Use these links to rapidly review the documentINDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES TABLE OF CONTENTS

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year endedDecember 31, 2000or

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

|Commision
File Number |  | Registrant, State of Incorporation,
Address and Telephone Number                                                             |  | I.R.S. Employer
Identification No.
|--------------------- |  | ---------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------
|1-11377               |  | CINERGY CORP.(A Delaware Corporation)
139 East Fourth Street
Cincinnati, Ohio 45202
(513) 287-1099                           |  | 31-1385023                        
|1-1232                |  | THE CINCINNATI GAS & ELECTRIC COMPANY(An Ohio Corporation)
139 East Fourth Street
Cincinnati, Ohio 45202
(513) 287-1099      |  | 31-0240030                        
|1-3543                |  | PSI ENERGY, INC.(An Indiana Corporation)
1000 East Main Street
Plainfield, Indiana 46168
(513) 287-1099                      |  | 35-0594457                        
|2-7793                |  | THE UNION LIGHT, HEAT AND POWER COMPANY(A Kentucky Corporation)
139 East Fourth Street
Cincinnati, Ohio 45202
(513) 287-1099 |  | 31-0473080                        

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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

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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 / /

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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.
(  )

---

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 January 31, 2001, the aggregate market value of the common equity ofCinergy Corp.held by nonaffiliates (shareholders who are not
directors or executive officers) was $4.8 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 January 31, 2001, each registrant had the following shares of common stock outstanding:

|Registrant                              |  | Description                                    |  | Shares     
|--------------------------------------- |  | ---------------------------------------------- |  | -----------
|Cinergy Corp.                           |  | Par value $.01 per share                       |  | 158,980,363
|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    

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DOCUMENTS INCORPORATED BY REFERENCE

Portions
of the Proxy Statement ofCinergy Corp.and the Information Statement ofPSI
Energy, Inc.filed, or to be filed, with the Securities and Exchange Commission 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.





TABLE OF CONTENTS



|Item
Number |  |                                                                                      
|----------- |  | -------------------------------------------------------------------------------------
|            |  | Cautionary Statements Regarding Forward-Looking Information                          
|            |  | PART I                                                                               
|1           |  | Business                                                                             
|            |  | Organization                                                                         
|            |  | Current Trends                                                                       
|            |  | Business Units                                                                       
|            |  | Other Developments                                                                   
|            |  | Future Expectations/Trends                                                           
|2           |  | Properties                                                                           
|            |  | Commodities                                                                          
|            |  | Delivery                                                                             
|            |  | Cinergy Investments                                                                  
|            |  | International                                                                        
|            |  | General Information                                                                  
|3           |  | Legal Proceedings                                                                    
|            |  | New Source Review and Notices of Violation                                           
|            |  | Manufactured Gas Plant Sites                                                         
|            |  | M Metals Superfund Site                                                              
|4           |  | Submission of Matters to a Vote of Security Holders                                  
|            |  | PART II                                                                              
|5           |  | Market for Registrant's Common Equity and Related Stockholder Matters                
|6           |  | Selected Financial Data                                                              
|7           |  | Management's Discussion and Analysis of Financial Condition and Results of Operations
|            |  | Introduction                                                                         
|            |  | Organization                                                                         
|            |  | Liquidity                                                                            
|            |  | Capital Resources                                                                    
|            |  | 2000 Results of Operations-Historical                                                
|            |  | 1999 Results of Operations-Historical                                                
|            |  | Results of Operations-Future                                                         
|7A          |  | Quantitative and Qualitative Disclosures About Market Risk                           
|            |  | Index to Financial Statements and Financial Statement Schedules                      
|8           |  | Financial Statements and Supplementary Data                                          
|9           |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
|            |  | PART III                                                                             
|10          |  | Directors and Executive Officers of the Registrants                                  
|            |  | Board of Directors                                                                   
|            |  | Executive Officers                                                                   
|11          |  | Executive Compensation                                                               
|12          |  | Security Ownership of Certain Beneficial Owners and Management                       
|13          |  | Certain Relationships and Related Transactions                                       

|   |  | PART IV                                                         
|-- |  | ----------------------------------------------------------------
|14 |  | Exhibits, Financial Statement Schedules, and Reports on Form 8-K
|   |  | Financial Statements and Schedules                              
|   |  | Reports on Form 8-K                                             
|   |  | Exhibits                                                        
|   |  | Signatures                                                      





In
this reportCinergy(which includesCinergy Corp.and all of our regulated and
non-regulated subsidiaries) is, at times, referred to in the first person as "we", "our", or "us".

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION

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

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





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





PART I.

ITEM 1.  BUSINESS

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 principal subsidiaries are:

    Cinergy
Services, Inc. (Services);
            Cinergy Investments, Inc. (Investments);
            Cinergy Global Resources, Inc. (Global Resources);
            Cinergy Technologies, Inc. (Technologies); and
            Cinergy Wholesale Energy, Inc. (CWE).

CG&E, an Ohio corporation, is a combination electric and gas public utility company that provides service in the southwestern portion
of Ohio and, through its subsidiaries, in nearby areas of Kentucky and Indiana. It has three wholly-owned utility subsidiaries and two wholly-owned non-utility subsidiaries. CG&E'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                                                                                            |  | Major Cities
Served                                                                   |  | Approximate
Population
Served
|-------------------- |  | ------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------- |  | -----------------------------
|CG&Eand subsidiaries |  |   Generation, transmission,
   distribution, and sale of
   electricity
  Sale and/or transportation of
   natural gas |  | Cincinnati, OH
Middletown, OH
Covington, KY
Florence, KY
Newport, KY
Lawrenceburg, IN |  | 2,017,000                    
|PSI                  |  |   Generation, transmission,
   distribution, and sale of
   electricity                                                 |  | Bloomington, IN
Columbus, IN
Kokomo, IN
Lafayette, IN
New Albany, IN
Terre Haute, IN  |  | 2,202,000                    
|ULH&P                |  |   Transmission, distribution,
   and sale of electricity
  Sale and transportation of
   natural gas                   |  | Covington, KY
Florence, KY
Newport, KY                                                |  | 330,000                      

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, energy-related businesses and investments. Global Resources holds our international businesses and investments and directs our
renewable energy investing activities (for example, wind farms). Technologies primarily holds our portfolio of technology-related investments. In

November 2000, CWE was formed to act as a holding company forCinergy'senergy commodity businesses, including production, as the generation
assets eventually become unbundled from the utility subsidiaries. See Note 18 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" for a discussion on
Ohio deregulation.

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 at December 31, 2000:

|                            |  | Regulated |  | Non-Regulated
|--------------------------- |  | --------- |  | -------------
|
|IBEW(1)                     |  | 1,098     |  | 1,319        
|USWA(2)                     |  | 297       |  |             
|IUU(3)                      |  | 464       |  |             
|Various Union Organizations |  |          |  |             
|Non-Bargaining              |  | 376       |  | 600          
|                            |  |           |  |              
|                            |  | 2,235     |  | 1,919        

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(1)   IBEW
#1347 contract will expire on April 1, 2006, and IBEW #1393 will expire on April 30, 2002.
(2)   Contract will expire May 15, 2002.
(3)   Contract will expire April 1, 2002.
(4)CG&Eand subsidiaries excludingULH&P.
(5)   Includes Services' employees who provide services to both regulated and non-regulated operations.
(6)   On January 1, 2001, 1,448 of our employees were transferred to a non-regulated domestic subsidiary of CWE. For 
        more information on "Ohio deregulation" see Note 18 of the "Notes to Financial Statements" in "Item 8. Financial 
        Statements and Supplementary Data".

CURRENT TRENDS

The structure of the electric industry in our service territory and throughout the U.S. has been relatively stable for many years. In recent years, however,
there have been both federal and state developments aimed at industry restructuring and increasing competition. This process is leading to an industry model whereby the generating assets become
deregulated and the transmission and distribution systems remain under some type of regulation. The underlying belief, which we share, is that over the long-term, deregulation of wholesale
generation markets will, through increased competition, result in lower commodity prices than would otherwise be achieved. However, in recent months, unprecedented high prices, extreme price
volatility, a lack of market liquidity, and inadequate generation supply led to customer blackouts in California, demonstrating the necessity for a constructive approach to deregulation. Within our
service territory, Ohio is the first state to implement electric deregulation legislation. See the "Retail Market Developments" section in "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" for a discussion of key elements of Ohio deregulation, which became effective January 1, 2001. Ohio's situation is different than California's in many
respects, including the following:





Twenty-four
states and the District of Columbia have adopted deregulation plans. In response to the situation in California, some of these states, while not having similar
experiences as California, are considering delaying or altering terms of implementation. A number of the remaining states are reconsidering their deregulation timetables. While we believe the
situation in Ohio, as described above, and generally within the Midwest are different than California, we cannot predict the consequences, if any, on efforts to deregulate the remaining markets within
our service territory. Indiana and Kentucky have not yet approved legislation.

BUSINESS UNITS

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

    Energy
Commodities Business Unit (Commodities);
            Energy Delivery Business Unit (Delivery);
            Cinergy Investments Business Unit (Cinergy Investments); and
            International Business Unit (International).

The
following section describes the activities of our business units as of December 31, 2000. As the utility industry continues to evolve, Cinergywill continue to analyze its operating structure and
make modifications as appropriate. In early 2001, we announced certain organizational
changes, which further aligned the business units consistent withCinergy'sstrategic vision. The revised structure reflects three business units, as
follows:



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

Commodities

Commodities operates and maintains our domestic regulated and non-regulated electric generating plants and some of our jointly-owned plants. As of
December 31, 2000, the total winter electric capability (including our portion of the total capacity for the jointly-owned plants) of these generating plants was 11,889 MW. These plants are
mostly coal-fired. In December 2000,Cinergyannounced its intent to acquire an additional 998 MW of natural-gas fired
generation. See "Item 2. Properties" for a further discussion of the generating facilities. Commodities also conducts the following activities:

    wholesale
energy marketing and trading;
            energy risk management;
            financial restructuring services; and
            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" for information on
risks associated with these activities.

Fuel SupplyEach year, throughCG&Eand PSI, we purchase
approximately 27 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 Indiana, West Virginia, Ohio, Kentucky, Pennsylvania, and Illinois.

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 to comply with new and existing environmental requirements.

BothCG&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 PowerAt times we purchase power to meet the energy needs of our wholesale customers
and to meet the requirements of our retail native load customers (end-use customers within our operating companies' franchise territory). Factors that could cause Cinergyto purchase power for retail
native load customers include generating plant outages, extreme weather conditions, growth, and other factors
associated with supplying full requirements electricity. 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 1998 and 1999, 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" for additional information onPSI'sPurchased Power Tracker.

Environmental MattersIn December 2000, Cinergyreached an agreement in principle with the U.S. Environmental
Protection Agency (EPA) and various parties, that may serve as the basis for a
negotiated resolution of the Clean Air Act (CAA) claims and other related matters brought against coal-fired power plants owned and operated by Cinergy'soperating companies. The estimated cost for
these capital expenditures is expected to be approximately $700 million. These capital
expenditures are in addition to our previously announced commitment to install nitrogen oxide (NOX) controls over the next five years at an estimated cost of approximately
$700 million. In 2000, we spent $75 million for NOX and other environmental compliance as compared to $16 million in 1999. Forecasted expenditures for NOX
and other environmental compliance (in nominal dollars) are $210 million for 2001 and $789 million for 2001-2005. See the "Environmental Issues" and "Construction and Other
Commitments" sections of "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" 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 approximately 45,800 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, 2000. Delivery operated approximately 7,550 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 489,000 customers as of December 31, 2000. See "Item 2. Properties" 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.

Midwest ISOAs part of the effort to create a competitive wholesale power marketplace, the
Federal Energy Regulatory Commission (FERC) approved the formation of the Midwest Independent Transmission System Operator, Inc. (Midwest ISO) during 1998. In that same year, Cinergyagreed to join
the Midwest ISO in preparation for meeting anticipated changes in the FERC regulations and future deregulation requirements. The
Midwest ISO was established as a non-profit organization to maintain functional control over the combined transmission systems of its members. The organization was expected to begin
operations in November 2001.

In
the fall of 2000, three transmission owners announced their intent to leave the Midwest ISO and join the proposed Alliance Regional Transmission Organization (Alliance RTO) by the
end of 2001. The Alliance RTO is a planned for-profit transmission company involving various utilities which have transmission systems that cover parts of Michigan, Ohio, Indiana, West
Virginia, and Virginia.

On
December 13, 2000, six additional transmission owners, includingCinergy, announced a plan for conditional withdrawal from
the Midwest ISO if the other three withdrawing members left the organization.

On
January 24, 2001, the FERC issued an order providing 30 days of confidential settlement talks between the Alliance RTO and the Midwest ISO and its stakeholders, in an
effort to resolve issues related to such withdrawals.Cinergyactively participated in the settlement process. On February 23, 2001, the
settlement judge reported to the FERC that settlement talks produced a unanimous comprehensive settlement between all related parties. Specific details of this settlement are yet to be finalized and
will need approval by the FERC. The definitive settlement agreement language is to be filed with the FERC on March 19, 2001. If approved, the settlement agreement is not expected to present any
material adverse impacts to the company.

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



LOGO





Electricity SupplyDelivery currently receives all of its electricity from Commodities at a
transfer price based upon current regulatory ratemaking methodology. With the implementation of electric deregulation in Ohio, effective January 1, 2001, Delivery continues to acquire its
electricity requirements through Commodities for those retail customers who do not switch suppliers. For further details on electricity supply ofCG&Erefer to Note 18 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data".

ULH&Ppurchases its energy fromCG&Epursuant to a FERC-approved contract
that is due to expire on December 31, 2001. Currently the contract is under negotiation with the involvement of the Kentucky Public Service Commission. The Ultimate supplier(s) of ULH&P'senergy and the pricing of electric commodity requirements contained in any new arrangement could reflect a market-based approach. At the current
time we are unable to predict the outcome of this matter.

Gas SupplyDelivery is responsible for the purchase and the subsequent delivery of natural gas
to native load customers. Delivery's procurement strategy is to buy firm gas supplies and firm interstate pipeline capacity during the winter season (November through March) and buy spot supply and
capacity during the non-heating season (April through October). This strategy allows Delivery to assure reliable gas supply for its high priority (non-curtailable) customers
during peak winter conditions and provides Delivery the flexibility to reduce its contract commitments if customers choose alternate gas suppliers. In 2000, firm supply (gas intended to be available
at all times) purchase commitment agreements provided approximately 55% 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" 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 mid-continent
(Arkansas-Oklahoma) basin. Also, industrial transportation customers behindCinergy'scity gate (point where the distribution system connects to an
interstate gas pipeline) are obtaining methane gas recovered locally 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, availability of supply, changes in demand, and storage inventories. The market price of natural gas has
increased significantly in 2000, which has causedCG&EandULH&Pto pay more for the gas they deliver to
customers. Under the gas cost recovery mechanism that is mandated under state law, gas commodity cost is passed through directly to the
customer dollar-for-dollar. It is expected that gas commodity prices will remain at these historically high levels well into 2001.

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(1)           |  | 64                
|CG&Eand subsidiaries |  | 85                
|PSI                  |  | 100               
|ULH&P                |  | 71                

---

Electric
and gas sales are seasonal. Electricity usage in our service territory 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 ten percent of operating revenues (electric or gas) for any of our operating companies.

Cinergy Investments

Cinergy Investments manages the development, marketing, and sales of our domestic non-regulated, and non-wholesale 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 primarily directs and manages our international business holdings. These holdings include wholly-owned and jointly-owned companies in ten foreign
countries. In addition, International directs our renewable energy investing activities (for example, wind farms) which include investments within the U.S. as well as abroad.

In
1999, we sold our 50% ownership interest in Midlands Electricity plc (Midlands). Prior to the sale, Midlands had provided the majority of International's earnings. See
Note 10 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" for further information on the sale of our ownership interest in Midlands.

During
the fourth quarter of 2000, a joint venture between a subsidiary ofCinergyand a subsidiary of Royal Dutch Petroleum (Shell)
was awarded a 49% interest and operational control of the gas distribution business in Athens, Greece. We expect this transaction to close during the first half of 2001. International's plans for 2001
include development of the Greek gas business itself and other opportunities which may arise in the Greek market. In addition, International expects to continue its development of, and investment in,
renewable energy projects in both the U.S. and Europe. The timing of International's 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" for further information on these risks and how we address our exposure to them. See Note 15 of the "Notes to Financial Statements" in "Item 8. Financial Statements and
Supplementary Data" for further information on revenues from foreign operations and long-lived assets.

OTHER DEVELOPMENTS

Our ability to invest in growth initiatives, such as Exempt Wholesale Generators (EWG) and Foreign Utility Companies (FUCO) is limited by certain legal and
regulatory requirements, including the PUHCA. An EWG is a special-purpose entity that owns or operates domestic or foreign electric generating facilities whose power is sold entirely at wholesale.
FUCOs are companies whose utility assets and operations are located entirely 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. In late 1999, we filed a request with the SEC under the PUHCA for an additional $5 billion in authority to invest in EWGs and FUCOs. On June 23, 2000, the
SEC issued an interim order granting us authority to invest a total of $1.7 billion in EWGs and FUCOs, replacing an earlier order capping our investment authority under PUHCA at an amount equal
toCinergy'saverage retained earnings from time to time. As of December 31, 2000, we had invested or committed to invest $1.4 billion of
the $1.7 billion available.

In
January 2001,Cinergymodified its request to the SEC for additional investment authority, proposing a new investment
limitation capped at $4 billion, subject to various terms and conditions. This request is pending before the SEC. While we currently cannot predict the outcome of this request, the existing
limits could restrict our ability to invest in future transactions.

FUTURE EXPECTATIONS/TRENDS

See the information appearing under the same caption in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" for
discussion of "Future Expectations/Trends."



ITEM 2.  PROPERTIES

COMMODITIES

Regulated

Our operating companies' total winter electric capabilities reflected in MW as of December 31, 2000, are shown in the table that follows. Our electric
generating plants are located in Ohio, Kentucky, and Indiana and are wholly-owned and jointly-owned facilities.

Registrant(1)

Stations

Coal
MW

Natural
Gas
MW

Oil
MW

Hydro
MW

Total
MWCG&E

9

4,186

736

323



5,245PSI

8

5,578

120

261

45

6,004Total

17

9,764

856

584

45

11,249


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During
2000, our electric generating plants operated reliably, as evidenced by our annual capacity factor of 73% (excluding natural gas peaking stations), and a utilization factor of
greater than 86%. A capacity factor is a percentage that indicates how much of a power plant's capacity is used over time.

During
August, we experienced peak loads of 4,731 MW forCG&Eand 5,410 MW forPSI. At
times we purchase power to meet the energy needs of our wholesale customers and to meet the requirements of our retail native load customers. Factors that could cause Cinergyto purchase power for
retail native load customers include outages, extreme weather conditions, growth, and other factors associated with
supplying full requirements electricity. We believe we can obtain enough purchased power to meet future needs.

Promptly
after receipt of all required regulatory approvals and third-party consents,CG&Eanticipates transferring its generating
stations and their related assets and obligations to one or more non-regulated corporate subsidiary(ies). Subsequent to this transferCG&Ewill continue operations as a transmission and distribution company. To facilitate this transfer, the generation assets ofCG&Eas of
August 2000, were released from the first mortgage indenture lien allowing them to move un-encumbered to the non-regulated subsidiary. Generating assets added after
August 2000, remain subject to the lien ofCG&E'sfirst mortgage bond indenture and will require release at some future date prior to being
transferred. For a further discussion on Ohio deregulation see Note 18 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data".

Non-Regulated

During 1999, one of our non-regulated subsidiaries formed a partnership (each party having a 50% ownership) with Duke Energy North America LLC
(Duke). The partnership was formed for the purpose of jointly constructing and owning three wholesale generating facilities located in southwestern Ohio, and east central and western Indiana. Two of
these properties became fully operational in June 2000. The total capacity of these plants is 1,280 MW. Construction of the third facility, with a capacity of 129 MW, has been suspended by
order of the Indiana Utility Regulatory Commission (IURC). For further information on the IURC's order, see the "Wholesale Market Developments"
section of "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations".

In December 2000,Cinergyannounced that one of its non-regulated subsidiaries entered into a definitive agreement
to acquire two natural gas-fired merchant electric generating facilities from Enron. The facilities are located in Tennessee and Mississippi and have a total combined capacity of 998 MW.
It is anticipated that this transaction will close in the second quarter of 2001.

DELIVERY

Electric

Metrics for our operating companies' electric transmission and distribution systems (excluding our proportionate share of jointly-owned facilities) are
estimated as follows:

Registrant

Electric
Transmission
Systems

Electric
Distribution
Systems

Substation
Combined
Capacity(circuit miles)

(circuit miles)

(kilovolt-amperes)(1)CG&E

1,641

15,315

20,518,621ULH&P

105

2,646

1,115,298Other subsidiaries

40

10

CG&Eand subsidiaries

1,786

17,971

21,633,919PSI

5,515

20,557

28,946,637Total

7,301

38,528

50,580,556


---

At
the end of 1999 our operating companies' electric systems were interconnected with thirteen other utilities. An additional interconnection was completed in 2000 between Cinergyand a new generation-only
area established by Enron bringing the total number of interconnections to fourteen.

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.

Gas

As of December 31, 2000, the natural gas transmission and distribution systems ofCG&Eand its
subsidiaries had approximately 7,500 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, 2000, we had 17 million gallons
of liquid propane in storage. This liquid propane is used in the three propane/air 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 2000,CG&Eand its subsidiaries' natural gas transmission and distribution systems operated
reliably, at a load factor of 34%, 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

In 1997,Cinergyand Trigen Energy Corporation formed a joint venture company, Trigen-Cinergy Solutions LLC, to
build, own, operate, and maintain combined heat and power facilities for large

industrial customers. As of December 31, 2000, we have an ownership interest and/or operating control in nine domestic cogeneration (simultaneous production of two or more forms of useable
energy from a single fuel source) plants producing 294 MW of electricity through our various joint ventures. During 2001-2002, we anticipate completing construction of three new
cogeneration plants, which will produce an additional 40 MW of electricity.

In
2000,Cinergyformed a new wholly-owned subsidiary, Cinergy Solutions, Inc. (Cinergy Solutions), to develop, acquire, own,
and operate energy-related projects. In October 2000, Cinergy Solutions agreed to form a partnership with British Petroleum to construct, own, and operate two new cogeneration plants
located in Texas that, with existing facilities to be acquired by the partnership, will produce more than 800 MW of electricity. The operation of these two new cogeneration projects will coincide with
the decommissioning of older, less efficient energy facilities. This agreement was finalized in late January 2001.

INTERNATIONAL

As of December 31, 2000, International had ownership interests in generating plants located in 11 countries, including the U.S., producing a total of
1,626 MW of electricity. Five of these plants are district heating plants in the Czech Republic, of which we own four and have a minority interest in the fifth, that in total provide 1,094 MW of
thermal steam capacity, which may be used to produce 149 MW of electricity. We also own interests in 1,975 miles of gas and electric transmission and distribution systems through jointly-owned
investments. International serves 51,140 transmission and distribution customers, 518 retail district heating and district electric customers, and 106 wholesale heating and electric customers.

During
2000,Cinergyinvested or acquired the right to invest in two gas distribution businesses, both of which are located in major
international markets and both of which will require development over the next several years in order to add customers. Specifically, in August 2000, together with a South African minority
partner (5%),Cinergyacquired Egoli Gas, which has the right to develop and operate the gas distribution business in the Greater Johannesburg, South
Africa market. Also, during the fourth quarter of 2000, a joint venture between a subsidiary ofCinergyand a subsidiary of Shell was awarded a 49%
interest and operational control of a gas distribution business in Athens, Greece. We expect this transaction to close during the first half of 2001.

GENERAL INFORMATION

In August 2000, the generation assets ofCG&Ewere released from the first mortgage indenture lien. CG&E'stransmission assets, distribution assets, and any generating assets added after August 2000, remain subject to the lien of the first
mortgage bond indenture. The utility property ofPSIis also subject to the lien of its first mortgage bond indenture.



ITEM 3.  LEGAL PROCEEDINGS

NEW SOURCE REVIEW AND NOTICES OF VIOLATION

See Notes 12(c) and (d) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" for a discussion of the lawsuit
and notices of violation filed by the EPA againstCinergy,CG&E, and PSI.

MANUFACTURED GAS PLANT SITES

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

M METALS SUPERFUND SITE

On July 6, 2000, the EPA identifiedPSIand Indianapolis Power and Light Company (IPL) as Potentially
Responsible Parties for the release of hazardous substances at the M Metals Superfund Site (Site) located in Indianapolis, Indiana. The EPA advised that it had taken response actions relating to the
Site and had incurred costs of approximately $500,000. The EPA has demanded reimbursement of these costs incurred related to the Site and has encouraged PSIand IPL to work out an allocation between
themselves for the payment of the costs. However,PSIand
IPL will be held jointly and severally liable for the costs.PSIis communicating with the EPA and is in the process of reviewing EPA documentation of
the cleanup in preparation of entering into settlement discussions. Resolution of this matter is not expected to materially impact our results of operations or financial condition.



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 2000.





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

Cinergy Corp.'scommon 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

Low2000First Quarter

$
25.88

$
20.00Second Quarter


28.13


21.19Third Quarter


33.25


25.56Fourth Quarter


35.25


28.501999First Quarter

$
34.88

$
27.38Second Quarter


34.63


27.44Third Quarter


33.00


27.31Fourth Quarter


29.63


23.44


Cinergy Corp.holds all outstandingCG&Eand PSIcommon stock, andCG&Eholds allULH&Pcommon stock.
Therefore, no public trading market exists for the common stock ofCG&E,PSI, and ULH&P.

As
of January 29, 2001, the most recent dividend record date, we had 61,049 common stockholders of record.

Cinergy Corp.declared dividends on common stock of $.45 per share for each quarter of 1999 and 2000. The dividends 
paid toCinergy Corp.byCG&EandPSIand to CG&EbyULH&Pfor the past two years were as follows:

Registrant

Quarter

2000

1999(in thousands)CG&E

First

$
53,600

$
71,400Second


53,600


71,500Third


53,600


53,600Fourth


71,534


53,600PSI

First

$
18,000

$
Second


18,000


Third


18,000


17,900Fourth





18,000ULH&P

First

$


$
Second


4,974


4,976Third





Fourth


4,683


4,683


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



ITEM 6.  SELECTED FINANCIAL DATA

|                                     |                              | 2000(1)                              |        | 1999(1) |      | 1998(2) |      | 1997 |       | 1996
|------------------------------------ | ---------------------------- | ------------------------------------ | ------ | ------- | ---- | ------- | ---- | ---- | ----- | ----
|
|Cinergy                              |                              |                                      |        |         |      |         |      |      |       |     
|Operating revenues                   |                              | $                                    | 8,422  |         | $    | 5,938   |      | $    | 5,911 |     
|Net income before extraordinary item |                              |                                      | 399    |         |      | 404     |      |      | 261   |     
|Net income                           |                              |                                      | 399    |         |      | 404     |      |      | 261   |     
|Common stock                         |                              |                                      |        |         |      |         |      |      |       |     
|                                     | Earnings per share (EPS)     |                                      |        |         |      |         |      |      |       |     
|                                     |                              | Net income before extraordinary item |        |         | 2.51 |         |      | 2.54 |       |     
|                                     |                              | Net income                           |        |         | 2.51 |         |      | 2.54 |       |     
|                                     | EPSassuming dilution        |                                      |        |         |      |         |      |      |       |     
|                                     |                              | Net income before extraordinary item |        |         | 2.50 |         |      | 2.53 |       |     
|                                     |                              | Net income                           |        |         | 2.50 |         |      | 2.53 |       |     
|                                     | Dividends declared per share |                                      |        | 1.80    |      |         | 1.80 |      |       | 1.80
|Total assets                         |                              |                                      | 12,330 |         |      | 9,617   |      |      | 9,687 |     
|Long-term debt                       |                              |                                      | 2,876  |         |      | 2,989   |      |      | 2,604 |     
|Long-term debt due within one year   |                              |                                      | 41     |         |      | 31      |      |      | 136   |     
|CG&E                                 |                              |                                      |        |         |      |         |      |      |       |     
|Operating revenues                   |                              | $                                    | 3,230  |         | $    | 2,551   |      | $    | 2,856 |     
|Net income                           |                              |                                      | 267    |         |      | 234     |      |      | 216   |     
|Total assets                         |                              |                                      | 5,987  |         |      | 4,917   |      |      | 5,154 |     
|Long-term debt                       |                              |                                      | 1,205  |         |      | 1,206   |      |      | 1,220 |     
|Long-term debt due within one year   |                              |                                      | 1      |         |      |        |      |      | 130   |     
|PSI                                  |                              |                                      |        |         |      |         |      |      |       |     
|Operating revenues                   |                              | $                                    | 2,684  |         | $    | 2,136   |      | $    | 2,403 |     
|Net income                           |                              |                                      | 135    |         |      | 117     |      |      | 52    |     
|Total assets                         |                              |                                      | 4,630  |         |      | 3,835   |      |      | 3,584 |     
|Long-term debt                       |                              |                                      | 1,074  |         |      | 1,212   |      |      | 1,026 |     
|Long-term debt due within one year   |                              |                                      | 38     |         |      | 31      |      |      | 6     |     

---



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

In this reportCinergy(which includesCinergy Corp.and all of
our regulated and non-regulated subsidiaries) is, at times, referred to in the first person as "we", "our", or "us".

INTRODUCTION

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



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 Securities and Exchange Commission (SEC) under the Public Utility Holding Company Act of 1935, as amended (PUHCA). Our other principal 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 three wholly-owned utility subsidiaries and two wholly-owned non-utility subsidiaries. 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 BusinessCG&Eand subsidiaries



Generation, transmission, distribution, and sale of electricity

Sale and/or transportation of natural gasPSI



Generation, transmission, distribution, and sale of electricityULH&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, energy-related businesses and investments. Global Resources holds our international businesses and investments and directs our
renewable energy investing activities (for example, wind farms). Technologies primarily holds our portfolio of technology-related investments. In November 2000, CWE was formed to act as a
holding company forCinergy'senergy commodity businesses, including production, as the generation assets eventually become unbundled from the utility
subsidiaries. See Note 18 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" for a discussion on Ohio deregulation.

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:



As
the utility industry continues to evolve,Cinergywill continue to analyze its operating structure and make modifications as
appropriate. In early 2001, we announced certain organizational changes which further aligned the business units to reflectCinergy'sstrategic vision.
The revised structure reflects three business units, as follows:



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



LIQUIDITY

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

2000 Cash Flows

Operating Activities

For the year ended December 31, 2000,Cinergy'sand PSI'scash from operating activities increased $229
 million and $331 million, respectively, compared to 1999, primarily due to the cash
requirement for the purchase of the remainder of Dynegy, Inc.'s 25 year contract for coal gasification services in 1999.CG&E'scash
provided from operating activities during 2000 decreased $111 million for the year ended December 31, 2000, as compared to last year, due primarily to a net increase in receivables less
payables pertaining to customer accounts and power marketing and trading activities.ULH&P'scash from operating activities increased $17 million
primarily due to changes in working capital and deferred income taxes.

Financing Activities

Cinergy'snet cash provided by financing activities increased $514 million in 2000, as compared to the
prior year. This change is primarily attributable to an increase in short-term borrowings which is partially offset by a decrease in the issuance of long-term debt. CG&E'snet cash used in financing
activities decreased $206 million compared to 1999. This comparative decrease is primarily a result of the
redemption of $164 million in long-term debt that occurred during 1999.PSI'snet cash provided by financing activities decreased
$258 million over the prior year due to a decrease in the net issuance of long-term debt. This decrease was partially offset by an increase in short-term borrowings. ULH&Preduced its
short-term borrowings during 2000, as compared to 1999, which accounts for the decrease in net cash provided by financing
activities of $14 million.

Investing Activities

For the year ended December 31, 2000,Cinergy'snet cash used in investing activities increased
$714 million as compared to the prior year. This change primarily reflects the proceeds of $690 million received in 1999 from the sale of our 50% ownership interest in Midlands
Electricity plc (Midlands).CG&E'sandPSI'snet cash used in investing activities increased
$66 million and $70 million, respectively, as compared to 1999, as a result of an increase in construction expenditures.

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

Environmental Issues

In the "Environmental Issues" section, we discuss the ozone transport rulemaking, ambient air standards, regional haze, global climate change, mercury, new
source review, W.C. Beckjord Generating Station (Beckjord Station) Notices of Violations (NOV), United States (U.S.) Environmental Protection Agency (EPA) Agreement, and manufactured gas plants sites
as they relate to us and our operating companies.

Ozone Transport RulemakingIn June 1997, the Ozone Transport Assessment Group, which
consisted 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 and ozone-causing materials across city and
state boundaries. In late 1997, the EPA published a proposed call for revisions to State Implementation Plans (SIPs). SIP is an acronym for a state's implementation plan for achieving emissions
reductions to address air quality concerns. The EPA must approve all SIPs.

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

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

In
March 2000, the Court of Appeals substantially upheld the EPA's rule. On April 11, 2000, the EPA asked the Court of Appeals to remove its May 25, 1999
suspension of the rule and also directed states to submit SIP revisions by September 1, 2000. On April 17, 2000, various states and industry groups (some of which we are a member) filed
a request with the Court of Appeals for a rehearing of the NOX SIP Call decisions. On April 24, 2000, the same group filed a request with the Court of Appeals to require a
rulemaking and a comment period to determine a new compliance date. The states also filed a request to obtain more time to file their SIPs. On June 23, 2000, the Court of Appeals denied both
requests and directed the states to submit their SIP revisions by October 30, 2000. The states of Indiana, Kentucky, and Ohio subsequently submitted letters stating their intent to revise their
SIPs in response to the NOX SIP Call.

In
August 2000, the Court of Appeals extended the May 1, 2003 deadline for NOX reductions to May 31, 2004. The states and other groups appealed the
Court of Appeals ruling to the U.S. Supreme Court (Supreme Court).

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



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

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 Clean Air Act (CAA). The EPA believes that Section 126 petitions allow a state to claim that sources in another state are
contributing to its air quality problem and request that the EPA require the upwind sources to reduce their emissions.

In December 1999, the EPA granted four Section 126 petitions relating to NOX emissions. This ruling affected all of our Ohio and Kentucky facilities, as well
as some of our Indiana facilities, and requires us to reduce our NOX emissions to a certain level by May 2003. The EPA's action granting the Section 126 petitions was
appealed to the Court of Appeals. Oral arguments were held in this case on December 15, 2000. A final decision is expected some time within the next few months.

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

See
"EPA Agreement" below for a discussion of the tentative EPA settlement, which relates to matters discussed herein.

Ambient Air StandardsDuring 1997, the EPA revised the National Ambient Air Quality Standards
for ozone and fine particulate matter. Fine particulate matter refers to very small solid or liquid particles in the air. It was anticipated that utility NOX reductions called for in the
EPA's final NOX SIP Call would address both the pre-existing 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 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
Supreme Court and oral arguments were held on November 17, 2000, with a ruling expected any time, but no later than July 2001. We currently cannot determine the outcome of the appeals
process and the effects on future emissions reduction requirements.

Regional HazeThe EPA published the final regional haze rule on July 1, 1999. This rule
established 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 sulfur dioxide (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 challenge to the regional haze rules with the Court of Appeals. In addition, several industry groups (some of which we are a member) have petitioned the new administration to
reconsider its approach to regional haze, including possible modifications to the rule and/or settlement of the lawsuit. We currently cannot determine the outcome or effects of the EPA's, courts', or
states' determinations.

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. In November 2000, another Conference of the Parties was held to negotiate the details of
administrating the Kyoto Protocol. On November 25, 2000, the delegation failed to reach an agreement and suspended any further discussion until 2001.

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:



MercuryThe air toxics provisions of the CAA 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 utility plants.

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 the Gibson Generating Station Unit No. 3 and the
Wabash River Repowering Project in October 1999.

On
December 14, 2000, the EPA made its regulatory determination on the need for additional regulation of mercury emissions from coal-fired power plants. The EPA is
expected to issue draft regulations in 2003 and final rules by 2004, with reductions required before 2010. We currently cannot predict the outcome or effects of the EPA's determination and subsequent
regulation.

New Source Review (NSR)The CAA's NSR provisions require that a company obtain a
pre-construction permit if it plans to build a new stationary source of pollution or make a major 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.

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 were part of
an industry-wide investigation assessing compliance with the NSR and the New Source Performance Standards (NSPS) of the CAA at electric generating stations.

On
September 15, 1999, November 3, 1999, and February 2, 2001, the Attorney General's of New York, Connecticut, and New Jersey, respectively, issued letters
notifyingCinergyandCG&Eof their

intent to sue under the citizens' suit provisions of the CAA. These states allege violations of the CAA by constructing and continuing to operate a major change to CG&E'sBeckjord Station 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
alleged violations of the
CAA at two of our generating stations relating to NSR and NSPS requirements. The suit sought (1) injunctive relief to require installation of pollution control technology on each of the
generating units at Beckjord Station andPSI'sCayuga Generating Station (Cayuga Station), and (2) civil penalties in amounts of up to $27,500
per day for each violation.

On
March 1, 2000, the EPA filed an amended complaint 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 an NOV filed
by the EPA on November 3, 1999. It also added claims for relief of alleged violations of nonattainment NSR, Indiana and Ohio SIPs, and particulate matter emission limits (as discussed below in
the "Beckjord Station NOV" section).

The
amended complaint sought (1) injunctive relief to require installation of pollution control technology on each of the generating units at Beckjord Station, Cayuga Station,
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.

On
March 1, 2000, the EPA also filed an amended complaint in a separate lawsuit alleging violations of the CAA relating to NSR, Prevention of Significant Deterioration (PSD),
and Ohio SIP requirements regarding a generating station operated by the Columbus Southern Power Company (CSP) and jointly-owned by CSP, the Dayton Power and Light Company (DP&L), and CG&E. The
EPA is seeking injunctive relief and civil penalties of up to $27,500 per day for each violation. This suit is being defended by CSP.

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

See
"EPA Agreement" below for a discussion of the tentative EPA settlement, which relates to matters discussed herein.

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

See
"EPA Agreement" below for a discussion of the tentative EPA settlement, which relates to matters discussed herein.





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

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

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



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

In
reaching the tentative agreement, we did not admit any wrongdoing and remain free to continue our current maintenance practices, as well as implement future projects for improved
reliability. If the settlement is not completed, we believe the allegations contained in the amended complaint are without merit, and we would defend the suit vigorously in court. In such an event, it
is not possible at this time to determine the likelihood that the plaintiffs would prevail on their claims or whether resolution of this matter would have a material effect on our financial condition
or results of operations.

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(f)(ii) of the "Notes to
Financial Statements" in "Item 8. Financial Statements and Supplementary Data". 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 that PSIis legally responsible for the costs
of investigating and remediating the sites. In August 1997, NIPSCO filed suit against PSIin 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. This agreement allocated
CERCLA liability for past and future costs at seven MGP sites in Indiana among the three companies. As a result of the agreement, NIPSCO's lawsuit against 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 (Court) 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. Recently, the trial date for the case was moved from May 2001 to January 2002. In addition, the Court has ordered
the parties to submit the case to mediation. The parties have selected a mediator and scheduled mediation sessions in early 2001.PSIcannot
predict the outcome of this litigation. Recently,PSIhas been involved in settlement discussions with some of the insurance carriers. At the present
time,PSIcannot predict either the progress or outcome of these discussions.

PSIhas accrued costs for the sites related to investigation, remediation, and groundwater monitoring to the extent such 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 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 Indiana MGP sites could be material to our financial position or results of operations.

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

Construction and Other Commitments

Actual construction and other committed expenditures for 2000 and forecasted construction and other committed expenditures for the year 2001 and for the
five-year period 2001-2005 (in nominal dollars) are presented in the table below:

Actual
Expenditures

Forecasted Expenditures2000

2001

2001-2005(in millions)Cinergy(1)

$
778

$
1,467

$
4,635CG&Eand subsidiaries


265


423


1,676PSI


261


406


2,264ULH&P


28


37


178


---

This
forecast includes an estimate of expenditures in accordance with the companies' plans regarding NOX emission control standards and other environmental compliance
(excluding

implementation of the tentative EPA Agreement), as discussed in the "Environmental Issues" section. Approximately $210 million is estimated to be spent in 2001 and approximately
$789 million is estimated to be spent between 2001 and 2005. This forecast also includes expenditures for the pending purchase of two natural gas-fired merchant electric generating
facilities from Enron North America (Enron) with a total combined capacity of 998 megawatts (MW), the acquisition of an interest in a gas distribution business in Athens, Greece, and other committed
investments.

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



Other Investing Activities

Our goal is to pursue a market leadership position in our regional Midwest market and at the same time extend that market leadership position to neighboring
areas. In pursuit of this goal, we have entered into various growth initiatives including:



We
are consistently working towards maximizing the value of existing assets and operations. We will continue to explore and implement the use of mergers, acquisitions, strategic
combinations, and internal expansions if they enhance our ability to achieve our goal of creating a competitive advantage.

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:







CAPITAL RESOURCES

During 2000, 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.

In
early 2000,Cinergy Corp.filed a request with the SEC under the PUHCA for an amendment to its certificate of incorporation
authorizing the issuance of preferred securities in addition to common stock. We also requested SEC authority to solicit proxies for shareholder approval of this amendment. In June 2000, we
received the authorization from the SEC. At this time, it is not known whether shareholder approval will be granted or, if granted, whether or when any preferred stock will be issued.

Internally Generated Funds

As
of December 31, 2000, a significant portion of our revenues and corresponding cash flows were derived from our regulated subsidiaries. With the passage of customer choice
legislation in 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 Ohio is
currently in the process of transitioning to a deregulated environment. Refer to the "Retail Market Developments" section.) As a low cost provider of energy service, we believe we will be successful
in this 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. In 2001, we believe revenues provided by our regulated operations will continue as a major source of funds.

Debt

We
are 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. On June 23,
2000, the SEC issued an order under the PUHCA authorizing Cinergy Corp.to increase its total capitalization at December 31, 1999, (excluding retained earnings and accumulated other comprehensive
income)
by an additional $5 billion, through issuance of any combination of equity and debt securities. This increased authorization is subject to certain conditions, including, among others, that
common equity comprises at least 30% ofCinergy Corp.'sconsolidated capital structure and thatCinergy
Corp., under certain circumstances, maintains an investment grade rating on its senior debt obligations. This increased authority is intended to provide Cinergy Corp.flexibility
to respond quickly and efficiently to financing needs and available conditions in capital markets.

Short-term DebtIn connection with the current SEC authorization, Cinergy Corp.has $795 million established
lines of credit. As of December 31, 2000,Cinergy
Corp.had $157 million unused and available on its established lines. In early 2001,Cinergy Corp.successfully placed a
new $400 million, 364-day revolving credit facility. This new facility will support an expansion of our commercial paper program and is not included in the lines of credit discussed
above.

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 PSI, $120 million and $185 million, respectively, of which, $40 million and $80 million, respectively, remained unused and
available at December 31, 2000.

Also,
certain of our non-regulated subsidiaries have established lines of credit. As of December 31, 2000, $1.9 million was unused and available on these
established lines. Our non-regulated subsidiaries have the availability of funds fromCinergy Corp.if the need arises.

As
of December 31, 2000, the commercial paper (debt instruments exchanged between companies) program is limited to a maximum outstanding principal amount of $400 million
forCinergy Corp.As of December 31, 2000,Cinergy Corp.had issued $216 million in
commercial paper. Additionally,CG&EandPSIhave 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 for PSIis
$100 million. NeitherCG&EnorPSIissued
commercial paper in 2000 or 1999.

In
early 2001,Cinergy Corp.expanded the commercial paper program to a maximum outstanding principal amount of $800 million and
reduced the established lines of credit atCG&EandPSI. The expansion of the commercial paper program
at theCinergy Corp.level will, in part, support the
short-term borrowing needs ofCG&EandPSIand will eliminate the need for commercial paper
programs atCG&EandPSI. TheCinergy Corp.commercial
paper program expansion is supported by the new $400 million, 364-day revolving credit facility as discussed above.

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".

Long-term DebtUnder the PUHCA authorization mentioned above, we are able to issue
and sell long-term debt at the parent holding company level. As of December 31, 2000,Cinergy Corp.had $400 million of
long-term debt outstanding.

Currently,
our operating companies have outstanding long-term debt in the form of First Mortgage Bonds and Other Secured Notes, and Senior and Junior Unsecured Debt. Under
our existing authority, the remaining authorized but unissued debt, as of December 31, 2000, is reflected in the following table:

Authorizing Agency

CG&E

PSI

ULH&P(in millions)Applicable State Utility Commission(Secured or Unsecured Debt)

$
200

$
346

$
30


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

As
of December 31, 2000, 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(in millions)First Mortgage Bonds and Other Secured Notes

$
300

$
265

$
20Senior or Junior Unsecured Debt


50


400


30


Capital LeasesWe are able to enter into capital leases subject to the authorization
limitations of the applicable state utility commissions. We may, at any time, request the applicable state utility commission to increase our limits. Any request may or may not be granted. As of
December 31, 2000, unused capital lease authority is $80 million forCG&E, $88 million for PSI, and $25 million forULH&P.



Common Stock

In addition to the authority to issue common stock pursuant to the SEC's June 23, 2000 order permittingCinergy
Corp.to increase its total capitalization by $5 billion (as previously discussed),Cinergy Corp.has SEC authority to
issue an additional 50 million shares of common stock for our various stock-based plans. We also have the option of purchasing shares of common stock on the open market to satisfy the
obligations of our various stock-based plans. The proceeds from any new issuances will be used for general corporate purposes.

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

2000

1999

1998(in thousands)Purchased Shares

2,299

748

861Issued Shares

77

291

194


See
Note 2(a) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" for additional information on issued shares.

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".

Securities Ratings

As of January 31, 2001, the major credit rating agencies rated our securities as follows:

Fitch(1)

Moody's(2)

S&P(3)Cinergy Corp.Corporate Credit

BBB+

Baa2

BBB+/A-2Senior Unsecured Debt

BBB+

Baa2

BBB+Commercial Paper

F-2

P-2

A-2CG&ESenior Secured Debt

A-

A3

A-Senior Unsecured Debt

BBB+

Baa1

BBB+Junior Unsecured Debt

BBB

Baa2

BBBPreferred Stock

BBB

baa1

BBBCommercial Paper

F-2

P-2

Not RatedPSISenior Secured Debt

A-

A3

A-Senior Unsecured Debt

BBB+

Baa1

BBB+Junior Unsecured Debt

BBB

Baa2

BBBPreferred Stock

BBB

baa1

BBBCommercial Paper

F-2

P-2

Not RatedULH&PSenior Unsecured Debt

Not Rated

Baa1

BBB+


---

On
December 12, 2000, S&P placed its ratings ofCinergy Corp.and its operating affiliates, CG&EandPSI, on CreditWatch with negative implications. On January 22, 2001, Moody's announced
it had assigned negative outlooks to the debt and preferred stock securities ofCinergy Corp.and all of its subsidiaries. These actions are primarily
in response toCinergy'sannouncement regarding one of its

non-regulated subsidiaries entering into a definitive agreement to acquire two natural gas-fired merchant electric generating facilities from Enron (as further discussed in the
"Wholesale Market Developments" section of "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations"). Other items of concern include (1) the announcement
thatCinergy Corp.,CG&E, andPSIhave reached an
agreement in principle with the EPA; (2) the continuing uncertainty surrounding CG&E'spost-deregulation corporate and financial structure; (3) the absence of restructuring legislation and
stranded investment
resolution in Indiana; and (4)Cinergy'semphasis on higher-risk non-regulated activities.

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 $2 billion. As of December 31, 2000, we had $1.4 billion outstanding
under the guarantees issued. This amount representsCinergy Corp.'sguarantees of liabilities and commitments of our consolidated subsidiaries,
unconsolidated subsidiaries, and joint ventures.

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".





The
Results of Operations discussions forCinergy,CG&E, and PSIare combined within this section.

2000 RESULTS OF OPERATIONS

SUMMARY OF RESULTS

Electric and gas margins and net income forCinergy,CG&E, and PSIfor the years ended December 31, 2000, and 1999, were as follows:

|                      |  | Cinergy(1) |           | CG&E |   | PSI      
|--------------------- |  | ---------- | --------- | ---- | - | ---------
|
|
|Electric gross margin |  | $          | 2,229,869 |      | $ | 2,052,602
|Gas gross margin      |  |            | 267,304   |      |   | 212,153  
|Net income            |  |            | 399,466   |      |   | 403,641  

---

Our
diluted earnings per share (EPS) for the year ended December 31, 2000, were $2.50 per share, as compared to $2.53 per share for the year ended December 31, 1999,
mainly due to a decrease in contributions from our international operations, offset by increased earnings in our regulated business.

The
contribution to earnings of our international operations decreased $.70 per share for the year ended December 31, 2000, as compared to last year, primarily due to the loss
of equity earnings and resulting gain from the sale of our share of Midlands, which took place in July 1999. For further details regarding this transaction, refer to Note 10 of the
"Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data". Earnings from our regulated operations had a net increase of $.66 per share for the year 2000 compared with
1999. This increase was primarily attributable to growth in electric margins and continued improvement in our commodity supply business. Growth in residential, commercial, and industrial customer
bases, along with improvements in cost of sales, were somewhat offset by the effects of milder weather experienced during 2000.

Partially
offsetting the overall increase in regulated operations were one-time charges totaling $.11 per share related to a tentative agreement with the EPA and a limited
early retirement program offered in 2000 as part of a corporate restructuring initiative.

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

ELECTRIC OPERATING REVENUES

|          |       | Cinergy(1) |       | CG&E  |   | PSI   |      
|--------- | ----- | ---------- | ----- | ----- | - | ----- | -----
|
|
|Retail    |       | $          | 2,692 |       | $ | 2,725 |      
|Wholesale |       |            | 2,464 |       |   | 1,455 |      
|Other     |       |            | 228   |       |   | 133   |      
|          |       |            |       |       |   |       |      
|          | Total |            | $     | 5,384 |   | $     | 4,313

---



Electric operating revenuesforCinergy, CG&E, andPSIincreased for
the year ended December 31, 2000, as compared to 1999, mainly due to
an increase in volumes and the average price per megawatt hour (MWh) realized on non-firm wholesale transactions related to the commodities supply business. Non-firm power is
power without a guaranteed commitment for physical delivery.

The
increase in other electric operating revenues forCinergyprimarily reflects marketing activities of Cinergy Capital and
Trading, Inc., aCinergynon-regulated affiliate.

GAS OPERATING REVENUES

|               |  | Cinergy(1) |       | CG&E and subsidiaries
|-------------- |  | ---------- | ----- | ---------------------
|
|
|Non-regulated  |  | $          | 2,452 |                      
|Retail         |  |            | 429   |                      
|Transportation |  |            | 56    |                      
|Other          |  |            | 5     |                      
|               |  |            |       |                      
|Total          |  | $          | 2,942 |                      

---

Gas operating revenuesforCinergyincreased in 2000, when compared to 1999, primarily
as a result of a higher price realized per thousand cubic feet (mcf) sold by our commodity supply business.

CG&E'sretail gas revenues increased primarily due to a higher price realized per mcf sold. Transportation revenues increased due to
the continued trend of full-service customers (customers who purchase gas and utilize the transportation services ofCG&E) purchasing gas
directly from other suppliers.

The
market price of natural gas has increased significantly in 2000, which has causedCG&Eto pay more for the gas they deliver to
customers. The wholesale gas commodity cost is passed directly to the retail customer dollar-for-dollar under the gas cost recovery mechanism that is mandated under state law.

OTHER REVENUES

Other operating revenuesforCinergyincreased
$67 million for 2000, when compared to 1999, primarily due to revenues resulting from the acquisition of an energy-related services affiliate in late 1999.

OPERATING EXPENSES

|                                 |  | Cinergy(1) |       | CG&E and subsidiaries |   | PSI  
|-------------------------------- |  | ---------- | ----- | --------------------- | - | -----
|
|
|Fuel                             |  | $          | 773   |                       | $ | 761  
|Purchased and exchanged
   power |  |            | 2,382 |                       |   | 1,499
|Gas purchased                    |  |            | 2,674 |                       |   | 1,384
|Operation and maintenance        |  |            | 1,089 |                       |   | 981  
|Depreciation and
   amortization |  |            | 374   |                       |   | 354  
|Taxes other than income
   taxes |  |            | 268   |                       |   | 266  
|                                 |  |            |       |                       |   |      
|Total                            |  | $          | 7,560 |                       | $ | 5,245

---

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 1999 to 2000:

Cinergy(1)

CG&E and
subsidiaries

PSI(in millions)1999 fuel expense

$
761

$
341

$
397Increase (Decrease) due to changes in:Price of fuel


(14
)

(12
)

(2
)Deferred fuel cost


(17
)

9


(26
)MWh generation


44


6


38Other


(1
)




2000 fuel expense

$
773

$
344

$
407


---

Purchased and Exchanged Power

Purchased and exchanged powerexpense increased forCinergy, CG&E, andPSIfor 2000, when compared to 1999. This increase was primarily due to an increase in
purchases of non-firm wholesale power as a result of an increase in sales volumes from our commodity supply business.

Gas Purchased

Gas purchasedexpense increased forCinergyin 2000, when
compared to 1999, primarily due to increased gas commodity trading activity of one of its non-regulated subsidiaries and, for bothCinergyandCG&E, an increase in the average cost per mcf of gas purchased.

Operation and Maintenance

Cinergy'sOperation and maintenanceexpenses increased in 2000, in comparison to 1999,
primarily due to a full year's realization of operating expenses resulting from the acquisition of an energy-related

services affiliate in late 1999. Additionally for 2000, operation expenses increased forCinergy,CG&E,
andPSIas a result of one-time charges related to a tentative agreement reached with the EPA and a limited early retirement plan offered as
part of a corporate restructuring initiative.

Depreciation and Amortization

Cinergy's,CG&E's, andPSI'sDepreciation and
amortizationcosts increased in 2000, as compared to 1999, due to additions to depreciable plant.

EQUITY IN EARNINGS OF UNCONSOLIDATED SUBSIDIARIES

Cinergy'sEquity in earnings of unconsolidated subsidiariesdecreased
$53 million in 2000, as compared to 1999. This decrease is primarily due to the loss in earnings resulting from the July 1999 sale of our 50% ownership interest in Midlands. For further
information see Note 10 of the "Notes to the Financial Statements" in "Item 8. Financial Statements and Supplementary Data".

INTEREST

PSI'sInterestexpense decreased $8 million in 2000, as compared to 1999. This
decrease is primarily due toPSI'snet redemption of approximately $130 million of long-term debt during the year, which was slightly
offset by an increase in average short-term interest rates.

ULH&P

The Results of Operations discussion forULH&Pis presented only for the year ended December 31, 2000,
in accordance with General Instructions I(2)(a).

Electric
and gas margins and net income forULH&Pfor the years ended December 31, 2000, and 1999 were as follows:

ULH&P2000

1999(in thousands)Electric gross margin

$
65,686

$
51,678Gas gross margin


40,359


36,038Net income


24,632


12,274


The
increase in electric gross margin is primarily due to the effects of a Federal Energy Regulatory Commission (FERC) wholesale rate case that became effective during 2000. For
further information see Note 12 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data". Gas gross margin increased primarily as a result of an increase
in volumes sold.

The
increase inOperation and maintenancecosts for the year ended December 31, 2000, as compared to 1999, was primarily the
result of expenses related to a water main break in Newport, Kentucky, on October 5, 2000, that resulted in damage to our gas main.

The
increase inDepreciationfor the year ended December 31, 2000, as compared to 1999, was due to additions to depreciable
plant.



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 EPS increased to $2.53 from $1.65 per share for 1998.

The
overall increase in EPS for 1999 was 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 1998, primarily the result of the sale of our 50% ownership interest in Midlands. 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 was primarily due to an overall return to more normal weather in 1999 and
growth in retail electric revenues. This retail revenue growth reflected an increase in residential and commercial customers and growth in the industrial market. Included in this overall increase was
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. 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 MWh realized for
non-firm power transactions and higher firm wholesale MWh sales. Non-firm power is power without a guaranteed commitment for physical delivery. Retail MWh 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.

GAS OPERATING REVENUES

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

---

Gas operating revenuesforCinergyincreased in 1999, when compared to 1998. This
increase reflected 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 mcf sold.

CG&E'sretail gas revenues decreased 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 and subsidiaries |   | PSI   | 
|-------------------------------- |  | ---------- | ----- | --------------------- | - | ----- | 
|
|
|Fuel                             |  | $          | 761   |                       | $ | 730   | 
|Purchased and exchanged
   power |  |            | 1,499 |                       |   | 2,124 | 
|Gas purchased                    |  |            | 1,384 |                       |   | 895   | 
|Operation and
   maintenance     |  |            | 981   |                       |   | 976   | 
|Depreciation and
   amortization |  |            | 354   |                       |   | 326   | 
|Taxes other than income
   taxes |  |            | 266   |                       |   | 275   | 
|                                 |  |            |       |                       |   |       | 
|Total                            |  | $          | 5,245 |                       | $ | 5,326 | 

---

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 and
subsidiaries |   | PSI |  
|-------------------------------------- |  | ---------- | --- | --------------------- | - | --- | -
|
|1998 fuel expense                      |  | $          | 730 |                       | $ | 339 |  
|Increase (Decrease) due to changes in: |  |            |     |                       |   |     |  
|Price of fuel                          |  |            |    |                       |   | 4   |  
|Deferred fuel cost                     |  |            | (10 | )                     |   | (15 | )
|MWh generation                         |  |            | 28  |                       |   | 13  |  
|Other                                  |  |            | 13  |                       |   |    |  
|                                       |  |            |     |                       |   |     |  
|1999 fuel expense                      |  | $          | 761 |                       | $ | 341 |  

---

Purchased and Exchanged Power

Purchased and exchanged poweris the electricity that is bought to be sold through our energy marketing and
trading activities.Purchased and exchanged poweris also occasionally purchased forPSI'sand CG&E'sretail customers. This expense decreased forCinergy,CG&E, andPSIin 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.

Gas Purchased

Gas purchasedexpense increased forCinergyin 1999, when
compared to 1998. This increase primarily reflected 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 was mainly due to decreased
sales volumes as previously indicated above in "Gas Operating Revenues".

Operation and Maintenance

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 17 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" for a discussion of the WVPA settlement.

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 represented a return to a more normal level of maintenance expenditures.

Depreciation and Amortization

Cinergy's,CG&E's, andPSI'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 forCG&E'sWilliam H. Zimmer Station.

EQUITY IN EARNINGS OF UNCONSOLIDATED SUBSIDIARIES

Cinergy'sEquity in earnings of unconsolidated subsidiariesincreased $7 million
in 1999, as compared to 1998. This increase was primarily driven by the earnings of our non-regulated domestic and international subsidiaries. Included inEquity in
earnings of unconsolidated subsidiarieswas $58 million for 1999, and $57 million for 1998, related to our 50% ownership interest in Midlands. For further
information see Note 10 of the "Notes to the Financial Statements" in "Item 8. Financial Statements and Supplementary Data".

GAIN ON SALE OF INVESTMENT IN UNCONSOLIDATED SUBSIDIARY

On July 15, 1999, we sold our 50% ownership interest in Midlands, 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".

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.

FUTURE EXPECTATIONS/TRENDS

In the "Future Expectations/Trends" section, we discuss electric and gas industry developments, market risk sensitive instruments and positions, accounting
changes, and the shareholder rights plan. 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 are aimed at promoting customer choice and are shaping this transition. Customer choice provides the customer the
ability to select an energy supplier (the company that generates or supplies the commodity) in an open and competitive marketplace. This emerging environment presents significant challenges, which are
discussed below.

Wholesale Market Developments

In 1996, the 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 record price spikes. These spikes were caused by a number of factors
including unseasonably hot weather, unplanned generating unit outages, transmission constraints, and increased electric commodity market volatility. These simultaneous events created temporary but
extreme prices in the Midwest electricity markets. In response to these events, we have aggressively adopted a model that is focused on a balance of customers and supply.

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

On
March 9, 2000, the Indiana Utility Regulatory Commission (IURC) issued an order, requiring the partnership to immediately suspend all construction activities at the site
located near Cadiz, (Henry County) Indiana (a peaking plant with a total capacity of 129 MW, of which we own 65 MW). In making this decision the IURC found that it needed additional information
related to the project before issuing a final decision. The IURC requested the Henry County Planning Commission and/or the Henry County Commissioners to supply additional information, which was
provided on June 1, 2000.
The issues raised were air quality, water supply, noise control, landscaping, plant abandonment, and emergency services training. During the third quarter of 2000, the partnership filed responses to
the issues indicating how it would address these concerns. The IURC held a hearing on this matter on November 17, 2000, and a ruling is expected in the first half of 2001. Although we expect a
favorable ruling from the IURC, at this timeCinergycannot predict the outcome of this matter.

The
remaining two facilities became fully operational in June 2000. The total capacity of these operational plants is approximately 1,280 MW.

On
December 12, 2000,Cinergyannounced that one of its non-regulated affiliates entered into a definitive agreement
with Enron to acquire two natural gas-fired merchant electric generating facilities. The acquisition will consist of a 494 MW facility in Tennessee and a 504 MW facility in Mississippi.

Cinergy'sportfolio of natural gas-fired peaking stations has increased due to the partnership with Duke and the pending
consummation of the acquisition of the Enron units.CG&EandPSIalso have an additional 856 MW of
capacity that are natural gas-fired. These units are used to meet the demand for electric commodity in periods of high electric use by our customers. In the latter part of 2000 natural gas
was selling at record prices. If it is necessary forCinergyto call upon the use of our natural gas-fired peakers, the cost of natural gas
will directly affectCinergy'scost to supply the electric commodity to our customers.

Demand-side ActionsDemand (the amount of electric power that can be used at a
point in time) on our system is expected to be reduced in future years as a result of the expiration of existing wholesale contractual obligations and peak load management initiatives which we have
recently developed. Also, Ohio's recently enacted customer choice legislation contemplates that 20% ofCG&E'sretail load will switch to alternative
suppliers by December 2003. In its approved transition plan,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 a further
discussion on Ohio deregulation, see Note 18 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data".

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. Under the customer choice
initiatives, we will continue to transmit and distribute electricity; however, the customer can purchase electricity from any available supplier and we will be compensated by a charge to use our
transmission assets. The following sections 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 and Congress made attempts to legislate comprehensive
electric industry restructuring during the past four years. After attempting to reach a consensus on comprehensive electric restructuring legislation, the U.S. Senate, on June 30, 2000,
approved S. 2071, the Electric Reliability 2000 Act. The S. 2071 would have authorized the establishment of a North American Electric Reliability Organization and did not legislate on additional
issues surrounding the restructuring of the electric industry. President Bush has indicated that legislation addressing the energy security needs of America, deserves prompt consideration. The start
of a new congressional session and presidential administration makes comprehensive electric industry deregulation uncertain in the near future.

OhioOn July 6, 1999, Ohio Governor Robert Taft signed Amended Substitute Senate Bill
No. 3 (Electric Restructuring Bill), beginning the transition to electric deregulation and customer choice for the state of Ohio. The Electric Restructuring Bill created a competitive electric
retail service market effective January 1, 2001. The legislation provided for a market development period that began January 1, 2001, and ends no later than December 31, 2005.
Ohio electric utilities have an opportunity to recover PUCO-approved transition costs during a transition period. The legislation also froze retail electric rates during the market
development period, at the rates in effect on October 4, 1999, except for a five-percent reduction in the generation component of residential rates. Furthermore, the legislation
contemplated that 20% of the current electric retail customers will switch suppliers no later than December 31, 2003.

On
May 8, 2000,CG&Ereached a stipulated agreement with the PUCO staff and various other interested parties with respect to its
proposal to implement electric customer choice in Ohio effective January 1, 2001. On August 31, 2000, the PUCO approvedCG&E'sstipulation
agreement. The major features of this agreement include:



With
regard to the PUCO's order, two parties filed applications for rehearing with the PUCO. On October 18, 2000, the PUCO denied these applications. One of the parties
appealed to the Ohio Supreme Court in the fourth quarter of 2000 andCG&Esubsequently intervened in that case. CG&Eis unable to predict the
outcome of this appeal.

As
previously discussed, the August 31, 2000 order authorizesCG&Eto transfer its generation assets to one or more
non-regulated corporate subsidiary(ies). This transfer may require the approval or consent of one or more of the following: the IURC, the Kentucky Public Service Commission (KPSC), the
FERC, the SEC under the PUHCA, and various third parties. As the transfer is contingent upon the company receiving various consents and approvals, the timing and receipt of which are unknown, the
completion date of the transfer of generation assets to a non-regulated subsidiary is uncertain. See
Note 1(c) of the "Notes to the Financial Statements" in "Item 8. Financial Statements and Supplementary Data" regarding the effects of the transition order.

In
connection with its approved stipulation agreement,CG&Ediscontinued the application of Statement of Financial Accounting Standards
No. 71,Accounting for the Effects of Certain Types of Regulation(Statement 71), for the generation portion of its business and adopted
Statement of Financial Accounting Standards No. 101, Regulated EnterprisesAccounting for Discontinuation of
Application of FASB Statement No. 71,with no material financial statement impact. Pursuant to Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of, our analysis indicates future revenues will
be sufficient to recover the costs of our generating assets over their estimated remaining lives.

IndianaDue to a "short session" in 2000, the Indiana General Assembly did not consider any electric deregulation initiatives. Electric
industry deregulation is not expected to be addressed by the 2001 Indiana General Assembly. 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 (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 StatesTwenty-four states and the District of Columbia have adopted
deregulation plans. In response to the situation in California, some of these states, while not having similar experiences as California, are considering delaying or altering terms of implementation.
A number of the remaining states are reconsidering their deregulation timetables. While we believe the situation in Ohio, as

described above, and generally within the Midwest are different than California, we cannot predict the consequences, if any, to efforts to deregulate the remaining markets within our service
territory. Indiana and Kentucky have not yet approved legislation.

Other

Under generally accepted accounting principles,PSI,CG&E, and ULH&Papply the provisions of Statement 71 to the applicable rate-regulated portions of their businesses. The provisions of
Statement 71 allowPSI,CG&E, andULH&Pto
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, 2000,PSI, CG&E, andULH&P, have $977 million of net regulatory assets, of which $938 million have
been approved for recovery.

Except
with respect to the generation assets ofCG&E, as of December 31, 2000, PSI,CG&E, andULH&Pcontinue to meet each of the
criteria required for the use of Statement 71. However, as other states implement deregulation legislation, the application of Statement 71 will need to be reviewed. Based on our operating companies'
current regulatory orders and the regulatory environment in which they currently operate, the future recovery of regulatory assets recognized in the accompanying Balance Sheets as of
December 31, 2000, is probable. The effect of future 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 Note 1(c) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" for a
further discussion of our regulatory assets.

Midwest ISO

As part of the effort to create a competitive wholesale power marketplace, the FERC approved the formation of the Midwest Independent Transmission System
Operator, Inc. (Midwest ISO) during 1998. In that same year,Cinergyagreed to join the Midwest ISO in preparation for meeting anticipated
changes in the FERC regulations and future deregulation requirements. The Midwest ISO was established as a non-profit organization to maintain functional control over the combined
transmission systems of its members. The organization was expected to begin operations in November 2001.

In
the fall of 2000, three transmission owners announced their intent to leave the Midwest ISO and join the proposed Alliance Regional Transmission Organization (Alliance RTO) by the
end of 2001. The Alliance RTO is a planned for-profit transmission company involving various utilities which have transmission systems that cover parts of Michigan, Ohio, Indiana, West
Virginia, and Virginia.

On
December 13, 2000, six additional transmission owners, includingCinergy, announced a plan for conditional withdrawal from
the Midwest ISO, if the other three withdrawing members left the organization.

On
January 24, 2001, the FERC issued an order providing 30 days of confidential settlement talks between the Alliance RTO and the Midwest ISO and its stakeholders, in an
effort to resolve issues related to such withdrawals.Cinergyactively participated in the settlement process. On February 23, 2001, the
settlement judge reported to the FERC that settlement talks produced a unanimous comprehensive settlement between all related parties. Specific details of this settlement are yet to be finalized and
will need approval by the FERC. The definitive settlement agreement language is to be filed with the FERC on March 19, 2001. If approved, the settlement agreement is not expected to present any
material adverse impacts to the company.

Repeal of PUHCA

Early in 2001, the 107th Congress introduced S.206, a bill to repeal the PUHCA, in the U.S. Senate. It has been referred to the Senate Banking, Housing and
Urban Affairs Committee for action. Various proposals to repeal or amend the PUHCA were considered by the previous Congress. In February 1999, the Senate Banking, Housing and Urban Affairs
Committee reported out of committee S.313, a bill to repeal the PUHCA. 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. At the end of the 106th Congress, no action was taken on passage of either of these bills.

During
the Clinton Administration, legislation was introduced which would have repealed the PUHCA as part of a broader restructuring of the electricity industry. At the end of the
Clinton Administration, no action was taken on this legislation. President Bush has identified the need for the repeal of the PUHCA as a priority of the federal energy legislation. We support the
repeal of the PUHCA either as part of broader restructuring of the electricity industry or as separate legislation.

Significant Rate Developments

Purchased Power TrackerOn May 28, 1999, PSIfiled a petition with the IURC seeking approval of a purchased
power tracking mechanism (Tracker). This request was designed to provide for the
recovery of costs related to purchases of power necessary to meet native load requirements to the extent such costs are not sought through the existing fuel adjustment clause. The Tracker applies 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. The Tracker only applies to capacity purchases, which are presented for review and approval by the IURC as reasonable under the circumstances. On May 31, 2000, the IURC approved the
Tracker for the summer of 2000, subject to a review of the summer of 2000 purchases. The IURC subsequently established a procedural schedule. In the first quarter of 2001, a hearing is scheduled to
reviewPSI's2000 purchases and rule on its associated request for recovery of costs. The IURC will also determine whether it is appropriate for PSIto
continue the tracking mechanism for future periods. Amounts relating to PSI's 2000 purchases (approximately $20 million) have been
deferred for subsequent recovery.

Purchased Power AgreementULH&Ppurchases its
energy fromCG&Epursuant to a FERC-approved contract that is due to expire on December 31, 2001. Currently the contract is under
negotiation with the involvement of the KPSC. The ultimate supplier(s) ofULH&P'senergy and the pricing of electric commodity requirements contained in
any new arrangement could reflect a market-based approach. At the current time, we are unable to predict the outcome of this matter.

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:



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 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,
2000, the value-at-risk for the power trading activity was less than 1% of 2000 consolidated operating income and as of December 31, 1999, was less than 1% of 1999
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 2000, and less than 1% in 1999. The daily value-at-risk for the power trading portfolio as of December 31, 1999, was less than 1% of 2000
consolidated operating income and as of December 31, 1998, was also less than 1% of 1999 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
one million dollars as of December 31, 2000, and less than two million dollars at December 31, 1999. The market risk exposures of these non-regulated trading activities is
not considered significant to our financial condition or results of operations.

Concentrations of Credit RiskCredit risk is the exposure to economic loss 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.

Trade Receivables and Physical Power PortfolioOur 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, 2000, we do not believe we had significant exposure to credit risk with our trade accounts receivable within Delivery or our physical portfolio
within Commodities.

Power-TradingContracts 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, 2000, approximately 60% of the activity within the total trading portfolio was with ten counterparties. The majority of
these contracts are for terms of one year or less. Electric power prices can be extremely volatile, and the market can, at times, lack liquidity. Because of these issues, credit risk is generally
greater than with other commodity trading, especially when dealing with new market entrants. Credit discounts are included in the determination of fair value for all open positions in the
power-trading portfolio.

During
the last quarter of 2000, the Western U.S., primarily California, began experiencing unprecedented price levels for wholesale electricity. Because of the nature of deregulation
in California, the utilities have been unable to pass these price increases on to customers. Consequently, California's two largest utilities have accumulated significant unpaid obligations and are
having difficulty obtaining capital. While we maintain a balanced Western U.S. portfolio and have no unrealized gain positions directly with these utilities, a large portion of such positions are with
less than five power marketers. If prices continue at elevated levels or should these utilities be unable to fund their unpaid obligations, credit failures by power marketers could result. Given these
issues, the fair values of our positions in

the Western U.S. have been adjusted to reflect a higher level of credit discount. We have also been actively pursuing other forms of credit enhancement including, but not limited to, parent company
guarantees and letters of credit from counterparties. In determining fair value for all derivative instruments, we consider the credit quality of each counterparty, contractual netting arrangements
for longs and shorts with the same counterparty, and any security obtained. A significant portion of ourEnergy risk management assetsand Energy risk management liabilities
currentare with counterparties in the Western U.S. Nonperformance by any of the Western U.S.
counterparties could have a material effect on the operating results ofCinergy,CG&E, and PSI.

Gas TradingAs of December 31, 2000, approximately 50% of the activity within the physical gas marketing and
trading portfolio represented commitments with 20 counterparties. Credit risk losses related to gas and other physical commodity and trading operations have not been significant. At
December 31, 2000, the credit risk within the gas and commodity trading portfolios was not believed to be significant because of the characteristics of counterparties and customers with which
transactions are executed.

Financial DerivativesPotential 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. The risk management and credit functions operate independently from the business units and other corporate functions, 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. Some of the policies and procedures include requiring parent company guarantees,
various forms of collateral, and the use of mutual netting/closeout agreements.

Exchange Rate Sensitivity

From time to time, we may utilize foreign exchange forward contracts and currency swaps to hedge foreign currency denominated purchase and sale commitments and
certain of our net investments in foreign operations against currency exchange rate fluctuations.

Cinergyhas exposure to fluctuations in exchange rates between the U.S. dollar and the currencies of foreign countries where we have
investments. When it is appropriate we will hedge our exposure to cash flow transactions, such as a dividend payment by one of our foreign subsidiaries. As of December 31, 2000, we do not
believe we had 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, sales of accounts receivable, and
capital leases. The following table reflects the different instruments used and the method of benchmarking interest rates, as of December 31, 2000, and 1999:

|                                       |  |   |  | Interest Benchmark      |  |         |  | 2000 |     | 1999
|-------------------------------------- |  | - |  | ----------------------- |  | ------- |  | ---- | --- | ----
|
|Short-term Bank Loans/Commercial Paper |  |  |  | Short-term Money Market |  | Cinergy |  | $    | 862 |     
|                                       |  |  |  | LIBOR(1)                |  | CG&E    |  |      | 80  |     
|                                       |  |   |  |                         |  | PSI     |  |      | 105 |     
|Pollution Control Debt                 |  |  |  | Daily Market            |  | Cinergy |  |      | 267 |     
|                                       |  |   |  |                         |  | CG&E    |  |      | 184 |     
|                                       |  |   |  |                         |  | PSI     |  |      | 83  |     
|Sales of Accounts Receivable           |  |  |  | Short-term Money Market |  | Cinergy |  |      | 257 |     
|                                       |  |   |  |                         |  | CG&E    |  |      | 156 |     
|                                       |  |   |  |                         |  | ULH&P   |  |      | 26  |     
|                                       |  |   |  |                         |  | PSI     |  |      | 101 |     
|Variable Rate Capital Leases           |  |  |  | LIBOR(1)                |  | Cinergy |  |      | 31  |     
|                                       |  |   |  |                         |  | CG&E    |  |      | 31  |     

---

The
weighted-average interest rates on the above instruments at December 31, 2000, and 1999, were as follows:

2000

1999Short-term Bank Loans/Commercial Paper

7.0
%
6.2
%Pollution Control Debt

4.5
%
4.1
%Sales of Accounts Receivable

6.6
%
6.1
%Variable Rate Capital Leases

7.5
%
5.3
%


At
December 31, 2000, forward yield curves project a decrease in applicable short-term interest rates over the next five years.

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, 2000:

|                      |                                   | Expected Maturity Date
|--------------------- | --------------------------------- | ----------------------
|
|
|Cinergy               |                                   |                       
|Long-term Debt(1)     |                                   | $                     
|                      | Weighted-average interest rate(2) |                       
|Other(3)              |                                   | $                     
|                      | Weighted-average interest rate(2) |                       
|Capital Leases        |                                   |                       
|                      | Fixed rate leases                 |                       
|                      | Interest rate                     |                       
|                      | Variable rate leases              |                       
|                      | Weighted-average interest rate(2) |                       
|CG&E and subsidiaries |                                   |                       
|Long-term Debt(1)     |                                   | $                     
|                      | Weighted-average interest rate(2) |                       
|Capital Leases        |                                   |                       
|                      | Fixed rate leases                 |                       
|                      | Interest rate                     |                       
|                      | Variable rate leases              |                       
|                      | Weighted-average interest rate(2) |                       
|PSI                   |                                   |                       
|Long-term Debt(1)     |                                   | $                     
|                      | Weighted-average interest rate(2) |                       
|Capital Lease         |                                   |                       
|                      | Fixed rate leases                 |                       
|                      | Interest rate                     |                       

|ULH&P             |                                   |  |   |     |   |   |     |   |    |     |   |   |     |   |   |     |   |    |     |   |    |     |   |   
|----------------- | --------------------------------- |  | - | --- | - | - | --- | - | -- | --- | - | - | --- | - | - | --- | - | -- | --- | - | -- | --- | - | --
|Long-term Debt(1) |                                   |  |  |     |   |  |     | $ | 20 |     |   |  |     |   |  |     | $ | 55 |     | $ | 75 |     | $ | 76
|                  | Weighted-average interest rate(2) |  |   |    |   |   |    |   |    | 6.1 | % |   |    |   |   |    |   |    | 7.3 | % |    | 7.0 | % |   
|Capital Lease     |                                   |  |   |     |   |   |     |   |    |     |   |   |     |   |   |     |   |    |     |   |    |     |   |   
|                  | Fixed rate leases                 |  | $ | 0.3 |   | $ | 0.4 |   | $  | 0.4 |   | $ | 0.4 |   | $ | 0.4 |   | $  | 2.8 |   | $  | 4.7 |   | $ 
|                  | Interest rate                     |  |   | 6.5 | % |   | 6.5 | % |    | 6.5 | % |   | 6.5 | % |   | 6.5 | % |    | 6.5 | % |    | 6.5 | % |   

---

Our
current policy in managing exposure to fluctuations in interest rates is to maintain approximately 25% of the total amount outstanding debt in floating interest rate debt
instruments. To help maintain this level of exposure, we have previously, and will consider in the future, entering into interest rate swaps. Under these swaps, we agree with other parties to
exchange, at specified intervals, the difference between fixed rate and floating rate interest amounts calculated on an agreed notional amount.PSIhad
an interest rate swap agreement that expired on November 15, 2000, which had a notional amount of $100 million.CG&Ehas an outstanding
interest rate swap agreement that decreased the percentage of floating rate debt. Under the seven year agreement, which has a notional amount of $100 million, CG&Epays a fixed rate and
receives a floating rate. This swap qualifies as a cash flow hedge under the provisions of Statement of Financial Accounting
Standards No. 133,Accounting for Derivative Instruments and Hedging Activities(Statement 133). As the terms of the swap agreement mirror the
terms of the debt agreement that it is hedging, we anticipate that this swap will be effective as a hedge. Future changes in fair value of this swap will be recorded in Accumulated other comprehensive income (loss),beginning with our adoption of Statement 133 effective January 1, 2001. 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

Customer ChoiceIn 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.

In
early 2001, an alternative gas supplier withinCG&E'sfranchise territory was removed from participating in the Ohio Gas Customer
Choice program as a result of numerous violations of the terms and conditions of the program.CG&Ehas filed a complaint with the PUCO requesting a
finding that it complied with the terms and conditions of the Ohio Gas Customer Choice program in terminating the supplier from the program.CG&Eis
also requesting reimbursement of its costs incurred to date in connection with this matter.CG&Eestimates that the financial statement exposure is
immaterial.

In
early 2001,Cinergy,CG&E, and Cinergy Resources, Inc. (a former
subsidiary of Investments which was sold in January 2000) were named as defendants in two class action lawsuits. These lawsuits are in connection with the above referenced alternative gas
supplier's removal from the Ohio Gas Customer Choice program and its failure to deliver gas supply to its customers. At the present time,Cinergyand CG&Ecannot predict the outcome of this litigation.

Gas PricesThe market price of natural gas has increased significantly in 2000, which has
causedCG&EandULH&Pto pay more for the gas they deliver to customers. Neither CG&EnorULH&Pprofit from changes in the cost of gas. This cost is passed directly through to the
customerdollar-for-dollarunder the gas cost recovery mechanisms that are applicable in Ohio and Kentucky. In addition to regularly scheduled filings,
bothCG&EandULH&Pmade several interim filings during 2000 for increased gas cost recovery rates with
the PUCO and the KPSC, respectively, in order to keep the rates passed through to customers as current as possible. In January 2001, the KPSC ordered all gas distribution companies in Kentucky,
includingULH&P, to begin filing and revising their gas cost recovery rate every month until further notice. We believe that the commissions will
continue to allow recovery of prudently incurred gas costs.

INFLATION

We believe that the recent inflation rates do not materially impact our financial condition. However, under existing regulatory practice for all of PSI, andULH&P, and the non-generating portion of CG&E, 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.

ACCOUNTING CHANGES

During 1998, the Financial Accounting Standards Board (FASB) issued Statement 133. This standard is effective for fiscal years beginning after June 15,
2000, and requires companies to record derivative instruments 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. Gains and losses on derivatives that qualify as hedges can offset related fair value changes on the hedged item in the income statement for fair value
hedges or be recorded in other comprehensive income for cash flow hedges.

We will reflect the adoption of this standard in financial statements issued beginning in the first quarter of 2001. Since many of the existing relevant contracts and financial
instruments are currently required to use mark-to-market accounting, we anticipate the effects of implementation to be immaterial. These effects do not reflect the potential
effects of applying mark-to-market accounting to selected call options and forwards we use to hedge peak period exposure to electricity demand. We have not historically marked
these instruments to market because they are intended as hedges of peak period exposure and are not considered trading instruments. Our intent is to classify these types of instruments as normal
purchases under Statement 133. However, the FASB-sponsored Derivatives Implementation Group has yet to issue its final guidance on these types of instruments. There are currently
viewpoints that range from allowing them as normal purchases to not allowing hedge accounting under Statement 133. Given these issues, there is the possibility that these instruments will require
mark-to-market accounting. This could create additional volatility in future earnings. At December 31, 2000, the fair value of these instruments was not material.

SHAREHOLDER RIGHTS PLAN

On July 19, 2000,Cinergy Corp.'sboard of directors approved a Shareholder Rights Plan, (the Plan)
which subsequently received SEC authorization under the PUHCA on October 6, 2000.

Under
the Plan, each shareholder of record on October 30, 2000, received, as a dividend, a right to purchase fromCinergy Corp.one share of common stock at a price of $100. Initially, the rights will not be represented by separate certificates and will not trade separately fromCinergy
Corp.shares of
common stock. The rights would separate from the common stock ten days after either of the following occurred:



The
rights become exercisable if one of these events occurs and the rights are no longer redeemable by the board of directors. If the rights become exercisable after someone has
acquired ten percent or more of the company's common stock, holders of the rights will have the right to purchase the common stock ofCinergy Corp.at a
50% discount. However, any rights held by the acquirer would not be exercisable.

In
addition, if the rights become exercisable andCinergy Corp.engages in a merger or consolidation in which it is not the surviving
corporation or in which all or part of its common stock is changed or exchanged, or if 50% or more of the company's assets are sold, each holder of a right would have the right to acquire common stock
of the acquirer at a 50% discount.

The
board of directors may directCinergy Corp.to redeem the rights at $.01 per right at any time before the tenth day following the
acquisition of ten percent or more ofCinergy Corp.'scommon stock. The rights will expire in October of 2010 unless earlier redeemed or extended by the
company.

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".





INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES



|                                                      
|------------------------------------------------------
|FINANCIAL STATEMENTS                                  
|Report of Independent Public Accountants              
|Cinergy Corp. and Subsidiaries                        
|                                                      
|                                                      
|                                                      
|                                                      
|The Cincinnati Gas & Electric Company and Subsidiaries
|                                                      
|                                                      
|                                                      
|                                                      
|                                                      
|PSI Energy, Inc. and Subsidiary                       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                      
|The Union Light, Heat and Power Company               
|                                                      
|                                                      
|                                                      
|                                                      
|                                                      
|Notes to Financial Statements                         
|FINANCIAL STATEMENT SCHEDULES                         
|                                                      
|                                                      
|                                                      
|                                                      
|                                                      

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.





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, 2000 and 1999, and for each of the three years in the period ended
December 31, 2000, as listed on the index. 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 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, 2000 and 1999, and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States.

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 pursuant to Item 14, are presented for
purposes of complying with the Securities and Exchange Commission's Rules of 1934 and are not 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 therein in relation to the basic
financial statements taken as a whole.

Arthur
Andersen LLP
Cincinnati, Ohio
January 23, 2001





CINERGY CORP.AND SUBSIDIARY COMPANIES



CINERGY CORP.        CONSOLIDATED STATEMENTS OF INCOME

|                                                                 |                                        | 2000                     |         | 1999      |           | 1998    |          
|---------------------------------------------------------------- | -------------------------------------- | ------------------------ | ------- | --------- | --------- | ------- | ---------
|
|Operating Revenues                                               |                                        |                          |         |           |           |         |          
|                                                                 | Electric                               |                          | $       | 5,384,082 |           | $       | 4,312,899
|                                                                 | Gas                                    |                          |         | 2,941,753 |           |         | 1,596,146
|                                                                 | Other                                  |                          |         | 96,129    |           |         | 28,843   
|                                                                 |                                        |                          |         |           |           |         |          
|                                                                 |                                        | Total Operating Revenues |         |           | 8,421,964 |         |          
|Operating Expenses                                               |                                        |                          |         |           |           |         |          
|                                                                 | Fuel and purchased and exchanged power |                          |         | 3,154,213 |           |         | 2,260,297
|                                                                 | Gas purchased                          |                          |         | 2,674,449 |           |         | 1,383,993
|                                                                 | Operation and maintenance              |                          |         | 1,089,363 |           |         | 981,054  
|                                                                 | Depreciation and amortization          |                          |         | 373,965   |           |         | 353,820  
|                                                                 | Taxes other than income taxes          |                          |         | 268,346   |           |         | 265,501  
|                                                                 |                                        |                          |         |           |           |         |          
|                                                                 |                                        | Total Operating Expenses |         |           | 7,560,336 |         |          
|Operating Income                                                 |                                        |                          | 861,628 |           |           | 693,223 |          
|Equity in Earnings of Unconsolidated Subsidiaries                |                                        |                          | 5,048   |           |           | 58,021  |          
|Gain on Sale of Investment in Unconsolidated
Subsidiary(Note 10) |                                        |                          |        |           |           | 99,272  |          
|MiscellaneousNet                                                |                                        |                          | 13,391  |           |           | 2,031   |          
|Interest                                                         |                                        |                          | 224,459 |           |           | 234,778 |          
|                                                                 |                                        |                          |         |           |           |         |          
|Income Before Taxes                                              |                                        |                          | 655,608 |           |           | 617,769 |          
|Income Taxes(Note 11)                                            |                                        |                          | 251,557 |           |           | 208,671 |          
|Preferred Dividend Requirements of Subsidiaries                  |                                        |                          | 4,585   |           |           | 5,457   |          
|                                                                 |                                        |                          |         |           |           |         |          
|Net Income                                                       |                                        | $                        | 399,466 |           | $         | 403,641 |          
|                                                                 |                                        |                          |         |           |           |         |          
|Average Common Shares Outstanding                                |                                        |                          | 158,938 |           |           | 158,863 |          
|Earnings Per Common Share(Note 16)                               |                                        |                          |         |           |           |         |          
|                                                                 | Net Income                             |                          | $       | 2.51      |           | $       | 2.54     
|Earnings Per Common ShareAssuming Dilution(Note 16)             |                                        |                          |         |           |           |         |          
|                                                                 | Net Income                             |                          | $       | 2.50      |           | $       | 2.53     
|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.



CINERGY CORP.        CONSOLIDATED BALANCE SHEETS

|                            |                                                                                                                                                 | December 31
|--------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------- | -----------
|
|
|Current Assets              |                                                                                                                                                 |            
|                            | Cash and cash equivalents                                                                                                                       |            
|                            | Restricted deposits                                                                                                                             |            
|                            | Notes receivable                                                                                                                                |            
|                            | Accounts receivable less accumulated provision for doubtful accounts of $29,951 at December 31, 2000, and $26,811 at December 31, 1999 (Note 6) |            
|                            | Materials, supplies, and fuelat average cost                                                                                                   |            
|                            | Prepayments and other                                                                                                                           |            
|                            | Energy risk management current assets (Note 1(j))                                                                                               |            
|                            |                                                                                                                                                 |            
|                            |                                                                                                                                                 |            
|Utility PlantOriginal Cost |                                                                                                                                                 |            
|                            | In service                                                                                                                                      |            
|                            |                                                                                                                                                 | Electric   
|                            |                                                                                                                                                 | Gas        
|                            |                                                                                                                                                 | Common     
|                            |                                                                                                                                                 |            
|                            |                                                                                                                                                 |            
|                            | Accumulated depreciation                                                                                                                        |            
|                            |                                                                                                                                                 |            
|                            |                                                                                                                                                 |            
|                            | Construction work in progress                                                                                                                   |            
|                            |                                                                                                                                                 |            
|                            |                                                                                                                                                 |            
|Other Assets                |                                                                                                                                                 |            
|                            | Regulatory assets (Note 1(c))                                                                                                                   |            
|                            | Investments in unconsolidated subsidiaries                                                                                                      |            
|                            | Energy risk management non-current assets (Note 1(j))                                                                                           |            
|                            | Other                                                                                                                                           |            
|                            |                                                                                                                                                 |            
|                            |                                                                                                                                                 |            
|Total Assets                |                                                                                                                                                 | $          
|                            |                                                                                                                                                 |            

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



CINERGY CORP.        CONSOLIDATED BALANCE SHEETS

|                                                   |                                                                                                                                                       | December 31 |           
|-------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------- | ----------- | ----------
|
|
|Current Liabilities                                |                                                                                                                                                       |             |           
|                                                   | Accounts payable                                                                                                                                      |             | $         
|                                                   | Accrued taxes                                                                                                                                         |             |           
|                                                   | Accrued interest                                                                                                                                      |             |           
|                                                   | Notes payable and other short-term obligations (Note 5)                                                                                               |             |           
|                                                   | Long-term debt due within one year (Note 4)                                                                                                           |             |           
|                                                   | Energy risk management current liabilities (Note 1(j))                                                                                                |             |           
|                                                   | Other                                                                                                                                                 |             |           
|                                                   |                                                                                                                                                       |             |           
|                                                   |                                                                                                                                                       |             |           
|Non-Current Liabilities                            |                                                                                                                                                       |             |           
|                                                   | Long-term debt (Notes 4 and 17)                                                                                                                       |             |           
|                                                   | Deferred income taxes (Note 11)                                                                                                                       |             |           
|                                                   | Unamortized investment tax credits                                                                                                                    |             |           
|                                                   | Accrued pension and other postretirement benefit costs (Note 9)                                                                                       |             |           
|                                                   | Energy risk management non-current liabilities (Note 1(j))                                                                                            |             |           
|                                                   | Other                                                                                                                                                 |             |           
|                                                   |                                                                                                                                                       |             |           
|                                                   |                                                                                                                                                       |             |           
|Total Liabilities                                  |                                                                                                                                                       |             | 9,477,933 
|Cumulative Preferred Stock of Subsidiaries(Note 3) |                                                                                                                                                       |             |           
|                                                   | Not subject to mandatory redemption                                                                                                                   |             |           
|Common Stock Equity(Note 2)                        |                                                                                                                                                       |             |           
|                                                   | Common Stock$.01 par value; authorized shares600,000,000; outstanding shares158,967,661 at December 31, 2000, and 158,923,399 at December 31, 1999 |             |           
|                                                   | Paid-in capital                                                                                                                                       |             |           
|                                                   | Retained earnings                                                                                                                                     |             |           
|                                                   | Accumulated other comprehensive income (loss)                                                                                                         |             |           
|                                                   |                                                                                                                                                       |             |           
|                                                   |                                                                                                                                                       |             |           
|Commitments and Contingencies(Note 12)             |                                                                                                                                                       |             |           
|Total Liabilities and Shareholders' Equity         |                                                                                                                                                       | $           | 12,329,728
|                                                   |                                                                                                                                                       |             |           

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





CINERGY CORP.        CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY

|                                               |                                                                  | Common
Stock                                       |       | Paid-in
Capital |   | Retained
Earnings |   | Accumulated
Other
Comprehensive
Income (Loss) |           | Total
Common Stock
Equity |  
|---------------------------------------------- | ---------------------------------------------------------------- | -------------------------------------------------- | ----- | --------------- | - | ----------------- | - | --------------------------------------------- | --------- | ------------------------- | -
|
|1998                                           |                                                                  |                                                    |       |                 |   |                   |   |                                               |           |                           |  
|Beginning balance                              |                                                                  | $                                                  | 1,577 |                 | $ | 1,573,064         |   | $                                             | 967,420   |                           | $
|Comprehensive income:                          |                                                                  |                                                    |       |                 |   |                   |   |                                               |           |                           |  
|                                               | Net income                                                       |                                                    |       |                |   |                   |  |                                               |           | 260,968                   |  
|                                               | Other comprehensive income (loss), net of tax effect of $(1,815) |                                                    |       |                 |   |                   |   |                                               |           |                           |  
|                                               |                                                                  | 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                      |                                                                  |                                                    |      |                 |   |                  |   |                                               | (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 $5,289   |                                                    |       |                 |   |                   |   |                                               |           |                           |  
|                                               |                                                                  | Foreign currency translation adjustment            |       |                 |  |                   |   |                                              |           |                           | 
|                                               |                                                                  | Minimum pension liability adjustment               |       |                 |  |                   |   |                                              |           |                           | 
|                                               |                                                                  | Unrealized gain (loss) 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                      |                                                                  |                                                    |      |                 |   |                  |   |                                               | (284,545  | )                         |  
|Other                                          |                                                                  |                                                    |      |                 |   | (7,830            | ) |                                               | 9         |                           |  
|                                               |                                                                  |                                                    |       |                 |   |                   |   |                                               |           |                           |  
|Ending balance                                 |                                                                  | $                                                  | 1,589 |                 | $ | 1,597,554         |   | $                                             | 1,064,319 |                           | $
|2000                                           |                                                                  |                                                    |       |                 |   |                   |   |                                               |           |                           |  
|Comprehensive income:                          |                                                                  |                                                    |       |                 |   |                   |   |                                               |           |                           |  
|                                               | Net income                                                       |                                                    |       |                |   |                   |  |                                               |           | 399,466                   |  
|                                               | Other comprehensive income (loss), net of tax effect of $2,755   |                                                    |       |                 |   |                   |   |                                               |           |                           |  
|                                               |                                                                  | Foreign currency translation adjustment            |       |                 |  |                   |   |                                              |           |                           | 
|                                               |                                                                  | Minimum pension liability adjustment               |       |                 |  |                   |   |                                              |           |                           | 
|                                               |                                                                  | Unrealized gain (loss) on grantor and rabbi trusts |       |                 |  |                   |   |                                              |           |                           | 
|                                               |                                                                  |                                                    |       |                 |   |                   |   |                                               |           |                           |  
|                                               | Total comprehensive income                                       |                                                    |       |                |   |                   |  |                                               |           |                          |  
|Issuance of 44,262 shares of common stocknet  |                                                                  |                                                    | 1     |                 |   | 1,769             |   |                                               |          |                           |  
|Treasury shares purchased                      |                                                                  |                                                    |      |                 |   | (3,969            | ) |                                               |          |                           |  
|Treasury shares reissued                       |                                                                  |                                                    |      |                 |   | 16,264            |   |                                               |          |                           |  
|Dividends on common stock                      |                                                                  |                                                    |      |                 |   |                  |   |                                               | (285,242  | )                         |  
|Other                                          |                                                                  |                                                    |      |                 |   | 7,535             |   |                                               | 570       |                           |  
|                                               |                                                                  |                                                    |       |                 |   |                   |   |                                               |           |                           |  
|Ending balance                                 |                                                                  | $                                                  | 1,590 |                 | $ | 1,619,153         |   | $                                             | 1,179,113 |                           | $
|                                               |                                                                  |                                                    |       |                 |   |                   |   |                                               |           |                           |  

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



CINERGY CORP.        CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                     |                                                                                      | 2000                                                          |                                                                    | 1999                                                |         | 1998     |         
|---------------------------------------------------- | ------------------------------------------------------------------------------------ | ------------------------------------------------------------- | ------------------------------------------------------------------ | --------------------------------------------------- | ------- | -------- | --------
|
|Operating Activities                                 |                                                                                      |                                                               |                                                                    |                                                     |         |          |         
|                                                     | Net income                                                                           |                                                               | $                                                                  | 399,466                                             |         | $        | 403,641 
|                                                     | Items providing or (using) cash currently:                                           |                                                               |                                                                    |                                                     |         |          |         
|                                                     |                                                                                      | Depreciation and amortization                                 |                                                                    |                                                     | 373,965 |          |         
|                                                     |                                                                                      | Wabash Valley Power Association, Inc. settlement              |                                                                    |                                                     |        |          |         
|                                                     |                                                                                      | Deferred income taxes and investment tax creditsnet          |                                                                    |                                                     | 47,404  |          |         
|                                                     |                                                                                      | Gain on sale of investment in unconsolidated subsidiary       |                                                                    |                                                     |        |          |         
|                                                     |                                                                                      | Unrealized (gain) loss from energy risk management activities |                                                                    |                                                     | 2,419   |          |         
|                                                     |                                                                                      | Equity in earnings of unconsolidated subsidiaries             |                                                                    |                                                     | (5,048  | )        |         
|                                                     |                                                                                      | Allowance for equity funds used during construction           |                                                                    |                                                     | (5,813  | )        |         
|                                                     |                                                                                      | Regulatory assets  net                                       |                                                                    |                                                     | (6,805  | )        |         
|                                                     |                                                                                      | Changes in current assets and current liabilities:            |                                                                    |                                                     |         |          |         
|                                                     |                                                                                      |                                                               | Restricted deposits                                                |                                                     |         | (3,567   | )       
|                                                     |                                                                                      |                                                               | Accounts and notes receivable, net of reserves on receivables sold |                                                     |         | (963,309 | )       
|                                                     |                                                                                      |                                                               | Materials, supplies, and fuel                                      |                                                     |         | 46,409   |         
|                                                     |                                                                                      |                                                               | Accounts payable                                                   |                                                     |         | 761,557  |         
|                                                     |                                                                                      |                                                               | Accrued taxes and interest                                         |                                                     |         | 25,737   |         
|                                                     |                                                                                      | Other itemsnet                                               |                                                                    |                                                     | (51,811 | )        |         
|                                                     |                                                                                      |                                                               |                                                                    |                                                     |         |          |         
|                                                     |                                                                                      |                                                               |                                                                    | Net cash provided by operating activities           |         |          | 620,604 
|Financing Activities                                 |                                                                                      |                                                               |                                                                    |                                                     |         |          |         
|                                                     | Change in short-term debt                                                            |                                                               |                                                                    | 578,463                                             |         |          | (353,506
|                                                     | Issuance of long-term debt                                                           |                                                               |                                                                    | 126,420                                             |         |          | 829,948 
|                                                     | Redemption of long-term debt                                                         |                                                               |                                                                    | (234,247                                            | )       |          | (553,191
|                                                     | Retirement of preferred stock of subsidiaries                                        |                                                               |                                                                    | (29,393                                             | )       |          | (34     
|                                                     | Issuance of common stock                                                             |                                                               |                                                                    | 1,770                                               |         |          | 6,722   
|                                                     | Dividends on common stock                                                            |                                                               |                                                                    | (285,242                                            | )       |          | (285,925
|                                                     |                                                                                      |                                                               |                                                                    |                                                     |         |          |         
|                                                     |                                                                                      |                                                               |                                                                    | Net cash provided by (used in) financing activities |         |          | 157,771 
|Investing Activities                                 |                                                                                      |                                                               |                                                                    |                                                     |         |          |         
|                                                     | Construction expenditures (less allowance for equity funds used during construction) |                                                               |                                                                    | (519,574                                            | )       |          | (386,293
|                                                     | Acquisition of businesses (net of cash acquired)                                     |                                                               |                                                                    |                                                    |         |          | (24,500 
|                                                     | Investments in unconsolidated subsidiaries                                           |                                                               |                                                                    | (171,298                                            | )       |          | (284,343
|                                                     | Miscellaneous investments                                                            |                                                               |                                                                    | (76,368                                             | )       |          | (48,808 
|                                                     | Sale of investment in unconsolidated subsidiary                                      |                                                               |                                                                    |                                                    |         |          | 690,269 
|                                                     |                                                                                      |                                                               |                                                                    |                                                     |         |          |         
|                                                     |                                                                                      |                                                               |                                                                    | Net cash used in investing activities               |         |          | (767,240
|Net increase (decrease) in cash and cash equivalents |                                                                                      |                                                               | 11,135                                                             |                                                     |         | (18,235  | )       
|Cash and cash equivalents at beginning of period     |                                                                                      |                                                               | 81,919                                                             |                                                     |         | 100,154  |         
|                                                     |                                                                                      |                                                               |                                                                    |                                                     |         |          |         
|Cash and cash equivalents at end of period           |                                                                                      | $                                                             | 93,054                                                             |                                                     | $       | 81,919   |         
|                                                     |                                                                                      |                                                               |                                                                    |                                                     |         |          |         
|Supplemental Disclosure of Cash Flow Information     |                                                                                      |                                                               |                                                                    |                                                     |         |          |         
|                                                     | Cash paid during the year for:                                                       |                                                               |                                                                    |                                                     |         |          |         
|                                                     |                                                                                      | Interest (net of amount capitalized)                          |                                                                    | $                                                   | 223,666 |          | $       
|                                                     |                                                                                      | Income taxes                                                  |                                                                    | $                                                   | 216,556 |          | $       

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





THE CINCINNATI GAS &  ELECTRIC COMPANYAND SUBSIDIARY COMPANIES



THE CINCINNATI GAS & ELECTRIC COMPANY        CONSOLIDATED STATEMENTS OF INCOME

|                                      |                                        | 2000                     |         | 1999      |           | 1998    |          
|------------------------------------- | -------------------------------------- | ------------------------ | ------- | --------- | --------- | ------- | ---------
|
|Operating Revenues                    |                                        |                          |         |           |           |         |          
|                                      | Electric                               |                          | $       | 2,738,775 |           | $       | 2,174,861
|                                      | Gas                                    |                          |         | 490,972   |           |         | 376,013  
|                                      |                                        |                          |         |           |           |         |          
|                                      |                                        | Total Operating Revenues |         |           | 3,229,747 |         |          
|Operating Expenses                    |                                        |                          |         |           |           |         |          
|                                      | Fuel and purchased and exchanged power |                          |         | 1,554,959 |           |         | 1,066,490
|                                      | Gas purchased                          |                          |         | 266,339   |           |         | 171,997  
|                                      | Operation and maintenance              |                          |         | 462,601   |           |         | 416,257  
|                                      | Depreciation and amortization          |                          |         | 209,922   |           |         | 204,468  
|                                      | Taxes other than income taxes          |                          |         | 208,385   |           |         | 212,193  
|                                      |                                        |                          |         |           |           |         |          
|                                      |                                        | Total Operating Expenses |         |           | 2,702,206 |         |          
|Operating Income                      |                                        |                          | 527,541 |           |           | 479,469 |          
|MiscellaneousNet                     |                                        |                          | (2,119  | )         |           | (2,480  | )        
|Interest                              |                                        |                          | 99,204  |           |           | 99,737  |          
|                                      |                                        |                          |         |           |           |         |          
|Income Before Taxes                   |                                        |                          | 426,218 |           |           | 377,252 |          
|Income Taxes(Note 11)                 |                                        |                          | 159,398 |           |           | 143,676 |          
|                                      |                                        |                          |         |           |           |         |          
|Net Income                            |                                        | $                        | 266,820 |           | $         | 233,576 |          
|Preferred Dividend Requirement        |                                        |                          | 847     |           |           | 856     |          
|                                      |                                        |                          |         |           |           |         |          
|Net Income Applicable to Common Stock |                                        | $                        | 265,973 |           | $         | 232,720 |          
|                                      |                                        |                          |         |           |           |         |          

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



THE CINCINNATI GAS & ELECTRIC COMPANY        CONSOLIDATED BALANCE SHEETS

|                            |                                                                                                                                                 | December 31
|--------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------- | -----------
|
|
|Current Assets              |                                                                                                                                                 |            
|                            | Cash and cash equivalents                                                                                                                       |            
|                            | Restricted deposits                                                                                                                             |            
|                            | Notes receivable from affiliated companies                                                                                                      |            
|                            | Accounts receivable less accumulated provision for doubtful accounts of $19,044 at December 31, 2000, and $16,740 at December 31, 1999 (Note 6) |            
|                            | Accounts receivable from affiliated companies                                                                                                   |            
|                            | Materials, supplies, and fuelat average cost                                                                                                   |            
|                            | Prepayments and other                                                                                                                           |            
|                            | Energy risk management current assets (Note 1(j))                                                                                               |            
|                            |                                                                                                                                                 |            
|                            |                                                                                                                                                 |            
|Utility PlantOriginal Cost |                                                                                                                                                 |            
|                            | In service                                                                                                                                      |            
|                            |                                                                                                                                                 | Electric   
|                            |                                                                                                                                                 | Gas        
|                            |                                                                                                                                                 | Common     
|                            |                                                                                                                                                 |            
|                            |                                                                                                                                                 |            
|                            | Accumulated depreciation                                                                                                                        |            
|                            |                                                                                                                                                 |            
|                            |                                                                                                                                                 |            
|                            | Construction work in progress                                                                                                                   |            
|                            |                                                                                                                                                 |            
|                            |                                                                                                                                                 |            
|Other Assets                |                                                                                                                                                 |            
|                            | Regulatory assets (Note 1(c))                                                                                                                   |            
|                            | Energy risk management non-current assets (Note 1(j))                                                                                           |            
|                            | Other                                                                                                                                           |            
|                            |                                                                                                                                                 |            
|                            |                                                                                                                                                 |            
|Total Assets                |                                                                                                                                                 | $          
|                            |                                                                                                                                                 |            

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



THE CINCINNATI GAS & ELECTRIC COMPANY        CONSOLIDATED BALANCE SHEETS

|                                           |                                                                                                                                        | December 31                   |          
|------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------- | ---------
|
|
|Current Liabilities                        |                                                                                                                                        |                               |          
|                                           | Accounts payable                                                                                                                       |                               | $        
|                                           | Accounts payable to affiliated companies                                                                                               |                               |          
|                                           | Accrued taxes                                                                                                                          |                               |          
|                                           | Accrued interest                                                                                                                       |                               |          
|                                           | Notes payable and other short-term obligations (Note 5)                                                                                |                               |          
|                                           | Notes payable to affiliated companies                                                                                                  |                               |          
|                                           | Long-term debt due within one year (Note 4)                                                                                            |                               |          
|                                           | Energy risk management current liabilities (Note 1(j))                                                                                 |                               |          
|                                           | 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)                                                                        |                               |          
|                                           | Energy risk management non-current liabilities (Note 1(j))                                                                             |                               |          
|                                           | Other                                                                                                                                  |                               |          
|                                           |                                                                                                                                        |                               |          
|                                           |                                                                                                                                        | Total Non-Current Liabilities |          
|Total Liabilities                          |                                                                                                                                        |                               | 4,270,654
|Cumulative Preferred Stock(Note 3)         |                                                                                                                                        |                               |          
|                                           | Not subject to mandatory redemption                                                                                                    |                               |          
|Common Stock Equity(Note 2)                |                                                                                                                                        |                               |          
|                                           | Common Stock$8.50 par value; authorized shares120,000,000; outstanding shares89,663,086 at December 31, 2000, and December 31, 1999 |                               |          
|                                           | Paid-in capital                                                                                                                        |                               |          
|                                           | Retained earnings                                                                                                                      |                               |          
|                                           | Accumulated other comprehensive income (loss)                                                                                          |                               |          
|                                           |                                                                                                                                        |                               |          
|                                           |                                                                                                                                        | Total Common Stock Equity     |          
|Commitments and Contingencies(Note 12)     |                                                                                                                                        |                               |          
|Total Liabilities and Shareholder's Equity |                                                                                                                                        | $                             | 5,986,970
|                                           |                                                                                                                                        |                               |          

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





THE CINCINNATI GAS & ELECTRIC COMPANY        CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY

|                                                           |                                                               | Common
Stock                         |         | Paid-in
Capital |   | Retained
Earnings |   | Accumulated
Other
Comprehensive
Income (Loss) |          | Total Common
Stock
Equity |  
|---------------------------------------------------------- | ------------------------------------------------------------- | ------------------------------------ | ------- | --------------- | - | ----------------- | - | --------------------------------------------- | -------- | ------------------------- | -
|
|1998                                                       |                                                               |                                      |         |                 |   |                   |   |                                               |          |                           |  
|Beginning balance                                          |                                                               | $                                    | 762,136 |                 | $ | 534,649           |   | $                                             | 314,553  |                           | $
|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  |                           | $
|2000                                                       |                                                               |                                      |         |                 |   |                   |   |                                               |          |                           |  
|Comprehensive income:                                      |                                                               |                                      |         |                 |   |                   |   |                                               |          |                           |  
|                                                           | Net income                                                    |                                      |         |                |   |                   |  |                                               |          | 266,820                   |  
|                                                           | Other comprehensive income (loss), net of tax effect of $15   |                                      |         |                 |   |                   |   |                                               |          |                           |  
|                                                           |                                                               | Minimum pension liability adjustment |         |                 |  |                   |   |                                              |          |                           | 
|                                                           |                                                               |                                      |         |                 |   |                   |   |                                               |          |                           |  
|                                                           | Total comprehensive income                                    |                                      |         |                |   |                   |  |                                               |          |                          |  
|Dividends on preferred stock                               |                                                               |                                      |        |                 |   |                  |   |                                               | (847     | )                         |  
|Dividends on common stock                                  |                                                               |                                      |        |                 |   |                  |   |                                               | (232,334 | )                         |  
|Contribution from parent company for reallocation of taxes |                                                               |                                      |        |                 |   | 2,894             |   |                                               |         |                           |  
|Other                                                      |                                                               |                                      |        |                 |   | 32                |   |                                               | 128      |                           |  
|                                                           |                                                               |                                      |         |                 |   |                   |   |                                               |          |                           |  
|Ending balance                                             |                                                               | $                                    | 762,136 |                 | $ | 565,777           |   | $                                             | 368,911  |                           | $
|                                                           |                                                               |                                      |         |                 |   |                   |   |                                               |          |                           |  

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



THE CINCINNATI GAS & ELECTRIC COMPANY        CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                     |                                                                                      | 2000                                                          |                                                                    | 1999                                      |         | 1998     |         
|---------------------------------------------------- | ------------------------------------------------------------------------------------ | ------------------------------------------------------------- | ------------------------------------------------------------------ | ----------------------------------------- | ------- | -------- | --------
|
|Operating Activities                                 |                                                                                      |                                                               |                                                                    |                                           |         |          |         
|                                                     | Net income                                                                           |                                                               | $                                                                  | 266,820                                   |         | $        | 233,576 
|                                                     | Items providing or (using) cash currently:                                           |                                                               |                                                                    |                                           |         |          |         
|                                                     |                                                                                      | Depreciation and amortization                                 |                                                                    |                                           | 209,922 |          |         
|                                                     |                                                                                      | Deferred income taxes and investment tax creditsnet          |                                                                    |                                           | 36,238  |          |         
|                                                     |                                                                                      | Unrealized (gain) loss from energy risk management activities |                                                                    |                                           | (7,077  | )        |         
|                                                     |                                                                                      | Allowance for equity funds used during construction           |                                                                    |                                           | (4,459  | )        |         
|                                                     |                                                                                      | Regulatory assetsnet                                         |                                                                    |                                           | (17,623 | )        |         
|                                                     |                                                                                      | Changes in current assets and current liabilities:            |                                                                    |                                           |         |          |         
|                                                     |                                                                                      |                                                               | Restricted deposits                                                |                                           |         | (28      | )       
|                                                     |                                                                                      |                                                               | Accounts and notes receivable, net of reserves on receivables sold |                                           |         | (326,826 | )       
|                                                     |                                                                                      |                                                               | Materials, supplies, and fuel                                      |                                           |         | (62      | )       
|                                                     |                                                                                      |                                                               | Accounts payable                                                   |                                           |         | 248,562  |         
|                                                     |                                                                                      |                                                               | Accrued taxes and interest                                         |                                           |         | 16,902   |         
|                                                     |                                                                                      | Other itemsnet                                               |                                                                    |                                           | (50,226 | )        |         
|                                                     |                                                                                      |                                                               |                                                                    |                                           |         |          |         
|                                                     |                                                                                      |                                                               |                                                                    | Net cash provided by operating activities |         |          | 372,143 
|Financing Activities                                 |                                                                                      |                                                               |                                                                    |                                           |         |          |         
|                                                     | Change in short-term debt                                                            |                                                               |                                                                    | 132,416                                   |         |          | 88,759  
|                                                     | Issuance of long-term debt                                                           |                                                               |                                                                    |                                          |         |          | 19,818  
|                                                     | Redemption of long-term debt                                                         |                                                               |                                                                    |                                          |         |          | (164,264
|                                                     | Retirement of preferred stock                                                        |                                                               |                                                                    | (168                                      | )       |          | (26     
|                                                     | Dividends on preferred stock                                                         |                                                               |                                                                    | (847                                      | )       |          | (856    
|                                                     | Dividends on common stock                                                            |                                                               |                                                                    | (232,334                                  | )       |          | (250,100
|                                                     |                                                                                      |                                                               |                                                                    |                                           |         |          |         
|                                                     |                                                                                      |                                                               |                                                                    | Net cash used in financing activities     |         |          | (100,933
|Investing Activities                                 |                                                                                      |                                                               |                                                                    |                                           |         |          |         
|                                                     | Construction expenditures (less allowance for equity funds used during construction) |                                                               |                                                                    | (260,127                                  | )       |          | (194,132
|                                                     |                                                                                      |                                                               |                                                                    |                                           |         |          |         
|                                                     |                                                                                      |                                                               |                                                                    | Net cash used in investing activities     |         |          | (260,127
|                                                     |                                                                                      |                                                               |                                                                    |                                           |         |          |         
|Net increase (decrease) in cash and cash equivalents |                                                                                      |                                                               | 11,083                                                             |                                           |         | (17,435  | )       
|Cash and cash equivalents at beginning of period     |                                                                                      |                                                               | 9,554                                                              |                                           |         | 26,989   |         
|                                                     |                                                                                      |                                                               |                                                                    |                                           |         |          |         
|Cash and cash equivalents at end of period           |                                                                                      | $                                                             | 20,637                                                             |                                           | $       | 9,554    |         
|                                                     |                                                                                      |                                                               |                                                                    |                                           |         |          |         
|Supplemental Disclosure of Cash Flow Information     |                                                                                      |                                                               |                                                                    |                                           |         |          |         
|                                                     | Cash paid during the year for:                                                       |                                                               |                                                                    |                                           |         |          |         
|                                                     |                                                                                      | Interest (net of amount capitalized)                          |                                                                    | $                                         | 99,009  |          | $       
|                                                     |                                                                                      | Income taxes                                                  |                                                                    | $                                         | 121,158 |          | $       

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





THE CINCINNATI GAS & ELECTRIC COMPANY        CONSOLIDATED STATEMENTS OF CAPITALIZATION

|                                         |                          | December 31                            |                                                                                                                                                              
|---------------------------------------- | ------------------------ | -------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|
|
|Long-term Debt(excludes current portion) |                          |                                        |                                                                                                                                                              
|                                         | CG&E                     |                                        |                                                                                                                                                              
|                                         |                          | First Mortgage Bonds:                  |                                                                                                                                                              
|                                         |                          |                                        | 71/4 % Series due September 1, 2002                                                                                                                          
|                                         |                          |                                        | 6.45% Series due February 15, 2004                                                                                                                           
|                                         |                          |                                        | 7.20% Series due October 1, 2023                                                                                                                             
|                                         |                          |                                        | 5.45% Series due January 1, 2024 (Pollution Control)                                                                                                         
|                                         |                          |                                        | 51/2 % Series due January 1, 2024 (Pollution Control)                                                                                                        
|                                         |                          |                                        |                                                                                                                                                              
|                                         |                          |                                        |                                                                                                                                                              
|                                         |                          | Pollution Control Notes:               |                                                                                                                                                              
|                                         |                          |                                        | 6.50% due November 15, 2022                                                                                                                                  
|                                         |                          | Other Long-term Debt:                  |                                                                                                                                                              
|                                         |                          |                                        | Liquid Asset Notes with Coupon Exchange (LANCE) due October 1, 2007 (Executed interest rate swap set at 6.87% through maturity commencing at October 2, 2000)
|                                         |                          |                                        | 6.40% Debentures due April 1, 2008                                                                                                                           
|                                         |                          |                                        | 6.90% Debentures due June 1, 2025 (Redeemable at the option of the holders on June 1, 2005)                                                                  
|                                         |                          |                                        | 8.28% Junior Subordinated Debentures due July 1, 2025                                                                                                        
|                                         |                          |                                        | 6.35% Debentures due June 15, 2038 (Interest rate resets June 15, 2003)                                                                                      
|                                         |                          |                                        |                                                                                                                                                              
|                                         |                          |                                        |                                                                                                                                                              
|                                         |                          | Unamortized Premium and DiscountNet   |                                                                                                                                                              
|                                         |                          |                                        |                                                                                                                                                              
|                                         |                          | Total long-term debt                   |                                                                                                                                                              
|                                         | ULH&P                    |                                        |                                                                                                                                                              
|                                         |                          | Other Long-term Debt:                  |                                                                                                                                                              
|                                         |                          |                                        | 6.11% Debentures due December 8, 2003                                                                                                                        
|                                         |                          |                                        | 6.50% Debentures due April 30, 2008                                                                                                                          
|                                         |                          |                                        | 7.65% Debentures due July 15, 2025                                                                                                                           
|                                         |                          |                                        | 7.875% Debentures due September 15, 2009                                                                                                                     
|                                         |                          |                                        |                                                                                                                                                              
|                                         |                          |                                        |                                                                                                                                                              
|                                         |                          | Unamortized Premium and DiscountNet   |                                                                                                                                                              
|                                         |                          |                                        |                                                                                                                                                              
|                                         |                          | Total long-term debt                   |                                                                                                                                                              
|                                         | Lawrenceburg Gas Company |                                        |                                                                                                                                                              
|                                         |                          | First Mortgage Bonds:                  |                                                                                                                                                              
|                                         |                          |                                        | 93/4% Series due October 1, 2001                                                                                                                             
|                                         |                          |                                        |                                                                                                                                                              
|                                         |                          | Total CG&E Consolidated long-term debt |                                                                                                                                                              

| | Cumulative Preferred Stock |  |  |  |  |  |  | 
| | -------------------------- |  |  |  |  |  |  | 

|Par/Stated
Value |     | Authorized
Shares |           | Shares
Outstanding at
December 31, 2000 |         | Series |            | Mandatory
Redemption |    |  |   |       
|---------------- | --- | ----------------- | --------- | --------------------------------------- | ------- | ------ | ---------- | -------------------- | -- |  | - | ------
|$                | 100 |                   | 6,000,000 |                                         | 204,859 |        | 4% - 43/4% |                      | No |  | $ | 20,486

|Common Stock Equity |                                                                                                                                        |  |                           |                      |   |           |          
|------------------- | -------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- | -------------------- | - | --------- | ---------
|                    | Common Stock$8.50 par value; authorized shares120,000,000; outstanding shares89,663,086 at December 31, 2000, and December 31, 1999 |  | $                         | 762,136              |   | $         | 762,136  
|                    | Paid-in capital                                                                                                                        |  |                           | 565,777              |   |           | 562,851  
|                    | Retained earnings                                                                                                                      |  |                           | 368,911              |   |           | 335,144  
|                    | Accumulated other comprehensive income (loss)                                                                                          |  |                           | (994                 | ) |           | (966     
|                    |                                                                                                                                        |  |                           |                      |  
|                    |                                                                                                                                        |  | Total common stock equity |                      |   | 1,695,830 |          
|                    |                                                                                                                                        |  |                           | Total Capitalization |   | $         | 2,921,377
|                    |                                                                                                                                        |  |                           |                      |  

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





PSI ENERGY, INC.AND SUBSIDIARY COMPANY



PSI ENERGY, INC.        CONSOLIDATED STATEMENTS OF INCOME

|                                      |                                        | 2000                     |         | 1999      |           | 1998   
|------------------------------------- | -------------------------------------- | ------------------------ | ------- | --------- | --------- | -------
|
|Operating Revenues                    |                                        |                          |         |           |           |        
|                                      | Electric                               |                          | $       | 2,684,197 |           | $      
|Operating Expenses                    |                                        |                          |         |           |           |        
|                                      | Fuel and purchased and exchanged power |                          |         | 1,724,656 |           |        
|                                      | Operation and maintenance              |                          |         | 462,577   |           |        
|                                      | Depreciation and amortization          |                          |         | 142,584   |           |        
|                                      | Taxes other than income taxes          |                          |         | 56,908    |           |        
|                                      |                                        |                          |         |           |           |        
|                                      |                                        | Total Operating Expenses |         |           | 2,386,725 |        
|Operating Income                      |                                        |                          | 297,472 |           |           | 272,024
|MiscellaneousNet                     |                                        |                          | 4,723   |           |           | 655    
|Interest                              |                                        |                          | 78,250  |           |           | 86,265 
|                                      |                                        |                          |         |           |           |        
|Income Before Taxes                   |                                        |                          | 223,945 |           |           | 186,414
|Income Taxes(Note 11)                 |                                        |                          | 88,547  |           |           | 69,215 
|                                      |                                        |                          |         |           |           |        
|Net Income                            |                                        | $                        | 135,398 |           | $         | 117,199
|Preferred Dividend Requirement        |                                        |                          | 3,738   |           |           | 4,601  
|                                      |                                        |                          |         |           |           |        
|Net Income Applicable to Common Stock |                                        | $                        | 131,660 |           | $         | 112,598
|                                      |                                        |                          |         |           |           |        

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



PSI ENERGY, INC.        CONSOLIDATED BALANCE SHEETS

|                                     |                                                                                                                                               | December 31
|------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------- | -----------
|
|
|Current Assets                       |                                                                                                                                               |            
|                                     | Cash and cash equivalents                                                                                                                     |            
|                                     | Restricted deposits                                                                                                                           |            
|                                     | Notes receivable                                                                                                                              |            
|                                     | Notes receivable from affiliated companies                                                                                                    |            
|                                     | Accounts receivable less accumulated provision for doubtful accounts of $9,317 at December 31, 2000, and $9,934 at December 31, 1999 (Note 6) |            
|                                     | Accounts receivable from affiliated companies                                                                                                 |            
|                                     | Materials, supplies, and fuelat average cost                                                                                                 |            
|                                     | Prepayments and other                                                                                                                         |            
|                                     | Energy risk management current assets (Note 1(j))                                                                                             |            
|                                     |                                                                                                                                               |            
|                                     |                                                                                                                                               |            
|Electric Utility PlantOriginal Cost |                                                                                                                                               |            
|                                     | In service                                                                                                                                    |            
|                                     | Accumulated depreciation                                                                                                                      |            
|                                     |                                                                                                                                               |            
|                                     |                                                                                                                                               | Total      
|                                     | Construction work in progress                                                                                                                 |            
|                                     |                                                                                                                                               |            
|                                     |                                                                                                                                               |            
|Other Assets                         |                                                                                                                                               |            
|                                     | Regulatory assets (Note 1(c))                                                                                                                 |            
|                                     | Energy risk management non-current assets (Note 1(j))                                                                                         |            
|                                     | Other                                                                                                                                         |            
|                                     |                                                                                                                                               |            
|                                     |                                                                                                                                               |            
|Total Assets                         |                                                                                                                                               | $          
|                                     |                                                                                                                                               |            

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



PSI ENERGY, INC.        CONSOLIDATED BALANCE SHEETS

|                                           |                                                                                                                                                            | December 31                  
|------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------
|
|
|Current Liabilities                        |                                                                                                                                                            |                              
|                                           | Accounts payable                                                                                                                                           |                              
|                                           | Accounts payable to affiliated companies                                                                                                                   |                              
|                                           | Accrued taxes                                                                                                                                              |                              
|                                           | Accrued interest                                                                                                                                           |                              
|                                           | Notes payable and other short-term obligations (Note 5)                                                                                                    |                              
|                                           | Notes payable to affiliated companies                                                                                                                      |                              
|                                           | Long-term debt due within one year (Note 4)                                                                                                                |                              
|                                           | Energy risk management current liabilities (Note 1(j))                                                                                                     |                              
|                                           | Other                                                                                                                                                      |                              
|                                           |                                                                                                                                                            |                              
|                                           |                                                                                                                                                            | Total Current Liabilities    
|Non-Current Liabilities                    |                                                                                                                                                            |                              
|                                           | Long-term debt (Notes 4 and 17)                                                                                                                            |                              
|                                           | Deferred income taxes (Note 11)                                                                                                                            |                              
|                                           | Unamortized investment tax credits                                                                                                                         |                              
|                                           | Accrued pension and other postretirement benefit costs (Note 9)                                                                                            |                              
|                                           | Energy risk management non-current liabilities (Note 1(j))                                                                                                 |                              
|                                           | Other                                                                                                                                                      |                              
|                                           |                                                                                                                                                            |                              
|                                           |                                                                                                                                                            | Total Non-Current Liabilities
|                                           |                                                                                                                                                            | Total Liabilities            
|Cumulative Preferred Stock(Note 3)         |                                                                                                                                                            |                              
|                                           | Not subject to mandatory redemption                                                                                                                        |                              
|Common Stock Equity(Note 2)                |                                                                                                                                                            |                              
|                                           | Common Stockwithout par value; $.01 stated value; authorized shares60,000,000; outstanding shares53,913,701 at December 31, 2000, and December 31, 1999 |                              
|                                           | Paid-in capital                                                                                                                                            |                              
|                                           | Retained earnings                                                                                                                                          |                              
|                                           | Accumulated other comprehensive income (loss)                                                                                                              |                              
|                                           |                                                                                                                                                            |                              
|                                           |                                                                                                                                                            | Total Common Stock Equity    
|Commitments and Contingencies(Note 12)     |                                                                                                                                                            |                              
|Total Liabilities and Shareholder's Equity |                                                                                                                                                            | $                            
|                                           |                                                                                                                                                            |                              

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





PSI ENERGY, INC.        CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY

|                                                           |                                                                | Common
Stock                            |     | Paid-in
Capital |   | Retained
Earnings |   | Accumulated
Other
Comprehensive
Income (Loss) |          | Total
Common Stock
Equity |  
|---------------------------------------------------------- | -------------------------------------------------------------- | --------------------------------------- | --- | --------------- | - | ----------------- | - | --------------------------------------------- | -------- | ------------------------- | -
|
|1998                                                       |                                                                |                                         |     |                 |   |                   |   |                                               |          |                           |  
|Beginning balance                                          |                                                                | $                                       | 539 |                 | $ | 400,893           |   | $                                             | 637,814  |                           | $
|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 $(418) |                                         |     |                 |   |                   |   |                                               |          |                           |  
|                                                           |                                                                | Minimum pension liability adjustment    |     |                 |  |                   |   |                                              |          |                           | 
|                                                           |                                                                | Unrealized gain (loss) 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  |                           | $
|2000                                                       |                                                                |                                         |     |                 |   |                   |   |                                               |          |                           |  
|Comprehensive income:                                      |                                                                |                                         |     |                 |   |                   |   |                                               |          |                           |  
|                                                           | Net income                                                     |                                         |     |                |   |                   |  |                                               |          | 135,398                   |  
|                                                           | Other comprehensive income (loss), net of tax effect of $584   |                                         |     |                 |   |                   |   |                                               |          |                           |  
|                                                           |                                                                | Minimum pension liability adjustment    |     |                 |  |                   |   |                                              |          |                           | 
|                                                           |                                                                | Unrealized gain (loss) on grantor trust |     |                 |  |                   |   |                                              |          |                           | 
|                                                           |                                                                |                                         |     |                 |   |                   |   |                                               |          |                           |  
|                                                           | Total comprehensive income                                     |                                         |     |                |   |                   |  |                                               |          |                          |  
|Dividends on preferred stock                               |                                                                |                                         |    |                 |   |                  |   |                                               | (3,738   | )                         |  
|Dividends on common stock                                  |                                                                |                                         |    |                 |   |                  |   |                                               | (54,000  | )                         |  
|Contribution from parent company for reallocation of taxes |                                                                |                                         |    |                 |   | 1,989             |   |                                               |         |                           |  
|Other                                                      |                                                                |                                         |    |                 |   | 336               |   |                                               | (76      | )                         |  
|                                                           |                                                                |                                         |     |                 |   |                   |   |                                               |          |                           |  
|Ending balance                                             |                                                                | $                                       | 539 |                 | $ | 413,523           |   | $                                             | 720,153  |                           | $
|                                                           |                                                                |                                         |     |                 |   |                   |   |                                               |          |                           |  

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



PSI ENERGY, INC.        CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                     |                                                                                      | 2000                                                          |                                                                    | 1999     |          | 1998     |         
|---------------------------------------------------- | ------------------------------------------------------------------------------------ | ------------------------------------------------------------- | ------------------------------------------------------------------ | -------- | -------- | -------- | --------
|
|Operating Activities                                 |                                                                                      |                                                               |                                                                    |          |          |          |         
|                                                     | Net income                                                                           |                                                               | $                                                                  | 135,398  |          | $        | 117,199 
|                                                     | Items providing or (using) cash currently:                                           |                                                               |                                                                    |          |          |          |         
|                                                     |                                                                                      | Depreciation and amortization                                 |                                                                    |          | 142,584  |          |         
|                                                     |                                                                                      | Wabash Valley Power Association, Inc. settlement              |                                                                    |          |         |          |         
|                                                     |                                                                                      | Deferred income taxes and investment tax creditsnet          |                                                                    |          | (6,582   | )        |         
|                                                     |                                                                                      | Unrealized (gain) loss from energy risk management activities |                                                                    |          | (7,077   | )        |         
|                                                     |                                                                                      | Allowance for equity funds used during construction           |                                                                    |          | (1,354   | )        |         
|                                                     |                                                                                      | Regulatory assetsnet                                         |                                                                    |          | 10,818   |          |         
|                                                     |                                                                                      | Changes in current assets and current liabilities:            |                                                                    |          |          |          |         
|                                                     |                                                                                      |                                                               | Restricted deposits                                                |          |          | (341     | )       
|                                                     |                                                                                      |                                                               | Accounts and notes receivable, net of reserves on receivables sold |          |          | (130,891 | )       
|                                                     |                                                                                      |                                                               | Materials, supplies, and fuel                                      |          |          | 49,652   |         
|                                                     |                                                                                      |                                                               | Accounts payable                                                   |          |          | 176,820  |         
|                                                     |                                                                                      |                                                               | Accrued taxes and interest                                         |          |          | (15,342  | )       
|                                                     |                                                                                      | Other itemsnet                                               |                                                                    |          | 23,695   |          |         
|                                                     |                                                                                      |                                                               |                                                                    |          |          |          |         
|                                                     |                                                                                      |                                                               | Net cash provided by operating activities                          |          |          | 377,380  |         
|Financing Activities                                 |                                                                                      |                                                               |                                                                    |          |          |          |         
|                                                     | Change in short-term debt                                                            |                                                               |                                                                    | 95,468   |          |          | (36,804 
|                                                     | Issuance of long-term debt                                                           |                                                               |                                                                    | 53,075   |          |          | 589,225 
|                                                     | Redemption of long-term debt                                                         |                                                               |                                                                    | (187,097 | )        |          | (379,484
|                                                     | Retirement of preferred stock                                                        |                                                               |                                                                    | (29,225  | )        |          | (8      
|                                                     | Dividends on preferred stock                                                         |                                                               |                                                                    | (3,738   | )        |          | (4,601  
|                                                     | Dividends on common stock                                                            |                                                               |                                                                    | (54,000  | )        |          | (35,900 
|                                                     |                                                                                      |                                                               |                                                                    |          |          |          |         
|                                                     |                                                                                      | Net cash provided by (used in) financing activities           |                                                                    |          | (125,517 | )        |         
|Investing Activities                                 |                                                                                      |                                                               |                                                                    |          |          |          |         
|                                                     | Construction expenditures (less allowance for equity funds used during construction) |                                                               |                                                                    | (259,394 | )        |          | (189,207
|                                                     |                                                                                      |                                                               |                                                                    |          |          |          |         
|                                                     |                                                                                      | Net cash used in investing activities                         |                                                                    |          | (259,394 | )        |         
|Net increase (decrease) in cash and cash equivalents |                                                                                      |                                                               | (7,531                                                             | )        |          | (9,946   | )       
|Cash and cash equivalents at beginning of period     |                                                                                      |                                                               | 8,842                                                              |          |          | 18,788   |         
|                                                     |                                                                                      |                                                               |                                                                    |          |          |          |         
|Cash and cash equivalents at end of period           |                                                                                      | $                                                             | 1,311                                                              |          | $        | 8,842    |         
|                                                     |                                                                                      |                                                               |                                                                    |          |          |          |         
|Supplemental Disclosure of Cash Flow Information     |                                                                                      |                                                               |                                                                    |          |          |          |         
|                                                     | Cash paid (received) during the year for:                                            |                                                               |                                                                    |          |          |          |         
|                                                     |                                                                                      | Interest (net of amount capitalized)                          |                                                                    | $        | 80,854   |          | $       
|                                                     |                                                                                      | Income taxes                                                  |                                                                    | $        | 112,210  |          | $       

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





PSI ENERGY, INC.        CONSOLIDATED STATEMENTS OF CAPITALIZATION

|                                         |                                      | December 31                                                                             |                                                                                                   
|---------------------------------------- | ------------------------------------ | --------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------
|
|
|Long-term Debt(excludes current portion) |                                      |                                                                                         |                                                                                                   
|                                         | First Mortgage Bonds:                |                                                                                         |                                                                                                   
|                                         |                                      | Series TT, 73/8%, due March 15, 2012 (Pollution Control)                                |                                                                                                   
|                                         |                                      | Series UU, 71/2%, due March 15, 2015 (Pollution Control)                                |                                                                                                   
|                                         |                                      | Series YY, 5.60%, due February 15, 2023 (Pollution Control)                             |                                                                                                   
|                                         |                                      | Series ZZ, 53/4%, due February 15, 2028 (Pollution Control)                             |                                                                                                   
|                                         |                                      | Series AAA, 71/8%, due February 1, 2024                                                 |                                                                                                   
|                                         |                                      | Series BBB, 8.0%, due July 15, 2009                                                     |                                                                                                   
|                                         |                                      | Series CCC, 8.85%, due January 15, 2022                                                 |                                                                                                   
|                                         |                                      | Series DDD, 8.31%, due September 1, 2032                                                |                                                                                                   
|                                         |                                      |                                                                                         |                                                                                                   
|                                         |                                      |                                                                                         | Total first mortgage bonds                                                                        
|                                         | Secured Medium-term Notes:           |                                                                                         |                                                                                                   
|                                         |                                      | Series A, 7.61% to 8.81%, due January 2, 2002 to June 1, 2022                           |                                                                                                   
|                                         |                                      | Series B, 5.93% to 8.24%, due September 17, 2003 to August 22, 2022                     |                                                                                                   
|                                         |                                      |                                                                                         |                                                                                                   
|                                         |                                      |                                                                                         | (Series A and B, 7.105% weighted average interest rate and 9 year weighted average remaining life)
|                                         |                                      |                                                                                         |                                                                                                   
|                                         | Other Long-term Debt:                |                                                                                         |                                                                                                   
|                                         |                                      | Series 2000A, Pollution Control Revenue Refunding Bond, due May 1, 2035                 |                                                                                                   
|                                         |                                      | Series 2000B, Pollution Control Revenue Refunding Bond, due April 1, 2022               |                                                                                                   
|                                         |                                      | Series 1994A Promissory Note, non-interest bearing, due January 3, 2001                 |                                                                                                   
|                                         |                                      | 6.35% Debentures due November 15, 2006                                                  |                                                                                                   
|                                         |                                      | 6.00% Debentures due December 14, 2016 (The interest rate resets on December 14, 2001)  |                                                                                                   
|                                         |                                      | 6.50% Synthetic Putable Yield Securities due August 1, 2026                             |                                                                                                   
|                                         |                                      | 7.25% Junior Maturing Principal Securities due March 15, 2028                           |                                                                                                   
|                                         |                                      | 6.00% Rural Utilities Service (RUS) Obligation payable in annual installments (Note 17) |                                                                                                   
|                                         |                                      | 6.52% Senior Notes due March 15, 2009                                                   |                                                                                                   
|                                         |                                      | 7.85% Debentures due October 15, 2007                                                   |                                                                                                   
|                                         |                                      |                                                                                         |                                                                                                   
|                                         |                                      |                                                                                         | Total other long-term debt                                                                        
|                                         | Unamortized Premium and DiscountNet |                                                                                         |                                                                                                   
|                                         |                                      |                                                                                         |                                                                                                   
|                                         | Total long-term debt                 |                                                                                         |                                                                                                   



|  | Cumulative Preferred Stock
|- | --------------------------
|
|$ | 100                       
|$ | 25                        
|  |                           

|Total preferred stock |                                                                                                                                                                   |  | 42,348 |           |   | 71,911
|--------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------ | --------- | - | ------
|Common Stock Equity   |                                                                                                                                                                   |  |        |           |   |       
|                      | Common Stockwithout par value; $0.01 stated value; authorized
   shares60,000,000; outstanding shares53,913,701 at
   December 31, 2000, and December 31, 1999 |  | $      | 539       |   | $     
|                      | Paid-in capital                                                                                                                                                   |  |        | 413,523   |   |       
|                      | Retained earnings                                                                                                                                                 |  |        | 720,153   |   |       
|                      | Accumulated other comprehensive income (loss)                                                                                                                     |  |        | (520      | ) |       
|                      |                                                                                                                                                                   |  |        |          
|                      | Total common stock equity                                                                                                                                         |  |        | 1,133,695 |   |       
|                      | Total Capitalization                                                                                                                                              |  | $      | 2,250,298 |   | $     
|                      |                                                                                                                                                                   |  |        |          

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





THE UNION LIGHT, HEAT  AND POWER COMPANY



THE UNION LIGHT, HEAT AND POWER COMPANY        STATEMENTS OF INCOME

|                      |                                                      | 2000                     |        | 1999    |         | 1998   |        
|--------------------- | ---------------------------------------------------- | ------------------------ | ------ | ------- | ------- | ------ | -------
|
|Operating Revenues    |                                                      |                          |        |         |         |        |        
|                      | Electric                                             |                          | $      | 225,601 |         | $      | 210,234
|                      | Gas                                                  |                          |        | 91,950  |         |        | 70,728 
|                      |                                                      |                          |        |         |         |        |        
|                      |                                                      | Total Operating Revenues |        |         | 317,551 |        |        
|Operating Expenses    |                                                      |                          |        |         |         |        |        
|                      | Electricity purchased from parent company for resale |                          |        | 159,915 |         |        | 158,556
|                      | Gas purchased                                        |                          |        | 51,591  |         |        | 34,690 
|                      | Operation and maintenance                            |                          |        | 40,699  |         |        | 38,611 
|                      | Depreciation and amortization                        |                          |        | 15,685  |         |        | 14,830 
|                      | Taxes other than income taxes                        |                          |        | 3,938   |         |        | 4,136  
|                      |                                                      |                          |        |         |         |        |        
|                      |                                                      | Total Operating Expenses |        |         | 271,828 |        |        
|Operating Income      |                                                      |                          | 45,723 |         |         | 30,139 |        
|MiscellaneousNet     |                                                      |                          | (982   | )       |         | (1,567 | )      
|Interest              |                                                      |                          | 6,308  |         |         | 6,114  |        
|                      |                                                      |                          |        |         |         |        |        
|Income Before Taxes   |                                                      |                          | 38,433 |         |         | 22,458 |        
|Income Taxes(Note 11) |                                                      |                          | 13,801 |         |         | 10,184 |        
|                      |                                                      |                          |        |         |         |        |        
|Net Income            |                                                      | $                        | 24,632 |         | $       | 12,274 |        
|                      |                                                      |                          |        |         |         |        |        

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



THE UNION LIGHT, HEAT AND POWER COMPANY        BALANCE SHEETS

|                            |                                                                                                                                               | December 31
|--------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------- | -----------
|
|
|Current Assets              |                                                                                                                                               |            
|                            | Cash and cash equivalents                                                                                                                     |            
|                            | Accounts receivable less accumulated provision for doubtful accounts of $1,492 at December 31, 2000, and $1,513 at December 31, 1999 (Note 6) |            
|                            | Accounts receivable from affiliated companies                                                                                                 |            
|                            | Materials, supplies, and fuelat average cost                                                                                                 |            
|                            | Prepayments and other                                                                                                                         |            
|                            |                                                                                                                                               |            
|                            |                                                                                                                                               |            
|Utility PlantOriginal Cost |                                                                                                                                               |            
|                            | In service                                                                                                                                    |            
|                            |                                                                                                                                               | Electric   
|                            |                                                                                                                                               | Gas        
|                            |                                                                                                                                               | Common     
|                            |                                                                                                                                               |            
|                            |                                                                                                                                               |            
|                            | Accumulated depreciation                                                                                                                      |            
|                            |                                                                                                                                               |            
|                            |                                                                                                                                               |            
|                            | Construction work in progress                                                                                                                 |            
|                            |                                                                                                                                               |            
|                            |                                                                                                                                               |            
|Other Assets                |                                                                                                                                               |            
|                            | Regulatory assets (Note 1(c))                                                                                                                 |            
|                            | Other                                                                                                                                         |            
|                            |                                                                                                                                               |            
|                            |                                                                                                                                               |            
|Total Assets                |                                                                                                                                               | $          
|                            |                                                                                                                                               |            

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



THE UNION LIGHT, HEAT AND POWER COMPANY        BALANCE SHEETS

|                                           |                                                                                                                                    | December 31                  
|------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------- | -----------------------------
|
|
|Current Liabilities                        |                                                                                                                                    |                              
|                                           | Accounts payable                                                                                                                   |                              
|                                           | Accounts payable to affiliated companies                                                                                           |                              
|                                           | Accrued taxes                                                                                                                      |                              
|                                           | Accrued interest                                                                                                                   |                              
|                                           | Notes payable to affiliated companies                                                                                              |                              
|                                           | 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 at December 31, 2000, and December 31, 1999 |                              
|                                           | 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.





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 |        
|-------------------------------------------------- |  | ------------ | ----- | --------------- | - | ----------------- | - | ------------------------- | -------
|
|1998                                               |  |              |       |                 |   |                   |   |                           |        
|Beginning balance                                  |  | $            | 8,780 |                 | $ | 18,683            |   | $                         | 95,450 
|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
|2000                                               |  |              |       |                 |   |                   |   |                           |        
|Net income                                         |  |              |      |                 |   |                  |   |                           | 24,632 
|Dividends on common stock                          |  |              |      |                 |   |                  |   |                           | (9,657 
|Contribution from parent for reallocation of taxes |  |              |      |                 |   | 163               |   |                           |       
|                                                   |  |              |       |                 |   |                   |   |                           |        
|Ending balance                                     |  | $            | 8,780 |                 | $ | 20,305            |   | $                         | 118,103
|                                                   |  |              |       |                 |   |                   |   |                           |        

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



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

|                                                 |                                                                                      | 2000                                                 |                                                                    | 1999                                                |        | 1998    |        
|------------------------------------------------ | ------------------------------------------------------------------------------------ | ---------------------------------------------------- | ------------------------------------------------------------------ | --------------------------------------------------- | ------ | ------- | -------
|
|Operating Activities                             |                                                                                      |                                                      |                                                                    |                                                     |        |         |        
|                                                 | Net income                                                                           |                                                      | $                                                                  | 24,632                                              |        | $       | 12,274 
|                                                 | Items providing or (using) cash currently:                                           |                                                      |                                                                    |                                                     |        |         |        
|                                                 |                                                                                      | Depreciation and amortization                        |                                                                    |                                                     | 15,685 |         |        
|                                                 |                                                                                      | Deferred income taxes and investment tax creditsnet |                                                                    |                                                     | 8,926  |         |        
|                                                 |                                                                                      | Allowance for equity funds used during construction  |                                                                    |                                                     | (61    | )       |        
|                                                 |                                                                                      | Regulatory assetsnet                                |                                                                    |                                                     | 259    |         |        
|                                                 |                                                                                      | Changes in current assets and current liabilities:   |                                                                    |                                                     |        |         |        
|                                                 |                                                                                      |                                                      | Accounts and notes receivable, net of reserves on receivables sold |                                                     |        | (14,269 | )      
|                                                 |                                                                                      |                                                      | Materials, supplies, and fuel                                      |                                                     |        | 1,354   |        
|                                                 |                                                                                      |                                                      | Accounts payable                                                   |                                                     |        | 15,832  |        
|                                                 |                                                                                      |                                                      | Accrued taxes and interest                                         |                                                     |        | (6,582  | )      
|                                                 |                                                                                      | Other itemsnet                                      |                                                                    |                                                     | 3,482  |         |        
|                                                 |                                                                                      |                                                      |                                                                    |                                                     |        |         |        
|                                                 |                                                                                      |                                                      |                                                                    | Net cash provided by operating activities           |        |         | 49,258 
|Financing Activities                             |                                                                                      |                                                      |                                                                    |                                                     |        |         |        
|                                                 | Change in short-term debt                                                            |                                                      |                                                                    | (8,349                                              | )      |         | 5,935  
|                                                 | Issuance of long-term debt                                                           |                                                      |                                                                    |                                                    |        |         | 19,818 
|                                                 | Redemption of long-term debt                                                         |                                                      |                                                                    |                                                    |        |         | (20,000
|                                                 | Dividends on common stock                                                            |                                                      |                                                                    | (9,657                                              | )      |         | (9,659 
|                                                 |                                                                                      |                                                      |                                                                    |                                                     |        |         |        
|                                                 |                                                                                      |                                                      |                                                                    | Net cash provided by (used in) financing activities |        |         | (18,006
|Investing Activities                             |                                                                                      |                                                      |                                                                    |                                                     |        |         |        
|                                                 | Construction expenditures (less allowance for equity funds used during construction) |                                                      |                                                                    | (28,433                                             | )      |         | (28,234
|                                                 |                                                                                      |                                                      |                                                                    |                                                     |        |         |        
|                                                 |                                                                                      |                                                      |                                                                    | Net cash used in investing activities               |        |         | (28,433
|Net increase in cash and cash equivalents        |                                                                                      |                                                      | 2,819                                                              |                                                     |        | 397     |        
|Cash and cash equivalents at beginning of period |                                                                                      |                                                      | 3,641                                                              |                                                     |        | 3,244   |        
|                                                 |                                                                                      |                                                      |                                                                    |                                                     |        |         |        
|Cash and cash equivalents at end of period       |                                                                                      | $                                                    | 6,460                                                              |                                                     | $      | 3,641   |        
|                                                 |                                                                                      |                                                      |                                                                    |                                                     |        |         |        
|Supplemental Disclosure of Cash Flow Information |                                                                                      |                                                      |                                                                    |                                                     |        |         |        
|                                                 | Cash paid during the year for:                                                       |                                                      |                                                                    |                                                     |        |         |        
|                                                 |                                                                                      | Interest (net of amount capitalized)                 |                                                                    | $                                                   | 6,534  |         | $      
|                                                 |                                                                                      | Income taxes                                         |                                                                    | $                                                   | 11,760 |         | $      

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





THE UNION LIGHT, HEAT AND POWER COMPANY        STATEMENTS OF CAPITALIZATION

|                                         |                                                                                                                                    | December 31                                               |                           
|---------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------- | --------------------------
|
|
|Long-term Debt(excludes current portion) |                                                                                                                                    |                                                           |                           
|                                         | Other Long-term Debt:                                                                                                              |                                                           |                           
|                                         |                                                                                                                                    | 6.11% Debentures due December 8, 2003                     |                           
|                                         |                                                                                                                                    | 6.50% Debentures due April 30, 2008                       |                           
|                                         |                                                                                                                                    | 7.65% Debentures due July 15, 2025                        |                           
|                                         |                                                                                                                                    | 7.875% Senior Unsecured Debentures due September 15, 2009 |                           
|                                         |                                                                                                                                    |                                                           |                           
|                                         |                                                                                                                                    |                                                           | Total other long-term debt
|                                         | Unamortized Premium and DiscountNet                                                                                               |                                                           |                           
|                                         |                                                                                                                                    |                                                           |                           
|                                         | Total long-term debt                                                                                                               |                                                           |                           
|Common Stock Equity                      |                                                                                                                                    |                                                           |                           
|                                         | Common Stock$15.00 par value; authorized shares1,000,000; outstanding shares585,333 at December 31, 2000, and December 31, 1999 |                                                           | $                         
|                                         | Paid-in capital                                                                                                                    |                                                           |                           
|                                         | Retained earnings                                                                                                                  |                                                           |                           
|                                         |                                                                                                                                    |                                                           |                           
|                                         |                                                                                                                                    |                                                           | Total common stock equity 
|                                         |                                                                                                                                    |                                                           |                           
|                                         |                                                                                                                                    |                                                           |                           

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





NOTES TO FINANCIAL STATEMENTS

In this reportCinergy(which includesCinergy Corp.and all of
our regulated and non-regulated subsidiaries) is, at times, referred to in the first person as "we", "our", or "us".

1.  Summary of Significant Accounting Policies

(a)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 Securities and Exchange Commission (SEC) under the Public Utility Holding Company Act of 1935, as amended (PUHCA). Our other principal 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 three wholly-owned utility subsidiaries and two wholly-owned non-utility subsidiaries. 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 BusinessCG&Eand subsidiaries



Generation, transmission, distribution, and sale of electricity

Sale and/or transportation of natural gasPSI



Generation, transmission, distribution, and sale of electricityULH&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, energy-related businesses and investments. Global Resources holds our international businesses and investments and directs our
renewable energy investing activities (for example, wind farms). Technologies primarily holds our portfolio of technology-related investments. In November 2000, CWE was formed to act as a
holding company forCinergy'senergy commodity businesses, including production, as the generation assets eventually become unbundled from utility
subsidiaries. See Note 18 for a discussion on Ohio deregulation.

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



As
the utility industry continues to evolve,Cinergywill continue to analyze its operating structure and make modifications as
appropriate. In early 2001, we announced certain organizational changes which further aligned the business units consistent withCinergy'sstrategic
vision. The revised structure reflects three business units, as follows:



See
Note 15 for financial information by business unit.

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

Consolidation MethodWe use the consolidation method when we own a majority of the voting stock of or have the ability
to control a 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 EstimateManagement makes estimates and assumptions when preparing financial statements under generally accepted
accounting principles (GAAP). 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&Pto conform to current presentation.

(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 GAAP. However, 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 (expenses deferred for future recovery from customers or obligations to be refunded to customers) on our Balance Sheets.

Comprehensive
electric deregulation legislation was passed in Ohio on July 6, 1999. As required by the legislation, CG&Efiled its Proposed Transition Plan for approval by the Public Utilities Commission
of Ohio (PUCO) on December 28,
1999. On August 31, 2000, the PUCO approved a stipulation agreement relating toCG&E'stransition plan. This plan creates
a Regulatory Transition Charge (RTC), designed to recoverCG&E'sgeneration-related regulatory assets and transition costs
over a ten year period. Accordingly, Statement 71 was discontinued for the generation portion ofCG&E'sbusiness and
Statement of Financial Accounting Standards No. 101,Regulated EnterprisesAccounting for Discontinuation of
Application of FASB Statement No. 71(Statement 101) was applied. The effect of this change to the financial statements was
immaterial. Except with respect to the generation assets ofCG&E, as of December 31, 2000,PSI, CG&E, and ULH&Pcontinue to meet each of the criteria required for the use of Statement 71. However, as other states implement deregulation legislation,
the application of Statement 71 will need to be reviewed. Based on our operating companies' current regulatory orders and the regulatory environment in which they currently operate, the future
recovery of regulatory assets recognized in the accompanying Balance Sheets as of December 31, 2000, is probable. The effect of future discontinuance of Statement 71 on results of
operations, cash flows, or statement of position cannot be determined until deregulation legislation plans have been approved by each state in which we do business. For a further discussion of Ohio
Deregulation see Note 18.

Our regulatory assets and amounts authorized for recovery through regulatory orders at December 31, 2000, and 1999, are as follows:

|                                                               |                            | CG&E(1) |     | 2000
PSI |   | Cinergy |     | CG&E(1) |     | 1999
PSI |   | Cinergy
|-------------------------------------------------------------- | -------------------------- | ------- | --- | -------- | - | ------- | --- | ------- | --- | -------- | - | -------
|
|Amounts due from customersincome taxes(2)                     |                            | $       | 53  |          | $ | 20      |     | $       | 73  |          | $ | 276    
|Gasification services agreement buyout costs(3)                |                            |         |    |          |   | 251     |     |         | 251 |          |   |       
|Post-in-service carrying costs and deferred operating expenses |                            |         |    |          |   | 41      |     |         | 41  |          |   | 121    
|Coal contract buyout cost(4)                                   |                            |         |    |          |   | 53      |     |         | 53  |          |   |       
|Deferred demand-side management (DSM)                          |                            |         |    |          |   |        |     |         |    |          |   | 38     
|Phase-in deferred return and depreciation                      |                            |         |    |          |   |        |     |         |    |          |   | 54     
|Deferred merger costs                                          |                            |         | 7   |          |   | 60      |     |         | 67  |          |   | 15     
|Unamortized costs of reacquiring debt                          |                            |         | 11  |          |   | 31      |     |         | 42  |          |   | 31     
|Coal gasification services expenses                            |                            |         |    |          |   | 12      |     |         | 12  |          |   |       
|RTC recoverable assets(5)                                      |                            |         | 432 |          |   |        |     |         | 432 |          |   |       
|Other                                                          |                            |         |    |          |   | 6       |     |         | 6   |          |   | 1      
|                                                               |                            |         |     |          |   |         |     |         |     |          |   |        
|                                                               | Total regulatory assets    |         | $   | 503      |   | $       | 474 |         | $   | 977      |   | $      
|                                                               | Authorized for recovery(6) |         | $   | 494      |   | $       | 444 |         | $   | 938      |   | $      

---

(d)Statements of Cash FlowsWe defineCash
equivalentsas investments with maturities of three months or less when acquired. See Note 17 for information concerning non-cash financing transactions.

(e)Operating Revenues and Fuel CostsOur operating companies record Operating 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 Indiana Utility Regulatory Commission (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:



In
August 2000, the generation assets ofCG&Ewere released from the first mortgage indenture lien. CG&E'stransmission assets, distribution
assets, and any generating assets added after August 2000, remain subject to the lien of the first
mortgage bond indenture. The utility property ofPSIis also subject to the lien of its first mortgage bond indenture.

(g)DepreciationWe 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 presented in the table below.

2000

1999

1998CG&Eand subsidiariesElectric

2.9
%
2.9
%
2.9
%Gas

2.9

2.9

2.9Common

3.3

2.7

2.6ULH&PElectric

3.3

3.3

3.4Gas

3.1

3.1

3.1Common

5.1

5.2

5.0PSI

3.0

3.0

3.0


(h)Allowance for Funds Used During Construction (AFUDC)Our 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. AFUDC is
calculated using a

methodology authorized by the regulatory authorities. AFUDC rates are compounded semi-annually and are as follows:

2000

1999

1998Cinergyaverage

8.0
%
7.3
%
6.6
%CG&Eand subsidiaries average

8.4

8.0

7.1ULH&Paverage

6.6

5.3

6.1PSIaverage

7.4

6.5

5.6


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

2000

1999

1998(in millions)Cinergy

$
8.2

$
5.6

$
7.5CG&Eand subsidiaries


5.0


3.4


5.5ULH&P


0.4


0.2


0.6PSI


3.2


2.2


2.0


With
the deregulation ofCG&E'sgeneration assets, the AFUDC method will no longer be used to capitalize the cost of funds used during
generation-related construction atCG&E. Instead, accounting principles require the application of Statement of Financial Accounting Standards
No. 34,Capitalization of Interest Cost(Statement 34). The primary differences in methodologies are that Statement 34 does not include a
component for equity funds and does not emphasize short-term borrowings over long-term borrowings.

(i)Federal and State Income TaxesStatement of Financial Accounting Standards
No. 109,Accounting for Income Taxes, requires an asset and liability approach for financial accounting and reporting of income taxes. The tax
effects of differences between the financial reporting and tax basis of accounting are reported asDeferred income tax assetsor liabilitiesin our Balance
Sheets and are based on currently enacted income tax rates.

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. For a further discussion of income taxes see Note 11.

(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 substantially all
obligations from company-owned assets. We sell generation to third parties when it is not required to meet native load requirements (end-use customers within our 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andEnergy 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.

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, and International, through Cinergy Global Trading Limited, market and trade natural gas and other energy-related
products.

(k)Financial DerivativesWe use derivative financial instruments to manage:



To
qualify for hedge accounting, 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 hedged item. Accordingly, changes in the fair values or cash flows of instruments designated as hedges must be highly correlated
with changes in the fair values or cash flows of the related hedged items.

From
time to time, we may 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 foreign currency
denominated purchase and sale commitments and certain of our net investments in foreign operations against currency exchange rate fluctuations. At December 31, 2000, 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). Through December 31, 2000, we
utilized the accrual method to account for these interest rate swaps. Accordingly, gains and losses were calculated based on the difference between the fixed-rate and the
floating-rate interest amounts, using agreed upon notional amounts. These gains and losses are recognized in our Consolidated Statements of Income as a component of Interestover the life of the
agreement. Effective with our adoption of Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities(Statement 133) in the first quarter
of 2001, we will begin accounting for interest
rate swaps using mark-to-market accounting and will assess the effectiveness of any swaps used in hedging activities. See Note 1(l) below for further discussion of
Statement 133.

(l)Accounting ChangesDuring 1998, the Financial Accounting Standards Board
(FASB) issued Statement 133. This standard is effective for fiscal years beginning after June 15, 2000, and requires companies to record derivative instruments 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. Gains and losses on derivatives that qualify
as hedges can offset related fair value changes on the hedged item in the income statement for fair value hedges or be recorded in other comprehensive income for cash flow hedges.

We
will reflect the adoption of this standard in financial statements issued beginning in the first quarter of 2001. Since many of the existing relevant contracts and financial
instruments are currently required to use mark-to-market accounting, we anticipate the effects of implementation to be immaterial. These effects do not reflect the potential
effects of applying mark-to-market accounting to selected call options and forwards we use to hedge peak period exposure to electricity demand. We have not historically marked
these instruments to market because they are intended as hedges of peak period exposure and are not considered trading instruments. Our intent is to classify these types of instruments as normal
purchases under Statement 133. However, the FASB-sponsored Derivatives Implementation Group has yet to issue its final guidance on these types of instruments. There are currently
viewpoints that range from allowing them as normal purchases to not allowing hedge accounting under Statement 133. Given these issues, there is the possibility that these instruments will
require mark-to-market accounting. This could create additional volatility in future earnings. At December 31, 2000, the fair value of these instruments was not
material.

(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 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 inAccumulated other comprehensive income (loss), which is a component of common 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:

2000

1999

1998(in millions)CG&Eand its subsidiaries

$
250

$
208

$
207PSI


187


168


183ULH&P


25


23


24


At
December 31, 2000, and 1999, the Balance Sheets of our operating companies included the following amounts payable to Services:

2000

1999(in millions)CG&Eand its subsidiaries

$
23

$
23PSI


15


7ULH&P


2


2


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 Reserved at Dec. 31, 2000 |  | Shares Issued
|--------------------------------------------------------------- |  | -------------------------------- |  | -------------
|
|Cinergy Corp. 1996 Long-term Incentive Compensation Plan (LTIP) |  | 6,956,386                        |  |             
|Cinergy Corp. Stock Option Plan                                 |  | 4,035,787                        |  | 77,042       
|Cinergy Corp. Employee Stock Purchase and Savings Plan          |  | 1,930,904                        |  | 208          
|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. 401(k) Plans                                      |  | 6,469,373                        |  |             
|Cinergy Corp. Dividend Reinvestment and Stock Purchase Plan     |  | 1,798,486                        |  |             
|Cinergy Corp. Performance Shares Plan                           |  | 736,751                          |  |             

We
retired 32,988 shares of common stock in 2000; 31,777 shares in 1999; and 44,981 shares in 1998, mainly representing shares tendered as payment for the exercise of previously
granted stock options.

In
1998,Cinergy Corp.issued 771,258 shares of new common stock to acquire Cinergy Marketing and Trading, LLC.

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 holders of its common stock is principally dependent on the ability ofCG&Eand PSIto payCinergy Corp.common dividends.CG&Eand PSIcannot 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 is also limited by certain capitalization and earnings requirements underCG&E'sand

PSI'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 stock-based
compensation plans:



The
LTIP, the Stock Option Plan, and the Employee Stock Purchase and Savings Plan are discussed below. The activity in 2000 for the remaining stock-based compensation plans was not
significant.

We
account for our stock-based compensation plans under Accounting Principles Board Opinion No. 25,Accounting for Stock Issued to
Employees. In 2000, 1999, and 1998, we recognized compensation cost related to stock-based compensation plans, before income taxes, of $12.8 million, $(7) million and
$1 million, respectively, in the Consolidated Statements of Income. The $7 million reduction in 1999 was a result of our revised estimates for the performance-based shares accrued under
the LTIP plan for Performance Cycle (Cycle) I. For further discussion see section (i) below.

Net
income for 2000, 1999, and 1998, 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 decreased by $4.4 million for 2000,
$3.0 million for 1999 and $2.4 million for 1998. Earnings per share (EPS) would have been decreased by $.03 basic and diluted for 2000, $.02 basic and diluted for 1999, and $.02 basic
and $.03 diluted for 1998.

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, as applicable, below.

(i)LTIPThe LTIP was originally adopted in 1996. Under this plan, certain key
employees may be granted stock options and the opportunity to earn performance-based shares. For each Cycle, stock options are granted to participants at fair market value on the date of grant. The
number of shares of common stock issuable under the LTIP is limited to a total of 7,000,000 shares.

LTIP stock option activity for 2000, 1999, and 1998 is summarized as follows:

Shares Subject to
Option

Weighted Average
Exercise PriceBalance at December 31, 1997

369,600

$
33.60Options granted

471,400


38.19Options forfeited

(68,000
)

36.06Balance at December 31, 1998

773,000


36.19Options granted

2,713,600


25.45Options forfeited

(59,500
)

35.65Balance at December 31, 1999

3,427,100


27.69Options granted

1,329,800


24.59Options forfeited

(357,200
)

26.47Balance at December 31, 2000

4,399,700

$
26.85Options Exercisable:At December 31, 1998

11,600

$
36.05At December 31, 1999

88,600

$
35.78At December 31, 2000

1,033,020

$
28.35


The
weighted average fair value of options granted was $2.78 in 2000, $2.56 in 1999, and $4.68 in 1998. The fair values of options granted were estimated as of the date of grant using
the Black-Scholes option-pricing model and the following assumptions:

|                               |  | 2000     |  | 1999     |  | 1998    
|------------------------------ |  | -------- |  | -------- |  | --------
|Risk-free interest rate        |  | 6.5%     |  | 6.1%     |  | 5.6%    
|Expected dividend yield        |  | 7.2%     |  | 7.2%     |  | 4.8%    
|Expected lives                 |  | 5.6 yrs. |  | 5.6 yrs. |  | 5.6 yrs.
|Expected common stock variance |  | 4.1%     |  | 3.8%     |  | 1.8%    

Price
ranges, along with certain other information, for the options outstanding under the LTIP at December 31, 2000, were as follows:

Outstanding

ExercisableExercise
Price Range

Number of Shares

Weighted Average Exercise Price

Weighted Average Contractual Life

Number of Shares

Weighted Average Exercise Price$23.66 - $24.38

3,266,000

$
24.00

9.0 yrs.

598,920

$
23.87$27.28 - $33.88

345,600

$
32.68

6.7 yrs.

277,900

$
33.50$34.13 - $38.59

788,100

$
36.12

7.5 yrs.

156,200

$
36.34




Entitlement
to performance based shares is based onCinergy'sTotal Shareholder Return (TSR) over designated Cycles as measured against
a peer group. Target grants of performance based shares were made for the following Cycles:

Cycle

Grant
Date

Performance
Period

Target
Grant of Shares(in thousands)III

1/2000

2000-2001

241IV

1/2000

2000-2002

362V

1/2001

2001-2003

287


Potential
awards for Cycle III are prorated for the length of the cycle. Participants may earn additional performance shares if Cinergy'sTSR exceeds that of the peer group. The Cycle II award of 122,820 shares
for calendar year 2000 was distributed in January 2001.

(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 issuable 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.

Stock
Option Plan activity for 2000, 1999, and 1998 is summarized as follows:

Shares Subject to
Option

Weighted Average
Exercise PriceBalance at December 31, 1997

2,954,475

$
23.79Options granted

480,000


36.88Options exercised

(430,961
)

21.62Options forfeited

(100,000
)

26.92Balance at December 31, 1998

2,903,514


26.17Options granted

152,500


24.66Options exercised

(259,865
)

21.51Options forfeited

(36,000
)

25.89Balance at December 31, 1999

2,760,149


26.53Options exercised

(123,978
)

23.50Options forfeited

(45,000
)

28.34Balance at December 31, 2000

2,591,171

$
26.64Options Exercisable:At December 31, 1998

1,535,514

$
23.61At December 31, 1999

1,898,149


24.67At December 31, 2000

2,162,171


25.17




The
weighted average fair value of options granted was $2.40 in 1999 and $4.53 in 1998 (no options were granted in 2000). The fair values of options granted in 1999 and 1998 were
estimated as of the date of grant using the Black-Scholes option-pricing model and the following assumptions:

1999

1998Risk-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, 2000, were as follows:

Outstanding

ExercisableExercise
Price Range

Number of Shares

Weighted Average Exercise Price

Weighted Average Contractual Life

Number of Shares

Weighted Average Exercise Price$17.35 - $23.81

911,747

$
22.90

4.5 yrs.

831,747

$
22.81$24.31 - $24.63

933,451

$
24.32

4.1 yrs.

933,451

$
24.32$25.19 - $36.88

745,973

$
34.12

6.5 yrs.

396,973

$
32.12


(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 issuable under the Employee Stock Purchase and
Savings Plan may not exceed 2,000,000.

Employee Stock Purchase and Savings Plan activity for 2000, 1999, and 1998 is summarized as follows:

Shares Subject
to Option

Weighted Average
Exercise PriceBalance at December 31, 1997

326,367

$
31.83Options exercised

(3,342
)

31.83Options forfeited

(25,651
)

31.83Balance at December 31, 1998

297,374


31.83Options granted

368,889


27.73Options exercised

(266
)

27.73Options forfeited

(306,692
)

27.73Balance at December 31, 1999

359,305


27.73Options exercised

(2,718
)

27.73Options forfeited

(76,261
)

27.73Balance at December 31, 2000

280,326

$
27.73


The
weighted average fair value of options granted was $3.97 in 1999 (no options were granted in 1998 or 2000). The fair values of options granted were estimated as of the date of
grant using the Black-Scholes option-pricing model and the following assumptions:

1999Risk-free interest rate

5.0%Expected dividend yield

6.2%Expected lives

2.0 yrs.Expected common stock variance

5.2%


(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 and ownership ofCinergy 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.

3. Change in Preferred Stock of Subsidiaries

In 2000,PSIredeemed 289,250 shares of its $100 par value, 6.875% Series preferred stock for
$29 million. In 1998,PSIredeemed approximately 3.4 million shares of its $25 par value, 7.44% Series preferred stock for
$85 million. All other classes of preferred stock redeemed from 1998 to 2000 were immaterial forCG&Eand PSI. Refer to the Consolidated
Statements of Capitalization for detailed information forCG&Eand PSI.

4. Long-Term Debt

Refer to the Statements of Capitalization for detailed information forCG&E, PSI, andULH&P. 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 in Current liabilitiesin the
Consolidated Balance Sheets):

December 312000

1999(in thousands)Cinergy Corp.Other Long-term Debt6.53% Debentures due December 16, 2008

$
200,000

$
200,0006.125% Debentures due April 15, 2004


200,000


200,000Total Other Long-term Debt


400,000


400,000Unamortized Discount


(265
)

(333
)TotalCinergy Corp.

$
399,735

$
399,667Global ResourcesOther Long-term Debt6.20% Debentures due November 3, 2008

$
150,000

$
150,000Variable interest rate of London Inter-Bank Offered Rate (LIBOR) plus 1.75%, due July 2015


14,156


15,300Variable interest rate of LIBOR plus 2.5%, due July 2015


6,323


7,100Variable interest rates ranging between the 3 month Prague Inter-Bank Offered Rate plus 0.55% to the 3 month Euro Inter-Bank Offered Rate plus 4.12%, maturing April 30, 2002 to June 20, 2004


8,314


7.4% interest rate, due May 30, 2003


18,783


Total Other Long-term Debt


197,576


172,400Unamortized Discount


(260
)

(293
)TotalGlobal Resources

$
197,316

$
172,107Operating CompaniesCG&Eand its subsidiaries

$
1,205,061

$
1,205,916PSI


1,074,255


1,211,552TotalOperating Companies

$
2,279,316

$
2,417,468TotalCinergy

$
2,876,367

$
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

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(1)

CG&E and
Subsidiaries(1)

PSI(1)(in millions)2001

$
41
(2)
$
1

$
392002


145


100


242003


85


20
(3)

572004


313


110


12005


3





1$
587

$
231

$
122


---

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 primarily 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). When committed lines are reserved for commercial paper or backing letters of credit, they are not available for additional borrowings. The fees we paid to secure
short-term notes were immaterial during the period from 1998 to 2000.

At
December 31, 2000,Cinergy Corp.had $157 million remaining unused and available relating to its authorized
$795 million revolving and uncommitted lines. Early in 2001,Cinergy Corp.successfully placed a new $400 million, 364-day
revolving credit facility. This new facility will support an expansion of our commercial paper program and is not included in the lines of credit discussed above.

Commercial PaperAs of December 31, 2000, the commercial paper (debt instruments
exchanged between companies) program is limited to a maximum outstanding principal amount of $400 million forCinergy Corp.As of
December 31, 2000,Cinergy Corp.had issued $216 million in commercial paper. Additionally, CG&EandPSIhave 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 for PSIis $100 million. NeitherCG&EnorPSIissued
commercial paper in 2000 or 1999.

In
early 2001,Cinergy Corp.expanded the commercial paper program to a maximum outstanding principal amount of $800 million and
reduced the established lines of credit atCG&EandPSI. The expansion of the commercial paper program
at theCinergy Corp.level will, in part, support the short-term borrowing needs ofCG&Eand PSIand
will eliminate the need for commercial paper

programs atCG&EandPSI. TheCinergy Corp.commercial
paper program expansion is supported by the new $400 million, 364-day revolving credit facility as discussed above.

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 forCinergy, forCG&E, and for PSI.

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

Cinergy

|              |                            | December 31, 2000 |  | December 31, 1999 |    
|------------- | -------------------------- | ----------------- |  | ----------------- | ---
|
|
|Cinergy Corp. |                            |                   |  |                   |    
|              | Committed lines            |                   |  |                   |    
|              |                            | Revolving lines   |  | $                 | 750
|              | Uncommitted line           |                   |  | 45                |    
|              | Commercial paper           |                   |  | 400               |    
|              | Operating companies        |                   |  |                   |    
|              | Committed lines            |                   |  | 180               |    
|              | Uncommitted lines          |                   |  | 125               |    
|              | Pollution control notes    |                   |  | N/A               |    
|              | Non-regulated subsidiaries |                   |  |                   |    
|              | Revolving lines            |                   |  | 13                |    
|              | Short-term debt            |                   |  | 79                |    
|              |                            |                   |  |                   |    
|Cinergy Total |                            |                   |  |                   | $  

CG&E

|                        |  | December 31, 2000 |     | December 31, 1999 |  
|----------------------- |  | ----------------- | --- | ----------------- | -
|
|
|Committed lines         |  | $                 | 80  |                   | $
|Uncommitted line        |  |                   | 40  |                   |  
|Pollution control notes |  |                   | N/A |                   |  
|                        |  |                   |     |                   |  
|Total                   |  |                   |     |                   | $





PSI

|                        |  | December 31, 2000 |     | December 31, 1999 |  
|----------------------- |  | ----------------- | --- | ----------------- | -
|
|
|Committed lines         |  | $                 | 100 |                   | $
|Uncommitted line        |  |                   | 85  |                   |  
|Pollution control notes |  |                   | N/A |                   |  
|                        |  |                   |     |                   |  
|Total                   |  |                   |     |                   | $

Money PoolCinergy Corp., Services, and our
operating companies and their subsidiaries participate in a money pool arrangement to better manage cash and working capital requirements. Under this arrangement, those companies with surplus
short-term funds provide short-term loans to others. This surplus cash may be from internal or external sources. The amounts outstanding under this money pool
arrangement are shown asNotes receivable from affiliated companiesorNotes payable to affiliated
companieson the Consolidated Balance Sheets forCG&EandPSI, and on the
Balance Sheets forULH&P.

6. Sale of Accounts Receivable

CG&E,PSI, and ULH&Phave an agreement to sell, on a
revolving basis, undivided percentage interests in certain of their accounts receivable and the related
collections up to an aggregate maximum of $350 million.CG&Eretains servicing responsibilities for its role as a collection agent of the amounts
due on the sold receivables. However, the purchaser assumes the risk of collection on the sold receivables without recourse toCG&E, PSI, orULH&Pin the event of a loss. Proceeds from a portion of the sold receivables are held back as a
reserve to reduce the purchaser's credit risk.CG&E,PSI, and ULH&Pdo not retain any ownership
interest in the sold receivables, but do retain undivided interests in their remaining balances of accounts
receivable. The recorded amounts of the retained interests are measured at net realizable value.

The Accounts receivableon the Consolidated Balance Sheets ofCinergy, CG&Eand PSIand on the Balance Sheets of ULH&Pare net of the amounts sold at December 31, 2000, and 1999. The following table shows the receivables sold, the
associated reserves held
back, and the net amounts received as of December 31, 2000, and 1999, as well as the losses on the sales of accounts receivable for the years ended December 31, 2000, and 1999:

|                     |  | Receivables Sold |     | Reserves |   | Net Amount |  | Loss on Sale(1)
|-------------------- |  | ---------------- | --- | -------- | - | ---------- |  | ---------------
|
|2000                 |  |                  |     |          |   |            |  |                
|Cinergy              |  | $                | 316 |          | $ | 59         |  | $              
|CG&Eand subsidiaries |  |                  | 192 |          |   | 36         |  |                
|PSI                  |  |                  | 124 |          |   | 23         |  |                
|ULH&P                |  |                  | 32  |          |   | 6          |  |                
|1999                 |  |                  |     |          |   |            |  |                
|Cinergy              |  | $                | 306 |          | $ | 49         |  | $              
|CG&Eand subsidiaries |  |                  | 187 |          |   | 30         |  |                
|PSI                  |  |                  | 119 |          |   | 19         |  |                
|ULH&P                |  |                  | 25  |          |   | 4          |  |                

---



7. Leases

(a)Operating LeasesWe have entered into operating lease agreements for
various facilities and properties such as computer, communication and transportation equipment, and office space. Total rental payments on operating leases for each of the past three years are
detailed in the table below. This table 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, 2000:

|                     |  | Actual Payments |    | Estimated Minimum Payments
|-------------------- |  | --------------- | -- | --------------------------
|
|
|Cinergy(1)           |  | $               | 42 |                           
|CG&Eand subsidiaries |  |                 | 21 |                           
|PSI                  |  |                 | 21 |                           
|ULH&P(2)             |  |                 | 3  |                           

---

(b)Capital LeasesIn 2000 and 1999, CG&E,PSI, andULH
&Pentered into capital lease
arrangements to fund the purchase of gas and electric meters. The lease terms are for 120 months commencing December 2000 and December 1999, respectively, 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 6.385% and 6.71% for 2000 and 1999, respectively. 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.

Effective
October 2000,CG&Eentered into a capital lease agreement with a lease term of 120 months, to fund the purchase
of equipment for the William H. Zimmer Station. The lease rate used to determine the monthly payments is a variable rate that is based upon the applicable LIBOR rate and was 8.275% at
December 31, 2000. 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 equipment under the capital
lease is depreciated at the same rate as if it was owned byCG&E.CG&Erecorded a capital lease
obligation, included inCurrent liabilitiesotherfor $.9 million andNon-current
liabilitiesotherfor $8.4 million, which is the book value of the equipment at the beginning of the lease.The title to all equipment will transfer toCG&Eat the end of the lease term. The capitalized lease obligation is amortized over the term of the lease.

The
total minimum lease payments and the present values for these capital lease items are shown below:

|                                        |  | Total Minimum Lease Payments |    
|--------------------------------------- |  | ---------------------------- | ---
|
|
|Total minimum lease payments(1)         |  | $                            | 46 
|Less: amount representing interest      |  |                              | (12
|                                        |  |                              |    
|Present value of minimum lease payments |  | $                            | 34 
|                                        |  |                              |    

---



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, which expires on October 31, 2001. At the end of this term, the lease may be renewed at mutually agreeable terms or CG&Emay purchase the
equipment at the original sale amount. The monthly lease payment is interest only and is based on the applicable LIBOR rate. 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 if it was owned byCG&E.
CG&Erecorded a capital lease obligation, included inNon-current liabilitiesotherfor
$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 approximately 25% of the total outstanding debt in floating interest rate debt instruments. To help maintain this level of exposure, we have previously
and will consider in the future entering 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 amount.PSIhad an interest rate swap agreement
that expired on November 15, 2000, which had a notional amount of $100 million.CG&Ehas an outstanding interest rate swap agreement that
decreased the percentage of floating rate debt. Under the seven-year agreement, which has a notional amount of $100 million,CG&Epays a fixed
rate and receives a floating rate. This swap will qualify as a cash flow hedge under the provisions of Statement 133. As the terms of the swap agreement mirror the terms of the debt agreement that it
is hedging, we anticipate that this swap will be effective as a hedge. Future changes in fair value of this swap will be recorded inAccumulated other comprehensive income
(loss), beginning with our adoption of Statement 133 effective January 1, 2001. 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. See Note 1(l) on page 107 for further discussion of Statement 133.

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

Cinergyhas exposure to fluctuations in exchange rates between the U.S. dollar and the currencies of foreign countries where we have
investments. When it is appropriate we will hedge our exposure to cash flow transactions, such as a dividend payment by one of our foreign subsidiaries. As of December 31, 2000, we do not
believe we had a material exposure to the currency risk attributable to these investments and have no outstanding foreign currency derivatives.

(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, 2000 |       | December 31, 1999
|---------------------------------------------------------------------------------------------------------------- |  | ----------------- | ----- | -----------------
|
|
|Cinergy                                                                                                          |  |                   |       |                  
|First mortgage bonds and other long-term debt (includes amounts reflected as long-term debt due within one year) |  | $                 | 2,917 |                  
|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) |  | $                 | 1,113 |                  
|ULH&P                                                                                                            |  |                   |       |                  
|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.

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.

(i)Trade Receivables and Physical Power PortfolioOur 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, 2000, we do not believe we had significant exposure to credit risk with our trade accounts receivable within
Delivery or our physical portfolio within Commodities.

(ii)Power-TradingContracts 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, 2000, approximately 60% of the activity within the total trading portfolio was with
10 counterparties. The majority of these contracts are for terms of one year or less. Electric power prices can be extremely volatile, and the market can, at times, lack liquidity. Because of these
issues, credit

risk is generally greater than with other commodity trading, especially when dealing with new market entrants. Credit discounts are included in the determination of fair value for all open positions
in the power-trading portfolio.

During
the last quarter of 2000, the Western U.S., primarily California, began experiencing unprecedented price levels for wholesale electricity. Because of the nature of deregulation
in California, the utilities have been unable to pass these price increases on to customers. Consequently, California's two largest utilities have accumulated significant unpaid obligations and are
having difficulty obtaining
capital. While we maintain a balanced Western U.S. portfolio and have no unrealized gain positions directly with these utilities, a large portion of such positions are with less than five power
marketers. If prices continue at elevated levels or should these utilities be unable to fund their unpaid obligations, credit failures by power marketers could result. Given these issues, the fair
values of our positions in the Western U.S. have been adjusted to reflect a higher level of credit discount. We have also been actively pursuing other forms of credit enhancement including, but not
limited to, parent company guarantees and letters of credit from counterparties. In determining fair value for all derivative instruments, we consider the credit quality of each counterparty,
contractual netting arrangements for longs and shorts with the same counterparty, and any security obtained. A significant portion of ourEnergy risk management
assetsandEnergy risk management liabilitiescurrentare with counterparties in the Western U.S. Nonperformance by
any of the Western U.S. counterparties could have a material effect on the operating results ofCinergy, CG&E, andPSI.

(iii)Gas-TradingAs of December 31, 2000, approximately 50% of the
activity within the physical gas marketing and trading portfolio represented commitments with 20 counterparties. Credit risk losses related to gas and other physical commodity and trading operations
have not been significant. At December 31, 2000, the credit risk within the gas and commodity trading portfolios was not believed to be significant because of the characteristics of
counterparties and customers with which transactions are executed.

(iv)Financial DerivativesPotential 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 U.S. employees meeting certain minimum age and service requirements. A final average pay formula determines plan benefits.
These plan benefits are based on:



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 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. Neither CG&EnorULH&Ppre-fund their obligations for these postretirement benefits. In 1999, PSIbegan pre-funding its obligations through a grantor trust as authorized by the
IURC.

In 2000,Cinergyoffered early retirement plans to certain individuals under a Limited Early Retirement Program (LERP). In accordance
with Statement of Financial Accounting Standards No. 88,Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination
Benefits(Statement 88),Cinergyrecognized a one-time expense of $12.8 million in 2000.

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                                  |                                      | $                | 27.4  |                               | $
|Interest cost                                 |                                      |                  | 73.0  |                               |  
|Expected return on plans' assets              |                                      |                  | (77.0 | )                             |  
|Amortization of transition (asset) obligation |                                      |                  | (1.3  | )                             |  
|Amortization of prior service cost            |                                      |                  | 4.5   |                               |  
|Recognized actuarial (gain) loss              |                                      |                  | (2.4  | )                             |  
|LERP Statement 88 cost                        |                                      |                  | 11.9  |                               |  
|                                              |                                      |                  |       |                               |  
|Net periodic benefit cost                     |                                      | $                | 36.1  |                               | $
|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 eight percent annual rate of increase in the per capita cost of covered health care benefits for 2001. It was assumed that the rate would
decrease gradually to five percent in 2008 and remain at that level thereafter.

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,
2000, 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        |  | $                | 1,002.0 |                               | $
|Service cost                                     |  |                  | 27.4    |                               |  
|Interest cost                                    |  |                  | 73.0    |                               |  
|Amendments(1)                                    |  |                  | 13.1    |                               |  
|Actuarial (gain) loss                            |  |                  | 12.0    |                               |  
|Benefits paid                                    |  |                  | (63.0   | )                             |  
|                                                 |  |                  |         |                               |  
|Benefit obligation at end of period              |  |                  | 1,064.5 |                               |  
|Change in plan assets                            |  |                  |         |                               |  
|Fair value of plan assets at beginning of period |  |                  | 946.1   |                               |  
|Actual return on plan assets                     |  |                  | 160.5   |                               |  
|Employer contribution                            |  |                  |        |                               |  
|Benefits paid                                    |  |                  | (63.0   | )                             |  
|                                                 |  |                  |         |                               |  
|Fair value of plan assets at end of period       |  |                  | 1,043.6 |                               |  
|Funded status                                    |  |                  | (20.9   | )                             |  
|Unrecognized prior service cost                  |  |                  | 36.6    |                               |  
|Unrecognized net actuarial (gain) loss           |  |                  | (249.6  | )                             |  
|Unrecognized net transition (asset) obligation   |  |                  | (4.5    | )                             |  
|                                                 |  |                  |         |                               |  
|Accrued benefit cost at December 31              |  | $                | (238.4  | )                             | $

---

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(in millions)Effect on total of service and interest cost components

$
3.1

$
(2.7
)Effect on postretirement benefit obligation


33.8


(29.2
)


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.

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

2000

1999(in millions)Pension benefit obligation

$
67.0

$
37.0Pension cost

$
8.3

$
4.0


10. Disposition of Unconsolidated Subsidiary

On July 15, 1999, we sold our 50% ownership interest in Midlands Electricity plc (Midlands) to GPU, Inc. In exchange for our interest in
Midlands, 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.

The
pro forma information presented below reflectsCinergy'snet income and EPS without the investment in Midlands for 1999 and 1998.

|                       |                                        | Year Ended December 31
|---------------------- | -------------------------------------- | ----------------------
|
|
|
|Reported results       |                                        | $                     
|Pro forma adjustments: |                                        |                       
|                       | Equity in earnings of Midlands         |                       
|                       | Gain on sale of investment in Midlands |                       
|                       | Interest                               |                       
|                       | Income taxes                           |                       
|                       |                                        |                       
|Pro forma results      |                                        | $                     

---





11. Income Taxes

The following table shows the significant components ofCinergy's, CG&E's, and PSI'snet deferred income tax
liabilities as of December 31, 2000, and 1999:

|                                    |                                                | Cinergy(1) |         | CG&E and subsidiaries |   | PSI    
|----------------------------------- | ---------------------------------------------- | ---------- | ------- | --------------------- | - | -------
|
|
|Deferred Income Tax Liability       |                                                |            |         |                       |   |        
|                                    | Utility plant                                  |            | $       | 1,135.9               |   | $      
|                                    | Unamortized costs of reacquiring debt          |            |         | 18.2                  |   |        
|                                    | Deferred operating expenses and carrying costs |            |         | 60.2                  |   |        
|                                    | Amounts due from customersincome taxes        |            |         | 96.2                  |   |        
|                                    | Gasification services agreement buyout costs   |            |         | 94.8                  |   |        
|                                    | Other                                          |            |         | 60.9                  |   |        
|                                    |                                                |            |         |                       |   |        
|Total Deferred Income Tax Liability |                                                |            | 1,466.2 |                       |   | 1,441.0
|Deferred Income Tax Asset           |                                                |            |         |                       |   |        
|                                    | Unamortized investment tax credits             |            |         | 56.1                  |   |        
|                                    | Accrued pension and other benefit costs        |            |         | 137.7                 |   |        
|                                    | Net energy risk management liabilities         |            |         | 24.6                  |   |        
|                                    | Rural Utilities Service (RUS) obligation       |            |         | 28.2                  |   |        
|                                    | Other                                          |            |         | 33.6                  |   |        
|                                    |                                                |            |         |                       |   |        
|Total Deferred Income Tax Asset     |                                                |            | 280.2   |                       |   | 266.2  
|                                    |                                                |            |         |                       |   |        
|Net Deferred Income Tax Liability   |                                                | $          | 1,186.0 |                       | $ | 1,174.8

---

We
will file a consolidated federal income tax return for the year ended December 31, 2000. The current tax liability is allocated among the members of the Cinergyconsolidated group pursuant to
a tax sharing agreement filed with the SEC under the PUHCA.

The following table summarizes federal and state income taxes charged (credited) to income forCinergy, CG&E, and PSI:

|                                    |         | Cinergy                                            |       | CG&E and subsidiaries |       | PSI   |      
|----------------------------------- | ------- | -------------------------------------------------- | ----- | --------------------- | ----- | ----- | -----
|
|
|Current Income Taxes                |         |                                                    |       |                       |       |       |      
|                                    | Federal |                                                    | $     | 187.3                 |       | $     | 114.0
|                                    | State   |                                                    |       | 16.9                  |       |       | (1.5 
|                                    |         |                                                    |       |                       |       |       |      
|Total Current
Income Taxes          |         |                                                    | 204.2 |                       |       | 112.5 |      
|Deferred Income Taxes               |         |                                                    |       |                       |       |       |      
|                                    | Federal |                                                    |       |                       |       |       |      
|                                    |         | Depreciation and other utility plant-related items |       |                       | 26.1  |       |      
|                                    |         | Pension and other benefit costs                    |       |                       | (21.3 | )     |      
|                                    |         | RUS obligations                                    |       |                       |      |       |      
|                                    |         | Unrealized energy risk management losses           |       |                       | 10.9  |       |      
|                                    |         | Fuel costs                                         |       |                       | 28.7  |       |      
|                                    |         | Gasification services agreement buyout costs       |       |                       | (0.1  | )     |      
|                                    |         | Other itemsnet                                    |       |                       | 11.0  |       |      
|                                    |         |                                                    |       |                       |       |       |      
|Total Deferred Federal Income Taxes |         |                                                    | 55.3  |                       |       | 91.2  |      
|                                    |         | State                                              |       |                       | 1.7   |       |      
|                                    |         |                                                    |       |                       |       |       |      
|Total Deferred Income Taxes         |         |                                                    | 57.0  |                       |       | 105.4 |      
|Investment Tax CreditsNet          |         |                                                    | (9.6  | )                     |       | (9.2  | )    
|                                    |         |                                                    |       |                       |       |       |      
|Total Income Taxes                  |         | $                                                  | 251.6 |                       | $     | 208.7 |      

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 federal income
tax) to the

federal income tax expense reported in the Consolidated Statements of Income forCinergy, CG&E, andPSI.

|                                                |                                                          | Cinergy |       | CG&Eand subsidiaries |   | PSI   |      
|----------------------------------------------- | -------------------------------------------------------- | ------- | ----- | -------------------- | - | ----- | -----
|
|
|Statutory federal income tax provision          |                                                          | $       | 221.3 |                      | $ | 209.9 |      
|Increases (Reductions) in taxes resulting from: |                                                          |         |       |                      |   |       |      
|                                                | Amortization of investment tax credits                   |         |       | (9.6                 | ) |       | (9.2 
|                                                | Depreciation and other utility plant-related differences |         |       | 17.7                 |   |       | 14.4 
|                                                | Preferred dividend requirements of subsidiaries          |         |       | 1.6                  |   |       | 1.9  
|                                                | Foreign tax adjustments                                  |         |       |                     |   |       | (15.5
|Othernet                                       |                                                          |         | 2.0   |                      |   | (5.5  | )    
|                                                |                                                          |         |       |                      |   |       |      
|Federal income tax expense                      |                                                          | $       | 233.0 |                      | $ | 196.0 |      
|                                                |                                                          |         |       |                      |   |       |      

The
following table shows the significant components ofULH&P'snet deferred income tax liability as of December 31, 2000, and
1999:

|                                    |                                         | 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   |                                         | $    
|                                    |                                         |      



The
following table summarizes federal and state income taxes charged (credited) to income forULH&P:

|                                    |         | ULH&P                                              |       
|----------------------------------- | ------- | -------------------------------------------------- | ------
|
|
|Current Income Taxes                |         |                                                    |       
|                                    | Federal |                                                    | $     
|                                    | State   |                                                    |       
|                                    |         |                                                    |       
|Total Current Income Taxes          |         |                                                    | 4,874 
|Deferred Income Taxes               |         |                                                    |       
|                                    | Federal |                                                    |       
|                                    |         | Depreciation and other utility plant-related items |       
|                                    |         | Pension and other benefit costs                    |       
|                                    |         | Fuel costs                                         |       
|                                    |         | Unamortized costs of reacquiring debt              |       
|                                    |         | Service company allocations                        |       
|                                    |         | Other items-net                                    |       
|                                    |         |                                                    |       
|Total Deferred Federal Income Taxes |         |                                                    | 8,901 
|Deferred State Income Taxes         |         |                                                    | 303   
|                                    |         |                                                    |       
|Total Deferred Income Taxes         |         |                                                    | 9,204 
|Investment Tax CreditsNet          |         |                                                    | (277  
|                                    |         |                                                    |       
|Total Income Taxes                  |         | $                                                  | 13,801

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 federal income
tax) to the federal income tax expense reported in the Statement of Income forULH&P.

|                                                |                                                          | ULH&P |       
|----------------------------------------------- | -------------------------------------------------------- | ----- | ------
|
|
|Statutory federal income tax provision          |                                                          | $     | 13,391
|Increases (Reductions) in taxes resulting from: |                                                          |       |       
|                                                | Amortization of investment tax credits                   |       |       
|                                                | Depreciation and other utility plant-related differences |       |       
|                                                | Othernet                                                |       |       
|                                                |                                                          |       |       
|Federal income tax expense                      |                                                          | $     | 13,627
|                                                |                                                          |       |       



12. Commitments and Contingencies

(a)Construction and Other CommitmentsForecasted construction and other
committed expenditures for the year 2001 and for the five-year period 2001-2005 (in nominal dollars) are presented in the table below:

2001

2001-2005(in millions)Cinergy(1)

$
1,467

$
4,635CG&Eand subsidiaries


423


1,676PSI


406


2,264ULH&P


37


178


---

This
forecast includes an estimate of expenditures in accordance with the companies' plans regarding nitrogen oxide (NOX) emission control standards and other
environmental compliance (excluding implementation of the tentative EPA Agreement), as discussed below. Approximately $210 million is estimated to be spent in 2001 and approximately
$789 million is estimated to be spent between 2001 and 2005. This forecast also includes expenditures for the pending purchase of two natural gas-fired merchant electric generating
facilities from Enron North America with a total combined capacity of 998 megawatts (MW), the acquisition of an interest in a gas distribution business in Athens, Greece, and other committed
investments.

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

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

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

In
March 2000, the Court of Appeals substantially upheld the EPA's rule. On April 11, 2000, the EPA asked the Court of Appeals to remove its May 25, 1999,
suspension of the rule and also directed states to submit SIP revisions by September 1, 2000. On April 17, 2000, various states and industry groups (some of which we are a member) filed
a request with the Court of Appeals for a rehearing of the NOX SIP Call decisions. On April 24, 2000, the same group filed a request with the Court of Appeals to require a
rulemaking and a comment period to determine a new compliance date. The

states also filed a request to obtain more time to file their SIPs. On June 23, 2000, the Court of Appeals denied both requests and directed the states to submit their SIP revisions by
October 30, 2000. The states of Indiana, Kentucky, and Ohio subsequently submitted letters stating their intent to revise their SIPs in response to the NOX SIP Call.

In
August 2000, the Court of Appeals extended the May 1, 2003 deadline for NOX reductions to May 31, 2004. The states and other groups appealed the
Court of Appeals ruling to the U.S. Supreme Court.

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



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

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 Clean Air Act (CAA). The EPA believes that Section 126 petitions allow a state to claim that sources in another state are
contributing to its air quality problem and request that the EPA require the upwind sources to reduce their emissions.

In
December 1999, the EPA granted four Section 126 petitions relating to NOX emissions. This ruling affected all of our Ohio and Kentucky facilities, as well
as some of our Indiana facilities, and requires us to reduce our NOX emissions to a certain level by May 2003. The EPA's action granting the Section 126 petitions was
appealed to the Court of Appeals. Oral arguments were held in this case on December 15, 2000. A final decision is expected some time within the next few months.

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

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

(c)New Source Review (NSR)The CAA's NSR provisions require that a company
obtain a pre-construction permit if it plans to build a new stationary source of pollution or make a major 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.

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 were part of
an industry-wide investigation assessing compliance with the NSR and the New Source Performance Standards (NSPS) of the CAA at electric generating stations.

On
September 15, 1999, November 3, 1999, and February 2, 2001, the Attorney General's of New York, Connecticut, and New Jersey, respectively, issued letters
notifyingCinergyandCG&Eof their intent to sue under the citizens' suit provisions of the CAA. These
states alleged violations of the CAA by constructing and continuing to operate a major change toCG&E'sW.C. Beckjord Station (Beckjord Station) without
obtaining the required NSR pre-construction permits.

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

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

The
amended complaint sought (1) injunctive relief to require installation of pollution control technology on each of the generating units at Beckjord Station, Cayuga Station,
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.

On
March 1, 2000, the EPA also filed an amended complaint in a separate lawsuit alleging violations of the CAA relating to the NSR, Prevention of Significant Deterioration
(PSD), 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 (DP&L), and CG&E. The EPA is seeking injunctive relief and civil penalties of up to $27,500 per day for each violation. This suit is being defended by CSP.

On
June 28, 2000, the EPA issued an NOV toCinergy,CG&E, and PSIfor alleged violations of NSR, PSD,
and SIP requirements atCG&E'sMiami Fort Station and PSI'sGibson Station. In addition,CinergyandCG&Ehave
been informed by DP&L, the operator of Stuart Station, that on June 30, 2000, the EPA issued an NOV for alleged violations of NSR, PSD, and SIP requirements at this station. CG&Eowns 39%
of Stuart Station. The NOVs indicated that the EPA may (1) issue an order requiring compliance with the requirements of the SIP, or
(2) bring a civil action seeking injunctive relief and civil penalties of up to $27,500 per day for each violation.

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

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

meet and discuss the allegations and corrective measures. The NOV/FOV indicated the EPA may issue an administrative compliance order, issue an administrative penalty order, or bring a civil or
criminal action.

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

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

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

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



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

In
reaching the tentative agreement, we did not admit any wrongdoing and remain free to continue our current maintenance practices, as well as implement future projects for improved
reliability. If the settlement is not completed, we believe the allegations contained in the amended complaint are without merit, and we would defend the suit vigorously in court. In such an event, it
is not possible at this time to determine the likelihood that the plaintiffs would prevail on their claims or whether resolution of this matter would have a material effect on our financial condition
or results of operations.

(f)Manufactured Gas Plant (MGP) Sites

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

(ii)PSICoal tar residues, related hydrocarbons, and various
metals associated with MGP sites have been found at former MGP sites in Indiana, including at least 21 sites whichPSIor its predecessors previously
owned.PSIacquired four of the sites from Northern Indiana Public Service

Company (NIPSCO) in 1931. At the same time,PSIsold NIPSCO the sites located in Goshen and Warsaw, Indiana. In 1945, PSIsold 19 of these sites (including
the four sites it acquired from NIPSCO) to the predecessor of the Indiana Gas Company, Inc. (IGC). IGC
later sold the site located in Rochester, Indiana, to NIPSCO.

IGC
(in 1994) and NIPSCO (in 1995) both made claims 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 legally responsible for the costs of investigating and remediating the sites. In August 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. This agreement allocated
CERCLA liability for past and future costs at seven MGP sites in Indiana among the three companies. As a result of the agreement, NIPSCO's lawsuit against 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 (Court) 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. Recently, the
trial date for the case was moved from May 2001 to January 2002. In addition, the Court has ordered the parties to submit the case to mediation. The parties have selected a mediator and
scheduled mediation sessions in early 2001.PSIcannot predict the outcome of this litigation. Recently, PSIhas been involved in settlement
discussions with some of the insurance carriers. At the present time, PSIcannot predict either the progress or outcome of these discussions.

PSIhas accrued costs for the sites related to investigation, remediation, and groundwater monitoring to the extent such 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 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 Indiana MGP sites could be material to our financial position or results of operations.

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





(g)OtherIn compliance with an electric wholesale rate case settlement adopted
by the FERC effective February 2000,CG&Ereduced the cost of fuel reflected in its wholesale base rates and revised its wholesale fuel adjustment
factor. Beginning March 1, 2000,ULH&Pbegan passing through to retail customers the fuel costs incurred pursuant to the revised wholesale fuel
adjustment factor. The company believes it is not required to synchronize the cost of fuel reflected in retail base rates with the reduced cost of fuel reflected in wholesale base rates, outside of a
general rate proceeding. As a result, in 2000,ULH&Precovered and recognized as revenue approximately $14 million more in costs than it
incurred. This issue is currently before the Kentucky Public Service Commission (KPSC). WhileULH&Pbelieves its position is consistent with applicable
rate regulations, it is possible that the KPSC might require rate synchronization prospectively or disallow recovery of the $14 million recognized as revenue during 2000. ULH&Pcurrently cannot
predict the outcome of this matter.

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 Station Unit No. 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 reflect CG&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                    | % | $                        | 227   |                              
|     |                                   | Beckjord Station (Unit 6)          |         | 37.50                    |   |                          | 42    |                              
|     |                                   | Stuart Station(1)                  |         | 39.00                    |   |                          | 280   |                              
|     |                                   | Conesville Station (Unit 4)(1)     |         | 40.00                    |   |                          | 77    |                              
|     |                                   | Zimmer Station                     |         | 46.50                    |   |                          | 1,241 |                              
|     |                                   | East Bend Station                  |         | 69.00                    |   |                          | 336   |                              
|     |                                   | Killen Station(1)                  |         | 33.00                    |   |                          | 187   |                              
|     | Transmission                      |                                    | Various |                          |   | 65                       |       |                              
|PSI  |                                   |                                    |         |                          |   |                          |       |                              
|     | Production:                       |                                    |         |                          |   |                          |       |                              
|     |                                   | Gibson Station (Unit 5)            |         | 50.05                    |   |                          | 214   |                              
|     | Transmission and local facilities |                                    | 94.94   |                          |   | 2                        |       |                              

---



14. Quarterly Financial Data (unaudited)

|             |                    | Cinergy |   | CG&E  |  | PSI |      
|------------ | ------------------ | ------- | - | ----- |  | --- | -----
|
|
|March 31     |                    |         |   |       |  |     |      
|             | Operating Revenues |         | $ | 1,583 |  | $   | 1,402
|             | Operating Income   |         |   | 274   |  |     | 234  
|             | Net Income         |         |   | 138   |  |     | 127  
|             | Basic EPS          |         |   | .87   |  |     | .80  
|             | Diluted EPS        |         |   | .87   |  |     | .80  
|June 30      |                    |         |   |       |  |     |      
|             | Operating Revenues |         | $ | 1,770 |  | $   | 1,275
|             | Operating Income   |         |   | 167   |  |     | 137  
|             | Net Income         |         |   | 75    |  |     | 59   
|             | Basic EPS          |         |   | .47   |  |     | .37  
|             | Diluted EPS        |         |   | .47   |  |     | .37  
|September 30 |                    |         |   |       |  |     |      
|             | Operating Revenues |         | $ | 2,300 |  | $   | 1,782
|             | Operating Income   |         |   | 196   |  |     | 137  
|             | Net Income         |         |   | 94    |  |     | 122  
|             | Basic EPS          |         |   | .59   |  |     | .77  
|             | Diluted EPS        |         |   | .58   |  |     | .76  
|December 31  |                    |         |   |       |  |     |      
|             | Operating Revenues |         | $ | 2,769 |  | $   | 1,479
|             | Operating Income   |         |   | 225   |  |     | 185  
|             | Net Income         |         |   | 92    |  |     | 96   
|             | Basic EPS          |         |   | .58   |  |     | .60  
|             | Diluted EPS        |         |   | .58   |  |     | .60  
|Total        |                    |         |   |       |  |     |      
|             | Operating Revenues |         | $ | 8,422 |  | $   | 5,938
|             | Operating Income   |         |   | 862   |  |     | 693  
|             | Net Income         |         |   | 399   |  |     | 404  
|             | Basic EPS          |         |   | 2.51  |  |     | 2.54 
|             | Diluted EPS        |         |   | 2.50  |  |     | 2.53 

---

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. As of December 31, 2000, each
business unit has its own management structure, headed by a business unit president. As discussed in Note 1(a), during 2000 our business units were Commodities, Delivery, Cinergy Investments,
and International. Each business unit and its responsibilities as of this date, are described below.

Commodities
operates and maintains our domestic regulated and non-regulated electric generating plants and some of our jointly-owned plants. It also conducts the following
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 wholesale customers 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 and non-wholesale energy and energy-related products and
services. This is accomplished through various subsidiaries and joint ventures. These products and services include the following:



International
primarily directs and manages our international business holdings. These holdings include wholly-owned and jointly-owned companies in ten foreign countries. In addition,
International directs our renewable energy investing activities (for example, wind farms), which includes investments within the U.S. as well as abroad. International earns (1) revenues from
consolidated subsidiaries, and (2) equity earnings from unconsolidated companies primarily from energy-related businesses.

As the utility industry continues to evolve,Cinergywill continue to analyze its operating structure and make modifications as
appropriate. In early 2001, we announced certain organizational changes which further aligned the business units consistent withCinergy'sstrategic
vision. The revised structure reflects three business units, as follows:



Financial
information by (1) business units, (2) products and services, and (3) geographic areas and long-lived assets for the years ending
December 31, 2000, 1999, and 1998, are as follows:

Business Units

|                                                  |                       | 2000
|------------------------------------------------- | --------------------- | ----
|
|
|
|Operating revenues                               |                       |     
|                                                  | External customers    |     
|                                                  | Intersegment revenues |     
|Depreciation and amortization(3)                  |                       |     
|Equity in earnings of unconsolidated subsidiaries |                       |     
|Interest(4)                                       |                       |     
|Income taxes                                      |                       |     
|Segment profit (loss)(5)                          |                       |     
|Total segment assets                              |                       |     
|Investments in unconsolidated subsidiaries        |                       |     
|Total expenditures for long-lived assets          |                       |     

---



Business Units (cont.)

|                                                        |                       | 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(4)                                             |                       |     
|Income taxes                                            |                       |     
|Segment profit (loss)(5)                                |                       |     
|Total segment assets                                    |                       |     
|Investments in unconsolidated subsidiaries              |                       |     
|Total expenditures for long-lived assets                |                       |     

---



Business Units (cont.)

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

---

Products and Services

|     |  | Revenues
|---- |  | --------
|
|
|
|2000 |  | $       
|1999 |  |         
|1998 |  |         

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



Geographic Areas and Long-Lived Assets

|     |  | Revenues
|---- |  | --------
|
|
|
|2000 |  | $       
|1999 |  |         
|1998 |  |         

|     |  | Long-Lived Assets
|---- |  | -----------------
|
|
|2000 |  | $                
|1999 |  |                  
|1998 |  |                  

---



16. Earnings Per Common Share

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

|                               |                                     | Income |   | Shares |  | EPS
|------------------------------ | ----------------------------------- | ------ | - | ------ |  | ---
|
|2000                           |                                     |        |   |        |  |    
|Basic EPS:                     |                                     |        |   |        |  |    
|                               | Net income                          |        | $ | 399    |  | 159
|Effect of dilutive securities: |                                     |        |   |        |  |    
|                               | Common stock options                |        |   |        |  | 1  
|                               |                                     |        |   |        |  |    
|Diluted EPS:                   |                                     |        |   |        |  |    
|                               | Net income plus assumed conversions |        | $ | 399    |  | 160
|1999                           |                                     |        |   |        |  |    
|Basic EPS:                     |                                     |        |   |        |  |    
|                               | Net income                          |        | $ | 404    |  | 159
|Effect of dilutive securities: |                                     |        |   |        |  |    
|                               | Common stock options                |        |   |        |  |   
|                               |                                     |        |   |        |  |    
|Diluted EPS:                   |                                     |        |   |        |  |    
|                               | Net income plus assumed conversions |        | $ | 404    |  | 159
|1998                           |                                     |        |   |        |  |    
|Basic EPS:                     |                                     |        |   |        |  |    
|                               | Net income                          |        | $ | 261    |  | 158
|Effect of dilutive securities: |                                     |        |   |        |  |    
|                               | Common stock options                |        |   |        |  | 1  
|                               |                                     |        |   |        |  |    
|Diluted EPS:                   |                                     |        |   |        |  |    
|                               | Net income plus assumed conversions |        | $ | 261    |  | 159

Options
to purchase shares of common stock are excluded from the calculation of diluted EPS when the exercise prices of these options are greater than the average market price of the
common shares during the period. For 2000, 1999, and 1998, approximately two million, two million, and one million shares, respectively, were excluded from the diluted EPS calculation.

The
Employee Stock Purchase and Savings Plan was also excluded from the diluted EPS calculation in 2000, 1999, and 1998 since the purchase price was greater than the average market
price during this period. This plan allows all full-time, regular employees to purchase shares of common stock pursuant to a stock option feature.

17. WVPA 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 asLong-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.

18. 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 created a competitive electric retail service market effective January 1, 2001. The legislation
provided for a market development period that began January 1, 2001, and ends no later than December 31, 2005. Ohio electric utilities have an opportunity to recover PUCO approved
transition costs during a transition period. The legislation also froze retail electric rates during the market development period, at the rates in effect on October 4, 1999, except for a
five-percent reduction in the generation component of residential rates. Furthermore, the legislation
contemplated that 20% of the current electric retail customers will switch suppliers no later than December 31, 2003.

On
May 8, 2000,CG&Ereached a stipulated agreement with the PUCO staff and various other interested parties with respect to its
proposal to implement electric customer choice in Ohio effective January 1, 2001. On August 31, 2000, the PUCO approvedCG&E'sstipulation
agreement. The major features of this agreement include:



With
regard to the PUCO's order, two parties filed applications for rehearing with the PUCO. On October 18, 2000, the PUCO denied these applications. One of the parties
appealed to the Ohio Supreme Court in the fourth quarter of 2000 andCG&Esubsequently intervened in that case. CG&Eis unable to predict the
outcome of the appeal.

As
indicated above, the August 31, 2000 order authorizesCG&Eto transfer its generation assets to one or more
non-regulated corporate subsidiary(ies). This transfer may require the approval or consent of one or more of the following: the IURC, the Kentucky Public Service Commission, the FERC, the
SEC under the PUHCA, and various third parties. As the transfer is contingent upon the company receiving various consents and approvals, the timing and receipt of which are unknown, the completion
date of the transfer of generation assets to a non-regulated subsidiary is uncertain. See Note 1(c) regarding the effects of the transition order.

In
connection with the approval of the stipulation agreement,CG&Ediscontinued the application of Statement 71 for the generation
portion of its business and adopted Statement 101, with no material financial statement impact. Pursuant to Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Ofour analysis indicates future revenues will
be sufficient to recover the costs of our generating assets over their estimated remaining lives.





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

None.



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 2001 Annual Meeting of Shareholders.

The
directors of The Cincinnati Gas & Electric Company (CG&E) at January 31, 2001, are as follows:



Additional
information on each of the directors ofCG&Eis presented in and incorporated in the following "Executive Officers" section.

Information
regarding PSI Energy, Inc.'s (PSI) directors is incorporated by reference from its 2001 Information Statement.

EXECUTIVE OFFICERS

The names of the executive officers of each registrant, their ages (as of December 31, 2000), 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 is included in the chart below.

|                   |  |    |  | Positions and Length of Service                                               
|------------------ |  | -- |  | ------------------------------------------------------------------------------
|
|Vicky A. Bailey(1) |  | 48 |  |                                                                               
|John Bryant(2)     |  | 54 |  | Vice President1/98 - present President, International Business Unit7/00 - 2/01

|Michael J. Cyrus(3) |  | 45 |  | Executive Vice President2/01 - present Chief Executive Officer, Energy Merchant Business Unit2/01 - present President, Energy Commodities Business Unit3/99 - 2/01 Vice President4/98 - present Chief Operating Officer, Energy Commodities Business Unit11/98 - 3/99 |  | Executive Vice President2/01 - present Vice President4/99 - 2/01   |  | Executive Vice President2/01 - present Vice President4/99 - 2/01  
|------------------- |  | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------ |  | ------------------------------------------------------------------
|R. Foster Duncan(4) |  | 46 |  | Executive Vice President and Chief Financial Officer2/01 - present                                                                                                                                                                                                    |  | Executive Vice President and Chief Financial Officer2/01 - present |  | Executive Vice President and Chief Financial Officer2/01 - present
|Lisa D. Gamblin(5)  |  | 37 |  | Vice President and Treasurer10/00 - present Vice President and Chief Financial Officer, Energy Delivery Business Unit3/99 - 10/00 Vice President and Chief Financial Officer, International Business Unit2/98 - 3/99 Manager, Corporate Development5/97 - 2/98        |  | Vice President and Treasurer10/00 - present                        |  | Vice President and Treasurer10/00 - present                       

|William J. Grealis(6)   |  | 55 |  | Executive Vice President2/01 - present Chief Executive Officer, Regulated Businesses Business Unit2/01 - present Executive Vice President and Chief of Staff7/00 - 2/01 Vice President, Corporate Services, and Chief Strategic Officer8/98 - 7/00 Vice President1/95 - 8/98 |  | Executive Vice President2/01 - present Executive Vice President and Chief of Staff7/00 - 2/01 Vice President, Corporate Services, and Chief Strategic Officer8/98 - 7/00 Vice President4/98 - 8/98 President1/95 - 3/98 |  | Executive Vice President2/01 - present Executive Vice President and Chief of Staff7/00 - 2/01 Vice President, Corporate Services, and Chief Strategic Officer8/98 - 7/00 Vice President4/98 - 8/98
|----------------------- |  | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|J. Joseph Hale, Jr.(7)  |  | 51 |  | Vice President12/96 - present                                                                                                                                                                                                                                                |  | President7/00 - present Vice President8/98 - 7/00 General Manager, Marketing Operations1/95 - 8/98                                                                                                                      |  | Vice President2/00 - 7/00 Interim President6/99 - 2/00 Vice President8/98 - 6/99                                                                                                                  
|M. Stephen Harkness(8)  |  | 52 |  | Vice President12/96 - present General Manager, Corporate Development and Financial Services10/94 - 12/96                                                                                                                                                                     |  |                                                                                                                                                                                                                         |  |                                                                                                                                                                                                   
|Donald B. Ingle, Jr.(9) |  | 51 |  | President, Power Technology and Infrastructure Services Business Unit2/01 - present President, Cinergy Investments Business Unit3/99 - 2/01 Vice President10/97 - present                                                                                                    |  | Vice President10/97 - 3/99                                                                                                                                                                                              |  | Vice President10/97 - 3/99                                                                                                                                                                        

|Julia S. Janson    |  | 36 |  | Secretary7/00 - present Senior Counsel7/98 - present Counsel5/96 - 7/98 Manager, Investor Relations1/95 - 5/96                                                       |  | Assistant Secretary7/00 - present Senior Counsel7/98 - present Counsel5/96 - 7/98 Manager, Investor Relations1/95 - 5/96 |  | Secretary7/00 - present Senior Counsel7/98 - present Counsel5/96 - 7/98 Manager, Investor Relations1/95 - 5/96         
|------------------ |  | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------ |  | -----------------------------------------------------------------------------------------------------------------------
|Bernard F. Roberts |  | 48 |  | Vice President and Comptroller3/99 - present Vice President and Chief Financial Officer, Energy Commodities Business Unit7/96 - 3/99 Assistant Treasurer12/94 - 7/96 |  | Vice President and Comptroller3/99 - present Assistant Treasurer1/95 - 7/96                                              |  | Vice President and Comptroller3/99 - present Assistant Treasurer12/94 - 7/96                                           
|James E. Rogers    |  | 53 |  | Chairman of the Board, President and Chief Executive Officer12/00 - present Vice Chairman, President and Chief Executive Officer12/95 - 12/00                        |  | Chairman of the Board and Chief Executive Officer12/00 - present Vice Chairman and Chief Executive Officer12/95 - 12/00  |  | Chairman of the Board and Chief Executive Officer12/00 - present Vice Chairman and Chief Executive Officer12/95 - 12/00

|Larry E. Thomas(10) |  | 55 |  | Executive Vice President2/01 - present Chief Executive Officer, Power Technology and Infrastructure Services Business Unit2/01 - present Group President7/00 - 2/01 Vice President4/97 - 7/00 President, Energy Delivery Business Unit5/96 - 7/00 Group Vice President and Chief Transformation Officer9/95 - 4/97 |  | Executive Vice President2/01 - present Group President7/00 - 2/01 Vice President4/97 - 7/00 Group Vice President and Chief Transformation Officer9/95 - 4/97                                              |  | Executive Vice President2/01 - present Group President7/00 - 2/01 Vice President4/97 - 7/00 Group Vice President and Chief Transformation Officer9/95 - 4/97                         
|------------------- |  | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|James L. Turner(11) |  | 41 |  | President, Regulated Businesses Business Unit2/01 - present President, Energy Delivery Business Unit7/00 - 2/01 Vice President4/99 - present Senior Counsel6/95 - 3/97                                                                                                                                             |  | Vice President7/00 - present President2/99 - 7/00                                                                                                                                                         |  | Vice President7/00 - present                                                                                                                                                         
|Jerome A. Vennemann |  | 50 |  | Vice President and General Counsel1/00 - present Acting General Counsel3/99 - 1/00 Assistant Secretary12/94 - present Associate General Counsel2/96 - 3/99 Senior Counsel10/94 - 2/96                                                                                                                              |  | Vice President and General Counsel1/00 - present Acting General Counsel3/99 - 1/00 Secretary4/98 - present Associate General Counsel2/96 - 3/99 Assistant Secretary1/95 - 4/98 Senior Counsel10/94 - 2/96 |  | Vice President and General Counsel1/00 - present Acting General Counsel3/99 - 1/00 Assistant Secretary12/94 - present Associate General Counsel2/96 - 3/99 Senior Counsel10/94 - 2/96

|Timothy J. Verhagen(12) |  | 54 |  | Vice President1/01 - present                                                                                                                                                                                                                                          |  |                                                                                                                                                                                     |  |                                                                                                                                                                                    
|----------------------- |  | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Charles J. Winger       |  | 55 |  | Vice President2/01 - present Vice President and Acting Chief Financial Officer6/00 - 2/01 Vice President3/99 - 6/00 Vice President and Chief Financial Officer4/98 - 3/99 Vice President8/97 - 4/98 Vice President and Comptroller4/97 - 8/97 Comptroller12/94 - 4/97 |  | Vice President and Acting Chief Financial Officer6/00 - 2/01 Vice President and Chief Financial Officer4/98 - 3/99 Vice President and Comptroller4/97 - 8/97 Comptroller1/95 - 4/97 |  | Vice President and Acting Chief Financial Officer6/00 - 2/01 Vice President and Chief Financial Officer4/98 - 3/99 Vice President and Comptroller4/97 - 8/97 Comptroller3/84 - 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.



ITEM 11.  EXECUTIVE COMPENSATION

Information in response to this item forCinergy Corp.andCG&Eis incorporated by reference from its definitive Proxy Statement for the 2001 Annual Meeting of Shareholders.

All CG&Edirectors currently are employees ofCinergy Corp.or CG&E, and receive no compensation for their services as directors.

Information
in response to this item forPSIexecutive compensation is incorporated by reference from PSI's2001 Information Statement.



ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL  OWNERS AND MANAGEMENT

Information in response to this item forCinergy Corp.is incorporated by reference from its definitive Proxy
Statement for the 2001 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% of any series ofCG&E'sclass of cumulative preferred stock as of December 31, 2000.

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 January 31,
2001. The beneficial ownership ofCinergy
Corp.common stock by each director and named executive officer ofCG&Eas of January 31, 2001, is set forth in the
following table:

Name of Beneficial Owner(1)

Amount and Nature
of Beneficial Ownership(2)Michael J. Cyrus

166,473 sharesWilliam J. Grealis

284,275 sharesJ. Joseph Hale, Jr.

56,991 sharesJackson H. Randolph

270,137 sharesJames E. Rogers

988,863 sharesLarry E. Thomas

302,987 sharesJames L. Turner

25,268 sharesCharles J. Winger

98,340 sharesAll directors and executive officers as a group (11 persons)

2,319,167 shares
(representing 1.46% of the class)


---

Information
in response to this item forPSIis incorporated by reference from its 2001 Information Statement.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information in response to this item forCinergy Corp.andCG&Eis incorporated by reference fromCinergy Corp.'sdefinitive Proxy Statement for the 2001 Annual Meeting of Shareholders.

Information
in response to this item forPSIis incorporated by reference from its 2001 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", for an index of the financial statements and financial statement
schedules included in this report.

Reports on Form 8-K

The following reports on Form 8-K were filed during the quarter ended December 31, 2000:

|Date of Report    |  | Registrant(s)          |  | Item Filed                                                     
|----------------- |  | ---------------------- |  | ---------------------------------------------------------------
|October 16, 2000  |  | Cinergy Corp.          |  | Item 5. Other Events
Item 7. Financial Statements and Exhibits.
|December 22, 2000 |  | Cinergy Corp.
CG&E
PSI |  | Item 5. Other Events
Item 7. Financial Statements and Exhibits.

Exhibits

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

|Exhibit Designation |  | Registrant(s)     |  | Nature of Exhibit                                                                                                                                                                |  | Previously Filed as Exhibit to:                                                 
|------------------- |  | ----------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------
|
|3-a                 |  | Cinergy Corp.(1)  |  | Certificate of Incorporation ofCinergy Corp., a Delaware corporation.                                                                                                            |  | Cinergy Corp.1993 Form 10-K.                                                    
|3-b                 |  | Cinergy Corp.     |  | By-Laws ofCinergy Corp., as amended on April 27, 2000.                                                                                                                           |  | Cinergy Corp.September 30, 2000, Form 10-Q.                                     
|3-c                 |  | Cinergy Corp.     |  | By-Laws ofCinergy Corp., as amended on December 14, 2000.                                                                                                                        |  |                                                                                 
|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.                                                                                  |  | Cinergy Corp.1997 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.                           |  | Cinergy Corp.1997 Form 10-K.                                                    
|
|4-a                 |  | Cinergy Corp.
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 Corp.
PSI |  | Twenty-fifth Supplemental Indenture betweenPSIand The First National Bank of Chicago dated September 1, 1978.          |  | File No. 2-62543.                                    
|---- |  | ----------------- |  | ---------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------
|4-c  |  | Cinergy Corp.
PSI |  | Thirty-fifth Supplemental Indenture betweenPSIand The First National Bank of Chicago dated March 30, 1984.             |  | PSI1984 Form 10-K.                                   
|4-d  |  | Cinergy Corp.
PSI |  | Forty-second Supplemental Indenture betweenPSIand LaSalle National Bank dated August 1, 1988.                          |  | PSI1988 Form 10-K.                                   
|4-e  |  | Cinergy Corp.
PSI |  | Forty-fourth Supplemental Indenture betweenPSIand LaSalle National Bank dated March 15, 1990.                          |  | PSI1990 Form 10-K.                                   
|4-f  |  | Cinergy Corp.
PSI |  | Forty-fifth Supplemental Indenture betweenPSIand LaSalle National Bank dated March 15, 1990.                           |  | PSI1990 Form 10-K.                                   
|4-g  |  | Cinergy Corp.
PSI |  | Forty-sixth Supplemental Indenture betweenPSIand LaSalle National Bank dated June 1, 1990.                             |  | PSI1991 Form 10-K.                                   
|4-h  |  | Cinergy Corp.
PSI |  | Forty-seventh Supplemental Indenture betweenPSIand LaSalle National Bank dated July 15, 1991.                          |  | PSI1991 Form 10-K.                                   
|4-i  |  | Cinergy Corp.
PSI |  | Forty-eighth Supplemental Indenture betweenPSIand LaSalle National Bank dated July 15, 1992.                           |  | PSI1992 Form 10-K.                                   
|4-j  |  | Cinergy Corp.
PSI |  | Forty-ninth Supplemental Indenture betweenPSIand LaSalle National Bank dated February 15, 1993.                        |  | PSI1992 Form 10-K.                                   
|4-k  |  | Cinergy Corp.
PSI |  | Fiftieth Supplemental Indenture betweenPSIand LaSalle National Bank dated February 15, 1993.                           |  | PSI1992 Form 10-K.                                   
|4-l  |  | Cinergy Corp.
PSI |  | Fifty-first Supplemental Indenture betweenPSIand LaSalle National Bank dated February 1, 1994.                         |  | PSI1993 Form 10-K.                                   
|4-m  |  | Cinergy Corp.
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 Corp.
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 Corp.
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 Corp.
PSI |  | Loan Agreement betweenPSIand the City of Princeton, Indiana dated as of November 7, 1996.                              |  | PSISeptember 30, 1996, Form 10-Q.                    
|4-q  |  | Cinergy Corp.
PSI |  | Loan Agreement betweenPSIand the City of Princeton, Indiana dated as of February 1, 1997.                              |  | Cinergy Corp.1996 Form 10-K.                         
|4-r  |  | Cinergy Corp.
PSI |  | Indenture dated November 15, 1996, betweenPSIand The Fifth Third Bank, as Trustee.                                     |  | Cinergy Corp.1996 Form 10-K.                         
|4-s  |  | Cinergy Corp.
PSI |  | First Supplemental Indenture dated November 15, 1996, betweenPSIand The Fifth Third Bank, as Trustee.                  |  | Cinergy Corp.1996 Form 10-K.                         
|4-t  |  | Cinergy Corp.
PSI |  | Third Supplemental Indenture dated as of March 15, 1998, betweenPSIand The Fifth Third Bank, as Trustee.               |  | Cinergy Corp.1997 Form 10-K.                         
|4-u  |  | Cinergy Corp.
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 Corp.
PSI |  | Fifth Supplemental Indenture dated as of December 15, 1998, betweenPSIand The Fifth Third Bank, as Trustee.            |  | PSI1998 Form 10-K.                                   
|4-w  |  | Cinergy Corp.
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 Corp.
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 Corp.
PSI |  | Unsecured Promissory Note dated October 14, 1998, betweenPSIand the Rural Utilities Service.                           |  | PSI1998 Form 10-K.                                   
|4-z  |  | Cinergy Corp.
PSI |  | Loan Agreement betweenPSIand the Indiana Development Finance Authority dated as of July 15, 1998.                      |  | PSIJune 30, 1998, Form 10-Q.                         
|4-aa |  | Cinergy Corp.
PSI |  | Loan Agreement betweenPSIand the Indiana Development Finance Authority dated as of May 1, 2000.                        |  | PSIJune 30, 2000, Form 10-Q.                         

|4-bb |  | Cinergy Corp.
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-cc |  | Cinergy Corp.
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-dd |  | Cinergy Corp.
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-ee |  | Cinergy Corp.
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-ff |  | Cinergy Corp.
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.
|4-gg |  | Cinergy Corp.
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-hh |  | Cinergy Corp.
CG&E       |  | Thirty-seventh Supplemental Indenture betweenCG&Eand The Bank of New York dated as of October 14, 1996.                |  | Cinergy Corp.1996 Form 10-K.            
|4-ii |  | Cinergy Corp.
CG&E       |  | Loan Agreement betweenCG&Eand the County of Boone, Kentucky dated as of February 1, 1985.                              |  | CG&E1984 Form 10-K.                     
|4-jj |  | Cinergy Corp.
CG&E       |  | Repayment Agreement betweenCG&Eand The Dayton Power and Light Company dated as of December 23, 1992.                   |  | CG&E1992 Form 10-K.                     
|4-kk |  | Cinergy Corp.
CG&E       |  | Loan Agreement betweenCG&Eand the County of Boone, Kentucky dated as of January 1, 1994.                               |  | CG&E1993 Form 10-K.                     
|4-ll |  | Cinergy Corp.
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 Corp.
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 Corp.
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-oo |  | Cinergy Corp.
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-pp |  | Cinergy Corp.
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 Corp.
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 Corp.
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 Corp.
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 Corp.
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 Corp.
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 Corp.
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 Corp.
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 Corp.
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 Corp.
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 Corp.
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.                                         
|----- |  | ------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------
|4-bbb |  | Cinergy Corp.
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 Corp.
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 Corp.
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 Corp.            |  | Base Indenture dated as of October 15, 1998, between Cinergy Global Resources, Inc. (Global Resources) and The Fifth Third Bank as Trustee.                                                 |  | Cinergy Corp.September 30, 1998, Form 10-Q.                            
|4-fff |  | Cinergy Corp.            |  | First Supplemental Indenture dated as of October 15, 1998, between Global Resources and The Fifth Third Bank as Trustee.                                                                    |  | Cinergy Corp.September 30, 1998, Form 10-Q.                            
|4-ggg |  | Cinergy Corp.            |  | Indenture dated as of December 16, 1998, betweenCinergy Corp.and The Fifth Third Bank.                                                                                                      |  | Cinergy Corp.1998 Form 10-K.                                           
|4-hhh |  | Cinergy Corp.            |  | Indenture betweenCinergy Corp.and Fifth Third Bank, as Trustee, dated as of April 15, 1999.                                                                                                 |  | Cinergy Corp.March 31, 1999, Form 10-Q.                                
|4-iii |  | Cinergy Corp.            |  | Rights Agreement betweenCinergy Corp.and The Fifth Third Bank, as Rights Agent.                                                                                                             |  | Cinergy Corp.Registration Statement on Form 8-A dated October 16, 2000.
|
|10-a  |  | Cinergy Corp.
CG&E
PSI   |  | Amended and Restated Employment Agreement dated October 24, 1994, amongCG&E(an Ohio corporation),Cinergy Corp.(a
Delaware corporation),PSIResources, Inc., andPSI, and Jackson H. Randolph. |  | Cinergy Corp.1994 Form 10-K.                                           
|10-b  |  | Cinergy Corp.
CG&E
PSI   |  | Amended and Restated Employment Agreement dated December 30, 1999, among Services,CG&E, andPSI, and James E.
Rogers.                                                                        |  | Cinergy Corp.1999 Form 10-K.                                           
|10-c  |  | Cinergy Corp.
CG&E
PSI   |  | Amended and Restated Employment Agreement dated December 30, 1999, amongCinergy Corp., Services,CG&E, andPSI, and William J. Grealis.                                                       |  | Cinergy Corp.1999 Form 10-K.                                           
|10-d  |  | Cinergy Corp.
CG&E
PSI   |  | Amended and Restated Employment Agreement dated December 30, 1999, amongCinergy Corp., Services,CG&E, andPSIand Larry E. Thomas.                                                            |  | Cinergy Corp.1999 Form 10-K.                                           
|10-e  |  | Cinergy Corp.
CG&E
PSI   |  | Amended and Restated Employment Agreement dated December 30, 1999, amongCinergy Corp., Services,CG&E, andPSI, and Donald B. Ingle, Jr.                                                      |  | Cinergy Corp.1999 Form 10-K.                                           
|10-f  |  | Cinergy Corp.
CG&E
PSI   |  | Amended and Restated Employment Agreement dated December 30, 1999, amongCinergy Corp., Services,CG&E, andPSI, and Michael J. Cyrus.                                                         |  | Cinergy Corp.1999 Form 10-K.                                           
|10-g  |  | Cinergy Corp.
CG&E
PSI   |  | Employment Agreement dated December 30, 1999 amongCinergy Corp., Services,CG&E, andPSI, and Jerome A. Vennemann.                                                                            |  | Cinergy Corp.1999 Form 10-K.                                           
|10-h  |  | Cinergy Corp.
CG&E
PSI   |  | Amended and Restated Employment Agreement dated December 30, 1999, amongCinergy Corp., Services,CG&EandPSI, and Charles J. Winger.                                                          |  | Cinergy Corp.1999 Form 10-K.                                           
|10-i  |  | Cinergy Corp.
PSI        |  | Deferred Compensation Agreement, effective as of January 1, 1992, betweenPSIand James E. Rogers.                                                                                            |  | PSIForm 10-K/A, Amendment No. 1, dated April 29, 1993.                 
|10-j  |  | Cinergy Corp.
PSI        |  | Split Dollar Life Insurance Agreement, effective as of January 1, 1992, betweenPSIand James E. Rogers.                                                                                      |  | PSIForm 10-K/A, Amendment No. 1, dated April 29, 1993.                 

|10-k  |  | Cinergy Corp.
PSI  |  | First Amendment to Split Dollar Life Insurance Agreement betweenPSIand James E. Rogers dated December 11, 1992.                    |  | PSIForm 10-K/A, Amendment No. 1, dated April 29, 1993.
|----- |  | ------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------
|10-l  |  | Cinergy Corp.
CG&E |  | Deferred Compensation Agreement betweenCG&Eand Jackson H. Randolph dated January 1, 1992.                                          |  | CG&E1992 Form 10-K.                                   
|10-m  |  | Cinergy Corp.
CG&E |  | Split Dollar Insurance Agreement, effective as of May 1, 1993, betweenCG&Eand Jackson H. Randolph.                                 |  | Cinergy Corp.1994 Form 10-K.                          
|10-n  |  | Cinergy Corp.
CG&E |  | Amended and Restated Supplemental Retirement Income Agreement betweenCG&Eand Jackson H. Randolph.                                  |  | Cinergy Corp.1995 Form 10-K.                          
|10-o  |  | Cinergy Corp.
CG&E |  | Amended and Restated Supplemental Executive Retirement Income Agreement betweenCG&Eand certain executive officers.                 |  | Cinergy Corp.1997 Form 10-K.                          
|10-p  |  | Cinergy Corp.      |  | Cinergy Corp.Union Employees' 401(k) Plan as amended and restated effective January 1, 1998, adopted December 18, 1997.            |  | Cinergy Corp.1999 Form 10-K.                          
|10-q  |  | Cinergy Corp.      |  | Amendment toCinergy Corp.Union Employees' 401(k) Plan, adopted December 10, 1999, effective December 1, 1999.                      |  | Cinergy Corp.1999 Form 10-K.                          
|10-r  |  | Cinergy Corp.      |  | Cinergy Corp.Non-Union Employees' 401(k) Plan as amended and restated effective January 1, 1998, adopted December 18, 1997.        |  | Cinergy Corp.1999 Form 10-K.                          
|10-s  |  | Cinergy Corp.      |  | Amendment toCinergy Corp.Non-Union Employees' 401(k) Plan, adopted December 10, 1999, effective December 1, 1999.                  |  | Cinergy Corp.1999 Form 10-K.                          
|10-t  |  | Cinergy Corp.      |  | Cinergy Corp.Union Employees' Savings Incentive Plan as amended and restated effective January 1, 1998, adopted December 18, 1997. |  | Cinergy Corp.1999 Form 10-K.                          
|10-u  |  | Cinergy Corp.      |  | Amendment toCinergy Corp.Union Employees' Savings Incentive Plan, effective December 1, 1999, adopted December 10, 1999.           |  | Cinergy Corp.1999 Form 10-K.                          
|10-v  |  | Cinergy Corp.      |  | Cinergy Corp.Supplemental Executive Retirement Plan amended and restated effective January 1, 1999, adopted October 15, 1998.      |  | Cinergy Corp.1999 Form 10-K.                          
|10-w  |  | Cinergy Corp.      |  | 1997 Amendments to Various Compensation and Benefit Plans ofCinergy Corp., adopted January 30, 1997.                               |  | Cinergy Corp.1997 Form 10-K.                          
|10-x  |  | Cinergy Corp.      |  | Cinergy Corp.Stock Option Plan, adopted October 18, 1994, effective October 24, 1994.                                              |  | Cinergy Corp.Form S-8, filed October 19, 1994.        
|10-y  |  | Cinergy Corp.      |  | Amendment toCinergy Corp.Stock Option Plan, amended October 22, 1996, effective November 1, 1996.                                  |  | Cinergy Corp.September 30, 1996, Form 10-Q.           
|10-z  |  | Cinergy Corp.      |  | Cinergy Corp.Annual Incentive Plan, adopted October 18, 1994, effective October 24, 1994.                                          |  | Cinergy Corp.1994 Form 10-K.                          
|10-aa |  | Cinergy Corp.      |  | Amendment toCinergy Corp.Annual Incentive Plan, amended January 25, 1996, effective January 1, 1996.                               |  | Cinergy Corp.1996 Form 10-K.                          
|10-bb |  | Cinergy Corp.      |  | Cinergy Corp.Employee Stock Purchase and Savings Plan, adopted October 18, 1994, effective October 24, 1994.                       |  | Cinergy Corp.Form S-8, filed October 19, 1994.        
|10-cc |  | Cinergy Corp.      |  | Amendment toCinergy Corp.Employee Stock Purchase and Savings Plan, adopted April 26, 1996, effective January 1, 1996.              |  | Cinergy Corp.June 30, 1996, Form 10-Q.                
|10-dd |  | Cinergy Corp.      |  | Amendment toCinergy Corp.Employee Stock Purchase and Savings Plan, adopted October 22, 1996, effective November 1, 1996.           |  | Cinergy Corp.September 30, 1996, Form 10-Q.           
|10-ee |  | Cinergy Corp.      |  | Cinergy Corp.UK Sharesave Scheme, adopted and effective December 16, 1999.                                                         |  | Cinergy Corp.1999 Form 10-K.                          
|10-ff |  | Cinergy Corp.      |  | Cinergy Corp.Directors' Deferred Compensation Plan, adopted October 18, 1994, effective October 24, 1994.                          |  | Cinergy Corp.Form S-8, filed October 19, 1994.        
|10-gg |  | Cinergy Corp.      |  | Amendment toCinergy Corp.Directors' Deferred Compensation Plan, adopted October 22, 1996.                                          |  | Cinergy Corp.September 30, 1996, Form 10-Q.           
|10-hh |  | Cinergy Corp.      |  | Cinergy Corp.Retirement Plan for Directors, adopted October 18, 1994, effective October 24, 1994.                                  |  | Cinergy Corp.1994 Form 10-K.                          

|10-ii |  | Cinergy Corp.                |  | Cinergy Corp.Retirement Plan for Directors, amended and restated effective January 1, 1999, adopted October 15, 1998.                                                                                                                                                                                                                |  | Cinergy Corp.Schedule 14A Definitive Proxy Statement filed March 12, 1999.
|----- |  | ---------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------------------------------------------------
|10-jj |  | Cinergy Corp.                |  | Cinergy Corp.Directors' Equity Compensation Plan adopted October 15, 1998, effective January 1, 1999.                                                                                                                                                                                                                                |  | Cinergy Corp.Schedule 14A Definitive Proxy Statement filed March 12, 1999.
|10-kk |  | Cinergy Corp.                |  | Cinergy Corp.Executive 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. |  | Cinergy Corp.1994 Form 10-K.                                              
|10-ll |  | Cinergy Corp.                |  | Cinergy Corp.1996 Long-term Incentive Compensation Plan, adopted April 26, 1996.                                                                                                                                                                                                                                                     |  | Cinergy Corp.Schedule 14A Definitive Proxy Statement filed March 13, 1996.
|10-mm |  | Cinergy Corp.                |  | Amendment toCinergy Corp.1996 Long-term Incentive Compensation Plan, adopted October 22, 1996, effective November 1, 1996.                                                                                                                                                                                                           |  | Cinergy Corp.September 30, 1996, Form 10-Q.                               
|10-nn |  | Cinergy Corp.                |  | Cinergy Corp.401(k) Excess Plan, effective January 1, 1997, adopted December 17, 1996.                                                                                                                                                                                                                                               |  | Cinergy Corp.1996 Form 10-K.                                              
|10-oo |  | Cinergy Corp.                |  | Cinergy Corp.Nonqualified Deferred Incentive Compensation Plan, effective January 1, 1997, adopted December 17, 1996.                                                                                                                                                                                                                |  | Cinergy Corp.1996 Form 10-K.                                              
|10-pp |  | Cinergy Corp.                |  | Cinergy Corp.Director, Officer and Key Employee Stock Purchase Program, effective January 7, 2000, adopted December 10, 1999.                                                                                                                                                                                                        |  | Cinergy Corp.1999 Form 10-K.                                              
|10-qq |  | Cinergy Corp.                |  | Cinergy Corp.Non-Union Employees' Pension Plan as amended and restated effective January 1, 1998, adopted December 18, 1997.                                                                                                                                                                                                         |  | Cinergy Corp.1999 Form 10-K.                                              
|10-rr |  | Cinergy Corp.                |  | Cinergy Corp.Union Employees' Retirement Income Plan as amended and restated effective January 1, 1998, adopted December 18, 1997.                                                                                                                                                                                                   |  | Cinergy Corp.1999 Form 10-K.                                              
|10-ss |  | Cinergy Corp.
CG&E
PSI       |  | Employment Agreement dated February 12, 2001, amongCinergy Corp., Services,CG&E, andPSI, and R. Foster Duncan.                                                                                                                                                                                                                       |  |                                                                           
|
|21    |  | Cinergy Corp.CG&EPSI         |  | Subsidiaries ofCinergy Corp.,CG&E, andPSI                                                                                                                                                                                                                                                                                            |  |                                                                           
|
|23    |  | Cinergy Corp.
CG&E
PSI
ULH&P |  | Consent of Independent Public Accountants                                                                                                                                                                                                                                                                                            |  |                                                                           
|
|24    |  | Cinergy Corp.
CG&E
PSI
ULH&P |  | Power of Attorney                                                                                                                                                                                                                                                                                                                    |  |                                                                           

---





CINERGY CORP.        SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS  FOR THE THREE YEARS ENDED DECEMBER 31, 2000(in
thousands)

|Col. A                                                 |                                 | Col. B |  | Col. C |        | Col. D |   | Col. E
|------------------------------------------------------ | ------------------------------- | ------ |  | ------ | ------ | ------ | - | ------
|
|
|Accumulated Provisions Deducted from Applicable Assets |                                 |        |  |        |        |        |   |       
|                                                       | Allowance for Doubtful Accounts |        |  |        |        |        |   |       
|                                                       |                                 | 2000   |  | $      | 26,811 |        | $ | 22,746
|                                                       |                                 | 1999   |  | $      | 25,622 |        | $ | 20,805
|                                                       |                                 | 1998   |  | $      | 10,382 |        | $ | 29,430



THE CINCINNATI GAS & ELECTRIC COMPANY        SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS  FOR THE THREE YEARS ENDED DECEMBER 31, 2000(in thousands)

|Col. A                                                 |                                 | Col. B |  | Col. C |        | Col. D |   | Col. E
|------------------------------------------------------ | ------------------------------- | ------ |  | ------ | ------ | ------ | - | ------
|
|
|Accumulated Provisions Deducted from Applicable Assets |                                 |        |  |        |        |        |   |       
|                                                       | Allowance for Doubtful Accounts |        |  |        |        |        |   |       
|                                                       |                                 | 2000   |  | $      | 16,740 |        | $ | 14,056
|                                                       |                                 | 1999   |  | $      | 17,607 |        | $ | 9,754 
|                                                       |                                 | 1998   |  | $      | 9,199  |        | $ | 16,131



PSI ENERGY, INC.        SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS  FOR THE THREE YEARS ENDED DECEMBER 31, 2000(in
thousands)

|Col. A                                                 |                                 | Col. B |  | Col. C |       | Col. D |   | Col. E
|------------------------------------------------------ | ------------------------------- | ------ |  | ------ | ----- | ------ | - | ------
|
|
|Accumulated Provisions Deducted from Applicable Assets |                                 |        |  |        |       |        |   |       
|                                                       | Allowance for Doubtful Accounts |        |  |        |       |        |   |       
|                                                       |                                 | 2000   |  | $      | 9,934 |        | $ | 7,088 
|                                                       |                                 | 1999   |  | $      | 7,893 |        | $ | 11,036
|                                                       |                                 | 1998   |  | $      | 1,183 |        | $ | 13,178



THE UNION LIGHT, HEAT AND POWER COMPANY        SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS  FOR THE THREE YEARS ENDED DECEMBER 31, 2000(in thousands)

|Col. A                                                 |                                 | Col. B |  | Col. C |       | Col. D |   | Col. E
|------------------------------------------------------ | ------------------------------- | ------ |  | ------ | ----- | ------ | - | ------
|
|
|Accumulated Provisions Deducted from Applicable Assets |                                 |        |  |        |       |        |   |       
|                                                       | Allowance for Doubtful Accounts |        |  |        |       |        |   |       
|                                                       |                                 | 2000   |  | $      | 1,513 |        | $ | 2,555 
|                                                       |                                 | 1999   |  | $      | 1,248 |        | $ | 2,169 
|                                                       |                                 | 1998   |  | $      | 996   |        | $ | 1,861 





SIGNATURES

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

CINERGY
CORP.
THE CINCINNATI GAS & ELECTRIC COMPANY
PSI ENERGY, INC.THE UNION LIGHT, HEAT AND POWER COMPANY
Registrants

|Date: February 27, 2001 |    |  |                                           
|----------------------- | -- |  | ------------------------------------------
|                        | By |  | /s/JAMES E. ROGERSJames E. Rogers
Chairman

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                                                                          |                        |                                                                                                    |                             |                  
|                                                                                 | Phillip R. Cox         |                                                                                                    | Director                    |                  
|                                                                                 | George C. Juilfs       |                                                                                                    | Director                    |                  
|                                                                                 | Thomas E. Petry        |                                                                                                    | Director                    |                  
|                                                                                 | Jackson H. Randolph    |                                                                                                    | Director                    |                  
|                                                                                 | Mary L. Schapiro       |                                                                                                    | Director                    |                  
|                                                                                 | John J. Schiff, Jr.    |                                                                                                    | Director                    |                  
|                                                                                 | Philip R. Sharp        |                                                                                                    | Director                    |                  
|                                                                                 | Dudley S. Taft         |                                                                                                    | 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        |                                                                                                    | Vice President and Director |                  
|CG&E                                                                             |                        |                                                                                                    |                             |                  
|                                                                                 | J. Joseph Hale, Jr.    |                                                                                                    | President and Director      |                  
|PSI                                                                              |                        |                                                                                                    |                             |                  
|                                                                                 | Vicky A. Bailey        |                                                                                                    | President and Director      |                  
|Cinergy, CG&E, PSI, and ULH&P                                                    |                        |                                                                                                    |                             |                  
|/s/JAMES E. ROGERSJames E. Rogers
Attorney-in-fact for all
the foregoing persons |                        | Chairman, Chief Executive Officer, and Director President of Cinergy
(Principal Executive Officer) |                             | February 27, 2001
|/s/CHARLES J. WINGERCharles J. Winger                                            |                        | Vice President and
Director of ULH&P
(Principal Financial Officer)                                 |                             | February 27, 2001
|/s/BERNARD F. ROBERTSBernard F. Roberts                                          |                        | Vice President and Comptroller
(Principal Accounting Officer)                                      |                             | February 27, 2001