--------|----------|--------|----------|--------|
| **CURRENT                ASSETS**                              |   |     |   |     |   |   |
| Cash                and Cash Equivalents                       |   | $        | 196    |     |   | $ | 301 |   |
| Other                Temporary Investments                     |   |     | 231    |     |   |   | 425 |   |
| Accounts                Receivable:                            |   |     |   |     |   |   |   |   |
|                  Customers                                |   |     | 780    |     |   |   | 676 |   |
|                  Accrued Unbilled Revenues                |   |     | 376    |     |   |   | 350 |   |
|                  Miscellaneous                            |   |     | 87     |     |   |   | 44 |   |
|                  Allowance for Uncollectible Accounts     |   |     | (41    | )        |   |   | (30 | ) |
|                  Total Accounts Receivable                |   |     | 1,202  |     |   |   | 1,040 |   |
| Fuel,                Materials and Supplies                    |   |     | 961    |     |   |   | 913 |   |
| Risk                Management Assets                          |   |     | 351    |     |   |   | 680 |   |
| Regulatory                Asset for Under-Recovered Fuel Costs |   |     | 23     |     |   |   | 38 |   |
| Margin                Deposits                                 |   |     | 61     |     |   |   | 120 |   |
| Prepayments                and Other                           |   |     | 86     |     |   |   | 71 |   |
| **TOTAL**                                                      |   |     | 3,111  |     |   |   | 3,588 |   |
|                                                           |   |     |   |     |   |   |   |   |
| **PROPERTY,                PLANT AND EQUIPMENT**               |   |     |   |     |   |   |   |   |
| Electric:                                                      |   |     |   |     |   |   |   |   |
|                   Production                         |   |     | 19,749 |     |   |   | 16,787 |   |
|                   Transmission                       |   |     | 7,354  |     |   |   | 7,018 |   |
|                   Distribution                       |   |     | 11,894 |     |   |   | 11,338 |   |
| Other                (including coal mining and nuclear fuel)  |   |     | 3,363  |     |   |   | 3,405 |   |
| Construction                Work in Progress                   |   |     | 2,809  |     |   |   | 3,473 |   |
| **Total**                                                      |   |     | 45,169 |     |   |   | 42,021 |   |
| Accumulated                Depreciation and Amortization       |   |     | 16,139 |     |   |   | 15,240 |   |
| **TOTAL                - NET**                                 |   |     | 29,030 |     |   |   | 26,781 |   |
|                                                           |   |     |   |     |   |   |   |   |
| **OTHER                NONCURRENT ASSETS**                     |   |     |   |     |   |   |   |   |
| Regulatory                Assets                               |   |     | 2,365  |     |   |   | 2,477 |   |
| Securitized                Transition Assets                   |   |     | 2,115  |     |   |   | 2,158 |   |
| Spent                Nuclear Fuel and Decommissioning Trusts   |   |     | 1,315  |     |   |   | 1,248 |   |
| Goodwill                                                       |   |     | 76     |     |   |   | 76 |   |
| Long-term                Risk Management Assets                |   |     | 347    |     |   |   | 378 |   |
| Employee                Benefits and Pension Assets            |   |     | 293    |     |   |   | 327 |   |
| Deferred                Charges and Other                      |   |     | 804    |     |   |   | 910 |   |
| **TOTAL**                                                      |   |     | 7,315  |     |   |   | 7,574 |   |
|                                                           |   |     |   |     |   |   |   |   |
| **Assets                Held for Sale**                        |   |     | -      |     |   |   | 44 |   |
|                                                           |   |     |   |     |   |   |   |   |
| **TOTAL                ASSETS**                                |   | $        | 39,456 |     |   | $ | 37,987 |   |

| *See                Condensed Notes to Condensed Consolidated Financial                Statements.* |
|-----------------------------------------------------------------------------------------------------|

----

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

**CONDENSED      CONSOLIDATED BALANCE SHEETS**

**LIABILITIES      AND SHAREHOLDERS’ EQUITY**

**September      30, 2007 and December 31, 2006**

**(Unaudited)**

|                                                                                                                |        | **2007**                         |        | **2006** |   |
|---------------------------------------------------------------------------------------------------------------------|-------------|----------------------------------|-------------|----------|--------|
| **CURRENT                LIABILITIES**                                                                              |        | **(in                millions)** |        |
| Accounts                Payable                                                                                     |        | $                                | 1,121       |     | $      | 1,360 |   |
| Short-term                Debt                                                                                      |        |                             | 587         |     |   | 18 |   |
| Long-term                Debt Due Within One Year                                                                   |        |                             | 910         |     |   | 1,269 |   |
| Risk                Management Liabilities                                                                          |        |                             | 267         |     |   | 541 |   |
| Customer                Deposits                                                                                    |        |                             | 326         |     |   | 339 |   |
| Accrued                Taxes                                                                                        |        |                             | 616         |     |   | 781 |   |
| Accrued                Interest                                                                                     |        |                             | 246         |     |   | 186 |   |
| Other                                                                                                               |        |                             | 835         |     |   | 962 |   |
| **TOTAL**                                                                                                           |        |                             | 4,908       |     |   | 5,456 |   |
|                                                                                                                |        |                             |        |     |   |   |   |
| **NONCURRENT                LIABILITIES**                                                                           |        |                             |        |     |   |   |   |
| Long-term                Debt                                                                                       |        |                             | 13,866      |     |   | 12,429 |   |
| Long-term                Risk Management Liabilities                                                                |        |                             | 210         |     |   | 260 |   |
| Deferred                Income Taxes                                                                                |        |                             | 4,585       |     |   | 4,690 |   |
| Regulatory                Liabilities and Deferred Investment Tax Credits                                           |        |                             | 2,886       |     |   | 2,910 |   |
| Asset                Retirement Obligations                                                                         |        |                             | 1,059       |     |   | 1,023 |   |
| Employee                Benefits and Pension Obligations                                                            |        |                             | 855         |     |   | 823 |   |
| Deferred                Gain on Sale and Leaseback – Rockport Plant Unit 2                                    |        |                             | 141         |     |   | 148 |   |
| Deferred                Credits and Other                                                                           |        |                             | 976         |     |   | 775 |   |
| **TOTAL**                                                                                                           |        |                             | 24,578      |     |   | 23,058 |   |
|                                                                                                                |        |                             |        |     |   |   |   |
| **TOTAL                LIABILITIES**                                                                                |        |                             | 29,486      |     |   | 28,514 |   |
|                                                                                                                |        |                             |        |     |   |   |   |
| Cumulative                Preferred Stock Not Subject to Mandatory Redemption                                       |        |                             | 61          |     |   | 61 |   |
|                                                                                                                |        |                             |        |     |   |   |   |
| Commitments                and Contingencies (Note 4)                                                               |        |                             |        |     |   |   |   |
|                                                                                                                |        |                             |        |     |   |   |   |
| **COMMON                SHAREHOLDERS’ EQUITY**                                                                |        |                             |        |     |   |   |   |
| Common                Stock Par Value $6.50:                                                                        |        |                             |        |     |   |   |   |
|                                                                                                                | 2007        |                             | 2006        |     |   |   |   |   |   |   |   |
| Shares                Authorized                                                                                    | 600,000,000 |                             | 600,000,000 |     |   |   |   |   |   |   |   |
| Shares                Issued                                                                                        | 421,328,600 |                             | 418,174,728 |     |   |   |   |   |   |   |   |
| (21,499,992                shares were held in treasury at September 30, 2007 and December 31,                2006) |        |                             | 2,739       |     |   | 2,718 |   |
| Paid-in                Capital                                                                                      |        |                             | 4,328       |     |   | 4,221 |   |
| Retained                Earnings                                                                                    |        |                             | 3,070       |     |   | 2,696 |   |
| Accumulated                Other Comprehensive Income (Loss)                                                        |        |                             | (228        | )        |   | (223 | ) |
| **TOTAL**                                                                                                           |        |                             | 9,909       |     |   | 9,412 |   |
|                                                                                                                |        |                             |        |     |   |   |   |
| **TOTAL                LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                 |        | $                                | 39,456      |     | $      | 37,987 |   |

| *See                Condensed Notes to Condensed Consolidated Financial                Statements.* |
|-----------------------------------------------------------------------------------------------------|

----

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

**CONDENSED      CONSOLIDATED STATEMENTS OF CASH FLOWS**

**For      the Nine Months Ended September 30, 2007 and 2006**

**(in      millions)**

**(Unaudited)**

|                                                                                                               |   | **2007** |   |   | **2006** |   |
|--------------------------------------------------------------------------------------------------------------------|--------|----------|--------|--------|----------|--------|
| **OPERATING                ACTIVITIES**                                                                            |   |     |   |   |     |   |
| **Net                Income**                                                                                      |   | $        | 858    |   |     | $      | 821 |   |
| Less:  Discontinued                Operations, Net of Tax                                                |   |     | (2     | )      |     |   | (6 | ) |
| **Income                Before Discontinued Operations**                                                           |   |     | 856    |   |     |   | 815 |   |
| **Adjustments                to Reconcile Net Income to Net Cash Flows from Operating                Activities:** |   |     |   |   |     |   |   |   |
| Depreciation                and Amortization                                                                       |   |     | 1,144  |   |     |   | 1,084 |   |
| Deferred                Income Taxes                                                                               |   |     | 44     |   |     |   | (88 | ) |
| Deferred                Investment Tax Credits                                                                     |   |     | (18    | )      |     |   | (20 | ) |
| Extraordinary                Loss, Net of Tax                                                                      |   |     | 79     |   |     |   | - |   |
| Asset                Impairments, Investment Value Losses and Other Related                Charges                 |   |     | -      |   |     |   | 209 |   |
| Carrying                Costs Income                                                                               |   |     | (38    | )      |     |   | (66 | ) |
| Mark-to-Market                of Risk Management Contracts                                                         |   |     | 22     |   |     |   | (21 | ) |
| Amortization                of Nuclear Fuel                                                                        |   |     | 48     |   |     |   | 38 |   |
| Deferred                Property Taxes                                                                             |   |     | 118    |   |     |   | 105 |   |
| Fuel                Over/Under-Recovery, Net                                                                       |   |     | (133   | )      |     |   | 158 |   |
| Gain                on Sales of Assets and Equity Investments, Net                                                 |   |     | (28    | )      |     |   | (71 | ) |
| Change                in Other Noncurrent Assets                                                                   |   |     | (87    | )      |     |   | 36 |   |
| Change                in Other Noncurrent Liabilities                                                              |   |     | 116    |   |     |   | 26 |   |
| **Changes                in Certain Components of Working Capital:**                                               |   |     |   |   |     |   |   |   |
| Accounts                Receivable, Net                                                                            |   |     | (209   | )      |     |   | 139 |   |
| Fuel,                Materials and Supplies                                                                        |   |     | (13    | )      |     |   | (84 | ) |
| Margin                Deposits                                                                                     |   |     | 59     |   |     |   | 130 |   |
| Accounts                Payable                                                                                    |   |     | (54    | )      |     |   | (49 | ) |
| Customer                Deposits                                                                                   |   |     | (13    | )      |     |   | (235 | ) |
| Accrued                Taxes, Net                                                                                  |   |     | (119   | )      |     |   | 176 |   |
| Accrued                Interest                                                                                    |   |     | 22     |   |     |   | 10 |   |
| Other                Current Assets                                                                                |   |     | (33    | )      |     |   | 12 |   |
| Other                Current Liabilities                                                                           |   |     | (133   | )      |     |   | (108 | ) |
| **Net                Cash Flows From Operating Activities**                                                        |   |     | 1,630  |   |     |   | 2,196 |   |
|                                                                                                               |   |     |   |   |     |   |   |   |
| **INVESTING                ACTIVITIES**                                                                            |   |     |   |   |     |   |   |   |
| Construction                Expenditures                                                                           |   |     | (2,595 | )      |     |   | (2,428 | ) |
| Change                in Other Temporary Cash Investments, Net                                                     |   |     | (50    | )      |     |   | 20 |   |
| Purchases                of Investment Securities                                                                  |   |     | (8,632 | )      |     |   | (8,153 | ) |
| Sales                of Investment Securities                                                                      |   |     | 8,849  |   |     |   | 8,056 |   |
| Acquisitions                of Darby, Lawrenceburg and Dresden Plants                                              |   |     | (512   | )      |     |   | - |   |
| Proceeds                from Sales of Assets                                                                       |   |     | 78     |   |     |   | 120 |   |
| Other                                                                                                              |   |     | (73    | )      |     |   | (72 | ) |
| **Net                Cash Flows Used For Investing Activities**                                                    |   |     | (2,935 | )      |     |   | (2,457 | ) |
|                                                                                                               |   |     |   |   |     |   |   |   |
| **FINANCING                ACTIVITIES**                                                                            |   |     |   |   |     |   |   |   |
| Issuance                of Common Stock                                                                            |   |     | 116    |   |     |   | 24 |   |
| Issuance                of Long-term Debt                                                                          |   |     | 1,924  |   |     |   | 1,229 |   |
| Change                in Short-term Debt, Net                                                                      |   |     | 569    |   |     |   | 11 |   |
| Retirement                of Long-term Debt                                                                        |   |     | (870   | )      |     |   | (711 | ) |
| Dividends                Paid on Common Stock                                                                      |   |     | (467   | )      |     |   | (437 | ) |
| Other                                                                                                              |   |     | (72    | )      |     |   | 3 |   |
| **Net                Cash Flows From Financing Activities**                                                        |   |     | 1,200  |   |     |   | 119 |   |
|                                                                                                               |   |     |   |   |     |   |   |   |
| **Net                Decrease in Cash and Cash Equivalents**                                                       |   |     | (105   | )      |     |   | (142 | ) |
| **Cash                and Cash Equivalents at Beginning of Period**                                                |   |     | 301    |   |     |   | 401 |   |
| **Cash                and Cash Equivalents at End of Period**                                                      |   | $        | 196    |   |     | $      | 259 |   |
|                                                                                                               |   |     |   |   |     |   |   |   |
| **SUPPLEMENTARY                INFORMATION**                                                                       |   |     |   |   |     |   |   |   |
| Cash                Paid for Interest, Net of Capitalized Amounts                                                  |   | $        | 549    |   |     | $      | 462 |   |
| Net                Cash Paid for Income Taxes                                                                      |   |     | 363    |   |     |   | 206 |   |
| Noncash                Acquisitions Under Capital Leases                                                           |   |     | 59     |   |     |   | 66 |   |
| Construction                Expenditures Included in Accounts Payable at September 30,                             |   |     | 265    |   |     |   | 334 |   |
| Nuclear                Fuel Expenditures Included in Accounts Payable at September                30,              |   |     | 1      |   |     |   | - |   |
| Noncash                Assumption of Liabilities Related to Acquisitions                                           |   |     | 8      |   |     |   | - |   |

| *See                Condensed Notes to Condensed Consolidated Financial                Statements.* |
|-----------------------------------------------------------------------------------------------------|

----

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

**CONDENSED      CONSOLIDATED STATEMENTS OF CHANGES IN COMMON SHAREHOLDERS’ EQUITY AND      COMPREHENSIVE INCOME (LOSS)**

**For      the Nine Months Ended September 30, 2007 and 2006**

**(in      millions)**

**(Unaudited)**

|                                                                                                                       |                                                                                                                                                                          | **Common                Stock** |   |       |   |                               |   | **Accumulated**          |   |                                                 |   |
|----------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------|--------|------------|--------|------------------------------------|--------|--------------------------|--------|------------------------------------------------------|--------|
|                                                                                                                       |                                                                                                                                                                          | **Shares**                      |   | **Amount** |   | **Paid-in                Capital** |   | **Retained****Earnings** |   | **Other                Comprehensive Income (Loss)** |   | **Total** |   |
| **DECEMBER                31, 2005**                                                                                       |                                                                                                                                                                          |                            | 415    |       | $      | 2,699                              |   | $                        | 4,131  |                                                 | $      | 2,285 |   | $ | (27 | ) | $ | 9,088 |   |
| Issuance                of Common Stock                                                                                    |                                                                                                                                                                          |                            | 1      |       |   | 5                                  |   |                     | 19     |                                                 |   |   |   |   |   |   |   | 24 |   |
| Common                Stock Dividends                                                                                      |                                                                                                                                                                          |                            |   |       |   |                               |   |                     |   |                                                 |   | (437 | ) |   |   |   |   | (437 | ) |
| Other                                                                                                                      |                                                                                                                                                                          |                            |   |       |   |                               |   |                     | 3      |                                                 |   |   |   |   |   |   |   | 3 |   |
| **TOTAL**                                                                                                                  |                                                                                                                                                                          |                            |   |       |   |                               |   |                     |   |                                                 |   |   |   |   |   |   |   | 8,678 |   |
|                                                                                                                       |                                                                                                                                                                          |                            |   |       |   |                               |   |                     |   |                                                 |   |   |   |   |   |   |   |   |   |
| **COMPREHENSIVE INCOME**                                                                                              |                                                                                                                                                                          |                            |   |       |   |                               |   |                     |   |                                                 |   |   |   |   |   |   |   |   |   |
| **Other Comprehensive Income, Net of Tax:**                                                       |                                                                                                                                                                          |                            |   |       |   |                               |   |                     |   |                                                 |   |   |   |   |   |   |   |   |   |
|                                                                                                                       | Cash                Flow Hedges, Net of Tax of $10                                                                                                                            |                            |   |       |   |                               |   |                     |   |                                                 |   |   |   |   |   | 18 |   |   | 18 |   |
|                                                                                                                       | Securities                Available for Sale, Net of Tax of $4                                                                                                                |                            |   |       |   |                               |   |                     |   |                                                 |   |   |   |   |   | 8 |   |   | 8 |   |
| **NET                INCOME**                                                                                              |                                                                                                                                                                          |                            |   |       |   |                               |   |                     |   |                                                 |   | 821 |   |   |   |   |   | 821 |   |
| **TOTAL COMPREHENSIVE INCOME**                                                                                   |                                                                                                                                                                          |                            |   |       |   |                               |   |                     |   |                                                 |   |   |   |   |   |   |   | 847 |   |
| **SEPTEMBER                30, 2006**                                                                                      |                                                                                                                                                                          |                            | 416    |       | $      | 2,704                              |   | $                        | 4,153  |                                                 | $      | 2,669 |   | $ | (1 | ) | $ | 9,525 |   |
|                                                                                                                       |                                                                                                                                                                          |                            |   |       |   |                               |   |                     |   |                                                 |   |   |   |   |   |   |   |   |   |
| **DECEMBER                31, 2006**                                                                                       |                                                                                                                                                                          |                            | 418    |       | $      | 2,718                              |   | $                        | 4,221  |                                                 | $      | 2,696 |   | $ | (223 | ) | $ | 9,412 |   |
| FIN                48 Adoption, Net of Tax                                                                                 |                                                                                                                                                                          |                            |   |       |   |                               |   |                     |   |                                                 |   | (17 | ) |   |   |   |   | (17 | ) |
| Issuance                of Common Stock                                                                                    |                                                                                                                                                                          |                            | 3      |       |   | 21                                 |   |                     | 95     |                                                 |   |   |   |   |   |   |   | 116 |   |
| Common                Stock Dividends                                                                                      |                                                                                                                                                                          |                            |   |       |   |                               |   |                     |   |                                                 |   | (467 | ) |   |   |   |   | (467 | ) |
| Other                                                                                                                      |                                                                                                                                                                          |                            |   |       |   |                               |   |                     | 12     |                                                 |   |   |   |   |   |   |   | 12 |   |
| **TOTAL**                                                                                                                  |                                                                                                                                                                          |                            |   |       |   |                               |   |                     |   |                                                 |   |   |   |   |   |   |   | 9,056 |   |
|                                                                                                                       |                                                                                                                                                                          |                            |   |       |   |                               |   |                     |   |                                                 |   |   |   |   |   |   |   |   |   |
| **COMPREHENSIVE INCOME**                                                                                              |                                                                                                                                                                          |                            |   |       |   |                               |   |                     |   |                                                 |   |   |   |   |   |   |   |   |   |
| **Other Comprehensive                Income****                   (Loss), Net of Tax:** |                                                                                                                                                                          |                            |   |       |   |                               |   |                     |   |                                                 |   |   |   |   |   |   |   |   |   |
|                                                                                                                       | Cash                Flow Hedges, Net of Tax of $6                                                                                                                             |                            |   |       |   |                               |   |                     |   |                                                 |   |   |   |   |   | (11 | ) |   | (11 | ) |
|                                                                                                                       | Securities                Available for Sale, Net of Tax of $3                                                                                                                |                            |   |       |   |                               |   |                     |   |                                                 |   |   |   |   |   | (5 | ) |   | (5 | ) |
|                                                                                                                       | SFAS                158 Costs Established as a Regulatory                  Asset for                the Reapplication of SFAS 71, Net                  of Tax of $6 |                            |   |       |   |                               |   |                     |   |                                                 |   |   |   |   |   | 11 |   |   | 11 |   |
| **NET                INCOME**                                                                                              |                                                                                                                                                                          |                            |   |       |   |                               |   |                     |   |                                                 |   | 858 |   |   |   |   |   | 858 |   |
| **TOTAL COMPREHENSIVE INCOME**                                                                                   |                                                                                                                                                                          |                            |   |       |   |                               |   |                     |   |                                                 |   |   |   |   |   |   |   | 853 |   |
| **SEPTEMBER                30, 2007**                                                                                      |                                                                                                                                                                          |                            | 421    |       | $      | 2,739                              |   | $                        | 4,328  |                                                 | $      | 3,070 |   | $ | (228 | ) | $ | 9,909 |   |

| *See                Condensed Notes to Condensed Consolidated Financial                Statements.* |
|-----------------------------------------------------------------------------------------------------|

----

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

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

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

----

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

|   | **CONDENSED                NOTES TO CONDENSED CONSOLIDATED FINANCIAL                STATEMENTS** |
|--------|--------------------------------------------------------------------------------------------------|

| **1.** | **SIGNIFICANT                ACCOUNTING MATTERS** |
|--------|---------------------------------------------------|

***General***

***Property,      Plant and Equipment and Equity Investments***

***Revenue      Recognition***

*Traditional      Electricity Supply and Delivery Activities*

*Energy      Marketing and Risk Management Activities*

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

|                                                     |   | **September                30,** |   |   | **December                31,** |   |
|----------------------------------------------------------|--------|----------------------------------|--------|--------|---------------------------------|--------|
|                                                     |   | **2007**                         |   |   | **2006**                        |   |
| **Components**                                           |   | **(in                millions)** |   |
| Securities                Available for Sale, Net of Tax |   | $                                | 13     |   |                            | $      | 18 |   |
| Cash                Flow Hedges, Net of Tax              |   |                             | (17    | )      |                            |   | (6 | ) |
| SFAS                158 Costs, Net of Tax                |   |                             | (224   | )      |                            |   | (235 | ) |
| **Total**                                                |   | $                                | (228   | )      |                            | $      | (223 | ) |

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

|                                                                           |   | **Three                Months Ended September 30,**     |   |
|--------------------------------------------------------------------------------|--------|---------------------------------------------------------|--------|
|                                                                           |   | **2007**                                                |   |   | **2006** |   |
|                                                                           |   | **(in                millions, except per share data)** |   |
|                                                                           |   |                                                    |   |   | **$/share** |   |   |   |   |   | **$/share** |   |
| **Earnings                Applicable to Common Stock**                         |   | $                                                       | 407    |   |   |   |   |   | $ | 265 |   |   |   |   |
|                                                                           |   |                                                    |   |   |   |   |   |   |   |   |   |   |   |   |
| Average                Number of Basic Shares Outstanding                      |   |                                                    | 399.2  |   |   | $ | 1.02 |   |   |   | 393.9 |   |   | $ | 0.67 |   |
| Average                Dilutive Effect of:                                     |   |                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Performance                Share Units                                         |   |                                                    | 0.5    |   |   |   | - |   |   |   | 2.0 |   |   |   | - |   |
| Stock                Options                                                   |   |                                                    | 0.3    |   |   |   | - |   |   |   | 0.2 |   |   |   | - |   |
| Restricted                Stock Units                                          |   |                                                    | 0.1    |   |   |   | - |   |   |   | 0.1 |   |   |   | - |   |
| Restricted                Shares                                               |   |                                                    | 0.1    |   |   |   | - |   |   |   | 0.1 |   |   |   | - |   |
| **Average                Number of Diluted Shares****  Outstanding** |   |                                                    | 400.2  |   |   | $ | 1.02 |   |   |   | 396.3 |   |   | $ | 0.67 |   |

|                                                                                           |   | **Nine                Months Ended September 30,**      |   |
|------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------|--------|
|                                                                                           |   | **2007**                                                |   |   | **2006** |   |
|                                                                                           |   | **(in                millions, except per share data)** |   |
|                                                                                           |   |                                                    |   |   | **$/share** |   |   |   |   |   | **$/share** |   |
| **Earnings                Applicable to Common Stock**                                         |   | $                                                       | 858    |   |   |   |   |   | $ | 821 |   |   |   |   |
|                                                                                           |   |                                                    |   |   |   |   |   |   |   |   |   |   |   |   |
| Average                Number of Basic Shares Outstanding                                      |   |                                                    | 398.4  |   |   | $ | 2.15 |   |   |   | 393.8 |   |   | $ | 2.08 |   |
| Average                Dilutive Effect of:                                                     |   |                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Performance                Share Units                                                         |   |                                                    | 0.6    |   |   |   | - |   |   |   | 1.6 |   |   |   | (0.01 | ) |
| Stock                Options                                                                   |   |                                                    | 0.4    |   |   |   | - |   |   |   | 0.2 |   |   |   | - |   |
| Restricted                Stock Units                                                          |   |                                                    | 0.1    |   |   |   | - |   |   |   | 0.1 |   |   |   | - |   |
| Restricted                Shares                                                               |   |                                                    | 0.1    |   |   |   | - |   |   |   | 0.1 |   |   |   | - |   |
| **Average                Number of Diluted Shares****                  Outstanding** |   |                                                    | 399.6  |   |   | $ | 2.15 |   |   |   | 395.8 |   |   | $ | 2.07 |   |

***Supplementary      Information***

|                                                                                                                                                                                                                       |   | **Three                Months Ended** |   |   | **Nine                Months Ended** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|--------|--------|--------------------------------------|--------|
|                                                                                                                                                                                                                       |   | **September                30,**      |   |   | **September                30,**     |   |
|                                                                                                                                                                                                                       |   | **2007**                              |   |   | **2006**                             |   |   | **2007** |   |   | **2006** |   |
| **Related                Party Transactions**                                                                                                                                                                              |   | **(in                millions)**      |   |   | **(in                millions)**     |   |
| AEP                Consolidated Purchased Energy:                                                                                                                                                                          |   |                                  |   |   |                                 |   |   |   |   |   |   |   |
| Ohio                Valley Electric Corporation (43.47% Owned)                                                                                                                                                             |   | $                                     | 59     |   |                                 | $      | 54 |   |   | $ | 164 |   |   | $ | 167 |   |
| Sweeny                Cogeneration Limited Partnership (a)                                                                                                                                                                 |   |                                  | 27     |   |                                 |   | 30 |   |   |   | 86 |   |   |   | 92 |   |
| AEP                Consolidated Other Revenues – Barging and Other   Transportation                Services – Ohio Valley Electric Corporation                    (43.47% Owned) |   |                                  | 7      |   |                                 |   | 8 |   |   |   | 24 |   |   |   | 23 |   |
| AEP                Consolidated Revenues – Utility Operations:                                                                                                                                                       |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Power                Pool Purchases – Ohio Valley Electric Corporation  (43.47%                Owned)                                                                                                      |   |                                  | (12    | )      |                                 |   | - |   |   |   | (16 | ) |   |   | - |   |

| (a) | In                October 2007, we sold our 50% ownership in the Sweeny Cogeneration                Limited                Partnership.  See “Sweeny Cogeneration Plant” section of Note                5. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

***Reclassifications***

| **2.** | **NEW                ACCOUNTING PRONOUNCEMENTS AND EXTRAORDINARY                ITEM** |
|--------|----------------------------------------------------------------------------------------|

**NEW      ACCOUNTING PRONOUNCEMENTS**

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

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

***EITF      Issue No. 06-11 “Accounting for Income Tax Benefits of Dividends on Share-Based      Payment Awards”***
***(EITF      06-11)***

***FIN        48 “Accounting for Uncertainty in Income Taxes” and FASB Staff Position FIN 48-1“Definition of Settlement in FASB***

***          Interpretation No. 48” (FIN 48)***

*Settlement*

***FIN      39-1 “Amendment of FASB Interpretation No. 39” (FIN      39-1)***

***Future      Accounting Changes***

**EXTRAORDINARY      ITEM**

| **3.** | **RATE                MATTERS** |
|--------|---------------------------------|

**Ohio      Rate Matters**

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

***Customer      Choice Deferrals***

***Ohio      IGCC Plant***

***Distribution      Reliability Plan***

***Ormet***

**Texas      Rate Matters**

**TCC      TEXAS RESTRUCTURING**

***Texas      District Court Appeal Proceedings***

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

**OTHER      TEXAS RESTRUCTURING MATTERS**

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

* *

***TCC      and TNC Deferred Fuel***

***TCC      Excess Earnings***

***TCC      Oklaunion Refund***

**OTHER      TEXAS RATE MATTERS**

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

***SWEPCo      Fuel Reconciliation – Texas***

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

***Stall      Unit***

***Turk      Plant***

**Virginia      Rate Matters**

***Virginia      Restructuring***

***Virginia      Base Rate Case***

***Virginia      E&R Costs Recovery Filing***

***Virginia      Fuel Clause Filing***

***West      Virginia IGCC Plant***

**West      Virginia Rate Matters**

***APCo      and WPCo Expanded Net Energy Cost (ENEC) Filing***

***West      Virginia IGCC Plant***

**.  **

**Indiana      Rate Matters**

***Indiana      Depreciation Study Filing***

***Indiana      Rate Filing***

***Indiana      Rate Cap***

**Michigan      Rate Matters**

***Michigan      Depreciation Study Filing***

**Kentucky      Rate Matters**

***Environmental      Surcharge Filing***

***Validity      of Nonstatutory Surcharges***

**Oklahoma      Rate Matters**

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

***Oklahoma      Rate Filing***

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

***Red      Rock Generating Facility***

***2007      Oklahoma Ice Storm***

**Louisiana      Rate Matters**

***Louisiana      Compliance Filing***

***Stall      Unit***

***Turk      Plant***

**Arkansas      Rate Matters**

***Turk      Plant***

***Stall      Unit***

**FERC      Rate Matters**

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

*SECA      Revenue Subject to Refund*

*The      FERC PJM Regional Transmission Rate Proceeding*

*The      FERC PJM and MISO Regional Transmission Rate Proceeding*

***SPP      Transmission Formula Rate Filing***

**.**

***PJM      Marginal-Loss Pricing***

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

**GUARANTEES**

***Letters      of Credit***

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

*SWEPCo*

***Indemnifications      and Other Guarantees***

*Contracts*

*Master      Operating Lease*

*Railcar      Lease*

**CONTINGENCIES**

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

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

***Carbon      Dioxide (CO2)      Public Nuisance Claims***

***TEM      Litigation***

***Enron      Bankruptcy***

***Shareholder      Lawsuits***

***Natural      Gas Markets Lawsuits***

***FERC      Long-term Contracts***

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

**ACQUISITIONS**

**2007**

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

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

***Dresden      Plant (Utility Operations segment)***

**2006**

**DISPOSITIONS**

**2007**

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

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

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

***Sweeny      Cogeneration Plant (Generation and Marketing segment)***

**2006**

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

**DISCONTINUED      OPERATIONS**

|                                               |   | **U.K. ****Generation****(a)** |   |
|----------------------------------------------------|--------|-------------------------------------|--------|
| **Nine                Months Ended September 30,** |   | **(in                millions)**    |   |
| 2007                Revenue                        |   | $                                   | -      |   |
| 2007                Pretax Income                  |   |                                | 3      |   |
| 2007                Earnings, Net of Tax      |   |                                | 2      |   |
|                                               |   |                                |   |   |
| 2006                Revenue                        |   | $                                   | -      |   |
| 2006                Pretax Income                  |   |                                | 9      |   |
| 2006                Earnings, Net of Tax      |   |                                | 6      |   |

| (a) | The                2007 amounts relate to tax adjustments from the sale.  Amounts                in 2006 relate to a release of accrued liabilities for the settlement                of                the London office lease and tax adjustments related to the                sale. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**ASSETS      HELD FOR SALE**

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

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

|                                              |   | **September                30,** |   |   | **December                31,** |   |
|---------------------------------------------------|--------|----------------------------------|--------|--------|---------------------------------|--------|
|                                              |   | **2007**                         |   |   | **2006**                        |   |
| **Texas                Plants**                   |   | **(in                millions)** |   |
| Other                Current Assets               |   | $                                | -      |   |                            | $      | 1 |   |
| Property,                Plant and Equipment, Net |   |                             | -      |   |                            |   | 43 |   |
| **Total                Assets Held for Sale**     |   | $                                | -      |   |                            | $      | 44 |   |

**6.       BENEFIT      PLANS**

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

|                                                              |   |                             |   |   | **Other**                        |   |
|-------------------------------------------------------------------|--------|----------------------------------|--------|--------|----------------------------------|--------|
|                                                              |   |                             |   |   | **Postretirement**               |   |
|                                                              |   | **Pension                Plans** |   |   | **Benefit                Plans** |   |
|                                                              |   | **2007**                         |   |   | **2006**                         |   |   | **2007** |   |   | **2006** |   |
| **Three                Months Ended September 30, 2007 and 2006** |   | **(in                millions)** |   |
| Service                Cost                                       |   | $                                | 24     |   |                             | $      | 23 |   |   | $ | 11 |   |   | $ | 10 |   |
| Interest                Cost                                      |   |                             | 59     |   |                             |   | 57 |   |   |   | 26 |   |   |   | 26 |   |
| Expected                Return on Plan Assets                     |   |                             | (85    | )      |                             |   | (82 | ) |   |   | (26 | ) |   |   | (24 | ) |
| Amortization                of Transition Obligation              |   |                             | -      |   |                             |   | - |   |   |   | 6 |   |   |   | 7 |   |
| Amortization                of Net Actuarial Loss                 |   |                             | 15     |   |                             |   | 20 |   |   |   | 3 |   |   |   | 5 |   |
| **Net                Periodic Benefit Cost**                      |   | $                                | 13     |   |                             | $      | 18 |   |   | $ | 20 |   |   | $ | 24 |   |

|                                                             |   |                             |   |   | **Other**                        |   |
|------------------------------------------------------------------|--------|----------------------------------|--------|--------|----------------------------------|--------|
|                                                             |   |                             |   |   | **Postretirement**               |   |
|                                                             |   | **Pension                Plans** |   |   | **Benefit                Plans** |   |
|                                                             |   | **2007**                         |   |   | **2006**                         |   |   | **2007** |   |   | **2006** |   |
| **Nine                Months Ended September 30, 2007 and 2006** |   | **(in                millions)** |   |
| Service                Cost                                      |   | $                                | 72     |   |                             | $      | 71 |   |   | $ | 32 |   |   | $ | 30 |   |
| Interest                Cost                                     |   |                             | 176    |   |                             |   | 171 |   |   |   | 78 |   |   |   | 76 |   |
| Expected                Return on Plan Assets                    |   |                             | (254   | )      |                             |   | (248 | ) |   |   | (78 | ) |   |   | (70 | ) |
| Amortization                of Transition Obligation             |   |                             | -      |   |                             |   | - |   |   |   | 20 |   |   |   | 21 |   |
| Amortization                of Net Actuarial Loss                |   |                             | 44     |   |                             |   | 59 |   |   |   | 9 |   |   |   | 15 |   |
| **Net                Periodic Benefit Cost**                     |   | $                                | 38     |   |                             | $      | 53 |   |   | $ | 61 |   |   | $ | 72 |   |

| **7.** | **BUSINESS                SEGMENTS** |
|--------|--------------------------------------|

**Utility      Operations**

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

**MEMCO      Operations**

| · | Barging                operations that annually transport approximately 34 million tons                of coal                and dry bulk commodities primarily on the Ohio, Illinois and lower                Mississippi rivers.  Approximately 35% of the barging operations                relates to the transportation of coal, 30% relates to agricultural                products, 18% relates to steel and 17% relates to other                commodities. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Generation      and Marketing**

| · | IPPs,                wind farms and marketing and risk management activities primarily                in                ERCOT.  Our 50% interest in the Sweeny Cogeneration Plant was                sold in October 2007.  See “Sweeny Cogeneration Plant” section                of Note 5. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|                                                     |   |                                  |   |   | **Nonutility                Operations** |   |   |                               |   |   |                             |   |   |                                       |   |
|----------------------------------------------------------|--------|---------------------------------------|--------|--------|------------------------------------------|--------|--------|------------------------------------|--------|--------|----------------------------------|--------|--------|--------------------------------------------|--------|
|                                                     |   | **Utility                Operations** |   |   | **MEMCO****Operations**                  |   |   | **Generation****and****Marketing** |   |   | **All                Other (a)** |   |   | **Reconciling                Adjustments** |   |   | **Consolidated** |   |
|                                                     |   | **(in                millions)**      |   |
| **Three                Months Ended September 30, 2007** |   |                                  |   |   |                                     |   |   |                               |   |   |                             |   |   |                                       |   |   |   |   |
| Revenues                from:                            |   |                                  |   |   |                                     |   |   |                               |   |   |                             |   |   |                                       |   |   |   |   |
| External                Customers                        |   | $                                     | 3,423  |   |                                     | $      | 134    |                               |   | $      | 241                              |   |   | $                                          | (9     | ) |   | $ | - |   |   | $ | 3,789 |   |
| Other                Operating Segments                  |   |                                  | 177    |   |                                     |   | 4      |                               |   |   | (161                             | )      |   |                                       | 19     |   |   |   | (39 | ) |   |   | - |   |
| **Total                Revenues**                        |   | $                                     | 3,600  |   |                                     | $      | 138    |                               |   | $      | 80                               |   |   | $                                          | 10     |   |   | $ | (39 | ) |   | $ | 3,789 |   |
|                                                     |   |                                  |   |   |                                     |   |   |                               |   |   |                             |   |   |                                       |   |   |   |   |   |   |   |   |   |   |
| Net                Income (Loss)                         |   | $                                     | 388    |   |                                     | $      | 18     |                               |   | $      | 3                                |   |   | $                                          | (2     | ) |   | $ | - |   |   | $ | 407 |   |

|                                                     |   |                                  |   |   | **Nonutility                Operations** |   |   |                               |   |   |                             |   |   |                                       |   |
|----------------------------------------------------------|--------|---------------------------------------|--------|--------|------------------------------------------|--------|--------|------------------------------------|--------|--------|----------------------------------|--------|--------|--------------------------------------------|--------|
|                                                     |   | **Utility                Operations** |   |   | **MEMCO****Operations**                  |   |   | **Generation****and****Marketing** |   |   | **All                Other (a)** |   |   | **Reconciling                Adjustments** |   |   | **Consolidated** |   |
|                                                     |   | **(in                millions)**      |   |
| **Three                Months Ended September 30, 2006** |   |                                  |   |   |                                     |   |   |                               |   |   |                             |   |   |                                       |   |   |   |   |
| Revenues                from:                            |   |                                  |   |   |                                     |   |   |                               |   |   |                             |   |   |                                       |   |   |   |   |
|                  External Customers                 |   | $                                     | 3,478  |   |                                     | $      | 135    |                               |   | $      | 14                               |   |   | $                                          | (33    | ) |   | $ | - |   |   | $ | 3,594 |   |
|                  Other Operating Segments           |   |                                  | (41    | )      |                                     |   | 4      |                               |   |   | -                                |   |   |                                       | 52     |   |   |   | (15 | ) |   |   | - |   |
| **Total                Revenues**                        |   | $                                     | 3,437  |   |                                     | $      | 139    |                               |   | $      | 14                               |   |   | $                                          | 19     |   |   | $ | (15 | ) |   | $ | 3,594 |   |
|                                                     |   |                                  |   |   |                                     |   |   |                               |   |   |                             |   |   |                                       |   |   |   |   |   |   |   |   |   |   |
| Net                Income (Loss)                         |   | $                                     | 378    |   |                                     | $      | 19     |                               |   | $      | 4                                |   |   | $                                          | (136   | ) |   | $ | - |   |   | $ | 265 |   |

|                                                                                                         |   |                                  |   |   | **Nonutility                Operations** |   |   |                               |   |   |                             |   |   |                                       |   |
|--------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|--------|--------|------------------------------------------|--------|--------|------------------------------------|--------|--------|----------------------------------|--------|--------|--------------------------------------------|--------|
|                                                                                                         |   | **Utility                Operations** |   |   | **MEMCO****Operations**                  |   |   | **Generation****and****Marketing** |   |   | **All                Other (a)** |   |   | **Reconciling                Adjustments** |   |   | **Consolidated** |   |
|                                                                                                         |   | **(in                millions)**      |   |
| **Nine                Months Ended September 30, 2007**                                                      |   |                                  |   |   |                                     |   |   |                               |   |   |                             |   |   |                                       |   |   |   |   |
| Revenues                from:                                                                                |   |                                  |   |   |                                     |   |   |                               |   |   |                             |   |   |                                       |   |   |   |   |   |
| External                Customers                                                                            |   | $                                     | 9,127  |   |                                     | $      | 367    |                               |   | $      | 574                              |   |   | $                                          | 36     |   |   | $ | - |   |   | $ | 10,104 |   |
| Other                Operating Segments                                                                      |   |                                  | 460    |   |                                     |   | 10     |                               |   |   | (347                             | )      |   |                                       | (14    | ) |   |   | (109 | ) |   |   | - |   |
| **Total                Revenues**                                                                            |   | $                                     | 9,587  |   |                                     | $      | 377    |                               |   | $      | 227                              |   |   | $                                          | 22     |   |   | $ | (109 | ) |   | $ | 10,104 |   |
|                                                                                                         |   |                                  |   |   |                                     |   |   |                               |   |   |                             |   |   |                                       |   |   |   |   |   |   |   |   |   |   |
| Income                (Loss) Before Discontinued  Operations                and Extraordinary Loss |   | $                                     | 879    |   |                                     | $      | 40     |                               |   | $      | 17                               |   |   | $                                          | (1     | ) |   | $ | - |   |   | $ | 935 |   |
| Discontinued                Operations, Net of Tax                                                           |   |                                  | -      |   |                                     |   | -      |                               |   |   | -                                |   |   |                                       | 2      |   |   |   | - |   |   |   | 2 |   |
| Extraordinary                Loss, Net of Tax                                                                |   |                                  | (79    | )      |                                     |   | -      |                               |   |   | -                                |   |   |                                       | -      |   |   |   | - |   |   |   | (79 | ) |
| **Net                Income**                                                                                |   | $                                     | 800    |   |                                     | $      | 40     |                               |   | $      | 17                               |   |   | $                                          | 1      |   |   | $ | - |   |   | $ | 858 |   |

|                                                                   |   |                                  |   |   | **Nonutility                Operations** |   |   |                               |   |   |                             |   |   |                                       |   |
|------------------------------------------------------------------------|--------|---------------------------------------|--------|--------|------------------------------------------|--------|--------|------------------------------------|--------|--------|----------------------------------|--------|--------|--------------------------------------------|--------|
|                                                                   |   | **Utility                Operations** |   |   | **MEMCO****Operations**                  |   |   | **Generation****and****Marketing** |   |   | **All                Other (a)** |   |   | **Reconciling                Adjustments** |   |   | **Consolidated** |   |
|                                                                   |   | **(in                millions)**      |   |
| **Nine                Months Ended September 30, 2006**                |   |                                  |   |   |                                     |   |   |                               |   |   |                             |   |   |                                       |   |   |   |   |
| Revenues                from:                                          |   |                                  |   |   |                                     |   |   |                               |   |   |                             |   |   |                                       |   |   |   |   |
| External                Customers                                      |   | $                                     | 9,259  |   |                                     | $      | 368    |                               |   | $      | 47                               |   |   | $                                          | (36    | ) |   | $ | - |   |   | $ | 9,638 |   |
| Other                Operating Segments                                |   |                                  | (60    | )      |                                     |   | 9      |                               |   |   | -                                |   |   |                                       | 89     |   |   |   | (38 | ) |   |   | - |   |
| **Total                Revenues**                                      |   | $                                     | 9,199  |   |                                     | $      | 377    |                               |   | $      | 47                               |   |   | $                                          | 53     |   |   | $ | (38 | ) |   | $ | 9,638 |   |
|                                                                   |   |                                  |   |   |                                     |   |   |                               |   |   |                             |   |   |                                       |   |   |   |   |   |   |   |   |   |   |
| Income                (Loss) Before Discontinued  Operations |   | $                                     | 902    |   |                                     | $      | 54     |                               |   | $      | 10                               |   |   | $                                          | (151   | ) |   | $ | - |   |   | $ | 815 |   |
| Discontinued                Operations, Net of Tax                     |   | ** **                            | **-**  |   |                                     |   | -      |                               |   |   | -                                |   |   |                                       | 6      |   |   |   | - |   |   |   | 6 |   |
| **Net                Income (Loss)**                                   |   | $                                     | 902    |   |                                     | $      | 54     |                               |   | $      | 10                               |   |   | $                                          | (145   | ) |   | $ | - |   |   | $ | 821 |   |

|                                                                              |   |                                  |   | **Nonutility                Operations** |   |                               |   |                             |   |                                       |   |
|-----------------------------------------------------------------------------------|--------|---------------------------------------|--------|------------------------------------------|--------|------------------------------------|--------|----------------------------------|--------|--------------------------------------------|--------|
|                                                                              |   | **Utility                Operations** |   | **MEMCO****Operations**                  |   | **Generation****and****Marketing** |   | **All                Other (a)** |   | **Reconciling                Adjustments** |   | **Consolidated** |   |
| **September                30, 2007**                                             |   | **(in                millions)**      |   |
| Total                Property, Plant and Equipment                                |   | $                                     | 44,547 |                                     | $      | 255                                |   | $                                | 566    |                                       | $      | 38 |   | $ | (237 | )                (b) | $ | 45,169 |   |
| Accumulated                Depreciation and  Amortization               |   |                                  | 15,978 |                                     |   | 58                                 |   |                             | 105    |                                       |   | 7 |   |   | (9 | )                (b) |   | 16,139 |   |
| **Total                Property, Plant and Equipment –****  Net** |   | $                                     | 28,569 |                                     | $      | 197                                |   | $                                | 461    |                                       | $      | 31 |   | $ | (228 | )                (b) | $ | 29,030 |   |
|                                                                              |   |                                  |   |                                     |   |                               |   |                             |   |                                       |   |   |   |   |   |   |   |   |   |
| Total                Assets                                                       |   | $                                     | 38,423 |                                     | $      | 326                                |   | $                                | 746    |                                       | $      | 11,948 |   | $ | (11,987 | )                (c) | $ | 39,456 |   |

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

| (a)    | All                Other includes:                                                                                                                                                                                                                                                                                                       |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ·                                                                                                                                                                                                                                                                                                                                   | Parent’s                guarantee revenue received from affiliates, interest income and interest                expense and other nonallocated costs. |
|   | ·                                                                                                                                                                                                                                                                                                                                   | Other                energy supply related businesses, including the Plaquemine Cogeneration                Facility, which was sold in the fourth quarter of 2006. |
| (b)    | Reconciling                Adjustments for Total Property, Plant and Equipment and Accumulated                Depreciation and Amortization as of September 30, 2007 represent                the                elimination of an intercompany capital lease that began during the                first                quarter of 2007. |
| (c)    | Reconciling                Adjustments for Total Assets primarily include the elimination of                intercompany advances to affiliates and intercompany accounts receivable                along with the elimination of AEP’s investments in subsidiary                companies.                                        |

| **8.     INCOME                TAXES** |
|-----------------------------------------------------------------|

***Audit      Status***

***FIN      48 Adoption***

***Michigan      Tax Restructuring***

| **9.** | **FINANCING                ACTIVITIES** |
|--------|-----------------------------------------|

***Long-term      Debt***

|                                                |   | **September                30,** |   |   | **December                31,** |   |
|-----------------------------------------------------|--------|----------------------------------|--------|--------|---------------------------------|--------|
|                                                |   | **2007**                         |   |   | **2006**                        |   |
| **Type                of Debt**                     |   | **(in                millions)** |   |
| Senior                Unsecured Notes               |   | $                                | 9,752  |   |                            | $      | 8,653 |   |
| Pollution                Control Bonds              |   |                             | 2,134  |   |                            |   | 1,950 |   |
| First                Mortgage Bonds                 |   |                             | -      |   |                            |   | 90 |   |
| Defeased                First Mortgage Bonds (a)    |   |                             | 19     |   |                            |   | 27 |   |
| Notes                Payable                        |   |                             | 303    |   |                            |   | 337 |   |
| Securitization                Bonds                 |   |                             | 2,257  |   |                            |   | 2,335 |   |
| Notes                Payable To Trust               |   |                             | 113    |   |                            |   | 113 |   |
| Spent                Nuclear Fuel Obligation (b)    |   |                             | 257    |   |                            |   | 247 |   |
| Other                Long-term Debt                 |   |                             | 2      |   |                            |   | 2 |   |
| Unamortized                Discount (net)           |   |                             | (61    | )      |                            |   | (56 | ) |
| **Total                Long-term Debt Outstanding** |   |                             | 14,776 |   |                            |   | 13,698 |   |
| **Less                Portion Due Within One Year** |   |                             | 910    |   |                            |   | 1,269 |   |
| **Long-term                Portion**                |   | $                                | 13,866 |   |                            | $      | 12,429 |   |

| (a) | In                May 2004, cash and treasury securities were deposited with a trustee                to                defease all of TCC’s outstanding First Mortgage Bonds.  The                defeased TCC First Mortgage Bonds had a balance of $19 million at                both                September 30, 2007 and December 31, 2006.  Trust Fund Assets                related to this obligation of $22 million and $2 million at September                30,                2007 and December 31, 2006, respectively, are included in Other Temporary                Investments and $21 million at December 31, 2006, is included in                Other                Noncurrent Assets on our Condensed Consolidated Balance                Sheets.  In December 2005, cash and treasury securities were                deposited with a trustee to defease the remaining TNC outstanding                First                Mortgage Bond.  The defeased TNC First Mortgage Bond was retired                in June 2007.  The defeased TNC First Mortgage Bond had a                balance of $8 million at  December 31, 2006.  Trust                fund assets related to this obligation of $9 million at December                31, 2006,                are included in Other Temporary Investments on our Condensed Consolidated                Balance Sheet.  Trust fund assets are restricted for exclusive                use in funding the interest and principal due on the First Mortgage                Bonds. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Pursuant                to the Nuclear Waste Policy Act of 1982, I&M (a nuclear licensee) has                an obligation with the United States Department of Energy for spent                nuclear fuel disposal.  The obligation includes a one-time fee                for nuclear fuel consumed prior to April 7, 1983.  Trust Fund                assets related to this obligation of $280 million and $274 million                at                September 30, 2007 and December 31, 2006, respectively, are included                in                Spent Nuclear Fuel and Decommissioning Trusts on our Condensed                Consolidated Balance Sheets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |

| **Company**                        |   | **Type                of Debt**        |   | **Principal                Amount** |   | **Interest                Rate** |     | **Due                Date** |   |
|------------------------------------|--------|----------------------------------------|--------|-------------------------------------|--------|----------------------------------|----------|-----------------------------|--------|
|                               |   |                                   |   | **(in                millions)**    |   | **(%)**                          |     |                        |   |
| **Issuances:**                     |   |                                   |   |                                |   |                             |     |                        |   |
| APCo                               |   | Pollution                Control Bonds |   | $                                   | 75     |                             | Variable |                        | 2037   |   |
| APCo                               |   | Senior                Unsecured Notes  |   |                                | 250    |                             | 5.65     |                        | 2012   |   |
| APCo                               |   | Senior                Unsecured Notes  |   |                                | 250    |                             | 6.70     |                        | 2037   |   |
| CSPCo                              |   | Pollution                Control Bonds |   |                                | 45     |                             | Variable |                        | 2040   |   |
| OPCo                               |   | Pollution                Control Bonds |   |                                | 65     |                             | 4.90     |                        | 2037   |   |
| OPCo                               |   | Senior                Unsecured Notes  |   |                                | 400    |                             | Variable |                        | 2010   |   |
| PSO                                |   | Pollution                Control Bonds |   |                                | 13     |                             | 4.45     |                        | 2020   |   |
| SWEPCo                             |   | Senior                Unsecured Notes  |   |                                | 250    |                             | 5.55     |                        | 2017   |   |
|                               |   |                                   |   |                                |   |                             |     |                        |   |   |
| *Non-Registrant:*                  |   |                                   |   |                                |   |                             |     |                        |   |   |
| AEGCo                              |   | Senior                Unsecured Notes  |   |                                | 220    |                             | 6.33     |                        | 2037   | (a) |
| KPCo                               |   | Senior                Unsecured Notes  |   |                                | 325    |                             | 6.00     |                        | 2017   |   |
| TCC                                |   | Pollution                Control Bonds |   |                                | 6      |                             | 4.45     |                        | 2020   |   |
| TNC                                |   | Pollution                Control Bonds |   |                                | 44     |                             | 4.45     |                        | 2020   |   |
| **Total                Issuances** |   |                                   |   | $                                   | 1,943  | (b)                              |     |                        |   |   |

| (a) | AEGCo’s                senior unsecured notes due 2037 are payable over the life of the                notes as                a $7.3 million annual principal amount plus accrued interest paid                semiannually in March and September. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Amount                indicated on statement of cash flows of $1,924 million is net of                issuance                costs and unamortized premium or                discount.                                                                    |

|                                                                                      |   |                                         |   | **Principal**                    |   | **Interest** |     |                        |   |
|-------------------------------------------------------------------------------------------|--------|----------------------------------------------|--------|----------------------------------|--------|--------------|----------|-----------------------------|--------|
| **Company**                                                                               |   | **Type                of Debt**              |   | **Amount                Paid**   |   | **Rate**     |     | **Due                Date** |   |
|                                                                                      |   |                                         |   | **(in                millions)** |   | **(%)**      |     |                        |   |
| **Retirements                and Principal Payments:**                                    |   |                                         |   |                             |   |         |     |
| AEP                                                                                       |   | Senior                Unsecured Notes        |   | $                                | 345    |         | 4.709    |                        | 2007   |   |
| APCo                                                                                      |   | Senior                Unsecured Notes        |   |                             | 125    |         | Variable |                        | 2007   |   |
| OPCo                                                                                      |   | Notes                Payable                 |   |                             | 3      |         | 6.81     |                        | 2008   |   |
| OPCo                                                                                      |   | Notes                Payable                 |   |                             | 6      |         | 6.27     |                        | 2009   |   |
| PSO                                                                                       |   | Pollution                Control Bonds       |   |                             | 13     |         | 6.00     |                        | 2020   |   |
| SWEPCo                                                                                    |   | First                Mortgage Bonds          |   |                             | 90     |         | 7.00     |                        | 2007   |   |
| SWEPCo                                                                                    |   | Notes                Payable                 |   |                             | 4      |         | 4.47     |                        | 2011   |   |
| SWEPCo                                                                                    |   | Notes                Payable                 |   |                             | 4      |         | 6.36     |                        | 2007   |   |
| SWEPCo                                                                                    |   | Notes                Payable                 |   |                             | 3      |         | Variable |                        | 2008   |   |
|                                                                                      |   |                                         |   |                             |   |         |     |                        |   |   |
| *Non-Registrant:*                                                                         |   |                                         |   |                             |   |         |     |                        |   |   |
| AEGCo                                                                                     |   | Senior                Unsecured Notes        |   |                             | 2      |         | 6.33     |                        | 2037   | (a) |
| AEP                Subsidiaries                                                           |   | Notes                Payable                 |   |                             | 10     |         | Variable |                        | 2017   |   |
| CSW                Energy, Inc.                                                           |   | Notes                Payable                 |   |                             | 4      |         | 5.88     |                        | 2011   |   |
| KPCo                                                                                      |   | Senior                Unsecured Notes        |   |                             | 125    |         | 5.50     |                        | 2007   |   |
| TCC                                                                                       |   | Securitization                Bonds          |   |                             | 53     |         | 5.01     |                        | 2008   |   |
| TCC                                                                                       |   | Securitization                Bonds          |   |                             | 25     |         | 4.98     |                        | 2010   |   |
| TCC                                                                                       |   | Pollution                Control Bonds       |   |                             | 6      |         | 6.00     |                        | 2020   |   |
| TNC                                                                                       |   | Pollution                Control Bonds       |   |                             | 44     |         | 6.00     |                        | 2020   |   |
| TNC                                                                                       |   | Defeased                First Mortgage Bonds |   |                             | 8      |         | 7.75     |                        | 2007   |   |
| **Total                Retirements and****  Principal                Payments** |   |                                         | $      | 870                              |   |         |     |                        |   |

| (a) | AEGCo’s                Senior Unsecured Notes due 2037 are payable over the life of the                notes as                a $7.3 million annual principal amount plus accrued interest paid                semiannually in March and                September. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

***Short-term      Debt***

|                                             |   | **September                30, 2007** |   |         | **December                31, 2006** |   |
|--------------------------------------------------|--------|---------------------------------------|--------|--------------|--------------------------------------|--------|
|                                             |   | **Outstanding**                       |   | **Interest** |                                 |   | **Outstanding** |   | **Interest** |   |
|                                             |   | **Amount**                            |   | **Rate**     |                                 |   | **Amount** |   | **Rate** |   |
| **Type                of Debt**                  |   | **(in                millions)**      |   |         |                                 |   |   | **(in                millions)** |   |   |   |   |
| Commercial                Paper – AEP      |   | $                                     | 559    |         |                                 | 5.60   | % | (a) | $ | - |   |   | - |   |
| Commercial                Paper – JMG (b)  |   |                                  | 2      |         |                                 | 5.3588 | % |   |   | 1 |   |   | 5.56 | % |
| Line                of Credit – Sabine (c) |   |                                  | 26     |         |                                 | 6.07   | % |   |   | 17 |   |   | 6.38 | % |
| **Total**                                        |   | $                                     | 587    |         |                                 |   |   |   | $ | 18 |   |   |   |   |

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

***Credit      Facilities***

***Dividend      Restrictions***

***Sale      of Receivables – AEP Credit***

----

**APPALACHIAN        POWER COMPANY**

**AND        SUBSIDIARIES**

----

**APPALACHIAN        POWER COMPANY AND SUBSIDIARIES**

**MANAGEMENT’S        FINANCIAL DISCUSSION AND ANALYSIS**

**Results        of Operations**

**Reconciliation        of Third Quarter of 2006 to Third Quarter of 2007**

**Net        Income**

**(in        millions)**

| **Third                  Quarter of 2006**                        |   |   |   |   | $      | 31     |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                  Margins                                   |   |   | 13     |   |   |   |   |   |
| Off-system                  Sales                                 |   |   | 18     |   |   |   |   |   |
| Transmission                  Revenues, Net                       |   |   | (22    | )      |   |   |   |   |
| Other                                                             |   |   | (14    | )      |   |   |   |   |
| **Total                  Change in Gross Margin**                 |   |   |   |   |   |   | (5     | ) |
|                                                              |   |   |   |   |   |   |   |   |
| **Changes                  in Operating Expenses and Other:**     |   |   |   |   |   |   |   |   |
| Other                  Operation and Maintenance                  |   |   | (27    | )      |   |   |   |   |
| Depreciation                  and Amortization                    |   |   | 9      |   |   |   |   |   |
| Taxes                  Other Than Income Taxes                    |   |   | 1      |   |   |   |   |   |
| Carrying                  Costs Income                            |   |   | 36     |   |   |   |   |   |
| Other                  Income, Net                                |   |   | (8     | )      |   |   |   |   |
| Interest                  Expense                                 |   |   | (18    | )      |   |   |   |   |
| **Total                  Change in Operating Expenses and Other** |   |   |   |   |   |   | (7     | ) |
|                                                              |   |   |   |   |   |   |   |   |
| Income                  Tax Expense                               |   |   |   |   |   |   | 5      |   |
|                                                              |   |   |   |   |   |   |   |   |
| **                    Third Quarter of 2007**           |   |   |   |   |   | $      | 24     |   |

| · | Retail                  Margins increased $13 million due to the impact of the Virginia                  base rate                  order issued in May 2007, the Virginia E&R and fuel cost recovery                  filings and increased demand in the residential class associated                  with                  favorable weather conditions.  Cooling degree days increased                  approximately 22%. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Margins                  from Off-System sales increased $18 million primarily due to higher                  sales                  volumes and power prices in the east, benefits from AEP’s eastern natural                  gas fleet, and higher trading margins.                                                                                                                                                                  |
| · | Transmission                  Revenues, Net decreased $22 million primarily due to PJM’s revision of its                  pricing methodology for transmission line losses to marginal-loss                  pricing                  effective June 1, 2007.  See “PJM Marginal-Loss Pricing” section                  of Note 3.                                                                                |
| · | Other                  revenue decreased $14 million primarily due to the reversal in                  the third                  quarter of 2006 of previously deferred gains on sales of allowances                  associated with the Virginia Environmental and Reliability Costs                  (E&R)                  case.                                                                                                     |

| · | Other                  Operation and Maintenance expenses increased $27 million primarily                  due to                  the settlement agreement regarding alleged violations of the NSR                  provisions of the CAA, of which $26 million was allocated to                  APCo.  See “Federal EPA Complaint and Notice of Violation”                  section of Note 4.                                                                                                                                                                                                                                      |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Depreciation                  and Amortization expenses decreased $9 million primarily due to                  the                  write-off in the third quarter of 2006 of previously deferred depreciation                  expenses associated with the E&R case.                                                                                                                                                                                                                                                                                                                                                                                   |
| · | Carrying                  Costs Income increased $36 million primarily due to the write-off                  in the                  third quarter of 2006 of previously recorded carrying costs income                  associated with the E&R case.                                                                                                                                                                                                                                                                                                                                                                                                   |
| · | Other                  Income, Net decreased $8 million primarily due to a $6 million                  decrease in                  the equity component of AFUDC resulting from AFUDC recorded in                  the third                  quarter of 2006 associated with the E&R case and a lower construction                  work in progress (CWIP) balance after the Wyoming-Jacksons Ferry                  765 kV                  line and the Mountaineer scrubber were placed into service.  In                  addition, interest income from the Utility Money Pool decreased                  $2                  million. |
| · | Interest                  Expense increased $18 million primarily due to a $9 million decrease                  in                  the debt component of AFUDC resulting from AFUDC recorded in the                  third                  quarter of 2006 associated with the E&R case.  In addition,                  Interest Expense also increased due to a $2 million increase in                  interest                  expense from the Utility Money Pool and a $4 million increase in                  interest                  expense from long-term debt issuances.                                                        |
| · | Income                  Tax Expense decreased $5 million primarily due to a decrease in                  pretax                  book income and state income taxes partially offset by changes                  in certain                  book/tax differences accounted for on a flow-through                  basis.                                                                                                                                                                                                                                                                                                                                    |

**Reconciliation        of Nine Months Ended September 30, 2006 to Nine Months Ended September 30,        2007**

**Net        Income Before Extraordinary Loss**

**(in        millions)**

| **Nine                  Months Ended September 30, 2006**         |   |   |   |   | $      | 114    |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                  Margins                                   |   |   | 9      |   |   |   |   |   |
| Off-system                  Sales                                 |   |   | 30     |   |   |   |   |   |
| Transmission                  Revenues, Net                       |   |   | (32    | )      |   |   |   |   |
| Other                                                             |   |   | (10    | )      |   |   |   |   |
| **Total                  Change in Gross Margin**                 |   |   |   |   |   |   | (3     | ) |
|                                                              |   |   |   |   |   |   |   |   |
| **Changes                  in Operating Expenses and Other:**     |   |   |   |   |   |   |   |   |
| Other                  Operation and Maintenance                  |   |   | (35    | )      |   |   |   |   |
| Depreciation                  and Amortization                    |   |   | 16     |   |   |   |   |   |
| Taxes                  Other Than Income Taxes                    |   |   | 3      |   |   |   |   |   |
| Carrying                  Costs Income                            |   |   | 36     |   |   |   |   |   |
| Other                  Income, Net                                |   |   | (13    | )      |   |   |   |   |
| Interest                  Expense                                 |   |   | (33    | )      |   |   |   |   |
| **Total                  Change in Operating Expenses and Other** |   |   |   |   |   |   | (26    | ) |
|                                                              |   |   |   |   |   |   |   |   |
| Income                  Tax Expense                               |   |   |   |   |   |   | 13     |   |
|                                                              |   |   |   |   |   |   |   |   |
| **NNine                  Months Ended September 30, 2007**        |   |   |   |   |   | $      | 98     |   |

| · | Retail                  Margins increased $9 million due to the impact of the Virginia                  base rate                  order issued in May 2007, the Virginia E&R and fuel cost recovery                  filings and increased demand in the residential class associated                  with                  favorable weather conditions.  Cooling degree days increased                  approximately 33%. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Margins                  for Off-system Sales increased $30 million primarily due to higher                  trading                  margins.                                                                                                                                                                                                                                                                                               |
| · | Transmission                  Revenues, Net decreased $32 million primarily due to PJM’s revision of its                  pricing methodology for transmission line losses to marginal-loss                  pricing                  effective June 1, 2007.  See “PJM Marginal-Loss Pricing” section                  of Note 3.                                                                               |
| · | Other                  revenue decreased $10 million primarily due to lower gains on sales                  of                  allowances and the reversal in the third quarter of 2006 of previously                  deferred gains on sales of allowances associated with the E&R                  case.                                                                                                                             |

| · | Other                  Operation and Maintenance expenses increased $35 million primarily                  due to                  the following:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | A                  $26 million increase resulting from the settlement between AEP                  and the                  Federal EPA regarding alleged violations of the NSR provisions                  of the                  CAA.  The $26 million represents APCo’s allocation of the                  settlement.  See “Federal EPA Complaint and Notice of Violation”                  section of Note 4. |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | A                  $9 million increase in steam maintenance expenses resulting from                  2007                  forced and planned outages at the Amos and Glen Lyn                  plants. |
| · | Depreciation                  and Amortization expenses decreased $16 million primarily due to                  the                  following:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | An                  $8 million decrease resulting from lower Virginia depreciation                  rates                  implemented retroactively to January 2006 partially offset by additional                  depreciation expense for the Wyoming-Jacksons Ferry 765 kV line,                  which was                  energized and placed in service in June 2006, and the Mountaineer                  scrubber, which was placed in service in February 2007. |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | A                  $10 million decrease resulting from a net deferral of $10 million                  in ARO                  costs as approved in APCo’s Virginia base rate case. |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | A                  $9 million decrease in depreciation expense related to the write-off                  in                  the third quarter of 2006 of previously deferred depreciation expense                  associated with the E&R case. |
|   | These                  decreases were partially offset by:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | The                  amortization of carrying charges of $12 million that are being                  collected                  through E&R surcharges. |
| · | Carrying                  Costs Income increased $36 million primarily due to the write-off                  in the                  third quarter of 2006 of previously recorded carrying costs income                  associated with the E&R case.                                                                                                                                                                                                                                                                                                                                                                                                         |
| · | Other                  Income, Net decreased $13 million primarily due to lower interest                  income                  from the Utility Money Pool of $4 million. In addition, the equity                  component of AFUDC decreased $8 million resulting from AFUDC recorded                  in                  the third quarter of 2006 associated with the E&R case and a lower                  CWIP balance after the Wyoming-Jacksons Ferry 765 kV line and the                  Mountaineer scrubber were placed into service.                                                                                                         |
| · | Interest                  Expense increased $33 million primarily due to a $14 million decrease                  in                  the debt component of AFUDC resulting from AFUDC recorded in the                  third                  quarter of 2006 associated with the E&R case, a $13 million increase                  in interest expense from long-term debt issuances, a $4 million                  increase                  in the interest on the Virginia provision for revenue collected                  subject to                  refund and a $3 million increase in interest expense from the Utility                  Money Pool. |
| · | Income                  Tax Expense decreased $13 million primarily due to a decrease in                  pretax                  book income and state income taxes partially offset by changes                  in certain                  book/tax differences accounted for on a flow-through                  basis.                                                                                                                                                                                                                                                                                                                                         |

**Financial        Condition**

**Credit        Ratings**

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

**Cash        Flow**

|                                                                  |                                  | **2007**                            |   | **2006** |   |
|-----------------------------------------------------------------------|---------------------------------------|-------------------------------------|--------|----------|--------|
|                                                                  |                                  | **(in                  thousands)** |   |
| **Cash                  and Cash Equivalents at Beginning of Period** |                                  | $                                   | 2,318  |     | $      | 1,741 |   |
| Cash                  Flows From (Used For):                          |                                  |                                |   |     |   |   |   |
|                                                                  | Operating                  Activities |                                |   | 221,534  |   |   | 430,735 |   |
|                                                                  | Investing                  Activities |                                |   | (570,019 | )      |   | (719,590 | ) |
|                                                                  | Financing                  Activities |                                |   | 347,436  |   |   | 288,363 |   |
| Net                  Decrease in Cash and Cash Equivalents            |                                  |                                | (1,049 | )        |   | (492 | ) |
| **Cash                  and Cash Equivalents at End of Period**       |                                  | $                                   | 1,269  |     | $      | 1,249 |   |

*Operating        Activities*

*Investing        Activities*

*Financing        Activities*

**Financing        Activity**

|                                     |   | **Principal****Amount** |                                | **Interest** |     | **Due** |
|------------------------------------------|--------|-------------------------|-------------------------------------|--------------|----------|---------|
| **Type                  of Debt**        |   |                    | **Rate**                            |         | **Date** |
|                                     |   |                    | **(in                  thousands)** |         | **(%)**  |    |   |
| Pollution                  Control Bonds |   | $                       | 75,000                              |         | Variable |    | 2037 |
| Senior                  Unsecured Notes  |   |                    | 250,000                             |         | 5.65     |    | 2012 |
| Senior                  Unsecured Notes  |   |                    | 250,000                             |         | 6.70     |    | 2037 |

|                                    |   | **Principal****Amount** |                                | **Interest** |     | **Due** |
|-----------------------------------------|--------|-------------------------|-------------------------------------|--------------|----------|---------|
| **Type                  of Debt**       |   |                    | **Rate**                            |         | **Date** |
|                                    |   |                    | **(in                  thousands)** |         | **(%)**  |    |   |
| Senior                  Unsecured Notes |   | $                       | 125,000                             |         | Variable |    | 2007 |

**Liquidity**

**Summary        Obligation Information**

**Significant        Factors**

***Virginia        Restructuring***

***Litigation        and Regulatory Activity***

**Critical        Accounting Estimates**

**Adoption        of New Accounting Pronouncements**

----

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

**Market        Risks**

**MTM        Risk Management Contract Net Assets**

**Reconciliation        of MTM Risk Management Contracts to**

**Condensed        Consolidated Balance Sheet**

**As        of September 30, 2007**

**(in        thousands)**

|                                                                                                     |   | **MTM                  Risk Management Contracts** |    |   | **Cash                  Flow &****Fair                  Value Hedges** |   |   | **DETM                  Assignment (a)** |   |   | **Total** |   |
|----------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------|---------|--------|----------------------------------------------------------------------------|--------|--------|------------------------------------------|--------|--------|-----------|--------|
| Current                  Assets                                                                          |   | $                                                  | 65,385  |   |                                                                       | $      | 3,806  |                                     |   | $      | -         |   |   | $ | 69,191 |   |
| Noncurrent                  Assets                                                                       |   |                                               | 80,970  |   |                                                                       |   | 2,240  |                                     |   |   | -         |   |   |   | 83,210 |   |
| **Total                  MTM Derivative Contract Assets**                                                |   |                                               | 146,355 |   |                                                                       |   | 6,046  |                                     |   |   | -         |   |   |   | 152,401 |   |
|                                                                                                     |   |                                               |    |   |                                                                       |   |   |                                     |   |   |      |   |   |   |   |   |
| Current                  Liabilities                                                                     |   |                                               | (47,471 | )      |                                                                       |   | (1,129 | )                                        |   |   | (3,878    | )      |   |   | (52,478 | ) |
| Noncurrent                  Liabilities                                                                  |   |                                               | (48,866 | )      |                                                                       |   | (214   | )                                        |   |   | (6,478    | )      |   |   | (55,558 | ) |
| **Total                  MTM Derivative Contract   Liabilities**                               |   |                                               | (96,337 | )      |                                                                       |   | (1,343 | )                                        |   |   | (10,356   | )      |   |   | (108,036 | ) |
|                                                                                                     |   |                                               |    |   |                                                                       |   |   |                                     |   |   |      |   |   |   |   |   |
| **Total                  MTM Derivative Contract Net   Assets                  (Liabilities)** |   | $                                                  | 50,018  |   |                                                                       | $      | 4,703  |                                     |   | $      | (10,356   | )      |   | $ | 44,365 |   |

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

**MTM        Risk Management Contract Net Assets**

**Nine        Months Ended September 30, 2007**

**(in        thousands)**

| **Total                  MTM Risk Management Contract Net Assets at December 31,                  2006**                                                  |   | $      | 52,489  |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|
| (Gain)                  Loss from Contracts Realized/Settled During the Period and Entered                  in a                  Prior Period            |   |   | (10,155 | )      |
| Fair                  Value of New Contracts at Inception When Entered During the Period                  (a)                                             |   |   | 255     |   |
| Net                  Option Premiums Paid/(Received) for Unexercised or Unexpired Option                  Contracts Entered   During the Period |   |   | 503     |   |
| Change                  in Fair Value Due to Valuation Methodology Changes on Forward                  Contracts                                          |   |   | -       |   |
| Changes                  in Fair Value Due to Market Fluctuations During the Period                  (b)                                                  |   |   | 3,858   |   |
| Changes                  in Fair Value Allocated to Regulated Jurisdictions (c)                                                                           |   |   | 3,068   |   |
| **Total                  MTM Risk Management Contract Net Assets**                                                                                        |   |   | 50,018  |   |
| Net                  Cash Flow & Fair Value Hedge Contracts                                                                                           |   |   | 4,703   |   |
| DETM                  Assignment (d)                                                                                                                      |   |   | (10,356 | )      |
| **Total                  MTM Risk Management Contract Net Assets at September 30,                  2007**                                                 |   | $      | 44,365  |   |

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

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

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

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

**Risk        Management Contract Net Assets**

**Fair        Value of Contracts as of September 30, 2007**

**(in        thousands)**

|                                                                                                                 |   | **Remainder****2007** |   | **2008** |   | **2009** |   | **2010** |   | **2011** |   | **After****2011** |   | **Total** |
|----------------------------------------------------------------------------------------------------------------------|--------|-----------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|-------------------|--------|-----------|
| Prices                  Actively Quoted – Exchange  Traded                  Contracts                |   | $                     | 3,994  |     | $      | (5,820   | )      | $        | 1,134  |     | $      | (20               | )      | $         | - |   | $ | - |   | $ | (712 | ) |
| Prices                  Provided by Other External  Sources                  – OTC Broker Quotes (a) |   |                  | 1,170  |     |   | 17,393   |   |     | 13,606 |     |   | 10,310            |   |      | - |   |   | - |   |   | 42,479 |   |
| Prices                  Based on Models and Other  Valuation                  Methods (b)                  |   |                  | 754    |     |   | 660      |   |     | 1,027  |     |   | 1,685             |   |      | 2,112 |   |   | 2,013 |   |   | 8,251 |   |
| **Total**                                                                                                            |   | $                     | 5,918  |     | $      | 12,233   |   | $        | 15,767 |     | $      | 11,975            |   | $         | 2,112 |   | $ | 2,013 |   | $ | 50,018 |   |

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

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

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

**Nine        Months Ended September 30, 2007**

**(in        thousands)**

|                                                                                                                                   |   | **Power** |   |   | **Foreign****Currency** |   |   | **Interest****Rate** |   |   | **Total** |   |
|----------------------------------------------------------------------------------------------------------------------------------------|--------|-----------|--------|--------|-------------------------|--------|--------|----------------------|--------|--------|-----------|--------|
| **Beginning                  Balance in AOCI December 31, 2006**                                                                       |   | $         | 5,332  |   |                    | $      | (164   | )                    |   | $      | (7,715    | )      |   | $ | (2,547 | ) |
| Changes                  in Fair Value                                                                                                 |   |      | 3,049  |   |                    |   | (2     | )                    |   |   | (313      | )      |   |   | 2,734 |   |
| Reclassifications                  from AOCI to Net Income for                       Cash Flow Hedges Settled |   |      | (4,788 | )      |                    |   | 5      |                 |   |   | 1,049     |   |   |   | (3,734 | ) |
| **Ending                  Balance in AOCI September 30, 2007**                                                                         |   | $         | 3,593  |   |                    | $      | (161   | )                    |   | $      | (6,979    | )      |   | $ | (3,547 | ) |

**Credit        Risk**

**VaR        Associated with Risk Management Contracts**

| **Nine                  Months Ended****September                  30, 2007** |   |   | **Twelve                  Months Ended****December                  31, 2006** |   |
|-------------------------------------------------------------------------------|--------|--------|--------------------------------------------------------------------------------|--------|
| **(in                  thousands)**                                           |   |   | **(in                  thousands)**                                            |   |
| **End**                                                                       |   |   | **High**                                                                       |   |   | **Average** |   |   | **Low** |   |   | **End** |   |   | **High** |   |   | **Average** |   |   | **Low** |   |
| $                                                                             | 231    |   |                                                                           | $      | 2,328 |   |   | $ | 683 |   |   | $ | 168 |   |   | $ | 756 |   |   | $ | 1,915 |   |   | $ | 658 |   |   | $ | 358 |   |

**VaR        Associated with Debt Outstanding**

----

**APPALACHIAN        POWER COMPANY AND SUBSIDIARIES**

**CONDENSED        CONSOLIDATED STATEMENTS OF INCOME**

**For        the Three and Nine Months Ended September 30, 2007 and        2006**

**(in        thousands)**

**(Unaudited)**

|                                                                                                                                                         |   | **Three                  Months Ended** |    |   | **Nine                  Months Ended** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|---------|--------|----------------------------------------|--------|
|                                                                                                                                                         |   | **2007**                                |    |   | **2006**                               |   |   | **2007** |   |   | **2006** |   |
| **REVENUES**                                                                                                                                                 |   |                                    |    |   |                                   |   |   |   |   |   |   |   |
| Electric                  Generation, Transmission and Distribution                                                                                          |   | $                                       | 639,830 |   |                                   | $      | 588,684 |   |   | $ | 1,740,565 |   |   | $ | 1,612,735 |   |
| Sales                  to AEP Affiliates                                                                                                                     |   |                                    | 64,099  |   |                                   |   | 57,177 |   |   |   | 181,015 |   |   |   | 177,557 |   |
| Other                                                                                                                                                        |   |                                    | 2,647   |   |                                   |   | 2,740 |   |   |   | 8,134 |   |   |   | 7,338 |   |
| **TOTAL**                                                                                                                                                    |   |                                    | 706,576 |   |                                   |   | 648,601 |   |   |   | 1,929,714 |   |   |   | 1,797,630 |   |
|                                                                                                                                                         |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| **EXPENSES**                                                                                                                                                 |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| Fuel                  and Other Consumables Used for Electric Generation                                                                                     |   |                                    | 200,702 |   |                                   |   | 184,275 |   |   |   | 535,906 |   |   |   | 506,368 |   |
| Purchased                  Electricity for Resale                                                                                                            |   |                                    | 47,430  |   |                                   |   | 41,027 |   |   |   | 117,708 |   |   |   | 98,622 |   |
| Purchased                  Electricity from AEP Affiliates                                                                                                   |   |                                    | 171,288 |   |                                   |   | 130,826 |   |   |   | 443,519 |   |   |   | 356,682 |   |
| Other                  Operation                                                                                                                             |   |                                    | 94,190  |   |                                   |   | 63,149 |   |   |   | 236,944 |   |   |   | 210,206 |   |
| Maintenance                                                                                                                                                  |   |                                    | 49,708  |   |                                   |   | 53,874 |   |   |   | 146,875 |   |   |   | 138,381 |   |
| Depreciation                  and Amortization                                                                                                               |   |                                    | 51,864  |   |                                   |   | 61,270 |   |   |   | 142,100 |   |   |   | 158,226 |   |
| Taxes                  Other Than Income Taxes                                                                                                               |   |                                    | 23,561  |   |                                   |   | 24,464 |   |   |   | 67,811 |   |   |   | 70,355 |   |
| **TOTAL**                                                                                                                                                    |   |                                    | 638,743 |   |                                   |   | 558,885 |   |   |   | 1,690,863 |   |   |   | 1,538,840 |   |
|                                                                                                                                                         |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| **OPERATING                  INCOME**                                                                                                                        |   |                                    | 67,833  |   |                                   |   | 89,716 |   |   |   | 238,851 |   |   |   | 258,790 |   |
|                                                                                                                                                         |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| **Other                  Income (Expense):**                                                                                                                 |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                  Income                                                                                                                             |   |                                    | 510     |   |                                   |   | 2,463 |   |   |   | 1,539 |   |   |   | 6,228 |   |
| Carrying                  Costs Income (Expense)                                                                                                             |   |                                    | 8,701   |   |                                   |   | (27,316 | ) |   |   | 22,817 |   |   |   | (13,532 | ) |
| Allowance                  for Equity Funds Used During Construction                                                                                         |   |                                    | 1,084   |   |                                   |   | 6,748 |   |   |   | 5,442 |   |   |   | 13,307 |   |
| Interest                  Expense                                                                                                                            |   |                                    | (44,980 | )      |                                   |   | (27,103 | ) |   |   | (121,758 | ) |   |   | (89,024 | ) |
|                                                                                                                                                         |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| **INCOME                  BEFORE INCOME TAXES**                                                                                                              |   |                                    | 33,148  |   |                                   |   | 44,508 |   |   |   | 146,891 |   |   |   | 175,769 |   |
|                                                                                                                                                         |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| Income                  Tax Expense                                                                                                                          |   |                                    | 9,090   |   |                                   |   | 13,972 |   |   |   | 49,325 |   |   |   | 61,992 |   |
|                                                                                                                                                         |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| **INCOME                  BEFORE EXTRAORDINARY LOSS**                                                                                                        |   |                                    | 24,058  |   |                                   |   | 30,536 |   |   |   | 97,566 |   |   |   | 113,777 |   |
|                                                                                                                                                         |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| Extraordinary                  Loss – Reapplication of Regulatory Accounting                  for                     Generation, Net of Tax |   |                                    | -       |   |                                   |   | - |   |   |   | (78,763 | ) |   |   | - |   |
|                                                                                                                                                         |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| **NET                  INCOME**                                                                                                                              |   |                                    | 24,058  |   |                                   |   | 30,536 |   |   |   | 18,803 |   |   |   | 113,777 |   |
|                                                                                                                                                         |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| Preferred                  Stock Dividend Requirements Including Capital                  Stock** **Expense                     and Other     |   |                                    | 238     |   |                                   |   | 238 |   |   |   | 714 |   |   |   | 714 |   |
|                                                                                                                                                         |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| **EARNINGS                  APPLICABLE TO COMMON STOCK**                                                                                                     |   | $                                       | 23,820  |   |                                   | $      | 30,298 |   |   | $ | 18,089 |   |   | $ | 113,063 |   |

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

----

**APPALACHIAN        POWER COMPANY AND SUBSIDIARIES**

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

**EQUITY        AND COMPREHENSIVE INCOME (LOSS)**

**For        the Nine Months Ended September 30, 2007 and 2006**

**(in        thousands)**

**(Unaudited)**

|                                                                                                                                                                                    |   | **Common                  Stock** |    |   | **Paid-in                  Capital** |   |      | **Retained                  Earnings** |   |   | **Accumulated                  Other Comprehensive Income (Loss)** |   |   | **Total** |    |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|---------|--------|--------------------------------------|--------|-----------|----------------------------------------|--------|--------|--------------------------------------------------------------------|--------|--------|-----------|---------|
| **DECEMBER                  31, 2005**                                                                                                                                                  |   | $                                 | 260,458 |   |                                 | $      | 924,837   |                                   |   | $      | 635,016                                                            |   |   | $         | (16,610 | ) |   | $ | 1,803,701 |   |
|                                                                                                                                                                                    |   |                              |    |   |                                 |   |      |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| Common                  Stock Dividends                                                                                                                                                 |   |                              |    |   |                                 |   |      |                                   |   |   | (7,500                                                             | )      |   |      |    |   |   |   | (7,500 | ) |
| Preferred                  Stock Dividends                                                                                                                                              |   |                              |    |   |                                 |   |      |                                   |   |   | (600                                                               | )      |   |      |    |   |   |   | (600 | ) |
| Capital                  Stock Expense and Other                                                                                                                                        |   |                              |    |   |                                 |   | 118       |                                   |   |   | (114                                                               | )      |   |      |    |   |   |   | 4 |   |
| **TOTAL**                                                                                                                                                                               |   |                              |    |   |                                 |   |      |                                   |   |   |                                                               |   |   |      |    |   |   |   | 1,795,605 |   |
|                                                                                                                                                                                    |   |                              |    |   |                                 |   |      |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| **COMPREHENSIVE                  INCOME**                                                                                                                                               |   |                              |    |   |                                 |   |      |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| **Other                  Comprehensive Income, Net of Taxes:**                                                                                                                     |   |                              |    |   |                                 |   |      |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| Cash                  Flow Hedges, Net of Tax** **of $7,007                                                                                                                        |   |                              |    |   |                                 |   |      |                                   |   |   |                                                               |   |   |      | 13,014  |   |   |   | 13,014 |   |
| **NET                  INCOME**                                                                                                                                                         |   |                              |    |   |                                 |   |      |                                   |   |   | 113,777                                                            |   |   |      |    |   |   |   | 113,777 |   |
| **TOTAL                  COMPREHENSIVE INCOME**                                                                                                                                         |   |                              |    |   |                                 |   |      |                                   |   |   |                                                               |   |   |      |    |   |   |   | 126,791 |   |
|                                                                                                                                                                                    |   |                              |    |   |                                 |   |      |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| **SEPTEMBER                  30, 2006**                                                                                                                                                 |   | $                                 | 260,458 |   |                                 | $      | 924,955   |                                   |   | $      | 740,579                                                            |   |   | $         | (3,596  | ) |   | $ | 1,922,396 |   |
|                                                                                                                                                                                    |   |                              |    |   |                                 |   |      |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| **DECEMBER                  31, 2006**                                                                                                                                                  |   | $                                 | 260,458 |   |                                 | $      | 1,024,994 |                                   |   | $      | 805,513                                                            |   |   | $         | (54,791 | ) |   | $ | 2,036,174 |   |
|                                                                                                                                                                                    |   |                              |    |   |                                 |   |      |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| FIN                  48 Adoption, Net of Tax                                                                                                                                            |   |                              |    |   |                                 |   |      |                                   |   |   | (2,685                                                             | )      |   |      |    |   |   |   | (2,685 | ) |
| Common                  Stock Dividends                                                                                                                                                 |   |                              |    |   |                                 |   |      |                                   |   |   | (25,000                                                            | )      |   |      |    |   |   |   | (25,000 | ) |
| Preferred                  Stock Dividends                                                                                                                                              |   |                              |    |   |                                 |   |      |                                   |   |   | (600                                                               | )      |   |      |    |   |   |   | (600 | ) |
| Capital                  Stock Expense and Other                                                                                                                                        |   |                              |    |   |                                 |   | 117       |                                   |   |   | (114                                                               | )      |   |      |    |   |   |   | 3 |   |
| **TOTAL**                                                                                                                                                                               |   |                              |    |   |                                 |   |      |                                   |   |   |                                                               |   |   |      |    |   |   |   | 2,007,892 |   |
|                                                                                                                                                                                    |   |                              |    |   |                                 |   |      |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| **COMPREHENSIVE                  INCOME**                                                                                                                                               |   |                              |    |   |                                 |   |      |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| **Other                  Comprehensive Income (Loss), Net of                    Taxes:**                                                                                      |   |                              |    |   |                                 |   |      |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| Cash                  Flow Hedges, Net of Tax of $539                                                                                                                                   |   |                              |    |   |                                 |   |      |                                   |   |   |                                                               |   |   |      | (1,000  | ) |   |   | (1,000 | ) |
| SFAS                  158 Costs Established as a Regulatory  Asset                  Related to the Reapplication of  SFAS                  71, Net of Tax of $6,055 |   |                              |    |   |                                 |   |      |                                   |   |   |                                                               |   |   |      | 11,245  |   |   |   | 11,245 |   |
| **NET                  INCOME**                                                                                                                                                         |   |                              |    |   |                                 |   |      |                                   |   |   | 18,803                                                             |   |   |      |    |   |   |   | 18,803 |   |
| **TOTAL                  COMPREHENSIVE INCOME**                                                                                                                                         |   |                              |    |   |                                 |   |      |                                   |   |   |                                                               |   |   |      |    |   |   |   | 29,048 |   |
|                                                                                                                                                                                    |   |                              |    |   |                                 |   |      |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| **SEPTEMBER                  30, 2007**                                                                                                                                                 |   | $                                 | 260,458 |   |                                 | $      | 1,025,111 |                                   |   | $      | 795,917                                                            |   |   | $         | (44,546 | ) |   | $ | 2,036,940 |   |

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

----

**APPALACHIAN        POWER COMPANY AND SUBSIDIARIES**

**CONDENSED        CONSOLIDATED BALANCE SHEETS**

**ASSETS**

**September        30, 2007 and December 31, 2006**

**(in        thousands)**

**(Unaudited)**

|                                                             |   | **2007** |      |   | **2006** |   |
|------------------------------------------------------------------|--------|----------|-----------|--------|----------|--------|
| **CURRENT                  ASSETS**                              |   |     |      |   |     |   |
| Cash                  and Cash Equivalents                       |   | $        | 1,269     |   |     | $      | 2,318 |   |
| Advances                  to Affiliates                          |   |     | 38,573    |   |     |   | - |   |
| Accounts                  Receivable:                            |   |     |      |   |     |   |   |   |
|   Customers                                            |   |     | 200,173   |   |     |   | 180,190 |   |
|                    Affiliated Companies                     |   |     | 79,576    |   |     |   | 98,237 |   |
|                    Accrued Unbilled Revenues                |   |     | 34,668    |   |     |   | 46,281 |   |
|                    Miscellaneous                            |   |     | 3,366     |   |     |   | 3,400 |   |
|                    Allowance for Uncollectible Accounts     |   |     | (10,379   | )      |     |   | (4,334 | ) |
|  Total                  Accounts Receivable                 |   |     | 307,404   |   |     |   | 323,774 |   |
| Fuel                                                             |   |     | 85,468    |   |     |   | 77,077 |   |
| Materials                  and Supplies                          |   |     | 66,387    |   |     |   | 56,235 |   |
| Risk                  Management Assets                          |   |     | 69,191    |   |     |   | 105,376 |   |
| Accrued                  Tax Benefits                            |   |     | 8,881     |   |     |   | 3,748 |   |
| Regulatory                  Asset for Under-Recovered Fuel Costs |   |     | -         |   |     |   | 29,526 |   |
| Prepayments                  and Other                           |   |     | 39,402    |   |     |   | 20,126 |   |
| **TOTAL**                                                        |   |     | 616,575   |   |     |   | 618,180 |   |
|                                                             |   |     |      |   |     |   |   |   |
| **PROPERTY,                  PLANT AND EQUIPMENT**               |   |     |      |   |     |   |   |   |
| Electric:                                                        |   |     |      |   |     |   |   |   |
|                    Production                               |   |     | 3,499,672 |   |     |   | 2,844,803 |   |
|                    Transmission                             |   |     | 1,663,553 |   |     |   | 1,620,512 |   |
|                    Distribution                             |   |     | 2,341,513 |   |     |   | 2,237,887 |   |
| Other                                                            |   |     | 348,901   |   |     |   | 339,450 |   |
| Construction                  Work in Progress                   |   |     | 678,095   |   |     |   | 957,626 |   |
| **Total**                                                        |   |     | 8,531,734 |   |     |   | 8,000,278 |   |
| Accumulated                  Depreciation and Amortization       |   |     | 2,578,083 |   |     |   | 2,476,290 |   |
| **TOTAL                  - NET**                                 |   |     | 5,953,651 |   |     |   | 5,523,988 |   |
|                                                             |   |     |      |   |     |   |   |   |
| **OTHER                  NONCURRENT ASSETS**                     |   |     |      |   |     |   |   |   |
| Regulatory                  Assets                               |   |     | 680,644   |   |     |   | 622,153 |   |
| Long-term                  Risk Management Assets                |   |     | 83,210    |   |     |   | 88,906 |   |
| Deferred                  Charges and Other                      |   |     | 149,137   |   |     |   | 163,089 |   |
| **TOTAL**                                                        |   |     | 912,991   |   |     |   | 874,148 |   |
|                                                             |   |     |      |   |     |   |   |   |
| **TOTAL                  ASSETS**                                |   | $        | 7,483,217 |   |     | $      | 7,016,316 |   |

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

----

**APPALACHIAN        POWER COMPANY AND SUBSIDIARIES**

**CONDENSED        CONSOLIDATED BALANCE SHEETS**

**LIABILITIES        AND SHAREHOLDERS’ EQUITY**

**September        30, 2007 and December 31, 2006**

**(Unaudited)**

|                                                                            |   | **2007**                            |      |   | **2006** |   |
|---------------------------------------------------------------------------------|--------|-------------------------------------|-----------|--------|----------|--------|
| **CURRENT                  LIABILITIES**                                        |   | **(in                  thousands)** |      |
| Advances                  from Affiliates                                       |   | $                                   | -         |   |     | $      | 34,975 |   |
| Accounts                  Payable:                                              |   |                                |      |   |     |   |   |   |
| General                                                                         |   |                                | 218,212   |   |     |   | 296,437 |   |
| Affiliated                  Companies                                           |   |                                | 88,326    |   |     |   | 105,525 |   |
| Long-term                  Debt Due Within One Year – Nonaffiliated       |   |                                | 399,214   |   |     |   | 324,191 |   |
| Risk                  Management Liabilities                                    |   |                                | 52,478    |   |     |   | 81,114 |   |
| Customer                  Deposits                                              |   |                                | 56,143    |   |     |   | 56,364 |   |
| Accrued                  Taxes                                                  |   |                                | 52,072    |   |     |   | 60,056 |   |
| Accrued                  Interest                                               |   |                                | 62,775    |   |     |   | 30,617 |   |
| Other                                                                           |   |                                | 109,085   |   |     |   | 142,326 |   |
| **TOTAL**                                                                       |   |                                | 1,038,305 |   |     |   | 1,131,605 |   |
|                                                                            |   |                                |      |   |     |   |   |   |
| **NONCURRENT                  LIABILITIES**                                     |   |                                |      |   |     |   |   |   |
| Long-term                  Debt – Nonaffiliated                           |   |                                | 2,547,043 |   |     |   | 2,174,473 |   |
| Long-term                  Debt – Affiliated                              |   |                                | 100,000   |   |     |   | 100,000 |   |
| Long-term                  Risk Management Liabilities                          |   |                                | 55,558    |   |     |   | 64,909 |   |
| Deferred                  Income Taxes                                          |   |                                | 931,955   |   |     |   | 957,229 |   |
| Regulatory                  Liabilities and Deferred Investment Tax Credits     |   |                                | 502,425   |   |     |   | 309,724 |   |
| Deferred                  Credits and Other                                     |   |                                | 253,239   |   |     |   | 224,439 |   |
| **TOTAL**                                                                       |   |                                | 4,390,220 |   |     |   | 3,830,774 |   |
|                                                                            |   |                                |      |   |     |   |   |   |
| **TOTAL                  LIABILITIES**                                          |   |                                | 5,428,525 |   |     |   | 4,962,379 |   |
|                                                                            |   |                                |      |   |     |   |   |   |
| Cumulative                  Preferred Stock Not Subject to Mandatory Redemption |   |                                | 17,752    |   |     |   | 17,763 |   |
|                                                                            |   |                                |      |   |     |   |   |   |
| Commitments                  and Contingencies (Note 4)                         |   |                                |      |   |     |   |   |   |
|                                                                            |   |                                |      |   |     |   |   |   |
| **COMMON                  SHAREHOLDER’S EQUITY**                          |   |                                |      |   |     |   |   |   |
| Common                  Stock – No Par Value:                             |   |                                |      |   |     |   |   |   |
| Authorized                  – 30,000,000 Shares                           |   |                                |      |   |     |   |   |   |
| Outstanding                  – 13,499,500 Shares                          |   |                                | 260,458   |   |     |   | 260,458 |   |
| Paid-in                  Capital                                                |   |                                | 1,025,111 |   |     |   | 1,024,994 |   |
| Retained                  Earnings                                              |   |                                | 795,917   |   |     |   | 805,513 |   |
| Accumulated                  Other Comprehensive Income (Loss)                  |   |                                | (44,546   | )      |     |   | (54,791 | ) |
| **TOTAL**                                                                       |   |                                | 2,036,940 |   |     |   | 2,036,174 |   |
|                                                                            |   |                                |      |   |     |   |   |   |
| **TOTAL                  LIABILITIES AND SHAREHOLDERS’ EQUITY**           |   | $                                   | 7,483,217 |   |     | $      | 7,016,316 |   |

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

----

**APPALACHIAN        POWER COMPANY AND SUBSIDIARIES**

**CONDENSED        CONSOLIDATED STATEMENTS OF CASH FLOWS**

**For        the Nine Months Ended September 30, 2007 and 2006**

**(in        thousands)**

**(Unaudited)**

|                                                                                                                   |   | **2007** |     |   | **2006** |   |
|------------------------------------------------------------------------------------------------------------------------|--------|----------|----------|--------|----------|--------|
| **OPERATING                  ACTIVITIES**                                                                              |   |     |     |   |     |   |
| **Net                  Income**                                                                                        |   | $        | 18,803   |   |     | $      | 113,777 |   |
| **Adjustments                  to Reconcile Net Income to Net Cash Flows from Operating                  Activities:** |   |     |     |   |     |   |   |   |
|                    Depreciation and Amortization                                                                  |   |     | 142,100  |   |     |   | 158,226 |   |
|                    Deferred Income Taxes                                                                          |   |     | 32,021   |   |     |   | (7,753 | ) |
|                    Extraordinary Loss, Net of Tax                                                                 |   |     | 78,763   |   |     |   | - |   |
|                    Carrying Costs (Income) Expense                                                                |   |     | (22,817  | )      |     |   | 13,532 |   |
|                    Mark-to-Market of Risk Management Contracts                                                    |   |     | 1,603    |   |     |   | (3,817 | ) |
|                    Change in Other Noncurrent Assets                                                              |   |     | (14,627  | )      |     |   | 1,714 |   |
|                    Change in Other Noncurrent Liabilities                                                         |   |     | 27,247   |   |     |   | 20,171 |   |
| **Changes                  in Certain Components of Working Capital:**                                                 |   |     |     |   |     |   |   |   |
|                    Accounts Receivable, Net                                                                       |   |     | (87      | )      |     |   | 24,423 |   |
|                    Fuel, Materials and Supplies                                                                   |   |     | (11,387  | )      |     |   | 3,446 |   |
|                    Margin Deposits                                                                                |   |     | (2,300   | )      |     |   | 27,103 |   |
|                    Accounts Payable                                                                               |   |     | (38,724  | )      |     |   | 22,063 |   |
|                    Customer Deposits                                                                              |   |     | (221     | )      |     |   | (23,591 | ) |
|                    Accrued Taxes, Net                                                                             |   |     | (9,990   | )      |     |   | 43,071 |   |
|                    Accrued Interest                                                                               |   |     | 28,596   |   |     |   | 30,780 |   |
|                    Fuel Over/Under Recovery, Net                                                                  |   |     | 35,770   |   |     |   | 830 |   |
|                    Other Current Assets                                                                           |   |     | (17,520  | )      |     |   | 4,972 |   |
|                    Other Current Liabilities                                                                      |   |     | (25,696  | )      |     |   | 1,788 |   |
| **Net                  Cash Flows From Operating Activities**                                                          |   |     | 221,534  |   |     |   | 430,735 |   |
|                                                                                                                   |   |     |     |   |     |   |   |   |
| **INVESTING                  ACTIVITIES**                                                                              |   |     |     |   |     |   |   |   |
| Construction                  Expenditures                                                                             |   |     | (537,930 | )      |     |   | (633,164 | ) |
| Change                  in Other Cash Deposits, Net                                                                    |   |     | (29      | )      |     |   | (873 | ) |
| Change                  in Advances to Affiliates, Net                                                                 |   |     | (38,573  | )      |     |   | (93,764 | ) |
| Proceeds                  from Sales of Assets                                                                         |   |     | 6,713    |   |     |   | 8,211 |   |
| Other                                                                                                                  |   |     | (200     | )      |     |   | - |   |
| **Net                  Cash Flows Used For Investing Activities**                                                      |   |     | (570,019 | )      |     |   | (719,590 | ) |
|                                                                                                                   |   |     |     |   |     |   |   |   |
| **FINANCING                  ACTIVITIES**                                                                              |   |     |     |   |     |   |   |   |
| Issuance                  of Long-term Debt – Nonaffiliated                                                      |   |     | 568,778  |   |     |   | 544,364 |   |
| Change                  in Advances from Affiliates, Net                                                               |   |     | (34,975  | )      |     |   | (194,133 | ) |
| Retirement                  of Long-term Debt – Nonaffiliated                                                    |   |     | (125,009 | )      |     |   | (100,008 | ) |
| Retirement                  of Cumulative Preferred Stock                                                              |   |     | (9       | )      |     |   | (16 | ) |
| Principal                  Payments for Capital Lease Obligations                                                      |   |     | (3,316   | )      |     |   | (4,008 | ) |
| Funds                  From Amended Coal Contract                                                                      |   |     | -        |   |     |   | 68,078 |   |
| Amortization                  of Funds From Amended Coal Contract                                                      |   |     | (32,433  | )      |     |   | (17,814 | ) |
| Dividends                  Paid on Common Stock                                                                        |   |     | (25,000  | )      |     |   | (7,500 | ) |
| Dividends                  Paid on Cumulative Preferred Stock                                                          |   |     | (600     | )      |     |   | (600 | ) |
| **Net                  Cash Flows From Financing Activities**                                                          |   |     | 347,436  |   |     |   | 288,363 |   |
|                                                                                                                   |   |     |     |   |     |   |   |   |
| **Net                  Decrease in Cash and Cash Equivalents**                                                         |   |     | (1,049   | )      |     |   | (492 | ) |
| **Cash                  and Cash Equivalents at Beginning of Period**                                                  |   |     | 2,318    |   |     |   | 1,741 |   |
| **Cash                  and Cash Equivalents at End of Period**                                                        |   | $        | 1,269    |   |     | $      | 1,249 |   |
|                                                                                                                   |   |     |     |   |     |   |   |   |
| **SUPPLEMENTARY                  INFORMATION**                                                                         |   |     |     |   |     |   |   |   |
| Cash                  Paid for Interest, Net of Capitalized Amounts                                                    |   | $        | 86,199   |   |     | $      | 51,537 |   |
| Net                  Cash Paid for Income Taxes                                                                        |   |     | 6,688    |   |     |   | 12,047 |   |
| Noncash                  Acquisitions Under Capital Leases                                                             |   |     | 2,738    |   |     |   | 2,598 |   |
| Construction                  Expenditures Included in Accounts Payable at September 30,                               |   |     | 90,315   |   |     |   | 131,692 |   |

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

----

**APPALACHIAN        POWER COMPANY AND SUBSIDIARIES**

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

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

----

**COLUMBUS        SOUTHERN POWER COMPANY**

**AND        SUBSIDIARIES**

----

**COLUMBUS        SOUTHERN POWER COMPANY AND        SUBSIDIARIES**

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

**Results        of Operations**

**Reconciliation        of Third Quarter of 2006 to Third Quarter of 2007**

**Net        Income**

**(in        millions)**

| **Third                  Quarter of 2006**                        |   |   |   |   | $      | 84     |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                  Margins                                   |   |   | 40     |   |   |   |   |   |
| Off-system                  Sales                                 |   |   | 7      |   |   |   |   |   |
| Transmission                  Revenues, Net                       |   |   | (13    | )      |   |   |   |   |
| Other                                                             |   |   | 1      |   |   |   |   |   |
| **Total                  Change in Gross Margin**                 |   |   |   |   |   |   | 35     |   |
|                                                              |   |   |   |   |   |   |   |   |
| **Changes                  in Operating Expenses and Other:**     |   |   |   |   |   |   |   |   |
| Other                  Operation and Maintenance                  |   |   | (27    | )      |   |   |   |   |
| Depreciation                  and Amortization                    |   |   | 4      |   |   |   |   |   |
| Taxes                  Other Than Income Taxes                    |   |   | (3     | )      |   |   |   |   |
| Other                  Income, Net                                |   |   | (1     | )      |   |   |   |   |
| Interest                  Expense                                 |   |   | (4     | )      |   |   |   |   |
| **Total                  Change in Operating Expenses and Other** |   |   |   |   |   |   | (31    | ) |
|                                                              |   |   |   |   |   |   |   |   |
| Income                  Tax Expense                               |   |   |   |   |   |   | (3     | ) |
|                                                              |   |   |   |   |   |   |   |   |
| **Third                  Quarter of 2007**                        |   |   |   |   |   | $      | 85     |   |

| · | Retail                  Margins increased $40 million primarily due to:                                                                                                                                                                                                                                                                                        |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ·                                                                                                                                                                                                                                                                                                                                                         | A                  $35 million increase in capacity settlements due to recent plant                  acquisitions and changes in relative peak demands of AEP Power                  Pool                  members under the Interconnection Agreement. |
|   | ·                                                                                                                                                                                                                                                                                                                                                         | A                  $15 million increase in industrial revenue due to the addition                  of Ormet, a                  major industrial customer effective January 1, 2007.  See                  “Ormet” section of Note 3. |
|   | ·                                                                                                                                                                                                                                                                                                                                                         | An                  $11 million increase in rate revenues related to a $13 million                  increase in                  CSPCo’s RSP offset by a $3 million decrease related to recovery of IGCC                  preconstruction costs.  See “Ohio Rate Matters” section of Note                  3.  The decrease in rate recovery of IGCC preconstruction costs                  was offset by the decreased amortization of deferred expenses in                  Depreciation and Amortization.  CSPCo’s recovery of Phase 1 of                  IGCC preconstruction costs ended in July 2007. |
|   | These                  increases were partially offset by:                                                                                                                                                                                                                                                                                                     |
|   | ·                                                                                                                                                                                                                                                                                                                                                         | A                  $28 million decrease in fuel margins. |
| · | Margins                  from Off-system Sales increased $7 million primarily due to higher                  sales                  volumes and power prices in the east, benefits from AEP’s eastern natural                  gas fleet, and higher trading margins.                                                                                    |
| · | Transmission                  Revenues, Net decreased $13 million primarily due to PJM’s revision of its                  pricing methodology for transmission line losses to marginal-loss                  pricing                  effective June 1, 2007.  See “PJM Marginal-Loss Pricing” section                  of Note 3. |

| · | Other                  Operation and Maintenance expenses increased $27 million primarily                  due                  to:                                                                                                                                                                                                                                                                                                                           |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | A                  $15 million increase due to the settlement agreement regarding                  alleged                  violations of the NSR provisions of the CAA.  The $15 million                  represents CSPCo’s allocation of the settlement.  See “Federal                  EPA Complaint and Notice of Violation” section of Note                  4.                                                   |
| · | An                  $8 million increase in expenses related to CSPCo’s UPA for AEGCo’s                  Lawrenceburg Plant which began in May 2007.                                                                                                                                                                                                                                                                                               |
| · | A                  $7 million increase in overhead line expenses due to the 2006 recognition                  of a regulatory asset related to PUCO orders regarding distribution                  service reliability and restoration costs.                                                                                                                                                                                                                 |
| · | Depreciation                  and Amortization decreased $4 million due to the end of amortization                  of                  IGCC preconstruction costs in 2007.  The decrease in                  amortization of IGCC preconstruction costs was offset by a corresponding                  decrease in Retail Margins.  CSPCo’s recovery of Phase 1 of IGCC                  preconstruction costs ended in July 2007. |
| · | Taxes                  Other Than Income Taxes increased $3 million due to increases in                  property                  taxes and state excise taxes.                                                                                                                                                                                                                                                                                              |
| · | Interest                  Expense increased $4 million partially due to a decrease in the                  debt                  component of AFUDC.                                                                                                                                                                                                                                                                                                          |
| · | Income                  Tax Expense increased $3 million primarily due to an increase in                  pretax                  book income, state income taxes and changes in certain book/tax                  differences accounted for on a flow-through                  basis.                                                                                                                                                                        |

**Reconciliation        of Nine Months Ended September 30, 2006 to Nine Months Ended September 30,        2007**

**Net        Income**

**(in        millions)**

| **Nine                  Months Ended September 30, 2006**         |   |   |   |   | $      | 168    |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                  Margins                                   |   |   | 134    |   |   |   |   |   |
| Off-system                  Sales                                 |   |   | 7      |   |   |   |   |   |
| Transmission                  Revenues, Net                       |   |   | (20    | )      |   |   |   |   |
| Other                                                             |   |   | (2     | )      |   |   |   |   |
| **Total                  Change in Gross Margin**                 |   |   |   |   |   |   | 119    |   |
|                                                              |   |   |   |   |   |   |   |   |
| **Changes                  in Operating Expenses and Other:**     |   |   |   |   |   |   |   |   |
| Other                  Operation and Maintenance                  |   |   | (45    | )      |   |   |   |   |
| Depreciation                  and Amortization                    |   |   | (4     | )      |   |   |   |   |
| Taxes                  Other Than Income Taxes                    |   |   | 2      |   |   |   |   |   |
| Interest                  Expense                                 |   |   | (1     | )      |   |   |   |   |
| **Total                  Change in Operating Expenses and Other** |   |   |   |   |   |   | (48    | ) |
|                                                              |   |   |   |   |   |   |   |   |
| Income                  Tax Expense                               |   |   |   |   |   |   | (27    | ) |
|                                                              |   |   |   |   |   |   |   |   |
| **Nine                  Months Ended September 30, 2007**         |   |   |   |   |   | $      | 212    |   |

| · | Retail                  Margins increased $134 million primarily due to:                                                                                                                                                                                                                                                                                       |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ·                                                                                                                                                                                                                                                                                                                                                         | A                  $53 million increase in capacity settlements due to changes in                  relative                  peak demands of AEP Power Pool members under the Interconnection                  Agreement                  and recent plant acquisitions. |
|   | ·                                                                                                                                                                                                                                                                                                                                                         | A                  $46 million increase in rate revenues related to a $35 million                  increase in                  CSPCo’s RSP, an $8 million increase related to recovery of storm costs                  and                  a $3 million increase related to recovery of IGCC preconstruction                  costs.  See “Ohio Rate Matters” section of Note                  3.  The increase in rate recovery of storm costs was offset by                  the amortization of deferred expenses in Other Operation and                  Maintenance.  The increase in rate recovery of IGCC                  preconstruction costs was offset by the amortization of deferred                  expenses                  in Depreciation and Amortization.  CSPCo’s recovery of Phase 1                  of IGCC preconstruction costs ended in July 2007. |
|   | ·                                                                                                                                                                                                                                                                                                                                                         | A                  $36 million increase in industrial revenue primarily due to the                  addition                  of Ormet, a major industrial customer, effective January 1,                  2007.  See “Ormet” section of Note 3. |
|   | ·                                                                                                                                                                                                                                                                                                                                                         | A                  $32 million increase in residential and commercial revenue primarily                  due                  to a 30% increase in cooling degree days and a 33% increase in                  heating                  degree days. |
|   | These                  increases were partially offset by:                                                                                                                                                                                                                                                                                                     |
|   | ·                                                                                                                                                                                                                                                                                                                                                         | A                  $50 million decrease in fuel margins. |
| · | Margins                  from Off-system Sales increased $7 million primarily due to higher                  trading                  margins.                                                                                                                                                                                                                 |
| · | Transmission                  Revenues, Net decreased $20 million primarily due to PJM’s revision of its                  pricing methodology for transmission line losses to marginal-loss                  pricing                  effective June 1, 2007.  See “PJM Marginal-Loss Pricing” section                  of Note 3. |
| · | Other                  revenues decreased $2 million primarily due to lower gains on sales                  of                  emission allowances.                                                                                                                                                                                                           |

| · | Other                  Operation and Maintenance expenses increased $45 million primarily                  due                  to:                                                                                                                                                                                                                                                                                                                                                              |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | A                  $15 million increase in overhead line expenses, of which $7 million                  relates to the recognition in 2006 of a regulatory asset related                  to PUCO                  orders regarding distribution service reliability and restoration                  costs                  and an $8 million increase in amortization of deferred storm expenses                  recovered through a cost-recovery rider.  The increase in                  amortization of deferred storm expenses was offset by a corresponding                  increase in Retail Margins. |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | A                  $15 million increase due to the settlement agreement regarding                  alleged                  violations of the NSR provisions of the CAA.  The $15 million                  represents CSPCo’s allocation of the settlement.  See “Federal                  EPA Complaint and Notice of Violation” section of Note                  4. |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | A                  $12 million increase in expenses related to CSPCo’s UPA for AEGCo’s                  Lawrenceburg Plant which began in May 2007. |
| · | Depreciation                  and Amortization increased $4 million primarily due to the amortization                  of                  IGCC preconstruction costs beginning in July 2006.  The increase                  in amortization of IGCC preconstruction costs was offset by a                  corresponding increase in Retail Margins.  CSPCo’s recovery of                  Phase 1 of IGCC preconstruction costs ended in July                  2007. |
| · | Income                  Tax Expense increased $27 million primarily due to an increase                  in pretax                  book income.                                                                                                                                                                                                                                                                                                                                                  |

**Critical        Accounting Estimates**

**Adoption        of New Accounting Pronouncements**

----

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

**Market        Risks**

**VaR        Associated with Debt Outstanding**

----

** COLUMBUS        SOUTHERN POWER COMPANY AND SUBSIDIARIES**

**CONDENSED        CONSOLIDATED STATEMENTS OF INCOME**

**For        the Three and Nine Months Ended September 30, 2007 and        2006**

**(in        thousands)**

**(Unaudited)**

|                                                                     |   | **Three                  Months Ended** |    |   | **Nine                  Months Ended** |   |
|--------------------------------------------------------------------------|--------|-----------------------------------------|---------|--------|----------------------------------------|--------|
|                                                                     |   | **2007**                                |    |   | **2006**                               |   |   | **2007** |   |   | **2006** |   |
| **REVENUES**                                                             |   |                                    |    |   |                                   |   |   |   |   |   |   |   |
| Electric                  Generation, Transmission and Distribution      |   | $                                       | 553,518 |   |                                   | $      | 513,643 |   |   | $ | 1,446,632 |   |   | $ | 1,321,422 |   |
| Sales                  to AEP Affiliates                                 |   |                                    | 52,331  |   |                                   |   | 24,806 |   |   |   | 110,700 |   |   |   | 60,337 |   |
| Other                                                                    |   |                                    | 1,292   |   |                                   |   | 1,449 |   |   |   | 3,743 |   |   |   | 4,016 |   |
| **TOTAL**                                                                |   |                                    | 607,141 |   |                                   |   | 539,898 |   |   |   | 1,561,075 |   |   |   | 1,385,775 |   |
|                                                                     |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| **EXPENSES**                                                             |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| Fuel                  and Other Consumables Used for Electric Generation |   |                                    | 103,560 |   |                                   |   | 90,510 |   |   |   | 255,764 |   |   |   | 231,543 |   |
| Purchased                  Electricity for Resale                        |   |                                    | 49,619  |   |                                   |   | 35,449 |   |   |   | 113,765 |   |   |   | 87,902 |   |
| Purchased                  Electricity from AEP Affiliates               |   |                                    | 107,386 |   |                                   |   | 102,669 |   |   |   | 278,715 |   |   |   | 272,334 |   |
| Other                  Operation                                         |   |                                    | 83,625  |   |                                   |   | 66,188 |   |   |   | 207,300 |   |   |   | 179,993 |   |
| Maintenance                                                              |   |                                    | 24,250  |   |                                   |   | 14,704 |   |   |   | 73,537 |   |   |   | 56,140 |   |
| Depreciation                  and Amortization                           |   |                                    | 47,589  |   |                                   |   | 51,156 |   |   |   | 147,332 |   |   |   | 143,524 |   |
| Taxes                  Other Than Income Taxes                           |   |                                    | 41,382  |   |                                   |   | 38,586 |   |   |   | 117,760 |   |   |   | 119,875 |   |
| **TOTAL**                                                                |   |                                    | 457,411 |   |                                   |   | 399,262 |   |   |   | 1,194,173 |   |   |   | 1,091,311 |   |
|                                                                     |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| **OPERATING                  INCOME**                                    |   |                                    | 149,730 |   |                                   |   | 140,636 |   |   |   | 366,902 |   |   |   | 294,464 |   |
|                                                                     |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| **Other                  Income (Expense):**                             |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                  Income                                         |   |                                    | 166     |   |                                   |   | 989 |   |   |   | 782 |   |   |   | 1,919 |   |
| Carrying                  Costs Income                                   |   |                                    | 1,261   |   |                                   |   | 1,046 |   |   |   | 3,492 |   |   |   | 3,082 |   |
| Allowance                  for Equity Funds Used During Construction     |   |                                    | 738     |   |                                   |   | 659 |   |   |   | 2,130 |   |   |   | 1,466 |   |
| Interest                  Expense                                        |   |                                    | (19,530 | )      |                                   |   | (15,813 | ) |   |   | (51,193 | ) |   |   | (50,247 | ) |
|                                                                     |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| **INCOME                  BEFORE INCOME TAXES**                          |   |                                    | 132,365 |   |                                   |   | 127,517 |   |   |   | 322,113 |   |   |   | 250,684 |   |
|                                                                     |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| Income                  Tax Expense                                      |   |                                    | 46,911  |   |                                   |   | 43,496 |   |   |   | 109,656 |   |   |   | 83,064 |   |
|                                                                     |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| **NET                  INCOME**                                          |   |                                    | 85,454  |   |                                   |   | 84,021 |   |   |   | 212,457 |   |   |   | 167,620 |   |
|                                                                     |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| Capital                  Stock Expense                                   |   |                                    | 39      |   |                                   |   | 39 |   |   |   | 118 |   |   |   | 118 |   |
|                                                                     |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| **EARNINGS                  APPLICABLE TO COMMON  STOCK**           |   | $                                       | 85,415  |   |                                   | $      | 83,982 |   |   | $ | 212,339 |   |   | $ | 167,502 |   |

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

----

**COLUMBUS        SOUTHERN POWER COMPANY AND SUBSIDIARIES**

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

**EQUITY        AND COMPREHENSIVE INCOME (LOSS)**

**For        the Nine Months Ended September 30, 2007 and 2006**

**(in        thousands)**

**(Unaudited)**

|                                                                |   | **Common                  Stock** |   |   | **Paid-in                  Capital** |   |    | **Retained                  Earnings** |   |   | **Accumulated                  Other Comprehensive Income (Loss)** |   |   | **Total** |    |
|---------------------------------------------------------------------|--------|-----------------------------------|--------|--------|--------------------------------------|--------|---------|----------------------------------------|--------|--------|--------------------------------------------------------------------|--------|--------|-----------|---------|
| **DECEMBER                  31, 2005**                              |   | $                                 | 41,026 |   |                                 | $      | 580,035 |                                   |   | $      | 361,365                                                            |   |   | $         | (880    | ) |   | $ | 981,546 |   |
|                                                                |   |                              |   |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| Common                  Stock Dividends                             |   |                              |   |   |                                 |   |    |                                   |   |   | (67,500                                                            | )      |   |      |    |   |   |   | (67,500 | ) |
| Capital                  Stock Expense                              |   |                              |   |   |                                 |   | 118     |                                   |   |   | (118                                                               | )      |   |      |    |   |   |   | - |   |
| **TOTAL**                                                           |   |                              |   |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   | 914,046 |   |
|                                                                |   |                              |   |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| **COMPREHENSIVE                  INCOME**                           |   |                              |   |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| **Other                  Comprehensive Income, Net of Taxes:** |   |                              |   |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| Cash                  Flow Hedges, Net of Tax of $2,121             |   |                              |   |   |                                 |   |    |                                   |   |   |                                                               |   |   |      | 3,940   |   |   |   | 3,940 |   |
| **NET                  INCOME**                                     |   |                              |   |   |                                 |   |    |                                   |   |   | 167,620                                                            |   |   |      |    |   |   |   | 167,620 |   |
| **TOTAL                  COMPREHENSIVE INCOME**                     |   |                              |   |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   | 171,560 |   |
|                                                                |   |                              |   |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| **SEPTEMBER                  30, 2006**                             |   | $                                 | 41,026 |   |                                 | $      | 580,153 |                                   |   | $      | 461,367                                                            |   |   | $         | 3,060   |   |   | $ | 1,085,606 |   |
|                                                                |   |                              |   |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| **DECEMBER                  31, 2006**                              |   | $                                 | 41,026 |   |                                 | $      | 580,192 |                                   |   | $      | 456,787                                                            |   |   | $         | (21,988 | ) |   | $ | 1,056,017 |   |
|                                                                |   |                              |   |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| FIN                  48 Adoption, Net of Tax                        |   |                              |   |   |                                 |   |    |                                   |   |   | (3,022                                                             | )      |   |      |    |   |   |   | (3,022 | ) |
| Common                  Stock Dividends                             |   |                              |   |   |                                 |   |    |                                   |   |   | (90,000                                                            | )      |   |      |    |   |   |   | (90,000 | ) |
| Capital                  Stock Expense and Other                    |   |                              |   |   |                                 |   | 118     |                                   |   |   | (118                                                               | )      |   |      |    |   |   |   | - |   |
| **TOTAL**                                                           |   |                              |   |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   | 962,995 |   |
|                                                                |   |                              |   |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| **COMPREHENSIVE                  INCOME**                           |   |                              |   |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| **Other                  Comprehensive Loss, Net of Taxes:**        |   |                              |   |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| Cash                  Flow Hedges, Net of Tax of $1,231             |   |                              |   |   |                                 |   |    |                                   |   |   |                                                               |   |   |      | (2,285  | ) |   |   | (2,285 | ) |
| **NET                  INCOME**                                     |   |                              |   |   |                                 |   |    |                                   |   |   | 212,457                                                            |   |   |      |    |   |   |   | 212,457 |   |
| **TOTAL                  COMPREHENSIVE INCOME**                     |   |                              |   |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   | 210,172 |   |
|                                                                |   |                              |   |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| **SEPTEMBER                  30, 2007**                             |   | $                                 | 41,026 |   |                                 | $      | 580,310 |                                   |   | $      | 576,104                                                            |   |   | $         | (24,273 | ) |   | $ | 1,173,167 |   |

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

----

**COLUMBUS        SOUTHERN POWER COMPANY AND SUBSIDIARIES**

**CONDENSED        CONSOLIDATED BALANCE SHEETS**

**ASSETS**

**September        30, 2007 and December 31, 2006**

**(in        thousands)**

**(Unaudited)**

|                                                         |   | **2007** |      |   | **2006** |   |
|--------------------------------------------------------------|--------|----------|-----------|--------|----------|--------|
| **CURRENT                  ASSETS**                          |   |     |      |   |     |   |
| Cash                  and Cash Equivalents                   |   | $        | 1,695     |   |     | $      | 1,319 |   |
| Other                  Cash Deposits                         |   |     | 45,511    |   |     |   | 1,151 |   |
| Accounts                  Receivable:                        |   |     |      |   |     |   |   |   |
|                    Customers                            |   |     | 53,919    |   |     |   | 49,362 |   |
|                    Affiliated Companies                 |   |     | 36,934    |   |     |   | 62,866 |   |
|                    Accrued Unbilled Revenues            |   |     | 33,756    |   |     |   | 11,042 |   |
|                    Miscellaneous                        |   |     | 7,792     |   |     |   | 4,895 |   |
|                    Allowance for Uncollectible Accounts |   |     | (842      | )      |     |   | (546 | ) |
| Total                  Accounts Receivable                   |   |     | 131,559   |   |     |   | 127,619 |   |
| Fuel                                                         |   |     | 42,518    |   |     |   | 37,348 |   |
| Materials                  and Supplies                      |   |     | 36,784    |   |     |   | 31,765 |   |
| Emission                  Allowances                         |   |     | 3,103     |   |     |   | 3,493 |   |
| Risk                  Management Assets                      |   |     | 38,776    |   |     |   | 66,238 |   |
| Prepayments                  and Other                       |   |     | 15,305    |   |     |   | 19,719 |   |
| **TOTAL**                                                    |   |     | 315,251   |   |     |   | 288,652 |   |
|                                                         |   |     |      |   |     |   |   |   |
| **PROPERTY,                  PLANT AND EQUIPMENT**           |   |     |      |   |     |   |   |   |
| Electric:                                                    |   |     |      |   |     |   |   |   |
|                    Production                           |   |     | 2,055,590 |   |     |   | 1,896,073 |   |
|                    Transmission                         |   |     | 498,180   |   |     |   | 479,119 |   |
|                    Distribution                         |   |     | 1,538,056 |   |     |   | 1,475,758 |   |
| Other                                                        |   |     | 204,395   |   |     |   | 191,103 |   |
| Construction                  Work in Progress               |   |     | 360,560   |   |     |   | 294,138 |   |
| **Total**                                                    |   |     | 4,656,781 |   |     |   | 4,336,191 |   |
| Accumulated                  Depreciation and Amortization   |   |     | 1,672,118 |   |     |   | 1,611,043 |   |
| **TOTAL                  - NET**                             |   |     | 2,984,663 |   |     |   | 2,725,148 |   |
|                                                         |   |     |      |   |     |   |   |   |
| **OTHER                  NONCURRENT ASSETS**                 |   |     |      |   |     |   |   |   |
| Regulatory                  Assets                           |   |     | 263,054   |   |     |   | 298,304 |   |
| Long-term                  Risk Management Assets            |   |     | 47,634    |   |     |   | 56,206 |   |
| Deferred                  Charges and Other                  |   |     | 95,464    |   |     |   | 152,379 |   |
| **TOTAL**                                                    |   |     | 406,152   |   |     |   | 506,889 |   |
|                                                         |   |     |      |   |     |   |   |   |
| **TOTAL                  ASSETS**                            |   | $        | 3,706,066 |   |     | $      | 3,520,689 |   |

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

----

**COLUMBUS        SOUTHERN POWER COMPANY AND SUBSIDIARIES**

**CONDENSED        CONSOLIDATED BALANCE SHEETS**

**LIABILITIES        AND SHAREHOLDER’S EQUITY**

**September        30, 2007 and December 31, 2006**

**(Unaudited)**

|                                                                        |   | **2007**                            |      |   | **2006** |   |
|-----------------------------------------------------------------------------|--------|-------------------------------------|-----------|--------|----------|--------|
| **CURRENT                  LIABILITIES**                                    |   | **(in                  thousands)** |      |
| Advances                  from Affiliates                                   |   | $                                   | 123,043   |   |     | $      | 696 |   |
| Accounts                  Payable:                                          |   |                                |      |   |     |   |   |   |
| General                                                                     |   |                                | 104,217   |   |     |   | 112,431 |   |
| Affiliated                  Companies                                       |   |                                | 44,320    |   |     |   | 59,538 |   |
| Long-term                  Debt Due Within One Year - Nonaffiliated         |   |                                | 112,000   |   |     |   | - |   |
| Risk                  Management Liabilities                                |   |                                | 29,305    |   |     |   | 49,285 |   |
| Customer                  Deposits                                          |   |                                | 41,467    |   |     |   | 34,991 |   |
| Accrued                  Taxes                                              |   |                                | 109,477   |   |     |   | 166,551 |   |
| Other                                                                       |   |                                | 74,852    |   |     |   | 58,011 |   |
| **TOTAL**                                                                   |   |                                | 638,681   |   |     |   | 481,503 |   |
|                                                                        |   |                                |      |   |     |   |   |   |
| **NONCURRENT                  LIABILITIES**                                 |   |                                |      |   |     |   |   |   |
| Long-term                  Debt – Nonaffiliated                       |   |                                | 1,030,123 |   |     |   | 1,097,322 |   |
| Long-term                  Debt – Affiliated                          |   |                                | 100,000   |   |     |   | 100,000 |   |
| Long-term                  Risk Management Liabilities                      |   |                                | 31,907    |   |     |   | 40,477 |   |
| Deferred                  Income Taxes                                      |   |                                | 451,456   |   |     |   | 475,888 |   |
| Regulatory                  Liabilities and Deferred Investment Tax Credits |   |                                | 171,431   |   |     |   | 179,048 |   |
| Deferred                  Credits and Other                                 |   |                                | 109,301   |   |     |   | 90,434 |   |
| **TOTAL**                                                                   |   |                                | 1,894,218 |   |     |   | 1,983,169 |   |
|                                                                        |   |                                |      |   |     |   |   |   |
| **TOTAL                  LIABILITIES**                                      |   |                                | 2,532,899 |   |     |   | 2,464,672 |   |
|                                                                        |   |                                |      |   |     |   |   |   |
| Commitments                  and Contingencies (Note 4)                     |   |                                |      |   |     |   |   |   |
|                                                                        |   |                                |      |   |     |   |   |   |
| **COMMON                  SHAREHOLDER’S EQUITY**                      |   |                                |      |   |     |   |   |   |
| Common                  Stock – No Par Value:                         |   |                                |      |   |     |   |   |   |
| Authorized                  – 24,000,000 Shares                       |   |                                |      |   |     |   |   |   |
| Outstanding                  – 16,410,426 Shares                      |   |                                | 41,026    |   |     |   | 41,026 |   |
| Paid-in                  Capital                                            |   |                                | 580,310   |   |     |   | 580,192 |   |
| Retained                  Earnings                                          |   |                                | 576,104   |   |     |   | 456,787 |   |
| Accumulated                  Other Comprehensive Income (Loss)              |   |                                | (24,273   | )      |     |   | (21,988 | ) |
| **TOTAL**                                                                   |   |                                | 1,173,167 |   |     |   | 1,056,017 |   |
|                                                                        |   |                                |      |   |     |   |   |   |
| **TOTAL                  LIABILITIES AND SHAREHOLDER’S EQUITY**       |   | $                                   | 3,706,066 |   |     | $      | 3,520,689 |   |

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

----

**COLUMBUS        SOUTHERN POWER COMPANY AND SUBSIDIARIES**

**CONDENSED        CONSOLIDATED STATEMENTS OF CASH FLOWS**

**For        the Nine Months Ended September 30, 2007 and 2006**

**(in        thousands)**

**(Unaudited)**

|                                                                                                                   |   | **2007** |     |   | **2006** |   |
|------------------------------------------------------------------------------------------------------------------------|--------|----------|----------|--------|----------|--------|
| **OPERATING                  ACTIVITIES**                                                                              |   |     |     |   |     |   |
| **Net                  Income**                                                                                        |   | $        | 212,457  |   |     | $      | 167,620 |   |
| **Adjustments                  to Reconcile Net Income to Net Cash Flows from Operating                  Activities:** |   |     |     |   |     |   |   |   |
| Depreciation                  and Amortization                                                                         |   |     | 147,332  |   |     |   | 143,524 |   |
| Deferred                  Income Taxes                                                                                 |   |     | (13,959  | )      |     |   | (5,097 | ) |
| Carrying                  Costs Income                                                                                 |   |     | (3,492   | )      |     |   | (3,082 | ) |
| Mark-to-Market                  of Risk Management Contracts                                                           |   |     | 3,982    |   |     |   | (4,502 | ) |
| Deferred                  Property Taxes                                                                               |   |     | 57,890   |   |     |   | 49,518 |   |
| Change                  in Other Noncurrent Assets                                                                     |   |     | (31,329  | )      |     |   | (24,692 | ) |
| Change                  in Other Noncurrent Liabilities                                                                |   |     | 2,713    |   |     |   | 11,752 |   |
| **Changes                  in Certain Components of Working Capital:**                                                 |   |     |     |   |     |   |   |   |
| Accounts                  Receivable, Net                                                                              |   |     | (13,040  | )      |     |   | (3,374 | ) |
| Fuel,                  Materials and Supplies                                                                          |   |     | (2,332   | )      |     |   | (8,200 | ) |
| Accounts                  Payable                                                                                      |   |     | (13,336  | )      |     |   | 31,765 |   |
| Customer                  Deposits                                                                                     |   |     | 6,476    |   |     |   | (14,565 | ) |
| Accrued                  Taxes, Net                                                                                    |   |     | (44,295  | )      |     |   | (8,981 | ) |
| Other                  Current Assets                                                                                  |   |     | (415     | )      |     |   | 26,838 |   |
| Other                  Current Liabilities                                                                             |   |     | 8,817    |   |     |   | (2,878 | ) |
| **Net                  Cash Flows From Operating Activities**                                                          |   |     | 317,469  |   |     |   | 355,646 |   |
|                                                                                                                   |   |     |     |   |     |   |   |   |
| **INVESTING                  ACTIVITIES**                                                                              |   |     |     |   |     |   |   |   |
| Construction                  Expenditures                                                                             |   |     | (246,130 | )      |     |   | (207,875 | ) |
| Change                  in Other Cash Deposits, Net                                                                    |   |     | (44,360  | )      |     |   | (1,151 | ) |
| Change                  in Advances to Affiliates, Net                                                                 |   |     | -        |   |     |   | (60,417 | ) |
| Acquisition                  of Darby Plant                                                                            |   |     | (102,032 | )      |     |   | - |   |
| Proceeds                  from Sales of Assets                                                                         |   |     | 1,016    |   |     |   | 1,525 |   |
| **Net                  Cash Flows Used For Investing Activities**                                                      |   |     | (391,506 | )      |     |   | (267,918 | ) |
|                                                                                                                   |   |     |     |   |     |   |   |   |
| **FINANCING                  ACTIVITIES**                                                                              |   |     |     |   |     |   |   |   |
| Issuance                  of Long-term Debt – Nonaffiliated                                                      |   |     | 44,257   |   |     |   | - |   |
| Change                  in Advances from Affiliates, Net                                                               |   |     | 122,347  |   |     |   | (17,609 | ) |
| Principal                  Payments for Capital Lease Obligations                                                      |   |     | (2,191   | )      |     |   | (2,308 | ) |
| Dividends                  Paid on Common Stock                                                                        |   |     | (90,000  | )      |     |   | (67,500 | ) |
| **Net                  Cash Flows From (Used For) Financing Activities**                                               |   |     | 74,413   |   |     |   | (87,417 | ) |
|                                                                                                                   |   |     |     |   |     |   |   |   |
| **Net                  Increase in Cash and Cash Equivalents**                                                         |   |     | 376      |   |     |   | 311 |   |
| **Cash                  and Cash Equivalents at Beginning of Period**                                                  |   |     | 1,319    |   |     |   | 940 |   |
| **Cash                  and Cash Equivalents at End of Period**                                                        |   | $        | 1,695    |   |     | $      | 1,251 |   |
|                                                                                                                   |   |     |     |   |     |   |   |   |
| **SUPPLEMENTARY                  INFORMATION**                                                                         |   |     |     |   |     |   |   |   |
| Cash                  Paid for Interest, Net of Capitalized Amounts                                                    |   | $        | 53,464   |   |     | $      | 52,958 |   |
| Net                  Cash Paid for Income Taxes                                                                        |   |     | 93,709   |   |     |   | 35,561 |   |
| Noncash                  Acquisitions Under Capital Leases                                                             |   |     | 1,900    |   |     |   | 2,130 |   |
| Construction                  Expenditures Included in Accounts Payable at September 30,                               |   |     | 34,630   |   |     |   | 22,955 |   |
| Noncash                  Assumption of Liabilities Related to Acquisition of Darby                  Plant              |   |     | 2,339    |   |     |   | - |   |

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

----

**COLUMBUS        SOUTHERN POWER COMPANY AND SUBSIDIARIES**

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

**REGISTRANT        SUBSIDIARIES**

|                                                                  | **Footnote****Reference** |
|-----------------------------------------------------------------------|---------------------------|
|                                                                  |                      |
| Significant                  Accounting Matters                       | Note                  1   |
| New                  Accounting Pronouncements and Extraordinary Item | Note                  2   |
| Rate                  Matters                                         | Note                  3   |
| Commitments,                  Guarantees and Contingencies            | Note                  4   |
| Acquisition                                                           | Note                  5   |
| Benefit                  Plans                                        | Note                  6   |
| Business                  Segments                                    | Note                  7   |
| Income                  Taxes                                         | Note                  8   |
| Financing                  Activities                                 | Note                  9   |

----

**INDIANA        MICHIGAN POWER COMPANY**

**AND        SUBSIDIARIES**

----

**INDIANA        MICHIGAN POWER COMPANY AND SUBSIDIARIES**

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

**Results        of Operations**

**Reconciliation        of Third Quarter of 2006 to Third Quarter of 2007**

**Net        Income**

**(in        millions)**

| **Third                  Quarter of 2006**                        |   |   |   |   | $      | 35     |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                  Margins                                   |   |   | 7      |   |   |   |   |   |
| FERC                  Municipals and Cooperatives                 |   |   | 14     |   |   |   |   |   |
| Off-system                  Sales                                 |   |   | 7      |   |   |   |   |   |
| Transmission                  Revenues, Net                       |   |   | (11    | )      |   |   |   |   |
| **Total                  Change in Gross Margin**                 |   |   |   |   |   |   | 17     |   |
|                                                              |   |   |   |   |   |   |   |   |
| **Changes                  in Operating Expenses and Other:**     |   |   |   |   |   |   |   |   |
| Other                  Operation and Maintenance                  |   |   | (11    | )      |   |   |   |   |
| Depreciation                  and Amortization                    |   |   | 18     |   |   |   |   |   |
| Taxes                  Other Than Income Taxes                    |   |   | (1     | )      |   |   |   |   |
| Other                  Income                                     |   |   | (2     | )      |   |   |   |   |
| Interest                  Expense                                 |   |   | (1     | )      |   |   |   |   |
| **Total                  Change in Operating Expenses and Other** |   |   |   |   |   |   | 3      |   |
|                                                              |   |   |   |   |   |   |   |   |
| Income                  Tax Expense                               |   |   |   |   |   |   | (6     | ) |
|                                                              |   |   |   |   |   |   |   |   |
| **Third                  Quarter of 2007**                        |   |   |   |   |   | $      | 49     |   |

| · | Retail                  Margins increased $7 million primarily due to higher fuel margins                  of $9                  million due to reactivation of the fuel clause and higher retail                  sales of                  $5 million reflecting favorable weather conditions as cooling degree                  days                  increased for both the Indiana and Michigan                  jurisdictions.  Lower revenues from financial transmission                  rights, net of congestion, due to fewer constraints in the PJM                  market                  partially offset the increases. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | FERC                  Municipals and Cooperatives margins increased $14 million due to                  the                  addition of new municipal contracts effective January 2007 including                  new                  rates and increased customer demand.                                                                                                                                                                                                                                                                                                                                                                         |
| · | Margins                  from Off-system Sales increased $7 million primarily due to higher                  sales                  volumes and power prices in the east, benefits from AEP’s eastern natural                  gas fleet, and higher trading margins.                                                                                                                                                                                                                                                                                                                                                                          |
| · | Transmission                  Revenues, Net decreased $11 million primarily due to PJM’s revision of its                  pricing methodology for transmission line losses to marginal-loss                  pricing                  effective June 1, 2007.  See “PJM Marginal-Loss Pricing” section                  of Note 3.                                                                                                                                                                                                                                                                                       |

| · | Other                  Operation and Maintenance expenses increased $11 million primarily                  due to                  a settlement agreement regarding alleged violations of the NSR                  provisions                  of the CAA, of which $14 million was allocated to I&M.  See                  “Federal EPA Complaint and Notice of Violation” section of Note                  4. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Depreciation                  and Amortization expense decreased $18 million primarily due to                  a                  settlement agreement approved by the IURC reducing depreciation                  rates to                  reflect longer estimated lives for Cook and Tanners Creek                  plants.  See “Indiana Depreciation Study Filing” section of Note                  3.        |
| · | Income                  Tax Expense increased $6 million primarily due to an increase in                  pretax                  book income and a decrease in amortization of investment tax credits,                  partially offset by changes in certain book/tax differences accounted                  for                  on a flow-through basis and state income                  taxes.                                     |

**Reconciliation        of Nine Months Ended September 30, 2006 to Nine Months Ended September 30,        2007**

**Net        Income**

**(in        millions)**

| **Nine                  Months Ended September 30, 2006**         |   |   |   |   | $      | 121    |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                  Margins                                   |   |   | (20    | )      |   |   |   |   |
| FERC                  Municipals and Cooperatives                 |   |   | 40     |   |   |   |   |   |
| Off-system                  Sales                                 |   |   | 9      |   |   |   |   |   |
| Transmission                  Revenues, Net                       |   |   | (12    | )      |   |   |   |   |
| Other                                                             |   |   | (4     | )      |   |   |   |   |
| **Total                  Change in Gross Margin**                 |   |   |   |   |   |   | 13     |   |
|                                                              |   |   |   |   |   |   |   |   |
| **Changes                  in Operating Expenses and Other:**     |   |   |   |   |   |   |   |   |
| Other                  Operation and Maintenance                  |   |   | (31    | )      |   |   |   |   |
| Depreciation                  and Amortization                    |   |   | 8      |   |   |   |   |   |
| Other                  Income                                     |   |   | (4     | )      |   |   |   |   |
| Interest                  Expense                                 |   |   | (5     | )      |   |   |   |   |
| **Total                  Change in Operating Expenses and Other** |   |   |   |   |   |   | (32    | ) |
|                                                              |   |   |   |   |   |   |   |   |
| Income                  Tax Expense                               |   |   |   |   |   |   | 7      |   |
|                                                              |   |   |   |   |   |   |   |   |
| **Nine                  Months Ended September 30, 2007**         |   |   |   |   |   | $      | 109    |   |

| · | Retail                  Margins decreased $20 million primarily due to a $37 million reduction                  in                  capacity settlement revenues under the Interconnection Agreement                  reflecting I&M’s new peak demand in July 2006 and lower revenues from                  financial transmission rights, net of congestion, of $21 million                  due to                  fewer constraints in the PJM market.  Higher retail sales of $32                  million reflecting favorable weather conditions partially offset                  the                  decreases.  Heating and cooling degree days increased                  significantly in both the Indiana and Michigan                  jurisdictions. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | FERC                  Municipals and Cooperatives margins increased $40 million due to                  the                  addition of new municipal contracts including new rates and increased                  demand effective July 2006 and January 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| · | Margins                  from Off-system Sales increased $9 million primarily due to higher                  trading                  margins.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| · | Transmission                  Revenues, Net decreased $12 million primarily due to PJM’s revision of its                  pricing methodology for transmission line losses to marginal-loss                  pricing                  effective June 1, 2007.  See “PJM Marginal-Loss Pricing” section                  of Note 3.                                                                                                                                                                                                                                                                                                                                                                                                                                      |

| · | Other Operation                  and Maintenance expenses increased $31 million primarily due to                  the                  settlement agreement regarding alleged violations of the NSR provisions                  of                  the CAA, of which $14 million was allocated to I&M, a $13 million                  increase in coal-fired plant maintenance expenses resulting from                  planned                  outages at Rockport and Tanners Creek plants and an $8 million                  increase in                  transmission expense primarily due to reduced credits under the                  Transmission Equalization Agreement.  Credits decreased due to                  I&M’s July 2006 peak and due to APCo’s addition of the                  Wyoming-Jacksons Ferry 765 kV line, which was energized and placed                  in                  service in June 2006 thus decreasing I&M’s share of the transmission                  investment pool. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Depreciation                  and Amortization expense decreased $8 million primarily due to                  a $14                  million decrease in depreciation related to the revised depreciation                  rates                  in Indiana partially offset by an increase in amortization related                  to                  capitalized software development costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| · | Interest                  Expense increased $5 million primarily due to an increase in outstanding                  long-term debt.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| · | Income                  Tax Expense decreased $7 million primarily due to a decrease in                  pretax                  book income and changes in certain book/tax differences accounted                  for on a                  flow-through basis, partially offset by a decrease in amortization                  of                  investment tax credits.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

**Critical        Accounting Estimates**

**Adoption        of New Accounting Pronouncements**

----

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

**Market        Risks**

**VaR        Associated with Debt Outstanding**

----

**INDIANA        MICHIGAN POWER COMPANY AND SUBSIDIARIES**

**CONDENSED        CONSOLIDATED STATEMENTS OF INCOME**

**For        the Three and Nine Months Ended September 30, 2007 and        2006**

**(in        thousands)**

**(Unaudited)**

|                                                                     |   | **Three                  Months Ended** |    |   | **Nine                  Months Ended** |   |
|--------------------------------------------------------------------------|--------|-----------------------------------------|---------|--------|----------------------------------------|--------|
|                                                                     |   | **2007**                                |    |   | **2006**                               |   |   | **2007** |   |   | **2006** |   |
| **REVENUES**                                                             |   |                                    |    |   |                                   |   |   |   |   |   |   |   |
| Electric                  Generation, Transmission and Distribution      |   | $                                       | 478,907 |   |                                   | $      | 449,259 |   |   | $ | 1,286,223 |   |   | $ | 1,224,609 |   |
| Sales                  to AEP Affiliates                                 |   |                                    | 56,262  |   |                                   |   | 54,793 |   |   |   | 186,653 |   |   |   | 223,728 |   |
| Other                  – Affiliated                                |   |                                    | 16,250  |   |                                   |   | 12,903 |   |   |   | 43,488 |   |   |   | 37,838 |   |
| Other                  – Nonaffiliated                             |   |                                    | 7,757   |   |                                   |   | 8,580 |   |   |   | 21,718 |   |   |   | 24,593 |   |
| **TOTAL**                                                                |   |                                    | 559,176 |   |                                   |   | 525,535 |   |   |   | 1,538,082 |   |   |   | 1,510,768 |   |
|                                                                     |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| **EXPENSES**                                                             |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| Fuel                  and Other Consumables Used for Electric Generation |   |                                    | 103,740 |   |                                   |   | 98,135 |   |   |   | 290,507 |   |   |   | 283,734 |   |
| Purchased                  Electricity for Resale                        |   |                                    | 26,580  |   |                                   |   | 20,450 |   |   |   | 63,830 |   |   |   | 46,993 |   |
| Purchased                  Electricity from AEP Affiliates               |   |                                    | 96,451  |   |                                   |   | 92,052 |   |   |   | 249,755 |   |   |   | 259,304 |   |
| Other                  Operation                                         |   |                                    | 129,439 |   |                                   |   | 119,661 |   |   |   | 367,483 |   |   |   | 340,666 |   |
| Maintenance                                                              |   |                                    | 58,502  |   |                                   |   | 56,960 |   |   |   | 146,657 |   |   |   | 142,531 |   |
| Depreciation                  and Amortization                           |   |                                    | 35,604  |   |                                   |   | 53,404 |   |   |   | 145,801 |   |   |   | 153,897 |   |
| Taxes                  Other Than Income Taxes                           |   |                                    | 19,704  |   |                                   |   | 18,472 |   |   |   | 56,936 |   |   |   | 56,343 |   |
| **TOTAL**                                                                |   |                                    | 470,020 |   |                                   |   | 459,134 |   |   |   | 1,320,969 |   |   |   | 1,283,468 |   |
|                                                                     |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| **OPERATING                  INCOME**                                    |   |                                    | 89,156  |   |                                   |   | 66,401 |   |   |   | 217,113 |   |   |   | 227,300 |   |
|                                                                     |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| **Other                  Income (Expense):**                             |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                  Income                                         |   |                                    | 252     |   |                                   |   | 1,102 |   |   |   | 1,547 |   |   |   | 2,459 |   |
| Allowance                  for Equity Funds Used During Construction     |   |                                    | 1,734   |   |                                   |   | 2,517 |   |   |   | 2,726 |   |   |   | 5,881 |   |
| Interest                  Expense                                        |   |                                    | (18,312 | )      |                                   |   | (17,228 | ) |   |   | (57,744 | ) |   |   | (52,663 | ) |
|                                                                     |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| **INCOME                  BEFORE INCOME TAXES**                          |   |                                    | 72,830  |   |                                   |   | 52,792 |   |   |   | 163,642 |   |   |   | 182,977 |   |
|                                                                     |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| Income                  Tax Expense                                      |   |                                    | 23,706  |   |                                   |   | 18,231 |   |   |   | 55,020 |   |   |   | 62,013 |   |
|                                                                     |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| **NET                  INCOME**                                          |   |                                    | 49,124  |   |                                   |   | 34,561 |   |   |   | 108,622 |   |   |   | 120,964 |   |
|                                                                     |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| Preferred                  Stock Dividend Requirements                   |   |                                    | 85      |   |                                   |   | 85 |   |   |   | 255 |   |   |   | 255 |   |
|                                                                     |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| **EARNINGS                  APPLICABLE TO COMMON STOCK**                 |   | $                                       | 49,039  |   |                                   | $      | 34,476 |   |   | $ | 108,367 |   |   | $ | 120,709 |   |

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

----

**INDIANA        MICHIGAN POWER COMPANY AND SUBSIDIARIES**

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

**EQUITY        AND COMPREHENSIVE INCOME (LOSS)**

**For        the Nine Months Ended September 30, 2007 and 2006**

**(in        thousands)**

**(Unaudited)**

|                                                         |   | **Common                  Stock** |   |   | **Paid-in                  Capital** |   |    | **Retained                  Earnings** |   |   | **Accumulated                  Other Comprehensive Income (Loss)** |   |   | **Total** |    |
|--------------------------------------------------------------|--------|-----------------------------------|--------|--------|--------------------------------------|--------|---------|----------------------------------------|--------|--------|--------------------------------------------------------------------|--------|--------|-----------|---------|
| **DECEMBER                  31, 2005**                       |   | $                                 | 56,584 |   |                                 | $      | 861,290 |                                   |   | $      | 305,787                                                            |   |   | $         | (3,569  | ) |   | $ | 1,220,092 |   |
|                                                         |   |                              |   |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| Common                  Stock Dividends                      |   |                              |   |   |                                 |   |    |                                   |   |   | (30,000                                                            | )      |   |      |    |   |   |   | (30,000 | ) |
| Preferred                  Stock Dividends                   |   |                              |   |   |                                 |   |    |                                   |   |   | (255                                                               | )      |   |      |    |   |   |   | (255 | ) |
| **TOTAL**                                                    |   |                              |   |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   | 1,189,837 |   |
|                                                         |   |                              |   |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| **COMPREHENSIVE                  INCOME**                    |   |                              |   |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| **Other                  Comprehensive Loss, Net of Taxes:** |   |                              |   |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| Cash                  Flow Hedges, Net of Tax of $2,712      |   |                              |   |   |                                 |   |    |                                   |   |   |                                                               |   |   |      | (5,036  | ) |   |   | (5,036 | ) |
| **NET                  INCOME**                              |   |                              |   |   |                                 |   |    |                                   |   |   | 120,964                                                            |   |   |      |    |   |   |   | 120,964 |   |
| **TOTAL                  COMPREHENSIVE INCOME**              |   |                              |   |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   | 115,928 |   |
|                                                         |   |                              |   |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| **SEPTEMBER                  30, 2006**                      |   | $                                 | 56,584 |   |                                 | $      | 861,290 |                                   |   | $      | 396,496                                                            |   |   | $         | (8,605  | ) |   | $ | 1,305,765 |   |
|                                                         |   |                              |   |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| **DECEMBER                  31, 2006**                       |   | $                                 | 56,584 |   |                                 | $      | 861,290 |                                   |   | $      | 386,616                                                            |   |   | $         | (15,051 | ) |   | $ | 1,289,439 |   |
|                                                         |   |                              |   |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| FIN                  48 Adoption, Net of Tax                 |   |                              |   |   |                                 |   |    |                                   |   |   | 327                                                                |   |   |      |    |   |   |   | 327 |   |
| Common                  Stock Dividends                      |   |                              |   |   |                                 |   |    |                                   |   |   | (30,000                                                            | )      |   |      |    |   |   |   | (30,000 | ) |
| Preferred                  Stock Dividends                   |   |                              |   |   |                                 |   |    |                                   |   |   | (255                                                               | )      |   |      |    |   |   |   | (255 | ) |
| Gain                  on Reacquired Preferred Stock          |   |                              |   |   |                                 |   | 1       |                                   |   |   |                                                               |   |   |      |    |   |   |   | 1 |   |
| **TOTAL**                                                    |   |                              |   |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   | 1,259,512 |   |
|                                                         |   |                              |   |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| **COMPREHENSIVE                  INCOME**                    |   |                              |   |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| **Other                  Comprehensive Loss, Net of Taxes:** |   |                              |   |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| Cash                  Flow Hedges, Net of Tax of $941        |   |                              |   |   |                                 |   |    |                                   |   |   |                                                               |   |   |      | (1,747  | ) |   |   | (1,747 | ) |
| **NET                  INCOME**                              |   |                              |   |   |                                 |   |    |                                   |   |   | 108,622                                                            |   |   |      |    |   |   |   | 108,622 |   |
| **TOTAL                  COMPREHENSIVE INCOME**              |   |                              |   |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   | 106,875 |   |
|                                                         |   |                              |   |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| **SEPTEMBER                  30, 2007**                      |   | $                                 | 56,584 |   |                                 | $      | 861,291 |                                   |   | $      | 465,310                                                            |   |   | $         | (16,798 | ) |   | $ | 1,366,387 |   |

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

----

**INDIANA        MICHIGAN POWER COMPANY AND SUBSIDIARIES**

**CONDENSED        CONSOLIDATED BALANCE SHEETS**

**ASSETS**

**September        30, 2007 and December 31, 2006**

**(in        thousands)**

**(Unaudited)**

|                                                                  |   | **2007** |      |   | **2006** |   |
|-----------------------------------------------------------------------|--------|----------|-----------|--------|----------|--------|
| **CURRENT                  ASSETS**                                   |   |     |      |   |     |   |
| Cash                  and Cash Equivalents                            |   | $        | 2,190     |   |     | $      | 1,369 |   |
| Accounts                  Receivable:                                 |   |     |      |   |     |   |   |   |
|                    Customers                                     |   |     | 74,743    |   |     |   | 82,102 |   |
|                    Affiliated Companies                          |   |     | 61,771    |   |     |   | 108,288 |   |
|                    Accrued Unbilled Revenues                     |   |     | 12,424    |   |     |   | 2,206 |   |
|                    Miscellaneous                                 |   |     | 1,627     |   |     |   | 1,838 |   |
|                    Allowance for Uncollectible Accounts          |   |     | (863      | )      |     |   | (601 | ) |
|  Total                  Accounts Receivable                      |   |     | 149,702   |   |     |   | 193,833 |   |
| Fuel                                                                  |   |     | 48,261    |   |     |   | 64,669 |   |
| Materials                  and Supplies                               |   |     | 136,332   |   |     |   | 129,953 |   |
| Risk                  Management Assets                               |   |     | 37,351    |   |     |   | 69,752 |   |
| Accrued                  Tax Benefits                                 |   |     | 177       |   |     |   | 27,378 |   |
| Prepayments                  and Other                                |   |     | 17,968    |   |     |   | 15,170 |   |
| **TOTAL**                                                             |   |     | 391,981   |   |     |   | 502,124 |   |
|                                                                  |   |     |      |   |     |   |   |   |
| **PROPERTY,                  PLANT AND EQUIPMENT**                    |   |     |      |   |     |   |   |   |
| Electric:                                                             |   |     |      |   |     |   |   |   |
|                    Production                                    |   |     | 3,402,220 |   |     |   | 3,363,813 |   |
|                    Transmission                                  |   |     | 1,067,434 |   |     |   | 1,047,264 |   |
|                    Distribution                                  |   |     | 1,180,230 |   |     |   | 1,102,033 |   |
| Other                  (including nuclear fuel and coal mining)       |   |     | 558,168   |   |     |   | 529,727 |   |
| Construction                  Work in Progress                        |   |     | 179,597   |   |     |   | 183,893 |   |
| **Total**                                                             |   |     | 6,387,649 |   |     |   | 6,226,730 |   |
| Accumulated                  Depreciation, Depletion and Amortization |   |     | 3,003,588 |   |     |   | 2,914,131 |   |
| **TOTAL                  - NET**                                      |   |     | 3,384,061 |   |     |   | 3,312,599 |   |
|                                                                  |   |     |      |   |     |   |   |   |
| **OTHER                  NONCURRENT ASSETS**                          |   |     |      |   |     |   |   |   |
| Regulatory                  Assets                                    |   |     | 282,020   |   |     |   | 314,805 |   |
| Spent                  Nuclear Fuel and Decommissioning Trusts        |   |     | 1,314,892 |   |     |   | 1,248,319 |   |
| Long-term                  Risk Management Assets                     |   |     | 45,810    |   |     |   | 59,137 |   |
| Deferred                  Charges and Other                           |   |     | 92,710    |   |     |   | 109,453 |   |
| **TOTAL**                                                             |   |     | 1,735,432 |   |     |   | 1,731,714 |   |
|                                                                  |   |     |      |   |     |   |   |   |
| **TOTAL                  ASSETS**                                     |   | $        | 5,511,474 |   |     | $      | 5,546,437 |   |

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

----

**INDIANA        MICHIGAN POWER COMPANY AND SUBSIDIARIES**

**CONDENSED        CONSOLIDATED BALANCE SHEETS**

**LIABILITIES        AND SHAREHOLDERS’ EQUITY**

**September        30, 2007 and December 31, 2006**

**(Unaudited)**

|                                                                            |   | **2007**                            |      |   | **2006** |   |
|---------------------------------------------------------------------------------|--------|-------------------------------------|-----------|--------|----------|--------|
| **CURRENT                  LIABILITIES**                                        |   | **(in                  thousands)** |      |
| Advances                  from Affiliates                                       |   | $                                   | 24,234    |   |     | $      | 91,173 |   |
| Accounts                  Payable:                                              |   |                                |      |   |     |   |   |   |
| General                                                                         |   |                                | 118,010   |   |     |   | 146,733 |   |
| Affiliated                  Companies                                           |   |                                | 44,772    |   |     |   | 65,497 |   |
| Long-term                  Debt Due Within One Year – Nonaffiliated       |   |                                | -         |   |     |   | 50,000 |   |
| Risk                  Management Liabilities                                    |   |                                | 28,340    |   |     |   | 52,083 |   |
| Customer                  Deposits                                              |   |                                | 31,498    |   |     |   | 34,946 |   |
| Accrued                  Taxes                                                  |   |                                | 69,302    |   |     |   | 59,652 |   |
| Other                                                                           |   |                                | 133,966   |   |     |   | 128,461 |   |
| **TOTAL**                                                                       |   |                                | 450,122   |   |     |   | 628,545 |   |
|                                                                            |   |                                |      |   |     |   |   |   |
| **NONCURRENT                  LIABILITIES**                                     |   |                                |      |   |     |   |   |   |
| Long-term                  Debt – Nonaffiliated                           |   |                                | 1,564,811 |   |     |   | 1,505,135 |   |
| Long-term                  Risk Management Liabilities                          |   |                                | 30,717    |   |     |   | 42,641 |   |
| Deferred                  Income Taxes                                          |   |                                | 305,429   |   |     |   | 335,000 |   |
| Regulatory                  Liabilities and Deferred Investment Tax Credits     |   |                                | 757,136   |   |     |   | 753,402 |   |
| Asset                  Retirement Obligations                                   |   |                                | 841,791   |   |     |   | 809,853 |   |
| Deferred                  Credits and Other                                     |   |                                | 187,001   |   |     |   | 174,340 |   |
| **TOTAL**                                                                       |   |                                | 3,686,885 |   |     |   | 3,620,371 |   |
|                                                                            |   |                                |      |   |     |   |   |   |
| **TOTAL                  LIABILITIES**                                          |   |                                | 4,137,007 |   |     |   | 4,248,916 |   |
|                                                                            |   |                                |      |   |     |   |   |   |
| Cumulative                  Preferred Stock Not Subject to Mandatory Redemption |   |                                | 8,080     |   |     |   | 8,082 |   |
|                                                                            |   |                                |      |   |     |   |   |   |
| Commitments                  and Contingencies (Note 4)                         |   |                                |      |   |     |   |   |   |
|                                                                            |   |                                |      |   |     |   |   |   |
| **COMMON                  SHAREHOLDER’S EQUITY**                          |   |                                |      |   |     |   |   |   |
| Common                  Stock – No Par Value:                             |   |                                |      |   |     |   |   |   |
| Authorized                  – 2,500,000 Shares                            |   |                                |      |   |     |   |   |   |
| Outstanding                  – 1,400,000 Shares                           |   |                                | 56,584    |   |     |   | 56,584 |   |
| Paid-in                  Capital                                                |   |                                | 861,291   |   |     |   | 861,290 |   |
| Retained                  Earnings                                              |   |                                | 465,310   |   |     |   | 386,616 |   |
| Accumulated                  Other Comprehensive Income (Loss)                  |   |                                | (16,798   | )      |     |   | (15,051 | ) |
| **TOTAL**                                                                       |   |                                | 1,366,387 |   |     |   | 1,289,439 |   |
|                                                                            |   |                                |      |   |     |   |   |   |
| **TOTAL                  LIABILITIES AND SHAREHOLDERS’ EQUITY**           |   | $                                   | 5,511,474 |   |     | $      | 5,546,437 |   |

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

----

**INDIANA        MICHIGAN POWER COMPANY AND SUBSIDIARIES**

**CONDENSED        CONSOLIDATED STATEMENTS OF CASH FLOWS**

**For        the Nine Months Ended September 30, 2007 and 2006**

**(in        thousands)**

**(Unaudited)**

|                                                                                                                   |   | **2007** |     |   | **2006** |   |
|------------------------------------------------------------------------------------------------------------------------|--------|----------|----------|--------|----------|--------|
| **OPERATING                  ACTIVITIES**                                                                              |   |     |     |   |     |   |
| **Net                  Income**                                                                                        |   | $        | 108,622  |   |     | $      | 120,964 |   |
| **Adjustments                  to Reconcile Net Income to Net Cash Flows from Operating                  Activities:** |   |     |     |   |     |   |   |   |
| Depreciation                  and Amortization                                                                         |   |     | 145,801  |   |     |   | 153,897 |   |
| Deferred                  Income Taxes                                                                                 |   |     | (9,235   | )      |     |   | 7,734 |   |
| Amortization                  (Deferral) of Incremental Nuclear Refueling Outage Expenses,                  Net        |   |     | 14,450   |   |     |   | (20,673 | ) |
| Mark-to-Market                  of Risk Management Contracts                                                           |   |     | 6,226    |   |     |   | (4,915 | ) |
| Amortization                  of Nuclear Fuel                                                                          |   |     | 48,360   |   |     |   | 37,839 |   |
| Change                  in Other Noncurrent Assets                                                                     |   |     | 14,437   |   |     |   | 16,508 |   |
| Change                  in Other Noncurrent Liabilities                                                                |   |     | 33,995   |   |     |   | 35,920 |   |
| **Changes                  in Certain Components of Working Capital:**                                                 |   |     |     |   |     |   |   |   |
| Accounts                  Receivable, Net                                                                              |   |     | 34,569   |   |     |   | 37,368 |   |
| Fuel,                  Materials and Supplies                                                                          |   |     | 14,584   |   |     |   | (20,665 | ) |
| Accounts                  Payable                                                                                      |   |     | (27,015  | )      |     |   | 29,483 |   |
| Customer                  Deposits                                                                                     |   |     | (3,448   | )      |     |   | (14,315 | ) |
| Accrued                  Taxes, Net                                                                                    |   |     | 41,243   |   |     |   | 28,292 |   |
| Other                  Current Assets                                                                                  |   |     | (3,459   | )      |     |   | 20,997 |   |
| Other                  Current Liabilities                                                                             |   |     | 2,282    |   |     |   | 25,489 |   |
| **Net                  Cash Flows From Operating Activities**                                                          |   |     | 421,412  |   |     |   | 453,923 |   |
|                                                                                                                   |   |     |     |   |     |   |   |   |
| **INVESTING                  ACTIVITIES**                                                                              |   |     |     |   |     |   |   |   |
| Construction                  Expenditures                                                                             |   |     | (191,110 | )      |     |   | (240,806 | ) |
| Purchases                  of Investment Securities                                                                    |   |     | (561,509 | )      |     |   | (559,803 | ) |
| Sales                  of Investment Securities                                                                        |   |     | 505,620  |   |     |   | 517,017 |   |
| Acquisitions                  of Nuclear Fuel                                                                          |   |     | (73,112  | )      |     |   | (72,614 | ) |
| Other                                                                                                                  |   |     | 670      |   |     |   | 3,344 |   |
| **Net                  Cash Flows Used For Investing Activities**                                                      |   |     | (319,441 | )      |     |   | (352,862 | ) |
|                                                                                                                   |   |     |     |   |     |   |   |   |
| **FINANCING                  ACTIVITIES**                                                                              |   |     |     |   |     |   |   |   |
| Issuance                  of Long-term Debt – Nonaffiliated                                                      |   |     | -        |   |     |   | 49,745 |   |
| Change                  in Advances from Affiliates, Net                                                               |   |     | (66,939  | )      |     |   | (66,086 | ) |
| Retirement                  of Long-term Debt – Nonaffiliated                                                    |   |     | -        |   |     |   | (50,000 | ) |
| Retirement                  of Cumulative Preferred Stock                                                              |   |     | (2       | )      |     |   | (1 | ) |
| Principal                  Payments for Capital Lease Obligations                                                      |   |     | (3,954   | )      |     |   | (4,612 | ) |
| Dividends                  Paid on Common Stock                                                                        |   |     | (30,000  | )      |     |   | (30,000 | ) |
| Dividends                  Paid on Cumulative Preferred Stock                                                          |   |     | (255     | )      |     |   | (255 | ) |
| **Net                  Cash Flows Used For Financing Activities**                                                      |   |     | (101,150 | )      |     |   | (101,209 | ) |
|                                                                                                                   |   |     |     |   |     |   |   |   |
| **Net                  Increase (Decrease) in Cash and Cash Equivalents**                                              |   |     | 821      |   |     |   | (148 | ) |
| **Cash                  and Cash Equivalents at Beginning of Period**                                                  |   |     | 1,369    |   |     |   | 854 |   |
| **Cash                  and Cash Equivalents at End of Period**                                                        |   | $        | 2,190    |   |     | $      | 706 |   |
|                                                                                                                   |   |     |     |   |     |   |   |   |
| **SUPPLEMENTARY                  INFORMATION**                                                                         |   |     |     |   |     |   |   |   |
| Cash                  Paid for Interest, Net of Capitalized Amounts                                                    |   | $        | 49,628   |   |     | $      | 37,708 |   |
| Net                  Cash Paid for Income Taxes                                                                        |   |     | 14,395   |   |     |   | 20,180 |   |
| Noncash                  Acquisitions Under Capital Leases                                                             |   |     | 5,847    |   |     |   | 4,359 |   |
| Construction                  Expenditures Included in Accounts Payable at September 30,                               |   |     | 23,935   |   |     |   | 29,755 |   |
| Acquisition                  of Nuclear Fuel in Accounts Payable at September 30,                                      |   |     | 691      |   |     |   | - |   |

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

----

**INDIANA        MICHIGAN POWER COMPANY AND SUBSIDIARIES**

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

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

----

**OHIO        POWER COMPANY CONSOLIDATED**

----

**OHIO        POWER COMPANY CONSOLIDATED**

**MANAGEMENT’S        FINANCIAL DISCUSSION AND ANALYSIS**

**Results        of Operations**

**Reconciliation        of Third Quarter of 2006 to Third Quarter of 2007**

**Net        Income**

**(in        millions)**

| **Third                  Quarter of 2006**                        |   |   |   |   | $      | 83     |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                  Margins                                   |   |   | 30     |   |   |   |   |   |
| Off-system                  Sales                                 |   |   | (7     | )      |   |   |   |   |
| Transmission                  Revenues, Net                       |   |   | (15    | )      |   |   |   |   |
| Other                                                             |   |   | (1     | )      |   |   |   |   |
| **Total                  Change in Gross Margin**                 |   |   |   |   |   |   | 7      |   |
|                                                              |   |   |   |   |   |   |   |   |
| **Changes                  in Operating Expenses and Other:**     |   |   |   |   |   |   |   |   |
| Other                  Operation and Maintenance                  |   |   | (4     | )      |   |   |   |   |
| Depreciation                  and Amortization                    |   |   | (2     | )      |   |   |   |   |
| Other                  Income, Net                                |   |   | (1     | )      |   |   |   |   |
| Interest                  Expense                                 |   |   | (11    | )      |   |   |   |   |
| **Total                  Change in Operating Expenses and Other** |   |   |   |   |   |   | (18    | ) |
|                                                              |   |   |   |   |   |   |   |   |
| Income                  Tax Expense                               |   |   |   |   |   |   | 3      |   |
|                                                              |   |   |   |   |   |   |   |   |
| **Third                  Quarter of 2007**                        |   |   |   |   |   | $      | 75     |   |

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| · | Retail                  Margins increased $30 million partially due to a $13 million increase                  in                  industrial revenue primarily due to the addition of Ormet, a major                  industrial customer, effective January 1, 2007.  See “Ormet”                  section of Note 3.  Retail Margins also increased due to a $3                  million increase in rate revenues primarily related to an $8 million                  increase in OPCo’s RSP partially offset by a $3 million decrease related                  to rate recovery of IGCC preconstruction costs.  See “Ohio Rate                  Matters” section of Note 3.  The decrease in rate recovery of                  IGCC preconstruction costs was offset by the decreased amortization                  of                  deferred expenses in Depreciation and Amortization. |
| · | Margins                  from Off-system Sales decreased $7 million primarily due to a $10                  million                  decrease related to OPCo’s purchase power and sale agreement with Dow                  Chemical Company (Dow) which ended in November 2006 and a decrease                  in                  OPCo’s allocated share of off-system sales revenue due to an affiliate’s                  new peak.  These decreases were offset by higher sales volumes                  and power prices in the east, benefits from AEP’s eastern natural gas                  fleet, and higher trading margins.                                                                                                                                                                                                                                                                                              |
| · | Transmission                  Revenues, Net decreased $15 million primarily due to PJM’s revision of its                  pricing methodology for transmission line losses to marginal-loss                  pricing                  effective June 1, 2007.  See “PJM Marginal-Loss Pricing” section                  of Note 3.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |

| · | Other                  Operation and Maintenance expenses increased $4 million primarily                  due                  to:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | A                  $17 million increase due to the settlement agreement regarding                  alleged                  violations of the NSR provisions of the CAA.  The $17 million                  represents OPCo’s allocation of the settlement.  See “Federal                  EPA Complaint and Notice of Violation” section of Note                  4. |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | A                  $7 million increase in overhead line expenses due to the 2006 recognition                  of a regulatory asset related to PUCO orders regarding distribution                  service reliability and restoration costs. |
|   | These                  increases were partially offset by:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | A                  $10 million decrease due to the absence of maintenance and rental                  expenses                  related to OPCo’s purchase power and sale agreement with Dow which ended                  in November 2006.  The decrease in Other Operation and                  Maintenance expenses related to Dow were offset by a corresponding                  decrease in margins from Off-system Sales. |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | A                  $3 million decrease in maintenance from planned and forced outages                  at the                  Muskingum River and Kammer Plants related to boiler tube inspections                  in                  2006. |
| · | Depreciation                  and Amortization increased $2 million primarily due to a $7 million                  increase in depreciation related to environmental improvements                  placed in                  service at the Mitchell Plant.  This increase was offset by                  decreased amortization of IGCC preconstruction costs of $3 million                  and a                  $2 million amortization of a regulatory liability related to                  Ormet.  See “Ormet” section of Note 3.  The decrease                  in amortization of IGCC preconstruction costs was offset by a                  corresponding decrease in Retail Margins. |
| · | Interest                  Expense increased $11 million due to additional long-term debt                  and a                  decrease in the debt component of AFUDC as a result of Mitchell                  Plant                  environmental improvements placed in service.                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| · | Income                  Tax Expense decreased $3 million primarily due to a decrease in                  pretax                  book income offset by changes in certain book/tax differences accounted                  for on a flow-through basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

**Reconciliation        of Nine Months Ended September 30, 2006 to Nine Months Ended September 30,        2007**

**Net        Income**

**(in        millions)**

| **Nine                  Months Ended September 30, 2006**         |   |   |   |   | $      | 202    |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                  Margins                                   |   |   | 152    |   |   |   |   |   |
| Off-system                  Sales                                 |   |   | (23    | )      |   |   |   |   |
| Transmission                  Revenues, Net                       |   |   | (26    | )      |   |   |   |   |
| Other                                                             |   |   | (16    | )      |   |   |   |   |
| **Total                  Change in Gross Margin**                 |   |   |   |   |   |   | 87     |   |
|                                                              |   |   |   |   |   |   |   |   |
| **Changes                  in Operating Expenses and Other:**     |   |   |   |   |   |   |   |   |
| Other                  Operation and Maintenance                  |   |   | 1      |   |   |   |   |   |
| Depreciation                  and Amortization                    |   |   | (14    | )      |   |   |   |   |
| Taxes                  Other Than Income Taxes                    |   |   | (2     | )      |   |   |   |   |
| Other                  Income, Net                                |   |   | (1     | )      |   |   |   |   |
| Interest                  Expense                                 |   |   | (23    | )      |   |   |   |   |
| **Total                  Change in Operating Expenses and Other** |   |   |   |   |   |   | (39    | ) |
|                                                              |   |   |   |   |   |   |   |   |
| Income                  Tax Expense                               |   |   |   |   |   |   | (21    | ) |
|                                                              |   |   |   |   |   |   |   |   |
| **Nine                  Months Ended September 30, 2007**         |   |   |   |   |   | $      | 229    |   |

| · | Retail                  Margins increased $152 million primarily due to the                  following:                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | A                  $42 million increase in capacity settlements under the Interconnection                  Agreement related to certain affiliates’ peaks and the June 2006                  expiration of OPCo’s supplemental capacity and energy obligation to                  Buckeye Power, Inc. under the Cardinal Station                  Agreement. |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | A                  $38 million increase in rate revenues primarily related to a $26                  million                  increase in OPCo’s RSP, a $9 million increase related to rate recovery of                  storm costs and a $3 million increase related to rate recovery                  of IGCC                  preconstruction costs.  See “Ohio Rate Matters” section of Note                  3.  The increase in rate recovery of storm costs was offset by                  the amortization of deferred expenses in Other Operation and                  Maintenance.  The increase in rate recovery of IGCC                  preconstruction costs was offset by the amortization of deferred                  expenses                  in Depreciation and Amortization. |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | A                  $31 million increase in industrial revenue due to the addition                  of Ormet, a                  major industrial customer, effective January 1, 2007.  See                  “Ormet” section of Note 3. |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | A                  $20 million increase in residential and commercial revenue primarily                  due                  to a 26% increase in cooling degree days and a 27% increase in                  heating                  degree days. |
| · | Margins                  from Off-system Sales decreased $23 million primarily due to a                  decrease in                  OPCo’s allocated share of off-system sales revenue due to an affiliate’s                  new peak and a $20 million decrease related to OPCo’s purchase power and                  sale agreement with Dow Chemical Company (Dow) which ended in November                  2006.  Higher trading margins helped to offset a portion of the                  decrease over last year. |
| · | Transmission                  Revenues, Net decreased $26 million primarily due to PJM’s revision of its                  pricing methodology for transmission line losses to marginal-loss                  pricing                  effective June 1, 2007.  See “PJM Marginal-Loss Pricing” section                  of Note 3.                                                                                                                                                                                          |
| · | Other                  revenues decreased $16 million primarily due to a $7 million decrease                  related to the April 2006 expiration of an obligation to sell supplemental                  capacity and energy to Buckeye Power, Inc. under the Cardinal Station                  Agreement and a $5 million decrease in gains on sales of emission                  allowances.                                                                                                                                                         |

| · | Other                  Operation and Maintenance expenses decreased $1 million primarily                  due to                  the following:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | A                  $21 million decrease in maintenance from planned and forced outages                  at the                  Muskingum River, Kammer and Sporn Plants related to boiler tube                  inspections in 2006. |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | A                  $20 million decrease in maintenance and rental expenses related                  to OPCo’s                  purchase power and sale agreement with Dow which ended in November                  2006.  This decrease was offset by a corresponding decrease in                  margins from Off-system Sales. |
|   | These                  decreases were partially offset by:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | A                  $17 million increase due to the settlement agreement regarding                  alleged                  violations of the NSR provisions of the CAA.  See “Federal EPA                  Complaint and Notice of Violation” section of Note 4. |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | A                  $13 million increase in overhead line expenses due to the 2006                  recognition                  of a regulatory asset related to PUCO orders regarding distribution                  service reliability and restoration costs and the amortization                  of deferred                  storm expenses recovered through a cost-recovery rider.  The                  increase in the amortization of deferred storm expenses was offset                  by a                  corresponding increase in Retail Margins. |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | A                  $7 million increase in removal costs related to planned and forced                  outages                  at the Gavin, Mitchell and Cardinal Plants. |
| · | Depreciation                  and Amortization increased $14 million primarily due to a $16 million                  increase in depreciation related to environmental improvements                  placed in                  service at the Mitchell Plant and the amortization of IGCC preconstruction                  costs of $3 million in 2007.  These increases were partially                  offset by a $5 million decrease related to the amortization of                  a                  regulatory liability related to Ormet.  See “Ormet” section of                  Note 3.  The increase in amortization of IGCC preconstruction                  costs was offset by a corresponding increase in Retail                  Margins. |

| · | Interest                  Expense increased $23 million primarily due to additional long-term                  debt.                                                   |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Income                  Tax Expense increased $21 million primarily due to an increase                  in pretax                  book income and state income taxes. |

**Financial        Condition**

**Credit        Ratings**

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

**Cash        Flow**

|                                                                  |   | **2007**                            |     |   | **2006** |   |
|-----------------------------------------------------------------------|--------|-------------------------------------|----------|--------|----------|--------|
|                                                                  |   | **(in                  thousands)** |     |
| **Cash                  and Cash Equivalents at Beginning of Period** |   | $                                   | 1,625    |   |     | $      | 1,240 |   |
| Cash                  Flows From (Used For):                          |   |                                |     |   |     |   |   |   |
| Operating                  Activities                                 |   |                                | 402,980  |   |     |   | 470,180 |   |
| Investing                  Activities                                 |   |                                | (743,260 | )      |     |   | (703,550 | ) |
| Financing                  Activities                                 |   |                                | 351,381  |   |     |   | 233,455 |   |
| Net                  Increase in Cash and Cash Equivalents            |   |                                | 11,101   |   |     |   | 85 |   |
| **Cash                  and Cash Equivalents at End of Period**       |   | $                                   | 12,726   |   |     | $      | 1,325 |   |

*Operating        Activities*

*Investing        Activities*

*Financing        Activities*

**Financing        Activity**

| **Type                  of Debt**        |   | **Principal****Amount**             |    |   | **Interest                  Rate** |     | **Due                  Date** |
|------------------------------------------|--------|-------------------------------------|---------|--------|------------------------------------|----------|-------------------------------|
|                                     |   | **(in                  thousands)** |    |   | **(%)**                            |     |                          |
| Pollution                  Control Bonds |   | $                                   | 65,000  |   |                               |     | 4.90                          |   | 2037 |
| Senior                  Unsecured Notes  |   |                                | 400,000 |   |                               | Variable |                          | 2010 |

| **Type                  of Debt**                    |   | **Principal****Amount**             |   |   | **Interest                  Rate** |   | **Due                  Date** |
|------------------------------------------------------|--------|-------------------------------------|--------|--------|------------------------------------|--------|-------------------------------|
|                                                 |   | **(in                  thousands)** |   |   | **(%)**                            |   |                          |
| Notes                  Payable – Nonaffiliated |   | $                                   | 2,927  |   |                               |   | 6.81                          |   | 2008 |
| Notes                  Payable – Nonaffiliated |   |                                | 6,000  |   |                               |   | 6.27                          |   | 2009 |

**Liquidity**

**Summary        Obligation Information**

**Significant        Factors**

***Litigation        and Regulatory Activity***

**Critical        Accounting Estimates**

**Adoption        of New Accounting Pronouncements**

----

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

**Market        Risks**

**MTM        Risk Management Contract Net Assets**

**Reconciliation        of MTM Risk Management Contracts to**

**Condensed        Consolidated Balance Sheet**

**As        of September 30, 2007**

**(in        thousands)**

|                                                                                              |   | **MTM                  Risk Management Contracts** |    |   | **Cash                  Flow Hedges** |   |   | **DETM                  Assignment (a)** |   |   | **Total** |   |
|---------------------------------------------------------------------------------------------------|--------|----------------------------------------------------|---------|--------|---------------------------------------|--------|--------|------------------------------------------|--------|--------|-----------|--------|
| Current                  Assets                                                                   |   | $                                                  | 45,622  |   |                                  | $      | 1,401  |                                     |   | $      | -         |   |   | $ | 47,023 |   |
| Noncurrent                  Assets                                                                |   |                                               | 55,412  |   |                                  |   | 987    |                                     |   |   | -         |   |   |   | 56,399 |   |
| **Total                  MTM Derivative Contract Assets**                                         |   |                                               | 101,034 |   |                                  |   | 2,388  |                                     |   |   | -         |   |   |   | 103,422 |   |
|                                                                                              |   |                                               |    |   |                                  |   |   |                                     |   |   |      |   |   |   |   |   |
| Current                  Liabilities                                                              |   |                                               | (35,178 | )      |                                  |   | (229   | )                                        |   |   | (2,616    | )      |   |   | (38,023 | ) |
| Noncurrent                  Liabilities                                                           |   |                                               | (33,907 | )      |                                  |   | (402   | )                                        |   |   | (4,370    | )      |   |   | (38,679 | ) |
| **Total                  MTM Derivative Contract****Liabilities**                                 |   |                                               | (69,085 | )      |                                  |   | (631   | )                                        |   |   | (6,986    | )      |   |   | (76,702 | ) |
|                                                                                              |   |                                               |    |   |                                  |   |   |                                     |   |   |      |   |   |   |   |   |
| **Total                  MTM Derivative Contract Net Assets                  (Liabilities)** |   | $                                                  | 31,949  |   |                                  | $      | 1,757  |                                     |   | $      | (6,986    | )      |   | $ | 26,720 |   |

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

**MTM        Risk Management Contract Net Assets**

**Nine        Months Ended September 30, 2007**

**(in        thousands)**

| **Total                  MTM Risk Management Contract Net Assets at December 31,                  2006**                                           |   | $      | 33,042 |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| (Gain)                  Loss from Contracts Realized/Settled During the Period and Entered                  in a                  Prior Period     |   |   | (6,663 | )      |
| Fair                  Value of New Contracts at Inception When Entered During the Period                  (a)                                      |   |   | 3,267  |   |
| Net                  Option Premiums Paid/(Received) for Unexercised or Unexpired Option                  Contracts Entered During the Period |   |   | 340    |   |
| Change                  in Fair Value Due to Valuation Methodology Changes on Forward                  Contracts                                   |   |   | -      |   |
| Changes                  in Fair Value Due to Market Fluctuations During the Period                  (b)                                           |   |   | 2,411  |   |
| Changes                  in Fair Value Allocated to Regulated Jurisdictions (c)                                                                    |   |   | (448   | )      |
| **Total                  MTM Risk Management Contract Net Assets**                                                                                 |   |   | 31,949 |   |
| Net                  Cash Flow Hedge Contracts                                                                                                     |   |   | 1,757  |   |
| DETM                  Assignment (d)                                                                                                               |   |   | (6,986 | )      |
| **Total                  MTM Risk Management Contract Net Assets at September 30,                  2007**                                          |   | $      | 26,720 |   |

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

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

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

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

**Risk        Management Contract Net Assets**

**Fair        Value of Contracts as of September 30, 2007**

**(in        thousands)**

|                                                                                                                         |   | **Remainder****2007** |   | **2008** |   | **2009** |   | **2010** |   | **2011** |   | **After****2011** |   | **Total** |   |
|------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|-------------------|--------|-----------|--------|
| Prices                  Actively Quoted –     Exchange Traded                  Contracts |   | $                     | 2,927  |     | $      | (4,308   | )      | $        | 857    |     | $      | (30               | )      | $         | -      |   | $ | - |   | $ | (554 | ) |
| Prices                  Provided by Other External  Sources                  – OTC Broker Quotes (a)    |   |                  | 110    |     |   | 11,983   |   |     | 9,396  |     |   | 6,954             |   |      | -      |   |   | - |   |   | 28,443 |   |
| Prices                  Based on Models and Other   Valuation Methods                  (b)                    |   |                  | 42     |     |   | (557     | )      |     | 661    |     |   | 1,132             |   |      | 1,424  |   |   | 1,358 |   |   | 4,060 |   |
| **Total**                                                                                                                    |   | $                     | 3,079  |     | $      | 7,118    |   | $        | 10,914 |     | $      | 8,056             |   | $         | 1,424  |   | $ | 1,358 |   | $ | 31,949 |   |

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

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

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

**Nine        Months Ended September 30, 2007**

**(in        thousands)**

|                                                                                         |   | **Power** |   |   | **Foreign****Currency** |   |   | **Interest                  Rate** |   |   | **Total** |   |
|----------------------------------------------------------------------------------------------|--------|-----------|--------|--------|-------------------------|--------|--------|------------------------------------|--------|--------|-----------|--------|
| **Beginning                  Balance in AOCI December 31, 2006**                             |   | $         | 4,040  |   |                    | $      | (331   | )                                  |   | $      | 3,553     |   |   | $ | 7,262 |   |
| Changes                  in Fair Value                                                       |   |      | 537    |   |                    |   | (4     | )                                  |   |   | (139      | )      |   |   | 394 |   |
| Reclassifications                  from AOCI to Net Income for Cash Flow Hedges Settled |   |      | (3,280 | )      |                    |   | 10     |                               |   |   | (610      | )      |   |   | (3,880 | ) |
| **Ending                  Balance in AOCI September 30, 2007**                               |   | $         | 1,297  |   |                    | $      | (325   | )                                  |   | $      | 2,804     |   |   | $ | 3,776 |   |

**Credit        Risk**

**VaR        Associated with Risk Management Contracts**

| **Nine                  Months Ended September 30, 2007** |   |   | **Twelve                  Months Ended December 31, 2006** |   |
|-----------------------------------------------------------|--------|--------|------------------------------------------------------------|--------|
| **(in                  thousands)**                       |   |   | **(in                  thousands)**                        |   |
| **End**                                                   |   |   | **High**                                                   |   |   | **Average** |   |   | **Low** |   |   | **End** |   |   | **High** |   |   | **Average** |   |   | **Low** |   |
| $                                                         | 208    |   |                                                       | $      | 2,054 |   |   | $ | 594 |   |   | $ | 159 |   |   | $ | 573 |   |   | $ | 1,451 |   |   | $ | 500 |   |   | $ | 271 |   |

**VaR        Associated with Debt Outstanding**

----

**OHIO        POWER COMPANY CONSOLIDATED**

**CONDENSED        CONSOLIDATED STATEMENTS OF INCOME**

**For        the Three and Nine Months Ended September 30, 2007 and        2006**

**(in        thousands)**

**(Unaudited)**

|                                                                     |   | **Three                  Months Ended** |    |   | **Nine                  Months Ended** |   |
|--------------------------------------------------------------------------|--------|-----------------------------------------|---------|--------|----------------------------------------|--------|
|                                                                     |   | **2007**                                |    |   | **2006**                               |   |   | **2007** |   |   | **2006** |   |
| **REVENUES**                                                             |   |                                    |    |   |                                   |   |   |   |   |   |   |   |
| Electric                  Generation, Transmission and Distribution      |   | $                                       | 543,404 |   |                                   | $      | 558,490 |   |   | $ | 1,516,383 |   |   | $ | 1,556,193 |   |
| Sales                  to AEP Affiliates                                 |   |                                    | 205,193 |   |                                   |   | 198,640 |   |   |   | 564,292 |   |   |   | 502,547 |   |
| Other                  - Affiliated                                      |   |                                    | 5,749   |   |                                   |   | 4,400 |   |   |   | 16,604 |   |   |   | 11,975 |   |
| Other                  - Nonaffiliated                                   |   |                                    | 3,397   |   |                                   |   | 3,378 |   |   |   | 10,838 |   |   |   | 12,806 |   |
| **TOTAL**                                                                |   |                                    | 757,743 |   |                                   |   | 764,908 |   |   |   | 2,108,117 |   |   |   | 2,083,521 |   |
|                                                                     |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| **EXPENSES**                                                             |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| Fuel                  and Other Consumables Used for Electric Generation |   |                                    | 254,310 |   |                                   |   | 280,593 |   |   |   | 653,941 |   |   |   | 727,261 |   |
| Purchased                  Electricity for Resale                        |   |                                    | 33,178  |   |                                   |   | 28,324 |   |   |   | 85,900 |   |   |   | 76,351 |   |
| Purchased                  Electricity from AEP Affiliates               |   |                                    | 43,147  |   |                                   |   | 35,423 |   |   |   | 92,858 |   |   |   | 92,086 |   |
| Other                  Operation                                         |   |                                    | 102,850 |   |                                   |   | 100,265 |   |   |   | 292,809 |   |   |   | 286,083 |   |
| Maintenance                                                              |   |                                    | 45,663  |   |                                   |   | 44,503 |   |   |   | 155,428 |   |   |   | 163,443 |   |
| Depreciation                  and Amortization                           |   |                                    | 84,400  |   |                                   |   | 82,755 |   |   |   | 253,455 |   |   |   | 239,431 |   |
| Taxes                  Other Than Income Taxes                           |   |                                    | 47,506  |   |                                   |   | 47,945 |   |   |   | 146,211 |   |   |   | 143,634 |   |
| **TOTAL**                                                                |   |                                    | 611,054 |   |                                   |   | 619,808 |   |   |   | 1,680,602 |   |   |   | 1,728,289 |   |
|                                                                     |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| **OPERATING                  INCOME**                                    |   |                                    | 146,689 |   |                                   |   | 145,100 |   |   |   | 427,515 |   |   |   | 355,232 |   |
|                                                                     |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| **Other                  Income (Expense):**                             |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                  Income                                         |   |                                    | 108     |   |                                   |   | 840 |   |   |   | 992 |   |   |   | 2,072 |   |
| Carrying                  Costs Income                                   |   |                                    | 3,644   |   |                                   |   | 3,502 |   |   |   | 10,779 |   |   |   | 10,336 |   |
| Allowance                  for Equity Funds Used During Construction     |   |                                    | 590     |   |                                   |   | 755 |   |   |   | 1,607 |   |   |   | 1,891 |   |
| Interest                  Expense                                        |   |                                    | (36,262 | )      |                                   |   | (24,610 | ) |   |   | (95,927 | ) |   |   | (72,461 | ) |
|                                                                     |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| **INCOME                  BEFORE INCOME TAXES**                          |   |                                    | 114,769 |   |                                   |   | 125,587 |   |   |   | 344,966 |   |   |   | 297,070 |   |
|                                                                     |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| Income                  Tax Expense                                      |   |                                    | 39,507  |   |                                   |   | 42,245 |   |   |   | 116,103 |   |   |   | 95,297 |   |
|                                                                     |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| **NET                  INCOME**                                          |   |                                    | 75,262  |   |                                   |   | 83,342 |   |   |   | 228,863 |   |   |   | 201,773 |   |
|                                                                     |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| Preferred                  Stock Dividend Requirements                   |   |                                    | 183     |   |                                   |   | 183 |   |   |   | 549 |   |   |   | 549 |   |
|                                                                     |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| **EARNINGS                  APPLICABLE TO COMMON STOCK**                 |   | $                                       | 75,079  |   |                                   | $      | 83,159 |   |   | $ | 228,314 |   |   | $ | 201,224 |   |

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

----

** OHIO        POWER COMPANY CONSOLIDATED**

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

**EQUITY        AND COMPREHENSIVE INCOME (LOSS)**

**For        the Nine Months Ended September 30, 2007 and 2006**

**(in        thousands)**

**(Unaudited)**

|                                                                |   | **Common                  Stock** |    |   | **Paid-in                  Capital** |   |    | **Retained                  Earnings** |   |   | **Accumulated                  Other Comprehensive Income (Loss)** |   |   | **Total** |    |
|---------------------------------------------------------------------|--------|-----------------------------------|---------|--------|--------------------------------------|--------|---------|----------------------------------------|--------|--------|--------------------------------------------------------------------|--------|--------|-----------|---------|
| **DECEMBER                  31, 2005**                              |   | $                                 | 321,201 |   |                                 | $      | 466,637 |                                   |   | $      | 979,354                                                            |   |   | $         | 755     |   |   | $ | 1,767,947 |   |
|                                                                |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| Capital                  Contribution From Parent                   |   |                              |    |   |                                 |   | 70,000  |                                   |   |   |                                                               |   |   |      |    |   |   |   | 70,000 |   |
| Preferred                  Stock Dividends                          |   |                              |    |   |                                 |   |    |                                   |   |   | (549                                                               | )      |   |      |    |   |   |   | (549 | ) |
| Gain                  on Reacquired Preferred Stock                 |   |                              |    |   |                                 |   | 2       |                                   |   |   |                                                               |   |   |      |    |   |   |   | 2 |   |
| **TOTAL**                                                           |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   | 1,837,400 |   |
|                                                                |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| **COMPREHENSIVE                  INCOME**                           |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| **Other                  Comprehensive Income, Net of Taxes:** |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| Cash                  Flow Hedges, Net of Tax of $3,393             |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      | 6,300   |   |   |   | 6,300 |   |
| **NET                  INCOME**                                     |   |                              |    |   |                                 |   |    |                                   |   |   | 201,773                                                            |   |   |      |    |   |   |   | 201,773 |   |
| **TOTAL                  COMPREHENSIVE INCOME**                     |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   | 208,073 |   |
|                                                                |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| **SEPTEMBER                  30, 2006**                             |   | $                                 | 321,201 |   |                                 | $      | 536,639 |                                   |   | $      | 1,180,578                                                          |   |   | $         | 7,055   |   |   | $ | 2,045,473 |   |
|                                                                |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| **DECEMBER                  31, 2006**                              |   | $                                 | 321,201 |   |                                 | $      | 536,639 |                                   |   | $      | 1,207,265                                                          |   |   | $         | (56,763 | ) |   | $ | 2,008,342 |   |
|                                                                |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| FIN                  48 Adoption, Net of Tax                        |   |                              |    |   |                                 |   |    |                                   |   |   | (5,380                                                             | )      |   |      |    |   |   |   | (5,380 | ) |
| Preferred                  Stock Dividends                          |   |                              |    |   |                                 |   |    |                                   |   |   | (549                                                               | )      |   |      |    |   |   |   | (549 | ) |
| **TOTAL**                                                           |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   | 2,002,413 |   |
|                                                                |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| **COMPREHENSIVE                  INCOME**                           |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| **Other                  Comprehensive Loss, Net of Taxes:**        |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| Cash                  Flow Hedges, Net of Tax of $1,878             |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      | (3,486  | ) |   |   | (3,486 | ) |
| **NET                  INCOME**                                     |   |                              |    |   |                                 |   |    |                                   |   |   | 228,863                                                            |   |   |      |    |   |   |   | 228,863 |   |
| **TOTAL                  COMPREHENSIVE INCOME**                     |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   | 225,377 |   |
|                                                                |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| **SEPTEMBER                  30, 2007**                             |   | $                                 | 321,201 |   |                                 | $      | 536,639 |                                   |   | $      | 1,430,199                                                          |   |   | $         | (60,249 | ) |   | $ | 2,227,790 |   |

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

----

**OHIO        POWER COMPANY CONSOLIDATED**

**CONDENSED        CONSOLIDATED BALANCE SHEETS**

**ASSETS**

**September        30, 2007 and December 31, 2006**

**(in        thousands)**

**(Unaudited)**

|                                                         |   | **2007** |      |   | **2006** |   |
|--------------------------------------------------------------|--------|----------|-----------|--------|----------|--------|
| **CURRENT                  ASSETS**                          |   |     |      |   |     |   |
| Cash                  and Cash Equivalents                   |   | $        | 12,726    |   |     | $      | 1,625 |   |
| Accounts                  Receivable:                        |   |     |      |   |     |   |   |   |
|                    Customers                            |   |     | 96,217    |   |     |   | 86,116 |   |
|                    Affiliated Companies                 |   |     | 102,771   |   |     |   | 108,214 |   |
|                    Accrued Unbilled Revenues            |   |     | 28,193    |   |     |   | 10,106 |   |
|                    Miscellaneous                        |   |     | 1,235     |   |     |   | 1,819 |   |
|                    Allowance for Uncollectible Accounts |   |     | (1,079    | )      |     |   | (824 | ) |
|  Total                  Accounts Receivable             |   |     | 227,337   |   |     |   | 205,431 |   |
| Fuel                                                         |   |     | 125,583   |   |     |   | 120,441 |   |
| Materials                  and Supplies                      |   |     | 82,377    |   |     |   | 74,840 |   |
| Emission                  Allowances                         |   |     | 6,218     |   |     |   | 10,388 |   |
| Risk                  Management Assets                      |   |     | 47,023    |   |     |   | 86,947 |   |
| Accrued                  Tax Benefits                        |   |     | 8,476     |   |     |   | 22,909 |   |
| Prepayments                  and Other                       |   |     | 27,332    |   |     |   | 18,416 |   |
| **TOTAL**                                                    |   |     | 537,072   |   |     |   | 540,997 |   |
|                                                         |   |     |      |   |     |   |   |   |
| **PROPERTY,                  PLANT AND EQUIPMENT**           |   |     |      |   |     |   |   |   |
| Electric:                                                    |   |     |      |   |     |   |   |   |
|                    Production                           |   |     | 5,553,893 |   |     |   | 4,413,340 |   |
|                    Transmission                         |   |     | 1,059,631 |   |     |   | 1,030,934 |   |
|                    Distribution                         |   |     | 1,372,724 |   |     |   | 1,322,103 |   |
| Other                                                        |   |     | 312,305   |   |     |   | 299,637 |   |
| Construction                  Work in Progress               |   |     | 676,841   |   |     |   | 1,339,631 |   |
| **Total**                                                    |   |     | 8,975,394 |   |     |   | 8,405,645 |   |
| Accumulated                  Depreciation and Amortization   |   |     | 2,921,494 |   |     |   | 2,836,584 |   |
| **TOTAL                  - NET**                             |   |     | 6,053,900 |   |     |   | 5,569,061 |   |
|                                                         |   |     |      |   |     |   |   |   |
| **OTHER                  NONCURRENT ASSETS**                 |   |     |      |   |     |   |   |   |
| Regulatory                  Assets                           |   |     | 354,499   |   |     |   | 414,180 |   |
| Long-term                  Risk Management Assets            |   |     | 56,399    |   |     |   | 70,092 |   |
| Deferred                  Charges and Other                  |   |     | 176,964   |   |     |   | 224,403 |   |
| **TOTAL**                                                    |   |     | 587,862   |   |     |   | 708,675 |   |
|                                                         |   |     |      |   |     |   |   |   |
| **TOTAL                  ASSETS**                            |   | $        | 7,178,834 |   |     | $      | 6,818,733 |   |

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

----

**OHIO        POWER COMPANY CONSOLIDATED**

**CONDENSED        CONSOLIDATED BALANCE SHEETS**

**LIABILITIES        AND SHAREHOLDERS’ EQUITY**

**September        30, 2007 and December 31, 2006**

**(Unaudited)**

|                                                                            |   | **2007**                            |      |   | **2006** |   |
|---------------------------------------------------------------------------------|--------|-------------------------------------|-----------|--------|----------|--------|
| **CURRENT                  LIABILITIES**                                        |   | **(in                  thousands)** |      |
| Advances                  from Affiliates                                       |   | $                                   | 85,341    |   |     | $      | 181,281 |   |
| Accounts                  Payable:                                              |   |                                |      |   |     |   |   |   |
|                    General                                                 |   |                                | 136,467   |   |     |   | 250,025 |   |
|                    Affiliated Companies                                    |   |                                | 104,106   |   |     |   | 145,197 |   |
| Short-term                  Debt – Nonaffiliated                          |   |                                | 2,097     |   |     |   | 1,203 |   |
| Long-term                  Debt Due Within One Year – Nonaffiliated       |   |                                | 22,390    |   |     |   | 17,854 |   |
| Risk                  Management Liabilities                                    |   |                                | 38,023    |   |     |   | 73,386 |   |
| Customer                  Deposits                                              |   |                                | 36,407    |   |     |   | 31,465 |   |
| Accrued                  Taxes                                                  |   |                                | 126,995   |   |     |   | 165,338 |   |
| Accrued                  Interest                                               |   |                                | 45,151    |   |     |   | 35,497 |   |
| Other                                                                           |   |                                | 119,987   |   |     |   | 123,631 |   |
| **TOTAL**                                                                       |   |                                | 716,964   |   |     |   | 1,024,877 |   |
|                                                                            |   |                                |      |   |     |   |   |   |
| **NONCURRENT                  LIABILITIES**                                     |   |                                |      |   |     |   |   |   |
| Long-term                  Debt – Nonaffiliated                           |   |                                | 2,635,957 |   |     |   | 2,183,887 |   |
| Long-term                  Debt – Affiliated                              |   |                                | 200,000   |   |     |   | 200,000 |   |
| Long-term                  Risk Management Liabilities                          |   |                                | 38,679    |   |     |   | 52,929 |   |
| Deferred                  Income Taxes                                          |   |                                | 895,839   |   |     |   | 911,221 |   |
| Regulatory                  Liabilities and Deferred Investment Tax Credits     |   |                                | 167,182   |   |     |   | 185,895 |   |
| Deferred                  Credits and Other                                     |   |                                | 263,136   |   |     |   | 219,127 |   |
| **TOTAL**                                                                       |   |                                | 4,200,793 |   |     |   | 3,753,059 |   |
|                                                                            |   |                                |      |   |     |   |   |   |
| **TOTAL                  LIABILITIES**                                          |   |                                | 4,917,757 |   |     |   | 4,777,936 |   |
|                                                                            |   |                                |      |   |     |   |   |   |
| Minority                  Interest                                              |   |                                | 16,660    |   |     |   | 15,825 |   |
|                                                                            |   |                                |      |   |     |   |   |   |
| Cumulative                  Preferred Stock Not Subject to Mandatory Redemption |   |                                | 16,627    |   |     |   | 16,630 |   |
|                                                                            |   |                                |      |   |     |   |   |   |
| Commitments                  and Contingencies (Note 4)                         |   |                                |      |   |     |   |   |   |
|                                                                            |   |                                |      |   |     |   |   |   |
| **COMMON                  SHAREHOLDER’S EQUITY**                          |   |                                |      |   |     |   |   |   |
| Common                  Stock – No Par Value:                             |   |                                |      |   |     |   |   |   |
| Authorized                  – 40,000,000 Shares                           |   |                                |      |   |     |   |   |   |
| Outstanding                  – 27,952,473 Shares                          |   |                                | 321,201   |   |     |   | 321,201 |   |
| Paid-in                  Capital                                                |   |                                | 536,639   |   |     |   | 536,639 |   |
| Retained                  Earnings                                              |   |                                | 1,430,199 |   |     |   | 1,207,265 |   |
| Accumulated                  Other Comprehensive Income (Loss)                  |   |                                | (60,249   | )      |     |   | (56,763 | ) |
| **TOTAL**                                                                       |   |                                | 2,227,790 |   |     |   | 2,008,342 |   |
|                                                                            |   |                                |      |   |     |   |   |   |
| **TOTAL                  LIABILITIES AND SHAREHOLDERS’ EQUITY**           |   | $                                   | 7,178,834 |   |     | $      | 6,818,733 |   |

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

----

**OHIO        POWER COMPANY CONSOLIDATED**

**CONDENSED        CONSOLIDATED STATEMENTS OF CASH FLOWS**

**For        the Nine Months Ended September 30, 2007 and 2006**

**(in        thousands)**

**(Unaudited)**

|                                                                                                                   |   | **2007** |     |   | **2006** |   |
|------------------------------------------------------------------------------------------------------------------------|--------|----------|----------|--------|----------|--------|
| **OPERATING                  ACTIVITIES**                                                                              |   |     |     |   |     |   |
| **Net                  Income**                                                                                        |   | $        | 228,863  |   |     | $      | 201,773 |   |
| **Adjustments                  to Reconcile Net Income to Net Cash Flows from Operating                  Activities:** |   |     |     |   |     |   |   |   |
| Depreciation                  and Amortization                                                                         |   |     | 253,455  |   |     |   | 239,431 |   |
| Deferred                  Income Taxes                                                                                 |   |     | 3,938    |   |     |   | (18,399 | ) |
| Carrying                  Costs Income                                                                                 |   |     | (10,779  | )      |     |   | (10,336 | ) |
| Mark-to-Market                  of Risk Management Contracts                                                           |   |     | (424     | )      |     |   | 668 |   |
| Deferred                  Property Taxes                                                                               |   |     | 54,036   |   |     |   | 54,073 |   |
| Change                  in Other Noncurrent Assets                                                                     |   |     | (21,882  | )      |     |   | 1,732 |   |
| Change                  in Other Noncurrent Liabilities                                                                |   |     | 8,026    |   |     |   | 15,923 |   |
| **Changes                  in Certain Components of Working Capital:**                                                 |   |     |     |   |     |   |   |   |
| Accounts                  Receivable, Net                                                                              |   |     | (32,723  | )      |     |   | 78,307 |   |
| Fuel,                  Materials and Supplies                                                                          |   |     | (1,245   | )      |     |   | (25,375 | ) |
| Accounts                  Payable                                                                                      |   |     | (59,925  | )      |     |   | (44,817 | ) |
| Accrued                  Taxes, Net                                                                                    |   |     | (19,997  | )      |     |   | (27,733 | ) |
| Other                  Current Assets                                                                                  |   |     | (10,544  | )      |     |   | 36,333 |   |
| Other                  Current Liabilities                                                                             |   |     | 12,181   |   |     |   | (31,400 | ) |
| **Net                  Cash Flows From Operating Activities**                                                          |   |     | 402,980  |   |     |   | 470,180 |   |
|                                                                                                                   |   |     |     |   |     |   |   |   |
| **INVESTING                  ACTIVITIES**                                                                              |   |     |     |   |     |   |   |   |
| Construction                  Expenditures                                                                             |   |     | (751,161 | )      |     |   | (715,200 | ) |
| Proceeds                  From Sales of Assets                                                                         |   |     | 7,924    |   |     |   | 13,301 |   |
| Other                                                                                                                  |   |     | (23      | )      |     |   | (1,651 | ) |
| **Net                  Cash Flows Used For Investing Activities**                                                      |   |     | (743,260 | )      |     |   | (703,550 | ) |
|                                                                                                                   |   |     |     |   |     |   |   |   |
| **FINANCING                  ACTIVITIES**                                                                              |   |     |     |   |     |   |   |   |
| Capital                  Contribution from Parent                                                                      |   |     | -        |   |     |   | 70,000 |   |
| Issuance                  of Long-term Debt – Nonaffiliated                                                      |   |     | 461,324  |   |     |   | 405,841 |   |
| Change                  in Short-term Debt, Net – Nonaffiliated                                                  |   |     | 895      |   |     |   | (3,264 | ) |
| Change                  in Advances from Affiliates, Net                                                               |   |     | (95,940  | )      |     |   | (21,908 | ) |
| Retirement                  of Long-term Debt – Nonaffiliated                                                    |   |     | (8,927   | )      |     |   | (10,890 | ) |
| Retirement                  of Long-term Debt – Affiliated                                                       |   |     | -        |   |     |   | (200,000 | ) |
| Retirement                  of Cumulative Preferred Stock                                                              |   |     | (2       | )      |     |   | (7 | ) |
| Principal                  Payments for Capital Lease Obligations                                                      |   |     | (5,420   | )      |     |   | (5,768 | ) |
| Dividends                  Paid on Cumulative Preferred Stock                                                          |   |     | (549     | )      |     |   | (549 | ) |
| **Net                  Cash Flows From Financing Activities**                                                          |   |     | 351,381  |   |     |   | 233,455 |   |
|                                                                                                                   |   |     |     |   |     |   |   |   |
| **Net                  Increase in Cash and Cash Equivalents**                                                         |   |     | 11,101   |   |     |   | 85 |   |
| **Cash                  and Cash Equivalents at Beginning of Period**                                                  |   |     | 1,625    |   |     |   | 1,240 |   |
| **Cash                  and Cash Equivalents at End of Period**                                                        |   | $        | 12,726   |   |     | $      | 1,325 |   |
|                                                                                                                   |   |     |     |   |     |   |   |   |
| **SUPPLEMENTARY                  INFORMATION**                                                                         |   |     |     |   |     |   |   |   |
| Cash                  Paid for Interest, Net of Capitalized Amounts                                                    |   | $        | 85,851   |   |     | $      | 71,666 |   |
| Net                  Cash Paid for Income Taxes                                                                        |   |     | 61,459   |   |     |   | 72,175 |   |
| Noncash                  Acquisitions Under Capital Leases                                                             |   |     | 1,620    |   |     |   | 2,529 |   |
| Construction                  Expenditures Included in Accounts Payable at September 30,                               |   |     | 42,055   |   |     |   | 117,638 |   |

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

----

**OHIO        POWER COMPANY CONSOLIDATED**

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

**REGISTRANT        SUBSIDIARIES**

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

----

**PUBLIC        SERVICE COMPANY OF OKLAHOMA**

----

**PUBLIC        SERVICE COMPANY OF OKLAHOMA**

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

**Results        of Operations**

**Reconciliation        of Third Quarter of 2006 to Third Quarter of 2007**

**Net        Income**

**(in        millions)**

| **Third                  Quarter of 2006**                        |   |   |   |   | $      | 42     |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                  and Off-system Sales Margins              |   |   | 1      |   |   |   |   |   |
| Transmission                  Revenues, Net                       |   |   | 1      |   |   |   |   |   |
| Other                                                             |   |   | 2      |   |   |   |   |   |
| **Total                  Change in Gross Margin**                 |   |   |   |   |   |   | 4      |   |
|                                                              |   |   |   |   |   |   |   |   |
| **Changes                  in Operating Expenses and Other:**     |   |   |   |   |   |   |   |   |
| Other                  Operation and Maintenance                  |   |   | (3     | )      |   |   |   |   |
| Depreciation                  and Amortization                    |   |   | (2     | )      |   |   |   |   |
| Taxes                  Other Than Income Taxes                    |   |   | (6     | )      |   |   |   |   |
| Interest                  Expense                                 |   |   | (1     | )      |   |   |   |   |
| **Total                  Change in Operating Expenses and Other** |   |   |   |   |   |   | (12    | ) |
|                                                              |   |   |   |   |   |   |   |   |
| Income                  Tax Expense                               |   |   |   |   |   |   | 3      |   |
|                                                              |   |   |   |   |   |   |   |   |
| **Third                  Quarter of 2007**                        |   |   |   |   |   | $      | 37     |   |

| · | Retail                  and Off-system Sales Margins increased $1 million primarily due                  to an                  increase in retail margins attributable to new base rates partially                  offset                  by a reduction in off-system sales volumes. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Other                  revenues increased $2 million primarily due to higher gains on                  sales of                  emission allowances.                                                                                                                                    |

| · | Other                  Operation and Maintenance expenses increased $3 million primarily                  due to                  an increase in transmission expense resulting from higher SPP                  administration fees and transmission services from other                  utilities. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Taxes                  Other Than Income Taxes increased $6 million primarily due to a sales                  and use tax adjustment recorded in 2006.                                                                                                                                           |
| · | Income                  Tax Expense decreased $3 million primarily due to a decrease in                  pretax                  book income.                                                                                                                                                         |

**Reconciliation        of Nine Months Ended September 30, 2006 to Nine Months Ended September 30,        2007**

**Net        Income**

**(in        millions)**

| **Nine                  Months Ended September 30, 2006**         |   |   |   |   | $      | 51     |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                  and Off-system Sales Margins              |   |   | 3      |   |   |   |   |   |
| Transmission                  Revenues, Net                       |   |   | 2      |   |   |   |   |   |
| Other                                                             |   |   | (1     | )      |   |   |   |   |
| **Total                  Change in Gross Margin**                 |   |   |   |   |   |   | 4      |   |
|                                                              |   |   |   |   |   |   |   |   |
| **Changes                  in Operating Expenses and Other:**     |   |   |   |   |   |   |   |   |
| Other                  Operation and Maintenance                  |   |   | (32    | )      |   |   |   |   |
| Depreciation                  and Amortization                    |   |   | (5     | )      |   |   |   |   |
| Taxes                  Other than Income Taxes                    |   |   | (6     | )      |   |   |   |   |
| Interest                  Expense                                 |   |   | (7     | )      |   |   |   |   |
| **Total                  Change in Operating Expenses and Other** |   |   |   |   |   |   | (50    | ) |
|                                                              |   |   |   |   |   |   |   |   |
| Income                  Tax Expense                               |   |   |   |   |   |   | 17     |   |
|                                                              |   |   |   |   |   |   |   |   |
| **Nine                  Months Ended September 30, 2007**         |   |   |   |   |   | $      | 22     |   |

| · | Retail                  and Off-system Sales Margins increased $3 million primarily due                  to an                  increase in retail margins attributable to new base                  rates. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Other                  Operation and Maintenance expenses increased $32 million primarily                  due to                  an $18 million increase in distribution expense resulting primarily                  from                  the January 2007 ice storm and a $9 million increase in generation                  expense                  primarily due to scheduled maintenance outages.  Transmission                  expense increased $5 million primarily due to $4 million in higher                  SPP                  administration fees and transmission services from other utilities                  and $1                  million in higher overhead line maintenance. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Depreciation                  and Amortization increased $5 million primarily due to higher depreciable                  asset balances.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| · | Taxes                  Other Than Income Taxes increased $6 million primarily due to a sales                  and use tax adjustment recorded in 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| · | Interest                  Expense increased $7 million primarily due to increased                  borrowings.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| · | Income                  Tax Expense decreased $17 million primarily due to a decrease in                  pretax                  book income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |

**Critical        Accounting Estimates**

**Adoption        of New Accounting Pronouncements**

----

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

**Market        Risks**

**VaR        Associated with Debt Outstanding**

----

**PUBLIC        SERVICE COMPANY OF OKLAHOMA**

**CONDENSED        STATEMENTS OF INCOME**

**For        the Three and Nine Months Ended September 30, 2007 and        2006**

**(in        thousands)**

**(Unaudited)**

|                                                                     |   | **Three                  Months Ended** |    |   | **Nine                  Months Ended** |   |
|--------------------------------------------------------------------------|--------|-----------------------------------------|---------|--------|----------------------------------------|--------|
|                                                                     |   | **2007**                                |    |   | **2006**                               |   |   | **2007** |   |   | **2006** |   |
| **REVENUES**                                                             |   |                                    |    |   |                                   |   |   |   |   |   |   |   |
| Electric                  Generation, Transmission and Distribution      |   | $                                       | 433,737 |   |                                   | $      | 443,593 |   |   | $ | 1,028,637 |   |   | $ | 1,116,507 |   |
| Sales                  to AEP Affiliates                                 |   |                                    | 12,737  |   |                                   |   | 14,034 |   |   |   | 53,605 |   |   |   | 40,647 |   |
| Other                                                                    |   |                                    | 1,562   |   |                                   |   | 814 |   |   |   | 2,746 |   |   |   | 3,062 |   |
| **TOTAL**                                                                |   |                                    | 448,036 |   |                                   |   | 458,441 |   |   |   | 1,084,988 |   |   |   | 1,160,216 |   |
|                                                                     |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| **EXPENSES**                                                             |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| Fuel                  and Other Consumables Used for Electric Generation |   |                                    | 182,680 |   |                                   |   | 202,836 |   |   |   | 438,828 |   |   |   | 566,985 |   |
| Purchased                  Electricity for Resale                        |   |                                    | 75,875  |   |                                   |   | 68,547 |   |   |   | 213,429 |   |   |   | 158,122 |   |
| Purchased                  Electricity from AEP Affiliates               |   |                                    | 16,216  |   |                                   |   | 17,706 |   |   |   | 48,679 |   |   |   | 54,817 |   |
| Other                  Operation                                         |   |                                    | 44,030  |   |                                   |   | 40,644 |   |   |   | 127,382 |   |   |   | 117,385 |   |
| Maintenance                                                              |   |                                    | 24,128  |   |                                   |   | 25,072 |   |   |   | 89,390 |   |   |   | 67,412 |   |
| Depreciation                  and Amortization                           |   |                                    | 24,430  |   |                                   |   | 22,215 |   |   |   | 70,128 |   |   |   | 65,060 |   |
| Taxes                  Other Than Income Taxes                           |   |                                    | 10,007  |   |                                   |   | 3,844 |   |   |   | 30,191 |   |   |   | 23,997 |   |
| **TOTAL**                                                                |   |                                    | 377,366 |   |                                   |   | 380,864 |   |   |   | 1,018,027 |   |   |   | 1,053,778 |   |
|                                                                     |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| **OPERATING                  INCOME**                                    |   |                                    | 70,670  |   |                                   |   | 77,577 |   |   |   | 66,961 |   |   |   | 106,438 |   |
|                                                                     |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| Other                  Income                                            |   |                                    | 1,086   |   |                                   |   | 1,050 |   |   |   | 2,294 |   |   |   | 1,830 |   |
| Interest                  Expense                                        |   |                                    | (12,381 | )      |                                   |   | (10,954 | ) |   |   | (36,549 | ) |   |   | (29,723 | ) |
|                                                                     |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| **INCOME                  BEFORE INCOME TAXES**                          |   |                                    | 59,375  |   |                                   |   | 67,673 |   |   |   | 32,706 |   |   |   | 78,545 |   |
|                                                                     |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| Income                  Tax Expense                                      |   |                                    | 22,804  |   |                                   |   | 25,650 |   |   |   | 10,266 |   |   |   | 27,241 |   |
|                                                                     |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| **NET                  INCOME**                                          |   |                                    | 36,571  |   |                                   |   | 42,023 |   |   |   | 22,440 |   |   |   | 51,304 |   |
|                                                                     |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| Preferred                  Stock Dividend Requirements                   |   |                                    | 53      |   |                                   |   | 53 |   |   |   | 159 |   |   |   | 159 |   |
|                                                                     |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| **EARNINGS                  APPLICABLE TO COMMON STOCK**            |   | $                                       | 36,518  |   |                                   | $      | 41,970 |   |   | $ | 22,281 |   |   | $ | 51,145 |   |

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

----

**PUBLIC        SERVICE COMPANY OF OKLAHOMA**

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

**EQUITY        AND COMPREHENSIVE INCOME (LOSS)**

**For        the Nine Months Ended September 30, 2007 and 2006**

**(in        thousands)**

**(Unaudited)**

|                                                                                   |   | **Common                  Stock** |    |   | **Paid-in                  Capital** |   |    | **Retained                  Earnings** |   |   | **Accumulated                  Other Comprehensive Income (Loss)** |   |   | **Total** |   |
|----------------------------------------------------------------------------------------|--------|-----------------------------------|---------|--------|--------------------------------------|--------|---------|----------------------------------------|--------|--------|--------------------------------------------------------------------|--------|--------|-----------|--------|
| **DECEMBER                  31, 2005**                                                 |   | $                                 | 157,230 |   |                                 | $      | 230,016 |                                   |   | $      | 162,615                                                            |   |   | $         | (1,264 | ) |   | $ | 548,597 |   |
|                                                                                   |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |   |   |   |   |   |   |
| Preferred                  Stock Dividends                                             |   |                              |    |   |                                 |   |    |                                   |   |   | (159                                                               | )      |   |      |   |   |   |   | (159 | ) |
| **TOTAL**                                                                              |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |   |   |   |   | 548,438 |   |
|                                                                                   |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |   |   |   |   |   |   |
| **COMPREHENSIVE                  INCOME**                                              |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |   |   |   |   |   |   |
| **Other                  Comprehensive Loss,** **Net of                  Taxes:** |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |   |   |   |   |   |   |
| Cash                  Flow Hedges, Net of Tax of $2                                    |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      | (4     | ) |   |   | (4 | ) |
| **NET                  INCOME**                                                        |   |                              |    |   |                                 |   |    |                                   |   |   | 51,304                                                             |   |   |      |   |   |   |   | 51,304 |   |
| **TOTAL                  COMPREHENSIVE INCOME**                                        |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |   |   |   |   | 51,300 |   |
|                                                                                   |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |   |   |   |   |   |   |
| **SEPTEMBER                  30, 2006**                                                |   | $                                 | 157,230 |   |                                 | $      | 230,016 |                                   |   | $      | 213,760                                                            |   |   | $         | (1,268 | ) |   | $ | 599,738 |   |
|                                                                                   |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |   |   |   |   |   |   |
| **DECEMBER                  31, 2006**                                                 |   | $                                 | 157,230 |   |                                 | $      | 230,016 |                                   |   | $      | 199,262                                                            |   |   | $         | (1,070 | ) |   | $ | 585,438 |   |
|                                                                                   |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |   |   |   |   |   |   |
| FIN                  48 Adoption, Net of Tax                                           |   |                              |    |   |                                 |   |    |                                   |   |   | (386                                                               | )      |   |      |   |   |   |   | (386 | ) |
| Capital                  Contributions from Parent                                     |   |                              |    |   |                                 |   | 60,000  |                                   |   |   |                                                               |   |   |      |   |   |   |   | 60,000 |   |
| Preferred                  Stock Dividends                                             |   |                              |    |   |                                 |   |    |                                   |   |   | (159                                                               | )      |   |      |   |   |   |   | (159 | ) |
| **TOTAL**                                                                              |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |   |   |   |   | 644,893 |   |
|                                                                                   |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |   |   |   |   |   |   |
| **COMPREHENSIVE                  INCOME**                                              |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |   |   |   |   |   |   |
| **Other                  Comprehensive Income, Net of Taxes:**                         |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |   |   |   |   |   |   |
| Cash                  Flow Hedges, Net of Tax of $74                                   |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      | 137    |   |   |   | 137 |   |
| **NET                  INCOME**                                                        |   |                              |    |   |                                 |   |    |                                   |   |   | 22,440                                                             |   |   |      |   |   |   |   | 22,440 |   |
| **TOTAL                  COMPREHENSIVE INCOME**                                        |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |   |   |   |   | 22,577 |   |
|                                                                                   |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |   |   |   |   |   |   |
| **SEPTEMBER                  30, 2007**                                                |   | $                                 | 157,230 |   |                                 | $      | 290,016 |                                   |   | $      | 221,157                                                            |   |   | $         | (933   | ) |   | $ | 667,470 |   |

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

----

**PUBLIC        SERVICE COMPANY OF OKLAHOMA**

**CONDENSED        BALANCE SHEETS**

**ASSETS**

**September        30, 2007 and December 31, 2006**

**(in        thousands)**

**(Unaudited)**

|                                                             |   | **2007** |      |   | **2006** |   |
|------------------------------------------------------------------|--------|----------|-----------|--------|----------|--------|
| **CURRENT                  ASSETS**                              |   |     |      |
| Cash                  and Cash Equivalents                       |   | $        | 1,490     |   |     | $      | 1,651 |   |
| Accounts                  Receivable:                            |   |     |      |   |     |   |   |   |
|                    Customers                                |   |     | 42,848    |   |     |   | 70,319 |   |
|                    Affiliated Companies                     |   |     | 94,920    |   |     |   | 73,318 |   |
|                    Miscellaneous                            |   |     | 47,769    |   |     |   | 10,270 |   |
|                    Allowance for Uncollectible Accounts     |   |     | (18       | )      |     |   | (5 | ) |
|  Total                  Accounts Receivable                 |   |     | 185,519   |   |     |   | 153,902 |   |
| Fuel                                                             |   |     | 17,922    |   |     |   | 20,082 |   |
| Materials                  and Supplies                          |   |     | 52,655    |   |     |   | 48,375 |   |
| Risk                  Management Assets                          |   |     | 43,004    |   |     |   | 100,802 |   |
| Accrued                  Tax Benefits                            |   |     | 9,499     |   |     |   | 4,679 |   |
| Regulatory                  Asset for Under-Recovered Fuel Costs |   |     | 15,817    |   |     |   | 7,557 |   |
| Margin                  Deposits                                 |   |     | 2,526     |   |     |   | 35,270 |   |
| Prepayments                  and Other                           |   |     | 4,424     |   |     |   | 5,732 |   |
| **TOTAL**                                                        |   |     | 332,856   |   |     |   | 378,050 |   |
|                                                             |   |     |      |   |     |   |   |   |
| **PROPERTY,                  PLANT AND EQUIPMENT**               |   |     |      |   |     |   |   |   |
| Electric:                                                        |   |     |      |   |     |   |   |   |
|                    Production                               |   |     | 1,106,110 |   |     |   | 1,091,910 |   |
|                    Transmission                             |   |     | 556,760   |   |     |   | 503,638 |   |
|                    Distribution                             |   |     | 1,311,738 |   |     |   | 1,215,236 |   |
| Other                                                            |   |     | 243,575   |   |     |   | 234,227 |   |
| Construction                  Work in Progress                   |   |     | 158,499   |   |     |   | 141,283 |   |
| **Total**                                                        |   |     | 3,376,682 |   |     |   | 3,186,294 |   |
| Accumulated                  Depreciation and Amortization       |   |     | 1,212,294 |   |     |   | 1,187,107 |   |
| **TOTAL                  - NET**                                 |   |     | 2,164,388 |   |     |   | 1,999,187 |   |
|                                                             |   |     |      |   |     |   |   |   |
| **OTHER                  NONCURRENT ASSETS**                     |   |     |      |   |     |   |   |   |
| Regulatory                  Assets                               |   |     | 156,708   |   |     |   | 142,905 |   |
| Long-term                  Risk Management Assets                |   |     | 5,329     |   |     |   | 17,066 |   |
| Employee                  Benefits and Pension Assets            |   |     | 28,962    |   |     |   | 30,161 |   |
| Deferred                  Charges and Other                      |   |     | 17,386    |   |     |   | 11,677 |   |
| **TOTAL**                                                        |   |     | 208,385   |   |     |   | 201,809 |   |
|                                                             |   |     |      |   |     |   |   |   |
| **TOTAL                  ASSETS**                                |   | $        | 2,705,629 |   |     | $      | 2,579,046 |   |

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

----

**PUBLIC        SERVICE COMPANY OF OKLAHOMA**

**CONDENSED        BALANCE SHEETS**

**LIABILITIES        AND SHAREHOLDERS’ EQUITY**

**September        30, 2007 and December 31, 2006**

**(Unaudited)**

|                                                                            |   | **2007**                            |      |   | **2006** |   |
|---------------------------------------------------------------------------------|--------|-------------------------------------|-----------|--------|----------|--------|
| **CURRENT                  LIABILITIES**                                        |   | **(in                  thousands)** |      |
| Advances                  from Affiliates                                       |   | $                                   | 187,492   |   |     | $      | 76,323 |   |
| Accounts                  Payable:                                              |   |                                |      |   |     |   |   |   |
| General                                                                         |   |                                | 173,364   |   |     |   | 165,618 |   |
| Affiliated                  Companies                                           |   |                                | 69,044    |   |     |   | 65,134 |   |
| Risk                  Management Liabilities                                    |   |                                | 31,867    |   |     |   | 88,469 |   |
| Customer                  Deposits                                              |   |                                | 42,891    |   |     |   | 51,335 |   |
| Accrued                  Taxes                                                  |   |                                | 43,540    |   |     |   | 19,984 |   |
| Other                                                                           |   |                                | 32,376    |   |     |   | 58,651 |   |
| **TOTAL**                                                                       |   |                                | 580,574   |   |     |   | 525,514 |   |
|                                                                            |   |                                |      |   |     |   |   |   |
| **NONCURRENT                  LIABILITIES**                                     |   |                                |      |   |     |   |   |   |
| Long-term                  Debt – Nonaffiliated                           |   |                                | 670,132   |   |     |   | 669,998 |   |
| Long-term                  Risk Management Liabilities                          |   |                                | 5,483     |   |     |   | 11,448 |   |
| Deferred                  Income Taxes                                          |   |                                | 430,307   |   |     |   | 414,197 |   |
| Regulatory                  Liabilities and Deferred Investment Tax Credits     |   |                                | 284,970   |   |     |   | 315,584 |   |
| Deferred                  Credits and Other                                     |   |                                | 61,431    |   |     |   | 51,605 |   |
| **TOTAL**                                                                       |   |                                | 1,452,323 |   |     |   | 1,462,832 |   |
|                                                                            |   |                                |      |   |     |   |   |   |
| **TOTAL                  LIABILITIES**                                          |   |                                | 2,032,897 |   |     |   | 1,988,346 |   |
|                                                                            |   |                                |      |   |     |   |   |   |
| Cumulative                  Preferred Stock Not Subject to Mandatory Redemption |   |                                | 5,262     |   |     |   | 5,262 |   |
|                                                                            |   |                                |      |   |     |   |   |   |
| Commitments                  and Contingencies (Note 4)                         |   |                                |      |   |     |   |   |   |
|                                                                            |   |                                |      |   |     |   |   |   |
| **COMMON                  SHAREHOLDER’S EQUITY**                          |   |                                |      |   |     |   |   |   |
| Common                  Stock – Par Value – $15 Per Share:          |   |                                |      |   |     |   |   |   |
| Authorized                  – 11,000,000 Shares                           |   |                                |      |   |     |   |   |   |
| Issued                  – 10,482,000 Shares                               |   |                                |      |   |     |   |   |   |
| Outstanding                  – 9,013,000 Shares                           |   |                                | 157,230   |   |     |   | 157,230 |   |
| Paid-in                  Capital                                                |   |                                | 290,016   |   |     |   | 230,016 |   |
| Retained                  Earnings                                              |   |                                | 221,157   |   |     |   | 199,262 |   |
| Accumulated                  Other Comprehensive Income (Loss)                  |   |                                | (933      | )      |     |   | (1,070 | ) |
| **TOTAL**                                                                       |   |                                | 667,470   |   |     |   | 585,438 |   |
|                                                                            |   |                                |      |   |     |   |   |   |
| **TOTAL                  LIABILITIES AND SHAREHOLDERS’ EQUITY**           |   | $                                   | 2,705,629 |   |     | $      | 2,579,046 |   |

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

----

**PUBLIC        SERVICE COMPANY OF OKLAHOMA**

**CONDENSED        STATEMENTS OF CASH FLOWS**

**For        the Nine Months Ended September 30, 2007 and 2006**

**(in        thousands)**

**(Unaudited)**

|                                                                                                                   |   | **2007** |     |   | **2006** |   |
|------------------------------------------------------------------------------------------------------------------------|--------|----------|----------|--------|----------|--------|
| **OPERATING                  ACTIVITIES**                                                                              |   |     |     |   |     |   |
| **Net                  Income**                                                                                        |   | $        | 22,440   |   |     | $      | 51,304 |   |
| **Adjustments                  to Reconcile Net Income to Net Cash Flows from Operating                  Activities:** |   |     |     |   |     |   |   |   |
| Depreciation                  and Amortization                                                                         |   |     | 70,128   |   |     |   | 65,060 |   |
| Deferred                  Income Taxes                                                                                 |   |     | 23,220   |   |     |   | (18,661 | ) |
| Mark-to-Market                  of Risk Management Contracts                                                           |   |     | 6,968    |   |     |   | 8,901 |   |
| Deferred                  Property Taxes                                                                               |   |     | (8,353   | )      |     |   | (8,098 | ) |
| Change                  in Other Noncurrent Assets                                                                     |   |     | (10,050  | )      |     |   | 17,850 |   |
| Change                  in Other Noncurrent Liabilities                                                                |   |     | (31,165  | )      |     |   | (24,838 | ) |
| **Changes                  in Certain Components of Working Capital:**                                                 |   |     |     |   |     |   |   |   |
| Accounts                  Receivable, Net                                                                              |   |     | (31,617  | )      |     |   | (2,389 | ) |
| Fuel,                  Materials and Supplies                                                                          |   |     | (2,110   | )      |     |   | (6,990 | ) |
| Margin                  Deposits                                                                                       |   |     | 32,744   |   |     |   | (25,811 | ) |
| Accounts                  Payable                                                                                      |   |     | 10,226   |   |     |   | 1,585 |   |
| Customer                  Deposits                                                                                     |   |     | (8,444   | )      |     |   | (2,737 | ) |
| Accrued                  Taxes, Net                                                                                    |   |     | 19,725   |   |     |   | 48,845 |   |
| Fuel                  Over/Under Recovery, Net                                                                         |   |     | (8,260   | )      |     |   | 76,938 |   |
| Other                  Current Assets                                                                                  |   |     | 177      |   |     |   | (3,828 | ) |
| Other                  Current Liabilities                                                                             |   |     | (23,587  | )      |     |   | (13,755 | ) |
| **Net                  Cash Flows From Operating Activities**                                                          |   |     | 62,042   |   |     |   | 163,376 |   |
|                                                                                                                   |   |     |     |   |     |   |   |   |
| **INVESTING                  ACTIVITIES**                                                                              |   |     |     |   |     |   |   |   |
| Construction                  Expenditures                                                                             |   |     | (235,089 | )      |     |   | (140,998 | ) |
| Change                  in Advances to Affiliates, Net                                                                 |   |     | -        |   |     |   | (43,538 | ) |
| Other                                                                                                                  |   |     | 3,173    |   |     |   | 6 |   |
| **Net                  Cash Flows Used For Investing Activities**                                                      |   |     | (231,916 | )      |     |   | (184,530 | ) |
|                                                                                                                   |   |     |     |   |     |   |   |   |
| **FINANCING                  ACTIVITIES**                                                                              |   |     |     |   |     |   |   |   |
| Capital                  Contributions from Parent                                                                     |   |     | 60,000   |   |     |   | - |   |
| Issuance                  of Long-term Debt – Nonaffiliated                                                      |   |     | 12,488   |   |     |   | 148,747 |   |
| Change                  in Advances from Affiliates, Net                                                               |   |     | 111,169  |   |     |   | (75,883 | ) |
| Retirement                  of Long-term Debt – Affiliated                                                       |   |     | (12,660  | )      |     |   | (50,000 | ) |
| Principal                  Payments for Capital Lease Obligations                                                      |   |     | (1,125   | )      |     |   | (794 | ) |
| Dividends                  Paid on Cumulative Preferred Stock                                                          |   |     | (159     | )      |     |   | (159 | ) |
| **Net                  Cash Flows From Financing Activities**                                                          |   |     | 169,713  |   |     |   | 21,911 |   |
|                                                                                                                   |   |     |     |   |     |   |   |   |
| **Net                  Increase (Decrease) in Cash and Cash Equivalents**                                              |   |     | (161     | )      |     |   | 757 |   |
| **Cash                  and Cash Equivalents at Beginning of Period**                                                  |   |     | 1,651    |   |     |   | 1,520 |   |
| **Cash                  and Cash Equivalents at End of Period**                                                        |   | $        | 1,490    |   |     | $      | 2,277 |   |
|                                                                                                                   |   |     |     |   |     |   |   |   |
| **SUPPLEMENTARY                  INFORMATION**                                                                         |   |     |     |   |     |   |   |   |
| Cash                  Paid for Interest, Net of Capitalized Amounts                                                    |   | $        | 34,427   |   |     | $      | 25,491 |   |
| Net                  Cash Paid (Received) for Income Taxes                                                             |   |     | (18,004  | )      |     |   | 7,471 |   |
| Noncash                  Acquisitions Under Capital Leases                                                             |   |     | 600      |   |     |   | 2,639 |   |
| Construction                  Expenditures Included in Accounts Payable at September 30,                               |   |     | 16,358   |   |     |   | 6,591 |   |

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

----

**PUBLIC        SERVICE COMPANY OF OKLAHOMA**

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

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

----

**SOUTHWESTERN        ELECTRIC POWER COMPANY CONSOLIDATED**

----

**SOUTHWESTERN        ELECTRIC POWER COMPANY        CONSOLIDATED**

**MANAGEMENT’S        FINANCIAL DISCUSSION AND ANALYSIS**

**Results        of Operations**

**Reconciliation        of Third Quarter of 2006 to Third Quarter of 2007**

**Net        Income**

**(in        millions)**

| **Third                  Quarter of 2006**                        |   |   |   |   | $      | 50     |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                  and Off-system Sales Margins (a)          |   |   | (1     | )      |   |   |   |   |
| Transmission                  Revenues, Net                       |   |   | 1      |   |   |   |   |   |
| Other                                                             |   |   | (7     | )      |   |   |   |   |
| **Total                  Change in Gross Margin**                 |   |   |   |   |   |   | (7     | ) |
|                                                              |   |   |   |   |   |   |   |   |
| **Changes                  in Operating Expenses and Other:**     |   |   |   |   |   |   |   |   |
| Other                  Operation and Maintenance                  |   |   | (7     | )      |   |   |   |   |
| Depreciation                  and Amortization                    |   |   | (1     | )      |   |   |   |   |
| Other                  Income                                     |   |   | 3      |   |   |   |   |   |
| Interest                  Expense                                 |   |   | (2     | )      |   |   |   |   |
| **Total                  Change in Operating Expenses and Other** |   |   |   |   |   |   | (7     | ) |
|                                                              |   |   |   |   |   |   |   |   |
| Income                  Tax Expense                               |   |   |   |   |   |   | 8      |   |
|                                                              |   |   |   |   |   |   |   |   |
| **Third                  Quarter of 2007**                        |   |   |   |   |   | $      | 44     |   |

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

| · | Other                  revenues decreased $7 million primarily due to a $5 million decrease                  in                  gains on sales of emission allowances and a $1 million decrease                  in revenue                  from coal deliveries from SWEPCo’s mining subsidiary, Dolet Hills Lignite                  Company, LLC, to outside parties.  The decreased revenue from                  coal deliveries was offset by a corresponding decrease in Other                  Operation                  and Maintenance expenses from mining operations as discussed                  below. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Other                  Operation and Maintenance expenses increased $7 million primarily                  due to a                  $5 million increase in transmission expenses resulting from higher                  SPP                  administration fees and transmission services from other utilities,                  and a                  $3 million increase in generation expenses due to planned and forced                  outages at the Welsh, Dolet Hills, Flint Creek, Knox Lee and Pirkey                  Plants.  These increases were partially offset by a $1 million                  decrease in expenses primarily resulting from decreased coal deliveries                  from SWEPCo’s mining subsidiary, Dolet Hills Lignite Company, LLC, due to                  planned and forced outages at the Dolet Hills Generating Station,                  which is                  jointly-owned by SWEPCo and Cleco Corporation, a nonaffiliated                  entity. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Other                  Income increased $3 million primarily due to an increase in the                  equity                  component of AFUDC as a result of new generation                  projects.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

| · | Interest                  Expense increased $2 million primarily due to $4 million of interest                  related to increased long-term debt partially offset by a $2 million                  increase in the debt component of AFUDC due to new generation                  projects. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Income                  Tax Expense decreased $8 million primarily due to a decrease in                  pretax                  book income and state income taxes.                                                                                                                           |

**Reconciliation        of Nine Months Ended September 30, 2006 to Nine Months Ended September 30,        2007**

**Net        Income**

**(in        millions)**

| **Nine                  Months Ended September 30, 2006**         |   |   |   |   | $      | 96     |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                  and Off-system Sales Margins (a)          |   |   | (29    | )      |   |   |   |   |
| Other                                                             |   |   | (15    | )      |   |   |   |   |
| **Total                  Change in Gross Margin**                 |   |   |   |   |   |   | (44    | ) |
|                                                              |   |   |   |   |   |   |   |   |
| **Changes                  in Operating Expenses and Other:**     |   |   |   |   |   |   |   |   |
| Other                  Operation and Maintenance                  |   |   | (17    | )      |   |   |   |   |
| Depreciation                  and Amortization                    |   |   | (5     | )      |   |   |   |   |
| Taxes                  Other Than Income Taxes                    |   |   | (1     | )      |   |   |   |   |
| Other                  Income                                     |   |   | 7      |   |   |   |   |   |
| Interest                  Expense                                 |   |   | (8     | )      |   |   |   |   |
| **Total                  Change in Operating Expenses and Other** |   |   |   |   |   |   | (24    | ) |
|                                                              |   |   |   |   |   |   |   |   |
| Minority                  Interest Expense                        |   |   |   |   |   |   | (1     | ) |
| Income                  Tax Expense                               |   |   |   |   |   |   | 28     |   |
|                                                              |   |   |   |   |   |   |   |   |
| **Nine                  Months Ended September 30, 2007**         |   |   |   |   |   | $      | 55     |   |

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

| · | Retail                  and Off-system Sales Margins decreased $29 million primarily due                  to a $24                  million provision related to a SWEPCo Texas fuel reconciliation                  proceeding.  See “SWEPCo Fuel Reconciliation – Texas” section of                  Note 3.                                                                                                                                                                                                                                                                                                 |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Other                  revenues decreased $15 million primarily due to an $8 million decrease                  in                  gains on sales of emission allowances and a $7 million decrease                  in revenue                  from coal deliveries from SWEPCo’s mining subsidiary, Dolet Hills Lignite                  Company, LLC, to outside parties.  The decreased revenue from                  coal deliveries was offset by a corresponding decrease in Other                  Operation                  and Maintenance expenses from mining operations as discussed                  below. |

| · | Other                  Operation and Maintenance expenses increased $17 million primarily                  due to                  the following:                                                                                                                                               |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ·                                                                                                                                                                                                                                                                                          | A                  $9 million increase in generation expenses from planned and forced                  outages                  at the Welsh, Dolet Hills, Flint Creek, Knox Lee and Pirkey                  Plants. |
|   | ·                                                                                                                                                                                                                                                                                          | An                  $8 million increase in transmission expenses related to higher                  SPP                  administration fees and transmission services from other                  utilities. |
|   | ·                                                                                                                                                                                                                                                                                          | A  $6                  million increase in distribution expenses including increased overhead                  line maintenance. |
|   | These                  increases were partially offset by:                                                                                                                                                                                                                                      |
|   | ·                                                                                                                                                                                                                                                                                          | An                  $8 million decrease in expenses primarily resulting from decreased                  coal                  deliveries from SWEPCo’s mining subsidiary, Dolet Hills Lignite Company,                  LLC, due to planned and forced outages at the Dolet Hills Generating                  Station, which is jointly-owned by SWEPCo and Cleco Corporation,                  a                  nonaffiliated entity. |
| · | Other                  Income increased $7 million primarily due to an increase in the                  equity                  component of AFUDC as a result of new generation                  projects.                                                                                     |
| · | Interest                  Expense increased $8 million primarily due to $13 million of interest                  related to increased long-term debt partially offset by a $5 million                  increase in the debt component of AFUDC due to new generation                  projects. |
| · | Income                  Tax Expense decreased $28 million primarily due to a decrease in                  pretax                  book income.                                                                                                                                                  |

**Financial        Condition**

**Credit        Ratings**

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

**Cash        Flow**

|                                                                  |   | **2007**                            |     |   | **2006** |   |
|-----------------------------------------------------------------------|--------|-------------------------------------|----------|--------|----------|--------|
|                                                                  |   | **(in                  thousands)** |     |
| **Cash                  and Cash Equivalents at Beginning of Period** |   | $                                   | 2,618    |   |     | $      | 3,049 |   |
| Cash                  Flows From (Used For):                          |   |                                |     |   |     |   |   |   |
| Operating                  Activities                                 |   |                                | 180,146  |   |     |   | 242,721 |   |
| Investing                  Activities                                 |   |                                | (353,001 | )      |     |   | (186,631 | ) |
| Financing                  Activities                                 |   |                                | 172,089  |   |     |   | (56,343 | ) |
| **Net                  Decrease in Cash and Cash Equivalents**        |   |                                | (766     | )      |     |   | (253 | ) |
| **Cash                  and Cash Equivalents at End of Period**       |   | $                                   | 1,852    |   |     | $      | 2,796 |   |

*Operating        Activities*

*Investing        Activities*

*Financing        Activities*

**Financing        Activity**

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

|                                                 |   | **Principal****Amount** |                                | **Interest** |     | **Due** |
|------------------------------------------------------|--------|-------------------------|-------------------------------------|--------------|----------|---------|
| **Type                  of Debt**                    |   |                    | **Rate**                            |         | **Date** |
|                                                 |   |                    | **(in                  thousands)** |         | **(%)**  |    |   |
| Notes                  Payable – Nonaffiliated |   | $                       | 4,210                               |         | 4.47     |    | 2011 |
| Notes                  Payable – Nonaffiliated |   |                    | 4,000                               |         | 6.36     |    | 2007 |
| Notes                  Payable – Nonaffiliated |   |                    | 2,250                               |         | Variable |    | 2008 |
| First                  Mortgage Bonds                |   |                    | 90,000                              |         | 7.00     |    | 2007 |

**Liquidity**

**Summary        Obligation Information**

**Significant        Factors**

***Litigation        and Regulatory Activity***

**Critical        Accounting Estimates**

**Adoption        of New Accounting Pronouncements**

----

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

**Market        Risks**

**MTM        Risk Management Contract Net Assets**

**Reconciliation        of MTM Risk Management Contracts to**

**Condensed        Consolidated Balance Sheet**

**As        of September 30, 2007**

**(in        thousands)**

|                                                                        |   | **MTM                  Risk Management Contracts** |    |   | **Cash                  Flow Hedges** |   |   | **Total** |   |
|-----------------------------------------------------------------------------|--------|----------------------------------------------------|---------|--------|---------------------------------------|--------|--------|-----------|--------|
| Current                  Assets                                             |   | $                                                  | 51,042  |   |                                  | $      | 75     |      |   | $ | 51,117 |   |
| Noncurrent                  Assets                                          |   |                                               | 6,481   |   |                                  |   | 33     |      |   |   | 6,514 |   |
| **Total                  MTM Derivative Contract Assets**                   |   |                                               | 57,523  |   |                                  |   | 108    |      |   |   | 57,631 |   |
|                                                                        |   |                                               |    |   |                                  |   |   |      |   |   |   |   |
| Current                  Liabilities                                        |   |                                               | (38,334 | )      |                                  |   | (11    | )         |   |   | (38,345 | ) |
| Noncurrent                  Liabilities                                     |   |                                               | (6,729  | )      |                                  |   | -      |      |   |   | (6,729 | ) |
| **Total                  MTM Derivative Contract Liabilities**              |   |                                               | (45,063 | )      |                                  |   | (11    | )         |   |   | (45,074 | ) |
|                                                                        |   |                                               |    |   |                                  |   |   |      |   |   |   |   |
| **Total                  MTM Derivative Contract Net Assets (Liabilities)** |   | $                                                  | 12,460  |   |                                  | $      | 97     |      |   | $ | 12,557 |   |

**MTM        Risk Management Contract Net Assets**

**Nine        Months Ended September 30, 2007**

**(in        thousands)**

| **Total                  MTM Risk Management Contract Net Assets at December 31,                  2006**                                           |   | $      | 20,166 |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| (Gain)                  Loss from Contracts Realized/Settled During the Period and Entered                  in a                  Prior Period     |   |   | (3,501 | )      |
| Fair                  Value of New Contracts at Inception When Entered During the Period                  (a)                                      |   |   | -      |   |
| Net                  Option Premiums Paid/(Received) for Unexercised or Unexpired Option                  Contracts Entered During the Period |   |   | -      |   |
| Change                  in Fair Value Due to Valuation Methodology Changes on Forward                  Contracts                                   |   |   | -      |   |
| Changes                  in Fair Value Due to Market Fluctuations During the Period                  (b)                                           |   |   | 1,201  |   |
| Changes                  in Fair Value Allocated to Regulated Jurisdictions (c)                                                                    |   |   | (5,406 | )      |
| **Total                  MTM Risk Management Contract Net Assets**                                                                                 |   |   | 12,460 |   |
| Net                  Cash Flow Hedge Contracts                                                                                                     |   |   | 97     |   |
| **Total                  MTM Risk Management Contract Net Assets at September 30,                  2007**                                          |   | $      | 12,557 |   |

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

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

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

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

**Risk        Management Contract Net Assets**

**Fair        Value of Contracts as of September 30, 2007**

**(in        thousands)**

|                                                                                                     |   | **Remainder****2007** |   | **2008** |   | **2009** |   | **2010** |   | **2011** |   | **After****2011** |   | **Total** |   |
|----------------------------------------------------------------------------------------------------------|--------|-----------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|-------------------|--------|-----------|--------|
| Prices                  Actively Quoted – Exchange Traded                  Contracts          |   | $                     | (3,730 | )        | $      | 1,544    |   | $        | (237   | )        | $      | (8                | )      | $         | -      |   | $ | - |   | $ | (2,431 | ) |
| Prices                  Provided by Other External Sources                  - OTC Broker Quotes (a) |   |                  | 10,247 |     |   | 5,930    |   |     | (728   | )        |   | -                 |   |      | -      |   |   | - |   |   | 15,449 |   |
| Prices                  Based on Models and Other Valuation                  Methods (b)            |   |                  | (772   | )        |   | (1,286   | )      |     | 1,502  |     |   | (2                | )      |      | -      |   |   | - |   |   | (558 | ) |
| **Total**                                                                                                |   | $                     | 5,745  |     | $      | 6,188    |   | $        | 537    |     | $      | (10               | )      | $         | -      |   | $ | - |   | $ | 12,460 |   |

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

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

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

**Nine        Months Ended September 30, 2007**

**(in        thousands)**

|                                                                                         |   | **Interest                  Rate** |   |   | **Foreign****Currency** |   |   | **Total** |   |
|----------------------------------------------------------------------------------------------|--------|------------------------------------|--------|--------|-------------------------|--------|--------|-----------|--------|
| **Beginning                  Balance in AOCI December 31, 2006**                             |   | $                                  | (6,435 | )      |                    | $      | 25     |      |   | $ | (6,410 | ) |
| Changes                  in Fair Value                                                       |   |                               | (1,019 | )      |                    |   | 589    |      |   |   | (430 | ) |
| Reclassifications                  from AOCI to Net Income for Cash Flow Hedges Settled |   |                               | 598    |   |                    |   | -      |      |   |   | 598 |   |
| **Ending                  Balance in AOCI September 30, 2007**                               |   | $                                  | (6,856 | )      |                    | $      | 614    |      |   | $ | (6,242 | ) |

**Credit        Risk**

**VaR        Associated with Risk Management Contracts**

| **Nine                  Months Ended September 30, 2007** |   |   | **Twelve                  Months Ended December 31, 2006** |   |
|-----------------------------------------------------------|--------|--------|------------------------------------------------------------|--------|
| **(in                  thousands)**                       |   |   | **(in                  thousands)**                        |   |
| **End**                                                   |   |   | **High**                                                   |   |   | **Average** |   |   | **Low** |   |   | **End** |   |   | **High** |   |   | **Average** |   |   | **Low** |   |
| $                                                         | 26     |   |                                                       | $      | 245 |   |   | $ | 92 |   |   | $ | 23 |   |   | $ | 447 |   |   | $ | 2,171 |   |   | $ | 794 |   |   | $ | 68 |   |

**VaR        Associated with Debt Outstanding**

----

**SOUTHWESTERN        ELECTRIC POWER COMPANY CONSOLIDATED**

**CONDENSED        CONSOLIDATED STATEMENTS OF INCOME**

**For        the Three and Nine Months Ended September 30, 2007 and        2006**

**(in        thousands)**

**(Unaudited)**

|                                                                                                             |   | **Three                  Months Ended** |    |   | **Nine                  Months Ended** |   |
|------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|---------|--------|----------------------------------------|--------|
|                                                                                                             |   | **2007**                                |    |   | **2006**                               |   |   | **2007** |   |   | **2006** |   |
| **REVENUES**                                                                                                     |   |                                    |    |   |                                   |   |   |   |   |   |   |   |
| Electric                  Generation, Transmission and Distribution                                              |   | $                                       | 445,169 |   |                                   | $      | 440,542 |   |   | $ | 1,101,703 |   |   | $ | 1,084,185 |   |
| Sales                  to AEP Affiliates                                                                         |   |                                    | 2,839   |   |                                   |   | 14,692 |   |   |   | 35,491 |   |   |   | 34,871 |   |
| Other                                                                                                            |   |                                    | 502     |   |                                   |   | 1,466 |   |   |   | 1,437 |   |   |   | 2,260 |   |
| **TOTAL**                                                                                                        |   |                                    | 448,510 |   |                                   |   | 456,700 |   |   |   | 1,138,631 |   |   |   | 1,121,316 |   |
|                                                                                                             |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| **EXPENSES**                                                                                                     |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| Fuel                  and Other Consumables Used for Electric Generation                                         |   |                                    | 141,837 |   |                                   |   | 158,992 |   |   |   | 379,818 |   |   |   | 367,924 |   |
| Purchased                  Electricity for Resale                                                                |   |                                    | 73,438  |   |                                   |   | 61,816 |   |   |   | 182,806 |   |   |   | 135,918 |   |
| Purchased                  Electricity from AEP Affiliates                                                       |   |                                    | 22,282  |   |                                   |   | 18,140 |   |   |   | 61,284 |   |   |   | 58,303 |   |
| Other                  Operation                                                                                 |   |                                    | 59,759  |   |                                   |   | 55,173 |   |   |   | 163,746 |   |   |   | 158,089 |   |
| Maintenance                                                                                                      |   |                                    | 23,205  |   |                                   |   | 21,120 |   |   |   | 79,265 |   |   |   | 68,008 |   |
| Depreciation                  and Amortization                                                                   |   |                                    | 34,605  |   |                                   |   | 33,079 |   |   |   | 103,395 |   |   |   | 98,655 |   |
| Taxes                  Other Than Income Taxes                                                                   |   |                                    | 16,767  |   |                                   |   | 17,107 |   |   |   | 50,298 |   |   |   | 49,254 |   |
| **TOTAL**                                                                                                        |   |                                    | 371,893 |   |                                   |   | 365,427 |   |   |   | 1,020,612 |   |   |   | 936,151 |   |
|                                                                                                             |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| **OPERATING                  INCOME**                                                                            |   |                                    | 76,617  |   |                                   |   | 91,273 |   |   |   | 118,019 |   |   |   | 185,165 |   |
|                                                                                                             |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| **Other                  Income (Expense):**                                                                     |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                  Income                                                                                 |   |                                    | 518     |   |                                   |   | 822 |   |   |   | 1,999 |   |   |   | 2,277 |   |
| Allowance                  for Equity Funds Used During Construction                                             |   |                                    | 3,681   |   |                                   |   | 287 |   |   |   | 7,634 |   |   |   | 400 |   |
| Interest                  Expense                                                                                |   |                                    | (15,966 | )      |                                   |   | (13,844 | ) |   |   | (48,691 | ) |   |   | (40,688 | ) |
|                                                                                                             |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| **INCOME                  BEFORE INCOME TAXES AND MINORITY****                   INTEREST****EXPENSE** |   |                                    | 64,850  |   |                                   |   | 78,538 |   |   |   | 78,961 |   |   |   | 147,154 |   |
|                                                                                                             |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| Income                  Tax Expense                                                                              |   |                                    | 19,811  |   |                                   |   | 27,873 |   |   |   | 20,879 |   |   |   | 49,187 |   |
| Minority                  Interest Expense                                                                       |   |                                    | 919     |   |                                   |   | 959 |   |   |   | 2,733 |   |   |   | 2,077 |   |
|                                                                                                             |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| **NET                  INCOME**                                                                                  |   |                                    | 44,120  |   |                                   |   | 49,706 |   |   |   | 55,349 |   |   |   | 95,890 |   |
|                                                                                                             |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| Preferred                  Stock Dividend Requirements                                                           |   |                                    | 58      |   |                                   |   | 57 |   |   |   | 172 |   |   |   | 172 |   |
|                                                                                                             |   |                                    |    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| **EARNINGS                  APPLICABLE TO COMMON STOCK**                                                         |   | $                                       | 44,062  |   |                                   | $      | 49,649 |   |   | $ | 55,177 |   |   | $ | 95,718 |   |

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

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

----

**SOUTHWESTERN        ELECTRIC POWER COMPANY CONSOLIDATED**

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

**EQUITY        AND COMPREHENSIVE INCOME (LOSS)**

**For        the Nine Months Ended September 30, 2007 and 2006**

**(in        thousands)**

**(Unaudited)**

|                                                                                   |   | **Common                  Stock** |    |   | **Paid-in                  Capital** |   |    | **Retained                  Earnings** |   |   | **Accumulated                  Other Comprehensive Income (Loss)** |   |   | **Total** |    |
|----------------------------------------------------------------------------------------|--------|-----------------------------------|---------|--------|--------------------------------------|--------|---------|----------------------------------------|--------|--------|--------------------------------------------------------------------|--------|--------|-----------|---------|
|                                                                                   |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |
| **DECEMBER                  31, 2005**                                                 |   | $                                 | 135,660 |   |                                 | $      | 245,003 |                                   |   | $      | 407,844                                                            |   |   | $         | (6,129  | ) |   | $ | 782,378 |   |
|                                                                                   |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| Common                  Stock Dividends                                                |   |                              |    |   |                                 |   |    |                                   |   |   | (30,000                                                            | )      |   |      |    |   |   |   | (30,000 | ) |
| Preferred                  Stock Dividends                                             |   |                              |    |   |                                 |   |    |                                   |   |   | (172                                                               | )      |   |      |    |   |   |   | (172 | ) |
| **TOTAL**                                                                              |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   | 752,206 |   |
|                                                                                   |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| **COMPREHENSIVE                  INCOME**                                              |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| **Other                  Comprehensive Loss,** **Net of                  Taxes:** |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| Cash                  Flow Hedges, Net of Tax of $817                                  |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      | (1,516  | ) |   |   | (1,516 | ) |
| **NET                  INCOME**                                                        |   |                              |    |   |                                 |   |    |                                   |   |   | 95,890                                                             |   |   |      |    |   |   |   | 95,890 |   |
| **TOTAL                  COMPREHENSIVE INCOME**                                        |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   | 94,374 |   |
|                                                                                   |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| **SEPTEMBER                  30, 2006**                                                |   | $                                 | 135,660 |   |                                 | $      | 245,003 |                                   |   | $      | 473,562                                                            |   |   | $         | (7,645  | ) |   | $ | 846,580 |   |
|                                                                                   |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| **DECEMBER                  31, 2006**                                                 |   | $                                 | 135,660 |   |                                 | $      | 245,003 |                                   |   | $      | 459,338                                                            |   |   | $         | (18,799 | ) |   | $ | 821,202 |   |
|                                                                                   |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| FIN                  48 Adoption, Net of Tax                                           |   |                              |    |   |                                 |   |    |                                   |   |   | (1,642                                                             | )      |   |      |    |   |   |   | (1,642 | ) |
| Capital                  Contribution from Parent                                      |   |                              |    |   |                                 |   | 55,000  |                                   |   |   |                                                               |   |   |      |    |   |   |   | 55,000 |   |
| Preferred                  Stock Dividends                                             |   |                              |    |   |                                 |   |    |                                   |   |   | (172                                                               | )      |   |      |    |   |   |   | (172 | ) |
| **TOTAL**                                                                              |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   | 874,388 |   |
|                                                                                   |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| **COMPREHENSIVE                  INCOME**                                              |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| **Other                  Comprehensive Income, Net of Taxes:**                         |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| Cash                  Flow Hedges, Net of Tax of $90                                   |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      | 168     |   |   |   | 168 |   |
| **NET                  INCOME**                                                        |   |                              |    |   |                                 |   |    |                                   |   |   | 55,349                                                             |   |   |      |    |   |   |   | 55,349 |   |
| **TOTAL                  COMPREHENSIVE INCOME**                                        |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   | 55,517 |   |
|                                                                                   |   |                              |    |   |                                 |   |    |                                   |   |   |                                                               |   |   |      |    |   |   |   |   |   |
| **SEPTEMBER                  30, 2007**                                                |   | $                                 | 135,660 |   |                                 | $      | 300,003 |                                   |   | $      | 512,873                                                            |   |   | $         | (18,631 | ) |   | $ | 929,905 |   |

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

----

**SOUTHWESTERN        ELECTRIC POWER COMPANY CONSOLIDATED**

**CONDENSED        CONSOLIDATED BALANCE SHEETS**

**ASSETS**

**September        30, 2007 and December 31, 2006**

**(in        thousands)**

**(Unaudited)**

|                                                             |   | **2007** |      |   | **2006** |   |
|------------------------------------------------------------------|--------|----------|-----------|--------|----------|--------|
| **CURRENT                  ASSETS**                              |   |     |      |   |     |   |
| Cash                  and Cash Equivalents                       |   | $        | 1,852     |   |     | $      | 2,618 |   |
| Accounts                  Receivable:                            |   |     |      |   |     |   |   |   |
|                    Customers                                |   |     | 50,382    |   |     |   | 88,245 |   |
|                    Affiliated Companies                     |   |     | 47,982    |   |     |   | 59,679 |   |
|                    Miscellaneous                            |   |     | 10,057    |   |     |   | 8,595 |   |
|                    Allowance for Uncollectible Accounts     |   |     | (24       | )      |     |   | (130 | ) |
|  Total                  Accounts Receivable                 |   |     | 108,397   |   |     |   | 156,389 |   |
| Fuel                                                             |   |     | 78,295    |   |     |   | 69,426 |   |
| Materials                  and Supplies                          |   |     | 48,716    |   |     |   | 46,001 |   |
| Risk                  Management Assets                          |   |     | 51,117    |   |     |   | 120,036 |   |
| Regulatory                  Asset for Under-Recovered Fuel Costs |   |     | 7,300     |   |     |   | - |   |
| Margin                  Deposits                                 |   |     | 4,199     |   |     |   | 41,579 |   |
| Prepayments                  and Other                           |   |     | 19,925    |   |     |   | 18,256 |   |
| **TOTAL**                                                        |   |     | 319,801   |   |     |   | 454,305 |   |
|                                                             |   |     |      |   |     |   |   |   |
| **PROPERTY,                  PLANT AND EQUIPMENT**               |   |     |      |   |     |   |   |   |
| Electric:                                                        |   |     |      |   |     |   |   |   |
|                    Production                               |   |     | 1,650,597 |   |     |   | 1,576,200 |   |
|                    Transmission                             |   |     | 719,033   |   |     |   | 668,008 |   |
|                    Distribution                             |   |     | 1,298,926 |   |     |   | 1,228,948 |   |
| Other                                                            |   |     | 627,145   |   |     |   | 595,429 |   |
| Construction                  Work in Progress                   |   |     | 412,704   |   |     |   | 259,662 |   |
| **Total**                                                        |   |     | 4,708,405 |   |     |   | 4,328,247 |   |
| Accumulated                  Depreciation and Amortization       |   |     | 1,910,411 |   |     |   | 1,834,145 |   |
| **TOTAL                  - NET**                                 |   |     | 2,797,994 |   |     |   | 2,494,102 |   |
|                                                             |   |     |      |   |     |   |   |   |
| **OTHER                  NONCURRENT ASSETS**                     |   |     |      |   |     |   |   |   |
| Regulatory                  Assets                               |   |     | 131,264   |   |     |   | 156,420 |   |
| Long-term                  Risk Management Assets                |   |     | 6,514     |   |     |   | 20,531 |   |
| Deferred                  Charges and Other                      |   |     | 75,529    |   |     |   | 65,610 |   |
| **TOTAL**                                                        |   |     | 213,307   |   |     |   | 242,561 |   |
|                                                             |   |     |      |   |     |   |   |   |
| **TOTAL                  ASSETS**                                |   | $        | 3,331,102 |   |     | $      | 3,190,968 |   |

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

----

**SOUTHWESTERN        ELECTRIC POWER COMPANY CONSOLIDATED**

**CONDENSED        CONSOLIDATED BALANCE SHEETS**

**LIABILITIES        AND SHAREHOLDERS’ EQUITY**

**September        30, 2007 and December 31, 2006**

**(Unaudited)**

|                                                                            |   | **2007**                            |      |   | **2006** |   |
|---------------------------------------------------------------------------------|--------|-------------------------------------|-----------|--------|----------|--------|
| **CURRENT                  LIABILITIES**                                        |   | **(in                  thousands)** |      |
| Advances                  from Affiliates                                       |   | $                                   | 155,869   |   |     | $      | 188,965 |   |
| Accounts                  Payable:                                              |   |                                |      |   |     |   |   |   |
| General                                                                         |   |                                | 136,071   |   |     |   | 140,424 |   |
| Affiliated                  Companies                                           |   |                                | 65,692    |   |     |   | 68,680 |   |
| Short-term                  Debt – Nonaffiliated                          |   |                                | 25,897    |   |     |   | 17,143 |   |
| Long-term                  Debt Due Within One Year – Nonaffiliated       |   |                                | 6,655     |   |     |   | 102,312 |   |
| Risk                  Management Liabilities                                    |   |                                | 38,345    |   |     |   | 109,578 |   |
| Customer                  Deposits                                              |   |                                | 39,225    |   |     |   | 48,277 |   |
| Accrued                  Taxes                                                  |   |                                | 54,784    |   |     |   | 31,591 |   |
| Regulatory                  Liability for Over-Recovered Fuel Costs             |   |                                | 30,495    |   |     |   | 26,012 |   |
| Other                                                                           |   |                                | 67,680    |   |     |   | 85,086 |   |
| **TOTAL**                                                                       |   |                                | 620,713   |   |     |   | 818,068 |   |
|                                                                            |   |                                |      |   |     |   |   |   |
| **NONCURRENT                  LIABILITIES**                                     |   |                                |      |   |     |   |   |   |
| Long-term                  Debt – Nonaffiliated                           |   |                                | 818,429   |   |     |   | 576,694 |   |
| Long-term                  Debt – Affiliated                              |   |                                | 50,000    |   |     |   | 50,000 |   |
| Long-term                  Risk Management Liabilities                          |   |                                | 6,729     |   |     |   | 14,083 |   |
| Deferred                  Income Taxes                                          |   |                                | 354,175   |   |     |   | 374,548 |   |
| Regulatory                  Liabilities and Deferred Investment Tax Credits     |   |                                | 330,070   |   |     |   | 346,774 |   |
| Deferred                  Credits and Other                                     |   |                                | 214,505   |   |     |   | 183,087 |   |
| **TOTAL**                                                                       |   |                                | 1,773,908 |   |     |   | 1,545,186 |   |
|                                                                            |   |                                |      |   |     |   |   |   |
| **TOTAL                  LIABILITIES**                                          |   |                                | 2,394,621 |   |     |   | 2,363,254 |   |
|                                                                            |   |                                |      |   |     |   |   |   |
| Minority                  Interest                                              |   |                                | 1,879     |   |     |   | 1,815 |   |
|                                                                            |   |                                |      |   |     |   |   |   |
| Cumulative                  Preferred Stock Not Subject to Mandatory Redemption |   |                                | 4,697     |   |     |   | 4,697 |   |
|                                                                            |   |                                |      |   |     |   |   |   |
| Commitments                  and Contingencies (Note 4)                         |   |                                |      |   |     |   |   |   |
|                                                                            |   |                                |      |   |     |   |   |   |
| **COMMON                  SHAREHOLDER’S EQUITY**                          |   |                                |      |   |     |   |   |   |
| Common                  Stock – Par Value – $18 Per Share:          |   |                                |      |   |     |   |   |   |
| Authorized                  – 7,600,000 Shares                            |   |                                |      |   |     |   |   |   |
| Outstanding                  – 7,536,640 Shares                           |   |                                | 135,660   |   |     |   | 135,660 |   |
| Paid-in                  Capital                                                |   |                                | 300,003   |   |     |   | 245,003 |   |
| Retained                  Earnings                                              |   |                                | 512,873   |   |     |   | 459,338 |   |
| Accumulated                  Other Comprehensive Income (Loss)                  |   |                                | (18,631   | )      |     |   | (18,799 | ) |
| **TOTAL**                                                                       |   |                                | 929,905   |   |     |   | 821,202 |   |
|                                                                            |   |                                |      |   |     |   |   |   |
| **TOTAL                  LIABILITIES AND SHAREHOLDERS’ EQUITY**           |   | $                                   | 3,331,102 |   |     | $      | 3,190,968 |   |

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

----

**SOUTHWESTERN        ELECTRIC POWER COMPANY CONSOLIDATED**

**CONDENSED        CONSOLIDATED STATEMENTS OF CASH FLOWS**

**For        the Nine Months Ended September 30, 2007 and 2006**

**(in        thousands)**

**(Unaudited)**

|                                                                                                                   |   | **2007** |     |   | **2006** |   |
|------------------------------------------------------------------------------------------------------------------------|--------|----------|----------|--------|----------|--------|
| **OPERATING                  ACTIVITIES**                                                                              |   |     |     |   |     |   |
| **Net                  Income**                                                                                        |   | $        | 55,349   |   |     | $      | 95,890 |   |
| **Adjustments                  to Reconcile Net Income to Net Cash Flows from Operating                  Activities:** |   |     |     |   |     |   |   |   |
| Depreciation                  and Amortization                                                                         |   |     | 103,395  |   |     |   | 98,655 |   |
| Deferred                  Income Taxes                                                                                 |   |     | (17,863  | )      |     |   | (24,642 | ) |
| Provision                  for Fuel Disallowance                                                                       |   |     | 24,074   |   |     |   | - |   |
| Mark-to-Market                  of Risk Management Contracts                                                           |   |     | 7,706    |   |     |   | 10,870 |   |
| Deferred                  Property Taxes                                                                               |   |     | (9,172   | )      |     |   | (9,438 | ) |
| Change                  in Other Noncurrent Assets                                                                     |   |     | 2,536    |   |     |   | 20,733 |   |
| Change                  in Other Noncurrent Liabilities                                                                |   |     | (7,134   | )      |     |   | (33,256 | ) |
| **Changes                  in Certain Components of Working Capital:**                                                 |   |     |     |   |     |   |   |   |
| Accounts                  Receivable, Net                                                                              |   |     | 47,992   |   |     |   | (9,872 | ) |
| Fuel,                  Materials and Supplies                                                                          |   |     | (11,572  | )      |     |   | (26,739 | ) |
| Margin                  Deposits                                                                                       |   |     | 37,380   |   |     |   | (28,492 | ) |
| Accounts                  Payable                                                                                      |   |     | (21,603  | )      |     |   | 54,264 |   |
| Accrued                  Taxes, Net                                                                                    |   |     | 25,556   |   |     |   | 45,514 |   |
|    Fuel                  Over/Under Recovery, Net                                                       |   |     | (26,891  | )      |     |   | 63,862 |   |
| Other                  Current Assets                                                                                  |   |     | (687     | )      |     |   | 2,635 |   |
| Other                  Current Liabilities                                                                             |   |     | (28,920  | )      |     |   | (17,263 | ) |
| **Net                  Cash Flows From Operating Activities**                                                          |   |     | 180,146  |   |     |   | 242,721 |   |
|                                                                                                                   |   |     |     |   |     |   |   |   |
| **INVESTING                  ACTIVITIES**                                                                              |   |     |     |   |     |   |   |   |
| Construction                  Expenditures                                                                             |   |     | (353,107 | )      |     |   | (179,117 | ) |
| Change                  in Advances to Affiliates, Net                                                                 |   |     | -        |   |     |   | (7,018 | ) |
| Other                                                                                                                  |   |     | 106      |   |     |   | (496 | ) |
| **Net                  Cash Flows Used For Investing Activities**                                                      |   |     | (353,001 | )      |     |   | (186,631 | ) |
|                                                                                                                   |   |     |     |   |     |   |   |   |
| **FINANCING                  ACTIVITIES**                                                                              |   |     |     |   |     |   |   |   |
| Capital                  Contribution from Parent                                                                      |   |     | 55,000   |   |     |   | - |   |
| Issuance                  of Long-term Debt – Nonaffiliated                                                      |   |     | 247,496  |   |     |   | 80,593 |   |
| Change                  in Short-term Debt, Net – Nonaffiliated                                                  |   |     | 8,754    |   |     |   | 14,282 |   |
| Change                  in Advances from Affiliates, Net                                                               |   |     | (33,096  | )      |     |   | (28,210 | ) |
| Retirement                  of Long-term Debt – Nonaffiliated                                                    |   |     | (100,460 | )      |     |   | (88,989 | ) |
| Retirement                  of Cumulative Preferred Stock                                                              |   |     | -        |   |     |   | (2 | ) |
| Principal                  Payments for Capital Lease Obligations                                                      |   |     | (5,433   | )      |     |   | (3,845 | ) |
| Dividends                  Paid on Common Stock                                                                        |   |     | -        |   |     |   | (30,000 | ) |
| Dividends                  Paid on Cumulative Preferred Stock                                                          |   |     | (172     | )      |     |   | (172 | ) |
| **Net                  Cash Flows From (Used For) Financing Activities**                                               |   |     | 172,089  |   |     |   | (56,343 | ) |
|                                                                                                                   |   |     |     |   |     |   |   |   |
| **Net                  Decrease in Cash and Cash Equivalents**                                                         |   |     | (766     | )      |     |   | (253 | ) |
| **Cash                  and Cash Equivalents at Beginning of Period**                                                  |   |     | 2,618    |   |     |   | 3,049 |   |
| **Cash                  and Cash Equivalents at End of Period**                                                        |   | $        | 1,852    |   |     | $      | 2,796 |   |
|                                                                                                                   |   |     |     |   |     |   |   |   |
| **SUPPLEMENTARY                  INFORMATION**                                                                         |   |     |     |   |     |   |   |   |
| Cash                  Paid for Interest, Net of Capitalized Amounts                                                    |   | $        | 44,662   |   |     | $      | 37,372 |   |
| Net                  Cash Paid for Income Taxes                                                                        |   |     | 37,479   |   |     |   | 53,509 |   |
| Noncash                  Acquisitions Under Capital Leases                                                             |   |     | 19,567   |   |     |   | 17,110 |   |
| Construction                  Expenditures Included in Accounts Payable at September 30,                               |   |     | 41,978   |   |     |   | 8,924 |   |

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

----

**SOUTHWESTERN        ELECTRIC POWER COMPANY CONSOLIDATED**

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

**REGISTRANT        SUBSIDIARIES**

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

----

**CONDENSED          NOTES TO CONDENSED FINANCIAL STATEMENTS OF**

**REGISTRANT          SUBSIDIARIES**

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

----

| **1.** | **SIGNIFICANT                    ACCOUNTING MATTERS** |
|--------|-------------------------------------------------------|

***General***

***Property,          Plant and Equipment and Equity Investments***

***Inventory***

***Revenue          Recognition***

*Traditional          Electricity Supply and Delivery Activities*

*Energy          Marketing and Risk Management Activities*

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

|                                     |   | **September                    30,**  |    |   | **December                    31,** |   |
|------------------------------------------|--------|---------------------------------------|---------|--------|-------------------------------------|--------|
|                                     |   | **2007**                              |    |   | **2006**                            |   |
| **Components**                           |   | **(in                    thousands)** |    |
| **Cash                    Flow Hedges:** |   |                                  |    |   |                                |   |
| APCo                                     |   | $                                     | (3,547  | )      |                                | $      | (2,547 | ) |
| CSPCo                                    |   |                                  | 1,113   |   |                                |   | 3,398 |   |
| I&M                                  |   |                                  | (10,709 | )      |                                |   | (8,962 | ) |
| OPCo                                     |   |                                  | 3,776   |   |                                |   | 7,262 |   |
| PSO                                      |   |                                  | (933    | )      |                                |   | (1,070 | ) |
| SWEPCo                                   |   |                                  | (6,242  | )      |                                |   | (6,410 | ) |
|                                     |   |                                  |    |   |                                |   |   |   |
| **SFAS                    158 Costs:**   |   |                                  |    |   |                                |   |   |   |
| APCo                                     |   | $                                     | (40,999 | )      |                                | $      | (52,244 | ) |
| CSPCo                                    |   |                                  | (25,386 | )      |                                |   | (25,386 | ) |
| I&M                                  |   |                                  | (6,089  | )      |                                |   | (6,089 | ) |
| OPCo                                     |   |                                  | (64,025 | )      |                                |   | (64,025 | ) |
| SWEPCo                                   |   |                                  | (12,389 | )      |                                |   | (12,389 | ) |

|    |   | **September                    30, 2007** |   |
|---------|--------|-------------------------------------------|--------|
|    |   | **(in                    thousands)**     |   |   | **(in                    months)** |   |
| APCo    |   | $                                         | 740    |   |   |   | 20 |   |
| CSPCo   |   |                                      | 643    |   |   |   | 20 |   |
| I&M |   |                                      | (390   | ) |   |   | 20 |   |
| OPCo    |   |                                      | 1,576  |   |   |   | 20 |   |
| PSO     |   |                                      | (183   | ) |   |   | - |   |
| SWEPCo  |   |                                      | (829   | ) |   |   | 33 |   |

***Related          Party Transactions***

**Lawrenceburg          Unit Power Agreement**
**UPA) between CSPCo and          AEGCo**

**ERCOT          Contracts Transferred to AEPEP**

|        |   | **For                    the Three Months Ended September 30, 2007** |   |
|-------------|--------|----------------------------------------------------------------------|--------|
|        |   |                                                                 |   | **Third                    Party Amounts** |   | **Net                    Amount** |   |
|        |   | **Net                    Settlement**                                |   | **Reclassified                    to** |   | **included                    in Sales** |   |
|        |   | **With                    AEPEP**                                    |   | **Affiliate** |   | **to                    AEP Affiliates** |   |
| **Company** |   | **(in                    thousands)**                                |   |
| PSO         |   | $                                                                    | 61,702 |   | $ | (67,759 | ) | $ | 6,057 |   |
| SWEPCo      |   |                                                                 | 77,784 |   |   | (84,920 | ) |   | 7,136 |   |

|        |   | **For                    the Nine Months Ended September 30, 2007** |    |
|-------------|--------|---------------------------------------------------------------------|---------|
|        |   |                                                                |    | **Third                    Party Amounts** |   | **Net                    Amount** |   |
|        |   | **Net                    Settlement**                               |    | **Reclassified                    to** |   | **included                    in Sales** |   |
|        |   | **With                    AEPEP**                                   |    | **Affiliate** |   | **to                    AEP Affiliates** |   |
| **Company** |   | **(in                    thousands)**                               |    |
| PSO         |   | $                                                                   | 138,145 |   | $ | (133,903 | ) | $ | (4,242 | ) |
| SWEPCo      |   |                                                                | 171,338 |   |   | (166,339 | ) |   | (4,999 | ) |

|                                                     |   | **As                    of September 30, 2007** |   |
|----------------------------------------------------------|--------|-------------------------------------------------|--------|
|                                                     |   | **PSO**                                         |   | **SWEPCo** |   |
| **Current**                                              |   | **(in                    thousands)**           |   |
| Risk                    Management Assets                |   | $                                               | 19,116 |   | $ | 22,546 |   |
| Risk                    Management Liabilities           |   |                                            | (520   | ) |   | (614 | ) |
|                                                     |   |                                            |   |   |   |   |   |
| **Noncurrent**                                           |   |                                            |   |   |   |   |   |
| Long-term                    Risk Management Assets      |   | $                                               | 2,510  |   | $ | 2,960 |   |
| Long-term                    Risk Management Liabilities |   |                                            | -      |   |   | - |   |

**Texas          Restructuring – SPP**

***Reclassifications***

|        |   | **Three                    Months Ended** |   | **Nine                    Months Ended**  |   |
|-------------|--------|-------------------------------------------|--------|-------------------------------------------|--------|
|        |   | **September                    30, 2006** |   | **September                    30, 2006** |   |
| **Company** |   | **(in                    thousands)**     |   |
| APCo        |   | $                                         | 110    |                                      | $      | 708 |   |
| I&M     |   |                                      | 5,509  |                                      |   | 17,216 |   |

| **2.** | **NEW                    ACCOUNTING PRONOUNCEMENTS AND EXTRAORDINARY                    ITEM** |
|--------|------------------------------------------------------------------------------------------------|

**NEW          ACCOUNTING PRONOUNCEMENTS**

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

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

***EITF            Issue No. 06-11 “Accounting for Income Tax Benefits of Dividends on Share-Based            Payment Awards” (EITF 06-11)***

***FIN            48 “Accounting for Uncertainty in Income Taxes” and FASB Staff Position FIN 48-1“Definition of Settlement in FASB ***

***                        Interpretation No. 48” (FIN 48)***

*Settlement*

| **Company** |   | **(in                    thousands)** |   |
|-------------|--------|---------------------------------------|--------|
| APCo        |   | $                                     | 2,685  |   |
| CSPCo       |   |                                  | 3,022  |   |
| I&M     |   |                                  | (327   | ) |
| OPCo        |   |                                  | 5,380  |   |
| PSO         |   |                                  | 386    |   |
| SWEPCo      |   |                                  | 1,642  |   |

***FIN          39-1 “Amendment of FASB Interpretation No. 39” (FIN          39-1)***

***Future          Accounting Changes***

**EXTRAORDINARY          ITEM**

| **3.** | **RATE                    MATTERS** |
|--------|-------------------------------------|

**Ohio          Rate Matters**

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

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

***Ohio          IGCC Plant – CSPCo and OPCo***

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

***Ormet          – Affecting CSPCo and OPCo***

**Texas          Rate Matters**

***SWEPCo          Fuel Reconciliation – Texas – Affecting SWEPCo***

***Stall          Unit – Affecting SWEPCo***

***Turk          Plant – Affecting SWEPCo***

**Virginia          Rate Matters**

***Virginia          Restructuring – Affecting APCo***

***Virginia          Base Rate Case – Affecting APCo***

***Virginia          E&R Costs Recovery Filing – Affecting APCo***

***Virginia          Fuel Clause Filing – Affecting APCo***

***West          Virginia IGCC Plant – Affecting APCo***

**West          Virginia Rate Matters**

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

***West          Virginia IGCC Plant – Affecting APCo***

**.  **

**Indiana          Rate Matters**

***Indiana          Depreciation Study Filing – Affecting I&M***

***Indiana          Rate Filing – Affecting I&M***

***Indiana          Rate Cap – Affecting I&M***

**Michigan          Rate Matters**

***Michigan          Depreciation Study Filing***
***– Affecting          I&M***

**Oklahoma          Rate Matters**

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

***Oklahoma          Rate Filing – Affecting PSO***

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

***Red          Rock Generating Facility – Affecting PSO***

***2007          Oklahoma Ice Storm – Affecting PSO***

**Louisiana          Rate Matters**

***Louisiana          Compliance Filing – Affecting SWEPCo***

***Stall          Unit – Affecting SWEPCo***

***Turk          Plant – Affecting SWEPCo***

**Arkansas          Rate Matters**

***Turk          Plant – Affecting SWEPCo***

***Stall          Unit – Affecting SWEPCo***

**FERC          Rate Matters**

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

*SECA          Revenue Subject to Refund*

| **Company** |   | **(in                    millions)** |   |
|-------------|--------|--------------------------------------|--------|
| APCo        |   | $                                    | 70.2   |   |
| CSPCo       |   |                                 | 38.8   |   |
| I&M     |   |                                 | 41.3   |   |
| OPCo        |   |                                 | 53.3   |   |

| **Company** |   | **(in                    millions)** |   |
|-------------|--------|--------------------------------------|--------|
| APCo        |   | $                                    | 12.0   |   |
| CSPCo       |   |                                 | 6.7    |   |
| I&M     |   |                                 | 7.0    |   |
| OPCo        |   |                                 | 9.1    |   |

*The          FERC PJM Regional Transmission Rate Proceeding*

*The          FERC PJM and MISO Regional Transmission Rate Proceeding*

***SPP          Transmission Formula Rate Filing – Affecting PSO and          SWEPCo***

***PJM          Marginal-Loss Pricing****– Affecting APCo, CSPCo, I&M and          OPCo***

| **Company** |   | **(in                    millions)** |   |
|-------------|--------|--------------------------------------|--------|
| APCo        |   | $                                    | 6      |   |
| CSPCo       |   |                                 | 5      |   |
| I&M     |   |                                 | 5      |   |
| OPCo        |   |                                 | 5      |   |

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

**GUARANTEES**

***Letters          of Credit***

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

*SWEPCo*

***Indemnifications          and Other Guarantees***

*Contracts*

*Master          Operating Lease*

|        |   | **Maximum**                          |   |
|-------------|--------|--------------------------------------|--------|
|        |   | **Potential**                        |   |
|        |   | **Loss**                             |   |
| **Company** |   | **(in                    millions)** |   |
| APCo        |   | $                                    | 9      |   |
| CSPCo       |   |                                 | 4      |   |
| I&M     |   |                                 | 6      |   |
| OPCo        |   |                                 | 8      |   |
| PSO         |   |                                 | 5      |   |
| SWEPCo      |   |                                 | 6      |   |

**CONTINGENCIES**

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

|    |   | **Incurred                    Capital**             |   |   |                                    |
|---------|--------|-----------------------------------------------------|--------|--------|-----------------------------------------|
|    |   | **Amount                    Through**               |   |   | **Budgeted                    Capital** |
|    |   | **December                    31,  2006** |   |   | **2007                    - 2010**      |
|    |   | **(in                    millions)**                |
| APCo    |   | $                                                   | 923    |   |                                    | $ | 944 |
| CSPCo   |   |                                                | 194    |   |                                    |   | 374 |
| I&M |   |                                                | 98     |   |                                    |   | 77 |
| OPCo    |   |                                                | 1,253  |   |                                    |   | 891 |

|    |   |                                  |   |   | **Environmental**                       |   | **Total                    Expensed in** |
|---------|--------|---------------------------------------|--------|--------|-----------------------------------------|--------|------------------------------------------|
|    |   | **Penalty**                           |   |   | **Mitigation                    Costs** |   | **September                    2007**    |
|    |   | **(in                    thousands)** |
| APCo    |   | $                                     | 4,974  |   |                                    | $      | 20,659                                   |   | $ | 25,633 |
| CSPCo   |   |                                  | 2,883  |   |                                    |   | 11,973                                   |   |   | 14,856 |
| I&M |   |                                  | 2,770  |   |                                    |   | 11,503                                   |   |   | 14,273 |
| OPCo    |   |                                  | 3,355  |   |                                    |   | 13,935                                   |   |   | 17,290 |

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

***Carbon          Dioxide (CO2 )          Public Nuisance Claims – Affecting AEP East Companies and AEP West          Companies***

***TEM          Litigation – Affecting OPCo***

***Coal          Transportation Dispute – Affecting PSO***

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

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

| **5.** | **ACQUISITION** |
|--------|-----------------|

***Darby          Electric Generating Station – Affecting CSPCo***

| ** 6.** | **BENEFIT                    PLANS** |
|--------------|--------------------------------------|

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

|                                                                  |   |                                 |   |   | **Other**                            |   |
|-----------------------------------------------------------------------|--------|--------------------------------------|--------|--------|--------------------------------------|--------|
|                                                                  |   |                                 |   |   | **Postretirement**                   |   |
|                                                                  |   | **Pension                    Plans** |   |   | **Benefit                    Plans** |   |
|                                                                  |   | **2007**                             |   |   | **2006**                             |   |   | **2007** |   |   | **2006** |   |
| **Three                    Months Ended September 30, 2007 and 2006** |   | **(in                    millions)** |   |
| Service                    Cost                                       |   | $                                    | 24     |   |                                 | $      | 23 |   |   | $ | 11 |   |   | $ | 10 |   |
| Interest                    Cost                                      |   |                                 | 59     |   |                                 |   | 57 |   |   |   | 26 |   |   |   | 26 |   |
| Expected                    Return on Plan Assets                     |   |                                 | (85    | )      |                                 |   | (82 | ) |   |   | (26 | ) |   |   | (24 | ) |
| Amortization                    of Transition Obligation              |   |                                 | -      |   |                                 |   | - |   |   |   | 6 |   |   |   | 7 |   |
| Amortization                    of Net Actuarial Loss                 |   |                                 | 15     |   |                                 |   | 20 |   |   |   | 3 |   |   |   | 5 |   |
| **Net                    Periodic Benefit Cost**                      |   | $                                    | 13     |   |                                 | $      | 18 |   |   | $ | 20 |   |   | $ | 24 |   |

|                                                                 |   |                                 |   |   | **Other**                            |   |
|----------------------------------------------------------------------|--------|--------------------------------------|--------|--------|--------------------------------------|--------|
|                                                                 |   |                                 |   |   | **Postretirement**                   |   |
|                                                                 |   | **Pension                    Plans** |   |   | **Benefit                    Plans** |   |
|                                                                 |   | **2007**                             |   |   | **2006**                             |   |   | **2007** |   |   | **2006** |   |
| **Nine                    Months Ended September 30, 2007 and 2006** |   | **(in                    millions)** |   |
| Service                    Cost                                      |   | $                                    | 72     |   |                                 | $      | 71 |   |   | $ | 32 |   |   | $ | 30 |   |
| Interest                    Cost                                     |   |                                 | 176    |   |                                 |   | 171 |   |   |   | 78 |   |   |   | 76 |   |
| Expected                    Return on Plan Assets                    |   |                                 | (254   | )      |                                 |   | (248 | ) |   |   | (78 | ) |   |   | (70 | ) |
| Amortization                    of Transition Obligation             |   |                                 | -      |   |                                 |   | - |   |   |   | 20 |   |   |   | 21 |   |
| Amortization                    of Net Actuarial Loss                |   |                                 | 44     |   |                                 |   | 59 |   |   |   | 9 |   |   |   | 15 |   |
| **Net                    Periodic Benefit Cost**                     |   | $                                    | 38     |   |                                 | $      | 53 |   |   | $ | 61 |   |   | $ | 72 |   |

|                                                                  |   |                                  |   |   | **Other                    Postretirement** |   |
|-----------------------------------------------------------------------|--------|---------------------------------------|--------|--------|---------------------------------------------|--------|
|                                                                  |   | **Pension                    Plans**  |   |   | **Benefit                    Plans**        |   |
|                                                                  |   | **2007**                              |   |   | **2006**                                    |   |   | **2007** |   |   | **2006** |   |
| **Three                    Months Ended September 30, 2007 and 2006** |   | **(in                    thousands)** |   |
| APCo                                                                  |   | $                                     | 841    |   |                                        | $      | 1,469 |   |   | $ | 3,560 |   |   | $ | 4,487 |   |
| CSPCo                                                                 |   |                                  | (258   | )      |                                        |   | 205 |   |   |   | 1,491 |   |   |   | 1,807 |   |
| I&M                                                               |   |                                  | 1,900  |   |                                        |   | 2,331 |   |   |   | 2,530 |   |   |   | 2,949 |   |
| OPCo                                                                  |   |                                  | 362    |   |                                        |   | 823 |   |   |   | 2,802 |   |   |   | 3,395 |   |
| PSO                                                                   |   |                                  | 425    |   |                                        |   | 979 |   |   |   | 1,431 |   |   |   | 1,588 |   |
| SWEPCo                                                                |   |                                  | 747    |   |                                        |   | 1,222 |   |   |   | 1,420 |   |   |   | 1,578 |   |

|                                                                 |   |                                  |   |   | **Other                    Postretirement** |   |
|----------------------------------------------------------------------|--------|---------------------------------------|--------|--------|---------------------------------------------|--------|
|                                                                 |   | **Pension                    Plans**  |   |   | **Benefit                    Plans**        |   |
|                                                                 |   | **2007**                              |   |   | **2006**                                    |   |   | **2007** |   |   | **2006** |   |
| **Nine                    Months Ended September 30, 2007 and 2006** |   | **(in                    thousands)** |   |
| APCo                                                                 |   | $                                     | 2,525  |   |                                        | $      | 4,406 |   |   | $ | 10,680 |   |   | $ | 13,465 |   |
| CSPCo                                                                |   |                                  | (773   | )      |                                        |   | 615 |   |   |   | 4,473 |   |   |   | 5,417 |   |
| I&M                                                              |   |                                  | 5,700  |   |                                        |   | 6,992 |   |   |   | 7,591 |   |   |   | 8,855 |   |
| OPCo                                                                 |   |                                  | 1,088  |   |                                        |   | 2,478 |   |   |   | 8,405 |   |   |   | 10,187 |   |
| PSO                                                                  |   |                                  | 1,273  |   |                                        |   | 2,935 |   |   |   | 4,292 |   |   |   | 4,764 |   |
| SWEPCo                                                               |   |                                  | 2,240  |   |                                        |   | 3,672 |   |   |   | 4,258 |   |   |   | 4,734 |   |

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

| **7.** | **BUSINESS                    SEGMENTS** |
|--------|------------------------------------------|

| ** 8.** | **INCOME                    TAXES** |
|--------------|-------------------------------------|

***Audit          Status***

***FIN          48 Adoption***

| **Company** |   | **(in                    thousands)** |   |
|-------------|--------|---------------------------------------|--------|
| APCo        |   | $                                     | 2,685  |   |
| CSPCo       |   |                                  | 3,022  |   |
| I&M     |   |                                  | (327   | ) |
| OPCo        |   |                                  | 5,380  |   |
| PSO         |   |                                  | 386    |   |
| SWEPCo      |   |                                  | 1,642  |   |

| **Company** |   | **(in                    millions)** |   |
|-------------|--------|--------------------------------------|--------|
| APCo        |   | $                                    | 21.7   |   |
| CSPCo       |   |                                 | 25.0   |   |
| I&M     |   |                                 | 18.2   |   |
| OPCo        |   |                                 | 49.8   |   |
| PSO         |   |                                 | 8.9    |   |
| SWEPCo      |   |                                 | 7.1    |   |

| **Company** |   | **(in                    millions)** |   |
|-------------|--------|--------------------------------------|--------|
| APCo        |   | $                                    | 5.5    |   |
| CSPCo       |   |                                 | 9.3    |   |
| I&M     |   |                                 | 6.0    |   |
| OPCo        |   |                                 | 9.0    |   |
| PSO         |   |                                 | 4.4    |   |
| SWEPCo      |   |                                 | 2.8    |   |

| **Company** |   | **(in                    millions)** |   |
|-------------|--------|--------------------------------------|--------|
| APCo        |   | $                                    | 5.4    |   |
| CSPCo       |   |                                 | 13.8   |   |
| I&M     |   |                                 | 5.4    |   |
| OPCo        |   |                                 | 23.4   |   |
| PSO         |   |                                 | 1.2    |   |
| SWEPCo      |   |                                 | 1.2    |   |

| **Company** |   | **(in                    millions)** |   |
|-------------|--------|--------------------------------------|--------|
| APCo        |   | $                                    | 13.7   |   |
| CSPCo       |   |                                 | 3.9    |   |
| I&M     |   |                                 | 10.3   |   |
| OPCo        |   |                                 | 14.2   |   |
| PSO         |   |                                 | 7.1    |   |
| SWEPCo      |   |                                 | 5.1    |   |

| **Company** |   | **(in                    millions)** |   |
|-------------|--------|--------------------------------------|--------|
| APCo        |   | $                                    | 4.6    |   |
| CSPCo       |   |                                 | 1.7    |   |
| I&M     |   |                                 | 2.8    |   |
| OPCo        |   |                                 | 4.3    |   |
| PSO         |   |                                 | 2.7    |   |
| SWEPCo      |   |                                 | 2.0    |   |

***Michigan          Tax Restructuring (Affecting I&M)***

| ** 9.** | **FINANCING                    ACTIVITIES** |
|--------------|---------------------------------------------|

***Long-term          Debt***

|           |   |                                       |   | **Principal**                         |    | **Interest** |     | **Due**  |
|----------------|--------|--------------------------------------------|--------|---------------------------------------|---------|--------------|----------|----------|
| **Company**    |   | **Type                    of Debt**        |   | **Amount**                            |    | **Rate**     |     | **Date** |
|           |   |                                       |   | **(in                    thousands)** |    | **(%)**      |     |     |
| **Issuances:** |   |                                       |   |                                  |    |         |     |     |   |
| APCo           |   | Pollution                    Control Bonds |   | $                                     | 75,000  |         | Variable |     | 2037 |
| APCo           |   | Senior                    Unsecured Notes  |   |                                  | 250,000 |         | 5.65     |     | 2012 |
| APCo           |   | Senior                    Unsecured Notes  |   |                                  | 250,000 |         | 6.70     |     | 2037 |
| CSPCo          |   | Pollution                    Control Bonds |   |                                  | 44,500  |         | Variable |     | 2040 |
| OPCo           |   | Pollution                    Control Bonds |   |                                  | 65,000  |         | 4.90     |     | 2037 |
| OPCo           |   | Senior                    Unsecured Notes  |   |                                  | 400,000 |         | Variable |     | 2010 |
| PSO            |   | Pollution                    Control Bonds |   |                                  | 12,660  |         | 4.45     |     | 2020 |
| SWEPCo         |   | Senior                    Unsecured Notes  |   |                                  | 250,000 |         | 5.55     |     | 2017 |

|                                                       |   |                                                   |   | **Principal**                         |    | **Interest** |     | **Due**  |
|------------------------------------------------------------|--------|--------------------------------------------------------|--------|---------------------------------------|---------|--------------|----------|----------|
| **Company**                                                |   | **Type                    of Debt**                    |   | **Amount**                            |    | **Rate**     |     | **Date** |
|                                                       |   |                                                   |   | **(in                    thousands)** |    | **(%)**      |     |     |
| **Retirements                    and Principal Payments:** |   |                                                   |   |                                  |    |         |     |
| APCo                                                       |   | Senior                    Unsecured Notes              |   | $                                     | 125,000 |         | Variable |     | 2007 |
| APCo                                                       |   | Other                                                  |   |                                  | 9       |         | 13.718   |     | 2026 |
| OPCo                                                       |   | Notes                    Payable – Nonaffiliated |   |                                  | 2,927   |         | 6.81     |     | 2008 |
| OPCo                                                       |   | Notes                    Payable – Nonaffiliated |   |                                  | 6,000   |         | 6.27     |     | 2009 |
| PSO                                                        |   | Pollution                    Control Bonds             |   |                                  | 12,660  |         | 6.00     |     | 2020 |
| SWEPCo                                                     |   | First                    Mortgage Bonds                |   |                                  | 90,000  |         | 7.00     |     | 2007 |
| SWEPCo                                                     |   | Notes                    Payable – Nonaffiliated |   |                                  | 4,210   |         | 4.47     |     | 2011 |
| SWEPCo                                                     |   | Notes                    Payable – Nonaffiliated |   |                                  | 4,000   |         | 6.36     |     | 2007 |
| SWEPCo                                                     |   | Notes                    Payable – Nonaffiliated |   |                                  | 2,250   |         | Variable |     | 2008 |

***Lines          of Credit – AEP System***

|        |   |                                  |    |   |                              |   |   |                                |   |   |                                 |   |   | **Loans/**                                |   |   |           |   |
|-------------|--------|---------------------------------------|---------|--------|-----------------------------------|--------|--------|-------------------------------------|--------|--------|--------------------------------------|--------|--------|-------------------------------------------|--------|--------|----------------|--------|
|        |   | **Maximum**                           |    |   | **Maximum**                       |   |   | **Average**                         |   |   | **Average**                          |   |   | **(Borrowings)**                          |   |   | **Authorized** |   |
|        |   | **Borrowings**                        |    |   | **Loans                    to**   |   |   | **Borrowings**                      |   |   | **Loans                    to**      |   |   | **to/from                    Utility**    |   |   | **Short-Term** |   |
|        |   | **from                    Utility**   |    |   | **Utility**                       |   |   | **from                    Utility** |   |   | **Utility                    Money** |   |   | **Money                    Pool as of**   |   |   | **Borrowing**  |   |
|        |   | **Money                    Pool**     |    |   | **Money                    Pool** |   |   | **Money                    Pool**   |   |   | **Pool**                             |   |   | **September                    30, 2007** |   |   | **Limit**      |   |
| **Company** |   | **(in                    thousands)** |    |
| APCo        |   | $                                     | 406,262 |   |                              | $      | 96,543 |                                |   | $      | 147,582                              |   |   | $                                         | 48,303 |   |           | $      | 38,573 |   |   | $ | 600,000 |   |
| CSPCo       |   |                                  | 137,696 |   |                              |   | 35,270 |                                |   |   | 51,927                               |   |   |                                      | 13,551 |   |           |   | (123,043 | ) |   |   | 350,000 |   |
| I&M     |   |                                  | 100,374 |   |                              |   | 52,748 |                                |   |   | 50,998                               |   |   |                                      | 34,749 |   |           |   | (24,234 | ) |   |   | 500,000 |   |
| OPCo        |   |                                  | 447,335 |   |                              |   | 1,564  |                                |   |   | 161,746                              |   |   |                                      | 1,564  |   |           |   | (85,341 | ) |   |   | 600,000 |   |
| PSO         |   |                                  | 242,097 |   |                              |   | -      |                                |   |   | 133,404                              |   |   |                                      | -      |   |           |   | (187,492 | ) |   |   | 300,000 |   |
| SWEPCo      |   |                                  | 240,786 |   |                              |   | 48,979 |                                |   |   | 79,890                               |   |   |                                      | 29,653 |   |           |   | (155,869 | ) |   |   | 350,000 |   |

|                                     |   | **Nine                    Months Ended September 30,** |
|------------------------------------------|--------|--------------------------------------------------------|
|                                     |   | **2007**                                               |   | **2006** |
| Maximum                    Interest Rate |   | 5.94%                                                  |   | 5.41% |
| Minimum                    Interest Rate |   | 5.30%                                                  |   | 3.63% |

|        |   | **Average                    Interest Rate for Funds** |   |     | **Average                    Interest Rate for Funds** |
|-------------|--------|--------------------------------------------------------|--------|----------|--------------------------------------------------------|
|        |   | **Borrowed                    from the Utility Money** |   |     | **Loaned                    to the Utility Money**     |
|        |   | **Pool                    for**                        |   |     | **Pool                    for**                        |
|        |   | **Nine                    Months Ended September 30,** |   |     | **Nine                    Months Ended September 30,** |
|        |   | **2007**                                               |   | **2006** |                                                   |   | **2007** |   | **2006** |
| **Company** |   | **(in                    percentage)**                 |
| APCo        |   | 5.41                                                   |   | 4.62     |                                                   |   | 5.84 |   | 4.98 |
| CSPCo       |   | 5.48                                                   |   | 4.73     |                                                   |   | 5.39 |   | 4.63 |
| I&M     |   | 5.38                                                   |   | 4.81     |                                                   |   | 5.84 |   | - |
| OPCo        |   | 5.39                                                   |   | 4.83     |                                                   |   | 5.43 |   | 5.12 |
| PSO         |   | 5.47                                                   |   | 5.02     |                                                   |   | - |   | 4.36 |
| SWEPCo      |   | 5.54                                                   |   | 5.01     |                                                   |   | 5.34 |   | 4.36 |

***Short-term          Debt***

|        |   |                                             |   | **September                    30, 2007** |   |         | **December                    31, 2006** |   |
|-------------|--------|--------------------------------------------------|--------|-------------------------------------------|--------|--------------|------------------------------------------|--------|
|        |   |                                             |   | **Outstanding**                           |   | **Interest** |                                     |   | **Outstanding** |   | **Interest** |   |
|        |   | **Type                    of Debt**              |   | **Amount**                                |   | **Rate**     |                                     |   | **Amount** |   | **Rate** |   |
| **Company** |   |                                             |   | **(in                    millions)**      |   |         |                                     |   |   | **(in                    millions)** |   |   |   |   |
| OPCo        |   | Commercial                    Paper – JMG  |   | $                                         | 2      |         |                                     | 5.3588 | % |   | $ | 1 |   |   | 5.56 | % |
| SWEPCo      |   | Line                    of Credit – Sabine |   |                                      | 26     |         |                                     | 6.07   | % |   |   | 17 |   |   | 6.38 | % |

***Dividend          Restrictions***

***Sale          of Receivables – AEP Credit***

----

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

**Significant          Factors**

**Ohio          Restructuring**

**SECA          Revenue Subject to Refund**

| **Company** |   | **(in                    millions)** |   |
|-------------|--------|--------------------------------------|--------|
| APCo        |   | $                                    | 70.2   |   |
| CSPCo       |   |                                 | 38.8   |   |
| I&M     |   |                                 | 41.3   |   |
| OPCo        |   |                                 | 53.3   |   |

| **Company** |   | **(in                    millions)** |   |
|-------------|--------|--------------------------------------|--------|
| APCo        |   | $                                    | 12.0   |   |
| CSPCo       |   |                                 | 6.7    |   |
| I&M     |   |                                 | 7.0    |   |
| OPCo        |   |                                 | 9.1    |   |

***PJM          Marginal-Loss Pricing***

| **Company** |   | **(in                    millions)** |   |
|-------------|--------|--------------------------------------|--------|
| APCo        |   | $                                    | 6      |   |
| CSPCo       |   |                                 | 5      |   |
| I&M     |   |                                 | 5      |   |
| OPCo        |   |                                 | 5      |   |

**New          Generation**

|          |   |                          |   |                             |   |                                 |   |                                 |   |                             |   |                              |   |                |   |            | **Commercial** |
|---------------|--------|-------------------------------|--------|----------------------------------|--------|--------------------------------------|--------|--------------------------------------|--------|----------------------------------|--------|-----------------------------------|--------|---------------------|--------|-----------------|----------------|
|          |   |                          |   |                             |   | **Total**                            |   |                                 |   |                             |   |                              |   |                |   |            | **Operation**  |
| **Operating** |   | **Project**                   |   |                             |   | **Projected**                        |   |                                 |   |                             |   |                              |   |                | **MW** |            | **Date**       |
| **Company**   |   | **Name**                      |   | **Location**                     |   | **Cost                    (a)**      |   | **CWIP**                             |   | **Fuel                    Type** |   | **Plant                    Type** |   | **Capacity**        |   | **(Projected)** |
|          |   |                          |   |                             |   | **(in                    millions)** |   | **(in                    millions)** |   |                             |   |                              |   |                |   |            |
| SWEPCo        |   | Mattison                      |   | Arkansas                         |   | $                                    | 122    | (b)                                  | $      | 52                               |   | Gas                               |   | Simple-cycle        |   | 340             | (b)            | 2007 |
| PSO           |   | Southwestern                  |   | Oklahoma                         |   |                                 | 59     | (c)                                  |   | 45                               |   | Gas                               |   | Simple-cycle        |   | 170             |           | 2008 |
| PSO           |   | Riverside                     |   | Oklahoma                         |   |                                 | 58     | (c)                                  |   | 45                               |   | Gas                               |   | Simple-cycle        |   | 170             |           | 2008 |
| AEGCo         |   | Dresden                       | (d)    | Ohio                             |   |                                 | 265    | (d)                                  |   | 88                               |   | Gas                               |   | Combined-cycle      |   | 580             |           | 2009 |
| SWEPCo        |   | Stall                         |   | Louisiana                        |   |                                 | 375    |                                 |   | 15                               |   | Gas                               |   | Combined-cycle      |   | 480             |           | 2010 |
| SWEPCo        |   | Turk                          | (e)    | Arkansas                         |   |                                 | 1,300  | (e)                                  |   | 206                              |   | Coal                              |   | Ultra-supercritical |   | 600             | (e)            | 2011 |
| APCo          |   | Mountaineer                   |   | West                    Virginia |   |                                 | 2,230  |                                 |   | -                                |   | Coal                              |   | IGCC                |   | 629             |           | 2012 |
| CSPCo/OPCo    |   | Great                    Bend |   | Ohio                             |   |                                 | 2,230  | (f)                                  |   | -                                |   | Coal                              |   | IGCC                |   | 629             |           | 2017 |

| (a) | Amount                    excludes AFUDC.                                                                                                                                                                                                                                                                                                                                                                         |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Includes                    Unites 3 and 4, 150 MW, declared in commercial operation on July                    12, 2007                    with construction costs totaling $55 million.                                                                                                                                                                                                                         |
| (c) | In                    April 2007, the OCC approved that PSO will recover through a                    rider,                    subject to a $135 million cost cap, all of the traditional costs                    associated with plant in service at the time these units are                    placed in                    service.                                                                         |
| (d) | In                    September 2007, AEGCo purchased the under-construction Dresden                    plant from                    Dresden Energy LLC, a subsidiary of Dominion Resources, Inc.,                    for $85                    million, which is included in the “Total Projected Cost” section                    above.                                                          |
| (e) | SWEPCo                    plans to own approximately 73%, or 438 MW, totaling about $950                    million in                    capital investment.  See “Turk Plant” section                    below.                                                                                                                                                                           |
| (f) | Front-end                    engineering and design study is complete.  Cost estimates are                    not yet filed with the PUCO due to the pending appeals to the                    Supreme                    Court of Ohio resulting from the PUCO’s April 2006 opinion and                    order.  See “Ohio IGCC Plant” section                    below. |

|          |   |                              |   |         |   |                                 |   |                             |   |                              |           |         |   |         |
|---------------|--------|-----------------------------------|--------|--------------|--------|--------------------------------------|--------|----------------------------------|--------|-----------------------------------|----------------|--------------|--------|--------------|
| **Operating** |   |                              |   |         |   |                                 |   |                             |   |                              |           | **MW**       |   | **Purchase** |
| **Company**   |   | **Plant                    Name** |   | **Location** |   | **Cost**                             |   | **Fuel                    Type** |   | **Plant                    Type** |           | **Capacity** |   | **Date**     |
|          |   |                              |   |         |   | **(in                    millions)** |   |                             |   |                              |           |         |   |         |
| CSPCo         |   | Darby                             | (a)    | Ohio         |   | $                                    | 102    |                             | Gas    |                              | Simple-cycle   |         | 480    |         | April                    2007 |
| AEGCo         |   | Lawrenceburg                      | (b)    | Indiana      |   |                                 | 325    |                             | Gas    |                              | Combined-cycle |         | 1,096  |         | May                    2007 |

| (a) | CSPCo                    purchased Darby Electric Generating Station (Darby) from DPL                    Energy, LLC,                    a subsidiary of The Dayton Power and Light Company.                                                                                                                                                                       |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | AEGCo                    purchased Lawrenceburg Generating Station (Lawrenceburg), adjacent                    to                    I&M’s Tanners Creek Plant, from an affiliate of Public Service                    Enterprise Group (PSEG).  AEGCo sells the power to CSPCo under a                    FERC-approved unit power agreement. |

***Ohio          IGCC Plant***

***Red          Rock Generating Facility***

***Turk          Plant***

**Environmental          Matters**

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

***Environmental          Litigation***

|    |   | **Incurred                    Capital**             |   |   |                                    |
|---------|--------|-----------------------------------------------------|--------|--------|-----------------------------------------|
|    |   | **Amount                    Through**               |   |   | **Budgeted                    Capital** |
|    |   | **December                    31,  2006** |   |   | **2007                    - 2010**      |
|    |   | **(in                    millions)**                |
| APCo    |   | $                                                   | 923    |   |                                    | $ | 944 |
| CSPCo   |   |                                                | 194    |   |                                    |   | 374 |
| I&M |   |                                                | 98     |   |                                    |   | 77 |
| OPCo    |   |                                                | 1,253  |   |                                    |   | 891 |

|    |   |                                  |   |   | **Environmental**                       |   | **Total                    Expensed in** |
|---------|--------|---------------------------------------|--------|--------|-----------------------------------------|--------|------------------------------------------|
|    |   | **Penalty**                           |   |   | **Mitigation                    Costs** |   | **September                    2007**    |
|    |   | **(in                    thousands)** |
| APCo    |   | $                                     | 4,974  |   |                                    | $      | 20,659                                   |   | $ | 25,633 |
| CSPCo   |   |                                  | 2,883  |   |                                    |   | 11,973                                   |   |   | 14,856 |
| I&M |   |                                  | 2,770  |   |                                    |   | 11,503                                   |   |   | 14,273 |
| OPCo    |   |                                  | 3,355  |   |                                    |   | 13,935                                   |   |   | 17,290 |

***Clean          Water Act Regulations***

|        |   | **Estimated**                        |
|-------------|--------|--------------------------------------|
|        |   | **Compliance**                       |
|        |   | **Investments**                      |
| **Company** |   | **(in                    millions)** |
| APCo        |   | $                                    | 21 |
| CSPCo       |   |                                 | 19 |
| I&M     |   |                                 | 118 |
| OPCo        |   |                                 | 31 |

**Adoption          of New Accounting Pronouncements**

*Settlement*

| **Company** |   | **(in                    thousands)** |   |
|-------------|--------|---------------------------------------|--------|
| APCo        |   | $                                     | 2,685  |   |
| CSPCo       |   |                                  | 3,022  |   |
| I&M     |   |                                  | (327   | ) |
| OPCo        |   |                                  | 5,380  |   |
| PSO         |   |                                  | 386    |   |
| SWEPCo      |   |                                  | 1,642  |   |

----

**CONTROLS          AND PROCEDURES**

----

**PART          II.  OTHER INFORMATION**

**Item          1.     Legal Proceedings**

*Commitments,          Guarantees and Contingencies, *

**Item          1A.  Risk Factors**

**General          Risks of Our Regulated Operations**

**Our          request for rate recovery of plant construction costs may not be approved          for          SWEPCo. **
*(Applies to AEP and SWEPCo.)*

**Plant          pre-construction costs may not be recovered for PSO. **
*(Applies to          AEP and PSO.)*

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

**The          increase in amount PJM charges for transmission line loss may not be          recoverable.**
* *
*(Applies to AEP, APCo, CSPCo, I&M          and OPCo.)*

**Our          nonstatutory surcharges in Kentucky may be invalidated. **
*(Applies to          AEP.)*

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

**Risks          Relating To State Restructuring**

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

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

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

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

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

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

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

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

| **Period**                                   |   | **Total                    Number****of                    Shares****Purchased** |   | **Average                    Price****Paid                    per Share** |   |   | **Total                    Number of Shares Purchased as Part of Publicly Announced Plans                    or                    Programs** |   | **Maximum                    Number (or Approximate Dollar Value) of Shares that May Yet Be                    Purchased                    Under the Plans or Programs** |   |
|----------------------------------------------|--------|----------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| 07/01/07                    – 07/31/07 |   |                                                                             | 93     | (a)                                                                       | $      | 81.25  |                                                                                                                                          |   |                                                                                                                                                                      | -      |   | $ | - |   |
| 08/01/07                    – 08/31/07 |   |                                                                             | 20     | (b)                                                                       |   | 75     |                                                                                                                                          |   |                                                                                                                                                                      | -      |   |   | - |   |
| 09/01/07                    – 09/30/07 |   |                                                                             | 1      | (c)                                                                       |   | 78     |                                                                                                                                          |   |                                                                                                                                                                      | -      |   |   | - |   |

| (a) | APCo                    repurchased 93 shares of its 4.5% cumulative preferred stock,                    in a                    privately-negotiated transaction outside of an announced                    program. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | APCo                    repurchased 20 shares of its 4.5% cumulative preferred stock,                    in                    privately-negotiated transactions outside of an announced                    program.  |
| (c) | APCo                    repurchased 1 share of its 4.5% cumulative preferred stock, in                    privately-negotiated transactions outside of an announced                    program.                  |

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

**Item          5.  Other Information**

**Item          6.  Exhibits**

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

*AEP*

*APCo,          CSPCo, I&M, OPCo, PSO and SWEPCo*

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

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**SIGNATURE**