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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-K

/x/  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year endedDecember 31, 1999or/ /  TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE 
SECURITIES EXCHANGE ACT OF 1934For the transition period from            to

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|Commission
File Number |  | Registrant, State of Incorporation,
Address and Telephone Number |  | I.R.S. Employer
Identification No.
|---------------------- |  | ---------------------------------------------------------------- |  | ----------------------------------
|1-11377                |  | CINERGY CORP.                                                    |  | 31-1385023                        
|                       |  | (A Delaware Corporation)                                         |  |                                   
|                       |  | 139 East Fourth Street                                           |  |                                   
|                       |  | Cincinnati, Ohio 45202                                           |  |                                   
|                       |  | (513) 287-2644                                                   |  |                                   
|1-1232                 |  | THE CINCINNATI GAS & ELECTRIC COMPANY                            |  | 31-0240030                        
|                       |  | (An Ohio Corporation)                                            |  |                                   
|                       |  | 139 East Fourth Street                                           |  |                                   
|                       |  | Cincinnati, Ohio 45202                                           |  |                                   
|                       |  | (513) 287-2644                                                   |  |                                   
|1-3543                 |  | PSI ENERGY, INC.                                                 |  | 35-0594457                        
|                       |  | (An Indiana Corporation)                                         |  |                                   
|                       |  | 1000 East Main Street                                            |  |                                   
|                       |  | Plainfield, Indiana 46168                                        |  |                                   
|                       |  | (513) 287-2644                                                   |  |                                   
|2-7793                 |  | THE UNION LIGHT, HEAT AND POWER COMPANY                          |  | 31-0473080                        
|                       |  | (A Kentucky Corporation)                                         |  |                                   
|                       |  | 139 East Fourth Street                                           |  |                                   
|                       |  | Cincinnati, Ohio 45202                                           |  |                                   
|                       |  | (513) 287-2644                                                   |  |                                   

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Each of the following classes or series of securities registered pursuant to Section 12(b) of the Act is registered on the New York
Stock Exchange:

|Registrant                            |  | Title of each class            | 
|------------------------------------- |  | ------------------------------ | 
|Cinergy Corp.                         |  | Common Stock                   | 
|The Cincinnati Gas & Electric Company |  | Cumulative Preferred Stock     | 
|                                      |  | Junior Subordinated Debentures | 
|PSI Energy, Inc.                      |  | Cumulative Preferred Stock     | 
|                                      |  | Cumulative Preferred Stock     | 
|                                      |  | Cumulative Preferred Stock     | 

---

Securities
registered pursuant to Section 12(g) of the Act: None

Indicate
by check mark whether each 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 such 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
registrants' 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)

Requirements
pursuant to Item 405 of Regulation S-K are not applicable forThe Union Light, Heat and Power Company.

The Union Light, Heat and Power Companymeets the conditions set forth in General Instruction I (1)(a) and (b) of
Form 10-K and is therefore filing this Form 10-K with the reduced disclosure format specified in General Instruction I (2) of Form 10-K.

As
of February 29, 2000, the aggregate market value of the common equity ofCinergy Corp.held by nonaffiliates (shareholders who
are not directors or executive officers) was $3.3 billion. All of the common stock ofThe Cincinnati Gas & Electric Companyand PSI Energy, Inc.is owned byCinergy Corp., and all of the common stock ofThe
Union Light, Heat and Power Companyis owned byThe Cincinnati Gas & Electric Company. As of February 29, 2000, each
registrant had the following shares of common stock outstanding:

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|Registrant                              |  | Description                                    |  | Shares     
|--------------------------------------- |  | ---------------------------------------------- |  | -----------
|Cinergy Corp.                           |  | Par value $.01 per share                       |  | 158,923,399
|The Cincinnati Gas & Electric Company   |  | Par value $8.50 per share                      |  | 89,663,086 
|PSI Energy, Inc.                        |  | Without par value, stated value $.01 per share |  | 53,913,701 
|The Union Light, Heat and Power Company |  | Par value $15.00 per share                     |  | 585,333    

---

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement ofCinergy Corp.dated March 15, 2000, and the Information
Statement ofPSI Energy, Inc.dated March 22, 2000, are incorporated by reference into Part III of this report.

This
combined Form 10-K is separately filed byCinergy Corp.,The Cincinnati Gas &
Electric Company,PSI Energy, Inc., andThe Union Light, Heat and Power
Company. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. Each registrant makes no representation as to
information relating to registrants other than itself.

---

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## 

PART I.

ITEM 1.  BUSINESS

GENERAL DEVELOPMENTS

In 1996, the Securities and Exchange Commission (SEC) wrote guidelines to help make shareholder communications more understandable. These guidelines were
termed "plain English". This year, we have written our annual report in accordance with these guidelines. Our objective is to present a more user-friendly, understandable, and
logically-flowing document for our readers.

In
connection with this change, we (which includesCinergy Corp.and all of our regulated and non-regulated subsidiaries,
alsoCinergy) are, at times, referred to in the first person ("we", "our", or "us").

ORGANIZATION

Cinergy Corp., a Delaware corporation created in October 1994, owns all outstanding common stock of The
Cincinnati Gas & Electric Company (CG&E) and PSI Energy, Inc. (PSI), both of which are
public utility subsidiaries. As a result of this ownership, we are considered a utility holding company. Because we are a holding company whose utility subsidiaries operate in multiple states, we are
registered with and are subject to regulation by the SEC under the Public Utility Holding Company Act of 1935, as amended (PUHCA). Our other direct subsidiaries are:



CG&E, an Ohio corporation, is a combination electric and gas public utility company that provides service in the southwestern portion
of Ohio and, through its subsidiaries, in nearby areas of Kentucky and Indiana. It has five wholly-owned utility subsidiaries and one wholly-owned non-utility subsidiary. CG&E'sprincipal utility
subsidiary, The Union Light, Heat and Power Company (ULH&P), is a Kentucky
corporation that provides electric and gas service in northern Kentucky.CG&E'sother subsidiaries are insignificant to its results of operations.

PSI, an Indiana corporation, is an electric utility that provides service in north central, central, and southern Indiana.

3



The
following table presents further information related to the operations of our domestic utility subsidiaries (our operating companies):

|                     |  | Principal
Line(s) of Business |  | Major Cities Served                                             |  | Approximate
Population
Served                                                       
|-------------------- |  | ----------------------------- |  | --------------------------------------------------------------- |  | ------------------------------------------------------------------------------------
|CG&Eand subsidiaries |  |                              |  | Generation, transmission, distribution, and sale of electricity |  | Cincinnati, OH
Middletown, OH
Covington, KY                                         
|                     |  |                              |  | Sale and/or transportation of natural gas                       |  | Florence, KY
Newport, KY
Lawrenceburg, IN                                           
|PSI                  |  |                              |  | Generation, transmission, distribution, and sale of electricity |  | Bloomington, IN
Columbus, IN
Kokomo, IN
Lafayette, IN
New Albany, IN
Terre Haute, IN
|ULH&P                |  |                              |  | Transmission, distribution, and sale of electricity             |  | Covington, KY
Florence, KY                                                          
|                     |  |                              |  | Sale and transportation of natural gas                          |  | Newport, KY                                                                         

Services
is a service company that provides our regulated and non-regulated subsidiaries with a variety of centralized administrative, management, and support services.
Investments holds most of our domestic non-regulated businesses and investments. Global Resources primarily holds our international businesses and investments.

We
had 8,950 employees at December 31, 1999, of whom 947 were employed by our international subsidiaries. We have collective bargaining agreements with the International
Brotherhood of Electrical Workers (IBEW), the United Steelworkers of America (USWA), the Independent Utilities Union (IUU), and various international union organizations. The following table indicates
the number of employees by classification:

|Classification |  | Cinergy |     | CG&E  |     | PSI   |     | ULH&P |    
|-------------- |  | ------- | --- | ----- | --- | ----- | --- | ----- | ---
|IBEW           |  | 2,795   |     | 1,097 | (1) | 1,308 | (4) | 62    | (1)
|USWA           |  | 402     |     | 291   | (2) | N/A   |     | 87    | (2)
|IUU            |  | 985     |     | 490   | (3) | N/A   |     | 66    | (3)
|Non-Bargaining |  | 3,821   |     | 369   |     | 672   |     | 21    |    
|International  |  | 947     | (5) | N/A   |     | N/A   |     | N/A   |    
|               |  |         |     |       |     |       |     |       |    
|               |  | 8,950   |     | 2,247 |     | 1,980 |     | 236   |    

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4





BUSINESS UNITS

We conduct operations through our subsidiaries, and we manage through the following four business units:



The
following section describes the activities of our business units. (See Note 15 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary
Data" on page 137 for financial information by business unit.)

Commodities

Commodities operates and maintains our domestic electric generating plants and some of our jointly-owned plants. As of December 31, 1999, the total
winter electric capability (including our portion of the total capacity for the jointly-owned plants) of these generating plants was 11,221 megawatts (MW, the basic unit of electric energy equal to
1 million watts) of electricity. These plants are mostly coal fired. (See "Item 2. Properties" on page 12 for a further discussion of the generating facilities.) Commodities also conducts the
following activities: (1) wholesale energy marketing and trading, (2) energy risk management, (3) financial restructuring services, and (4) proprietary arbitrage
activities. (See the "Market Risk Sensitive Instruments and Positions" section of "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 61 for
information on risks associated with these activities.)

Fuel SupplyEach year, throughCG&Eand PSI, we purchase
approximately 28 million tons of coal to generate electricity. The majority of this coal is obtained through
long-term coal supply agreements. The remaining coal is purchased either on the spot market or through short-term supply agreements. We receive our coal supply primarily from
mines located in West Virginia, Ohio, Kentucky, Indiana, Illinois, and Pennsylvania.

Commodities
monitors alternative sources of coal to assure a continuing availability of economical fuel supplies. As such, it will maintain its practice of purchasing a portion of
coal requirements on the spot market and will continue to investigate least-cost coal options in connection with compliance with the 1990 amendments to the Clean Air Act (CAA). (See the
"Environmental Issues" section of "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 27 for further information.)

CG&EandPSIbelieve that they can continue to obtain enough coal to meet future needs.
However, future environmental requirements may significantly impact the availability and price of coal.

Purchased PowerIn addition to the purchase of power to meet the energy needs of our wholesale
customers, we have to, based on factors such as outages, extreme weather conditions, growth, and other factors associated with supplying full requirements electricity, purchase power to meet the
requirements of our retail native load customers (end-use customers within our operating companies' franchise service territory). We believe we can obtain enough purchased power to meet
future needs. However, during
periods of excessive demand, such as those which occurred in the summers of 1999 and 1998, the price and availability of these purchases may be significantly impacted. (See the "Significant Rate
Developments" section of "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 60 for additional information on PSI'sproposed Purchased Power Tracker.)

5



Environmental MattersThe Acid Rain Program of the 1990 amendments to the CAA required
reductions in both sulfur dioxide and nitrogen oxide (NOX) emissions from utility sources. Our estimate for compliance with the NOX limits proposed in 1998 and the related
rulemakings is currently $500 million to $700 million (in 1999 dollars) by May 2003, approximately $105 million of which is estimated to be spent in 2000. In 1999, we spent
$16 million for other environmental compliance activities as compared to $18 million in 1998. Forecasted expenditures for other environmental compliance activities are $5 million
for 2000 and $35 million for 2000-2004. (See the "Environmental Issues" and "Construction" sections of "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations" beginning on page 27 for further information.)

Delivery

Delivery plans, constructs, operates, and maintains our operating companies' transmission and distribution systems and provides gas and electric energy to
customers. Delivery operated 44,799 circuit miles (the total length in miles of separate circuits) of electric lines to provide regulated transmission and distribution service to 1.5 million
customers as of December 31, 1999. Delivery operated 7,543 miles of gas mains (gas distribution lines that serve as a common source of supply for more than one service line) and service lines
to provide regulated transmission and distribution service to approximately 478,000 customers as of December 31, 1999. (See "Item 2. Properties" on page 12 for a further discussion of the
transmission and distribution lines owned by our operating companies.)

Electric OperationsDelivery (through our operating companies) and other
non-affiliated utilities in an eight-state region participate in the East Central Area Reliability Coordination Agreement (ECAR Agreement). The ECAR Agreement coordinates the planning and
operation of generation and transmission facilities, which provides for maximum reliability of regional bulk power supply. (See the "Midwest ISO" section of "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations" on page 60 for a discussion of our involvement in a coalition for operation of a regional transmission system.)

6



The
following map illustrates the interconnections between our electric systems and other utilities.

[MAP TO GO HERE]

7



Electricity SupplyDelivery currently receives all of its electricity from Commodities at a
transfer price based upon current regulatory ratemaking methodology. When electric deregulation legislation is implemented in Ohio, Delivery may continue to make some electricity purchases through
Commodities, but will also receive some electric commodity from other suppliers as customers begin choosing alternatives. (See the "Retail Market Developments" section of "Item 7. Management's
Discussion and
Analysis of Financial Condition and Results of Operations" on page 54 for a discussion of comprehensive electric deregulation legislation that was passed in Ohio on July 6, 1999.)

ULH&Ppurchases its energy fromCG&Epursuant to a Federal Energy Regulatory Commission
(FERC)-approved contract that expires January 1, 2002.

Gas SupplyDelivery is responsible for the purchase and the subsequent delivery of natural gas
to native load customers. In 1999, firm supply (gas intended to be available at all times) purchase commitment agreements provided approximately 50% of the natural gas supply. The remaining gas was
purchased on the spot market. These firm supply agreements feature two levels of gas supply, specifically (1) base load, which is a continuous supply to meet normal demand requirements, and
(2) swing load, which is gas available on a daily basis to accommodate changes in demand. Delivery pays reservation charges for base load and swing load supplies. These charges secure delivery
from the supplier during periods of extreme weather or high demand. (See the "Gas Industry" section of "Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations" on page 67 for further information.)

Interstate
pipelines either (1) transport gas purchased directly to the distribution systems or (2) inject gas purchased into pipeline storage facilities for future
withdrawal and delivery. The majority of the gas supply comes from the Gulf of Mexico coastal areas of Texas and Louisiana. In addition, a limited supply comes from the Appalachian region, from the
mid-continent (Arkansas-Oklahoma) basin, and from methane gas recovered from an Ohio landfill. Delivery expects the natural gas market will remain competitive in future years. However,
short-term price fluctuations could occur as a result of weather conditions, supply, demand, and storage inventories.

Revenue Data and Customer BaseThe percent of operating revenues derived from electricity sales
and from the sale and/or transportation of natural gas for the years ended December 31 were as follows:

|                      |  | Operating Revenues
|--------------------- |  | ------------------
|
|
|Cinergy               |  | 73                
|CG&E and subsidiaries |  | 85                
|PSI                   |  | 100               
|ULH&P                 |  | 75                

Electric
and gas sales are seasonal. Electricity usage peaks during the summer and gas usage peaks during the winter. Air conditioning increases electricity demand and heating
increases the demand for electricity and gas.

The
service territory ofCG&Eand its utility subsidiaries, includingULH&P, is heavily
populated and is characterized by a stable residential customer base and a diverse mix of industrial customers. The territory served byPSIis composed
of residential, agricultural, and widely diversified industrial customers. No single customer provides more than 10% of operating revenues (electric or gas) for any of our operating companies.

8



Cinergy Investments

Cinergy Investments manages the development, marketing, and sales of our domestic non-regulated retail energy and energy-related products and
services. This is accomplished through various subsidiaries and joint ventures. These products and services include the following:



International

International directs and manages our international business holdings, which include wholly- and jointly-owned companies in six countries. In addition,
International also directs our renewable energy investing activities (for example, wind farms) both inside and outside the United States (U.S.).

On
July 15, 1999, we sold our 50% ownership interest in Avon Energy Partners Holdings (Avon Energy), the parent company of Midlands Electricity plc (Midlands), to
GPU, Inc. (GPU). Prior to the sale, Midlands had provided the majority of International's earnings. Currently, the majority of International's remaining investments are in companies located in
the Czech Republic. (See Note 10 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" on page 126 for further information on the sale of our
ownership interest in Avon Energy.)

International
continues to pursue energy-related investment opportunities in international businesses and in domestic renewable energy opportunities. The timing of these investments
depends on changing market conditions and regulatory approvals. Our international investments present certain risks, including foreign exchange risk. (See the "Market Risk Sensitive Instruments and
Positions" section of "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 61 for further information on these risks and how we address our exposure
to them.)

OTHER DEVELOPMENTS

During 1998, the SEC issued an order under the PUHCA permitting us to invest amounts up to 100% of our consolidated retained earnings (for these purposes,
computed as the average consolidated retained earnings of the four most recent quarterly periods) in foreign utility companies (FUCOs, which are companies all of whose utility assets and operations
are located outside the U.S. and which are used for the generation, transmission, or distribution of electric energy for sale, or the distribution of gas at retail) and exempt wholesale generators
(EWGs, which are special-purpose entities that own or operate domestic or foreign electric generating facilities whose power is sold entirely at wholesale). At December 31, 1999, consolidated
retained earnings were approximately $1 billion, and our total investment in EWGs and FUCOs was approximately $580 million.

On
November 16, 1999, we filed a request with the SEC under the PUHCA for additional authority to, among other things, (1) issue and/or sell additional debt and common
stock, and (2) increase the amount
we can invest in EWGs and FUCOs, as further discussed in the "Capital Resources" section of "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 38.
While we currently cannot predict the outcome of this request, the existing limits could restrict our ability to invest in desired transactions.

9



FUTURE EXPECTATIONS/TRENDS, CAPITAL RESOURCES, AND YEAR 2000

See the information appearing under the same captions in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations"
beginning on page 25 for discussions of "Future Expectations/Trends", "Capital Resources", and "Year 2000". Comprehensive electric deregulation legislation was passed in Ohio on July 6, 1999,
as further discussed in the "Retail Market Developments" section of "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 54. If CG&E'sProposed
Transition Plan is approved, it will materially affect the nature ofCG&E'soperations.

ITEM 2. PROPERTIES

COMMODITIES

Our operating companies' total winter electric capabilities reflected in MW (MW is the basic unit of electric energy equal to 1 million watts), as of
December 31, 1999, are shown in the table that follows. Our electric generating plants are located in Ohio, Kentucky, and Indiana and are wholly- or jointly-owned facilities.

|Registrant(1) |  | Stations |  | Coal
MW |  | Natural
Gas
MW |  | Oil
MW |  | Hydro
MW |  | Total
MW
|------------- |  | -------- |  | ------- |  | -------------- |  | ------ |  | -------- |  | --------
|CG&E          |  | 9        |  | 4,186   |  | 736            |  | 323    |  |         |  | 5,245   
|PSI           |  | 8        |  | 5,550   |  | 120            |  | 261    |  | 45       |  | 5,976   
|              |  |          |  |         |  |                |  |        |  |          |  |         
|Cinergy       |  | 17       |  | 9,736   |  | 856            |  | 584    |  | 45       |  | 11,221  
|              |  |          |  |         |  |                |  |        |  |          |  |         

---

During
July 1999, we incurred peak loads of 5,041 MW forCG&Eand 5,637 MW for PSI. We are forecasting our peak load and kilowatt hour (kWh, kilowatt hour
is the basic unit of electric energy equal to 1,000 watts supplied for one
hour continuously) sales to each have an annual growth of 2% forCG&E, and 1% forPSIfor the period
2000 through 2004. This forecast includes the following assumptions:



This
forecast excludes non-firm power transactions (a non-guaranteed commitment to deliver power) and any potential off-system (purchases in the
open market), long-term firm power sales.

On
September 30, 1999, one of our non-regulated subsidiaries formed a partnership with Duke Energy North America LLC. This partnership will jointly construct and
own three wholesale generating facilities to be located in southwestern Ohio, and east central and western Indiana, with total capacity of approximately 1,400 MW. These facilities will be natural
gas-fired peaking stations with commercial operations anticipated for the summer of 2000. Our portion (50%) of the output will be sold to and marketed by Cinergy Capital & Trading
(a wholly-owned subsidiary of Investments) or anotherCinergyaffiliate.

10



During
1999, our electric generating plants operated reliably, as evidenced by our annual capacity factor of 69% (excluding natural gas peaking stations), and at satisfactory levels
of utilization. A capacity factor is a percentage that tells how much of a power plant's capacity is used over time.

Comprehensive
electric deregulation legislation was passed in Ohio on July 6, 1999, as further discussed in the "Retail Market Developments" section of "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" on page 54. IfCG&E'sProposed Transition Plan is approved it will materially
affect the nature ofCG&E'soperations.

DELIVERY

Electric

The electric transmission and distribution systems (excluding our proportionate share of jointly-owned facilities) for our operating companies, as of
December 31, 1999, are indicated in the following table:

|Registrant           |  | Electric
Transmission
Systems |  | Electric
Distribution
Systems |  | Substation
Combined
Capacity
|-------------------- |  | ----------------------------- |  | ----------------------------- |  | ----------------------------
|
|CG&E                 |  | 1,635                         |  | 15,113                        |  | 20,500,554                  
|ULH&P                |  | 105                           |  | 2,598                         |  | 1,090,798                   
|Other subsidiaries   |  | 40                            |  | 10                            |  |                            
|                     |  |                               |  |                               |  |                             
|CG&Eand subsidiaries |  | 1,780                         |  | 17,721                        |  | 21,591,352                  
|PSI                  |  | 5,252                         |  | 20,046                        |  | 28,570,000                  
|                     |  |                               |  |                               |  |                             
|Cinergy              |  | 7,032                         |  | 37,767                        |  | 50,161,352                  
|                     |  |                               |  |                               |  |                             

---

Our
operating companies' electric systems are interconnected with thirteen other utilities. Refer to the map on page 8 illustrating these interconnected utility companies.

Our
electric transmission and distribution systems are designed and constructed to further the goal of providing reliable service to our customers. Every effort is made to ensure that
sufficient facilities are in service to meet this goal without installing facilities beyond what is required to operate reliably and within design or designed parameters. Through our ongoing review of
these systems, enhancements are developed and constructed to meet our planning, loading, and reliability guidelines. This process allows us to prudently invest in capacity additions only when and
where they are required.

During
1998, the FERC approved the formation of the Midwest Independent Transmission System Operator, Inc. (Midwest ISO), which is further discussed in the "Midwest ISO"
section of "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 60. The Midwest ISO will oversee the combined transmission systems of its 14 current
members. This joint effort will help to facilitate a reliable and efficient market for electric power and facilitate open transmission access consistent with FERC policies.

Gas

As of December 31, 1999, the natural gas transmission and distribution systems ofCG&Eand its
subsidiaries had 7,543 miles of mains and service lines located in southwestern Ohio, southeastern Indiana, and northern Kentucky.CG&Eand its
subsidiaries also own three underground caverns with a total storage capacity of 23 million gallons of liquid propane. As of December 31, 1999, we had 20 million gallons of liquid
propane in storage. This liquid propane is used in the three propane/air

11



peak
shaving plants located in Ohio and Kentucky. These plants convert liquid propane into natural gas to be used only during peak demand periods and emergencies. During 1999, CG&Eand its subsidiaries'
natural gas transmission and distribution systems operated reliably, at a load factor of 30%, and at satisfactory levels of
utilization. Load factor is used to indicate the percentage of capacity of an energy facility, such as gas distribution, that is utilized at a given period of time.

CINERGY INVESTMENTS

As of December 31, 1999, we have ownership interest and/or operating control in cogeneration (simultaneous production of two or more forms of useable
energy from a single fuel source) plants producing 312 MW of electricity through our various Trigen-Cinergy Solutions LLC (Trigen-Cinergy) joint ventures. Trigen-Cinergy builds, owns, operates, and
maintains combined heat and power facilities for large industrial customers. During 2000, Trigen-Cinergy anticipates starting construction of three new cogeneration plants which will produce an
additional 45 MW of electricity.

INTERNATIONAL

As of December 31, 1999, our international subsidiaries and jointly-owned investments had ownership interests in generating plants producing 164 MW of
electricity. In addition, we own four district heating plants and have a minority interest in a fifth district heating plant in the Czech Republic that, in total, provide 1,480 MW of thermal steam
capacity, which may be used to produce 186 MW of electricity. We also own interests in 1,243 miles of transmission and distribution systems through jointly-owned investments. We serve 40,000
transmission and distribution customers, 518 retail district heating and district electric customers, and 106 wholesale heating and electric customers.

On
July 15, 1999, we sold our 50% ownership interest in Avon Energy to GPU. See Note 10 of the "Notes to Financial Statements" in "Item 8. Financial Statements and
Supplementary Data" on page 126 for further information.

GENERAL INFORMATION

The utility property of bothCG&EandPSIare subject to the
lien of each applicable company's first mortgage bond indenture.

ITEM 3. LEGAL PROCEEDINGS

NEW SOURCE REVIEW AND NOTICES OF VIOLATION

See Notes 12(c) and (e) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" beginning on page 132 for a
discussion of the lawsuit and notices of violation filed by the U.S. Environmental Protection Agency againstCinergy, CG&E, andPSI.

MANUFACTURED GAS PLANT CLAIMS

See Note 12(d) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" on page 133 for a further discussion of
manufactured gas plant sites as they relate to our operating companies.

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

No matters were submitted to a vote of security holders forCinergy, CG&E, orPSIduring the fourth quarter of 1999.

12



EXECUTIVE OFFICERS

The names of the executive officers of each registrant, their ages (as of December 31, 1999), the positions they hold, held, or have been elected to as
of this report filing date, and their business experience during the past five years appear below.

|                        |  |    |  | Positions and Length of Service                                                                                                                                
|----------------------- |  | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|
|
|Vicky A. Bailey(1)      |  | 47 |  |                                                                                                                                                                
|John Bryant(2)          |  | 53 |  | Vice President
1/98 - present                                                                                                                                  
|Michael J. Cyrus(3)     |  | 44 |  | President, Energy
Commodities
Business Unit
3/99 - present
Vice President
4/98 - present
Chief Operating Officer, Energy Commodities
Business Unit
11/98 - 3/99
|Cheryl M. Foley         |  | 52 |  | Vice President and Secretary
3/99 - present
President, International Business Unit
1/97 - present
Vice President, General Counsel, and Secretary
10/94 - 3/99  
|William J. Grealis(4)   |  | 54 |  | Vice President, Corporate Services, and Chief Strategic Officer
8/98 - present
Vice President
1/95 - 8/98                                                      
|J. Joseph Hale, Jr.(5)  |  | 50 |  | Vice President
12/96 - present                                                                                                                                 
|M. Stephen Harkness(6)  |  | 51 |  | Vice President
12/96 - present
General Manager, Corporate Development and Financial Services
10/94 - 12/96                                                     
|Donald B. Ingle, Jr.(7) |  | 50 |  | President, Cinergy Investments
Business Unit
3/99 - present
Vice President
10/97 - present                                                                     

13



|Madeleine W. Ludlow(8) |  | 45 |  | Vice President and Chief Financial Officer
3/99 - present
Vice President
4/98 - 3/99
President, Energy Commodities Business Unit
4/98 - 3/99
Vice President and Chief Financial Officer
4/97 - 4/98                              |  | Vice President and Chief Financial Officer
3/99 - present
Vice President
4/98 - 3/99
Vice President and Chief Financial Officer
4/97 - 4/98                             |  | Vice President and Chief Financial Officer
3/99 - present
Vice President
4/98 - 3/99
Vice President and Chief Financial Officer
4/97 - 4/98                            
|---------------------- |  | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Jackson H. Randolph    |  | 69 |  | Chairman
12/95 - present
Chairman and Chief Executive Officer
10/94 - 12/95                                                                                                                                                      |  | Chairman
12/95 - present
Chairman and Chief Executive Officer
10/94 - 12/95                                                                                             |  | Chairman
12/95 - present
Chairman and Chief
Executive Officer
10/94 - 12/95                                                                                            
|Bernard F. Roberts     |  | 47 |  | Vice President and Comptroller
3/99 - present
Vice President and Chief Financial Officer, Energy Commodities Business Unit
7/96 - 3/99
Assistant Treasurer
12/94 - 7/96                                                          |  | Vice President and Comptroller
3/99 - present
Assistant Treasurer
1/95 - 7/96                                                                                           |  | Vice President and Comptroller
3/99 - present
Assistant Treasurer
12/94 - 7/96                                                                                         
|James E. Rogers        |  | 52 |  | Vice Chairman, President, and Chief Executive Officer
12/95 - present
Vice Chairman, President, and Chief Operating Officer
10/94 - 12/95                                                                                        |  | Vice Chairman and Chief Executive Officer
12/95 - present
Vice Chairman and Chief Operating Officer
10/94 - 12/95                                                       |  | Vice Chairman and Chief Executive Officer
12/95 - present
Vice Chairman and Chief Operating Officer
10/94 - 12/95                                                      
|William L. Sheafer(9)  |  | 56 |  | Vice President and Treasurer
4/97 - 12/99
Treasurer
12/94 - 4/97                                                                                                                                                                 |  | Vice President and Treasurer
4/97 - 12/99
Treasurer
2/87 - 4/97                                                                                                         |  | Vice President and Treasurer
4/97 - 12/99
Treasurer
12/94 - 4/97                                                                                                       
|Larry E. Thomas(10)    |  | 54 |  | Vice President
4/97 - present
President, Energy Delivery Business Unit
5/96 - present
Group Vice President and Chief Transformation Officer
9/95 - 4/97
Group Vice President, Reengineering and Operations Services
10/94 - 9/95 |  | Vice President
4/97 - present
Group Vice President and Chief Transformation Officer
9/95 - 4/97
Group Vice President, Reengineering and Operations Services
1/95 - 9/95 |  | Vice President
4/97 - present
Group Vice President and Chief Transformation Officer
9/95 - 4/97
Group Vice President, Reengineering and Operations Services
1/95 - 9/95
|Andrew M. Turk(9)(11)  |  | 40 |  | Vice President and Treasurer
1/2000 - present                                                                                                                                                                                    |  | Vice President and Treasurer
1/2000 - present                                                                                                                           |  | Vice President and Treasurer
1/2000 - present                                                                                                                          
|                       |  |    |  |                                                                                                                                                                                                                                  |  |                                                                                                                                                                         |  |                                                                                                                                                                        

14



|James L. Turner(12) |  | 40 |  | Vice President
4/99 - present
Senior Counsel
6/95 - 3/97                                                                                                                                       |  | President
2/99 - present                                                                                                                                                                                            |  |                                                                                                                                                                                               
|------------------- |  | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Jerome A. Vennemann |  | 49 |  | Vice President and General Counsel
1/2000 - present
Acting General Counsel
3/99 - 1/2000
Assistant Secretary
12/94 - present
Associate General Counsel
2/96 - 3/99
Senior Counsel
10/94 - 2/96 |  | Vice President and General Counsel
1/2000 - present
Acting General Counsel
3/99 - 1/2000
Secretary
4/98 - present
Associate General Counsel
2/96 - 3/99
Assistant Secretary
1/95 - 4/98
Senior Counsel
10/94 - 2/96 |  | Vice President and General Counsel
1/2000 - present
Acting General Counsel
3/99 - 1/2000
Assistant Secretary
12/94 - present
Associate General Counsel
2/96 - 3/99
Senior Counsel
10/94 - 2/96
|Charles J. Winger   |  | 54 |  | Vice President
3/99 - present
Vice President and Chief Financial Officer
4/98 - 3/99
Vice President
8/97 - 4/98
Vice President and Comptroller
4/97 - 8/97
Comptroller
12/94 - 4/97            |  | Vice President and Chief Financial Officer
4/98 - 3/99
Vice President and Comptroller
4/97 - 8/97
Comptroller
1/95 - 4/97                                                                                           |  | Vice President and
Chief Financial
Officer
4/98 - 3/99
Vice President and
Comptroller
4/97 - 8/97
Comptroller
3/84 - 4/97                                                                     

---

None of the officers are related in any manner. Our executive officers hold the offices set opposite their names until the next annual meeting of the Board of
Directors and until their successors have been elected and qualified.



15









16





## 

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock is listed on the New York Stock Exchange. The high and low stock prices for each quarter for the past two years are indicated below:

|               |  | High |    | Low   |  
|-------------- |  | ---- | -- | ----- | -
|1999           |  |      |    |       |  
|First Quarter  |  | $    | 34 | 1/2   | $
|Second Quarter |  |      | 34 | 3/16  |  
|Third Quarter  |  |      | 32 | 9/16  |  
|Fourth Quarter |  |      | 29 | 1/2   |  
|1998           |  |      |    |       |  
|First Quarter  |  | $    | 38 | 11/16 | $
|Second Quarter |  |      | 37 | 5/16  |  
|Third Quarter  |  |      | 38 | 7/8   |  
|Fourth Quarter |  |      | 39 | 7/8   |  

On
February 29, 2000, the closing price of our common stock was $21.375.

We
hold all ofCG&EandPSIcommon stock, and CG&Eholds allULH
&Pcommon stock. Therefore, no public trading market exists for CG&E,PSIandULH
&P.

As
of February 29, 2000, we had 64,826 common stockholders of record.

We
declared dividends on common stock of $.45 per share for each quarter of 1998 and 1999. The dividends paid by our operating companies for the past two years were as follows:

|Registrant |  | Quarter |  | 1999 |        | 1998 |  
|---------- |  | ------- |  | ---- | ------ | ---- | -
|
|CG&E       |  | First   |  | $    | 71,400 |      | $
|           |  | Second  |  |      | 71,500 |      |  
|           |  | Third   |  |      | 53,600 |      |  
|           |  | Fourth  |  |      | 53,600 |      |  
|PSI        |  | First   |  | $    |       |      | $
|           |  | Second  |  |      |       |      |  
|           |  | Third   |  |      | 17,900 |      |  
|           |  | Fourth  |  |      | 18,000 |      |  
|ULH&P      |  | First   |  | $    |       |      | $
|           |  | Second  |  |      | 4,976  |      |  
|           |  | Third   |  |      |       |      |  
|           |  | Fourth  |  |      | 4,683  |      |  

---

See
Note 2(b) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" on page 109 for a brief description of the registrants' common
stock dividend restrictions.

17



ITEM 6. SELECTED FINANCIAL DATA

|                                                                           |  | 1999(1) |       | 1998 |   | 1997  |  | 1996 |       | 1995
|-------------------------------------------------------------------------- |  | ------- | ----- | ---- | - | ----- |  | ---- | ----- | ----
|
|Cinergy                                                                    |  |         |       |      |   |       |  |      |       |     
|Operating revenues                                                         |  | $       | 5,938 |      | $ | 5,911 |  | $    | 4,387 |     
|Net income before extraordinary item                                       |  |         | 404   |      |   | 261   |  |      | 363   |     
|Net income                                                                 |  |         | 404   |      |   | 261   |  |      | 253   |     
|Common Stock                                                               |  |         |       |      |   |       |  |      |       |     
|Earnings per share (EPS)                                                   |  |         |       |      |   |       |  |      |       |     
|Net income before extraordinary item                                       |  |         | 2.54  |      |   | 1.65  |  |      | 2.30  |     
|Net income                                                                 |  |         | 2.54  |      |   | 1.65  |  |      | 1.61  |     
|EPSassuming dilution                                                      |  |         |       |      |   |       |  |      |       |     
|Net income before extraordinary item                                       |  |         | 2.53  |      |   | 1.65  |  |      | 2.28  |     
|Net income                                                                 |  |         | 2.53  |      |   | 1.65  |  |      | 1.59  |     
|Dividends declared per share                                               |  |         | 1.80  |      |   | 1.80  |  |      | 1.80  |     
|Total assets                                                               |  |         | 9,617 |      |   | 9,687 |  |      | 8,858 |     
|Cumulative preferred stock of subsidiaries subject to mandatory redemption |  |         |      |      |   |      |  |      |      |     
|Long-term debt                                                             |  |         | 2,989 |      |   | 2,604 |  |      | 2,151 |     
|Long-term debt due within one year                                         |  |         | 31    |      |   | 136   |  |      | 85    |     
|                                                                           |  |         |       |      |   |       |  |      |       |     
|CG&E                                                                       |  |         |       |      |   |       |  |      |       |     
|Operating revenues                                                         |  | $       | 2,551 |      | $ | 2,856 |  | $    | 2,452 |     
|Net income                                                                 |  |         | 234   |      |   | 216   |  |      | 239   |     
|Total assets                                                               |  |         | 4,917 |      |   | 5,154 |  |      | 4,914 |     
|Cumulative preferred stock subject to mandatory redemption                 |  |         |      |      |   |      |  |      |      |     
|Long-term debt                                                             |  |         | 1,206 |      |   | 1,220 |  |      | 1,324 |     
|Long-term debt due within one year                                         |  |         |      |      |   | 130   |  |      |      |     
|                                                                           |  |         |       |      |   |       |  |      |       |     
|PSI                                                                        |  |         |       |      |   |       |  |      |       |     
|Operating revenues                                                         |  | $       | 2,136 |      | $ | 2,403 |  | $    | 1,960 |     
|Net income                                                                 |  |         | 117   |      |   | 52    |  |      | 132   |     
|Total assets                                                               |  |         | 3,835 |      |   | 3,584 |  |      | 3,406 |     
|Long-term debt                                                             |  |         | 1,212 |      |   | 1,026 |  |      | 826   |     
|Long-term debt due within one year                                         |  |         | 31    |      |   | 6     |  |      | 85    |     
|                                                                           |  |         |       |      |   |       |  |      |       |     

---

18





In
1996, the Securities and Exchange Commission (SEC) wrote guidelines to help make shareholder communications more understandable. These guidelines were termed "plain English". This
year, we have written our annual report in accordance with these guidelines. Our objective is to present a more user-friendly, understandable, and logically-flowing document for our
readers.

In
connection with this change, we (which includesCinergy Corp.and all of our regulated and non-regulated subsidiaries,
alsoCinergy) are, at times, referred to in the first person ("we", "our", or "us").

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION

"Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" (MD&A) discusses various matters that should make management's
corporate vision of the future more clear for you. Management's goals and aspirations are outlined and specific projections may be made. These goals and projections are considered forward-looking
statements and are based on management's beliefs and assumptions.

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



19





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

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

In MD&A, we explain our general operating environment, as well as our liquidity, capital resources, and results of operations. Specifically, we discuss the
following:



ORGANIZATION

Cinergy Corp., a Delaware corporation created in October 1994, owns all outstanding common stock of CG&Eand PSI Energy, Inc. (PSI), both of which are public utility subsidiaries. As a result of
this ownership, we are considered a utility holding company. Because we are a holding company whose utility subsidiaries operate in multiple states, we are registered with and are subject to
regulation by the SEC under the Public Utility Holding Company Act of 1935, as amended (PUHCA). Our other direct subsidiaries are:



20





CG&E, an Ohio corporation, is a combination electric and gas public utility company that provides service in the southwestern portion
of Ohio and, through its subsidiaries, in nearby areas of Kentucky and Indiana. It has five wholly-owned utility subsidiaries and one wholly-owned non-utility subsidiary. CG&E'sprincipal utility
subsidiary, The Union Light, Heat and Power Company (ULH&P), is a Kentucky
corporation that provides electric and gas service in northern Kentucky.CG&E'sother subsidiaries are insignificant to its results of operations.

PSI, an Indiana corporation, is an electric utility that provides service in north central, central, and southern Indiana.

The
following table presents further information related to the operations of our domestic utility companies (our operating companies):

|      |  | Principal
Line(s) of Business                                   
|----- |  | ----------------------------------------------------------------
|CG&E  |  | Generation, transmission, distribution, and sale of electricity
|      |  | Sale and/or transportation of natural gas                      
|PSI   |  | Generation, transmission, distribution, and sale of electricity
|ULH&P |  | Transmission, distribution, and sale of electricity            
|      |  | Sale and transportation of natural gas                         

Services
is a service company that provides our regulated and non-regulated subsidiaries with a variety of centralized administrative, management, and support services.
Investments holds most of our domestic non-regulated businesses and investments. Global Resources primarily holds our international businesses and investments.

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

We
conduct operations through our subsidiaries, and we manage through the following four business units:



See
Note 15 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" on page 137 for financial information by business unit.

LIQUIDITY

In the "Liquidity" section, we discuss 1999 cash flows, environmental issues, construction and other commitments, other investing activities, and Year 2000 as
they relate to our current and future cash needs. In the "Capital Resources" section beginning on page 38, we discuss how we intend to meet these capital requirements.

1999 Cash Flows

OurCash and cash equivalentsdecreased $18 million during 1999. The significant uses of cash during
1999 were:



21





Offsetting
these decreases were the following sources of cash:



For
further detail regarding the classification of these items, see our Consolidated Statements of Cash Flows in "Item 8. Financial Statements and Supplementary Data" on page 77.

Environmental Issues

In the "Environmental Issues" section, we discuss the Acid Rain Program, ozone transport rulemakings, ambient air standards and regional haze, global climate
change, air toxics, new source review, and manufactured gas plants as they relate to us and our operating companies.

Acid Rain ProgramThe Acid Rain Program of the 1990 amendments to the Clean Air Act (CAA)
required reductions in both sulfur dioxide (SO2) and nitrogen oxide (NOX) emissions from utility sources. The revisions established two phases for reductions of these
emissions. The revisions required compliance under Phase I by January 1, 1995, and required compliance under Phase II by January 1, 2000. The U.S. Environmental Protection Agency (EPA)
allocated emission allowances to the utility sources (for example, our electric generating units operated by Commodities) to achieve the SO2 reduction objectives of the Acid Rain Program.
Each allowance permits one ton of SO2 emissions. The Acid Rain Program allows compliance with the SO2 reduction objectives to be achieved on a national level; therefore,
companies may comply with the requirements by (1) reducing emissions, or (2) purchasing emission allowances from other sources.

We
complied with Phase I prior to January 1, 1995. We implemented Phase II compliance by (1) using lower-sulfur coal blends in our generating units, and (2) using
an emission allowance banking strategy. This cost-effective strategy allows us to implement Phase II SO2 reduction requirements while maintaining optimal flexibility to meet
(1) changes in output due to increased customer choice, and (2) potentially significant future environmental requirements.

To
meet Phase II NOX reduction requirements, we (1) have changed the burners on our generating units, and (2) are using a system-wide
NOX emission averaging strategy (where the overall emission average of all of our generating units must be below a certain level).

Ozone Transport RulemakingsIn June 1997, the Ozone Transport Assessment Group, which
consists of 37 states, made a wide range of recommendations to the EPA to address the impact of ozone transport on serious non-attainment areas (geographic areas defined by the EPA as
non-compliant with ozone standards) in the Northeast, Midwest, and South. Ozone transport refers to wind-blown movement of ozone-causing materials across city and state
boundaries. In late 1997, the EPA published a proposed call for revisions to State Implementation Plans (SIPs). (A SIP is a state's implementation plan for achieving emissions reductions to address
air quality concerns.)

22



NOX SIP CallIn October 1998, the EPA finalized its ozone transport rule, also known as the
NOX SIP Call. It applies to 22 states in the eastern half of the U.S., including the three states in which our electric utilities operate, and also proposes a model NOX
emission allowance trading program. If implemented by the states, the trading program would allow us to buy NOX emission allowances from, or sell NOX emission allowances to,
other companies as necessary. This rule recommends that states reduce NOX emissions from primarily industrial and utility sources to a certain level by May 2003. The EPA gave the
affected states until September 30, 1999, to incorporate NOX reductions and, in the discretion of the state, a trading program into their SIPs. The EPA proposed to implement a
federal plan to accomplish the equivalent NOX reductions by May 2003 if states failed to revise their SIPs. The EPA must approve all SIPs.

Ohio,
Indiana, a number of other states, and various industry groups (some of which we are a member), filed legal challenges to the NOX SIP Call in late 1998. On
May 25, 1999, the U.S. Circuit Court of Appeals for the District of Columbia (Court of Appeals) granted a request for a deferral of the rule and indefinitely suspended the September 30
filing deadline, pending further review by the Court of Appeals. The Court of Appeals heard arguments on the case on November 9, 1999, and is expected to make a decision in the first quarter of
2000.

Section 126 PetitionsIn February 1998, the northeast states filed petitions seeking the EPA's assistance
in reducing ozone in the eastern U.S. under Section 126 of the CAA. The EPA believes that Section 126 petitions allow a state to claim that another state is contributing to its air
quality problem and request that the EPA require the upwind state to reduce its emissions. On April 30, 1999, the EPA found that the Midwest facilities (including most of our generating
facilities) named in the petitions are significantly contributing to ozone problems in the northeast for both the one- and eight-hour ozone level health standards. Industry has
challenged the EPA's findings and related rulemaking.

Based
on a court decision regarding ambient (outside) air standards (discussed below) and the May 25 court decision (previously discussed), in June 1999, the EPA
modified and re-proposed the Section 126 petitions rulemaking to address only the one-hour ozone standard. The EPA also limited the petitions to 12 states instead of the
original 22 states. Indiana, Kentucky, and Ohio would still have to meet the same NOX emissions requirements through a 12-state trading program.

In
December 1999, the EPA granted four Section 126 petitions relating to NOX emissions. This ruling affects all of our Ohio and Kentucky facilities, as well
as some of our Indiana facilities, and requires us to reduce our NOX emissions to a certain level by May 2003. We are appealing this ruling; however, we currently cannot predict the
outcome of the appeal. Compliance with this EPA finding is anticipated to require us to perform substantially all of the NOX reduction work that would be required under the NOX
SIP Call. In the event the EPA successfully implements either program (the NOX SIP Call or the Section 126 petitions), capital expenditures for compliance are substantially the
same, and are currently estimated at $500 million to $700 million (in 1999 dollars) by May 2003. This estimate depends on several factors, including:



State Ozone PlansOn November 15, 1999, the State of Indiana and the Commonwealth of Kentucky (along with
Jefferson County, Kentucky) jointly filed an amendment to their SIPs on how they intend to bring the greater Louisville area, including Floyd and Clark Counties in Indiana, into attainment with the
one-hour ozone standard. The area did not reach attainment by the required date

23



of
November 15, 1997, reportedly due in part to transported ozone from outside the area. Recognizing the failure of the area to reach attainment and the need for regional NOX
reductions, on May 21, 1999, the EPA published a proposed rule to extend the attainment date to 2003, if the states enact adequate regional NOX reductions.

The
SIP amendments call for, among other things, statewide NOX reductions from utilities in Indiana, Kentucky, and surrounding states which are less stringent than the
EPA's NOX SIP Call. The states of
Indiana and Kentucky have committed to adopt utility NOX control rules by December 2000 that would require controls be installed by May 2003. Currently, the states have not
yet decided whether their rules would include a NOX trading program or some other compliance mechanism. Because the rulemakings are in the early stages, the financial impact cannot
currently be estimated.

Ambient Air Standards and Regional HazeDuring 1997, the EPA revised the National Ambient Air
Quality Standards for ozone and fine particulate matter and proposed rules for regional haze. Fine particulate matter refers to very small solid or liquid particles in the air. Regional haze involves
fine particulate matter that impairs visibility in national parks. It was anticipated that utility NOX reductions called for in the EPA's final NOX SIP Call would address both
the one-hour ozone standard and the new eight-hour ozone standard. With the recent challenges to the NOX SIP Call and the eight-hour ozone standard
(discussed below), it is unclear to what extent additional NOX reductions will be required of utilities to address eight-hour ozone non-attainment issues.

The
EPA estimates it will take up to five years to collect sufficient ambient air monitoring data to determine fine particulate matter non-attainment areas. The states
will then determine the sources of the particulates and determine a regional emission reduction plan. We currently cannot predict the exact amount and timing of required reductions.

On
May 14, 1999, the Court of Appeals ruled that both the new eight-hour ozone standard and the fine particulate matter standard were found questionable and were
determined to be unenforceable by the EPA. In June 1999, the EPA appealed the decision. On October 29, 1999, the full Court of Appeals rejected the EPA's request for reconsideration. In
January 2000, the EPA appealed to the U.S. Supreme Court. We currently cannot determine the outcome of the appeals process and the effects on future emissions reduction requirements.

The
EPA published the final regional haze rule on July 1, 1999. This rule establishes planning and emission reduction timelines for states to use to improve visibility in
national parks throughout the U.S. The ultimate effect of the new regional haze rule could be requirements for (1) newer and cleaner technologies and additional controls on conventional
particulates, and (2) reductions in SO2 and NOX emissions from utility sources. If more utility emissions reductions are required, the compliance cost could be
significant. In August 1999, several industry groups (some of which we are a member) filed a petition for reconsideration of the regional haze rules with the courts. We currently cannot
determine the outcome or effects of the courts' or states' determination.

Global Climate ChangeIn December 1997, delegates to the United Nations' climate summit
in Japan adopted an agreement, the Kyoto Protocol, to address global warming. The Kyoto Protocol establishes legally binding greenhouse gas emission (man-made pollutants thought to be
artificially warming the earth's atmosphere) targets for developed nations. On November 12, 1998, the U.S. signed the Kyoto Protocol; however, it will not be effective in the U.S. until it is
approved by a two-thirds vote of the U.S. Senate, which is currently deemed unlikely.

Because
of a lack of support for the Kyoto Protocol or similar legislation, significant uncertainty exists about how and when greenhouse gas emissions reductions will be required. Our
plan for managing the potential risk and uncertainty of regulations relating to climate change includes the following:



24







We
believe that voluntary programs, such as the U.S. Department of Energy Climate Challenge Program that we joined in 1995, are the most cost-effective way to limit
greenhouse gas emissions.

Air ToxicsThe air toxics provisions of the CAA Amendments delayed possible air toxics
regulation of fossil-fueled steam utility plants until the EPA completed a study. The final report, issued in February 1998, confirmed that utility air toxic emissions pose little risk to
public health. It stated that mercury is the pollutant of the greatest concern and requires further study. A Mercury Study Report, issued in December 1997, stated that mercury is not a risk to
the average American and expressed uncertainty about whether reductions in current domestic sources would reduce human mercury exposure. U.S. utilities are a large domestic source, but they are
insignificant when compared to global mercury emissions. The EPA was unable to show a feasible mercury control technology for coal-fired utilities.

In
November 1998, the EPA finalized its mercury Information Collection Request (ICR). The ICR required all generating units to provide detailed information about coal use and
mercury content during 1999. The EPA also selected about 100 generating units for one-time stack sampling. We completed testing at Gibson Generating Station Unit No. 3 and the
Wabash River Repowering Project in October 1999. The EPA is planning to make its regulatory determination on the need for additional regulation by the fourth quarter of 2000. If more air toxics
regulations are issued, the compliance cost could be significant. We currently cannot predict the outcome or effects of the EPA's determination.

New Source ReviewThe CAA's New Source Review (NSR) provisions require that a company obtain a
pre-construction permit if it plans to build a new stationary source of pollution or make a major change to an existing facility unless the changes are exempt. In July 1998, the EPA
requested comments on proposed revisions to the NSR rules that would change NSR applicability by eliminating exemptions contained in the current regulation. We believe that if these changes are
finalized, it will be significantly harder to maintain our facilities without triggering the NSR permit requirements.

Since
July 1999,CG&EandPSIhave received requests from the EPA (Region 5),
under Section 114 of the CAA, seeking documents and information regarding capital and maintenance expenditures at several of their respective generating stations. These activities are part of
an industry-wide investigation assessing compliance with the NSR and the New Source Performance Standards (NSPS, emissions standards that apply to new and changed units) of the CAA at
electric generating stations.

On
September 15, 1999, and on November 3, 1999, the Attorneys General of the States of New York and Connecticut, respectively, issued letters notifying CinergyandCG
&Eof their intent to sue under the citizens suit provisions of the CAA. New York and
Connecticut allege violations of the CAA by constructing and continuing to operate a major change toCG&E'sW.C. Beckjord Station (Beckjord) without
obtaining the required NSR pre-construction permits.

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

On
March 1, 2000, the EPA filed an amended complaint againstCinergy,CG&E, and PSI. The amended complaint
added the alleged violations of the NSR requirements of the CAA at two of our generating stations contained in the notice of
violation (NOV) filed by the EPA on November 3, 1999.

25



It
also added claims for relief alleging violations of (1) nonattainment NSR, (2) Indiana and Ohio SIPs, and (3) particulate matter emission limits (as discussed in the 'Other' section on page 33).
The amended complaint seeks (1) injunctive relief to require installation of pollution control technology on each of the generating units at Beckjord, Cayuga, and PSI'sWabash River and Gallagher
Generating Stations, and such other measures as necessary, and (2) civil penalties in amounts of up to $27,500 per day
for each violation. We believe the allegations contained in the amended complaint are without merit and plan to defend the suit vigorously in court. At this time, it is not possible to determine the
likelihood that the EPA will prevail on its claims or whether resolution of this matter will have a material effect on our financial condition.

On
March 1, 2000, the EPA also filed an amended complaint alleging violations of the CAA relating to NSR, Prevention of Significant Deterioration, and Ohio SIP requirements regarding
a generating station operated by the Columbus Southern Power Company (CSP) and jointly-owned by CSP, The Dayton Power and Light Company, andCG&E. The
EPA is seeking injunctive relief and civil penalties of up to $27,500 per day for each violation. We believe the allegations in the amended complaint are without merit. At this time, it is not
possible to determine the likelihood that the EPA will prevail on its claims or whether resolution of this matter will have a material effect on our financial condition.

Refer
to Note 12(c) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" on page 132 for a more detailed discussion of NSR issues.

Manufactured Gas Plant (MGP) SitesPSIreceived claims from Indiana Gas Company, Inc.
(IGC) in 1994, and from Northern Indiana Public Service Company (NIPSCO) in 1995, as more fully discussed in Note 12(d)(ii) of the "Notes to Financial Statements" in "Item 8. Financial
Statements and Supplementary Data" on page 133. The basis of these claims was thatPSIis a Potentially Responsible Party with respect to certain MGP
sites under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). The claims further asserted thatPSIis legally
responsible for the costs of investigating and remediating the sites.

In
November 1998, NIPSCO, IGC, andPSIentered into a Site Participation and Cost Sharing Agreement. The agreement allocated
CERCLA liability for past and future costs at seven MGP sites in Indiana among the three companies. Similar agreements were reached between IGC andPSIthat
allocate CERCLA liability at 14 MGP sites with which NIPSCO was not involved. These agreements conclude all CERCLA and similar claims between the three companies related to MGP
sites. The parties continue to investigate and remediate the sites, as appropriate under the agreements and applicable laws. The Indiana Department of Environmental Management (IDEM) oversees
investigation and cleanup of some of the sites.

PSInotified its insurance carriers of the claims related to MGP sites raised by IGC, NIPSCO, and IDEM. In April 1998, PSIfiled suit against its general liability
insurance carriers. Among other matters,PSIrequested a
declaratory judgment that would obligate its insurance carriers to (1) defend MGP claims againstPSI, or (2) pay PSI'scosts of defense and
compensatePSIfor its costs of investigating, preventing, mitigating, and
remediating damage to property and paying claims related to MGP sites. The case has been set for trial beginning in May 2001.PSIcannot predict
the outcome of this litigation.
Currently, reserves recorded related to MGP sites are immaterial to our financial condition or results of operations. However, as further investigation and remediation activities are performed at
these sites, the potential liability for MGP sites could be material to our financial position or results of operations.

OtherOn November 30, 1999, the EPA filed a NOV against CinergyandCG
&Ebecause emissions of particulate matter at Beckjord exceeded the allowable limit. The
NOV indicated that the EPA may (1) issue an administrative penalty order, or (2) file a civil action seeking injunctive relief and civil penalties of up to $27,500 per day for
each violation. The allegations contained in this NOV were

26



incorporated
within the March 1, 2000, amended complaint, as discussed in the "New Source Review" section on page 31. We are currently unable to determine whether resolution of this
matter will have a material effect on our financial condition.

See
Notes 12(b), (c), (d), and (e) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data", beginning on page 131, for a more detailed
discussion of the status of these environmental issues.

Construction and Other Commitments

ConstructionActual construction expenditures for 1999 and forecasted construction expenditures
in nominal dollars for 2000 and for the next five years (2000-2004) are presented in the table below:

|                     |  | Actual
Expenditures |     | Forecasted Expenditures
|-------------------- |  | ------------------- | --- | -----------------------
|
|
|Cinergy              |  | $                   | 386 |                        
|CG&Eand subsidiaries |  |                     | 194 |                        
|PSI                  |  |                     | 189 |                        
|ULH&P                |  |                     | 28  |                        

This
table includes forecasted expenditures for 2000 of $65 million for preparing utility systems for customer choice. This table excludes an estimate of expenditures necessary
to comply with the EPA's proposed stricter NOX emission control standards associated with the 22-state NOX SIP Call and
Section 126 petitions (as discussed in the "Environmental Issues" section beginning on page 27). In the event the EPA successfully implements either program (the NOX SIP Call or the
Section 126 petitions), capital expenditures for compliance are substantially the same, and are currently estimated at $500 million to $700 million (in 1999 dollars) by
May 2003, approximately $105 million of which is estimated to be spent in 2000.

All
forecasted amounts reflect the following assumptions relating to the factors below, which may change significantly:



Other CommitmentsCommitted projects for both international and domestic
non-regulated investment activities of approximately $160 million for 2000 are excluded from the table above. On September 30, 1999, one of our non-regulated
subsidiaries formed a partnership with Duke. This partnership will jointly construct and own three wholesale generating facilities in southwestern Ohio, and east central and western Indiana, with
total capacity of approximately 1,400 megawatts (MW). These facilities will be natural gas-fired peaking stations with commercial operation anticipated for the summer of 2000. Our portion
(50%) of the remaining capital expenditures to complete this project is estimated at $110 million for 2000 and is included in the $160 million discussed above.

Additionally,
Commodities constantly assesses the adequacy of its available power supply in order to meet the demands of its customers. It must consider other supply alternatives to
pursue to most

27



effectively
meet demands, mitigate risks, and satisfy regulatory requirements. Supply alternatives include the following:



Other Investing Activities

Our mission is to be one of the top five in our industry within two years on the following five key dimensions: market capitalization, number of customers,
electric and gas commodity trading, international presence, and productivity.

In
pursuit of these goals, we have entered into various growth initiatives, including: (1) energy marketing and trading; (2) retail energy products and services; and
(3) additional international
investments. We are constantly working toward maximizing the value of existing operations and assets and continue to explore the potential for mergers, acquisitions, and strategic alliances.

Our
ability to invest in growth initiatives is limited by certain legal and regulatory requirements, including the PUHCA. The PUHCA restricts the amount which can be invested in
non-utility businesses. Also, the timing and amount of investments in the non-utility businesses is dependent on the development and favorable evaluations of opportunities.
Under the PUHCA regulations, we are allowed to invest or commit to invest in certain non-utility businesses, including:



28





Year 2000

The Year 2000 concern generally existed because many computer systems and applications, including those systems embedded in equipment and facilities, used
two-digit date fields rather than four-digit date fields to designate an applicable year. As a result, these systems and applications were not expected to properly recognize
dates including and beyond the Year 2000. The potential consequences of this action included data miscalculations and inaccuracies or operational malfunctions and failures, which could have materially
affected a company's financial position, operating results, and cash flows.

Cinergyestablished a centrally managed, company-wide initiative, known as the Cinergy Year 2000 Readiness Program, to
identify, evaluate, and address Year 2000 issues. The Cinergy Year 2000 Readiness Program, which began in the fourth quarter of 1996, was generally focused on three
elements that were integral to this initiative: (1) business continuity, (2) risk management, and (3) regulatory compliance.

Under
the Cinergy Year 2000 Readiness Program, we achieved a target date of June 30, 1999, for the remediation and testing of our mission-critical generation, transmission, and
distribution systems, components, and applications (gas and electric). An innovative remediation and testing effort, which we also completed on June 30, 1999, involved resetting the clocks on
all of our generation units and operating them as if January 1, 2000, had already occurred.

In
August of 1999, the North American Electric Reliability Council (NERC) submitted a final status report to the Department of Energy, in which we were listed as a "Y2K Ready"
organization. In September of 1999, we participated in the NERC-sponsored national preparedness drill. The goal of this drill was to rehearse, under simulated conditions, key portions of
our administrative, operating, communications, and contingency plans for the transition into the Year 2000. We were successful in meeting the objectives of this drill.

We
reviewed and assessed the potential for business disruption in various scenarios, including the most reasonably likely worst-case scenario, and provided for key
operational back up, recovery, and restoration alternatives. We also established a supplier compliance program, and worked with our critical suppliers in an effort to minimize risks.

The
total cost for the inventory, assessment, remediation, testing, and upgrading of our systems as a result of the Year 2000 effort was approximately $13 million. These
expenses included labor, hardware and related software upgrades.

Our
rollover to the Year 2000 was uneventful. All mission critical systems for gas and electric service performed without any disruption to customer service. We had a force of 1,100
employees in place during the rollover to monitor systems, substations, power generating stations, gas regulating stations and other facilities. Our systems continue to operate without problems
related to the Year 2000.

The
above information is a Year 2000 Readiness Disclosure pursuant to the Federal Year 2000 Information and Readiness Disclosure Act.

29



CAPITAL RESOURCES

During 1999, we met our capital requirements through a combination of internally generated funds and debt issuances. We expect to meet our future capital needs
through a combination of internally and externally generated funds, including the issuance of debt and/or equity securities.

See
the "Proposed Financing Authority" section on page 42 for information on our request for additional authority to issue debt, guarantees, and common stock.

Internally Generated Funds

Currently, a substantial portion of our revenues and corresponding cash flows are derived from our regulated operations. With the recent passage of legislation
throughout several states, we believe it is likely the generation component of the electric utility industry will ultimately be deregulated. (Within our own utility jurisdictions, only the State of
Ohio has passed similar legislation during 1999. Refer to the "Retail Market Developments" section on page 54.) In the interim, revenues provided by our regulated operations will continue as our
primary source of funds. As a low cost provider of energy service, we believe we will be successful in a competitive environment. However, as the industry becomes more competitive, future cash flows
from operations could be subject to a higher degree of volatility than under our present regulatory structure.

Debt

We may be required to secure authority to issue debt from the SEC under the PUHCA and the state utility commissions of Ohio, Kentucky, and Indiana. The SEC
under the PUHCA regulates the issuance of debt forCinergy Corp.Our three state utility commissions regulate the issuance of debt for our operating
companies.

Cinergy Corp.has current authorization from the SEC under the PUHCA to issue and sell short-term notes and
commercial paper and long-term unsecured debt through December 31, 2002, provided the total principal amount of all these debt securities may not exceed $2 billion at any
time. In addition,Cinergy Corp.'slong-term debt cannot exceed $400 million at any time. As of December 31, 1999, Cinergy Corp.has $400
 million of long-term debt outstanding, and therefore, under the current authorization, it cannot issue any
additional long-term debt. See the "Proposed Financing Authority" section on page 42 for information on our request for additional authority to issue debt.

Short-term DebtIn connection with this SEC authorization, Cinergy Corp.has established lines of credit. As of
December 31, 1999, all of its $645 million established lines were unused and
available.

Our
operating companies have regulatory authority to borrow up to a total of $853 million in short-term debt ($453 million for CG&Eand its subsidiaries including $50 million forULH&P, and $400 million for PSI). In connection with this authority, we have established lines of credit forCG
&Eand PSIof which, $124 million and $110 million, respectively, remained unused and available at December 31, 1999.

As
of December 31, 1999, our non-regulated subsidiaries have $83 million in short-term debt and established lines of credit of which,
$.6 million was unused and available. Our non-regulated subsidiaries have the availability of funds fromCinergy Corp. if the need
arises.

Cinergy Corp.'sestablished lines of credit also provide credit support for our commercial paper program, which is limited to a maximum
principal amount of $400 million. As of December 31, 1999,Cinergy Corp.has not used any of the established principal amount, leaving
$400 million available.CG&EandPSIalso have the capacity to issue commercial paper, which must
be supported by available committed lines of the respective company. The maximum outstanding principal amount forCG&Eis

30



$200 million
and forPSIis $100 million. NeitherCG&Enor PSIissued commercial paper in 1999 or
1998.

For
a detailed discussion of the registrants' short-term indebtedness, refer to Note 5 of the "Notes to Financial Statements" in "Item 8. Financial Statements and
Supplementary Data" on page 117.

Long-term DebtUnder the PUHCA authorization mentioned above, we are able to issue
and sell long-term debt at the parent holding company level. In addition,Cinergy Corp.'slong-term debt cannot exceed
$400 million at any time. As of December 31, 1999,Cinergy Corp.has $400 million of long-term debt outstanding, and
therefore, under the current authorization, it cannot issue any additional long-term debt.

Currently,
our operating companies have the following types of outstanding long-term debt: First Mortgage Bonds and other Secured Notes, and Senior and Junior Unsecured Debt. Under
our existing authority, the remaining unissued debt, as of February 29, 2000, is reflected in the following table:

|Authorizing Agency                                             |  | CG&E |     | PSI |   | ULH&P
|-------------------------------------------------------------- |  | ---- | --- | --- | - | -----
|
|Applicable State Utility Commission(Secured or Unsecured Debt) |  | $    | 200 |     | $ | 400  

We
may, at any time, request additional long-term debt authorization to increase our authority. This request is subject to regulatory approval which may or may not be
granted.

As
of December 31, 1999, through shelf registrations filed with the SEC under the Securities Act of 1933, we could issue the following amounts of debt securities:

|                                             |  | CG&E |     | PSI |   | ULH&P
|-------------------------------------------- |  | ---- | --- | --- | - | -----
|
|First Mortgage Bonds and Other Secured Notes |  | $    | 300 |     | $ | 265  
|Senior or Junior Unsecured Debt              |  |      | 50  |     |   | 400  

Capital LeasesWe are able to enter into capital leases under state regulatory authorizations.
However, our ability to enter into capital leases is limited to the total authorized limit granted by the applicable state utility commission. We may, at any time, request additional capital lease
authorization to increase our limits. This request is subject to approval by the applicable state utility commission and may or may not be granted. Under our existing authority, the remaining unused
capital lease authority, is $86 million forCG&E, $100 million forPSI, and
$24 million forULH&P.

Common Stock

Cinergy Corp.has authority to issue additional shares of common stock on the open market to meet future capital
requirements. However, we do not have plans to issue common stock for capital requirements in the foreseeable future. We generally use open market purchases of common stock to satisfy the majority of
our obligations of our various stock-based employee plans. We plan to continue using market purchases of common stock to satisfy these obligations. This decision will be reevaluated as future capital
requirements are considered.

The
following table reflects the number of shares purchased and issued for our various stock-based plans for the following years:

|                 |  | 1999 |  | 1998 |  | 1997 
|---------------- |  | ---- |  | ---- |  | -----
|
|Purchased Shares |  | 748  |  | 861  |  | 1,700
|Issued Shares    |  | 291  |  | 194  |  | 66   

31



The
SEC authorized us under the PUHCA to issue and sell an additional 22 million shares of common stock for these stock-based employee plans. This authorization expires
December 31, 2000. Also, we have authority to issue and sell an additional 30 million shares of common stock for general corporate purposes, which expires December 31, 2002. See
the "Proposed Financing Authority" section on page 42 for information on our request for additional authority to issue common stock.

Dividend Restrictions

For a discussion of dividend restrictions, refer to Note 2(b) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary
Data" on page 109.

Securities Ratings

As of February 29, 2000, the major credit rating agencies rated our securities as follows:

|                      |  | D&P(1)    |  | Fitch(2)  |  | Moody's(3) |  | S&P(4)   
|--------------------- |  | --------- |  | --------- |  | ---------- |  | ---------
|Cinergy Corp.         |  |           |  |           |  |            |  |          
|Corporate Credit      |  | BBB+      |  | BBB+      |  | Baa2       |  | BBB+     
|Commercial Paper      |  | D-2       |  | F-2       |  | P-2        |  | A-2      
|CG&E                  |  |           |  |           |  |            |  |          
|Secured Debt          |  | A-        |  | A-        |  | A3         |  | A-       
|Senior Unsecured Debt |  | BBB+      |  | BBB+      |  | Baa1       |  | BBB+     
|Junior Unsecured Debt |  | BBB       |  | BBB+      |  | Baa2       |  | BBB      
|Preferred Stock       |  | BBB       |  | BBB+      |  | Baa1       |  | BBB      
|Commercial Paper      |  | D-1-      |  | F-1       |  | P-2        |  | Not Rated
|PSI                   |  |           |  |           |  |            |  |          
|Secured Debt          |  | A-        |  | A-        |  | A3         |  | A-       
|Senior Unsecured Debt |  | BBB+      |  | BBB+      |  | Baa1       |  | BBB+     
|Junior Unsecured Debt |  | BBB       |  | BBB       |  | Baa1       |  | BBB      
|Preferred Stock       |  | BBB       |  | BBB       |  | Baa1       |  | BBB      
|Commercial Paper      |  | D-1-      |  | F-1       |  | P-2        |  | Not Rated
|ULH&P                 |  |           |  |           |  |            |  |          
|Secured Debt          |  | A-        |  | Not Rated |  | Not Rated  |  | A-       
|Unsecured Debt        |  | Not Rated |  | Not Rated |  | Baa1       |  | BBB+     

---

These
securities ratings may be revised or withdrawn at any time, and each rating should be evaluated independently of any other rating.

Guarantees

We are subject to a SEC order under the PUHCA which limits the amountsCinergy Corp. can have outstanding under
guarantees (promises to pay by one party in the event of default by another party) at any one time to $1 billion. As of December 31, 1999, we had $515 million outstanding under
the guarantees issued. See the "Proposed Financing Authority" section on page 42 for information on our request for additional authority to issue guarantees.

32



In
February 2000,Cinergy Corp. issued approximately $43 million in guarantees for loans and the associated interest
related to the Director, Officer and Key Employee Stock Purchase Program. For a detailed discussion of this program, refer to Note 2(d) of the "Notes to Financial Statements" in "Item 8.
Financial Statements and Supplementary Data" on page 115.

Proposed Financing Authority

On November 16, 1999,Cinergy Corp. filed a request with the SEC under the PUHCA for additional
authority to issue and/or sell:



We
proposed to use the proceeds from the transactions described above for general corporate purposes, including additional investments in EWGs and FUCOs.

This
request would increase the amount we can invest in EWGs and FUCOs to an amount equal to 100% of consolidated retained earnings plus $2 billion, excluding our aggregate
investment in one or more EWG affiliates formed to acquire all or a substantial portion of the existing generating facilities owned by our utility subsidiaries. We currently cannot predict the outcome
of this request.

Sale of Accounts Receivable

For the detailed discussion of our sales of accounts receivable, refer to Note 6 of the "Notes to Financial Statements" in "Item 8. Financial Statements
and Supplementary Data" on page 120.

The
format of the following Results of Operations discussions has been changed from the format of prior periods. Unlike prior reports, the Results of Operations discussions for Cinergy,CG&E, andPSIare combined within this section.

1999 RESULTS OF OPERATIONS

SUMMARY OF RESULTS

Electric and gas margins and net income forCinergy,CG&E, and PSIfor the years ended December 31, 1999, and 1998, were as follows:

|                      |  | Cinergy(1) |           | CG&E |   | PSI      
|--------------------- |  | ---------- | --------- | ---- | - | ---------
|
|
|Electric gross margin |  | $          | 2,052,602 |      | $ | 1,909,423
|Gas gross margin      |  |            | 212,153   |      |   | 204,684  
|Net income            |  |            | 403,641   |      |   | 260,968  

---

Our
1999 diluted earnings per share (EPS) increased to $2.53 from $1.65 per share for 1998.

The
overall increase in EPS for 1999 is mainly due to our international operations and our regulated electric operations. The contribution to earnings of our international operations
increased $.36 per share for the year ended December 31, 1999, compared with a year ago, primarily the result of the sale of our 50% ownership interest in Avon Energy to GPU. Earnings from
regulated operations had a net increase of $.55 per share for the year ended December 31, 1999, compared with a year earlier. The increase is primarily due to an overall return to more normal
weather in 1999 and growth

33



in
retail electric revenues. This retail revenue growth reflects an increase in residential and commercial customers and growth in the industrial market. Included in this overall increase is a $.36
per share reduction related to energy marketing and trading losses experienced in July 1999. Our electric margins were positively impacted $12 million or $.07 per share (net of fuel and
income taxes) as a result of a change in estimate ofPSI'sutility services delivered but unbilled at month end which occurred during the third quarter
of 1999.

The
1999 increase in earnings from regulated operations was also impacted by the following 1998 charges:



The
explanations below follow the line items on the Statements of Income forCinergy, CG&E, andPSI, which
begin on page 73. However, only the line items that varied significantly
from prior periods are discussed.

ELECTRIC OPERATING REVENUES

|          |  | Cinergy(1) |       | CG&E |   | PSI   | 
|--------- |  | ---------- | ----- | ---- | - | ----- | 
|
|
|Retail    |  | $          | 2,725 |      | $ | 2,553 | 
|Wholesale |  |            | 1,455 |      |   | 2,140 | 
|Other     |  |            | 133   |      |   | 70    | 
|          |  |            |       |      |   |       | 
|Total     |  | $          | 4,313 |      | $ | 4,763 | 

---

Electric operating revenuesforCinergy, CG&E, andPSIdecreased for
1999, as compared to 1998, due to a decrease in volumes on
non-firm wholesale transactions related to energy marketing and trading activity. Partially offsetting the decline was an increase in the average price per kilowatt hour (kWh) realized for
non-firm power transactions and higher firm wholesale kWh sales. Non-firm power is power without a guaranteed commitment for physical delivery. Retail kWh sales also increased
as a result of new residential and commercial customers, growth in the industrial market, and an overall return to more normal weather. Our electric margins were positively impacted $12 million
or $.07 per share (net of fuel and income taxes) as a result of a change in estimate ofPSI'sutility services delivered but unbilled at month end which
occurred during the third quarter of 1999.

34



GAS OPERATING REVENUES

|               |  | Cinergy(1) |       | CG&E |  
|-------------- |  | ---------- | ----- | ---- | -
|
|
|Non-regulated  |  | $          | 1,221 |      | $
|Retail         |  |            | 320   |      |  
|Transportation |  |            | 51    |      |  
|Other          |  |            | 4     |      |  
|               |  |            |       |      |  
|Total          |  | $          | 1,596 |      | $

---

Gas operating revenuesforCinergyincreased in 1999, when compared to 1998. This
increase reflects a full year's realization of the gas operating revenues of Cinergy Marketing and Trading, LLC (Marketing & Trading), an indirect subsidiary of Cinergythat was acquired in June
 1998. Based on the
actual results of Marketing & Trading for 1998, if we had owned it for all of 1998, our 1999 revenues, as compared to 1998, would have increased due to a higher price received per thousand
cubic feet (mcf) sold.

CG&E'sretail gas revenues decreased 10% due to a decline in mcf sales. This resulted primarily from milder weather experienced during
the first quarter of 1999. This decline was partially offset by an increase in transportation revenues due to the continued progression of full-service customers (customers who purchase
gas and utilize the transportation services ofCG&E) purchasing gas directly from suppliers and using transportation services provided by CG&E.

OPERATING EXPENSES

|                              |  | Cinergy(1) |       | CG&E |   | PSI   | 
|----------------------------- |  | ---------- | ----- | ---- | - | ----- | 
|
|
|Fuel                          |  | $          | 761   |      | $ | 730   | 
|Purchased and exchanged power |  |            | 1,499 |      |   | 2,124 | 
|Gas purchased                 |  |            | 1,384 |      |   | 895   | 
|Operation                     |  |            | 775   |      |   | 784   | 
|Maintenance                   |  |            | 206   |      |   | 192   | 
|Depreciation and amortization |  |            | 354   |      |   | 326   | 
|Taxes other than income taxes |  |            | 266   |      |   | 275   | 
|                              |  |            |       |      |   |       | 
|Total                         |  | $          | 5,245 |      | $ | 5,326 | 

---

35





Fuel

Fuelrepresents the cost of coal, natural gas, and oil that is used to generate electricity. The following
table details the changes to fuel expense from 1998 to 1999:

|                                       |  | Cinergy(1) |     | CG&E |   | PSI |  
|-------------------------------------- |  | ---------- | --- | ---- | - | --- | -
|
|1998 fuel expense                      |  | $          | 730 |      | $ | 339 |  
|Increase (Decrease) due to changes in: |  |            |     |      |   |     |  
|Price of fuel                          |  |            |    |      |   | 4   |  
|Deferred fuel cost                     |  |            | (10 | )    |   | (15 | )
|kWh generation                         |  |            | 28  |      |   | 13  |  
|Other                                  |  |            | 13  |      |   |    |  
|                                       |  |            |     |      |   |     |  
|1999 fuel expense                      |  | $          | 761 |      | $ | 341 |  

---

Purchased and Exchanged Power

Purchased and exchanged powerrepresents the electricity that is bought to be sold through our energy marketing
and trading activities. This expense decreased forCinergy,CG&E, and PSIin 1999. This decrease was
primarily due to a reduction in purchases of non-firm wholesale power as a result of a decline in sales
volume in the energy marketing and trading operations. Included in purchased and exchanged power are additional costs related to energy marketing and trading losses experienced in July 1999, as
previously indicated above in "Summary of Results", as well as, losses related to our 1998 energy marketing and trading activity. (See "Market Risk Sensitive Instruments and Positions" on
page 61 and Note 1(j) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" on page 106 for discussions on our energy marketing and trading
operations.)

Gas Purchased

Gas purchasedexpense increased forCinergyin 1999, when
compared to 1998. This increase primarily reflects a full year'sGas purchasedvolumes for Marketing & Trading in 1999, as previously indicated
above in "Gas Operating Revenues".

CG&E'sGas purchasedexpense decreased for 1999, as compared to 1998. This decline is mainly due to decreased
sales volume as previously indicated above in "Gas Operating Revenues".

Operation

PSI'sOperationcosts decreased in 1999, in comparison to 1998. This decrease was the
result of a one-time charge of $80 million in 1998 for the implementation of the 1989 settlement with WVPA. (See Note 18 of the "Notes to Financial Statements" in "Item 8.
Financial Statements and Supplementary Data" on page 144 for a discussion of the WVPA settlement.)

Maintenance

Cinergy's,CG&E's, andPSI'sMaintenancecosts increased in 1999, as compared to 1998, primarily as a result of planned outages and repairs at certain production
facilities. These activities represent a return to a more normal level of maintenance expenditures.

36



Depreciation and Amortization

Cinergy's,CG&E's, and PSI'sDepreciation and
amortizationcosts increased in 1999, as compared to 1998. These increases were the
result of additions to depreciable plant. Additionally,Cinergy'sandCG&E'sincreases also included the
amortization of phase-in deferrals reflecting the Public Utilities Commission of Ohio (PUCO)-approved phase-in plan for CG&E'sWilliam H. Zimmer Generating Station (Zimmer).

EQUITY IN EARNINGS OF UNCONSOLIDATED SUBSIDIARIES

Cinergy'sEquity in earnings of unconsolidated subsidiariesincreased $7 million
(13%) in 1999, as compared to 1998. This increase was primarily driven by the earnings of our non-regulated domestic and international subsidiaries. Included in Equity in earnings of unconsolidated subsidiarieswas $58 million for 1999, and $57 million for 1998, related to our 50% ownership
interest in Avon Energy. As a result of the sale of our ownership interest (as discussed below), ourEquity in earnings of unconsolidated subsidiarieswill reflect a decline in future periods.

GAIN ON SALE OF INVESTMENT IN UNCONSOLIDATED SUBSIDIARY

On July 15, 1999, we sold our 50% ownership interest in Avon Energy to GPU, as previously indicated above in "Summary of Results". The sale resulted in
a net contribution to earnings of approximately $.43 per share (basic and diluted). For a further discussion of this transaction, see Note 10 of the "Notes to Financial Statements" in "Item 8.
Financial Statements and Supplementary Data" on page 126.

PREFERRED DIVIDEND REQUIREMENTS

Cinergy'sPreferred dividend requirements of subsidiariesand PSI'sPreferred dividend
requirementeach decreased $1 million for 1999, as compared to 1998. These decreases were
attributable toPSI'sredemption of all outstanding shares of its 7.44% Series Cumulative Preferred Stock on March 1, 1998.

ULH&P

The format of the following Results of Operations discussion has been changed from the format of prior reports. Unlike prior reports, the Results of Operations
discussion forULH&Pis presented only for the year ended December 31, 1999, in accordance with General Instructions I(2)(a).

Electric
and gas margins and net income forULH&Pfor the years ended December 31, 1999, and 1998 were as follows:

|                      |  | ULH&P
|--------------------- |  | -----
|
|
|Electric gross margin |  | $    
|Gas gross margin      |  |      
|Net income            |  |      

The
increases inElectricandGas operating revenuesfor the year ended
December 31, 1999, compared to 1998, were primarily attributable to higher retail kWh and mcf sales, resulting from growth in the number of electric and gas residential and commercial
customers. In addition,Electric operating revenuesincreased due to an overall return to more normal weather. These increases in sales volume also
correspond with increases inElectricity purchased from parent company for resaleandGas purchasedexpenses.

37



The
increase inOperationandMaintenancecosts for the year ended December 31,
1999, as compared to 1998, was the result of increased maintenance of overhead lines and gas mains.

The
increase inDepreciationfor the year ended December 31, 1999, as compared to 1998, was primarily due to additions to
depreciable plant. TheInterestexpense increase for the year ended December 31, 1999, as compared to 1998, was primarily due to the issuance of
$20 million of debt during the fourth quarter of 1998.

1998 RESULTS OF OPERATIONS

SUMMARY OF RESULTS

Electric and gas margins and net income forCinergy, CG&E,andPSIfor the years ended December 31, 1998, and 1997, were as follows:

|                      |  | Cinergy(1) |           | CG&E |   | PSI      
|--------------------- |  | ---------- | --------- | ---- | - | ---------
|
|
|Electric gross margin |  | $          | 1,909,423 |      | $ | 1,948,905
|Gas gross margin      |  |            | 204,684   |      |   | 227,398  
|Net income            |  |            | 260,968   |      |   | 253,238  

---

Earnings
of $1.65 per share in 1998 were up $.04 per share compared with $1.61 per share in 1997. Included in 1997 results was a one-time extraordinary charge of $.69 per
share for the windfall profits tax levied against our 50% ownership interest in Midlands. (See Note 17 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary
Data" on page 144 for a discussion of the windfall profits tax.)

Our
1998 EPS reflects the following:



The
explanations below follow the line items on the Statements of Income forCinergy, CG&E, andPSI, which
begin on page 73. However, only the line items that varied significantly from prior
periods
are discussed.

38



ELECTRIC OPERATING REVENUES

|          |  | Cinergy(1) |       | CG&E |   | PSI  
|--------- |  | ---------- | ----- | ---- | - | -----
|
|
|Retail    |  | $          | 2,553 |      | $ | 2,455
|Wholesale |  |            | 2,140 |      |   | 1,368
|Other     |  |            | 70    |      |   | 39   
|          |  |            |       |      |   |      
|Total     |  | $          | 4,763 |      | $ | 3,862
|          |  |            |       |      |   |      

---

Electric operating revenuesforCinergy, CG&E, andPSIincreased for
1998, as compared to 1997. Wholesale revenues increased primarily due to
increased sales volume and a higher average price per kWh realized on non-firm wholesale transactions, which were a result of our energy marketing and trading activity. Retail kWh sales
increased due to warmer weather in 1998, when compared to 1997, and as a result of an increase in the number of residential and commercial customers.

GAS OPERATING REVENUES

|               |  | Cinergy(1) |       | CG&E |  
|-------------- |  | ---------- | ----- | ---- | -
|
|
|Non-regulated  |  | $          | 698   |      | $
|Retail         |  |            | 357   |      |  
|Transportation |  |            | 41    |      |  
|Other          |  |            | 4     |      |  
|               |  |            |       |      |  
|Total          |  | $          | 1,100 |      | $
|               |  |            |       |      |  

---

Gas operating revenuesforCinergyincreased for 1998, when compared to 1997, primarily
due to the gas operating revenues of Marketing & Trading, an indirect subsidiary ofCinergythat was acquired in June 1998. Partially
offsetting this increase was the decline in retail sales forCG&E.

CG&E'sretail sales decreased due to lower mcf volumes reflecting, in part, the milder weather during the first quarter of 1998, and a
reduction in the number of full-service residential, commercial, and industrial customers. In addition,CG&E'stransportation revenues
increased as full-service customers continued the trend of purchasing gas directly from suppliers and using transportation services provided by CG&E.

39



OPERATING EXPENSES

|                              |  | Cinergy(1) |       | CG&E |   | PSI   | 
|----------------------------- |  | ---------- | ----- | ---- | - | ----- | 
|
|
|Fuel                          |  | $          | 730   |      | $ | 693   | 
|Purchased and exchanged power |  |            | 2,124 |      |   | 1,220 | 
|Gas purchased                 |  |            | 895   |      |   | 292   | 
|Operation                     |  |            | 784   |      |   | 667   | 
|Maintenance                   |  |            | 192   |      |   | 177   | 
|Depreciation and amortization |  |            | 326   |      |   | 307   | 
|Taxes other than income taxes |  |            | 275   |      |   | 265   | 
|                              |  |            |       |      |   |       | 
|Total                         |  | $          | 5,326 |      | $ | 3,621 | 

---

Fuel

The following table details the changes to fuel expense from 1997 to 1998:

|                                       |  | Cinergy(1) |     | CG&E |   | PSI |  
|-------------------------------------- |  | ---------- | --- | ---- | - | --- | -
|
|1997 fuel expense                      |  | $          | 693 |      | $ | 300 |  
|Increase (Decrease) due to changes in: |  |            |     |      |   |     |  
|Price of fuel                          |  |            | (23 | )    |   | (4  | )
|Deferred fuel cost                     |  |            | 22  |      |   | 33  |  
|kWh generation                         |  |            | 29  |      |   | 10  |  
|Other                                  |  |            | 9   |      |   |    |  
|                                       |  |            |     |      |   |     |  
|1998 fuel expense                      |  | $          | 730 |      | $ | 339 |  

---

Purchased and Exchanged Power

Purchased and exchanged powerexpense increased forCinergy, CG&E,
 andPSIin 1998. This increase was primarily the result of more purchases of non-firm
wholesale power due to an increase in energy marketing and trading activity and an increase in the average price paid per kWh. Also in 1998,Cinergyrecognized $135 million ($73 million forCG&E, and $62 million for PSI), of unrealized losses related to
our energy marketing and trading activity. (See "Market Risk Sensitive Instruments and Positions" on page 61 and
Note 1(j) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" on page 106 for discussions on our energy marketing and trading activity.)

Gas Purchased

Gas purchasedexpense increased forCinergyin 1998, primarily
due to theGas purchasedexpense of Marketing & Trading, an indirect subsidiary ofCinergy, that
was acquired in June 1998.CG&E'sGas purchasedexpense decreased because of a decline in the volumes purchased, due to
lower demand, and a lower average cost per mcf of gas purchased.

40



Operation

Cinergy'sandPSI'sOperationcosts
increased in 1998, as compared to 1997. These increases primarily relate to a one-time charge of $80 million for the implementation of the 1989 settlement with WVPA. (See
Note 18 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" on page 144 for a discussion of the WVPA settlement.) Additionally, Cinergy'sincrease was
also the result of additional costs related to new initiatives of the non-regulated businesses.

Maintenance

Cinergy'sandPSI'sMaintenancecosts
increased in 1998, as compared to 1997, primarily due to increases in boiler plant maintenance costs and distribution line maintenance costs resulting from storm damage.

Depreciation and Amortization

Cinergy'sandCG&E'sDepreciation and
amortizationcosts increased in 1998, as compared to 1997. These increases primarily relate to an increase of $9 million attributable to the amortization of
phase-in deferrals reflecting the PUCO-approved phase-in plan for Zimmer.

EQUITY IN EARNINGS OF UNCONSOLIDATED SUBSIDIARIES

Cinergy'sEquity in earnings of unconsolidated subsidiariesdecreased $9 million
(15%) in 1998, as compared to 1997. The majority of this decrease reflects a decline in the earnings of Midlands, resulting from milder weather conditions and a one-time penalty imposed
(in 1998) on each electric distribution company caused by the delay in opening the electricity supply business to competition.

INTEREST

CG&E'sInterestexpense decreased $14 million (12%) in 1998, as compared to
1997, due to decreases in both interest on long-term debt and other interest expense. The decrease in interest expense on long-term debt is primarily due to a net redemption of
approximately $86 million of long-term debt during the period of March 1997 through December 1998. The decrease in other interest is due to a reduction in average
short-term borrowings.

PSI'sInterestexpense increased $5 million (6%) for 1998, as compared to 1997. Interest on
long-term debt increased $9 million, due primarily to the net issuance of approximately $163 million of long-term debt during the period from March 1998 to
December 1998. Offsetting this increase was a decrease in other interest expense, primarily resulting from a reduction in average short-term borrowings and lower
short-term interest rates.

INCOME TAXES

Cinergy'sIncome taxesdecreased $96 million (45%) in 1998, as compared to 1997,
due to a decrease in taxable income over the prior year and the increased utilization of foreign tax credits.

PREFERRED DIVIDEND REQUIREMENTS

Cinergy'sPreferred dividend requirements of subsidiariesand PSI'sPreferred dividend
requirementeach decreased $6 million in 1998, as compared to 1997. These decreases resulted
fromPSI'sredemption of
all outstanding shares of its 7.44% Series Cumulative Preferred Stock on March 1, 1998.

41



EXTRAORDINARY ITEM

Extraordinary itemequity share of windfall profits taxrepresents the one-time charge
for the windfall profits tax levied against Midlands, recorded in 1997. (See Note 17 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" on
page 144.)

FUTURE EXPECTATIONS/TRENDS

In the "Future Expectations/Trends" section, we discuss electric and gas industry developments, market risk sensitive instruments and positions, impact of
acquisitions and dispositions, inflation, and accounting changes. Each of these discussions will address the current status and potential future impact on our results of operations and financial
condition.

ELECTRIC INDUSTRY

The utility industry has traditionally operated as a regulated monopoly but is transitioning to an environment of increased wholesale and retail competition.
Regulatory and legislative decisions being made at the federal and state levels aimed at promoting customer choice are shaping this transition. Customer choice provides the customer the ability to
select an energy supplier (the company that generates or supplies the power), in an open and competitive marketplace. This emerging environment presents significant challenges, which are discussed
below.

Wholesale Market Developments

In 1996, the Federal Energy Regulatory Commission (FERC) issued orders to open the wholesale electric markets to competition. Competitors within the wholesale
market include both utilities and non-utilities such as exempt wholesale generators, independent power producers, and power marketers. We are involved in wholesale power marketing and
trading through Commodities.

In
late June 1998, and again in late July 1999, Midwest wholesale electric power markets experienced unprecedented price spikes. These price spikes were caused by a
number of factors including (1) unseasonably hot weather, (2) unplanned generating unit outages, (3) transmission constraints, and (4) increased electric commodity market
volatility. These simultaneous events created temporary but extreme prices in the Midwest electricity markets. As a result, during 1999 and 1998, we recorded after tax charges to income of $0.36 per
share and $0.54 per share, respectively. In response to these events, we are aggressively pursuing a combination of mitigation strategies. These strategies, along with the expiration of the legacy
wholesale contracts discussed below, the anticipated effects of recently enacted customer choice legislation in Ohio beginning in 2001, new contracts for additional transmission from outside the
region, and general market maturation, should result in reduced exposure to the consequences of extreme weather and operating conditions and, therefore, the risk of future financial losses in 2000 and
beyond.

Supply-side ActionsOn September 30, 1999, one of our
non-regulated subsidiaries formed a partnership with Duke, in an effort to increase the available generating capacity for use during peak demand periods. This partnership will jointly
construct and own three wholesale generating facilities to be located in southwestern Ohio, and east central and western Indiana, with total capacity of approximately 1,400 MW. These facilities will
be natural gas-fired peaking stations with commercial
operation anticipated for the summer of 2000. Our portion (50%) of the output will be sold to and marketed by Cinergy Capital & Trading (a wholly-owned subsidiary of Investments) or another Cinergyaffiliate. We are supplementing this additional capability with block power purchases for the summer of 2000 peak period.

42



Demand-side ActionsDemand on our system is expected to be reduced in future years
as a result of the roll-off of existing wholesale contractual obligations and peak load management initiatives recently developed by us.

Over
the next five years, our wholesale obligations will decline from almost 3,000 MW of obligations in 1999 to about 1,000 MW in 2005. In addition to the normal
expiration of contract commitments over time, we are pursuing contract restructurings with certain wholesale customers.

Finally,
Ohio's recently enacted customer choice legislation contemplates that 20% ofCG&E'sretail load be switched to alternative
suppliers by June 2003. In its transition plan filed with the PUCO,CG&Eindicated that it currently has no plans to replace these customers by
acquiring new retail customers, althoughCG&Ereserved the flexibility to replace load in the wholesale market to the extent it chooses.

For
further discussion, see the "Market Risk Sensitive Instruments and Positions" section on page 61.

Retail Market Developments

Currently, regulatory and legislative initiatives shaping the transition to a competitive retail market are the responsibilities of the individual states. Many
states, including Ohio, have enacted electric utility deregulation legislation. In general, these initiatives have sought to separate the electric utility service into its basic components
(generation, transmission, and distribution) and offer each component separately for sale. This separation is referred to as unbundling of the integrated services. We currently supply (either through
generation or open market purchase), transmit, and distribute electricity to all retail customers in our service area. Under the customer choice initiatives, we would continue to transmit and
distribute electricity; however, the customer could purchase electricity from any available supplier. The following sections will further discuss the current status of deregulation legislation in the
states of Ohio, Indiana, and Kentucky, each of which includes a portion of our service territory.

Federal UpdateThe Clinton Administration has introduced a billthe Comprehensive
Electricity Competition Actthat would grant all retail electric customers the right to choose their electricity supplier beginning January 1, 2003. The legislation would allow a
state regulatory authority to opt out of the retail competition system if the authority conducted a public proceeding and determined that the electric customers of that state would be better served by
a monopoly system or an alternative retail competition plan. A "compromise bipartisan" deregulation bill introduced on May 26, 1999, by Representatives Largent (R-OK) and Markey
(D-MA) includes similar mandates and opt out provisions with an effective date of January 1, 2002.

Both
the U.S. House of Representatives and the U.S. Senate continue to hold hearings on electric restructuring to see if consensus legislation can be developed, but it is uncertain
whether federal retail customer choice legislation will be passed by this Congress.

OhioOn July 6, 1999, Ohio Governor Robert Taft signed Amended Substitute Senate Bill
No. 3 (Electric Restructuring Bill, the Bill), beginning the transition to electric deregulation and customer choice for the State of Ohio. The Electric Restructuring Bill creates a competitive
electric retail service market
beginning January 1, 2001. The legislation provides for a market development period that begins January 1, 2001, and ends no later than December 31, 2005. Ohio electric utilities
have an opportunity to recover PUCO-approved transition costs during the market development period.CG&Eis seeking to recover all
generation-related regulatory assets and above-market generation costs as allowable transition costs. The legislation also freezes retail electric rates during the market development period, except
for a five-percent reduction in the generation component of residential rates and other potential adjustments. Furthermore, the legislation contemplates that twenty percent of the current
electric retail customers will switch suppliers no later than December 31, 2003.

43



The
Electric Restructuring Bill required each utility supplying retail electric service in Ohio to file a comprehensive proposed transition plan with the PUCO addressing
specific requirements of the legislation.CG&Efiled its plan on December 28, 1999. The PUCO is required to issue a transition order no later
than October 31, 2000. Consumers will be allowed to begin selecting alternative electricity suppliers beginning January 1, 2001.

As
required by the Electric Restructuring Bill,CG&E'sProposed Transition Plan (Transition Plan) is comprised of the following eight
component plans:



Rate Unbundling PlanThe Electric Restructuring Bill requires the unbundling of retail electric rates in effect on
October 4, 1999. The Bill also requires creation of new tariffs that will facilitate the transition to effective customer choice.

The CG&ERate Unbundling Plan complies with the guidelines set forth in the legislation and separates CG&E'scurrent retail electric rates into a transmission service component, a distribution service component, and a generation service component.

Corporate Separation PlanThe Electric Restructuring Bill requires a corporate separation plan to ensure that a
regulated utility (transmission and distribution services) will not extend any undue preference or advantage to any affiliate, division, or part of its own business engaged in competitive retail
generation service. To this end, the legislation calls for the operational control of transmission assets to reside with a FERC-approved transmission entity that will not have control of
any generation assets.

To
meet these requirements,CG&E'sProposed Transition Plan provides for corporate separation of competitive retail electric services
and other products and services from noncompetitive retail electric
services. Also,CG&Eplans to transfer the operational control of its transmission assets to Midwest Independent Transmission System
Operator, Inc. (Midwest ISO), a FERC-approved transmission entity.

To
further the policy goals of the legislation,CG&Ehas requested approval from the PUCO to establish an EWG. In order to create an
EWG,CG&Emust apply to the FERC for approval. BecauseCinergyis a registered holding company under the
PUHCA, before the FERC approves such an application, the Ohio, Indiana, and Kentucky state utility commissions must find that the transfer of CG&E'sgenerating assets to an EWG: (1) will
benefit consumers, (2) is in the public interest, and (3) does not
violate state law.CG&Ebelieves that its plan meets each of these requirements.

Operational Support PlanThe Electric Restructuring Bill requires the submission of an operational support plan. This
plan should address the operational support systems and business processes necessary to ensure a successful implementation of the customer's ability to choose its generation supplier.

44



CG&E'soperational support plan complies with the guidelines and requirements
established by the legislation and includes the following:



Employee Assistance PlanThe Electric Restructuring Bill requires the submission of an employee assistance plan that
addresses severance, retraining, early retirement, retention, outplacement, and other assistance for utilities' employees whose employment is adversely affected by electric restructuring during the
market development period (January 1, 2001 through December 31, 2005).

To
address this requirement,CG&Edeveloped a plan for both non-union and union employees. For
non-union employees,CG&E'splan describes severance and ancillary benefits.CG&Ereserves the right to implement involuntary workforce
reductions to achieve any reductions necessary, but intends to initially use voluntary reductions, if such
reductions become necessary. For union employees, to dateCG&Ehas met with one collective bargaining agent to discuss potential effects
of restructuring on these union employees. This union membership approved a new agreement on February 4, 2000.

Consumer Education PlanThe Electric Restructuring Bill calls for Ohio utilities to spend, in the aggregate, up to
$16 million in the first year of the market development period, and $17 million throughout the remainder of the market development period, educating Ohio consumers on their opportunity
to choose an alternative supplier of electricity.

Through
participation in the Ohio Electric Utility Institute (OEUI),CG&Ewill support a statewide consumer education plan.
Additionally,CG&Ehas developed a comprehensive service territory-specific consumer education campaign designed to educate Ohio consumers on how to
exercise their right to
choose.CG&Eestimates its share of the costs associated with the consumer education program will not be material. As discussed further below, CG&Eis requesting full recovery of these costs.

Application for Receipt of Transition Revenues (Transition Revenue Plan)The Electric Restructuring Bill provides that
a utility's proposed transition plan may include an application to receive transition revenues. Transition revenues are collected in two ways: (1) through the payment of the generation
component of unbundled rates by customers who do not switch generation suppliers, and (2) through payment of nonbypassable transition charges by customers who switch generation suppliers.
Transition costs are costs that meet the following criteria:



The
legislation requires that the PUCO must establish nonbypassable transition charges so that a utility has an opportunity to collect its transition revenues from customers that
choose an alternative supplier during the market development period.

45



CG&Efiled, with its Proposed Transition Plan, a request to recover generation-related regulatory assets and other transition costs
through the receipt of transition revenues, beginning January 1, 2001.CG&Eis seeking recovery of two primary components of transition costs.
First,CG&Eis requesting recovery of the balance of the Ohio retail jurisdictional generation-related assets on the books and records as of
December 31, 2000, including a return on the unamortized balance. At December 31, 1999, the balance of the generation-related assets was approximately $436 million. The projected
jurisdictional balance at December 31, 2000, is approximately $364 million.CG&Eis requesting recovery to continue until
December 31, 2010, or until the balance, including carrying costs, is fully amortized.CG&Ehas proposed to recover this amount utilizing the
total amount that is currently included in rates for the recovery of regulatory assets. Additionally,CG&Eis requesting recovery of other transition
costs during the market development period, consisting primarily of above-market generation costs. As included inCG&E'sProposed Transition Plan, the
projected balance at December 31, 2000, of these above-market generation costs is approximately $563 million. The transition costs associated with any above-market generation assets
represents the difference between the net investment in such assets onCG&E'sbooks and records as of December 31, 2000, and its market value,
including carrying costs.CG&Ehas proposed to recover this amount through an adjustment mechanism that includes a periodic update of other transition
costs, revenues and charges for changes in the market price of electricity. The carrying costs onCG&E'stotal transition costs are estimated at
$311 million.

In
addition,CG&Ehas requested that the costs described below be considered regulatory assets and deferred for future recovery in
regulated utility rates, including carrying costs, after the market development period. These items total an estimated $116 million.



CG&Eis requesting this ratemaking treatment because each of the above items represents direct and incremental costs of transitioning
to a competitive electric industry.CG&Ewill need to incur these costs in order to provide a safe, efficient and reliable public utility service. These
costs are neither currently included inCG&E'srates nor recoverable in a competitive environment. To the extent that the PUCO does not allow deferral
of these costs, they will be expensed as incurred.

Independent Transmission PlanThe Electric Restructuring Bill requires that a utility not own or control transmission
facilities located in Ohio as of January 1, 2001, unless it belongs to and transfers control of the transmission facilities to an operational "qualifying transmission entity" that meets nine
requirements as set forth in the Bill.

To
this end,CG&Ehas agreed to transfer functional control of its transmission facilities to the FERC-approved Midwest
ISO. The requirements for FERC approval are substantially similar to the "qualifying transmission entity" test in the Bill. As a result, the FERC's approval of the Midwest ISO should satisfy the nine
requirements set forth in the Bill requiring the Midwest ISO be a "qualifying transmission entity". For additional information about the Midwest ISO, see the "Midwest ISO" section on page 60.

46



Shopping Incentive PlanThe Electric Restructuring Bill requires that the PUCO consider, in prescribing the transition
charge for each customer class, a shopping incentive designed to induce, at a minimum, a twenty percent load switching rate by customer class halfway through the market development period, but not
later than December 31, 2003.

CG&E'sShopping Incentive Plan describes the methodologies employed in arriving at a
load switching forecast and additional factors that have been considered in developing a methodology for implementing a shopping incentive designed to induce at least a twenty percent load switching
by customer class by December 31, 2003.

CG&Ehas further requested that, before implementing a shopping incentive credit to induce additional switching, the PUCO consider
foregoing the mandatory five percent decrease in the unbundled generation component for residential customers. If switching levels remain below the twenty percent level or significantly below
forecast,CG&Eproposes that a shopping incentive credit then be implemented and adjusted by customer class until the twenty percent threshold has been
achieved.

ConclusionWhileCG&Ebelieves there is sound basis for the various
requests made in its Proposed Transition Plan, it is currently unable to predict the extent to which the Proposed Transition Plan will be approved and its resulting effect on results of operations,
cash flows, and financial position.CG&Eis seeking to recover all generation-related regulatory assets and above-market generation costs as allowable
transition costs.CG&Ebelieves its current accounting for regulatory assets has been consistent with the regulatory orders issued by the PUCO and that
such costs should be recovered in future rates. However, to the extent requested recovery of generation-related regulatory assets is disallowed or generating assets are financially impaired, CG&Ewill be required to recognize a loss
under generally accepted accounting principles. With regard to these assets,CG&Ewill continue to apply Statement No. 71 until the effect of
deregulation is estimable.

IndianaIn January 1999, electric deregulation legislation was introduced into the
Indiana General Assembly. Proposed and supported by a group of large industrial customers, this legislation did not pass in the 1999 session of the Indiana General Assembly. Due to a "short session"
in 2000, the Indiana General Assembly is not expected to consider any electric deregulation initiatives. We will continue to work with the other Indiana investor-owned utilities in an effort to draft
acceptable customer choice legislation. The outcome of this effort remains uncertain.

KentuckyThroughout 1999, a special Kentucky Electricity Restructuring Task Force, convened by
the Kentucky legislature, studied the issues of electric deregulation. In January 2000, the Task Force issued a final report to Kentucky Governor Paul Patton recommending that lawmakers wait
until the 2002 General Assembly before considering any deregulation legislation that would open the state's electric industry to competition.

Other

Our operating companies currently apply the provisions of Statement 71. Statement 71 applies to the financial statements of a rate-regulated
company. The provisions allow our operating companies to capitalize (record as a deferred asset) costs that would normally be charged to expense. These costs are classified as regulatory assets in the
accompanying financial statements and the majority have been approved by regulators for future recovery from customers through our rates. As of December 31, 1999, our operating companies have
$1,055 million of net regulatory assets, of which $956 million have been approved for recovery.

As
of December 31, 1999, our regulated operations continue to meet each of the criteria required for the use of Statement 71. However, as states implement deregulation
legislation, the application of Statement 71 will need to be reviewed. This potential change in accounting practice could create future extraordinary losses to the extent these regulatory assets are
determined not to be recoverable. The

47



effect
of the discontinuance of Statement 71 on the results of operations, cash flows, or statements of position cannot be determined until deregulation legislation plans have been approved by each
state in which we do business. See "Ohio" section of "Retail Market Developments" on page 54 for details of how the Ohio deregulation legislation plan could affect our application of Statement 71.

Midwest ISO

As part of the effort to create a competitive wholesale power marketplace, the FERC approved the formation of the Midwest ISO during 1998. The Midwest ISO will
oversee the combined transmission systems of its members. The organization is expected to begin operations in late 2001. This effort will help to facilitate a reliable and efficient market for
electric power and create open transmission access consistent with FERC policies. The Midwest ISO currently includes 14 members with over 69,000 miles of transmission lines in 16 states and an
aggregate investment of over $8.5 billion. In December 1999, the Midwest ISO announced plans to combine operations with the Mid-Continent Power Pool and the Southwest Power
Area Pool.

Repeal of PUHCA

Various proposals to repeal or amend the PUHCA are pending before Congress. In February 1999, the Senate Banking, Housing and Urban Affairs Committee
reported out of committee S.313, a bill to
repeal the PUHCA. S.313 is awaiting action by the full Senate. In June 1999, H.R.2363, a bill to repeal the PUHCA was introduced in the U.S. House of Representatives as a companion to S.313.
H.R.2363 is awaiting action by the House Commerce Committee.

The
Clinton Administration has introduced legislation which repeals the PUHCA as part of a broader restructuring of the electricity industry. In October 1999, the House
Subcommittee on Energy and Commerce reported out to the full House Commerce Committee H.R.2944, which would also repeal the PUHCA as part of a broader restructuring of the electricity industry. We
support the repeal of the PUHCA either as part of broader restructuring of the electricity industry or as separate legislation.

Significant Rate Developments

Purchased Power TrackerOn May 28, 1999, PSIfiled a petition with the Indiana Utility Regulatory Commission
(IURC) seeking approval of a purchased power tracking mechanism (tracker). This
request is designed to provide for the recovery of costs related to purchases of power necessary to meet native load requirements to the extent such costs are not sought through the existing fuel
adjustment clause. The tracker is intended to apply to a limited number of purchases made for the purpose of ensuring adequate power reserves to meet peak retail native load requirements, which in
recent years have coincided with periods of extreme price volatility. As proposed byPSI, the tracker would only apply to capacity purchases which are
presented to the IURC for review and approval as to reasonableness under the circumstances.

A
hearing on this request was completed on December 9, 1999. An order is expected by the second quarter of 2000.

Coal GasificationPSIand Dynegy, Inc. (Dynegy, formerly Destec) entered into a 25-year contract for the provision
of coal gasification services beginning in November 1995. The agreement requiredPSIto pay Dynegy a base monthly fee including certain monthly
operating expenses.PSIreceived authorization in the September 1996 Order (an IURC order issued in September 1996 on PSI'sretail rate
proceeding) for the inclusion of these costs in retail rates. In addition,PSIreceived authorization to defer, for subsequent recovery in retail rates, the base monthly fees and expenses incurred prior to the effective date of the
September 1996 Order.

48



During
the third quarter of 1998,PSIreached an agreement with Dynegy to purchase the remainder of its 25-year contract
for coal gasification services. The settlement agreement specified a purchase price of $247 million.

In
anticipation of the buyout,PSIand the Indiana Office of Utility Consumer Counselor (UCC) came to a settlement agreement with
respect to the proper ratemaking treatment of the buyout fee and other buyout implementation costs in June 1999. The agreement provides for PSI'sretail electric rates to be decreased to
eliminate jurisdictional costs associated with the gasification services agreement. In
order to offset the buyout costs of the contract, the agreement allowsPSIto recover the retail electric jurisdictional portion of the buyout fee and
the associated buyout implementation costs through its rates with carrying costs on unrecovered amounts, over an eighteen-year period. In September 1999, the IURC approved the
settlement agreement. In September 1999,PSIrecorded a regulatory asset to reflect the buyout fee and the associated buyout implementation
costs. In October 1999,PSIissued $265 million in debentures due in 2007 to fund the buyout of the remaining term of the contract and for
the estimated cost of plant modifications to allow the use of natural gas.

MARKET RISK SENSITIVE INSTRUMENTS AND POSITIONS

Energy Commodities Sensitivity

The transactions associated with Commodities' energy marketing and trading activities give rise to various risks, including market risk. Market risk represents
the potential risk of loss from adverse changes in the market price of electricity or other energy commodities. As Commodities continues to develop its energy marketing and trading business (and due
to its substantial investment in generation assets), its exposure to movements in the price of electricity and other energy commodities may become greater. As a result, we may be subject to increased
future earnings volatility.

The
energy marketing and trading activities of Commodities principally consist ofCG&E'sand PSI'spower marketing and trading operations. These operations
market and trade over-the-counter (an informal market where the
buying/selling of commodities occurs) contracts for the purchase and sale of electricity primarily in the Midwest region of the U.S.. The power marketing and trading operation consists of both
physical and trading activities. Transactions are designated as a physical activity when there is intent and ability to physically deliver the power from company-owned generation. All other
transactions are considered trading activities. Substantially all of the contracts in both the physical and trading portfolios commit us to purchase or sell electricity at fixed prices in the future.
Commodities also markets and trades over-the-counter option contracts. Substantially all of the contracts in the physical portfolio require settlement by physical delivery of
electricity. Contracts within the trading portfolio generally require settlement by physical delivery or are netted out in accordance with industry trading standards. The use of these types of
physical commodity instruments is designed to allow Commodities to (1) manage and hedge contractual commitments, (2) reduce exposure relative to the volatility of cash market prices, and
(3) take advantage of selected arbitrage opportunities.

Commodities
structures and modifies its net position to capture the following:



At
times a net open position is created or is allowed to continue when Commodities believes future changes in prices and market conditions may possibly result in profitable positions.
Position imbalances can also occur due to the basic lack of liquidity in the wholesale power market. The existence of net open positions can potentially result in an adverse impact on our financial
condition or

49



results
of operations. This potential adverse impact could be realized if the market price of electric power does not react in the manner or direction expected.

Commodities
measures the market risk inherent in the trading portfolio employing value-at-risk analysis and other methodologies, which utilize forward price
curves in electric power markets to quantify estimates of the magnitude and probability of potential future losses related to open contract positions. Value-at-risk is a
statistical measure used to quantify the potential loss in fair value of the trading portfolio over a particular period of time, with a specified likelihood of occurrence, due to an adverse market
movement. Because most of the contracts in the physical portfolio require physical delivery of electricity and generally do not allow for net cash settlement, these contracts are not included in the
value-at-risk analysis.

Our
value-at-risk is reported as a percentage of operating income, based on a 95% confidence interval, utilizing one-day holding periods. This
means that on a given day (one-day holding period) there is a 95% chance (confidence interval) that our trading portfolio will lose less than the stated percentage of operating income. We
disclose our value-at-risk for power activities as a percent of consolidated operating income for a one-day basis at December 31, the average
one-day basis at the end of each quarter, and the daily basis at December 31 of each year. On a one-day basis as of December 31, 1999, the
value-at-risk for the power trading activity was less than 1% of 1999 consolidated operating income and as of December 31, 1998, was less than 1% of 1998 consolidated
operating income. On a one-day basis at the end of each quarter, the value-at-risk for the power trading activity was less than 1% of consolidated operating income
in 1999, and less than 2% in 1998. The daily value-at-risk for the power trading portfolio as of December 31, 1998, was less than 1% of 1999 consolidated operating
income and as of December 31, 1997, was also less than 1% of 1998 consolidated operating income. The value-at-risk model uses the variance-covariance statistical
modeling technique and historical volatilities and correlations over the past 200-day period. The estimated market prices used to value these transactions for
value-at-risk purposes reflect the use of established pricing models and various factors including quotations from exchanges and over-the-counter
markets, price volatility factors, the time value of money, and location differentials.

Commodities,
through some of our non-regulated subsidiaries, actively markets physical natural gas and actively trades derivative commodity instruments which are usually
settled in cash, including forwards, futures, swaps, and options. The aggregated value-at-risk amounts associated with these other trading and hedging activities were less than
$2 million as of December 31, 1999, and less than $1 million at December 31, 1998. The market risk exposures of these non-regulated trading activities is not
considered significant to our financial condition or results of operations.

Credit RiskCredit risk is the exposure to economic losses that would occur as a result of
nonperformance by counterparties, pursuant to the terms of their contractual obligations. Specific components of credit risk include counterparty default risk, collateral risk, concentration risk, and
settlement risk.

Our
concentration of credit risk with respect to Delivery's trade accounts receivable from electric and gas retail customers is limited. The large number of customers and the
diversified customer base of residential, commercial, and industrial customers significantly reduce our credit risk. Contracts within the physical portfolio of Commodities' power marketing and trading
operations are primarily with traditional electric cooperatives and municipalities and other investor-owned utilities. At December 31, 1999, we do not believe we have significant exposure to
credit risk with our trade accounts receivable within Delivery and our physical portfolio within Commodities.

Contracts
within the trading portfolio of Commodities' power marketing and trading operations are primarily with power marketers and other investor-owned utilities. As of
December 31, 1999, approximately 75% of the activity within the trading portfolio represent commitments with 10 counterparties, compared to 10 counterparties representing approximately 73% of
the activity at

50



December 31,
1998. The majority of these contracts are for terms of one year or less. Counterparty credit exposure within the power-trading portfolio is routinely factored into the
mark-to-market valuation. As a result of the extreme volatility experienced in the Midwest power markets during 1998, several new entrants into the market experienced financial
difficulties and failed to perform their contractual obligations. This resulted in us recording bad debt provisions of approximately $13 million with respect to settled transactions. At
December 31, 1999, our exposure to credit risk within the power-trading portfolio is not believed to be significant. As the competitive electric power market continues to develop,
counterparties will increasingly include new market entrants, such as other power marketers, brokers, and commodity traders. This increased level of new market entrants, as well as competitive
pressures on existing market participants, could increase Commodities' exposure to credit risk with respect to its power marketing and trading operation.

As
of December 31, 1999, approximately one-third of the activity within the physical gas marketing and trading portfolio represents commitments with 10
counterparties, compared to 10 counterparties representing approximately 37% of the activity at December 31, 1998. Credit risk losses related to gas and other commodity physical and trading
operations have not been significant. At December 31, 1999, the credit risk within the gas and other commodity trading portfolios is not believed to be significant because of the
characteristics of counterparties and customers with which transactions are executed.

Potential
exposure to credit risk also exists from our use of financial derivatives such as currency swaps, foreign exchange forward contracts, and interest rate swaps. Because these
financial instruments are transacted only with highly rated financial institutions, we do not anticipate nonperformance by any of the counterparties.

Risk ManagementWe manage, on a portfolio basis, the market risks in our energy marketing and
trading transactions subject to parameters established by our Risk Policy Committee. Our market and credit risks are monitored by the risk management and credit functions to ensure compliance with
stated risk management policies and procedures. These functions operate independently from the business units which originate and actively manage the market and credit risk exposures. The policies and
procedures are periodically reviewed and monitored to ensure their responsiveness to changing market and business conditions. In addition, efforts are ongoing to develop systems to improve the
timeliness and quality of market and credit risk information.

We
have a risk management function and have implemented active risk management policies and procedures. These policies and procedures allow us to manage and minimize corporate and
business unit exposure to: price risks and associated volatilities, credit risks, and other market risks. We also maintain counterparty credit policies to manage and minimize our exposure to credit
risk.

These
policies include:



Exchange Rate Sensitivity

From time to time, we may utilize foreign exchange forward contracts and currency swaps to hedge certain of our net investments in foreign operations. These
contracts and swaps allow us to hedge our position against currency exchange rate fluctuations.

Through
our investments in Midlands, we had exposure to fluctuations in the U.S. dollar/United Kingdom pound sterling exchange rate. We used dollar denominated variable interest rate
debt to fund the investment and hedged our exposure through a currency swap. On July 15, 1999, we sold our 50% ownership interest in Avon Energy to GPU, as discussed in Note 10 of the
"Notes to Financial

51



Statements"
in "Item 8. Financial Statements and Supplementary Data" on page 126. As a result of this transaction, we terminated the hedging contracts related to the investment.

We
also have exposure to fluctuations in the U.S. dollar/Czech koruna rate through our investments in the Czech Republic. We have historically hedged the exchange rate exposure
related to certain of the Czech koruna denominated investments through foreign exchange forward contracts. However, during the second quarter of 1999, we settled these forward exchange contracts. The
settlement costs were not material. The remaining foreign exchange hedging contracts are not significant.

Exposure
to fluctuations in exchange rates between the U.S. dollar and the currencies of foreign countries where we have investments do exist. When it is appropriate we will hedge our
exposure to cash flow transactions, such as a dividend payment by one of our foreign subsidiaries. At December 31, 1999, we do not believe we have a material exposure to the currency risk
attributable to these investments.

Interest Rate Sensitivity

Our exposure to changes in interest rates consists of short-term debt instruments, pollution control debt, sale of accounts receivable, and the
Woodsdale capital lease. The following table reflects the different instruments used and the method of benchmarking interest rates, as of December 31, 1999, and 1998:

|                                       |  | Interest Benchmark         |  |         |  | 1999 |     | 1998
|-------------------------------------- |  | -------------------------- |  | ------- |  | ---- | --- | ----
|
|Short-term Bank Loans/Commercial Paper |  |   Short-term Money Market |  | Cinergy |  | $    | 283 |     
|                                       |  |   LIBOR(1)                |  | CG&E    |  |      | 51  |     
|                                       |  |                            |  | PSI     |  |      | 150 |     
|Pollution Control Debt                 |  |   Daily Market            |  | Cinergy |  |      | 267 |     
|                                       |  |                            |  | CG&E    |  |      | 184 |     
|                                       |  |                            |  | PSI     |  |      | 83  |     
|Sale of Accounts Receivable            |  |   Short-term Money Market |  | Cinergy |  |      | 257 |     
|                                       |  |                            |  | CG&E    |  |      | 157 |     
|                                       |  |                            |  | ULH&P   |  |      | 21  |     
|                                       |  |                            |  | PSI     |  |      | 100 |     
|Woodsdale Capital Lease                |  |   LIBOR(1)                |  | Cinergy |  |      | 22  |     
|                                       |  |                            |  | CG&E    |  |      | 22  |     

(1)
London Inter-Bank Offered Rate (LIBOR)

The
weighted-average interest rates on the above instruments at December 31, 1999, and 1998, were as follows:

|                                       |  | 1999 |   | 1998 |  
|-------------------------------------- |  | ---- | - | ---- | -
|Short-term Bank Loans/Commercial Paper |  | 6.2  | % | 6.0  | %
|Pollution Control Debt                 |  | 4.1  | % | 4.0  | %
|Sale of Accounts Receivable            |  | 6.1  | % | 6.0  | %
|Woodsdale Capital Lease                |  | 5.3  | % | 5.3  | %

Current
forward yield curves project an increase in applicable short-term interest rates over the next five years.

52



The
following table presents principal cash repayments by maturity date and other selected information for each registrant's long-term fixed-rate debt, other
debt, and capital lease obligations as of December 31, 1999:

|                                  |  | Expected Maturity Date |     |    
|--------------------------------- |  | ---------------------- | --- | ---
|
|
|Cinergy                           |  |                        |     |    
|Long-term Debt(1)                 |  | $                      | 132 | (6)
|Weighted-average interest rate(2) |  |                        | 6.2 | %  
|Other(3)                          |  | $                      | .9  |    
|Weighted-average interest rate(2) |  |                        | 8.4 | %  
|Capital Lease                     |  |                        |     |    
|Fixed rate                        |  | $                      | .7  |    
|Interest rate                     |  |                        | 6.7 | %  
|Variable rate                     |  |                        |    |    
|Weighted-average interest rate(2) |  |                        |    |    
|                                  |  |                        |     |    
|CG&Eand subsidiaries              |  |                        |     |    
|Long-term Debt(1)                 |  |                        |    |    
|Weighted-average interest rate(2) |  |                        |    |    
|Capital Lease                     |  |                        |     |    
|Fixed rate                        |  | $                      | .3  |    
|Interest rate                     |  |                        | 6.7 | %  
|Variable rate                     |  |                        |    |    
|Weighted-average interest rate(2) |  |                        |    |    
|                                  |  |                        |     |    
|PSI                               |  |                        |     |    
|Long-term Debt(1)                 |  | $                      | 132 | (6)
|Weighted-average interest rate(2) |  |                        | 6.0 | %  
|Capital Lease                     |  |                        |     |    
|Fixed rate                        |  | $                      | .4  |    
|Interest rate                     |  |                        | 6.7 | %  
|                                  |  |                        |     |    
|ULH&P                             |  |                        |     |    
|Long-term Debt(1)                 |  |                        |    |    
|Weighted-average interest rate(2) |  |                        |    |    
|Capital Lease                     |  |                        |     |    
|Fixed rate                        |  | $                      | .1  |    
|Interest rate                     |  |                        | 6.7 | %  

---

Our current policy in managing exposure to fluctuations in interest rates is to maintain 25% of the total amount outstanding debt in floating
interest rate debt instruments. To help maintain this level of exposure, we have previously entered into interest rate swaps. Under these swaps, we have agreed with other parties to exchange, at
specified intervals, the difference between fixed rate and floating rate interest amounts calculated on an agreed notional principal amount. When less than 25% of the

53



outstanding
debt had floating interest rates, we entered into swaps whereby we would receive a fixed rate and pay a floating rate. When more than 25% of the outstanding debt had fixed interest rates,
we entered into swaps that allowed us to receive a floating rate while paying a fixed rate. At December 31, 1999, the composition of our debt consisted of slightly less than 25% of the
outstanding amount having floating interest rates.PSIhas an outstanding interest rate swap agreement that will increase this percentage of floating
rate debt in the second half of 2000. Under the agreement, which has a notional amount of $100 million,PSIwill pay a floating rate and receive
a fixed rate for a six month period. The floating rate will be based on a short-term money market index. At December 31, 1999, the fair value of this interest rate swap was not
significant. In the future, we will continually monitor market conditions to evaluate whether to increase, or decrease, our level of exposure to fluctuations in interest rates.

GAS INDUSTRY

Legislation

Customer ChoiceIn November 1997, the State of Ohio commenced a customer choice program for the gas utility industry. This voluntary program
gives residential and small commercial customers the opportunity to select their own gas supplier. Approximately two-thirds of the gas customers in the State of Ohio are eligible to
participate. This program excludes large industrial, commercial, and educational institution customers because they already have the ability to select their own gas supplier.

Although
the gas supplier may vary by customer,CG&Econtinues to provide gas transportation services for substantially all customers
within its franchise territory.

Regulations

PUCO OrderIn 1996, the PUCO approved an overall increase in gas revenues of 2.5%, or $9.3 million annually, for CG&E. In establishing the rate
increase, the PUCO excluded certain requests made byCG&E. In
April 1997,CG&Efiled a notice of appeal with the Supreme Court of Ohio to challenge the PUCO decisions. On July 7, 1999, the Supreme
Court issued a ruling on the appeal. The ruling resulted in a revision in rates generating a $3 million increase in annual revenues forCG&E,
which represents less than a one percent increase in retail rates. The implementation of this incremental rate change began in the third quarter of 1999.

IMPACT OF ACQUISITIONS AND DISPOSITIONS

Acquisitions

During 1999, we invested an additional $309 million in consolidated and unconsolidated subsidiaries, the most significant of which is the partnership
with Duke. The Duke partnership is discussed in the "Wholesale Market Developments" section on page 53.

Dispositions

During 1999, we sold our 50% ownership interest in Avon Energy to GPU. See Note 10 of the "Notes to Financial Statements" in "Item 8. Financial
Statements and Supplementary Data" on page 126 for an additional discussion of this sale.

INFLATION

We believe that the recent inflation rates do not materially impact our financial condition. However, under existing regulatory practice, only the historical
cost of plant is recoverable from customers. As a result, cash flows designed to provide recovery of historical plant costs may not be adequate to replace plant in future years.

54



ACCOUNTING CHANGES

During the second quarter of 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities(Statement 133). This standard requires companies to record derivative instruments as
assets or liabilities, measured at fair value. Changes in the derivative's fair value must be recognized currently in earnings unless specific hedge accounting criteria are met. Hedges are
transactions entered into for the purpose of reducing exposure to one or more types of business risk. Gains and losses on derivatives that qualify as hedges can offset related results on the hedged
item in the income statement.

This
standard, as subsequently amended by Statement of Financial Accounting Standards No. 137,Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133(Statement 137), is effective for fiscal years beginning after June 15, 2000. The purpose of
Statement 137 was to delay the effective date of Statement 133 by one year. We expect to reflect the adoption of this standard in financial statements issued beginning in the first quarter of 2001. In
recognition of the complexity of this new standard, the Derivatives Implementation Group has been formed by the FASB. In preparation for our implementation of this new standard, we have formed a
cross-functional project team. The project team is identifying and analyzing all contracts which could be subject to the new standard, developing required documentation, defining relevant processes
and information systems needs, and promoting internal awareness of the requirements and potential effects of the new standard. While we continue to analyze and follow the development of implementation
guidelines, at this time we are unable to predict whether the implementation of this accounting standard will be material to our results of operations or financial position. However, the adoption of
Statement 133 could increase volatility in earnings and other comprehensive income.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Reference is made to the "Market Risk Sensitive Instruments and Positions" section of "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations" on page 61.

55



## 

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

|                                                                                                      |  | Page
Number
|----------------------------------------------------------------------------------------------------- |  | -----------
|FINANCIAL STATEMENTS                                                                                  |  |            
|Report of Independent Public Accountants                                                              |  | 57         
|Cinergy Corp. and Subsidiaries                                                                        |  |            
|Consolidated Statements of Income for the three years ended December 31, 1999                         |  | 59         
|Consolidated Balance Sheets at December 31, 1999 and 1998                                             |  | 60         
|Consolidated Statements of Changes in Common Stock Equity for the three years ended December 31, 1999 |  | 62         
|Consolidated Statements of Cash Flows for the three years ended December 31, 1999                     |  | 63         
|The Cincinnati Gas & Electric Company and Subsidiaries                                                |  |            
|Consolidated Statements of Income for the three years ended December 31, 1999                         |  | 65         
|Consolidated Balance Sheets at December 31, 1999 and 1998                                             |  | 66         
|Consolidated Statements of Changes in Common Stock Equity for the three years ended December 31, 1999 |  | 68         
|Consolidated Statements of Cash Flows for the three years ended December 31, 1999                     |  | 69         
|Consolidated Statements of Capitalization at December 31, 1999 and 1998                               |  | 70         
|PSI Energy, Inc. and Subsidiary                                                                       |  |            
|Consolidated Statements of Income for the three years ended December 31, 1999                         |  | 73         
|Consolidated Balance Sheets at December 31, 1999 and 1998                                             |  | 74         
|Consolidated Statements of Changes in Common Stock Equity for the three years ended December 31, 1999 |  | 76         
|Consolidated Statements of Cash Flows for the three years ended December 31, 1999                     |  | 77         
|Consolidated Statements of Capitalization at December 31, 1999 and 1998                               |  | 78         
|The Union Light, Heat and Power Company                                                               |  |            
|Statements of Income for the three years ended December 31, 1999                                      |  | 80         
|Balance Sheets at December 31, 1999 and 1998                                                          |  | 81         
|Statements of Changes in Common Stock Equity for the three years ended December 31, 1999              |  | 83         
|Statements of Cash Flows for the three years ended December 31, 1999                                  |  | 84         
|Statements of Capitalization at December 31, 1999 and 1998                                            |  | 85         
|Notes to Financial Statements                                                                         |  | 86         
|FINANCIAL STATEMENT SCHEDULES                                                                         |  |            
|Schedule IIValuation and Qualifying Accounts                                                         |  |            
|Cinergy                                                                                               |  | 136        
|CG&E                                                                                                  |  | 137        
|PSI                                                                                                   |  | 138        
|ULH&P                                                                                                 |  | 139        

The
information required to be submitted in schedules other than those indicated above has been included in the balance sheets, the statements of income, related schedules, the notes
thereto, or omitted as not required by the Rules of Regulation S-X.

56



## 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of Cinergy Corp., The Cincinnati Gas & Electric Company, PSI Energy, Inc., and The Union Light, Heat and Power Company:

We
have audited the financial statements of Cinergy Corp. (a Delaware Corporation), The Cincinnati Gas & Electric Company (an Ohio Corporation), PSI Energy, Inc. (an
Indiana Corporation), and The Union Light, Heat and Power Company (a Kentucky Corporation), as of December 31, 1999 and 1998, and for each of the three years in the period ended
December 31, 1999, as listed in the index on page 70. These financial statements and the schedules referred to below are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedules based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes 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, the financial statements referred to above present fairly, in all material respects, the financial position of Cinergy Corp., The Cincinnati Gas & Electric
Company, PSI Energy, Inc., and The Union Light, Heat and Power Company as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States.

As
explained in Note 1 to the consolidated financial statements, the Company changed its method of accounting for its energy trading and risk management activities effective
December 31, 1998.

Our
audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed in the index on page 70 pursuant to Item 14, are
presented for purposes of complying with the Securities and Exchange Commissions Rules and Regulations under the Securities Exchange Act of 1934 and are not a required part of the basic financial
statements. The schedules have been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, fairly state in all material respects the
financial data required to be set forth in relation to the basic financial statements taken as a whole.

Arthur
Andersen LLP
Cincinnati, Ohio
January 26, 2000

57



CINERGY CORP.AND SUBSIDIARY COMPANIES

58



CINERGY CORP.

CONSOLIDATED STATEMENTS OF INCOME

|                                                                                                      |  | 1999 |           | 1998 |   | 1997      |  
|----------------------------------------------------------------------------------------------------- |  | ---- | --------- | ---- | - | --------- | -
|
|Operating Revenues                                                                                    |  |      |           |      |   |           |  
|Electric                                                                                              |  | $    | 4,312,899 |      | $ | 4,763,289 |  
|Gas                                                                                                   |  |      | 1,596,146 |      |   | 1,099,629 |  
|Other                                                                                                 |  |      | 28,843    |      |   | 48,373    |  
|                                                                                                      |  |      |           |      |   |           |  
|Total Operating Revenues                                                                              |  |      | 5,937,888 |      |   | 5,911,291 |  
|Operating Expenses                                                                                    |  |      |           |      |   |           |  
|Fuel and purchased and exchanged power                                                                |  |      | 2,260,297 |      |   | 2,853,866 |  
|Gas purchased                                                                                         |  |      | 1,383,993 |      |   | 894,945   |  
|Operation and maintenance                                                                             |  |      | 981,054   |      |   | 976,289   |  
|Depreciation and amortization                                                                         |  |      | 353,820   |      |   | 326,492   |  
|Taxes other than income taxes                                                                         |  |      | 265,501   |      |   | 274,635   |  
|                                                                                                      |  |      |           |      |   |           |  
|Total Operating Expenses                                                                              |  |      | 5,244,665 |      |   | 5,326,227 |  
|Operating Income                                                                                      |  |      | 693,223   |      |   | 585,064   |  
|Equity in Earnings of Unconsolidated Subsidiaries                                                     |  |      | 58,021    |      |   | 51,484    |  
|Gain on Sale of Investment in Unconsolidated Subsidiary(Note 10)                                      |  |      | 99,272    |      |   |          |  
|MiscellaneousNet                                                                                     |  |      | 2,031     |      |   | (8,289    | )
|Interest                                                                                              |  |      | 234,778   |      |   | 243,587   |  
|                                                                                                      |  |      |           |      |   |           |  
|Income Before Taxes                                                                                   |  |      | 617,769   |      |   | 384,672   |  
|Income Taxes(Note 11)                                                                                 |  |      | 208,671   |      |   | 117,187   |  
|Preferred Dividend Requirements of Subsidiaries                                                       |  |      | 5,457     |      |   | 6,517     |  
|                                                                                                      |  |      |           |      |   |           |  
|Net Income Before Extraordinary Item                                                                  |  | $    | 403,641   |      | $ | 260,968   |  
|Extraordinary ItemEquity Share of Windfall Profits Tax(Less Applicable Income Taxes of $0) (Note 17) |  |      |          |      |   |          |  
|                                                                                                      |  |      |           |      |   |           |  
|Net Income                                                                                            |  | $    | 403,641   |      | $ | 260,968   |  
|                                                                                                      |  |      |           |      |   |           |  
|Average Common Shares Outstanding                                                                     |  |      | 158,863   |      |   | 158,238   |  
|Earnings Per Common Share(Note 16)                                                                    |  |      |           |      |   |           |  
|Net income before extraordinary item                                                                  |  | $    | 2.54      |      | $ | 1.65      |  
|Net Income                                                                                            |  | $    | 2.54      |      | $ | 1.65      |  
|Earnings Per Common ShareAssuming Dilution(Note 16)                                                  |  |      |           |      |   |           |  
|Net income before extraordinary item                                                                  |  | $    | 2.53      |      | $ | 1.65      |  
|Net income                                                                                            |  | $    | 2.53      |      | $ | 1.65      |  
|Dividends Declared Per Common Share                                                                   |  | $    | 1.80      |      | $ | 1.80      |  

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

59



CINERGY CORP.

CONSOLIDATED BALANCE SHEETS

|                                                                                                                                                |  | December 31
|----------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------
|
|
|ASSETS                                                                                                                                          |  |            
|Current Assets                                                                                                                                  |  |            
|Cash and cash equivalents                                                                                                                       |  | $          
|Restricted deposits                                                                                                                             |  |            
|Notes receivable                                                                                                                                |  |            
|Accounts receivable less accumulated provision for doubtful accounts of $26,811 at December 31, 1999, and $25,622 at December 31, 1998 (Note 6) |  |            
|Materials, supplies, and fuelat average cost                                                                                                   |  |            
|Energy risk management assets (Note 1(j))                                                                                                       |  |            
|Prepayments and other                                                                                                                           |  |            
|                                                                                                                                                |  |            
|Total Current Assets                                                                                                                            |  |            
|Utility PlantOriginal Cost                                                                                                                     |  |            
|In service                                                                                                                                      |  |            
|Electric                                                                                                                                        |  |            
|Gas                                                                                                                                             |  |            
|Common                                                                                                                                          |  |            
|                                                                                                                                                |  |            
|Total                                                                                                                                           |  |            
|Accumulated depreciation                                                                                                                        |  |            
|                                                                                                                                                |  |            
|Total                                                                                                                                           |  |            
|Construction work in progress                                                                                                                   |  |            
|                                                                                                                                                |  |            
|Total Utility Plant                                                                                                                             |  |            
|Other Assets                                                                                                                                    |  |            
|Regulatory assets (Note 1(c))                                                                                                                   |  |            
|Investments in unconsolidated subsidiaries (Note 10)                                                                                            |  |            
|Energy risk management assets (Note 1(j))                                                                                                       |  |            
|Other                                                                                                                                           |  |            
|                                                                                                                                                |  |            
|Total Other Assets                                                                                                                              |  |            
|Total Assets                                                                                                                                    |  | $          
|                                                                                                                                                |  |            

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

60



CINERGY CORP.

CONSOLIDATED BALANCE SHEETS

|                                                                                                                           |  | December 31 |          
|-------------------------------------------------------------------------------------------------------------------------- |  | ----------- | ---------
|
|
|LIABILITIES AND SHAREHOLDERS' EQUITY                                                                                       |  |             |          
|Current Liabilities                                                                                                        |  |             |          
|Accounts payable                                                                                                           |  | $           | 734,937  
|Accrued taxes                                                                                                              |  |             | 219,266  
|Accrued interest                                                                                                           |  |             | 49,354   
|Notes payable and other short-term obligations (Note 5)                                                                    |  |             | 550,194  
|Long-term debt due within one year (Note 4)                                                                                |  |             | 31,000   
|Energy risk management liabilities (Note 1(j))                                                                             |  |             | 126,682  
|Other                                                                                                                      |  |             | 76,774   
|                                                                                                                           |  |             |          
|Total Current Liabilities                                                                                                  |  |             | 1,788,207
|Non-Current Liabilities                                                                                                    |  |             |          
|Long-term debt (Notes 4 and 18)                                                                                            |  |             | 2,989,242
|Deferred income taxes (Note 11)                                                                                            |  |             | 1,174,818
|Unamortized investment tax credits                                                                                         |  |             | 147,550  
|Accrued pension and other postretirement benefit costs (Note 9)                                                            |  |             | 355,917  
|Energy risk management liabilities (Note 1(j))                                                                             |  |             | 132,041  
|Other                                                                                                                      |  |             | 282,855  
|                                                                                                                           |  |             |          
|Total Non-Current Liabilities                                                                                              |  |             | 5,082,423
|                                                                                                                           |  |             |          
|Total Liabilities                                                                                                          |  |             | 6,870,630
|Cumulative Preferred Stock of Subsidiaries(Note 3)
Not subject to mandatory redemption                                     |  |             | 92,597   
|Common Stock Equity(Note 2)                                                                                                |  |             |          
|Common Stock$.01 par value; authorized shares600,000,000; outstanding shares158,923,399 in 1999 and 158,664,532 in 1998 |  |             | 1,589    
|Paid-in capital                                                                                                            |  |             | 1,597,554
|Retained earnings                                                                                                          |  |             | 1,064,319
|Accumulated other comprehensive income (loss)                                                                              |  |             | (9,741   
|                                                                                                                           |  |             |          
|Total Common Stock Equity                                                                                                  |  |             | 2,653,721
|Commitments and Contingencies(Note 12)                                                                                     |  |             |          
|Total Liabilities and Shareholders' Equity                                                                                 |  | $           | 9,616,948
|                                                                                                                           |  |             |          

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

61



CINERGY CORP.

CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY

|                                                                 |  | Common
Stock |       | Paid-in
Capital |   | Retained
Earnings |   | Accumulated
Other
Comprehensive
Income/(Loss) |           | Total
Common
Stock
Equity |  
|---------------------------------------------------------------- |  | ------------ | ----- | --------------- | - | ----------------- | - | --------------------------------------------- | --------- | ------------------------- | -
|
|1997                                                             |  |              |       |                 |   |                   |   |                                               |           |                           |  
|Beginning balance                                                |  | $            | 1,577 |                 | $ | 1,590,735         |   | $                                             | 993,526   |                           | $
|Comprehensive income:                                            |  |              |       |                 |   |                   |   |                                               |           |                           |  
|Net income                                                       |  |              |       |                 |   |                   |   |                                               | 253,238   |                           |  
|Other comprehensive income (loss), net of tax effect of $1,595   |  |              |       |                 |   |                   |   |                                               |           |                           |  
|Foreign currency translation adjustment                          |  |              |       |                 |   |                   |   |                                               |           |                           |  
|Minimum pension liability adjustment                             |  |              |       |                 |   |                   |   |                                               |           |                           |  
|                                                                 |  |              |       |                 |   |                   |   |                                               |           |                           |  
|Total comprehensive income                                       |  |              |       |                 |   |                   |   |                                               |           |                           |  
|Issuance of 65,529 shares of common stocknet                    |  |              |       |                 |   | 2,066             |   |                                               |           |                           |  
|Treasury shares purchased                                        |  |              | (11   | )               |   | (46,199           | ) |                                               |           |                           |  
|Treasury shares reissued                                         |  |              | 11    |                 |   | 21,975            |   |                                               |           |                           |  
|Dividends on common stock (see page 73 for per share amounts)    |  |              |       |                 |   |                   |   |                                               | (283,866  | )                         |  
|Other                                                            |  |              |       |                 |   | 4,487             |   |                                               | 4,522     |                           |  
|                                                                 |  |              |       |                 |   |                   |   |                                               |           |                           |  
|Ending balance                                                   |  | $            | 1,577 |                 | $ | 1,573,064         |   | $                                             | 967,420   |                           | $
|1998                                                             |  |              |       |                 |   |                   |   |                                               |           |                           |  
|Comprehensive income:                                            |  |              |       |                 |   |                   |   |                                               |           |                           |  
|Net income                                                       |  |              |       |                 |   |                   |   |                                               | 260,968   |                           |  
|Other comprehensive income (loss), net of tax effect of $(1,813) |  |              |       |                 |   |                   |   |                                               |           |                           |  
|Foreign currency translation adjustment                          |  |              |       |                 |   |                   |   |                                               |           |                           |  
|Minimum pension liability adjustment                             |  |              |       |                 |   |                   |   |                                               |           |                           |  
|                                                                 |  |              |       |                 |   |                   |   |                                               |           |                           |  
|Total comprehensive income                                       |  |              |       |                 |   |                   |   |                                               |           |                           |  
|Issuance of 919,874 shares of common stocknet                   |  |              | 10    |                 |   | 30,225            |   |                                               |           |                           |  
|Treasury shares purchased                                        |  |              | (3    | )               |   | (8,205            | ) |                                               |           |                           |  
|Treasury shares reissued                                         |  |              | 3     |                 |   | 12,455            |   |                                               |           |                           |  
|Dividends on common stock (see page 73 for per share amounts)    |  |              |       |                 |   |                   |   |                                               | (284,703  | )                         |  
|Other                                                            |  |              |       |                 |   | (12,302           | ) |                                               | 1,529     |                           |  
|                                                                 |  |              |       |                 |   |                   |   |                                               |           |                           |  
|Ending balance                                                   |  | $            | 1,587 |                 | $ | 1,595,237         |   | $                                             | 945,214   |                           | $
|1999                                                             |  |              |       |                 |   |                   |   |                                               |           |                           |  
|Comprehensive income:                                            |  |              |       |                 |   |                   |   |                                               |           |                           |  
|Net income                                                       |  |              |       |                 |   |                   |   |                                               | 403,641   |                           |  
|Other comprehensive income (loss), net of tax effect of $5,833   |  |              |       |                 |   |                   |   |                                               |           |                           |  
|Foreign currency translation adjustment                          |  |              |       |                 |   |                   |   |                                               |           |                           |  
|Minimum pension liability adjustment                             |  |              |       |                 |   |                   |   |                                               |           |                           |  
|Unrealized gains on grantor and rabbi trusts                     |  |              |       |                 |   |                   |   |                                               |           |                           |  
|                                                                 |  |              |       |                 |   |                   |   |                                               |           |                           |  
|Total comprehensive income                                       |  |              |       |                 |   |                   |   |                                               |           |                           |  
|Issuance of 258,867 shares of common stocknet                   |  |              | 2     |                 |   | 6,720             |   |                                               |           |                           |  
|Treasury shares purchased                                        |  |              |       |                 |   | (233              | ) |                                               |           |                           |  
|Treasury shares reissued                                         |  |              |       |                 |   | 3,660             |   |                                               |           |                           |  
|Dividends on common stock (see page 73 for per share amounts)    |  |              |       |                 |   |                   |   |                                               | (284,545  | )                         |  
|Other                                                            |  |              |       |                 |   | (7,830            | ) |                                               | 9         |                           |  
|                                                                 |  |              |       |                 |   |                   |   |                                               |           |                           |  
|Ending balance                                                   |  | $            | 1,589 |                 | $ | 1,597,554         |   | $                                             | 1,064,319 |                           | $
|                                                                 |  |              |       |                 |   |                   |   |                                               |           |                           |  

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

62



CINERGY CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                     |  | 1999 |          | 1998 |   | 1997     |  
|------------------------------------------------------------------------------------ |  | ---- | -------- | ---- | - | -------- | -
|
|Operating Activities                                                                 |  |      |          |      |   |          |  
|Net income                                                                           |  | $    | 403,641  |      | $ | 260,968  |  
|Items providing or (using) cash currently:                                           |  |      |          |      |   |          |  
|Depreciation and amortization                                                        |  |      | 353,820  |      |   | 326,492  |  
|Wabash Valley Power Association, Inc. settlement                                     |  |      |         |      |   | 80,000   |  
|Deferred income taxes and investment tax creditsnet                                 |  |      | 96,067   |      |   | (107,835 | )
|Unrealized (gain) loss from energy risk management activities                        |  |      | (47,192  | )    |   | 135,000  |  
|Equity in earnings of unconsolidated subsidiaries                                    |  |      | (44,904  | )    |   | (45,374  | )
|Gain on sale of investment in unconsolidated subsidiary                              |  |      | (99,272  | )    |   |         |  
|Allowance for equity funds used during construction                                  |  |      | (3,633   | )    |   | (1,668   | )
|Regulatory assetsnet                                                                |  |      | (203,224 | )    |   | 46,856   |  
|Extraordinary itemequity share of windfall profits tax                              |  |      |         |      |   |         |  
|Changes in current assets and current liabilities:                                   |  |      |          |      |   |          |  
|Restricted deposits                                                                  |  |      | 2,959    |      |   | (1,268   | )
|Accounts and notes receivable                                                        |  |      | (118,561 | )    |   | (45,811  | )
|Materials, supplies, and fuel                                                        |  |      | (3,002   | )    |   | (33,484  | )
|Accounts payable                                                                     |  |      | 61,590   |      |   | 44,535   |  
|Accrued taxes and interest                                                           |  |      | (11,406  | )    |   | 46,371   |  
|Other itemsnet                                                                      |  |      | (44,265  | )    |   | 19,226   |  
|                                                                                     |  |      |          |      |   |          |  
|Net cash provided by operating activities                                            |  |      | 342,618  |      |   | 724,008  |  
|Financing Activities                                                                 |  |      |          |      |   |          |  
|Change in short-term debt                                                            |  |      | (353,506 | )    |   | (245,413 | )
|Issuance of long-term debt                                                           |  |      | 829,948  |      |   | 785,554  |  
|Redemption of long-term debt                                                         |  |      | (553,191 | )    |   | (384,520 | )
|Retirement of preferred stock of subsidiaries                                        |  |      | (34      | )    |   | (85,299  | )
|Issuance of common stock                                                             |  |      | 6,722    |      |   | 3,724    |  
|Dividends on common stock                                                            |  |      | (285,925 | )    |   | (283,884 | )
|                                                                                     |  |      |          |      |   |          |  
|Net cash used in financing activities                                                |  |      | (355,986 | )    |   | (209,838 | )
|Investing Activities                                                                 |  |      |          |      |   |          |  
|Construction expenditures (less allowance for equity funds used during construction) |  |      | (386,293 | )    |   | (368,609 | )
|Acquisition of businesses (net of cash acquired)                                     |  |      | (24,500  | )    |   | (63,412  | )
|Investments in unconsolidated subsidiaries                                           |  |      | (284,343 | )    |   | (35,305  | )
|Sale of investment in unconsolidated subsidiary                                      |  |      | 690,269  |      |   |         |  
|                                                                                     |  |      |          |      |   |          |  
|Net cash used in investing activities                                                |  |      | (4,867   | )    |   | (467,326 | )
|Net increase (decrease) in cash and cash equivalents                                 |  |      | (18,235  | )    |   | 46,844   |  
|Cash and cash equivalents at beginning of period                                     |  |      | 100,154  |      |   | 53,310   |  
|                                                                                     |  |      |          |      |   |          |  
|Cash and cash equivalents at end of period                                           |  | $    | 81,919   |      | $ | 100,154  |  
|                                                                                     |  |      |          |      |   |          |  
|Supplemental Disclosure of Cash Flow Information                                     |  |      |          |      |   |          |  
|Cash paid during the year for:                                                       |  |      |          |      |   |          |  
|Interest (net of amount capitalized)                                                 |  | $    | 232,019  |      | $ | 236,982  |  
|Income taxes                                                                         |  | $    | 130,179  |      | $ | 179,677  |  

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

63



THE CINCINNATI GAS & ELECTRIC COMPANYAND SUBSIDIARY COMPANIES

64



THE CINCINNATI GAS & ELECTRIC COMPANY

CONSOLIDATED STATEMENTS OF INCOME

|                                       |  | 1999 |           | 1998 |   | 1997      |  
|-------------------------------------- |  | ---- | --------- | ---- | - | --------- | -
|
|Operating Revenues                     |  |      |           |      |   |           |  
|Electric                               |  | $    | 2,174,861 |      | $ | 2,452,692 |  
|Gas                                    |  |      | 376,013   |      |   | 403,431   |  
|                                       |  |      |           |      |   |           |  
|Total Operating Revenues               |  |      | 2,550,874 |      |   | 2,856,123 |  
|Operating Expenses                     |  |      |           |      |   |           |  
|Fuel and purchased and exchanged power |  |      | 1,066,490 |      |   | 1,407,136 |  
|Gas purchased                          |  |      | 171,997   |      |   | 199,683   |  
|Operation and maintenance              |  |      | 416,257   |      |   | 392,841   |  
|Depreciation and amortization          |  |      | 204,468   |      |   | 191,109   |  
|Taxes other than income taxes          |  |      | 212,193   |      |   | 217,691   |  
|                                       |  |      |           |      |   |           |  
|Total Operating Expenses               |  |      | 2,071,405 |      |   | 2,408,460 |  
|Operating Income                       |  |      | 479,469   |      |   | 447,663   |  
|MiscellaneousNet                      |  |      | (2,480    | )    |   | (1,291    | )
|Interest                               |  |      | 99,737    |      |   | 102,238   |  
|                                       |  |      |           |      |   |           |  
|Income Before Taxes                    |  |      | 377,252   |      |   | 344,134   |  
|Income Taxes(Note 11)                  |  |      | 143,676   |      |   | 128,322   |  
|                                       |  |      |           |      |   |           |  
|Net Income                             |  | $    | 233,576   |      | $ | 215,812   |  
|Preferred Dividend Requirement         |  |      | 856       |      |   | 858       |  
|                                       |  |      |           |      |   |           |  
|Net Income Applicable to Common Stock  |  | $    | 232,720   |      | $ | 214,954   |  
|                                       |  |      |           |      |   |           |  

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

65



THE CINCINNATI GAS & ELECTRIC COMPANY

CONSOLIDATED BALANCE SHEETS

|                                                                                                                                                |  | December 31
|----------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------
|
|
|ASSETS                                                                                                                                         
|Current Assets                                                                                                                                  |  |            
|Cash and cash equivalents                                                                                                                       |  | $          
|Restricted deposits                                                                                                                             |  |            
|Notes receivable from affiliated companies                                                                                                      |  |            
|Accounts receivable less accumulated provision for doubtful accounts of $16,740 at December 31, 1999, and $17,607 at December 31, 1998 (Note 6) |  |            
|Accounts receivable from affiliated companies                                                                                                   |  |            
|Materials, supplies, and fuelat average cost                                                                                                   |  |            
|Energy risk management assets (Note 1(j))                                                                                                       |  |            
|Prepayments and other                                                                                                                           |  |            
|                                                                                                                                                |  |            
|Total Current Assets                                                                                                                            |  |            
|Utility PlantOriginal Cost                                                                                                                     |  |            
|In service                                                                                                                                      |  |            
|Electric                                                                                                                                        |  |            
|Gas                                                                                                                                             |  |            
|Common                                                                                                                                          |  |            
|                                                                                                                                                |  |            
|Total                                                                                                                                           |  |            
|Accumulated depreciation                                                                                                                        |  |            
|                                                                                                                                                |  |            
|Total                                                                                                                                           |  |            
|Construction work in progress                                                                                                                   |  |            
|                                                                                                                                                |  |            
|Total Utility Plant                                                                                                                             |  |            
|Other Assets                                                                                                                                    |  |            
|Regulatory assets (Note 1(c))                                                                                                                   |  |            
|Energy risk management assets (Note 1(j))                                                                                                       |  |            
|Other                                                                                                                                           |  |            
|                                                                                                                                                |  |            
|Total Other Assets                                                                                                                              |  |            
|                                                                                                                                                |  |            
|Total Assets                                                                                                                                    |  | $          
|                                                                                                                                                |  |            

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

66



THE CINCINNATI GAS & ELECTRIC COMPANY

CONSOLIDATED BALANCE SHEETS

|                                                                                                            |  | December 31 |          
|----------------------------------------------------------------------------------------------------------- |  | ----------- | ---------
|
|
|LIABILITIES AND SHAREHOLDER'S EQUITY                                                                        | 
|Current Liabilities                                                                                         |  |             |          
|Accounts payable                                                                                            |  | $           | 253,115  
|Accounts payable to affiliated companies                                                                    |  |             | 65,256   
|Accrued taxes                                                                                               |  |             | 136,118  
|Accrued interest                                                                                            |  |             | 17,375   
|Notes payable and other short-term obligations (Note 5)                                                     |  |             | 234,702  
|Notes payable to affiliated companies                                                                       |  |             | 60,360   
|Long-term debt due within one year (Note 4)                                                                 |  |             |         
|Energy risk management liabilities (Note 1(j))                                                              |  |             | 60,478   
|Other                                                                                                       |  |             | 25,468   
|                                                                                                            |  |             |          
|Total Current Liabilities                                                                                   |  |             | 852,872  
|Non-Current Liabilities                                                                                     |  |             |          
|Long-term debt (Note 4)                                                                                     |  |             | 1,205,916
|Deferred income taxes (Note 11)                                                                             |  |             | 720,168  
|Unamortized investment tax credits                                                                          |  |             | 104,655  
|Accrued pension and other postretirement benefit costs (Note 9)                                             |  |             | 154,718  
|Energy risk management liabilities (Note 1(j))                                                              |  |             | 57,644   
|Other                                                                                                       |  |             | 140,794  
|                                                                                                            |  |             |          
|Total Non-Current Liabilities                                                                               |  |             | 2,383,895
|                                                                                                            |  |             |          
|Total Liabilities                                                                                           |  |             | 3,236,767
|Cumulative Preferred Stock(Note 3)                                                                          |  |             |          
|Not subject to mandatory redemption                                                                         |  |             | 20,686   
|Common Stock Equity(Note 2)                                                                                 |  |             |          
|Common Stock$8.50 par value; authorized shares120,000,000; outstanding shares89,663,086 in 1999 and 1998 |  |             | 762,136  
|Paid-in capital                                                                                             |  |             | 562,851  
|Retained earnings                                                                                           |  |             | 335,144  
|Accumulated other comprehensive income (loss)                                                               |  |             | (966     
|                                                                                                            |  |             |          
|Total Common Stock Equity                                                                                   |  |             | 1,659,165
|Commitments and Contingencies(Note 12)                                                                      |  |             |          
|Total Liabilities and Shareholder's Equity                                                                  |  | $           | 4,916,618
|                                                                                                            |  |             |          

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

67



THE CINCINNATI GAS & ELECTRIC COMPANY

CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY

|                                                              |  | Common
Stock |         | Paid-in
Capital |   | Retained
Earnings |   | Accumulated Other
Comprehensive
Income/(Loss) |          | Total Common
Stock Equity |  
|------------------------------------------------------------- |  | ------------ | ------- | --------------- | - | ----------------- | - | --------------------------------------------- | -------- | ------------------------- | -
|
|1997                                                          |  |              |         |                 |   |                   |   |                                               |          |                           |  
|Beginning balance                                             |  | $            | 762,136 |                 | $ | 536,276           |   | $                                             | 247,403  |                           | $
|Comprehensive income:                                         |  |              |         |                 |   |                   |   |                                               |          |                           |  
|Net income                                                    |  |              |         |                 |   |                   |   |                                               | 239,153  |                           |  
|Other comprehensive income (loss), net of tax effect of $404  |  |              |         |                 |   |                   |   |                                               |          |                           |  
|Minimum pension liability adjustment                          |  |              |         |                 |   |                   |   |                                               |          |                           |  
|                                                              |  |              |         |                 |   |                   |   |                                               |          |                           |  
|Total comprehensive income                                    |  |              |         |                 |   |                   |   |                                               |          |                           |  
|Dividends on preferred stock                                  |  |              |         |                 |   |                   |   |                                               | (871     | )                         |  
|Dividends on common stock                                     |  |              |         |                 |   |                   |   |                                               | (170,400 | )                         |  
|Other                                                         |  |              |         |                 |   | (1,627            | ) |                                               | (732     | )                         |  
|                                                              |  |              |         |                 |   |                   |   |                                               |          |                           |  
|Ending balance                                                |  | $            | 762,136 |                 | $ | 534,649           |   | $                                             | 314,553  |                           | $
|1998                                                          |  |              |         |                 |   |                   |   |                                               |          |                           |  
|Comprehensive income:                                         |  |              |         |                 |   |                   |   |                                               |          |                           |  
|Net income                                                    |  |              |         |                 |   |                   |   |                                               | 215,812  |                           |  
|Other comprehensive income (loss), net of tax effect of $201  |  |              |         |                 |   |                   |   |                                               |          |                           |  
|Minimum pension liability adjustment                          |  |              |         |                 |   |                   |   |                                               |          |                           |  
|                                                              |  |              |         |                 |   |                   |   |                                               |          |                           |  
|Total comprehensive income                                    |  |              |         |                 |   |                   |   |                                               |          |                           |  
|Dividends on preferred stock                                  |  |              |         |                 |   |                   |   |                                               | (859     | )                         |  
|Dividends on common stock                                     |  |              |         |                 |   |                   |   |                                               | (178,000 | )                         |  
|Contribution from parent company for reallocation of taxes    |  |              |         |                 |   | 19,253            |   |                                               |          |                           |  
|Other                                                         |  |              |         |                 |   | 24                |   |                                               | (1       | )                         |  
|                                                              |  |              |         |                 |   |                   |   |                                               |          |                           |  
|Ending balance                                                |  | $            | 762,136 |                 | $ | 553,926           |   | $                                             | 351,505  |                           | $
|1999                                                          |  |              |         |                 |   |                   |   |                                               |          |                           |  
|Comprehensive income:                                         |  |              |         |                 |   |                   |   |                                               |          |                           |  
|Net income                                                    |  |              |         |                 |   |                   |   |                                               | 233,576  |                           |  
|Other comprehensive income (loss), net of tax effect of $(85) |  |              |         |                 |   |                   |   |                                               |          |                           |  
|Minimum pension liability adjustment                          |  |              |         |                 |   |                   |   |                                               |          |                           |  
|                                                              |  |              |         |                 |   |                   |   |                                               |          |                           |  
|Total comprehensive income                                    |  |              |         |                 |   |                   |   |                                               |          |                           |  
|Dividends on preferred stock                                  |  |              |         |                 |   |                   |   |                                               | (856     | )                         |  
|Dividends on common stock                                     |  |              |         |                 |   |                   |   |                                               | (250,100 | )                         |  
|Contribution from parent company for reallocation of taxes    |  |              |         |                 |   | 8,920             |   |                                               |          |                           |  
|Other                                                         |  |              |         |                 |   | 5                 |   |                                               | 1,019    |                           |  
|                                                              |  |              |         |                 |   |                   |   |                                               |          |                           |  
|Ending balance                                                |  | $            | 762,136 |                 | $ | 562,851           |   | $                                             | 335,144  |                           | $
|                                                              |  |              |         |                 |   |                   |   |                                               |          |                           |  

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

68



THE CINCINNATI GAS & ELECTRIC COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                     |  | 1999 |          | 1998 |   | 1997     |  
|------------------------------------------------------------------------------------ |  | ---- | -------- | ---- | - | -------- | -
|
|Operating Activities                                                                 |  |      |          |      |   |          |  
|Net income                                                                           |  | $    | 233,576  |      | $ | 215,812  |  
|Items providing or (using) cash currently:                                           |  |      |          |      |   |          |  
|Depreciation and amortization                                                        |  |      | 204,468  |      |   | 191,109  |  
|Deferred income taxes and investment tax creditsnet                                 |  |      | 2,366    |      |   | (27,045  | )
|Unrealized (gain) loss from energy risk management activities                        |  |      | (27,245  | )    |   | 73,000   |  
|Allowance for equity funds used during construction                                  |  |      | (2,565   | )    |   | (1,647   | )
|Regulatory assetsnet                                                                |  |      | 14,325   |      |   | 4,606    |  
|Changes in current assets and current liabilities:                                   |  |      |          |      |   |          |  
|Accounts and notes receivable                                                        |  |      | 17,676   |      |   | (55,788  | )
|Materials, supplies, and fuel                                                        |  |      | 16,295   |      |   | (7,327   | )
|Accounts payable                                                                     |  |      | 22,462   |      |   | 35,550   |  
|Accrued taxes and interest                                                           |  |      | (18,533  | )    |   | (2,533   | )
|Other itemsnet                                                                      |  |      | 20,541   |      |   | 35,423   |  
|                                                                                     |  |      |          |      |   |          |  
|Net cash provided by operating activities                                            |  |      | 483,366  |      |   | 461,160  |  
|Financing Activities                                                                 |  |      |          |      |   |          |  
|Change in short-term debt                                                            |  |      | 88,759   |      |   | (94,950  | )
|Issuance of long-term debt                                                           |  |      | 19,818   |      |   | 243,186  |  
|Redemption of long-term debt                                                         |  |      | (164,264 | )    |   | (220,409 | )
|Retirement of preferred stock                                                        |  |      | (26      | )    |   | (52      | )
|Dividends on preferred stock                                                         |  |      | (856     | )    |   | (859     | )
|Dividends on common stock                                                            |  |      | (250,100 | )    |   | (178,000 | )
|                                                                                     |  |      |          |      |   |          |  
|Net cash used in financing activities                                                |  |      | (306,669 | )    |   | (251,084 | )
|Investing Activities                                                                 |  |      |          |      |   |          |  
|Construction expenditures (less allowance for equity funds used during construction) |  |      | (194,132 | )    |   | (185,436 | )
|                                                                                     |  |      |          |      |   |          |  
|Net cash used in investing activities                                                |  |      | (194,132 | )    |   | (185,436 | )
|Net increase (decrease) in cash and cash equivalents                                 |  |      | (17,435  | )    |   | 24,640   |  
|Cash and cash equivalents at beginning of period                                     |  |      | 26,989   |      |   | 2,349    |  
|                                                                                     |  |      |          |      |   |          |  
|Cash and cash equivalents at end of period                                           |  | $    | 9,554    |      | $ | 26,989   |  
|                                                                                     |  |      |          |      |   |          |  
|Supplemental Disclosure of Cash Flow Information                                     |  |      |          |      |   |          |  
|Cash paid during the year for:                                                       |  |      |          |      |   |          |  
|Interest (net of amount capitalized)                                                 |  | $    | 101,264  |      | $ | 107,419  |  
|Income taxes                                                                         |  | $    | 159,241  |      | $ | 125,704  |  

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

69



THE CINCINNATI GAS & ELECTRIC COMPANY

CONSOLIDATED STATEMENTS OF CAPITALIZATION

|                                                                                                                                                                                                                                                                                           |  | December 31 |          
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------- | ---------
|
|
|Long-term Debt(excludes current portion)                                                                                                                                                                                                                                                   |  |             |          
|CG&E                                                                                                                                                                                                                                                                                       |  |             |          
|First Mortgage Bonds:                                                                                                                                                                                                                                                                      |  |             |          
|71/4% Series due September 1, 2002                                                                                                                                                                                                                                                         |  | $           | 100,000  
|6.45% Series due February 15, 2004                                                                                                                                                                                                                                                         |  |             | 110,000  
|7.20% Series due October 1, 2023                                                                                                                                                                                                                                                           |  |             | 265,500  
|5.45% Series due January 1, 2024 (Pollution Control)                                                                                                                                                                                                                                       |  |             | 46,700   
|51/2% Series due January 1, 2024 (Pollution Control)                                                                                                                                                                                                                                       |  |             | 48,000   
|                                                                                                                                                                                                                                                                                           |  |             |          
|Total first mortgage bonds                                                                                                                                                                                                                                                                 |  |             | 570,200  
|                                                                                                                                                                                                                                                                                           |  |             |          
|Pollution Control Notes:                                                                                                                                                                                                                                                                   |  |             |          
|6.50% due November 15, 2022                                                                                                                                                                                                                                                                |  |             | 12,721   
|Other Long-term Debt:                                                                                                                                                                                                                                                                      |  |             |          
|Liquid Asset Notes with Coupon Exchange                                                                                                                                                                                                                                                    |  |             |          
|(LANCE) due October 1, 2007; (Redeemable at the option of CG&E)                                                                                                                                                                                                                            |  |             |          
|(Variable interest rate set at 6.50% commencing October 1, 1999)                                                                                                                                                                                                                           |  |             |          
|(Holders of not less than 662/3% in an aggregate principal amount of the LANCEs have the one-time right to convert from the 6.50% fixed rate to a London Interbank Offered Rate (LIBOR)-based
floating rate at any interest rate payment date between October 1, 1999 and October 1, 2002) |  |             | 100,000  
|6.40% Debentures due April 1, 2008                                                                                                                                                                                                                                                         |  |             | 100,000  
|6.90% Debentures due June 1, 2025 (Redeemable at the option of the holders on June 1, 2005)                                                                                                                                                                                                |  |             | 150,000  
|8.28% Junior Subordinated Debentures due July 1, 2025                                                                                                                                                                                                                                      |  |             | 100,000  
|6.35% Debentures due June 15, 2038 (Interest rate resets June 15, 2003)                                                                                                                                                                                                                    |  |             | 100,000  
|                                                                                                                                                                                                                                                                                           |  |             |          
|Total other long-term debt                                                                                                                                                                                                                                                                 |  |             | 550,000  
|Unamortized Premium and DiscountNet                                                                                                                                                                                                                                                       |  |             | (2,762   
|                                                                                                                                                                                                                                                                                           |  |             |          
|Total long-term debt                                                                                                                                                                                                                                                                       |  |             | 1,130,159
|ULH&P                                                                                                                                                                                                                                                                                      |  |             |          
|Other Long-term Debt:                                                                                                                                                                                                                                                                      |  |             |          
|6.11% Debentures due December 8, 2003                                                                                                                                                                                                                                                      |  |             | 20,000   
|6.50% Debentures due April 30, 2008                                                                                                                                                                                                                                                        |  |             | 20,000   
|7.65% Debentures due July 15, 2025                                                                                                                                                                                                                                                         |  |             | 15,000   
|7.875% Senior Unsecured Debentures due September 15, 2009                                                                                                                                                                                                                                  |  |             | 20,000   
|                                                                                                                                                                                                                                                                                           |  |             |          
|Total other long-term debt                                                                                                                                                                                                                                                                 |  |             | 75,000   
|                                                                                                                                                                                                                                                                                           |  |             |          
|Unamortized Premium and DiscountNet                                                                                                                                                                                                                                                       |  |             | (443     
|                                                                                                                                                                                                                                                                                           |  |             |          
|Total long-term debt                                                                                                                                                                                                                                                                       |  |             | 74,557   
|                                                                                                                                                                                                                                                                                           |  |             |          
|Lawrenceburg Gas Company                                                                                                                                                                                                                                                                   |  |             |          
|First Mortgage Bonds:                                                                                                                                                                                                                                                                      |  |             |          
|93/4% Series due October 1, 2001                                                                                                                                                                                                                                                           |  |             | 1,200    
|                                                                                                                                                                                                                                                                                           |  |             |          
|Total CG&E Consolidated long-term debt                                                                                                                                                                                                                                                     |  | $           | 1,205,916

70



THE CINCINNATI GAS & ELECTRIC COMPANY

CONSOLIDATED STATEMENTS OF CAPITALIZATION (Continued)

|Cumulative Preferred Stock                                                                                  |  |           |           |         |   |           |   |    | 
|----------------------------------------------------------------------------------------------------------- |  | --------- | --------- | ------- | - | --------- | - | -- | 
|
|
|
|
|$100                                                                                                        |  | 6,000,000 |           | 206,859 |   | 4%-43/4%  |   | No | 
|Common Stock Equity                                                                                         |  |           |           |         |   |           |  
|Common Stock$8.50 par value; authorized shares120,000,000; outstanding shares89,663,086 in 1999 and 1998 |  |           | 762,136   |         |   | 762,136   |  
|Paid-in capital                                                                                             |  |           | 562,851   |         |   | 553,926   |  
|Retained earnings                                                                                           |  |           | 335,144   |         |   | 351,505   |  
|Accumulated other comprehensive income (loss)                                                               |  |           | (966      | )       |   | (1,124    | )
|                                                                                                            |  |           |           |         |   |           |   |    | 
|Total common stock equity                                                                                   |  |           | 1,659,165 |         |   | 1,666,443 |  
|Total Capitalization                                                                                        |  | $         | 2,885,767 |         | $ | 2,906,938 |  
|                                                                                                            |  |           |           |         |   |           |   |    | 

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

71



PSI ENERGY, INC.AND SUBSIDIARY COMPANY

72



PSI ENERGY, INC.

CONSOLIDATED STATEMENTS OF INCOME

|                                       |  | 1999 |           | 1998 |   | 1997     
|-------------------------------------- |  | ---- | --------- | ---- | - | ---------
|
|Operating Revenues                     |  |      |           |      |   |          
|Electric                               |  | $    | 2,135,706 |      | $ | 2,403,038
|Operating Expenses                     |  |      |           |      |   |          
|Fuel and purchased and exchanged power |  |      | 1,213,653 |      |   | 1,547,511
|Operation and maintenance              |  |      | 460,707   |      |   | 509,138  
|Depreciation and amortization          |  |      | 136,402   |      |   | 130,604  
|Taxes other than income taxes          |  |      | 52,920    |      |   | 54,541   
|                                       |  |      |           |      |   |          
|Total Operating Expenses               |  |      | 1,863,682 |      |   | 2,241,794
|Operating Income                       |  |      | 272,024   |      |   | 161,244  
|MiscellaneousNet                      |  |      | 655       |      |   | 3,300    
|Interest                               |  |      | 86,265    |      |   | 89,359   
|                                       |  |      |           |      |   |          
|                                       |  |      |           |      |   |          
|Income Before Taxes                    |  |      | 186,414   |      |   | 75,185   
|Income Taxes(Note 11)                  |  |      | 69,215    |      |   | 23,147   
|                                       |  |      |           |      |   |          
|Net Income                             |  | $    | 117,199   |      | $ | 52,038   
|Preferred Dividend Requirement         |  |      | 4,601     |      |   | 5,659    
|                                       |  |      |           |      |   |          
|Net Income Applicable to Common Stock  |  | $    | 112,598   |      | $ | 46,379   
|                                       |  |      |           |      |   |          

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

73



PSI ENERGY, INC.

CONSOLIDATED BALANCE SHEETS

|                                                                                                                                              |  | December 31
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------
|
|
|ASSETS                                                                                                                                       
|Current Assets                                                                                                                                |  |            
|Cash and cash equivalents                                                                                                                     |  | $          
|Restricted deposits                                                                                                                           |  |            
|Notes receivable                                                                                                                              |  |            
|Notes receivable from affiliated companies                                                                                                    |  |            
|Accounts receivable less accumulated provision for doubtful accounts of $9,934 at December 31, 1999, and $7,893 at December 31, 1998 (Note 6) |  |            
|Accounts receivable from affiliated companies                                                                                                 |  |            
|Materials, supplies, and fuelat average cost                                                                                                 |  |            
|Energy risk management assets (Note 1(j))                                                                                                     |  |            
|Prepayments and other                                                                                                                         |  |            
|                                                                                                                                              |  |            
|Total Current Assets                                                                                                                          |  |            
|Utility PlantOriginal Cost                                                                                                                   |  |            
|In service                                                                                                                                    |  |            
|Electric                                                                                                                                      |  |            
|Accumulated depreciation                                                                                                                      |  |            
|                                                                                                                                              |  |            
|Total                                                                                                                                         |  |            
|Construction work in progress                                                                                                                 |  |            
|                                                                                                                                              |  |            
|Total Utility Plant                                                                                                                           |  |            
|Other Assets                                                                                                                                  |  |            
|Regulatory assets (Note 1(c))                                                                                                                 |  |            
|Energy risk management assets (Note 1(j))                                                                                                     |  |            
|Other                                                                                                                                         |  |            
|                                                                                                                                              |  |            
|Total Other Assets                                                                                                                            |  |            
|                                                                                                                                              |  |            
|Total Assets                                                                                                                                  |  | $          
|                                                                                                                                              |  |            

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

74



PSI ENERGY, INC.
  
CONSOLIDATED BALANCE SHEETS

|                                                                                                                                |  | December 31 |          
|------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | ---------
|
|
|LIABILITIES AND SHAREHOLDER'S EQUITY                                                                                            | 
|Current Liabilities                                                                                                             |  |             |          
|Accounts payable                                                                                                                |  | $           | 241,072  
|Accounts payable to affiliated companies                                                                                        |  |             | 6,762    
|Accrued taxes                                                                                                                   |  |             | 93,056   
|Accrued interest                                                                                                                |  |             | 26,989   
|Notes payable and other short-term obligations (Note 5)                                                                         |  |             | 232,597  
|Notes payable to affiliated companies                                                                                           |  |             | 6,707    
|Long-term debt due within one year (Note 4)                                                                                     |  |             | 31,000   
|Energy risk management liabilities (Note 1(j))                                                                                  |  |             | 60,478   
|Other                                                                                                                           |  |             | 1,986    
|                                                                                                                                |  |             |          
|Total Current Liabilities                                                                                                       |  |             | 700,647  
|Non-Current Liabilities                                                                                                         |  |             |          
|Long-term debt (Notes 4 and 18)                                                                                                 |  |             | 1,211,552
|Deferred income taxes (Note 11)                                                                                                 |  |             | 460,748  
|Unamortized investment tax credits                                                                                              |  |             | 42,895   
|Accrued pension and other postretirement benefit costs (Note 9)                                                                 |  |             | 129,103  
|Energy risk management liabilities (Note 1(j))                                                                                  |  |             | 57,645   
|Other                                                                                                                           |  |             | 104,638  
|                                                                                                                                |  |             |          
|Total Non-Current Liabilities                                                                                                   |  |             | 2,006,581
|                                                                                                                                |  |             |          
|Total Liabilities                                                                                                               |  |             | 2,707,228
|Cumulative Preferred Stock(Note 3)                                                                                              |  |             |          
|Not subject to mandatory redemption                                                                                             |  |             | 71,911   
|Common Stock Equity(Note 2)                                                                                                     |  |             |          
|Common Stockwithout par value; $.01 stated value; authorized shares60,000,000; outstanding shares53,913,701 in 1999 and 1998 |  |             | 539      
|Paid-in capital                                                                                                                 |  |             | 411,198  
|Retained earnings                                                                                                               |  |             | 642,569  
|Accumulated other comprehensive income (loss)                                                                                   |  |             | 1,391    
|                                                                                                                                |  |             |          
|Total Common Stock Equity                                                                                                       |  |             | 1,055,697
|Commitments and Contingencies(Note 12)                                                                                          |  |             |          
|Total Liabilities and Shareholder's Equity                                                                                      |  | $           | 3,834,836
|                                                                                                                                |  |             |          

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

75



PSI ENERGY, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY

|                                                               |  | Common
Stock |     | Paid-in
Capital |   | Retained
Earnings |   | Accumulated Other
Comprehensive
Income/(Loss) |          | Total
Common
Stock
Equity |  
|-------------------------------------------------------------- |  | ------------ | --- | --------------- | - | ----------------- | - | --------------------------------------------- | -------- | ------------------------- | -
|
|1997                                                           |  |              |     |                 |   |                   |   |                                               |          |                           |  
|Beginning balance                                              |  | $            | 539 |                 | $ | 402,947           |   | $                                             | 627,342  |                           | $
|Comprehensive income:                                          |  |              |     |                 |   |                   |   |                                               |          |                           |  
|Net income                                                     |  |              |     |                 |   |                   |   |                                               | 132,205  |                           |  
|Other comprehensive income (loss), net of tax effect of $203   |  |              |     |                 |   |                   |   |                                               |          |                           |  
|Minimum pension liability adjustment                           |  |              |     |                 |   |                   |   |                                               |          |                           |  
|                                                               |  |              |     |                 |   |                   |   |                                               |          |                           |  
|Total comprehensive income                                     |  |              |     |                 |   |                   |   |                                               |          |                           |  
|Dividends on preferred stock                                   |  |              |     |                 |   |                   |   |                                               | (11,795  | )                         |  
|Dividends on common stock                                      |  |              |     |                 |   |                   |   |                                               | (113,600 | )                         |  
|Other                                                          |  |              |     |                 |   | (2,054            | ) |                                               | 3,662    |                           |  
|                                                               |  |              |     |                 |   |                   |   |                                               |          |                           |  
|Ending balance                                                 |  | $            | 539 |                 | $ | 400,893           |   | $                                             | 637,814  |                           | $
|1998                                                           |  |              |     |                 |   |                   |   |                                               |          |                           |  
|Comprehensive income:                                          |  |              |     |                 |   |                   |   |                                               |          |                           |  
|Net income                                                     |  |              |     |                 |   |                   |   |                                               | 52,038   |                           |  
|Other comprehensive income (loss), net of tax effect of $(666) |  |              |     |                 |   |                   |   |                                               |          |                           |  
|Minimum pension liability adjustment                           |  |              |     |                 |   |                   |   |                                               |          |                           |  
|                                                               |  |              |     |                 |   |                   |   |                                               |          |                           |  
|Total comprehensive income                                     |  |              |     |                 |   |                   |   |                                               |          |                           |  
|Dividends on preferred stock                                   |  |              |     |                 |   |                   |   |                                               | (6,187   | )                         |  
|Dividends on common stock                                      |  |              |     |                 |   |                   |   |                                               | (106,800 | )                         |  
|Non-cash dividend on common stock                              |  |              |     |                 |   |                   |   |                                               | (11,999  | )                         |  
|Contribution from parent company for reallocation of taxes     |  |              |     |                 |   | 9,823             |   |                                               |          |                           |  
|Other                                                          |  |              |     |                 |   | 23                |   |                                               | (1       | )                         |  
|                                                               |  |              |     |                 |   |                   |   |                                               |          |                           |  
|Ending balance                                                 |  | $            | 539 |                 | $ | 410,739           |   | $                                             | 564,865  |                           | $
|1999                                                           |  |              |     |                 |   |                   |   |                                               |          |                           |  
|Comprehensive income:                                          |  |              |     |                 |   |                   |   |                                               |          |                           |  
|Net income                                                     |  |              |     |                 |   |                   |   |                                               | 117,199  |                           |  
|Other comprehensive income (loss), net of tax effect of $100   |  |              |     |                 |   |                   |   |                                               |          |                           |  
|Minimum pension liability adjustment                           |  |              |     |                 |   |                   |   |                                               |          |                           |  
|Unrealized gain on grantor trust                               |  |              |     |                 |   |                   |   |                                               |          |                           |  
|                                                               |  |              |     |                 |   |                   |   |                                               |          |                           |  
|Total comprehensive income                                     |  |              |     |                 |   |                   |   |                                               |          |                           |  
|Dividends on preferred stock                                   |  |              |     |                 |   |                   |   |                                               | (4,601   | )                         |  
|Dividends on common stock                                      |  |              |     |                 |   |                   |   |                                               | (35,900  | )                         |  
|Contribution from parent company for reallocation of taxes     |  |              |     |                 |   | 457               |   |                                               |          |                           |  
|Other                                                          |  |              |     |                 |   | 2                 |   |                                               | 1,006    |                           |  
|                                                               |  |              |     |                 |   |                   |   |                                               |          |                           |  
|Ending balance                                                 |  | $            | 539 |                 | $ | 411,198           |   | $                                             | 642,569  |                           | $
|                                                               |  |              |     |                 |   |                   |   |                                               |          |                           |  

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

76



PSI ENERGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                     |  | 1999 |          | 1998 |   | 1997     |  
|------------------------------------------------------------------------------------ |  | ---- | -------- | ---- | - | -------- | -
|
|Operating Activities                                                                 |  |      |          |      |   |          |  
|Net income                                                                           |  | $    | 117,199  |      | $ | 52,038   |  
|Items providing or (using) cash currently:                                           |  |      |          |      |   |          |  
|Depreciation and amortization                                                        |  |      | 136,402  |      |   | 130,604  |  
|Wabash Valley Power Association, Inc. settlement                                     |  |      |         |      |   | 80,000   |  
|Deferred income taxes and investment tax credits-net                                 |  |      | 102,878  |      |   | (57,130  | )
|Unrealized (gain) loss from energy risk management activities                        |  |      | (27,245  | )    |   | 62,000   |  
|Allowance for equity funds used during construction                                  |  |      | (1,068   | )    |   | (21      | )
|Regulatory assets-net                                                                |  |      | (217,549 | )    |   | 42,250   |  
|Changes in current assets and current liabilities:                                   |  |      |          |      |   |          |  
|Restricted deposits                                                                  |  |      | 2,414    |      |   | (1,268   | )
|Accounts and notes receivable                                                        |  |      | (118,183 | )    |   | (16,850  | )
|Materials, supplies, and fuel                                                        |  |      | (23,045  | )    |   | (25,256  | )
|Accounts payable                                                                     |  |      | (270     | )    |   | (7,086   | )
|Accrued taxes and interest                                                           |  |      | 32,809   |      |   | (3,437   | )
|Other items-net                                                                      |  |      | 42,491   |      |   | 1,044    |  
|                                                                                     |  |      |          |      |   |          |  
|Net cash provided by operating activities                                            |  |      | 46,833   |      |   | 256,888  |  
|Financing Activities                                                                 |  |      |          |      |   |          |  
|Change in short-term debt                                                            |  |      | (36,804  | )    |   | 69,073   |  
|Issuance of long-term debt                                                           |  |      | 589,225  |      |   | 200,228  |  
|Redemption of long-term debt                                                         |  |      | (379,484 | )    |   | (164,111 | )
|Retirement of preferred stock                                                        |  |      | (8       | )    |   | (85,247  | )
|Dividends on preferred stock                                                         |  |      | (4,601   | )    |   | (6,187   | )
|Dividends on common stock                                                            |  |      | (35,900  | )    |   | (106,800 | )
|                                                                                     |  |      |          |      |   |          |  
|Net cash provided by (used in) financing activities                                  |  |      | 132,428  |      |   | (93,044  | )
|Investing Activities                                                                 |  |      |          |      |   |          |  
|Construction expenditures (less allowance for equity funds used during construction) |  |      | (189,207 | )    |   | (163,225 | )
|                                                                                     |  |      |          |      |   |          |  
|Net cash used in investing activities                                                |  |      | (189,207 | )    |   | (163,225 | )
|Net increase (decrease) in cash and cash equivalents                                 |  |      | (9,946   | )    |   | 619      |  
|Cash and cash equivalents at beginning of period                                     |  |      | 18,788   |      |   | 18,169   |  
|                                                                                     |  |      |          |      |   |          |  
|Cash and cash equivalents at end of period                                           |  | $    | 8,842    |      | $ | 18,788   |  
|                                                                                     |  |      |          |      |   |          |  
|Supplemental Disclosure of Cash Flow Information                                     |  |      |          |      |   |          |  
|Cash paid (received) during the year for:                                            |  |      |          |      |   |          |  
|Interest (net of amount capitalized)                                                 |  | $    | 86,256   |      | $ | 80,712   |  
|Income taxes                                                                         |  | $    | (54,099  | )    | $ | 63,957   |  

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

77



PSI ENERGY, INC.

CONSOLIDATED STATEMENTS OF CAPITALIZATION

|                                                                                                                                 |  |           |           |         |   |             |  |    |  | December 31
|-------------------------------------------------------------------------------------------------------------------------------- |  | --------- | --------- | ------- | - | ----------- |  | -- |  | -----------
|
|
|Long-term Debt(excludes current portion)                                                                                         |  |           |           |         |   |            
|First Mortgage Bonds:                                                                                                            |  |           |           |         |   |            
|Series TT, 73/8%, due March 15, 2012 (Pollution Control)                                                                         |  | $         | 10,000    |         | $ | 10,000     
|Series UU, 71/2%, due March 15, 2015 (Pollution Control)                                                                         |  |           | 14,250    |         |   | 14,250     
|Series YY, 5.60%, due February 15, 2023 (Pollution Control)                                                                      |  |           | 29,945    |         |   | 29,945     
|Series ZZ, 53/4%, due February 15, 2028 (Pollution Control)                                                                      |  |           | 50,000    |         |   | 50,000     
|Series AAA, 71/8%, due February 1, 2024                                                                                          |  |           | 30,000    |         |   | 50,000     
|Series BBB, 8.0%, due July 15, 2009                                                                                              |  |           | 124,665   |         |   |           
|Series CCC, 8.850%, due January 15, 2022                                                                                         |  |           | 53,055    |         |   |           
|Series DDD, 8.310%, due September 1, 2032                                                                                        |  |           | 38,000    |         |   |           
|                                                                                                                                 |  |           |           |         |   |             |  |    |  |            
|Total first mortgage bonds                                                                                                       |  |           | 349,915   |         |   | 154,195    
|Secured Medium-term Notes:                                                                                                       |  |           |           |         |   |            
|Series A, 7.61% to 8.81%, due November 1, 2001 to June 1, 2022                                                                   |  |           | 75,800    |         |   | 284,000    
|Series B, 5.93% to 8.24%, due September 17, 2003 to August 22, 2022                                                              |  |           | 126,000   |         |   | 195,000    
|                                                                                                                                 |  |           |           |         |   |             |  |    |  |            
|(Series A and B, 7.019% weighted average interest rate and 14 year weighted average remaining life)                              |  |           |           |         |   |            
|Total secured medium-term notes                                                                                                  |  |           | 201,800   |         |   | 479,000    
|Other Long-term Debt:                                                                                                            |  |           |           |         |   |            
|Series 1994A Promissory Note, non-interest bearing, due January 3, 2001                                                          |  |           | 19,825    |         |   | 19,825     
|6.35% Debentures due November 15, 2006 (Redeemable in whole or in part at the option of the holders on November 15, 2000)        |  |           | 100,000   |         |   | 100,000    
|6.00% Debentures due December 14, 2016 (Redeemable in whole or in part at the option of the holders on December 14, 2001)        |  |           | 50,000    |         |   | 50,000     
|6.50% Synthetic Putable Yield Securities due August 1, 2026                                                                      |  |           | 50,000    |         |   | 50,000     
|7.25% Junior Maturing Principal Securities due March 15, 2028                                                                    |  |           | 2,658     |         |   | 100,000    
|6.00% Rural Utilities Service (RUS) Obligation payable in annual installments (Note 18)                                          |  |           | 84,798    |         |   | 85,620     
|6.52% Senior Notes due March 15, 2009                                                                                            |  |           | 97,342    |         |   |           
|7.85% Debentures due October 15, 2007                                                                                            |  |           | 265,000   |         |   |           
|                                                                                                                                 |  |           |           |         |   |             |  |    |  |            
|Total other long-term debt                                                                                                       |  |           | 669,623   |         |   | 405,445    
|Unamortized Premium and DiscountNet                                                                                             |  |           | (9,786)   |         |   | (12,981)   
|                                                                                                                                 |  |           |           |         |   |             |  |    |  |            
|Total long-term debt                                                                                                             |  |           | 1,211,552 |         |   | 1,025,659  
|Cumulative Preferred Stock                                                                                                       |  |           |           |         |   |            
|
|$100                                                                                                                             |  | 5,000,000 |           | 639,626 |   | 31/2%-67/8% |  | No |  |            
|$ 25                                                                                                                             |  | 5,000,000 |           | 317,924 |   | 4.16%-4.32% |  | No |  |            
|                                                                                                                                 |  |           |           |         |   |             |  |    |  |            
|Total preferred stock                                                                                                            |  |           | 71,911    |         |   | 71,923     
|Common Stock Equity                                                                                                              |  |           |           |         |   |            
|Common Stockwithout par value; $0.01 stated value; authorized shares60,000,000; outstanding shares53,913,701 in 1999 and 1998 |  |           | 539       |         |   | 539        
|Paid-in capital                                                                                                                  |  |           | 411,198   |         |   | 410,739    
|Retained earnings                                                                                                                |  |           | 642,569   |         |   | 564,865    
|Accumulated other comprehensive income (loss)                                                                                    |  |           | 1,391     |         |   | (495)      
|                                                                                                                                 |  |           |           |         |   |             |  |    |  |            
|Total common stock equity                                                                                                        |  |           | 1,055,697 |         |   | 975,648    
|Total Capitalization                                                                                                             |  | $         | 2,339,160 |         | $ | 2,073,230  
|                                                                                                                                 |  |           |           |         |   |             |  |    |  |            

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

78



THE UNION LIGHT, HEAT AND POWER COMPANY

79



THE UNION LIGHT, HEAT AND POWER COMPANY

STATEMENTS OF INCOME

|                                                     |  | 1999 |         | 1998 |   | 1997    |  
|---------------------------------------------------- |  | ---- | ------- | ---- | - | ------- | -
|
|Operating Revenues                                   |  |      |         |      |   |         |  
|Electric                                             |  | $    | 210,234 |      | $ | 191,359 |  
|Gas                                                  |  |      | 70,728  |      |   | 65,454  |  
|                                                     |  |      |         |      |   |         |  
|Total Operating Revenues                             |  |      | 280,962 |      |   | 256,813 |  
|Operating Expenses                                   |  |      |         |      |   |         |  
|Electricity purchased from parent company for resale |  |      | 158,556 |      |   | 142,567 |  
|Gas purchased                                        |  |      | 34,690  |      |   | 32,804  |  
|Operation and maintenance                            |  |      | 38,611  |      |   | 37,131  |  
|Depreciation                                         |  |      | 14,830  |      |   | 13,148  |  
|Taxes other than income taxes                        |  |      | 4,136   |      |   | 3,993   |  
|                                                     |  |      |         |      |   |         |  
|Total Operating Expenses                             |  |      | 250,823 |      |   | 229,643 |  
|Operating Income                                     |  |      | 30,139  |      |   | 27,170  |  
|MiscellaneousNet                                    |  |      | (1,567  | )    |   | (1,242  | )
|Interest                                             |  |      | 6,114   |      |   | 4,604   |  
|                                                     |  |      |         |      |   |         |  
|Income Before Taxes                                  |  |      | 22,458  |      |   | 21,324  |  
|Income Taxes(Note 11)                                |  |      | 10,184  |      |   | 7,774   |  
|                                                     |  |      |         |      |   |         |  
|Net Income                                           |  | $    | 12,274  |      | $ | 13,550  |  
|                                                     |  |      |         |      |   |         |  

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

80



THE UNION LIGHT, HEAT AND POWER COMPANY

BALANCE SHEETS

|                                                                                                                                              |  | December 31
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------
|
|
|ASSETS                                                                                                                                        |  |            
|Current Assets                                                                                                                                |  |            
|Cash and cash equivalents                                                                                                                     |  | $          
|Accounts receivable less accumulated provision for doubtful accounts of $1,513 at December 31, 1999, and $1,248 at December 31, 1998 (Note 6) |  |            
|Accounts receivable from affiliated companies                                                                                                 |  |            
|Materials, supplies, and fuelat average cost                                                                                                 |  |            
|Prepayments and other                                                                                                                         |  |            
|                                                                                                                                              |  |            
|Total Current Assets                                                                                                                          |  |            
|Utility PlantOriginal Cost                                                                                                                   |  |            
|In service                                                                                                                                    |  |            
|Electric                                                                                                                                      |  |            
|Gas                                                                                                                                           |  |            
|Common                                                                                                                                        |  |            
|                                                                                                                                              |  |            
|Total                                                                                                                                         |  |            
|Accumulated depreciation                                                                                                                      |  |            
|                                                                                                                                              |  |            
|Total                                                                                                                                         |  |            
|Construction work in progress                                                                                                                 |  |            
|                                                                                                                                              |  |            
|Total Utility Plant                                                                                                                           |  |            
|Other Assets                                                                                                                                  |  |            
|Regulatory assets (Note 1(c))                                                                                                                 |  |            
|Other                                                                                                                                         |  |            
|                                                                                                                                              |  |            
|Total Other Assets                                                                                                                            |  |            
|                                                                                                                                              |  |            
|Total Assets                                                                                                                                  |  | $          
|                                                                                                                                              |  |            

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

81



THE UNION LIGHT, HEAT AND POWER COMPANY

BALANCE SHEETS

|                                                                                                        |  | December 31
|------------------------------------------------------------------------------------------------------- |  | -----------
|
|
|LIABILITIES AND SHAREHOLDER'S EQUITY                                                                    |  |            
|Current Liabilities                                                                                     |  |            
|Accounts payable                                                                                        |  | $          
|Accounts payable to affiliated companies                                                                |  |            
|Accrued taxes                                                                                           |  |            
|Accrued interest                                                                                        |  |            
|Notes payable to affiliated companies                                                                   |  |            
|Long-term debt due within one year (Note 4)                                                             |  |            
|Other                                                                                                   |  |            
|                                                                                                        |  |            
|Total Current Liabilities                                                                               |  |            
|Non-Current Liabilities                                                                                 |  |            
|Long-term debt (Note 4)                                                                                 |  |            
|Deferred income taxes (Note 11)                                                                         |  |            
|Unamortized investment tax credits                                                                      |  |            
|Accrued pension and other postretirement benefit costs (Note 9)                                         |  |            
|Amounts due to customersincome taxes                                                                   |  |            
|Other                                                                                                   |  |            
|                                                                                                        |  |            
|Total Non-Current Liabilities                                                                           |  |            
|                                                                                                        |  |            
|Total Liabilities                                                                                       |  |            
|Common Stock Equity(Note 2)                                                                             |  |            
|Common Stock$15.00 par value; authorized shares1,000,000; outstanding shares585,333 in 1999 and 1998 |  |            
|Paid-in capital                                                                                         |  |            
|Retained earnings                                                                                       |  |            
|                                                                                                        |  |            
|Total Common Stock Equity                                                                               |  |            
|Commitments and Contingencies(Note 12)                                                                  |  |            
|Total Liabilities and Shareholder's Equity                                                              |  | $          
|                                                                                                        |  |            

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

82



THE UNION LIGHT, HEAT AND POWER COMPANY

STATEMENTS OF CHANGES IN COMMON STOCK EQUITY

|                                                   |  | Common
Stock |       | Paid-in
Capital |   | Retained
Earnings |   | Total Common
Stock
Equity |        
|-------------------------------------------------- |  | ------------ | ----- | --------------- | - | ----------------- | - | ------------------------- | -------
|
|1997                                               |  |              |       |                 |   |                   |   |                           |        
|Beginning balance                                  |  | $            | 8,780 |                 | $ | 18,839            |   | $                         | 92,484 
|Net income                                         |  |              |       |                 |   |                   |   |                           | 12,917 
|Dividends on common stock                          |  |              |       |                 |   |                   |   |                           | (9,951 
|Other                                              |  |              |       |                 |   | (156              | ) |                           |        
|                                                   |  |              |       |                 |   |                   |   |                           |        
|Ending balance                                     |  | $            | 8,780 |                 | $ | 18,683            |   | $                         | 95,450 
|1998                                               |  |              |       |                 |   |                   |   |                           |        
|Net income                                         |  |              |       |                 |   |                   |   |                           | 13,550 
|Dividends on common stock                          |  |              |       |                 |   |                   |   |                           | (8,487 
|Contribution from parent for reallocation of taxes |  |              |       |                 |   | 843               |   |                           |        
|Other                                              |  |              |       |                 |   | (1                | ) |                           |        
|                                                   |  |              |       |                 |   |                   |   |                           |        
|Ending balance                                     |  | $            | 8,780 |                 | $ | 19,525            |   | $                         | 100,513
|1999                                               |  |              |       |                 |   |                   |   |                           |        
|Net income                                         |  |              |       |                 |   |                   |   |                           | 12,274 
|Dividends on common stock                          |  |              |       |                 |   |                   |   |                           | (9,659 
|Contribution from parent for reallocation of taxes |  |              |       |                 |   | 617               |   |                           |        
|                                                   |  |              |       |                 |   |                   |   |                           |        
|Ending balance                                     |  | $            | 8,780 |                 | $ | 20,142            |   | $                         | 103,128
|                                                   |  |              |       |                 |   |                   |   |                           |        

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

83



THE UNION LIGHT, HEAT AND POWER COMPANY

STATEMENTS OF CASH FLOWS

|                                                                                     |  | 1999 |         | 1998 |   | 1997    |  
|------------------------------------------------------------------------------------ |  | ---- | ------- | ---- | - | ------- | -
|
|Operating Activities                                                                 |  |      |         |      |   |         |  
|Net income                                                                           |  | $    | 12,274  |      | $ | 13,550  |  
|Items providing or (using) cash currently:                                           |  |      |         |      |   |         |  
|Depreciation                                                                         |  |      | 14,830  |      |   | 13,148  |  
|Deferred income taxes and investment tax creditsnet                                 |  |      | (738    | )    |   | (261    | )
|Allowance for equity funds used during construction                                  |  |      | (36     | )    |   | (142    | )
|Regulatory assetsnet                                                                |  |      | 138     |      |   | 3       |  
|Changes in current assets and current liabilities:                                   |  |      |         |      |   |         |  
|Accounts receivable                                                                  |  |      | (5,099  | )    |   | (4,820  | )
|Materials, supplies, and fuel                                                        |  |      | 615     |      |   | (2,175  | )
|Accounts payable                                                                     |  |      | 7,720   |      |   | (9,920  | )
|Accrued taxes and interest                                                           |  |      | (3,138  | )    |   | (2,443  | )
|Other itemsnet                                                                      |  |      | 5,971   |      |   | 3,228   |  
|                                                                                     |  |      |         |      |   |         |  
|Net cash provided by operating activities                                            |  |      | 32,537  |      |   | 10,168  |  
|Financing Activities                                                                 |  |      |         |      |   |         |  
|Change in short-term debt                                                            |  |      | 5,935   |      |   | 8,330   |  
|Issuance of long-term debt                                                           |  |      | 19,818  |      |   | 40,066  |  
|Redemption of long-term debt                                                         |  |      | (20,000 | )    |   | (10,118 | )
|Dividends of common stock                                                            |  |      | (9,659  | )    |   | (8,487  | )
|                                                                                     |  |      |         |      |   |         |  
|Net cash provided by (used in) financing activities                                  |  |      | (3,906  | )    |   | 29,791  |  
|Investing Activities                                                                 |  |      |         |      |   |         |  
|Construction expenditures (less allowance for equity funds used during construction) |  |      | (28,234 | )    |   | (37,261 | )
|                                                                                     |  |      |         |      |   |         |  
|Net cash used in investing activities                                                |  |      | (28,234 | )    |   | (37,261 | )
|Net increase (decrease) in cash and cash equivalents                                 |  |      | 397     |      |   | 2,698   |  
|Cash and cash equivalents at beginning of period                                     |  |      | 3,244   |      |   | 546     |  
|                                                                                     |  |      |         |      |   |         |  
|Cash and cash equivalents at end of period                                           |  | $    | 3,641   |      | $ | 3,244   |  
|                                                                                     |  |      |         |      |   |         |  
|Supplemental Disclosure of Cash Flow Information                                     |  |      |         |      |   |         |  
|Cash paid during the year for:                                                       |  |      |         |      |   |         |  
|Interest (net of amount capitalized)                                                 |  | $    | 6,691   |      | $ | 4,257   |  
|Income taxes                                                                         |  | $    | 12,794  |      | $ | 11,305  |  

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

84



THE UNION LIGHT, HEAT AND POWER COMPANY

STATEMENTS OF CAPITALIZATION

|                                                                                                        |  | December 31 |        
|------------------------------------------------------------------------------------------------------- |  | ----------- | -------
|
|
|Long-term Debt(excludes current portion)                                                                |  |             |        
|Other Long-term Debt:                                                                                   |  |             |        
|6.11% Debentures due December 8, 2003                                                                   |  | $           | 20,000 
|6.50% Debentures due April 30, 2008                                                                     |  |             | 20,000 
|7.65% Debentures due July 15, 2025                                                                      |  |             | 15,000 
|7.875% Debentures due September 15, 2009                                                                |  |             | 20,000 
|                                                                                                        |  |             |        
|Total other long-term debt                                                                              |  |             | 75,000 
|Unamortized Premium and DiscountNet                                                                    |  |             | (443   
|                                                                                                        |  |             |        
|Total long-term debt                                                                                    |  |             | 74,557 
|Common Stock Equity                                                                                     |  |             |        
|Common Stock$15.00 par value; authorized shares1,000,000; outstanding shares585,333 in 1999 and 1998 |  |             | 8,780  
|Paid-in capital                                                                                         |  |             | 20,142 
|Retained earnings                                                                                       |  |             | 103,128
|                                                                                                        |  |             |        
|Total common stock equity                                                                               |  |             | 132,050
|Total Capitalization                                                                                    |  | $           | 206,607
|                                                                                                        |  |             |        

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

85



## 

NOTES TO FINANCIAL STATEMENTS

In
1996, the Securities and Exchange Commission (SEC) wrote guidelines to help make shareholder communications more understandable. These guidelines were termed "plain English". This
year, we have written our annual report in accordance with these guidelines. Our objective is to present a more user-friendly, understandable, and logically-flowing document for our
readers.

In
connection with this change, we (which includesCinergy Corp.and all of our regulated and non-regulated subsidiaries,
alsoCinergy) are, at times, referred to in the first person ("we", "our", or "us").

1. Summary of Significant Accounting Policies

(a)Nature of OperationsCinergy Corp., a Delaware corporation created in
October 1994, owns all outstanding common stock of The Cincinnati Gas & Electric Company (CG&E) and PSI Energy, Inc.
(PSI), both of which are public utility subsidiaries. As a result of this ownership, we are considered a utility holding company. Because we are a
holding company whose utility subsidiaries operate in multiple states, we are registered with and are subject to regulation by the SEC under the Public Utility Holding Company Act of 1935, as amended
(PUHCA). Our other direct subsidiaries are:



CG&E, an Ohio corporation, is a combination electric and gas public utility company that provides service in the southwestern portion
of Ohio and, through its subsidiaries, in nearby areas of Kentucky and Indiana. It has five wholly-owned utility subsidiaries and one wholly-owned non-utility subsidiary. CG&E'sprincipal utility
subsidiary, The Union Light, Heat and Power Company (ULH&P), is a Kentucky
corporation that provides electric and gas service in northern Kentucky.CG&E'sother subsidiaries are insignificant to its results of operations.

PSI, an Indiana corporation, is an electric utility that provides service in north central, central, and southern Indiana.

The
following table presents further information related to the operations of our domestic utility companies (our operating companies):

|      |  | Principal
Line(s) of Business                                     
|----- |  | ------------------------------------------------------------------
|CG&E  |  |   Generation, transmission, distribution, and sale of electricity
|      |  |   Sale and/or transportation of natural gas                      
|PSI   |  |   Generation, transmission, distribution, and sale of electricity
|ULH&P |  |   Transmission, distribution, and sale of electricity            
|      |  |   Sale and transportation of natural gas                         

Services
is a service company that provides our regulated and non-regulated subsidiaries with a variety of centralized administrative, management, and support services.
Investments holds most of our domestic non-regulated businesses and investments. Global Resources primarily holds our international businesses and investments.

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

86



We
conduct operations through our subsidiaries, and we manage through the following four business units:



See
Note 15 on page 137 for financial information by business unit.

(b)PresentationWe use two different methods to report investments in subsidiaries or other companies:
the consolidation method or the equity method. Additionally, we use estimates and have reclassified certain amounts in the preparation of the financial statements.

Consolidation MethodWe use consolidation when we own a majority of the voting stock of or have the ability to control
the subsidiary. We eliminate all significant intercompany transactions when we consolidate these accounts. Our consolidated financial statements include the accounts of Cinergy,CG
&E, andPSI, and their wholly-owned
subsidiaries.

Equity MethodWe use the equity method to report investments, joint ventures, partnerships, subsidiaries and affiliated
companies in which we do not have control, but have the ability to exercise influence over operating and financial policies (generally, 20% to 50% ownership). Under the equity method, we report:



Use of EstimatesManagement makes estimates and assumptions when preparing financial statements under generally
accepted accounting principles. Actual results could differ, as these estimates and assumptions involve judgment. These estimates and assumptions affect various matters, including:



ReclassificationsWe have reclassified certain prior-year amounts in the financial statements of Cinergy,CG&E,PSI, and ULH&Pfor comparative purposes.

(c)RegulationOur operating companies and certain of our non-utility subsidiaries must
comply with the rules prescribed by the SEC under the PUHCA. Our operating companies must also comply with the rules prescribed by the Federal Energy Regulatory Commission (FERC) and the state utility
commissions of Ohio, Indiana, and Kentucky.

Our
operating companies use the same accounting policies and practices for financial reporting purposes as non-regulated companies under generally accepted accounting
principles. However,

87



sometimes
actions by the FERC and the state utility commissions result in accounting treatment different from that used by non-regulated companies. When this occurs, we apply the
provisions of Statement of Financial Accounting Standards No. 71,Accounting for the Effects of Certain Types of Regulation(Statement 71).

In
accordance with Statement 71, we record regulatory assets and liabilities (that is, expenses deferred for future recovery from customers or obligations to be refunded to customers)
on our Balance Sheets.

Our
regulatory assets and amounts authorized for recovery through regulatory orders at December 31, 1999, and 1998, are as follows:

|                                                               |  | 1999 |     | 1998
|-------------------------------------------------------------- |  | ---- | --- | ----
|
|
|Amounts due from customersincome taxes(2)                     |  | $    | 276 |     
|Dynegy gas services agreement buyout costs(3)                  |  |      |    |     
|Post-in-service carrying costs and deferred operating expenses |  |      | 121 |     
|Coal contract buyout cost(4)                                   |  |      |    |     
|Deferred demand-side management (DSM)                          |  |      | 38  |     
|Phase-in deferred return and depreciation(5)                   |  |      | 54  |     
|Deferred merger costs                                          |  |      | 15  |     
|Unamortized costs of reacquiring debt                          |  |      | 31  |     
|Coal gasification services expenses                            |  |      |    |     
|Other                                                          |  |      | 1   |     
|                                                               |  |      |     |     
|Total regulatory assets                                        |  | $    | 536 |     
|Authorized for recovery(6)                                     |  | $    | 467 |     

---

88





Based
on regulatory authority and the regulatory environment in which we currently operate, we believe that we continue to meet the requirements of Statement 71.

Comprehensive
electric deregulation legislation was passed in Ohio on July 6, 1999. As required by the legislation,CG&Efiled
its Proposed Transition Plan (Transition Plan) for approval by the PUCO on December 28, 1999. WhileCG&Ebelieves there is sound basis for the
various requests made in its Proposed Transition Plan, it is currently unable to predict the extent to which the Proposed Transition Plan will be approved and its resulting effect on results of
operations, cash flows, and financial position.CG&Eis seeking to recover all generation-related regulatory assets and above-market generation costs as
allowable transition costs.CG&Ebelieves its current accounting for regulatory assets discussed above has been consistent with the regulatory orders
issued by the PUCO and that such costs should be recovered in future rates. However, to the extent requested recovery of generation-related regulatory assets is disallowed or generating assets are
financially impaired,CG&Ewill be required to recognize a loss under generally accepted accounting principles. With regard to these assets, CG&Ewill continue to apply Statement 71 until the effect of deregulation is estimable.

(d)Statements of Cash FlowsWe define Cash
equivalentsas investments with maturities of three months or less when acquired. See Note 18 for information concerning non-cash financing
transactions.

(e)Operating Revenues and Fuel CostsOur operating companies recordOperating
revenuesfor electric and gas service, including unbilled revenues and the associated expenses, when they provide the service to the customers. The associated expenses include:



These
expenses are shown in our Statements of Income asFuel and purchased and exchanged powerandGas
purchased. Any portion of these costs that are recoverable or refundable to customers in future periods is deferred in eitherAccounts
receivableorAccounts payablein our Balance Sheets.

Indiana
law limits the amount of fuel costs thatPSIcan recover to an amount that will not result in earning a return in excess of
that allowed by the IURC.

(f)Utility PlantUtility plant includes the utility business property and equipment that is in use,
being held for future use, or under construction. We report our utility plant at its original cost, which includes:



89





Most
of our operating companies' utility property serves as collateral under each company's first mortgage bond indenture.

(g)Depreciation and MaintenanceWe determine the provisions for depreciation expense using the
straight-line method. The depreciation rates are based on periodic studies of the estimated useful lives (the number of years we expect to be able to use the properties) and the cost to
remove the properties. The average depreciation rates for utility plant, excluding software, are discussed in the table below.

|                         |  | 1999 |   | 1998 |   | 1997 |  
|------------------------ |  | ---- | - | ---- | - | ---- | -
|CG&Eand its subsidiaries |  |      |   |      |   |      |  
|Electric                 |  | 2.9  | % | 2.9  | % | 2.9  | %
|Gas                      |  | 2.9  |   | 2.9  |   | 2.9  |  
|Common                   |  | 2.7  |   | 2.6  |   | 3.0  |  
|ULH&P                    |  |      |   |      |   |      |  
|Electric                 |  | 3.3  |   | 3.4  |   | 3.3  |  
|Gas                      |  | 3.1  |   | 3.1  |   | 3.1  |  
|Common                   |  | 5.2  |   | 5.0  |   | 5.0  |  
|PSI                      |  | 3.0  |   | 3.0  |   | 3.0  |  

(h)Allowance for Funds Used During ConstructionOur operating companies finance construction projects
with borrowed funds and equity funds. Regulatory authorities allow us to record the costs of these funds as part of the cost of construction projects. The Allowance for Funds Used During Construction
(AFUDC) is calculated using a methodology authorized by the regulatory authorities. AFUDC rates are compounded semi-annually and are as follows:

|                                 |  | 1999 |   | 1998 |   | 1997 |  
|-------------------------------- |  | ---- | - | ---- | - | ---- | -
|Cinergyaverage                   |  | 7.3  | % | 6.6  | % | 6.3  | %
|CG&Eand its subsidiaries average |  | 8.0  |   | 7.1  |   | 6.4  |  
|ULH&Paverage                     |  | 5.3  |   | 6.1  |   | 6.9  |  
|PSIaverage                       |  | 6.5  |   | 5.6  |   | 5.9  |  

The
borrowed funds component of AFUDC, which is recorded on a pre-tax basis, is as follows:

|                         |  | 1999 |     | 1998 |   | 1997
|------------------------ |  | ---- | --- | ---- | - | ----
|
|Cinergy                  |  | $    | 5.6 |      | $ | 7.5 
|CG&Eand its subsidiaries |  |      | 3.4 |      |   | 5.5 
|ULH&P                    |  |      | 0.2 |      |   | 0.6 
|PSI                      |  |      | 2.2 |      |   | 2.0 

(i)Federal and State Income TaxesStatement of Financial Accounting Standards No. 109, Accounting for Income Taxes, requires us to report revenues and
expenses differently for financial reporting than for income tax return purposes. The
tax effects of these differences are reported as deferred income tax assets or liabilities in our Balance Sheets and are based on current income tax rates in effect.

Investment
tax credits, which have been used to reduce our federal income taxes payable, have been deferred for financial reporting purposes. These deferred investment tax credits are
being amortized
over the useful lives of the property to which they are related.

90



(j)Energy Marketing and TradingWe market and trade electricity, natural gas, and other
energy-related products. We designate transactions as physical or trading at the time they are originated. Physical refers to our intent and projected ability to fulfill obligations from company-owned
assets. We sell generation to third parties when it is not required to meet native load requirements (end-use customers within our operating companies' franchise service territory). We
account for physical transactions on a settlement basis and trading transactions using the mark-to-market method of accounting. Under the mark-to-market
method of accounting, trading transactions are shown at fair value in our Consolidated Balance Sheets asEnergy risk management assetsand Energy risk management
liabilitiescurrent and long-term. We reflect changes in
fair value resulting in unrealized gains and losses inFuel and purchased and exchanged powerandGas
purchased. We record the revenues and costs for all transactions in our Consolidated Statements of Income when the contracts are settled. We recognize revenues in Operating revenues; costs are recorded inFuel and purchased and exchanged powerandGas purchased. Prior to December 31, 1998, we accounted for and valued trading transactions at the aggregate of lower of cost or market. Under
this method, only the net value of the trading portfolio is recorded as a liability in our Consolidated Balance Sheets.

Although
we intend to settle physical contracts with company-owned generation, there are times when we have to settle these contracts with power purchased on the open trading markets.
The cost of these purchases could be in excess of the associated revenues. We recognize the gains or losses on these transactions as the power is delivered. Open market purchases may occur for the
following reasons:



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



We
anticipate that some of these obligations, even though considered trading contracts, will ultimately be settled using company-owned generation. The cost of this generation is
usually below the market price at which the trading portfolio has been valued.

We
expect earnings volatility from period to period due to the risks associated with marketing and trading electricity, natural gas, and other energy-related products.

Commodities,
through Cinergy Marketing & Trading, LLC (Marketing & Trading), and International, through Cinergy Global Trading Limited, market and trade natural gas and
other energy-related products. For physical gas sales, transactions are recorded when the contracts are settled, due to the exchange of title to the natural gas throughout the earnings process. Energy risk management
assetsandliabilities, as well as gross margins from trading activities are
recorded in our consolidated financial statements.

91



(k)Financial DerivativesWe use derivative financial instruments to manage: (1) funding costs;
(2) exposures to fluctuations in interest rates; and (3) exposures to foreign currency exchange rates. These financial instruments must be designated as a hedge (for example, an offset
of foreign exchange or interest rate risks) at the inception of the contract and must be effective at reducing the risk associated with the underlying instrument. An underlying instrument is one that
gives rise to the derivative financial instrument. Accordingly, changes in the market values of instruments designated as hedges must be highly correlated with changes in the market values of the
underlying instrument.

From
time to time, we may utilize foreign exchange forward contracts (for example, a contract obligating one party to buy, and the other to sell, a specified quantity of a foreign
currency for a fixed price at a future date) and currency swaps (for example, a contract whereby two parties exchange principal and interest cash flows denominated in different currencies) to hedge
certain of our net investments in foreign operations. Accordingly, any translation gains and losses are recorded inAccumulated other comprehensive income
(loss), which is a component ofCommon stock equity. Aggregate translation losses related to these instruments are reflected net
inCurrent liabilitiesin our Consolidated Balance Sheets. At December 31, 1999, no such instruments were held.

We
also use interest rate swaps (an agreement by two parties to exchange fixed-interest rate cash flows for floating-interest rate cash flows). We use the accrual method to account
for these interest rate swaps. Accordingly, gains and losses are calculated based on the difference between the fixed-rate and the floating-rate interest amounts, using agreed
upon principal amounts. These gains and losses are recognized in our Consolidated Statements of Income as a component ofInterestover the life of the
agreement.

(l)Accounting ChangesDuring the second quarter of 1998, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards No. 133,Accounting for Derivative Instruments and Hedging Activities(Statement 133). This standard requires companies to record derivative instruments as assets or liabilities, measured at fair value. Changes in the derivative's fair value must be recognized currently
in earnings unless specific hedge accounting criteria are met. Hedges are transactions entered into for the purpose of reducing exposure to one or more types of business risk. Gains and losses on
derivatives that qualify as hedges can offset related results on the hedged item in the income statement.

This
standard, as subsequently amended by Statement of Financial Accounting Standards No. 137,Accounting for Derivative Instruments and Hedging
ActivitiesDeferral of the Effective Date of FASB Statement No. 133(Statement 137), is effective for fiscal years beginning after June 15, 2000. The
purpose of Statement 137 was to delay the effective date of Statement 133 by one year. We expect to reflect the adoption of this standard in financial statements issued beginning in the first quarter
of 2001. In recognition of the complexity of this new standard, the Derivatives Implementation Group has been formed by the FASB. In preparation for our implementation of this new standard, we have
formed a cross-functional project team. The project team is identifying and analyzing all contracts which could be subject to the new standard, developing required documentation, defining relevant
processes and information systems needs, and promoting internal awareness of the requirements and
potential effects of the new standard. While we continue to analyze and follow the development of implementation guidelines, at this time we are unable to predict whether the implementation of this
accounting standard will be material to our results of operations and financial position. However, the adoption of Statement 133 could increase volatility in earnings and other comprehensive income.

(m)Translation of Foreign CurrencyWe translate the assets and liabilities of foreign subsidiaries,
whose functional currency (generally that is the local currency of the country in which the subsidiary is located) is not the United States (U.S.) dollar, using the appropriate exchange rate as of the
end of the

92



year.
We translate income and expense items using the average exchange rate prevailing during the month the respective transaction occurs. We record translation gains and losses in Accumulated other comprehensive income (loss),which is a component ofCommon stock
equity.

(n)Related Party TransactionsServices provides our regulated and non-regulated
subsidiaries with a variety of centralized administrative, management, and support services in accordance with agreements approved by the SEC under the PUHCA. The cost of these services are charged to
our operating companies on a direct basis, or for general costs which cannot be directly attributed, based on predetermined allocation factors, including the following:



These
costs were as follows for the years ended December 31:

|                         |  | 1999 |     | 1998 |   | 1997
|------------------------ |  | ---- | --- | ---- | - | ----
|
|CG&Eand its subsidiaries |  | $    | 208 |      | $ | 207 
|PSI                      |  |      | 168 |      |   | 183 
|ULH&P                    |  |      | 23  |      |   | 24  

At
December 31, 1999, and 1998, the Balance Sheets of our operating companies included the following amounts payable to Services:

|                         |  | 1999 |    | 1998
|------------------------ |  | ---- | -- | ----
|
|CG&Eand its subsidiaries |  | $    | 23 |     
|PSI                      |  |      | 7  |     
|ULH&P                    |  |      | 2  |     

93



2. Common Stock

(a)Changes In Common Stock OutstandingThe following table reflects selected information related to our
shares of common stock reserved for stock-based plans.

|                                                                |  |           |  | Shares Issued
|--------------------------------------------------------------- |  | --------- |  | -------------
|
|
|Cinergy Corp. 1996 Long-term Incentive Compensation Plan (LTIP) |  | 6,956,386 |  |             
|Cinergy Corp. Stock Option Plan                                 |  | 4,110,358 |  | 255,828      
|Cinergy Corp. Employee Stock Purchase and Savings Plan          |  | 1,931,112 |  | 266          
|Cinergy Corp. UK Sharesave Scheme                               |  | 75,000    |  |             
|Cinergy Corp. Retirement Plan for Directors                     |  | 175,000   |  |             
|Cinergy Corp. Directors' Equity Compensation Plan               |  | 75,000    |  |             
|Cinergy Corp. Directors' Deferred Compensation Plan             |  | 200,000   |  |             
|Cinergy Corp. 401k Plans                                        |  | 6,469,373 |  |             
|Cinergy Corp. Dividend Reinvestment and Stock Purchase Plan     |  | 1,798,486 |  |             
|Cinergy Corp. Performance Shares Plan (PSP)                     |  | 736,751   |  | 34,550       

We
retired 31,777 shares of common stock in 1999; 44,981 shares in 1998; and 304 shares in 1997, mainly representing shares tendered as payment for the exercise of previously granted
stock options.

Cinergy Corp.owns all of the common stock ofCG&Eand PSI. All ofULH&P'scommon stock is held byCG&E.

(b)Dividend RestrictionsCinergy Corp.'sability to pay dividends to common
stock shareholders is principally dependent on the ability ofCG&EandPSIto pay Cinergy Corp.common
dividends.CG&EandPSIcannot
purchase or otherwise acquire for value or pay dividends on their common stock if preferred stock dividends are in arrears. The amount of common stock dividends that each company
can pay also is limited by certain capitalization and earnings requirements underCG&E'sandPSI'scredit instruments. Currently, these requirements do not impact the ability of either company to pay dividends
on its common stock.

(c)Stock-based Compensation PlansWe currently have the following seven stock-based compensation plans:



In
the sections below, we will further discuss the LTIP, the Stock Option plan, and the Employee Stock Purchase and Savings Plan. The activity in 1999 for the remaining stock-based
compensation plans was not significant.

94



We
account for our stock-based compensation plans under Accounting Principles Board Opinion No. 25,Accounting for Stock Issued to
Employees(APB 25). Under APB 25, stock option-type awards are recorded at intrinsic value. In 1999, we recognized a $7 million reduction in compensation
cost, before income taxes, in the Consolidated Statements of Income related to our stock-based compensation plans. This reduction was a result of our revised estimates for the performance-based shares
accrued under the LTIP plan for cycle I. For further discussion see section (i) below. For 1998, and 1997, we recognized compensation cost related to stock-based compensation plans, before
income taxes, of $1 million and $6 million, respectively, in the Consolidated Statements of Income.

Net
income for 1999, 1998 and 1997, assuming compensation cost for these plans had been determined at fair value, consistent with the provisions of Statement of Financial Accounting
Standards No. 123,Accounting for Stock-Based Compensation(Statement 123), would have been unchanged for 1999, reduced by $3 million for
1998, and reduced by $2 million for 1997. Earnings per share (EPS) would have been reduced by $.02 basic and $.03 diluted for 1998, and $.02 basic and $.01 diluted for 1997.

In
estimating the pro forma amounts, the fair value method of accounting was not applied to options granted prior to January 1, 1995. This is in accordance with the provisions
of Statement 123. As a result, the pro forma effect on net income and EPS may not be representative of future years. In addition, the pro forma amounts reflect certain assumptions used in estimating
fair values. These fair value assumptions are described under each applicable plan discussion below.



LTIP
stock option activity for 1999, 1998, and 1997 is summarized as follows:

|                             |  | Shares
Subject to
Option |   | Weighted
Average
Exercise Price
|---------------------------- |  | ------------------------ | - | -------------------------------
|Balance at December 31, 1996 |  |                         |   |                                
|Options granted              |  | 369,600                  |   | $                              
|                             |  |                          |   |                                
|Balance at December 31, 1997 |  | 369,600                  |   |                                
|Options granted              |  | 471,400                  |   |                                
|Options forfeited            |  | (68,000                  | ) |                                
|                             |  |                          |   |                                
|Balance at December 31, 1998 |  | 773,000                  |   |                                
|Options granted              |  | 2,663,600                |   |                                
|Options forfeited            |  | (59,500                  | ) |                                
|                             |  |                          |   |                                
|Balance at December 31, 1999 |  | 3,377,100                |   | $                              
|                             |  |                          |   |                                
|Options Exercisable:         |  |                          |   |                                
|At December 31, 1998         |  | 11,600                   |   | $                              
|At December 31, 1999         |  | 88,600                   |   | $                              

The
weighted average fair value of options granted was $2.57 in 1999, $4.68 in 1998, and $3.54 in 1997. The fair values of options granted were estimated as of the date of grant using
a Black-Scholes

95



option-pricing
model. The weighted averages for the assumptions used in determining the fair values of options granted were as follows:

|                               |  | 1999 |      | 1998 |     | 1997
|------------------------------ |  | ---- | ---- | ---- | --- | ----
|Risk-free interest rate        |  | 6.1  | %    |      | 5.6 | %   
|Expected dividend yield        |  | 7.2  | %    |      | 4.8 | %   
|Expected lives                 |  | 5.5  | yrs. |      | 5.6 | yrs.
|Expected common stock variance |  | 3.8  | %    |      | 1.8 | %   

Price
ranges, along with certain other information, for the options outstanding under the LTIP at December 31, 1999, are as follows:

|              |  | Outstanding |  | Exercisable
|------------- |  | ----------- |  | -----------
|
|
|$23.81-$23.88 |  | 2,232,900   |  | $          
|$33.31-$34.50 |  | 744,500     |  | $          
|$35.91-$38.59 |  | 399,700     |  | $          

In
January 2000, approximately 1.2 million stock options at $24.38 per share were granted under the LTIP.

Entitlement
to performance based shares is based onCinergy'sTotal Shareholder Return (TSR) over designated performance cycles as
measured against a peer group. In January 2000, a target grant of performance based shares was made for the following periods, which are structured to phase-in during three
overlapping performance cycles.

|Cycle |  | Performance
Period |  | Target
Grant of Shares
|----- |  | ------------------ |  | ----------------------
|
|II    |  | 2000               |  | 120                   
|III   |  | 2000-2001          |  | 241                   
|IV    |  | 2000-2002          |  | 362                   

Potential
awards for cycles II and III are prorated for the length of the cycle. Participants may earn additional performance shares if Cinergy'sTSR exceeds that of the peer group. No shares were earned in Cycle
I (1997 - 1999).

(ii)Stock Option PlanThe Stock Option Plan is designed to align executive compensation with
shareholder interests. Under the Stock Option Plan, incentive and non-qualified stock options, stock appreciation rights (SARs), and SARs in tandem with stock options may be granted to key
employees, officers, and outside directors. The activity under this plan has predominantly consisted of the issuance of stock options. Options are granted at the fair market value of the shares on the
date of grant. Options generally vest over five years at a rate of 20% per year, beginning on the date of grant, and expiring 10 years from the date of grant. The total number of shares of
common stock available under the Stock Option Plan may not exceed 5,000,000 shares. No stock options may be granted under the plan after October 24, 2004.

96



Stock
Option Plan activity for 1999, 1998, and 1997 is summarized as follows:

|                             |  | Shares Subject
to Option |   | Weighted Average
Exercise Price
|---------------------------- |  | ------------------------ | - | -------------------------------
|Balance at December 31, 1996 |  | 3,334,637                |   | $                              
|Options exercised            |  | (380,162                 | ) |                                
|                             |  |                          |   |                                
|Balance at December 31, 1997 |  | 2,954,475                |   |                                
|Options granted              |  | 480,000                  |   |                                
|Options exercised            |  | (430,961                 | ) |                                
|Options forfeited            |  | (100,000                 | ) |                                
|                             |  |                          |   |                                
|Balance at December 31, 1998 |  | 2,903,514                |   |                                
|Options granted              |  | 152,500                  |   |                                
|Options exercised            |  | (259,865                 | ) |                                
|Options forfeited            |  | (36,000                  | ) |                                
|                             |  |                          |   |                                
|Balance at December 31, 1999 |  | 2,760,149                |   | $                              
|                             |  |                          |   |                                
|Options Exercisable:         |  |                          |   |                                
|At December 31, 1997         |  | 1,389,975                |   | $                              
|At December 31, 1998         |  | 1,535,514                |   |                                
|At December 31, 1999         |  | 1,898,149                |   |                                

97



The
weighted average fair value of options granted during 1999 was $2.40 and $4.53 in 1998. The fair values of options granted were estimated as of the date of grant using a
Black-Scholes option-pricing model. The weighted averages for the assumptions used in determining the fair values of options granted in 1999 and 1998 (no options were granted during 1997), were as
follows:

|                               |  | 1999     |  | 1998    
|------------------------------ |  | -------- |  | --------
|Risk-free interest rate        |  | 6.2%     |  | 5.6%    
|Expected dividend yield        |  | 7.3%     |  | 4.8%    
|Expected lives                 |  | 6.5 yrs. |  | 6.5 yrs.
|Expected common stock variance |  | 3.9%     |  | 2.0%    

Price
ranges, along with certain other information, for options outstanding under the Stock Option Plan at December 31, 1999, are as follows:

|  |                | Outstanding |           | Exercisable
|- | -------------- | ----------- | --------- | -----------
|
|$ | 15.09 - $22.88 |             | 797,647   |            
|$ | 23.81 - $25.19 |             | 1,193,529 |            
|$ | 28.44 - $36.88 |             | 768,973   |            

(iii)Employee Stock Purchase and Savings PlanThe Employee Stock Purchase and Savings Plan allows
essentially all full-time, regular employees to purchase shares of common stock pursuant to a stock option feature. Under the Employee Stock Purchase and Savings Plan,
after-tax funds are withheld from a participant's compensation during a 26-month offering period and are deposited in an interest-bearing account. At the end of the offering
period, participants may apply amounts deposited in the account, plus interest, toward the purchase of shares of common stock. The purchase price is equal to 95% of the fair market value of a share of
common stock on the first date of the offering period. Any funds not applied toward the purchase of shares are returned to the participant. A participant may elect to terminate participation in the
plan at any time. Participation also will terminate if the participant's employment ceases. Upon termination of participation, all funds, including interest, are returned to the participant without
penalty. The third (current) offering period began March 1, 1999, and ends April 30, 2001. The purchase price for all shares under this offering is $27.73. The second offering period
ended February 28, 1999. At the end of the second offering of the Plan, the market price was below the established share price; therefore in accordance with the Plan provisions, all
participants in the Plan at February 28, 1999, were distributed cash funds in March 1999. The total number of shares of common stock available under the Employee Stock Purchase and
Savings Plan may not exceed 2,000,000.

98



Employee
Stock Purchase and Savings Plan activity for 1999, 1998, and 1997 is summarized as follows:

|                             |  | Shares Subject
to Option |   | Weighted Average
Exercise Price
|---------------------------- |  | ------------------------ | - | -------------------------------
|Balance at December 31, 1996 |  |                         |   |                                
|Options granted              |  | 338,947                  |   | $                              
|Options exercised            |  | (95                      | ) |                                
|Options forfeited            |  | (12,485                  | ) |                                
|                             |  |                          |   |                                
|Balance at December 31, 1997 |  | 326,367                  |   |                                
|Options exercised            |  | (3,342                   | ) |                                
|Options forfeited            |  | (25,651                  | ) |                                
|                             |  |                          |   |                                
|Balance at December 31, 1998 |  | 297,374                  |   |                                
|Options granted              |  | 368,889                  |   |                                
|Options exercised            |  | (266                     | ) |                                
|Options forfeited            |  | (306,692                 | ) |                                
|                             |  |                          |   |                                
|Balance at December 31, 1999 |  | 359,305                  |   | $                              
|                             |  |                          |   |                                

The
weighted average fair value of options granted was $3.97 in 1999, and $3.08 in 1997. The fair values of options granted were estimated as of the date of grant using a
Black-Scholes option-pricing model. The weighted averages for the assumptions used in determining the fair values of options granted were as follows:

|                               |  | 1999     |  | 1997    
|------------------------------ |  | -------- |  | --------
|Risk-free interest rate        |  | 5.0%     |  | 5.9%    
|Expected dividend yield        |  | 6.2%     |  | 5.4%    
|Expected lives                 |  | 2.0 yrs. |  | 2.0 yrs.
|Expected common stock variance |  | 5.2%     |  | 1.6%    

(d)Director, Officer and Key Employee Stock Purchase ProgramIn December 1999,Cinergy
Corp.adopted the Director, Officer and Key Employee Stock Purchase Program (the Program). The purpose of the Program is to facilitate the purchase of Cinergy Corp.'scommon stock
by its directors, officers and key employees, thereby further aligning their interests with those of its shareholders.

In
February 2000,Cinergy Corp.purchased approximately 1.6 million shares of common stock on behalf of the participants
at an average price of $24.82 per share.

Participants
had the option of financing the purchases through a five-year credit facility arranged byCinergy Corp.with a
bank. Each participant is obligated to repay the bank any loan principal, interest, and prepayment fees, and each has assigned his or her dividend rights on the purchased shares to the bank to be
applied to interest payments as due on the loan.

Services,
and in part,Cinergy Corp., have guaranteed repayment to the bank of 100% of each participant's loan obligations and the
associated interest, and each participant has agreed to indemnify the guarantor for any payments made by it under the guaranty on the participant's behalf. A participant's obligations to the bank are
unsecured, and no restrictions are placed on the participant's ability to sell, pledge or otherwise encumber or dispose of his or her purchased shares.

(e)PSPThe PSP was a long-term incentive plan developed to reward officers and other key
employees for achieving corporate and individual goals. Under the PSP, participants were granted contingent shares of common stock. As of December 31, 1996, we ceased accrual of incentive

99



compensation
under the PSP, and a final payout of approximately 35,000 shares was made in February 1999.

3. Change in Preferred Stock of Subsidiaries

In 1998,PSIredeemed approximately 3.4 million shares of its $25 par value, 7.44% series of preferred
stock for $85 million. All other classes of preferred stock redeemed from 1997 to 1999 were immaterial forCG&Eand PSI. Refer to the Consolidated
Statements of Capitalization for detailed information forCG&E(on page
84) andPSI(on page 92).

4. Long-Term Debt

Refer to the Statements of Capitalization for detailed information forCG&E(on page 84), PSI(on page 92), andULH&P(on page 99). In addition,Cinergy
Corp.and Global Resources also have the following total long-term debt (excludingLong-term debt due within one
year, which is reflected inCurrent liabilitiesin the Consolidated Balance Sheets):

|                                                                                |  | December 31 |          
|------------------------------------------------------------------------------- |  | ----------- | ---------
|
|
|Cinergy Corp.                                                                   |  |             |          
|Other Long-term Debt                                                            |  |             |          
|6.53% Debentures due December 16, 2008                                          |  | $           | 200,000  
|6.125% Debentures due April 15, 2004                                            |  |             | 200,000  
|                                                                                |  |             |          
|                                                                                |  |             | 400,000  
|Unamortized Discount                                                            |  |             | (333     
|                                                                                |  |             |          
|TotalCinergy Corp.                                                             |  | $           | 399,667  
|                                                                                |  |             |          
|Global Resources                                                                |  |             |          
|Other Long-term Debt                                                            |  |             |          
|6.20% Debentures due November 3, 2008                                           |  | $           | 150,000  
|Variable interest rate set at 7.56% commencing August 6, 1999, due July 6, 2012 |  |             | 15,300   
|Variable interest rate set at 8.44% commencing August 6, 1999, due July 6, 2009 |  |             | 7,100    
|Other                                                                           |  |             |         
|                                                                                |  |             |          
|Total Other Long-term Debt                                                      |  |             | 172,400  
|Unamortized Discount                                                            |  |             | (293     
|                                                                                |  |             |          
|TotalGlobal Resources                                                          |  | $           | 172,107  
|                                                                                |  |             |          
|Operating Companies                                                             |  |             |          
|CG&Eand its subsidiaries                                                        |  | $           | 1,205,916
|PSI                                                                             |  |             | 1,211,552
|                                                                                |  |             |          
|TotalCinergy                                                                   |  | $           | 2,989,242
|                                                                                |  |             |          

The
following table reflects the long-term debt maturities for the next five years, excluding any redemptions due to the exercise of call or put provisions. Callable means
the issuer has the right to buy

100



back
a given security from the holder at a specified price before maturity. Putable means the holder has the right to sell a given security back to the issuer at a specified price before maturity.

|     |  | Cinergy and
Subsidiaries |     | CG&E and
Subsidiaries |   | PSI
|---- |  | ------------------------ | --- | --------------------- | - | ---
|
|2000 |  | $                        | 33  |                       | $ |   
|2001 |  |                          | 41  |                       |   | 1  
|2002 |  |                          | 125 |                       |   | 100
|2003 |  |                          | 78  |                       |   | 20 
|2004 |  |                          | 313 |                       |   | 110
|     |  |                          |     |                       |   |    
|     |  | $                        | 590 |                       | $ | 231

---

Maintenance
and replacement fund provisions contained inPSI'sfirst mortgage bond indenture require: (1) cash payments,
(2) bond retirements, or (3) pledges of unfunded property additions each year based on an amount related toPSI'snet revenues.

5. Notes Payable and Other Short-term Obligations

Short-term obligations may include:



Short-term NotesShort-term borrowings mature within one year from the
date of issuance. We mainly use unsecured revolving lines of credit for short-term borrowings. A portion of each company's committed lines is used to provide credit support for commercial
paper (discussed below) and other uncommitted lines. When committed lines are reserved for commercial paper or other uncommitted lines, they are not available for additional borrowings. The fees we
paid to secure short-term notes were immaterial during the period from 1997 to 1999.

At
December 31, 1999,Cinergy Corp. did not have any borrowings or commercial paper outstanding related to its
$645 million revolving and uncommitted lines. The acquisition line shown in the table to follow was initially established to fund the purchase of Avon Energy Partners Holdings (Avon Energy),
the parent company of Midlands Electricity plc (Midlands). However, on July 15, 1999, we sold our 50% ownership interest in Avon Energy to GPU, Inc. (GPU), and as a result of this
transaction, the available acquisition line has been eliminated. For a discussion of this transaction, see Note 10 on page 126.

Global
Resources established a $100 million revolving credit agreement in 1998, which expired on August 29, 1999, and was not extended or replaced.

Commercial PaperThe commercial paper (debt instruments exchanged between companies) program is
limited to a maximum outstanding principal amount of $400 million forCinergy Corp.CG&Eand PSIalso have the capacity to issue commercial paper, which must be supported by available committed lines of the respective company. The maximum
outstanding principal amount forCG&Eis $200 million and forPSIis $100 million. Neither CG&EnorPSIissued commercial paper in 1999 or 1998.

101



Variable Rate Pollution Control NotesCG&Eand PSIhave issued
variable rate pollution control notes (tax-exempt notes obtained to finance equipment or land development to control
pollution). Because the holders of these notes have the right to redeem their notes on any business day, they are reflected inNotes payable and other short-term
obligationsin the Consolidated Balance Sheets forCinergyon page 74, for CG&Eon page 80, and forPSIon page 88.

The
following tables summarize ourNotes payable and other short-term obligations; but exclude Notes payable to affiliated companies.

Cinergy

|                           |  | December 31, 1999 |     | December 31, 1998 |  
|-------------------------- |  | ----------------- | --- | ----------------- | -
|
|
|Cinergy Corp.              |  |                   |     |                   |  
|Committed lines            |  |                   |     |                   |  
|Acquisition line           |  | $                 |    |                   | $
|Revolving line             |  |                   | 600 |                   |  
|Uncommitted lines          |  |                   | 45  |                   |  
|Commercial paper           |  |                   |    |                   |  
|Operating companies        |  |                   |     |                   |  
|Committed lines            |  |                   | 195 |                   |  
|Uncommitted lines          |  |                   | 300 |                   |  
|Pollution control notes    |  |                   | N/A |                   |  
|Non-regulated subsidiaries |  |                   |     |                   |  
|Revolving lines            |  |                   | 14  | (2)               |  
|Short-term debt            |  |                   | 69  |                   |  
|                           |  |                   |     |                   |  
|Cinergy Total              |  |                   |     |                   | $

---

102





## 

CG&E

|                        |  | December 31, 1999 |     | December 31, 1998 |  
|----------------------- |  | ----------------- | --- | ----------------- | -
|
|
|Committed lines         |  | $                 | 65  |                   | $
|Uncommitted lines       |  |                   | 130 |                   |  
|Pollution control notes |  |                   | N/A |                   |  
|                        |  |                   |     |                   |  
|Total                   |  |                   |     |                   | $

PSI

|                        |  | December 31, 1999 |     | December 31, 1998 |  
|----------------------- |  | ----------------- | --- | ----------------- | -
|
|
|Committed lines         |  | $                 | 130 |                   | $
|Uncommitted lines       |  |                   | 170 |                   |  
|Pollution control notes |  |                   | N/A |                   |  
|                        |  |                   |     |                   |  
|Total                   |  |                   |     |                   | $

Money PoolOur operating companies and their subsidiaries participate in a money pool
arrangement to better manage cash and working capital requirements. Under this arrangement, our operating companies and their subsidiaries with surplus short-term funds provide
short-term loans to each other. This surplus cash may be from internal or external sources. The amounts outstanding under this money pool arrangement are shown as Notes receivable from affiliated companiesorNotes payable to affiliated
companieson the Consolidated Balance Sheets forCG&Eon pages 80 through 81, PSIon pages 88 through 89, and the Balance Sheets
forULH&Pon pages 95 through 96.

6. Sale of Accounts Receivable

In 1996,CG&E,PSI, and ULH&Pentered into an agreement to
sell, on a revolving basis, undivided percentage interests in certain of their accounts receivable up to an aggregate
maximum of $350 million. TheAccounts receivableon the Consolidated Balance Sheets ofCinergy, CG&E,
 andPSIand on the Balance Sheets ofULH&Pare net
of the amounts sold at December 31, 1999, and 1998. The following table shows the amounts sold, net of reserves for 1999:

Sale of Accounts Receivable (in millions)

|Cinergy              |  | $ | 257
|-------------------- |  | - | ---
|CG&Eand subsidiaries |  |   | 157
|PSI                  |  |   | 100
|ULH&P                |  |   | 21 

7. Leases

(a)Operating LeasesWe have entered into operating lease agreements for various facilities and
properties such as computer, communications, transportation equipment, and office space. Total rental payments on operating leases for each of the past three years are detailed below in the table.
This table

103



also
shows future minimum lease payments required for operating leases with remaining non-cancelable lease terms in excess of one year as of December 31, 1999:

|                     |  |   |    |  |   |    |  | Estimated Minimum Payments
|-------------------- |  | - | -- |  | - | -- |  | --------------------------
|
|
|
|
|Cinergy              |  | $ | 36 |  | $ | 42 |  | $                         
|CG&Eand subsidiaries |  |   | 18 |  |   | 21 |  |                           
|PSI                  |  |   | 18 |  |   | 21 |  |                           
|ULH&P(1)             |  |   | 1  |  |   | 3  |  |                           

---

(b)Capital LeasesIn February 1999,CG&E, PSI, andULH
&Pentered into capital lease arrangements to fund the purchase of gas and electric meters.
The terms are for 120 months commencing December 1999, with early buyout options at 48, 72, and 105 months. Since the objective is to own the meters indefinitely, the companies
plan to exercise the buyout option at month 105. The lease rate used to determine the monthly payments is 6.06%. The meters are depreciated at the same rate as if they were owned by the companies. CG&E,PSI, andULH&Peach recorded a capital lease
obligation, included inNon-current liabilitiesother. The total minimum lease payments, as if the buyout option is exercised at month 105,
and the present value are shown below:

|                                        |  | Total Minimum Lease Payments |       
|--------------------------------------- |  | ---------------------------- | ------
|
|
|Total minimum lease payments(1)         |  | $                            | 13,935
|Less: amount representing interest      |  |                              | (3,838
|                                        |  |                              |       
|Present value of minimum lease payments |  | $                            | 10,097

---

In
1996,CG&Eentered into a sale-leaseback agreement for certain equipment at Woodsdale Generating Station. The lease is a
capital lease with an initial lease term of five years. At the end of this term, the lease may be renewed at mutually agreeable terms orCG&Emay
purchase the equipment at the original sale amount. The monthly lease payment is interest only and is based on the applicable London Inter-bank Offered Rate (LIBOR). LIBOR is the rate at
which the highest rated banks offer to lend to one another. Interest rates are frequently quoted as a spread to LIBOR. The capital lease obligation will not be reduced over the initial lease term. The
equipment under the capital lease is depreciated at the same rate as ifCG&Eowned it.CG&Erecorded a
capital lease obligation, included inNon-current liabilitiesother, of $22 million, which is the book value of the
equipment at the beginning of the lease.

8. Financial Instruments

(a)Financial DerivativesWe have entered into financial derivative contracts for the purposes described
below.

(i)Interest Rate Risk ManagementOur current policy in managing exposure to fluctuations in interest
rates is to maintain 25% of the total amount outstanding debt in floating interest rate debt instruments. To help maintain this level of exposure, we have previously entered into interest rate swaps.
Under these swaps, we have agreed with other parties to exchange, at specified intervals, the

104



difference
between fixed-rate and floating-rate interest amounts calculated on an agreed notional principal amount. When less than 25% of the outstanding debt had floating
interest rates, we entered into swaps whereby we would receive a fixed rate and pay a floating rate. When more than 25% of the outstanding debt had fixed interest rates, we entered into swaps that
allowed us to receive a floating rate while paying a fixed rate. At December 31, 1999, the composition of the total amount of debt outstanding consisted of slightly less than 25% of the
outstanding amount having floating interest rates.PSIhas an outstanding interest rate swap agreement that will increase this percentage of floating
rate debt in the second half of 2000. Under the agreement, which has a notional amount of $100 million,PSIwill pay a floating rate and receive
a fixed rate for a six month period. The floating rate will be based on a short-term money market index. At December 31, 1999, the fair value of this interest rate swap was not
significant. In the future, we will continually monitor market conditions to evaluate whether to increase, or decrease, our level of exposure to fluctuations in interest rates.

(ii)Foreign Exchange Hedging ActivityFrom time to time, we may utilize foreign exchange forward
contracts and currency swaps to hedge certain of our net investments in foreign operations. These contracts and swaps allow us to hedge our position against currency exchange rate fluctuations.

Exposure
to fluctuations in exchange rates between the U.S. dollar and the currencies of foreign countries where we have investments do exist. When it is appropriate we will hedge our
exposure to cash flow transactions, such as a dividend payment by one of our foreign subsidiaries. At December 31, 1999, we do not believe we have a material exposure to the currency risk
attributable to these investments.

(b)Fair Value of Other Financial InstrumentsThe estimated fair values of other financial instruments
were as follows (this information does not claim to be a valuation of the companies as a whole):

|                                                                                                                 |  | December 31, 1999 |       | December 31, 1998
|---------------------------------------------------------------------------------------------------------------- |  | ----------------- | ----- | -----------------
|
|
|Financial Instruments                                                                                            |  |                   |       |                  
|Cinergy                                                                                                          |  |                   |       |                  
|First mortgage bonds and other long-term debt (includes amounts reflected as long-term debt due within one year) |  | $                 | 3,020 |                  
|CG&Eand subsidiaries                                                                                             |  |                   |       |                  
|First mortgage bonds and other long-term debt (includes amounts reflected as long-term debt due within one year) |  | $                 | 1,206 |                  
|PSI                                                                                                              |  |                   |       |                  
|First mortgage bonds and other long-term debt (includes amounts reflected as long-term debt due within one year) |  | $                 | 1,243 |                  
|ULH&P                                                                                                            |  |                   |       |                  
|First mortgage bonds and other long-term debt                                                                    |  | $                 | 75    |                  

The
following methods and assumptions were used to estimate the fair values of each major class of instruments:

Cash and cash equivalents, Restricted deposits,andNotes payable and other short-term
obligationsDue to the short period to maturity, the carrying amounts reflected on the Balance Sheets approximate fair values.

105



Long-term debtThe fair values of long-term debt issues were estimated based on the latest
quoted market prices or, if not listed on the New York Stock Exchange, on the present value of future cash flows. The discount rates used approximate the incremental borrowing costs for similar
instruments.

(c)Concentrations of Credit RiskCredit risk is the exposure to economic losses that would occur as a
result of nonperformance by counterparties, pursuant to the terms of their contractual obligations. Specific components of credit risk include counterparty default risk, collateral risk, concentration
risk, and settlement risk.

Our
concentration of credit risk with respect to Delivery's trade accounts receivable from electric and gas retail customers is limited. The large number of customers and diversified
customer base of residential, commercial, and industrial customers significantly reduces our credit risk. Contracts within the physical portfolio of Commodities' power marketing and trading operations
are primarily with the traditional electric cooperatives and municipalities and other investor-owned utilities. At December 31, 1999, we do not believe we have significant exposure to credit
risk with our trade accounts receivable within Delivery and our physical portfolio within Commodities.

Contracts
within the trading portfolio of the power marketing and trading operations are primarily with power marketers and other investor-owned utilities. As of December 31,
1999, approximately 75% of the activity within the trading portfolio represents commitments with 10 counterparties. The majority of these contracts are for terms of one year or less. Counterparty
credit exposure within the power-trading portfolio is routinely factored into the mark-to-market valuation. As a result of the extreme volatility experienced in the Midwest
power markets during 1998, several new entrants into the market experienced financial difficulties and failed to perform their contractual obligations. This resulted in us recording bad debt
provisions of approximately $13 million with respect to settled transactions. At December 31, 1999, our exposure to credit risk within the power-trading portfolio is not believed to be
significant. As the competitive electric power market continues to develop, counterparties will increasingly include new market entrants, such as other power marketers, brokers, and commodity traders.
This increased level of new market entrants, as well as competitive pressures on existing market participants, could increase Commodities' exposure to credit risk with respect to its power marketing
and trading operations.

As
of December 31, 1999, approximately one-third of the activity within the physical gas marketing and trading portfolio represents commitments with 10
counterparties. Credit risk losses related to gas and other commodity physical and trading operations have not been significant. At December 31, 1999, the credit risk within the gas and
commodity trading portfolios is not believed to be significant because of the characteristics of counterparties and customers with which transactions are executed.

Potential
exposure to credit risk also exists from our use of financial derivatives such as currency swaps, foreign exchange forward contracts, and interest rate swaps. Because these
financial instruments are transacted only with highly rated financial institutions, we do not anticipate nonperformance by any of the counterparties.

9. Pension and Other Postretirement Benefits

We provide benefits to retirees in the form of pensions and other postretirement benefits.

Our
defined benefit pension plans cover substantially all United States (U.S.) employees meeting certain minimum age and service requirements. A final average pay formula determines
plan benefits. These plan benefits are based on (1) years of participation, (2) age at retirement, and (3) the applicable average Social Security wage base or benefit amount.

Effective
January 1, 1998, we reconfigured our defined benefit pension plans. The reconfigured plans cover the same employees as the previous plans and established a uniform
final average pay

106



formula
for all employees. The reconfiguration of the pension plans did not have a significant impact on our financial position or results of operations.

Our
pension plan funding policy for U.S. employees is to contribute at least the amount required by the Employee Retirement Income Security Act of 1974, and up to the amount
deductible for income tax purposes. The pension plans' assets consist of investments in equity and fixed income securities.

We
provide certain health care and life insurance benefits to retired U.S. employees and their eligible dependents. These benefits are subject to the retiree meeting minimum age and
service requirements. The health care benefits include medical coverage, dental coverage, and prescription drugs and are subject to certain limitations, such as deductibles and
co-payments. Prior to January 1, 1997,CG&EandPSIemployees had separate
postretirement benefit plans. Effective January 1, 1997, most of our active U.S. employees are eligible to receive essentially the same postretirement health care benefits. Certain classes of
employees (based on age) and all retirees have been grandfathered under benefit provisions in place prior to January 1, 1997.CG&Edoes not
pre-fund its obligations for these postretirement benefits. During 1999,PSIbegan pre-funding its obligations as authorized by
the IURC through a grantor trust.

Our
benefit plans' costs for the past three years, as well as the actuarial assumptions used in determining these costs, included the following components:

|                                              |  | Pension Benefits |       | Other Postretirement Benefits |  
|--------------------------------------------- |  | ---------------- | ----- | ----------------------------- | -
|
|
|Service cost                                  |  | $                | 24.8  |                               | $
|Interest cost                                 |  |                  | 70.8  |                               |  
|Expected return on plans' assets              |  |                  | (72.0 | )                             |  
|Amortization of transition obligation/(asset) |  |                  | (1.3  | )                             |  
|Amortization of prior service cost            |  |                  | 4.5   |                               |  
|Recognized actuarial (gain) loss              |  |                  | .6    |                               |  
|                                              |  |                  |       |                               |  
|Net periodic benefit cost                     |  | $                | 27.4  |                               | $
|                                              |  |                  |       |                               |  
|Actuarial assumptions:                        |  |                  |       |                               |  
|Discount rate                                 |  |                  | 7.50  | %                             |  
|Rate of future compensation increase          |  |                  | 4.50  |                               |  
|Rate of return on plans' assets               |  |                  | 9.00  |                               |  

For
measurement purposes, we assumed an 8% annual rate of increase in the per capita cost of covered health care benefits for 2000. It was assumed that the rate would decrease
gradually to 5% in 2008 and remain at that level thereafter.

107



The
following table provides a reconciliation of the changes in the plans' benefit obligations and fair value of assets over the two-year period ended December 31,
1999, and a statement of the funded status as of December 31 of both years.

|                                                 |  | Pension
Benefits |         | Other Postretirement
Benefits |  
|------------------------------------------------ |  | ---------------- | ------- | ----------------------------- | -
|
|
|Change in benefit obligation                     |  |                  |         |                               |  
|Benefit obligation at beginning of period        |  | $                | 1,052.1 |                               | $
|Service cost                                     |  |                  | 24.8    |                               |  
|Interest cost                                    |  |                  | 70.8    |                               |  
|Amendments                                       |  |                  | 1.1     |                               |  
|Actuarial (gain)/loss                            |  |                  | (90.3   | )                             |  
|Benefits paid                                    |  |                  | (56.5   | )                             |  
|                                                 |  |                  |         |                               |  
|Benefit obligation at end of period              |  |                  | 1,002.0 |                               |  
|Change in plan assets                            |  |                  |         |                               |  
|Fair value of plan assets at beginning of period |  |                  | 865.3   |                               |  
|Actual return on plan assets                     |  |                  | 137.3   |                               |  
|Employer contribution                            |  |                  |        |                               |  
|Benefits paid                                    |  |                  | (56.5   | )                             |  
|                                                 |  |                  |         |                               |  
|Fair value of plan assets at end of period       |  |                  | 946.1   |                               |  
|Funded status                                    |  |                  | (55.9   | )                             |  
|Unrecognized prior service cost                  |  |                  | 39.9    |                               |  
|Unrecognized net actuarial (gain)/loss           |  |                  | (180.6  | )                             |  
|Unrecognized net transition (asset)/obligation   |  |                  | (5.8    | )                             |  
|                                                 |  |                  |         |                               |  
|Accrued benefit cost at December 31              |  | $                | (202.4  | )                             | $

Assumed
health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost
trend rates would have the following effects:

|                                                        |  | One-Percentage-Point
Increase |      | One-Percentage-Point
Decrease |  
|------------------------------------------------------- |  | ----------------------------- | ---- | ----------------------------- | -
|
|Effect on total of service and interest cost components |  | $                             | 2.8  |                               | $
|Effect on postretirement benefit obligation             |  |                               | 30.1 |                               |  

In
addition, we sponsor non-qualified pension plans (plans that do not meet the criteria for tax benefits) that cover officers, certain other key employees, and
non-employee directors. We began funding certain of these non-qualified plans through a rabbi trust in 1999.

108



The
pension benefit obligations and pension cost under these plans were as follows:

|                            |  | 1999 |      | 1998
|--------------------------- |  | ---- | ---- | ----
|
|Pension benefit obligations |  | $    | 37.0 |     
|Pension cost                |  |      | 4.0  |     

10. Investments/Dispositions in Unconsolidated Subsidiaries

On July 15, 1999, we sold our 50% ownership interest in Avon Energy to GPU. In exchange for our interest in Avon Energy, we received
452.5 million pounds sterling (approximately $700 million). As a result of the transaction, we realized a net contribution to earnings of approximately $.43 per share (basic and
diluted), after deducting financing, transaction, and currency costs.

Pro
forma information is presented below. This reflects the net income and earnings per share without the investment in Avon Energy for 1999 and 1998.

|                                          |  | Year Ended December 31
|----------------------------------------- |  | ----------------------
|
|
|
|Cinergy                                   |  | $                     
|Pro forma adjustments:                    |  |                       
|Equity in earnings of Avon Energy         |  |                       
|Gain on sale of investment in Avon Energy |  |                       
|Interest expense                          |  |                       
|Income taxes                              |  |                       
|                                          |  |                       
|Pro forma result                          |  | $                     

---

On
September 30, 1999, one of our non-regulated subsidiaries formed a partnership with Duke Energy North America LLC (Duke). This partnership will jointly construct
and own three wholesale generating facilities located in southwestern Ohio, and east central and western Indiana, with total capacity of approximately 1,400 megawatts (MW). These facilities will be
natural gas-fired peaking stations with commercial operations anticipated for the summer of 2000. Our portion (50%) of the output will be sold to and marketed by Cinergy Capital &
Trading (a wholly-owned subsidiary of Investments) or anotherCinergyaffiliate.

109



11. Income Taxes

The following table shows the significant components ofCinergy, CG&E, andPSInet deferred income tax liabilities as of December 31, 1999, and 1998:

|                                               |  | Cinergy(1) |         | CG&E |   | PSI    
|---------------------------------------------- |  | ---------- | ------- | ---- | - | -------
|
|
|Deferred Income Tax Liability                  |  |            |         |      |   |        
|Utility plant                                  |  | $          | 1,130.4 |      | $ | 1,104.2
|Unamortized costs of reacquiring debt          |  |            | 20.9    |      |   | 21.2   
|Deferred operating expenses and carrying costs |  |            | 43.5    |      |   | 73.3   
|Amounts due from customers- income taxes       |  |            | 95.6    |      |   | 121.7  
|Foreign income taxes                           |  |            | 2.7     |      |   |       
|Dynegy gas services agreement buyout costs     |  |            | 94.9    |      |   |       
|Other                                          |  |            | 53.0    |      |   | 73.8   
|                                               |  |            |         |      |   |        
|Total Deferred Income Tax Liability            |  |            | 1,441.0 |      |   | 1,394.2
|                                               |  |            |         |      |   |        
|Deferred Income Tax Asset                      |  |            |         |      |   |        
|Unamortized investment tax credits             |  |            | 53.6    |      |   | 57.0   
|Accrued pension and other benefit costs        |  |            | 88.0    |      |   | 89.0   
|Net energy risk management liabilities         |  |            | 32.3    |      |   | 54.5   
|Rural Utilities Service (RUS) obligation       |  |            | 30.7    |      |   | 29.5   
|Investments in unconsolidated subsidiaries     |  |            |        |      |   | 13.1   
|Other                                          |  |            | 61.6    |      |   | 60.0   
|                                               |  |            |         |      |   |        
|Total Deferred Income Tax Asset                |  |            | 266.2   |      |   | 303.1  
|                                               |  |            |         |      |   |        
|Net Deferred Income Tax Liability              |  | $          | 1,174.8 |      | $ | 1,091.1
|                                               |  |            |         |      |   |        

---

We
will file a consolidated federal income tax return for the year ended December 31, 1999. The current tax liability is allocated among the members of the group
pursuant to a tax sharing agreement filed with the SEC under the PUHCA.

110



The
following table indicates a summary of federal and state income taxes charged (credited) to income:

|                                                   |  | Cinergy |       | CG&E |   | PSI   |  
|-------------------------------------------------- |  | ------- | ----- | ---- | - | ----- | -
|
|
|Current Income Taxes                               |  |         |       |      |   |       |  
|Federal                                            |  | $       | 114.0 |      | $ | 209.0 |  
|State                                              |  |         | (1.5  | )    |   | 16.9  |  
|                                                   |  |         |       |      |   |       |  
|Total Current Income Taxes                         |  |         | 112.5 |      |   | 225.9 |  
|                                                   |  |         |       |      |   |       |  
|Deferred Income Taxes                              |  |         |       |      |   |       |  
|Federal                                            |  |         |       |      |   |       |  
|Depreciation and other utility plant-related items |  |         | 24.0  |      |   | 25.3  |  
|Pension and other benefit costs                    |  |         | (10.5 | )    |   | (3.3  | )
|Litigation settlement                              |  |         |      |      |   |      |  
|RUS obligations                                    |  |         |      |      |   | (22.5 | )
|Unrealized energy risk management losses           |  |         | (5.1  | )    |   | (49.4 | )
|Fuel costs                                         |  |         | 4.3   |      |   | (1.0  | )
|Dynegy gas services agreement buyout costs         |  |         | 83.6  |      |   |      |  
|Coal contract buyout                               |  |         | 4.2   |      |   | 3.1   |  
|Coal gasification payments                         |  |         |      |      |   |      |  
|Other items-net                                    |  |         | (9.3  | )    |   | (43.9 | )
|                                                   |  |         |       |      |   |       |  
|Total Deferred Federal Income Taxes                |  |         | 91.2  |      |   | (91.7 | )
|State                                              |  |         | 14.2  |      |   | (7.4  | )
|                                                   |  |         |       |      |   |       |  
|Total Deferred Income Taxes                        |  |         | 105.4 |      |   | (99.1 | )
|                                                   |  |         |       |      |   |       |  
|Investment Tax CreditsNet                         |  |         | (9.2  | )    |   | (9.6  | )
|                                                   |  |         |       |      |   |       |  
|Total Income Taxes                                 |  | $       | 208.7 |      | $ | 117.2 |  
|                                                   |  |         |       |      |   |       |  

111



The
following table presents a reconciliation of federal income taxes (which are calculated by multiplying the statutory federal income tax rate by book income before extraordinary
items and federal income tax) to the federal income tax expense reported in the Consolidated Statements of Income forCinergy, CG&E, andPSI.

|                                                         |  | Cinergy |       | CG&E |   | PSI   |  
|-------------------------------------------------------- |  | ------- | ----- | ---- | - | ----- | -
|
|
|Statutory federal income tax provision                   |  | $       | 209.9 |      | $ | 129.0 |  
|Increases (Reductions) in taxes resulting from:          |  |         |       |      |   |       |  
|Amortization of investment tax credits                   |  |         | (9.2  | )    |   | (9.6  | )
|Depreciation and other utility plant-related differences |  |         | 14.4  |      |   | 10.4  |  
|Preferred dividend requirements of subsidiaries          |  |         | 5.4   |      |   | 2.3   |  
|Foreign tax adjustments                                  |  |         | (15.5 | )    |   | (20.0 | )
|Other-net                                                |  |         | (9.0  | )    |   | (4.4  | )
|                                                         |  |         |       |      |   |       |  
|Federal income tax expense                               |  | $       | 196.0 |      | $ | 107.7 |  
|                                                         |  |         |       |      |   |       |  

The
following table shows the significant components ofULH&Pnet deferred income tax liability as of December 31, 1999, and
1998:

|                                        |  | ULH&P
|--------------------------------------- |  | -----
|
|
|Deferred Income Tax Liability           |  |      
|Utility plant                           |  | $    
|Unamortized costs of reacquiring debt   |  |      
|Deferred fuel costs                     |  |      
|Other                                   |  |      
|                                        |  |      
|Total Deferred Income Tax Liability     |  |      
|                                        |  |      
|Deferred Income Tax Asset               |  |      
|Unamortized investment tax credits      |  |      
|Amounts due to customers-income taxes   |  |      
|Deferred fuel costs                     |  |      
|Accrued pension and other benefit costs |  |      
|Other                                   |  |      
|                                        |  |      
|Total Deferred Income Tax Asset         |  |      
|                                        |  |      
|Net Deferred Income Tax Liability       |  | $    
|                                        |  |      

112



The
following table indicates a summary of federal and state income taxes charged (credited) to income:

|                                                   |  | ULH&P |       
|-------------------------------------------------- |  | ----- | ------
|
|
|Current Income Taxes                               |  |       |       
|Federal                                            |  | $     | 8,668 
|State                                              |  |       | 2,253 
|                                                   |  |       |       
|Total Current Income Taxes                         |  |       | 10,921
|                                                   |  |       |       
|Deferred Income Taxes                              |  |       |       
|Federal                                            |  |       |       
|Depreciation and other utility plant-related items |  |       | 831   
|Pension and other benefit costs                    |  |       | 40    
|Fuel costs                                         |  |       | (1,385
|Unamortized costs of reacquiring debt              |  |       | (39   
|Service company allocations                        |  |       | 324   
|Other items-net                                    |  |       | (155  
|                                                   |  |       |       
|Total Deferred Federal Income Taxes                |  |       | (384  
|State                                              |  |       |       
|Depreciation and other utility plant-related items |  |       | 271   
|Fuel costs                                         |  |       | (356  
|Other items-net                                    |  |       | 9     
|                                                   |  |       |       
|Total Deferred State Income Taxes                  |  |       | (76   
|                                                   |  |       |       
|Total Deferred Income Taxes                        |  |       | (460  
|                                                   |  |       |       
|Investment Tax Credits-Net                         |  |       | (277  
|                                                   |  |       |       
|Total Income Taxes                                 |  | $     | 10,184
|                                                   |  |       |       

113



The
following table presents a reconciliation of federal income taxes (which are calculated by multiplying the statutory federal income tax rate by book income and federal income tax)
to the federal income tax expense reported in the Statement of Income forULH&P.

|                                                         |  | 1999 |       | ULH&P
1998 |   | 1997  |  
|-------------------------------------------------------- |  | ---- | ----- | ---------- | - | ----- | -
|
|Statutory federal income tax provision                   |  | $    | 7,098 |            | $ | 6,937 |  
|Increases (Reductions) in taxes resulting from:          |  |      |       |            |   |       |  
|Amortization of investment tax credits                   |  |      | (277  | )          |   | (279  | )
|Depreciation and other utility plant-related differences |  |      | 94    |            |   | (168  | )
|Other- net                                               |  |      | 1,092 |            |   | (360  | )
|                                                         |  |      |       |            |   |       |  
|Federal income tax expense                               |  | $    | 8,007 |            | $ | 6,130 |  
|                                                         |  |      |       |            |   |       |  

12. Commitments and Contingencies

(a)Construction and Other CommitmentsForecasted construction expenditures in nominal dollars for 2000
and for the next five years (2000-2004) are presented in the table below:

|                     |  | 2000 |     | 2000-2004
|-------------------- |  | ---- | --- | ---------
|
|Cinergy              |  | $    | 495 |          
|CG&Eand subsidiaries |  |      | 284 |          
|PSI                  |  |      | 211 |          
|ULH&P                |  |      | 28  |          

This
table includes forecasted expenditures for 2000 of $65 million for preparing utility systems for customer choice. This forecast excludes an estimate of expenditures
necessary to comply with the United States Environmental Protection Agency's (EPA's) proposed stricter nitrogen oxide (NOX) emission control standards, as discussed below.

Committed
projects for both international and domestic non-regulated investment activities of approximately $160 million for 2000 are excluded from the table above.
On September 30, 1999, one of our non-regulated subsidiaries formed a partnership with Duke, as discussed in Note 10 on page 126. Our portion (50%) of the remaining capital
expenditures to complete this project is estimated at $110 million for 2000 and is included in the $160 million discussed above.

(b)Ozone Transport RulemakingIn October 1998, the EPA finalized its ozone transport rule, also
known as the NOX SIP Call. (A SIP is a state's implementation plan for achieving emissions reductions to address air quality concerns.) It applies to 22 states in the eastern half of the
U.S., including the three states in which our electric utilities operate. This rule recommends that states reduce NOX emissions from primarily industrial and utility sources to a certain
level by May 2003. The EPA gave the affected states until September 30, 1999, to incorporate NOX reductions with a trading program into their SIPs. The EPA
proposed to implement a federal plan to accomplish the equivalent NOX reductions by May 2003 if the states failed to revise their SIPs. The EPA must approve all SIPs.

Ohio,
Indiana, a number of other states, and various industry groups (some of which we are a member), filed legal challenges to the NOX SIP Call in late 1998. On
May 25, 1999, the U.S. Circuit Court of Appeals for the District of Columbia (Court of Appeals) granted a request for a deferral of the rule and indefinitely suspended the September 30
filing deadline, pending further review by the Court of Appeals. The Court of Appeals heard arguments on the case on November 9, 1999, and is expected to make a decision in the first quarter of
2000.

114



In
December 1999, the EPA granted four Section 126 petitions relating to NOX emissions. The EPA believes that these petitions, which are filed under
Section 126 of the Clean Air Act (CAA), allow a state to claim that another state is contributing to its air quality problem and request that the EPA require the upwind state to reduce its
emissions. This ruling affects all of our Ohio and Kentucky facilities, as well as some of our Indiana facilities, and requires us to reduce our NOX emissions to a
certain level by May 2003. We are appealing this ruling; however, we currently cannot predict the outcome of the appeal. Compliance with this EPA finding is anticipated to require us to perform
substantially all of the NOX reduction work that would be required under the NOX SIP Call. In the event the EPA successfully implements either program (the NOX SIP
Call or the Section 126 petitions), capital expenditures for compliance are substantially the same, and are currently estimated at $500 million to $700 million (in 1999 dollars)
by May 2003, approximately $105 million of which is estimated to be spent in 2000. This estimate depends on several factors, including:



(c)New Source Review (NSR)Since July 1999, CG&EandPSIhave received requests from the EPA (Region 5),
 under Section 114 of the CAA,
seeking documents and information regarding capital and maintenance expenditures at several of their generating stations. These activities are part of an industry-wide investigation
assessing compliance with the NSR and the New Source Performance Standards (NSPS, emissions standards that apply to new and changed units) of the CAA at electric generating stations. The NSR
provisions require that a company obtain a pre-construction permit if it plans to build a new stationary source of pollution or make a major change to an existing facility unless the
changes are exempt.

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

On
March 1, 2000, the EPA filed an amended complaint againstCinergy, CG&E, and PSI. The amended complaint added the alleged violations of the NSR
requirements of the CAA at two of our generating stations contained in the notice of
violation (NOV) filed by the EPA on November 3, 1999. It also added claims for relief alleging violations of (1) nonattainment NSR, (2) Indiana and Ohio SIPs, and
(3) particulate matter emission limits (as discussed in Note 12(e) on page 134). The amended complaint seeks (1) injunctive relief to require installation of pollution control
technology on each of the generating units at Beckjord, Cayuga, andPSI'sWabash River and Gallagher Generating Stations, and such other measures as
necessary, and (2) civil penalties in amounts of up to $27,500 per day for each violation. We believe the allegations contained in the amended complaint are without merit and plan to defend the
suit vigorously in court. At this time, it is not possible to determine the likelihood that the EPA will prevail on its claims or whether resolution of this matter will have a material effect on our
financial condition.

On
March 1, 2000, the EPA also filed an amended complaint alleging violations of the CAA relating to NSR, Prevention of Significant Deterioration, and Ohio SIP requirements
regarding a generating station operated by the Columbus Southern Power Company (CSP) and jointly-owned by CSP, The Dayton Power and Light Company, and CG&E. The EPA is seeking injunctive relief and
civil

115



penalties
of up to $27,500 per day for each violation. We believe the allegations in the amended
complaint are without merit. At this time, it is not possible to determine the likelihood that the EPA will prevail on its claims or whether resolution of this matter will have a material effect on
our financial condition.

(d)Manufactured Gas Plant (MGP) Sites



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

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

PSInotified its insurance carriers of the claims related to MGP sites raised by IGC, NIPSCO, and the IDEM. In April 1998, PSIfiled suit in Hendricks County
Circuit Court in the State of Indiana against its general liability insurance carriers. Among other matters, PSIrequested a declaratory judgment that would obligate its insurance carriers to (1)
 defend MGP claims against PSI, or (2) payPSI'scosts of defense and compensatePSIfor its costs of investigating, preventing, mitigating, and remediating damage to property and paying claims related to MGP sites. The case was
moved to the Hendricks County Superior Court 1 on a request for a change of judge. The Hendricks County Superior Court 1 has set the case for trial beginning in May 2001. It ordered the parties
to meet certain deadlines for discovery proceedings based upon this trial date.PSIcannot predict the outcome of this litigation.

PSIhas accrued costs for the sites related to investigation, remediation, and groundwater monitoring for the work performed to date.
The estimated costs for such remedial activities are accrued when the costs are probable and can be reasonably estimated.PSIdoes not believe it can
provide an estimate of the reasonably possible total remediation costs for any site before a remedial investigation/feasibility
study has been completed. To the extent remediation is necessary, the timing of

116



the
remediation activities impacts the cost of remediation. Therefore,PSIcurrently cannot determine the total costs that may be incurred in connection
with the remediation of all sites, to the extent that remediation is required. According to current information, these future costs at the 21 Indiana MGP sites are not material to our financial
condition or results of operations. As further investigation and remediation activities are performed at these sites, the potential liability for the 21 MGP sites could be material to our financial
position or results of operations.



(e)OtherOn November 30, 1999, the EPA filed a NOV against CinergyandCG&Ebecause emissions of
particulate matter (very small solid particles in the air) at CG&E'sW.C. Beckjord Generating Station exceeded the allowable limit. The NOV indicated that the EPA may (1) issue an administrative
penalty
order, or (2) file a civil action seeking injunctive relief and civil penalties of up to $27,500 per day for each violation. The allegations contained in this NOV were incorporated
within the March 1, 2000, amended complaint, as discussed in Note 12(c) on page 132. We are currently unable to determine whether resolution of this matter will have a material
effect on our financial condition.

13. Jointly-Owned Plant

CG&E,CSP, and DP&L jointly own electric generating units and related transmission facilities. PSIis also a
joint-owner of Gibson Generating Station (Gibson) Unit 5 with Wabash Valley Power Association, Inc. (WVPA), and Indiana Municipal
Power Agency (IMPA). Additionally,PSIis a joint-owner with WVPA and IMPA of certain transmission property and local facilities. These facilities
constitute part of the integrated transmission and distribution systems, which are operated and maintained byPSI. The Consolidated Statements of Income
reflectCG&E'sandPSI'sportions of all operating costs associated with the jointly-owned facilities.

CG&E'sandPSI'sinvestments in jointly-owned plant or facilities are as follows:

|                                   |  | Ownership
Share |   | Utility Plant
in Service |       | Accumulated
Depreciation |   | Construction
Work in
Progress
|---------------------------------- |  | --------------- | - | ------------------------ | ----- | ------------------------ | - | -----------------------------
|
|CG&E                               |  |                 |   |                          |       |                          |   |                              
|Production:                        |  |                 |   |                          |       |                          |   |                              
|Miami Fort Station (Units 7 and 8) |  | 64.00           | % | $                        | 216   |                          | $ | 125                          
|W.C. Beckjord Station (Unit 6)     |  | 37.50           |   |                          | 42    |                          |   | 27                           
|J.M. Stuart Station(1)             |  | 39.00           |   |                          | 277   |                          |   | 135                          
|Conesville Station (Unit 4)(1)     |  | 40.00           |   |                          | 75    |                          |   | 41                           
|William H. Zimmer Station(1)       |  | 46.50           |   |                          | 1,222 |                          |   | 311                          
|East Bend Station                  |  | 69.00           |   |                          | 333   |                          |   | 180                          
|Killen Station                     |  | 33.00           |   |                          | 187   |                          |   | 96                           
|Transmission                       |  | Various         |   |                          | 65    |                          |   | 34                           
|PSI                                |  |                 |   |                          |       |                          |   |                              
|Production:                        |  |                 |   |                          |       |                          |   |                              
|Gibson (Unit 5)                    |  | 50.05           |   |                          | 214   |                          |   | 107                          
|Transmission and local facilities  |  | 94.68           |   |                          | 2     |                          |   | 1                            

---

117





14. Quarterly Financial Data (unaudited)

|                                  |  | Cinergy |       | CG&E    |   | PSI   |      
|--------------------------------- |  | ------- | ----- | ------- | - | ----- | -----
|
|
|
|March 31                          |  |         |       |         |   |       |      
|Operating Revenues                |  | $       | 1,402 |         | $ | 1,348 |      
|Operating Income                  |  |         | 234   |         |   | 226   |      
|Net Income                        |  |         | 127   |         |   | 106   |      
|Basic Earnings Per Share          |  |         | .80   |         |   | .67   |      
|Diluted Earnings Per Share        |  |         | .80   |         |   | .67   |      
|June 30                           |  |         |       |         |   |       |      
|Operating Revenues                |  | $       | 1,275 |         | $ | 1,168 |      
|Operating Income                  |  |         | 137   |         |   | 3     | (3,4)
|Net Income (Loss)                 |  |         | 59    |         |   | (25)  | (3,4)
|Basic Earnings (Loss) Per Share   |  |         | .37   |         |   | (.16) | (3,4)
|Diluted Earnings (Loss) Per Share |  |         | .37   |         |   | (.16) | (3,4)
|September 30                      |  |         |       |         |   |       |      
|Operating Revenues                |  | $       | 1,782 | (7)     | $ | 1,977 |      
|Operating Income                  |  |         | 137   | (2,7)   |   | 204   | (5)  
|Net Income                        |  |         | 122   | (1,2,7) |   | 109   | (5)  
|Basic Earnings Per Share          |  |         | .77   | (1,2,7) |   | .69   | (5)  
|Diluted Earnings Per Share        |  |         | .76   | (1,2,7) |   | .69   | (5)  
|December 31                       |  |         |       |         |   |       |      
|Operating Revenues                |  | $       | 1,479 |         | $ | 1,418 |      
|Operating Income                  |  |         | 185   |         |   | 152   | (6)  
|Net Income                        |  |         | 96    |         |   | 71    | (6)  
|Basic Earnings Per Share          |  |         | .60   |         |   | .45   | (6)  
|Diluted Earnings Per Share        |  |         | .60   |         |   | .45   | (6)  
|Total                             |  |         |       |         |   |       |      
|Operating Revenues                |  | $       | 5,938 |         | $ | 5,911 |      
|Operating Income                  |  |         | 693   |         |   | 585   |      
|Net Income                        |  |         | 404   |         |   | 261   |      
|Basic Earnings Per Share          |  |         | 2.54  |         |   | 1.65  |      
|Diluted Earnings Per Share        |  |         | 2.53  |         |   | 1.65  |      

---

118





15. Financial Information by Business Segment

During 1998, we adopted the requirements of Statement of Financial Accounting Standards No. 131,Disclosures about Segments of
an Enterprise and Related Information(Statement 131). Statement 131 requires disclosures about reportable operating segments in annual and interim condensed financial
statements based on the following:



Our
business units were initially formed during the second half of 1996 and began operating as separately identifiable business units in 1997. In early 1999, we made certain
organizational changes to further align the business units to reflect our strategic vision. Prior years' financial information has been restated to conform with the current year's presentation. Each
business unit has its own management structure, headed by a business unit president who reports directly to our chief executive officer. As discussed in Note 1(a) on page 100, our business
units are Commodities, Delivery, Cinergy Investments, and International. Each business unit and its responsibilities are described below.

Commodities
operates and maintains our domestic electric generating plants and some of our jointly-owned plants. It also conducts the following activities: (1) wholesale energy
marketing and trading, (2) energy risk management, (3) financial restructuring services, and (4) proprietary arbitrage activities. Commodities earns revenues from external
customers from its marketing, trading, and risk management activities. Commodities earns intersegment revenues from the sale of electric power to Delivery.

Delivery
plans, constructs, operates, and maintains our operating companies' transmission and distribution systems and provides gas and electric energy to consumers. Delivery earns
revenues from customers other than consumers primarily by transmitting electric power through our transmission system. Delivery currently receives all of its electricity from Commodities at a transfer
price based upon current regulatory ratemaking methodology.

Cinergy
Investments manages the development, marketing, and sales of our domestic non-regulated retail energy and energy-related products and services. This is
accomplished through various subsidiaries and joint ventures. Cinergy Investments earns all of its revenues from the sale of such products and services to ultimate consumers. These products and
services include the following:



International
directs and manages our international business holdings, which include wholly- and jointly-owned companies in six countries. In addition, International also directs our
renewable energy investing activities (for example, wind farms) both inside and outside the U.S. International earns (1) revenues, and (2) equity earnings from unconsolidated companies
primarily from energy-related businesses.

119



Financial
information by (1) business units, (2) products and services, and (3) geographic areas and long-lived assets for the years ending
December 31, 1999, 1998, and 1997, is as follows:

Business Units

|                                                        |  | 1999
|------------------------------------------------------- |  | ----
|
|
|
|Operating revenues                                     |  |     
|External customers                                      |  | $   
|Intersegment revenues                                   |  |     
|Depreciation and amortization(3)                        |  |     
|Equity in earnings of unconsolidated subsidiaries       |  |     
|Gain on sale of investment in unconsolidated subsidiary |  |     
|Interest expense(4)                                     |  |     
|Income taxes                                            |  |     
|Segment profit (loss)(5)                                |  |     
|Total segment assets                                    |  |     
|Investments in unconsolidated subsidiaries              |  |     
|Total expenditures for long-lived assets                |  |     

---

120





|                                                  |  | 1998
|------------------------------------------------- |  | ----
|
|
|
|Operating revenues                               |  |     
|External customers                                |  | $   
|Intersegment revenues                             |  |     
|Depreciation and amortization(3)                  |  |     
|Equity in earnings of unconsolidated subsidiaries |  |     
|Interest expense(4)                               |  |     
|Income taxes                                      |  |     
|Segment profit (loss)(5)                          |  |     
|Total segment assets                              |  |     
|Investments in unconsolidated subsidiaries        |  |     
|Total expenditures for long-lived assets          |  |     

---

121





|                                                  |  | 1997 |      
|------------------------------------------------- |  | ---- | -----
|
|
|
|Operating revenues                               |  |      |      
|External customers                                |  | $    | 1,287
|Intersegment revenues                             |  |      | 1,688
|Depreciation and amortization(3)                  |  |      | 184  
|Equity in earnings of unconsolidated subsidiaries |  |      |     
|Interest expense(4)                               |  |      | 108  
|Income taxes                                      |  |      | 123  
|Extraordinary item(5)                             |  |      |     
|Segment profit (loss)(6)                          |  |      | 207  
|Total segment assets                              |  |      | 4,380
|Investments in unconsolidated subsidiaries        |  |      |     
|Total expenditures for long-lived assets          |  |      | 78   

---

122





|Products and Services
|---------------------
|
|
|
|
|
|
|1999                 
|1998                 
|1997                 

Our
products and services focus on providing utility services (the supply of electric energy and gas supply) and energy marketing and trading services.

|Geographic Areas and Long-Lived Assets
|--------------------------------------
|
|
|
|
|1999                                  
|1998                                  
|1997                                  

|     |  |   |       | Long-Lived Assets |   |    
|---- |  | - | ----- | ----------------- | - | ---
|
|
|1999 |  | $ | 7,841 |                   | $ | 2  
|1998 |  |   | 7,375 |                   |   | 501
|1997 |  |   | 7,264 |                   |   | 505

---

|(1) |  | As discussed in Note 10, on July 15, 1999, we sold our 50% ownership interest in Avon Energy to GPU. Prior to the sale, Midlands had provided the majority of International's earnings.                                                                                                                                                                                                                                                                                                     
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) |  | We own four district heating plants and have a minoirty interest in a fifth district heating plant in the Czech Republic that, in total, provide 1,480 MW of thermal steam capacity, which may be used to produce 186 MW of electricity. These plants'
assets and results of operations are consolidated into our financial statements. International accounts for its remaining long-lived assets as equity method investments. As a result, revenues from International are insignificant.

123



16. Earnings Per Share

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

|                                                                                                                                             |  | Income |     | Shares |     | EPS
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | ------ | --- | ------ | --- | ---
|
|1999                                                                                                                                         |  |        |     |        |     |    
|Earnings per common share:                                                                                                                   |  |        |     |        |     |    
|Net income                                                                                                                                   |  | $      | 404 |        | 159 |    
|Effect of dilutive securities:                                                                                                               |  |        |     |        |     |    
|Common stock options                                                                                                                         |  |        |     |        |    |    
|                                                                                                                                             |  |        |     |        |     |    
|EPS-assuming dilution:                                                                                                                       |  |        |     |        |     |    
|Net income plus assumed conversions                                                                                                          |  | $      | 404 |        | 159 |    
|1998                                                                                                                                         |  |        |     |        |     |    
|Earnings per common share:                                                                                                                   |  |        |     |        |     |    
|Net income                                                                                                                                   |  | $      | 261 |        | 158 |    
|Effect of dilutive securities:                                                                                                               |  |        |     |        |     |    
|Common stock options                                                                                                                         |  |        |     |        | 1   |    
|                                                                                                                                             |  |        |     |        |     |    
|EPS-assuming dilution:                                                                                                                       |  |        |     |        |     |    
|Net income plus assumed conversions                                                                                                          |  | $      | 261 |        | 159 |    
|1997                                                                                                                                         |  |        |     |        |     |    
|Earnings per common share:                                                                                                                   |  |        |     |        |     |    
|Net income before extraordinary item(1)                                                                                                      |  | $      | 363 |        | 158 |    
|                                                                                                                                             |  |        |     |        |     |    
|Effect of dilutive securities:                                                                                                               |  |        |     |        |     |    
|Common stock options                                                                                                                         |  |        |     |        | 1   |    
|                                                                                                                                             |  |        |     |        |     |    
|EPS-assuming dilution:                                                                                                                       |  |        |     |        |     |    
|Net income before extraordinary item plus assumed conversions                                                                                |  | $      | 363 |        | 159 |    
|(1) The after-tax EPS impact of the extraordinary itemequity share of windfall profits tax in 1997 was $.69 for both basic and diluted EPS.

---

Options
to purchase shares of common stock are excluded from the calculation of EPS-assuming dilution when the exercise prices of these options are greater than the average market price of
the common shares during the period. For 1999 and 1998, approximately two million and one million shares, respectively, were excluded from the EPS-assuming dilution calculation. For 1997,
shares excluded from this calculation were immaterial.

124



## 

17. Extraordinary ItemEquity Share of Windfall Profits Tax

During the third quarter of 1997, a windfall profits tax was enacted into law in Great Britain. This tax was levied against a limited number of British companies, including Midlands, which had
previously been owned and operated by the government. The government believed these companies were undervalued at the time of transition to private entities. As a result, the tax was levied and seen
as a recovery of funds by the government.

Our
share of the tax was approximately 67 million pounds sterling. This translates to $109 million or $.69 per share, basic and diluted. We recorded the tax as an
extraordinary item in the 1997 Consolidated Statement of Income. No related tax benefit was recorded for the charge. The windfall profit tax is not deductible for corporate income tax purposes in
Great Britain. Also, we expect that any potential benefits derived for U.S. federal income taxes will not be significant.

18. Wabash Valley Power Association Settlement

In February 1989,PSIand WVPA entered into a settlement agreement to resolve all claims related to Marble Hill, a nuclear project canceled in
1984. Implementation of the settlement was contingent on a number of events. During 1998,PSIreached agreement on all matters with the relevant parties
and, as a result, recorded a liability to the RUS.PSIwill repay the obligation to the RUS with interest over a 35-year term. The net
proceeds from a 35-year power sales agreement with WVPA will be used to fund the principal and interest on the obligation to the RUS. Assumption of the liability (recorded as Long-term debtin the
Consolidated Balance Sheet) resulted in a charge against earnings of $80 million ($50 million after tax
or $.32 per share basic and diluted) in the second quarter of 1998.

19. Ohio Deregulation

On July 6, 1999, Ohio Governor Robert Taft signed Amended Substitute Senate Bill No. 3 (Electric Restructuring Bill), beginning the transition to electric deregulation and customer
choice for the state of Ohio. The Electric Restructuring Bill creates a competitive electric retail service market beginning January 1, 2001. The legislation provides for a market development
period that begins January 1, 2001, and ends no later than December 31, 2005. Ohio electric utilities have an opportunity to recover Public Utilities Commission of Ohio (PUCO)-approved
transition costs during the market development period.CG&Eis seeking to recover all generation-related regulatory assets and above-market generation
costs as allowable transition costs. The legislation also freezes retail electric rates during the market development period, except for a five percent reduction in the generation component of
residential rates and other potential adjustments. Furthermore, the legislation contemplates that twenty percent of the current electric retail customers will switch suppliers no later than
December 31, 2003.

The
Electric Restructuring Bill has required each utility supplying retail electric service in Ohio to file a comprehensive proposed transition plan with the PUCO addressing
specific requirements of the legislation.CG&Efiled its plan on December 28, 1999. The PUCO is required to issue a transition order no later
than October 31, 2000. Consumers will be allowed to begin selecting alternative electricity suppliers beginning January 1, 2001.

While CG&Ebelieves there is sound basis for the various requests made in its Proposed Transition Plan, it is currently unable to
predict the extent to which the Proposed Transition Plan will be approved and its resulting effect on results of operations, cash flows, and financial position. CG&Eis seeking to recover all
generation-related regulatory assets and above-market generation costs as allowable
transition costs.CG&Ebelieves its current accounting for regulatory assets has been consistent with the regulatory orders issued by the PUCO and that
such costs should be recovered in future rates. However, to the extent requested recovery of generation-related regulatory assets is disallowed or generating assets are financially impaired, CG&Ewill be required to recognize a loss under generally accepted accounting principles. With regard to these assets,CG&Ewill continue to apply Statement 71 until the effect of deregulation is estimable.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

125



PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS

BOARD OF DIRECTORS

Information regardingCinergy Corp.'sdirectors is incorporated by reference from its definitive Proxy
Statement for the 2000 Annual Meeting of Shareholders.

The
directors of The Cincinnati Gas & Electric Company (CG&E) at February 29, 2000, are as follows:



Information
regarding PSI Energy, Inc.'s (PSI) directors is incorporated by reference from its 2000 Information Statement.

EXECUTIVE OFFICERS

The information included in Part I of this report on pages 17 through 20 under the caption "Executive Officers" is referenced in reliance upon General
Instruction G to Form 10-K and Instruction 3 to Item 401 (b) of Regulation S-K.

ITEM 11. EXECUTIVE COMPENSATION

Information regardingCinergy Corp.'sexecutive compensation is incorporated by reference from its definitive
Proxy Statement for the 2000 Annual Meeting of Shareholders.

Information
regardingCG&E'sexecutive compensation is incorporated by reference fromCinergy
Corp.'sdefinitive Proxy Statement for the 2000 Annual Meeting of Shareholders, except for the following information regarding the compensation of directors.

Each
non-employee director ofCG&Eis eligible to receive an annual retainer fee of $8,000 plus a fee of $1,000 for each CG&Eboard of directors' meeting
attended. However, any non-employee director ofCG&Ewho
also serves as a non-employee director ofCinergy Corp.or any of its affiliates shall not receive the annual retainer fee, or any
compensation for attendance at anyCG&Eboard meeting that is held concurrently or consecutively with a meeting of our board of directors. All CG&Edirectors currently are also employees ofCinergy Corp.and/or its subsidiaries, and receive no
compensation for their services as directors.

126



Under
the Directors' Deferred Compensation Plan, each non-employee director ofCinergy Corp.and its subsidiaries may
choose to defer his or her fees into a bookkeeping account denominated in either:



If
deferred in units, dividends are credited to the director's account, acquiring additional units at the same time and rate as dividends are paid to holders of common stock. Amounts
deferred in cash earn interest at the annual rate (adjusted quarterly) equal to the interest rate for a one-year certificate of deposit, as quoted inThe Wall
Street Journalfor the first business day of the calendar quarter. Deferred units are distributed as shares of common stock, and accrued cash accounts are paid in cash,
generally after the director retires from the appropriate board.

Effective
January 1, 1999, the Retirement Plan for Directors was amended and restated to eliminate the award of future benefits. Each of the non-employee directors
with an accrued benefit through December 31, 1998 was permitted to convert it from cash to units representing shares of common stock. If converted to stock units, dividends are credited to the
director's account, acquiring additional units at the same time and rate as dividends are paid to holders of our common stock. A director's account is distributed as shares of common stock after he or
she retires from the appropriate board. Each non-employee director ofCinergy Corp.and/or its subsidiaries who retired before
January 1, 1999, or who chose not to convert the cash benefit, will receive an annual cash payment equal to the fees in effect at the time of retirement from the appropriate board.

Information
regardingPSI'sexecutive compensation is incorporated by reference from its 2000 Information Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information regardingCinergy Corp.'ssecurity ownership of certain beneficial owners and management is
incorporated by reference from its definitive Proxy Statement for the 2000 Annual Meeting of Shareholders.

Cinergy Corp.owns all outstanding shares of common stock ofCG&E, CG&E'sonly voting security. Pursuant to
Section 13(d) of the Securities Exchange Act of 1934, a beneficial owner of a security is any person who
directly or indirectly has or shares voting or investment power over such security. No person or group is known by the management ofCG&Eto be the
beneficial owner of more than 5% ofCG&E'sclass of cumulative preferred stock as of December 31, 1999.

127



CG&E'sdirectors and executive officers did not beneficially own shares of any series of the class of CG&E'scumulative preferred stock as of February 28,
1999. The beneficial ownership ofCinergy
Corp.common stock held by each director and named executive officer as of February 29, 2000, is set forth in the following table:

|Name of Beneficial Owner(1)                     |  | Amount and Nature
of Beneficial Ownership(2)      |  
|----------------------------------------------- |  | ------------------------------------------------- | -
|Michael J. Cyrus                                |  | 108,059 shares                                    |  
|William J. Grealis                              |  | 233,373 shares                                    |  
|Jackson H. Randolph                             |  | 267,726 shares                                    |  
|James E. Rogers                                 |  | 736,553 shares                                    |  
|Larry E. Thomas                                 |  | 253,982 shares                                    |  
|James L. Turner                                 |  | 10,880 shares                                     |  
|All directors and executive officers as a group |  | 2,017,469 shares
(representing
1.27% of the class | )

---

Information
regardingPSI'ssecurity ownership of certain beneficial owners and management is incorporated by reference to its 2000
Information Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information regardingCinergy Corp.'sandCG&E'scertain
relationships and related transactions is incorporated by reference fromCinergy Corp.'sdefinitive Proxy Statement for the 2000 Annual Meeting of
Shareholders.

Information
regardingPSI'scertain relationships and related transactions is incorporated by reference from its 2000 Information
Statement.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

Financial Statements and Schedules

Refer to the page captioned "Index to Financial Statements and Financial Statement Schedules", on page 70 of this report, for an index of our financial
statements and financial statement schedules included in this report.

Form 8-K

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

Exhibits

Copies of the documents listed below which are identified with an asterisk (*) have heretofore been filed with the Securities and Exchange Commission and are
incorporated herein by reference and made a part hereof. Exhibits identified with a pound sign (#) are being filed herewith by the registrant

128



identified
in the exhibit discussion below and are incorporated herein by reference with respect to any other designated registrant. Exhibits not so identified are filed herewith:

|Exhibit
Designation                                          |  | Registrant  |  | Nature of Exhibit                                                                                                                                                                 |  | Filed as Exhibit to:                                                            
|------------------------------------------------------------ |  | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------
|Articles of
Incorporation/
By-laws                           |  |             |  |                                                                                                                                                                                   |  |                                                                                 
|3-a                                                          |  | Cinergy(1)  |  | *Certificate of Incorporation ofCinergy, a Delaware corporation.                                                                                                                  |  | Cinergy1993 Form 10-K.                                                          
|3-b                                                          |  | Cinergy     |  | *By-laws ofCinergyas amended October 15, 1998.                                                                                                                                    |  | CinergyOctober 15, 1998, Form 8-K.                                              
|3-c                                                          |  | Cinergy     |  | *By-Laws ofCinergy, as amended on April 21, 1999.                                                                                                                                 |  | CinergyMarch 31, 1999, Form 10-Q.                                               
|3-d                                                          |  | CG&E(2)     |  | *Amended Articles of Incorporation ofCG&Eeffective October 23, 1996.                                                                                                              |  | CG&ESeptember 30, 1996, Form 10-Q.                                              
|3-e                                                          |  | CG&E        |  | *Regulations ofCG&Eas amended, April 25, 1996.                                                                                                                                    |  | CG&EMarch 31, 1996, Form 10-Q.                                                  
|3-f                                                          |  | PSI(3)      |  | *Amended Articles of Consolidation ofPSI, as amended to April 20, 1995.                                                                                                           |  | PSIJune 30, 1995, Form 10-Q.                                                    
|3-g                                                          |  | PSI         |  | *Amendment to Article D of the Amended Articles of Consolidation ofPSI, effective July 10, 1997.                                                                                  |  | Cinergy1997 Form 10-K.                                                          
|3-h                                                          |  | PSI         |  | *By-laws ofPSI, as amended to December 17, 1996.                                                                                                                                  |  | PSIMarch 31, 1997, Form 10-Q.                                                   
|3-i                                                          |  | ULH&P(4)    |  | *Restated Articles of Incorporation made effective May 7, 1976.                                                                                                                   |  | ULH&PForm 8-K, May 1976.                                                        
|3-j                                                          |  | ULH&P       |  | *By-laws ofULH&Pas amended, adopted May 8, 1996.                                                                                                                                  |  | ULH&PMarch 31, 1996, Form 10-Q.                                                 
|3-k                                                          |  | ULH&P       |  | *Amendment to Restated Articles of Incorporation ofULH&P(Article Third) and Amendment to the By-laws ofULH&P(Article 1), both effective July 24, 1997.                            |  | Cinergy1997 Form 10-K.                                                          
|Instruments defining the rights of holders, incl. indentures |  |             |  |                                                                                                                                                                                   |  |                                                                                 
|4-a                                                          |  | Cinergy
PSI |  | *Original Indenture (First Mortgage Bonds) dated September 1, 1939, betweenPSIand The First National Bank of Chicago, as Trustee, and LaSalle National Bank as
Successor Trustee. |  | Exhibit A-Part 3 in File No. 70-258
Supplemental Indenture dated March 30, 1984.
|4-b                                                          |  | Cinergy
PSI |  | *Twenty-fifth Supplemental Indenture betweenPSIand The First National Bank of Chicago dated September 1, 1978.                                                                    |  | File No. 2-62543.                                                               
|4-c                                                          |  | Cinergy
PSI |  | *Thirty-fifth Supplemental Indenture betweenPSIand The First National Bank of Chicago dated March 30, 1984.                                                                       |  | PSI1984 Form 10-K.                                                              
|4-d                                                          |  | Cinergy
PSI |  | *Forty-second Supplemental Indenture betweenPSIand LaSalle National Bank dated August 1, 1988.                                                                                    |  | PSI1988 Form 10-K.                                                              
|4-e                                                          |  | Cinergy
PSI |  | *Forty-fourth Supplemental Indenture betweenPSIand LaSalle National Bank dated March 15, 1990.                                                                                    |  | PSI1990 Form 10-K.                                                              
|4-f                                                          |  | Cinergy
PSI |  | *Forty-fifth Supplemental Indenture betweenPSIand LaSalle National Bank dated March 15, 1990.                                                                                     |  | PSI1990 Form 10-K.                                                              
|4-g                                                          |  | Cinergy     |  | *Forty-sixth Supplemental Indenture betweenPSIand LaSalle National Bank dated June 1, 1990.                                                                                       |  | PSI1991 Form 10-K.                                                              
|4-h                                                          |  | Cinergy
PSI |  | *Forty-seventh Supplemental Indenture betweenPSIand LaSalle National Bank dated July 15, 1991.                                                                                    |  | PSI1991 Form 10-K.                                                              

129



|4-i  |  | Cinergy
PSI  |  | *Forty-eighth Supplemental Indenture betweenPSIand LaSalle National Bank dated July 15, 1992.                           |  | PSI1992 Form 10-K.                                   
|---- |  | ------------ |  | ----------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------
|4-j  |  | Cinergy
PSI  |  | *Forty-ninth Supplemental Indenture betweenPSIand LaSalle National Bank dated February 15, 1993.                        |  | PSI1992 Form 10-K.                                   
|4-k  |  | Cinergy
PSI  |  | *Fiftieth Supplemental Indenture betweenPSIand LaSalle National Bank dated February 15, 1993.                           |  | PSI1992 Form 10-K.                                   
|4-l  |  | Cinergy
PSI  |  | *Fifty-first Supplemental Indenture betweenPSIand LaSalle National Bank dated February 1, 1994.                         |  | PSI1993 Form 10-K.                                   
|4-m  |  | Cinergy
PSI  |  | *Fifty-second Supplemental Indenture betweenPSIand LaSalle National Bank, as Trustee, dated as of April 30, 1999.       |  | PSIMarch 31, 1999, Form 10-Q.                        
|4-n  |  | Cinergy
PSI  |  | *Indenture (Secured Medium-term Notes, Series A), dated July 15, 1991, betweenPSIand LaSalle National Bank, as Trustee. |  | PSIForm 10-K/A, Amendment No. 2, dated July 15, 1993.
|4-o  |  | Cinergy
PSI  |  | *Indenture (Secured Medium-term Notes, Series B), dated July 15, 1992, betweenPSIand LaSalle National Bank, as Trustee. |  | PSIForm 10-K/A, Amendment No. 2, dated July 15, 1993.
|4-p  |  | Cinergy
PSI  |  | *Loan Agreement betweenPSIand the City of Princeton, Indiana dated as of November 7, 1996.                              |  | PSISeptember 30, 1996, Form 10-Q.                    
|4-q  |  | Cinergy
PSI  |  | *Loan Agreement betweenPSIand the City of Princeton, Indiana dated as of February 1, 1997.                              |  | Cinergy1996 Form 10-K.                               
|4-r  |  | Cinergy
PSI  |  | *Indenture dated November 15, 1996, betweenPSIand The Fifth Third Bank, as Trustee.                                     |  | Cinergy1996 Form 10-K.                               
|4-s  |  | Cinergy
PSI  |  | *First Supplemental Indenture dated November 15, 1996, betweenPSIand The Fifth Third Bank, as Trustee.                  |  | Cinergy1996 Form 10-K.                               
|4-t  |  | Cinergy
PSI  |  | *Third Supplemental Indenture dated as of March 15, 1998, betweenPSIand The Fifth Third Bank, as Trustee.               |  | Cinergy1997 Form 10-K.                               
|4-u  |  | Cinergy
PSI  |  | *Fourth Supplemental Indenture dated as of August 5, 1998, betweenPSIand The Fifth Third Bank, as Trustee.              |  | PSIJune 30, 1998, Form 10-Q.                         
|4-v  |  | Cinergy
PSI  |  | *Fifth Supplemental Indenture dated as of December 15, 1998, betweenPSIand The Fifth Third Bank, as Trustee.            |  | PSI1998 Form 10-K.                                   
|4-w  |  | Cinergy
PSI  |  | *Sixth Supplemental Indenture betweenPSIand Fifth Third Bank, as Trustee, dated as of April 30, 1999.                   |  | PSIMarch 31, 1999, Form 10-Q.                        
|4-x  |  | Cinergy
PSI  |  | *Seventh Supplemental Indenture dated as of October 20, 1999, betweenPSIand Fifth Third Bank as Trustee.                |  | PSISeptember 30, 1999, Form 10-Q.                    
|4-y  |  | Cinergy
PSI  |  | *Unsecured Promissory Note dated October 14, 1998, betweenPSIand the Rural Utilities Service.                           |  | PSI1998 Form 10-K.                                   
|4-z  |  | Cinergy
PSI  |  | *Loan Agreement betweenPSIand the Indiana Department Finance Authority dated as of July 15, 1998.                       |  | PSIJune 30, 1998, Form 10-Q.                         
|4-aa |  | Cinergy
CG&E |  | *Original Indenture (First Mortgage Bonds) betweenCG&Eand The Bank of New York (as Trustee) dated as of August 1, 1936. |  | CG&ERegistration Statement No. 2-2374.               
|4-bb |  | Cinergy
CG&E |  | *Fourteenth Supplemental Indenture betweenCG&Eand The Bank of New York dated as of November 2, 1972.                    |  | CG&ERegistration Statement No. 2-60961.              
|4-cc |  | Cinergy
CG&E |  | *Thirty-third Supplemental Indenture betweenCG&Eand The Bank of New York dated as of September 1, 1992.                 |  | CG&ERegistration Statement No. 33-53578.             
|4-dd |  | Cinergy
CG&E |  | *Thirty-fourth Supplemental Indenture betweenCG&Eand The Bank of New York dated as of October 1, 1993.                  |  | CG&ESeptember 30, 1993, Form 10-Q.                   
|4-ee |  | Cinergy
CG&E |  | *Thirty-fifth Supplemental Indenture betweenCG&Eand The Bank of New York dated as of January 1, 1994.                   |  | CG&ERegistration Statement No. 33-52335.             

130



|4-ff  |  | Cinergy
CG&E       |  | *Thirty-sixth Supplemental Indenture betweenCG&Eand The Bank of New York dated as of February 15, 1994.            |  | CG&ERegistration Statement No. 33-52335.
|----- |  | ------------------ |  | ------------------------------------------------------------------------------------------------------------------ |  | ----------------------------------------
|4-gg  |  | Cinergy
CG&E       |  | *Thirty-seventh Supplemental Indenture betweenCG&Eand The Bank of New York dated as of October 14, 1996.           |  | Cinergy1996 Form 10-K.                  
|4-hh  |  | Cinergy
CG&E       |  | *Loan Agreement betweenCG&Eand the County of Boone, Kentucky dated as of February 1, 1985.                         |  | CG&E1984 Form 10-K.                     
|4-ii  |  | Cinergy
CG&E       |  | *Repayment Agreement betweenCG&Eand The Dayton Power and Light Company dated as of December 23, 1992.              |  | CG&E1992 Form 10-K.                     
|4-jj  |  | Cinergy
CG&E       |  | *Loan Agreement betweenCG&Eand the County of Boone, Kentucky dated as of January 1, 1994.                          |  | CG&E1993 Form 10-K.                     
|4-kk  |  | Cinergy
CG&E       |  | *Loan Agreement betweenCG&Eand the State of Ohio Air Quality Development Authority dated as of December 1, 1985.   |  | CG&E1985 Form 10-K.                     
|4-ll  |  | Cinergy
CG&E       |  | *Loan Agreement betweenCG&Eand the State of Ohio Air Quality Development Authority dated as of December 1, 1985.   |  | CG&E1985 Form 10-K.                     
|4-mm  |  | Cinergy
CG&E       |  | *Loan Agreement betweenCG&Eand the State of Ohio Air Quality Development Authority dated as of September 13, 1995. |  | CG&ESeptember 30, 1995, Form 10-Q.      
|4-nn  |  | Cinergy CG&E       |  | *Loan Agreement betweenCG&Eand the State of Ohio Air Quality Development Authority dated as of September 13, 1995. |  | CG&ESeptember 30, 1995, Form 10-Q.      
|4-oo  |  | Cinergy CG&E       |  | *Loan Agreement betweenCG&Eand the State of Ohio Water Development Authority dated as of January 1, 1994.          |  | CG&E1993 Form 10-K.                     
|4-pp  |  | Cinergy CG&E       |  | *Loan Agreement betweenCG&Eand the State of Ohio Air Quality Development Authority dated as of January 1, 1994.    |  | CG&E1993 Form 10-K.                     
|4-qq  |  | Cinergy CG&E       |  | *Original Indenture (Unsecured Debt Securities) betweenCG&Eand The Fifth Third Bank dated as of May 15, 1995.      |  | CG&EForm 8-A dated July 24, 1995.       
|4-rr  |  | Cinergy CG&E       |  | *First Supplemental Indenture betweenCG&Eand The Fifth Third Bank dated as of June 1, 1995.                        |  | CG&EJune 30, 1995, Form 10-Q.           
|4-ss  |  | Cinergy CG&E       |  | *Second Supplemental Indenture betweenCG&Eand The Fifth Third Bank dated as of June 30, 1995.                      |  | CG&EForm 8-A dated July 24, 1995.       
|4-tt  |  | Cinergy CG&E       |  | *Third Supplemental Indenture betweenCG&Eand The Fifth Third Bank dated as of October 9, 1997.                     |  | CG&ESeptember 30, 1997, Form 10-Q.      
|4-uu  |  | Cinergy CG&E       |  | *Fourth Supplemental Indenture betweenCG&Eand The Fifth Third Bank dated as of April 1, 1998.                      |  | CG&EMarch 31, 1998, Form 10-Q.          
|4-vv  |  | Cinergy CG&E       |  | *Fifth Supplemental Indenture betweenCG&Eand The Fifth Third Bank dated as of June 9, 1998.                        |  | CG&EJune 30, 1998, Form 10-Q.           
|4-ww  |  | Cinergy
CG&E
ULH&P |  | *Original Indenture (First Mortgage Bonds) betweenULH&Pand The Bank of New York dated as of February 1, 1949.      |  | ULH&PRegistration Statement No. 2-7793. 
|4-xx  |  | Cinergy
CG&E
ULH&P |  | *Fifth Supplemental Indenture betweenULH&Pand The Bank of New York dated as of January 1, 1967.                    |  | CG&ERegistration Statement No. 2-60961. 
|4-yy  |  | Cinergy CG&E
ULH&P |  | *Thirteenth Supplemental Indenture betweenULH&Pand The Bank of New York dated as of August 1, 1992.                |  | ULH&P1992 Form 10-K.                    
|4-zz  |  | Cinergy CG&E
ULH&P |  | *Original Indenture (Unsecured Debt Securities) betweenULH&Pand the Fifth Third Bank dated as of July 1, 1995.     |  | ULH&PJune 30, 1995, Form 10-Q.          
|4-aaa |  | Cinergy CG&E
ULH&P |  | *First Supplemental Indenture betweenULH&Pand The Fifth Third Bank dated as of July 15, 1995.                      |  | ULH&PJune 30, 1995, Form 10-Q.          

131



|4-bbb              |  | Cinergy CG&E
ULH&P |  | *Second Supplemental Indenture betweenULH&Pand The Fifth Third Bank dated as of April 30, 1998.                                                                         |  | ULH&PMarch 31, 1998, Form 10-Q.                      
|------------------ |  | ------------------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------
|4-ccc              |  | Cinergy CG&E
ULH&P |  | *Third Supplemental Indenture betweenULH&Pand The Fifth Third Bank dated as of December 8, 1998.                                                                        |  | ULH&P1998 Form 10-K.                                 
|4-ddd              |  | Cinergy CG&E
ULH&P |  | *Fourth Supplemental Indenture dated as of September 17, 1999, betweenULH&Pand Fifth Third Bank as Trustee.                                                             |  | ULH&PSeptember 30, 1999 Form 10-Q.                   
|4-eee              |  | Cinergy            |  | *Base Indenture dated as of October 15, 1998, betweenCinergyGlobal Resources, Inc. ("Global Resources") and The Fifth Third Bank as Trustee.                            |  | CinergySeptember 30, 1998, Form 10-Q.                
|4-fff              |  | Cinergy            |  | *First Supplemental Indenture dated as of October 15, 1998, between Global Resources and The Fifth Third Bank as Trustee.                                               |  | CinergySeptember 30, 1998, Form 10-Q.                
|4-ggg              |  | Cinergy            |  | *Indenture dated as of December 16, 1998, betweenCinergyand The Fifth Third Bank.                                                                                       |  | Cinergy1998 Form 10-K.                               
|4-hhh              |  | Cinergy            |  | *Indenture betweenCinergyand Fifth Third Bank, as Trustee, dated as of April 15, 1999.                                                                                  |  | CinergyMarch 31, 1999, Form 10-Q.                    
|Material contracts |  |                    |  |                                                                                                                                                                         |  |                                                      
|10-a               |  | Cinergy
CG&E
PSI   |  | *Amended and Restated Employment Agreement dated October 24, 1994, amongCG&E, Cinergy Corp.(an Ohio corporation),Cinergy,PSI Resources, Inc., and Jackson H. Randolph. |  | Cinergy1994 Form 10-K.                               
|10-b               |  | Cinergy
CG&E
PSI   |  | Amended and Restated Employment Agreement dated December 30, 1999, amongCinergy, Services,CG&E, andPSIand James E. Rogers.                                             |  | Cinergy1999 Form 10-K.                               
|10-c               |  | Cinergy
CG&E
PSI   |  | Amended and Restated Employment Agreement dated December 30, 1999, amongCinergy,Services,CG&E, andPSIand William J. Grealis.                                           |  | Cinergy1999 Form 10-K.                               
|10-d               |  | Cinergy
CG&E
PSI   |  | Amended and Restated Employment Agreement dated December 30, 1999, amongCinergy, Services,CG&E, PSIand Larry
 E. Thomas.                                               |  | Cinergy1999 Form 10-K.                               
|10-e               |  | Cinergy
CG&E
PSI   |  | Amended and Restated Employment Agreement dated December 30, 1999, amongCinergy, Services,CG&E, PSIand Cheryl
M. Foley.                                                |  | Cinergy1999 Form 10-K.                               
|10-f               |  | Cinergy
CG&E
PSI   |  | Amended and Restated Employment Agreement dated December 30, 1999, amongCinergy, Services,CG&E, PSIand
Madeleine W. Ludlow.                                            |  | Cinergy1999 Form 10-K.                               
|10-g               |  | Cinergy
CG&E
PSI   |  | Amended and Restated Employment Agreement dated December 30, 1999, amongCinergy,Services,CG&E, PSI, and
Donald B. Ingle, Jr.                                           |  | Cinergy1999 Form 10-K.                               
|10-h               |  | Cinergy
CG&E
PSI   |  | Amended and Restated Employment Agreement dated December 30, 1999, amongCinergy, Services,CG&E, PSIand
Michael J. Cyrus.                                               |  | Cinergy1999 Form 10-K.                               
|10-i               |  | Cinergy
CG&E
PSI   |  | Employment Agreement dated December 30, 1999 amongCinergy, Services,CG&E, PSIand Jerome A. Vennemann.                                                                  |  | Cinergy1999 Form 10-K.                               
|10-j               |  | Cinergy
CG&E
PSI   |  | Amended and Restated Employment Agreement dated December 30, 1999, amongCinergy, Services,CG&E, PSIand
Charles J. Winger.                                              |  | Cinergy1999 Form 10-K.                               
|10-k               |  | Cinergy
PSI        |  | Deferred Compensation Agreement, effective as of January 1, 1992, betweenPSIand James E. Rogers, Jr.                                                                    |  | PSIFor 10-K/A, Amendment No. 1, dated April 29, 1993.

132



|10-l  |  | Cinergy
PSI  |  | *Split Dollar Life Insurance Agreement, effective as of January 1, 1992, betweenPSIand James E. Rogers, Jr.                  |  | PSIForm 10-K/A, Amendment No. 1, dated April 29, 1993.
|----- |  | ------------ |  | ----------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------
|10-m  |  | Cinergy
PSI  |  | *First Amendment to Split Dollar Life Insurance Agreement betweenPSIand James E. Rogers, Jr. dated December 11, 1992.        |  | PSIForm 10-K/A, Amendment No. 1, dated April 29, 1993.
|10-n  |  | Cinergy
CG&E |  | *Deferred Compensation Agreement betweenCG&Eand Jackson H. Randolph dated January 1, 1992.                                   |  | CG&E1992 Form 10-K.                                   
|10-o  |  | Cinergy
CG&E |  | *Split Dollar Insurance Agreement, effective as of May 1, 1993, betweenCG&Eand Jackson H. Randolph.                          |  | Cinergy1994 Form 10-K.                                
|10-p  |  | Cinergy CG&E |  | *Amended and Restated Supplemental Retirement Income Agreement betweenCG&Eand Jackson H. Randolph.                           |  | Cinergy1995 Form 10-K.                                
|10-q  |  | Cinergy CG&E |  | *Amended and Restated Supplemental Executive Retirement Income Agreement betweenCG&Eand certain executive officers.          |  | Cinergy1997 Form 10-K.                                
|10-r  |  | Cinergy      |  | CinergyUnion Employees' 401(k) Plan as amended and restated effective January 1, 1998, adopted December 18, 1997.            |  | Cinergy1999 Form 10-K.                                
|10-s  |  | Cinergy      |  | Amendment toCinergyUnion Employees' 401(k) Plan, adopted December 10, 1999, effective December 1, 1999.                      |  | Cinergy1999 Form 10-K.                                
|10-t  |  | Cinergy      |  | CinergyNon-Union Employees' 401(k) Plan as amended and restated effective January 1, 1998, adopted December 18, 1997.        |  | Cinergy1999 Form 10-K.                                
|10-u  |  | Cinergy      |  | Amendment toCinergyNon-Union Employees' 401(k) Plan, adopted December 10, 1999, effective December 1, 1999.                  |  | Cinergy1999 Form 10-K.                                
|10-v  |  | Cinergy      |  | CinergyUnion Employees' Savings Incentive Plan as amended and restated effective January 1, 1998, adopted December 18, 1997. |  | Cinergy1999 Form 10-K.                                
|10-w  |  | Cinergy      |  | Amendment toCinergyUnion Employees' Savings Incentive Plan, effective December 1, 1999, adopted December 10, 1999.           |  | Cinergy1999 Form 10-K.                                
|10-x  |  | Cinergy      |  | CinergySupplemental Executive Retirement Plan amended and restated effective January 1, 1999, adopted October 15, 1998.      |  | Cinergy1999 Form 10-K.                                
|10-y  |  |              |  | Left blank intentionally.                                                                                                     |  |                                                       
|10-z  |  | Cinergy      |  | *1997 Amendments to Various Compensation and Benefit Plans ofCinergy, adopted January 30, 1997.                              |  | Cinergy1997 Form 10-K.                                
|10-aa |  | Cinergy      |  | *CinergyStock Option Plan, adopted October 18, 1994, effective October 24, 1994.                                             |  | CinergyForm S-8, filed October 19, 1994.              
|10-bb |  | Cinergy      |  | *Amendment toCinergyStock Option Plan, amended October 22, 1996, effective November 1, 1996.                                 |  | CinergySeptember 30, 1996, Form 10-Q.                 
|10-cc |  | Cinergy      |  | *CinergyAnnual Incentive Plan, adopted October 18, 1994, effective October 24, 1994.                                         |  | Cinergy1994 Form 10-K.                                
|10-dd |  | Cinergy      |  | *Amendment toCinergyAnnual Incentive Plan, amended January 25, 1996, effective January 1, 1996.                              |  | Cinergy1996 10-K.                                     
|10-ee |  | Cinergy      |  | *CinergyEmployee Stock Purchase and Savings Plan, adopted October 18, 1994, effective October 24, 1994.                       |  | CinergyForm S-8, filed October 19, 1994.              
|10-ff |  | Cinergy      |  | *Amendment toCinergyEmployee Stock Purchase and Savings Plan, adopted April 26, 1996, effective January 1, 1996.              |  | CinergyJune 30, 1996, Form 10-Q.                      

133



|10-gg                          |  | Cinergy          |  | *Amendment toCinergyEmployee Stock Purchase and Savings Plan, adopted October 22, 1996, effective November 1, 1996.                                                                                                                                                                                                              |  | CinergySeptember 30, 1996, Form 10-Q.                               
|------------------------------ |  | ---------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------
|10-hh                          |  | Cinergy          |  | CinergyUK Sharesave Scheme, adopted and effective December 16, 1999.                                                                                                                                                                                                                                                            |  | Cinergy1999 Form 10-K.                                              
|10-ii                          |  | Cinergy          |  | *CinergyDirectors' Deferred Compensation Plan, adopted October 18, 1994, effective October 24, 1994.                                                                                                                                                                                                                            |  | CinergyForm S-8, filed October 19, 1994.                            
|10-jj                          |  | Cinergy          |  | *Amendment toCinergyDirectors' Deferred Compensation Plan, adopted October 22, 1996.                                                                                                                                                                                                                                            |  | CinergySeptember 30, 1996, Form 10-Q.                               
|10-kk                          |  | Cinergy          |  | *CinergyRetirement Plan for Directors, adopted October 18, 1994, effective October 24, 1994.                                                                                                                                                                                                                                    |  | Cinergy1994 Form 10-K.                                              
|10-ll                          |  | Cinergy          |  | *CinergyRetirement Plan for Directors, amended and restated effective January 1, 1999, adopted October 15, 1998.                                                                                                                                                                                                                 |  | Schedule 14A Definitive Proxy Statement filed March 12, 1999.       
|10-mm                          |  | Cinergy          |  | CinergyDirectors' Equity Compensation Plan adopted October 15, 1998, effective January 1, 1999.                                                                                                                                                                                                                                  |  | Schedule 14A Definitive Proxy Statement filed March 12, 1999.       
|10-nn                          |  | Cinergy          |  | *CinergyExecutive Supplemental Life Insurance Program adopted October 18, 1994, effective October 24, 1994, consisting of Defined Benefit Deferred
Compensation Agreement, Executive Supplemental Life Insurance Program Split Dollar Agreement I, and Executive Supplemental Life Insurance Program Split Dollar Agreement II. |  | Cinergy1994 Form 10-K.                                              
|10-oo                          |  | Cinergy          |  | *Cinergy1996 Long-Term Incentive Compensation Plan, adopted April 26, 1996.                                                                                                                                                                                                                                                     |  | CinergySchedule 14A Definitive Proxy Statement filed March 13, 1996.
|10-pp                          |  | Cinergy          |  | *Amendment toCinergy1996 Long-Term Incentive Compensation Plan, adopted October 22, 1996, effective November 1, 1996.                                                                                                                                                                                                           |  | CinergySeptember 30, 1996, Form 10-Q.                               
|10-qq                          |  | Cinergy          |  | *Cinergy401(k) Excess Plan, effective January 1, 1997, adopted December 17, 1996.                                                                                                                                                                                                                                               |  | Cinergy1996 Form 10-K.                                              
|10-rr                          |  | Cinergy          |  | *CinergyNonqualified Deferred Incentive Compensation Plan, effective January 1, 1997, adopted December 17, 1996.                                                                                                                                                                                                                |  | Cinergy1996 Form 10-K.                                              
|10-ss                          |  | Cinergy          |  | CinergyDirector, Officer and Key Employee Stock Purchase Program, effective January 7, 2000, adopted December 10, 1999.                                                                                                                                                                                                          |  | Cinergy1999 Form 10-K.                                              
|10-tt                          |  | Cinergy          |  | CinergyNon-Union Employees' Pension Plan as amended and restated effective January 1, 1998, adopted December 18, 1997.                                                                                                                                                                                                          |  | Cinergy1999 Form 10-K.                                              
|10-uu                          |  | Cinergy          |  | CinergyUnion Employees' Pension Plan as amended and restated effective January 1, 1998, adopted December 18, 1997.                                                                                                                                                                                                              |  | Cinergy1999 Form 10-K.                                              
|10-vv                          |  | Cinergy          |  | CinergyUnion Employees' Retirement Income Plan as amended and restated effective January 1, 1998, adopted December 18, 1997.                                                                                                                                                                                                    |  | Cinergy1999 Form 10-K.                                              
|Subsidiaries of the registrant |  |                  |  |                                                                                                                                                                                                                                                                                                                                  |  |                                                                     
|21                             |  | Cinergy
CG&E
PSI |  | Subsidiaries ofCinergy, CG&E, andPSI                                                                                                                                                                                                                                                                                             |  |                                                                     

134



|Consent of experts and counsel |  |                        |  |                                                                   |  | 
|------------------------------ |  | ---------------------- |  | ----------------------------------------------------------------- |  | 
|23                             |  | Cinergy
CG&E
PSI
ULH&P |  | Consent of Independent Public Accountants                         |  | 
|Power of attorney              |  |                        |  |                                                                   |  | 
|24                             |  | Cinergy
CG&E
PSI
ULH&P |  | Power of Attorney                                                 |  | 
|Financial data schedule        |  |                        |  |                                                                   |  | 
|27                             |  | Cinergy
CG&E
PSI
ULH&P |  | Financial Data Schedules (included in electronic submission only) |  | 

---

135





SCHEDULE II

CINERGY CORP.

SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS

FOR THE THREE YEARS ENDED DECEMBER 31, 1999
(in thousands)

|                                                       |  |   |        | Additions |   | Deductions |  |  
|------------------------------------------------------ |  | - | ------ | --------- | - | ---------- |  | -
|
|
|Accumulated Provisions Deducted from Applicable Assets |  |   |        |           |   |            |  |  
|Allowance for Doubtful Accounts                        |  |   |        |           |   |            |  |  
|1999                                                   |  | $ | 25,622 |           | $ | 20,805     |  | $
|1998                                                   |  | $ | 10,382 |           | $ | 29,430     |  | $
|1997                                                   |  | $ | 10,618 |           | $ | 12,582     |  | $

136



SCHEDULE II

THE CINCINNATI GAS & ELECTRIC COMPANY

SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS

FOR THE THREE YEARS ENDED DECEMBER 31, 1999
(in thousands)

|                                                       |  |   |        | Additions |   | Deductions |  |  
|------------------------------------------------------ |  | - | ------ | --------- | - | ---------- |  | -
|
|
|Accumulated Provisions Deducted from Applicable Assets |  |   |        |           |   |            |  |  
|Allowance for Doubtful Accounts                        |  |   |        |           |   |            |  |  
|1999                                                   |  | $ | 17,607 |           | $ | 9,754      |  | $
|1998                                                   |  | $ | 9,199  |           | $ | 16,131     |  | $
|1997                                                   |  | $ | 9,178  |           | $ | 6,484      |  | $

137



SCHEDULE II

PSI ENERGY, INC.

SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS

FOR THE THREE YEARS ENDED DECEMBER 31, 1999
(in thousands)

|Col. A                                                 |  | Col. B |       | Col. C |   | Col. D |  | Col. E
|------------------------------------------------------ |  | ------ | ----- | ------ | - | ------ |  | ------
|
|
|Accumulated Provisions Deducted from Applicable Assets |  |        |       |        |   |        |  |       
|Allowance for Doubtful Accounts                        |  |        |       |        |   |        |  |       
|1999                                                   |  | $      | 7,893 |        | $ | 11,036 |  | $     
|1998                                                   |  | $      | 1,183 |        | $ | 13,178 |  | $     
|1997                                                   |  | $      | 1,269 |        | $ | 6,098  |  | $     

138



SCHEDULE II

THE UNION LIGHT, HEAT AND POWER COMPANY

SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS

FOR THE THREE YEARS ENDED DECEMBER 31, 1999
(in thousands)

|Col. A                                                 |  | Col. B |       | Col. C |   | Col. D |  | Col. E
|------------------------------------------------------ |  | ------ | ----- | ------ | - | ------ |  | ------
|
|
|Accumulated Provisions Deducted from Applicable Assets |  |        |       |        |   |        |  |       
|Allowance for Doubtful Accounts                        |  |        |       |        |   |        |  |       
|1999                                                   |  | $      | 1,248 |        | $ | 2,169  |  | $     
|1998                                                   |  | $      | 996   |        | $ | 1,861  |  | $     
|1997                                                   |  | $      | 1,024 |        | $ | 1,579  |  | $     

139



## 

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, Cinergy Corp., The Cincinnati Gas & Electric
Company, PSI Energy, Inc., and The Union Light, Heat and Power Company have each duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



Date:
February 29, 2000



140





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the indicated registrants and in the capacities
and on the dates indicated:

|Signature                     |  | Title                  |  | Date
|----------------------------- |  | ---------------------- |  | ----
|Cinergy, CG&E, and PSI        |  |                        |  |     
|Jackson H. Randolph           |  | Chairman               |  |     
|Cinergy                       |  |                        |  |     
|Neil A. Armstrong             |  | Director               |  |     
|Phillip R. Cox                |  | Director               |  |     
|Kenneth M. Duberstein         |  | Director               |  |     
|George C. Juilfs              |  | Director               |  |     
|Melvin Perelman               |  | Director               |  |     
|Thomas E. Petry               |  | Director               |  |     
|Mary L. Schapiro              |  | Director               |  |     
|John J. Schiff, Jr.           |  | Director               |  |     
|Philip R. Sharp               |  | Director               |  |     
|Dudley S. Taft                |  | Director               |  |     
|Oliver W. Waddell             |  | Director               |  |     
|Cinergy and PSI               |  |                        |  |     
|James K. Baker                |  | Director               |  |     
|Michael G. Browning           |  | Director               |  |     
|John A. Hillenbrand II        |  | Director               |  |     
|CG&E and ULH&P                |  |                        |  |     
|James L. Turner               |  | President and Director |  |     
|Cinergy, CG&E, PSI, and ULH&P |  |                        |  |     

|/s/JAMES E. ROGERSJames E. Rogers
Attorney-in-fact for all
the foregoing persons |  | Vice Chairman, Chief Executive Officer, and Director President of Cinergy (Principal Executive Officer) |  | February 29, 2000
|-------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------- |  | -----------------
|/s/MADELEINE W. LUDLOWMadeleine W. Ludlow                                        |  | Vice President and Chief Financial Officer Director of ULH&P (Principal Financial Officer)              |  | February 29, 2000
|/s/BERNARD F. ROBERTSBernard F. Roberts                                          |  | Vice President and Comptroller (Principal Accounting Officer)                                           |  | February 29, 2000

141



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