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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



FORM
10-K



FOR ANNUAL AND TRANSITION REPORTS

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF
1934



(Mark One)



x    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended
December 31, 2007 or



 ̈    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from
to



Commission file number 1-1232



DUKE ENERGY OHIO, INC.

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Ohio                                                           |  | 31-0240030                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|139 East Fourth Street, Cincinnati, Ohio                       |  | 45202                               
|(Address of principal executive offices)                       |  | (Zip Code)                          



704-594-6200

(Registrants telephone number, including area code)



Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ̈ No x



Indicate by check mark if the registrant is not required to file reports pursuant to Section 13
or Section 15(d) of the Exchange Act. Yes  ̈ No x



Indicate by
check mark whether the registrant (1) has 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 registrant was required to
file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No  ̈



Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x



Indicate by
check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and
smaller reporting company in Rule 12b-2 of the Exchange Act.



|                                              |  |                             |  | 
|--------------------------------------------- |  | --------------------------- |  | 
|Large accelerated filer  ̈                     |  | Accelerated filer  ̈         |  | 
|                                              |  |                            
|Non-accelerated filer x                       |  | Smaller reporting company  ̈ |  | 
|(Do not check if a smaller reporting company) |  |                             |  | 



Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes  ̈ No x



The registrant meets the conditions set forth in General Instructions (I)(1)(a) and (b) of Form 10-K and is therefore filing this Form 10-K with the reduced disclosure format.
Part II Items 4 and 6 and Part III Items 10, 11, 12 and 13 have been omitted in accordance with Instruction (I)(2)(a) and (c).



All of the registrants common stock is indirectly owned by Duke Energy Corporation (File No. 1-32853), which files reports and proxy material pursuant to the Securities
Exchange Act of 1934, as amended.



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##### Table of Contents

TABLE OF CONTENTS



DUKE ENERGY OHIO, INC.

FORM 10-K FOR THE YEAR ENDED

DECEMBER 31, 2007



|          |  |                                                                                                              |  |     
|--------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|Item      |  |                                                                                                              |  | Page
|PART I.   |  |                                                                                                              |  |     
|          |  |                                                                                                             
|1.        |  | BUSINESS                                                                                                     |  | 3   
|          |  |                                                                                                             
|          |  | GENERAL                                                                                                      |  | 3   
|          |  |                                                                                                             
|          |  | ENVIRONMENTAL MATTERS                                                                                        |  | 5   
|          |  |                                                                                                             
|1A.       |  | RISK FACTORS                                                                                                 |  | 6   
|          |  |                                                                                                             
|1B.       |  | UNRESOLVED STAFF COMMENTS                                                                                    |  | 9   
|          |  |                                                                                                             
|2.        |  | PROPERTIES                                                                                                   |  | 9   
|          |  |                                                                                                             
|3.        |  | LEGAL PROCEEDINGS                                                                                            |  | 10  
|          |  |                                                                                                             
|PART II.  |  |                                                                                                              |  |     
|          |  |                                                                                                             
|5.        |  | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |  | 11  
|          |  |                                                                                                             
|7.        |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                        |  | 12  
|          |  |                                                                                                             
|7A.       |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                   |  | 16  
|          |  |                                                                                                             
|8.        |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                  |  | 19  
|          |  |                                                                                                             
|9.        |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                         |  | 69  
|          |  |                                                                                                             
|9A.       |  | CONTROLS AND PROCEDURES                                                                                      |  | 69  
|          |  |                                                                                                             
|PART III. |  |                                                                                                              |  |     
|          |  |                                                                                                             
|14.       |  | PRINCIPAL ACCOUNTING FEES AND SERVICES                                                                       |  | 70  
|          |  |                                                                                                             
|PART IV.  |  |                                                                                                              |  |     
|          |  |                                                                                                             
|15.       |  | EXHIBITS AND FINANCIAL STATEMENT SCHEDULE                                                                    |  | 71  
|          |  |                                                                                                             
|          |  | SIGNATURES                                                                                                   |  | 72  
|          |  |                                                                                                             
|          |  | EXHIBIT INDEX                                                                                                |  | E-1 



CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
INFORMATION



This document includes forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are based on managements beliefs and assumptions. These forward-looking statements are identified
by terms and phrases such as anticipate, believe, intend, estimate, expect, continue, should, could, may, plan,
project, predict, will, potential, forecast, target, and similar expressions. Forward-looking statements involve risks and uncertainties that may cause actual results to be
materially different from the results predicted. Factors that could cause actual results to differ materially from those indicated in any forward-looking statement include, but are not limited to:

| |  |  | State and federal legislative and regulatory initiatives, including costs of compliance with existing and future environmental requirements;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | State and federal legislative and regulatory initiatives and rulings that affect cost and investment recovery or have an impact on rate structures;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Costs and effects of legal and administrative proceedings, settlements, investigations and claims;
| | - |  | --------------------------------------------------------------------------------------------------

| |  |  | Industrial, commercial and residential growth in Duke Energy Ohio, Inc.s (Duke Energy Ohio) service territories;
| | - |  | -----------------------------------------------------------------------------------------------------------------

| |  |  | Additional competition in electric markets and continued industry consolidation;
| | - |  | --------------------------------------------------------------------------------

| |  |  | The influence of weather and other natural phenomena on Duke Energy Ohios operations, including the economic, operational and other effects of tornados, droughts and
other natural phenomena;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | The timing and extent of changes in commodity prices and interest rates;
| | - |  | ------------------------------------------------------------------------

| |  |  | Unscheduled generation outages, unusual maintenance or repairs and electric transmission system constraints;
| | - |  | ------------------------------------------------------------------------------------------------------------

| |  |  | The performance of electric generation facilities;
| | - |  | --------------------------------------------------

| |  |  | The results of financing efforts, including Duke Energy Ohios ability to obtain financing on favorable terms, which can be affected by various factors, including Duke
Energy Ohios credit ratings and general economic conditions;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Declines in the market prices of equity securities and resultant cash funding requirements of Duke Energy Ohio for Cinergys defined benefit pension plans;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | The level of credit worthiness of counterparties to Duke Energy Ohios transactions;
| | - |  | ------------------------------------------------------------------------------------

| |  |  | Employee workforce factors, including the potential inability to attract and retain key personnel;
| | - |  | --------------------------------------------------------------------------------------------------

| |  |  | Growth in opportunities for Duke Energy Ohios business units, including the timing and success of efforts to develop domestic power and other projects; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | The effect of accounting pronouncements issued periodically by accounting standard-setting bodies.
| | - |  | --------------------------------------------------------------------------------------------------

In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent
or at a different time than Duke Energy Ohio has described. Duke Energy Ohio undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.



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PART I



Item 1. Business



GENERAL

Duke Energy Ohio, Inc. (Duke Energy Ohio), an Ohio corporation organized in 1837, is a wholly-owned subsidiary of
Cinergy Corp. (Cinergy). Duke Energy Ohio is a combination electric and gas public utility company that provides service in the southwestern portion of Ohio and through Duke Energy Kentucky, Inc. (Duke Energy Kentucky) in nearby areas of Kentucky.
Duke Energy Ohios principal lines of business include generation, transmission and distribution of electricity, the sale and transportation of natural gas, and energy marketing. Duke Energy Ohios principal subsidiary is Duke Energy
Kentucky, a Kentucky corporation organized in 1901. Duke Energy Kentuckys principal lines of business include generation, transmission and distribution of electricity and the sale and transportation of natural gas in northern Kentucky.
References herein to Duke Energy Ohio includes Duke Energy Ohio and subsidiaries.

In the second quarter of 2006, Duke Energy Corporation (Duke
Energy) and Cinergy consummated a merger which combined the Duke Energy and Cinergy regulated franchises as well as deregulated generation in the Midwestern United States.

Duke Energy Ohio operates the following business segments: Franchised Electric and Gas and Commercial Power. Duke Energy Ohios chief operating decision maker regularly reviews financial information about each of
these business segments in deciding how to allocate resources and evaluate performance. Each of these business units is considered to be a separate reportable segment under Statement of Financial Accounting Standards (SFAS) No. 131,
Disclosures about Segments of an Enterprise and Related Information. For additional information regarding this segment, including financial information, see Note 4 to the Consolidated Financial Statements, Business
Segments.

Franchised Electric and Gas consists of Duke Energy Ohios regulated electric and gas transmission and distribution systems
including its regulated electric generation in Kentucky. Franchised Electric and Gas plans, constructs, operates and maintains Duke Energy Ohios transmission and distribution systems, which generate, transmit and distribute electric
energy to consumers. Franchised Electric and Gas also sells and transports natural gas. These electric and gas operations are subject to the rules and regulations of the Federal Energy Regulatory Commission (FERC), the Public Utilities Commission of
Ohio (PUCO), and the Kentucky Public Service Commission (KPSC).

Commercial Power primarily consists of Duke Energy Ohios non-regulated
generation in Ohio and certain other non-regulated generation assets discussed in Note 3 to the Consolidated Financial Statements, Transfer of Generating Assets and Dispositions, and the energy marketing and risk management activities
associated with those assets.

The remainder of Duke Energy Ohios operations are presented as Other. While it is not considered a business
segment, Other for Duke Energy Ohio includes certain allocated governance costs.

Duke Energy Ohios principal executive offices are located at
139 East Fourth Street, Cincinnati, Ohio 45202. The telephone number is 704-594-6200. Duke Energy Ohio electronically files reports with the Securities and Exchange Commission (SEC), including annual reports on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K and amendments to such reports. The public may read and copy any materials that Duke Energy Ohio files with the SEC at the SECs Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public
may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that
file electronically with the SEC at http://www.sec.gov. Additionally, information about Duke Energy Ohio, including its reports filed with the SEC, is available through Duke Energys web site at http://www.duke-energy.com. Such
reports are accessible at no charge through Duke Energys web site and are made available as soon as reasonably practicable after such material is filed with or furnished to the SEC.



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PART I



GLOSSARY OF TERMS

The following terms or acronyms used in this Form 10-K
are defined below:



|                     |  |                                                             
|-------------------- |  | ------------------------------------------------------------
|Term or Acronym      |  | Definition                                                  
|                     | 
|AFUDC                |  | Allowance for Funds Used During Construction                
|                     | 
|APB                  |  | Accounting Principles Board                                 
|                     | 
|CC                   |  | Combined Cycle                                              
|                     | 
|Cinergy              |  | Cinergy Corp. (collectively with its subsidiaries)          
|                     | 
|CO2                  |  | Carbon Dioxide                                              
|                     | 
|CT                   |  | Combustion Turbine                                          
|                     | 
|DOE                  |  | Department of Energy                                        
|                     | 
|DOJ                  |  | Department of Justice                                       
|                     | 
|Duke Energy          |  | Duke Energy Corporation (collectively with its subsidiaries)
|                     | 
|Duke Energy Kentucky |  | Duke Energy Kentucky, Inc.                                  
|                     | 
|Duke Energy Ohio     |  | Duke Energy Ohio, Inc.                                      
|                     | 
|EITF                 |  | Emerging Issues Task Force                                  
|                     | 
|EPA                  |  | Environmental Protection Agency                             
|                     | 
|FASB                 |  | Financial Accounting Standards Board                        
|                     | 
|FERC                 |  | Federal Energy Regulatory Commission                        
|                     | 
|FIN                  |  | Financial Accounting Standards Board Interpretation         
|                     | 
|FSP                  |  | Financial Accounting Standards Board Staff Position         
|                     | 
|FTC                  |  | United States Federal Trade Commission                      
|                     | 
|GAAP                 |  | United States Generally Accepted Accounting Principles      
|                     | 
|KPSC                 |  | Kentucky Public Service Commission                          
|                     | 
|LIBOR                |  | London Interbank Offered Rate                               
|                     | 
|MBSSO                |  | Market Based Standard Service Offer                         
|                     | 
|Midwest ISO          |  | Midwest Independent Transmission System Operator            
|                     | 
|MMBtu                |  | Million British thermal units                               
|                     | 
|MW                   |  | Megawatt                                                    
|                     | 
|NOx                  |  | Nitrogen oxide                                              
|                     | 
|OCC                  |  | Office of the Ohio Consumers Counsel                       
|                     | 
|PUCO                 |  | Public Utilities Commission of Ohio                         
|                     | 
|RSP                  |  | Rate Stabilization Plan                                     
|                     | 
|RTC                  |  | Regulatory Transition Charges                               
|                     | 
|SAB                  |  | Securities and Exchange Commission Staff Accounting Bulletin
|                     | 
|SEC                  |  | Securities and Exchange Commission                          
|                     | 
|SFAS                 |  | Statement of Financial Accounting Standards                 
|                     | 
|SO2                  |  | Sulfur dioxide                                              

The following sections describe the business and operations of each of Duke Energy Ohios reportable
business segments. (For financial information on Duke Energys business segments, see Note 4 to the Consolidated Financial Statements, Business Segments.)



4



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##### Table of Contents

PART I



FRANCHISED ELECTRIC AND GAS

Service Area and Customers

Franchised Electric and Gas generates, transmits, distributes and sells electricity. Franchised Electric and Gas also transports and sells natural gas. Its service
area covers about 3,000 square miles with an estimated population of 2.1 million in southern Ohio and northern Kentucky. Franchised Electric and Gas supplies electric service to approximately 800,000 residential, commercial and industrial
customers over approximately 19,500 miles of distribution lines and an approximate 2,500-mile transmission system in Ohio and Kentucky. Franchised Electric and Gas provides regulated transmission and distribution services for natural gas to
approximately 500,000 customers via approximately 7,100 miles of gas mains (gas distribution lines that serve as a common source of supply for more than one service line) and service lines.



COMMERCIAL POWER

Service Area and Customers

Commercial Power owns, operates and manages non-regulated power plants and engages in the wholesale
marketing and procurement of electric power, fuel and emission allowances related to these plants as well as other contractual positions. Commercial Powers generation asset fleet consists of Duke Energy Ohios non-regulated generation in
Ohio and the five Midwestern gas-fired generation assets that were transferred from Duke Energy in 2006. Commercial Powers assets are comprised of approximately 7,600 net megawatts (MW) of power generation primarily located in the Midwestern
U.S. The asset portfolio has a diversified fuel mix with baseload and mid-merit coal-fired units as well as combined cycle (CC) and peaking natural gas-fired units. Most of the generation asset output in Ohio has been contracted through the Rate
Stabilization Plan (RSP) through 2008. See Item 2. Properties for further discussion of the generating facilities and Note 5 to the Consolidated Financial Statements, Regulatory Matters, for further discussion of the
RSP.



ENVIRONMENTAL MATTERS

Duke Energy Ohio is subject to federal, state and local laws and regulations with regard to air and
water quality, hazardous and solid waste disposal and other environmental matters. Environmental laws and regulations affecting Duke Energy Ohio include, but are not limited to:

| |  |  | The Clean Air Act, as well as state laws and regulations impacting air emissions, including State Implementation Plans related to existing and new national ambient air
quality standards for ozone and particulate matter. Owners and/or operators of air emission sources are responsible for obtaining permits and for annual compliance and reporting.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | The Clean Water Act which requires permits for facilities that discharge wastewaters into the environment.
| | - |  | ----------------------------------------------------------------------------------------------------------

| |  |  | The Comprehensive Environmental Response, Compensation and Liability Act, which can require any individual or entity that currently owns or in the past may have owned or
operated a disposal site, as well as transporters or generators of hazardous substances sent to a disposal site, to share in remediation costs.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | The Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act, which requires certain solid wastes, including hazardous wastes, to be managed
pursuant to a comprehensive regulatory regime.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | The National Environmental Policy Act, which requires federal agencies to consider potential environmental impacts in their decisions, including siting approvals.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

(For more information on environmental matters involving Duke Energy Ohio, including possible liability and capital costs, see
Notes 5 and 17 to the Consolidated Financial Statements, Regulatory Matters, and Commitments and Contingencies, respectively.)

Except to the extent discussed in Note 5 to the Consolidated Financial Statements, Regulatory Matters, and Note 17 to the Consolidated Financial Statements, Commitments and Contingencies, compliance with federal,
state and local provisions regulating the discharge of materials into the environment, or otherwise protecting the environment, is incorporated into the routine cost structure of our various business segments and is not expected to have a material
adverse effect on the competitive position, consolidated results of operations, cash flows or financial position of Duke Energy Ohio.



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PART I



Item 1A. Risk Factors.

The risk factors discussed herein relate specifically to risks associated with Duke Energy
Ohio.



Duke Energy Ohios franchised electric revenues,
earnings and results are dependent on federal and state legislation and regulation that affect electric generation, transmission, distribution and related activities, which may limit Duke Energy Ohios ability to recover costs.

Duke Energy Ohios franchised electric businesses are regulated on a cost-of-service/rate-of-return basis subject to the statutes and
regulatory commission rules and procedures of Ohio and Kentucky. If Duke Energy Ohios franchised electric earnings exceed the returns established by the state regulatory commissions, Duke Energy Ohios retail electric rates may be subject
to review by the commissions and possible reduction, which may decrease Duke Energy Ohios future earnings. Additionally, if regulatory bodies do not allow recovery of costs incurred in providing service on a timely basis, Duke Energy
Ohios future earnings could be negatively impacted.

Duke Energy Ohio is subject to regulation by FERC and by federal, state and local
authorities under environmental laws and by state public utility commissions under laws regulating Duke Energy Ohios businesses. Regulation affects almost every aspect of Duke Energy Ohios businesses, including, among other things, Duke
Energy Ohios ability to: take fundamental business management actions; determine the terms and rates of Duke Energy Ohios transmission and distribution businesses services; as well as its regulated generation business; make
acquisitions; issue debt securities; engage in transactions between Duke Energy Ohios utilities and other subsidiaries and affiliates; and pay dividends. Changes to these regulations are ongoing, and Duke Energy Ohio cannot predict the future
course of changes in this regulatory environment or the ultimate effect that this changing regulatory environment will have on Duke Energy Ohios business. However, changes in regulation (including re-regulating previously deregulated markets)
can cause delays in or affect business planning and transactions and can substantially increase Duke Energy Ohios costs.



Deregulation or restructuring in the electric industry may result in increased competition and unrecovered costs that could adversely affect Duke Energy
Ohios results of operations, cash flows or financial position and its utilities businesses.

Increased competition resulting from
deregulation or restructuring efforts could have a significant adverse financial impact on Duke Energy Ohio and consequently on its results of operations, financial position, or cash flows. Increased competition could also result in increased
pressure to lower costs, including the cost of electricity. Duke Energy Ohio cannot predict the extent and timing of entry by additional competitors into the electric markets. Duke Energy Ohio cannot predict when it will be subject to changes in
legislation or regulation, nor can it predict the impact of these changes on its results of operations, cash flows or financial position.



Duke Energy Ohio may be unable to secure long-term power sales agreements or transmission agreements, which could expose Duke Energy Ohios sales to
increased volatility.

In the future, Duke Energy Ohio may not be able to secure long-term power sales agreements for its unregulated power
generation facilities. If Duke Energy Ohio is unable to secure these types of agreements, its sales volumes would be exposed to increased volatility. Without the benefit of long-term customer power purchase agreements, Duke Energy Ohio cannot assure
that it will be able to operate profitably. The inability to secure these agreements could materially adversely affect Duke Energy Ohios results and business.



Competition in the unregulated markets in which Duke Energy Ohio operates may adversely affect the growth and profitability of
its business.

Duke Energy Ohio may not be able to respond in a timely or effective manner to the many changes designed to increase
competition in the electricity industry. To the extent competitive pressures increase, the economics of Duke Energy Ohios business may come under long-term pressure.

Duke Energy Ohio may also face competition from new competitors that have greater financial resources than Duke Energy Ohio does, seeking attractive opportunities to acquire or develop energy assets or energy trading operations
both in the United States and abroad. These new competitors may include sophisticated financial institutions, some of which are already entering the energy trading and marketing sector, and international energy players, which may enter regulated or
unregulated energy businesses. This competition in generation assets in non-regulated competitive markets may adversely affect Duke Energy Ohios ability to make investments or acquisitions.

Duke Energy Ohio operates under the RSP Market Based Standard Service Offer (MBSSO), which provides price certainty for generation in Ohio through December 31,
2008. Unfavorable resolution as to pricing once the RSP expires could have a materially adverse effect on Duke Energy Ohios results of operations, cash flows or financial position.



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PART I



Duke Energy Ohio must meet credit quality standards. If Duke Energy Ohio or its rated subsidiary is unable to maintain an investment grade credit rating, it
would be required under credit agreements to provide collateral in the form of letters of credit or cash, which may materially adversely affect its liquidity. Duke Energy Ohio cannot be sure that it will maintain investment grade credit ratings.

Each of Duke Energy Ohios or its rated subsidiarys senior unsecured long-term debt is rated investment grade by various rating
agencies. Duke Energy Ohio cannot be sure that its senior unsecured long-term debt will continue to be rated investment grade.

If the rating agencies
were to rate Duke Energy Ohio or its rated subsidiary below investment grade, Duke Energy Ohios borrowing costs would increase, perhaps significantly. In addition, Duke Energy Ohio would likely be required to pay a higher interest rate in
future financings, and its potential pool of investors and funding sources would likely decrease. Any downgrade or other event negatively affecting the credit ratings of Duke Energy Ohio or its rated subsidiary could also increase Cinergys
need to provide liquidity in the form of capital contributions or loans to such subsidiaries, thus reducing the liquidity and borrowing availability of the consolidated group.

A downgrade below investment grade could also trigger termination clauses in some interest rate and foreign exchange derivative agreements, which would require cash
payments. All of these events would likely reduce Duke Energy Ohios liquidity and profitability and could have a material adverse effect on its results of operations, cash flows or financial position.



Duke Energy Ohio relies on access to short-term money markets and longer-term
capital markets to finance its capital requirements and support its liquidity needs, and Duke Energy Ohios access to those markets can be adversely affected by a number of conditions, many of which are beyond its control.

Duke Energy Ohios business is financed to a large degree through debt and the maturity and repayment profile of debt used to finance investments often does
not correlate to cash flows from its assets. Accordingly, Duke Energy Ohio relies on access to both short-term money markets and longer-term capital markets as a source of liquidity for capital requirements not satisfied by the cash flow from its
operations and to fund investments originally financed through debt instruments with disparate maturities. If Duke Energy Ohio is not able to access capital at competitive rates, its ability to finance its operations and implement its strategy could
be adversely affected.

Market disruptions may increase Duke Energy Ohios cost of borrowing or adversely affect its ability to access one or
more financial markets. Such disruptions could include: economic downturns; the bankruptcy of an unrelated energy company; capital market conditions generally; market prices for electricity and gas; terrorist attacks or threatened attacks on Duke
Energy Ohios facilities or unrelated energy companies; or the overall health of the energy industry. Restrictions on Duke Energy Ohios ability to access financial markets may also affect its ability to execute its business plan as
scheduled. An inability to access capital may limit Duke Energy Ohios ability to pursue improvements or acquisitions that it may otherwise rely on for future growth.

Duke Energy Ohios ultimate parent, Duke Energy, maintains revolving credit facilities to provide back-up for commercial paper programs and/or letters of credit at various entities. These facilities typically include
financial covenants which limit the amount of debt that can be outstanding as a percentage of the total capital for the specific entity. Failure to maintain these covenants at a particular entity could preclude that entity from issuing commercial
paper or letters of credit or borrowing under the revolving credit facility and could require other of Duke Energy Ohios affiliates to immediately pay down any outstanding drawn amounts under other revolving credit agreements.



Duke Energy Ohio is exposed to credit risk of counterparties with whom it does
business.

Adverse economic conditions affecting, or financial difficulties of, counterparties with whom Duke Energy Ohio does business could
impair the ability of these counterparties to pay for Duke Energy Ohios services or fulfill their contractual obligations, including loss recovery payments under insurance contracts or cause them to delay such payments or obligations. Duke
Energy Ohio depends on these counterparties to remit payments on a timely basis. Any delay or default in payment could adversely affect Duke Energy Ohios cash flows, financial position or results of operations.



Poor investment performance of Cinergys pension plan holdings and other
factors impacting pension plan costs could unfavorably impact Duke Energy Ohios liquidity and results of operations.

Duke Energy Ohio
participates in certain employee benefit plans sponsored by its parent, Cinergy. Duke Energy Ohio is allocated costs and obligations related to these plans. Cinergys costs of providing non-contributory defined benefit pension plans are
dependent upon a number of factors, such as the rates of return on plan assets, discount rates, the level of interest rates used to measure the required minimum funding levels of the plans, future government regulation and required or voluntary
contributions made to the plans. While Cinergy complies with the minimum funding requirements as of December 31, 2007, Cinergys qualified pension plans had obligations which exceeded the value of plan assets by approximately
$240 million. Without sustained growth in the pension investments over



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PART I



time to increase the value of plan assets and depending upon the other factors impacting Cinergys costs as listed above, Duke Energy Ohio could be required to
fund its parents plans with significant amounts of cash. Such cash funding obligations could have a material impact on Duke Energy Ohios results of operations, cash flows or financial position.



Duke Energy Ohio is subject to numerous environmental laws and regulations that
require significant capital expenditures, can increase its cost of operations, and which may impact or limit its business plans, or expose it to environmental liabilities.

Duke Energy Ohio is subject to numerous environmental laws and regulations affecting many aspects of its
present and future operations, including air emissions (such as reducing nitrogen oxide, sulfur dioxide and mercury emissions or potential future control of greenhouse gas emissions), water quality, wastewater discharges, solid
waste and hazardous waste. These laws and regulations can result in increased capital, operating, and other costs. These laws and regulations generally require Duke Energy Ohio to obtain and comply with a wide variety of environmental licenses,
permits, inspections and other approvals. Compliance with environmental laws and regulations can require significant expenditures, including expenditures for clean up costs and damages arising out of contaminated properties, and failure to comply
with environmental regulations may result in the imposition of fines, penalties and injunctive measures affecting operating assets. The steps Duke Energy Ohio takes to ensure that its facilities are in compliance could be prohibitively expensive. As
a result, Duke Energy Ohio may be required to shut down or alter the operation of its facilities, which may cause it to incur losses. Further, Duke Energy Ohios regulatory rate structure and its contracts with customers may not necessarily
allow it to recover capital costs Duke Energy Ohio incurs to comply with new environmental regulations. Also, Duke Energy Ohio may not be able to obtain or maintain from time to time all required environmental regulatory approvals for its operating
assets or development projects. If there is a delay in obtaining any required environmental regulatory approvals, if Duke Energy Ohio fails to obtain and comply with them or if environmental laws or regulations change and become more stringent, then
the operation of Duke Energy Ohios facilities or the development of new facilities could be prevented, delayed or become subject to additional costs. Although it is not expected that the costs of complying with current environmental
regulations will have a material adverse effect on Duke Energy Ohios cash flows, financial position or results of operations, no assurance can be made that the costs of complying with environmental regulations in the future will not have such
an effect.

There is growing consensus that some form of regulation will be forthcoming at the
federal level with respect to greenhouse gas emissions, including carbon dioxide (CO2), and such regulation could result in the creation of substantial compliance costs.

In addition, Duke Energy Ohio is generally responsible for on-site liabilities, and in some cases off-site liabilities, associated with the environmental condition
of Duke Energy Ohios power generation facilities and natural gas assets which it has acquired or developed, regardless of when the liabilities arose and whether they are known or unknown. In connection with some acquisitions and sales of
assets, Duke Energy Ohio may obtain, or be required to provide, indemnification against some environmental liabilities. If Duke Energy Ohio incurs a material liability, or the other party to a transaction fails to meet its indemnification
obligations to Duke Energy Ohio, Duke Energy Ohio could suffer material losses.



Duke Energy Ohio is involved in numerous legal proceedings, the outcomes of which are uncertain, and resolution adverse to Duke Energy Ohio could negatively affect its cash flows, financial condition or results of operations.

Duke Energy Ohio is subject to numerous legal proceedings. Litigation is subject to many uncertainties and Duke Energy Ohio cannot predict the
outcome of individual matters with assurance. It is reasonably possible that the final resolution of some of the matters in which Duke Energy Ohio is involved could require it to make additional expenditures, in excess of established reserves, over
an extended period of time and in a range of amounts that could have a material effect on its cash flows and results of operations. Similarly, it is reasonably possible that the terms of resolution could require Duke Energy Ohio to change its
business practices and procedures, which could also have a material effect on its results of operation, cash flows or financial position.



Duke Energy Ohios results of operations may be negatively affected by sustained downturns or sluggishness in the economy, including low levels in the
market prices of commodities, all of which are beyond Duke Energy Ohios control.

Sustained downturns or sluggishness in the economy
generally affect the markets in which Duke Energy Ohio operates and negatively influence its operations. Declines in demand for electricity as a result of economic downturns in Duke Energy Ohios franchised electric service territories will
reduce overall electricity sales and lessen Duke Energy Ohios cash flows, especially as its industrial customers reduce production and, therefore, consumption of electricity and gas. Although Duke Energy Ohios franchised electric
business is

subject to regulated allowable rates of return and recovery of fuel costs under a fuel adjustment clause, overall declines in electricity sold as a
result of economic downturn or recession could reduce revenues and cash flows, thus diminishing results of operations.



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Duke Energy Ohio also sells electricity into the spot market or other competitive power markets on a contractual basis. With respect to such transactions, revenues
and results of operations are likely to depend, in large part, upon prevailing market prices in Duke Energy Ohios regional markets and other competitive markets. These market prices may fluctuate substantially over relatively short periods of
time and could reduce Duke Energy Ohios revenues and margins and thereby diminish its results of operations.

Factors that could impact sales
volumes, generation of electricity and market prices at which Duke Energy Ohio is able to sell electricity are as follows:

| |  |  | weather conditions, including abnormally mild winter or summer weather that cause lower energy usage for heating or cooling purposes, respectively;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | supply of and demand for energy commodities;
| | - |  | --------------------------------------------

| |  |  | illiquid markets including reductions in trading volumes which result in lower revenues and earnings;
| | - |  | -----------------------------------------------------------------------------------------------------

| |  |  | general economic conditions, including downturns in the U.S. or other economies which impact energy consumption particularly in which sales to industrial or large commercial
customers comprise a significant portion of total sales;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | transmission or transportation constraints or inefficiencies which impact Duke Energy Ohios non-regulated energy operations;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------

| |  |  | availability of competitively priced alternative energy sources, which are preferred by some customers over electricity produced from coal, or gas plants, and of
energy-efficient equipment which reduces energy demand;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | natural gas prices;
| | - |  | -------------------

| |  |  | ability to procure satisfactory levels of fuel supplies and inventory, such as coal and natural gas;
| | - |  | ----------------------------------------------------------------------------------------------------

| |  |  | electric generation capacity surpluses which cause Duke Energy Ohios non-regulated energy plants to generate and sell less electricity at lower prices and may cause
some plants to become non-economical to operate;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | capacity and transmission service into, or out of, Duke Energy Ohios markets;
| | - |  | ------------------------------------------------------------------------------

| |  |  | natural disasters, acts of terrorism, wars, embargoes and other catastrophic events to the extent they affect Duke Energy Ohios operations and markets, as well as the
cost and availability of insurance covering such risks; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | federal, and state energy and environmental regulation and legislation.
| | - |  | -----------------------------------------------------------------------



Duke Energy Ohios operating results may fluctuate on a seasonal and quarterly basis.

Electric power generation is generally a seasonal business. In most parts of the United States and in markets in which Duke Energy Ohio operates, demand for
electricity peaks during the hot summer months and demand for natural gas peaks during the cold winter months, with market prices also peaking during the hot summer months for electricity and cold winter months for natural gas. Further, extreme
weather conditions such as heat waves or winter storms could cause these seasonal fluctuations to be more pronounced. As a result, in the future, the overall operating results of Duke Energy Ohios businesses may fluctuate substantially on a
seasonal and quarterly basis and thus make period comparison less relevant.



Item 1B. Unresolved Staff Comments.



None.



Item 2. Properties.

FRANCHISED ELECTRIC AND GAS

As of December 31, 2007, Franchised Electric and Gas operated two coal-fired stations with a combined net capacity of 577 MW and one combustion turbine (CT) station with a net capacity of 500 MW. Franchised Electric and
Gas also owns two underground storage caverns with a total storage capacity of approximately 16 million gallons of liquid propane. The stations and caverns are located in Ohio and Kentucky.

In addition, as of December 31, 2007, Duke Energy Ohio owned approximately 2,500 conductor miles of electric transmission lines, including 1,000 miles of 345
kilovolts, 700 miles of 100 to 161 kilovolts, and 800 miles of 13 to 69 kilovolts. Duke Energy Ohio also owned approximately 19,500 conductor miles of electric distribution lines, including 14,000 miles of overhead lines and 5,500 miles of
underground lines, as of December 31, 2007 and approximately 7,100 miles of gas mains and service lines. As of December 31, 2007, the electric transmission and distribution systems had approximately 250 substations. In addition, Duke
Energy Ohio has access to nine million gallons of liquid propane through a storage agreement with a third party. This liquid propane is used in the three propane/air peak



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shaving plants located in Ohio and Kentucky. Propane/air peak shaving plants vaporize the propane and mix with natural gas to supplement the natural gas supply during
peak demand periods and emergencies.

Substantially all of Franchised Electric and Gas electric plant in service is mortgaged under the
indenture related to Duke Energy Ohios various series of First and Refunding Mortgage Bonds.



COMMERCIAL POWER

As of December 31, 2007, Commercial Power jointly owns six coal-fired stations with a combined net
capacity of 3,529 MW, of which Duke Energy Ohio operates three. Commercial Power also owns and operates five CT stations, one of which is jointly owned, with a combined net capacity of 1,544 MW and three CC stations with a combined net capacity of
2,480 MW. The stations are located in Ohio, Illinois, Indiana and Pennsylvania.



Item 3. Legal Proceedings.

For information regarding legal proceedings, including regulatory and environmental
matters, see Note 5 to the Consolidated Financial Statements, Regulatory Matters and Note 17 to the Consolidated Financial Statements, Commitments and ContingenciesLitigation and Commitments and
ContingenciesEnvironmental.



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Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Cinergy owns all of the common stock of Duke Energy Ohio. Duke Energy owns all of the common stock of Cinergy. Duke Energy Ohio anticipates making periodic dividends to provide funding support for Duke Energys dividend. During the
year ended December 31, 2007, the three months ended March 31, 2006 and the year ended December 31, 2005, Duke Energy Ohio paid dividends to its parent, Cinergy, of $135 million, $102 million and $250 million, respectively. Duke
Energy is a public registrant trading on the New York Stock Exchange under DUK.



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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.



INTRODUCTION



EXECUTIVE OVERVIEW

Managements Discussion and Analysis should be read in conjunction with the accompanying Consolidated
Financial Statements and Notes for the years ended December 31, 2007, 2006 and 2005.



CINERGY MERGER WITH DUKE ENERGY

On April 3, 2006, Duke Energy Corporation (Old Duke Energy) and Cinergy merged into wholly-owned
subsidiaries of Duke Energy Holding Corp. (Duke Energy HC), resulting in Duke Energy HC becoming the parent entity. In connection with the closing of the merger transactions, Duke Energy HC changed its name to Duke Energy Corporation (Duke Energy).

Due to the impact of push-down accounting, the financial statements and certain note presentations separate Duke Energy Ohios presentations
into two distinct periods, the period before the consummation of the merger (labeled Predecessor) and the period after that date (labeled Successor), to indicate the application of different bases of accounting between the
periods presented.



BASIS OF PRESENTATION



The results of operations and variance discussion for Duke Energy Ohio is presented in
a reduced disclosure format in accordance with General Instruction (I)(2)(a) of Form 10-K.



RESULTS OF OPERATIONS



Results of Operations and Variances



Summary of Results (in millions)



|                                                      |  |                                    |       |                                    |   |       |                    |  |   |     |  
|----------------------------------------------------- |  | ---------------------------------- | ----- | ---------------------------------- | - | ----- | ------------------ |  | - | --- | -
|                                                      |  | Successor(a)                       |      
|                                                      |  | Nine Months EndedDecember 31, 2007 |       | Nine Months EndedDecember 31, 2006 |   |       | Increase(Decrease) | 
|Operating revenues                                    |  | $                                  | 2,539 |                                    | $ | 2,261 |                    |  | $ | 278 |  
|Operating expenses                                    |  |                                    | 2,133 |                                    |   | 2,067 |                    |  |   | 66  |  
|Gains(losses) on sales of other assets and other, net |  |                                    | 3     |                                    |   | (28   | )                  |  |   | 31  |  
|                                                      |  |                                    |       |                                    |   |       |                    |  |   |     |  
|Operating income                                      |  |                                    | 409   |                                    |   | 166   |                    |  |   | 243 |  
|Other income and expenses, net                        |  |                                    | 23    |                                    |   | 17    |                    |  |   | 6   |  
|Interest expense                                      |  |                                    | 77    |                                    |   | 81    |                    |  |   | (4  | )
|Income tax expense from continuing operations         |  |                                    | 128   |                                    |   | 41    |                    |  |   | 87  |  
|Loss from discontinued operations, net of tax         |  |                                    |      |                                    |   | (6    | )                  |  |   | 6   |  
|                                                      |  |                                    |       |                                    |   |       |                    |  |   |     |  
|Net income                                            |  | $                                  | 227   |                                    | $ | 55    |                    |  | $ | 172 |  
|                                                      |  |                                    |       |                                    |   |       |                    |  |   |     |  



|(a) | See Note 1 to the Consolidated Financial Statements, Summary of Significant Accounting Policies, for additional information on Predecessor and Successor reporting.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



Net Income

The $172 million increase in Duke Energys Net income for the nine months ended December 31, 2007 compared to the same period in 2006 was primarily due to
the following factors:



Operating Revenues

The $278 million increase in operating revenues was driven primarily by:

| |  |  | $153 million increase as a result of higher retail generation revenue principally related to the timing of collections on Commercial Powers fuel and purchased power
rider compared to the same period of 2006,
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | $135 million increase in wholesale revenues from the Midwest gas-fired generation assets due primarily to higher generation volumes as a result of favorable weather and
higher tolling and capacity revenues in 2007 compared to 2006,
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | $36 million increase in retail demand resulting from favorable weather in 2007 compared to 2006,
| | - |  | ------------------------------------------------------------------------------------------------

| |  |  | $30 million increase in regulated fuel revenue due to increased volume and implementation of new fuel clause rates in Kentucky,
| | - |  | -------------------------------------------------------------------------------------------------------------------------------

| |  |  | $26 million increase resulting from temporary rate reductions in 2006 associated with the regulatory approval of the Cinergy merger with Duke Energy, and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | $20 million increase due to new electric base rates implemented in the first quarter of 2007 for Duke Energy Kentucky.
| | - |  | ----------------------------------------------------------------------------------------------------------------------

Partially offset by:

| |  |  | $61 million decrease in net mark-to-market revenues on non-qualifying hedge accounting power and capacity contracts , consisting of $7 million of net mark-to-market losses in
2007 as compared to net mark-to-market gains of $54 million in 2006, and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | $59 million decrease in revenues from sales of fuel due to the expiration of contracts.
| | - |  | ---------------------------------------------------------------------------------------



Operating Expenses

The $66
million increase in operating expenses was driven primarily by:

| |  |  | $92 million increase in fuel and operating expenses for wholesale generation mainly due to increased generation volumes for the Midwest gas-fired generation assets as a
result of favorable weather in 2007 as compared to 2006,
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | $37 million increase in operation and maintenance expenses due to an increase in coal-fired generation plant outages in 2007 versus 2006,
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------

| |  |  | $30 million increase in operation and maintenance expenses primarily due to higher wage and benefit costs, including adjustments to short-term incentive accruals,
distribution line expenses and increased transmission expenses,
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | $23 million increase in fuel and purchased power expense resulting primarily from the increase in load due to warmer weather compared to the same period of 2006,
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | $14 million increase in regulatory amortization of regulatory transition charge due to increased electric revenues and a new demand side management rider in Ohio, and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | $11 million increase in property and other taxes mainly driven by increased property taxes due to capital additions and increased revenue taxes due to increased revenues.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Partially offset by:

| |  |  | $95 million decrease in net mark-to-market expenses on non-qualifying hedge accounting fuel contracts as a result of $46 million of net mark-to-market gains in 2007 as
compared to net mark-to-market losses of $49 million in 2006, and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | $55 million decrease in expenses from sales of fuel due to the expiration of contracts.
| | - |  | ---------------------------------------------------------------------------------------



Gains(losses) on Sales of Other Assets and Other, net

The improvement in Gains(losses) on sales of other assets and other, net is primarily attributable to $3 million of gains on sales of emission allowances in 2007 as
compared $28 million of losses in the comparable period of 2006.



Operating Income

The increase in Operating income resulted primarily from favorable weather conditions, timing of collection of
non-regulated riders, elimination of merger rate credits, new electric rates for Duke Energy Kentucky, mark-to-market results, sales of emission allowances and improved results from the Midwest gas-fired generation assets. These increases were
partially offset by increased operating expenses related to increased generation outages and increased fuel costs due to the favorable weather conditions.



Income Tax Expense from Continuing Operations

The $87
million increase in income tax expense from continuing operations was due to an increase in pre-tax income.



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Summary of Results (in millions)



|                                                       |  |                                 |     |   |  |  |                                 |   |     |                    |  |   |      |  
|------------------------------------------------------ |  | ------------------------------- | --- | - |  |  | ------------------------------- | - | --- | ------------------ |  | - | ---- | -
|                                                       |  | Successor(a)                    |     |   |  |  | Predecessor(a)                  |   |     | Increase(Decrease) | 
|                                                       |  | Three MonthsEndedMarch 31, 2007 |     |   |  |  | Three MonthsEndedMarch 31, 2006 |   |    
|Operating revenues                                     |  | $                               | 916 |   |  |  |                                 | $ | 963 |                    |  | $ | (47  | )
|Operating expenses                                     |  |                                 | 831 |   |  |  |                                 |   | 781 |                    |  |   | 50   |  
|(Losses) gains on sales of other assets and other, net |  |                                 | (11 | ) |  |  |                                 |   | 26  |                    |  |   | (37  | )
|                                                       |  |                                 |     |   |  |  |                                 |   |     |                    |  |   |      |  
|Operating income                                       |  |                                 | 74  |   |  |  |                                 |   | 208 |                    |  |   | (134 | )
|Other income and expenses, net                         |  |                                 | 9   |   |  |  |                                 |   | 8   |                    |  |   | 1    |  
|Interest expense                                       |  |                                 | 23  |   |  |  |                                 |   | 30  |                    |  |   | (7   | )
|Income tax expense from continuing operations          |  |                                 | 23  |   |  |  |                                 |   | 68  |                    |  |   | (45  | )
|Loss from discontinued operations, net of tax          |  |                                 |    |   |  |  |                                 |   | (2  | )                  |  |   | 2    |  
|                                                       |  |                                 |     |   |  |  |                                 |   |     |                    |  |   |      |  
|Net income                                             |  | $                               | 37  |   |  |  |                                 | $ | 116 |                    |  | $ | (79  | )
|                                                       |  |                                 |     |   |  |  |                                 |   |     |                    |  |   |      |  



|(a) | See Note 1 to the Consolidated Financial Statements, Summary of Significant Accounting Policies for additional information on Predecessor and Successor reporting.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



Net Income

The 68 percent decrease in Duke Energy Ohios Net income for the three months ended March 31, 2007 compared to the same period in 2006 was primarily due
to the following factors:



Operating Revenues

The $47 million decrease in Operating revenues was driven primarily by:

| |  |  | $88 million as a result of mark-to-market losses on non-qualifying hedge accounting power contracts in 2007 of $45 million versus gains of $43 million in 2006, and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | $28 million as a result of decreased volumes of physical coal sales due to expiration of contracts and the increased use of financial products to manage fuel costs which are
reported net in operating expenses.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Partially offset by:

| |  |  | Approximately $40 million increase in generation revenues due to Duke Energys contribution of its five Midwest generating plants in the second quarter of 2006,
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | $24 million increase resulting from favorable weather in 2007 compared to 2006,
| | - |  | -------------------------------------------------------------------------------

| |  |  | $7 million increase due to new electric base rates implemented in the first quarter of 2007 for Duke Energy Kentucky, and
| | - |  | -------------------------------------------------------------------------------------------------------------------------

| |  |  | $4 million resulting from temporary rate reductions in 2006 associated with the regulatory approval of the Cinergy merger with Duke Energy.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



Operating Expenses

The $50 million increase in Operating expenses was driven primarily by:

| |  |  | $55 million increase in operating expenses due to Duke Energys contribution of its five Midwest generating plants in the second quarter of 2006,
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | $30 million higher fuel and emission allowance consumption expense due to recognizing coal and emission allowances at fair value as of April 1, 2006 in conjunction with
the Cinergy merger with Duke Energy,
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | $7 million increase in line maintenance expense as a result of ice storms in February 2007, and
| | - |  | -----------------------------------------------------------------------------------------------

| |  |  | $7 million of incremental amortization expense resulting from recognizing the unregulated generation facilities at fair value as of April 1, 2006 in conjunction with the
Cinergy merger with Duke Energy.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Partially offset by:

| |  |  | $35 million related to $19 million of mark-to-market gains on non-qualifying hedge accounting fuel contracts in 2007 versus losses of $16 million in 2006, and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | $12 million related to 2006 costs for incentive and retention payments incurred as a result of the Duke Energy merger.
| | - |  | ----------------------------------------------------------------------------------------------------------------------



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(Losses) Gains on Sales of Other Assets and Other, net

The decrease in (Losses) gains on sales of other assets and other, net is due to losses on emission allowance sales in 2007 of $11 million versus gains of $26 million in 2006. The losses in 2007 were a result of recording emission
allowances at fair value as of April 1, 2006 as part of purchase accounting for the Cinergy merger with Duke Energy and decreases in market prices at the time of sale.



Income Tax Expense from Continuing Operations

The $45 million decrease in Income tax expense from continuing operations was due primarily to a $126 million decrease in pre-tax income.



Matters Impacting Future Duke Energy Ohio Results

Duke Energy
Ohios current strategy is focused on maximizing the returns and cash flows from its current portfolio. Results for Duke Energy Ohio are sensitive to changes in power supply, power demand, fuel prices, and weather. Future results for Duke
Energy Ohio are subject to volatility due to the over or under-collection of fuel and purchased power costs since Duke Energy Ohios RSP MBSSO is not subject to regulatory accounting pursuant to SFAS No. 71, Accounting for Certain
Types of Regulation (SFAS No. 71). In addition, Duke Energy Ohios RSP expires on December 31, 2008. Duke Energy Ohio is currently working with the PUCO and the Ohio legislature to establish a rate structure beyond 2008. The
outcome of the rate structure could impact the results of operations in future periods. Compared to 2006 and 2007, Duke Energy Ohios 2008 results will also be favorably impacted by the reduced impact of purchase accounting adjustments recorded
in connection with the 2006 merger with Duke Energy. The outcome of the pending Duke Energy Ohio gas rate case could impact future results through the increase of base rates.



Other Matters

Duke Energy Ohios fixed
charges coverage ratio, as calculated using SEC guidelines, was 3.8 times for the year ended December 31, 2007, 1.9 times for the nine months ended December 31, 2006, 6.2 times for the three months ended March 31, 2006 and 4.6 times
for the year ended December 31, 2005.



Other Issues

Global Climate Change.A majority of the public and policymakers now believe that the earths climate is changing, caused in part by greenhouse gases
emitted into the atmosphere from human activities. Although there is still much to learn about the causes and long-term effects of climate change, many advocate taking steps now to begin reducing emissions with the aim of stabilizing the atmospheric
concentration of greenhouse gases at a level that avoids the potentially worst-case effects of climate change.

Greenhouse gas emissions are produced from a wide variety of human activities. The U.S. Environmental Protection Agency publishes an inventory of these emissions annually. CO2, an essential trace gas, is a by-product
of fossil fuel combustion and currently accounts for about 85% of U.S. greenhouse gas emissions. Duke Energy Ohio currently accounts for about 0.30% of total U.S. CO2 emissions, and about 0.26% of total U.S. greenhouse gas emissions.

Duke Energy Ohios cost of complying with any federal greenhouse gas emissions law that may be enacted will depend on the design details of the
program. The major design elements of a greenhouse gas cap-and-trade program that will most influence Duke Energy Ohios compliance costs include the required levels and timing of the cap, which will drive emission allowance prices, the
emission sources covered under the cap, the number of allowances that Duke Energy Ohio is allocated on a year-to-year basis, the type of and effectiveness of the cost control mechanism employed by the program, and the availability and cost of
technologies that Duke Energy Ohio can deploy to lower its emissions. Although it is likely that Congress will adopt some form of mandatory greenhouse gas emission reduction legislation in the future, the timing and specific requirements of any such
legislation are highly uncertain, which means that potential future compliance costs for Duke Energy Ohio are also highly uncertain.

The 110th Congress is currently considering several potential U.S. policy responses to the climate
change issue. In 2007, nearly a dozen bills were introduced in the Senate calling for mandatory limits on U.S. greenhouse gas emissions through use of a cap-and-trade program. The key differences in the bills are the sources whose emissions would be
regulated, the rate at which emissions would be required to be reduced, the number of emission allowances that would be distributed at no cost to sources whose emissions would be regulated, and the method of protecting the economy from potentially
high and unexpected program costs.

On December 5, 2007, the Senate Environment and Public Works Committee reported out S.
2191Americas Climate Security Act of 2007sponsored by Senators Joseph Lieberman of Connecticut and John Warner of Virginia. The bill, which now awaits Senate floor



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action, proposes an economy-wide greenhouse gas reduction program to begin in 2012. Several bills have also been introduced in the House of Representatives but none
has yet received subcommittee or committee approval. It is unlikely that legislation establishing a mandatory federal greenhouse gas emission reduction program will be enacted in 2008.

Duke Energy Ohio supports the enactment of federal greenhouse gas cap-and-trade legislation that would apply to all parts of the economy, including power
generation, industrial and commercial sources, and motor vehicles. To permit the economy to adjust rationally to the policy, legislation should establish a long-term program that first slows the growth of emissions, stops their growth and then
transitions to a gradually declining emissions cap as new lower-and non-emitting technologies are developed and become ready for wide-scale deployment.

New technologies for reducing CO2 emissions from coalchief among them carbon capture and
sequestrationare not expected to be developed and ready for deployment by 2012 when the Lieberman-Warner legislation, if passed, would take effect. This would pose a challenge to Duke Energy Ohios ability to utilize all of its current
coal-fired generating capacity if the legislation is enacted in its current form. This could challenge Duke Energy Ohios ability to meet the growing electricity demand of its customers at a reasonable cost. Duke Energy Ohios customer
energy-efficiency initiative would help, but would not be enough. If the cap is too stringent in the early years of the program, Duke Energy Ohios compliance options could be limited to purchasing emission allowances and/or relying on existing
natural gas generation to replace coal generation. Achieving a large fuel switch from coal to natural gas in less than four years is not practical and, on a national scale, is not good public policy. Such a shift would significantly increase natural
gas prices, posing an economic hardship to millions of natural gas customers.

Compliance cost estimates are very sensitive to various highly
uncertain assumptions, including allowance prices. Under the proposed S. 2191 legislation, estimated costs of purchasing allowances in 2012, in addition to those allocated at no cost, to cover Duke Energy Ohios projected emissions could range
from about $230 million to about $680 million. Actual costs could be higher or lower than these estimates. Duke Energy Ohio would seek to recover its compliance costs through appropriate regulatory mechanisms in the jurisdictions in which it
operates. Under a compliance scenario where Duke Energy Ohio continues to purchase allowances to meet its compliance obligation, annual allowance purchase costs would increase over time as the number of allowances Duke Energy Ohio is allocated under
the proposed legislation decreases and allowance prices increase as the cap tightens.

At some
point in the future it would be expected that Duke Energy Ohio would begin replacing existing coal-fired generation with new lower-and zero-emitting generation technologies, and/or installing new carbon capture and sequestration technology on
existing coal-fired generating plants to reduce emissions when technologies become available. It is not possible at this time, however, to predict with certainty what new technologies might be developed, when they will be ready to be deployed, or
what their costs will be. There is also uncertainty as to how or when certain non-technical issues that could affect the cost and availability of new technologies might be resolved by regulators. Duke Energy Ohio currently is focused on integrated
gasification combined cycle generation with carbon capture and sequestration, and capture and storage retrofit technology for existing pulverized coal-fired generation as promising new technologies for generating electricity with lower or no
CO2 emissions.

In addition to relying on new technologies to reduce its
CO2 emissions, Duke Energy Ohio is seeking regulatory approval for a first-of-its-kind innovative approach in the utility industry to help meet growing customer demand with new and creative ways to increase energy efficient, thereby
reducing demand (Save-A-Watt) instead of relying almost exclusively on new power plants to generate electricity.

Credit Implications of Climate
Change Legislation.A credit rating agency recently announced that climate-change policies eventually could carry significant credit implications for the U.S. electric utility industry, which includes Duke Energy Ohio. While the agency stated on
February 26, 2008 that it had not lowered any utility company ratings due solely to the sizable capital expenditures needed to reduce emission levels, rating actions could result. The agency cited a utilitys financing plan and its ability
to recover such costs from its ratepayers as the biggest factors in considering whether environmental-related capital expenditures negatively affect a utilitys credit quality. Duke Energy Ohio cannot predict with any certainty what actions, if
any, this or other credit rating agencies may take. A downgrade in Duke Energy Ohios credit rating could adversely affect its ability to access capital at competitive rates and its ability to finance its operations and implement its strategies
could be adversely affected.



Item 7A. Quantitative and Qualitative Disclosures About Market Risk



Risk Management Policies

Duke Energy Ohio is exposed to market risks associated with commodity prices, credit exposure
and interest rates. Management has established comprehensive risk management policies to monitor and manage these market risks. The Treasurer of Duke Energy, the ultimate parent entity of Cinergy, is responsible for the overall governance of
managing credit risk and commodity price risk, including monitoring exposure limits for Duke Energy Ohio.



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Commodity Price Risk

Duke Energy Ohio is exposed to the impact of market
fluctuations in the prices of electricity, coal, natural gas and other energy-related products marketed and purchased as a result of its ownership of its non-regulated generation portfolio. Price risk represents the potential risk of loss from
adverse changes in the market price of electricity or other energy commodities, such as gas and coal. Duke Energy Ohio employs established policies and procedures to manage its risks associated with these market fluctuations using various commodity
derivatives, such as swaps, futures, forwards and options. (See Note 1 to the Consolidated Financial Statements, Summary of Significant Accounting Policies and Note 9 to the Consolidated Financial Statements, Risk Management and
Hedging Activities, Credit Risk, and Financial Instruments.)

Validation of a contracts fair value is performed by an internal group
separate from Duke Energy Ohios deal origination areas. Duke Energy Ohios derivative contract portfolio is predominantly valued using observable market inputs with little internally developed assumptions. However, for contracts valued
beyond the observable market period, Duke Energy Ohio uses common industry practices to develop its valuation techniques and changes in its pricing methodologies or the underlying assumptions could result in significantly different fair values and
income recognition.

Normal Purchases and Normal Sales. Duke Energy Ohio enters into contracts on a limited basis that qualify for the normal
purchases and sales exception described in paragraph 10 of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, Derivatives Implementation Group Issue C15, Scope Exceptions: Normal
Purchases and Normal Sales Exception for Option-Type Contracts and Forward Contracts in Electricity, and amended by SFAS No. 149, Amendment to Statement 133 on Derivative Instruments and Hedging Activities(SFAS No. 149). For contracts qualifying for the scope exception, no recognition of the contracts fair value in the Consolidated Financial Statements is required until settlement of the contract which generally coincides with the
physical delivery of the commodity being bought or sold.

Generation Portfolio Risks. Duke Energy Ohio is primarily exposed to market price
fluctuations of wholesale power, coal, natural gas and emission allowance prices associated with its non-regulated generation portfolio. Duke Energy Ohio closely monitors the risks associated with these commodity price changes on its future
generation operations and, where appropriate, uses various commodity instruments such as electricity, coal and natural gas forward contracts to mitigate the effect of such fluctuations on operations, in addition to optimizing the value of its
non-regulated generation portfolio. The portfolio includes generation assets (power and capacity), fuel, and emission allowances. Modeled forecasts of future generation output, fuel requirements, and emission allowance requirements are based on
forward power, fuel and emission allowance markets. The component pieces of the portfolio are bought and sold based on this model in order to manage the economic value of the portfolio, where such market transparency exists. The generation portfolio
not utilized to serve native load or committed load is subject to commodity price fluctuations. Based on a sensitivity analysis as of December 31, 2007 and 2006, it was estimated that a ten percent price change per megawatt hour in forward
wholesale power prices would have a corresponding effect on Duke Energy Ohios pre-tax income of approximately $13 million in 2008 and $17 million in 2007, respectively, excluding the impact of mark-to-market changes on non-qualifying or
undesignated hedges relating to periods in excess of one year from the respective date. Based on a sensitivity analysis as of December 31, 2007 and 2006, it was estimated that a ten percent price change per MMBtu (one million British thermal
units) in natural gas prices would have a corresponding effect on Duke Energy Ohios pre-tax income of approximately $9 million in 2008 and $15 million in 2007 respectively, excluding the impact of mark-to-market changes on undesignated hedges
relating to periods in excess of one year from the respective date.

Undesignated Contracts. Undesignated contracts executed to manage
generation portfolio risks are exposed to changes in fair value due to market price fluctuations of wholesale power and coal. Based on a sensitivity analysis as of December 31, 2007 and 2006, it was estimated that a ten percent price change in
the forward price per megawatt hour of wholesale power would have a corresponding effect on Duke Energy Ohios pre-tax income of approximately $16 million in 2008 and $22 million in 2007, respectively, resulting from the impact of
mark-to-market changes on non-qualifying and undesignated power contracts pertaining to periods in excess of one year from the respective date. Based on a sensitivity analysis as of December 31, 2007 and 2006, it was estimated that a ten
percent change in the forward price per ton of coal would have a corresponding effect on Duke Energy Ohios pre-tax income of approximately $14 million in 2008 and $12 million in 2007, respectively, resulting from the impact of mark-to-market
changes on non-qualifying and undesignated coal contracts pertaining to periods in excess of one year from the respective date.



Credit Risk

Credit risk represents the loss that Duke Energy Ohio would
incur if a counterparty fails to perform under its contractual obligations. To reduce credit exposure, Duke Energy Ohio seeks to enter into netting agreements with counterparties that permit it to offset receivables and payables with such
counterparties. Duke Energy Ohio attempts to further reduce credit risk with certain counterparties by entering into agreements that enable it to obtain collateral or to terminate or reset the terms of transactions after specified time periods or
upon the occurrence of credit-related events. Duke Energy Ohio may, at times, use credit derivatives or other structures and techniques to provide for third-party credit enhancement of its counterparties obligations. Duke Energy Ohio sells
certain of their accounts receivable



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and related collections through Cinergy Receivables Company, LLC a bankruptcy remote, special purpose entity. While no direct recourse to Duke Energy Ohio exists, it
risks loss in the event collections are not sufficient to allow for full recovery of its retained interests. (See Note 12 to the Consolidated Financial Statements, Sales of Accounts Receivable.)

Duke Energy Ohios industry has historically operated under negotiated credit lines for physical delivery contracts. Duke Energy Ohio may use master collateral
agreements to mitigate certain credit exposures. The collateral agreements provide for a counterparty to post cash or letters of credit to the exposed party for exposure in excess of an established threshold. The threshold amount represents an
unsecured credit limit, determined in accordance with the corporate credit policy. Collateral agreements also provide that the inability to post collateral is sufficient cause to terminate contracts and liquidate all positions.

Duke Energy Ohio also obtains cash or letters of credit from customers to provide credit support outside of collateral agreements, where appropriate, based on its
financial analysis of the customer and the regulatory or contractual terms and conditions applicable to each transaction.

Based on Duke Energy
Ohios policies for managing credit risk, its exposures and its credit and other reserves, Duke Energy Ohio does not anticipate a materially adverse effect on its consolidated financial position or results of operations as a result of
non-performance by any counterparty.



Interest Rate Risk

Duke Energy Ohio is exposed to risk resulting from changes in interest rates as a result of its issuance of variable and fixed rate debt. Duke Energy Ohio manages
its interest rate exposure by limiting its variable-rate exposures to percentages of total capitalization and by monitoring the effects of market changes in interest rates. Duke Energy Ohio also enters interest rate swaps to manage and mitigate
interest rate risk exposure. (See Notes 1, 9, and 15 to the Consolidated Financial Statements, Summary of Significant Accounting Policies, Risk Management and Hedging Activities, Credit Risk, and Financial Instruments, and
Debt and Credit Facilities.)

Based on a sensitivity analysis as of December 31, 2007, it was estimated that if market interest rates
average 1% higher (lower) in 2008 than in 2007, interest expense, net of offsetting impacts in interest income, would increase (decrease) by approximately $8 million. Comparatively, based on a sensitivity analysis as of December 31, 2006, had
interest rates averaged 1% higher (lower) in 2007 than in 2006, it was estimated that interest expense, net of offsetting impacts in interest income, would have increased (decreased) by approximately $7 million. These amounts were estimated by
considering the impact of the hypothetical interest rates on variable-rate securities outstanding, including money pool balances, adjusted for interest rate hedges and cash and cash equivalents outstanding as of December 31, 2007 and 2006. If
interest rates changed significantly, management would likely take actions to manage its exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes
no changes in Duke Energy Ohios financial structure.

As of December 31, 2007 and mid-March 2008, Duke Energy Ohio had approximately $440
million of auction rate pollution control bonds outstanding. While these debt instruments are long-term in nature and cannot be put back to Duke Energy Ohio prior to maturity, the interest rates on these instruments are designed to reset
periodically through an auction process. Beginning in February 2008, Duke Energy Ohio experienced failed auctions on a portion of these debt instruments. When failed auctions occur on a series of this debt, Duke Energy Ohio is required to pay the
maximum auction rate as prescribed by the bond document. The maximum auction rate for the auction rate debt is 1.75 times one-month London Interbank Offered Rate. Payment of the failed-auction interest rates will continue until Duke Energy Ohio is
able to either successfully remarket these instruments through the auction process or refund and refinance the existing debt through the issuance of an equivalent amount of tax exempt bonds. Duke Energy Ohio is currently pursuing a refunding and
refinancing plan, which is subject to approval by applicable state or county financing authorities and utility regulators. However, even if Duke Energy Ohio is unable to successfully refund and refinance these debt instruments, the impact of paying
higher interest rates on the outstanding auction rate debt is not expected to materially effect Duke Energy Ohios overall financial position, results of operations or cash flows. The weighted-average interest rate, associated with Duke Energy
Ohios auction rate pollution control bonds, was 4.56% as of December 31, 2007 and 5.37% as of March 6, 2008.

Further, at this time,
Duke Energy Ohio does not believe the recent market developments significantly impact its ability to obtain financing and fully expects to have access to liquidity in the capital markets at reasonable rates and terms. Additionally, Duke Energy has
access to unsecured revolving credit facilities, which are not restricted upon general market conditions, with aggregate bank commitments of approximately $2.65 billion, of which a portion is currently committed primarily to backstop Duke
Energys commercial paper program. Duke Energy Ohio (excluding Duke Energy Kentucky) has a borrowing sub limit of $500 million and Duke Energy Kentucky has a borrowing sub limit of $100 million under Duke Energys master credit facility.

In March 2008, Duke Energy increased its capacity under its master credit facility by $550 million. As a result of this increase, the borrowing sub
limit of Duke Energy Ohio increased by $250 million to $750 million. The borrowing sub limit of Duke Energy Kentucky did not change.



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Item 8. Financial Statements and Supplementary Data.



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of
Directors of Duke Energy Ohio, Inc.

Charlotte, North Carolina



We have audited the accompanying consolidated balance sheets of Duke Energy Ohio, Inc. and subsidiaries (the Company) as of December 31, 2007 and
2006, and the related consolidated statements of operations, common stockholders equity and comprehensive income, and cash flows for the year ended December 31, 2007 and the nine months ended December 31, 2006 (successor periods),
and the three months ended March 31, 2006 and the year ended December 31, 2005 (predecessor periods). Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial
statement schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Duke Energy Ohio, Inc. and subsidiaries
at December 31, 2007 and 2006, and the results of their operations and their cash flows for the periods stated above, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such
financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 1, on April 3, 2006, Duke Energy Corporation acquired all of the outstanding common stock of Cinergy Corp. in a merger accounted for under
the purchase method of accounting. The impacts of purchase accounting have been pushed down to the Company, resulting in its assets and liabilities being recorded at their fair values as of the merger date. Consequently, the financial
statements of the successor Company are not generally comparable to those of the predecessor Company.



/s/ DELOITTE & TOUCHE LLP



Charlotte, North Carolina

March 19, 2008



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DUKE ENERGY OHIO, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions)



|                                                                       |  |                                     |       |   |                                    |   |       |                                 |  |   |                                     |   |  |   |       |  
|---------------------------------------------------------------------- |  | ----------------------------------- | ----- | - | ---------------------------------- | - | ----- | ------------------------------- |  | - | ----------------------------------- | - |  | - | ----- | -
|                                                                       |  | Successor                           |       |   | Predecessor                        |  
|                                                                       |  | Twelve MonthsEndedDecember 31, 2007 |       |   | Nine Months EndedDecember 31, 2006 |   |       | Three MonthsEndedMarch 31, 2006 |  |   | Twelve MonthsEndedDecember 31, 2005 |  
|Operating Revenues                                                     |  |                                     |       |   |                                    |   |       |                                 |  |   |                                     |   |  |   |       |  
|Non-regulated electric and other                                       |  | $                                   | 1,751 |   |                                    | $ | 1,236 |                                 |  | $ | 421                                 |   |  | $ | 1,387 |  
|Regulated electric                                                     |  |                                     | 984   |   |                                    |   | 638   |                                 |  |   | 220                                 |   |  |   | 613   |  
|Regulated natural gas                                                  |  |                                     | 720   |   |                                    |   | 387   |                                 |  |   | 322                                 |   |  |   | 780   |  
|Total operating revenues                                               |  |                                     | 3,455 |   |                                    |   | 2,261 |                                 |  |   | 963                                 |   |  |   | 2,780 |  
|Operating Expenses                                                     |  |                                     |       |   |                                    |   |       |                                 |  |   |                                     |   |  |   |       |  
|Fuel used in electric generation and purchased power                   |  |                                     | 1,070 |   |                                    |   | 804   |                                 |  |   | 196                                 |   |  |   | 665   |  
|Operation, maintenance and other                                       |  |                                     | 756   |   |                                    |   | 505   |                                 |  |   | 173                                 |   |  |   | 562   |  
|Natural gas purchased                                                  |  |                                     | 449   |   |                                    |   | 230   |                                 |  |   | 232                                 |   |  |   | 514   |  
|Costs of fuel resold                                                   |  |                                     | 47    |   |                                    |   | 83    |                                 |  |   | 44                                  |   |  |   | 189   |  
|Depreciation and amortization                                          |  |                                     | 392   |   |                                    |   | 280   |                                 |  |   | 68                                  |   |  |   | 271   |  
|Property and other taxes                                               |  |                                     | 250   |   |                                    |   | 165   |                                 |  |   | 68                                  |   |  |   | 213   |  
|Total operating expenses                                               |  |                                     | 2,964 |   |                                    |   | 2,067 |                                 |  |   | 781                                 |   |  |   | 2,414 |  
|(Losses) Gains on Sales of Other Assets and Other, net                 |  |                                     | (8    | ) |                                    |   | (28   | )                               |  |   | 26                                  |   |  |   | 125   |  
|Operating Income                                                       |  |                                     | 483   |   |                                    |   | 166   |                                 |  |   | 208                                 |   |  |   | 491   |  
|Other Income and Expenses, net                                         |  |                                     | 32    |   |                                    |   | 17    |                                 |  |   | 8                                   |   |  |   | 19    |  
|Interest Expense                                                       |  |                                     | 100   |   |                                    |   | 81    |                                 |  |   | 30                                  |   |  |   | 98    |  
|Income from Continuing Operations Before Income Taxes                  |  |                                     | 415   |   |                                    |   | 102   |                                 |  |   | 186                                 |   |  |   | 412   |  
|Income Tax Expense from Continuing Operations                          |  |                                     | 151   |   |                                    |   | 41    |                                 |  |   | 68                                  |   |  |   | 157   |  
|Income from Continuing Operations                                      |  |                                     | 264   |   |                                    |   | 61    |                                 |  |   | 118                                 |   |  |   | 255   |  
|(Loss) Income from Discontinued Operations, net of tax                 |  |                                     |      |   |                                    |   | (6    | )                               |  |   | (2                                  | ) |  |   | 46    |  
|Income Before Cumulative Effect of Change in Accounting Principle      |  |                                     | 264   |   |                                    |   | 55    |                                 |  |   | 116                                 |   |  |   | 301   |  
|Cumulative Effect of Change in Accounting Principle, net of tax        |  |                                     |      |   |                                    |   |      |                                 |  |   |                                    |   |  |   | (3    | )
|Net Income                                                             |  |                                     | 264   |   |                                    |   | 55    |                                 |  |   | 116                                 |   |  |   | 298   |  
|Dividends and Premiums on Redemption of Preferred and Preference Stock |  |                                     |      |   |                                    |   |      |                                 |  |   |                                    |   |  |   | 1     |  
|Earnings Available for Common Stockholder                              |  | $                                   | 264   |   |                                    | $ | 55    |                                 |  | $ | 116                                 |   |  | $ | 297   |  
|                                                                       | 



See Notes to Consolidated
Financial Statements



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PART II



DUKE ENERGY OHIO, INC.

CONSOLIDATED BALANCE SHEETS

(In millions)



|                                                                                                            |  |              |        |      |   |       
|----------------------------------------------------------------------------------------------------------- |  | ------------ | ------ | ---- | - | ------
|                                                                                                            |  | Successor   
|                                                                                                            |  | December 31,
|                                                                                                            |  | 2007         |        | 2006
|ASSETS                                                                                                      |  |              |        |      |   |       
|Current Assets                                                                                              |  |              |        |      |   |       
|Cash and cash equivalents                                                                                   |  | $            | 33     |      | $ | 45    
|Receivables (net of allowance for doubtful accounts of $3 at December 31, 2007 and $5 at December 31, 2006) |  |              | 334    |      |   | 308   
|Inventory                                                                                                   |  |              | 212    |      |   | 217   
|Assets held for sale                                                                                        |  |              |       |      |   | 25    
|Unrealized gains on mark-to-market and hedging transactions                                                 |  |              | 26     |      |   | 54    
|Other                                                                                                       |  |              | 100    |      |   | 117   
|Total current assets                                                                                        |  |              | 705    |      |   | 766   
|Investments and Other Assets                                                                                |  |              |        |      |   |       
|Restricted funds held in trust                                                                              |  |              | 62     |      |   | 30    
|Goodwill                                                                                                    |  |              | 2,325  |      |   | 2,348 
|Intangibles, net                                                                                            |  |              | 551    |      |   | 732   
|Unrealized gains on mark-to-market and hedging transactions                                                 |  |              | 25     |      |   | 27    
|Assets held for sale                                                                                        |  |              |       |      |   | 18    
|Other                                                                                                       |  |              | 33     |      |   | 21    
|Total investments and other assets                                                                          |  |              | 2,996  |      |   | 3,176 
|Property, Plant and Equipment                                                                               |  |              |        |      |   |       
|Cost                                                                                                        |  |              | 9,577  |      |   | 9,049 
|Less accumulated depreciation and amortization                                                              |  |              | 2,097  |      |   | 1,914 
|Net property, plant and equipment                                                                           |  |              | 7,480  |      |   | 7,135 
|Regulatory Assets and Deferred Debits                                                                       |  |              |        |      |   |       
|Deferred debt expense                                                                                       |  |              | 23     |      |   | 24    
|Regulatory assets related to income taxes                                                                   |  |              | 90     |      |   | 96    
|Other                                                                                                       |  |              | 401    |      |   | 533   
|Total regulatory assets and deferred debits                                                                 |  |              | 514    |      |   | 653   
|Total Assets                                                                                                |  | $            | 11,695 |      | $ | 11,730
|                                                                                                           



See Notes to Consolidated
Financial Statements



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PART II



DUKE ENERGY OHIO, INC.

CONSOLIDATED BALANCE
SHEETS(Continued)

(In millions, except share and per-share amounts)



|                                                                                                                             |  |              |        |      |   |        |  
|---------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------ | ---- | - | ------ | -
|                                                                                                                             |  | Successor    |       
|                                                                                                                             |  | December 31, |       
|                                                                                                                             |  | 2007         |        | 2006 |  
|LIABILITIES AND COMMON STOCKHOLDER'S EQUITY                                                                                  |  |              |        |      |   |        |  
|Current Liabilities                                                                                                          |  |              |        |      |   |        |  
|Accounts payable                                                                                                             |  | $            | 602    |      | $ | 408    |  
|Notes payable                                                                                                                |  |              | 189    |      |   | 274    |  
|Taxes accrued                                                                                                                |  |              | 172    |      |   | 301    |  
|Interest accrued                                                                                                             |  |              | 24     |      |   | 27     |  
|Liabilities associated with assets held for sale                                                                             |  |              |       |      |   | 25     |  
|Current maturities of long-term debt                                                                                         |  |              | 126    |      |   | 105    |  
|Unrealized losses on mark-to-market and hedging transactions                                                                 |  |              | 33     |      |   | 46     |  
|Other                                                                                                                        |  |              | 86     |      |   | 99     |  
|Total current liabilities                                                                                                    |  |              | 1,232  |      |   | 1,285  |  
|Long-term Debt                                                                                                               |  |              | 1,810  |      |   | 1,776  |  
|Deferred Credits and Other Liabilities                                                                                       |  |              |        |      |   |        |  
|Deferred income taxes                                                                                                        |  |              | 1,436  |      |   | 1,475  |  
|Investment tax credit                                                                                                        |  |              | 16     |      |   | 19     |  
|Accrued pension and other postretirement benefit costs                                                                       |  |              | 259    |      |   | 381    |  
|Unrealized losses on mark-to-market and hedging transactions                                                                 |  |              | 34     |      |   | 29     |  
|Liabilities associated with assets held for sale                                                                             |  |              |       |      |   | 18     |  
|Asset retirement obligations                                                                                                 |  |              | 31     |      |   | 41     |  
|Other                                                                                                                        |  |              | 343    |      |   | 326    |  
|Total deferred credits and other liabilities                                                                                 |  |              | 2,119  |      |   | 2,289  |  
|Commitments and Contingencies                                                                                                |  |              |        |      |   |        |  
|Common Stockholders Equity                                                                                                  |  |              |        |      |   |        |  
|Common stock, $8.50 par value; 120,000,000 shares authorized and 89,663,086 shares outstanding at December 31, 2007 and 2006 |  |              | 762    |      |   | 762    |  
|Additional paid-in capital                                                                                                   |  |              | 5,570  |      |   | 5,601  |  
|Retained earnings                                                                                                            |  |              | 227    |      |   | 55     |  
|Accumulated other comprehensive loss                                                                                         |  |              | (25)   |      |   | (38    | )
|Total common stockholders equity                                                                                            |  |              | 6,534  |      |   | 6,380  |  
|Total Liabilities and Common Stockholders Equity                                                                            |  | $            | 11,695 |      | $ | 11,730 |  
|                                                                                                                             | 



See Notes to Consolidated
Financial Statements



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##### Table of Contents

PART II



DUKE ENERGY OHIO, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)



|                                                                                                                     |  |                                      |      |   |                                    |   |       |                                  |  |   |                                      |   |  |   |      |  
|-------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------ | ---- | - | ---------------------------------- | - | ----- | -------------------------------- |  | - | ------------------------------------ | - |  | - | ---- | -
|                                                                                                                     |  | Successor                            |      |   | Predecessor                        |  
|                                                                                                                     |  | Twelve Months EndedDecember 31, 2007 |      |   | Nine Months EndedDecember 31, 2006 |   |       | Three Months EndedMarch 31, 2006 |  |   | Twelve Months EndedDecember 31, 2005 |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                                                                 |  |                                      |      |   |                                    |   |       |                                  |  |   |                                      |   |  |   |      |  
|Net income                                                                                                           |  | $                                    | 264  |   |                                    | $ | 55    |                                  |  | $ | 116                                  |   |  | $ | 298  |  
|Adjustments to reconcile net income to net cash provided by operating activities:                                    |  |                                      |      |   |                                    |   |       |                                  |  |   |                                      |   |  |   |      |  
|Depreciation and amortization                                                                                        |  |                                      | 395  |   |                                    |   | 280   |                                  |  |   | 68                                   |   |  |   | 271  |  
|Losses (gains) on sales of equity investments and other assets                                                       |  |                                      | 8    |   |                                    |   | 31    |                                  |  |   | (26                                  | ) |  |   | (125 | )
|Deferred income taxes                                                                                                |  |                                      | 18   |   |                                    |   | (120  | )                                |  |   | 7                                    |   |  |   | (44  | )
|Regulatory asset/liability amortization                                                                              |  |                                      | 17   |   |                                    |   | 9     |                                  |  |   | 7                                    |   |  |   | 10   |  
|Cumulative effect of change in accounting principle                                                                  |  |                                      |     |   |                                    |   |      |                                  |  |   |                                     |   |  |   | 3    |  
|Accrued pension and other postretirement benefit costs                                                               |  |                                      | 37   |   |                                    |   | 40    |                                  |  |   | 9                                    |   |  |   | 22   |  
|Contribution to company-sponsored pension and other postretirement benefit plans                                     |  |                                      | (92  | ) |                                    |   | (22   | )                                |  |   |                                     |   |  |   | (18  | )
|(Increase) decrease in:                                                                                              |  |                                      |      |   |                                    |   |       |                                  |  |   |                                      |   |  |   |      |  
|Net realized and unrealized mark-to-market and hedging transactions                                                  |  |                                      | 21   |   |                                    |   | (6    | )                                |  |   | (30                                  | ) |  |   | 43   |  
|Receivables                                                                                                          |  |                                      | (25  | ) |                                    |   | 132   |                                  |  |   | 10                                   |   |  |   | (125 | )
|Inventory                                                                                                            |  |                                      | 5    |   |                                    |   | (84   | )                                |  |   | 56                                   |   |  |   | (25  | )
|Other current assets                                                                                                 |  |                                      | 22   |   |                                    |   | 25    |                                  |  |   | 68                                   |   |  |   | (123 | )
|Increase (decrease) in:                                                                                              |  |                                      |      |   |                                    |   |       |                                  |  |   |                                      |   |  |   |      |  
|Accounts payable                                                                                                     |  |                                      | 181  |   |                                    |   | (86   | )                                |  |   | (157                                 | ) |  |   | 245  |  
|Taxes accrued                                                                                                        |  |                                      | (144 | ) |                                    |   | 54    |                                  |  |   | 50                                   |   |  |   | 29   |  
|Other current liabilities                                                                                            |  |                                      | 1    |   |                                    |   | (63   | )                                |  |   | (78                                  | ) |  |   | 155  |  
|Regulatory asset/liability deferrals                                                                                 |  |                                      | (19  | ) |                                    |   | (7    | )                                |  |   | (1                                   | ) |  |   | (31  | )
|Other assets                                                                                                         |  |                                      | 148  |   |                                    |   | 175   |                                  |  |   | 17                                   |   |  |   | 48   |  
|Other liabilities                                                                                                    |  |                                      | (89  | ) |                                    |   | (50   | )                                |  |   |                                     |   |  |   | 25   |  
|Net cash provided by operating activities                                                                            |  |                                      | 748  |   |                                    |   | 363   |                                  |  |   | 116                                  |   |  |   | 658  |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                                                                 |  |                                      |      |   |                                    |   |       |                                  |  |   |                                      |   |  |   |      |  
|Capital expenditures                                                                                                 |  |                                      | (593 | ) |                                    |   | (391  | )                                |  |   | (135                                 | ) |  |   | (434 | )
|Purchases of emission allowances                                                                                     |  |                                      | (23  | ) |                                    |   | (167  | )                                |  |   | (162                                 | ) |  |   | (433 | )
|Sales of emission allowances                                                                                         |  |                                      | 29   |   |                                    |   | 138   |                                  |  |   | 105                                  |   |  |   | 494  |  
|Net proceeds from the sales of equity investments and other assets, and sales of and collections on notes receivable |  |                                      |     |   |                                    |   | 32    |                                  |  |   |                                     |   |  |   |     |  
|Change in restricted funds held in trust                                                                             |  |                                      | (31  | ) |                                    |   | 22    |                                  |  |   | 8                                    |   |  |   | 38   |  
|Net cash used in investing activities                                                                                |  |                                      | (618 | ) |                                    |   | (366  | )                                |  |   | (184                                 | ) |  |   | (335 | )
|CASH FLOWS FROM FINANCING ACTIVITIES                                                                                 |  |                                      |      |   |                                    |   |       |                                  |  |   |                                      |   |  |   |      |  
|Issuance of long-term debt                                                                                           |  |                                      | 205  |   |                                    |   | 88    |                                  |  |   | 141                                  |   |  |   |     |  
|Redemption of long-term debt                                                                                         |  |                                      | (153 | ) |                                    |   | (80   | )                                |  |   | (1                                   | ) |  |   |     |  
|Redemption of preferred stock of subsidiaries                                                                        |  |                                      |     |   |                                    |   |      |                                  |  |   | (21                                  | ) |  |   |     |  
|Notes payable to affiliate, net                                                                                      |  |                                      | (85  | ) |                                    |   | 36    |                                  |  |   | 50                                   |   |  |   | (66  | )
|Dividends paid                                                                                                       |  |                                      | (135 | ) |                                    |   |      |                                  |  |   | (102                                 | ) |  |   | (251 | )
|Capital contribution from parent                                                                                     |  |                                      | 29   |   |                                    |   |      |                                  |  |   |                                     |   |  |   |     |  
|Other                                                                                                                |  |                                      | (3   | ) |                                    |   | (4    | )                                |  |   | (1                                   | ) |  |   |     |  
|Net cash (used in) provided by financing activities                                                                  |  |                                      | (142 | ) |                                    |   | 40    |                                  |  |   | 66                                   |   |  |   | (317 | )
|Net (decrease) increase in cash and cash equivalents                                                                 |  |                                      | (12  | ) |                                    |   | 37    |                                  |  |   | (2                                   | ) |  |   | 6    |  
|Cash and cash equivalents at beginning of period                                                                     |  |                                      | 45   |   |                                    |   | 8     |                                  |  |   | 10                                   |   |  |   | 4    |  
|Cash and cash equivalents at end of period                                                                           |  | $                                    | 33   |   |                                    | $ | 45    |                                  |  | $ | 8                                    |   |  | $ | 10   |  
|                                                                                                                     | 
|Supplemental Disclosures                                                                                             |  |                                      |      |   |                                    |   |       |                                  |  |   |                                      |   |  |   |      |  
|Cash paid for interest, net of amount capitalized                                                                    |  | $                                    | 91   |   |                                    | $ | 103   |                                  |  | $ | 21                                   |   |  | $ | 98   |  
|Cash paid for income taxes                                                                                           |  | $                                    | 159  |   |                                    | $ | 77    |                                  |  | $ |                                     |   |  | $ | 204  |  
|Significant non-cash transactions:                                                                                   |  |                                      |      |   |                                    |   |       |                                  |  |   |                                      |   |  |   |      |  
|Purchase accounting adjustments                                                                                      |  | $                                    | (14  | ) |                                    | $ | 2,894 |                                  |  | $ |                                     |   |  | $ |     |  
|Accrued capital expenditures                                                                                         |  | $                                    | 62   |   |                                    | $ | 49    |                                  |  | $ |                                     |   |  | $ |     |  
|Transfer of generating assets from Duke Energy                                                                       |  | $                                    |     |   |                                    | $ | 1,462 |                                  |  | $ |                                     |   |  | $ |     |  

See Notes to Consolidated Financial Statements



23



---

##### Table of Contents

PART II



DUKE ENERGY OHIO, INC.

CONSOLIDATED STATEMENTS OF COMMON
STOCKHOLDER'S EQUITY AND COMPREHENSIVE INCOME

(In millions)



|                                                                       |  |             |     |                          |   |       |                  |  |   |                                               |   |  |                                    |     |   |                        |   |     |       |  |   |    |   |  |   |       |    
|---------------------------------------------------------------------- |  | ----------- | --- | ------------------------ | - | ----- | ---------------- |  | - | --------------------------------------------- | - |  | ---------------------------------- | --- | - | ---------------------- | - | --- | ----- |  | - | -- | - |  | - | ----- | ---
|                                                                       |  |             |     |                          |   |       |                  |  |   | Accumulated Other Comprehensive Income (Loss) |   |  |                                    |    
|                                                                       |  | CommonStock |     | AdditionalPaid-inCapital |   |       | RetainedEarnings |  |   | Net Gains(Losses) onCash FlowHedges           |   |  | MinimumPension LiabilityAdjustment |     |   | SFAS No. 158Adjustment |   |     | Total | 
|Successor                                                              |  |             |     |                          |   |       |                  |  |   |                                               |   |  |                                    |     |   |                        |   |     |       |  |   |    |   |  |   |       |    
|Nine Months Ended December 31, 2006                                    |  |             |     |                          |   |       |                  |  |   |                                               |   |  |                                    |     |   |                        |   |     |       |  |   |    |   |  |   |       |    
|Balance at April 1, 2006                                               |  | $           | 762 |                          | $ | 4,123 |                  |  | $ |                                              |   |  | $                                  |    |   |                        | $ |    |       |  | $ |   |   |  | $ | 4,885 | (b)
|Net income                                                             |  |             |    |                          |   |      |                  |  |   | 55                                            |   |  |                                    |    |   |                        |   |    |       |  |   |   |   |  |   | 55    |    
|Other comprehensive income, net of tax effect of ($2) Cash flow hedges |  |             |    |                          |   |      |                  |  |   |                                              |   |  |                                    | 3   |   |                        |   |    |       |  |   |   |   |  |   | 3     |    
|                                                                       |  |             |     |                          |   |       |                  |  |   |                                               |   |  |                                    |     |   |                        |   |     |       |  |   |    |   |  |   |       |    
|Total comprehensive income                                             |  |             |     |                          |   |       |                  |  |   |                                               |   |  |                                    |     |   |                        |   |     |       |  |   |    |   |  |   | 58    |    
|Transfer of generating assets from Duke Energy(a)                      |  |             |    |                          |   | 1,462 |                  |  |   |                                              |   |  |                                    | (39 | ) |                        |   |    |       |  |   |   |   |  |   | 1,423 |    
|Contribution from parent company for reallocation of taxes             |  |             |    |                          |   | 16    |                  |  |   |                                              |   |  |                                    |    |   |                        |   |    |       |  |   |   |   |  |   | 16    |    
|SFAS No. 158 funded status provision                                   |  |             |    |                          |   |      |                  |  |   |                                              |   |  |                                    |    |   |                        |   |    |       |  |   | (2 | ) |  |   | (2    | )  
|Balance at December 31, 2006                                           |  | $           | 762 |                          | $ | 5,601 |                  |  | $ | 55                                            |   |  | $                                  | (36 | ) |                        | $ |    |       |  | $ | (2 | ) |  | $ | 6,380 |    
|Year Ended December 31, 2007                                           |  |             |     |                          |   |       |                  |  |   |                                               |   |  |                                    |     |   |                        |   |     |       |  |   |    |   |  |   |       |    
|Balance at December 31, 2006                                           |  | $           | 762 |                          | $ | 5,601 |                  |  | $ | 55                                            |   |  | $                                  | (36 | ) |                        | $ |    |       |  | $ | (2 | ) |  | $ | 6,380 |    
|Net income                                                             |  |             |    |                          |   |      |                  |  |   | 264                                           |   |  |                                    |    |   |                        |   |    |       |  |   |   |   |  |   | 264   |    
|Other comprehensive income, net of tax effect of ($8)                  |  |             |     |                          |   |       |                  |  |   |                                               |   |  |                                    |     |   |                        |   |     |       |  |   |    |   |  |   |       |    
|Cash flow hedges                                                       |  |             |    |                          |   |      |                  |  |   |                                              |   |  |                                    | 4   |   |                        |   |    |       |  |   |   |   |  |   | 4     |    
|SFAS 158 net actuarial gain(c)                                         |  |             |    |                          |   |      |                  |  |   |                                              |   |  |                                    |    |   |                        |   |    |       |  |   | 11 |   |  |   | 11    |    
|                                                                       |  |             |     |                          |   |       |                  |  |   |                                               |   |  |                                    |     |   |                        |   |     |       |  |   |    |   |  |   |       |    
|Total comprehensive income                                             |  |             |     |                          |   |       |                  |  |   |                                               |   |  |                                    |     |   |                        |   |     |       |  |   |    |   |  |   | 279   |    
|Capital contribution from parent                                       |  |             |    |                          |   | 29    |                  |  |   |                                              |   |  |                                    |    |   |                        |   |    |       |  |   |   |   |  |   | 29    |    
|Push-down accounting adjustments                                       |  |             |    |                          |   | (14   | )                |  |   |                                              |   |  |                                    |    |   |                        |   |    |       |  |   |   |   |  |   | (14   | )  
|Adoption of SFAS No. 158measurement date provision                    |  |             |    |                          |   |      |                  |  |   | (3                                            | ) |  |                                    |    |   |                        |   |    |       |  |   | (2 | ) |  |   | (5    | )  
|Common stock dividends                                                 |  |             |    |                          |   | (46   | )                |  |   | (89                                           | ) |  |                                    |    |   |                        |   |    |       |  |   |   |   |  |   | (135  | )  
|Balance at December 31, 2007                                           |  | $           | 762 |                          | $ | 5,570 |                  |  | $ | 227                                           |   |  | $                                  | (32 | ) |                        | $ |    |       |  | $ | 7  |   |  | $ | 6,534 |    
|Predecessor                                                            |  |             |     |                          |   |       |                  |  |   |                                               |   |  |                                    |     |   |                        |   |     |       |  |   |    |   |  |   |       |    
|Year Ended December 31, 2005                                           |  |             |     |                          |   |       |                  |  |   |                                               |   |  |                                    |     |   |                        |   |     |       |  |   |    |   |  |   |       |    
|Balance at December 31, 2004                                           |  | $           | 762 |                          | $ | 585   |                  |  | $ | 610                                           |   |  | $                                  | (19 | ) |                        | $ | (20 | )     |  | $ |   |   |  | $ | 1,918 |    
|Net income                                                             |  |             |    |                          |   |      |                  |  |   | 298                                           |   |  |                                    |    |   |                        |   |    |       |  |   |   |   |  |   | 298   |    
|Other comprehensive income, net of tax effect of $1                    |  |             |     |                          |   |       |                  |  |   |                                               |   |  |                                    |     |   |                        |   |     |       |  |   |    |   |  |   |       |    
|Minimum pension liability adjustment                                   |  |             |    |                          |   |      |                  |  |   |                                              |   |  |                                    |    |   |                        |   | (13 | )     |  |   |   |   |  |   | (13   | )  
|Cash flow hedges                                                       |  |             |    |                          |   |      |                  |  |   |                                              |   |  |                                    | 5   |   |                        |   |    |       |  |   |   |   |  |   | 5     |    
|                                                                       |  |             |     |                          |   |       |                  |  |   |                                               |   |  |                                    |     |   |                        |   |     |       |  |   |    |   |  |   |       |    
|Total comprehensive income                                             |  |             |     |                          |   |       |                  |  |   |                                               |   |  |                                    |     |   |                        |   |     |       |  |   |    |   |  |   | 290   |    
|Common stock dividends                                                 |  |             |    |                          |   |      |                  |  |   | (250                                          | ) |  |                                    |    |   |                        |   |    |       |  |   |   |   |  |   | (250  | )  
|Preferred stock dividends                                              |  |             |    |                          |   |      |                  |  |   | (1                                            | ) |  |                                    |    |   |                        |   |    |       |  |   |   |   |  |   | (1    | )  
|Contribution from parent company for reallocation of taxes             |  |             |    |                          |   | 18    |                  |  |   |                                              |   |  |                                    |    |   |                        |   |    |       |  |   |   |   |  |   | 18    |    
|Balance at December 31, 2005                                           |  | $           | 762 |                          | $ | 603   |                  |  | $ | 657                                           |   |  | $                                  | (14 | ) |                        | $ | (33 | )     |  | $ |   |   |  | $ | 1,975 |    
|Three Months Ended March 31, 2006                                      |  |             |     |                          |   |       |                  |  |   |                                               |   |  |                                    |     |   |                        |   |     |       |  |   |    |   |  |   |       |    
|Balance at December 31, 2005                                           |  | $           | 762 |                          | $ | 603   |                  |  | $ | 657                                           |   |  | $                                  | (14 | ) |                        | $ | (33 | )     |  | $ |   |   |  | $ | 1,975 |    
|Net income                                                             |  |             |    |                          |   |      |                  |  |   | 116                                           |   |  |                                    |    |   |                        |   |    |       |  |   |   |   |  |   | 116   |    
|Other comprehensive income                                             |  |             |     |                          |   |       |                  |  |   |                                               |   |  |                                    |     |   |                        |   |     |       |  |   |    |   |  |   |       |    
|Minimum pension liability adjustment                                   |  |             |    |                          |   |      |                  |  |   |                                              |   |  |                                    |    |   |                        |   | 1   |       |  |   |   |   |  |   | 1     |    
|Cash flow hedges                                                       |  |             |    |                          |   |      |                  |  |   |                                              |   |  |                                    | 1   |   |                        |   |    |       |  |   |   |   |  |   | 1     |    
|                                                                       |  |             |     |                          |   |       |                  |  |   |                                               |   |  |                                    |     |   |                        |   |     |       |  |   |    |   |  |   |       |    
|Total comprehensive income                                             |  |             |     |                          |   |       |                  |  |   |                                               |   |  |                                    |     |   |                        |   |     |       |  |   |    |   |  |   | 118   |    
|Common stock dividends                                                 |  |             |    |                          |   |      |                  |  |   | (102                                          | ) |  |                                    |    |   |                        |   |    |       |  |   |   |   |  |   | (102  | )  
|Balance at March 31, 2006                                              |  | $           | 762 |                          | $ | 603   |                  |  | $ | 671                                           |   |  | $                                  | (13 | ) |                        | $ | (32 | )     |  | $ |   |   |  | $ | 1,991 | (b)



|(a) | Includes $39 (net of tax benefit of $24) related to deferred losses on terminated cash flow hedges included in Accumulated Other Comprehensive Income (Loss).
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Difference in equity balances at March 31, 2006 and April 1, 2006 is due to the application of push-down accounting reflecting Duke Energy's merger with Cinergy (see Notes 1 and 2
to the Consolidated Financial Statements).
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | Excludes $50 reflected as regulatory assets.
|--- | --------------------------------------------

See Notes to Consolidated
Financial Statements



24



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##### Table of Contents

PART II

DUKE ENERGY OHIO, INC.

Notes To Consolidated Financial Statements

For the Years Ended December 31, 2007, 2006 and 2005



1. Summary
of Significant Accounting Policies

Nature of Operations and Basis of Consolidation.Duke Energy Ohio, Inc. (Duke Energy Ohio), an Ohio
corporation organized in 1837, is a wholly-owned subsidiary of Cinergy Corp. (Cinergy). Duke Energy Ohio is a combination electric and gas public utility company that provides service in the southwestern portion of Ohio and through Duke Energy
Kentucky, Inc. (Duke Energy Kentucky) in nearby areas of Kentucky. Duke Energy Ohios principal lines of business include generation, transmission and distribution of electricity, the sale of and/or transportation of natural gas, and energy
marketing. Duke Energy Ohios principal subsidiary is Duke Energy Kentucky, a Kentucky corporation organized in 1901. Duke Energy Kentuckys principal lines of business include generation, transmission and distribution of electricity as
well as the sale of and/or transportation of natural gas. References herein to Duke Energy Ohio includes Duke Energy Ohio and its subsidiaries. In October 2006, Cinergy and Duke Energy Ohio completed the sale of Duke Energy Ohios trading
contracts to Fortis Bank S.A./N.V. (Fortis), a Benelux-based financial services group. See Note 13 for additional information.

On April 3, 2006,
Duke Energy Corporation (Old Duke Energy) and Cinergy merged into wholly-owned subsidiaries of Duke Energy Holding Corp. (Duke Energy HC), resulting in Duke Energy HC becoming the parent entity. In connection with the closing of the merger
transactions, Duke Energy HC changed its name to Duke Energy Corporation (New Duke Energy or Duke Energy) and Old Duke Energy converted into a limited liability company named Duke Power Company LLC (subsequently renamed Duke Energy Carolinas, LLC
effective October 1, 2006). As a result of the merger transactions, each outstanding share of Cinergy common stock was converted into 1.56 shares of common stock of New Duke Energy, which resulted in the issuance of approximately
313 million shares of Duke Energy common stock. See Note 2 for additional information regarding the merger. Both Old Duke Energy and New Duke Energy are referred to as Duke Energy herein. Duke Energy is a public registrant trading on the New
York Stock Exchange under DUK.

As a result of Duke Energys merger with Cinergy, Duke Energy Ohio entered into a tax sharing agreement with Duke
Energy, where the separate return method is used to allocate tax expenses and benefits to the subsidiaries whose investments or results of operations provide these tax expenses and benefits. The accounting for income taxes essentially represents the
income taxes that Duke Energy Ohio would incur if Duke Energy Ohio were a separate company filing its own tax return as a C-Corporation. The current tax sharing agreement Duke Energy Ohio has with Duke Energy is substantially the same as the tax
sharing agreement between Duke Energy Ohio and Cinergy prior to the merger.

These Consolidated Financial Statements include, after eliminating
intercompany transactions and balances, the accounts of Duke Energy Ohio and all majority-owned subsidiaries where Duke Energy Ohio has control. These Consolidated Financial Statements also reflect Duke Energy Ohios proportionate share of
certain generation and transmission facilities.

Predecessor and Successor Reporting.In connection with the Duke Energy merger, Duke Energy
acquired all of the outstanding common stock of Cinergy. The merger has been accounted for under the purchase method of accounting with Duke Energy treated as the acquirer for accounting purposes. As a result, the assets and liabilities of Cinergy
were recorded at their respective fair values as of the merger consummation date. Purchase accounting impacts, including goodwill recognition, have been pushed down to Duke Energy Ohio, resulting in the assets and liabilities of Duke
Energy Ohio being recorded at their respective fair values as of April 3, 2006 (see Note 2). Except for an adjustment related to pension and other postretirement benefit obligations, as mandated by the Financial Accounting Standards Board
(FASB) Statement of Financial Accounting Standards (SFAS) No. 87, Employers Accounting for Pensions, and SFAS No. 106, Employers Accounting for Postretirement Benefits Other Than Pensions,
the accompanying consolidated financial statements do not reflect any adjustments related to Duke Energy Ohios regulated operations that are accounted for pursuant to SFAS No. 71, Accounting for the Effects of Certain Types of
Regulation (SFAS No. 71), which are comprised of Duke Energy Ohios regulated transmission and distribution operations and Duke Energy Kentucky. Under the rate setting and recovery provisions currently in place for these
regulated operations which provide revenues derived from cost, the fair values of the individual tangible and intangible assets and liabilities are considered to approximate their carrying values.

Duke Energy Ohios Consolidated Statements of Operations subsequent to the merger include amortization expense relating to purchase accounting adjustments and
depreciation of fixed assets based upon their fair value as of the merger date. Therefore, the Duke Energy Ohio financial data prior to the merger will not generally be comparable to its financial data subsequent to the merger. See Note 2 for
additional information.

Due to the impact of push-down accounting, the financial statements and certain note presentations separate Duke Energy
Ohios presentations into two distinct periods, the period before the consummation of the merger (labeled Predecessor) and the period after that date (labeled Successor), to indicate the application of different bases of
accounting between the periods presented.



25



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##### Table of Contents

PART II

DUKE ENERGY OHIO, INC.

Notes To Consolidated Financial Statements(Continued)



Use of Estimates.To conform to generally accepted accounting principles (GAAP) in the United States, management makes
estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and Notes. Although these estimates are based on managements best available knowledge at the time, actual results could differ.

Cash and Cash Equivalents. All highly liquid investments with original maturities of three months or less at the date of purchase are considered cash
equivalents.

Restricted Funds Held in Trust.At December 31, 2007 and 2006, Duke Energy Ohio had approximately $62 million and $30
million, respectively, of restricted cash related primarily to proceeds from debt issuances that are held in trust, primarily for the purpose of funding future environmental expenditures.

Inventory.Inventory consists primarily of coal held for electric generation, materials and supplies, and natural gas held in storage for transmission and
sales commitments. Inventory is recorded primarily using the average cost method.



Components of Inventory



|                                    |  |                  |     |                  |   |    
|----------------------------------- |  | ---------------- | --- | ---------------- | - | ---
|                                    |  | Successor(a)    
|                                    |  | December 31,2007 |     | December 31,2006
|                                    |  | (in millions)   
|Inventory                           |  |                  |     |                  |   |    
|Gas held in storage                 |  | $                | 69  |                  | $ | 82 
|Fuel for use in electric generation |  |                  | 77  |                  |   | 74 
|Materials and supplies              |  |                  | 66  |                  |   | 61 
|                                    |  |                  |     |                  |   |    
|Total Inventory                     |  | $                | 212 |                  | $ | 217
|                                    |  |                  |     |                  |   |    



|(a) | See Predecessor and Successor Reporting in Note 1 for additional information on Predecessor and Successor reporting.
|--- | ----------------------------------------------------------------------------------------------------------------------

Cost-Based Regulation. Duke Energy Ohio accounts for certain of its regulated operations under the provisions of SFAS No. 71. The economic effects of
regulation can result in a regulated company recording assets for costs that have been or are expected to be approved for recovery from customers in a future period or recording liabilities for amounts that are expected to be returned to customers
in the rate-setting process in a period different from the period in which the amounts would be recorded by an unregulated enterprise. Accordingly, Duke Energy Ohio records assets and liabilities that result from the regulated ratemaking process
that would not be recorded under GAAP for non-regulated entities. Management continually assesses whether regulatory assets are probable of future recovery by considering factors such as applicable regulatory changes, recent rate orders applicable
to other regulated entities and the status of any pending or potential deregulation legislation. Additionally, management continually assesses whether any regulatory liabilities have been incurred. Based on this continual assessment, management
believes the existing regulatory assets are probable of recovery and that no regulatory liabilities, other than those recorded, have been incurred. These regulatory assets and liabilities are primarily classified in the Consolidated Balance Sheets
as Regulatory Assets and Deferred Debits, and Deferred Credits and Other Liabilities. Duke Energy Ohio periodically evaluates the applicability of SFAS No. 71, and considers factors such as regulatory changes and the impact of competition.
If cost-based regulation ends or competition increases, Duke Energy Ohio may have to reduce its asset balances to reflect a market basis less than cost and write-off their associated regulatory assets and liabilities. (For further information see
Note 5.)

The state of Ohio passed comprehensive electric deregulation legislation in 1999, and in 2000, the Public Utilities Commission of Ohio
(PUCO) approved a stipulation agreement relating to Duke Energy Ohios transition plan creating a Regulatory Transition Charge (RTC) designed to recover Duke Energy Ohios generation-related regulatory assets and transition costs over a
ten-year period beginning January 1, 2001. Accordingly, application of SFAS No. 71 was discontinued for the generation portion of Duke Energy Ohios business. Duke Energy Ohio has a RTC balance of approximately $239 million and $331
million as of December 31, 2007 and 2006, respectively, which is classified in Other Regulatory Assets and Deferred Debits on the Consolidated Balance Sheets.

Duke Energy Ohio operates under the Rate Stabilization Plan (RSP), a market based standard service offer (MBSSO) which was approved by the PUCO in November 2004, and which provides price certainty through December 31,
2008. In March 2005, the Office of the Ohio Consumers Counsel (OCC) appealed the PUCOs approval of the MBSSO and in November 2006, the Ohio Supreme Court remanded the PUCOs order approving the MBSSO for further evidentiary support
and explanation, and to require Duke Energy Ohio to



26



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##### Table of Contents

PART II

DUKE ENERGY OHIO, INC.

Notes To Consolidated Financial Statements(Continued)



disclose certain confidential commercial agreements between an affiliate of Duke Energy Ohio and certain Duke Energy Ohio customers which had been previously requested
by the OCC. Duke Energy Ohio has complied with the disclosure order and on October 24, 2007, the PUCO issued its order in response to the remand. On February 15, 2008, Duke Energy Ohio filed a notice of appeal with the Ohio Supreme Court
challenging a portion of PUCOs order on remand issued in October 2007 (see Note 5). The MBSSO consists of the following discrete charges:

| |  |  | Annually Adjusted Componentintended to provide cost recovery primarily for environmental compliance expenditures. This component is avoidable (or by-passable) for the
first 25% of residential load and 50% of non-residential load to switch to an alternative electric service provider.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Infrastructure Maintenance Fund Chargeintended to compensate Duke Energy Ohio for committing its physical capacity. This charge is unavoidable (or non-by-passable).
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | System Reliability Trackerintended to provide actual cost recovery for capacity purchases, purchased power, reserve capacity, and related market costs for purchases to
meet capacity needs. This charge is non-by-passable for residential load and by-passable for non-residential load under certain circumstances.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Rate Stabilization Chargeintended to compensate Duke Energy Ohio for maintaining a fixed price through 2008. This charge is by-passable by the first 25% of residential
load and 50% of non-residential load to switch.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Generation Prices and Fuel RecoveryA market price has been established for generation service. A component of the market price is a fuel cost recovery mechanism that is
adjusted quarterly for fuel, emission allowances, and certain purchased power costs, that exceed the amount originally included in the rates frozen in the Duke Energy Ohio transition plan. These new prices were applied to non-residential customers
beginning January 1, 2005 and to residential customers beginning January 1, 2006.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Transmission Cost RecoveryA transmission cost recovery mechanism was established beginning January 1, 2005 for non-residential customers and beginning
January 1, 2006 for residential customers. The transmission cost recovery mechanism is designed to permit Duke Energy Ohio to recover certain Midwest Independent Transition System Operator, Inc. (Midwest ISO) charges, all Federal Energy
Regulatory Commission (FERC) approved transmission costs, and all congestion costs allocable to retail ratepayers that are provided service by Duke Energy Ohio.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Excluding Duke Energy Ohios deregulated generation-related assets and liabilities, as of December 31, 2007, Duke Energy Ohio continues to meet the
criteria to apply SFAS No. 71.

Energy Purchases and Fuel Costs.As part of the PUCOs November 2004 approval of Duke Energy
Ohios RSP, a cost tracking recovery mechanism was established to recover costs of retail fuel and emission allowances that exceed the amount originally included in the rates frozen in the Duke Energy Ohio transition plan. This mechanism was
effective January 1, 2005 for non-residential customers and January 1, 2006 for residential customers. Also, Duke Energy Ohio began utilizing a tracking mechanism approved by the PUCO for the recovery of system reliability capacity costs
related to certain specified purchases of power. This mechanism was effective January 1, 2005 for non-residential customers and January 1, 2006 for residential customers. Because Duke Energy Ohio does not apply SFAS No. 71 to its
generation operations, differences between fuel costs billed and costs incurred are not recorded as regulatory assets or liabilities.

Accounting
for Risk Management and Hedging Activities and Financial Instruments. Duke Energy Ohio uses a number of different derivative and non-derivative instruments in connection with its commodity price and interest rate risk management activities,
including swaps, futures, forwards and options. All derivative instruments not designated and qualifying for the normal purchases and normal sales exception under SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, as amended, (SFAS No. 133), are recorded on the Consolidated Balance Sheets at their fair value. Cash inflows and outflows related to derivative instruments, except those that contain financing elements and those related
to other investing activities, are a component of operating cash flows in the accompanying Consolidated Statements of Cash Flows. Cash inflows and outflows related to derivative instruments containing financing elements are a component of financing
cash flows in the accompanying Consolidated Statements of Cash Flows while cash inflows and outflows from derivatives related to investing activities are a component of investing cash flows in the accompanying Consolidated Statements of Cash Flows.



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Duke Energy Ohio designates all energy commodity derivatives as either trading or non-trading. Gains and losses for all derivative
contracts that do not represent physical delivery contracts are reported on a net basis in the Consolidated Statements of Operations. For each of Duke Energy Ohios physical delivery contracts that are derivatives, the accounting model and
presentation of gains and losses, or revenue and expense in the Consolidated Statements of Operations is shown below.



|                           |  |                                   |  |                                                                                                          
|-------------------------- |  | --------------------------------- |  | ---------------------------------------------------------------------------------------------------------
|Classification of Contract |  | Duke Energy Ohio Accounting Model |  | Presentation of Gains & Losses or Revenue &
Expense                                                      
|                           |  |                                  
|Trading derivatives        |  | Mark-to-market(a)                 |  | Net basis in Non-regulated electric and other                                                            
|                           |  |                                  
|Non-trading derivatives:   |  |                                   |  |                                                                                                          
|Cash flow hedge            |  | Accrual(b)                        |  | Gross basis in the same Statement of Operations category as the related hedged item                      
|Fair value hedge           |  | Accrual(b)                        |  | Gross basis in the same Statement of Operations category as the related hedged item                      
|Normal purchase or sale    |  | Accrual(b)                        |  | Gross basis upon settlement in the corresponding Statement of Operations category based on commodity type
|Undesignated               |  | Mark-to-market(a)                 |  | Net basis in the related Statement of Operations category for interest rate and commodity derivatives    



|(a) | An accounting term used by Duke Energy Ohio to refer to derivative contracts for which an asset or liability is recognized at fair value and the change in the fair value of that asset or
liability is recognized in the Consolidated Statements of Operations. This term is applied to trading and undesignated non-trading derivative contracts. As this term is not explicitly defined within GAAP, Duke Energy Ohios application of this
term could differ from that of other companies.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | An accounting term used by Duke Energy Ohio to refer to contracts for which there is generally no recognition in the Consolidated Statements of Operations for any changes in fair value until
the service is provided, the associated delivery period occurs or there is hedge ineffectiveness. As discussed further below, this term is applied to derivative contracts that are accounted for as cash flow hedges, fair value hedges, and normal
purchases or sales, as well as to non-derivative contracts used for commodity risk management purposes. As this term is not explicitly defined within GAAP, Duke Energy Ohios application of this term could differ from that of other companies.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Where Duke Energy Ohios derivative instruments are subject to a master netting agreement and the criteria FASB Interpretation
(FIN) No. 39, Offsetting of Amounts Related to Certain Contractsan Interpretation of Accounting Principles Board (APB) Opinion No. 10 and FASB Statement No. 105 (FIN 39), are met, Duke Energy Ohio presents its
derivative assets and liabilities, and accompanying receivables and payables, separately on a net basis in the accompanying Consolidated Balance Sheets.

Cash Flow and Fair Value Hedges. Qualifying energy commodity and other derivatives may be designated as either a hedge of a forecasted transaction or future cash flows (cash flow hedge) or a hedge of a recognized asset, liability or
firm commitment (fair value hedge). For all contracts accounted for as a hedge, Duke Energy Ohio prepares formal documentation of the hedge in accordance with SFAS No. 133. In addition, at inception and at least every three months thereafter,
Duke Energy Ohio formally assesses whether the hedge contract is highly effective in offsetting changes in cash flows or fair values of hedged items. Duke Energy Ohio documents hedging activity by transaction type (futures/swaps) and risk management
strategy (commodity price risk/interest rate risk).

Changes in the fair value of a derivative designated and qualified as a cash flow hedge, to the
extent effective, are included in the Consolidated Statements of Common Stockholders Equity and Comprehensive Income as Accumulated Other Comprehensive Loss (AOCI) until earnings are affected by the hedged item. Duke Energy Ohio discontinues
hedge accounting prospectively when it has determined that a derivative no longer qualifies as an effective hedge, or when it is no longer probable that the hedged forecasted transaction will occur. When hedge accounting is discontinued because the
derivative no longer qualifies as an effective hedge, the derivative is subject to the Mark-to-Market model of accounting (MTM Model) prospectively. Gains and losses related to discontinued hedges that were previously accumulated in AOCI will remain
in AOCI until the underlying contract is reflected in earnings; unless it is probable that the hedged forecasted transaction will not occur at which time associated deferred amounts in AOCI are immediately recognized in current earnings.

For derivatives designated as fair value hedges, Duke Energy Ohio recognizes the gain or loss on the derivative instrument, as well as the offsetting loss or
gain on the hedged item in earnings, to the extent effective, in the current period. All derivatives designated and accounted for as hedges are classified in the same category as the item being hedged in the Consolidated Statements of Cash Flows. In
addition, all components of each derivative gain or loss are included in the assessment of hedge effectiveness.

Normal Purchases and Normal
Sales. On a limited basis, Duke Energy Ohio applies the normal purchase and normal sales exception to certain contracts. If contracts cease to meet this exception, the fair value of the contracts is recognized on the Consolidated Balance Sheets
and the contracts are accounted for using the MTM Model unless immediately designated as a cash flow or fair value hedge.



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Valuation.When available, quoted market prices or prices obtained through external sources are used to measure a
contracts fair value. For contracts with a delivery location or duration for which quoted market prices are not available, fair value is determined based on internally developed valuation techniques or models. For derivatives recognized under
the MTM Model, valuation adjustments are also recognized in the Consolidated Statements of Operations.

Goodwill. Duke Energy Ohio evaluates
goodwill for potential impairment under the guidance of SFAS No. 142, Goodwill and Other Intangible Assets (SFAS No. 142). Under this provision, goodwill is subject to an annual test for impairment. Duke Energy Ohio has
designated August 31 as the date it performs the annual review for goodwill impairment for its reporting units. Under the provisions of SFAS No. 142, Duke Energy Ohio performs the annual review for goodwill impairment at the reporting unit
level, which Duke Energy Ohio has determined to be an operating segment.

Impairment testing of goodwill consists of a two-step process. The first
step involves a comparison of the determined fair value of a reporting unit with its carrying amount. If the carrying amount of the reporting unit exceeds its fair value, the second step of the process involves a comparison of the fair value and
carrying value of the goodwill of that reporting unit. If the carrying value of the goodwill of a reporting unit exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess. Additional
impairment tests are performed between the annual reviews if events or changes in circumstances make it more likely than not that the fair value of a reporting unit is below its carrying amount.

Duke Energy Ohio primarily uses a discounted cash flow analysis to determine fair value. Key assumptions in the determination of fair value include the use of an
appropriate discount rate, estimated future cash flows and estimated run rates of operation, maintenance, and general and administrative costs. In estimating cash flows, Duke Energy Ohio incorporates expected growth rates, regulatory stability and
ability to renew contracts as well as other factors into its revenue and expense forecasts.

Property, Plant and Equipment. As discussed under
Predecessor and Successor Reporting above, recorded balances for property, plant and equipment existing as of April 3, 2006 were adjusted to reflect fair values as of that date. Due to rate setting and recovery provisions currently
in place for regulated operations, the fair values of property plant and equipment of the regulated operations were considered to approximate their carrying values as of the date of Duke Energys merger with Cinergy. Accumulated depreciation
was not reset to zero as of the merger date for the regulated property, plant and equipment due primarily to regulatory reporting implications. Unregulated property, plant and equipment were recorded at respective fair values and accumulated
deprecation was reset to zero as of the merger date. Otherwise, property, plant and equipment are stated at the lower of historical cost less accumulated depreciation or fair value, if impaired. Duke Energy Ohio capitalizes all construction-related
direct labor and material costs, as well as indirect construction costs. Indirect costs include general engineering, taxes and the cost of funds used during construction. The cost of renewals and betterments that extend the useful life of property,
plant and equipment are also capitalized. The cost of repairs, replacements and major maintenance projects, which do not extend the useful life or increase the expected output of property, plant and equipment, is expensed as incurred. Depreciation
is generally computed over the assets estimated useful life using the straight-line method. The composite weighted-average depreciation rates were 2.6% for 2007, 2.7% for 2006, and 2.4% for 2005. Also, see Allowance for Funds Used During
Construction (AFUDC), discussed below.

When Duke Energy Ohio retires its regulated property, plant and equipment, it charges the original cost
plus the cost of retirement, less salvage value, to accumulated depreciation and amortization. When it sells entire regulated operating units, or retires or sells non-regulated properties, the cost is removed from the property account and the
related accumulated depreciation and amortization accounts are reduced. Any gain or loss is recorded in earnings, unless otherwise required by the applicable regulatory body.

Duke Energy Ohio recognizes asset retirement obligations (AROs) in accordance with SFAS No. 143, Accounting For Asset Retirement
Obligations (SFAS No. 143), for legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or normal use of the asset and FIN No. 47, Accounting
for Conditional Asset Retirement Obligations (FIN 47), for conditional AROs. The term conditional asset retirement obligation as used in SFAS No. 143 and FIN 47 refers to a legal obligation to perform an asset retirement
activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to perform the asset retirement activity is unconditional even though uncertainty
exists about the timing and (or) method of settlement. Thus, the timing and (or) method of settlement may be conditional on a future event. Both SFAS No. 143 and FIN 47 require that the fair value of a liability for an ARO be recognized in the
period in which it is incurred, if a reasonable estimate of fair value can be made. The fair value of the liability is added to the carrying amount of the associated asset. This additional carrying amount is then depreciated over the estimated
useful life of the asset. See Note 8 for further information.



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Long-Lived Asset Impairments, Assets Held For Sale and Discontinued Operations.Duke Energy Ohio evaluates whether long-lived
assets, excluding goodwill, have been impaired when circumstances indicate the carrying value of those assets may not be recoverable. For such long-lived assets, an impairment exists when its carrying value exceeds the sum of estimates of the
undiscounted cash flows expected to result from the use and eventual disposition of the asset. When alternative courses of action to recover the carrying amount of a long-lived asset are under consideration, a probability-weighted approach is used
for developing estimates of future undiscounted cash flows. If the carrying value of the long-lived asset is not recoverable based on these estimated future undiscounted cash flows, the impairment loss is measured as the excess of the assets
carrying value over its fair value, such that the assets carrying value is adjusted to its estimated fair value.

Management assesses the fair
value of long-lived assets using commonly accepted techniques, and may use more than one source. Sources to determine fair value include, but are not limited to, recent third party comparable sales, internally developed discounted cash flow analysis
and analysis from outside advisors. Significant changes in market conditions resulting from events such as changes in commodity prices or the condition of an asset, or a change in managements intent to utilize the asset may generally require
management to re-assess the cash flows related to the long-lived assets.

Duke Energy Ohio uses the criteria in SFAS No. 144 Accounting
for the Impairment of or Disposal of Long-Lived Assets (SFAS No. 144), to determine when an asset is classified as held for sale. Upon classification as held for sale, the long-lived asset or asset group is
measured at the lower of its carrying amount or fair value less cost to sell, depreciation is ceased and the asset or asset group is separately presented on the Consolidated Balance Sheets. When an asset or asset group meets the SFAS No. 144
criteria for classification as held for sale within the Consolidated Balance Sheets, Duke Energy Ohio does not retrospectively adjust prior period balance sheets to conform to current year presentation.

Duke Energy Ohio uses the criteria in SFAS No. 144 and Emerging Issues Task Force (EITF) Issue No. 03-13, Applying the Conditions in Paragraph 42
of FASB Statement No. 144 in Determining Whether to Report Discontinued Operations (EITF 03-13), to determine whether components of Duke Energy Ohio that are being disposed of, are classified as held for sale or have been wound down
are required to be reported as discontinued operations in the Consolidated Statements of Operations. To qualify as a discontinued operation under SFAS No. 144, the component being disposed of must have clearly distinguishable operations and
cash flows. Additionally, pursuant to EITF 03-13, Duke Energy Ohio must not have significant continuing involvement in the operations after the disposal (i.e. Duke Energy Ohio must not have the ability to influence the operating or financial
policies of the disposed component) and cash flows of the operations being disposed of must have been eliminated from Duke Energy Ohios ongoing operations (i.e. Duke Energy Ohio does not expect to generate significant direct cash flows from
activities involving the disposed component after the disposal transaction is completed). Assuming both preceding conditions are met, the related results of operations for the current and prior periods, including any related impairments, are
reflected as (Loss) Income From Discontinued Operations, net of tax, in the Consolidated Statements of Operations. If an asset held for sale does not meet the requirements for discontinued operations classification, any impairments and gains or
losses on sales are recorded in continuing operations as (Losses) Gains on Sales of Other Assets and Other, net, in the Consolidated Statements of Operations. Impairments for all other long-lived assets are recorded in Operating Expenses in the
Consolidated Statements of Operations.

Unamortized Debt Premium, Discount and Expense. Premiums, discounts and expenses incurred with the
issuance of outstanding long-term debt are amortized over the terms of the debt issues. Any call premiums or unamortized expenses associated with refinancing higher-cost debt obligations to finance regulated assets and operations are amortized
consistent with regulatory treatment of those items, where appropriate. The amortization expense is recorded in continuing operations as interest expense in the Consolidated Statements of Operations. The amortization expense is reflected as
Depreciation and amortization within Net cash provided by operating activities on the Consolidated Statements of Cash Flows.

Loss Contingencies.Duke Energy Ohio is involved in certain legal and environmental matters that arise in the normal course of business. Loss contingencies are accounted for under SFAS No. 5, Accounting for Contingencies, (SFAS No. 5).
Under SFAS No. 5, contingent losses are recorded when it is determined that it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. When a range of the probable loss exists and no amount within the range
is a better estimate than any other amount, Duke Energy Ohio records a loss contingency at the minimum amount in the range. Unless otherwise required by GAAP, legal fees are expensed as incurred. See Note 17 for further information.

Environmental Expenditures.Duke Energy Ohio expenses environmental expenditures related to conditions caused by past operations that do not generate current
or future revenues. Environmental expenditures related to operations that generate current or future



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revenues are expensed or capitalized, as appropriate. Liabilities are recorded on an undiscounted basis when the necessity for environmental remediation becomes
probable and the costs can be reasonably estimated, or when other potential environmental liabilities are reasonably estimable and probable.

Revenue Recognition and Unbilled Revenue.Revenues on sales of electricity and gas are recognized when either the service is provided or the product is delivered. Unbilled revenues are estimated by applying an average revenue per
kilowatt hour or per thousand cubic feet (Mcf) for all customer classes to the number of estimated kilowatt hours or Mcfs delivered but not billed. The amount of unbilled revenues can vary significantly period to period as a result of factors
including seasonality, weather, customer usage patterns and customer mix. Unbilled revenues for Commercial Power, which are recorded as Receivables in Duke Energy Ohios Consolidated Balance Sheet at December 31, 2007 and 2006, were
approximately $38 million and $56 million, respectively. The receivables for unbilled revenues for Franchised Electric and Gas ($145 million and $132 million at December 31, 2007 and 2006, respectively) are included in the sales of accounts
receivable to Cinergy Receivables Company, LLC (Cinergy Receivables). See Note 12 for additional information.

Allowance for Funds Used During
Construction (AFUDC). AFUDC, which represents the estimated debt and equity costs of capital funds necessary to finance the construction of new regulated facilities, consists of two components, an equity component and an interest component. The
equity component is a non-cash item. AFUDC is capitalized as a component of Property, Plant and Equipment cost, with offsetting credits to the Consolidated Statements of Operations. After construction is completed, Duke Energy Ohio is permitted to
recover these costs through inclusion in the rate base and in the depreciation provision. The total amount of AFUDC included within income from continuing operations in the Consolidated Statements of Operations was $34 million in 2007, which
consisted of an after-tax equity component of $4 million and a before-tax interest expense component of $30 million. The total amount of AFUDC included within income from continuing operations in the Consolidated Statements of Operations for the
nine months ended December 31, 2006 was $16 million, which consisted of an after-tax equity component of $2 million and a before-tax interest expense component of $14 million. The total amount of AFUDC included within income from continuing
operations in the Consolidated Statements of Operations for the three months ended March 31, 2006 was $4 million, which consisted of an after-tax equity component of $1 million and a before-tax interest expense component of $3 million. The
total amount of AFUDC included within income from continuing operations in the Consolidated Statements of Operations was $8 million in 2005, which consisted of an after-tax equity component of $1 million and a before-tax interest expense component
of $7 million.

Accounting For Purchases and Sales of Emission Allowances.Duke Energy Ohio recognizes emission allowances in earnings as they
are consumed or sold. Gains or losses on sales of emission allowances for non-regulated businesses are presented on a net basis in (Losses) Gains on Sales of Other Assets and Other, net, in the accompanying Consolidated Statements of Operations. For
regulated businesses that provide for direct recovery of emission allowances, any gains or losses on sales of recoverable emission allowances are included in the rate structure of the regulated entity and are deferred as a regulatory asset or
liability. Future rates charged to retail customers are impacted by any gain or loss on sales of recoverable emission allowances and, therefore, as the recovery of the gain or loss is recognized in operating revenues, the regulatory asset or
liability related to the emission allowance activity is recognized as a component of Fuel Used in Electric Generation and Purchased Power in the Consolidated Statements of Operations. Purchases and sales of emission allowances are presented gross as
investing activities on the Consolidated Statements of Cash Flows.

Income Taxes. As a result of Duke Energys merger with Cinergy, Duke
Energy Ohio entered into a tax sharing agreement with Duke Energy, where the separate return method is used to allocate tax expenses and benefits to the subsidiaries whose investments or results of operations provide these tax expenses or benefits.
The accounting for income taxes essentially represents the income taxes that Duke Energy Ohio would incur if Duke Energy Ohio were a separate company filing its own tax return as a C-Corporation. The current tax sharing agreement Duke Energy Ohio
has with Duke Energy is substantially the same as the tax sharing agreement between Duke Energy Ohio and Cinergy prior to the merger. Deferred income taxes have been provided for temporary differences between the GAAP and tax carrying amounts of
assets and liabilities. These differences create taxable or tax-deductible amounts for future periods. Investment tax credits have been deferred and are being amortized over the estimated useful lives of the related properties.

Management evaluates and records uncertain tax positions in accordance with FIN 48, Accounting For Uncertainty in Income Taxesan Interpretation of
FASB Statement 109, (FIN 48), which was adopted by Duke Energy Ohio on January 1, 2007. Duke Energy Ohio records unrecognized tax benefits for positions taken or expected to be taken on tax returns, including the decision to exclude
certain income or transactions from a return, when a more-likely-than-not threshold is met for a tax position and management believes that the position will be sustained upon examination by the taxing authorities. Management evaluates each position
based solely on the



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technical merits and facts and circumstances of the position, assuming the position will be examined by a taxing authority having full knowledge of all relevant
information. In accordance with FIN 48, Duke Energy Ohio records the largest amount of the unrecognized tax benefit that is greater than 50% likely of being realized upon settlement or effective settlement. Management considers a tax position
effectively settled for the purpose of recognizing previously unrecognized tax benefits when the following conditions exist: (i) the taxing authority has completed its examination procedures, including all appeals and administrative reviews
that the taxing authority is required and expected to perform for the tax positions, (ii) Duke Energy Ohio does not intend to appeal or litigate any aspect of the tax position included in the completed examination, and (iii) it is remote
that the taxing authority would examine or reexamine any aspect of the tax position. See Note 7 for further information.

Duke Energy Ohio records, as
it relates to taxes, interest expense as Interest Expense and interest income and penalties in Other Income and Expenses, net, in the Consolidated Statements of Operations.

Excise Taxes. Certain excise taxes levied by state or local governments are collected by Duke Energy Ohio from its customers. These taxes, which are required
to be paid regardless of Duke Energy Ohios ability to collect from the customer, are accounted for on a gross basis. When Duke Energy Ohio acts as an agent, and the tax is not required to be remitted if it is not collected from the customer,
the taxes are accounted for on a net basis. Duke Energy Ohios excise taxes accounted for on a gross basis and recorded as revenues in the accompanying Consolidated Statements of Operations were as follows:



|                                      |  |                                    |    |                                  |   |                                      |  |   |    
|------------------------------------- |  | ---------------------------------- | -- | -------------------------------- | - | ------------------------------------ |  | - | ---
|Successor(a)                          |  | Predecessor(a)                    
|Twelve Months Ended December 31, 2007 |  | Nine Months EndedDecember 31, 2006 |    | Three Months EndedMarch 31, 2006 |   | Twelve Months EndedDecember 31, 2005
|(in millions)                        
|$119                                  |  | $                                  | 77 |                                  | $ | 38                                   |  | $ | 115



|(a) | See Predecessor and Successor Reporting in Note 1 for additional information on Predecessor and Successor reporting.
|--- | ----------------------------------------------------------------------------------------------------------------------

Segment Reporting. SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information (SFAS No. 131), establishes
standards for a public company to report financial and descriptive information about its reportable operating segments in annual and interim financial reports. Operating segments are components of an enterprise about which separate financial
information is available and evaluated regularly by the chief operating decision maker in deciding how to allocate resources and evaluate performance. Two or more operating segments may be aggregated into a single reportable segment provided
aggregation is consistent with the objective and basic principles of SFAS No. 131, if the segments have similar economic characteristics, and the segments are considered similar under criteria provided by SFAS No. 131. There is no
aggregation within Duke Energy Ohios reportable business segments. SFAS No. 131 also establishes standards and related disclosures about the way the operating segments were determined, including products and services, geographic areas and
major customers, differences between the measurements used in reporting segment information and those used in the general-purpose financial statements, and changes in the measurement of segment amounts from period to period. The description of Duke
Energy Ohios reportable segments, consistent with how business results are reported internally to management and the disclosure of segment information in accordance with SFAS No. 131, are presented in Note 4.

Statements of Consolidated Cash Flows.Duke Energy Ohio has made certain classification elections within its Consolidated Statements of Cash Flows related to
discontinued operations and debt restricted for qualified capital and maintenance expenditures. Cash flows from discontinued operations are combined with cash flows from continuing operations within operating, investing and financing cash flows
within the Consolidated Statements of Cash Flows. Proceeds from debt issued with restrictions to fund future capital and maintenance expenditures are presented on a gross basis, with the debt proceeds classified as a financing cash inflow and the
changes in the restricted funds held in trust presented as a component of investing activities.

Cumulative Effect of Changes in Accounting
Principles.As of December 31, 2005, Duke Energy Ohio adopted the provisions of FIN 47. In accordance with the transition guidance of this standard, Duke Energy Ohio recorded a net-of-tax cumulative effect adjustment of approximately $3
million.

Reclassifications and Revisions.Certain prior period amounts have been reclassified to conform to the presentation for the current
period.



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New Accounting Standards. The following new accounting standards were adopted by Duke Energy Ohio during the year ended
December 31, 2007 and the impact of such adoption, if applicable, has been presented in the accompanying Consolidated Financial Statements:

SFAS No. 155, Accounting for Certain Hybrid Financial Instrumentsan amendment of FASB Statements No. 133 and 140 (SFAS No. 155).In February 2006, the FASB issued SFAS No. 155, which amends
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities and SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (SFAS
No. 140). SFAS No. 155 allows financial instruments that have embedded derivatives to be accounted for at fair value at acquisition, at issuance, or when a previously recognized financial instrument is subject to a remeasurement (new
basis) event, on an instrument-by-instrument basis, in cases in which a derivative would otherwise have to be bifurcated. SFAS No. 155 was effective for Duke Energy Ohio for all financial instruments acquired, issued, or subject to
remeasurement after January 1, 2007, and for certain hybrid financial instruments that had been bifurcated prior to the effective date, for which the effect is to be reported as a cumulative-effect adjustment to beginning retained earnings. The
adoption of SFAS No. 155 did not have a material impact on Duke Energy Ohios consolidated results of operations, cash flows or financial position.

SFAS No. 156, Accounting for Servicing of Financial Assetsan amendment of FASB Statement No. 140 (SFAS No. 156).In March 2006, the FASB issued SFAS No. 156, which amends SFAS No. 140. SFAS
No. 156 requires recognition of a servicing asset or liability when an entity enters into arrangements to service financial instruments in certain situations. Such servicing assets or servicing liabilities are required to be initially measured
at fair value, if practicable. SFAS No. 156 also allows an entity to subsequently measure its servicing assets or servicing liabilities using either an amortization method or a fair value method. SFAS No. 156 was effective for Duke Energy
Ohio as of January 1, 2007, and must be applied prospectively, except that where an entity elects to remeasure separately recognized existing arrangements and reclassify certain available-for-sale securities to trading securities, any effects
must be reported as a cumulative-effect adjustment to retained earnings. The adoption of SFAS No. 156 did not have a material impact on Duke Energy Ohios consolidated results of operations, cash flows or financial position.

SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88,
106, and 132(R) (SFAS No. 158). In October 2006, the FASB issued SFAS No. 158, which changes the recognition and disclosure provisions and measurement date requirements for an employers accounting for defined benefit
pension and other postretirement plans. The recognition and disclosure provisions require an employer to (1) recognize the funded status of a benefit planmeasured as the difference between plan assets at fair value and the benefit
obligationin its statement of financial position, (2) recognize as a component of other comprehensive loss, net of tax, the gains or losses and prior service costs or credits that arise during the period but are not recognized as
components of net periodic benefit cost, and (3) disclose in the notes to financial statements certain additional information. SFAS No. 158 does not change the amounts recognized in the income statement as net periodic benefit cost. Duke
Energy Ohio recognized the funded status of its defined benefit pension and other postretirement plans and provided the required additional disclosures as of December 31, 2006. The adoption of SFAS No. 158 recognition and disclosure
provisions resulted in an increase in total assets of approximately $33 million (consisting of an increase in regulatory assets of $31 million and an increase in deferred tax assets of $2 million), an increase in total liabilities of approximately
$35 million and a decrease in AOCI, net of tax, of approximately $2 million as of December 31, 2006.

Under the measurement date requirements of
SFAS No. 158, an employer is required to measure defined benefit plan assets and obligations as of the date of the employers fiscal year-end statement of financial position (with limited exceptions). Historically, Duke Energy Ohio has
measured its plan assets and obligations up to three months prior to the fiscal year-end, as allowed under the authoritative accounting literature. Duke Energy Ohio adopted the change in measurement date effective January 1, 2007 by remeasuring
plan assets and benefit obligations as of that date, pursuant to the transition requirements of SFAS No. 158. Net periodic benefit cost of approximately $3 million for the three-month period between September 30, 2006 and December 31,
2006 was recognized, net of tax, as a separate adjustment of retained earnings as of January 1, 2007. Additionally, in the first quarter of 2007, the changes in plan assets and plan obligations between the September 30, 2006 and
December 31, 2006 measurement dates not related to net periodic benefit cost was required to be recognized, net of tax, as a separate adjustment of the opening balance of AOCI and regulatory assets. This adjustment was not material. During the
second quarter of 2007, Duke Energy Ohio completed these calculations. The finalization of these actuarial calculations resulted in a $2 million adjustment to AOCI and an immaterial adjustment to regulatory assets.

The adoption of SFAS No. 158 did not have a material impact on Duke Energy Ohios consolidated results of operations or cash flows.



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FIN No. 48. In July 2006, the FASB issued FIN 48, which provides guidance on accounting for income tax positions about
which Duke Energy Ohio has concluded there is a level of uncertainty with respect to the recognition of a tax benefit in Duke Energy Ohios financial statements. FIN 48 prescribes the minimum recognition threshold a tax position is required to
meet. Tax positions are defined very broadly and include not only tax deductions and credits but also decisions not to file in a particular jurisdiction, as well as the taxability of transactions. Duke Energy Ohio adopted FIN 48 effective
January 1, 2007. See Note 7 for additional information.

FASB Staff Position (FSP) No. FIN 48-1, Definition of Settlement in FASB
Interpretation No. 48 (FSP No. FIN 48-1).In May, 2007, the FASB staff issued FSP No. FIN 48-1 which clarifies the conditions under FIN 48 that should be met for a tax position to be considered effectively settled with the taxing authority.
Duke Energy Ohios adoption of FIN 48 as of January 1, 2007 was consistent with the guidance in this FSP.

The following new accounting
standard was adopted by Duke Energy Ohio during the year ended December 31, 2006 and the impact of such adoption, if applicable, has been presented in the accompanying Consolidated Financial Statements:

Staff Accounting Bulletin (SAB) No. 108, Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial
Statements (SAB No. 108). In September 2006 the Securities and Exchange Commission (SEC) issued SAB No. 108, which provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should
be considered in quantifying a current year misstatement. Traditionally, there have been two widely-recognized approaches for quantifying the effects of financial statement misstatements. The income statement approach focuses primarily on the impact
of a misstatement on the income statementincluding the reversing effect of prior year misstatementsbut its use can lead to the accumulation of misstatements in the balance sheet. The balance sheet approach, on the other hand, focuses
primarily on the effect of correcting the period-end balance sheet with less emphasis on the reversing effects of prior year errors on the income statement. The SEC staff believes that registrants should quantify errors using both a balance sheet
and an income statement approach (a dual approach) and evaluate whether either approach results in quantifying a misstatement that, when all relevant quantitative and qualitative factors are considered, is material.

SAB No. 108 was effective for Duke Energy Ohios year ending December 31, 2006. SAB No. 108 permits existing public companies to initially apply
its provisions either by (i) restating prior financial statements as if the dual approach had always been used or (ii), under certain circumstances, recording the cumulative effect of initially applying the dual approach
as adjustments to the carrying values of assets and liabilities as of January 1, 2006 with an offsetting adjustment recorded to the opening balance of retained earnings. Duke Energy Ohio has historically used a dual approach for quantifying
identified financial statement misstatements. Therefore, the adoption of SAB No. 108 did not have a material impact on Duke Energy Ohios consolidated results of operations, cash flows or financial position.

The following new accounting standard was adopted by Duke Energy Ohio during the year ended December 31, 2005 and the impact of such adoption, if applicable,
has been presented in the accompanying Consolidated Financial Statements:

FIN No. 47.In March 2005, the FASB issued FIN 47, which
clarifies the accounting for conditional asset retirement obligations as used in SFAS No. 143. A conditional asset retirement obligation is an unconditional legal obligation to perform an asset retirement activity in which the timing and (or)
method of settlement are conditional on a future event that may or may not be within the control of the entity. Therefore, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation under SFAS
No. 143 if the fair value of the liability can be reasonably estimated. The provisions of FIN 47 were effective for Duke Energy Ohio as of December 31, 2005, and resulted in a decrease in assets of $7 million, a net increase in liabilities
of $12 million and a before tax cumulative effect adjustment to earnings of $5 million. The net- of-tax cumulative adjustment to earnings was $3 million.

The following new accounting standards have been issued, but have not yet been adopted by Duke Energy Ohio as of December 31, 2007:

SFAS No. 157, Fair Value Measurements (SFAS No. 157).In September 2006, the FASB issued SFAS No. 157, which defines fair value, establishes a framework for measuring fair value in GAAP, and expands
disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements. The application of SFAS No. 157 may change Duke Energy Ohios current practice for measuring fair values under other accounting
pronouncements that require fair value measurements. For Duke Energy Ohio, SFAS No. 157 is effective as of January 1, 2008. In February 2008, the FASB issued FSP No. 157-2, which delays the effective date of SFAS
No. 157 for one year for nonfinancial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis. Duke Energy Ohio does not expect to report any material
cumulative-effect adjustment to beginning retained earnings as is required by SFAS No. 157 for certain limited matters. Duke Energy Ohio continues to monitor additional proposed



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interpretative guidance regarding the application of SFAS No. 157. To date, no matters have been identified regarding implementation of SFAS No. 157 that
would have any material impact on Duke Energy Ohios consolidated results of operations or financial position.

SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities (SFAS No. 159).In February 2007, the FASB issued SFAS No. 159, which permits entities to choose to measure many financial instruments and certain other items at
fair value. For Duke Energy Ohio, SFAS No. 159 is effective as of January 1, 2008 and will have no impact on amounts presented for periods prior to the effective date. Duke Energy Ohio does not currently have any financial assets or
financial liabilities for which the provisions of SFAS No. 159 have been elected. However, in the future, Duke Energy Ohio may elect to measure certain financial instruments at fair value in accordance with this standard.

SFAS No. 141 (revised 2007), Business Combinations (SFAS No. 141R). In December
2007, the FASB issued SFAS No. 141R, which replaces SFAS No. 141, Business Combinations. SFAS No. 141R retains the fundamental requirements in SFAS No. 141 that the acquisition method of accounting be used for
all business combinations and that an acquirer be identified for each business combination. This statement also establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, any noncontrolling (minority) interests in an acquiree, and any goodwill acquired in a business combination or gain recognized from a bargain purchase. For Duke Energy Ohio, SFAS No. 141R must be applied
prospectively to business combinations for which the acquisition date occurs on or after January 1, 2009. The impact to Duke Energy Ohio of applying SFAS No. 141R for periods subsequent to implementation will be dependent upon the nature
of any transactions within the scope of SFAS No. 141R.



2. Duke Energy/Cinergy
Merger

Duke Energy Ohio consolidates assets and liabilities from acquisitions as of the purchase date, and includes earnings from acquisitions in
consolidated earnings after the purchase date. Assets acquired and liabilities assumed are recorded at estimated fair values on the date of acquisition. The purchase price minus the estimated fair value of the acquired assets and liabilities meeting
the definition of a business as defined in EITF Issue No. 98-3, Determining Whether a Nonmonetary Transaction Involves Receipt of Productive Assets or of a Business (EITF 98-3), is recorded as goodwill. The allocation of the
purchase price may be adjusted if additional, requested information is received during the allocation period, which generally does not exceed one year from the consummation date, however, it may be longer for certain income tax items.

On April 3, 2006, the merger between Duke Energy and Cinergy was consummated (see Note 1 for additional information on the merger, purchase accounting and
Predecessor and Successor reporting). For accounting purposes, the effective date of the merger was April 1, 2006. The merger combined the Duke Energy and Cinergy regulated franchises as well as deregulated generation in the midwestern United
States (Midwest).

Based on the market price of Duke Energy common stock during the period, including the two trading days before, through the two
trading days after, May 9, 2005, the date Duke Energy and Cinergy announced the merger, the transaction was valued at approximately $9,115 million and resulted in goodwill recorded at Duke Energy Ohio of approximately $2,348 million.

As discussed in Note 1 above, purchase accounting impacts, including goodwill recognition, have been pushed down to Duke Energy Ohio,
resulting in the assets and liabilities of Duke Energy Ohio being recorded at their respective fair values as of April 3, 2006. The following unaudited consolidated pro forma financial results for Duke Energy Ohio are presented as if the merger
with Duke Energy had occurred at the beginning of the periods presented:



Unaudited
Consolidated Pro Forma Results (Predecessor)



|                                          |  |                                |     |                                    |   |      
|----------------------------------------- |  | ------------------------------ | --- | ---------------------------------- | - | -----
|                                          |  | Three MonthsEndedMarch 31,2006 |     | Twelve MonthsEndedDecember 31,2005
|                                          |  | (in millions)                 
|Operating revenues                        |  | $                              | 966 |                                    | $ | 2,793
|Income from continuing operations         |  |                                | 88  |                                    |   | 133  
|Net income                                |  |                                | 86  |                                    |   | 176  
|Earnings available for common stockholder |  |                                | 86  |                                    |   | 175  



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Pro forma results for the nine months ended December 31, 2006 are not presented since the merger occurred at the beginning of the
period presented. Additionally, pro forma results do not include any significant transactions completed by Duke Energy Ohio other than the impact of Cinergys merger with Duke Energy.

Prior to consummation of the merger, certain regulatory approvals were received from the state utility commissions and the FERC. See Note 5 for a discussion of the
regulatory impacts of the merger.



3. Transfer of Generating Assets and Dispositions

Transfer of Certain Duke Energy Generating Assets to Duke Energy Ohio.In April 2006, Duke Energy contributed to Duke Energy Ohio its
ownership interest in five plants, representing a mix of combined cycle and peaking plants, with a combined capacity of 3,600 megawatts (MW). The transaction was effective in April 2006 and was accounted for at Duke Energys net book value for
these assets. The entities holding these generating plants, which were indirect subsidiaries of Duke Energy, were first distributed to Duke Energy, which then contributed them to Cinergy which, in turn, contributed them to Duke Energy Ohio. In the
final step, the entities were then merged into Duke Energy Ohio.

The following unaudited consolidated pro forma financial results for Duke Energy
Ohio are presented as if the contribution of the Duke Energy generating assets to Duke Energy Ohio had occurred at the beginning of the periods presented:



Unaudited Consolidated Pro Forma Results (Predecessor)



|                                          |  |                                |     |                                    |   |      
|----------------------------------------- |  | ------------------------------ | --- | ---------------------------------- | - | -----
|                                          |  | Three MonthsEndedMarch 31,2006 |     | Twelve MonthsEndedDecember 31,2005
|                                          |  | (in millions)                 
|Operating revenues                        |  | $                              | 971 |                                    | $ | 2,951
|Income from continuing operations         |  |                                | 106 |                                    |   | 222  
|Net income                                |  |                                | 104 |                                    |   | 266  
|Earnings available for common stockholder |  |                                | 104 |                                    |   | 265  

These pro forma results do not include any significant transactions completed by Duke Energy Ohio other than
the impact of the transfer of the ownership interest in the five plants as discussed above. As part of this transaction, Duke Energy agreed to reimburse Duke Energy Ohio, on a quarterly basis, through April 2016 in the event of certain cash
shortfalls related to the performance of the five plants. Based on the assessment of the performance of the five plants on a quarterly basis during 2007, Duke Energy Ohio did not incur any qualifying shortfalls related to the performance of the five
plants and thus no cash reimbursement was required from Duke Energy. During the third quarter of 2006, Duke Energy reimbursed Duke Energy Ohio $1.9 million for certain cash shortfalls that occurred during the second quarter of 2006. However, as a
result of the calculation pertaining to the third quarter 2006 performance of the five plants, the $1.9 million received by Duke Energy Ohio from Duke Energy was returned to Duke Energy during the fourth quarter of 2006. Duke Energy Ohio accounts
for any payments from or return of payments to Duke Energy in Common Stockholders Equity as an adjustment to Additional paid-in capital.

Dispositions.For the year ended December 31, 2007, the nine months ended December 31, 2006, the three months ended March 31, 2006 and the year ended December 31, 2005, the sale of emission allowances resulted in
approximately $29 million, $138 million, $105 million and $494 million, respectively, in proceeds and net pre-tax (losses) gains of ($7) million, ($28) million, $26 million and $125 million recorded in (Losses) Gains on Sales of Other Assets
and Other, net on the Consolidated Statements of Operations. These amounts primarily relate to Commercial Powers sales of emission allowances. See Note 13 for dispositions related to discontinued operations.



4. Business Segments

Duke Energy Ohio operates the following business segments, which are all considered reportable business segments under SFAS No. 131: Franchised
Electric and Gas and Commercial Power. Duke Energy Ohios management believes these reportable business segments properly align the various operations of Duke Energy Ohio with how the chief operating decision maker views the business. Duke
Energy Ohios chief operating decision maker regularly reviews financial information about each of these reportable business



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segments in deciding how to allocate resources and evaluate performance. There is no aggregation within Duke Energy Ohios defined business segments.

Franchised Electric and Gas generates, transmits, distributes and sells electricity in southwestern Ohio and northern Kentucky. Franchised Electric and Gas also
transports and sells natural gas in southwestern Ohio and northern Kentucky. It conducts operations primarily through Duke Energy Ohio and Duke Energy Kentucky. These electric and gas operations are subject to the rules and regulations of the
FERC, the PUCO and the Kentucky Public Service Commission (KPSC).

Commercial Power owns, operates and manages non-regulated power plants and engages
in the wholesale marketing and procurement of electric power, fuel and emission allowances related to these plants as well as other contractual positions. Commercial Powers generation asset fleet consists of Duke Energy Ohios
non-regulated generation in Ohio and the five Midwestern gas-fired non-regulated generation assets. Commercial Powers assets comprise approximately 7,600 MW of power generation primarily located in the Midwestern United States. The asset
portfolio has a diversified fuel mix with base-load and mid-merit coal-fired units as well as combined cycle and peaking natural gas-fired units. Most of the generation asset output in Ohio has been contracted through the RSP.

The remainder of Duke Energy Ohios operations are presented as Other. While it is not considered a business segment, Other primarily includes certain
allocated governance costs (see Note 11).

Duke Energy Ohios reportable business segments offer different products and services and are managed
separately. Accounting policies for Duke Energy Ohios segments are the same as those described in Note 1. Management evaluates segment performance based on earnings before interest and taxes from continuing operations (EBIT).

On a segment basis, EBIT excludes discontinued operations, represents all profits from continuing operations (both operating and non-operating and excluding
corporate governance costs) before deducting interest and taxes. Cash, cash equivalents and short-term investments are managed centrally by Cinergy and Duke Energy, so the interest and dividend income on those balances are excluded from the
segments EBIT.

Transactions between reportable business segments are accounted for on the same basis as revenues and expenses in the
accompanying Consolidated Financial Statements.



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DUKE ENERGY OHIO, INC.

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Business Segment Data(a)



|                                      |  |                       |       |                       |   |      |                |  |   |                                                                                  |   |  |                               |      |                                     |  |                      |     |  |   |     |  |   |       
|------------------------------------- |  | --------------------- | ----- | --------------------- | - | ---- | -------------- |  | - | -------------------------------------------------------------------------------- | - |  | ----------------------------- | ---- | ----------------------------------- |  | -------------------- | --- |  | - | --- |  | - | ------
|                                      |  | Unaffiliated Revenues |       | Intersegment Revenues |   |      | Total Revenues |  |   | Segment EBIT/ Consolidated Income from Continuing Operations before Income Taxes |   |  | Depreciation and Amortization |      | Capital and Investment Expenditures |  | Segment Assets(b)(d)
|                                      |  | (in millions)        
|Successor(c)                          |  |                       |       |                       |   |      |                |  |   |                                                                                  |   |  |                               |      |                                     |  |                      |     |  |   |     |  |   |       
|Twelve Months Ended December 31, 2007 |  |                       |       |                       |   |      |                |  |   |                                                                                  |   |  |                               |      |                                     |  |                      |     |  |   |     |  |   |       
|Franchised Electric and Gas           |  | $                     | 1,707 |                       | $ |     |                |  | $ | 1,707                                                                            |   |  | $                             | 257  |                                     |  | $                    | 228 |  | $ | 275 |  | $ | 5,530 
|Commercial Power                      |  |                       | 1,748 |                       |   |     |                |  |   | 1,748                                                                            |   |  |                               | 304  |                                     |  |                      | 164 |  |   | 318 |  |   | 6,165 
|Total reportable segments             |  |                       | 3,455 |                       |   |     |                |  |   | 3,455                                                                            |   |  |                               | 561  |                                     |  |                      | 392 |  |   | 593 |  |   | 11,695
|Other                                 |  |                       |      |                       |   |     |                |  |   |                                                                                 |   |  |                               | (75  | )                                   |  |                      |    |  |   |    |  |   |      
|Eliminations and reclassifications    |  |                       |      |                       |   |     |                |  |   |                                                                                 |   |  |                               |     |                                     |  |                      |    |  |   |    |  |   |      
|Interest expense                      |  |                       |      |                       |   |     |                |  |   |                                                                                 |   |  |                               | (100 | )                                   |  |                      |    |  |   |    |  |   |      
|Interest income and other             |  |                       |      |                       |   |     |                |  |   |                                                                                 |   |  |                               | 29   |                                     |  |                      |    |  |   |    |  |   |      
|Total consolidated                    |  | $                     | 3,455 |                       | $ |     |                |  | $ | 3,455                                                                            |   |  | $                             | 415  |                                     |  | $                    | 392 |  | $ | 593 |  | $ | 11,695
|                                     
|                                     
|Nine Months Ended December 31, 2006   |  |                       |       |                       |   |      |                |  |   |                                                                                  |   |  |                               |      |                                     |  |                      |     |  |   |     |  |   |       
|Franchised Electric and Gas           |  | $                     | 1,027 |                       | $ |     |                |  | $ | 1,027                                                                            |   |  | $                             | 130  |                                     |  | $                    | 160 |  | $ | 198 |  | $ | 5,381 
|Commercial Power                      |  |                       | 1,234 |                       |   | 1    |                |  |   | 1,235                                                                            |   |  |                               | 93   |                                     |  |                      | 120 |  |   | 193 |  |   | 6,349 
|Total reportable segments             |  |                       | 2,261 |                       |   | 1    |                |  |   | 2,262                                                                            |   |  |                               | 223  |                                     |  |                      | 280 |  |   | 391 |  |   | 11,730
|Other                                 |  |                       |      |                       |   |     |                |  |   |                                                                                 |   |  |                               | (56  | )                                   |  |                      |    |  |   |    |  |   |      
|Eliminations and reclassifications    |  |                       |      |                       |   | (1   | )              |  |   | (1                                                                               | ) |  |                               |     |                                     |  |                      |    |  |   |    |  |   |      
|Interest expense                      |  |                       |      |                       |   |     |                |  |   |                                                                                 |   |  |                               | (81  | )                                   |  |                      |    |  |   |    |  |   |      
|Interest income and other             |  |                       |      |                       |   |     |                |  |   |                                                                                 |   |  |                               | 16   |                                     |  |                      |    |  |   |    |  |   |      
|Total consolidated                    |  | $                     | 2,261 |                       | $ |     |                |  | $ | 2,261                                                                            |   |  | $                             | 102  |                                     |  | $                    | 280 |  | $ | 391 |  | $ | 11,730
|                                     
|                                     
|Predecessor(c)                        |  |                       |       |                       |   |      |                |  |   |                                                                                  |   |  |                               |      |                                     |  |                      |     |  |   |     |  |   |       
|Three Months Ended March 31, 2006     |  |                       |       |                       |   |      |                |  |   |                                                                                  |   |  |                               |      |                                     |  |                      |     |  |   |     |  |   |       
|Franchised Electric and Gas           |  | $                     | 543   |                       | $ |     |                |  | $ | 543                                                                              |   |  | $                             | 80   |                                     |  | $                    | 50  |  | $ | 75  |  |   |       
|Commercial Power                      |  |                       | 420   |                       |   | 1    |                |  |   | 421                                                                              |   |  |                               | 166  |                                     |  |                      | 18  |  |   | 60  |  |   |       
|Total reportable segments             |  |                       | 963   |                       |   | 1    |                |  |   | 964                                                                              |   |  |                               | 246  |                                     |  |                      | 68  |  |   | 135 |  |   |       
|Other                                 |  |                       |      |                       |   |     |                |  |   |                                                                                 |   |  |                               | (39  | )                                   |  |                      |    |  |   |    |  |   |       
|Eliminations and reclassifications    |  |                       |      |                       |   | (1   | )              |  |   | (1                                                                               | ) |  |                               |     |                                     |  |                      |    |  |   |    |  |   |       
|Interest expense                      |  |                       |      |                       |   |     |                |  |   |                                                                                 |   |  |                               | (30  | )                                   |  |                      |    |  |   |    |  |   |       
|Interest income and other             |  |                       |      |                       |   |     |                |  |   |                                                                                 |   |  |                               | 9    |                                     |  |                      |    |  |   |    |  |   |       
|Total consolidated                    |  | $                     | 963   |                       | $ |     |                |  | $ | 963                                                                              |   |  | $                             | 186  |                                     |  | $                    | 68  |  | $ | 135 |  |   |       
|                                     
|Twelve Months Ended December 31, 2005 |  |                       |       |                       |   |      |                |  |   |                                                                                  |   |  |                               |      |                                     |  |                      |     |  |   |     |  |   |       
|Franchised Electric and Gas           |  | $                     | 1,561 |                       | $ |     |                |  | $ | 1,561                                                                            |   |  | $                             | 219  |                                     |  | $                    | 183 |  | $ | 232 |  | $ | 3,932 
|Commercial Power                      |  |                       | 1,219 |                       |   | 169  |                |  |   | 1,388                                                                            |   |  |                               | 371  |                                     |  |                      | 88  |  |   | 202 |  |   | 3,309 
|Total reportable segments             |  |                       | 2,780 |                       |   | 169  |                |  |   | 2,949                                                                            |   |  |                               | 590  |                                     |  |                      | 271 |  |   | 434 |  |   | 7,241 
|Other                                 |  |                       |      |                       |   |     |                |  |   |                                                                                 |   |  |                               | (97  | )                                   |  |                      |    |  |   |    |  |   |      
|Eliminations and reclassifications    |  |                       |      |                       |   | (169 | )              |  |   | (169                                                                             | ) |  |                               |     |                                     |  |                      |    |  |   |    |  |   |      
|Interest expense                      |  |                       |      |                       |   |     |                |  |   |                                                                                 |   |  |                               | (98  | )                                   |  |                      |    |  |   |    |  |   |      
|Interest income and other             |  |                       |      |                       |   |     |                |  |   |                                                                                 |   |  |                               | 17   |                                     |  |                      |    |  |   |    |  |   |      
|Total consolidated                    |  | $                     | 2,780 |                       | $ |     |                |  | $ | 2,780                                                                            |   |  | $                             | 412  |                                     |  | $                    | 271 |  | $ | 434 |  | $ | 7,241 
|                                     



|(a) | Segment results exclude results of entities classified as discontinued operations.
|--- | ----------------------------------------------------------------------------------

|(b) | Includes assets held for sale.
|--- | ------------------------------

|(c) | See Note 1 for additional information on Predecessor and Successor reporting.
|--- | -----------------------------------------------------------------------------

|(d) | Amounts include goodwill recorded as of December 31, 2007 and December 31, 2006 resulting from Duke Energys merger with Cinergy in the amount of $2,325 million and $2,348
million, respectively. Franchised Electric and Gas allocated amount as of December 31, 2007 and December 31, 2006 was $1,137 million and $1,148 million, respectively. Commercial Powers allocated amount as of December 31,
2007 and December 31, 2006 was $1,188 million and $1,200 million, respectively.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

All of Duke Energy Ohios revenues are
generated domestically and its long-lived assets are in the U.S.



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5. Regulatory Matters

Regulatory Assets
and Liabilities. Duke Energy Ohios regulated operations are subject to SFAS No. 71. Accordingly, Duke Energy Ohio records assets and liabilities that result from the regulated ratemaking process that would not be recorded under GAAP
for non-regulated entities. See Note 1 for further information.



Duke
Energy Ohios Regulatory Assets and Liabilities:



|                                             |  |                    |     |                            |   |     |  |      |  
|-------------------------------------------- |  | ------------------ | --- | -------------------------- | - | --- |  | ---- | -
|                                             |  | Successor(a)       |     | Recovery/RefundPeriod Ends |  
|                                             |  | As of December 31, |    
|                                             |  | 2007               |     | 2006                       |  
|                                             |  | (in millions)      |    
|Regulatory Assets(b)                         |  |                    |     |                            |   |     |  |      |  
|Regulatory Transition Charges (RTC)(c)       |  | $                  | 239 |                            | $ | 331 |  | 2011 |  
|Accrued pension and postretirement(c)(i)     |  |                    | 120 |                            |   | 147 |  | (h   | )
|Net regulatory asset related to income taxes |  |                    | 90  |                            |   | 96  |  | (f   | )
|Capital-related distribution costs(c)        |  |                    | 22  |                            |   | 29  |  | (j   | )
|Unamortized costs of reacquiring debt(m)     |  |                    | 11  |                            |   | 12  |  | (f   | )
|Vacation accrual(k)                          |  |                    | 10  |                            |   | 14  |  | 2008 |  
|Deferred operating expense(c)(d)             |  |                    | 7   |                            |   | 6   |  | 2066 |  
|Hedge costs and other deferrals(c)           |  |                    | 5   |                            |   | 7   |  | 2033 |  
|Other(c)                                     |  |                    | 9   |                            |   | 12  |  | (h   | )
|                                             |  |                    |     |                            |   |     |  |      |  
|Total Regulatory Assets                      |  | $                  | 513 |                            | $ | 654 |  |      |  
|                                             |  |                    |     |                            |   |     |  |      |  
|Regulatory Liabilities(b)                    |  |                    |     |                            |   |     |  |      |  
|Removal costs(d)(e)                          |  | $                  | 181 |                            | $ | 158 |  | (g   | )
|Accrued pension and postretirement(e)        |  |                    | 27  |                            |   |    |  | (h   | )
|Other(l)                                     |  |                    | 8   |                            |   | 9   |  | (h   | )
|                                             |  |                    |     |                            |   |     |  |      |  
|Total Regulatory Liabilities                 |  | $                  | 216 |                            | $ | 167 |  |      |  
|                                             |  |                    |     |                            |   |     |  |      |  



|(a) | See Note 1 for additional information on Predecessor and Successor reporting.
|--- | -----------------------------------------------------------------------------

|(b) | All regulatory assets and liabilities are excluded from rate base unless otherwise noted.
|--- | -----------------------------------------------------------------------------------------

|(c) | Included in Other Regulatory Assets and Deferred Debits on the Consolidated Balance Sheets.
|--- | -------------------------------------------------------------------------------------------

|(d) | Included in rate base.
|--- | ----------------------

|(e) | Included in Other Deferred Credits and Other Liabilities on the Consolidated Balance Sheets.
|--- | --------------------------------------------------------------------------------------------

|(f) | Recovery/refund is over the life of the associated asset or liability.
|--- | ----------------------------------------------------------------------

|(g) | Liability is extinguished over the lives of the associated assets.
|--- | ------------------------------------------------------------------

|(h) | Recovery/Refund period currently unknown.
|--- | -----------------------------------------

|(i) | The 2006 amount includes $31 million related to adoption of SFAS No. 158 (see Note 18) and $116 million related to impacts of purchase accounting as a result of Duke Energys merger
with Cinergy (see Note 2).
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(j) | Recovered via revenue rider or 2010.
|--- | ------------------------------------

|(k) | Included in Other Current Assets on the Consolidated Balance Sheets.
|--- | --------------------------------------------------------------------

|(l) | Included in Accounts Payable or Other Deferred Credits and Other Liabilities on the Consolidated Balance Sheets.
|--- | ----------------------------------------------------------------------------------------------------------------

|(m) | Included in Deferred Debt Expense on the Consolidated Balance Sheets.
|--- | ---------------------------------------------------------------------

Regulatory Merger Approvals.As discussed in Note 1 and Note 2, on April 3, 2006, the merger between Duke Energy and Cinergy was consummated to create a newly formed company, Duke Energy Holding Corp. (subsequently
renamed Duke Energy Corporation). As a condition to the merger approval, the PUCO, and the KPSC required that certain merger related savings be shared with consumers in Ohio and Kentucky, respectively. The commissions also required Duke Energy Ohio
and Duke Energy Kentucky to meet additional conditions. Key elements of these conditions include:

| |  |  | The PUCO required that Duke Energy Ohio provide (i) a rate reduction of approximately $15 million for one year to facilitate economic development in a time of increasing
rates and market prices and (ii) a reduction of approximately $21 million to its gas and electric consumers in Ohio for one year, with both credits beginning January 1, 2006. During the first quarter of 2007, Duke Energy Ohio had completed
its merger related rate reductions and filed a report with the PUCO to terminate the merger credit riders. Approximately $2 million and $34 million of these rate reductions were passed through to customers during the years ended December 31,
2007 and 2006, respectively.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | The KPSC required that Duke Energy Kentucky provide $8 million in rate reductions to its customers over five years, ending when new rates are established in the next rate
case after January 1, 2008. Approximately $2 million of the rate reduction was passed through to customers during each of the years ended December 31, 2007 and 2006, respectively.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | The FERC approved the merger without conditions.
| | - |  | ------------------------------------------------



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Notes To Consolidated Financial Statements(Continued)



Franchised Electric and Gas.Rate Related Information. The KPSC approves rates for retail electric and gas services
within the Commonwealth of Kentucky. The PUCO approves rates and market prices for retail electric and gas services within the state of Ohio, except that non-regulated sellers of gas and electric generation also are allowed to operate in Ohio (see
Commercial Power below). The FERC approves rates for electric sales to wholesale customers served under cost-based rates.

Duke Energy
Ohio Electric Rate Filings. Duke Energy Ohio operates under a RSP, a MBSSO approved by the PUCO in November 2004. In March 2005, the OCC appealed the PUCOs approval of the MBSSO to the Supreme Court of Ohio and the Court issued its
decision in November 2006. It upheld the MBSSO in virtually every respect but remanded to the PUCO on two issues. The Court ordered the PUCO to support a certain portion of its order with reasoning and record evidence and to require Duke Energy Ohio
to disclose certain confidential commercial agreements with other parties previously requested by the OCC. Duke Energy Ohio has complied with the disclosure order.

In October 2007, the PUCO issued its ruling in response to the Supreme Courts decision. The PUCO affirmed the MBSSO, with certain modifications, and maintained the current price. The ruling provides for continuation of
the existing rate components, including the recovery of costs related to new pollution control equipment and capacity costs associated with power purchase contracts to meet customer demand, but provided customers an enhanced opportunity to avoid
certain pricing components if they are served by a competitive supplier. The ruling also rescinded the requirement that Duke Energy Ohio transfer its generating assets to an exempt wholesale generator (EWG) and required Duke Energy Ohio to retain
ownership for the remainder of the RSP period. The ruling also incorrectly implied that Duke Energy Ohios nonresidential RTC will terminate at the end of 2008. On November 23, 2007, Duke Energy Ohio filed an application for rehearing on
the portions of the PUCOs ruling relating to (1) whether certain pricing components may be avoided by customers, (2) the right to transfer generating assets, and (3) the termination date of the RTC. On December 19, 2007,
the PUCO issued its Entry on Rehearing granting in part and denying in part Duke Energy Ohios Application for Rehearing. Among other things, the Commission modified and clarified the applicability of various rate riders during customer
shopping situations. It also clarified that the residential RTC terminates at the end of 2008 and that the nonresidential RTC terminates at the end of 2010 and agreed to give further consideration to whether Duke Energy Ohio may transfer its
generating assets to an EWG.

On February 15, 2008, Duke Energy Ohio filed a notice of appeal with the Ohio Supreme Court challenging a portion
of the PUCOs decision on remand regarding Duke Energy Ohios RSP. The October 2007 order permits non-residential customers to avoid certain charges associated with the costs of Duke Energy Ohio standing ready to serve such customers if
they return after being served by another supplier. Duke Energy Ohio believes the PUCO exceeded its authority in modifying the charges that may be avoided, resulting in Duke Energy Ohio having to subsidize Ohios competitive electric market.
Duke Energy Ohio has asked the Supreme Court to reverse the PUCO ruling and require that non-residential customers pay the charges associated with Duke Energy Ohio standing ready to serve them should they return from a competitive suppler. The OCC
also has filed a notice of appeal challenging the PUCOs October 2007 decision as unlawful and unreasonable. Pending the Ohio Supreme Courts consideration of its appeal, the OCC has requested that the PUCO stay implementation of the
Infrastructure Maintenance Fund charge approved in the October 2007 order to be collected from customers. At this time, Duke Energy Ohio cannot predict whether the Ohio Supreme Court will reverse the PUCOs decision or whether the PUCO
will grant the OCCs request for a stay. However, Duke Energy Ohio does not anticipate the resolution of this matter will have a material impact on its results of operations, cash flows or financial position.

In August 2006, Duke Energy Ohio filed an application with the PUCO to amend its MBSSO through 2010. The proposal provides for continued electric system
reliability, a simplified market price structure and clear price signals for customers, while helping to maintain a stable revenue stream for Duke Energy Ohio. On November 30, 2007, due to new legislation pending in the Ohio General Assembly
regarding the pricing of competitive retail generation services, Duke Energy Ohio requested PUCO approval to withdraw its application to amend its MBSSO. Upon approval of the new legislation, Duke Energy Ohio will likely seek approval of a new
generation pricing formula.

Duke Energy Ohios MBSSO includes a fuel clause, System Reliability Tracker to recover reserve capacity costs and an
Annually Adjusted Component (AAC) to recover changes in environmental, tax and homeland security costs. These price components are audited annually by the PUCO. In April 2007 Duke Energy Ohio entered into a settlement resolving all open issues
identified in the 2006 audits and application to amend the 2007 AAC market price with some of the parties. After an evidentiary hearing, the PUCO issued its order approving the partial settlement on November 20, 2007.

Duke Energy Ohio Gas Rate Case. In July 2007, Duke Energy Ohio filed an application with the PUCO for an increase in its base rates for gas service. Duke
Energy Ohio sought an increase of approximately $34 million in revenue, or approximately 5.7%, to be effective in



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Notes To Consolidated Financial Statements(Continued)



the spring of 2008. The application also requests approval to continue tracker recovery of costs associated with an accelerated gas main replacement program. The PUCO
accepted the application for filing in September 2007. On February 28, 2008, Duke Energy Ohio reached a settlement agreement with the PUCO Staff and all of the intervening parties on its request for an increase in natural gas base rates. The
settlement calls for an annual revenue increase of $18.2 million overall, or 3 percent, and will permit continued recovery of costs through 2018 for Duke Energy Ohios accelerated main replacement program. The parties, however, did not
agree on one aspect of Duke Energy Ohios proposed rate design. That issue and the settlement agreement were presented to the PUCO in an evidentiary hearing on March 5-6, 2008, for consideration and approval.

Duke Energy Kentucky Gas Rate Cases. In 2002, the KPSC approved Duke Energy Kentuckys gas base rate case which included, among other things, recovery
of costs associated with an accelerated gas main replacement program. The approval authorized a tracking mechanism to recover certain costs including depreciation and a rate of return on the programs capital expenditures. The Kentucky Attorney
General appealed to the Franklin Circuit Court the KPSCs approval of the tracking mechanism as well as the KPSCs subsequent approval of annual rate adjustments under this tracking mechanism. In 2005, both Duke Energy Kentucky and the
KPSC requested that the court dismiss these cases.

In February 2005, Duke Energy Kentucky filed a gas base rate case with the KPSC requesting
approval to continue the tracking mechanism and for a $14 million annual increase in base rates. A portion of the requested increase was attributable to recovery of the current cost of the accelerated main replacement program in base rates. In
December 2005, the KPSC approved an annual rate increase of $8 million and re-approved the tracking mechanism through 2011. In February 2006, the Kentucky Attorney General appealed the KPSCs order to the Franklin Circuit Court, claiming that
the order improperly allows Duke Energy Kentucky to increase its rates for gas main replacement costs in between general rate cases, and also claiming that the order improperly allows Duke Energy Kentucky to earn a return on investment for the costs
recovered under the tracking mechanism which permits Duke Energy Kentucky to recover its gas main replacement costs.

In August 2007 the Franklin
Circuit Court consolidated all the pending appeals and ruled that the KPSC lacks legal authority to approve the gas main replacement tracking mechanism, and any other annual rate adjustments under the tracking mechanism. To date, Duke Energy
Kentucky has collected approximately $9 million in annual rate adjustments under the tracking mechanism. Duke Energy Kentucky and the KPSC have appealed these cases to the Kentucky Court of Appeals and continues to utilize tracking mechanisms in its
billed rates to customers. At this time, Duke Energy Kentucky cannot predict the outcome of these proceedings.

Energy Efficiency.On
July 11, 2007, the PUCO approved Duke Energy Ohios Demand Side Management/ Energy Efficiency Program (DSM Program). The DSM Program consists of ten residential and two commercial programs. Implementation of the programs has begun. The
programs were first proposed in 2006 and were endorsed by the Duke Energy Community Partnership, which is a collaborative group made up of representatives of organizations interested in energy conservation, efficiency and assistance to low-income
customers. The programs costs will be recovered through a cost recovery mechanism that will be adjusted annually to reflect the previous years activity. Duke Energy Ohio is permitted to recover lost revenues, program costs and shared savings
(once the programs reach 65% of the targeted savings level) through the cost recovery mechanism based upon impact studies to be provided to the Staff of the PUCO.

On November 15, 2007, Duke Energy Kentucky filed its annual application to continue existing energy efficiency programs, consisting of nine residential and two commercial and industrial programs, and to true-up its gas and
electric tracking mechanism for recovery of lost revenues, program costs and shared savings. An order on the application is expected in the first quarter of 2008.

New Legislation. On September 25, 2007, at the request of the Governor of Ohio, the Ohio Senate introduced a bill (SB 221) that proposes a comprehensive change to Ohios 1999 electric energy industry
restructuring legislation. If enacted, SB 221 would expand the PUCOs authority over generation to: implement the states revised energy policy; regulate electric distribution utility prices for standard service; and permit the PUCO to
implement rules for advanced energy portfolio and energy efficiency standards, greenhouse gas emission reporting requirements, and pilot project carbon sequestration activities in conjunction with other state agencies. Under SB 221, electric
distribution utilities have the ability to apply for PUCO approval of one of two generation pricing alternatives  a market option, or an Electric Security Plan (ESP) option. The market option is based upon a competitive bidding process. The
ESP option will allow for the recovery of specified costs. The PUCO, however, would have authority to disallow the market option and compel the ESP option. SB 221, if enacted, would limit the ability of a utility to transfer its dedicated generating
assets to an EWG absent PUCO approval. SB 221 passed the Ohio Senate on October 31, 2007, and is currently pending before the Ohio House of Representatives.



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Notes To Consolidated Financial Statements(Continued)



On February 21, 2008, new legislation (HB 487) that would establish annual alternative energy benchmarks for electric
distribution utilities and electric service companies, and energy efficiency standards for electric distribution utilities, was also introduced in the Ohio House of Representatives. Under this legislation, specified portions of the electricity
supply of such utilities and companies must be generated from advanced energy or renewable energy resources, including specifically, solar resources. The legislation provides for the PUCO to annually review a utilitys or companys
compliance and to impose penalties for non-compliance with the benchmarks. HB 487 also establishes policies regarding the geologic storage of carbon dioxide and requires the reporting of greenhouse gas emissions. HB 487 is currently pending in
the Ohio House of Representatives. At this time, Duke Energy Ohio is not able to estimate the impact these legislative initiatives might have on its consolidated results of operations, cash flows, or financial position.

Other. In April 2005, the PUCO issued an order opening a statewide investigation into riser leaks in gas pipeline systems throughout Ohio. The investigation
followed four explosions since 2000 caused by gas riser leaks, including an April 2000 explosion in Duke Energy Ohios service area. In November 2006, the PUCO Staff released an expert report, which concluded that certain types of risers are
prone to leaks under various conditions, including over-tightening during initial installation. Duke Energy Ohio has approximately 87,000 of these risers on its distribution system. If the PUCO orders natural gas companies to replace all of these
risers, Duke Energy Ohio estimates a replacement cost of approximately $40 million. As part of the rate case filed in July 2007 (see Duke Energy Ohio Gas Rate Case above), Duke Energy Ohio requested approval from the PUCO to accelerate
its riser replacement program. The riser replacement program is contained in the settlement reached with all interveners and will be completed at the end of 2012.

In December 2005, the PUCO initiated an investigation into implementing certain provisions of the Energy Policy Act of 2005, including whether to adopt a statewide standard for implementing smart metering. After an
investigation, the PUCO issued a March 2007 order requiring all electric utilities to offer tariffs to all customer classes which are differentiated, at a minimum, based on on-peak and off-peak wholesale price periods. The PUCO noted that
time-of-use meters should be available for customers subscribing to these tariffs. The order instructed PUCO Staff to conduct workshop meetings to study the costs/benefits of deploying smart metering. These workshop meetings are in progress. At this
time, Duke Energy Ohio cannot predict the outcome of this proceeding.

FERC Issues Electric Reliability Standards. Consistent with
reliability provisions of the Energy Policy Act of 2005, on July 20, 2006, FERC issued its Final Rule certifying the North American Electric Reliability Council (NERC) as the Electric Reliability Organization. NERC has filed over 100
proposed reliability standards with FERC. On March 16, 2007, FERC issued a final rule establishing mandatory, enforceable reliability standards for the nations bulk power system. In the final rule, FERC approved 83 of the 107 standards
submitted by the NERC and compliance with these standards became mandatory on June 18, 2007. FERC has since approved several additional standards. Compliance with the remaining standards is expected to continue on a voluntary basis as good
utility practice. Duke Energy Ohio does not believe that the issuance of these standards will have a material impact on its consolidated results of operations, cash flows, or financial position.

Midwest ISO Resource Adequacy Filing.On December 28, 2007, the Midwest ISO filed its Electric Tariff Filing Regarding Resource Adequacy in compliance
with the FERCs request of Midwest ISO to file Phase II of its long-term Resource Adequacy plan by December 2007. The proposal includes establishment of a resource adequacy requirement in the form of planning reserve margin. While the proposal
has been filed for approval from the FERC, it currently lacks enforcement and financial settlement mechanisms. Given that the proposal has not yet been approved by the FERC, it is difficult to estimate its impact on Duke Energy Ohio, but at this
time Duke Energy Ohio does not believe the resource adequacy requirement will have a material impact on its consolidated results of operations, cash flows, or financial position.

Commercial Power. Reported results for Commercial Power are subject to volatility due to the over- or under-collection of certain costs, including fuel
and purchased power, since Commercial Power is not subject to regulatory accounting pursuant to SFAS No. 71. In addition, Commercial Power could be impacted by certain of the regulatory matters discussed above, including the Duke Energy
Ohio electric rate filings.



6. Joint Ownership of Generating and Transmission
Facilities

Duke Energy Ohio, Columbus Southern Power Company (CSP), and Dayton Power & Light (DP&L) jointly own electric generating
units and related transmission facilities in Ohio. Duke Energy Kentucky and DP&L jointly own an electric generating unit. Duke Energy Ohio and Wabash Valley Power Association, Inc jointly own the Vermillion generating station in Indiana.



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PART II

DUKE ENERGY OHIO, INC.

Notes To Consolidated Financial Statements(Continued)



As of December 31, 2007, Duke Energy Ohios shares in jointly-owned plant or facilities were as follows:



|                                      |  |                |   |  |                               |       |                         |   |                              |  |   |    
|------------------------------------- |  | -------------- | - |  | ----------------------------- | ----- | ----------------------- | - | ---------------------------- |  | - | ---
|                                      |  | OwnershipShare |   |  | Property, Plant,and Equipment |       | AccumulatedDepreciation |   | Construction Workin Progress
|                                      |  | (in millions) 
|Duke Energy Ohio                      |  |                |   |  |                               |       |                         |   |                              |  |   |    
|Production:                           |  |                |   |  |                               |       |                         |   |                              |  |   |    
|Miami Fort Station (Units 7 and 8)(b) |  | 64.0           | % |  | $                             | 592   |                         | $ | 157                          |  | $ | 12 
|W.C. Beckjord Station (Unit 6)(b)     |  | 37.5           |   |  |                               | 47    |                         |   | 33                           |  |   | 4  
|J.M. Stuart Station(a)(b)             |  | 39.0           |   |  |                               | 426   |                         |   | 188                          |  |   | 265
|Conesville Station (Unit 4)(a)(b)     |  | 40.0           |   |  |                               | 81    |                         |   | 54                           |  |   | 85 
|W.M. Zimmer Station(b)                |  | 46.5           |   |  |                               | 1,328 |                         |   | 499                          |  |   | 5  
|Killen Station(a)(b)                  |  | 33.0           |   |  |                               | 207   |                         |   | 123                          |  |   | 85 
|Vermillion Station(b)                 |  | 75.0           |   |  |                               | 197   |                         |   | 41                           |  |   |   
|Transmission(c)                       |  | Various        |   |  |                               | 88    |                         |   | 49                           |  |   | 2  
|Duke Energy Kentucky                  |  |                |   |  |                               |       |                         |   |                              |  |   |    
|Production:                           |  |                |   |  |                               |       |                         |   |                              |  |   |    
|East Bend Station(c)                  |  | 69.0           |   |  |                               | 429   |                         |   | 220                          |  |   | 1  



|(a) | Station is not operated by Duke Energy Ohio.
|--- | --------------------------------------------

|(b) | Included in Commercial Power segment.
|--- | -------------------------------------

|(c) | Included in Franchised Electric and Gas segment.
|--- | ------------------------------------------------

Duke Energy Ohios
share of revenues and operating costs of the above jointly owned generating facilities are included within the corresponding line on the Consolidated Statements of Operations. Each participant in the jointly owned facilities must provide its own
financing.



7. Income Taxes

Prior to the merger of Cinergy and Duke Energy on April 3, 2006, the taxable income of Duke Energy Ohio was reflected in Cinergys U.S. federal and state
income tax returns. After the merger, the taxable income of Duke Energy Ohio is reflected in Duke Energys U.S. federal and state income tax returns. As a result of Duke Energys merger with Cinergy, Duke Energy Ohio entered into a tax
sharing agreement with Duke Energy, where the separate return method is used to allocate tax expenses and benefits to the subsidiaries whose investments or results of operations provide these tax expenses and benefits. The accounting for income
taxes essentially represents the income taxes that Duke Energy Ohio would incur if Duke Energy Ohio were a separate company filing its own tax return as a C-Corporation. The current tax sharing agreement Duke Energy Ohio has with Duke Energy is
substantially the same as the tax sharing agreement between Duke Energy Ohio and Cinergy prior to the merger.



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Notes To Consolidated Financial Statements(Continued)



The following details the components of income tax expense from continuing operations:



Income Tax Expense from Continuing Operations



|                                                                                  |  |                                     |     |   |                                   |   |                |   |  |                                 |  |   |                                     |   |  |   |     |  
|--------------------------------------------------------------------------------- |  | ----------------------------------- | --- | - | --------------------------------- | - | -------------- | - |  | ------------------------------- |  | - | ----------------------------------- | - |  | - | --- | -
|                                                                                  |  | Successor(a)                        |     |   |                                   |   | Predecessor(a) |  
|                                                                                  |  | Twelve MonthsEndedDecember 31, 2007 |     |   | Nine MonthsEndedDecember 31, 2006 |   |                |   |  | Three MonthsEndedMarch 31, 2006 |  |   | Twelve MonthsEndedDecember 31, 2005 |  
|                                                                                  |  | (in millions)                       |    
|Current income taxes                                                              |  |                                     |     |   |                                   |   |                |   |  |                                 |  |   |                                     |   |  |   |     |  
|Federal                                                                           |  | $                                   | 120 |   |                                   | $ | 139            |   |  |                                 |  | $ | 55                                  |   |  | $ | 188 |  
|State                                                                             |  |                                     | 13  |   |                                   |   | 22             |   |  |                                 |  |   | 6                                   |   |  |   | 13  |  
|                                                                                  |  |                                     |     |   |                                   |   |                |   |  |                                 |  |   |                                     |   |  |   |     |  
|Total current income taxes(b)                                                     |  |                                     | 133 |   |                                   |   | 161            |   |  |                                 |  |   | 61                                  |   |  |   | 201 |  
|                                                                                  |  |                                     |     |   |                                   |   |                |   |  |                                 |  |   |                                     |   |  |   |     |  
|Deferred income taxes                                                             |  |                                     |     |   |                                   |   |                |   |  |                                 |  |   |                                     |   |  |   |     |  
|Federal                                                                           |  |                                     | 19  |   |                                   |   | (100           | ) |  |                                 |  |   | 11                                  |   |  |   | (47 | )
|State                                                                             |  |                                     | 1   |   |                                   |   | (18            | ) |  |                                 |  |   | (3                                  | ) |  |   | 8   |  
|                                                                                  |  |                                     |     |   |                                   |   |                |   |  |                                 |  |   |                                     |   |  |   |     |  
|Total deferred income taxes                                                       |  |                                     | 20  |   |                                   |   | (118           | ) |  |                                 |  |   | 8                                   |   |  |   | (39 | )
|                                                                                  |  |                                     |     |   |                                   |   |                |   |  |                                 |  |   |                                     |   |  |   |     |  
|Investment tax credit amortization                                                |  |                                     | (2  | ) |                                   |   | (2             | ) |  |                                 |  |   | (1                                  | ) |  |   | (5  | )
|                                                                                  |  |                                     |     |   |                                   |   |                |   |  |                                 |  |   |                                     |   |  |   |     |  
|Total income tax expense from continuing operations                               |  |                                     | 151 |   |                                   |   | 41             |   |  |                                 |  |   | 68                                  |   |  |   | 157 |  
|Total income tax (benefit) expense from discontinued operations                   |  |                                     |    |   |                                   |   | (3             | ) |  |                                 |  |   | (1                                  | ) |  |   | 27  |  
|Total income tax benefit from cumulative effect of change in accounting principle |  |                                     |    |   |                                   |   |               |   |  |                                 |  |   |                                    |   |  |   | (2  | )
|                                                                                  |  |                                     |     |   |                                   |   |                |   |  |                                 |  |   |                                     |   |  |   |     |  
|Total income tax expense included in Consolidated Statements of Operations        |  | $                                   | 151 |   |                                   | $ | 38             |   |  |                                 |  | $ | 67                                  |   |  | $ | 182 |  
|                                                                                  |  |                                     |     |   |                                   |   |                |   |  |                                 |  |   |                                     |   |  |   |     |  



|(a) | See Note 1 for additional information on Predecessor and Successor reporting.
|--- | -----------------------------------------------------------------------------

|(b) | Included in the Total current income taxes line above is a Fin 48 benefit of approximately $13 million.
|--- | ---------------------------------------------------------------------------------------------------------



Reconciliation of Income Tax Expense at the U.S. Federal Statutory Tax Rate to the Actual Tax Expense from Continuing Operations (Statutory Rate
Reconciliation)



|                                                          |  |                                     |      |   |                                   |   |                |   |  |                                 |  |   |                                     |   |  |   |      |  
|--------------------------------------------------------- |  | ----------------------------------- | ---- | - | --------------------------------- | - | -------------- | - |  | ------------------------------- |  | - | ----------------------------------- | - |  | - | ---- | -
|                                                          |  | Successor(a)                        |      |   |                                   |   | Predecessor(a) |  
|                                                          |  | Twelve MonthsEndedDecember 31, 2007 |      |   | Nine MonthsEndedDecember 31, 2006 |   |                |   |  | Three MonthsEndedMarch 31, 2006 |  |   | Twelve MonthsEndedDecember 31, 2005 |  
|                                                          |  | (in millions)                       |     
|Income tax expense, computed at the statutory rate of 35% |  | $                                   | 145  |   |                                   | $ | 36             |   |  |                                 |  | $ | 65                                  |   |  | $ | 144  |  
|State income tax, net of federal income tax effect        |  |                                     | 9    |   |                                   |   | 3              |   |  |                                 |  |   | 2                                   |   |  |   | 14   |  
|Depreciation and other PP&E related differences           |  |                                     | 9    |   |                                   |   | 6              |   |  |                                 |  |   | 2                                   |   |  |   | 3    |  
|ITC amortization                                          |  |                                     | (2   | ) |                                   |   | (2             | ) |  |                                 |  |   | (1                                  | ) |  |   | (5   | )
|Manufacturing Deduction                                   |  |                                     | (10  | ) |                                   |   | (2             | ) |  |                                 |  |   |                                    |   |  |   |     |  
|Other items, net                                          |  |                                     |     |   |                                   |   |               |   |  |                                 |  |   |                                    |   |  |   | 1    |  
|                                                          |  |                                     |      |   |                                   |   |                |   |  |                                 |  |   |                                     |   |  |   |      |  
|Total income tax expense from continuing operations       |  | $                                   | 151  |   |                                   | $ | 41             |   |  |                                 |  | $ | 68                                  |   |  | $ | 157  |  
|                                                          |  |                                     |      |   |                                   |   |                |   |  |                                 |  |   |                                     |   |  |   |      |  
|Effective Tax Rates                                       |  |                                     | 36.4 | % |                                   |   | 40.2           | % |  |                                 |  |   | 36.6                                | % |  |   | 38.1 | %
|                                                          |  |                                     |      |   |                                   |   |                |   |  |                                 |  |   |                                     |   |  |   |      |  



|(a) | See Note 1 for additional information on Predecessor and Successor reporting.
|--- | -----------------------------------------------------------------------------



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PART II

DUKE ENERGY OHIO, INC.

Notes To Consolidated Financial Statements(Continued)



The manufacturing deduction was created by the American Job Creation Act of 2004 (the Act). The Act provides a deduction for income
from qualified domestic production activities. During the years ended December 31, 2006 and 2005, the Act provided for a 3% deduction on qualified production activities. During the year ended December 31, 2007, the deduction increased to
6% on qualified production activities.



Net Deferred Income Tax Liability Components



|                                          |  |                   |        |   |      |   |        |  
|----------------------------------------- |  | ----------------- | ------ | - | ---- | - | ------ | -
|                                          |  | Successor(a)      |       
|                                          |  | As ofDecember 31, |       
|                                          |  | 2007              |        |   | 2006 |  
|                                          |  | (in millions)     |       
|Deferred credits and other liabilities    |  | $                 | 100    |   |      | $ | 112    |  
|Other                                     |  |                   | 54     |   |      |   | 66     |  
|                                          |  |                   |        |   |      |   |        |  
|Total deferred income tax assets          |  |                   | 154    |   |      |   | 178    |  
|                                          |  |                   |        |   |      |   |        |  
|Investments and other assets              |  |                   | (68    | ) |      |   | (72    | )
|Accelerated depreciation rates            |  |                   | (1,311 | ) |      |   | (1,308 | )
|Regulatory assets and deferred debits     |  |                   | (195   | ) |      |   | (252   | )
|                                          |  |                   |        |   |      |   |        |  
|Total deferred income tax liabilities     |  |                   | (1,574 | ) |      |   | (1,632 | )
|                                          |  |                   |        |   |      |   |        |  
|Total net deferred income tax liabilities |  | $                 | (1,420 | ) |      | $ | (1,454 | )
|                                          |  |                   |        |   |      |   |        |  



|(a) | See Note 1 for additional information on Predecessor and Successor reporting.
|--- | -----------------------------------------------------------------------------

The above amounts have been classified in the Consolidated Balance Sheets as follows:



Net Deferred Income Tax Liabilities



|                                                                        |  |                   |        |   |      |   |        |  
|----------------------------------------------------------------------- |  | ----------------- | ------ | - | ---- | - | ------ | -
|                                                                        |  | Successor(a)      |       
|                                                                        |  | As ofDecember 31, |       
|                                                                        |  | 2007              |        |   | 2006 |  
|                                                                        |  | (in millions)     |       
|Current deferred tax assets, included in other current assets           |  | $                 | 26     |   |      | $ | 21     |  
|Current deferred tax liabilities, included in other current liabilities |  |                   | (10    | ) |      |   |       |  
|Non-current deferred tax liabilities                                    |  |                   | (1,436 | ) |      |   | (1,475 | )
|                                                                        |  |                   |        |   |      |   |        |  
|Total net deferred income tax liabilities                               |  | $                 | (1,420 | ) |      | $ | (1,454 | )
|                                                                        |  |                   |        |   |      |   |        |  



|(a) | See Note 1 for additional information on Predecessor and Successor reporting.
|--- | -----------------------------------------------------------------------------

On January 1, 2007, Duke Energy Ohio adopted FIN 48. The following table shows the impacts of adoption of FIN 48 on Duke Energy Ohios Consolidated Balance Sheets.



|                                                         |  |                     |     |  
|-------------------------------------------------------- |  | ------------------- | --- | -
|                                                         |  | Increase/(Decrease) |    
|                                                         |  | (in millions)       |    
|Assets                                                   |  |                     |     |  
|Goodwill                                                 |  | $                   | 4   |  
|                                                         |  |                     |     |  
|Liabilities                                              |  |                     |     |  
|Other Liabilities (non-current)(a)                       |  | $                   | 51  |  
|Interest Accrued (current)                               |  |                     | (11 | )
|Deferred Income Taxes                                    |  |                     | (36 | )
|                                                         |  |                     |     |  
|Total                                                    |  | $                   | 4   |  
|                                                         |  |                     |     |  
|Common Stockholders Equity                              |  |                     |     |  
|Retained EarningsCumulative Effect of Accounting Change |  | $                   |    |  
|                                                         |  |                     |     |  



|(a) | Includes liability for unrecognized tax benefits and accrued interest and penalties, including reserves against gain contingencies. These gain contingencies were not recorded prior to the
adoption of FIN 48.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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PART II

DUKE ENERGY OHIO, INC.

Notes To Consolidated Financial Statements(Continued)



Effective with the adoption of FIN 48 on January 1, 2007, Duke Energy Ohio recognized approximately $6 million of accrued
interest payable, which reflects all interest related to income taxes, and no accrued penalties.

The following table details the changes in Duke
Energy Ohios unrecognized tax benefits from January 1, 2007 to December 31, 2007.



|                                                 |  |                     |     |  
|------------------------------------------------ |  | ------------------- | --- | -
|                                                 |  | Increase/(Decrease) |    
|                                                 |  | (in millions)       |    
|Unrecognized Tax Benefits  January 1, 2007      |  | $                   | 63  |  
|                                                 |  |                     |     |  
|Unrecognized Tax Benefits Changes                |  |                     |     |  
|Gross increases  tax positions in prior periods |  | $                   | 9   |  
|Gross decreases  tax positions in prior periods |  |                     | (19 | )
|Gross increases  current period tax positions   |  |                     |    |  
|Settlements                                      |  |                     | (6  | )
|Lapse of statute of limitations                  |  |                     |    |  
|                                                 |  |                     |     |  
|Total Changes                                    |  | $                   | (16 | )
|                                                 |  |                     |     |  
|Unrecognized Tax Benefits  December 31, 2007    |  | $                   | 47  |  
|                                                 |  |                     |     |  

At December 31, 2007, no portion of the total unrecognized tax benefits would, if recognized, affect the
effective tax rate. Additionally, at December 31, 2007, Duke Energy Ohio has approximately $7 million of unrecognized tax benefits related to pre-merger tax positions that, if recognized, would affect goodwill. It is reasonably possible that
Duke Energy Ohio will reflect an approximate $35 million reduction in unrecognized tax benefits within the next twelve months due to expected settlements.

During the year ended December 31, 2007, Duke Energy Ohio recognized net interest expense of approximately $2 million. At December 31, 2007, Duke Energy Ohio had approximately $7 million of interest payable, which reflects all
interest related to income taxes, and no accrued penalties.

Duke Energy Ohio has the following tax years open:



|             |  |                                                                                         
|------------ |  | ----------------------------------------------------------------------------------------
|Jurisdiction |  | Tax Years                                                                               
|Federal      |  | 2000 and after                                                                          
|State        |  | Closed through 2001, with the exception of any adjustments related to open federal years



8. Asset Retirement Obligations

In June 2001, the FASB issued SFAS No. 143, which was adopted by Duke Energy Ohio on January 1, 2003. SFAS No. 143 addresses
financial accounting and reporting for legal obligations associated with the retirement of tangible long-lived assets and the related asset retirement costs. The standard applies to legal obligations associated with the retirement of long-lived
assets that result from the acquisition, construction, development and/or normal use of the asset. SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred,
if a reasonable estimate of fair value can be made. The fair value of the liability is added to the carrying amount of the associated asset. This additional carrying amount is then depreciated over the life of the asset. The liability increases due
to the passage of time based on the time value of money until the obligation is settled. Subsequent to the initial recognition, the liability is adjusted for any revisions to the expected value of the retirement obligation (with corresponding
adjustments to property, plant, and equipment), and for accretion of the liability due to the passage of time. Additional depreciation expense is recorded prospectively for any increases to the carrying amount of the associated asset.

Asset retirement obligations at Duke Energy Ohio relate primarily to the retirement of gas mains, asbestos abatement at certain generating stations and closure and
post-closure activities of landfills. In accordance with SFAS No. 143, Duke Energy Ohio identified certain assets that have an indeterminate life, and thus the fair value of the retirement obligation is not reasonably estimable. These assets
included transmission pipelines. A liability for these asset retirement obligations will be recorded when a fair value is determinable.

The adoption
of SFAS No. 143 had no impact on the income of the regulated electric and gas operations, as the effects were offset by the establishment of regulatory assets and liabilities pursuant to SFAS No. 71.



46



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PART II

DUKE ENERGY OHIO, INC.

Notes To Consolidated Financial Statements(Continued)



In March 2005, the FASB issued FIN 47. As a result of the adoption of FIN 47 in 2005, net property, plant and equipment decreased by
approximately $7 million, regulatory liabilities decreased by approximately $27 million, and ARO liabilities increased by approximately $39 million. The adoption of FIN 47 had no impact on the income of the regulated electric operations, as the
effects were offset by the establishment of regulatory assets and liabilities pursuant to SFAS No. 71. For obligations related to other operations, a before tax cumulative effect adjustment of approximately $5 million was recorded in the fourth
quarter of 2005 as a reduction in earnings (see Note 1).

The pro forma effects of adopting FIN 47, including the impact on the balance sheet and net
income are not presented due to the immaterial impact.

The asset retirement obligation is adjusted each period for any liabilities incurred or
settled during the period, accretion expense and any revisions made to the estimated cash flows.



Reconciliation of Asset Retirement Obligation Liability (in millions)



|                                  |  |   |     |  
|--------------------------------- |  | - | --- | -
|Successor(a)                      |  |   |     |  
|Balance as of January 1, 2007     |  | $ | 41  |  
|Accretion expense                 |  |   | 2   |  
|Liabilities settled(b)            |  |   | (12 | )
|                                  |  |   |     |  
|Balance as of December 31, 2007   |  | $ | 31  |  
|                                  |  |   |     |  
|Balance as of April 1, 2006       |  | $ | 41  |  
|Accretion expense                 |  |   | 2   |  
|Revisions in estimated cash flows |  |   | (2  | )
|                                  |  |   |     |  
|Balance as of December 31, 2006   |  | $ | 41  |  
|                                  |  |   |     |  
|Predecessor(a)                    |  |   |     |  
|Balance as of January 1, 2006     |  | $ | 41  |  
|Accretion expense                 |  |   | 1   |  
|Revisions in estimated cash flows |  |   | (1  | )
|                                  |  |   |     |  
|Balance as of March 31, 2006      |  | $ | 41  |  
|                                  |  |   |     |  



|(a) | See Note 1 for additional information on Predecessor and Successor reporting.
|--- | -----------------------------------------------------------------------------

|(b) | Liabilities settled during 2007 were related to the retirement of gas mains.
|--- | ----------------------------------------------------------------------------



Upon adoption of SFAS No. 143, Duke Energy Ohios regulated electric and regulated natural gas operations classifies removal costs for property that does
not have an associated legal retirement obligation as a regulatory liability, in accordance with regulatory treatment under SFAS No. 71. Duke Energy Ohio does not accrue the estimated cost of removal when no legal obligation associated with
retirement or removal exists for any non-regulated assets (including Duke Energy Ohios generation assets). The total amount of removal costs included in Other Deferred Credits and Other Liabilities on the Consolidated Balance Sheets was $181
million and $158 million as of December 31, 2007 and 2006, respectively.



9. Risk
Management and Hedging Activities, Credit Risk, and Financial Instruments



Duke Energy Ohio is exposed to the impact of market fluctuations in the prices of electricity, coal, natural gas and other energy-related products marketed and purchased as a result of its ownership of its non-regulated generation
portfolio. Exposure to interest rate risk exists as a result of the issuance of variable and fixed rate debt. Duke Energy Ohio employs established policies and procedures to manage its risks associated with these market fluctuations using various
commodity and financial derivative instruments, including swaps, futures, forwards and options.



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##### Table of Contents

PART II

DUKE ENERGY OHIO, INC.

Notes To Consolidated Financial Statements(Continued)



Duke Energy Ohios Derivative Portfolio Carrying Value as of December 31, 2007



|                  |  |                 |     |   |                 |   |    |                 |  |                              |   |  |                    |    |   |  |   |     |  
|----------------- |  | --------------- | --- | - | --------------- | - | -- | --------------- |  | ---------------------------- | - |  | ------------------ | -- | - |  | - | --- | -
|Asset/(Liability) |  | Maturityin 2008 |     |   | Maturityin 2009 |   |    | Maturityin 2010 |  | Maturityin 2011andThereafter |   |  | TotalCarryingValue |   
|                  |  | (in millions)   |    
|Hedging           |  | $               | (12 | ) |                 | $ | (9 | )               |  | $                            |  |  | $                  | (2 | ) |  | $ | (23 | )
|Undesignated      |  |                 | 5   |   |                 |   | 2  |                 |  |                              |  |  |                    |   |   |  |   | 7   |  
|                  |  |                 |     |   |                 |   |    |                 |  |                              |   |  |                    |    |   |  |   |     |  
|Total             |  | $               | (7  | ) |                 | $ | (7 | )               |  | $                            |  |  | $                  | (2 | ) |  | $ | (16 | )
|                  |  |                 |     |   |                 |   |    |                 |  |                              |   |  |                    |    |   |  |   |     |  

The amounts in the table above represent the combination of amounts presented as assets and (liabilities) for
unrealized gains and losses on mark-to-market and hedging transactions on Duke Energy Ohios Consolidated Balance Sheets.

Transfer of Certain
Duke Energy Assets and Commodity Cash Flow Hedges. As part of the merger with Duke Energy on April 3, 2006, Duke Energy Ohio acquired certain generation assets from Duke Energy, representing approximately 3,600 MW of power generation and
those assets were added to Duke Energy Ohios non-regulated generation portfolio. All derivatives related to the Midwestern generation fleet are included in Duke Energy Ohios Consolidated Balance Sheets at December 31, 2007 and 2006.
Duke Energy Ohio also assumed approximately $63 million of pre-tax deferred losses ($39 million, net of tax) associated with contracts formerly designated as cash flow hedges of forecasted power sales and gas purchases from Duke Energys
Midwestern generation fleet. These contracts were sold by Duke Energy in 2005 and the deferred losses remain on the Consolidated Balance Sheet in AOCI until the related hedged transactions (gas purchases and power sales) occur. (See Note 1 and Note
2 for further details on the completed merger and Note 3 for details on the transfer of generation assets.) During 2007, Duke Energy Ohio entered into additional contracts to protect margins for a portion of future sales and generation revenues and
fuel expenses for the non-regulated portfolio. Duke Energy Ohio is hedging exposures to the price variability of these commodities for a maximum period of 2 years.

As of December 31, 2007, $26 million of pre-tax deferred net losses on derivative instruments related to commodity cash flow hedges were accumulated on the Consolidated Balance Sheet in AOCI, and are expected to be
recognized in earnings during the next twelve months. However, due to the volatility of the commodities markets, the corresponding value in AOCI will likely change prior to its reclassification into earnings.

Other Derivative Contracts.Trading. Duke Energy Ohio has been exposed to the impact of market fluctuations in the prices of natural gas, electricity
and other energy-related products marketed and purchased as a result of proprietary trading activities. In June 2006, Cinergy sold its commercial marketing and trading business, including certain of Duke Energy Ohios trading contracts, to
Fortis. The results of this trading activity have been reflected in (Loss) Income from Discontinued Operations, net of tax in the Consolidated Statements of Operations, including prior periods. In October 2006, the sale transaction was completed and
Duke Energy Ohio entered into a series of Total Return Swaps (TRS) with Fortis (see Note 13).

Undesignated. In addition, Duke Energy Ohio uses
derivative contracts to manage the market risk exposures that arise from commodity price risk associated with its future production from its non-regulated generation fleet. For those contracts serving as economic hedges to manage price risk
associated with the generation portfolio, Duke Energy Ohio is subject to earnings volatility associated with mark-to-market gains and losses from changes in the value of the derivative contracts.

Normal Purchases and Normal Sales Exception. Duke Energy Ohio has applied the normal purchases and normal sales scope exception, as provided in SFAS
No. 133 and interpreted by Derivatives Implementation Group Issue C15, Scope Exceptions: Normal Purchases and Normal Sales Exception for Option-Type Contracts and Forward Contracts in Electricity, and amended by SFAS
No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, to certain contracts involving the purchase and sale of electricity at fixed prices in future periods. These contracts, which relate
primarily to the delivery of electricity over the next 7 years, are not included in the table above.

Interest Rate (Fair Value or Cash Flow)
Hedges. Changes in interest rates expose Duke Energy Ohio to risk as a result of its issuance of variable and fixed rate debt. Duke Energy Ohio manages its interest rate exposure by limiting its variable-rate exposures to a percentage of total
capitalization and by monitoring the effects of market changes in interest rates. Duke Energy Ohio also enters into interest rate swaps to manage and mitigate interest rate risk exposure.



48



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##### Table of Contents

PART II

DUKE ENERGY OHIO, INC.

Notes To Consolidated Financial Statements(Continued)



Duke Energy Ohios recognized interest rate derivative ineffectiveness was not material to its consolidated results of
operations, cash flows or financial position for the year ended December 31, 2007, nine month period ended December 31, 2006 and the predecessor three months ended March 31, 2006 and the twelve months ended December 31, 2005. As
of December 31, 2007, $3 million of pre-tax deferred net losses on derivative instruments related to interest rate cash flow hedges were accumulated on the Consolidated Balance Sheets in a separate component of Common stockholders equity,
in AOCI, and are expected to be recognized in earnings during the next twelve months as the hedged transactions occur. However, due to the volatility of interest rates, the corresponding value in AOCI for unsettled positions will likely change prior
to its reclassification into earnings.

Credit Risk. Where exposed to credit risk, Duke Energy Ohio analyzes the counterparties financial
condition prior to entering into an agreement, establishes credit limits and monitors the appropriateness of those limits on an ongoing basis.

Duke
Energy Ohios industry has historically operated under negotiated credit lines for physical delivery contracts. Duke Energy Ohio may use master collateral agreements to mitigate certain credit exposures. The collateral agreements provide for a
counterparty to post cash or letters of credit to the exposed party for exposure in excess of an established threshold. The threshold amount represents an unsecured credit limit, determined in accordance with the corporate credit policy. Collateral
agreements also provide that the inability to post collateral is sufficient cause to terminate contracts and liquidate all positions.

Duke Energy
Ohio also obtains cash or letters of credit from customers to provide credit support outside of collateral agreements, where appropriate, based on its financial analysis of the customer and the regulatory or contractual terms and conditions
applicable to each transaction.

Financial Instruments. The fair value of financial instruments, excluding derivatives included elsewhere in
this Note, is summarized in the following table. Judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates determined as of December 31, 2007 and 2006, are not necessarily indicative of
the amounts Duke Energy Ohio could have realized in current markets.



Financial
Instruments



|                  |  |                    |       |                       |   |           |  |                       |       |  |   |      
|----------------- |  | ------------------ | ----- | --------------------- | - | --------- |  | --------------------- | ----- |  | - | -----
|                  |  | Successor(a)      
|                  |  | As of December 31,
|                  |  | 2007               |       | 2006                 
|                  |  | BookValue          |       | ApproximateFair Value |   | BookValue |  | ApproximateFair Value
|                  |  | (in millions)     
|Long-term debt(b) |  | $                  | 1,936 |                       | $ | 1,914     |  | $                     | 1,881 |  | $ | 1,872



|(a) | See Note 1 to the Consolidated Financial Statements for additional information on Predecessor and Successor reporting.
|--- | ----------------------------------------------------------------------------------------------------------------------

|(b) | Includes current maturities.
|--- | ----------------------------

The fair value of cash and cash equivalents,
accounts receivable, restricted funds held in trust, accounts payable and notes payable are not materially different from their carrying amounts because of the short-term nature of these instruments and/or because the stated rates approximate market
rates.



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##### Table of Contents

PART II

DUKE ENERGY OHIO, INC.

Notes To Consolidated Financial Statements(Continued)



10. Goodwill and Intangibles

Duke Energy
Ohio evaluates the impairment of goodwill under the guidance of SFAS No. 142. There were no goodwill impairment charges in 2007, 2006 or 2005 as a result of the annual impairment tests required by SFAS No. 142. As discussed further in Note
2, in April 2006, Duke Energy and Cinergy consummated their merger, which resulted in Duke Energy Ohio recording goodwill of approximately $2.3 billion. Duke Energy Ohio had no goodwill prior to this date. The following table shows the components of
goodwill at December 31, 2007:



Carrying Amount of Goodwill



|                            |  |                            |       |         |   |     |                            |  |   |      
|--------------------------- |  | -------------------------- | ----- | ------- | - | --- | -------------------------- |  | - | -----
|                            |  | Successor(a)              
|                            |  | Balance atDecember 31,2006 |       | Changes |   |     | Balance atDecember 31,2007
|                            |  | (in millions)             
|Commercial Power            |  | $                          | 1,200 |         | $ | (12 | )                          |  | $ | 1,188
|Franchised Electric and Gas |  |                            | 1,148 |         |   | (11 | )                          |  |   | 1,137
|                            |  |                            |       |         |   |     |                            |  |   |      
|Total Goodwill              |  | $                          | 2,348 |         | $ | (23 | )                          |  | $ | 2,325
|                            | 
|                            |  | Successor(a)              
|                            |  | Balance atApril 1,2006     |       | Changes |   |     | Balance atDecember 31,2006
|                            |  | (in millions)             
|Commercial Power            |  | $                          | 1,111 |         | $ | 89  |                            |  | $ | 1,200
|Franchised Electric and Gas |  |                            | 1,062 |         |   | 86  |                            |  |   | 1,148
|                            |  |                            |       |         |   |     |                            |  |   |      
|Total Goodwill              |  | $                          | 2,173 |         | $ | 175 | (b)                        |  | $ | 2,348



|(a) | See Note 1 for additional information on Successor reporting.
|--- | -------------------------------------------------------------

|(b) | The approximate $175 million increase in goodwill resulting from the merger between Duke Energy and Cinergy reflects efforts to finalize valuations and related allocations of goodwill.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Intangible Assets



The carrying amount and accumulated amortization of intangible assets as of
December 31, 2007 and December 31, 2006 are as follows:



|                                                        |  |                  |     |   |                  |   |     |  
|------------------------------------------------------- |  | ---------------- | --- | - | ---------------- | - | --- | -
|                                                        |  | Successor(a)     |    
|                                                        |  | December 31,2007 |     |   | December 31,2006 |  
|                                                        |  | (in millions)    |    
|Emission allowances                                     |  | $                | 365 |   |                  | $ | 495 |  
|Gas, coal, and power contracts                          |  |                  | 271 |   |                  |   | 271 |  
|Other                                                   |  |                  | 9   |   |                  |   | 9   |  
|                                                        |  |                  |     |   |                  |   |     |  
|Total gross carrying amount                             |  |                  | 645 |   |                  |   | 775 |  
|                                                        |  |                  |     |   |                  |   |     |  
|Accumulated amortizationgas, coal, and power contracts |  |                  | (89 | ) |                  |   | (40 | )
|Accumulated amortizationother                          |  |                  | (5  | ) |                  |   | (3  | )
|                                                        |  |                  |     |   |                  |   |     |  
|Total accumulated amortization                          |  |                  | (94 | ) |                  |   | (43 | )
|                                                        |  |                  |     |   |                  |   |     |  
|Total intangible assets, net                            |  | $                | 551 |   |                  | $ | 732 |  
|                                                        |  |                  |     |   |                  |   |     |  



|(a) | See Note 1 for additional information on Predecessor and Successor reporting.
|--- | -----------------------------------------------------------------------------



50



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##### Table of Contents

PART II

DUKE ENERGY OHIO, INC.

Notes To Consolidated Financial Statements(Continued)



Carrying values of emission allowances sold or consumed were as follows:



|                                      |  |                                     |  |                                   |  |                                      
|------------------------------------- |  | ----------------------------------- |  | --------------------------------- |  | -------------------------------------
|Successor(a)                          |  | Predecessor(a)                     
|Twelve Months Ended December 31, 2007 |  | Nine Months Ended December 31, 2006 |  | Three Months Ended March 31, 2006 |  | Twelve Months Ended December 31, 2005
|(in millions)                        
|$154                                  |  | $267                                |  | $36                               |  | $227                                 



|(a) | See Note 1 for additional information on Predecessor and Successor reporting.
|--- | -----------------------------------------------------------------------------



Amortization expense for gas, coal and power contracts and other intangible assets recorded for Duke Energy Ohio was as follows:



|                                      |  |                                    |    |                                  |   |                                      |  |   |  
|------------------------------------- |  | ---------------------------------- | -- | -------------------------------- | - | ------------------------------------ |  | - | -
|Successor(a)                          |  | Predecessor(a)                    
|Twelve Months Ended December 31, 2007 |  | Nine Months EndedDecember 31, 2006 |    | Three Months EndedMarch 31, 2006 |   | Twelve Months EndedDecember 31, 2005
|(in millions)                        
|$51                                   |  | $                                  | 43 |                                  | $ | 1                                    |  | $ | 3



|(a) | See Note 1 for additional information on Predecessor and Successor reporting.
|--- | -----------------------------------------------------------------------------

The table below shows the expected amortization expense for the next five years for intangible assets as of December 31, 2007. The expected amortization expense includes estimates of emission allowances consumption and estimates of
consumption of commodities such as gas and coal under existing contracts. The amortization amounts discussed below are estimates. Actual amounts may differ from these estimates due to such factors as changes in consumption patterns, sales or
impairments of emission allowances or other intangible assets, additional intangible acquisitions and other events.



|                              |  |               |     |      |   |      |  |      |    |      |   |    |  |   |   
|----------------------------- |  | ------------- | --- | ---- | - | ---- |  | ---- | -- | ---- | - | -- |  | - | --
|                              |  | 2008          |     | 2009 |   | 2010 |  | 2011 |    | 2012
|                              |  | (in millions)
|Expected amortization expense |  | $             | 122 |      | $ | 75   |  | $    | 32 |      | $ | 39 |  | $ | 36



Intangible Liabilities

In connection with the Duke Energy and Cinergy merger, Duke Energy Ohio recorded an intangible liability amounting to approximately $113 million associated with the
MBSSO in Ohio that will be recognized in earnings through December 31, 2008. The carrying amount of this intangible liability was approximately $67 million and $95 million at December 31, 2007 and 2006, respectively. The remaining $67
million will be amortized to income in 2008. Duke Energy Ohio also recorded approximately $56 million of intangible liabilities associated with other power sale contracts. The carrying amount of these intangible liabilities was approximately $22
million and $39 million at December 31, 2007 and 2006, respectively. This balance will be amortized to income as follows: approximately $6 million in each of the years 2008 through 2010, and approximately $4 million in 2011.



11. Related Party Transactions

Duke Energy Ohio engages in related party transactions. These transactions are generally performed at cost and in accordance with the applicable state and federal
commission regulations. Balances due to or due from related parties included in the Consolidated Balance Sheets as of December 31, 2007 and December 31, 2006 are as follows:



|                                |  |                  |        |   |                  |   |        |  
|------------------------------- |  | ---------------- | ------ | - | ---------------- | - | ------ | -
|                                |  | Successor(a)(b)  |       
|                                |  | December 31,2007 |        |   | December 31,2006 |  
|                                |  | (in millions)    |       
|Current assets(c)               |  | $                | 58     |   |                  | $ | 51     |  
|Non-current assets(d)           |  | $                |       |   |                  | $ | 1      |  
|Current liabilities(e)          |  | $                | (266   | ) |                  | $ | (196   | )
|Net deferred tax liabilities(f) |  | $                | (1,401 | ) |                  | $ | (1,417 | )



|(a) | See Note 1 for additional information on Predecessor and Successor reporting.
|--- | -----------------------------------------------------------------------------

|(b) | Balances exclude assets or liabilities associated with accrued pension and other postretirement benefits, Cinergy Receivables and money pool arrangements as discussed below.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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PART II

DUKE ENERGY OHIO, INC.

Notes To Consolidated Financial Statements(Continued)



|(c) | The balance at December 31, 2007 and 2006 is classified as Receivables on the Consolidated Balance Sheets.
|--- | ----------------------------------------------------------------------------------------------------------

|(d) | The balance at December 31, 2006 is classified as Other non-current assets on the Consolidated Balance Sheets.
|--- | --------------------------------------------------------------------------------------------------------------

|(e) | Of the balance at December 31, 2007, approximately ($256) million is classified as Accounts payable and ($10) million is classified as Taxes accrued on the Consolidated Balance Sheets.
Of the balance at December 31, 2006, approximately ($95) million is classified as Accounts payable and ($101) million is classified as Taxes accrued on the Consolidated Balance Sheets.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(f) | Of the balance at December 31, 2007, approximately ($1,409) million is classified as Deferred income taxes, ($16) million is classified as Investment tax credit and $24 million is
classified as Other current assets on the Consolidated Balance Sheets. Of the balance at December 31, 2006, approximately ($1,417) million is classified as Deferred income taxes, ($19) million is classified as Investment tax credit and $19
million is classified as Other current assets on the Consolidated Balance Sheets.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Duke Energy Ohio is allocated its proportionate share
of corporate governance and other costs by a consolidated affiliate of Duke Energy. Duke Energy Ohio is also allocated its proportionate share of other corporate governance costs from a consolidated affiliate of Cinergy. Corporate governance and
other shared services costs are primarily allocations of corporate costs, such as human resources, legal and accounting fees, as well as other third party costs.

The expenses associated with certain allocated corporate governance and other service costs for Duke Energy Ohio, which are recorded in Operation, Maintenance and Other within Operating Expenses on the Consolidated Statements
of Operations were as follows:



|                                                  |  |                                     |     |                                   |   |                                 |  |                                     |     |  |   |    
|------------------------------------------------- |  | ----------------------------------- | --- | --------------------------------- | - | ------------------------------- |  | ----------------------------------- | --- |  | - | ---
|                                                  |  | Successor(a)                        |     | Predecessor(a)                   
|                                                  |  | Twelve Months EndedDecember 31,2007 |     | Nine Months EndedDecember 31,2006 |   | Three Months EndedMarch 31,2006 |  | Twelve Months EndedDecember 31,2005
|                                                  |  | (in millions)                      
|Corporate governance and shared services expenses |  | $                                   | 249 |                                   | $ | 290                             |  | $                                   | 112 |  | $ | 370



|(a) | See Note 1 for additional information on Predecessor and Successor reporting.
|--- | -----------------------------------------------------------------------------

See Note 18 for detail on expense amounts allocated from Cinergy to Duke Energy Ohio related to Duke Energy Ohios participation in Cinergys qualified and non-qualified defined benefit pension plans and postretirement health care
and insurance benefits. Additionally, Duke Energy Ohio has been allocated accrued pension and other postretirement benefit obligations from Cinergy of approximately $266 million at December 31, 2007 and approximately $393 million at
December 31, 2006. The above amounts have been classified in the Consolidated Balance Sheets as follows:



|                                                       |  |                  |     |                  |   |    
|------------------------------------------------------ |  | ---------------- | --- | ---------------- | - | ---
|                                                       |  | Successor(a)    
|                                                       |  | December 31,2007 |     | December 31,2006
|                                                       |  | (in millions)   
|Other current liabilities                              |  | $                | 5   |                  | $ | 9  
|Accrued pension and other postretirement benefit costs |  | $                | 259 |                  | $ | 381
|Other deferred credits and other liabilities           |  | $                | 2   |                  | $ | 3  



|(a) | See Note 1 for additional information on Predecessor and Successor reporting.
|--- | -----------------------------------------------------------------------------

Additionally, certain trade receivables have been sold by Duke Energy Ohio to Cinergy Receivables, an unconsolidated entity formed by Cinergy. The proceeds obtained from the sales of receivables are largely cash but do include a
subordinated note from Cinergy Receivables for a portion of the purchase price. This subordinated note is classified by Duke Energy Ohio as Receivables in the Consolidated Balance Sheets and was approximately $189 million and $133 million as of
December 31, 2007 and December 31, 2006, respectively.

During the second quarter of 2007 Duke Energy Ohio received a $29 million capital
contribution from its parent, Cinergy.

See Note 3 for a discussion of amounts paid to Duke Energy Ohio as a result of the agreement between Duke
Energy and Duke Energy Ohio related to Duke Energys contribution of its ownership interests in five plants to Duke Energy Ohio. See Note 16 for a discussion of dividends Duke Energy Ohio paid to its parent, Cinergy.

Duke Energy Ohio participates in a money pool with Duke Energy and other Duke Energy subsidiaries. As of December 31, 2007 and December 31, 2006, Duke
Energy Ohio was in a payable position of $189 million and $274 million, respectively, classified within Notes payable in the accompanying Consolidated Balance Sheets. The expenses associated with money pool activity for Duke Energy Ohio, which are
recorded in Interest Expense on the Consolidated Statements of Operations for the twelve months ended December 31, 2007, nine months ended December 31, 2006, three months ended March 31, 2006 and twelve months ended December 31,
2005 were $11 million, $6 million, $2 million and $6 million, respectively. See Note 15 for further discussion of the money pool arrangement.



52



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##### Table of Contents

PART II

DUKE ENERGY OHIO, INC.

Notes To Consolidated Financial Statements(Continued)



12. Sales of Accounts Receivable

Accounts Receivable Securitization. Duke Energy Ohio sells certain of its accounts receivable and related collections through Cinergy Receivables a bankruptcy remote, special purpose entity. Cinergy Receivables is a wholly-owned
non-consolidated limited liability company of Cinergy. As a result of the securitization, Duke Energy Ohio sells, on a revolving basis, its retail accounts receivable, including estimated unbilled revenues, and related collections. The
securitization transaction was structured to meet the criteria for sale treatment under SFAS No. 140.

The proceeds obtained from the sales of
receivables are largely cash but do include a subordinated note from Cinergy Receivables for a portion of the purchase price (typically approximates 25 percent of the total proceeds). The note, which amounts to approximately $189 million and $133
million at December 31, 2007 and 2006, respectively, is subordinate to senior loans that Cinergy Receivables obtain from commercial paper conduits controlled by unrelated financial institutions which is the source of funding for the
subordinated note. This subordinated note is a retained interest (right to receive a specified portion of cash flows from the sold assets) under SFAS No. 140 and is classified within Receivables in the accompanying Consolidated Balance Sheets
at December 31, 2007 and 2006.

The carrying values of the retained interests are determined by allocating the carrying value of the receivables
between the assets sold and the interests retained based on relative fair value. The key assumptions in estimating fair value are the anticipated credit losses, the selection of discount rates, and expected receivables turnover rate. Because
(a) the receivables generally turnover in less than two months, (b) credit losses are reasonably predictable due to Duke Energy Ohios broad customer base and lack of significant concentration, and (c) the purchased beneficial
interest is subordinate to all retained interests and thus would absorb losses first, the allocated bases of the subordinated notes are not materially different than their face value. Interest accrues to Duke Energy Ohio on the retained interests
using the accretable yield method, which generally approximates the stated rate on the notes since the allocated basis and the face value are nearly equivalent. An impairment charge is recorded against the carrying value of both the retained
interests and purchased beneficial interest whenever it is determined that an other-than-temporary impairment has occurred (which is unlikely unless credit losses on the receivables far exceed the anticipated level).

The key assumptions used in estimating the fair value are as follows:



|                                     |  |                         |   |  |      |   |  |      |  
|------------------------------------ |  | ----------------------- | - |  | ---- | - |  | ---- | -
|                                     |  | Years EndedDecember 31, |  
|                                     |  | 2007                    |   |  | 2006 |   |  | 2005 |  
|Anticipated credit loss rate         |  | 0.7                     | % |  | 0.8  | % |  | 0.8  | %
|Discount rate on expected cash flows |  | 7.7                     | % |  | 7.4  | % |  | 5.7  | %
|Receivables turnover rate            |  | 12.4                    | % |  | 12.7 | % |  | 13.0 | %

The hypothetical effect on the fair value of the retained interests assuming both a 10% and a 20% unfavorable
variation in credit losses or discount rates is not material due to the short turnover of receivables and historically low credit loss history.

Duke
Energy Ohio retains servicing responsibilities for its role as a collection agent on the amounts due on the sold receivables. However, Cinergy Receivables assumes the risk of collection on the purchased receivables without recourse to Duke Energy
Ohio in the event of a loss. While no direct recourse to Duke Energy Ohio exists, it risks loss in the event collections are not sufficient to allow for full recovery of its retained interests. No servicing asset or liability is recorded since the
servicing fee paid to Duke Energy Ohio approximates a market rate.



53



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##### Table of Contents

PART II

DUKE ENERGY OHIO, INC.

Notes To Consolidated Financial Statements(Continued)



The following table shows the gross and net receivables sold, retained interests, sales, and cash flows during the periods ending:



|                                       |  |                                    |       |                                  |   |                                |  |                                    |     |  |   |      
|-------------------------------------- |  | ---------------------------------- | ----- | -------------------------------- | - | ------------------------------ |  | ---------------------------------- | --- |  | - | -----
|                                       |  | Successor(a)                       |       | Predecessor(a)                  
|                                       |  | Twelve MonthsEndedDecember 31,2007 |       | Nine MonthsEndedDecember 31,2006 |   | Three MonthsEndedMarch 31,2006 |  | Twelve MonthsEndedDecember 31,2005
|                                       |  | (in millions)                     
|Receivables sold as of period end      |  | $                                  | 437   |                                  | $ | 370                            |  |                                    |     |  |   |      
|Less: Retained interests               |  |                                    | 189   |                                  |   | 133                            |  |                                    |     |  |   |      
|                                       |  |                                    |       |                                  |   |                                |  |                                    |     |  |   |      
|Net receivables sold as of period end  |  | $                                  | 248   |                                  | $ | 237                            |  |                                    |     |  |   |      
|Sales during period                    |  |                                    |       |                                  |   |                                |  |                                    |     |  |   |      
|Receivables sold                       |  | $                                  | 3,189 |                                  | $ | 1,982                          |  | $                                  | 869 |  | $ | 2,636
|Loss recognized on sale                |  |                                    | 46    |                                  |   | 29                             |  |                                    | 12  |  |   | 35   
|Cash flows during period               |  |                                    |       |                                  |   |                                |  |                                    |     |  |   |      
|Cash proceeds from sold receivables(b) |  | $                                  | 3,086 |                                  | $ | 1,935                          |  | $                                  | 919 |  | $ | 2,546
|Collection fees received               |  |                                    | 3     |                                  |   | 2                              |  |                                    |    |  |   | 2    
|Return received on retained interests  |  |                                    | 25    |                                  |   | 13                             |  |                                    | 8   |  |   | 14   



|(a) | See Note 1 for additional information on Predecessor and Successor reporting.
|--- | -----------------------------------------------------------------------------

|(b) | Cash flows from the sale of receivables are reflected within Operating Activities on the Consolidated Statements of Cash Flows.
|--- | -------------------------------------------------------------------------------------------------------------------------------



13. Discontinued Operations and Assets Held for Sale

In June 2006, Cinergy agreed to sell its commercial marketing and trading businesses, including certain of Duke Energy Ohios trading contracts, to Fortis, a
Benelux-based financial services group. In October 2006, the sale was completed. Results of operations for these trading contracts have been reflected in (Loss) Income from Discontinued Operations, net of tax in the accompanying Consolidated
Statements of Operations. In October 2006, in connection with this transaction, Duke Energy Ohio entered into a series of TRS with Fortis, which were accounted for as mark to market derivatives. The TRS offset the net fair value of the contracts
sold to Fortis. The TRS was cancelled for each underlying contract as each was transferred to Fortis. All economic and credit risk associated with the contracts was transferred to Fortis as of the date of the sale through the TRS. As of
December 31, 2007, all of the contracts have been novated by Fortis.

The following table summarizes the results classified as (Loss) Income from
Discontinued Operations, net of tax, in the accompanying Consolidated Statements of Operations. There was no discontinued operations activity in 2007.



|                                                             |  |                                  |    |   |                                |   |    |                                    |  |   |    
|------------------------------------------------------------ |  | -------------------------------- | -- | - | ------------------------------ | - | -- | ---------------------------------- |  | - | ---
|                                                             |  | Successor(a)                     |    |   | Predecessor(a)                
|                                                             |  | Nine MonthsEndedDecember 31,2006 |    |   | Three MonthsEndedMarch 31,2006 |   |    | Twelve MonthsEndedDecember 31,2005
|                                                             |  | (in millions)                   
|Revenues                                                     |  | $                                | 5  |   |                                | $ | 9  |                                    |  | $ | 119
|Operating Income (Loss)                                      |  |                                  |    |   |                                |   |    |                                    |  |   |    
|Income (Loss) Before Taxes                                   |  |                                  | (6 | ) |                                |   | (3 | )                                  |  |   | 73 
|Income Tax Expense (Benefit)                                 |  |                                  | (2 | ) |                                |   | (1 | )                                  |  |   | 27 
|                                                             |  |                                  |    |   |                                |   |    |                                    |  |   |    
|(Loss) Income from Discontinued Operations, net of tax       |  | $                                | (4 | ) |                                | $ | (2 | )                                  |  | $ | 46 
|Net Loss on Dispositions                                     |  |                                  |    |   |                                |   |    |                                    |  |   |    
|Pre-tax loss on dispositions                                 |  | $                                | (3 | ) |                                | $ |   |                                    |  | $ |   
|Income tax benefit                                           |  |                                  | (1 | ) |                                |   |   |                                    |  |   |   
|                                                             |  |                                  |    |   |                                |   |    |                                    |  |   |    
|Loss on dispositions, net of tax                             |  | $                                | (2 | ) |                                | $ |   |                                    |  | $ |   
|                                                             |  |                                  |    |   |                                |   |    |                                    |  |   |    
|Total (Loss) Income from Discontinued Operations, net of tax |  | $                                | (6 | ) |                                | $ | (2 | )                                  |  | $ | 46 
|                                                             |  |                                  |    |   |                                |   |    |                                    |  |   |    



|(a) | See Note 1 for additional information on Predecessor and Successor reporting.
|--- | -----------------------------------------------------------------------------



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PART II

DUKE ENERGY OHIO, INC.

Notes To Consolidated Financial Statements(Continued)



The following table presents the carrying values of the major classes of assets and associated liabilities held for sale in the
accompanying Consolidated Balance Sheets as of December 31, 2006. There were no assets held for sale or liabilities associated with assets held for sale at December 31, 2007.



|                                                       |  |                              |   
|------------------------------------------------------ |  | ---------------------------- | --
|                                                       |  | Successor(a)December 31,2006
|                                                       |  | (in millions)               
|Assets Held for Sale                                   |  |                              |   
|Current assets                                         |  | $                            | 25
|Other assets                                           |  |                              | 18
|                                                       |  |                              |   
|Total Assets Held for Sale                             |  | $                            | 43
|                                                       |  |                              |   
|Liabilities Associated with Assets Held for Sale       |  |                              |   
|Current liabilities                                    |  | $                            | 25
|Other                                                  |  |                              | 18
|                                                       |  |                              |   
|Total Liabilities Associated with Assets Held for Sale |  | $                            | 43
|                                                       |  |                              |   



|(a) | See Note 1 for additional information on Predecessor and Successor reporting.
|--- | -----------------------------------------------------------------------------



14. Property, Plant and Equipment



|                                                      |  |                      |  |               |                  |   |  |   |        |  
|----------------------------------------------------- |  | -------------------- |  | ------------- | ---------------- | - |  | - | ------ | -
|                                                      |  | EstimatedUseful Life |  | Successor(a)  |                 
|                                                      |  | December 31,2007     |  |               | December 31,2006 |  
|                                                      |  | (Years)              |  | (in millions) |                 
|Land                                                  |  |                     |  | $             | 129              |   |  | $ | 127    |  
|PlantRegulated                                       |  |                      |  |               |                  |   |  |   |        |  
|Electric generation, distribution and transmission(b) |  | 8  100              |  |               | 3,197            |   |  |   | 3,068  |  
|Natural gas transmission and distribution(b)          |  | 12  60              |  |               | 1,436            |   |  |   | 1,339  |  
|Other buildings and improvements(b)                   |  | 25  100             |  |               | 129              |   |  |   | 122    |  
|PlantUnregulated                                     |  |                      |  |               |                  |   |  |   |        |  
|Electric generation, distribution and transmission    |  | 8  100              |  |               | 3,813            |   |  |   | 3,547  |  
|Other buildings and improvements                      |  | 30                   |  |               | 25               |   |  |   | 25     |  
|Equipment                                             |  | 5  25               |  |               | 64               |   |  |   | 59     |  
|Construction in process                               |  |                     |  |               | 594              |   |  |   | 576    |  
|Other                                                 |  | 5  20               |  |               | 190              |   |  |   | 186    |  
|                                                      |  |                      |  |               |                  |   |  |   |        |  
|Total property, plant and equipment                   |  |                      |  |               | 9,577            |   |  |   | 9,049  |  
|Total accumulated depreciationregulated(c)           |  |                      |  |               | (1,640           | ) |  |   | (1,569 | )
|Total accumulated depreciationunregulated            |  |                      |  |               | (457             | ) |  |   | (345   | )
|                                                      |  |                      |  |               |                  |   |  |   |        |  
|Total net property, plant and equipment               |  |                      |  | $             | 7,480            |   |  | $ | 7,135  |  
|                                                      |  |                      |  |               |                  |   |  |   |        |  



|(a) | See Note 1 for additional information on Predecessor and Successor reporting.
|--- | -----------------------------------------------------------------------------

|(b) | Includes capitalized leases of approximately $88 million for 2007 and $74 million for 2006.
|--- | -------------------------------------------------------------------------------------------

|(c) | Includes accumulated amortization of capitalized leases: $10 million for 2007 and $8 million for 2006.
|--- | ------------------------------------------------------------------------------------------------------

Capitalized interest, which includes the interest expense component of AFUDC, amounted to $30 million for the year ended December 31, 2007, $14 million for the
nine months ended December 31, 2006, $3 million for the three months ended March 31, 2006, and $7 million for the year ended December 31, 2005.



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##### Table of Contents

PART II

DUKE ENERGY OHIO, INC.

Notes To Consolidated Financial Statements(Continued)



15. Debt and Credit Facilities

Summary of Debt and
Related Terms



|                                           |  |                      |                  |  |             |                  |               |       |   |  |   |       |  
|------------------------------------------ |  | -------------------- | ---------------- |  | ----------- | ---------------- | ------------- | ----- | - |  | - | ----- | -
|                                           |  | Weighted-AverageRate |                  |  | Year Due    |                  | Successor(a)  |      
|                                           |  |                      | December 31,2007 |  |             | December 31,2006 |              
|                                           |  |                      |                  |  |             |                  | (in millions) |      
|Unsecured debt                             |  | 5.8                  | %                |  | 2008  2036 |                  | $             | 1,345 |   |  | $ | 1,445 |  
|Capital leases                             |  | 5.2                  | %                |  | 2008  2020 |                  |               | 59    |   |  |   | 54    |  
|Other debt(b)                              |  | 4.5                  | %                |  | 2011  2041 |                  |               | 572   |   |  |   | 424   |  
|Money Pool                                 |  | 5.4                  | %                |  |             |                  |               | 189   |   |  |   | 274   |  
|Unamortized debt discount and premium, net |  |                      |                  |  |             |                  |               | (40   | ) |  |   | (42   | )
|                                           |  |                      |                  |  |             |                  |               |       |   |  |   |       |  
|Total debt                                 |  |                      |                  |  |             |                  |               | 2,125 |   |  |   | 2,155 |  
|Current maturities of long-term debt       |  |                      |                  |  |             |                  |               | (126  | ) |  |   | (105  | )
|Short-term notes payable                   |  |                      |                  |  |             |                  |               | (189  | ) |  |   | (274  | )
|                                           |  |                      |                  |  |             |                  |               |       |   |  |   |       |  
|Total long-term debt                       |  |                      |                  |  |             |                  | $             | 1,810 |   |  | $ | 1,776 |  
|                                           |  |                      |                  |  |             |                  |               |       |   |  |   |       |  



|(a) | See Note 1 for additional information on Predecessor and Successor reporting.
|--- | -----------------------------------------------------------------------------

|(b) | Includes $538 million and $398 million, respectively, of Duke Energy Ohio pollution control bonds as of December 31, 2007 and 2006, respectively. As of December 31, 2007 and 2006,
$84 million and $131 million, respectively, was secured by first and refunding mortgage bonds and $12 million was secured by a letter of credit.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Unsecured Debt.As of December 31, 2007 and 2006, approximately $96 million of certain pollution control bonds, which are short-term obligations by nature, were classified as Long-Term Debt on the Consolidated Balance Sheets due
to Duke Energy Ohios intent and ability to utilize such borrowings as long-term financing. Duke Energys credit facilities with non-cancelable terms in excess of one year as of the balance sheet date gives Duke Energy Ohio the ability to
refinance these short-term obligations on a long-term basis.

In December 2007, Duke Energy Ohio issued $140 million in tax-exempt floating-rate
bonds. The bonds are structured as insured auction rate securities, subject to an auction process every 35 days and bear a final maturity of 2041. The bonds were issued through the Ohio Air Quality Development Authority to fund a portion of the
environmental capital expenditures at the Conesville, Stuart and Killen Generation Stations in Ohio.

In August 2006, Duke Energy Kentucky issued
approximately $77 million principal amount of floating rate tax-exempt notes due August 1, 2027. Proceeds from the issuance were used to refund a like amount of debt on September 1, 2006 then outstanding at Duke Energy Ohio. Approximately
$27 million of floating rate debt was swapped to a fixed rate concurrent with closing.

Money Pool. Duke Energy Ohio receives support for its
short-term borrowing needs through its participation with Duke Energy and other Duke Energy subsidiaries in a money pool arrangement, which allows Duke Energy Ohio to better manage its cash and working capital requirements. Under this arrangement,
those companies with short-term funds may provide short-term loans to affiliates participating under this arrangement. Prior to the merger, Duke Energy Ohio participated in a similar money pool arrangement with Cinergy and other Cinergy
subsidiaries. As of December 31, 2007 and December 31, 2006, Duke Energy Ohio was in a payable position of $189 million and $274 million, respectively, classified within Notes payable in the accompanying Consolidated Balance Sheets. During
the year ended December 31, 2007, the $85 million change in the money pool is reflected as a cash outflow in Notes payable to affiliate, net within Net cash (used in) provided by financing activities on the Consolidated Statements of Cash
Flows. During the nine months ended December 31, 2006, the $52 million change in the money pool is reflected as a cash inflow in Notes payable to affiliate, net within Net cash (used in) provided by financing activities on the Consolidated
Statements of Cash Flows. During the three months ended March 31, 2006, the $108 million change in the money pool is reflected as a cash inflow in Notes payable to affiliate, net within Net cash (used in) provided by financing activities on the
Consolidated Statements of Cash Flows. During the year ended December 31, 2005, the $66 million change in the money pool is reflected as a cash outflow in Notes payable to affiliate, net within Net cash (used in) provided by financing
activities on the Consolidated Statements of Cash Flows.

Floating Rate Debt. Unsecured debt and other debt included approximately $538 million
and $451 million of floating-rate debt as of December 31, 2007 and 2006, respectively. Floating-rate debt is primarily based on commercial paper rates or a spread relative to an index such as a London Interbank Offered Rate (LIBOR) for debt
denominated in U.S. dollars. As of December 31, 2007 and 2006, the weighted-average interest rate associated with floating-rate debt was approximately 4.4 % and 4.2%, respectively.



56



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##### Table of Contents

PART II

DUKE ENERGY OHIO, INC.

Notes To Consolidated Financial Statements(Continued)



As of December 31, 2007 and mid-March 2008, Duke Energy Ohio had approximately $440 million of auction rate pollution control
bonds outstanding. While these debt instruments are long-term in nature and cannot be put back to Duke Energy Ohio prior to maturity, the interest rates on these instruments are designed to reset periodically through an auction process.
Beginning in February 2008, Duke Energy Ohio experienced failed auctions on a portion of these debt instruments. When failed auctions occur on a series of this debt, Duke Energy Ohio is required to pay the maximum auction rate as prescribed by the
bond document. The maximum auction rate for the auction rate debt is 1.75 times one-month LIBOR. Payment of the failed-auction interest rates will continue until Duke Energy Ohio is able to either successfully remarket these instruments through the
auction process or refund and refinance the existing debt through the issuance of an equivalent amount of tax exempt bonds. Duke Energy Ohio is currently pursuing a refunding and refinancing plan, which is subject to approval by applicable state or
county financing authorities and utility regulators. However, even if Duke Energy Ohio is unable to successfully refund and refinance these debt instruments, the impact of paying higher interest rates on the outstanding auction rate debt is not
expected to materially effect Duke Energy Ohios overall financial position, results of operations or cash flows. The weighted-average interest rate, associated with Duke Energy Ohios auction rate pollution control bonds, was 4.56% as of
December 31, 2007 and 5.37% as of March 6, 2008.



Maturities, Call Options
and Acceleration Clauses.

Annual Maturities as of December 31, 2007



|                                                    |  |               |      
|--------------------------------------------------- |  | ------------- | -----
|                                                    |  | (in millions)
|2008                                                |  | $             | 126  
|2009                                                |  |               | 27   
|2010                                                |  |               | 6    
|2011                                                |  |               | 31   
|2012                                                |  |               | 506  
|Thereafter                                          |  |               | 1,240
|                                                    |  |               |      
|Total long-term debt (including current maturities) |  | $             | 1,936
|                                                    |  |               |      

Duke Energy Ohio has the ability under certain debt facilities to call and repay the obligation prior to its
scheduled maturity. Therefore, the actual timing of future cash repayments could be materially different than the above as a result of Duke Energy Ohios ability to repay these obligations prior to their scheduled maturity.

Available Credit Facilities and Restrictive Debt Covenants.In June 2007, Duke Energy closed on the syndication of an amended and restated credit
facility, replacing the existing credit facilities totaling $2.65 billion with a 5-year, $2.65 billion master credit facility. Duke Energy Ohio (excluding Duke Energy Kentucky) has a borrowing sub limit of $500 million and Duke Energy Kentucky has a
borrowing sub limit of $100 million under the master credit facility. Concurrent with the syndication of the master credit facility, Duke Energy established a new $1.5 billion commercial paper program at Duke Energy and terminated Cinergys
previously existing commercial paper program.

In March 2008, Duke Energy increased its capacity under its master credit facility by $550 million. As
a result of this increase, the borrowing sub limit of Duke Energy Ohio increased by $250 million to $750 million. The borrowing sub limit of Duke Energy Kentucky did not change.

The issuance of commercial paper, letters of credit and other borrowings reduces the amount available under the credit facility.

Duke Energys credit agreement contains various financial and other covenants, including, but not limited to, a covenant regarding the debt-to-total
capitalization ratio at Duke Energy, Duke Energy Ohio and Duke Energy Kentucky to not exceed 65%. Duke Energy Ohios debt agreements also contain various financial and other covenants. Failure to meet these covenants beyond applicable grace
periods could result in accelerated due dates and/or termination of the agreements. As of December 31, 2007, Duke Energy and Duke Energy Ohio were in compliance with those covenants. In addition, some credit agreements may allow for
acceleration of payments or termination of the agreements due to nonpayment, or the acceleration of other significant indebtedness of the borrower or some of its subsidiaries. None of the debt or credit agreements contain material adverse change
clauses.

Other Assets Pledged as Collateral. As of December 31, 2007, substantially all of Franchised Electric and Gas
electric plants in service are mortgaged under the indenture relating to Duke Energy Ohio.



57



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##### Table of Contents

PART II

DUKE ENERGY OHIO, INC.

Notes To Consolidated Financial Statements(Continued)



Other Matters.In October 2007, Duke Energy filed a registration statement (Form S-3) with the SEC. Under this Form S-3,
which is uncapped, Duke Energy and certain subsidiaries, including Duke Energy Ohio, may issue debt in the future at amounts, prices and with terms to be determined at the time of future offerings.



16. Common and Preferred Stock

Common Stock. Cinergy owns all of the common stock of Duke Energy Ohio. In April 2006, Duke Energy acquired 100 percent of Cinergys outstanding stock
for 1.56 shares of Duke Energy common stock per outstanding share of Cinergy common stock. This conversion resulted in the issuance of approximately 313 million shares of Duke Energy common stock. See Note 2 for additional information.

In April 2006, Duke Energy Ohio filed a petition with the FERC for a declaratory ruling that its payment of dividends out of its paid-in capital
account, using the balance transferred from the retained earnings account, resulting from purchase accounting arising from the Duke Energy/Cinergy merger, would not violate section 305(a) of the Federal Power Act, which generally precludes the
payment of dividends out of paid-in capital. Such a ruling was necessary because purchase/push-down accounting reset retained earnings to zero as of April 3, 2006, thus potentially precluding Duke Energy Ohio from
using pre-merger retained earnings to pay dividends. Without this approval, Duke Energy Ohios ability to pay dividends would have been constrained to earnings since April 3, 2006. In May 2006, the FERC issued an
order approving Duke Energy Ohios petition.

During the year ended December 31, 2007, the three months ended March 31, 2006, and the
year ended December 31, 2005, Duke Energy Ohio paid dividends to its parent, Cinergy, of $135 million $102 million and $250 million, respectively.

Preferred Stock. In March 2006, Duke Energy Ohio redeemed all outstanding shares of its $16.98 million notional amount 4% Cumulative Preferred Stock and its $3.5 million notional amount 4.75% Cumulative Preferred Stock at a price of
$108 per share and $101 per share, respectively, plus accrued and unpaid dividends.



17. Commitments and Contingencies

General Insurance

Effective with the date of the merger between Duke Energy and Cinergy, Duke Energy Ohio carries, either directly or through Duke Energys captive insurance company, Bison Insurance Company Limited, insurance and reinsurance coverages
consistent with companies engaged in similar commercial operations with similar type properties. Duke Energy Ohios insurance coverage includes (1) commercial general public liability insurance for liabilities arising to third parties for
bodily injury and property damage resulting from Duke Energy Ohios operations; (2) workers compensation liability coverage to required statutory limits; (3) automobile liability insurance for all owned, non-owned and hired
vehicles covering liabilities to third parties for bodily injury and property damage; (4) insurance policies in support of the indemnification provisions of Duke Energy Ohios by-laws and (5) property insurance covering the
replacement value of all real and personal property damage, excluding electric transmission and distribution lines, including damages arising from boiler and machinery breakdowns, earthquake, flood damage and extra expense. All coverages are subject
to certain deductibles, terms and conditions common for companies with similar types of operations.

Duke Energy Ohio also maintains excess liability
insurance coverage above the established primary limits for commercial general liability and automobile liability insurance. Limits, terms, conditions and deductibles are comparable to those carried by other companies with similar types of
operations.

The cost of Duke Energy Ohios general insurance coverages continued to fluctuate over the past year reflecting the changing
conditions of the insurance markets.



Environmental

Duke Energy Ohio is subject to federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal and other environmental
matters. These regulations can be changed from time to time, imposing new obligations on Duke Energy Ohio.

Remediation activities.Duke Energy
Ohio and its affiliates are responsible for environmental remediation at various contaminated sites. These include some properties that are part of ongoing Duke Energy Ohio operations, sites formerly owned or used by Duke



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Energy Ohio entities, and sites owned by third parties. Remediation typically involves management of contaminated soils and may involve groundwater remediation.
Managed in conjunction with relevant federal, state and local agencies, activities vary with site conditions and locations, remedial requirements, complexity and sharing of responsibility. If remediation activities involve statutory joint and
several liability provisions, strict liability, or cost recovery or contribution actions, Duke Energy Ohio or its affiliates could potentially be held responsible for contamination caused by other parties. In some instances, Duke Energy Ohio may
share liability associated with contamination with other potentially responsible parties, and may also benefit from insurance policies or contractual indemnities that cover some or all cleanup costs. All of these sites generally are managed in the
normal course of business or affiliate operations. Duke Energy Ohio believes that completion or resolution of these matters will have no material adverse effect on its consolidated results of operations, cash flows or financial position.

Clean Water Act 316(b). The U.S. Environmental Protection Agency (EPA) finalized its cooling water intake structures rule in July 2004. The rule
established aquatic protection requirements for existing facilities that withdraw 50 million gallons or more of water per day from rivers, streams, lakes, reservoirs, estuaries, oceans, or other U.S. waters for cooling purposes. Three of six
coal-fired generating facilities in which Duke Energy Ohio is either a whole or partial owner are affected sources under that rule. On January 25, 2007, the U.S. Court of Appeals for the Second Circuit issued its opinion in Riverkeeper, Inc.
v. EPA, Nos. 04-6692-ag(L) et. al. (2d Cir. 2007) remanding most aspects of EPAs rule back to the agency. The court effectively disallowed those portions of the rule most favorable to industry, and the decision creates a great deal of
uncertainty regarding future requirements and their timing. Duke Energy Ohio is still unable to estimate costs to comply with the EPAs rule, although it is expected that costs will increase as a result of the courts decision. The
magnitude of any such increase cannot be estimated at this time.

Clean Air Mercury Rule
(CAMR) and Clean Air Interstate Rule (CAIR). The EPA finalized its CAMR and CAIR in May 2005. The CAMR was to have limited total annual mercury emissions from coal-fired power plants across the United States through a two-phased cap-and-trade
program beginning in 2010. The CAIR limits total annual and summertime nitrogen oxides (NOx) emissions and annual sulfur dioxide (SO2) emissions from electric generating facilities across the Eastern United States through a
two-phased cap-and-trade program. Phase 1 begins in 2009 for NOx and in 2010 for SO2. Phase 2 begins in 2015 for both NOx and SO2.

Duke Energy Ohio currently estimates that it will spend approximately $150 million between 2008 and 2012 to comply with Phase 1 of CAIR at plants that Duke Energy
Ohio owns or partially owns but does not operate. Duke Energy Ohio currently estimates that it will not incur any significant costs for complying with Phase 2 of CAIR. Duke Energy Ohio receives partial recovery of depreciation and financing costs
related to environmental compliance projects for 2005-2008 through its RSP (see Note 5).

On February 8, 2008 the U.S. Court of Appeals for the
District of Columbia issued its opinion in New Jersey v. EPA, No. 05-1097 vacating the CAMR. The decision creates uncertainty regarding future mercury emission reduction requirements and their timing. Barring reversal of the decision if
appealed, there will be a delay in the implementation of federal mercury requirements for existing coal-fired power plants while EPA conducts a new rulemaking. Duke Energy Ohio is unable to estimate the costs to comply with a new EPA rule, although
it is expected that costs will increase as a result of the courts decision. The magnitude of any such increase cannot be estimated at this time.

Manufactured Gas Plant (MGP) Sites. Duke Energy Ohio has performed site assessments on certain of its sites where MGP activities are believed to have occurred at some point in the past and have found no imminent risk to the
environment. At this time, Duke Energy Ohio cannot predict whether investigation and/or remediation will be required in the future at any of these sites.

Coal Combustion Product (CCP) Management. Duke Energy Ohio currently estimates that it will spend approximately $75 million over the period 2008-2012 to install synthetic caps and liners at existing and new CCP landfills and to
convert CCP handling systems from wet to dry systems.

Extended Environmental Activities and Accruals. Included in Other Deferred
Credits and Other Liabilities on the Consolidated Balance Sheets were total accruals related to extended environmental-related activities of approximately $8 million for each year ending December 31, 2007 and 2006, respectively. These accruals
represent Duke Energy Ohios provisions for costs associated with remediation activities at some of its current and former sites, as well as other relevant environmental contingent liabilities. Duke Energy Ohio believes that completion or
resolution of these matters will have no material impact on its consolidated results of operations, cash flows or financial position.



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Litigation

New Source Review (NSR). In 1999-2000, the U.S. Justice Department, acting on behalf of the EPA, filed a number of complaints and notices of violation against multiple utilities across the country for alleged violations
of the NSR provisions of the Clean Air Act (CAA). Generally, the government alleges that projects performed at various coal-fired units were major modifications, as defined in the CAA, and that the utilities violated the CAA when they undertook
those projects without obtaining permits and installing the best available emission controls for SO2, NOx and particulate matter. The complaints seek injunctive relief to require installation of pollution control technology on
various allegedly violating generating units and, unspecified civil penalties in amounts of up to $27,500 per day for each violation. Two of Duke Energy Ohios plants have been subject to these allegations. Duke Energy Ohio asserts that there
were no CAA violations because the applicable regulations do not require permitting in cases where the projects undertaken are routine or otherwise do not result in a net increase in emissions.

In November 1999, the United States brought a lawsuit in the United States Federal District Court for the Southern District of Indiana against Duke Energy Ohio
alleging various violations of the CAA at Duke Energy Ohios W.C. Beckjord and Miami Fort Stations. The lawsuit alleges that Duke Energy Ohio violated the CAA by not obtaining Prevention of Significant Deterioration, Non-Attainment NSR and
Ohios State Implementation Plan (SIP) permits for 8 projects undertaken at those plants. Additionally, the suit claims that Duke Energy Ohio violated an Administrative Consent Order entered into in 1998 between the EPA and Cinergy relating to
alleged violations of Ohios SIP provisions governing particulate matter at Unit 1 at Duke Energy Ohios W.C. Beckjord Station. Three northeast states and two environmental groups have intervened in the case. In June 2007, the trial court
ruled, as a matter of law that 6 of the 8 projects undertaken at the Duke Energy Ohio plants do not qualify for the routine exception in the regulations. The court ruled further that the defendants had fair notice of
EPAs interpretation of the applicable regulations. The defendants filed motions for reconsideration; which were denied. A jury trial has been set to commence on May 5, 2008.

In March 2000, the United States also filed suit in the United States District Court for the Southern District of Ohio an amended complaint in a separate lawsuit
alleging violations of the CAA regarding various generating stations, including a generating station operated by CSP and jointly-owned by CSP, DP&L, and Duke Energy Ohio. This suit is being defended by CSP (the CSP case). A trial on liability
issues was conducted in July 2005. On October 9, 2007, CSP announced a settlement of its case. The settlement includes commitments by CSP to construct environmental equipment or otherwise to reduce emissions at certain plants and the payment of
penalties and money to various environmental projects. Duke Energy Ohio does not expect the settlement to have a material impact on its consolidated results of operations, cash flows, or financial position.

In addition, Duke Energy Ohio has been informed by DP&L that in June 2000, the EPA issued a Notice of Violation (NOV) to DP&L for alleged violations of CAA
requirements at a station operated by DP&L and jointly-owned by DP&L, CSP, and Duke Energy Ohio. The NOV indicated the EPA may issue an order requiring compliance with the requirements of the Ohio SIP, or bring a civil action seeking
injunctive relief and civil penalties of up to $27,500 per day for each violation. In September 2004, Marilyn Wall and the Sierra Club brought a lawsuit against Duke Energy Ohio, DP&L and CSP for alleged violations of the CAA at this same
generating station. On December 14, 2007, the Court ordered a stay of the litigation for sixty days pending settlement negotiations among the parties. A trial has been set to commence in August 2008.

Other than the CSP case, it is not possible to predict with certainty whether Duke Energy Ohio will incur any liability or to estimate the damages, if any, that
Duke Energy Ohio might incur in connection with these matters. Ultimate resolution of these matters, even in settlement, could have a material adverse effect on Duke Energy Ohios consolidated results of operations, cash flows or financial
position. However, Duke Energy Ohio will pursue appropriate regulatory treatment for any costs incurred in connection with such resolution.

Section 126 Petitions. In March 2004, the state of North Carolina filed a petition under Section 126 of the CAA in which it alleges that sources in 13 upwind states, including Ohio, significantly contribute to North
Carolinas non-attainment with certain ambient air quality standards. In August 2005, the EPA issued a proposed response to the petition. The EPA proposed to deny the ozone portion of the petition based upon a lack of contribution to air
quality by the named states. The EPA also proposed to deny the particulate matter portion of the petition based upon the CAIR Federal Implementation Plan (FIP), that would address the air quality concerns from neighboring states. On April 28,
2006, the EPA denied North Carolinas petition based upon the final CAIR FIP described above. North Carolina has filed a legal challenge to the EPAs denial.

Carbon Dioxide (CO2) Litigation. In July 2004, the states of Connecticut, New York,
California, Iowa, New Jersey, Rhode Island, Vermont, Wisconsin, and the City of New York brought a lawsuit in the United States District Court for the Southern District of New York



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against Cinergy, American Electric Power Company, Inc., American Electric Power Service Corporation, The Southern Company, Tennessee Valley Authority, and Xcel
Energy Inc. A similar lawsuit was filed in the United States District Court for the Southern District of New York against the same companies by Open Space Institute, Inc., Open Space Conservancy, Inc., and The Audubon Society of New Hampshire. These
lawsuits allege that the defendants emissions of CO2 from the combustion of fossil fuels at electric generating facilities contribute to global warming and amount to a public nuisance. The complaints also allege that the defendants
could generate the same amount of electricity while emitting significantly less CO2. The plaintiffs are seeking an injunction requiring each defendant to cap its CO2emissions and then reduce them by a specified percentage each
year for at least a decade. In September 2005, the District Court granted the defendants motion to dismiss the lawsuit. The plaintiffs have appealed this ruling to the Second Circuit Court of Appeals. Oral argument was held before the Second
Circuit Court of Appeals on June 7, 2006. It is not possible to predict with certainty whether Duke Energy Ohio will incur any liability or to estimate the damages, if any, that Duke Energy Ohio might incur in connection with this matter.

Zimmer Generating Station (Zimmer Station) Lawsuit. In November 2004, a citizen of the Village of Moscow, Ohio, the town adjacent to Duke
Energy Ohios Zimmer Station, brought a purported class action in the United States District Court for the Southern District of Ohio seeking monetary damages and injunctive relief against Duke Energy Ohio for alleged violations of the CAA, the
Ohio SIP, and Ohio laws against nuisance and common law nuisance. The plaintiffs have filed a number of additional notices of intent to sue and two lawsuits raising claims similar to those in the original claim. One lawsuit was dismissed on
procedural grounds, and the remaining two have been consolidated. On December 28, 2006, the District Court certified this case as a class action. Discovery in the case continues. At this time, Duke Energy Ohio cannot predict whether the outcome
of this matter will have a material impact on its consolidated financial position, cash flows or results of operations. Duke Energy Ohio intends to defend this lawsuit vigorously in court.

Ontario, Canada Lawsuit. Duke Energy Ohio understands that a class action lawsuit was filed in Superior Court in Ontario, Canada on July 3, 2005 against
Duke Energy Ohio and approximately 20 other utility and power generation companies alleging various claims relating to environmental emissions from coal-fired power generation facilities in the United States and Canada and damages of approximately
$50 billion, with continuing damages in the amount of approximately $4 billion annually. Duke Energy Ohio understands that the lawsuit also claims entitlement to punitive and exemplary damages in the amount of $1 billion. Duke Energy Ohio had not
yet been served in this lawsuit by the deadline of July 3, 2007. However, if served, Duke Energy Ohio intends to defend this lawsuit vigorously in court. At this time, Duke Energy Ohio is not able to predict whether resolution of this matter
would have a material effect on its consolidated financial position, cash flows or results of operations.

Hurricane Katrina Lawsuit. In April
2006, Cinergy was named in the third amended complaint of a purported class action lawsuit filed in the United States District Court for the Southern District of Mississippi. Plaintiffs claim that Cinergy, along with numerous other utilities, oil
companies, coal companies and chemical companies, are liable for damages relating to losses suffered by victims of Hurricane Katrina. Plaintiffs claim that defendants greenhouse gas emissions contributed to the frequency and intensity of
storms such as Hurricane Katrina. In October 2006, Cinergy was served with this lawsuit. On August 30, 2007, the court dismissed the case. The plaintiffs have filed their notice of appeal to the Fifth Circuit Court of Appeals. Briefing is
ongoing in the Fifth Circuit. It is not possible to predict with certainty whether Duke Energy Ohio will incur any liability or to estimate the damages, if any, that Duke Energy Ohio might incur in connection with this matter.

Ohio Antitrust Lawsuit. In January, 2008, four plaintiffs, including individual, industrial and non-profit customers, filed a lawsuit against Duke Energy
Ohio in federal court in the Southern District of Ohio. Plaintiffs allege that Duke Energy Ohio (then The Cincinnati Gas & Electric Company (CG&E)), conspired to provide inequitable and unfair price advantages for certain large business
consumers by entering into non-public option agreements with such consumers in exchange for their withdrawal of challenges to Duke Energy Ohios (then CG&Es) pending RSP, which was implemented in early 2005. Duke Energy Ohio strongly
denies the allegations made in the lawsuit and intends to defend itself vigorously. It is not possible to predict with certainty whether Duke Energy Ohio will incur any liability or to estimate the damages, if any, that Duke Energy Ohio might incur
in connection with this matter.

Asbestos-related Injuries and Damages Claims. Duke Energy Ohio has been named as a defendant or co-defendant
in lawsuits related to asbestos at its electric generating stations. The impact on Duke Energy Ohios consolidated results of operations, cash flows, or financial position of these cases to date has not been material. Based on estimates under
varying assumptions, concerning uncertainties, such as, among others: (i) the number of contractors potentially exposed to asbestos during construction or maintenance of Duke Energy Ohios generating plants; (ii) the possible
incidence of various illnesses among exposed workers, and (iii) the potential settlement costs without federal or other legislation that addresses asbestos tort actions, Duke Energy Ohio estimates that the range of reasonably possible exposure
in existing and future suits over the foreseeable future is not material. This estimated range of exposure may change as additional settlements occur and claims are made and more case law is established.



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Other Litigation and Legal Proceedings. Duke Energy Ohio and its subsidiaries are involved in other legal, tax and regulatory
proceedings arising in the ordinary course of business, some of which involve substantial amounts. Duke Energy Ohio believes that the final disposition of these proceedings will not have a material adverse effect on its consolidated results of
operations, cash flows or financial position.

Duke Energy Ohio has exposure to certain legal matters that are described herein. As of
December 31, 2007 and 2006, Duke Energy Ohio has recorded immaterial reserves for these proceedings and exposures. Duke Energy Ohio expenses legal costs related to the defense of loss contingencies as incurred.



Other Commitments and Contingencies



Other. Duke Energy Ohio enters into various fixed-price, non-cancelable
commitments to purchase or sell power (tolling arrangements or power purchase contracts) that may or may not be recognized on the Consolidated Balance Sheets.



Operating and Capital Lease Commitments

Duke Energy Ohio leases assets
in several areas of its operations. Consolidated rental expense for operating leases were $32 million for the year ended December 31, 2007, $20 million for the nine months ended December 31, 2006, $7 million for the three months
ended March 31, 2006, and $30 million for the year ended December 31, 2005, which is included in Operation, Maintenance and Other on the Consolidated Statements of Operations. Capitalized lease obligations are classified as debt on the
Consolidated Balance Sheets (see Note 15). Amortization of assets recorded under capital leases was included in Depreciation and Amortization on the Consolidated Statements of Operations. The following is a summary of future minimum lease payments
under operating leases, which at inception had a noncancelable term of more than one year, and capital leases as of December 31, 2007:



|                                    |  |                 |    |               |   |   
|----------------------------------- |  | --------------- | -- | ------------- | - | --
|                                    |  | OperatingLeases |    | CapitalLeases
|                                    |  | (in millions)  
|2008                                |  | $               | 15 |               | $ | 8 
|2009                                |  |                 | 12 |               |   | 9 
|2010                                |  |                 | 10 |               |   | 8 
|2011                                |  |                 | 8  |               |   | 7 
|2012                                |  |                 | 5  |               |   | 7 
|Thereafter                          |  |                 | 49 |               |   | 20
|                                    |  |                 |    |               |   |   
|Total future minimum lease payments |  | $               | 99 |               | $ | 59
|                                    |  |                 |    |               |   |   



18. Employee Benefit Obligations



Cinergy Retirement Plans. Duke Energy Ohio participates in
qualified and non-qualified defined benefit pension plans as well as other post-retirement benefit plans sponsored by Cinergy. Cinergy allocates pension and other post-retirement obligations and costs related to these plans to Duke Energy Ohio.

Upon consummation of the merger with Duke Energy, Cinergys benefit plan obligations were remeasured. Cinergy updated the assumptions used to
determine their accrued benefit obligations and prospective net periodic benefit/post-retirement costs to be allocated to Duke Energy Ohio. As a result, the discount rate used to determine net periodic benefit cost to be allocated to Duke Energy
Ohio by Cinergy changed from 5.50% to 6.00% in 2006.

Cinergy adopted the funded status recognition and disclosure provisions of SFAS No. 158
effective December 31, 2006. Cinergy adopted the change in measurement date transition requirements of SFAS No. 158 effective January 1, 2007 by remeasuring plan assets and benefit obligations as of that date. Previously, Cinergy used
a September 30 measurement date for its defined benefit and other post-retirement plans.



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Qualified Pension Plans

Cinergys qualified defined benefit pension plans cover substantially all United States employees meeting certain minimum age and service requirements. The plans cover most U.S. employees using a cash balance formula. Under a cash
balance formula, a plan participant accumulates a retirement benefit consisting of pay credits that are based upon a percentage (which varies with age and years of service) of current eligible earnings and current interest credits. Certain legacy
Cinergy U.S. employees are covered under plans that use a final average earnings formula. Under a final average earnings formula, a plan participant accumulates a retirement benefit equal to a percentage of their highest 3-year average earnings,
plus a percentage of the their highest 3-year average earnings in excess of covered compensation per year of participation (maximum of 35 years), plus a percentage of their highest 3-year average earnings times years of participation in excess of 35
years.

Funding for the qualified defined benefit pension plans is based on actuarially determined contributions, the maximum of which is generally
the amount deductible for tax purposes and the minimum being that required by the Employee Retirement Income Security Act of 1974, as amended. The pension plans assets consist of investments in equity and debt securities.

Actuarial gains and losses are amortized over the average remaining service period of the active employees. The average remaining service period of the active
employees covered by the retirement plan is 11 years. Cinergy determines the market-related value of plan assets using a calculated value that recognizes changes in fair value of the plan assets over five years.

Duke Energy Ohios qualified pension plan pre-tax net periodic pension benefit costs as allocated by Cinergy were as follows:



|                              |  |                                    |    |                                     |   |                |  |                                   |  |                                       |   |  |   |   
|----------------------------- |  | ---------------------------------- | -- | ----------------------------------- | - | -------------- |  | --------------------------------- |  | ------------------------------------- | - |  | - | --
|                              |  | Successor(a)                       |    |                                     |   | Predecessor(a)
|                              |  | Twelve MonthsEndedDecember 31,2007 |    | Nine MonthsEndedDecember 31,2006(b) |   |                |  | Three MonthsEndedMarch 31,2006(b) |  | Twelve MonthsEndedDecember 31,2005(b)
|                              |  | (in millions)                     
|Qualified Pension Benefits(c) |  | $                                  | 14 |                                     | $ | 20             |  |                                   |  | $                                     | 6 |  | $ | 13

|(a) | See Note 1 for additional information on Predecessor and Successor reporting.
|--- | -----------------------------------------------------------------------------

|(b) | Includes immaterial amounts reflected in (Loss) Income From Discontinued Operations, net of tax, in the Consolidated Statements of Operations.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------

|(c) | Excludes approximately $7 million for the twelve months ended December 31, 2007 and approximately $8 million for the nine months ended December 31, 2006 of regulatory asset
amortization resulting from purchase accounting.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The fair value of Cinergys plan assets was approximately $1,701 million as of
December 31, 2007 and approximately $1,302 million as of September 30, 2006. The projected benefit obligation for the plans was approximately $1,941 million as of December 31, 2007 and approximately $1,976 million as of
September 30, 2006. The accumulated benefit obligation for the plans was approximately $1,753 million as of December 31, 2007 and approximately $1,688 million at September 30, 2006. The accrued pension liability as allocated by
Cinergy to Duke Energy Ohio and recognized in Accrued pension and other postretirement benefit costs within the Consolidated Balance Sheets at December 31, 2007 and 2006 was approximately $118 million and approximately $246 million,
respectively.

Duke Energy made qualified pension benefit contributions of approximately $350 million, $124 million and $102 million to the legacy
Cinergy qualified pension benefit plans, of which approximately $83 million, $22 million and $18 million represents contributions made by Duke Energy Ohio for the year ended December 31, 2007, nine months ended December 31, 2006 and the
year ended December 31, 2005, respectively. No amounts were contributed to the legacy Cinergy qualified pension plans for the three months ended March 31, 2006.



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Qualified Pension PlansAmounts Recognized in Accumulated Other Comprehensive Income (Loss) and Regulatory Assets Consist of:



|                                                                    |  |                                |     |   |      |   |    |  
|------------------------------------------------------------------- |  | ------------------------------ | --- | - | ---- | - | -- | -
|                                                                    |  | Successor(a)As of December 31, |    
|                                                                    |  | 2007                           |     |   | 2006 |  
|                                                                    |  | (in millions)                  |    
|Regulatory Assets                                                   |  | $                              | 33  |   |      | $ | 27 |  
|                                                                    |  |                                |     |   |      |   |    |  
|Accumulated Other Comprehensive Income                              |  |                                |     |   |      |   |    |  
|Deferred income tax asset                                           |  | $                              | 5   |   |      | $ | (2 | )
|Prior service cost                                                  |  |                                | 2   |   |      |   |   |  
|Net actuarial (gain) loss                                           |  |                                | (14 | ) |      |   | 4  |  
|                                                                    |  |                                |     |   |      |   |    |  
|Net amount recognizedAccumulated other comprehensive income (loss) |  | $                              | (7  | ) |      | $ | 2  |  
|                                                                    |  |                                |     |   |      |   |    |  

|(a) | See Note 1 for additional information on Predecessor and Successor reporting.
|--- | -----------------------------------------------------------------------------

An immaterial amount in AOCI will be recognized in net periodic pension costs in 2008.

Assumptions Used for Cinergys Pension Benefits Accounting



|                                                 |  |               |  |           |  |     
|------------------------------------------------ |  | ------------- |  | --------- |  | ----
|                                                 |  | 2007          |  | 2006      |  | 2005
|                                                 |  | (percentages)
|Benefit Obligations                              |  |               |  |           |  |     
|Discount rate                                    |  | 6.00          |  | 5.75      |  | 5.75
|Salary increase                                  |  | 5.00          |  | 5.00      |  | 4.00
|Net Periodic Benefit Cost                        |  |               |  |           |  |     
|Discount ratea                                   |  | 5.75          |  | 5.50-6.00 |  | 5.75
|Salary increase                                  |  | 5.00          |  | 5.00      |  | 4.00
|Expected long-term rate of return on plan assets |  | 8.50          |  | 8.50      |  | 8.50

|(a) | Discount rate for Successor was 5.75% and 6.00% for the year ended December 31, 2007 and for the nine months ended December 31, 2006, respectively. Discount rates for Predecessor
was 5.50% and 5.75% for the three months ended March 31, 2006 and the year ended December 31, 2005, respectively (see Note 1 for additional information on Predecessor and Successor reporting).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Non-Qualified Pension Plans

In addition, Cinergy also maintains, and Duke Energy Ohio participates in, non-qualified, non-contributory defined benefit retirement plans (plans that do not meet
the criteria for certain tax benefits) that cover officers, certain other key employees, and non-employee directors. Actuarial gains and losses are amortized over the average remaining service period of the active employees. The average remaining
service period of active employees covered by the non-qualified retirement plans is 11 years. There are no plan assets. The projected benefit obligation for the plans was approximately $105 million as of December 31, 2007 and approximately $114
million as of September 30, 2006. The accumulated benefit obligation for the plans was approximately $102 million as of December 31, 2007 and approximately $109 million at September 30, 2006. The accrued pension liability as allocated
by Cinergy to Duke Energy Ohio and recognized in Accrued pension and other postretirement benefit costs within the Consolidated Balance Sheets at December 31, 2007 and 2006 was approximately $5 million and $6 million, respectively, and as
recognized in Other Current Liabilities within the Consolidated Balance Sheet at December 31, 2007 and 2006 was approximately $2 million.

Duke
Energy Ohios non-qualified pension plan pre-tax net periodic pension benefit costs as allocated by Cinergy were as follows:



|                         |  |                                    |   |                                  |   |                |  |                                |  |                                    |   |  |   |  
|------------------------ |  | ---------------------------------- | - | -------------------------------- | - | -------------- |  | ------------------------------ |  | ---------------------------------- | - |  | - | -
|                         |  | Successor(a)                       |   |                                  |   | Predecessor(a)
|                         |  | Twelve MonthsEndedDecember 31,2007 |   | Nine MonthsEndedDecember 31,2006 |   |                |  | Three MonthsEndedMarch 31,2006 |  | Twelve MonthsEndedDecember 31,2005
|                         |  | (in millions)                     
|Non-Qualified Pension(b) |  | $                                  | 1 |                                  | $ | 1              |  |                                |  | $                                  |  |  | $ | 1

|(a) | See Note 1 for additional information on Predecessor and Successor reporting.
|--- | -----------------------------------------------------------------------------

|(b) | Includes immaterial amounts reflected in (Loss) Income From Discontinued Operations, net of tax, in the Consolidated Statements of Operations.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------



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Non-Qualified PlansAssumptions Used for Cinergys Pension Benefits Accounting



|                          |  |               |  |           |  |     
|------------------------- |  | ------------- |  | --------- |  | ----
|                          |  | 2007          |  | 2006      |  | 2005
|                          |  | (percentages)
|Benefit Obligations       |  |               |  |           |  |     
|Discount rate             |  | 6.00          |  | 5.75      |  | 5.75
|Salary increase           |  | 5.00          |  | 5.00      |  | 4.00
|Net Periodic Benefit Cost |  |               |  |           |  |     
|Discount ratea            |  | 5.75          |  | 5.50-6.00 |  | 5.75
|Salary increase           |  | 5.00          |  | 5.00      |  | 4.00



|(a) | Discount rate for Successor was 5.75% and 6.00% for the year ended December 31, 2007 and the nine months ended December 31, 2006, respectively. Discount rates for Predecessor was
5.50% and 5.75% for the three months ended March 31, 2006 and the year ended December 31, 2005, respectively (see Note 1 for additional information on Predecessor and Successor reporting).
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Other Post-Retirement Benefit Plans

Duke Energy Ohio participates in other postretirement benefit plans sponsored by Cinergy. Cinergy provides certain health care and life insurance benefits to
retired United States employees and their eligible dependents on a contributory and non-contributory basis. These benefits are subject to minimum age and service requirements. The health care benefits include medical coverage, dental coverage, and
prescription drug coverage and are subject to certain limitations, such as deductibles and co-payments. These benefit costs are accrued over an employees active service period to the date of full benefits eligibility. The net unrecognized
transition obligation is amortized over approximately 20 years. Actuarial gains and losses are amortized over the average remaining service period of the active employees. The average remaining service period of the active employees covered by the
plan is 12 years. Duke Energy Ohios Other Post-Retirement Plan pre-tax Net Periodic Benefit costs as allocated by Cinergy were as follows:



|                        |  |                                    |    |                                     |   |                |  |                                   |  |                                       |   |  |   |  
|----------------------- |  | ---------------------------------- | -- | ----------------------------------- | - | -------------- |  | --------------------------------- |  | ------------------------------------- | - |  | - | -
|                        |  | Successor(a)                       |    |                                     |   | Predecessor(a)
|                        |  | Twelve MonthsEndedDecember 31,2007 |    | Nine MonthsEndedDecember 31,2006(b) |   |                |  | Three MonthsEndedMarch 31,2006(b) |  | Twelve MonthsEndedDecember 31,2005(b)
|                        |  | (in millions)                     
|Other Postretirement(c) |  | $                                  | 11 |                                     | $ | 9              |  |                                   |  | $                                     | 3 |  | $ | 8

|(a) | See Note 1 for additional information on Predecessor and Successor reporting.
|--- | -----------------------------------------------------------------------------

|(b) | Includes immaterial amounts reflected in (Loss) Income From Discontinued Operations, net of tax, in the Consolidated Statements of Operations.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------

|(c) | Excludes approximately $4 million for the twelve months ended December 31, 2007 and approximately $2 million for the nine months ended December 31, 2006 of regulatory asset
amortization resulting from purchase accounting.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The fair value of Cinergys other post-retirement benefit plans assets was
approximately $32 million as of December 31, 2007 and zero as of September 30, 2006. The accumulated other post-retirement benefit obligation for the plans was approximately $464 million as of December 31, 2007 and $497 million as of
September 30, 2006. The accrued other post-retirement liability as allocated by Cinergy to Duke Energy Ohio and recognized in Accrued pension and other postretirement benefit costs within the Consolidated Balance Sheets at December 31,
2007 and 2006 was $136 million and $129 million, respectively and as recognized in Other Current Liabilities within the Consolidated Balance Sheet at December 31, 2007 and 2006 was $2 million and $7 million, respectively.

Duke Energy made other postretirement plan contributions during 2007 of approximately $32 million to the legacy Cinergy other postretirement plans, of which
approximately $9 million represents contribution made by Duke Energy Ohio. No amounts were contributed to the legacy Cinergy other postretirement plans for the nine months ended December 31, 2006, three months ended March 31, 2006, or year
ended December 31, 2005.

Duke Energy Ohio recognized regulatory assets and AOCI related to its other post-retirement benefit plans of
approximately $2 million and $1 million as of December 31, 2007, respectively, and $4 million and zero, as of December 31, 2006, respectively, within the Consolidated Balance Sheets.

An immaterial amount in AOCI will be recognized in net periodic other postretirement benefit costs in 2008.



65



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PART II

DUKE ENERGY OHIO, INC.

Notes To Consolidated Financial Statements(Continued)



Assumptions Used in Cinergys Other Postretirement Benefits Accounting



|                                                 |  |               |  |           |  |     
|------------------------------------------------ |  | ------------- |  | --------- |  | ----
|                                                 |  | 2007          |  | 2006      |  | 2005
|                                                 |  | (percentages)
|Benefit Obligations                              |  |               |  |           |  |     
|Discount rate                                    |  | 6.00          |  | 5.75      |  | 5.50
|Net Periodic Benefit Cost                        |  |               |  |           |  |     
|Discount rate(a)                                 |  | 5.75          |  | 5.50-6.00 |  | 5.50
|Expected long-term rate of return on plan assets |  | 5.53-8.50     |  | N/A       |  | N/A 

|(a) | Discount rate for Successor was 5.75% and 6.00% for the year ended December 31, 2007 and the nine months ended December 31, 2006, respectively. Discount rate for Predecessor was
5.50% and 6.00% for the three months ended March 31, 2006 and the year ended December 31, 2005, respectively (see Note 1 for additional information on Predecessor and Successor reporting).
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Assumed Health Care Cost Trend Rates



|                                                                             |  |                     |   |  |                              |   |  |       |   |  |       |  
|---------------------------------------------------------------------------- |  | ------------------- | - |  | ---------------------------- | - |  | ----- | - |  | ----- | -
|                                                                             |  | Medicare Trend Rate |   |  | Prescription Drug Trend Rate |  
|                                                                             |  | 2007                |   |  | 2006                         |   |  | 2007  |   |  | 2006  |  
|Health care cost trend rate assumed for next year                            |  | 8.00                | % |  | 8.50                         | % |  | 12.50 | % |  | 13.00 | %
|Rate to which the cost trend is assumed to decline (the ultimate trend rate) |  | 5.00                | % |  | 4.75                         | % |  | 5.00  | % |  | 4.75  | %
|Year that the rate reaches the ultimate trend rate                           |  | 2013                |   |  | 2013                         |   |  | 2022  |   |  | 2022  |  



19. Other Income and Expenses, net

The components of Other Income and Expenses, net on the Consolidated Statements of Operations for the year ended December 31, 2007, the nine
months ended December 31, 2006, the three months ended March 31, 2006 and the year ended December 31 2005 are as follows:



|                 |  |                                    |    |                |                                  |   |                                |  |   |                                    |   |  |   |   
|---------------- |  | ---------------------------------- | -- | -------------- | -------------------------------- | - | ------------------------------ |  | - | ---------------------------------- | - |  | - | --
|                 |  | Successor(a)                       |    | Predecessor(a)
|                 |  | Twelve MonthsEndedDecember 31,2007 |    |                | Nine MonthsEndedDecember 31,2006 |   | Three MonthsEndedMarch 31,2006 |  |   | Twelve MonthsEndedDecember 31,2005
|                 |  | (in millions)                     
|Income/(Expense) |  |                                    |    |                |                                  |   |                                |  |   |                                    |   |  |   |   
|Interest income  |  | $                                  | 29 |                |                                  | $ | 15                             |  | $ | 8                                  |   |  | $ | 17
|AFUDC equity     |  |                                    | 4  |                |                                  |   | 2                              |  |   | 1                                  |   |  |   | 1 
|Other            |  |                                    | (1 | )              |                                  |   |                               |  |   | (1                                 | ) |  |   | 1 
|                 |  |                                    |    |                |                                  |   |                                |  |   |                                    |   |  |   |   
|Total            |  | $                                  | 32 |                |                                  | $ | 17                             |  | $ | 8                                  |   |  | $ | 19
|                 |  |                                    |    |                |                                  |   |                                |  |   |                                    |   |  |   |   



|(a) | See Note 1 for additional information on Predecessor and Successor reporting.
|--- | -----------------------------------------------------------------------------



20. Subsequent Events

For information related to subsequent events
related to regulatory matters, debt and credit facilities, and commitments and contingencies, see Notes 5, 15 and 17, respectively.



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PART II

DUKE ENERGY OHIO, INC.

Notes To Consolidated Financial Statements(Continued)



21. Quarterly Financial Data (Unaudited)



|                         |  |               |     |               |   |              |  |               |     |       |   |     |  |   |      
|------------------------ |  | ------------- | --- | ------------- | - | ------------ |  | ------------- | --- | ----- | - | --- |  | - | -----
|                         |  | Successor(a) 
|                         |  | FirstQuarter  |     | SecondQuarter |   | ThirdQuarter |  | FourthQuarter |     | Total
|                         |  | (in millions)
|2007                     |  |               |     |               |   |              |  |               |     |       |   |     |  |   |      
|Total operating revenues |  | $             | 916 |               | $ | 763          |  | $             | 955 |       | $ | 821 |  | $ | 3,455
|Operating income         |  |               | 74  |               |   | 95           |  |               | 210 |       |   | 104 |  |   | 483  
|Net income               |  |               | 37  |               |   | 49           |  |               | 118 |       |   | 60  |  |   | 264  



|                         |  |                |     |               |   |     |              |  |               |     |       |   |     |  |   |      
|------------------------ |  | -------------- | --- | ------------- | - | --- | ------------ |  | ------------- | --- | ----- | - | --- |  | - | -----
|                         |  | Predecessor(a) |     | Successor(a) 
|                         |  | First Quarter  |     | SecondQuarter |   |     | ThirdQuarter |  | FourthQuarter |     | Total
|                         |  | (in millions) 
|2006                     |  |                |     |               |   |     |              |  |               |     |       |   |     |  |   |      
|Total operating revenues |  | $              | 963 |               | $ | 696 |              |  | $             | 776 |       | $ | 789 |  | $ | 2,261
|Operating income         |  |                | 208 |               |   | 41  |              |  |               | 90  |       |   | 35  |  |   | 166  
|Net income (loss)        |  |                | 116 |               |   | (7  | )            |  |               | 60  |       |   | 2   |  |   | 55   



|(a) | See Note 1 for additional information on Predecessor and Successor reporting.
|--- | -----------------------------------------------------------------------------

During the first quarter 2007, Duke Energy Ohio recorded the following unusual or infrequently occurring items: a temporary rate reduction of $2 million due to merger approval obtained from PUCO related to the merger between Duke Energy and
Cinergy.

During the first quarter 2006, Duke Energy Ohio recorded the following unusual or infrequently occurring item: approximately
$12 million in integration costs related to the merger of Duke Energy and Cinergy.

During the second quarter 2006, Duke Energy Ohio recorded the
following unusual or infrequently occurring items: approximately $2 million in integration costs related to the merger of Duke Energy and Cinergy and a temporary rate reduction of $16 million due to merger approval obtained from PUCO related to
the merger between Duke Energy and Cinergy.

During the third quarter 2006, Duke Energy Ohio recorded the following unusual or infrequently occurring
items: approximately $7 million in integration costs related to the merger of Duke Energy and Cinergy and a temporary rate reduction of $10 million due to merger approval obtained from PUCO related to the merger between Duke Energy and Cinergy.

During the fourth quarter 2006, Duke Energy Ohio recorded the following unusual or infrequently occurring items: approximately $4 million in
integration costs related to the merger of Duke Energy and Cinergy and a temporary rate reduction of $8 million due to merger approval obtained from PUCO related to the merger between Duke Energy and Cinergy.



67



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PART II



DUKE ENERGY OHIO, INC.

SCHEDULE IIVALUATION AND
QUALIFYING ACCOUNTS AND RESERVES



|                                     |  |                              |                   |             |                         |               |  |                        |   |  |   |    |  |   |   
|------------------------------------ |  | ---------------------------- | ----------------- | ----------- | ----------------------- | ------------- |  | ---------------------- | - |  | - | -- |  | - | --
|                                     |  | Balance atBeginningof
Period |                   | Additions : |                         | Deductions(2) |  | Balance atEnd ofPeriod
|                                     |  |                              | Charged toExpense |             | Charged toOtherAccounts |               | 
|                                     |  | (In millions)               
|Successor(1)                         |  |                              |                   |             |                         |               |  |                        |   |  |   |    |  |   |   
|Year Ended December 31, 2007:        |  |                              |                   |             |                         |               |  |                        |   |  |   |    |  |   |   
|Injuries and damages                 |  | $                            | 3                 |             | $                       |              |  | $                      |  |  | $ | 3  |  | $ |  
|Allowance for doubtful accounts      |  |                              | 5                 |             |                         | 1             |  |                        |  |  |   | 3  |  |   | 3 
|Uncertain tax provisions(3)          |  |                              | 26                |             |                         |              |  |                        |  |  |   | 16 |  |   | 10
|Other(4)                             |  |                              | 19                |             |                         | 3             |  |                        |  |  |   | 11 |  |   | 11
|                                     |  |                              |                   |             |                         |               |  |                        |   |  |   |    |  |   |   
|                                     |  | $                            | 53                |             | $                       | 4             |  | $                      |  |  | $ | 33 |  | $ | 24
|                                     |  |                              |                   |             |                         |               |  |                        |   |  |   |    |  |   |   
|Nine Months Ended December 31, 2006: |  |                              |                   |             |                         |               |  |                        |   |  |   |    |  |   |   
|Injuries and damages                 |  | $                            | 5                 |             | $                       | 1             |  | $                      |  |  | $ | 3  |  | $ | 3 
|Allowance for doubtful accounts      |  |                              | 4                 |             |                         | 4             |  |                        |  |  |   | 3  |  |   | 5 
|Uncertain tax provisions(3)          |  |                              | 28                |             |                         | 3             |  |                        |  |  |   | 5  |  |   | 26
|Other(4)                             |  |                              | 26                |             |                         | 6             |  |                        |  |  |   | 13 |  |   | 19
|                                     |  |                              |                   |             |                         |               |  |                        |   |  |   |    |  |   |   
|                                     |  | $                            | 63                |             | $                       | 14            |  | $                      |  |  | $ | 24 |  | $ | 53
|                                     |  |                              |                   |             |                         |               |  |                        |   |  |   |    |  |   |   
|Predecessor(1)                       |  |                              |                   |             |                         |               |  |                        |   |  |   |    |  |   |   
|Three Months Ended March 31, 2006:   |  |                              |                   |             |                         |               |  |                        |   |  |   |    |  |   |   
|Injuries and damages                 |  | $                            | 4                 |             | $                       | 1             |  | $                      |  |  | $ |   |  | $ | 5 
|Allowance for doubtful accounts      |  |                              | 4                 |             |                         | 2             |  |                        |  |  |   | 2  |  |   | 4 
|Uncertain tax provisions(3)          |  |                              | 28                |             |                         |              |  |                        |  |  |   |   |  |   | 28
|Other(4)                             |  |                              | 29                |             |                         | 5             |  |                        |  |  |   | 8  |  |   | 26
|                                     |  |                              |                   |             |                         |               |  |                        |   |  |   |    |  |   |   
|                                     |  | $                            | 65                |             | $                       | 8             |  | $                      |  |  | $ | 10 |  | $ | 63
|                                     |  |                              |                   |             |                         |               |  |                        |   |  |   |    |  |   |   
|Year Ended December 31, 2005:        |  |                              |                   |             |                         |               |  |                        |   |  |   |    |  |   |   
|Injuries and damages                 |  | $                            | 4                 |             | $                       | 1             |  | $                      |  |  | $ | 1  |  | $ | 4 
|Allowance for doubtful accounts      |  |                              | 1                 |             |                         | 3             |  |                        | 1 |  |   | 1  |  |   | 4 
|Uncertain tax provisions(3)          |  |                              | 24                |             |                         | 8             |  |                        |  |  |   | 4  |  |   | 28
|Other(4)                             |  |                              | 8                 |             |                         | 18            |  |                        | 5 |  |   | 2  |  |   | 29
|                                     |  |                              |                   |             |                         |               |  |                        |   |  |   |    |  |   |   
|                                     |  | $                            | 37                |             | $                       | 30            |  | $                      | 6 |  | $ | 8  |  | $ | 65
|                                     |  |                              |                   |             |                         |               |  |                        |   |  |   |    |  |   |   



|(1) | See Note 1 for additional information on Predecessor and Successor reporting.
|--- | -----------------------------------------------------------------------------

|(2) | Principally cash payments and reserve reversals. For 2007, this also includes the impacts from the adoption of FIN 48.
|--- | ----------------------------------------------------------------------------------------------------------------------

|(3) | Included in Taxes accrued and Interest accrued within Current Liabilities on the Consolidated Balance Sheets. The December 31, 2007 ending balance primarily contains non-income tax
reserves.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Principally environmental and other reserves, included in Unrealized gains on mark-to-market and hedging transactions within Current Assets and Investments and Other Assets, Unrealized losses
on mark-to-market and hedging transactions within Current Liabilities and Other within Deferred Credits and Other Liabilities on the Consolidated Balance Sheets.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The valuation and reserve amounts above do not include unrecognized tax benefits amounts or deferred tax asset valuation allowance amounts.



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PART II



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.



Item 9A. Controls and Procedures.



Disclosure
Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information
required to be disclosed by Duke Energy Ohio in the reports it files or submits under the Securities Exchange Act of 1934 (Exchange Act) is recorded, processed, summarized, and reported, within the time periods specified by the
Securities and Exchange Commissions (SEC) rules and forms.

Disclosure controls and procedures include, without limitation, controls and
procedures designed to provide reasonable assurance that information required to be disclosed by Duke Energy Ohio in the reports it files or submits under the Exchange Act is accumulated and communicated to management, including
the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Under the
supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, Duke Energy Ohio has evaluated the effectiveness of its disclosure controls and procedures (as such term is defined in Rule
13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2007, and, based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures are effective in providing
reasonable assurance of compliance.



Changes in Internal Control over Financial
Reporting

Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, Duke
Energy Ohio has evaluated changes in internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ended December 31, 2007 and have concluded
that no change has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.



Managements Annual Report On Internal Control Over Financial Reporting

Duke Energy Ohios management is responsible for establishing and maintaining an adequate system of internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control
system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with generally accepted accounting principles. Because of inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with policies and procedures may deteriorate.

Duke Energy Ohios management, including our Chief
Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2007 based on the framework in Internal ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2007.

This annual report does not include an attestation report of Deloitte & Touche LLP, Duke Energy Ohios independent registered public accounting firm,
regarding internal control over financial reporting. Managements report was not subject to attestation by Deloitte & Touche LLP pursuant to temporary rules of the SEC that permit Duke Energy Ohio to provide only managements
report in this annual report.



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PART III



Item 14. Principal Accounting Fees and Services.



The following table presents fees for professional services rendered by Deloitte & Touche LLP, and the member firms of Deloitte Touche Tohmatsu and their respective affiliates (collectively, Deloitte) for
Duke Energy Ohio for the periods ended:



|                      |  |                                    |     |                                  |                |     |                                |  |   |    
|--------------------- |  | ---------------------------------- | --- | -------------------------------- | -------------- | --- | ------------------------------ |  | - | ---
|                      |  | Successor(a)                       |     |                                  | Predecessor(a)
|                      |  | TwelveMonths EndedDecember 31,2007 |     | Nine MonthsEndedDecember 31,2006 |                |     | Three MonthsEndedMarch 31,2006
|                      |  | (in millions)                     
|Audit Fees(b)         |  | $                                  | 1.4 |                                  | $              | 1.2 |                                |  | $ | 0.4
|Audit-Related Fees(c) |  |                                    | 0.2 |                                  |                | 0.2 |                                |  |   | 0.1
|Tax Fees(d)           |  |                                    |    |                                  |                |    |                                |  |   | 0.1
|                      |  |                                    |     |                                  |                |     |                                |  |   |    
|Total Fees:           |  | $                                  | 1.6 |                                  | $              | 1.4 |                                |  | $ | 0.6
|                      |  |                                    |     |                                  |                |     |                                |  |   |    



|(a) | See Note 1 for additional information on Predecessor and Successor reporting.
|--- | -----------------------------------------------------------------------------

|(b) | Audit Fees are fees billed or expected to be billed by Deloitte for professional services for the audit of Duke Energy Ohios consolidated financial statements included in Duke Energy
Ohios annual report on Form 10-K and review of financial statements included in Duke Energy Ohios quarterly reports on Form 10-Q, services that are normally provided by Deloitte in connection with statutory, regulatory or other
filings or engagements or any other service performed by Deloitte to comply with generally accepted auditing standards and include comfort and consent letters in connection with SEC filings and financing transactions.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | Audit-Related Fees are fees billed by Deloitte for assurance and related services that are reasonably related to the performance of an audit or review of Duke Energy Ohios financial
statements, including assistance with acquisitions and divestitures and internal control reviews.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) | Tax Fees are fees billed by Deloitte for tax return assistance and preparation, tax examination assistance, and professional services related to tax planning and tax strategy.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

To safeguard the continued independence of the independent auditor, the Duke Energy Audit Committee adopted a policy that provides that
the independent public accountants are only permitted to provide services to Duke Energy Ohio that have been pre-approved by the Duke Energy Audit Committee. Pursuant to the policy, detailed audit services, audit-related services, tax services and
certain other services have been specifically pre-approved up to certain fee limits. In the event that the cost of any of these services may exceed the pre-approved limits, the Duke Energy Audit Committee must pre-approve the service. All other
services that are not prohibited pursuant to the SECs or other applicable regulatory bodies rules of regulations must be specifically pre-approved by the Duke Energy Audit Committee. All services performed in 2007 by the independent
public accountant were approved by the Duke Energy Audit Committee pursuant to its pre-approval policy.



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PART IV



Item 15. Exhibits, Financial Statement Schedules.

(a) Consolidated Financial Statements, Supplemental Financial
Data and Supplemental Schedule included in Part II of this annual report are as follows:

Consolidated Financial Statements

Consolidated Statements of Operations for the Twelve Months Ended December 31, 2007, Nine Months Ended December 31, 2006, Three Months
Ended March 31, 2006 and the Twelve Months Ended December 31, 2005

Consolidated Balance Sheets as of December 31, 2007
and 2006

Consolidated Statements of Cash Flows for the Twelve Months Ended December 31, 2007, Nine Months Ended December 31, 2006, Three
Months Ended March 31, 2006, and the Twelve Months Ended December 31, 2005

Consolidated Statements of Common Stockholders Equity and
Comprehensive Income for the Year Ended December 31, 2007, Nine Months Ended December 31, 2006, Three Months Ended March 31, 2006 and the Year Ended December 31, 2005

Notes to the Consolidated Financial Statements

Quarterly Financial Data (unaudited, included in Note 21 to the Consolidated Financial Statements)

Consolidated Financial
Statement Schedule IIValuation and Qualifying Accounts and Reserves for the Year Ended December 31, 2007, Nine Months Ended December 31, 2006, Three Months Ended March 31, 2006 and the Year Ended December 31, 2005

Report of Independent Registered Public Accounting Firm

All other schedules are omitted because they are not required, or because the required information is included in the Consolidated Financial Statements or Notes.

(c) ExhibitsSee Exhibit Index immediately following the signature page.



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PART IV



SIGNATURES



Pursuant to the requirements
of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



Date: March 19, 2008



DUKE ENERGY OHIO, INC. (Registrant)By:

/s/    JAMES E.
ROGERSJames E. RogersChief Executive Officer




Pursuant to the
requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.



| | (i) | /s/ JAMES E. ROGERS
| | --- | -------------------

| | 
| | 

James E. Rogers

Chief Executive Officer (Principal Executive Officer)



| | (ii) | /s/ DAVID L. HAUSER
| | ---- | -------------------

| | 
| | 

David L. Hauser

Group Executive and Chief Financial Officer (Principal Financial Officer)



| | (iii) | /s/ STEVEN K. YOUNG
| | ----- | -------------------

| | 
| | 

Steven K. Young

Senior Vice President and Controller (Principal Accounting Officer)



| | (iv) | Directors
| | ---- | ---------



/s/ JAMES E. ROGERS

| | 
| | 

James E. Rogers



/s/ DAVID L. HAUSER

| | 
| | 

David L. Hauser



/s/ JAMES L. TURNER

| | 
| | 

James L. Turner



Date: March 19, 2008



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##### Table of Contents

PART IV



EXHIBIT INDEX



Exhibits filed herewith are
designated by an asterisk (*). All exhibits not so designated are incorporated by reference to a prior filing, as indicated.



|              |  |                                                                                                                                                                                                                                                                                                    
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  |                                                                                                                                                                                                                                                                                                    
|3.1           |  | Amended Articles of Incorporation of Duke Energy Ohio, Inc. effective October 23, 1996 (filed with Form 10-Q of Duke Energy Ohio, Inc. (formerly The Cincinnati Gas & Electric Company) for the
quarter ended September 30, 1996, File No. 1-1232).                                                
|              | 
|3.1.1         |  | Amended Articles of Consolidation, effective October 1, 2006 (filed with Form 10-Q of Duke Energy Ohio, Inc. (formerly The Cincinnati Gas & Electric Company) for the quarter ended September 30, 2006,
File No. 1-1232).                                                                          
|              | 
|3.2           |  | Regulations of Duke Energy Ohio, Inc., as amended on July 23, 2003 (filed with Form 10-Q of Duke Energy Ohio, Inc. (formerly The Cincinnati Gas & Electric Company) for the quarter ended June 30,
2003, File No. 1-1232).                                                                         
|              | 
|4.1           |  | Original Indenture (First Mortgage Bonds) between Duke Energy Ohio, Inc. and The Bank of New York (as Trustee) dated as of August 1, 1936 (filed with Registration Statement of Duke Energy Ohio, Inc.
(formerly The Cincinnati Gas & Electric Company) File No. 2-2374).                          
|              | 
|4.1.1         |  | Fourteenth Supplemental Indenture between Duke Energy Ohio, Inc. and The Bank of New York dated as of November 2, 1972 (filed with Registration Statement of Duke Energy Ohio, Inc. (formerly The
Cincinnati Gas & Electric Company) File No. 2-60961).                                            
|              | 
|4.1.2         |  | Thirty-third Supplemental Indenture between Duke Energy Ohio, Inc. and The Bank of New York dated as of September 1, 1992 (filed with Registration Statement of Duke Energy Ohio, Inc. (formerly The
Cincinnati Gas & Electric Company) File No. 2-53578).                                         
|              | 
|4.1.3         |  | Thirty-fourth Supplemental Indenture between Duke Energy Ohio, Inc. and The Bank of New York dated as of October 1, 1993 (filed with Form 10-Q of Duke Energy Ohio, Inc. (formerly The Cincinnati Gas
& Electric Company) for the quarter ended September 30, 1993, File No. 1-1232).              
|              | 
|4.1.4         |  | Thirty-fifth Supplemental Indenture between Duke Energy Ohio, Inc. and The Bank of New York dated as of January 1, 1994 (filed with Registration Statement of Duke Energy Ohio, Inc. (formerly The
Cincinnati Gas & Electric Company) File No. 2-52335).                                           
|              | 
|4.1.5         |  | Thirty-sixth Supplemental Indenture between Duke Energy Ohio, Inc. and The Bank of New York dated as of February 15, 1994 (filed with Registration Statement of Duke Energy Ohio, Inc. (formerly The
Cincinnati Gas & Electric Company) File No. 2-52335).                                         
|              | 
|4.1.6         |  | Thirty-seventh Supplemental Indenture between Duke Energy Ohio, Inc. and The Bank of New York dated as of October 14, 1996 (filed with Form 10-K of Duke Energy Ohio, Inc. (formerly The Cincinnati Gas
& Electric Company) for the year ended December 31, 1996, File No. 1-1232).                
|              | 
|4.1.7         |  | Thirty-eighth Supplemental Indenture between Duke Energy Ohio, Inc. and The Bank of New York dated as of February 1, 2001 (filed with Form 10-Q of Duke Energy Ohio, Inc. (formerly The Cincinnati Gas
& Electric Company) for the quarter ended March 31, 2001, File No. 1-1232).                 
|              | 
|4.1.8         |  | Thirty-ninth Supplemental Indenture dated as of September 1, 2002, between Duke Energy Ohio, Inc. and The Bank of New York, as Trustee (filed with Form 10-Q of Duke Energy Ohio, Inc. (formerly The
Cincinnati Gas & Electric Company) for the quarter ended September 30, 2002, File No. 1-1232).
|              | 
|4.2           |  | Loan Agreement between Duke Energy Ohio, Inc. and the County of Boone, Kentucky dated as of February 1, 1985 (filed with Form 10-K of Duke Energy Ohio, Inc. (formerly The Cincinnati Gas &
Electric Company) for the year ended December 31, 1984, File No. 1-1232).                              
|              | 
|4.3           |  | Repayment Agreement between Duke Energy Ohio, Inc. and The Dayton Power and Light Company dated as of December 23, 1992 (filed with Form 10-K of Duke Energy Ohio, Inc. (formerly The Cincinnati Gas
& Electric Company) for the year ended December 31, 1992, File No. 1-1232).                   



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##### Table of Contents

PART IV



|              |  |                                                                                                                                                                                                                                                                                                  
|------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  |                                                                                                                                                                                                                                                                                                  
|4.4           |  | Loan Agreement between Duke Energy Ohio, Inc. and the County of Boone, Kentucky dated as of January 1, 1994 (filed with form 10-K of Duke Energy Ohio, Inc. (formerly The Cincinnati Gas & Electric
Company) for the year ended December 31, 1993, File No. 1-1232).                             
|              | 
|4.5           |  | Loan Agreement between Duke Energy Ohio, Inc. and the State of Ohio Air Quality Development Authority dated as of December 1, 1985 (filed with Form 10-K of Duke Energy Ohio, Inc. (formerly The
Cincinnati Gas & Electric Company) for the year ended December 31, 1998, File No. 1-1232).      
|              | 
|4.6           |  | Loan Agreement between Duke Energy Ohio, Inc. and the State of Ohio Air Quality Development Authority dated as of September 13, 1995 (filed with Form 10-Q of Duke Energy Ohio, Inc. (formerly The Cincinnati Gas & Electric Company) for the quarter ended September 30, 1995, File No.
1-1232).
|              | 
|4.7           |  | Loan Agreement between Duke Energy Ohio, Inc. and the State of Ohio Water Development Authority dated as of January 1, 1994 (filed with the Form 10-K of Duke Energy Ohio, Inc. (formerly The
Cincinnati Gas & Electric Company) for the year ended December 31, 1993, File No. 1-1232).         
|              | 
|4.8           |  | Loan Agreement between Duke Energy Ohio, Inc. and the State of Ohio Air Quality Development Authority dated as of January 1, 1994 (filed with the Form 10-K of Duke Energy Ohio, Inc. (formerly The Cincinnati Gas & Electric Company) for the year ended December 31, 1993, File No.
1-1232).   
|              | 
|4.9           |  | Loan Agreement between Duke Energy Ohio, Inc. and the State of Ohio Air Quality Development Authority dated August 1, 2001 (filed with the Form 10-Q of Duke Energy Ohio, Inc. (formerly The Cincinnati
Gas & Electric Company) for the quarter ended September 30, 2001, File No. 1-1232).      
|              | 
|4.10          |  | Original Indenture (Unsecured Debt Securities) between Duke Energy Ohio, Inc. and The Fifth Third Bank dated as of May 15, 1995 (filed with the registration statement on Form 8-A, filed on
July 24, 1995, File No. 1-1232).                                                                    
|              | 
|4.10.1        |  | First Supplemental Indenture between Duke Energy Ohio, Inc. and The Fifth Third Bank dated as of June 1, 1995 (filed with the Form 10-Q of Duke Energy Ohio, Inc. (formerly The Cincinnati Gas &
Electric Company) for the quarter ended June 30, 1995, File No. 1-1232).                        
|              | 
|4.10.2        |  | Second Supplemental Indenture between Duke Energy Ohio, Inc. and The Fifth Third Bank dated as of June 30, 1995 (filed with the registration statement on Form 8-A, filed on July 24, 1995, File No.
1-1232).                                                                                    
|              | 
|4.10.3        |  | Third Supplemental Indenture between Duke Energy Ohio, Inc. and The Fifth Third Bank dated as of October 9, 1997 (filed with the Form 10-Q of Duke Energy
Ohio, Inc. (formerly The Cincinnati Gas & Electric Company) for the quarter ended September 30, 1997, File No. 1-1232).                
|              | 
|4.10.4        |  | Fourth Supplemental Indenture between Duke Energy Ohio, Inc. and The Fifth Third Bank dated as of April 1, 1998 (filed with the Form 10-Q of Duke Energy Ohio, Inc. (formerly The Cincinnati Gas &
Electric Company) for the quarter ended March 31, 1998, File No. 1-1232).                     
|              | 
|4.10.5        |  | Fifth Supplemental Indenture between Duke Energy Ohio, Inc. and The Fifth Third Bank dated as of June 9, 1998 (filed with the Form 10-Q of Duke Energy Ohio, Inc. (formerly The Cincinnati Gas &
Electric Company) for the quarter ended June 30, 1998, File No. 1-1232).                        
|              | 
|4.10.6        |  | Sixth Supplemental Indenture between Duke Energy Ohio, Inc. and The Fifth Third Bank dated as of September 15, 2002 (filed with the Form 10-Q of Duke Energy Ohio, Inc. (formerly The Cincinnati Gas
& Electric Company) for the quarter ended September 30, 2002, File No. 1-1232).             
|              | 
|4.10.7        |  | Seventh Supplemental Indenture between Duke Energy Ohio, Inc. and The Fifth Third Bank dated as of June 15, 2003 (filed with the Form 10-Q of Duke Energy Ohio, Inc. (formerly The Cincinnati Gas &
Electric Company) for the quarter ended June 30, 2003, File No. 1-1232).                     
|              | 
|4.11          |  | Loan Agreement between Duke Energy Ohio, Inc. and the Ohio Air Quality Development Authority dated as of September 1, 2002 (filed with the Form 10-Q of Duke Energy Ohio, Inc. (formerly The Cincinnati
Gas & Electric Company) for the quarter ended September 30, 2002, File No. 1-1232).      



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##### Table of Contents

PART IV



|              |  |                                                                                                                                                                                                                                                                                                                                                                      
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  |                                                                                                                                                                                                                                                                                                                                                                      
|4.12          |  | Loan Agreement between Duke Energy Ohio, Inc. and the Ohio Air Quality Development Authority dated as of November 1, 2004, relating to Series A (filed with the Form 8-K of Duke Energy Ohio, Inc.
(formerly The Cincinnati Gas & Electric Company), filed on November 19, 2004, File No. 1-1232).                                                                   
|              | 
|4.13          |  | Loan Agreement between Duke Energy Ohio, Inc. and the Ohio Air Quality Development Authority dated as of November 1, 2004, relating to Series B (filed with the Form 8-K of Duke Energy Ohio, Inc.
(formerly The Cincinnati Gas & Electric Company), filed on November 19, 2004, File No. 1-1232).                                                                   
|              | 
|10.1          |  | Employment Agreement dated February 4, 2004, among Cinergy Corp., Duke Energy Ohio, Inc., and Duke Energy, Indiana, Inc., and James E. Rogers (filed with Form 10-K of Duke Energy Ohio, Inc. (formerly
The Cincinnati Gas & Electric Company) for the year ended 12/31/03, File No. 1-1232).                                                                        
|              | 
|10.2          |  | Amended and Restated Employment Agreement dated October 11, 2002, among Cinergy Corp., Services, Duke Energy Ohio, Inc., and Duke Energy Indiana, Inc., and William J. Grealis (filed with Form 10-K of
Duke Energy Ohio, Inc. (formerly The Cincinnati Gas & Electric Company) for the year ended 12/31/02, File No. 1-1232).                                       
|              | 
|10.2.1        |  | Amended Employment Agreement effective December 17, 2003 to Employment Agreement dated October 11, 2002, among Cinergy Corp., Services, Duke Energy Ohio, Inc., and Duke Energy Indiana, Inc., and
William J. Grealis (filed with Form 10-K of Duke Energy Ohio, Inc. (formerly The Cincinnati Gas & Electric Company) for the year ended 12/31/03, File No. 1-1232).
|              | 
|10.3          |  | Amended and Restated Employment Agreement dated October 1, 2002, among Cinergy Corp., Services, Duke Energy Ohio, Inc., and Duke Energy Indiana, Inc., and Donald B. Ingle, Jr. (filed with Form
10-K of Duke Energy Ohio, Inc. (formerly The Cincinnati Gas & Electric Company) for the year ended 12/31/02, File No. 1-1232).                                      
|              | 
|10.4          |  | Amended and Restated Employment Agreement dated September 12, 2002, among Cinergy Corp., Services, Duke Energy Ohio, Inc., and Duke Energy Indiana, Inc., and Michael J. Cyrus (filed with Form 10-K of
Duke Energy Ohio, Inc. (formerly The Cincinnati Gas & Electric Company) for the year ended 12/31/02, File No. 1-1232).                                       
|              | 
|10.4.1        |  | Amended Employment Agreement effective December 17, 2003 to Employment Agreement dated September 12, 2002, among Cinergy Corp., Services, Duke Energy Ohio, Inc., and Duke Energy Indiana, Inc.,
and Michael J. Cyrus (filed with Form 10-K of Duke Energy Ohio, Inc. (formerly The Cincinnati Gas & Electric Company) for the year ended 12/31/03, File No. 1-1232).
|              | 
|10.4.2        |  | Form of amendment to employment agreement, adopted and effective December 14, 2005, between Services and each of Michael J. Cyrus and James L. Turner (filed with Form 10-K of Duke Energy Ohio,
Inc. (formerly The Cincinnati Gas & Electric Company) for the year ended 12/31/02, File No. 1-1232).                                                                
|              | 
|10.5          |  | Amended and Restated Employment Agreement dated September 24, 2002, among Cinergy Corp., Services, Duke Energy Ohio, Inc., and Duke Energy Indiana, Inc., and James L. Turner (filed with Form 10-K of
Duke Energy Ohio, Inc. (formerly The Cincinnati Gas & Electric Company) for the year ended 12/31/03, File No. 1-1232).                                        
|              | 
|10.5.1        |  | Amended Employment Agreement effective December 17, 2003 to Employment Agreement dated September 24, 2002, among Cinergy Corp., Services, Duke Energy Ohio, Inc., and Duke Energy Indiana, Inc.,
and James L. Turner (filed with Form 10-K of Duke Energy Ohio, Inc. (formerly The Cincinnati Gas & Electric Company) for the year ended 12/31/03, File No. 1-1232). 
|              | 
|10.6          |  | Employment Agreement dated November 15, 2002, among Cinergy Corp., Duke Energy Ohio, Inc., and Duke Energy Indiana, Inc. and Marc E. Manly (filed with Form 10-K of Duke Energy Ohio, Inc. (formerly
The Cincinnati Gas & Electric Company) for the year ended 12/31/03, File No. 1-1232).                                                                           
|              | 
|10.6.1        |  | Amended Employment Agreement effective December 17, 2003 to Employment Agreement dated November 15, 2002, among Cinergy Corp., Duke Energy Ohio, Inc., and Duke Energy Indiana, Inc., and Marc E.
Manly (filed with Form 10-K of Duke Energy Ohio, Inc. (formerly The Cincinnati Gas & Electric Company) for the year ended 12/31/03, File No. 1-1232).              
|              | 
|10.7          |  | Deferred Compensation Agreement between Duke Energy Ohio, Inc. and Jackson H. Randolph dated January 1, 1992 (filed with Form 10-K of Duke Energy Ohio, Inc. (formerly The Cincinnati Gas &
Electric Company) for the year ended 12/31/92, File No. 1-1232).                                                                                                         



E-3



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##### Table of Contents

PART IV



|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|              | 
|10.8          |  | Split Dollar Insurance Agreement, effective as of May 1, 1993, between Duke Energy Ohio, Inc. and Jackson H. Randolph (filed with Form 10-K of Duke Energy Ohio, Inc. (formerly The Cincinnati Gas
& Electric Company) for the year ended 12/31/94, File No. 1-1232).                                                                                                                                                                                                                                                                                                                                                                                                    
|              | 
|10.9          |  | Amended and Restated Supplemental Retirement Income Agreement between Duke Energy Ohio, Inc. and Jackson H. Randolph dated January 1, 1995 (filed with Form 10-K of Duke Energy Ohio, Inc. (formerly
The Cincinnati Gas & Electric Company) for the year ended 12/31/95, File No. 1-1232).                                                                                                                                                                                                                                                                                                                                                                               
|              | 
|10.10         |  | Amended and Restated Supplemental Executive Retirement Income Agreement between Duke Energy Ohio, Inc. and certain executive officers (filed with Form 10-K of Duke Energy Ohio, Inc. (formerly The
Cincinnati Gas & Electric Company) for the year ended 12/31/97, File No. 1-1232).                                                                                                                                                                                                                                                                                                                                                                                    
|              | 
|10.11         |  | Asset Purchase Agreement by and among Duke Energy Indiana, Inc. and Duke Energy Ohio, Inc. and Allegheny Energy Supply Company, LLC, Allegheny Energy Supply Wheatland Generating Facility, LLC and Lake
Acquisition Company, L.L.C., dated as of May 6, 2005 (filed with Form 10-Q of Duke Energy Ohio, Inc. (formerly The Cincinnati Gas & Electric Company) for the quarter ended June 30, 2005, File No. 1-1232).                                                                                                                                                                                                                                                    
|              | 
|10.12         |  | $2,000,000,000 Amended and Restated Credit Agreement among the registrant, such subsidiaries, the banks listed therein, Barclays Bank PLC, as Administrative Agent, and JPMorgan Chase Bank, N.A., as
Syndication Agent (filed with Form 10-Q of Duke Energy Ohio, Inc. (formerly The Cincinnati Gas & Electric Company) for the quarter ended June 30, 2006, File No. 1-1232).                                                                                                                                                                                                                                                                                          
|              | 
|10.12.1       |  | $2,650,000,000 Amended and Restated Credit Agreement, dated as of June 28, 2007, among Duke Energy Corporation, Duke Energy Carolinas, LLC, Duke Energy Ohio, Inc., Duke Energy Indiana, Inc. and Duke
Energy Kentucky, Inc., as Borrowers, the banks listed therein, Wachovia Bank, National Association, as Administrative Agent, JPMorgan Chase Bank, National Association, Barclays Bank PLC, Bank of America, N.A. and Citibank, N.A., as Co-Syndication
Agents and The Bank of Tokyo-Mitsubishi, Ltd., New York Branch and Credit Suisse, as Co-Documentation Agents (filed in Form 8-K of Duke Energy Ohio, Inc., July 5, 2007, File No. 1-1232, as Exhibit 10.1).
|              | 
|10.13         |  | Keepwell Agreement, dated April 10, 2006, between Duke Capital LLC and Duke Energy Ohio, Inc. (filed with Form 10-K of Duke Energy Ohio, Inc. (formerly The Cincinnati Gas & Electric Company),
filed on April 14, 2006, File No. 1-1232).                                                                                                                                                                                                                                                                                                                                                                                                                               
|              | 
|*12           |  | Computation of Ratio of Earnings to Fixed Charges.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|              | 
|*23.1         |  | Consent of Independent Registered Public Accounting Firm.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|              | 
|*31.1         |  | Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|              | 
|*31.2         |  | Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|              | 
|*32.1         |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|              | 
|*32.2         |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  



The total amount of securities
of the registrant or its subsidiaries authorized under any instrument with respect to long-term debt not filed as an exhibit does not exceed 10% of the total assets of the registrant and its subsidiaries on a consolidated basis. The registrant
agrees, upon request of the Securities and Exchange Commission, to furnish copies of any or all of such instruments to it.



E-4