**2005      Annual Reports**

----

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

**INDEX      TO ANNUAL REPORTS**

|                                                                                                  |                                                                                                        |   |
|-------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------|--------|
| Glossary                  of Terms                                                                    |                                                                                                        |   |
|                                                                                                  |                                                                                                        |   |
| Forward-Looking                  Information                                                          |                                                                                                        |   |
|                                                                                                  |                                                                                                        |   |
| AEP                  Common Stock and Dividend Information                                            |                                                                                                        |   |
|                                                                                                  |                                                                                                        |   |
| **American                  Electric Power Company, Inc. and Subsidiary                  Companies:** |                                                                                                        |   |
|                                                                                                  | Selected                  Consolidated Financial Data                                                       |   |   |
|                                                                                                  | Management’s                  Financial Discussion and Analysis of Results of Operations              |   |   |
|                                                                                                  | Quantitative                  and Qualitative Disclosures About Risk Management                  Activities |   |   |
|                                                                                                  | Report                  of Independent Registered Public Accounting Firm                                    |   |   |
|                                                                                                  | Management’s                  Assertion                                                               |   |   |
|                                                                                                  | Consolidated                  Financial Statements                                                          |   |   |
|                                                                                                  | Index                  to Notes to Consolidated Financial Statements                                        |   |   |
|                                                                                                  |                                                                                                        |   |   |
| **AEP                  Generating Company:**                                                          |                                                                                                        |   |
|                                                                                                  | Selected                  Financial Data                                                                    |   |   |
|                                                                                                  | Management’s                  Narrative Financial Discussion and Analysis                             |   |   |
|                                                                                                  | Financial                  Statements                                                                       |   |   |
|                                                                                                  | Index                  to Notes to Financial Statements of Registrant                  Subsidiaries         |   |   |
|                                                                                                  | Report                  of Independent Registered Public Accounting Firm                                    |   |   |
|                                                                                                  |                                                                                                        |   |   |
| **AEP                  Texas Central Company and Subsidiary:**                                        |                                                                                                        |   |
|                                                                                                  | Selected                  Consolidated Financial Data                                                       |   |   |
|                                                                                                  | Management’s                  Financial Discussion and Analysis                                       |   |   |
|                                                                                                  | Quantitative                  and Qualitative Disclosures About Risk Management                  Activities |   |   |
|                                                                                                  | Consolidated                  Financial Statements                                                          |   |   |
|                                                                                                  | Index                  to Notes to Financial Statements of Registrant                  Subsidiaries         |   |   |
|                                                                                                  | Report                  of Independent Registered Public Accounting Firm                                    |   |   |
|                                                                                                  |                                                                                                        |   |   |
| **AEP                  Texas North Company:**                                                         |                                                                                                        |   |
|                                                                                                  | Selected                  Financial Data                                                                    |   |   |
|                                                                                                  | Management’s                  Narrative Financial Discussion and Analysis                             |   |   |
|                                                                                                  | Quantitative                  and Qualitative Disclosures About Risk Management                  Activities |   |   |
|                                                                                                  | Financial                  Statements                                                                       |   |   |
|                                                                                                  | Index                  to Notes to Financial Statements of Registrant                  Subsidiaries         |   |   |
|                                                                                                  | Report                  of Independent Registered Public Accounting Firm                                    |   |   |
|                                                                                                  |                                                                                                        |   |   |
| **Appalachian                  Power Company and Subsidiaries:**                                      |                                                                                                        |   |
|                                                                                                  | Selected                  Consolidated Financial Data                                                       |   |   |
|                                                                                                  | Management’s                  Financial Discussion and Analysis                                       |   |   |
|                                                                                                  | Quantitative                  and Qualitative Disclosures About Risk Management                  Activities |   |   |
|                                                                                                  | Consolidated                  Financial Statements                                                          |   |   |
|                                                                                                  | Index                  to Notes to Financial Statements of Registrant                  Subsidiaries         |   |   |
|                                                                                                  | Report                  of Independent Registered Public Accounting Firm                                    |   |   |
|                                                                                                  |                                                                                                        |   |   |
| **Columbus                  Southern Power Company and Subsidiaries:**                                |                                                                                                        |   |
|                                                                                                  | Selected                  Consolidated Financial Data                                                       |   |   |
|                                                                                                  | Management’s                  Narrative Financial Discussion and Analysis                             |   |   |
|                                                                                                  | Quantitative                  and Qualitative Disclosures About Risk Management                  Activities |   |   |
|                                                                                                  | Consolidated                  Financial Statements                                                          |   |   |
|                                                                                                  | Index                  to Notes to Financial Statements of Registrant                  Subsidiaries         |   |   |
|                                                                                                  | Report                  of Independent Registered Public Accounting Firm                                    |   |   |
|                                                                                                  |                                                                                                        |   |   |
| **Indiana                  Michigan Power Company and Subsidiaries:**                                 |                                                                                                        |   |
|                                                                                                  | Selected                  Consolidated Financial Data                                                       |   |   |
|                                                                                                  | Management’s                  Financial Discussion and Analysis                                       |   |   |
|                                                                                                  | Quantitative                  and Qualitative Disclosures About Risk Management                  Activities |   |   |
|                                                                                                  | Consolidated                  Financial Statements                                                          |   |   |
|                                                                                                  | Index                  to Notes to Financial Statements of Registrant                  Subsidiaries         |   |   |
|                                                                                                  | Report                  of Independent Registered Public Accounting Firm                                    |   |   |
|                                                                                                  |                                                                                                        |   |   |
| **Kentucky                  Power Company:**                                                          |                                                                                                        |   |
|                                                                                                  | Selected                  Financial Data                                                                    |   |   |
|                                                                                                  | Management’s                  Narrative Financial Discussion and Analysis                             |   |   |
|                                                                                                  | Quantitative                  and Qualitative Disclosures About Risk Management                  Activities |   |   |
|                                                                                                  | Financial                  Statements                                                                       |   |   |
|                                                                                                  | Index                  to Notes to Financial Statements of Registrant                  Subsidiaries         |   |   |
|                                                                                                  | Report                  of Independent Registered Public Accounting Firm                                    |   |   |
|                                                                                                  |                                                                                                        |   |   |
| **Ohio                  Power Company Consolidated:**                                                 |                                                                                                        |   |
|                                                                                                  | Selected                  Consolidated Financial Data                                                       |   |   |
|                                                                                                  | Management’s                  Financial Discussion and Analysis                                       |   |   |
|                                                                                                  | Quantitative                  and Qualitative Disclosures About Risk Management                  Activities |   |   |
|                                                                                                  | Consolidated                  Financial Statements                                                          |   |   |
|                                                                                                  | Index                  to Notes to Financial Statements of Registrant                  Subsidiaries         |   |   |
|                                                                                                  | Report                  of Independent Registered Public Accounting Firm                                    |   |   |
|                                                                                                  |                                                                                                        |   |   |
| **Public                  Service Company of Oklahoma:**                                              |                                                                                                        |   |
|                                                                                                  | Selected                  Financial Data                                                                    |   |   |
|                                                                                                  | Management’s                  Narrative Financial Discussion and Analysis                             |   |   |
|                                                                                                  | Quantitative                  and Qualitative Disclosures About Risk Management                  Activities |   |   |
|                                                                                                  | Financial                  Statements                                                                       |   |   |
|                                                                                                  | Index                  to Notes to Financial Statements of Registrant                  Subsidiaries         |   |   |
|                                                                                                  | Report                  of Independent Registered Public Accounting Firm                                    |   |   |
|                                                                                                  |                                                                                                        |   |   |
| **Southwestern                  Electric Power Company Consolidated:**                                |                                                                                                        |   |
|                                                                                                  | Selected                  Consolidated Financial Data                                                       |   |   |
|                                                                                                  | Management’s                  Financial Discussion and Analysis                                       |   |   |
|                                                                                                  | Quantitative                  and Qualitative Disclosures About Risk Management                  Activities |   |   |
|                                                                                                  | Consolidated                  Financial Statements                                                          |   |   |
|                                                                                                  | Index                  to Notes to Financial Statements of Registrant                  Subsidiaries         |   |   |
|                                                                                                  | Report                  of Independent Registered Public Accounting Firm                                    |   |   |
|                                                                                                  |                                                                                                        |   |   |
|  Notes                to Financial Statements of Registrant Subsidiaries                         |                                                                                                        |   |
|                                                                                                  |                                                                                                        |   |   |
|  Combined                Management’s Discussion and Analysis of Registrant Subsidiaries   |                                                                                                        |
|                                                                                                  |                                                                                                        |   |   |

----

**GLOSSARY      OF TERMS**

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

|  **Term** |   |  **M****eaning** |
|----------------|--------|-----------------------|

| AEGCo                                                       |   | AEP                Generating Company, an electric utility subsidiary of                AEP.                                                                                                                                                                     |
|-------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| AEP                or Parent                                |   | American                Electric Power Company, Inc.                                                                                                                                                                                                             |
| AEP                Consolidated                             |   | AEP                and its majority owned consolidated subsidiaries and consolidated                affiliates.                                                                                                                                                  |
| AEP                Credit                                   |   | AEP                Credit, Inc., a subsidiary of AEP which factors accounts receivable                and                accrued utility revenues for affiliated domestic electric utility                companies.                                             |
| AEP                East companies                           |   | APCo,                CSPCo, I&M, KPCo and OPCo.                                                                                                                                                                                                              |
| AEPES                                                       |   | AEP                Energy Services, Inc., a subsidiary of AEP Resources,                Inc.                                                                                                                                                                     |
| AEP                System or the System                     |   | American                Electric Power System, an integrated electric utility system, owned                and                operated by AEP’s electric utility subsidiaries.                                                                             |
| AEP                System Power Pool or AEP Power Pool |   | Members                are APCo, CSPCo, I&M, KPCo and OPCo. The Pool shares the generation,                cost of generation and resultant wholesale off-system sales of the                member                companies.                                |
| AEPSC                                                       |   | American                Electric Power Service Corporation, a service subsidiary providing                management and professional services to AEP and its                subsidiaries.                                                                       |
| AEP                West companies                           |   | PSO,                SWEPCo, TCC and TNC.                                                                                                                                                                                                                         |
| AFUDC                                                       |   | Allowance                for Funds Used During Construction.                                                                                                                                                                                                     |
| ALJ                                                         |   | Administrative                Law Judge.                                                                                                                                                                                                                         |
| APB                25                                       |   | Accounting                Principles Board Opinion No. 25, “Accounting for Stock Issued to                Employees.”                                                                                                                                |
| APCo                                                        |   | Appalachian                Power Company, an AEP electric utility subsidiary.                                                                                                                                                                                    |
| ARO                                                         |   | Asset                Retirement Obligations.                                                                                                                                                                                                                     |
| CAA                                                         |   | Clean                Air Act.                                                                                                                                                                                                                                    |
| Cook                Plant                                   |   | Donald                C. Cook Nuclear Plant, a two-unit, 2,110 MW nuclear plant owned by                I&M.                                                                                                                                                 |
| CSPCo                                                       |   | Columbus                Southern Power Company, an AEP electric utility                subsidiary.                                                                                                                                                               |
| CSW                                                         |   | Central                and South West Corporation, a subsidiary of AEP (Effective January                21,                2003, the legal name of Central and South West Corporation was changed                to                AEP Utilities, Inc.).        |
| CSW                Operating Agreement                      |   | Agreement,                dated January 1, 1997, by and among PSO, SWEPCo, TCC and TNC governing                generating capacity allocation. AEPSC acts as the                agent.                                                                          |
| CWIP                                                        |   | Construction                Work in Progress.                                                                                                                                                                                                                    |
| DETM                                                        |   | Duke                Energy Trading and Marketing L.L.C., a risk management                counterparty.                                                                                                                                                          |
| DOE                                                         |   | United                States Department of Energy.                                                                                                                                                                                                               |
| EITF                                                        |   | Financial                Accounting Standards Board’s Emerging Issues Task                Force.                                                                                                                                                           |
| EITF                02-3                                    |   | Emerging                Issues Task Force Issue No. 02-3: Issues Involved in Accounting for                Derivative Contracts Held for Trading Purposes and Contracts Involved                in                Energy Trading and Risk Management Activities. |
| EPACT                                                       |   | Energy                Policy Act of 2005.                                                                                                                                                                                                                        |
| ERCOT                                                       |   | Electric                Reliability Council of Texas.                                                                                                                                                                                                            |
| FASB                                                        |   | Financial                Accounting Standards Board.                                                                                                                                                                                                             |
| Federal                EPA                                  |   | United                States Environmental Protection Agency.                                                                                                                                                                                                    |
| FERC                                                        |   | Federal                Energy Regulatory Commission.                                                                                                                                                                                                             |
| FIN                46                                       |   | FASB                Interpretation No. 46, “Consolidation of Variable Interest                Entities.”                                                                                                                                             |
| FIN                47                                       |   | FASB                Interpretation No. 47, “Accounting for Conditional Asset Retirement                Obligations.”                                                                                                                                 |
| GAAP                                                        |   | Accounting                Principles Generally Accepted in the United States of                America.                                                                                                                                                          |
| HPL                                                         |   | Houston                Pipeline Company.                                                                                                                                                                                                                         |
| IGCC                                                        |   | Integrated                Gasification Combined Cycle, technology that turns coal into a                cleaner-burning gas.                                                                                                                                     |
| I&M                                                     |   | Indiana                Michigan Power Company, an AEP electric utility                subsidiary.                                                                                                                                                                |
| IRS                                                         |   | Internal                Revenue Service.                                                                                                                                                                                                                         |
| IPP                                                         |   | Independent                Power Producers.                                                                                                                                                                                                                      |
| IURC                                                        |   | Indiana                Utility Regulatory Commission.                                                                                                                                                                                                            |
| JMG                                                         |   | JMG                Funding LP.                                                                                                                                                                                                                                   |
| KGPCo                                                       |   | Kingsport                Power Company, an AEP electric distribution subsidiary.                                                                                                                                                                                 |
| KPCo                                                        |   | Kentucky                Power Company, an AEP electric utility subsidiary.                                                                                                                                                                                       |
| KPSC                                                        |   | Kentucky                Public Service Commission.                                                                                                                                                                                                               |
| kV                                                          |   | Kilovolt.                                                                                                                                                                                                                                                        |
| KWH                                                         |   | Kilowatthour.                                                                                                                                                                                                                                                    |
| LIG                                                         |   | Louisiana                Intrastate Gas, a former AEP subsidiary.                                                                                                                                                                                                |
| MISO                                                        |   | Midwest                Independent Transmission System Operator.                                                                                                                                                                                                 |
| MLR                                                         |   | Member                load ratio, the method used to allocate AEP Power Pool transactions                to its                members.                                                                                                                          |
| MPSC                                                        |   | Michigan                Public Service Commission.                                                                                                                                                                                                               |
| MTM                                                         |   | Mark-to-Market.                                                                                                                                                                                                                                                  |
| MW                                                          |   | Megawatt.                                                                                                                                                                                                                                                        |
| MWH                                                         |   | Megawatthour.                                                                                                                                                                                                                                                    |
| NOx                                                         |   | Nitrogen                oxide.                                                                                                                                                                                                                                   |
| Nonutility                Money Pool                        |   | AEP                System’s Nonutility Money Pool.                                                                                                                                                                                                         |
| NRC                                                         |   | Nuclear                Regulatory Commission.                                                                                                                                                                                                                    |
| NSR                                                         |   | New                Source Review.                                                                                                                                                                                                                                |
| NYMEX                                                       |   | New                York Mercantile Exchange.                                                                                                                                                                                                                     |
| OATT                                                        |   | Open                Access Transmission Tariff.                                                                                                                                                                                                                  |
| OCC                                                         |   | Corporation                Commission of the State of Oklahoma.                                                                                                                                                                                                  |
| OPCo                                                        |   | Ohio                Power Company, an AEP electric utility subsidiary.                                                                                                                                                                                           |
| OTC                                                         |   | Over                the counter.                                                                                                                                                                                                                                 |
| PJM                                                         |   | Pennsylvania                - New Jersey - Maryland regional transmission                organization.                                                                                                                                                           |
| PSO                                                         |   | Public                Service Company of Oklahoma, an AEP electric utility                subsidiary.                                                                                                                                                            |
| PTB                                                         |   | Price-to-Beat.                                                                                                                                                                                                                                                   |
| PUCO                                                        |   | Public                Utilities Commission of Ohio.                                                                                                                                                                                                              |
| PUCT                                                        |   | Public                Utility Commission of Texas.                                                                                                                                                                                                               |
| PUHCA                                                       |   | Public                Utility Holding Company Act.                                                                                                                                                                                                               |
| PURPA                                                       |   | Public                Utility Regulatory Policies Act of 1978.                                                                                                                                                                                                   |
| Registrant                Subsidiaries                      |   | AEP                subsidiaries which are SEC registrants; AEGCo, APCo, CSPCo, I&M, KPCo,                OPCo, PSO, SWEPCo, TCC and TNC.                                                                                                                     |
| REP                                                         |   | Texas                Retail Electric Provider.                                                                                                                                                                                                                   |
| Risk                Management Contracts                    |   | Trading                and nontrading derivatives, including those derivatives designated                as cash                flow and fair value hedges.                                                                                                      |
| Rockport                Plant                               |   | A                generating plant, consisting of two 1,300 MW coal-fired generating                units                near Rockport, Indiana owned by AEGCo and I&M.                                                                                       |
| RTO                                                         |   | Regional                Transmission Organization.                                                                                                                                                                                                               |
| S&P                                                     |   | Standard                and Poor’s.                                                                                                                                                                                                                        |
| SCR                                                         |   | Selective                Catalytic Reduction.                                                                                                                                                                                                                    |
| SEC                                                         |   | United                States Securities and Exchange Commission.                                                                                                                                                                                                 |
| SECA                                                        |   | Seams                Elimination Cost Allocation.                                                                                                                                                                                                                |
| SFAS                                                        |   | Statement                of Financial Accounting Standards issued by the Financial Accounting                Standards Board.                                                                                                                                    |
| SFAS                109                                     |   | Statement                of Financial Accounting Standards No. 109, “Accounting for Income                Taxes.”                                                                                                                                    |
| SFAS                115                                     |   | Statement                of Financial Accounting Standards No. 115, “Accounting for Certain                Investments in Debt and Equity Securities.”                                                                                               |
| SFAS                133                                     |   | Statement                of Financial Accounting Standards No. 133, “Accounting for Derivative                Instruments and Hedging Activities.”                                                                                                   |
| SFAS                143                                     |   | Statement                of Financial Accounting Standards No. 143, “Accounting for Asset                Retirement Obligations.”                                                                                                                    |
| SIA                                                         |   | System                Integration Agreement.                                                                                                                                                                                                                     |
| SNF                                                         |   | Spent                Nuclear Fuel.                                                                                                                                                                                                                               |
| SO2                                                         |   | Sulfur                Dioxide.                                                                                                                                                                                                                                   |
| SPP                                                         |   | Southwest                Power Pool.                                                                                                                                                                                                                             |
| STP                                                         |   | South                Texas Project Nuclear Generating Plant.                                                                                                                                                                                                     |
| Sweeny                                                      |   | Sweeny                Cogeneration Limited Partnership, owner and operator of a four unit,                480                MW gas-fired generation facility, owned 50% by AEP.                                                                                 |
| SWEPCo                                                      |   | Southwestern                Electric Power Company, an AEP electric utility                subsidiary.                                                                                                                                                           |
| TCC                                                         |   | AEP                Texas Central Company, an AEP electric utility subsidiary.                                                                                                                                                                                    |
| TEM                                                         |   | SUEZ                Energy Marketing NA, Inc. (formerly known as Tractebel Energy Marketing,                Inc.).                                                                                                                                               |
| Texas                Restructuring Legislation         |   | Legislation                enacted in 1999 to restructure the electric utility industry in                Texas.                                                                                                                                                 |
| TNC                                                         |   | AEP                Texas North Company, an AEP electric utility subsidiary.                                                                                                                                                                                      |
| True-up                Proceeding                           |   | A                filing made under the Texas Restructuring Legislation to finalize                the                amount of stranded costs and other true-up items and the recovery                of such                amounts.                            |
| Utility                Money Pool                           |   | AEP                System’s Utility Money Pool.                                                                                                                                                                                                            |
| VaR                                                         |   | Value                at Risk, a method to quantify risk exposure.                                                                                                                                                                                                |
| Virginia                SCC                                 |   | Virginia                State Corporation Commission.                                                                                                                                                                                                            |
| WPCo                                                        |   | Wheeling                Power Company, an AEP electric distribution subsidiary.                                                                                                                                                                                  |
| WVPSC                                                       |   | Public                Service Commission of West                Virginia.                                                                                                                                                                                        |

----

**FORWARD-LOOKING      INFORMATION**

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

----

**AEP      COMMON STOCK AND DIVIDEND INFORMATION**

| **Quarter                Ended**  |   | **High** |   | **Low** |   | **Quarter-End                Closing Price** |   | **Dividend** |   |
|-----------------------------------|--------|----------|--------|---------|--------|----------------------------------------------|--------|--------------|--------|
| December                31, 2005  |   | $        | 40.80  |    | $      | 35.57                                        |   | $            | 37.09  |   | $ | 0.37 |   |
| September                30, 2005 |   |     | 39.84  |    |   | 36.34                                        |   |         | 39.70  |   |   | 0.35 |   |
| June                30, 2005      |   |     | 37.00  |    |   | 33.79                                        |   |         | 36.87  |   |   | 0.35 |   |
| March                31, 2005     |   |     | 36.34  |    |   | 32.25                                        |   |         | 34.06  |   |   | 0.35 |   |
|                              |   |     |   |    |   |                                         |   |         |   |   |   |   |   |
| December                31, 2004  |   |     | 35.53  |    |   | 31.25                                        |   |         | 34.34  |   |   | 0.35 |   |
| September                30, 2004 |   |     | 33.21  |    |   | 30.27                                        |   |         | 31.96  |   |   | 0.35 |   |
| June                30, 2004      |   |     | 33.58  |    |   | 28.50                                        |   |         | 32.00  |   |   | 0.35 |   |
| March                31, 2004     |   |     | 35.10  |    |   | 30.29                                        |   |         | 32.92  |   |   | 0.35 |   |

----

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

**SELECTED      CONSOLIDATED FINANCIAL DATA**

|                                                                                                                                                  |   | **2005**                         |   |  **2004** |   |  **2003** |   |  **2002** |   |  **2001** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|--------|----------------|--------|----------------|--------|----------------|--------|----------------|--------|
|                                                                                                                                                  |   | **(in                millions)** |   |
| **STATEMENTS                OF OPERATIONS DATA**                                                                                                      |   |                             |   |      |   |      |   |      |   |      |   |
| Total                Revenues                                                                                                                         |   | $                                | 12,111 |           | $      | 14,245         |   | $              | 14,833 |           | $      | 13,641 |   | $ | 13,044 |   |
|                                                                                                                                                  |   |                             |   |           |   |           |   |           |   |           |   |   |   |   |   |   |
| Operating                Income                                                                                                                       |   | $                                | 1,927  |           | $      | 1,983          |   | $              | 1,743  |           | $      | 1,930 |   | $ | 2,289 |   |
|                                                                                                                                                  |   |                             |   |           |   |           |   |           |   |           |   |   |   |   |   |   |
| Income                Before Discontinued Operations,  Extraordinary   Loss                and Cumulative Effect of Accounting Changes |   | $                                | 1,029  |           | $      | 1,127          |   | $              | 522    |           | $      | 485 |   | $ | 960 |   |
| Discontinued                Operations, Net of Tax                                                                                                    |   |                             | 27     |           |   | 83             |   |           | (605   | )              |   | (654 | ) |   | 41 |   |
| Extraordinary                Loss, Net of Tax                                                                                                         |   |                             | (225   | )              |   | (121           | )      |           | -      |           |   | - |   |   | (48 | ) |
| Cumulative                Effect of Accounting Changes, Net of Tax                                                                                    |   |                             | (17    | )              |   | -              |   |           | 193    |           |   | (350 | ) |   | 18 |   |
| **Net                Income (Loss)**                                                                                                                  |   | $                                | 814    |           | $      | 1,089          |   | $              | 110    |           | $      | (519 | ) | $ | 971 |   |
|                                                                                                                                                  |   |                             |   |           |   |           |   |           |   |           |   |   |   |   |   |   |
| **BALANCE                SHEETS DATA**                                                                                                                |   | **(in                millions)** |
| Property,                Plant and Equipment                                                                                                          |   | $                                | 39,121 |           | $      | 37,294         |   | $              | 36,031 |           | $      | 34,132 |   | $ | 32,993 |   |
| Accumulated                Depreciation and Amortization                                                                                              |   |                             | 14,837 |           |   | 14,493         |   |           | 14,014 |           |   | 13,544 |   |   | 12,655 |   |
| **Net                Property, Plant and Equipment**                                                                                                  |   | $                                | 24,284 |           | $      | 22,801         |   | $              | 22,017 |           | $      | 20,588 |   | $ | 20,338 |   |
|                                                                                                                                                  |   |                             |   |           |   |           |   |           |   |           |   |   |   |   |   |   |
| Total                Assets                                                                                                                           |   | $                                | 36,172 |           | $      | 34,636         |   | $              | 36,736 |           | $      | 36,003 |   | $ | 40,452 |   |
|                                                                                                                                                  |   |                             |   |           |   |           |   |           |   |           |   |   |   |   |   |   |
| Common                Shareholders’ Equity                                                                                                      |   | $                                | 9,088  |           | $      | 8,515          |   | $              | 7,874  |           | $      | 7,064 |   | $ | 8,229 |   |
|                                                                                                                                                  |   |                             |   |           |   |           |   |           |   |           |   |   |   |   |   |   |
| Cumulative                Preferred Stocks of Subsidiaries (a) (d)                                                                                    |   | $                                | 61     |           | $      | 127            |   | $              | 137    |           | $      | 145 |   | $ | 156 |   |
|                                                                                                                                                  |   |                             |   |           |   |           |   |           |   |           |   |   |   |   |   |   |
| Trust                Preferred Securities (b)                                                                                                         |   | $                                | -      |           | $      | -              |   | $              | -      |           | $      | 321 |   | $ | 321 |   |
|                                                                                                                                                  |   |                             |   |           |   |           |   |           |   |           |   |   |   |   |   |   |
| Long-term                Debt (a) (b)                                                                                                                 |   | $                                | 12,226 |           | $      | 12,287         |   | $              | 14,101 |           | $      | 10,190 |   | $ | 9,409 |   |
|                                                                                                                                                  |   |                             |   |           |   |           |   |           |   |           |   |   |   |   |   |   |
| Obligations                Under Capital Leases (a)                                                                                                   |   | $                                | 251    |           | $      | 243            |   | $              | 182    |           | $      | 228 |   | $ | 451 |   |
|                                                                                                                                                  |   |                             |   |           |   |           |   |           |   |           |   |   |   |   |   |   |
| **COMMON                STOCK DATA**                                                                                                                  |   |                             |   |           |   |           |   |           |   |           |   |   |   |   |   |   |
| Basic                Earnings (Loss) per Common Share:                                                                                                |   |                             |   |           |   |           |   |           |   |           |   |   |   |   |   |   |
| Income                Before Discontinued Operations, Extraordinary**  **Loss                and Cumulative Effect of Accounting Changes    |   | $                                | 2.64   |           | $      | 2.85           |   | $              | 1.35   |           | $      | 1.46 |   | $ | 2.98 |   |
| Discontinued                Operations, Net of Tax                                                                                                    |   |                             | 0.07   |           |   | 0.21           |   |           | (1.57  | )              |   | (1.97 | ) |   | 0.13 |   |
| Extraordinary                Loss, Net of Tax                                                                                                         |   |                             | (0.58  | )              |   | (0.31          | )      |           | -      |           |   | - |   |   | (0.16 | ) |
| Cumulative                Effect of Accounting Changes, Net of Tax                                                                                    |   |                             | (0.04  | )              |   | -              |   |           | 0.51   |           |   | (1.06 | ) |   | 0.06 |   |
|                                                                                                                                                  |   |                             |   |           |   |           |   |           |   |           |   |   |   |   |   |   |
| **Basic                Earnings (Loss) Per Share**                                                                                                    |   | $                                | 2.09   |           | $      | 2.75           |   | $              | 0.29   |           | $      | (1.57 | ) | $ | 3.01 |   |
|                                                                                                                                                  |   |                             |   |           |   |           |   |           |   |           |   |   |   |   |   |   |
| Weighted                Average Number of Basic Shares Outstanding **  **(in                millions)                                       |   |                             | 390    |           |   | 396            |   |           | 385    |           |   | 332 |   |   | 322 |   |
| Market                Price Range:                                                                                                                    |   |                             |   |           |   |           |   |           |   |           |   |   |   |   |   |   |
| High                                                                                                                                                  |   | $                                | 40.80  |           | $      | 35.53          |   | $              | 31.51  |           | $      | 48.80 |   | $ | 51.20 |   |
| Low                                                                                                                                                   |   | $                                | 32.25  |           | $      | 28.50          |   | $              | 19.01  |           | $      | 15.10 |   | $ | 39.25 |   |
|                                                                                                                                                  |   |                             |   |           |   |           |   |           |   |           |   |   |   |   |   |   |
| Year-end                Market Price                                                                                                                  |   | $                                | 37.09  |           | $      | 34.34          |   | $              | 30.51  |           | $      | 27.33 |   | $ | 43.53 |   |
|                                                                                                                                                  |   |                             |   |           |   |           |   |           |   |           |   |   |   |   |   |   |
| Cash                Dividends Paid per Common Share                                                                                                   |   | $                                | 1.42   |           | $      | 1.40           |   | $              | 1.65   |           | $      | 2.40 |   | $ | 2.40 |   |
|                                                                                                                                                  |   |                             |   |           |   |           |   |           |   |           |   |   |   |   |   |   |
| Dividend                Payout Ratio (c)                                                                                                              |   |                             | 67.9   | %              |   | 50.9           | %      |           | 569.0  | %              |   | (152.9 | )% |   | 79.7 | % |
|                                                                                                                                                  |   |                             |   |           |   |           |   |           |   |           |   |   |   |   |   |   |
| Book                Value per Share                                                                                                                   |   | $                                | 23.08  |           | $      | 21.51          |   | $              | 19.93  |           | $      | 20.85 |   | $ | 25.54 |   |

| (a) | Including                portion due within one year.                                                                                                                                                                                                                   |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | See                “Trust Preferred Securities” section of Note 17.                                                                                                                                                                                         |
| (c) | Based                on AEP historical dividend rate.                                                                                                                                                                                                                   |
| (d) | Includes                Cumulative Preferred Stocks of Subsidiaries Subject to Mandatory                Redemption, which were classified in 2004 as Current Liabilities                because                the shares were redeemed in January                2005. |

----

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

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

| · | More                than 36,000 megawatts of generating capacity as of December 31, 2005,                one                of the largest complements of generation in the U.S., the majority                of                which provides us a significant cost advantage in many of our market                areas. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Approximately                39,000 miles of transmission lines, including 2,026 miles of 765kV                lines,                the backbone of the electric interconnection grid in the Eastern                U.S.                                                                                                  |
| · | 205,483                miles of distribution lines that deliver electricity to                customers.                                                                                                                                                                                                                   |
| · | Substantial                coal transportation assets (more than 7,000 railcars, 2,300 barges,                53                towboats and one active coal handling terminal with 20 million tons                of                annual capacity).                                                                     |

**EXECUTIVE      OVERVIEW**

**BUSINESS      STRATEGY**

| · | Respect                our people and give them the opportunity to be as successful as they                can                be.                                                                            |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Meet                the energy needs of our customers in ways that improve their quality                of                life and protect the environment today and for generations to                come. |
| · | Improve                the environmental and safety performance of our generating fleet,                and grow                that fleet.                                                                  |
| · | Set                the standards for safety, efficiency and reliability in our electric                transmission and distribution systems.                                                                |
| · | Nurture                strong and productive relationships with public officials and                regulators.                                                                                              |
| · | Provide                leadership, integrity and compassion as a corporate citizen to every                community we serve.                                                                               |

**OUTLOOK      FOR 2006**

| · | Obtain                permits for our proposed IGCC plants and move forward with the engineering                and design for one or more IGCC plants.                                     |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Determine                the appropriate generation source for additions to our western                fleet.                                                                               |
| · | Begin                preliminary steps to add to our transmission assets to ensure competitive                energy prices for our customers in and around congested                areas. |
| · | Obtain                favorable resolutions to our numerous pending rate                proceedings.                                                                                        |
| · | Continue                developing strong regulatory relationships through operating company                interaction with the various regulatory                bodies.                  |

| · | Regulatory                activity in Texas, Ohio, Virginia, West Virginia, Indiana and with                the                FERC. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------|
| · | Fuel                cost volatility and fuel cost recovery, including related transportation                issues.                  |
| · | Financing                and recovering the cost of capital expenditures, including environmental                and new technology. |
| · | Wholesale                market volatility.                                                                                          |
| · | Plant                availability.                                                                                                   |
| · | Weather.                                                                                                                             |

***Regulatory      Activity***

***Fuel      Costs***

***Capital      Expenditures***

|                          | **(in                millions)** |   |
|-------------------------------|----------------------------------|--------|
|                          |                             |   |
| Environmental                 | $                                | 1,531  |   |
| Distribution                  |                             | 790    |   |
| Transmission                  |                             | 505    |   |
| Generation                    |                             | 476    |   |
| New                Generation |                             | 191    |   |
| Nuclear                       |                             | 111    |   |
| Corporate                     |                             | 110    |   |

***Off-System      Sales***

**2005      RESULTS**

| · | Completing                asset divestitures of our remaining gas pipeline and storage assets                and                nuclear generation in Texas resulting in proceeds of approximately                $1.6                billion. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Using                the cash flows from our operations to fully fund our qualified pension                plans, which also improved our debt to capital ratio to 57.2% at                December                31, 2005.                   |
| · | Receiving                upgraded credit ratings from Moody’s Investors Service for AEP’s                short-term and long-term debt.                                                                                            |

**RESULTS      OF OPERATIONS**

| · | Utility                Operations:  |
|--------|-------------------------------------|
|   |                                | Generation                of electricity for sale to U.S. retail and wholesale                customers |
|   |                                | Electricity                transmission and distribution in the U.S. |
| · | Investments                - Other: |
|   |                                | Bulk                commodity barging operations, wind farms, independent power producers                and                other energy supply-related                businesses |

|                                                                                                                                                                                               |   | **2005**     |   | **2004**                     |   | **2003**     |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------|--------|------------------------------|--------|--------------|--------|
|                                                                                                                                                                                               |   | **Earnings** |   | **EPS                  (c)** |   | **Earnings** |   | **EPS                  (c)** |   | **Earnings** |   | **EPS                  (c)** |   |
| Utility                  Operations                                                                                                                                                                |   | $            | 1,020  |                         | $      | 2.61         |   | $ | 1,175 |   | $ | 2.97 |   | $ | 1,223 |   | $ | 3.18 |   |
| Investments                  - Other                                                                                                                                                               |   |         | 93     |                         |   | 0.24         |   |   | 74 |   |   | 0.19 |   |   | (282 | ) |   | (0.73 | ) |
| All                  Other (a)                                                                                                                                                                     |   |         | (53    | )                            |   | (0.13        | )      |   | (71 | ) |   | (0.18 | ) |   | (129 | ) |   | (0.34 | ) |
| Investments                  - Gas Operations (b)                                                                                                                                                  |   |         | (31    | )                            |   | (0.08        | )      |   | (51 | ) |   | (0.13 | ) |   | (290 | ) |   | (0.76 | ) |
| **Income                  Before Discontinued****Operations,                  Extraordinary Loss****  and                  Cumulative Effect of****Accounting                  Changes** |   | $            | 1,029  |                         | $      | 2.64         |   | $ | 1,127 |   | $ | 2.85 |   | $ | 522 |   | $ | 1.35 |   |
|                                                                                                                                                                                               |   |         |   |                         |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Weighted                  Average Basic Shares Outstanding**                                                                                                                                     |   |         |   |                         |   | 390          |   |   |   |   |   | 396 |   |   |   |   |   | 385 |   |

| (a) | All                Other includes the parent company’s interest income and expense, as well                as other nonallocated costs.                                                                                                                                                                           |   |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| (b) | We                sold our remaining gas pipeline and storage assets in                2005.                                                                                                                                                                                                                            |   |
| (c) | The                earnings per share of any segment does not represent a direct legal                interest in the assets and liabilities allocated to any one segment                but                rather represents a direct equity interest in AEP’s assets and liabilities                as a whole. |   |

**Utility      Operations**

|                                                                                                                                                                |   | **2005**                               |   | **2004** |   | **2003** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------|--------|----------|--------|----------|--------|
|                                                                                                                                                                |   | ** (in                millions)** |   |
| Revenues                                                                                                                                                            |   | $                                      | 11,396 |     | $      | 10,769   |   | $ | 11,160 |   |
| Fuel                and Purchased Power                                                                                                                             |   |                                   | 4,290  |     |   | 3,704    |   |   | 3,844 |   |
| **Gross                Margin**                                                                                                                                     |   |                                   | 7,106  |     |   | 7,065    |   |   | 7,316 |   |
| Depreciation                and Amortization                                                                                                                        |   |                                   | 1,285  |     |   | 1,256    |   |   | 1,250 |   |
| Other                Operating Expenses                                                                                                                             |   |                                   | 3,833  |     |   | 3,778    |   |   | 3,591 |   |
| **Operating                Income**                                                                                                                                 |   |                                   | 1,988  |     |   | 2,031    |   |   | 2,475 |   |
| Other                Income (Expense), Net                                                                                                                          |   |                                   | 103    |     |   | 330      |   |   | 31 |   |
| Interest                Charges and Preferred Stock Dividend Requirements                                                                                           |   |                                   | 595    |     |   | 627      |   |   | 673 |   |
| Income                Tax Expense                                                                                                                                   |   |                                   | 476    |     |   | 559      |   |   | 610 |   |
| **Income                Before Discontinued Operations, Extraordinary****Loss                and Cumulative Effect****                 of Accounting Changes** |   |  $                                | 1,020  |     | $      | 1,175    |   | $ | 1,223 |   |

**Summary      of Selected Sales and Weather Data**

**For      Utility Operations**

**For      the Years Ended December 31, 2005, 2004 and 2003**

|                                             |   | **2005**                                |     | **2004** |   | **2003** |   |
|--------------------------------------------------|--------|-----------------------------------------|----------|----------|--------|----------|--------|
| **Energy                Summary**                |   | **(in                millions of KWH)** |     |
| Retail:                                          |   |                                    |     |     |   |     |   |
| Residential                                      |   |                                    | 48,720   |     |   | 45,770   |   |   | 45,308 |   |
| Commercial                                       |   |                                    | 38,605   |     |   | 37,203   |   |   | 36,798 |   |
| Industrial                                       |   |                                    | 53,217   |     |   | 51,484   |   |   | 49,446 |   |
| Miscellaneous                                    |   |                                    | 2,593    |     |   | 3,099    |   |   | 3,026 |   |
| Subtotal                                         |   |                                    | 143,135  |     |   | 137,556  |   |   | 134,578 |   |
| Texas                Retail and Other            |   |                                    | 615      |     |   | 1,065    |   |   | 2,896 |   |
| **Total**                                        |   |                                    | 143,750  |     |   | 138,621  |   |   | 137,474 |   |
|                                             |   |                                    |     |     |   |     |   |   |   |   |
| Wholesale                                        |   |                                    | 47,784   |     |   | 57,409   |   |   | 47,163 |   |
|                                             |   |                                    |     |     |   |     |   |   |   |   |
| Texas                Wires Delivery              |   |                                    | 26,525   |     |   | 25,581   |   |   | 25,814 |   |
|                                             |   |                                    |     |     |   |     |   |   |   |   |
|                                             |   |                                    | **2005** |     |   | **2004** |   |   | **2003** |   |
| **Weather                Summary**               |   | **(in                degree days)**     |
| Eastern                Region                    |   |                                    |     |     |   |     |   |   |   |   |
| Actual                - Heating (a)              |   |                                    | 3,130    |     |   | 2,992    |   |   | 3,219 |   |
| Normal                - Heating (b)              |   |                                    | 3,088    |     |   | 3,086    |   |   | 3,075 |   |
|                                             |   |                                    |     |     |   |     |   |   |   |   |
| Actual                - Cooling (c)              |   |                                    | 1,152    |     |   | 877      |   |   | 756 |   |
| Normal                - Cooling (b)              |   |                                    | 969      |     |   | 974      |   |   | 976 |   |
|                                             |   |                                    |     |     |   |     |   |   |   |   |
| Western                Region                (d) |   |                                    |     |     |   |     |   |   |   |   |
| Actual                - Heating (a)              |   |                                    | 1,377    |     |   | 1,382    |   |   | 1,554 |   |
| Normal                - Heating (b)              |   |                                    | 1,615    |     |   | 1,624    |   |   | 1,622 |   |
|                                             |   |                                    |     |     |   |     |   |   |   |   |
| Actual                - Cooling (c)              |   |                                    | 2,386    |     |   | 2,006    |   |   | 2,144 |   |
| Normal                - Cooling (b)              |   |                                    | 2,150    |     |   | 2,149    |   |   | 2,138 |   |
|                                             |   |                                    |     |     |   |     |   |   |   |   |

| (a) | Eastern                Region and Western Region heating degree days are calculated on a                55                degree temperature base. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Normal                Heating/Cooling represents the 30-year average of degree                days.                                                |
| (c) | Eastern                Region and Western Region cooling days are calculated on a 65 degree                temperature base.                       |
| (d) | Western                Region statistics represent PSO/SWEPCo customer base                only.                                                   |

**Reconciliation      of Year Ended December 31, 2004 to Year Ended December 31,      2005**

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

**Cumulative      Effect of Accounting Changes**

**(in      millions)**

| **Year                Ended December 31, 2004**                 |   |   |   |   | $      | 1,175  |   |
|-----------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                Margins                                   |   |   | 67     |   |   |   |   |
| Texas                Supply                                     |   |   | (141   | )      |   |   |   |
| Off-system                Sales                                 |   |   | 158    |   |   |   |   |
| Transmission                Revenues                            |   |   | (57    | )      |   |   |   |
| Other                Revenues                                   |   |   | 14     |   |   |   |   |
| **Total                Change in Gross Margin**                 |   |   |   |   |   | 41     |   |
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Maintenance                and Other Operation                  |   |   | (95    | )      |   |   |   |
| Asset                Impairments and Other Related Charges      |   |   | (39    | )      |   |   |   |
| Gain                on Sales of Assets, Net                     |   |   | 116    |   |   |   |   |
| Depreciation                and Amortization                    |   |   | (29    | )      |   |   |   |
| Taxes                Other Than Income Taxes                    |   |   | (37    | )      |   |   |   |
| Other                Income (Expense), Net                      |   |   | (227   | )      |   |   |   |
| Interest                and Other Charges                       |   |   | 32     |   |   |   |   |
| **Total                Change in Operating Expenses and Other** |   |   |   |   |   | (279   | )      |
|                                                            |   |   |   |   |   |   |   |
| Income                Tax Expense                               |   |   |   |   |   | 83     |   |
|                                                            |   |   |   |   |   |   |   |
| **Year                Ended December 31, 2005**                 |   |   |   |   | $      | 1,020  |   |

| · | The                increase in Retail Margins from our utility segment over the prior                year                was due to increased demand in both the East and the West as a consequence                of higher usage in most classes and customer growth in the residential                and                commercial classes. The higher usage was primarily weather-related                as                cooling degree days increased 31% and 19% for the East and West,                respectively. This load growth was partially offset by higher delivered                fuel costs of approximately $129 million, of which the majority relates                to                our East companies with inactive fuel clauses. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Our                Texas Supply business experienced a $141 million decrease in gross                margin                principally due to the sale of almost all of our Texas generation                assets                to support Texas stranded cost recovery.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| · | Margins                from Off-system Sales for 2005 were $158 million higher than in 2004                due                to favorable price margins.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| · | Transmission                Revenues decreased $57 million primarily due to the loss of                through-and-out rates as mandated by the                FERC.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

| · | Maintenance                and Other Operation expenses increased $95 million due to an $87                million                increase in generation expense related to strong retail and wholesale                sales and capacity requirements and plant maintenance in 2005 and                PJM                expenses of $30 million. Additionally, distribution maintenance expense                increased $91 million from tree trimming and reliability work. These                increases were partially offset by reduced administrative and general                expenses of $90 million.                                                      |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | 2005                included a $39 million impairment related to the retirement of two                units                at CSPCo’s Conesville Plant effective December 29,                2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| · | Gain                on Sales of Assets, Net increased $116 million resulting from the                receipt                of revenues related to the earnings sharing agreement with Centrica                as                stipulated in the purchase and sale agreement from the sale of our                REPs in                2002. Agreement was reached with Centrica in March 2005 resolving                disputes                back to 2002 on how such amounts were calculated.                                                                                                                                                                     |
| · | Depreciation                and Amortization expense increased $29 million primarily due to a                higher                depreciable asset base.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| · | Taxes                Other Than Income Taxes increased $37 million due to increased property                tax values and assessments and higher state excise taxes due to the                increase in taxable KWH sales.                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| · | Other                Income (Expense), Net decreased $227 million primarily due to the                following:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | ·                A                $321 million decrease related to carrying costs recorded by TCC on                its net                stranded generation costs and its capacity auction true-up asset.                In 2004,                TCC booked $302 million of carrying costs income related to 2002                - 2004.                Upon receipt of the final order in February 2006 in TCC’s True-up                Proceeding, we determined that adjustments to those carrying costs                were                required, resulting in carrying costs expense of $19 million in 2005                for                TCC. |
|   | ·                A                $56 million increase related to the establishment of regulatory assets                for                carrying costs on environmental capital expenditures and RTO expenses                by                our Ohio companies related to the Rate Stabilization                Plans.                                                                                                                                                                                                                                                                                                                                        |
|   | ·                A                $20 million increase related to increased interest income and increased                AFUDC due to extensive construction activities occurring in                2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | ·                A                $14 million increase related to the establishment of regulatory assets                for                carrying costs on environmental and system reliability capital                expenditures for APCo.                                                                                                                                                                                                                                                                                                                                                                                                                     |
| · | Interest                and Other Charges decreased $32 million from the prior period primarily                due to refinancings of higher coupon debt at lower interest rates                and the                retirement of debt in 2004 and 2005.                                                                                                                                                                                                                                                                                                                                                                                                              |
| · | Income                Tax Expense decreased $83 million due to the decrease in pretax income                and                tax return adjustments. See “AEP System Income Taxes” section below for                further discussion of fluctuations related to income                taxes.                                                                                                                                                                                                                                                                                                                                                             |

**Reconciliation      of Year Ended December 31, 2003 to Year Ended December 31, 2004**

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

**Cumulative      Effect of Accounting Changes**

**(in      millions)**

| **Year                Ended December 31, 2003**                 |   |   |   |   | $      | 1,223  |   |
|-----------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                Margins                                   |   |   | 52     |   |   |   |   |
| Texas                Supply                                     |   |   | (105   | )      |   |   |   |
| Wholesale                Capacity Auction True-up Revenues      |   |   | (215   | )      |   |   |   |
| Off-System                Sales                                 |   |   | 10     |   |   |   |   |
| Other                Revenues                                   |   |   | 7      |   |   |   |   |
| **Total                Change in Gross Margin**                 |   |   |   |   |   | (251   | )      |
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Maintenance                and Other Operation                  |   |   | (171   | )      |   |   |   |
| Asset                Impairments and Other Related Charges      |   |   | 10     |   |   |   |   |
| Depreciation                and Amortization                    |   |   | (6     | )      |   |   |   |
| Taxes                Other Than Income Taxes                    |   |   | (26    | )      |   |   |   |
| Carrying                Costs                                   |   |   | 302    |   |   |   |   |
| Other                Income (Expense), Net                      |   |   | (3     | )      |   |   |   |
| Interest                and Other Charges                       |   |   | 46     |   |   |   |   |
| **Total                Change in Operating Expenses and Other** |   |   |   |   |   | 152    |   |
|                                                            |   |   |   |   |   |   |   |
| Income                Tax Expense                               |   |   |   |   |   | 51     |   |
|                                                            |   |   |   |   |   |   |   |
| **Year                Ended December 31, 2004**                 |   |   |   |   | $      | 1,175  |   |

| · | The                increase in Retail Margins from our utility segment over the prior                year                was due to increased demand in both the East and the West as a consequence                of higher usage in most classes and customer growth in the residential                and                commercial classes. Commercial and industrial demand also increased,                resulting from the economic recovery in our regions. Milder weather                during                the summer months of 2004 partially offset these favorable                results.                                                                                                                                             |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Our                Texas Supply business experienced a $105 million decrease in gross                margin                principally due to the partial divestiture of a portion of TCC’s                generation assets to support Texas stranded cost recovery. This resulted                in higher purchased power costs to fulfill contractual                commitments.                                                                                                                                                                                                                                                                                                                                                             |
| · | Beginning                in 2004, the wholesale capacity auction true-up ceased per the Texas                Restructuring Legislation. Related revenues were no longer recognized,                resulting in $215 million of lower regulatory asset deferrals in                2004. For                2003, we recognized the revenues for the wholesale capacity auction                true-up for TCC as a regulatory asset for the difference between                the                actual market prices based upon the state-mandated auction of 15%                of                generation capacity and the earlier estimate of market price used                in the                PUCT’s excess cost over market model. |
| · | Margins                from Off-system Sales for 2004 were $10 million higher than in 2003                due to                favorable optimization activity, somewhat offset by lower                volumes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

| · | Maintenance                and Other Operation expenses increased $171 million due to a $76                million                increase in generation expense primarily due to an increase in maintenance                outage weeks in 2004 as compared to 2003 and increases in related                removal                costs and PJM expenses. Additionally, distribution maintenance expense                increased $54 million from system improvement and reliability work                and                damage repair resulting primarily from major ice storms in our Ohio                service territory during December 2004. Other increases of $81 million                include ERCOT and transmission cost of service adjustments in 2004                and                increased employee benefits, insurance, and other administrative                and                general expenses magnified by favorable adjustments in 2003. These                increases were offset, in part, by $40 million due to the conclusion                in                2003 of the amortization of our deferred Cook Plant restart                expenses. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | 2003                included a $10 million impairment at Blackhawk Coal Company, a                wholly-owned subsidiary of I&M, which holds western coal                reserves.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| · | Taxes                Other Than Income Taxes increased $26 million due to increased property                tax values and assessments, higher state excise taxes due to the                increase                in taxable KWH sales, and favorable prior year franchise tax                adjustments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| · | Carrying                Costs of $302 million represent TCC’s debt component of the carrying costs                accrued on its net stranded generation costs and its capacity auction                true-up asset.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| · | Interest                Charges decreased $46 million from the prior period primarily due                to                refinancings of higher coupon debt at lower interest                rates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| · | Income                Tax expense decreased $51 million due to the decrease in pretax income                and                tax return adjustments. See “AEP System Income Taxes” section below for                further discussion of fluctuations related to income                taxes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

**Investments      - Other**

**Other**

*Parent*

*Investments      - Gas Operations*

**AEP      System Income Taxes**

**FINANCIAL      CONDITION**

| · | We                completed approximately $2.7 billion of long-term debt redemptions,                including optional redemptions and debt maturities;                                                                                        |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | AEP                was upgraded to Baa2/P-2 by Moody’s Investors Service (Moody’s) and we                maintained stable credit ratings across the AEP System including                our rated                subsidiaries; and |
| · | We                fully funded our defined benefit qualified pension plans, resulting                in the                elimination of our minimum pension liability for the qualified                plans.                                 |

**Capitalization**
**      ($ in millions)**

|                                                                 |   | **December                31, 2005** |   | **December                31, 2004** |   |
|----------------------------------------------------------------------|--------|--------------------------------------|--------|--------------------------------------|--------|
| Common                Equity                                         |   | $                                    | 9,088  |                                 |   | 42.5 | % | $ | 8,515 |   |   | 40.6 | % |
| Preferred                Stock                                       |   |                                 | 61     |                                 |   | 0.3 |   |   | 61 |   |   | 0.3 |   |
| Preferred                Stock (Subject to Mandatory Redemption)     |   |                                 | -      |                                 |   | - |   |   | 66 |   |   | 0.3 |   |
| Long-term                Debt, including amounts due within one year |   |                                 | 12,226 |                                 |   | 57.2 |   |   | 12,287 |   |   | 58.7 |   |
| Short-term                Debt                                       |   |                                 | 10     |                                 |   | 0.0 |   |   | 23 |   |   | 0.1 |   |
|                                                                 |   |                                 |   |                                 |   |   |   |   |   |   |   |   |   |
| **Total                Capitalization**                              |   | $                                    | 21,385 |                                 |   | 100.0 | % | $ | 20,952 |   |   | 100.0 | % |

**Liquidity**

***Credit      Facilities***

|                                                            | **Amount**                               |   | **Maturity** |
|-----------------------------------------------------------------|------------------------------------------|--------|--------------|
|                                                            | **(in                millions)**         |   |         |
| Commercial                Paper Backup:                         |                                     |   |         |   |
|                                                            | Revolving                Credit Facility | $      | 1,000        |   | May                2007 |
|                                                            | Revolving                Credit Facility |   | 1,500        |   | March                2010 |
| Letter                of Credit Facility                        |                                     | 200    |         | September                2006 |
| **Total**                                                       |                                     | 2,700  |         |   |
| Cash                and Cash Equivalents                        |                                     | 401    |         |   |
| **Total                Liquidity Sources**                      |                                     | 3,101  |         |   |
| Less:                Letters of Credit Drawn on Credit Facility |                                     | 91     |         |   |
|                                                            |                                     |   |         |   |
| **Net                Available Liquidity**                      | $                                        | 3,010  |         |   |

***Debt      Covenants and Borrowing Limitations***

***Dividend      Policy and Restrictions***

***Credit      Ratings***

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

**Cash      Flow**

|                                                                    |   | **2005**                         |   | **2004** |   | **2003** |   |
|-------------------------------------------------------------------------|--------|----------------------------------|--------|----------|--------|----------|--------|
|                                                                    |   | **(in                millions)** |   |
| **Cash                and cash equivalents at beginning of period**     |   | $                                | 320    |     | $      | 778      |   | $ | 1,085 |   |
| Net                Cash Flows From Operating Activities                 |   |                             | 1,877  |     |   | 2,711    |   |   | 2,500 |   |
| Net                Cash Flows Used For Investing Activities             |   |                             | (1,005 | )        |   | (329     | )      |   | (2,298 | ) |
| Net                Cash Flows Used For Financing Activities             |   |                             | (791   | )        |   | (2,840   | )      |   | (509 | ) |
| **Net                Increase (Decrease) in Cash and Cash Equivalents** |   |                             | 81     |     |   | (458     | )      |   | (307 | ) |
| **Cash                and cash equivalents at end of period**           |   | $                                | 401    |     | $      | 320      |   | $ | 778 |   |

***Operating      Activities***

|                                                            |   | **2005**                         |   | **2004** |   | **2003** |   |
|-----------------------------------------------------------------|--------|----------------------------------|--------|----------|--------|----------|--------|
|                                                            |   | **(in                millions)** |   |
| **Net                Income**                                   |   | $                                | 814    |     | $      | 1,089    |   | $ | 110 |   |
| Plus:                (Income) Loss From Discontinued Operations |   |                             | (27    | )        |   | (83      | )      |   | 605 |   |
| **Income                From Continuing Operations**            |   |                             | 787    |     |   | 1,006    |   |   | 715 |   |
| Noncash                Items Included in Earnings               |   |                             | 1,714  |     |   | 1,471    |   |   | 1,939 |   |
| Changes                in Assets and Liabilities                |   |                             | (624   | )        |   | 234      |   |   | (154 | ) |
| **Net                Cash Flows From Operating Activities**     |   | $                                | 1,877  |     | $      | 2,711    |   | $ | 2,500 |   |

| · | Noncash                wholesale capacity auction true-up revenues resulting in stranded                cost                regulatory assets of $218 million, which are not recoverable in cash                until                the conclusion of TCC’s True-up Proceeding.                                                                                                                                                                                                                                                                                  |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Net                changes in accounts receivable and accounts payable of $291 million                related, in large part, to the settlement of risk management positions                during 2002 and payments related to those settlements during 2003.                These                payments include $90 million in settlement of power and gas transactions                to the Williams Companies. The earnings effects of substantially                all                payments were reflected on a MTM basis in earlier                periods. |
| · | Increases                in fuel and inventory levels of $52 million resulting primarily from                higher procurement prices.                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| · | Reserves                for disallowed deferred fuel costs, principally related to Texas,                which                are a component of our Texas True-up                Proceedings.                                                                                                                                                                                                                                                                                                                                                                          |

***Investing      Activities***

|                                                            |   | **2005**                         |   | **2004** |   | **2003** |   |
|-----------------------------------------------------------------|--------|----------------------------------|--------|----------|--------|----------|--------|
|                                                            |   | **(in                millions)** |   |
| Construction                Expenditures                        |   | $                                | (2,404 | )        | $      | (1,637   | )      | $ | (1,322 | ) |
| Change                in Other Temporary Cash Investments, Net  |   |                             | 76     |     |   | 32       |   |   | (91 | ) |
| Investment                in Discontinued Operations, Net       |   |                             | -      |     |   | (59      | )      |   | (615 | ) |
| Purchases                of Investment Securities               |   |                             | (8,836 | )        |   | (1,574   | )      |   | (1,022 | ) |
| Sales                of Investment Securities                   |   |                             | 8,934  |     |   | 1,620    |   |   | 736 |   |
| Acquisitions                of Assets                           |   |                             | (360   | )        |   | -        |   |   | - |   |
| Proceeds                from Sales of Assets                    |   |                             | 1,606  |     |   | 1,357    |   |   | 82 |   |
| Other                                                           |   |                             | (21    | )        |   | (68      | )      |   | (66 | ) |
| **Net                Cash Flows Used for Investing Activities** |   | $                                | (1,005 | )        | $      | (329     | )      | $ | (2,298 | ) |

***Financing      Activities***

|                                                            |   | **2005**                         |   | **2004** |   | **2003** |   |
|-----------------------------------------------------------------|--------|----------------------------------|--------|----------|--------|----------|--------|
|                                                            |   | **(in                millions)** |   |
| Issuance                of Common Stock                         |   | $                                | 402    |     | $      | 17       |   | $ | 1,142 |   |
| Repurchase                of Common Stock                       |   |                             | (427   | )        |   | -        |   |   | - |   |
| Issuance/Retirement                of Debt, Net                 |   |                             | (91    | )        |   | (2,238   | )      |   | (743 | ) |
| Dividends                Paid on Common Stock                   |   |                             | (553   | )        |   | (555     | )      |   | (618 | ) |
| Other                                                           |   |                             | (122   | )        |   | (64      | )      |   | (290 | ) |
| **Net                Cash Flows Used for Financing Activities** |   | $                                | (791   | )        | $      | (2,840   | )      | $ | (509 | ) |

*Common      Stock:*

| · | In                March 2005, we repurchased 12,500,000 shares of common stock for                $427                million.                                               |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | In                August 2005, we issued 8,435,200 shares of common stock to settle                part of                a forward contract in equity units issued in 2002. |
| · | During                2005, we issued 1,925,485 shares of common stock under our incentive                compensation plans and received net proceeds of $57 million.       |

*Debt:*

| · | During                2005, we issued approximately $2.7 billion of long-term debt, including                approximately $676 million of pollution control revenue bonds. The                proceeds from these issuances were used to fund long-term debt maturities                and optional redemptions, asset acquisitions and construction                programs.                                                                                                                                                                                                                                                           |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | During                2005, we entered into $1,090 million of interest rate derivatives                and                unwound $1,365 million of such transactions. The unwinds resulted                in a net                cash expenditure of $25.5 million. As of December 31, 2005, we had                in                place interest rate hedge transactions with a notional amount of                $125                million in order to hedge a portion of anticipated 2006                issuances.                                                                                                             |
| · | At                December 31, 2005, we had credit facilities totaling $2.5 billion                to                support our commercial paper program. As of December 31, 2005, we                had no                commercial paper outstanding related to the corporate borrowing program.                For the corporate borrowing program, the maximum amount of commercial                paper outstanding during the year was $25 million in January 2005                and the                weighted average interest rate of commercial paper outstanding during                the                year was 2.50%. |

| · | In                February of 2006, APCo issued obligations relating to auction rate                pollution control bonds in the amount of $50 million. The new bonds                bear                interest at a 28-day auction rate. The proceeds from this issuance                will                contribute to our investment in environmental                equipment. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | In                2006, our plan for capital investment will require additional funding                from                the capital markets.                                                                                                                                                                                                                                          |

**Off-balance      Sheet Arrangements**

***AEP      Credit***

***Rockport      Plant Unit 2***

***Railcars***

**Summary      Obligation Information**

**Payments      Due by Period**

**(in      millions)**

| **Contractual                Cash****Obligations**                                 |   | **Less                Than 1 year** |   | **2-3                years** |   | **4-5                years** |   | **After****5                years** |   | **Total** |   |
|------------------------------------------------------------------------------------|--------|-------------------------------------|--------|------------------------------|--------|------------------------------|--------|-------------------------------------|--------|-----------|--------|
| Short-term                Debt (a)                                                 |   | $                                   | 10     |                         | $      | -                            |   | $                                   | -      |      | $      | - |   | $ | 10 |   |
| Interest                on Fixed Rate Portion of Long-term Debt                (b) |   |                                | 552    |                         |   | 939                          |   |                                | 768    |      |   | 3,982 |   |   | 6,241 |   |
| Fixed                Rate Portion of Long-term Debt (c)                            |   |                                | 1,131  |                         |   | 1,650                        |   |                                | 1,568  |      |   | 6,017 |   |   | 10,366 |   |
| Variable                Rate Portion of Long-term Debt (d)                         |   |                                | 22     |                         |   | 168                          |   |                                | 583    |      |   | 1,145 |   |   | 1,918 |   |
| Capital                Lease Obligations (e)                                       |   |                                | 73     |                         |   | 113                          |   |                                | 45     |      |   | 93 |   |   | 324 |   |
| Noncancelable                Operating Leases (e)                                  |   |                                | 313    |                         |   | 552                          |   |                                | 500    |      |   | 2,018 |   |   | 3,383 |   |
| Fuel                Purchase Contracts (f)                                         |   |                                | 2,276  |                         |   | 3,092                        |   |                                | 2,602  |      |   | 6,311 |   |   | 14,281 |   |
| Energy                and Capacity Purchase Contracts (g)                          |   |                                | 306    |                         |   | 431                          |   |                                | 349    |      |   | 709 |   |   | 1,795 |   |
| Construction                Contracts for Capital Assets (h)                       |   |                                | 1,267  |                         |   | 460                          |   |                                | -      |      |   | - |   |   | 1,727 |   |
| **Total**                                                                          |   | $                                   | 5,950  |                         | $      | 7,405                        |   | $                                   | 6,415  |      | $      | 20,275 |   | $ | 40,045 |   |

| (a) | Represents                principal only excluding interest.                                                                                                                                                                                           |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Interest                payments are estimated based on final maturity dates of debt securities                outstanding at December 31, 2005 and do not reflect anticipated future                refinancing, early redemptions or debt issuances. |
| (c) | See                Note 17. Represents principal only excluding interest.                                                                                                                                                                              |
| (d) | See                Note 17. Represents principal only excluding interest. Variable rate                debt                had interest rates that ranged between 3.10% and 6.35% at December                31,                2005.                  |
| (e) | See                Note 16.                                                                                                                                                                                                                            |
| (f) | Represents                contractual obligations to purchase coal and natural gas as fuel                for                electric generation along with related transportation of the                fuel.                                         |
| (g) | Represents                contractual cash flows of energy and capacity purchase                contracts.                                                                                                                                             |
| (h) | Represents                only capital assets that are contractual                obligations.                                                                                                                                                         |

**Amount      of Commitment Expiration Per Period**

**(in      millions)**

| **Other                Commercial Commitments**                                    |   | **Less                Than 1 year** |   | **2-3                years** |   | **4-5                years** |   | **After****5                years** |   | **Total** |   |
|------------------------------------------------------------------------------------|--------|-------------------------------------|--------|------------------------------|--------|------------------------------|--------|-------------------------------------|--------|-----------|--------|
| Standby                Letters of Credit (a) (b)                                   |   | $                                   | 130    |                         | $      | -                            |   | $                                   | -      |      | $      | - |   | $ | 130 |   |
| Guarantees                of the Performance of Outside Parties                (b) |   |                                | 8      |                         |   | -                            |   |                                | 25     |      |   | 105 |   |   | 138 |   |
| Guarantees                of our Performance (c)                                   |   |                                | 1,483  |                         |   | 936                          |   |                                | 688    |      |   | 8 |   |   | 3,115 |   |
| Transmission                Facilities for Third Parties                (d)        |   |                                | 44     |                         |   | 47                           |   |                                | -      |      |   | - |   |   | 91 |   |
| **Total                Commercial Commitments**                                    |   | $                                   | 1,665  |                         | $      | 983                          |   | $                                   | 713    |      | $      | 113 |   | $ | 3,474 |   |

| (a) | We                have issued standby letters of credit to third parties. These letters                of                credit cover gas and electricity risk management contracts, construction                contracts, insurance programs, security deposits, debt service reserves                and credit enhancements for issued bonds. All of these letters of                credit                were issued in our ordinary course of business. The maximum future                payments of these letters of credit are $130 million with maturities                ranging from February 2006 to March 2007. As the parent of all of                these                subsidiaries, AEP holds all assets of the subsidiaries as collateral.                There is no recourse to third parties if these letters of credit                are                drawn. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | See                “Guarantees of Third-party Obligations” section of Note                8.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| (c) | We                have issued performance guarantees and indemnifications for energy                trading, Dow Chemical Company financing, International Marine Terminal                Pollution Control Bonds and various sale agreements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| (d) | As                construction agent for third party owners of transmission facilities,                we                have committed by contract terms to complete construction by dates                specified in the contracts. Should we default on these obligations,                financial payments could be required including liquidating damages                of up                to $8 million and other remedies required by contract                terms.                                                                                                                                                                                                                                                                                                                                                                                                          |

**Other**

***Texas      REPs***

**SIGNIFICANT      FACTORS**

**AEP      Interstate Project**

**Texas      Regulatory Activity**

***Texas      Restructuring***

|                                                                                                      |   | **in                  millions** |      |
|-----------------------------------------------------------------------------------------------------------|--------|----------------------------------|-----------|
| **Total                  Recorded Net True-up Regulatory Asset as of December 31,                  2005** |   | $                                | **1,275** |   |
| Unrecognized                  but Recoverable Equity Carrying Costs and Other                             |   |                             | 200       |   |
| Estimated                  January 2006 - August 2006 Carrying Costs                                      |   |                             | 144       |   |
| Securitization                  Issuance Costs                                                            |   |                             | 24        |   |
| Net                  Other Recoverable True-up Amounts (a)                                                |   |                             | 161       |   |
| **Estimated                  Securitization Request**                                                     |   | $                                | **1,804** |   |

| (a) | If                  included in the proposed securitization as described above, this                  amount,                  along with the ADFIT benefit, is refundable to customers over future                  periods through a negative competition transition                  charge. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Integrated      Gasification Combined Cycle (IGCC) Power Plants **

**Pension      and Postretirement Benefit Plans**

|                                       |   | **2005**                         |   | **2004** |   |
|--------------------------------------------|--------|----------------------------------|--------|----------|--------|
|                                       |   | **(in                millions)** |   |
| **Net                Periodic Cost:**      |   |                             |   |
| Pension                Plans               |   | $                                | 61     |     | $      | 40 |   |
| Postretirement                Plans        |   |                             | 109    |     |   | 141 |   |
| **Assumed                Rate of Return:** |   |                             |   |     |   |   |   |
| Pension                Plans               |   |                             | 8.75   | %        |   | 8.75 | % |
| Postretirement                Plans        |   |                             | 8.37   | %        |   | 8.35 | % |

|                                     |   | **Pension**                                           |   | **Other                Postretirement****Benefit                Plans** |   |                                      |   |
|------------------------------------------|--------|-------------------------------------------------------|--------|-------------------------------------------------------------------------|--------|-------------------------------------------|--------|
|                                     |   | **2005****Actual****Asset                Allocation** |   | **2006****Target****Asset****Allocation**                               |   | **2005****Actual****Asset****Allocation** |   | **2006****Target****Asset****Allocation** |   | **Assumed/****Expected****Long-term****Rate                of****Return** |   |
|                                     |   |                                                  |   |                                                                    |   |                                      |   |   |   |   |   |
| Equity                                   |   |                                                  | 66     | %                                                                       |   | 70                                        | %      |   | 68 | % |   | 66 | % |   | 10.00 | % |
| Fixed                Income              |   |                                                  | 25     | %                                                                       |   | 28                                        | %      |   | 30 | % |   | 31 | % |   | 5.25 | % |
| Cash                and Cash Equivalents |   |                                                  | 9      | %                                                                       |   | 2                                         | %      |   | 2 | % |   | 3 | % |   | 3.50 | % |
| **Total**                                |   |                                                  | 100    | %                                                                       |   | 100                                       | %      |   | 100 | % |   | 100 | % |   |   |   |

|                                                                           |   | **Pension** |   | **Other                Postretirement****Benefit                Plans** |   |
|--------------------------------------------------------------------------------|--------|-------------|--------|-------------------------------------------------------------------------|--------|
| Overall                Expected Return  (weighted                average) |   |        | 8.50   | %                                                                       |   | 8.00 | % |

|                                      |   | **Decrease                in Minimum****Pension                Liability** |   |
|-------------------------------------------|--------|----------------------------------------------------------------------------|--------|
|                                      |   | **2005**                                                                   |   | **2004** |   |
|                                      |   | **(in                millions)**                                           |   |
| Other                Comprehensive Income |   | $                                                                          | (330   | ) | $ | (92 | ) |
| Deferred                Income Taxes      |   |                                                                       | (175   | ) |   | (52 | ) |
| Intangible                Asset           |   |                                                                       | (30    | ) |   | (3 | ) |
| Other                                     |   |                                                                       | 4      |   |   | (10 | ) |
| Minimum                Pension Liability  |   | $                                                                          | (531   | ) | $ | (157 | ) |

**Litigation**

**Environmental      Matters**

| · | Requirements                under the Clean Air Act (CAA) to reduce emissions of sulfur dioxide                (SO2),                nitrogen oxide (NOx),                particulate matter (PM), and mercury from fossil fuel-fired power                plants; |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Requirements                under the Clean Water Act (CWA) to reduce the impacts of water intake                structures on aquatic species at certain of our power plants;                and                                                                  |
| · | Possible                future requirements to reduce carbon dioxide (CO2)                emissions to address concerns about global climate                change.                                                                                                |

***Clean      Air Act Requirements***

***Estimated      Air Quality Environmental Investments***

***Clean      Water Act Regulations***

***Potential      Regulation of CO***
***2***

***Emissions***

***Environmental      Litigation***

***Other      Environmental Concerns***

**Critical      Accounting Estimates**

| · | it                requires assumptions to be made that were uncertain at the time the                estimate was made; and                                                                                                                            |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | changes                in the estimate or different estimates that could have been selected                could                have a material effect on our consolidated results of operations                or                financial condition. |

***Regulatory      Accounting***

*Nature      of Estimates Required*

*Assumptions      and Approach Used - *

*Effect      if Different Assumptions Used*

***Revenue      Recognition - Unbilled Revenues***

*Nature      of Estimates Required - *

*Assumptions      and Approach Used - *

*Effect      if Different Assumptions Used - *

***Revenue      Recognition - Accounting for Derivative      Instruments***

*Nature      of Estimates Required*

*Assumptions      and Approach Used - *

*Effect      if Different Assumptions Used*

***Long-Lived      Assets***

*Nature      of Estimates Required*

*Assumptions      and Approach Use - *

*Effect      if Different Assumptions Used*

***Pension      and Other Postretirement Benefits***

*Nature      of Estimates Required*

*Assumptions      and Approach Used - *

| · | discount                rate                  |
|--------|-----------------------------------------------|
| · | expected                return on plan assets |
| · | health                care cost trend rates   |
| · | rate                of compensation increases |

*Effect      if Different Assumptions Used*

|                                                                |   | **Pension                Plans** |   | **Other                Postretirement Benefits Plans** |   |
|---------------------------------------------------------------------|--------|----------------------------------|--------|--------------------------------------------------------|--------|
|                                                                |   | **+0.5%**                        |   | **-0.5%**                                              |   | **+0.5%** |   | **-0.5%** |   |
|                                                                |   | **(in                millions)** |   |
|                                                                |   |                        |   |                                              |   |    |   |    |   |
| **Effect                on December 31, 2005 Benefit Obligations:** |   |                        |   |                                              |   |    |   |    |   |
| Discount                Rate                                        |   | $                                | (198   | )                                                      | $      | 207 |   | $ | (116 | ) | $ | 124 |   |
| Salary                Scale                                         |   |                             | 30     |                                                   |   | (30 | ) |   | 4 |   |   | (4 | ) |
| Cash                Balance Crediting Rate                          |   |                             | (16    | )                                                      |   | 17 |   |   | N/A |   |   | N/A |   |
| Health                Care Cost Trend Rate                          |   |                             | N/A    |                                                   |   | N/A |   |   | 112 |   |   | (106 | ) |
|                                                                |   |                             |   |                                                   |   |   |   |   |   |   |   |   |   |
| **Effect                on 2005 Periodic Cost:**                    |   |                             |   |                                                   |   |   |   |   |   |   |   |   |   |
| Discount                Rate                                        |   |                             | (10    | )                                                      |   | 10 |   |   | (10 | ) |   | 10 |   |
| Salary                Scale                                         |   |                             | 6      |                                                   |   | (5 | ) |   | 1 |   |   | (1 | ) |
| Cash                Balance Crediting Rate                          |   |                             | 3      |                                                   |   | (2 | ) |   | N/A |   |   | N/A |   |
| Health                Care Cost Trend Rate                          |   |                             | N/A    |                                                   |   | N/A |   |   | 18 |   |   | (17 | ) |
| Expected                Return on Assets                            |   |                             | (18    | )                                                      |   | 18 |   |   | (5 | ) |   | 5 |   |

**New      Accounting Pronouncements**

----

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

**Market      Risks**

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

**Reconciliation      of MTM Risk Management Contracts to**

**Consolidated      Balance Sheet**

**December      31, 2005**

**(in      millions)**

|                                                                                              | **Utility                Operations** |   | **Investments                - Gas Operations** |   | **Sub-Total                MTM Risk Management Contracts** |   | **PLUS:                MTM of Cash Flow and Fair Value Hedges** |   | **Total** |   |
|---------------------------------------------------------------------------------------------------|---------------------------------------|--------|-------------------------------------------------|--------|------------------------------------------------------------|--------|-----------------------------------------------------------------|--------|-----------|--------|
| Current                Assets                                                                     | $                                     | 705    |                                            | $      | 210                                                        |   | $                                                               | 915    |      | $      | 11 |   | $ | 926 |   |
| Noncurrent                Assets                                                                  |                                  | 593    |                                            |   | 291                                                        |   |                                                            | 884    |      |   | 2 |   |   | 886 |   |
| **Total                Assets**                                                                   |                                  | 1,298  |                                            |   | 501                                                        |   |                                                            | 1,799  |      |   | 13 |   |   | 1,812 |   |
|                                                                                              |                                  |   |                                            |   |                                                       |   |                                                            |   |      |   |   |   |   |   |   |
| Current                Liabilities                                                                |                                  | (661   | )                                               |   | (223                                                       | )      |                                                            | (884   | )         | (22    | ) |   | (906 | ) |
| Noncurrent                Liabilities                                                             |                                  | (422   | )                                               |   | (297                                                       | )      |                                                            | (719   | )         |   | (4 | ) |   | (723 | ) |
| **Total                Liabilities**                                                              |                                  | (1,083 | )                                               |   | (520                                                       | )      |                                                            | (1,603 | )         |   | (26 | ) |   | (1,629 | ) |
|                                                                                              |                                  |   |                                            |   |                                                       |   |                                                            |   |      |   |   |   |   |   |   |
| **Total                MTM** **Derivative                Contract Net Assets (Liabilities)** | $                                     | 215    |                                            | $      | (19                                                        | )      | $                                                               | 196    |      | $      | (13 | ) | $ | 183 |   |

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

**Year      Ended December 31, 2005**

**(in      millions)**

|                                                                                                                                                                                |   | **Utility                Operations** |   | **Investments-Gas                Operations** |   | **Investments-UK                Operations** |   | **Total** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|--------|-----------------------------------------------|--------|----------------------------------------------|--------|-----------|--------|
| **Total                MTM Risk Management****Contract                Net Assets****                 (Liabilities) at****December                31, 2004**                    |   | $                                     | 277    |                                          | $      | -                                            |   | $         | (12    | ) | $ | 265 |   |
| (Gain)                Loss from Contracts Realized/Settled                During the Period                  and Entered in a Prior Period                                |   |                                  | (81    | )                                             |   | (21                                          | )      |      | 12     |   |   | (90 | ) |
| Fair                Value of New Contracts at Inception When                Entered During the                  Period (a)                                                     |   |                                  | 4      |                                          |   | -                                            |   |      | -      |   |   | 4 |   |
| Net                Option Premiums Paid/(Received) for Unexercised                or Unexpired                  Option Contracts                Entered During The Period |   |                                  | (6     | )                                             |   | -                                            |   |      | -      |   |   | (6 | ) |
| Changes                in Fair Value Due to Valuation Methodology                Changes on                  Forward Contracts                                                 |   |                                  | -      |                                          |   | -                                            |   |      | -      |   |   | - |   |
| Changes                in Fair Value due to Market Fluctuations During the Period                (b)                                                                           |   |                                  | 19     |                                          |   | 2                                            |   |      | -      |   |   | 21 |   |
| Changes                in Fair Value Allocated to Regulated                Jurisdictions (c)                                                                                        |   |                                  | 2      |                                          |   | -                                            |   |      | -      |   |   | 2 |   |
| **Total                MTM Risk Management Contract****Net                Assets (Liabilities) at****  December                31, 2005**                                 |   | $                                     | 215    |                                          | $      | (19                                          | )      | $         | -      |   |   | 196 |   |
| Net                Cash Flow and Fair Value Hedge Contracts                                                                                                                    |   |                                  |   |                                          |   |                                         |   |      |   |   |   | (13 | ) |
| **Ending                Net Risk Management Assets at****December                31, 2005**                                                                                         |   |                                  |   |                                          |   |                                         |   |      |   |   | $ | 183 |   |

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

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

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

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

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

**Fair      Value of Contracts as of December 31, 2005**

**(in      millions)**

|                                                                                            |   | **2006**     |   | **2007**     |   | **2008**     |   | **2009**     |   | **2010**     |   | **After                2010** |   | **Total**    |   |
|-------------------------------------------------------------------------------------------------|--------|--------------|--------|--------------|--------|--------------|--------|--------------|--------|--------------|--------|-------------------------------|--------|--------------|--------|
| **Utility                Operations:**                                                          |   |    |   |    |   |    |   |    |   |    |   |                     |   |    |   |
| Prices                Actively Quoted -  Exchange Traded Contracts                         |   | $            | 42     |         | $      | 8            |   | $            | 5      |         | $      | -                             |   | $            | -      |   | $ | - |   | $ | 55 |   |
| Prices                Provided by Other External Sources                - OTC Broker Quotes (a) |   |         | 56     |         |   | 68           |   |         | 51     |         |   | 26                            |   |         | -      |   |   | - |   |   | 201 |   |
| Prices                Based on Models and Other Valuation                Methods (b)            |   |         | (54    | )            |   | (22          | )      |         | (11    | )            |   | 12                            |   |         | 30     |   |   | 4 |   |   | (41 | ) |
| **Total**                                                                                       |   | $            | 44     |         | $      | 54           |   | $            | 45     |         | $      | 38                            |   | $            | 30     |   | $ | 4 |   | $ | 215 |   |
|                                                                                            |   |         |   |         |   |         |   |         |   |         |   |                          |   |         |   |   |   |   |   |   |   |   |
| **Investments**-                **Gas                Operations:**                              |   |         |   |         |   |         |   |         |   |         |   |                          |   |         |   |   |   |   |   |   |   |   |
| Prices                Actively Quoted -  Exchange Traded Contracts                         |   | $            | (15    | )            | $      | 11           |   | $            | -      |         | $      | -                             |   | $            | -      |   | $ | - |   | $ | (4 | ) |
| Prices                Provided by Other External Sources                - OTC Broker Quotes (a) |   |         | 5      |         |   | (8           | )      |         | -      |         |   | -                             |   |         | -      |   |   | - |   |   | (3 | ) |
| Prices                Based on Models and Other Valuation                Methods (b)            |   |         | (3     | )            |   | (1           | )      |         | (2     | )            |   | (4                            | )      |         | (3     | ) |   | 1 |   |   | (12 | ) |
| **Total**                                                                                       |   | $            | (13    | )            | $      | 2            |   | $            | (2     | )            | $      | (4                            | )      | $            | (3     | ) | $ | 1 |   | $ | (19 | ) |
|                                                                                            |   |         |   |         |   |         |   |         |   |         |   |                          |   |         |   |   |   |   |   |   |   |   |
| **Total:**                                                                                      |   |         |   |         |   |         |   |         |   |         |   |                          |   |         |   |   |   |   |   |   |   |   |
| Prices                Actively Quoted -  Exchange Traded Contracts                         |   | $            | 27     |         | $      | 19           |   | $            | 5      |         | $      | -                             |   | $            | -      |   | $ | - |   | $ | 51 |   |
| Prices                Provided by Other External Sources                - OTC Broker Quotes (a) |   |         | 61     |         |   | 60           |   |         | 51     |         |   | 26                            |   |         | -      |   |   | - |   |   | 198 |   |
| Prices                Based on Models and Other Valuation                Methods (b)            |   |         | (57    | )            |   | (23          | )      |         | (13    | )            |   | 8                             |   |         | 27     |   |   | 5 |   |   | (53 | ) |
| **Total**                                                                                       |   | $            | 31     |         | $      | 56           |   | $            | 43     |         | $      | 34                            |   | $            | 27     |   | $ | 5 |   | $ | 196 |   |

| (a) | Prices                Provided by Other External Sources - OTC Broker Quotes reflects                information obtained from over-the-counter brokers (OTC), industry                services, or multiple-party on-line platforms.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Prices                Based on Models and Other Valuation Methods is in the absence of                pricing                information from external sources, modeled information is derived                using                valuation models developed by the reporting entity, reflecting when                appropriate, option pricing theory, discounted cash flow concepts,                valuation adjustments, etc. and may require projection of prices                for                underlying commodities beyond the period that prices are available                from                third-party sources. In addition, where external pricing information                or                market liquidity is limited, such valuations are classified as                modeled. |

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

**As      of December 31, 2005**

| **Commodity**              |   | **Transaction                Class**           |                                   | **Market/Region**                                                |   | **Tenor**                      |
|----------------------------|--------|------------------------------------------------|----------------------------------------|------------------------------------------------------------------|--------|--------------------------------|
|                       |   |                                           |                                   |                                                             |   | **(in                Months)** |
| Natural                Gas |   | Futures                                        |                                   | NYMEX                / Henry Hub                                 |   | 60                             |
|                       |   |                                           |                                   |                                                             |   |                           |
|                       |   | Physical                Forwards               |                                   | Gulf                Coast, Texas                                 |   | 24                             |
|                       |   |                                           |                                   |                                                             |   |                           |
|                       |   | Swaps                                          |                                   | Northeast,                Mid-Continent, Gulf  Coast, Texas |   | 24                             |
|                       |   |                                           |                                   |                                                             |   |                           |
|                       |   | Exchange                Option Volatility      |                                   | NYMEX                / Henry Hub                                 |   | 12                             |
|                       |   |                                           |                                   |                                                             |   |                           |
| Power                      |   | Futures                                        |                                   | AEP                East - PJM                                    |   | 36                             |
|                       |   |                                           |                                   |                                                             |   |                           |
|                       |   | Physical                Forwards               |                                   | AEP                East                                          |   | 48                             |
|                       |   |                                           |                                   |                                                             |   |                           |
|                       |   |                                           |                                   | Power                East - First Energy                         |   | 21                             |
|                       |   |                                           |                                   |                                                             |   |                           |
|                       |   | Physical                Forwards               |                                   | AEP                West                                          |   | 48                             |
|                       |   |                                           |                                   |                                                             |   |                           |
|                       |   | Physical                Forwards               |                                   | West                Coast                                        |   | 48                             |
|                       |   |                                           |                                   |                                                             |   |                           |
|                       |   | Peak                Power Volatility (Options) | AEP                East - Cinergy, PJM |                                                             | 12     |
|                       |   |                                           |                                   |                                                             |   |                           |
| Emissions                  |   | Credits                                        |                                   | SO2,                NOx                                          |   | 36                             |
|                       |   |                                           |                                   |                                                             |   |                           |
| Coal                       |   | Physical                Forwards               |                                   | PRB,                NYMEX, CSX                                   |   | 36                             |
|                       |   |                                           |                                   |                                                             |   |                           |

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

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

**Year      Ended December 31, 2005**

**(in      millions)**

|                                                                                                                        |   |  **Power                and Gas** |   |  **Interest                Rate** |   |  **Total** |   |
|-----------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------|--------|----------------------------------------|--------|-----------------|--------|
| **Beginning                Balance in AOCI, December 31, 2004**                                                             |   | $                                      | 23     |                                   | $      | (23             | )      | $ | - |   |
| Changes                in Fair Value                                                                                        |   |                                   | (3     | )                                      |   | (2              | )      |   | (5 | ) |
| Reclassifications                from AOCI to Net Income for Cash                Flow Hedges                  Settled  |   |                                   | (26    | )                                      |   | 4               |   |   | (22 | ) |
| **Ending                Balance in AOCI, December 31, 2005**                                                                |   | $                                      | (6     | )                                      | $      | (21             | )      | $ | (27 | ) |
|                                                                                                                        |   |                                   |   |                                   |   |            |   |   |   |   |
| **After                Tax Portion Expected to be Reclassified to Earnings****                 During Next 12 Months** |   | $                                      | (5     | )                                      | $      | (2              | )      | $ | (7 | ) |

**Credit      Risk**

| **Counterparty                Credit Quality** |   | **Exposure                Before Credit Collateral** |   | **Credit                Collateral** |   | **Net                Exposure** |   | **Number                of Counterparties >10%** |   | **Net                Exposure of Counterparties >10%** |   |
|------------------------------------------------|--------|------------------------------------------------------|--------|--------------------------------------|--------|---------------------------------|--------|-----------------------------------------------------|--------|-----------------------------------------------------------|--------|
| Investment                Grade                |   | $                                                    | 930    |                                 | $      | 330                             |   | $                                                   | 600    |                                                      |   | 1 |   | $ | 111 |   |
| Split                Rating                    |   |                                                 | 3      |                                 |   | -                               |   |                                                | 3      |                                                      |   | 2 |   |   | 3 |   |
| Noninvestment                Grade             |   |                                                 | 242    |                                 |   | 152                             |   |                                                | 90     |                                                      |   | 3 |   |   | 80 |   |
| No                External Ratings:            |   |                                                 |   |                                 |   |                            |   |                                                |   |                                                      |   |   |   |   |   |   |
| Internal                Investment Grade       |   |                                                 | 173    |                                 |   | -                               |   |                                                | 173    |                                                      |   | 1 |   |   | 116 |   |
| Internal                Noninvestment Grade    |   |                                                 | 18     |                                 |   | 2                               |   |                                                | 16     |                                                      |   | 3 |   |   | 12 |   |
| **Total**                                      |   | $                                                    | 1,366  |                                 | $      | 484                             |   | $                                                   | 882    |                                                      |   | 10 |   | $ | 322 |   |

**Generation      Plant Hedging Information**

**Generation      Plant Hedging Information**

**Estimated      Next Three Years**

**December      31, 2005**

|                                           | **2006** |   | **2007** |   | **2008** |
|------------------------------------------------|----------|--------|----------|--------|----------|
| Estimated                  Plant Output Hedged | 91%      |   | 88%      |   | 90%      |

**VaR      Associated with Risk Management Contracts**

***Commodity      Price Risk***

**VaR      Model**

| **December                31, 2005** |   |     |   |        | **December                31, 2004** |
|--------------------------------------|--------|----------|--------|-------------|--------------------------------------|
| **(in                millions)**     |   |     |   |        | **(in                millions)**     |
| **End**                              |   | **High** |   | **Average** |                                 | **Low** |   |   |   |   | **End** |   | **High** |   | **Average** |   | **Low** |
| $3                                   |   | $5       |   | $3          |                                 | $1 |   |   |   |   | $3 |   | $19 |   | $5 |   | $1 |

***Interest      Rate Risk***

----

**REPORT      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

*Internal      Control—Integrated Framework*

----

**REPORT      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

*Management’s      Report on Internal Control Over Financial Reporting*
*Internal      Control—Integrated Framework *

*Internal      Control—Integrated Framework *
*Internal      Control—Integrated Framework *

----

**MANAGEMENT’S      REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING**

*Internal      Control - Integrated Framework*

----

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

**CONSOLIDATED      STATEMENTS OF OPERATIONS**

**For      the Years Ended December 31, 2005, 2004 and 2003**

**(in      millions, except per-share amounts)**

|                                                                                                                                                                             |   | **2005** |   | **2004** |   | **2003** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
| **REVENUES**                                                                                                                                                                     |   |     |   |     |   |     |   |
| Utility                Operations                                                                                                                                                |   | $        | 11,193 |     | $      | 10,664   |   | $ | 11,030 |   |
| Gas                Operations                                                                                                                                                    |   |     | 463    |     |   | 3,068    |   |   | 3,100 |   |
| Other                                                                                                                                                                            |   |     | 455    |     |   | 513      |   |   | 703 |   |
| **TOTAL**                                                                                                                                                                        |   |     | 12,111 |     |   | 14,245   |   |   | 14,833 |   |
|                                                                                                                                                                             |   |     |   |     |   |     |   |   |   |   |
| **EXPENSES**                                                                                                                                                                     |   |     |   |     |   |     |   |   |   |   |
| Fuel                and Other Consumables Used for Electric Generation                                                                                                           |   |     | 3,592  |     |   | 3,059    |   |   | 3,147 |   |
| Purchased                Energy for Resale                                                                                                                                       |   |     | 687    |     |   | 670      |   |   | 707 |   |
| Purchased                Gas for Resale                                                                                                                                          |   |     | 256    |     |   | 2,807    |   |   | 2,850 |   |
| Maintenance                and Other Operation                                                                                                                                   |   |     | 3,649  |     |   | 3,700    |   |   | 3,776 |   |
| Asset                Impairments and Other Related Charges                                                                                                                       |   |     | 39     |     |   | -        |   |   | 650 |   |
| Gain/Loss                on Disposition of Assets, Net                                                                                                                           |   |     | (120   | )        |   | (4       | )      |   | (48 | ) |
| Depreciation                and Amortization                                                                                                                                     |   |     | 1,318  |     |   | 1,300    |   |   | 1,307 |   |
| Taxes                Other Than Income Taxes                                                                                                                                     |   |     | 763    |     |   | 730      |   |   | 701 |   |
| **TOTAL**                                                                                                                                                                        |   |     | 10,184 |     |   | 12,262   |   |   | 13,090 |   |
|                                                                                                                                                                             |   |     |   |     |   |     |   |   |   |   |
| **OPERATING                INCOME**                                                                                                                                              |   |     | 1,927  |     |   | 1,983    |   |   | 1,743 |   |
|                                                                                                                                                                             |   |     |   |     |   |     |   |   |   |   |
| Investment                Income                                                                                                                                                 |   |     | 105    |     |   | 33       |   |   | 25 |   |
| Carrying                Costs                                                                                                                                                    |   |     | 55     |     |   | 302      |   |   | - |   |
| Allowance                For Equity Funds Used During Construction                                                                                                               |   |     | 21     |     |   | 15       |   |   | 14 |   |
| Investment                Value Losses                                                                                                                                           |   |     | (7     | )        |   | (15      | )      |   | (70 | ) |
| Gain                on Disposition of Equity Investments, Net                                                                                                                    |   |     | 56     |     |   | 153      |   |   | - |   |
|                                                                                                                                                                             |   |     |   |     |   |     |   |   |   |   |
| **INTEREST                AND OTHER CHARGES**                                                                                                                                    |   |     |   |     |   |     |   |   |   |   |
| Interest                Expense                                                                                                                                                  |   |     | 697    |     |   | 781      |   |   | 814 |   |
| Preferred                Stock Dividend Requirements of Subsidiaries                                                                                                             |   |     | 7      |     |   | 6        |   |   | 9 |   |
| Minority                Interest in Finance Subsidiary                                                                                                                           |   |     | -      |     |   | -        |   |   | 17 |   |
| **TOTAL**                                                                                                                                                                        |   |     | 704    |     |   | 787      |   |   | 840 |   |
|                                                                                                                                                                             |   |     |   |     |   |     |   |   |   |   |
| **INCOME                BEFORE INCOME TAX EXPENSE, MINORITY****INTEREST****                 EXPENSE AND EQUITY EARNINGS**                                                   |   |     | 1,453  |     |   | 1,684    |   |   | 872 |   |
| Income                Tax Expense                                                                                                                                                |   |     | 430    |     |   | 572      |   |   | 358 |   |
| Minority                Interest Expense                                                                                                                                         |   |     | 4      |     |   | 3        |   |   | 2 |   |
| Equity                Earnings of Unconsolidated Subsidiaries                                                                                                                    |   |     | 10     |     |   | 18       |   |   | 10 |   |
| **INCOME                BEFORE DISCONTINUED OPERATIONS, EXTRAORDINARY****                 LOSS AND CUMULATIVE EFFECT OF ACCOUNTING                CHANGES**            |   |     | 1,029  |     |   | 1,127    |   |   | 522 |   |
|                                                                                                                                                                             |   |     |   |     |   |     |   |   |   |   |
| **DISCONTINUED                OPERATIONS, Net of Tax**                                                                                                                           |   |     | 27     |     |   | 83       |   |   | (605 | ) |
|                                                                                                                                                                             |   |     |   |     |   |     |   |   |   |   |
| **EXTRAORDINARY                LOSS, Net of Tax**                                                                                                                                |   |     | (225   | )        |   | (121     | )      |   | - |   |
|                                                                                                                                                                             |   |     |   |     |   |     |   |   |   |   |
| **CUMULATIVE                EFFECT OF ACCOUNTING CHANGES, Net of Tax**                                                                                                           |   |     |   |     |   |     |   |   |   |   |
| Accounting                for Risk Management Contracts                                                                                                                          |   |     | -      |     |   | -        |   |   | (49 | ) |
| Asset                Retirement Obligations                                                                                                                                      |   |     | (17    | )        |   | -        |   |   | 242 |   |
| **NET                INCOME**                                                                                                                                                    |   | $        | 814    |     | $      | 1,089    |   | $ | 110 |   |
|                                                                                                                                                                             |   |     |   |     |   |     |   |   |   |   |
| **WEIGHTED                AVERAGE NUMBER OF BASIC SHARES OUTSTANDING**                                                                                                           |   |     | 390    |     |   | 396      |   |   | 385 |   |
|                                                                                                                                                                             |   |     |   |     |   |     |   |   |   |   |
| **BASIC                EARNINGS (LOSS) PER SHARE**                                                                                                                               |   |     |   |     |   |     |   |   |   |   |
| Income                Before Discontinued Operations, Extraordinary Loss and Cumulative                Effect** **of                  Accounting Changes          |   | $        | 2.64   |     | $      | 2.85     |   | $ | 1.35 |   |
| Discontinued                Operations, Net of Tax                                                                                                                               |   |     | 0.07   |     |   | 0.21     |   |   | (1.57 | ) |
| Extraordinary                Loss, Net of Tax                                                                                                                                    |   |     | (0.58  | )        |   | (0.31    | )      |   | - |   |
| Cumulative                Effect of Accounting Changes, Net of Tax                                                                                                               |   |     | (0.04  | )        |   | -        |   |   | 0.51 |   |
| **TOTAL                BASIC EARNINGS PER SHARE**                                                                                                                                |   | $        | 2.09   |     | $      | 2.75     |   | $ | 0.29 |   |
|                                                                                                                                                                             |   |     |   |     |   |     |   |   |   |   |
| **WEIGHTED                AVERAGE NUMBER OF DILUTED SHARES OUTSTANDING**                                                                                                         |   |     | 391    |     |   | 396      |   |   | 385 |   |
|                                                                                                                                                                             |   |     |   |     |   |     |   |   |   |   |
| **DILUTED                EARNINGS (LOSS) PER SHARE**                                                                                                                             |   |     |   |     |   |     |   |   |   |   |
| Income                Before Discontinued Operations, Extraordinary Loss and Cumulative                Effect                of**  **Accounting                Changes |   | $        | 2.63   |     | $      | 2.85     |   | $ | 1.35 |   |
| Discontinued                Operations, Net of Tax                                                                                                                               |   |     | 0.07   |     |   | 0.21     |   |   | (1.57 | ) |
| Extraordinary                Loss, Net of Tax                                                                                                                                    |   |     | (0.58  | )        |   | (0.31    | )      |   | - |   |
| Cumulative                Effect of Accounting Changes, Net of Tax                                                                                                               |   |     | (0.04  | )        |   | -        |   |   | 0.51 |   |
| **TOTAL                DILUTED EARNINGS PER SHARE**                                                                                                                              |   | $        | 2.08   |     | $      | 2.75     |   | $ | 0.29 |   |
|                                                                                                                                                                             |   |     |   |     |   |     |   |   |   |   |
| **CASH                DIVIDENDS PAID PER SHARE**                                                                                                                                 |   | $        | 1.42   |     | $      | 1.40     |   | $ | 1.65 |   |
|                                                                                                                                                                             |   |     |   |     |   |     |   |   |   |   |

*See      Notes to Consolidated Financial Statements.*

----

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

**CONSOLIDATED      BALANCE SHEETS**

**ASSETS**

**December      31, 2005 and 2004**

**(in      millions)**

|                                                               |   | **2005**     |   | **2004**     |   |
|--------------------------------------------------------------------|--------|--------------|--------|--------------|--------|
| **CURRENT                ASSETS**                                  |   |    |   |    |   |
| Cash                and Cash Equivalents                           |   | $            | 401    |         | $      | 320 |   |
| Other                Temporary Cash Investments                    |   |         | 127    |         |   | 275 |   |
| Accounts                Receivable:                                |   |         |   |         |   |   |   |
| Customers                                                          |   |         | 826    |         |   | 830 |   |
| Accrued                Unbilled Revenues                           |   |         | 374    |         |   | 665 |   |
| Miscellaneous                                                      |   |         | 51     |         |   | 84 |   |
| Allowance                for Uncollectible Accounts                |   |         | (31    | )            |   | (77 | ) |
|                  Total Receivables                            |   |         | 1,220  |         |   | 1,502 |   |
| Fuel,                Materials and Supplies                        |   |         | 726    |         |   | 852 |   |
| Risk                Management Assets                              |   |         | 926    |         |   | 737 |   |
| Margin                Deposits                                     |   |         | 221    |         |   | 113 |   |
| Regulatory                Asset for Under-Recovered Fuel Costs     |   |         | 197    |         |   | 7 |   |
| Other                                                              |   |         | 127    |         |   | 190 |   |
| **TOTAL**                                                          |   |         | 3,945  |         |   | 3,996 |   |
|                                                               |   |         |   |         |   |   |   |
| **PROPERTY,                PLANT AND EQUIPMENT**                   |   |         |   |         |   |   |   |
| Electric:                                                          |   |         |   |         |   |   |   |
| Production                                                         |   |         | 16,653 |         |   | 15,969 |   |
| Transmission                                                       |   |         | 6,433  |         |   | 6,293 |   |
| Distribution                                                       |   |         | 10,702 |         |   | 10,280 |   |
| Other                (including gas, coal mining and nuclear fuel) |   |         | 3,116  |         |   | 3,593 |   |
| Construction                Work in Progress                       |   |         | 2,217  |         |   | 1,159 |   |
| **Total**                                                          |   |         | 39,121 |         |   | 37,294 |   |
| Accumulated                Depreciation and Amortization           |   |         | 14,837 |         |   | 14,493 |   |
| **TOTAL                - NET**                                     |   |         | 24,284 |         |   | 22,801 |   |
|                                                               |   |         |   |         |   |   |   |
| **OTHER                NONCURRENT ASSETS**                         |   |         |   |         |   |   |   |
| Regulatory                Assets                                   |   |         | 3,262  |         |   | 3,594 |   |
| Securitized                Transition Assets and Other             |   |         | 593    |         |   | 642 |   |
| Spent                Nuclear Fuel and Decommissioning Trusts       |   |         | 1,134  |         |   | 1,053 |   |
| Investments                in Power and Distribution Projects      |   |         | 97     |         |   | 154 |   |
| Goodwill                                                           |   |         | 76     |         |   | 76 |   |
| Long-term                Risk Management Assets                    |   |         | 886    |         |   | 470 |   |
| Employee                Benefits and Pension Assets                |   |         | 1,105  |         |   | 422 |   |
| Other                                                              |   |         | 746    |         |   | 800 |   |
| **TOTAL**                                                          |   |         | 7,899  |         |   | 7,211 |   |
|                                                               |   |         |   |         |   |   |   |
| **Assets                Held for Sale**                            |   |         | 44     |         |   | 628 |   |
|                                                               |   |         |   |         |   |   |   |
| **TOTAL                ASSETS**                                    |   | $            | 36,172 |         | $      | 34,636 |   |

*See      Notes to Consolidated Financial Statements.*

----

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

**CONSOLIDATED      BALANCE SHEETS**

**LIABILITIES      AND SHAREHOLDERS’ EQUITY**

**December      31, 2005 and 2004**

|                                                                                                                                                        |                               | **2005** |        | **2004** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------|----------|-------------|----------|--------|
| **CURRENT                  LIABILITIES**                                                                                                                    | **(in                  millions)** |     |
| Accounts                  Payable                                                                                                                           | $                                  | 1,144    |        | $        | 1,055  |   |
| Short-term                  Debt                                                                                                                            |                               | 10       |        |     | 23     |   |
| Long-term                  Debt Due Within One Year                                                                                                         |                               | 1,153    |        |     | 1,279  |   |
| Cumulative                  Preferred Stocks of Subsidiaries Subject to Mandatory Redemption                                                                |                               | -        |        |     | 66     |   |
| Risk                  Management Liabilities                                                                                                                |                               | 906      |        |     | 608    |   |
| Accrued                  Taxes                                                                                                                              |                               | 651      |        |     | 611    |   |
| Accrued                  Interest                                                                                                                           |                               | 183      |        |     | 185    |   |
| Customer                  Deposits                                                                                                                          |                               | 571      |        |     | 414    |   |
| Other                                                                                                                                                       |                               | 842      |        |     | 749    |   |
| **TOTAL**                                                                                                                                                   |                               | 5,460    |        |     | 4,990  |   |
|                                                                                                                                                        |                               |     |        |     |   |   |
| **NONCURRENT                  LIABILITIES**                                                                                                                 |                               |     |        |     |   |   |
| Long-term                  Debt                                                                                                                             |                               | 11,073   |        |     | 11,008 |   |
| Long-term                  Risk Management Liabilities                                                                                                      |                               | 723      |        |     | 329    |   |
| Deferred                  Income Taxes                                                                                                                      |                               | 4,810    |        |     | 4,819  |   |
| Regulatory                  Liabilities and Deferred Investment Tax Credits                                                                                 |                               | 2,747    |        |     | 2,522  |   |
| Asset                  Retirement Obligations                                                                                                               |                               | 936      |        |     | 827    |   |
| Employee                  Benefits and Pension Obligations                                                                                                  |                               | 355      |        |     | 730    |   |
| Deferred                  Gain on Sale and Leaseback - Rockport Plant Unit 2                                                                                |                               | 157      |        |     | 166    |   |
| Deferred                  Credits and Other                                                                                                                 |                               | 762      |        |     | 419    |   |
| **TOTAL**                                                                                                                                                   |                               | 21,563   |        |     | 20,820 |   |
|                                                                                                                                                        |                               |     |        |     |   |   |
| **Liabilities                  Held for Sale**                                                                                                              |                               | -        |        |     | 250    |   |
|                                                                                                                                                        |                               |     |        |     |   |   |
| **TOTAL                  LIABILITIES**                                                                                                                      |                               | 27,023   |        |     | 26,060 |   |
|                                                                                                                                                        |                               |     |        |     |   |   |
| Cumulative                  Preferred Stock Not Subject to Mandatory Redemption                                                                             |                               | 61       |        |     | 61     |   |
|                                                                                                                                                        |                               |     |        |     |   |   |
| Commitments                  and Contingencies (Note 7)                                                                                                     |                               |     |        |     |   |   |
|                                                                                                                                                        |                               |     |        |     |   |   |
| **COMMON                  SHAREHOLDERS’ EQUITY**                                                                                                      |                               |     |        |     |   |   |
| Common                  Stock Par Value $6.50:                                                                                                              |                               |     |        |     |   |   |
|                                                                                                                                                        |                               |     | 2005        |     |   | 2004 |   |   |   |   |   |   |   |
| Shares                  Authorized                                                                                                                          |                               |     | 600,000,000 |     |   | 600,000,000 |   |   |   |   |   |   |   |
| Shares                  Issued                                                                                                                              |                               |     | 415,218,830 |     |   | 404,858,145 |   |   |   |   |   |   |   |
| (21,499,992                  and 8,999,992 shares were held in treasury at December 31, 2005                  and 2004,                  respectively) |                               | 2,699    |        |     | 2,632  |   |
| Paid-in                  Capital                                                                                                                            |                               | 4,131    |        |     | 4,203  |   |
| Retained                  Earnings                                                                                                                          |                               | 2,285    |        |     | 2,024  |   |
| Accumulated                  Other Comprehensive Income (Loss)                                                                                              |                               | (27      | )           |     | (344   | ) |
| **TOTAL**                                                                                                                                                   |                               | 9,088    |        |     | 8,515  |   |
|                                                                                                                                                        |                               |     |        |     |   |   |
| **TOTAL                  LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                                       | $                                  | 36,172   |        | $        | 34,636 |   |

*See      Notes to Consolidated Financial Statements.*

----

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

**CONSOLIDATED      STATEMENTS OF CASH FLOWS**

**For      the Years Ended December 31, 2005, 2004 and 2003**

**(in      millions)**

|                                                                                                           |   | **2005**     |   | **2004**     |   | **2003**     |    |
|----------------------------------------------------------------------------------------------------------------|--------|--------------|--------|--------------|--------|--------------|---------|
| **OPERATING                ACTIVITIES**                                                                        |   |    |   |    |   |    |    |
| **Net                Income**                                                                                  |   | $            | 814    |         | $      | 1,089        |    | $ | 110 |   |
| (Income)                Loss from Discontinued Operations                                                      |   |         | (27    | )            |   | (83          | )       |   | 605 |   |
| **Income                from Continuing Operations**                                                           |   |         | 787    |         |   | 1,006        |    |   | 715 |   |
| **Adjustments                for Noncash Items:**                                                              |   |         |   |         |   |         |    |   |   |   |
| Depreciation                and Amortization                                                                   |   |         | 1,318  |         |   | 1,300        |    |   | 1,307 |   |
| Accretion                of Asset Retirement Obligations                                                       |   |         | 63     |         |   | 64           |    |   | 59 |   |
| Deferred                Income Taxes                                                                           |   |         | 65     |         |   | 291          |    |   | 163 |   |
| Deferred                Investment Tax Credits                                                                 |   |         | (32    | )            |   | (29          | )       |   | (33 | ) |
| Cumulative                Effect of Accounting Changes, Net                                                    |   |         | 17     |         |   | -            |    |   | (193 | ) |
| Asset                Impairments, Investment Value Losses and Other Related                Charges             |   |         | 46     |         |   | 15           |    |   | 720 |   |
| Carrying                Costs                                                                                  |   |         | (55    | )            |   | (302         | )       |   | - |   |
| Extraordinary                Loss                                                                              |   |         | 225    |         |   | 121          |    |   | - |   |
| Amortization                of Deferred Property Taxes                                                         |   |         | (17    | )            |   | (3           | )       |   | (2 | ) |
| Amortization                of Cook Plant Restart Costs                                                        |   |         | -      |         |   | -            |    |   | 40 |   |
| Mark-to-Market                of Risk Management Contracts                                                     |   |         | 84     |         |   | 14           |    |   | (122 | ) |
| Pension              Contributions to Qualified Plan Trusts                                                    |   |         | (626   | )       |   | (231         | )       |   | (58 | ) |
| Over/Under                Fuel Recovery                                                                        |   |         | (239   | )            |   | 96           |    |   | 239 |   |
| Gain                on Sales of Assets and Equity Investments, Net                                             |   |         | (176   | )            |   | (157         | )       |   | (48 | ) |
| Change                in Other Noncurrent Assets                                                               |   |         | (28    | )            |   | (100         | )       |   | (24 | ) |
| Change                in Other Noncurrent Liabilities                                                          |   |         | 3      |         |   | 196          |    |   | (73 | ) |
| **Changes                in Certain Components of Working Capital:**                                           |   |         |   |         |   |         |    |   |   |   |
| Accounts                Receivable, Net                                                                        |   |         | (7     | )            |   | 280          |    |   | 473 |   |
| Fuel,                Materials and Supplies                                                                    |   |         | (20    | )            |   | 33           |    |   | (52 | ) |
| Accounts                Payable                                                                                |   |         | 140    |         |   | (306         | )       |   | (764 | ) |
| Taxes                Accrued                                                                                   |   |         | 48     |         |   | 427          |    |   | 87 |   |
| Customer                Deposits                                                                               |   |         | 157    |         |   | 35           |    |   | 194 |   |
| Other                Current Assets                                                                            |   |         | (56    | )            |   | (47          | )       |   | (2 | ) |
| Other                Current Liabilities                                                                       |   |         | 180    |         |   | 8            |    |   | (126 | ) |
| **Net                Cash Flows From Operating Activities**                                                    |   |         | 1,877  |         |   | 2,711        |    |   | 2,500 |   |
|                                                                                                           |   |         |   |         |   |         |    |   |   |   |
| **INVESTING                ACTIVITIES**                                                                        |   |         |   |         |   |         |    |   |   |   |
| Construction                Expenditures                                                                       |   |         | (2,404 | )            |   | (1,637       | )       |   | (1,322 | ) |
| Change                in Other Temporary Cash Investments, Net                                                 |   |         | 76     |         |   | 32           |    |   | (91 | ) |
| Investment                in Discontinued Operations, Net                                                      |   |         | -      |         |   | (59          | )       |   | (615 | ) |
| Purchases                of Investment Securities                                                              |   |         | (8,836 | )            |   | (1,574       | )       |   | (1,022 | ) |
| Sales                of Investment Securities                                                                  |   |         | 8,934  |         |   | 1,620        |    |   | 736 |   |
| Acquisitions                of Assets                                                                          |   |         | (360   | )            |   | -            |    |   | - |   |
| Proceeds                from Sales of Assets                                                                   |   |         | 1,606  |         |   | 1,357        |    |   | 82 |   |
| Other                                                                                                          |   |         | (21    | )       |   | (68          | )       |   | (66 | )  |
| **Net                Cash Flows Used For Investing Activities**                                                |   |         | (1,005 | )            |   | (329         | )       |   | (2,298 | ) |
|                                                                                                           |   |         |   |         |   |         |    |   |   |   |
| **FINANCING                ACTIVITIES**                                                                        |   |         |   |         |   |         |    |   |   |   |
| Issuance                of Common Stock                                                                        |   |         | 402    |         |   | 17           |    |   | 1,142 |   |
| Repurchase                of Common Stock                                                                      |   |         | (427   | )            |   | -            |    |   | - |   |
| Issuance                of Long-term Debt                                                                      |   |         | 2,651  |         |   | 682          |    |   | 4,761 |   |
| Change                in Short-term Debt, Net                                                                  |   |         | (13    | )            |   | (409         | )       |   | (2,797 | ) |
| Retirement                of Long-term Debt                                                                    |   |         | (2,729 | )            |   | (2,511       | )       |   | (2,707 | ) |
| Dividends                Paid on Common Stock                                                                  |   |         | (553   | )            |   | (555         | )       |   | (618 | ) |
| Other                                                                                                          |   |         | (122   | )            |   | (64          | )       |   | (290 | ) |
| **Net                Cash Flows Used For Financing Activities**                                                |   |         | (791   | )            |   | (2,840       | )       |   | (509 | ) |
|                                                                                                           |   |         |   |         |   |         |    |   |   |   |
| **Net                Increase (Decrease) in Cash and Cash Equivalents**                                        |   |         | 81     |         |   | (458         | )       |   | (307 | ) |
| **Cash                and Cash Equivalents at Beginning of Period**                                            |   |         | 320    |         |   | 778          |    |   | 1,085 |   |
| **Cash                and Cash Equivalents at End of Period**                                                  |   | $            | 401    |         | $      | 320          |    | $ | 778 |   |
|                                                                                                           |   |         |   |         |   |         |    |   |   |   |
| **CASH                FLOWS FROM DISCONTINUED OPERATIONS (Revised - see Note                1)**               |   |         |   |         |   |         |    |   |   |   |
| Operating                Activities                                                                            |   | $            | -      |         | $      | (3           | )  | $ | 12 |   |
| Investing                Activities                                                                            |   |         | -      |         |   | (10          | )       |   | (13 | ) |
| Financing                Activities                                                                            |   |         | -      |         |   | -            |    |   | (9 | )  |
| **Net                Decrease in Cash and Cash Equivalents from Discontinued Operations**                      |   |         | -      |         |   | (13          | )       |   | (10 | ) |
| **Cash                and Cash Equivalents from Discontinued Operations - Beginning of                Period** |   |         | -      |         |   | 13           |    |   | 23 |   |
| **Cash                and Cash Equivalents from Discontinued Operations - End of                Period**       |   | $            | -      |         | $      | -            |    | $ | 13 |   |
|                                                                                                           |   |         |   |         |   |         |    |   |   |   |
| *See                Notes to Consolidated Financial Statements.*                                               |   |         |   |         |   |         |    |   |   |   |

----

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

**CONSOLIDATED      STATEMENTS OF CHANGES IN COMMON SHAREHOLDERS’ EQUITY AND**

**COMPREHENSIVE      INCOME (LOSS)**

**For      the Years Ended December 31, 2005, 2004, and 2003**

**(in      millions)**

|                                                                |                                                                                         | **Common                  Stock** |   |       |   |                                 |   | **Accumulated                  Other Comprehensive Income (Loss)** |   |   |      |
|---------------------------------------------------------------------|----------------------------------------------------------------------------------------------|-----------------------------------|--------|------------|--------|--------------------------------------|--------|--------------------------------------------------------------------|--------|--------|-----------|
|                                                                |                                                                                         | **Shares**                        |   | **Amount** |   | **Paid-in                  Capital** |   | **Retained                  Earnings**                             |   |   | **Total** |   |
| **DECEMBER                  31, 2002**                              |                                                                                         |                              | 348    |       | $      | 2,261                                |   | $                                                                  | 3,413  |   | $         | 1,999 |   | $ | (609 | ) | $ | 7,064 |   |
| Issuance                  of Common Stock                           |                                                                                         |                              | 56     |       |   | 365                                  |   |                                                               | 812    |   |      |   |   |   |   |   |   | 1,177 |   |
| Common                  Stock Dividends                             |                                                                                         |                              |   |       |   |                                 |   |                                                               |   |   |      | (618 | ) |   |   |   |   | (618 | ) |
| Common                  Stock Expense                               |                                                                                         |                              |   |       |   |                                 |   |                                                               | (35    | )      |      |   |   |   |   |   |   | (35 | ) |
| Other                                                               |                                                                                         |                              |   |       |   |                                 |   |                                                               | (6     | )      |      | (1 | ) |   |   |   |   | (7 | ) |
| **TOTAL**                                                           |                                                                                         |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   |   |   | 7,581 |   |
|                                                                |                                                                                         |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   |   |   |   |   |
| **COMPREHENSIVE                  INCOME**                           |                                                                                         |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   |   |   |   |   |
| **Other                  Comprehensive Income (Loss), Net of Tax:** |                                                                                         |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   |   |   |   |   |
|                                                                | Foreign                  Currency Translation Adjustments, Net                  of Tax of $0 |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   | 106 |   |   | 106 |   |
|                                                                | Cash                  Flow Hedges, Net of Tax of $42                                         |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   | (78 | ) |   | (78 | ) |
|                                                                | Securities                  Available for Sale, Net of Tax of $0                             |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   | 1 |   |   | 1 |   |
|                                                                | Minimum                  Pension Liability, Net of Tax of $75                                |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   | 154 |   |   | 154 |   |
| **NET                  INCOME**                                     |                                                                                         |                              |   |       |   |                                 |   |                                                               |   |   |      | 110 |   |   |   |   |   | 110 |   |
| **TOTAL                  COMPREHENSIVE INCOME**                     |                                                                                         |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   |   |   | 293 |   |
| **DECEMBER                  31, 2003**                              |                                                                                         |                              | 404    |       |   | 2,626                                |   |                                                               | 4,184  |   |      | 1,490 |   |   | (426 | ) |   | 7,874 |   |
| Issuance                  of Common Stock                           |                                                                                         |                              | 1      |       |   | 6                                    |   |                                                               | 11     |   |      |   |   |   |   |   |   | 17 |   |
| Common                  Stock Dividends                             |                                                                                         |                              |   |       |   |                                 |   |                                                               |   |   |      | (555 | ) |   |   |   |   | (555 | ) |
| Other                                                               |                                                                                         |                              |   |       |   |                                 |   |                                                               | 8      |   |      |   |   |   |   |   |   | 8 |   |
| **TOTAL**                                                           |                                                                                         |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   |   |   | 7,344 |   |
|                                                                |                                                                                         |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   |   |   |   |   |
| **COMPREHENSIVE                  INCOME**                           |                                                                                         |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   |   |   |   |   |
| **Other                  Comprehensive Income (Loss), Net of Tax:** |                                                                                         |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   |   |   |   |   |
|                                                                | Foreign                  Currency Translation Adjustments, Net                  of Tax of $0 |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   | (104 | ) |   | (104 | ) |
|                                                                | Cash                  Flow Hedges, Net of Tax of $51                                         |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   | 94 |   |   | 94 |   |
|                                                                | Minimum                  Pension Liability, Net of Tax of $52                                |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   | 92 |   |   | 92 |   |
| **NET                  INCOME**                                     |                                                                                         |                              |   |       |   |                                 |   |                                                               |   |   |      | 1,089 |   |   |   |   |   | 1,089 |   |
| **TOTAL                  COMPREHENSIVE INCOME**                     |                                                                                         |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   |   |   | 1,171 |   |
| **DECEMBER                  31, 2004**                              |                                                                                         |                              | 405    |       |   | 2,632                                |   |                                                               | 4,203  |   |      | 2,024 |   |   | (344 | ) |   | 8,515 |   |
| Issuance                  of Common Stock                           |                                                                                         |                              | 10     |       |   | 67                                   |   |                                                               | 335    |   |      |   |   |   |   |   |   | 402 |   |
| Common                  Stock Dividends                             |                                                                                         |                              |   |       |   |                                 |   |                                                               |   |   |      | (553 | ) |   |   |   |   | (553 | ) |
| Repurchase                  of Common Stock                         |                                                                                         |                              |   |       |   |                                 |   |                                                               | (427   | )      |      |   |   |   |   |   |   | (427 | ) |
| Other                                                               |                                                                                         |                              |   |       |   |                                 |   |                                                               | 20     |   |      |   |   |   |   |   |   | 20 |   |
| **TOTAL**                                                           |                                                                                         |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   |   |   | 7,957 |   |
|                                                                |                                                                                         |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   |   |   |   |   |
| **COMPREHENSIVE                  INCOME**                           |                                                                                         |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   |   |   |   |   |
| **Other                  Comprehensive Income (Loss), Net of Tax:** |                                                                                         |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   |   |   |   |   |
|                                                                | Foreign                  Currency Translation Adjustments, Net                  of Tax of $0 |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   | (6 | ) |   | (6 | ) |
|                                                                | Cash                  Flow Hedges, Net of Tax of $15                                         |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   | (27 | ) |   | (27 | ) |
|                                                                | Securities                  Available for Sale, Net of Tax of $11                            |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   | 20 |   |   | 20 |   |
|                                                                | Minimum                  Pension Liability, Net of Tax of $175                               |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   | 330 |   |   | 330 |   |
| **NET                  INCOME**                                     |                                                                                         |                              |   |       |   |                                 |   |                                                               |   |   |      | 814 |   |   |   |   |   | 814 |   |
| **TOTAL                  COMPREHENSIVE INCOME**                     |                                                                                         |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   |   |   | 1,131 |   |
| **DECEMBER                  31, 2005**                              |                                                                                         |                              | 415    |       | $      | 2,699                                |   | $                                                                  | 4,131  |   | $         | 2,285 |   | $ | (27 | ) | $ | 9,088 |   |

*See      Notes to Consolidated Financial Statements.*

----

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

**INDEX      TO NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

|  1.  | Organization                and Summary of Significant Accounting Policies                                                                                          |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  2.  | New                Accounting Pronouncements, Extraordinary Items and Cumulative Effect                of                Accounting  Changes                   |
|  3.  | Goodwill                and Other Intangible Assets                                                                                                                 |
|  4.  | Rate                Matters                                                                                                                                         |
|  5.  | Effects                of Regulation                                                                                                                                |
|  6.  | Customer                Choice and Industry Restructuring                                                                                                           |
|  7.  | Commitments                and Contingencies                                                                                                                        |
|  8.  | Guarantees                                                                                                                                                          |
|  9.  | Company-wide                Staffing and Budget Review                                                                                                              |
| 10.       | Acquisitions,                Dispositions, Discontinued Operations, Impairments, Assets Held for                Sale                and                Other Losses |
| 11.       | Benefit                Plans                                                                                                                                        |
| 12.       | Stock-Based                Compensation                                                                                                                             |
| 13.       | Business                Segments                                                                                                                                    |
| 14.       | Derivatives,                Hedging and Financial Instruments                                                                                                       |
| 15.       | Income                Taxes                                                                                                                                         |
| 16.       | Leases                                                                                                                                                              |
| 17.       | Financing                Activities                                                                                                                                 |
| 18.       | Jointly-Owned                Electric Utility Plant                                                                                                                 |
| 19.       | Unaudited                Quarterly Financial Information                                                                                                            |

----

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

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**1.**
**ORGANIZATION      AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

**ORGANIZATION      **

**SUMMARY      OF SIGNIFICANT ACCOUNTING POLICIES**

***Rate      Regulation***

***Principles      of Consolidation***

*** ***

***Accounting      for the Effects of Cost-Based Regulation***

***Use      of Estimates***

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

***Depreciation,      Depletion and Amortization***

| **2005**                                        |   | **Regulated**                                    |         | **Nonregulated**                            |
|-------------------------------------------------|--------|--------------------------------------------------|--------------|---------------------------------------------|
|                                            |   |                                             |         |                                        |   |   |   |   |   |   |   |   |
| **Functional                Class of Property** |   | **Property,                Plant and Equipment** |         | **Accumulated                Depreciation** |   | **Annual                Composite Depreciation Rate Ranges** |   | **Depreciable                Life Ranges** |   | **Property,                Plant and Equipment** |   | **Accumulated                Depreciation** |   | **Annual                Composite Depreciation Rate Ranges** |   | **Depreciable                Life Ranges** |
|                                            |   | **(in                millions)**                 |         | **(%)**                                     |   | **(in                years)** |   | **(in                millions)** |   | **(%)** |   | **(in                years)** |
| Production                                      |   | $                                                | 7,411        |                                        | $ | 4,166 |   | 2.7                - 3.8 |   | 30                - 120 |   | $ | 9,242 |   | $ | 4,019 |   | 2.6                - 3.3 |   | 20                - 120 |
| Transmission                                    |   |                                             | 6,433        |                                        |   |  2,280 |   | 1.7                - 3.0 |   | 25                - 75 |   |   | - |   |   | - |   | N.M. |   | N.M. |
| Distribution                                    |   |                                             |  10,702 |                                        |   |  3,085 |   | 3.1                - 4.1 |   | 10                - 75 |   |   |  - |   |   | - |   | N.M. |   | N.M. |
| CWIP                                            |   |                                             |  1,341  |                                        |   |  (14 | ) | N.M. |   | N.M. |   |   |  876 |   |   | (3 | ) | N.M. |   | N.M. |
| Other                                           |   |                                             |  2,266  |                                        |   | 992 |   | 5.1                - 16.0 |   | N.M. |   |   | 850 |   |   | 312 |   | 2.0                - 4.9 |   | 2                -                37 |
| Total                                           |   | $                                                |  28,153 |                                        | $ | 10,509 |   |   |   |   |   | $ | 10,968 |   | $ | 4,328 |   |   |   |   |
|                                            |   |                                             |         |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| **2004**                                        |   | **Regulated**                                    |         | **Nonregulated**                            |
|-------------------------------------------------|--------|--------------------------------------------------|--------------|---------------------------------------------|
|                                            |   |                                             |         |                                        |   |   |   |   |   |   |   |   |
| **Functional                Class of Property** |   | **Property,                Plant and Equipment** |         | **Accumulated                Depreciation** |   | **Annual                Composite Depreciation Rate Ranges** |   | **Depreciable                Life Ranges** |   | **Property,                Plant and Equipment** |   | **Accumulated                Depreciation** |   | **Annual                Composite Depreciation Rate Ranges** |   | **Depreciable                Life Ranges** |
|                                            |   | **(in                millions)**                 |         | **(%)**                                     |   | **(in                years)** |   | **(in                millions)** |   | **(%)** |   | **(in                years)** |
| Production                                      |   | $                                                | 7,276        |                                        | $ | 4,004 |   | 2.7                - 3.8 |   | 30                - 120 |   | $ | 8,693 |   | $ | 3,879 |   | 2.6                - 3.9 |   | 20                - 120 |
| Transmission                                    |   |                                             |  6,293  |                                        |   |  2,241 |   | 1.7                - 3.0 |   | 25                - 75 |   |   | - |   |   | - |   | N.M |   | N.M |
| Distribution                                    |   |                                             |  10,280 |                                        |   |  3,043 |   | 3.2                - 4.1 |   | 10                - 75 |   |   |  - |   |   |  - |   | N.M. |   | N.M. |
| CWIP                                            |   |                                             |  712    |                                        |   |  4 |   | N.M. |   | N.M. |   |   |  447 |   |   | - |   | N.M. |   | N.M. |
| Other                                           |   |                                             | 2,258        |                                        |   | 922 |   | 5.4                - 16.4 |   | N.M. |   |   |  1,335 |   |   | 400 |   | 2.0                - 14.2 |   | 0                -                50 |
| Total                                           |   | $                                                |  26,819 |                                        | $ |  10,214 |   |   |   |   |   | $ | 10,475 |   | $ | 4,279 |   |   |   |   |
|                                            |   |                                             |         |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| **2003**                                        |   | **Regulated**                                                |   | ** Nonregulated**                     |   |
|-------------------------------------------------|--------|--------------------------------------------------------------|--------|--------------------------------------------|--------|
|                                            |   |                                                         |   |                                       |   |   |   |   |   |
| **Functional                Class of Property** |   | **Annual                Composite Depreciation Rate Ranges** |   | **Depreciable                Life Ranges** |   | **Annual                Composite Depreciation Rate Ranges** |   | **Depreciable                Life Ranges** |   |
|                                            |   | **(%)**                                                      |   | **(in                years)**              |   | **(%)** |   | **(in                years)** |   |
| Production                                      |   | 2.5                - 3.8                                     |   | 30                - 120                    |   | 2.3                - 3.9 |   | 35                - 120 |   |
| Transmission                                    |   | 1.7                - 3.1                                     |   | 25                - 75                     |   | 2.1                - 2.8 |   | 33                - 65 |   |
| Distribution                                    |   | 3.3                - 4.2                                     |   | 10                - 75                     |   | N.M. |   | N.M. |   |
| Other                                           |   | 7.1                - 16.7                                    |   | N.M.                                       |   | 2.0                - 15.6 |   | 2                -                50 |   |

***Accounting      for Asset Retirement Obligations (ARO)***

|                                                                 |   | **Amount****(in                  millions)** |   |
|----------------------------------------------------------------------|--------|----------------------------------------------|--------|
| **ARO                  at January 1, 2004, Including Held for Sale** |   | $                                            | 899    |   |
| Accretion                  Expense                                   |   |                                         | 64     |   |
| Foreign                  Currency Translation                        |   |                                         | 1      |   |
| Liabilities                  Incurred                                |   |                                         | 18     |   |
| Liabilities                  Settled (a)                             |   |                                         | (57    | ) |
| Revisions                  in Cash Flow Estimates                    |   |                                         | 151    |   |
| ARO                  at December 31, 2004, Including Held for Sale   |   |                                         | 1,076  |   |
| Less                  ARO Held for Sale:                             |   |                                         |   |   |
| South                  Texas Project (b)                             |   |                                         | (249   | ) |
| **ARO                  at December 31, 2004**                        |   | $                                            | 827    |   |
|                                                                 |   |                                         |   |   |
| **ARO                  at January 1, 2005, Including Held for Sale** |   | $                                            | 1,076  |   |
| Accretion                  Expense                                   |   |                                         | 63     |   |
| Liabilities                  Incurred (c)                            |   |                                         | 76     |   |
| Liabilities                  Settled                                 |   |                                         | (4     | ) |
| Revisions                  in Cash Flow Estimates                    |   |                                         | (9     | ) |
| Less                  ARO Liability for:                             |   |                                         |   |   |
| South                  Texas Project (b)                             |   |                                         | (256   | ) |
| **ARO                  at December 31, 2005 (d)**               |   | $                                            | 946    |   |

| (a) | Liabilities                Settled in 2004 predominantly include noncash reductions of ARO associated                with the sales of the U.K. generation assets in July 2004 and AEP                Coal                Company, Inc. in March 2004. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | The                ARO related to nuclear decommissioning costs for TCC’s share of STP was                transferred to the buyer in connection with the May 2005 sale (see                “Dispositions” section of Note 10).      |
| (c) | Includes                $55 million of ARO relating to the adoption of FIN 47.                                                                                                                                                                         |
| (d) | The                current portion of our ARO, totaling $10 million, is included in                Other in                the Current Liabilities section of our 2005 Consolidated Balance                Sheet.                                      |

***Allowance      for Funds Used During Construction (AFUDC) and Interest      Capitalization***

***Valuation      of Nonderivative Financial Instruments***

***Cash      and Cash Equivalents***

***Other      Temporary Cash Investments***

|                                                                      |   | **2005** |   | **2004**                                  |   |
|---------------------------------------------------------------------------|--------|----------|--------|-------------------------------------------|--------|
| **($                millions)**                                           |   | **Cost** |   | **Gross                Unrealized Gains** |   | **Gross                Unrealized Losses** |   |  **Estimated****Fair****Value** |   | **Cost** |   | **Gross                Unrealized Gains** |   | **Gross                Unrealized Losses** |   | **Estimated****Fair****Value** |   |
| Cash                (a)                                                   |   | $        | 96     |                                      | $      | - |   | $ | - |   | $ | 96 |   | $ | 106 |   | $ | - |   | $ | - |   | $ | 106 |   |
| Government Debt                Securities                            |   |     | -      |                                      |   | - |   |   | - |   |   | - |   |   | 144 |   |   | - |   |   | - |   |   | 144 |   |
| Corporate Equity                Securities                           |   |     | 2      |                                      |   | 29 |   |   | - |   |   | 31 |   |   | 25 |   |   | - |   |   | - |   |   | 25 |   |
| Total                Other Temporary Cash                Investments |   | $        | 98     |                                      | $      | 29 |   | $ | - |   | $ | 127 |   | $ | 275 |   | $ | - |   | $ | - |   | $ | 275 |   |

| (a) | primarily                represents amounts held for the payment of                debt. |
|-----|------------------------------------------------------------------------------------------|

***Inventory***

***Accounts      Receivable***

***Foreign      Currency Translation***

***Deferred      Fuel Costs***
** **

***Revenue      Recognition***

*Regulatory      Accounting*

*Traditional      Electricity Supply and Delivery Activities*
** **

*Domestic      Gas Pipeline and Storage Activities*

*Energy      Marketing and Risk Management Activities*

*Construction      Projects for Outside Parties*

***Maintenance***

***Income      Taxes and Investment Tax Credits***

***Excise      Taxes***

***Debt      and Preferred Stock***

***Goodwill      and Intangible Assets***

***Emission      Allowances***

***Nuclear      Trust Funds***

| · | acceptable                investments (rated investment grade or above);                                                |
|--------|-------------------------------------------------------------------------------------------------------------------------|
| · | maximum                percentage invested in a specific type of investment;                                            |
| · | prohibition                of investment in obligations of the applicable company or its affiliates;                and |
| · | withdrawals                permitted only for payment of decommissioning costs and trust                expenses.       |

|                                                                        |   | **2005**                               |   | **2004**                         |   |
|-----------------------------------------------------------------------------|--------|----------------------------------------|--------|----------------------------------|--------|
|                                                                        |   | **Cost**                               |   | **Gross****Unrealized****Gains** |   | **Gross****Unrealized****Losses** |   | **Estimated****Fair****Value** |   | **Cost** |   | **Gross****Unrealized****Gains** |   | **Gross****Unrealized****Losses** |   | **Estimated****Fair****Value** |   |
|                                                                        |   |  **(in                millions)** |   |
| Cash                                                                        |   | $                                      | 21     |                             | $      | - |   | $ | - |   | $ | 21 |   | $ | 22 |   | $ | - |   | $ | - |   | $ | 22 |   |
| Debt                Securities                                              |   |                                   | 691    |                             |   | 7 |   |   | (7 | ) |   | 691 |   |   | 691 |   |   | 10 |   |   | (4 | ) |   | 697 |   |
| Equity                Securities                                            |   |                                   | 277    |                             |   | 148 |   |   | (3 | ) |   | 422 |   |   | 330 |   |   | 149 |   |   | (2 | ) |   | 477 |   |
| Total                Nuclear Trust Fund Investments                    |   |                                   | 989    |                             |   | 155 |   |   | (10 | ) |   | 1,134 |   |   | 1,043 |   |   | 159 |   |   | (6 | ) |   | 1,196 |   |
| Less:                Investments Included in Assets Held for Sale |   |                                   | -      |                             |   | - |   |   | - |   |   | - |   |   | (107 | ) |   | (37 | ) |   | 1 |   |   | (143 | ) |
| Spent                Nuclear Fuel and Decommissioning Trusts      |   | $                                      | 989    |                             | $      | 155 |   | $ | (10 | ) | $ | 1,134 |   | $ | 936 |   | $ | 122 |   | $ | (5 | ) | $ | 1,053 |   |

|                              |                             | **Fair                Value** |   |
|-----------------------------------|----------------------------------|-------------------------------|--------|
|                              | **(in                millions)** |                          |
| Within                1 year      |                             | $                             | 17     |   |
| 1                year - 5 years   |                             |                          | 298    |   |
| 5                years - 10 years |                             |                          | 173    |   |
| After                10 years     |                             |                          | 203    |   |
|                              |                             | $                             | 691    |   |

***Comprehensive      Income***
** **
***(Loss)***

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

|                                                                |   | **December                31,**  |   |
|---------------------------------------------------------------------|--------|----------------------------------|--------|
|                                                                |   | **2005**                         |   | **2004** |   |
| **Components**                                                      |   | **(in                millions)** |   |
| Foreign                Currency Translation Adjustments, Net of Tax |   | $                                | -      |   | $ | 6 |   |
| Securities                Available for Sale, Net of Tax            |   |                             | 19     |   |   | (1 | ) |
| Cash                Flow Hedges, Net of Tax                         |   |                             | (27    | ) |   | - |   |
| Minimum                Pension Liability, Net of Tax                |   |                             | (19    | ) |   | (349 | ) |
| **Total**                                                           |   | $                                | (27    | ) | $ | (344 | ) |

***Stock-Based      Compensation Plans***
* *

* *

|                                                                                                                                                             |   | **Year                Ended December 31,**              |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------|--------|
|                                                                                                                                                             |   | **2005**                                                |   | **2004** |   | **2003** |   |
|                                                                                                                                                             |   | **(in                millions, except per share data)** |   |
| **Net                Income, as reported**                                                                                                                       |   | $                                                       | 814    |   | $ | 1,089 |   | $ | 110 |   |
| Add:                Stock-based Compensation Expense Included in   Reported Net                Income, Net of Tax                                      |   |                                                    | 22     |   |   | 15 |   |   | 2 |   |
| Deduct:                Stock-based Compensation Expense determined Under Fair                Value Based Method                  for All Awards, Net of Tax |   |                                                    | (22    | ) |   | (18 | ) |   | (7 | ) |
| **Pro                Forma Net Income**                                                                                                                          |   | $                                                       | 814    |   | $ | 1,086 |   | $ | 105 |   |
|                                                                                                                                                             |   |                                                    |   |   |   |   |   |   |   |   |
| Earnings                per Share:                                                                                                                               |   |                                                    |   |   |   |   |   |   |   |   |
| Basic                - As Reported                                                                                                                               |   | $                                                       | 2.09   |   | $ | 2.75 |   | $ | 0.29 |   |
| Basic                - Pro Forma (a)                                                                                                                             |   | $                                                       | 2.09   |   | $ | 2.74 |   | $ | 0.27 |   |
|                                                                                                                                                             |   |                                                    |   |   |   |   |   |   |   |   |
| Diluted                - As Reported                                                                                                                             |   | $                                                       | 2.08   |   | $ | 2.75 |   | $ | 0.29 |   |
| Diluted                - Pro Forma (a)                                                                                                                           |   | $                                                       | 2.08   |   | $ | 2.74 |   | $ | 0.27 |   |

| (a) | The                pro forma amounts are not representative of the effects on reported                net                income for future years. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------|

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

|                                                                                                                                 |   | **2005**                         |   | **2004** |   | **2003** |   |
|--------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|--------|----------|--------|----------|--------|
|                                                                                                                                 |   | **(in                millions)** |   |
| **Weighted                Average Shares**                                                                                           |   |                             |   |     |   |     |   |
| Basic                Average Common Shares Outstanding                                                                               |   |                             | 390    |     |   | 396      |   |   | 385 |   |
| Assumed                Conversion of Dilutive Stock Options and Awards    (see                Note                12) |   |                             | 1      |     |   | -        |   |   | - |   |
| **Diluted                Average Common Shares Outstanding**                                                                    |   |                             | 391    |     |   | 396      |   |   | 385 |   |

***Supplementary      Information***

|                                                                                                                                                                                                   |   | **Year                Ended December 31,** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------|--------|
|                                                                                                                                                                                                   |   | **2005**                                   |   | **2004** |   | **2003** |   |
| **Related                Party Transactions**                                                                                                                                                          |   | **(in                millions)**           |   |
| AEP                Consolidated Purchased Energy:                                                                                                                                                      |   |                                  |   |    |   |    |   |
| Ohio                Valley Electric Corporation (43.47% Owned)                                                                                                                                         |   | $                                          | 196    |   | $ | 161 |   | $ | 147 |   |
| Sweeny                Cogeneration Limited Partnership (50% Owned)                                                                                                                                     |   |                                       | 141    |   |   | - |   |   | - |   |
| AEP                Consolidated Other Revenues - Barging and Other Transportation                Services - Ohio   Valley                Electric Corporation  (43.47% Owned) |   |                                       | 20     |   |   | 14 |   |   | 9 |   |
|                                                                                                                                                                                                   |   |                                       |   |   |   |   |   |   |   |   |
| **Cash                Flow Information**                                                                                                                                                               |   |                                       |   |   |   |   |   |   |   |   |
| Cash                was paid (received) for:                                                                                                                                                           |   |                                       |   |   |   |   |   |   |   |   |
| Interest                (Net of Capitalized Amounts)                                                                                                                                                   |   |                                       | 637    |   |   | 755 |   |   | 741 |   |
| Income                Taxes                                                                                                                                                                            |   |                                       | 439    |   |   | (107 | ) |   | 163 |   |
| Noncash                Investing and Financing Activities:                                                                                                                                             |   |                                       |   |   |   |   |   |   |   |   |
| Acquisitions                Under Capital Leases                                                                                                                                                       |   |                                       | 63     |   |   | 123 |   |   | 45 |   |
| Assumption                (Disposition) of Liabilities Related to Acquisitions/Divestitures,                Net                                                                                   |   |                                       | (18    | ) |   | (67 | ) |   | - |   |
| Noncash                Construction Expenditures Included in Accounts Payable at December                31                                                                                       |   |                                       | 253    |   |   | 116 |   |   | 92 |   |
| Increase                in Assets and Liabilities Resulting from:                                                                                                                                      |   |                                       |   |   |   |   |   |   |   |   |
| Consolidation                of VIEs Due to the adoption of FIN 46                                                                                                                                     |   |                                       | -      |   |   | - |   |   | 547 |   |
| Consolidation                of Merchant Power Generation Facility                                                                                                                                     |   |                                       | -      |   |   | - |   |   | 496 |   |

***Power      Projects***

***Reclassifications***

**2.**
**NEW      ACCOUNTING PRONOUNCEMENTS, EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT OF      ACCOUNTING CHANGES**

**NEW      ACCOUNTING PRONOUNCEMENTS**

***SFAS      123 (revised 2004) “Share-Based Payment” (SFAS 123R)***

***SFAS      154 “Accounting Changes and Error Corrections” (SFAS      154)***

***FASB      Interpretation No. 47 “Accounting for Conditional Asset Retirement Obligations”(FIN 47)***

***EITF      Issue 03-13 “Applying the Conditions in Paragraph 42 of FASB Statement No. 144,      Accounting for the Impairment or Disposal of Long-Lived Assets, in Determining      Whether to Report Discontinued Operations”***

***EITF      Issue 04-13 “Accounting for Purchases and Sales of Inventory with the Same      Counterparty”***

***Future      Accounting Changes***

**EXTRAORDINARY      ITEMS**

**CUMULATIVE      EFFECT OF ACCOUNTING CHANGES **

***Accounting      for Risk Management Contracts***

***Asset      Retirement Obligations***

|                                                                |   | **Year                Ended December 31,** |   |
|---------------------------------------------------------------------|--------|--------------------------------------------|--------|
|                                                                |   | **2005**                                   |   | **2004** |   | **2003** |   |
|                                                                |   | **(in                millions)**           |   |
| Accounting                for Risk Management Contracts (EITF 02-3) |   | $                                          | -      |   | $ | - |   | $ | (49 | )                (b) |
| Asset                Retirement Obligations (SFAS 143)              |   |                                       | -      |   |   | - |   |   | 242 |   (c) |
| Asset                Retirement Obligations (FIN 47)                |   |                                       | (17    | )                (a) |   | - |   |   | - |   |
| **Total**                                                           |   | $                                          | (17    | ) | $ | - |   | $ | 193 |   |

| (a) | net                of tax of $9 million   |
|-----|-------------------------------------------|
| (b) | net                of tax of $19 million  |
| (c) | net                of tax of $157 million |

**3.**
**GOODWILL      AND OTHER INTANGIBLE ASSETS**

***Goodwill***

|                                                           |   | **Utility                Operations** |   | **Investments                -Other** |   | **AEP                Consolidated** |   |
|----------------------------------------------------------------|--------|---------------------------------------|--------|---------------------------------------|--------|-------------------------------------|--------|
| **Balance                at January 1, 2004**                  |   | $                                     | 37.1   |                                  | $      | 41.4                                |   | $ | 78.5 |   |
| Goodwill                Written Off Related to Sale of Numanco |   |                                  | -      |                                  |   | (2.6                                | )      |   | (2.6 | ) |
| **Balance                at December 31, 2004**                |   | $                                     | 37.1   |                                  | $      | 38.8                                |   | $ | 75.9 |   |
|                                                           |   |                                  |   |                                  |   |                                |   |   |   |   |
| **Balance                at January 1, 2005**                  |   | $                                     | 37.1   |                                  | $      | 38.8                                |   | $ | 75.9 |   |
| Impairment                Losses                               |   |                                  | -      |                                  |   | -                                   |   |   | - |   |
| **Balance                at December 31, 2005**                |   | $                                     | 37.1   |                                  | $      | 38.8                                |   | $ | 75.9 |   |

**OTHER      INTANGIBLE ASSETS**

|                                                                          |   |                                 |   | **December                31, 2005**     |   | **December                31, 2004**        |   |
|-------------------------------------------------------------------------------|--------|--------------------------------------|--------|------------------------------------------|--------|---------------------------------------------|--------|
|                                                                          |   | **Amortization                Life** |   | **Gross                Carrying Amount** |   | **Accumulated                Amortization** |   | **Gross                Carrying Amount** |   | **Accumulated                Amortization** |   |
|                                                                          |   | **(in                years)**        |   | **(in                millions)**         |   | **(in                millions)**            |   |
| Patent                                                                        |   |                                 | 5      |                                     | $      | 0.1                                         |   | $ | 0.1 |   | $ | 0.1 |   | $ | 0.1 |   |
| Easements                                                                     |   |                                 | 10     |                                     |   | 2.2                                         |   |   | 0.7 |   |   | 2.2 |   |   | 0.5 |   |
| Trade                Name and Administration of                Contracts |   |                                 | 7      |                                     |   | -                                           |   |   | - |   |   | 2.4 |   |   | 0.9 |   |
| Purchased                Technology                                           |   |                                 | 10     |                                     |   | 10.9                                        |   |   | 4.3 |   |   | 10.9 |   |   | 3.2 |   |
| Advanced                Royalties                                             |   |                                 | 10     |                                     |   | 29.4                                        |   |   | 13.6 |   |   | 29.4 |   |   | 10.6 |   |
| **Total**                                                                     |   |                                 |   |                                     | $      | 42.6                                        |   | $ | 18.7 |   | $ | 45.0 |   | $ | 15.3 |   |

**4.**
**RATE      MATTERS**
** **

***APCo      Virginia Environmental and Reliability Costs***

***APCo      and WPCo West Virginia Rate Case***

***I&M      Indiana Settlement Agreement***

***I&M      Depreciation Study Filing***

***KPCo      Rate Filing***

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

***PSO      2005 Fuel Factor Filing***

***PSO      Rate Review***

***PSO      2005 Vegetation Management Filing***

***SWEPCo      PUCT Staff Review of Earnings***

***SWEPCo      Louisiana Fuel Issues***

***SWEPCo      Louisiana Compliance Filing***

***TCC      Rate Case***

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

***RTO      Formation/Integration Costs***

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

*FERC      Order on Regional Through-and-out Rates and Mitigating SECA      Revenue*

*AEP      East Transmission Revenue Requirement and Rates*

*PJM      Regional Transmission Rate Proceeding*

| ·   | the                SECA transition rates do not fully compensate AEP for its lost T&O                revenues through March 31, 2006, or |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | the                newly approved AEP zonal transmission rates are not sufficient to                replace                the lost T&O/SECA revenues, or |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | the                FERC’s review of our current SECA rates results in a rate reduction which                is subject to refund, or |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | any                increase in the AEP East companies’ transmission costs from the loss of                transmission revenues are not fully recovered in retail rates on                a timely                basis, or |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | the                FERC does not approve a new regional rate within                PJM. |
|--------------------|-----------------------------------------------------------------------------------------|

***FERC      Market Power Mitigation***

***Allocation      Agreement between AEP East companies and AEP West companies***

**5.**
**EFFECTS      OF REGULATION**
** **

***Regulatory      Assets and Liabilities***

|                                                                                                                      |   | **December                  31,**  |   | **Future                  Recovery/Refund Period** |   |
|---------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------|--------|----------------------------------------------------|--------|
|                                                                                                                           |   | **2005**                           |   | **2004**                                           |   |
|                                                                                                                      |   | **(in                  millions)** |   |                                               |   |
| **Regulatory                  Assets:**                                                                                   |   |                          |   |                                          |   |   |   |
| Income                  Tax Related Regulatory Assets, Net                                                                |   | $                                  | 785    |                                               | $      | 796 |   |   | Various                  Periods (a | ) |
| Transition                  Regulatory Assets - Ohio and Virginia                                                         |   |                               | 306    |                                               |   | 407 |   |   | Up                  to 5 Years (a | ) |
| Designated                  for Securitization - Texas                                                                    |   |                               | 1,436  |                                               |   | 1,361 |   |   | (b)                  (c | ) |
| Texas                  Wholesale Capacity Auction True-up                                                                 |   |                               | 77     |                                               |   | 560 |   |   | (c | ) |
| Unamortized                  Loss on Reacquired Debt                                                                      |   |                               | 110    |                                               |   | 116 |   |   | Up                  to 38 Years (d | ) |
| Cook                  Nuclear Plant Refueling Outage Levelization                                                         |   |                               | 23     |                                               |   | 44 |   |   | (e | ) |
| Other                                                                                                                     |   |                               | 525    |                                               |   | 310 |   |   | Various                  Periods (f | ) |
| **Total                  Noncurrent Regulatory Assets**                                                                   |   | $                                  | 3,262  |                                               | $      | 3,594 |   |   |   |   |
|                                                                                                                      |   |                               |   |                                               |   |   |   |   |   |   |
| **Current                  Regulatory Asset - Under-Recovered Fuel Costs**                                                |   | $                                  | 197    |                                               | $      | 7 |   |   |   |   |
|                                                                                                                      |   |                               |   |                                               |   |   |   |   |   |   |
| **Regulatory                  Liabilities and Deferred Investment Tax Credits:**                                          |   |                               |   |                                               |   |   |   |   |   |   |
| Asset                  Removal Costs                                                                                      |   | $                                  | 1,437  |                                               | $      | 1,290 |   |   | (g | ) |
| Deferred                  Investment Tax Credits                                                                          |   |                               | 361    |                                               |   | 393 |   |   | Up                  to 24 Years (a | ) |
| Excess                  ARO for Nuclear Decommissioning Liability                                                         |   |                               | 271    |                                               |   | 245 |   |   | (h | ) |
| Over-recovery                  of Texas Fuel Costs                                                                        |   |                               | 182    |                                               |   | 216 |   |   | (c | ) |
| Deferred                  Over-recovered Fuel Costs                                                                       |   |                               | 53     |                                               |   | 53 |   |   | (a | ) |
| Texas                  Retail Clawback                                                                                    |   |                               | 75     |                                               |   | 75 |   |   | (c | ) |
| Other                                                                                                                     |   |                               | 368    |                                               |   | 250 |   |   | Various                  Periods (f | ) |
| **Total                  Noncurrent Regulatory Liabilities****and                  Deferred Investment Tax Credits** |   | $                                  | 2,747  |                                               | $      | 2,522 |   |   |   |   |
|                                                                                                                      |   |                               |   |                                               |   |   |   |   |   |   |

| (a) | Does                not earn a return.                                                                                                                                                                                                                                                                                                                                                                      |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Includes                a carrying cost. The cost of the securitization bonds, when issued,                would                be recovered over a period of time to be determined in a future PUCT                proceeding.                                                                                                                                                                             |
| (c) | See                “Texas Restructuring” and “Carrying Costs on Net-True-up Regulatory                Assets” sections of Note 6 for discussion of carrying costs. Amounts are                included in TCC’s and TNC’s true-up proceedings for future recovery/refund                over a time period to be determined in a future PUCT                proceeding. |
| (d) | Amount                effectively earns a return.                                                                                                                                                                                                                                                                                                                                                           |
| (e) | Amortized                over the period beginning with the commencement of an outage and                ending                with the beginning of the next outage and does not earn a                return.                                                                                                                                                                                             |
| (f) | Includes                items both earning and not earning a return.                                                                                                                                                                                                                                                                                                                                        |
| (g) | The                liability for removal costs, which reduces the investment rate base                and                the resultant return, will be discharged as removal costs are                incurred.                                                                                                                                                                                             |
| (h) | This                is the cumulative difference in the amount provided through rates                and the                amount as measured by applying SFAS 143. This amount earns a return,                accrues monthly, and will be paid when the nuclear plant is                decommissioned.                                                                                                  |

***Texas      Restructuring Related Regulatory Assets and      Liabilities***

***Merger      with CSW***

**Summary      of key provisions of Merger Rate Agreements beginning in the third quarter      of      2000:**

| **State/Company**                       | **Ratemaking                Provisions**                                                                                       |
|-----------------------------------------|--------------------------------------------------------------------------------------------------------------------------------|
| Texas                - SWEPCo, TCC, TNC | Rate                reduction of $221 million over 6 years.                                                                    |
| Indiana                - I&M        | Rate                reduction of $67 million over 8 years.                                                                     |
| Michigan                - I&M       | Customer                billing credits of approximately $14 million over 8                years.                              |
| Kentucky                - KPCo          | Rate                reductions of approximately $28 million over 8 years.                                                      |
| Louisiana                - SWEPCo       | Rate                reductions to share merger savings estimated to be $18 million over                8                years. |

**6.**
**CUSTOMER      CHOICE AND INDUSTRY RESTRUCTURING**

**TEXAS      RESTRUCTURING **

| ● | net                stranded generation plant costs and net generation-related regulatory                assets less any excess earnings (net stranded generation                costs),                                                                                                                               |
|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ● | a                true-up of actual market prices determined through legislatively-mandated                capacity auctions to the projected power costs used in the PUCT’s excess                cost over market (ECOM) model for 2002 and 2003 (wholesale capacity                auction true-up revenues), |
| ● | excess                of price-to-beat revenues over market prices subject to certain conditions                and limitations (retail clawback),                                                                                                                                                                    |
| ● | final                approved deferred fuel balance, and                                                                                                                                                                                                                                                              |
| ● | net                carrying costs on certain of the above true-up amounts.                                                                                                                                                                                                                                            |

|                                                                          |   | **in                  millions** |   |
|-------------------------------------------------------------------------------|--------|----------------------------------|--------|
| **True-Up                  Proceeding Requested Amount**                      |   | $                                | 2,406  |   |
| Wholesale                  Capacity Auction True-up, including carrying costs |   |                             | (572   | ) |
| Commercial                  Unreasonableness Disallowance                     |   |                             | (122   | ) |
| Return                  on and of Stranded Costs Disallowance                 |   |                             | (159   | ) |
| Other                                                                         |   |                             | (78    | ) |
| **Amount                  Approved by the PUCT**                              |   |                             | 1,475  |   |
| Unrecognized                  but Recoverable Equity Carrying Costs and Other |   |                             | (200   | ) |
| **Total                  Recorded Net True-up Regulatory Asset**              |   | $                                | 1,275  |   |

***The        Components of TCC’s Net True-up Regulatory Asset as of December 31, 2005 and        December 31, 2004 are:***

|                                                                     |   | **TCC**                                |   |
|--------------------------------------------------------------------------|--------|----------------------------------------|--------|
|                                                                     |   | **December                  31, 2005** |   | **December                  31, 2004** |   |
|                                                                     |   | **(in                  millions)**     |   |
| Stranded                  Generation Plant Costs                         |   | $                                      | 969    |   | $ | 897 |   |
| Net                  Generation-related Regulatory Asset                 |   |                                   | 249    |   |   | 249 |   |
| Excess                  Earnings                                         |   |                                   | (49    | ) |   | (10 | ) |
| **Net                  Stranded Generation Costs Before Carrying Costs** |   |                                   | 1,169  |   |   | 1,136 |   |
| Carrying                  Costs on Stranded Generation Plant Costs       |   |                                   | 267    |   |   | 225 |   |
| **Net                  Stranded Generation Costs After Carrying Costs**  |   |                                   | 1,436  |   |   | 1,361 |   |
|                                                                     |   |                                   |   |   |   |   |   |
| Wholesale                  Capacity Auction True-up                      |   |                                   | 61     |   |   | 483 |   |
| Carrying                  Costs on Wholesale Capacity Auction True-up    |   |                                   | 16     |   |   | 77 |   |
| Retail                  Clawback                                         |   |                                   | (61    | ) |   | (61 | ) |
| Deferred                  Over-recovered Fuel Balance                    |   |                                   | (177   | ) |   | (212 | ) |
| **Net                  Other Recoverable True-up Amounts**               |   |                                   | (161   | ) |   | 287 |   |
| **Total                  Recorded Net True-up Regulatory Asset**         |   | $                                      | 1,275  |   | $ | 1,648 |   |

***Deferred        Investment Tax Credits Included in Stranded Generation Plant        Costs***

***Excess        Earnings***

***Wholesale        Capacity Auction True-up and Stranded Plant Cost***

***Retail        Clawback***

***Fuel        Balance Recoveries***

***Carrying        Costs on Net True-up Regulatory Assets***

***TCC        Securitization Proceeding***

|                                                                                                      |   | **in                  millions** |      |
|-----------------------------------------------------------------------------------------------------------|--------|----------------------------------|-----------|
| **Total                  Recorded Net True-up Regulatory Asset as of December 31,                  2005** |   | $                                | **1,275** |   |
| Unrecognized                  but Recoverable Equity Carrying Costs and Other                             |   |                             | 200       |   |
| Estimated                  January 2006 - August 2006 Carrying Costs                                      |   |                             | 144       |   |
| Securitization                  Issuance Costs                                                            |   |                             | 24        |   |
| Net                  Other Recoverable True-up Amounts (a)                                                |   |                             | 161       |   |
| **Estimated                  Securitization Request**                                                     |   | $                                | **1,804** |   |

| (a) | If                  included in the proposed securitization as described above, this                  amount,                  along with the ADFIT benefit, is refundable to customers over future                  periods through a negative competition transition                  charge. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

***TCC        True-up Proceeding Summary***

***The        Components of TNC’s True-up Regulatory Liability as of December 31, 2005 and        December 31, 2004 are:***

|                                                                 |   | **TNC**                                |   |
|----------------------------------------------------------------------|--------|----------------------------------------|--------|
|                                                                 |   | **December                  31, 2005** |   | **December                  31, 2004** |   |
|                                                                 |   | **(in                  millions)**     |   |
| Retail                  Clawback                                     |   | $                                      | (14    | ) | $ | (14 | ) |
| Deferred                  Over-recovered Fuel Balance                |   |                                   | (5     | ) |   | (4 | ) |
| **Total                  Recorded Net True-up Regulatory Liability** |   | $                                      | (19    | ) | $ | (18 | ) |

**OHIO      RESTRUCTURING **

**MICHIGAN      RESTRUCTURING **

**VIRGINIA      RESTRUCTURING **

**ARKANSAS      RESTRUCTURING **

**WEST      VIRGINIA RESTRUCTURING **

**7.**
**COMMITMENTS      AND CONTINGENCIES**

**ENVIRONMENTAL**

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

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

***Carbon      Dioxide Public Nuisance Claims***

***Ontario      Litigation***

***The      Comprehensive Environmental Response Compensation and Liability Act (Superfund)      and State Remediation***

**NUCLEAR**

***Nuclear      Plant***

***Nuclear      Incident Liability***

***SNF      Disposal***

***SNF      Litigation***

***Decommissioning      and Low Level Waste Accumulation Disposal***

**OPERATIONAL**

***Construction      and Commitments***

** **

***Potential      Uninsured Losses***

***Power      Generation Facility***
* *
***and      TEM Litigation***

***Merger      Litigation***

***Enron      Bankruptcy***

***Enron      Bankruptcy - Right to use of cushion gas agreements***
*      -*

***Enron      Bankruptcy - Commodity trading settlement disputes***
*      -*

***Enron      Bankruptcy - Summary***
*      -*

***Shareholder      Lawsuits***

***Natural      Gas Markets Lawsuits***

***Cornerstone      Lawsuit***

***Texas      Commercial Energy, LLP Lawsuit***

***Energy      Market Investigation***

***Bank      of Montreal Claim***

***FERC      Long-term Contracts***

**8.**
**GUARANTEES**

**LETTERS      OF CREDIT**

**GUARANTEES      OF THIRD-PARTY OBLIGATIONS**

***SWEPCo***

**INDEMNIFICATIONS      AND OTHER GUARANTEES**

**Contracts**

**Master      Operating Lease**

**9.**
**COMPANY-WIDE      STAFFING AND BUDGET REVIEW**

|                                                  |   | **Amount****(in                millions)** |   |
|-------------------------------------------------------|--------|--------------------------------------------|--------|
| Total                Expense                          |   | $                                          | 28     |   |
| Less:                Total Payments                   |   |                                       | 16     |   |
| Remaining                Accrual at December 31, 2005 |   | $                                          | 12     |   |

**10.**
**ACQUISITIONS,      DISPOSITIONS, DISCONTINUED OPERATIONS, IMPAIRMENTS, ASSETS HELD FOR SALE AND      OTHER LOSSES**

**ACQUISITIONS**

**2005      **

***Waterford      Plant (Utility Operations segment)***

***Monongahela      Power Company (Utility Operations segment)***

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

**DISPOSITIONS**

**2005**

***Intercontinental      Exchange, Inc. (ICE) Initial Public Offering (Investments - Other      segment)***

***Houston      Pipe Line Company (HPL) (Investments - Gas Operations      segment)***

***Pacific      Hydro Limited (Investments - Other segment)***

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

***Texas      Plants - South Texas Project (Utility Operations      segment)***

**2004**

***Pushan      Power Plant (Investments - Other segment)***

***LIG      Pipeline Company and its Subsidiaries (Investments - Gas Operations      segment)***

***Jefferson      Island Storage & Hub, LLC (Investments - Gas Operations      segment)***

***AEP      Coal, Inc. (Investments - Other segment)***

***Independent      Power Producers (Investments - Other segment)***

***U.K.      Generation (Investments - UK Operations segment)***

***Texas      Plants - TCC and TNC Generation Assets (Utility Operations      segment)***

***South      Coast Power Limited (Investments - Other Segment)***

***Excess      Real Estate (Investments - Other segment)***

***Numanco      LLC (Investments - Other segment)***

**2003**

***Mutual      Energy Companies***
** **
***(Utility      Operations segment)***

***Water      Heater Assets (Utility Operations segment)***

***Eastex      (Investments - Other segment)***

**DISCONTINUED      OPERATIONS**

|                                                           |   | **SEE-BOARD                (a)** |   | **CitiPower** |   | **Eastex** |   | **Pushan                Power Plant** |   | **LIG                (b)(c)** |   | **U.K.                Generation** **(c)** |   | **Total** |   |
|----------------------------------------------------------------|--------|----------------------------------|--------|---------------|--------|------------|--------|---------------------------------------|--------|-------------------------------|--------|-------------------------------------------------|--------|-----------|--------|
| 2005                Revenue                                    |   | $                                | 13     |          | $      | -          |   | $                                     | -      |                          | $      | -                                               |   | $         | -      |   | $ | (7 | ) | $ | 6 |   |
| 2005                Pretax Income (Loss)                       |   |                             | 10     |          |   | -          |   |                                  | -      |                          |   | -                                               |   |      | -      |   |   | (13 | ) |   | (3 | ) |
| 2005                Earnings (Loss), Net                of Tax |   |                             | 24     |          |   | -          |   |                                  | -      |                          |   | -                                               |   |      | 5      |   |   | (2 | )(d) |   | 27 |   |
|                                                           |   |                             |   |          |   |       |   |                                  |   |                          |   |                                            |   |      |   |   |   |   |   |   |   |   |
| 2004                Revenue                                    |   | $                                | -      |          | $      | -          |   | $                                     | -      |                          | $      | 10                                              |   | $         | 165    |   | $ | 125 |   | $ | 300 |   |
| 2004                Pretax Income (Loss)                       |   |                             | (3     | )             |   | -          |   |                                  | -      |                          |   | 9                                               |   |      | (12    | ) |   | 164 |   |   | 158 |   |
| 2004                Earnings (Loss), Net                of Tax |   |                             | (2     | )             |   | -          |   |                                  | -      |                          |   | 6                                               |   |      | (12    | ) |   | 91 |  (e) |   | 83 |   |
|                                                           |   |                             |   |          |   |       |   |                                  |   |                          |   |                                            |   |      |   |   |   |   |   |   |   |   |
| 2003                Revenue                                    |   | $                                | -      |          | $      | -          |   | $                                     | 58     |                          | $      | 60                                              |   | $         | 653    |   | $ | 125 |   | $ | 896 |   |
| 2003                Pretax Income (Loss)                       |   |                             | -      |          |   | (20        | )      |                                  | (23    | )                             |   | 4                                               |   |      | (122   | ) |   | (713 | ) |   | (874 | ) |
| 2003                Earnings (Loss), Net                of Tax |   |                             | 16     |          |   | (13        | )      |                                  | (14    | )                             |   | 5                                               |   |      | (91    | ) |   | (508 | )(f) |   | (605 | ) |

| (a) | Relates                to purchase price true-up adjustments and tax adjustments from the                sale of                SEEBOARD. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Includes                LIG Pipeline Company and subsidiaries and Jefferson Island Storage&                Hub LLC.                   |
| (c) | 2005                amounts relate to purchase price true-up adjustments and tax adjustments                from the sale.                |
| (d) | Earnings                per share related to the UK Operations was $(0.01).                                                               |
| (e) | Earnings                per share related to the UK Operations was $0.23.                                                                 |
| (f) | Earnings                per share related to the UK Operations was                $(1.32).                                                |

**ASSET      IMPAIRMENTS, INVESTMENT VALUE LOSSES AND OTHER RELATED      CHARGES**

|                                                                                                                                                                                                          |   | **2005**                         |   | **2004**     |   | **2003**     |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|--------|--------------|--------|--------------|--------|
|                                                                                                                                                                                                          |   | **(in                millions)** |   |
| **Asset                Impairments and Other Related Charges (Pretax)**                                                                                                                                       |   |                        |   |    |   |    |   |
| AEP                Coal, Inc.                                                                                                                                                                                 |   | $                                | -      |         | $      | -            |   | $ | 67 |   |
| HPL                and Other                                                                                                                                                                                  |   |                             | -      |         |   | -            |   |   | 315 |   |
| Power                Generation Facility                                                                                                                                                                      |   |                             | -      |         |   | -            |   |   | 258 |   |
| Blackhawk                Coal Company                                                                                                                                                                         |   |                             | -      |         |   | -            |   |   | 10 |   |
| CSPCo’s                Conesville Units 1 and 2                                                                                                                                                         |   |                             | 39     |         |   | -            |   |   | - |   |
| **Total**                                                                                                                                                                                                     |   | $                                | 39     |         | $      | -            |   | $ | 650 |   |
|                                                                                                                                                                                                          |   |                             |   |         |   |         |   |   |   |   |
| **Investment                Value Losses (Pretax)**                                                                                                                                                           |   |                             |   |         |   |         |   |   |   |   |
| Independent                Power Producers                                                                                                                                                                    |   | $                                | -      |         | $      | (2           | )      | $ | (70 | ) |
| Bajio                                                                                                                                                                                                         |   |                             | (7     | )            |   | (13          | )      |   | - |   |
| **Total**                                                                                                                                                                                                     |   | $                                | (7     | )            | $      | (15          | )      | $ | (70 | ) |
|                                                                                                                                                                                                          |   |                             |   |         |   |         |   |   |   |   |
| **Gain                on Disposition of Equity Investments, Net**                                                                                                                                             |   |                             |   |         |   |         |   |   |   |   |
| Independent                Power Producers                                                                                                                                                                    |   | $                                | -      |         | $      | 105          |   | $ | - |   |
| South                Coast Power Investment                                                                                                                                                                   |   |                             | -      |         |   | 48           |   |   | - |   |
| Pacific                Hydro Limited                                                                                                                                                                          |   |                             | 56     |         |   | -            |   |   | - |   |
| **Total**                                                                                                                                                                                                     |   | $                                | 56     |         | $      | 153          |   | $ | - |   |
|                                                                                                                                                                                                          |   |                             |   |         |   |         |   |   |   |   |
| **“Impairments                and Other Related Charges”and****“Operations"                 **** Included                in Discontinued                Operations (Net of Tax)** |   |                             |   |         |   |         |   |   |   |   |
| **Impairments                and Other Related Charges:**                                                                                                                                                     |   |                             |   |         |   |         |   |   |   |   |
| U.K.                Generation Plants                                                                                                                                                                         |   | $                                | -      |         | $      | -            |   | $ | (375 | ) |
| Louisiana                Intrastate Gas (a)                                                                                                                                                                   |   |                             | -      |         |   | -            |   |   | (99 | ) |
| **Total**                (b)                                                                                                                                                                                  |   | $                                | -      |         | $      | -            |   | $ | (474 | ) |
|                                                                                                                                                                                                          |   |                             |   |         |   |         |   |   |   |   |
| **Operations:**                                                                                                                                                                                               |   |                             |   |         |   |         |   |   |   |   |
| U.K.                Generation Plants                                                                                                                                                                         |   | $                                | (2     | )            | $      | 91           |   | $ | (133 | ) |
| Louisiana                Intrastate Gas (a)                                                                                                                                                                   |   |                             | 5      |         |   | (12          | )      |   | 8 |   |
| CitiPower                                                                                                                                                                                                     |   |                             | -      |         |   | -            |   |   | (13 | ) |
| Eastex                                                                                                                                                                                                        |   |                             | -      |         |   | -            |   |   | (14 | ) |
| SEEBOARD                                                                                                                                                                                                      |   |                             | 24     |         |   | (2           | )      |   | 16 |   |
| Pushan                                                                                                                                                                                                        |   |                             | -      |         |   | 6            |   |   | 5 |   |
| **Total**                                                                                                                                                                                                     |   | $                                | 27     |         | $      | 83           |   | $ | (131 | ) |
|                                                                                                                                                                                                          |   |                             |   |         |   |         |   |   |   |   |
| **Total                Discontinued Operations**                                                                                                                                                              |   | $                                | 27     |         | $      | 83           |   | $ | (605 | ) |

| (a) | Includes                LIG Pipeline Company and subsidiaries and Jefferson Island Storage&                Hub, LLC.                                            |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | See                the “Dispositions” and “Discontinued Operations” sections of this note for                the pretax impairment figures. |

**ASSETS      HELD FOR SALE**

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

|                                               |   | **December                31,**  |   |
|----------------------------------------------------|--------|----------------------------------|--------|
| **Texas                Plants**                    |   | **2005**                         |   | **2004** |   |
| **Assets:**                                        |   | **(in                millions)** |   |
| Other                Current Assets                |   | $                                | 1      |   | $ | 24 |   |
| Property,                Plant and Equipment, Net  |   |                             | 43     |   |   | 413 |   |
| Regulatory                Assets                   |   |                             | -      |   |   | 48 |   |
| Nuclear                Decommissioning Trust Fund  |   |                             | -      |   |   | 143 |   |
| **Total                Assets Held for Sale**      |   | $                                | 44     |   | $ | 628 |   |
|                                               |   |                             |
| **Liabilities:**                                   |   |                             |
| Regulatory                Liabilities              |   | $                                | -      |   | $ | 1 |   |
| Asset                Retirement Obligations        |   |                             | -      |   |   | 249 |   |
| **Total                Liabilities Held for Sale** |   | $                                | -      |   | $ | 250 |   |

**OTHER      LOSSES**

**2005**

***Conesville      Units 1 and 2 (Utility Operations segment)***

***Compresion      Bajio S de R.L. de C.V. (Investments - Other segment)***

**2003**

***Blackhawk      Coal Company (Utility Operations segment)***

***Power      Generation Facility (Investments - Other segment)***

**11.**
**BENEFIT      PLANS**
** **

***Projected      Pension Obligations, Plan Assets, Funded Status as of December 31, 2005 and      2004:***

|                                                        |   | **Pension                Plans** |   | **Other                Postretirement Benefit Plans** |   |
|-------------------------------------------------------------|--------|----------------------------------|--------|-------------------------------------------------------|--------|
|                                                        |   | **2005**                         |   | **2004**                                              |   | **2005** |   | **2004** |   |
|                                                        |   | **(in                millions)** |   |
| **Change                in Projected Benefit Obligation:**  |   |                        |   |                                             |   |    |   |    |   |
| Projected                Obligation at January 1            |   | $                                | 4,108  |                                                  | $      | 3,688 |   | $ | 2,100 |   | $ | 2,163 |   |
| Service                Cost                                 |   |                             | 93     |                                                  |   | 86 |   |   | 42 |   |   | 41 |   |
| Interest                Cost                                |   |                             | 228    |                                                  |   | 228 |   |   | 107 |   |   | 117 |   |
| Participant                Contributions                    |   |                             | -      |                                                  |   | - |   |   | 20 |   |   | 18 |   |
| Actuarial                (Gain) Loss                        |   |                             | 191    |                                                  |   | 379 |   |   | (320 | ) |   | (130 | ) |
| Benefit                Payments                             |   |                             | (273   | )                                                     |   | (273 | ) |   | (118 | ) |   | (109 | ) |
| **Projected                Obligation at December 31**      |   | $                                | 4,347  |                                                  | $      | 4,108 |   | $ | 1,831 |   | $ | 2,100 |   |
|                                                        |   |                             |   |                                                  |   |   |   |   |   |   |   |   |   |
| **Change                in Fair Value of Plan Assets:**     |   |                             |   |                                                  |   |   |   |   |   |   |   |   |   |
| Fair                Value of Plan Assets at January 1       |   | $                                | 3,555  |                                                  | $      | 3,180 |   | $ | 1,093 |   | $ | 950 |   |
| Actual                Return on Plan Assets                 |   |                             | 224    |                                                  |   | 409 |   |   | 70 |   |   | 98 |   |
| Company                Contributions                        |   |                             | 637    |                                                  |   | 239 |   |   | 107 |   |   | 136 |   |
| Participant                Contributions                    |   |                             | -      |                                                  |   | - |   |   | 20 |   |   | 18 |   |
| Benefit                Payments                             |   |                             | (273   | )                                                     |   | (273 | ) |   | (118 | ) |   | (109 | ) |
| **Fair                Value of Plan Assets at December 31** |   | $                                | 4,143  |                                                  | $      | 3,555 |   | $ | 1,172 |   | $ | 1,093 |   |
|                                                        |   |                             |   |                                                  |   |   |   |   |   |   |   |   |   |
| **Funded                Status:**                           |   |                             |   |                                                  |   |   |   |   |   |   |   |   |   |
| Funded                Status at December 31                 |   | $                                | (204   | )                                                     | $      | (553 | ) | $ | (659 | ) | $ | (1,007 | ) |
| Unrecognized                Net Transition Obligation       |   |                             | -      |                                                  |   | - |   |   | 152 |   |   | 179 |   |
| Unrecognized                Prior Service Cost (Benefit)    |   |                             | (9     | )                                                     |   | (9 | ) |   | 5 |   |   | 5 |   |
| Unrecognized                Net Actuarial Loss              |   |                             | 1,266  |                                                  |   | 1,040 |   |   | 471 |   |   | 795 |   |
| **Net                Asset (Liability) Recognized**         |   | $                                | 1,053  |                                                  | $      | 478 |   | $ | (31 | ) | $ | (28 | ) |

***Amounts      Recognized in the Balance Sheets as of December 31, 2005 and      2004***

|                                                               |   | **Pension                Plans** |   | **Other                Postretirement Benefit Plans** |   |
|--------------------------------------------------------------------|--------|----------------------------------|--------|-------------------------------------------------------|--------|
|                                                               |   | **2005**                         |   | **2004**                                              |   | **2005** |   | **2004** |   |
|                                                               |   | **(in                millions)** |   |
| Prepaid                Benefit Costs                               |   | $                                | 1,099  |                                                  | $      | 524 |   | $ | - |   | $ | - |   |
| Accrued                Benefit Liability                           |   |                             | (46    | )                                                     |   | (46 | ) |   | (31 | ) |   | (28 | ) |
| Additional                Minimum Liability                        |   |                             | (35    | )                                                     |   | (566 | ) |   | N/A |   |   | N/A |   |
| Intangible                Asset                                    |   |                             | 6      |                                                  |   | 36 |   |   | N/A |   |   | N/A |   |
| Pretax                Accumulated Other Comprehensive  Income |   |                             | 29     |                                                  |   | 530 |   |   | N/A |   |   | N/A |   |
| **Net                Asset (Liability) Recognized**                |   | $                                | 1,053  |                                                  | $      | 478 |   | $ | (31 | ) | $ | (28 | ) |
|                                                               |   |                             |   |                                                  |   |   |   |   |   |   |   |   |   |

***Pension      and Other Postretirement Plans’ Assets***

|                                     |   | **Target                Allocation** |   | **Percentage                of Plan Assets at Year End** |   |
|------------------------------------------|--------|--------------------------------------|--------|----------------------------------------------------------|--------|
|                                     |   | **2006**                             |   | **2005**                                                 |   | **2004** |   |
| **Asset                Category**        |   | **(in                percentage)**   |   |
| Equity                Securities         |   |                                 | 70     |                                                     |   | 66 |   |   | 68 |   |
| Debt                Securities           |   |                                 | 28     |                                                     |   | 25 |   |   | 25 |   |
| Cash                and Cash Equivalents |   |                                 | 2      |                                                     |   | 9 |   |   | 7 |   |
| **Total**                                |   |                                 | 100    |                                                     |   | 100 |   |   | 100 |   |

|                              |   | **Target                Allocation** |   | **Percentage                of Plan Assets at Year End** |   |
|-----------------------------------|--------|--------------------------------------|--------|----------------------------------------------------------|--------|
|                              |   | **2006**                             |   | **2005**                                                 |   | **2004** |   |
| **Asset                Category** |   | **(in                percentage)**   |   |
| Equity                Securities  |   |                                 | 66     |                                                     |   | 68 |   |   | 70 |   |
| Debt                Securities    |   |                                 | 31     |                                                     |   | 30 |   |   | 28 |   |
| Other                             |   |                                 | 3      |                                                     |   | 2 |   |   | 2 |   |
| **Total**                         |   |                                 | 100    |                                                     |   | 100 |   |   | 100 |   |

|                                              |   | **2005**                         |   | **2004** |   |
|---------------------------------------------------|--------|----------------------------------|--------|----------|--------|
| **Accumulated                Benefit Obligation** |   | **(in                millions)** |   |
| Qualified                Pension Plans            |   | $                                | 4,053  |     | $      | 3,918 |   |
| Nonqualified                Pension Plans         |   |                             | 81     |     |   | 80 |   |
| **Total**                                         |   | $                                | 4,134  |     | $      | 3,998 |   |

***Minimum      Pension Liability***

|                                                                                                           |   | **Underfunded                Pension Plans** |   |
|----------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------|--------|
|                                                                                                           |   | **As                of December 31,**        |   |
|                                                                                                           |   | **2005**                                     |   | **2004** |   |
|                                                                                                           |   | **(in                millions)**             |   |
| Projected                Benefit Obligation                                                                    |   | $                                            | 84     |   | $ | 2,978 |   |
| Accumulated                Benefit Obligation                                                                  |   |                                         | 81     |   |   | 2,880 |   |
| Fair                Value of Plan Assets                                                                       |   |                                         | -      |   |   | 2,406 |   |
| Accumulated                Benefit Obligation Exceeds the   Fair Value of Plan                Assets |   |                                         | 81     |   |   | 474 |   |

|                                      |   | **Decrease                in Minimum****Pension                Liability** |   |
|-------------------------------------------|--------|----------------------------------------------------------------------------|--------|
|                                      |   | **2005**                                                                   |   | **2004** |   |
|                                      |   | **(in                millions)**                                           |   |
| Other                Comprehensive Income |   | $                                                                          | (330   | ) | $ | (92 | ) |
| Deferred                Income Taxes      |   |                                                                       | (175   | ) |   | (52 | ) |
| Intangible                Asset           |   |                                                                       | (30    | ) |   | (3 | ) |
| Other                                     |   |                                                                       | 4      |   |   | (10 | ) |
| Minimum                Pension Liability  |   | $                                                                          | (531   | ) | $ | (157 | ) |

***Actuarial      Assumptions for Benefit Obligations***

|                                         |   | **Pension                Plans**    |   | **Other                Postretirement Benefit Plans** |   |
|----------------------------------------------|--------|-------------------------------------|--------|-------------------------------------------------------|--------|
|                                         |   | **2005**                            |   | **2004**                                              |   | **2005** |   | **2004** |   |
|                                         |   | **(in                percentages)** |   |
| Discount                Rate                 |   |                                | 5.50   |                                                  |   | 5.50 |   |   | 5.65 |   |   | 5.80 |   |
| Rate                of Compensation Increase |   |                                | 5.90   |  (a)                                             |   | 3.70 |   |   | N/A |   |   | N/A |   |

| (a) | Rates                are for base pay only. In addition, an amount is added to reflect                target                incentive compensation for exempt employees and overtime and incentive                pay                for nonexempt employees. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

***Estimated      Future Benefit Payments and Contributions***

|                                                  |   |  **Pension                Plans** |   | **Other                Postretirement Benefit Plans** |   |
|-------------------------------------------------------|--------|----------------------------------------|--------|-------------------------------------------------------|--------|
| **Employer                Contributions**             |   | **2006**                               |   | **2005**                                              |   | **2006** |   | **2005** |   |
|                                                  |   |                              |   |                                             |   |    |   |    |   |
| Required                Contributions (a)             |   | $                                      | 8      |                                                  | $      | 10 |   |   | N/A |   |   | N/A |   |
| Additional                Discretionary Contributions |   |                                   | -      |                                                  |   | 626 | (b)  | $ | 96 |   | $ | 107 |   |

| (a) | Contribution                required to meet minimum funding requirement per the U.S. Department                of                Labor and to fund nonqualified benefit payments. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Contribution                in 2005 in excess of the required contribution to fully fund our                qualified                pension plans by the end of 2005.             |

|                                        |   | **Pension                Plans**    |   | **Other                Postretirement Benefit Plans** |   |
|---------------------------------------------|--------|-------------------------------------|--------|-------------------------------------------------------|--------|
|                                        |   | **Pension                Payments** |   | **Benefit****Payments**                               |   | **Medicare                Subsidy Receipts** |   |
|                                        |   | **(in                millions)**    |   |
| 2006                                        |   | $                                   | 291    |                                                  | $      | 117 |   | $ | (9 | ) |
| 2007                                        |   |                                | 305    |                                                  |   | 125 |   |   | (10 | ) |
| 2008                                        |   |                                | 316    |                                                  |   | 133 |   |   | (10 | ) |
| 2009                                        |   |                                | 335    |                                                  |   | 140 |   |   | (11 | ) |
| 2010                                        |   |                                | 344    |                                                  |   | 148 |   |   | (11 | ) |
| Years                2011 to 2015, in Total |   |                                | 1,811  |                                                  |   | 857 |   |   | (65 | ) |

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

|                                                                                       |   | **Pension                Plans** |   | **Other                Postretirement****Benefit                Plans** |   |
|--------------------------------------------------------------------------------------------|--------|----------------------------------|--------|-------------------------------------------------------------------------|--------|
|                                                                                       |   | **2005**                         |   | **2004**                                                                |   | **2003** |   | **2005** |   | **2004** |   | **2003** |   |
|                                                                                       |   | **(in                millions)** |   |
| Service                Cost                                                                |   | $                                | 93     |                                                                    | $      | 86 |   | $ | 80 |   | $ | 42 |   | $ | 41 |   | $ | 42 |   |
| Interest                Cost                                                               |   |                             | 228    |                                                                    |   | 228 |   |   | 233 |   |   | 107 |   |   | 117 |   |   | 130 |   |
| Expected                Return on Plan Assets                                              |   |                             | (314   | )                                                                       |   | (292 | ) |   | (318 | ) |   | (92 | ) |   | (81 | ) |   | (64 | ) |
| Amortization                of Transition (Asset) Obligation                               |   |                             | -      |                                                                    |   | 2 |   |   | (8 | ) |   | 27 |   |   | 28 |   |   | 28 |   |
| Amortization                of Prior Service Cost                                          |   |                             | (1     | )                                                                       |   | (1 | ) |   | (1 | ) |   | - |   |   | - |   |   | - |   |
| Amortization                of Net Actuarial Loss                                          |   |                             | 55     |                                                                    |   | 17 |   |   | 11 |   |   | 25 |   |   | 36 |   |   | 52 |   |
| **Net                Periodic Benefit Cost (Credit)**                                      |   |                             | 61     |                                                                    |   | 40 |   |   | (3 | ) |   | 109 |   |   | 141 |   |   | 188 |   |
| Capitalized                Portion                                                         |   |                             | (17    | )                                                                       |   | (10 | ) |   | (3 | ) |   | (33 | ) |   | (46 | ) |   | (43 | ) |
| **Net                Periodic Benefit Cost (Credit) Recognized as                Expense** |   | $                                | 44     |                                                                    | $      | 30 |   | $ | (6 | ) | $ | 76 |   | $ | 95 |   | $ | 145 |   |

***Actuarial      Assumptions for Net Periodic Benefit Costs***

|                                          |   | **Pension                Plans**   |   |  **Other                Postretirement****Benefit                Plans** |   |
|-----------------------------------------------|--------|------------------------------------|--------|-------------------------------------------------------------------------------|--------|
|                                          |   | **2005**                           |   |  **2004**                                                                |   |  **2003** |   |  **2005** |   |  **2004** |   |  **2003** |   |
|                                          |   | **(in                percentage)** |   |
| Discount                Rate                  |   |                               | 5.50   |                                                                          |   | 6.25 |   |   | 6.75 |   |   | 5.80 |   |   | 6.25 |   |   | 6.75 |   |
| Expected                Return on Plan Assets |   |                               | 8.75   |                                                                          |   | 8.75 |   |   | 9.00 |   |   | 8.37 |   |   | 8.35 |   |   | 8.75 |   |
| Rate                of Compensation Increase  |   |                               | 3.70   |                                                                          |   | 3.70 |   |   | 3.70 |   |   | N/A |   |   | N/A |   |   | N/A |   |

| **Health                Care Trend Rates:** |   | **2005** |   | **2004** |   |
|---------------------------------------------|--------|----------|--------|----------|--------|
| Initial                                     |   |     | 9.0    | %        |   | 10.0 | % |
| Ultimate                                    |   |     | 5.0    | %        |   | 5.0 | % |
| Year                Ultimate Reached        |   |     | 2009   |     |   | 2009 |   |

|                                                                                                                                                                            |   | **1%                Increase**   |   | **1%                Decrease** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|--------|--------------------------------|--------|
|                                                                                                                                                                            |   | **(in                millions)** |   |
| Effect                on Total Service and Interest Cost Components                of Net Periodic                  Postretirement Health                Care Benefit Cost |   | $                                | 22     |                           | $      | (18 | ) |
| Effect                on the Health Care Component of theAccumulated                Postretirement Benefit                  Obligation                                     |   |                             | 263    |                           |   | (215 | ) |

***AEP      Savings Plans***

***Other      UMWA Benefits***

**12.**
**STOCK-BASED      COMPENSATION**

** **

|                                                             |   | **2005**                          |   | **2004**                                           |   | **2003**                          |   |
|------------------------------------------------------------------|--------|-----------------------------------|--------|----------------------------------------------------|--------|-----------------------------------|--------|
|                                                             |   | **Options**                       |   | **Weighted                Average Exercise Price** |   | **Options**                       |   | **Weighted                Average Exercise Price** |   | **Options** |   | **Weighted                Average Exercise Price** |   |
|                                                             |   | **(in                thousands)** |   |                                          |   | **(in                thousands)** |   |    |   | **(in                thousands)** |   |    |   |
| Outstanding                at beginning of year                  |   |                              | 8,230  |                                               | $      | 33                                |   |   | 9,095 |   | $ | 33 |   |   | 8,787 |   | $ | 34 |   |
| Granted                                                          |   |                              | 10     |                                               |   | 39                                |   |   | 149 |   |   | 31 |   |   | 928 |   |   | 28 |   |
| Exercised                                                        |   |                              | (1,886 | )                                                  |   | 37                                |   |   | (525 | ) |   | 27 |   |   | (23 | ) |   | 27 |   |
| Forfeited                                                        |   |                              | (132   | )                                                  |   | 32                                |   |   | (489 | ) |   | 34 |   |   | (597 | ) |   | 33 |   |
| Outstanding                at end of year                        |   |                              | 6,222  |                                               |   | 34                                |   |   | 8,230 |   |   | 33 |   |   | 9,095 |   |   | 33 |   |
|                                                             |   |                              |   |                                               |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Options                exercisable at end of year           |   |                              | 5,199  |                                               | $      | 35                                |   |   | 6,069 |   | $ | 35 |   |   | 3,909 |   | $ | 36 |   |
|                                                             |   |                              |   |                                               |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted                average exercise price of  options: |   |                              |   |                                               |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Granted                above Market Price                        |   |                              |   |                                               |   | N/A                               |   |   |   |   |   | N/A |   |   |   |   |   | N/A |   |
| Granted                at Market Price                           |   |                              |   |                                               | $      | 39                                |   |   |   |   | $ | 31 |   |   |   |   | $ | 28 |   |

**          Options Outstanding**

| **Range                of Exercise Prices** |   |  **Number                Outstanding** |   |  **Weighted                Average****Remaining                Life** |   | **Weighted                Average****Exercise                Price** |   |
|---------------------------------------------|--------|---------------------------------------------|--------|----------------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|
|                                        |   |  (in                thousands)         |   |  (in                years)                                            |   |                                                            |   |
| $25.73                - $27.95              |   |                                        | 1,610  |                                                                       |   | 6.6                                                                  |   | $ | 27.36 |   |
| $30.76                - $38.65              |   |                                        | 4,140  |                                                                       |   | 3.9                                                                  |   |   | 35.45 |   |
| $43.79                - $49.00              |   |                                        | 472    |                                                                       |   | 4.3                                                                  |   |   | 46.11 |   |
|                                        |   |                                        | 6,222  |                                                                       |   | 4.6                                                                  |   |   | 34.16 |   |

**Options      Exercisable**

| **Range                of Exercise Prices** |   |  **Number                Outstanding** |   | **Weighted                Average Exercise Price** |   |
|---------------------------------------------|--------|---------------------------------------------|--------|----------------------------------------------------|--------|
|                                        |   |  (in                thousands)         |   |                                               |   |
| $25.73                - $27.95              |   |                                        | 696    |                                               | $      | 27.25 |   |
| $30.76                - $35.63              |   |                                        | 4,031  |                                               |   | 35.56 |   |
| $43.79                - $49.00              |   |                                        | 472    |                                               |   | 46.11 |   |
|                                        |   |                                        | 5,199  |                                               |   | 35.40 |   |

|                                                   |   | **2005** |                   | **2004** |   | **2003**               |   |
|--------------------------------------------------------|--------|----------|------------------------|----------|--------|------------------------|--------|
| Risk                Free Interest Rate                 |   |     | 4.14                   | %        |   | 4.14                   | %      |   | 3.92 | % |
| Expected                Life                           |   |     | 7                years |     |   | 7                years |   |   | 7                years |   |
| Expected                Volatility                     |   |     | 24.63                  | %        |   | 28.17                  | %      |   | 27.57 | % |
| Expected                Dividend Yield                 |   |     | 4.00                   | %        |   | 4.84                   | %      |   | 4.86 | % |
|                                                   |   |     |                   |     |   |                   |   |   |   |   |
| Weighted                average fair value of options: |   |     |                   |     |   |                   |   |   |   |   |
| Granted                above Market Price              |   |     | N/A                    |     |   | N/A                    |   |   | N/A |   |
| Granted                at Market Price                 |   | $        | 7.60                   |     | $      | 6.06                   |   | $ | 5.26 |   |

**13.**
**BUSINESS      SEGMENTS**

**Utility      Operations**

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

**Investments      - Gas Operations **

| · | Gas                pipeline and storage services.                                                                                                                                                                                                                                                                                                                                                                 |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Gas                marketing and risk management activities.                                                                                                                                                                                                                                                                                                                                                      |
| · | Operations                of LIG, including Jefferson Island Storage & Hub, LLC, were classified                as Discontinued Operations during 2003 and were sold during 2004.                The                remaining gas pipeline and storage assets were disposed of in 2005                with                the sale of HPL (see “Dispositions” section of Note                10). |

**Investments      - UK Operations**

| · | International                generation of electricity for sale to wholesale                customers.                                       |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------|
| · | Coal                procurement and transportation to our plants.                                                                            |
| · | UK                Operations were classified as Discontinued Operations during 2003                and were                sold during 2004. |

**Investments      - Other **

| · | Bulk                commodity barging operations, wind farms, IPPs and other energy                supply-related businesses. |
|--------|-------------------------------------------------------------------------------------------------------------------------------|
| · | Four                IPPs were sold during 2004.                                                                               |

|                                                                                                                                                                                  |   |                                    |   | **Investments**                     |   |                               |    |         |   |                               |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|--------|-------------------------------------|--------|------------------------------------|---------|--------------|--------|------------------------------------|--------|
|                                                                                                                                                                             |   | **Utility                  Operations** |   | **Gas                  Operations** |   | **UK                  Operations** |    | **Other**    |   | **All                  Other (a)** |   | **Reconciling                  Adjustments** |   | **Consolidated** |   |
|                                                                                                                                                                             |   | **(in                  millions)**      |   |
| **2005**                                                                                                                                                                         |   |                               |   |                           |   |                          |    |    |   |                          |   |    |   |    |   |
| Revenues                  from:                                                                                                                                                  |   |                               |   |                           |   |                          |    |    |   |                          |   |    |   |    |   |
| External                  Customers                                                                                                                                              |   | $                                       | 11,193 |                                | $      | 463                                |    | $            | -      |                               | $      | 455 |   | $ | - |   | $ | - |   | $ | 12,111 |   |
| Other                  Operating Segments                                                                                                                                        |   |                                    | 203    |                                |   | (181                               | )  |         | -      |                               |   | 17 |   |   | 3 |   |   | (42 | ) |   | - |   |
| Total                  Revenues                                                                                                                                                  |   | $                                       | 11,396 |                                | $      | 282                                |    | $            | -      |                               | $      | 472 |   | $ | 3 |   | $ | (42 | ) | $ | 12,111 |   |
|                                                                                                                                                                             |   |                                    |   |                                |   |                               |    |         |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Income                  (Loss) Before Discontinued Operations,                  Extraordinary                    Loss and Cumulative Effect of Accounting Changes |   | $                                       | 1,020  |                                | $      | (31                                | )       | $            | -      |                               | $      | 93 |   | $ | (53 | ) | $ | - |   | $ | 1,029 |   |
| Discontinued                  Operations, Net of Tax                                                                                                                             |   |                                    | -      |                                |   | 5                                  |    |         | (2     | )                             |   | 24 |   |   | - |   |   | - |   |   | 27 |   |
| Extraordinary                  Loss, Net of Tax                                                                                                                                  |   |                                    | (225   | )                                   |   | -                                  |    |         | -      |                               |   | - |   |   | - |   |   | - |   |   | (225 | ) |
| Cumulative                Effect of Accounting Changes, Net of Tax                                                                                                               |   |                                    | (17    | )                                   |   | -                                  |    |         | -      |                               |   | - |   |   | - |   |   | - |   |   | (17 | )  |
| Net                  Income (Loss)                                                                                                                                               |   | $                                       | 778    |                                | $      | (26                                | )       | $            | (2     | )                             | $      | 117 |   | $ | (53 | ) | $ | - |   | $ | 814 |   |
|                                                                                                                                                                             |   |                                    |   |                                |   |                               |    |         |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation                  and Amortization Expense                                                                                                                           |   | $                                       | 1,285  |                                | $      | 2                                  |    | $            | -      |                               | $      | 30 |   | $ | 1 |   | $ | - |   | $ | 1,318 |   |
| Gross                  Property Additions                                                                                                                                        |   |                                    | 2,755  |                                |   | 2                                  |    |         | -      |                               |   | 7 |   |   | - |   |   | - |   |   | 2,764 |   |
|                                                                                                                                                                             |   |

|                                                                                                                                                                                         |   |                                        |   | **Investments**                         |   |                                   |   |         |   |                                   |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------|--------|-----------------------------------------|--------|----------------------------------------|--------|--------------|--------|----------------------------------------|--------|
|                                                                                                                                                                                         |   | **Utility                      Operations** |   | **Gas                      Operations** |   | **UK                      Operations** |   | **Other**    |   | **All                      Other (a)** |   | **Reconciling                      Adjustments** |   | **Consolidated** |   |
|                                                                                                                                                                                         |   | **(in                      millions)**      |   |
| **2004**                                                                                                                                                                                     |   |                                   |   |                               |   |                              |   |    |   |                              |   |    |   |    |   |
| Revenues                      from:                                                                                                                                                          |   |                                   |   |                               |   |                              |   |    |   |                              |   |    |   |    |   |
| External                      Customers                                                                                                                                                      |   | $                                           | 10,664 |                                    | $      | 3,068                                  |   | $            | -      |                                   | $      | 513 |   | $ | - |   | $ | - |   | $ | 14,245 |   |
| Other                      Operating Segments                                                                                                                                                |   |                                        | 105    |                                    |   | 50                                     |   |         | -      |                                   |   | 36 |   |   | 7 |   |   | (198 | ) |   | - |   |
| Total                      Revenues                                                                                                                                                          |   | $                                           | 10,769 |                                    | $      | 3,118                                  |   | $            | -      |                                   | $      | 549 |   | $ | 7 |   | $ | (198 | ) | $ | 14,245 |   |
|                                                                                                                                                                                         |   |                                        |   |                                    |   |                                   |   |         |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income                      (Loss) Before Discontinued Operations,                      Extraordinary                        Loss and Cumulative Effect of Accounting Changes |   | $                                           | 1,175  |                                    | $      | (51                                    | )      | $            | -      |                                   | $      | 74 |   | $ | (71 | ) | $ | - |   | $ | 1,127 |   |
| Discontinued                      Operations, Net of Tax                                                                                                                                     |   |                                        | -      |                                    |   | (12                                    | )      |         | 91     |                                   |   | 4 |   |   | - |   |   | - |   |   | 83 |   |
| Extraordinary                      Loss, Net of Tax                                                                                                                                          |   |                                        | (121   | )                                       |   | -                                      |   |         | -      |                                   |   | - |   |   | - |   |   | - |   |   | (121 | ) |
| Net                      Income (Loss)                                                                                                                                                       |   | $                                           | 1,054  |                                    | $      | (63                                    | )      | $            | 91     |                                   | $      | 78 |   | $ | (71 | ) | $ | - |   | $ | 1,089 |   |
|                                                                                                                                                                                         |   |                                        |   |                                    |   |                                   |   |         |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation                      and Amortization Expense                                                                                                                                   |   | $                                           | 1,256  |                                    | $      | 11                                     |   | $            | -      |                                   | $      | 32 |   | $ | 1 |   | $ | - |   | $ | 1,300 |   |
| Gross                      Property Additions                                                                                                                                                |   |                                        | 1,471  |                                    |   | 132                                    |   |         | -      |                                   |   | 34 |   |   | - |   |   | - |   |   | 1,637 |   |
|                                                                                                                                                                                         |   |                                        |

|                                                                                                                                                                                                       |   |                                   |   | **Investments**                         |   |                              |   |    |   |                              |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------|--------|-----------------------------------------|--------|----------------------------------------|--------|--------------|--------|----------------------------------------|--------|
|                                                                                                                                                                                                       |   | **Utility                      Operations** |   | **Gas                      Operations** |   | **UK                      Operations** |   | **Other**    |   | **All                      Other (a)** |   | **Reconciling                      Adjustments** |   | **Consolidated** |   |
|                                                                                                                                                                                                       |   | **(in                      millions)**      |   |
| **2003**                                                                                                                                                                                                   |   |                                   |   |                               |   |                              |   |    |   |                              |   |    |   |    |   |
| Revenues                      from:                                                                                                                                                                        |   |                                   |   |                               |   |                              |   |    |   |                              |   |    |   |    |   |
| External                      Customers                                                                                                                                                                    |   | $                                           | 11,030 |                                    | $      | 3,100                                  |   | $            | **-**  |                                   | $      | 703 |   | $ | - |   | $ | - |   | $ | 14,833 |   |
| Other                      Operating Segments                                                                                                                                                              |   |                                        | 130    |                                    |   | 27                                     |   |         | -      |                                   |   | 52 |   |   | 11 |   |   | (220 | ) |   | - |   |
| Total                      Revenues                                                                                                                                                                        |   | $                                           | 11,160 |                                    | $      | 3,127                                  |   | $            | -      |                                   | $      | 755 |   | $ | 11 |   | $ | (220 | ) | $ | 14,833 |   |
|                                                                                                                                                                                                       |   |                                        |   |                                    |   |                                   |   |         |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income                      (Loss) Before Discontinued Operations,                      Extraordinary                      Loss and Cumulative                      Effect of Accounting Changes |   | $                                           | 1,223  |                                    | $      | (290                                   | )      | $            | -      |                                   | $      | (282 | ) | $ | (129 | ) | $ | - |   | $ | 522 |   |
| Discontinued                      Operations, Net of Tax                                                                                                                                                   |   |                                        | -      |                                    |   | (91                                    | )      |         | (508   | )                                      |   | (6 | ) |   | - |   |   | - |   |   | (605 | ) |
| Cumulative                      Effect of Accounting Changes,                      Net of Tax                                                                                                              |   |                                        | 236    |                                    |   | (22                                    | )      |         | (21    | )                                      |   | - |   |   | - |   |   | - |   |   | 193 |   |
| Net                      Income (Loss)                                                                                                                                                                     |   | $                                           | 1,459  |                                    | $      | (403                                   | )      | $            | (529   | )                                      | $      | (288 | ) | $ | (129 | ) | $ | - |   | $ | 110 |   |
|                                                                                                                                                                                                       |   |                                        |   |                                    |   |                                   |   |         |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation                      and Amortization Expense                                                                                                                                                 |   | $                                           | 1,250  |                                    | $      | 18                                     |   | $            | -      |                                   | $      | 39 |   | $ | - |   | $ | - |   | $ | 1,307 |   |
| Gross                      Property Additions                                                                                                                                                              |   |                                        | 1,288  |                                    |   | 24                                     |   |         | -      |                                   |   | 10 |   |   | - |   |   | - |   |   | 1,322 |   |

|                                                       |   |                                    |   | **Investments**                     |   |                               |   |      |   |                               |   |
|------------------------------------------------------------|--------|-----------------------------------------|--------|-------------------------------------|--------|------------------------------------|--------|-----------|--------|------------------------------------|--------|
|                                                       |   | **Utility                  Operations** |   | **Gas                  Operations** |   | **UK                  Operations** |   | **Other** |   | **All                  Other (a)** |   | **Reconciling                  Adjustments (b)** |   | **Consolidated** |   |
|                                                       |   | **(in                  millions)**      |   |
| **As                  of December 31, 2005**               |   |                                    |   |                                |   |                               |   |      |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                  Property, Plant and Equipment       |   | $                                       | 38,283 |                                | $      | 2                                  |   | $         | -      |                               | $      | 833 |   |   | 3 |   | $ | - |   | $ | 39,121 |   |
| Accumulated                  Depreciation and Amortization |   |                                    | 14,723 |                                |   | 1                                  |   |      | -      |                               |   | 112 |   |   | 1 |   |   | - |   |   | 14,837 |   |
| Total                  Property, Plant and Equipment - Net |   | $                                       | 23,560 |                                | $      | 1                                  |   | $         | -      |                               | $      | 721 |   | $ | 2 |   | $ | - |   | $ | 24,284 |   |
|                                                       |   |                                    |   |                                |   |                               |   |      |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                       |   |                                    |   |                                |   |                               |   |      |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                  Assets                              |   | $                                       | 34,339 |                                | $      | 1,199                              | (c)    | $         | 632    | (d)                                | $      | 509 |   | $ | 9,463 |   | $ | (9,970 | ) | $ | 36,172 |   |
| Assets                  Held for Sale                      |   |                                    | 44     |                                |   | -                                  |   |      | -      |                               |   | - |   |   | - |   |   | - |   |   | 44 |   |
| Investments                  in Equity Method Subsidiaries |   |                                    | -      |                                |   | -                                  |   |      | -      |                               |   | 52 |   |   | - |   |   | - |   |   | 52 |   |
|                                                       |   |                                    |   |                                |   |                               |   |      |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |
| As                  of December 31, 2004                   |   |                                    |   |                                |   |                               |   |      |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                  Property, Plant and Equipment       |   | $                                       | 36,014 |                                | $      | 445                                |   | $         | -      |                               | $      | 832 |   | $ | 3 |   | $ | - |   | $ | 37,294 |   |
| Accumulated                  Depreciation and Amortization |   |                                    | 14,363 |                                |   | 43                                 |   |      | -      |                               |   | 86 |   |   | 1 |   |   | - |   |   | 14,493 |   |
| Total                  Property, Plant and Equipment - Net |   | $                                       | 21,651 |                                | $      | 402                                |   | $         | -      |                               | $      | 746 |   | $ | 2 |   | $ | - |   | $ | 22,801 |   |
|                                                       |   |                                    |   |                                |   |                               |   |      |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                  Assets                              |   | $                                       | 32,148 |                                |   | 1,789                              |   |      | 221    | (e)                                |   | 2,071 |   |   | 8,093 |   |   | (9,686 | ) |   | 34,636 |   |
| Assets                  Held for Sale                      |   |                                    | 628    |                                |   | -                                  |   |      | -      |                               |   | - |   |   | - |   |   | - |   |   | 628 |   |
| Investments                  in Equity Method Subsidiaries |   |                                    | -      |                                |   | 33                                 |   |      | -      |                               |   | 117 |   |   | - |   |   | - |   |   | 150 |   |

| (a) | All                Other includes interest, litigation and other miscellaneous parent                company                expenses.                                                                                                                                                                                                                                                                                                                                                                                                 |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Reconciling                Adjustments for Total Assets primarily include the elimination of                intercompany advances to affiliates and intercompany accounts receivable                along with the elimination of AEP’s investments in subsidiary                companies.                                                                                                                                                                                                                                     |
| (c) | Total                Assets of $1.2 billion for the Investments-Gas Operations segment                include                $429 million in affiliated accounts receivable related to the corporate                borrowing program and risk management contracts that are eliminated                in                consolidation. The majority of the remaining $770 million in assets                represents third party risk management contracts, margin deposits,                and                accounts receivable. |
| (d) | Total                Assets of $632 million for the Investments-UK Operations segment                include                $613 million in affiliated accounts receivable related to federal                income                taxes that are eliminated in consolidation. The majority of the remaining                $19 million in assets represents cash equivalents with value-added                tax                receivables.                                                                                         |
| (e) | Total                Assets of $221 million for the Investments-UK Operations segment                include                $124 million in affiliated accounts receivable that are eliminated                in                consolidation. The majority of the remaining $97 million in assets                represents cash equivalents and third party                receivables.                                                                                                                                             |

**14.**
**DERIVATIVES,      HEDGING AND FINANCIAL INSTRUMENTS**

**DERIVATIVES      AND HEDGING**

***Fair      Value Hedging Strategies***

***Cash      Flow Hedging Strategies***

|                         |   | **Hedging                Assets** |   | **Hedging                Liabilities** |   | **Accumulated                Other Comprehensive Income (Loss)****After                Tax** |   | **Portion                Expected to be Reclassified to Earnings during the Next 12                Months** |   |
|------------------------------|--------|-----------------------------------|--------|----------------------------------------|--------|----------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------|--------|
|                         |   | **(in                millions)**  |
|                         |   |                              |   |                                   |   |                                                                                         |   |                                                                                                        |   |   |   |   |   |
| Power                and Gas |   | $                                 | 11     |                                   | $      | 20                                                                                           |   | $                                                                                                           | (6     | ) | $ | (5 | ) |
| Interest                Rate |   |                              | 3      |                                   |   | -                                                                                            |   |                                                                                                        | (21    | )(a) |   | (2 | ) |
|                         |   | $                                 | 14     |                                   | $      | 20                                                                                           |   | $                                                                                                           | (27    | ) | $ | (7 | ) |

| (a) | Includes                $1 million loss recorded in an equity                investment. |
|-----|------------------------------------------------------------------------------------------|

|                         |   | **Hedging                Assets** |   | **Hedging                Liabilities** |   | **Accumulated                Other Comprehensive Income (Loss) After Tax** |   | **Portion                Expected to be Reclassified to Earnings during the Next 12                Months** |   |
|------------------------------|--------|-----------------------------------|--------|----------------------------------------|--------|----------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------|--------|
|                         |   | **(in                millions)**  |
|                         |   |                              |   |                                   |   |                                                                       |   |                                                                                                        |   |   |   |   |   |
| Power                and Gas |   | $                                 | 88     |                                   | $      | (60                                                                        | )      | $                                                                                                           | 23     |   | $ | (26 | ) |
| Interest                Rate |   |                              | 1      |                                   |   | (23                                                                        | )      |                                                                                                        | (23    | )(a) |   | 4 |   |
|                         |   | $                                 | 89     |                                   | $      | (83                                                                        | )      | $                                                                                                           | -      |   | $ | (22 | ) |

| (a) | Includes                $3 million loss recorded in an equity                investment. |
|-----|------------------------------------------------------------------------------------------|

|                                                 |   | **Amount**                       |   |
|------------------------------------------------------|--------|----------------------------------|--------|
|                                                 |   | **(in                millions)** |   |
| **Balance                at December 31, 2002**      |   | $                                | (16    | ) |
| Changes                in fair value                 |   |                             | (79    | ) |
| Reclasses                from AOCI to net earnings   |   |                             | 1      |   |
| **Balance                at December 31, 2003**      |   |                             | (94    | ) |
| Changes                in fair value                 |   |                             | 8      |   |
| Reclasses                from AOCI to net earnings   |   |                             | 86     |   |
| **Balance                at December 31, 2004**      |   |                             | -      |   |
| Changes                in fair value                 |   |                             | (5     | ) |
| Reclasses                from AOCI to net earnings   |   |                             | (22    | ) |
| **Ending                Balance, December 31, 2005** |   | $                                | (27    | ) |

**FINANCIAL      INSTRUMENTS**

|                                                                                                             |   | **2005**                         |   | **2004**                      |   |
|------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|--------|-------------------------------|--------|
|                                                                                                             |   | **Book                Value**    |   | **Fair                Value** |   | **Book                Value** |   | **Fair                Value** |   |
|                                                                                                             |   | **(in                millions)** |   |
| Long-term                Debt                                                                                    |   | $                                | 12,226 |                          | $      | 12,416 |   | $ | 12,287 |   | $ | 12,813 |   |
| Cumulative                Preferred Stocks of Subsidiaries Subject to Mandatory                  Redemption |   |                             | -      |                          |   | - |   |   | 66 |   |   | 67 |   |

***Other      Financial Instruments - Nuclear Trust Funds Recorded at Market Value***

**15.      **
**INCOME      TAXES**

|                                                                                                                                                                                                          |   | **Year                Ended December 31,** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------|--------|
|                                                                                                                                                                                                          |   | **2005**                                   |   | **2004** |   | **2003** |   |
|                                                                                                                                                                                                          |   | **(in                millions)**           |   |
| **Federal:**                                                                                                                                                                                                  |   |                                  |   |    |   |    |   |
| Current                                                                                                                                                                                                       |   | $                                          | 375    |   | $ | 262 |   | $ | 297 |   |
| Deferred                                                                                                                                                                                                      |   |                                       | 28     |   |   | 263 |   |   | 34 |   |
| **Total**                                                                                                                                                                                                     |   |                                       | 403    |   |   | 525 |   |   | 331 |   |
|                                                                                                                                                                                                          |   |                                       |   |   |   |   |   |   |   |   |
| **State                and Local:**                                                                                                                                                                           |   |                                       |   |   |   |   |   |   |   |   |
| Current                                                                                                                                                                                                       |   |                                       | 25     |   |   | 49 |   |   | 19 |   |
| Deferred                                                                                                                                                                                                      |   |                                       | 4      |   |   | (3 | ) |   | 1 |   |
| **Total**                                                                                                                                                                                                     |   |                                       | 29     |   |   | 46 |   |   | 20 |   |
|                                                                                                                                                                                                          |   |                                       |   |   |   |   |   |   |   |   |
| **International:**                                                                                                                                                                                            |   |                                       |   |   |   |   |   |   |   |   |
| Current                                                                                                                                                                                                       |   |                                       | (2     | ) |   | 1 |   |   | 7 |   |
| Deferred                                                                                                                                                                                                      |   |                                       | -      |   |   | - |   |   | - |   |
| **Total**                                                                                                                                                                                                     |   |                                       | (2     | ) |   | 1 |   |   | 7 |   |
|                                                                                                                                                                                                          |   |                                       |   |   |   |   |   |   |   |   |
| **Total                Income Tax as Reported Before Discontinued****Operations,                Extraordinary****                 Loss and Cumulative Effect of Accounting                Changes** |   | $                                          | 430    |   | $ | 572 |   | $ | 358 |   |

|                                                                                                                                                                                                         |   | **Year                  Ended December 31,** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------|--------|
|                                                                                                                                                                                                         |   | **2005**                                     |   | **2004** |   | **2003** |   |
|                                                                                                                                                                                                         |   | **(in                  millions)**           |   |
| Net                  Income                                                                                                                                                                                  |   | $                                            | 814    |   | $ | 1,089 |   | $ | 110 |   |
| Discontinued                  Operations (net of income tax of $(30) million, $75 million and                  $(312)                  million in                    2005, 2004 and 2003, respectively) |   |                                         | (27    | ) |   | (83 | ) |   | 605 |   |
| Extraordinary                  Loss, (net of income tax of $(121) million and $(64) million in                  2005 and 2004,                    respectively)                               |   |                                         | 225    |   |   | 121 |   |   | - |   |
| Cumulative                  Effect of Accounting Changes (net                  of income tax of $(9) million and $138 million   in                  2005 and 2003, respectively)         |   |                                         | 17     |   |   | - |   |   | (193 | ) |
| Preferred                  Stock Dividends                                                                                                                                                                   |   |                                         | 7      |   |   | 6 |   |   | 9 |   |
| Income                  Before Preferred Stock Dividends of Subsidiaries                                                                                                                                     |   |                                         | 1,036  |   |   | 1,133 |   |   | 531 |   |
| Income                  Taxes Before Discontinued Operations, Extraordinary Loss and                  Cumulative Effect of                    Accounting Changes                                   |   |                                         | 430    |   |   | 572 |   |   | 358 |   |
| **Pretax                  Income**                                                                                                                                                                           |   | $                                            | 1,466  |   | $ | 1,705 |   | $ | 889 |   |
|                                                                                                                                                                                                         |   |                                         |   |   |   |   |   |   |   |   |
| Income                  Taxes on Pretax Income at Statutory Rate (35%)                                                                                                                                       |   | $                                            | 513    |   | $ | 597 |   | $ | 311 |   |
| Increase                  (Decrease) in Income Taxes resulting from the                  following Items:                                                                                               |   |                                         |   |   |   |   |   |   |   |   |
| Depreciation                                                                                                                                                                                                 |   |                                         | 39     |   |   | 36 |   |   | 34 |   |
| Asset                  Impairments and Investment Value Losses                                                                                                                                               |   |                                         | -      |   |   | - |   |   | 23 |   |
| Investment                  Tax Credits (net)                                                                                                                                                                |   |                                         | (32    | ) |   | (29 | ) |   | (33 | ) |
| Tax                  Effects of International Operations                                                                                                                                                     |   |                                         | (2     | ) |   | 1 |   |   | 8 |   |
| Energy                  Production Credits                                                                                                                                                                   |   |                                         | (18    | ) |   | (16 | ) |   | (15 | ) |
| State                  Income Taxes                                                                                                                                                                          |   |                                         | 19     |   |   | 30 |   |   | 13 |   |
| Removal                  Costs                                                                                                                                                                               |   |                                         | (14    | ) |   | (12 | ) |   | (6 | ) |
| AFUDC                                                                                                                                                                                                        |   |                                         | (14    | ) |   | (11 | ) |   | (10 | ) |
| Medicare                  Subsidy                                                                                                                                                                            |   |                                         | (13    | ) |   | (10 | ) |   | - |   |
| Tax                  Reserve Adjustments                                                                                                                                                                     |   |                                         | (11    | ) |   | (14 | ) |   | 13 |   |
| Other                                                                                                                                                                                                        |   |                                         | (37    | ) |   | - |   |   | 20 |   |
| **Total                  Income Taxes as Reported Before Discontinued Operations, Extraordinary****                   Loss and Cumulative Effect of Accounting Changes**                                |   | $                                            | 430    |   | $ | 572 |   | $ | 358 |   |
|                                                                                                                                                                                                         |   |                                         |   |   |   |   |   |   |   |   |
| **Effective                  Income Tax Rate**                                                                                                                                                               |   |                                         | 29.3   | % |   | 33.5 | % |   | 40.3 | % |

|                                                                      |   | **As                of December 31,** |   |
|---------------------------------------------------------------------------|--------|---------------------------------------|--------|
|                                                                      |   | **2005**                              |   | **2004** |   |
|                                                                      |   | **(in                millions)**      |   |
| Deferred                Tax Assets                                        |   | $                                     | 2,085  |   | $ | 2,280 |   |
| Deferred                Tax Liabilities                                   |   |                                  | (6,895 | ) |   | (7,099 | ) |
| **Net                Deferred Tax Liabilities**                           |   | $                                     | (4,810 | ) | $ | (4,819 | ) |
|                                                                      |   |                                  |   |   |   |   |   |
| Property                Related Temporary Differences                     |   | $                                     | (3,302 | ) | $ | (3,273 | ) |
| Amounts                Due From Customers For Future Federal Income Taxes |   |                                  | (186   | ) |   | (184 | ) |
| Deferred                State Income Taxes                                |   |                                  | (384   | ) |   | (452 | ) |
| Transition                Regulatory Assets                               |   |                                  | (176   | ) |   | (211 | ) |
| Securitized                Transition Assets                              |   |                                  | (232   | ) |   | (258 | ) |
| Regulatory                Assets                                          |   |                                  | (446   | ) |   | (578 | ) |
| Accrued                Pensions                                           |   |                                  | (345   | ) |   | (158 | ) |
| Deferred                Income Taxes on Other Comprehensive Loss          |   |                                  | 14     |   |   | 186 |   |
| All                Other (net)                                            |   |                                  | 247    |   |   | 109 |   |
| **Net                Deferred Tax Liabilities**                           |   | $                                     | (4,810 | ) | $ | (4,819 | ) |

**16.**
**LEASES**

|                                              |   | **Year                Ended December 31,** |   |
|---------------------------------------------------|--------|--------------------------------------------|--------|
|                                              |   | **2005**                                   |   | **2004** |   | **2003** |   |
|                                              |   | **(in                millions)**           |   |
| Lease                Payments on Operating Leases |   | $                                          | 307    |   | $ | 317 |   | $ | 344 |   |
| Amortization                of Capital Leases     |   |                                       | 57     |   |   | 54 |   |   | 64 |   |
| Interest                on Capital Leases         |   |                                       | 13     |   |   | 11 |   |   | 9 |   |
| **Total                Lease Rental Costs**       |   | $                                          | 377    |   | $ | 382 |   | $ | 417 |   |

|                                                                                     |   | **December                31,**  |   |
|------------------------------------------------------------------------------------------|--------|----------------------------------|--------|
|                                                                                     |   | **2005**                         |   | **2004** |   |
|                                                                                     |   | **(in                millions)** |   |
| **Property,                Plant and Equipment Under Capital Leases**                    |   |                        |   |    |   |
| Production                                                                               |   | $                                | 95     |   | $ | 91 |   |
| Distribution                                                                             |   |                             | 15     |   |   | 15 |   |
| Other                                                                                    |   |                             | 331    |   |   | 323 |   |
| Total                Property, Plant and Equipment Under Capital Leases                  |   |                             | 441    |   |   | 429 |   |
| Accumulated                Amortization                                                  |   |                             | 190    |   |   | 186 |   |
| **Net                Property, Plant and Equipment Under Capital                Leases** |   | $                                | 251    |   | $ | 243 |   |
|                                                                                     |   |                             |   |   |   |   |   |
| **Obligations                Under Capital Leases**                                      |   |                             |   |   |   |   |   |
| Noncurrent                Liability                                                      |   | $                                | 193    |   | $ | 190 |   |
| Liability                Due Within One Year                                             |   |                             | 58     |   |   | 53 |   |
| **Total                Obligations Under Capital Leases**                                |   | $                                | 251    |   | $ | 243 |   |

|                                                                                          |   | **Capital                Leases** |   | **Noncancelable                Operating Leases** |   |
|-----------------------------------------------------------------------------------------------|--------|-----------------------------------|--------|---------------------------------------------------|--------|
|                                                                                          |   | **(in                millions)**  |   |
| 2006                                                                                          |   | $                                 | 73     |                                              | $      | 313 |   |
| 2007                                                                                          |   |                              | 68     |                                              |   | 288 |   |
| 2008                                                                                          |   |                              | 45     |                                              |   | 264 |   |
| 2009                                                                                          |   |                              | 29     |                                              |   | 251 |   |
| 2010                                                                                          |   |                              | 16     |                                              |   | 249 |   |
| Later                Years                                                                    |   |                              | 93     |                                              |   | 2,018 |   |
| Total                Future Minimum Lease Payments                                            |   | $                                 | 324    |                                              | $      | 3,383 |   |
| Less                Estimated Interest Element                                                |   |                              | 73     |                                              |   |   |   |
| **Estimated                Present Value of Future****Minimum                Lease Payments** |   | $                                 | 251    |                                              |   |   |   |

***Gavin      Scrubber Financing Arrangement***

***Rockport      Lease***

***Railcar      Lease***

**17.**
**FINANCING      ACTIVITIES**

***Common      Stock***

**2005**

**Common      Stock Repurchase**

**Equity      Units and Remarketing of Senior Notes**

**Issuance      of Common Stock**

**2003**

| **Shares                of Common Stock** |   | **Issued** |        | **Held                in Treasury** |   |
|-------------------------------------------|--------|------------|-------------|-------------------------------------|--------|
| Balance                January 1, 2003    |   |       | 347,835,212 |                                |   | 8,999,992 |   |
| Issued                                    |   |       | 56,181,201  |                                |   | - |   |
| Treasury                stock:            |   |       |        |                                |   |   |   |
| Acquisition                               |   |       | -           |                                |   | - |   |
| Retirement                                |   |       | -           |                                |   | - |   |
| Balance                December 31, 2003  |   |       | 404,016,413 |                                |   | 8,999,992 |   |
| Issued                                    |   |       | 841,732     |                                |   | - |   |
| Treasury                stock:            |   |       |        |                                |   |   |   |
| Acquisition                               |   |       | -           |                                |   | - |   |
| Retirement                                |   |       | -           |                                |   | - |   |
| Balance                December 31, 2004  |   |       | 404,858,145 |                                |   | 8,999,992 |   |
| Issued                                    |   |       | 10,360,685  |                                |   | - |   |
| Treasury                stock:            |   |       |        |                                |   |   |   |
| Acquisition                               |   |       | -           |                                |   | 12,500,000 |   |
| Retirement                                |   |       | -           |                                |   | - |   |
| Balance                December 31, 2005  |   |       | 415,218,830 |                                |   | 21,499,992 |   |

***Preferred      Stock***

|                                                      |   | **                    December 31, 2005** |
|-----------------------------------------------------------|--------|---------------------------------------------------------------|
|                                                      |   | **Call                Price****Per                Share (a)** |   | **Shares                Authorized (b)** |   | **Shares                Outstanding (d)** |   | **Amount****(in                millions)** |   |
| Not                Subject to Mandatory Redemption:       |   |                                                          |   |   |   |   |   |    |   |
| 4.00%                - 5.00%                              |   |                                                          | $102-$110 |   |   | 1,525,903 |   |   | 607,642 |   | $ | 61 |   |
|                                                      |   |                                                          |
|                                                      |   | **December                31, 2004**                     |
|                                                      |   |                                                          | **Call                Price****Per                Share (a)**  |   |   | **Shares                Authorized (b)** |   |   | **Shares                Outstanding (d)** |   |   | **Amount****(in                millions)** |   |
|  Not                Subject to Mandatory Redemption: |   |                                                          |   |   |   |   |   |   |   |   |   |   |   |
| 4.00%                - 5.00%                              |   |                                                          | $102-$110 |   |   | 1,525,903 |   |   | 607,662 |   | $ | 61 |   |
| Subject                to Mandatory Redemption:           |   |                                                          |   |   |   |   |   |   |   |   |   |   |   |
| 5.90%                (c)                                  |   |                                                          | $100 |   |   | 850,000 |   |   | 182,000 |   |   | 18 |   |
| 6.25%                - 6.875% (c)                         |   |                                                          | $100 |   |   | 950,000 |   |   | 482,450 |   |   | 48 |   |
| Total                Subject to Mandatory Redemption (c)  |   |                                                          |   |   |   |   |   |   |   |   |   | 66 |   |
|                                                      |   |                                                          |   |   |   |   |   |   |   |   |   |   |   |
| **Total                Preferred Stock**                  |   |                                                          |   |   |   |   |   |   |   |   | $ | 127 |   |

| (a) | At                the option of the subsidiary, the shares may be redeemed at the call                price                plus accrued dividends. The involuntary liquidation preference is                $100 per                share for all outstanding shares.                                                                                                                                                                                                                                                                                                                                                                                            |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | As                of December 31, 2005, the subsidiaries had 14,487,597 shares of $100                par                value preferred stock, 22,200,000 shares of $25 par value preferred                stock                and 7,822,164 shares of no par value preferred stock that were authorized                but unissued. As of December 31, 2004, the subsidiaries had 13,823,127                shares of $100 par value preferred stock, 22,200,000 shares of $25                par                value preferred stock and 7,822,164 shares of no par value preferred                stock                that were authorized but unissued. |
| (c) | Shares                outstanding and related amounts are stated net of applicable retirements                through sinking funds (generally at par) and reacquisitions of shares                in anticipation of future requirements. The subsidiaries reacquired                enough                shares in 1997 to meet all sinking fund requirements on certain series                until 2008 and on certain series until 2009 when all remaining outstanding                shares must be redeemed.                                                                                                                                        |
| (d) | The                number of shares of preferred stock redeemed is 664,470 shares in                2005,                96,378 shares in 2004 and 86,210 shares in                2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |

***Long-term      Debt***

| **Type                of Debt and**                                           |                         | **Weighted                Average Interest Rate****December                31,** |   | **Interest                Rate Range****at                December 31,** |         | **December                31,** |          |
|-------------------------------------------------------------------------------|------------------------------|----------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------|--------------|---------------------------------|---------------|
| **Maturity**                                                                  |                         | **2005**                                                                         |   | **2005**                                                                 |         | **2004**                        |          | **2005** |   | **2004** |   |
|                                                                          |                         |                                                                             |   |                                                                     |         |                            |          | **(in                millions)** |   |
|                                                                          |                         |                                                                             |   |                                                                     |         |                            |          |   |   |   |   |   |   |
| **INSTALLMENT                PURCHASE**** CONTRACTS**                (a) |                         |                                                                             |   |                                                                     |         |                            |          |   |   |   |   |   |   |
|                                                                          | 2006-2009                    |                                                                             | 3.99%  |                                                                     | 2.70%-4.55%  |                            | 1.75%-4.55%   |   | $ | 163 |   | $ | 163 |   |
|                                                                          | 2011-2022                    |                                                                             | 4.14%  |                                                                     | 2.625%-6.10% |                            | 1.70%-6.10%   |   |   | 785 |   |   | 785 |   |
|                                                                          | 2023-2038                    |                                                                             | 3.91%  |                                                                     | 2.625%-6.55% |                            | 1.125%-6.55%  |   |   | 987 |   |   | 825 |   |
|                                                                          |                         |                                                                             |   |                                                                     |         |                            |          |   |   |   |   |   |   |   |
| **SENIOR                UNSECURED NOTES**                                     |                         |                                                                             |   |                                                                     |         |                            |          |   |   |   |   |   |   |
|                                                                          | 2005-2009                    |                                                                             | 5.49%  |                                                                     | 3.60%-6.91%  |                            | 2.879%-6.91%  |   |   | 1,973 |   |   | 3,459 |   |
|                                                                          | 2010-2017                    |                                                                             | 5.21%  |                                                                     | 4.40%-6.375% |                            | 4.40%-6.375%  |   |   | 3,783 |   |   | 2,633 |   |
|                                                                          | 2032-2035                    |                                                                             | 6.21%  |                                                                     | 5.625%-6.65% |                            | 5.625%-6.65%  |   |   | 2,125 |   |   | 1,625 |   |
|                                                                          |                         |                                                                             |   |                                                                     |         |                            |          |   |   |   |   |   |   |   |
| **FIRST                MORTGAGE BONDS**(b)                                    |                         |
|                                                                          | 2005-2008                (c) |                                                                             | 6.93%  |                                                                     | 6.20%-7.75%  |                            | 6.20%-8.00%   |   |   | 222 |   |   | 456 |   |
|                                                                          | 2025                         |                                                                             | -      |                                                                     | -            |                            | 8.00%         |   |   | - |   |   | 45 |   |
|                                                                          |                         |                                                                             |   |                                                                     |         |                            |          |   |   |   |   |   |   |   |
| **NOTES                PAYABLE**(d)                                           |                         |                                                                             |   |                                                                     |         |                            |          |   |   |   |   |   |   |
|                                                                          | 2006-2017                    |                                                                             | 6.08%  |                                                                     | 4.47%-15.25% |                            | 2.325%-15.25% |   |   | 904 |   |   | 939 |   |
|                                                                          |                         |                                                                             |   |                                                                     |         |                            |          |   |   |   |   |   |   |   |
| **SECURITIZATION                BONDS**                                       |                         |                                                                             |   |                                                                     |         |                            |          |   |   |   |   |   |   |
|                                                                          | 2007-2017                    |                                                                             | 5.78%  |                                                                     | 5.01%-6.25%  |                            | 3.54%-6.25%   |   |   | 648 |   |   | 698 |   |
|                                                                          |                         |                                                                             |   |                                                                     |         |                            |          |   |   |   |   |   |   |   |
| **NOTES                PAYABLE TO TRUST**                                |                         |                                                                             |   |                                                                     |         |                            |          |   |   |   |   |   |   |
|                                                                          | 2043                         |                                                                             | 5.25%  |                                                                     | 5.25%        |                            | 5.25%         |   |   | 113 |   |   | 113 |   |
|                                                                          |                         |                                                                             |   |                                                                     |         |                            |          |   |   |   |   |   |   |   |
| **EQUITY                UNIT SENIOR NOTES**                                   |                         |                                                                             |   |                                                                     |         |                            |          |   |   |   |   |   |   |
|                                                                          | 2007                         |                                                                             | 4.709% |                                                                     | 4.709%       |                            | 5.75%         |   |   | 345 |   |   | 345 |   |
|                                                                          |                         |                                                                             |   |                                                                     |         |                            |          |   |   |   |   |   |   |   |
| **OTHER                LONG-TERM DEBT**(e)                                    |                         |                                                                             |   |                                                                     |         |                            |          |   | 236 |   |   | 243 |   |
|                                                                          |                         |                                                                             |   |                                                                     |         |                            |          |   |   |   |   |   |   |
| Equity                Unit Contract Adjustment Payments                  |                         |                                                                             |   |                                                                     |         |                            |          |   | - |   |   | 9 |   |
| Unamortized                Discount (net)                                     |                         |                                                                             |   |                                                                     |         |                            |          |   | (58 | ) |   | (51 | ) |
| **Total                Long-term Debt Outstanding**                           |                         |                                                                             |   |                                                                     |         |                            |          |   | 12,226 |   |   | 12,287 |   |
| **Less                Portion Due Within One Year**                           |                         |                                                                             |   |                                                                     |         |                            |          |   | 1,153 |   |   | 1,279 |   |
| **Long-term                Portion**                                          |                         |                                                                             |   |                                                                     |         |                            |          | $ | 11,073 |   | $ | 11,008 |   |

| (a) | For                certain series of installment purchase contracts, interest rates                are                subject to periodic adjustment. Certain series will be purchased on                demand at periodic interest adjustment dates. Letters of credit from                banks                and standby bond purchase agreements support certain                series.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | First                mortgage bonds are secured by first mortgage liens on electric property,                plant and equipment. There are certain limitations on establishing                additional liens against our assets under our                indentures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| (c) | In                May 2004, we deposited cash and treasury securities with a trustee                to                defease all of TCC’s outstanding First Mortgage Bonds. The defeased TCC                First Mortgage Bonds had balances of $18 million and $84 million                in 2005                and 2004, respectively. Trust fund assets related to this obligation                of $2                million and $72 million are included in Other Temporary Cash Investments                and $21 million and $22 million are included in Other Noncurrent                Assets in                the Consolidated Balance Sheets at December 31, 2005 and 2004,                respectively. In December 2005, we deposited cash and treasury securities                with a trustee to defease the remaining TNC outstanding First Mortgage                Bond. The defeased TNC First Mortgage Bond has a balance of $8 million                at                December 31, 2005. Trust fund assets related to this obligation of                $1                million are included in Other Temporary Cash Investments and $8 million                are included in Other Noncurrent Assets in the Consolidated Balance                Sheets                at December 31, 2005. Trust fund assets are restricted for exclusive                use                in funding the interest and principal due on the First Mortgage                Bonds. |
| (d) | Notes                payable represent outstanding promissory notes issued under term                loan                agreements and revolving credit agreements with a number of banks                and                other financial institutions. At expiration, all notes then issued                and                outstanding are due and payable. Interest rates are both fixed and                variable. Variable rates generally relate to specified short-term                interest                rates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| (e) | Other                long-term debt consists of fair market value of adjustments of fixed                rate                debt that is hedged, a liability along with accrued interest for                disposal                of spent nuclear fuel (see “Nuclear” section of Note 7) and a financing                obligation under a sale and leaseback                agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |

**LONG-TERM      DEBT OUTSTANDING AT DECEMBER 31, 2005 IS PAYABLE AS      FOLLOWS:**

|                                |   | **2006**                         |   | **2007** |   | **2008** |   | **2009** |   | **2010** |   | **After                2010** |   | **Total** |   |
|-------------------------------------|--------|----------------------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|-------------------------------|--------|-----------|--------|
|                                |   | **(in                millions)** |   |
| Principal                Amount     |   | $                                | 1,153  |     | $      | 1,243    |   | $        | 575    |     | $      | 927                           |   | $         | 1,224  |   | $ | 7,162 |   | $ | 12,284 |   |
| Unamortized                Discount |   |                             |   |     |   |     |   |     |   |     |   |                          |   |      |   |   |   |   |   |   | (58 | ) |
|                                |   |                             |   |     |   |     |   |     |   |     |   |                          |   |      |   |   |   |   |   | $ | 12,226 |   |

***Dividend      Restrictions***

***Trust      Preferred Securities***

***Minority      Interest in Finance Subsidiary***

***Lines      of Credit - AEP System***

***Sale      of Receivables - AEP Credit***

|                                                                                                                                                 |   | **Year                Ended December 31,** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------|--------|
|                                                                                                                                                 |   | **2005**                                   |   | **2004** |   |
|                                                                                                                                                 |   | **($                in millions)**         |   |
| Proceeds                from Sale of Accounts Receivable                                                                                             |   | $                                          | 5,925  |   | $ | 5,163 |   |
| Accounts                Receivable Retained Interest and Pledged as Collateral Less                Uncollectible                  Accounts |   | $                                     | 106    |   | $ | 80 |   |
| Deferred                Revenue from Servicing Accounts Receivable                                                                                   |   | $                                     | 1      |   | $ | 1 |   |
| Loss                on Sale of Accounts Receivable                                                                                                   |   | $                                     | 18     |   | $ | 7 |   |
| Average                Variable Discount Rate                                                                                                        |   |                                       | 3.23   | % |   | 1.50 | % |
| Retained                Interest if 10% Adverse Change in Uncollectible                Accounts                                                      |   | $                                          | 103    |   | $ | 78 |   |
| Retained                Interest if 20% Adverse Change in Uncollectible                Accounts                                                      |   | $                                          | 101    |   | $ | 76 |   |

|                                                         |   | **Face                Value****December                31,** |   |
|--------------------------------------------------------------|--------|--------------------------------------------------------------|--------|
|                                                         |   | **2005**                                                     |   | **2004** |   |
|                                                         |   | **(in                millions)**                             |   |
| Customer                Accounts Receivable Retained         |   | $                                                            | 826    |   | $ | 830 |   |
| Accrued                Unbilled Revenues Retained            |   |                                                         | 374    |   |   | 665 |   |
| Miscellaneous                Accounts Receivable Retained    |   |                                                         | 51     |   |   | 84 |   |
| Allowance                for Uncollectible Accounts Retained |   |                                                         | (31    | ) |   | (77 | ) |
| Total                Net Balance Sheet Accounts Receivable   |   |                                                         | 1,220  |   |   | 1,502 |   |
|                                                         |   |                                                         |   |   |   |   |   |
| Customer                Accounts Receivable Securitized      |   |                                                         | 516    |   |   | 435 |   |
| **Total                Accounts Receivable Managed**         |   | $                                                            | 1,736  |   | $ | 1,937 |   |
|                                                         |   |                                                         |   |   |   |   |   |
| **Net                Uncollectible Accounts Written Off**    |   | $                                                            | 74     |   | $ | 86 |   |

**18.**
**JOINTLY-OWNED      ELECTRIC UTILITY PLANT**

|                                                          |   |                                    |   | **Company’s                Share December 31,** |   |
|---------------------------------------------------------------|--------|-----------------------------------------|--------|-------------------------------------------------------|--------|
|                                                          |   |                                    |   | **2005**                                              |   | **2004** |   |
|                                                          |   | **Percent                of Ownership** |   | **Utility                Plant in Service**           |   | **Construction                Work in Progress** |   | **Utility                Plant in Service** |   | **Construction                Work in Progress** |   |
|                                                          |   |                                    |   | **(in                millions)**                      |   |
| W.C.                Beckjord Generating Station (Unit No. 6)  |   |                                    | 12.5   | %                                                     | $      | 16 |   | $ | - |   | $ | 16 |   | $ | - |   |
| Conesville                Generating Station (Unit No. 4)     |   |                                    | 43.5   |                                                  |   | 85 |   |   | 8 |   |   | 85 |   |   | 1 |   |
| J.M.                Stuart Generating Station                 |   |                                    | 26.0   |                                                  |   | 266 |   |   | 35 |   |   | 210 |   |   | 61 |   |
| Wm.                H. Zimmer Generating Station               |   |                                    | 25.4   |                                                  |   | 749 |   |   | 2 |   |   | 741 |   |   | 8 |   |
| Dolet                Hills Generating Station (Unit No. 1)    |   |                                    | 40.2   |                                                  |   | 238 |   |   | 4 |   |   | 238 |   |   | 3 |   |
| Flint                Creek Generating Station (Unit No. 1)    |   |                                    | 50.0   |                                                  |   | 94 |   |   | 2 |   |   | 94 |   |   | 1 |   |
| Pirkey                Generating Station (Unit No. 1)         |   |                                    | 85.9   |                                                  |   | 460 |   |   | 10 |   |   | 457 |   |   | 2 |   |
| STP                Generation Station (Units No. 1 and 2) (a) |   |                                    | 0.0    |                                                  |   | - |   |   | - |   |   | 2,387 |   |   | 2 |   |
| Oklaunion                Generating Station (Unit No. 1) (b)  |   |                                    | 78.1   |                                                  |   | 415 |   |   | 3 |   |   | 412 |   |   | 2 |   |
| Transmission                                                  |   |                                    | (c     | )                                                     |   | 63 |   |   | 1 |   |   | 62 |   |   | 4 |   |

| (a) | Included                in Assets Held for Sale on our Consolidated Balance Sheets. Sale                of STP                was completed in May 2005. We owned 25.2% of STP at December 31,                2004.                                                     |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | TCC’s                7.8% interest in Oklaunion amounted to $39,977 and $39,735 at December                31,                2005 and 2004. These amounts are included in Assets Held for Sale                on our                Consolidated Balance Sheets. |
| (c) | Varying                percentages of ownership.                                                                                                                                                                                                                        |

**19.      **
**UNAUDITED      QUARTERLY FINANCIAL INFORMATION**

|                                                                                                                                                                                                                         |   | **2005                  Quarterly Periods Ended**       |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------|--------|
| **(In                  Millions - Except Per Share Amounts)**                                                                                                                                                                |   | **March                  31**                           |   | **June                  30** |   | **September                  30** |   | **December                  31** |   |
| Revenues                                                                                                                                                                                                                     |   | $                                                       | 3,065  |   | $ | 2,819 |   | $ | 3,328 |   | $ | 2,899 |   |
| Operating                  Income                                                                                                                                                                                            |   |                                                    | 660    |   |   | 455 |   |   | 624 |   |   | 188 |   |
| Income                  Before Discontinued Operations, Extraordinary                  Loss and                    Cumulative Effect of                  Accounting Changes                                             |   |                                                    | 351    |   |   | 221 |   |   | 365 |   |   | 92 |   |
| Extraordinary                  Loss, Net of Tax (a)                                                                                                                                                                          |   |                                                    | -      |   |   | - |   |   | - |   |   | (225 | ) |
| Net                  Income (Loss)                                                                                                                                                                                           |   |                                                    | 355    |   |   | 221 |   |   | 387 |   |   | (149 | ) |
|                                                                                                                                                                                                                         |   |                                                    |   |   |   |   |   |   |   |   |   |   |   |
| Basic                  Earnings (Loss) per Share:                                                                                                                                                                            |   |                                                    |   |   |   |   |   |   |   |   |   |   |   |
| Earnings                  per Share Before Discontinued Operations, Extraordinary                  Loss  and** **Cumulative                  Effect of                  Accounting Changes                    |   |                                                    | 0.90   |   |   | 0.57 |   |   | 0.94 |   |   | 0.23 |   |
| Extraordinary                  Loss per Share (b)                                                                                                                                                                            |   |                                                    | -      |   |   | - |   |   | - |   |   | (0.57 | ) |
| Earnings                  (Loss) per Share                                                                                                                                                                                   |   |                                                    | 0.90   |   |   | 0.58 |   |   | 0.99 |   |   | (0.38 | ) |
|                                                                                                                                                                                                                         |   |                                                    |   |   |   |   |   |   |   |   |   |   |   |
| Diluted                  Earnings (Loss) per Share:                                                                                                                                                                          |   |                                                    |   |   |   |   |   |   |   |   |   |   |   |
| Earnings                  per Share Before Discontinued** **Operations, Extraordinary                  Loss and Cumulative Effect of                  Accounting Changes (c)                                  |   |                                                    | 0.90   |   |   | 0.57 |   |   | 0.94 |   |   | 0.23 |   |
| Extraordinary                  Loss per Share (b)                                                                                                                                                                            |   |                                                    | -      |   |   | - |   |   | - |   |   | (0.57 | ) |
| Earnings                  (Loss) per Share (d)                                                                                                                                                                               |   |                                                    | 0.90   |   |   | 0.58 |   |   | 0.99 |   |   | (0.38 | ) |
|                                                                                                                                                                                                                         |   |                                                    |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                         |   | **2004                  Quarterly Periods Ended**  |
| **(In                  Millions - Except Per Share Amounts)**                                                                                                                                                                |   |  **March                  31**                     |   |  **June                  30** |   |  **September                  30** |   |  **December                  31** |   |
| Revenues                                                                                                                                                                                                                     |   | $                                                       | 3,404  |   | $ | 3,457 |   | $ | 3,819 |   | $ | 3,565 |   |
| Operating                  Income                                                                                                                                                                                            |   |                                                    | 634    |   |   | 420 |   |   | 644 |   |   | 285 |   |
| Income                  Before Discontinued Operations, Extraordinary                  Loss and                    Cumulative Effect of                  Accounting Changes                                             |   |                                                    | 289    |   |   | 151 |   |   | 412 |   |   | 275 |   |
| Extraordinary                  Loss, Net of Tax (a)                                                                                                                                                                          |   |                                                    | -      |   |   | - |   |   | - |   |   | (121 | ) |
| Net                  Income                                                                                                                                                                                                  |   |                                                    | 282    |   |   | 100 |   |   | 530 |   |   | 177 |   |
| Basic                  and Diluted Earnings per Share Before Discontinued Operations,                                     Extraordinary Loss and Cumulative Effect of Accounting                  Changes (e) |   |                                                    | 0.73   |   |   | 0.38 |   |   | 1.04 |   |   | 0.69 |   |
|                                                                                                                                                                                                                         |   |                                                    |   |   |   |   |   |   |   |   |   |   |   |
| Basic                  and Diluted Extraordinary Loss per Share                                                                                                                                                              |   |                                                    | -      |   |   | - |   |   | - |   |   | (0.31 | ) |
| Basic                  and Diluted Earnings per Share                                                                                                                                                                        |   |                                                    | 0.71   |   |   | 0.25 |   |   | 1.34 |   |   | 0.45 |   |

| (a) | See                “Extraordinary Items” section of Note 2 for a discussion of the                extraordinary loss booked in the fourth quarters of 2005 and                2004.                                                                                   |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Amounts                for 2005 do not add to $(0.58) for Extraordinary Loss per Share due                to                differences between the weighted average number of shares outstanding                for                the fourth quarter of 2005 and the year 2005. |
| (c) | Amounts                for 2005 do not add to $2.63 for Diluted Earnings (Loss) per Share                before                Discontinued Operations, Extraordinary Loss and Cumulative Effect                of                Accounting Changes due to rounding.             |
| (d) | Amounts                for 2005 do not add to $2.08 for Diluted Earnings (Loss) per Share                due to                rounding.                                                                                                                                          |
| (e) | Amounts                for 2004 do not add to $2.85 for Basic and Diluted Earnings per Share                before Discontinued Operations, Extraordinary Loss and Cumulative                Effect                of Accounting Changes due to                rounding.          |

----

**AEP        GENERATING COMPANY**

----

**AEP        GENERATING COMPANY**

**SELECTED        FINANCIAL DATA**

**(in        thousands)**

|                                                         |   | **2005**     |    | **2004**     |   | **2003**     |   | **2002**     |    | **2001**     |   |
|--------------------------------------------------------------|--------|--------------|---------|--------------|--------|--------------|--------|--------------|---------|--------------|--------|
|                                                         |   |    |    |    |   |    |   |    |    |    |   |
| **STATEMENTS                    OF INCOME DATA**             |   |    |    |    |   |    |   |    |    |    |   |
| Operating                    Revenues                        |   | $            | 270,755 |         | $      | 241,788      |   | $            | 233,165 |         | $      | 213,281 |   | $ | 227,548 |   |
|                                                         |   |         |    |         |   |         |   |         |    |         |   |   |   |   |   |   |
| Operating                    Income                          |   | $            | 10,901  |         | $      | 10,130       |   | $            | 8,456   |         | $      | 7,511 |   | $ | 9,863 |   |
|                                                         |   |         |    |         |   |         |   |         |    |         |   |   |   |   |   |   |
| **Net                    Income**                            |   | $            | 8,695   |         | $      | 7,842        |   | $            | 7,964   |         | $      | 7,552 |   | $ | 7,875 |   |
|                                                         |   |         |    |         |   |         |   |         |    |         |   |   |   |   |   |   |
| **BALANCE                    SHEETS DATA**                   |   |         |    |         |   |         |   |         |    |         |   |   |   |   |   |   |
| Property,                    Plant and Equipment             |   | $            | 699,342 |         | $      | 692,841      |   | $            | 674,174 |         | $      | 652,332 |   | $ | 648,373 |   |
| Accumulated                    Depreciation and Amortization |   |         | 382,925 |         |   | 368,484      |   |         | 351,062 |         |   | 330,187 |   |   | 310,804 |   |
| **Net                    Property, Plant and Equipment**     |   | $            | 316,417 |         | $      | 324,357      |   | $            | 323,112 |         | $      | 322,145 |   | $ | 337,569 |   |
|                                                         |   |         |    |         |   |         |   |         |    |         |   |   |   |   |   |   |
| Total                    Assets                              |   | $            | 376,703 |         | $      | 376,393      |   | $            | 380,045 |         | $      | 377,716 |   | $ | 387,688 |   |
|                                                         |   |         |    |         |   |         |   |         |    |         |   |   |   |   |   |   |
| Common                    Shareholder's Equity               |   | $            | 50,472  |         | $      | 48,671       |   | $            | 45,875  |         | $      | 42,597 |   | $ | 38,195 |   |
|                                                         |   |         |    |         |   |         |   |         |    |         |   |   |   |   |   |   |
| Long-term                    Debt** **(a)               |   | $            | 44,828  |         | $      | 44,820       |   | $            | 44,811  |         | $      | 44,802 |   | $ | 44,793 |   |
|                                                         |   |         |    |         |   |         |   |         |    |         |   |   |   |   |   |   |
| Obligations                    Under Capital Leases (a)      |   | $            | 12,227  |         | $      | 12,474       | (b)    | $            | 269     |         | $      | 501 |   | $ | 311 |   |

| (a) | Including                  portion due within one year.                                                    |
|-----|------------------------------------------------------------------------------------------------------------|
| (b) | Increased                  primarily due to a new coal transportation lease. See Note                  15. |

----

**AEP        GENERATING COMPANY**

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

**Results        of Operations**

**Reconciliation        of Year Ended December 31, 2004 to Year Ended December 31, 2005**

**Net        Income**

**(in        millions)**

| **Year                  Ended December 31, 2004**                 |   |   |   |   | $      | 7.8    |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                              |   |   |   |   |   |   |   |
| **Change                  in Gross Margin:**                      |   |   |   |   |   |   |   |
| Wholesale                  Sales                                  |   |   |   |   |   | 1.4    |   |
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                  Operation and Maintenance                  |   |   | (0.3   | )      |   |   |   |
| Depreciation                  and Amortization                    |   |   | (0.4   | )      |   |   |   |
| Taxes                  Other Than Income Taxes                    |   |   | 0.1    |   |   |   |   |
| Other                  Income                                     |   |   | 0.1    |   |   |   |   |
| **Total                  Change in Operating Expenses and Other** |   |   |   |   |   | (0.5   | )      |
|                                                              |   |   |   |   |   |   |   |
| **Year                  Ended December 31, 2005**                 |   |   |   |   | $      | 8.7    |   |

**Off-Balance        Sheet Arrangements**

***Rockport        Plant Unit 2***

**Summary        Obligation Information**

**Payments        due by Period**

**(in        millions)**

| **Contractual                  Cash Obligations**   |   | **Less                  Than****1                  year** |   | **2-3                  years** |   | **4-5                  years** |   | **After****5                  years** |   | **Total** |   |
|-----------------------------------------------------|--------|-----------------------------------------------------------|--------|--------------------------------|--------|--------------------------------|--------|---------------------------------------|--------|-----------|--------|
| Advances                  from Affiliates (a)       |   | $                                                         | 35.1   |                           | $      | -                              |   | $                                     | -      |      | $      | - |   | $ | 35.1 |   |
| Interest                  on Long-term Debt (b)     |   |                                                      | 1.9    |                           |   | -                              |   |                                  | -      |      |   | - |   |   | 1.9 |   |
| Long-term                  Debt (c)                 |   |                                                      | 45.0   |                           |   | -                              |   |                                  | -      |      |   | - |   |   | 45.0 |   |
| Capital                  Lease Obligations (d)      |   |                                                      | 1.0    |                           |   | 2.0                            |   |                                  | 1.9    |      |   | 17.0 |   |   | 21.9 |   |
| Noncancelable                  Operating Leases (d) |   |                                                      | 77.5   |                           |   | 154.4                          |   |                                  | 154.2  |      |   | 890.9 |   |   | 1,277.0 |   |
| **Total**                                           |   | $                                                         | 160.5  |                           | $      | 156.4                          |   | $                                     | 156.1  |      | $      | 907.9 |   | $ | 1,380.9 |   |

| (a) | Represents                  short-term borrowings from the Utility Money Pool.                                                                                                                                                                                                 |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Interest                  payments are estimated based on final maturity dates of debt securities                  outstanding at December 31, 2005 and do not reflect anticipated                  future                  refinancings, early redemptions or debt issuances. |
| (c) | See                  Note 16. Represents principal only excluding interest.                                                                                                                                                                                                    |
| (d) | See                  Note 15.                                                                                                                                                                                                                                                  |

**Significant        Factors**

**Critical        Accounting Estimates**

----

**AEP        GENERATING COMPANY**

**STATEMENTS        OF INCOME**

**For        the Years Ended December 31, 2005, 2004 and 2003**

**(in        thousands)**

|                                                                 |   | **2005** |    | **2004** |   | **2003** |   |
|----------------------------------------------------------------------|--------|----------|---------|----------|--------|----------|--------|
|                                                                 |   |     |    |     |   |     |   |
| **OPERATING                  REVENUES**                              |   | $        | 270,755 |     | $      | 241,788  |   | $ | 233,165 |   |
|                                                                 |   |     |    |     |   |     |   |   |   |   |
| **EXPENSES**                                                         |   |     |    |     |   |     |   |   |   |   |
| Fuel                  for Electric Generation                        |   |     | 140,077 |     |   | 112,470  |   |   | 109,238 |   |
| Rent                  - Rockport Plant Unit 2                        |   |     | 68,283  |     |   | 68,283   |   |   | 68,283 |   |
| Other                  Operation                                     |   |     | 12,099  |     |   | 11,187   |   |   | 10,749 |   |
| Maintenance                                                          |   |     | 11,518  |     |   | 12,152   |   |   | 10,346 |   |
| Depreciation                  and Amortization                       |   |     | 23,812  |     |   | 23,390   |   |   | 22,686 |   |
| Taxes                  Other Than Income Taxes                       |   |     | 4,065   |     |   | 4,176    |   |   | 3,407 |   |
| **TOTAL**                                                            |   |     | 259,854 |     |   | 231,658  |   |   | 224,709 |   |
|                                                                 |   |     |    |     |   |     |   |   |   |   |
| **OPERATING                  INCOME**                                |   |     | 10,901  |     |   | 10,130   |   |   | 8,456 |   |
|                                                                 |   |     |    |     |   |     |   |   |   |   |
| **Other                  Income (Expense):**                         |   |     |    |     |   |     |   |   |   |   |
| Interest                  Income                                     |   |     | 24      |     |   | -        |   |   | 9 |   |
| Allowance                  for Equity Funds Used During Construction |   |     | 98      |     |   | 42       |   |   | 142 |   |
| Interest                  Expense                                    |   |     | (2,437  | )        |   | (2,446   | )      |   | (2,550 | ) |
|                                                                 |   |     |    |     |   |     |   |   |   |   |
| **INCOME                  BEFORE INCOME TAXES**                      |   |     | 8,586   |     |   | 7,726    |   |   | 6,057 |   |
| Income                  Tax Credit                                   |   |     | (109    | )        |   | (116     | )      |   | (1,907 | ) |
|                                                                 |   |     |    |     |   |     |   |   |   |   |
| **NET                  INCOME**                                      |   | $        | 8,695   |     | $      | 7,842    |   | $ | 7,964 |   |

**STATEMENTS        OF RETAINED EARNINGS**

**For        the Years Ended December 31, 2005, 2004 and 2003**

**(in        thousands)**

|                                                |   | **2005** |   | **2004** |   | **2003** |   |
|-----------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
|                                                |   |     |   |     |   |     |   |
| **BALANCE                  AT BEGINNING OF PERIOD** |   | $        | 24,237 |     | $      | 21,441   |   | $ | 18,163 |   |
|                                                |   |     |   |     |   |     |   |   |   |   |
| Net                  Income                         |   |     | 8,695  |     |   | 7,842    |   |   | 7,964 |   |
|                                                |   |     |   |     |   |     |   |   |   |   |
| Cash                  Dividends Declared            |   |     | 6,894  |     |   | 5,046    |   |   | 4,686 |   |
|                                                |   |     |   |     |   |     |   |   |   |   |
| **BALANCE                  AT END OF PERIOD**       |   | $        | 26,038 |     | $      | 24,237   |   | $ | 21,441 |   |

*The        common stock of AEGCo is wholly-owned by AEP.*

*See        Notes to Financial Statements of Registrant Subsidiaries.*

----

**AEP        GENERATING COMPANY**

**BALANCE        SHEETS**

**ASSETS**

**December        31, 2005 and 2004**

**(in        thousands)**

|                                                        |   | **2005**     |    | **2004**     |   |
|-------------------------------------------------------------|--------|--------------|---------|--------------|--------|
| **CURRENT                  ASSETS**                         |   |    |    |    |   |
| Accounts                  Receivable - Affiliated Companies |   | $            | 29,671  |         | $      | 23,078 |   |
| Fuel                                                        |   |         | 14,897  |         |   | 16,404 |   |
| Materials                  and Supplies                     |   |         | 7,017   |         |   | 5,962 |   |
| Accrued                  Tax Benefits                       |   |         | 2,074   |         |   | - |   |
| Prepayments                  and Other                      |   |         | 9       |         |   | - |   |
| **TOTAL**                                                   |   |         | 53,668  |         |   | 45,444 |   |
|                                                        |   |         |    |         |   |   |   |
| **PROPERTY,                  PLANT AND EQUIPMENT**          |   |         |    |         |   |   |   |
| Electric                  - Production                      |   |         | 684,721 |         |   | 681,254 |   |
| Other                                                       |   |         | 2,369   |         |   | 3,858 |   |
| Construction                  Work in Progress              |   |         | 12,252  |         |   | 7,729 |   |
| **Total**                                                   |   |         | 699,342 |         |   | 692,841 |   |
| Accumulated                  Depreciation and Amortization  |   |         | 382,925 |         |   | 368,484 |   |
| **TOTAL                  - NET**                            |   |         | 316,417 |         |   | 324,357 |   |
|                                                        |   |         |    |         |   |   |   |
| Noncurrent                  Assets                          |   |         | 6,618   |         |   | 6,592 |   |
|                                                        |   |         |    |         |   |   |   |
| **TOTAL                  ASSETS**                           |   | $            | 376,703 |         | $      | 376,393 |   |

*See        Notes to Financial Statements of Registrant Subsidiaries.*

----

**AEP        GENERATING COMPANY**

**BALANCE        SHEETS**

**LIABILITIES        AND SHAREHOLDER’S EQUITY**

**December        31, 2005 and 2004**

|                                                                                                                  |   | **2005**                            |    | **2004** |   |
|-----------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------|---------|----------|--------|
| **CURRENT                  LIABILITIES**                                                                              |   | **(in                  thousands)** |    |
| Advances                  from Affiliates                                                                             |   | $                                   | 35,131  |     | $      | 26,915 |   |
| Accounts                  Payable:                                                                                    |   |                                |    |     |   |   |   |
| General                                                                                                               |   |                                | 926     |     |   | 443 |   |
| Affiliated                  Companies                                                                                 |   |                                | 22,161  |     |   | 17,905 |   |
| Long-term                  Debt Due Within One Year                                                                   |   |                                | 44,828  |     |   | - |   |
| Accrued                  Taxes                                                                                        |   |                                | 3,055   |     |   | 8,806 |   |
| Accrued                  Rent - Rockport Plant Unit 2                                                                 |   |                                | 4,963   |     |   | 4,963 |   |
| Other                                                                                                                 |   |                                | 1,228   |     |   | 1,194 |   |
| **TOTAL**                                                                                                             |   |                                | 112,292 |     |   | 60,226 |   |
|                                                                                                                  |   |                                |    |     |   |   |   |
| **NONCURRENT                  LIABILITIES**                                                                           |   |                                |    |     |   |   |   |
| Long-term                  Debt                                                                                       |   |                                | -       |     |   | 44,820 |   |
| Deferred                  Income Taxes                                                                                |   |                                | 23,617  |     |   | 24,762 |   |
| Regulatory                  Liabilities and Deferred Investment Tax Credits                                           |   |                                | 82,689  |     |   | 84,530 |   |
| Deferred                  Gain on Sale and Leaseback - Rockport Plant Unit 2                                          |   |                                | 94,333  |     |   | 99,904 |   |
| Obligations                  Under Capital Leases                                                                     |   |                                | 11,930  |     |   | 12,264 |   |
| Asset                  Retirement Obligations                                                                         |   |                                | 1,370   |     |   | 1,216 |   |
| **TOTAL**                                                                                                             |   |                                | 213,939 |     |   | 267,496 |   |
|                                                                                                                  |   |                                |    |     |   |   |   |
| **TOTAL                  LIABILITIES**                                                                                |   |                                | 326,231 |     |   | 327,722 |   |
|                                                                                                                  |   |                                |    |     |   |   |   |
| Commitments                  and Contingencies (Note 7)                                                               |   |                                |    |     |   |   |   |
|                                                                                                                  |   |                                |    |     |   |   |   |
| **COMMON                  SHAREHOLDER’S EQUITY**                                                                |   |                                |    |     |   |   |   |
| Common                  Stock - $1,000 Par Value Per Share Authorized                  and Outstanding - 1,000 Shares |   |                                | 1,000   |     |   | 1,000 |   |
| Paid-in                  Capital                                                                                      |   |                                | 23,434  |     |   | 23,434 |   |
| Retained                  Earnings                                                                                    |   |                                | 26,038  |     |   | 24,237 |   |
| **TOTAL**                                                                                                             |   |                                | 50,472  |     |   | 48,671 |   |
|                                                                                                                  |   |                                |    |     |   |   |   |
| **TOTAL                  LIABILITIES AND SHAREHOLDER’S EQUITY**                                                 |   | $                                   | 376,703 |     | $      | 376,393 |   |

*See        Notes to Financial Statements of Registrant Subsidiaries.*

----

**AEP        GENERATING COMPANY**

**STATEMENTS        OF CASH FLOWS**

**For        the Years Ended December 31, 2005, 2004 and 2003**

**(in        thousands)**

|                                                                                                               |   | **2005**     |    | **2004**     |   | **2003**     |   |
|--------------------------------------------------------------------------------------------------------------------|--------|--------------|---------|--------------|--------|--------------|--------|
| **OPERATING                  ACTIVITIES**                                                                          |   |    |    |    |   |    |   |
| **Net                  Income**                                                                                    |   | $            | 8,695   |         | $      | 7,842        |   | $ | 7,964 |   |
| **Adjustments                  for Noncash Items:**                                                                |   |         |    |         |   |         |   |   |   |   |
| Depreciation                  and Amortization                                                                     |   |         | 23,812  |         |   | 23,390       |   |   | 22,686 |   |
| Deferred                  Income Taxes                                                                             |   |         | (1,666  | )            |   | (2,219       | )      |   | (5,838 | ) |
| Deferred                  Investment Tax Credits                                                                   |   |         | (3,532  | )            |   | (3,339       | )      |   | (3,354 | ) |
| Amortization                  of Deferred Gain on Sale and Leaseback                  - Rockport Plant Unit 2 |   |         | (5,571  | )            |   | (5,571       | )      |   | (5,571 | ) |
| Changes                  in Other Noncurrent Assets                                                                |   |         | (457    | )            |   | 3,455        |   |   | 3,486 |   |
| Changes                  in Other Noncurrent Liabilities                                                           |   |         | 2,204   |         |   | (2,511       | )      |   | 1,120 |   |
| **Changes                  in Components of Working Capital:**                                                     |   |         |    |         |   |         |   |   |   |   |
| Accounts                  Receivable                                                                               |   |         | (6,593  | )            |   | 1,670        |   |   | (6,294 | ) |
| Fuel,                  Materials and Supplies                                                                      |   |         | 452     |         |   | 3,192        |   |   | (385 | ) |
| Accounts                  Payable                                                                                  |   |         | 4,739   |         |   | 1,939        |   |   | 476 |   |
| Accrued                  Taxes, Net                                                                                |   |         | (7,825  | )            |   | 2,736        |   |   | 3,743 |   |
| Other                  Current Assets                                                                              |   |         | (9      | )            |   | -            |   |   | - |   |
| Other                  Current Liabilities                                                                         |   |         | 34      |         |   | 196          |   |   | (113 | ) |
| **Net                  Cash Flows From Operating Activities**                                                      |   |         | 14,283  |         |   | 30,780       |   |   | 17,920 |   |
|                                                                                                               |   |         |    |         |   |         |   |   |   |   |
| **INVESTING                  ACTIVITIES**                                                                          |   |         |    |         |   |         |   |   |   |   |
| Construction                  Expenditures                                                                         |   |         | (15,372 | )            |   | (15,757      | )      |   | (22,197 | ) |
| Proceeds                  from Sale of Assets                                                                      |   |         | -       |         |   | -            |   |   | 105 |   |
| **Net                  Cash Flows Used For Investing Activities**                                                  |   |         | (15,372 | )            |   | (15,757      | )      |   | (22,092 | ) |
|                                                                                                               |   |         |    |         |   |         |   |   |   |   |
| **FINANCING                  ACTIVITIES**                                                                          |   |         |    |         |   |         |   |   |   |   |
| Change                  in Advances from Affiliates, Net                                                           |   |         | 8,216   |         |   | (9,977       | )      |   | 8,858 |   |
| Principal                  Payments for Capital Lease Obligations                                                  |   |         | (233    | )            |   | -            |   |   | - |   |
| Dividends                  Paid                                                                                    |   |         | (6,894  | )            |   | (5,046       | )      |   | (4,686 | ) |
| **Net                  Cash Flows From (Used For) Financing Activities**                                           |   |         | 1,089   |         |   | (15,023      | )      |   | 4,172 |   |
|                                                                                                               |   |         |    |         |   |         |   |   |   |   |
| **Net                  Change in Cash and Cash Equivalents**                                                       |   |         | -       |         |   | -            |   |   | - |   |
| **Cash                  and Cash Equivalents at Beginning of Period**                                              |   |         | -       |         |   | -            |   |   | - |   |
| **Cash                  and Cash Equivalents at End of Period**                                                    |   | $            | -       |         | $      | -            |   | $ | - |   |

| **SUPPLEMENTAL                  DISCLOSURE:**                                                                                                                                                                                                                                                                                                                                                                                         |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Cash                  paid for interest net of capitalized amounts was $2,170,000, $2,179,000                  and $2,283,000 and for income taxes was $13,435,000, $542,000 and                  $6,483,000 in 2005, 2004 and 2003, respectively. Noncash capital                  lease                  acquisitions were $45,000, $12,297,000 and $24,000 in 2005, 2004                  and 2003,                  respectively. |

*          See Notes to Financial Statements of Registrant Subsidiaries.*

----

**AEP        GENERATING COMPANY**

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

|                                                                                                                                                    | **Footnote                    Reference** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------|
|                                                                                                                                                    |                                      |
| Organization                    and Summary of Significant Accounting Policies                                                                          | Note                    1                 |
| New                    Accounting Pronouncements, Extraordinary Items and Cumulative                    Effect of                    Accounting Changes | Note                    2                 |
| Effects                    of Regulation                                                                                                                | Note                    5                 |
| Commitments                    and Contingencies                                                                                                        | Note                    7                 |
| Guarantees                                                                                                                                              | Note                    8                 |
| Company-wide                    Staffing and Budgeting Review                                                                                           | Note                    9                 |
| Benefit                    Plans                                                                                                                        | Note                    11                |
| Business                    Segments                                                                                                                    | Note                    12                |
| Derivatives,                    Hedging and Financial Instruments                                                                                       | Note                    13                |
| Income                    Taxes                                                                                                                         | Note                    14                |
| Leases                                                                                                                                                  | Note                    15                |
| Financing                    Activities                                                                                                                 | Note                    16                |
| Related                    Party Transactions                                                                                                           | Note                    17                |
| Unaudited                    Quarterly Financial Information                                                                                            | Note                    19                |

----

**REPORT          OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

*.*

* *

----

**AEP          TEXAS CENTRAL COMPANY AND SUBSIDIARY**

----

**AEP          TEXAS CENTRAL COMPANY AND SUBSIDIARY**

**SELECTED          CONSOLIDATED FINANCIAL DATA**

**(in          thousands)**

|                                                                                                                       |   | **2005**     |      | **2004**     |   | **2003**     |   | **2002**     |      | **2001**     |   |
|----------------------------------------------------------------------------------------------------------------------------|--------|--------------|-----------|--------------|--------|--------------|--------|--------------|-----------|--------------|--------|
|                                                                                                                       |   |    |      |    |   |    |   |    |      |    |   |
| **STATEMENTS                    OF OPERATIONS DATA**                                                                       |   |    |      |    |   |    |   |    |      |    |   |
| Total                    Revenues                                                                                          |   | $            | 793,246   |         | $      | 1,212,849    |   | $            | 1,797,686 |         | $      | 1,739,853 |   | $ | 1,753,944 |   |
|                                                                                                                       |   |         |      |         |   |         |   |         |      |         |   |   |   |   |   |   |
| Operating                    Income                                                                                        |   | $            | 177,281   |         | $      | 244,081      |   | $            | 452,966   |         | $      | 541,132 |   | $ | 402,248 |   |
|                                                                                                                       |   |         |      |         |   |         |   |         |      |         |   |   |   |   |   |   |
| Income                    Before Extraordinary Loss and                      Cumulative Effect Accounting Change |   | $            | 50,772    |         | $      | 294,656      |   | $            | 217,547   |         | $      | 275,941 |   | $ | 182,278 |   |
| Extraordinary                    Loss on Stranded Cost  Recovery,                      Net of Tax (a)            |   |         | (224,551  | )            |   | (120,534     | )      |         | -         |         |   | - |   |   | - |   |
| Cumulative                    Effect of Accounting Change,                    Net of Tax                                   |   |         | -         |         |   | -            |   |         | 122       |         |   | - |   |   | - |   |
| **Net                    Income (Loss)**                                                                                   |   | $            | (173,779  | )            | $      | 174,122      |   | $            | 217,669   |         | $      | 275,941 |   | $ | 182,278 |   |
|                                                                                                                       |   |         |      |         |   |         |   |         |      |         |   |   |   |   |   |   |
| **BALANCE                    SHEETS DATA**                                                                                 |   |         |      |         |   |         |   |         |      |         |   |   |   |   |   |   |
| Property,                    Plant and Equipment                                                                           |   | $            | 2,657,195 |         | $      | 2,495,921    |   | $            | 2,428,004 |         | $      | 2,338,100 |   | $ | 2,234,822 |   |
| Accumulated                    Depreciation and  Amortization                                                         |   |         | 636,078   |         |   | 726,771      |   |         | 697,023   |         |   | 663,266 |   |   | 617,746 |   |
| **Net                    Property, Plant and Equipment**                                                                   |   | $            | 2,021,117 |         | $      | 1,769,150    |   | $            | 1,730,981 |         | $      | 1,674,834 |   | $ | 1,617,076 |   |
|                                                                                                                       |   |         |      |         |   |         |   |         |      |         |   |   |   |   |   |   |
| Total                    Assets                                                                                            |   | $            | 4,904,912 |         | $      | 5,678,320    |   | $            | 5,820,360 |         | $      | 5,565,599 |   | $ | 5,006,294 |   |
|                                                                                                                       |   |         |      |         |   |         |   |         |      |         |   |   |   |   |   |   |
| Common                    Shareholder's Equity                                                                             |   | $            | 947,630   |         | $      | 1,268,643    |   | $            | 1,209,049 |         | $      | 1,101,134 |   | $ | 1,400,100 |   |
|                                                                                                                       |   |         |      |         |   |         |   |         |      |         |   |   |   |   |   |   |
| Cumulative                    Preferred Stock Not Subject to Mandatory Redemption                                          |   | $            | 5,940     |         | $      | 5,940        |   | $            | 5,940     |         | $      | 5,942 |   | $ | 5,952 |   |
|                                                                                                                       |   |         |      |         |   |         |   |         |      |         |   |   |   |   |   |   |
| Trust                    Preferred Securities (b)                                                                          |   | $            | -         |         | $      | -            |   | $            | -         |         | $      | 136,250 |   | $ | 136,250 |   |
|                                                                                                                       |   |         |      |         |   |         |   |         |      |         |   |   |   |   |   |   |
| Long-term                    Debt (c)                                                                                      |   | $            | 1,853,496 |         | $      | 1,907,294    |   | $            | 2,291,625 |         | $      | 1,438,565 |   | $ | 1,253,768 |   |
|                                                                                                                       |   |         |      |         |   |         |   |         |      |         |   |   |   |   |   |   |
| Obligations                    Under Capital Leases (c)                                                                    |   | $            | 1,378     |         | $      | 880          |   | $            | 1,043     |         | $      | - |   | $ | - |   |

| (a) | See                    “Extraordinary Items” section of Note 2 and “Texas Restructuring” section                    of Note 6. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | See                    “Trust Preferred Securities” section of Note 16.                                                                    |
| (c) | Including                    portion due within one year.                                                                                              |

----

**AEP          TEXAS CENTRAL COMPANY AND SUBSIDIARY**

**MANAGEMENT’S          FINANCIAL DISCUSSION AND ANALYSIS**

**Results          of Operations**

**Reconciliation          of Year Ended December 31, 2004 to Year Ended December 31,          2005**

**Income          Before Extraordinary Loss and Cumulative Effect of Accounting          Change**

**(in          millions)**

| **Year                    Ended December 31, 2004**                 |   |   |   |   | $      | 295    |   |
|---------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                |   |   |   |   |   |   |   |
| **Changes                    in Gross Margin:**                     |   |   |   |   |   |   |   |
| Texas                    Supply                                     |   |   | (113   | )      |   |   |   |
| Texas                    Wires                                      |   |   | 22     |   |   |   |   |
| Off-system                    Sales                                 |   |   | (2     | )      |   |   |   |
| Transmission                    Revenues                            |   |   | (9     | )      |   |   |   |
| Other                    Revenues                                   |   |   | 15     |   |   |   |   |
| **Total                    Change in Gross Margin**                 |   |   |   |   |   | (87    | )      |
|                                                                |   |   |   |   |   |   |   |
| **Changes                    in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                    Operation and Maintenance                  |   |   | 38     |   |   |   |   |
| Depreciation                    and Amortization                    |   |   | (19    | )      |   |   |   |
| Taxes                    Other Than Income Taxes                    |   |   | 1      |   |   |   |   |
| Carrying                    Costs on Stranded Cost Recovery         |   |   | (321   | )      |   |   |   |
| Other                    Income                                     |   |   | 9      |   |   |   |   |
| Interest                    Expense                                 |   |   | 12     |   |   |   |   |
| **Total                    Change in Operating Expenses and Other** |   |   |   |   |   | (280   | )      |
|                                                                |   |   |   |   |   |   |   |
| Income                    Tax Expense                               |   |   |   |   |   | 123    |   |
|                                                                |   |   |   |   |   |   |   |
| **Year                    Ended December 31, 2005**                 |   |   |   |   | $      | 51     |   |

| **·** | Texas                    Supply margins decreased $113 million primarily due to a $458                    million                    decrease in revenue from the expiration in December 2004 of the                    two year                    supply contract with our largest REP customer, Centrica; lower                    capacity                    sales of $29 million due to the sale of all generation plants                    except our                    share of Oklaunion Plant which is held for sale; a $16 million                    decrease in                    ERCOT Reliability-Must-Run (RMR) sales; lower optimization margins                    of $27                    million; and decreased nonaffiliated margins of $2 million. These                    decreases were partially offset by lower fuel and purchased power                    expenses                    of $334 million primarily from the loss of our largest REP customer                    and                    lower provision for fuel refund of $96 million. |
|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **·** | Texas                    Wires revenues increased $22 million primarily due to an increase                    in sales                    volumes resulting partly from a 6% increase in degree                    days.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| **·** | Transmission                    Revenues decreased $9 million primarily due to lower ERCOT rates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **·** | Other                    Revenues increased $15 million primarily due to increased third                    party                    construction project revenues of $30 million resulting from increased                    activity. This increase was partially offset by lower affiliated                    transmission revenues of $11 million and lower ancillary services                    of $2                    million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |

| **·** | Other                    Operation and Maintenance expenses decreased $38 million primarily                    due to                    a $42 million decrease in power plant operations and maintenance                    expenses                    due to the sales of virtually all generation plants along with                    a $31                    million decrease in administrative and general expenses primarily                    related                    to employee costs and outside services. These decreases were                    partially                    offset by increased transmission and distribution related operations                    and                    maintenance expenses of $10 million primarily related to station                    equipment                    and overhead lines, as well as $28 million of increased third                    party                    construction project expenses resulting from increased activity. |
|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **·** | Depreciation                    and Amortization expense increased $19 million primarily due                    to the                    recovery and amortization of securitized transition assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| **·** | Carrying                    Costs on Stranded Cost Recovery decreased $321 million. In 2004,                    TCC                    booked $302 million of carrying costs income related to 2002                    - 2004. Based                    on the final order in our True-up Proceeding, we determined that                    adjustments to those carrying costs were required, resulting                    in carrying                    costs expense of $19 million in 2005 (see the “Carrying Costs on Net                    True-up Regulatory Assets” section of Note 6).                                                                                                                                                                                                                                                                                                                                                                                               |
| **·** | Other                    Income increased $9 million primarily due to the accrual of interest                    income resulting from a Texas Appeals Court order (see “Excess Earnings”                    in the “Texas Restructuring ” section of Note 6).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| **·** | Interest                    Expense decreased $12 million primarily due to lower levels of                    debt                    outstanding.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |

*Income          Taxes*

**Reconciliation          of Year Ended December 31, 2003 to Year Ended December 31, 2004**

**Income          Before Extraordinary Loss and Cumulative Effect of Accounting          Change**

**(in          millions)**

| **Year                    Ended December 31, 2003**                 |   |   |   |   | $      | 218    |   |
|---------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                |   |   |   |   |   |   |   |
| **Changes                    in Gross Margin:**                     |   |   |   |   |   |   |   |
| Texas                    Supply                                     |   |   | (27    | )      |   |   |   |
| Texas                    Wires                                      |   |   | (213   | )      |   |   |   |
| Off-system                    Sales                                 |   |   | (49    | )      |   |   |   |
| Transmission                    Revenues                            |   |   | 5      |   |   |   |   |
| Other                    Revenues                                   |   |   | 1      |   |   |   |   |
| **Total                    Change in Gross Margin**                 |   |   |   |   |   | (283   | )      |
|                                                                |   |   |   |   |   |   |   |
| **Changes                    in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                    Operation and Maintenance                  |   |   | (2     | )      |   |   |   |
| Depreciation                    and Amortization                    |   |   | 75     |   |   |   |   |
| Taxes                    Other Than Income Taxes                    |   |   | 1      |   |   |   |   |
| Carrying                    Costs on Stranded Cost Recovery         |   |   | 302    |   |   |   |   |
| Other                    Income                                     |   |   | 4      |   |   |   |   |
| Interest                    Expense                                 |   |   | 10     |   |   |   |   |
| **Total                    Change in Operating Expenses and Other** |   |   |   |   |   | 390    |   |
|                                                                |   |   |   |   |   |   |   |
| Income                    Tax Expense                               |   |   |   |   |   | (30    | )      |
|                                                                |   |   |   |   |   |   |   |
| **Year                    Ended December 31, 2004**                 |   |   |   |   | $      | 295    |   |

| **·** | Texas                    Supply margins decreased $27 million primarily due to the sale                    of certain                    generation plants partially offset by a decrease in the provision                    for                    refund due to the final fuel reconciliation true-up.                         |
|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **·** | Texas                    Wires revenues decreased $213 million primarily due to establishing                    regulatory assets in Texas in 2003 (see “Texas Restructuring” and                    “Wholesale Capacity Auction True-up and Stranded Plant Cost” sections of                    Note 6). |
| **·** | Margins                    from Off-system Sales decreased $49 million primarily due to                    the sale of                    certain generation plants.                                                                                                                                                              |
| **·** | Transmission                    Revenues increased $5 million primarily due to higher ERCOT revenues.                                                                                                                                                                                                                             |

| **·** | Depreciation                    and Amortization expense decreased $75 million primarily due                    to the                    cessation of depreciation on plants sold and plants classified                    as held for                    sale.                                                                                                                                                                                                                                        |
|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **·** | Carrying                    Costs on Stranded Cost Recovery of $302 million were recorded                    in 2004 for                    the years 2002 - 2004. There were no carrying costs recorded                    prior to                    December 2004 (see the “Carrying Costs on Net True-up Regulatory Assets”                    section of Note 6).                                                                                                                     |
| **·** | Other                    Income increased $4 million primarily due to increased interest                    income                    from a favorable position in the corporate borrowing program.                                                                                                                                                                                                                                                                                                     |
| **·** | Interest                    Expense decreased $10 million primarily due to the defeasance                    of $112                    million of First Mortgage Bonds, and the resultant deferral of                    the                    interest cost as a regulatory asset related to the cost of the                    sale of                    generation assets, the redemption of the 8% Notes Payable to                    Trust, and                    other financing activities. |

*Income          Taxes*

**Financial          Condition**

**Credit          Ratings**

|                                     | **Moody’s** |   | **S&P** |   | **Fitch** |
|------------------------------------------|-------------------|--------|-------------|--------|-----------|
|                                     |              |   |        |   |      |
| First                    Mortgage Bonds  | Baa1              |   | BBB         |   | A         |
| Senior                    Unsecured Debt | Baa2              |   | BBB         |   | A-        |

**Cash          Flow**

|                                                                    |   | **2005**                                    |     | **2004** |   | **2003** |   |
|-------------------------------------------------------------------------|--------|---------------------------------------------|----------|----------|--------|----------|--------|
|                                                                    |   |  **(in                    thousands)** |     |
| **Cash                    and Cash Equivalents at Beginning of Period** |   | $                                           | 26       |     | $      | 837      |   | $ | 883 |   |
| Cash                    Flows From (Used For):                          |   |                                        |     |     |   |     |   |   |   |   |
| Operating                    Activities                                 |   |                                        | (72,267  | )        |   | 286,608  |   |   | 375,912 |   |
| Investing                    Activities                                 |   |                                        | 201,083  |     |   | 265,147  |   |   | (184,049 | ) |
| Financing                    Activities                                 |   |                                        | (128,842 | )        |   | (552,566 | )      |   | (191,909 | ) |
| Net                    Decrease in Cash and Cash Equivalents            |   |                                        | (26      | )        |   | (811     | )      |   | (46 | ) |
| **Cash                    and Cash Equivalents at End of Period**       |   | $                                           | -        |     | $      | 26       |   | $ | 837 |   |

*Operating          Activities*

*Investing          Activities*

*Financing          Activities*

**Summary          Obligation Information**

**Payments          Due by Period**

**(in          millions)**

| **Contractual                    Cash Obligations**                                        |   | **Less                    Than 1 year** |   | **2-3                    years** |   | **4-5                    years** |   | **After****5                    years** |   | **Total** |   |
|--------------------------------------------------------------------------------------------|--------|-----------------------------------------|--------|----------------------------------|--------|----------------------------------|--------|-----------------------------------------|--------|-----------|--------|
| Advances                    from Affiliates (a)                                            |   | $                                       | 82.1   |                             | $      | -                                |   | $                                       | -      |      | $      | - |   | $ | 82.1 |   |
| Interest                    on Fixed Rate Portion of Long-term Debt                    (b) |   |                                    | 86.9   |                             |   | 147.6                            |   |                                    | 129.4  |      |   | 598.8 |   |   | 962.7 |   |
| Fixed                    Rate Portion of Long-term Debt (c)                                |   |                                    | 152.9  |                             |   | 271.4                            |   |                                    | 110.2  |      |   | 998.8 |   |   | 1,533.3 |   |
| Variable                    Rate Portion of Long-term Debt (d)                             |   |                                    | -      |                             |   | -                                |   |                                    | -      |      |   | 322.9 |   |   | 322.9 |   |
| Capital                    Lease Obligations (e)                                           |   |                                    | 0.5    |                             |   | 0.7                              |   |                                    | 0.3    |      |   | - |   |   | 1.5 |   |
| Noncancelable                    Operating Leases (e)                                      |   |                                    | 5.8    |                             |   | 8.5                              |   |                                    | 6.3    |      |   | 3.9 |   |   | 24.5 |   |
| Energy                    and Capacity Purchase Contracts (f)                              |   |                                    | 3.9    |                             |   | 7.6                              |   |                                    | 6.4    |      |   | 11.2 |   |   | 29.1 |   |
| Construction                    Contracts for Assets (g)                                   |   |                                    | 101.1  |                             |   | -                                |   |                                    | -      |      |   | - |   |   | 101.1 |   |
| **Total**                                                                                  |   | $                                       | 433.2  |                             | $      | 435.8                            |   | $                                       | 252.6  |      | $      | 1,935.6 |   | $ | 3,057.2 |   |

| (a) | Represents                    short-term borrowings from the Utility Money Pool.                                                                                                                                                                                                                          |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Interest                    payments are estimated based on final maturity dates of debt                    securities                    outstanding at December 31, 2005 and do not reflect anticipated                    future                    refinancings, early redemptions or debt issuances. |
| (c) | See                    Note 16. Represents principal only excluding interest.                                                                                                                                                                                                                             |
| (d) | See                    Note 16. Represents principal only excluding interest. Variable                    rate debt                    had interest rates that ranged between 3.15% and 3.45% at December                    31,                    2005.                                                 |
| (e) | See                    Note 15.                                                                                                                                                                                                                                                                           |
| (f) | Represents                    contractual cash flows of energy and capacity purchase                    contracts.                                                                                                                                                                                        |
| (g) | Represents                    only capital assets that are contractual                    obligations.                                                                                                                                                                                                    |

**Amount          of Commitment Expiration Per Period**

**(in          millions)**

| **Other                    Commercial****Commitments**                |   | **Less                    Than****1                    year** |   | **2-3                    years** |   | **4-5                    years** |   | **After****5                    Years** |   | **Total** |   |
|-----------------------------------------------------------------------|--------|---------------------------------------------------------------|--------|----------------------------------|--------|----------------------------------|--------|-----------------------------------------|--------|-----------|--------|
| Guarantees                    of Our Performance (a)                  |   | $                                                             | -      |                             | $      | 443                              |   | $                                       | -      |      | $      | - |   | $ | 443 |   |
| Transmission                    Facilities for Third Parties (b) |   |                                                          | 44     |                             |   | 47                               |   |                                    | -      |      |   | - |   |   | 91 |   |
| **Total**                                                             |   | $                                                             | 44     |                             | $      | 490                              |   | $                                       | -      |      | $      | - |   | $ | 534 |   |

| (a) | See                    “Contracts” section of Note 8.                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | As                    construction agent for third party owners of transmission facilities,                    we                    have committed by contract terms to complete construction by                    dates                    specified in the contracts. Should we default on these obligations,                    financial payments could be required including liquidating damages                    of up                    to $8 million and other remedies required by contract                    terms. |

**Significant          Factors**

**Texas          Regulatory Activity**

***Texas          Restructuring***

|                                                                                                              |   | **in                      millions** |      |
|-------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|-----------|
| **Total                      Recorded Net True-up Regulatory Asset as of December 31,                      2005** |   | $                                    | **1,275** |   |
| Unrecognized                      but Recoverable Equity Carrying Costs and Other                                 |   |                                 | 200       |   |
| Estimated                      January 2006 - August 2006 Carrying Costs                                          |   |                                 | 144       |   |
| Securitization                      Issuance Costs                                                                |   |                                 | 24        |   |
| Net                      Other Recoverable True-up Amounts (a)                                                    |   |                                 | 161       |   |
| **Estimated                      Securitization Request**                                                         |   | $                                    | **1,804** |   |

| (a) | If                      included in the proposed securitization as described above,                      this amount,                      along with the ADFIT benefit, is refundable to customers over                      future                      periods through a negative competition transition                      charge. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Critical          Accounting Estimates**

----

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

**Market          Risks**

**MTM          Risk Management Contract Net Assets**

**Reconciliation          of MTM Risk Management Contracts to**

**Consolidated          Balance Sheet**

**As          of December 31, 2005**

**(in          thousands)**

|                                                                          |   | **MTM                    Risk Management Contracts** |    | **Cash                    Flow Hedges** |   | **Total** |   |
|-------------------------------------------------------------------------------|--------|------------------------------------------------------|---------|-----------------------------------------|--------|-----------|--------|
| Current                    Assets                                             |   | $                                                    | 14,147  |                                    | $      | 164       |   | $ | 14,311 |   |
| Noncurrent                    Assets                                          |   |                                                 | 11,609  |                                    |   | -         |   |   | 11,609 |   |
| **Total                    MTM Derivative Contract Assets**                   |   |                                                 | 25,756  |                                    |   | 164       |   |   | 25,920 |   |
|                                                                          |   |                                                 |    |                                    |   |      |   |   |   |   |
| Current                    Liabilities                                        |   |                                                 | (12,531 | )                                       |   | (493      | )      |   | (13,024 | ) |
| Noncurrent                    Liabilities                                     |   |                                                 | (7,799  | )                                       |   | (58       | )      |   | (7,857 | ) |
| **Total                    MTM Derivative Contract Liabilities**              |   |                                                 | (20,330 | )                                       |   | (551      | )      |   | (20,881 | ) |
|                                                                          |   |                                                 |    |                                    |   |      |   |   |   |   |
| **Total                    MTM Derivative Contract Net Assets (Liabilities)** |   | $                                                    | 5,426   |                                    | $      | (387      | )      | $ | 5,039 |   |

**MTM          Risk Management Contract Net Assets**

**Year          Ended December 31, 2005**

**(in          thousands)**

| **Total                    MTM Risk Management Contract Net Assets at December 31,                    2004**                                                              |   | $      | 9,701  |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| (Gain)                    Loss from Contracts Realized/Settled During the Period and Entered                    in a                    Prior Period                      |   |   | (4,835 | )      |
| Fair                    Value of New Contracts at Inception When Entered During the Period                    (a)                                                         |   |   | 171    |   |
| Net                    Option Premiums Paid/(Received) for Unexercised or Unexpired                    Option                    Contracts Entered During the Period |   |   | -      |   |
| Change                    in Fair Value Due to Valuation Methodology Changes on Forward                    Contracts                                                      |   |   | -      |   |
| Changes                    in Fair Value due to Market Fluctuations During the Period                    (b)                                                              |   |   | 389    |   |
| Changes                    in Fair Value Allocated to Regulated Jurisdictions (c)                                                                                         |   |   | -      |   |
| **Total                    MTM Risk Management Contract Net Assets**                                                                                                      |   |   | 5,426  |   |
| Net                    Cash Flow Hedge Contracts                                                                                                                          |   |   | (387   | )      |
| **Total                    MTM Risk Management Contract Net Assets at December 31,                    2005**                                                              |   | $      | 5,039  |   |

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

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

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

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

**Risk          Management Contract Net Assets**

**Fair          Value of Contracts as of December 31, 2005**

**(in          thousands)**

|                                                                                                                                   |   | **2006** |   | **2007** |   | **2008** |   | **2009** |   | **2010** |   | **After****2010** |   | **Total** |   |
|----------------------------------------------------------------------------------------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|----------|--------|-------------------|--------|-----------|--------|
| Prices                    Actively Quoted - Exchange Traded                    Contracts                                          |   | $        | 1,042  |     | $      | 583      |   | $        | 169    |     | $      | -                 |   | $         | -      |   | $ | - |   | $ | 1,794 |   |
| Prices                    Provided by Other External Sources                    -                      OTC Broker Quotes (a) |   |     | 2,460  |     |   | 1,308    |   |     | 1,565  |     |   | 774               |   |      | -      |   |   | - |   |   | 6,107 |   |
| Prices                    Based on Models and Other Valuation                    Methods (b)                                      |   |     | (1,887 | )        |   | (1,070   | )      |     | (598   | )        |   | 124               |   |      | 603    |   |   | 353 |   |   | (2,475 | ) |
| **Total**                                                                                                                              |   | $        | 1,615  |     | $      | 821      |   | $        | 1,136  |     | $      | 898               |   | $         | 603    |   | $ | 353 |   | $ | 5,426 |   |

| (a) | “Prices                    Provided by Other External Sources - OTC Broker Quotes” reflects                    information obtained from over-the-counter brokers, industry                    services, or                    multiple-party on-line platforms.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | “Prices                    Based on Models and Other Valuation Methods” is used in absence of pricing                    information from external sources. Modeled information is derived                    using                    valuation models developed by the reporting entity, reflecting                    when                    appropriate, option pricing theory, discounted cash flow concepts,                    valuation adjustments, etc. and may require projection of prices                    for                    underlying commodities beyond the period that prices are available                    from                    third-party sources. In addition, where external pricing information                    or                    market liquidity are limited, such valuations are classified                    as modeled.                    The determination of the point at which a market is no longer                    liquid for                    placing it in the modeled category varies by                    market. |

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

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

**Year          Ended December 31, 2005**

**(in          thousands)**

|                                                                                          |   | **Power** |   |
|-----------------------------------------------------------------------------------------------|--------|-----------|--------|
| **Beginning                    Balance in AOCI December 31, 2004**                            |   | $         | 657    |   |
| Changes                    in Fair Value                                                      |   |      | (635   | ) |
| Reclassifications                    from AOCI to Net Loss for Cash  Flow Hedges Settled |   |      | (246   | ) |
| **Ending                    Balance in AOCI December 31, 2005**                               |   | $         | (224   | ) |

**Credit          Risk**

**VaR          Associated with Risk Management Contracts**

| **December                    31, 2005** |   |     |   |        | **December                    31, 2004** |
|------------------------------------------|--------|----------|--------|-------------|------------------------------------------|
| **(in                    thousands)**    |   |     |   |        | **(in                    thousands)**    |
| **End**                                  |   | **High** |   | **Average** |                                     | **Low** |   |   |   |   | **End** |   | **High** |   | **Average** |   | **Low** |
| $111                                     |   | $184     |   | $88         |                                     | $32 |   |   |   |   | $157 |   | $511 |   | $220 |   | $75 |

**VaR          Associated with Debt Outstanding**

----

**AEP          TEXAS CENTRAL COMPANY AND SUBSIDIARY**

**CONSOLIDATED          STATEMENTS OF OPERATIONS**

**For          the Years Ended December 31, 2005, 2004 and 2003**

**(in          thousands)**

|                                                                                                                                             |   | **2005** |     | **2004** |   | **2003**  |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|----------|----------|--------|-----------|--------|
| **REVENUES**                                                                                                                                     |   |     |     |     |   |      |   |
| Electric                    Generation, Transmission and Distribution                                                                            |   | $        | 729,815  |     | $      | 1,148,930 |   | $ | 1,624,872 |   |
| Sales                    to AEP Affiliates                                                                                                       |   |     | 14,973   |     |   | 47,039    |   |   | 153,770 |   |
| Other                    - Nonaffiliated                                                                                                         |   |     | 48,458   |     |   | 16,880    |   |   | 19,044 |   |
| **TOTAL**                                                                                                                                        |   |     | 793,246  |     |   | 1,212,849 |   |   | 1,797,686 |   |
|                                                                                                                                             |   |     |     |     |   |      |   |   |   |   |
| **EXPENSES**                                                                                                                                     |   |     |     |     |   |      |   |   |   |   |
| Fuel                    and Other Consumables for Electric Generation                                                                            |   |     | 13,363   |     |   | 60,725    |   |   | 89,389 |   |
| Fuel                    from Affiliates for Electric Generation                                                                                  |   |     | 84       |     |   | 101,906   |   |   | 195,527 |   |
| Purchased                    Electricity for Resale                                                                                              |   |     | 28,947   |     |   | 206,304   |   |   | 373,388 |   |
| Purchased                    Electricity from AEP Affiliates                                                                                     |   |     | -        |     |   | 6,140     |   |   | 19,097 |   |
| Other                    Operation                                                                                                               |   |     | 291,160  |     |   | 316,508   |   |   | 306,073 |   |
| Maintenance                                                                                                                                      |   |     | 50,888   |     |   | 63,599    |   |   | 71,361 |   |
| Depreciation                    and Amortization                                                                                                 |   |     | 141,806  |     |   | 122,585   |   |   | 197,776 |   |
| Taxes                    Other Than Income Taxes                                                                                                 |   |     | 89,717   |     |   | 91,001    |   |   | 92,109 |   |
| **TOTAL**                                                                                                                                        |   |     | 615,965  |     |   | 968,768   |   |   | 1,344,720 |   |
|                                                                                                                                             |   |     |     |     |   |      |   |   |   |   |
| **OPERATING                    INCOME**                                                                                                          |   |     | 177,281  |     |   | 244,081   |   |   | 452,966 |   |
|                                                                                                                                             |   |     |     |     |   |      |   |   |   |   |
| **Other                    Income (Expense):**                                                                                                   |   |     |     |     |   |      |   |   |   |   |
| Interest                    Income                                                                                                               |   |     | 16,228   |     |   | 6,604     |   |   | 3,058 |   |
| Carrying                    Costs Income (Expense)                                                                                               |   |     | (19,293  | )        |   | 301,644   |   |   | - |   |
| Allowance                    for Equity Funds Used During Construction                                                                           |   |     | 1,003    |     |   | 1,170     |   |   | 507 |   |
| Interest                    Expense                                                                                                              |   |     | (112,006 | )        |   | (123,785  | )      |   | (133,812 | ) |
|                                                                                                                                             |   |     |     |     |   |      |   |   |   |   |
| **INCOME                    BEFORE INCOME TAXES**                                                                                                |   |     | 63,213   |     |   | 429,714   |   |   | 322,719 |   |
|                                                                                                                                             |   |     |     |     |   |      |   |   |   |   |
| Income                    Tax Expense                                                                                                            |   |     | 12,441   |     |   | 135,058   |   |   | 105,172 |   |
|                                                                                                                                             |   |     |     |     |   |      |   |   |   |   |
| **INCOME                    BEFORE EXTRAORDINARY****LOSS AND**** CUMULATIVE EFFECT                    OF ACCOUNTING CHANGE** |   |     | 50,772   |     |   | 294,656   |   |   | 217,547 |   |
|                                                                                                                                             |   |     |     |     |   |      |   |   |   |   |
| **EXTRAORDINARY                    LOSS ON STRANDED COST****RECOVERY,****                     Net of Tax**                                  |   |     | (224,551 | )        |   | (120,534  | )      |   | - |   |
|                                                                                                                                             |   |     |     |     |   |      |   |   |   |   |
| **CUMULATIVE                    EFFECT OF ACCOUNTING CHANGE,**** Net                    of Tax**                                            |   |     | -        |     |   | -         |   |   | 122 |   |
|                                                                                                                                             |   |     |     |     |   |      |   |   |   |   |
| **NET                    INCOME (LOSS)**                                                                                                         |   |     | (173,779 | )        |   | 174,122   |   |   | 217,669 |   |
|                                                                                                                                             |   |     |     |     |   |      |   |   |   |   |
| Preferred                    Stock Dividend Requirements                                                                                         |   |     | 241      |     |   | 241       |   |   | 241 |   |
| **EARNINGS                    (LOSS) APPLICABLE TO COMMON STOCK**                                                                                |   | $        | (174,020 | )        | $      | 173,881   |   | $ | 217,428 |   |

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

*See          Notes to Financial Statements of Registrant Subsidiaries.*

----

**AEP          TEXAS CENTRAL COMPANY AND SUBSIDIARY**

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

**EQUITY          AND COMPREHENSIVE INCOME (LOSS)**

**For          the Years Ended December 31, 2005, 2004 and 2003**

**(in          thousands)**

|                                                                                                |   | **Common                    Stock** |   | **Paid-in                    Capital** |   | **Retained                    Earnings** |   | **Accumulated                    Other Comprehensive Income (Loss)** |      | **Total** |   |
|-----------------------------------------------------------------------------------------------------|--------|-------------------------------------|--------|----------------------------------------|--------|------------------------------------------|--------|----------------------------------------------------------------------|-----------|-----------|--------|
| **DECEMBER                    31, 2002**                                                            |   | $                                   | 55,292 |                                   | $      | 132,606                                  |   | $                                                                    | 986,396   |      | $      | (73,160 | ) | $ | 1,101,134 |   |
|                                                                                                |   |                                |   |                                   |   |                                     |   |                                                                 |      |      |   |   |   |   |   |   |
| Common                    Stock Dividends                                                           |   |                                |   |                                   |   |                                     |   |                                                                 | (120,801  | )         |   |   |   |   | (120,801 | ) |
| Preferred                    Stock Dividends                                                        |   |                                |   |                                   |   |                                     |   |                                                                 | (241      | )         |   |   |   |   | (241 | ) |
| **TOTAL**                                                                                           |   |                                |   |                                   |   |                                     |   |                                                                 |      |      |   |   |   |   | 980,092 |   |
|                                                                                                |   |                                |   |                                   |   |                                     |   |                                                                 |      |      |   |   |   |   |   |   |
| **COMPREHENSIVE                    INCOME**                                                         |   |                                |   |                                   |   |                                     |   |                                                                 |      |      |   |   |   |   |   |   |
| **Other                    Comprehensive Income (Loss),**** Net                    of Taxes:** |   |                                |   |                                   |   |                                     |   |                                                                 |      |      |   |   |   |   |   |   |
| Cash                    Flow Hedges, Net of Tax of $965                                             |   |                                |   |                                   |   |                                     |   |                                                                 |      |      |   | (1,792 | ) |   | (1,792 | ) |
| Minimum                    Pension Liability, Net of Tax of                    $7,043               |   |                                |   |                                   |   |                                     |   |                                                                 |      |      |   | 13,080 |   |   | 13,080 |   |
| **NET                    INCOME**                                                                   |   |                                |   |                                   |   |                                     |   |                                                                 | 217,669   |      |   |   |   |   | 217,669 |   |
| **TOTAL                    COMPREHENSIVE INCOME**                                                   |   |                                |   |                                   |   |                                     |   |                                                                 |      |      |   |   |   |   | 228,957 |   |
|                                                                                                |   |                                |   |                                   |   |                                     |   |                                                                 |      |      |   |   |   |   |   |   |
| **DECEMBER                    31, 2003**                                                            |   |                                | 55,292 |                                   |   | 132,606                                  |   |                                                                 | 1,083,023 |      |   | (61,872 | ) |   | 1,209,049 |   |
|                                                                                                |   |                                |   |                                   |   |                                     |   |                                                                 |      |      |   |   |   |   |   |   |
| Common                    Stock Dividends                                                           |   |                                |   |                                   |   |                                     |   |                                                                 | (172,000  | )         |   |   |   |   | (172,000 | ) |
| Preferred                    Stock Dividends                                                        |   |                                |   |                                   |   |                                     |   |                                                                 | (241      | )         |   |   |   |   | (241 | ) |
| **TOTAL**                                                                                           |   |                                |   |                                   |   |                                     |   |                                                                 |      |      |   |   |   |   | 1,036,808 |   |
|                                                                                                |   |                                |   |                                   |   |                                     |   |                                                                 |      |      |   |   |   |   |   |   |
| **COMPREHENSIVE                    INCOME**                                                         |   |                                |   |                                   |   |                                     |   |                                                                 |      |      |   |   |   |   |   |   |
| **Other                    Comprehensive Income,**** Net                    of Taxes:**        |   |                                |   |                                   |   |                                     |   |                                                                 |      |      |   |   |   |   |   |   |
| Cash                    Flow Hedges, Net of Tax of $1,338                                           |   |                                |   |                                   |   |                                     |   |                                                                 |      |      |   | 2,485 |   |   | 2,485 |   |
| Minimum                    Pension Liability, Net of Tax of                    $31,790              |   |                                |   |                                   |   |                                     |   |                                                                 |      |      |   | 55,228 |   |   | 55,228 |   |
| **NET                    INCOME**                                                                   |   |                                |   |                                   |   |                                     |   |                                                                 | 174,122   |      |   |   |   |   | 174,122 |   |
| **TOTAL                    COMPREHENSIVE INCOME**                                                   |   |                                |   |                                   |   |                                     |   |                                                                 |      |      |   |   |   |   | 231,835 |   |
|                                                                                                |   |                                |   |                                   |   |                                     |   |                                                                 |      |      |   |   |   |   |   |   |
| **DECEMBER                    31, 2004**                                                            |   |                                | 55,292 |                                   |   | 132,606                                  |   |                                                                 | 1,084,904 |      |   | (4,159 | ) |   | 1,268,643 |   |
|                                                                                                |   |                                |   |                                   |   |                                     |   |                                                                 |      |      |   |   |   |   |   |   |
| Common                    Stock Dividends                                                           |   |                                |   |                                   |   |                                     |   |                                                                 | (150,000  | )         |   |   |   |   | (150,000 | ) |
| Preferred                    Stock Dividends                                                        |   |                                |   |                                   |   |                                     |   |                                                                 | (241      | )         |   |   |   |   | (241 | ) |
| **TOTAL**                                                                                           |   |                                |   |                                   |   |                                     |   |                                                                 |      |      |   |   |   |   | 1,118,402 |   |
|                                                                                                |   |                                |   |                                   |   |                                     |   |                                                                 |      |      |   |   |   |   |   |   |
| **COMPREHENSIVE                    LOSS**                                                           |   |                                |   |                                   |   |                                     |   |                                                                 |      |      |   |   |   |   |   |   |
| **Other                    Comprehensive Income (Loss),**** Net                    of Taxes:** |   |                                |   |                                   |   |                                     |   |                                                                 |      |      |   |   |   |   |   |   |
| Cash                    Flow Hedges, Net of Tax of $474                                             |   |                                |   |                                   |   |                                     |   |                                                                 |      |      |   | (881 | ) |   | (881 | ) |
| Minimum                    Pension Liability, Net of Tax of                    $42                  |   |                                |   |                                   |   |                                     |   |                                                                 |      |      |   | 3,888 |   |   | 3,888 |   |
| **NET                    LOSS**                                                                     |   |                                |   |                                   |   |                                     |   |                                                                 | (173,779  | )         |   |   |   |   | (173,779 | ) |
| **TOTAL                    COMPREHENSIVE LOSS**                                                     |   |                                |   |                                   |   |                                     |   |                                                                 |      |      |   |   |   |   | (170,772 | ) |
|                                                                                                |   |                                |   |                                   |   |                                     |   |                                                                 |      |      |   |   |   |   |   |   |
| **DECEMBER                    31, 2005**                                                            |   | $                                   | 55,292 |                                   | $      | 132,606                                  |   | $                                                                    | 760,884   |      | $      | (1,152 | ) | $ | 947,630 |   |

*See          Notes to Financial Statements of Registrant Subsidiaries.*

----

**AEP          TEXAS CENTRAL COMPANY AND SUBSIDIARY**

**CONSOLIDATED          BALANCE SHEETS**

**ASSETS**

**December          31, 2005 and 2004**

**(in          thousands)**

|                                                                  |   | **2005**     |      | **2004**     |   |
|-----------------------------------------------------------------------|--------|--------------|-----------|--------------|--------|
| **CURRENT                    ASSETS**                                 |   |    |      |    |   |
| Cash                    and Cash Equivalents                          |   | $            | -         |         | $      | 26 |   |
| Other                    Cash Deposits                                |   |         | 66,153    |         |   | 135,106 |   |
| Accounts                    Receivable:                               |   |         |      |         |   |   |   |
| Customers                                                             |   |         | 209,957   |         |   | 140,090 |   |
| Affiliated                    Companies                               |   |         | 23,486    |         |   | 67,860 |   |
| Accrued                    Unbilled Revenues                          |   |         | 25,606    |         |   | 25,906 |   |
| Allowance                    for Uncollectible Accounts               |   |         | (143      | )            |   | (3,493 | ) |
|                      Total Accounts Receivable                   |   |         | 258,906   |         |   | 230,363 |   |
| Unbilled                    Construction Costs                        |   |         | 19,440    |         |   | 5,213 |   |
| Materials                    and Supplies                             |   |         | 13,897    |         |   | 12,288 |   |
| Risk                    Management Assets                             |   |         | 14,311    |         |   | 14,048 |   |
| Prepayments                    and Other                              |   |         | 5,231     |         |   | 6,822 |   |
| **TOTAL**                                                             |   |         | 377,938   |         |   | 403,866 |   |
|                                                                  |   |         |      |         |   |   |   |
| **PROPERTY,                    PLANT AND EQUIPMENT**                  |   |         |      |         |   |   |   |
| Electric:                                                             |   |         |      |         |   |   |   |
| Transmission                                                          |   |         | 817,351   |         |   | 788,371 |   |
| Distribution                                                          |   |         | 1,476,683 |         |   | 1,433,380 |   |
| Other                                                                 |   |         | 233,361   |         |   | 223,558 |   |
| Construction                    Work in Progress                      |   |         | 129,800   |         |   | 50,612 |   |
| **Total**                                                             |   |         | 2,657,195 |         |   | 2,495,921 |   |
| Accumulated                    Depreciation and Amortization          |   |         | 636,078   |         |   | 726,771 |   |
| **TOTAL                    - NET**                                    |   |         | 2,021,117 |         |   | 1,769,150 |   |
|                                                                  |   |         |      |         |   |   |   |
| **OTHER                    NONCURRENT ASSETS**                        |   |         |      |         |   |   |   |
| Regulatory                    Assets                                  |   |         | 1,688,787 |         |   | 2,061,978 |   |
| Securitized                    Transition Assets                      |   |         | 593,401   |         |   | 642,384 |   |
| Long-term                    Risk Management Assets                   |   |         | 11,609    |         |   | 9,508 |   |
| Employee                    Benefits and Pension Assets               |   |         | 114,733   |         |   | 109,641 |   |
| Deferred                    Charges and Other                         |   |         | 53,011    |         |   | 53,644 |   |
| **TOTAL**                                                             |   |         | 2,461,541 |         |   | 2,877,155 |   |
|                                                                  |   |         |      |         |   |   |   |
| **Assets                    Held for Sale - Texas Generation Plants** |   |         | 44,316    |         |   | 628,149 |   |
|                                                                  |   |         |      |         |   |   |   |
| **TOTAL                    ASSETS**                                   |   | $            | 4,904,912 |         | $      | 5,678,320 |   |

*See          Notes to Financial Statements of Registrant Subsidiaries.*

----

**AEP          TEXAS CENTRAL COMPANY AND SUBSIDIARY**

**CONSOLIDATED          BALANCE SHEETS**

**LIABILITIES          AND SHAREHOLDERS’ EQUITY**

**December          31, 2005 and 2004**

|                                                                              |   |  **2005**                        |      | **2004** |   |
|-----------------------------------------------------------------------------------|--------|---------------------------------------|-----------|----------|--------|
| **CURRENT                    LIABILITIES**                                        |   | **(in                    thousands)** |      |
| Advances                    from Affiliates                                       |   | $                                     | 82,080    |     | $      | 207 |   |
| Accounts                    Payable:                                              |   |                                  |      |     |   |   |   |
| General                                                                           |   |                                  | 82,666    |     |   | 92,218 |   |
| Affiliated                    Companies                                           |   |                                  | 65,574    |     |   | 64,045 |   |
| Long-term                    Debt Due Within One Year - Nonaffiliated             |   |                                  | 152,900   |     |   | 365,742 |   |
| Risk                    Management Liabilities                                    |   |                                  | 13,024    |     |   | 8,394 |   |
| Accrued                    Taxes                                                  |   |                                  | 54,566    |     |   | 184,014 |   |
| Accrued                    Interest                                               |   |                                  | 32,497    |     |   | 41,227 |   |
| Other                                                                             |   |                                  | 45,927    |     |   | 26,674 |   |
| **TOTAL**                                                                         |   |                                  | 529,234   |     |   | 782,521 |   |
|                                                                              |   |                                  |      |     |   |   |   |
| **NONCURRENT                    LIABILITIES**                                     |   |                                  |      |     |   |   |   |
| Long-term                    Debt - Nonaffiliated                                 |   |                                  | 1,550,596 |     |   | 1,541,552 |   |
| Long-term                    Debt - Affiliated                                    |   |                                  | 150,000   |     |   | - |   |
| Long-term                    Risk Management Liabilities                          |   |                                  | 7,857     |     |   | 4,896 |   |
| Deferred                    Income Taxes                                          |   |                                  | 1,048,372 |     |   | 1,247,111 |   |
| Regulatory                    Liabilities and Deferred Investment Tax Credits     |   |                                  | 652,143   |     |   | 559,930 |   |
| Deferred                    Credits and Other                                     |   |                                  | 13,140    |     |   | 17,744 |   |
| **TOTAL**                                                                         |   |                                  | 3,422,108 |     |   | 3,371,233 |   |
|                                                                              |   |                                  |      |     |   |   |   |
| **Liabilities                    Held for Sale - Texas Generation Plants**        |   |                                  | -         |     |   | 249,983 |   |
|                                                                              |   |                                  |      |     |   |   |   |
| **TOTAL                    LIABILITIES**                                          |   |                                  | 3,951,342 |     |   | 4,403,737 |   |
|                                                                              |   |                                  |      |     |   |   |   |
| Cumulative                    Preferred Stock Not Subject to Mandatory Redemption |   |                                  | 5,940     |     |   | 5,940 |   |
|                                                                              |   |                                  |      |     |   |   |   |
| Commitments                    and Contingencies (Note 7)                         |   |                                  |      |     |   |   |   |
|                                                                              |   |                                  |      |     |   |   |   |
| **COMMON                    SHAREHOLDER’S EQUITY**                          |   |                                  |      |     |   |   |   |
| Common                    Stock - $25 Par Value Per Share:                        |   |                                  |      |     |   |   |   |
| Authorized                    - 12,000,000 Shares                                 |   |                                  |      |     |   |   |   |
| Outstanding                    - 2,211,678 Shares                                 |   |                                  | 55,292    |     |   | 55,292 |   |
| Paid-in                    Capital                                                |   |                                  | 132,606   |     |   | 132,606 |   |
| Retained                    Earnings                                              |   |                                  | 760,884   |     |   | 1,084,904 |   |
| Accumulated                    Other Comprehensive Income (Loss)                  |   |                                  | (1,152    | )        |   | (4,159 | ) |
| **TOTAL**                                                                         |   |                                  | 947,630   |     |   | 1,268,643 |   |
|                                                                              |   |                                  |      |     |   |   |   |
| **TOTAL                    LIABILITIES AND SHAREHOLDERS’ EQUITY**           |   | $                                     | 4,904,912 |     | $      | 5,678,320 |   |

*See          Notes to Financial Statements of Registrant Subsidiaries.*

----

**AEP          TEXAS CENTRAL COMPANY AND SUBSIDIARY**

**CONSOLIDATED          STATEMENTS OF CASH FLOWS**

**For          the Years Ended December 31, 2005, 2004 and 2003**

**(in          thousands)**

|                                                                        |   | **2005**     |     | **2004**     |   | **2003**     |   |
|-----------------------------------------------------------------------------|--------|--------------|----------|--------------|--------|--------------|--------|
| **OPERATING                    ACTIVITIES**                                 |   |    |     |    |   |    |   |
| **Net                    Income (Loss)**                                    |   | $            | (173,779 | )            | $      | 174,122      |   | $ | 217,669 |   |
| **Adjustments                    for Noncash Items:**                       |   |         |     |         |   |         |   |   |   |   |
| Depreciation                    and Amortization                            |   |         | 141,806  |         |   | 122,585      |   |   | 197,776 |   |
| Accretion                    of Asset Retirement Obligations                |   |         | 7,549    |         |   | 16,726       |   |   | 15,538 |   |
| Deferred                    Income Taxes                                    |   |         | (91,387  | )            |   | 16,490       |   |   | 19,393 |   |
| Cumulative                    Effect of Accounting Change, Net of Tax       |   |         | -        |         |   | -            |   |   | (122 | ) |
| Extraordinary                    Loss on Stranded Cost Recovery, Net of Tax |   |         | 224,551  |         |   | 120,534      |   |   | - |   |
| Carrying                    Costs on Stranded Cost Recovery                 |   |         | 19,293   |         |   | (301,644     | )      |   | - |   |
| Amortization                    of Deferred Property Taxes                  |   |         | -        |         |   | 3,637        |   |   | - |   |
| Mark-to-Market                    of Risk Management Contracts              |   |         | 4,275    |         |   | 2,241        |   |   | (6,341 | ) |
| Wholesale                    Capacity Auction True-up                       |   |         | 769      |         |   | (79,973      | )      |   | (218,000 | ) |
| Pension                    Contributions to Qualified Plan Trusts           |   |         | (3,953   | )            |   | (61,910      | )      |   | (86 | ) |
| Over/Under                    Fuel Recovery                                 |   |         | (34,328  | )            |   | 61,500       |   |   | 81,000 |   |
| Change                    in Other Noncurrent Assets                        |   |         | (8,192   | )            |   | 96,434       |   |   | 37,130 |   |
| Change                    in Other Noncurrent Liabilities                   |   |         | (3,940   | )            |   | (20,199      | )      |   | (69,984 | ) |
| **Changes                    in Components of Working Capital:**            |   |         |     |         |   |         |   |   |   |   |
| Accounts                    Receivable, Net                                 |   |         | (28,947  | )            |   | 2,352        |   |   | 99,136 |   |
| Fuel,                    Materials and Supplies                             |   |         | (1,559   | )            |   | (10,641      | )      |   | 15,851 |   |
| Accounts                    Payable                                         |   |         | 6,797    |         |   | 26,008       |   |   | (28,692 | ) |
| Accrued                    Taxes, Net                                       |   |         | (128,022 | )            |   | 116,996      |   |   | 42,227 |   |
| Other                    Current Assets                                     |   |         | (14,313  | )            |   | 1,817        |   |   | (6,380 | ) |
| Other                    Current Liabilities                                |   |         | 11,113   |         |   | (467         | )      |   | (20,203 | ) |
| **Net                    Cash Flows From (Used for) Operating Activities**  |   |         | (72,267  | )            |   | 286,608      |   |   | 375,912 |   |
|                                                                        |   |         |     |         |   |         |   |   |   |   |
| **INVESTING                    ACTIVITIES**                                 |   |         |     |         |   |         |   |   |   |   |
| Construction                    Expenditures                                |   |         | (178,628 | )            |   | (106,656     | )      |   | (130,900 | ) |
| Change                    in Other Cash Deposits, Net                       |   |         | 68,953   |         |   | (70,062      | )      |   | 19,491 |   |
| Change                    in Advances to Affiliates, Net                    |   |         | -        |         |   | 60,699       |   |   | (60,699 | ) |
| Purchases                    of Investment Securities                       |   |         | (154,364 | )            |   | (99,667      | )      |   | (51,000 | ) |
| Sales                    of Investment Securities                           |   |         | 149,804  |         |   | 87,471       |   |   | 40,628 |   |
| Proceeds                    from Sale of Assets                             |   |         | 315,318  |         |   | 429,553      |   |   | 7,455 |   |
| Other                                                                       |   |         | -        |         |   | (36,191      | )      |   | (9,024 | ) |
| **Net                    Cash Flows From (Used For) Investing Activities**  |   |         | 201,083  |         |   | 265,147      |   |   | (184,049 | ) |
|                                                                        |   |         |     |         |   |         |   |   |   |   |
| **FINANCING                    ACTIVITIES**                                 |   |         |     |         |   |         |   |   |   |   |
| Issuance                    of Long-term Debt - Nonaffiliated               |   |         | 316,901  |         |   | -            |   |   | 953,136 |   |
| Issuance                    of Long-term Debt - Affiliated                  |   |         | 150,000  |         |   | -            |   |   | - |   |
| Change                    in Short-term Debt, Net - Affiliated              |   |         | -        |         |   | -            |   |   | (650,000 | ) |
| Change                    in Advances from Affiliates, Net                  |   |         | 81,873   |         |   | 207          |   |   | (126,711 | ) |
| Retirement                    of Long-term Debt                             |   |         | (526,897 | )            |   | (380,096     | )      |   | (247,127 | ) |
| Retirement                    of Preferred Stock                            |   |         | -        |         |   | -            |   |   | (2 | ) |
| Principal                    Payments for Capital Lease Obligations         |   |         | (478     | )            |   | (436         | )      |   | (163 | ) |
| Dividends                    Paid on Common Stock                           |   |         | (150,000 | )            |   | (172,000     | )      |   | (120,801 | ) |
| Dividends                    Paid on Cumulative Preferred Stock             |   |         | (241     | )            |   | (241         | )      |   | (241 | ) |
| **Net                    Cash Used For Financing Activities**               |   |         | (128,842 | )            |   | (552,566     | )      |   | (191,909 | ) |
|                                                                        |   |         |     |         |   |         |   |   |   |   |
| **Net                    Decrease in Cash and Cash Equivalents**            |   |         | (26      | )            |   | (811         | )      |   | (46 | ) |
| **Cash                    and Cash Equivalents at Beginning of Period**     |   |         | 26       |         |   | 837          |   |   | 883 |   |
| **Cash                    and Cash Equivalents at End of Period**           |   | $            | -        |         | $      | 26           |   | $ | 837 |   |

| **SUPPLEMENTAL                  DISCLOSURE:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Cash                    paid (received) for interest net of capitalized amounts was $104,701,000,                    $117,325,000 and $129,491,000 and for income taxes was $235,697,000,                    $(1,058,000) and $49,630,000 in 2005, 2004 and 2003, respectively.                    Noncash                    capital lease acquisitions were $977,000, $348,000 and $1,223,000                    in 2005,                    2004 and 2003, respectively. Noncash Construction Expenditures                    included in                    Accounts Payable of $11,037,000, $1,838,000, and $1,727,000 were                    outstanding as of December 31, 2005, 2004 and 2003,                    respectively. |

*See          Notes to Financial Statements of Registrant Subsidiaries*

----

**AEP          TEXAS CENTRAL COMPANY AND SUBSIDIARY**

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

|                                                                                                                                                    | **Footnote                    Reference** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------|
| Organization                    and Summary of Significant Accounting Policies                                                                          | Note                    1                 |
| New                    Accounting Pronouncements, Extraordinary Items and Cumulative                    Effect of                    Accounting Changes | Note                    2                 |
| Rate                    Matters                                                                                                                         | Note                    4                 |
| Effects                    of Regulation                                                                                                                | Note                    5                 |
| Customer                    Choice and Industry Restructuring                                                                                           | Note                    6                 |
| Commitments                    and Contingencies                                                                                                        | Note                    7                 |
| Guarantees                                                                                                                                              | Note                    8                 |
| Company-wide                    Staffing and Budget Review                                                                                              | Note                    9                 |
| Acquisitions,                    Dispositions, Impairments, Assets Held for Sale and Other                    Losses                                    | Note                    10                |
| Benefit                    Plans                                                                                                                        | Note                    11                |
| Business                    Segments                                                                                                                    | Note                    12                |
| Derivatives,                    Hedging and Financial Instruments                                                                                       | Note                    13                |
| Income                    Taxes                                                                                                                         | Note                    14                |
| Leases                                                                                                                                                  | Note                    15                |
| Financing                    Activities                                                                                                                 | Note                    16                |
| Related                    Party Transactions                                                                                                           | Note                    17                |
| Jointly-Owned                    Electric Utility Plant                                                                                                 | Note                    18                |
| Unaudited                    Quarterly Financial Information                                                                                            | Note                    19                |

----

**REPORT          OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

*.*

* *

----

**AEP          TEXAS NORTH COMPANY**

----

**AEP          TEXAS NORTH COMPANY**

**SELECTED          FINANCIAL DATA**

**(in          thousands)**

|                                                                                                                                                           |   | **2005** |      | **2004** |   | **2003**  |   | **2002** |      | **2001** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|-----------|----------|--------|-----------|--------|----------|-----------|----------|--------|
|                                                                                                                                                           |   |     |      |     |   |      |   |     |      |     |   |
| **STATEMENTS                    OF OPERATIONS DATA**                                                                                                           |   |     |      |     |   |      |   |     |      |     |   |
| Total                    Revenues                                                                                                                              |   | $        | 458,888   |     | $      | 553,458   |   | $        | 533,511   |     | $      | 503,408 |   | $ | 563,535 |   |
|                                                                                                                                                           |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Operating                    Income (Loss)                                                                                                                     |   | $        | 76,699    |     | $      | 91,071    |   | $        | 107,405   |     | $      | (6,250 | ) | $ | 36,034 |   |
|                                                                                                                                                           |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Income                    (Loss) Before Extraordinary Loss and                       Cumulative Effect of Accounting                    Changes |   | $        | 41,476    |     | $      | 47,659    |   | $        | 55,663    |     | $      | (13,677 | ) | $ | 12,310 |   |
| Extraordinary                    Loss, Net of Tax                                                                                                              |   |     | -         |     |   | -         |   |     | (177      | )        |   | - |   |   | - |   |
| Cumulative                    Effect of Accounting Changes, Net                    of Tax                                                                      |   |     | (8,472    | )        |   | -         |   |     | 3,071     |     |   | - |   |   | - |   |
| **Net                    Income (Loss)**                                                                                                                       |   | $        | 33,004    |     | $      | 47,659    |   | $        | 58,557    |     | $      | (13,677 | ) | $ | 12,310 |   |
|                                                                                                                                                           |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| **BALANCE                    SHEETS DATA**                                                                                                                     |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Property,                    Plant and Equipment                                                                                                               |   | $        | 1,285,114 |     | $      | 1,305,571 |   | $        | 1,281,620 |     | $      | 1,249,996 |   | $ | 1,262,036 |   |
| Accumulated                    Depreciation and Amortization                                                                                                   |   |     | 478,519   |     |   | 527,770   |   |     | 507,420   |     |   | 493,981 |   |   | 475,346 |   |
| **Net                    Property, Plant and Equipment**                                                                                                       |   | $        | 806,595   |     | $      | 777,801   |   | $        | 774,200   |     | $      | 756,015 |   | $ | 786,690 |   |
|                                                                                                                                                           |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Total                    Assets                                                                                                                                |   | $        | 1,043,834 |     | $      | 1,043,162 |   | $        | 978,801   |     | $      | 965,916 |   | $ | 941,443 |   |
|                                                                                                                                                           |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Common                    Shareholder's Equity                                                                                                                 |   | $        | 313,919   |     | $      | 310,421   |   | $        | 238,275   |     | $      | 180,744 |   | $ | 245,535 |   |
|                                                                                                                                                           |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Cumulative                    Preferred Stock Not Subject to                      Mandatory Redemption                                                    |   | $        | 2,357     |     | $      | 2,357     |   | $        | 2,357     |     | $      | 2,367 |   | $ | 2,367 |   |
|                                                                                                                                                           |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Long-term                    Debt (a)                                                                                                                          |   | $        | 276,845   |     | $      | 314,357   |   | $        | 356,754   |     | $      | 132,500 |   | $ | 255,967 |   |
|                                                                                                                                                           |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Obligations                    Under Capital Leases (a)                                                                                                        |   | $        | 724       |     | $      | 534       |   | $        | 473       |     | $      | - |   | $ | - |   |
|                                                                                                                                                           |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |

| (a) | Including                    portion due within one year. |
|-----|-----------------------------------------------------------|

----

**AEP          TEXAS NORTH COMPANY**

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

**Results          of Operations**

**Reconciliation          of Year Ended December 31, 2004 to Year Ended December 31,          2005**

**Income          Before Extraordinary Loss and Cumulative Effect of Accounting          Changes**

**(in          millions)**

| **Year                    Ended December 31, 2004**                 |   |   |   |   | $      | 48     |   |
|---------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                |   |   |   |   |   |   |   |
| **Changes                    in Gross Margin:**                     |   |   |   |   |   |   |   |
| Texas                    Supply                                     |   |   | (7     | )      |   |   |   |
| Texas                    Wires                                      |   |   | 4      |   |   |   |   |
| Off-system                    Sales                                 |   |   | (2     | )      |   |   |   |
| Other                    Revenues                                   |   |   | (23    | )      |   |   |   |
| **Total                    Change in Gross Margin**                 |   |   |   |   |   | (28    | )      |
|                                                                |   |   |   |   |   |   |   |
| **Changes                    in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                    Operation and Maintenance                  |   |   | 16     |   |   |   |   |
| Depreciation                    and Amortization                    |   |   | (2     | )      |   |   |   |
| Taxes                    Other Than Income Taxes                    |   |   | (1     | )      |   |   |   |
| Other                    Income                                     |   |   | 2      |   |   |   |   |
| Interest                    Expense                                 |   |   | 2      |   |   |   |   |
| **Total                    Change in Operating Expenses and Other** |   |   |   |   |   | 17     |   |
|                                                                |   |   |   |   |   |   |   |
| Income                    Tax** **Expense                      |   |   |   |   |   | 4      |   |
|                                                                |   |   |   |   |   |   |   |
| **Year                    Ended December 31, 2005**                 |   |   |   |   | $      | 41     |   |

| **·** | Texas                    Supply margins decreased by $7 million primarily due to the expiration                    in                    December 2004 of the two year supply contract with our largest                    REP                    customer, Centrica; offset by an increase in nonaffiliated margin,                    capacity sales and a decrease in provision for rate refund primarily                    due                    to fuel reconciliation issues in 2004. |
|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **·** | Texas                    Wires revenue increased by $4 million primarily due to an increase                    in                    billed sales volumes resulting from an 11% increase in degree                    days.                                                                                                                                                                                                                                                                   |
| **·** | Margins                    from Off-system Sales decreased by $2 million primarily due to                    unfavorable                    optimization activities.                                                                                                                                                                                                                                                                                                                          |
| **·** | Other                    Revenues decreased $23 million primarily due to a decrease of                    $12 million                    in third party construction projects, reduced affiliated transmission                    revenue of $7 million and lower ERCOT ancillary services of $2                    million.                                                                                                                                                                  |

| **·** | Other                    Operation and Maintenance expenses decreased $16 million. The                    decrease was                    primarily due to lower expenses related to third party construction                    projects of $13 million and a favorable settlement related to                    the Ft.                    Davis wind farm, which was impaired in 2002. Further reductions                    include $7                    million of regulatory expenses, outside services, and administrative                    and                    general expenses, primarily related to lower employee-related                    costs. Power                    plant and transmission maintenance increased $3 million primarily                    due to                    higher joint facility charges and substation and overhead line                    maintenance. |
|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **·** | Interest                    Expense decreased $2 million primarily due to long-term debt                    maturities in                    2004 and interest related to the 2004 FERC settlement with wholesale                    customers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |

*Income          Taxes*

**Financial          Condition**

**Credit          Ratings**

|                                     | **Moody’s** |   | **S&P** |   | **Fitch** |
|------------------------------------------|-------------------|--------|-------------|--------|-----------|
|                                     |              |   |        |   |      |
| First                    Mortgage Bonds  | A3                |   | BBB         |   | A         |
| Senior                    Unsecured Debt | Baa1              |   | BBB         |   | A-        |

**Summary          Obligation Information**

**Payments          due by Period**

**(in          millions)**

| **Contractual                    Cash Obligations**              |   | **Less                    Than 1 year** |   | **2-3                    years** |   | **4-5                    years** |   | **After****5                    years** |   | **Total** |   |
|------------------------------------------------------------------|--------|-----------------------------------------|--------|----------------------------------|--------|----------------------------------|--------|-----------------------------------------|--------|-----------|--------|
| Interest                    on Long-term Debt (a)                |   | $                                       | 15.7   |                             | $      | 30.4                             |   | $                                       | 30.1   |      | $      | 56.2 |   | $ | 132.4 |   |
| Long-term                    Debt (b)                            |   |                                    | -      |                             |   | 8.2                              |   |                                    | -      |      |   | 269.3 |   |   | 277.5 |   |
| Capital                    Lease Obligations (c)                 |   |                                    | 0.2    |                             |   | 0.3                              |   |                                    | 0.3    |      |   | - |   |   | 0.8 |   |
| Noncancelable                    Operating Leases (c)            |   |                                    | 2.4    |                             |   | 3.9                              |   |                                    | 3.5    |      |   | 2.4 |   |   | 12.2 |   |
| Energy                    and Capacity Purchase Contracts (d)    |   |                                    | 8.1    |                             |   | 15.6                             |   |                                    | 13.2   |      |   | 23.3 |   |   | 60.2 |   |
| Construction                    Contracts for Capital Assets (e) |   |                                    | 23.1   |                             |   | -                                |   |                                    | -      |      |   | - |   |   | 23.1 |   |
| **Total**                                                        |   | $                                       | 49.5   |                             | $      | 58.4                             |   | $                                       | 47.1   |      | $      | 351.2 |   | $ | 506.2 |   |

| (a) | Interest                    payments are estimated based on final maturity dates of debt                    securities                    outstanding at December 31, 2005 and do not reflect anticipated                    future                    refinancings, early redemptions or debt issuances. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | See                    Note 16. Represents principal only excluding interest.                                                                                                                                                                                                                             |
| (c) | See                    Note 15.                                                                                                                                                                                                                                                                           |
| (d) | Represents                    contractual cash flows of energy and capacity purchase                    contracts.                                                                                                                                                                                        |
| (e) | Represents                    only capital assets that are contractual                    obligations.                                                                                                                                                                                                    |

**Significant          Factors**

**Critical          Accounting Estimates**

----

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

**Market          Risks**

**MTM          Risk Management Contract Net Assets**

**Reconciliation          of MTM Risk Management Contracts to**

**Balance          Sheet**

**As          of December 31, 2005**

**(in          thousands)**

|                                                                          |   | **MTM                    Risk Management Contracts** |    | **Cash                    Flow Hedges** |   | **Total** |   |
|-------------------------------------------------------------------------------|--------|------------------------------------------------------|---------|-----------------------------------------|--------|-----------|--------|
| Current                    Assets                                             |   | $                                                    | 7,033   |                                    | $      | 81        |   | $ | 7,114 |   |
| Noncurrent                    Assets                                          |   |                                                 | 5,772   |                                    |   | -         |   |   | 5,772 |   |
| **Total                    MTM Derivative Contract Assets**                   |   |                                                 | 12,805  |                                    |   | 81        |   |   | 12,886 |   |
|                                                                          |   |                                                 |    |                                    |   |      |   |   |   |   |
| Current                    Liabilities                                        |   |                                                 | (6,230  | )                                       |   | (245      | )      |   | (6,475 | ) |
| Noncurrent                    Liabilities                                     |   |                                                 | (3,877  | )                                       |   | (29       | )      |   | (3,906 | ) |
| **Total                    MTM Derivative Contract Liabilities**              |   |                                                 | (10,107 | )                                       |   | (274      | )      |   | (10,381 | ) |
|                                                                          |   |                                                 |    |                                    |   |      |   |   |   |   |
| **Total                    MTM Derivative Contract Net Assets (Liabilities)** |   | $                                                    | 2,698   |                                    | $      | (193      | )      | $ | 2,505 |   |

**MTM          Risk Management Contract Net Assets**

**Year          Ended December 31, 2005**

**(in          thousands)**

| **Total                    MTM Risk Management Contract Net Assets at December 31,                    2004**                                                               |   | $      | 4,192  |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| (Gain)                    Loss from Contracts Realized/Settled During the Period and Entered                    in a                    Prior Period                       |   |   | (2,088 | )      |
| Fair                    Value of New Contracts at Inception When Entered During the Period                    (a)                                                          |   |   | 80     |   |
| Net                    Option Premiums Paid/(Received) for Unexercised or Unexpired                    Option                    Contracts Entered  During the Period |   |   | (1     | )      |
| Change                    in Fair Value Due to Valuation Methodology Changes on Forward                    Contracts                                                       |   |   | -      |   |
| Changes                    in Fair Value due to Market Fluctuations During the Period                    (b)                                                               |   |   | 515    |   |
| Changes                    in Fair Value Allocated to Regulated Jurisdictions (c)                                                                                          |   |   | -      |   |
| **Total                    MTM Risk Management Contract Net Assets**                                                                                                       |   |   | 2,698  |   |
| Net                    Cash Flow Hedge Contracts                                                                                                                           |   |   | (193   | )      |
| **Total                    MTM Risk Management Contract Net Assets at December 31,                    2005**                                                               |   | $      | 2,505  |   |

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

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

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

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

**Risk          Management Contract Net Assets**

**Fair          Value of Contracts as of December 31, 2005**

**(in          thousands)**

|                                                                                                                                   |   | **2006** |   | **2007** |   | **2008** |   | **2009** |   | **2010** |   | **After****2010** |   | **Total** |   |
|----------------------------------------------------------------------------------------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|----------|--------|-------------------|--------|-----------|--------|
| Prices                    Actively Quoted - Exchange Traded                    Contracts                                               |   | $        | 518    |     | $      | 290      |   | $        | 84     |     | $      | -                 |   | $         | -      |   | $ | - |   | $ | 892 |   |
| Prices                    Provided by Other External Sources                    -                      OTC Broker Quotes (a) |   |     | 1,223  |     |   | 650      |   |     | 778    |     |   | 385               |   |      | -      |   |   | - |   |   | 3,036 |   |
| Prices                    Based on Models and Other Valuation                    Methods (b)                                      |   |     | (938   | )        |   | (532     | )      |     | (297   | )        |   | 62                |   |      | 300    |   |   | 175 |   |   | (1,230 | ) |
| **Total**                                                                                                                              |   | $        | 803    |     | $      | 408      |   | $        | 565    |     | $      | 447               |   | $         | 300    |   | $ | 175 |   | $ | 2,698 |   |

| (a) | “Prices                    Provided by Other External Sources - OTC Broker Quotes” reflects                    information obtained from over-the-counter brokers, industry                    services, or                    multiple-party on-line platforms.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | “Prices                    Based on Models and Other Valuation Methods” is used in absence of pricing                    information from external sources. Modeled information is derived                    using                    valuation models developed by the reporting entity, reflecting                    when                    appropriate, option pricing theory, discounted cash flow concepts,                    valuation adjustments, etc. and may require projection of prices                    for                    underlying commodities beyond the period that prices are available                    from                    third-party sources. In addition, where external pricing information                    or                    market liquidity are limited, such valuations are classified                    as modeled.                    The determination of the point at which a market is no longer                    liquid for                    placing it in the modeled category varies by                    market. |

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

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

**Year          Ended December 31, 2005**

**(in          thousands)**

|                                                                                           |   | **Power** |   |
|------------------------------------------------------------------------------------------------|--------|-----------|--------|
| **Beginning                    Balance in AOCI December 31, 2004**                             |   | $         | 285    |   |
| Changes                    in Fair Value                                                       |   |      | (290   | ) |
| Reclassifications                    from AOCI to Net Income for Cash Flow Hedges Settled |   |      | (106   | ) |
| **Ending                    Balance in AOCI December 31, 2005**                                |   | $         | (111   | ) |

**Credit          Risk**

**VaR          Associated with Risk Management Contracts**

| **December                    31, 2005** |   |     |   |        | **December                    31, 2004** |
|------------------------------------------|--------|----------|--------|-------------|------------------------------------------|
| **(in                    thousands)**    |   |     |   |        | **(in                    thousands)**    |
| **End**                                  |   | **High** |   | **Average** |                                     | **Low** |   |   |   |   | **End** |   | **High** |   | **Average** |   | **Low** |
| $55                                      |   | $92      |   | $44         |                                     | $16 |   |   |   |   | $68 |   | $221 |   | $95 |   | $33 |

**VaR          Associated with Debt Outstanding**

----

**AEP          TEXAS NORTH COMPANY**

**STATEMENTS          OF INCOME**

**For          the Years Ended December 31, 2005, 2004 and 2003**

**(in          thousands)**

|                                                                                                                                                                      |   | **2005** |    | **2004** |   | **2003** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|---------|----------|--------|----------|--------|
| **REVENUES**                                                                                                                                                              |   |     |    |     |   |     |   |
| Electric                    Generation, Transmission and Distribution                                                                                                     |   | $        | 369,954 |     | $      | 447,908  |   | $ | 420,718 |   |
| Sales                    to AEP Affiliates                                                                                                                                |   |     | 47,164  |     |   | 51,680   |   |   | 55,386 |   |
| Other                                                                                                                                                                     |   |     | 41,770  |     |   | 53,870   |   |   | 57,407 |   |
| **TOTAL**                                                                                                                                                                 |   |     | 458,888 |     |   | 553,458  |   |   | 533,511 |   |
|                                                                                                                                                                      |   |     |    |     |   |     |   |   |   |   |
| **EXPENSES**                                                                                                                                                              |   |     |    |     |   |     |   |   |   |   |
| Fuel                    and Other Consumables for Electric Generation                                                                                                     |   |     | 46,953  |     |   | 54,447   |   |   | 39,082 |   |
| Fuel                    from Affiliates for Electric Generation                                                                                                           |   |     | 629     |     |   | 46,496   |   |   | 44,197 |   |
| Purchased                    Electricity for Resale                                                                                                                       |   |     | 125,567 |     |   | 133,770  |   |   | 87,006 |   |
| Purchased                    Electricity from AEP Affiliates                                                                                                              |   |     | 23      |     |   | 5,211    |   |   | 39,409 |   |
| Other                    Operation                                                                                                                                        |   |     | 120,618 |     |   | 140,206  |   |   | 140,639 |   |
| Maintenance                                                                                                                                                               |   |     | 23,636  |     |   | 20,602   |   |   | 18,961 |   |
| Depreciation                    and Amortization                                                                                                                          |   |     | 41,466  |     |   | 39,025   |   |   | 36,242 |   |
| Taxes                    Other Than Income Taxes                                                                                                                          |   |     | 23,297  |     |   | 22,630   |   |   | 20,570 |   |
| **TOTAL**                                                                                                                                                                 |   |     | 382,189 |     |   | 462,387  |   |   | 426,106 |   |
|                                                                                                                                                                      |   |     |    |     |   |     |   |   |   |   |
| **OPERATING                    INCOME**                                                                                                                                   |   |     | 76,699  |     |   | 91,071   |   |   | 107,405 |   |
|                                                                                                                                                                      |   |     |    |     |   |     |   |   |   |   |
| **Other                    Income (Expense):**                                                                                                                            |   |     |    |     |   |     |   |   |   |   |
| Interest                    Income                                                                                                                                        |   |     | 2,447   |     |   | 665      |   |   | 174 |   |
| Allowance                    for Equity Funds Used During Construction                                                                                                    |   |     | 724     |     |   | 417      |   |   | 396 |   |
| Interest                    Expense                                                                                                                                       |   |     | (19,817 | )        |   | (21,985  | )      |   | (22,049 | ) |
|                                                                                                                                                                      |   |     |    |     |   |     |   |   |   |   |
| **INCOME                    BEFORE INCOME TAXES**                                                                                                                         |   |     | 60,053  |     |   | 70,168   |   |   | 85,926 |   |
|                                                                                                                                                                      |   |     |    |     |   |     |   |   |   |   |
| Income                    Tax Expense                                                                                                                                     |   |     | 18,577  |     |   | 22,509   |   |   | 30,263 |   |
|                                                                                                                                                                      |   |     |    |     |   |     |   |   |   |   |
| **INCOME                    BEFORE EXTRAORDINARY LOSS AND**** ****                     CUMULATIVE EFFECT****OF ****ACCOUNTING                    CHANGES** |   |     | 41,476  |     |   | 47,659   |   |   | 55,663 |   |
|                                                                                                                                                                      |   |     |    |     |   |     |   |   |   |   |
| **EXTRAORDINARY                    LOSS, Net of Tax**                                                                                                                     |   |     | -       |     |   | -        |   |   | (177 | ) |
|                                                                                                                                                                      |   |     |    |     |   |     |   |   |   |   |
| **CUMULATIVE                    EFFECT OF ACCOUNTING CHANGES,***** *****Net                    of Tax**                                                              |   |     | (8,472  | )        |   | -        |   |   | 3,071 |   |
|                                                                                                                                                                      |   |     |    |     |   |     |   |   |   |   |
| **NET                    INCOME**                                                                                                                                         |   |     | 33,004  |     |   | 47,659   |   |   | 58,557 |   |
|                                                                                                                                                                      |   |     |    |     |   |     |   |   |   |   |
| Preferred                    Stock Dividend Requirements, Net                    of Gain on                      Reacquired Preferred Stock                          |   |     | 104     |     |   | 103      |   |   | 101 |   |
|                                                                                                                                                                      |   |     |    |     |   |     |   |   |   |   |
| **EARNINGS                    APPLICABLE TO COMMON STOCK**                                                                                                                |   | $        | 32,900  |     | $      | 47,556   |   | $ | 58,456 |   |

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

*See          Notes to Financial Statements of Registrant Subsidiaries.*

----

**AEP          TEXAS NORTH COMPANY**

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

**EQUITY          AND COMPREHENSIVE INCOME (LOSS)**

**For          the Years Ended December 31, 2005, 2004 and 2003**

**(in          thousands)**

|                                                                                                |   | **Common                    Stock** |    | **Paid-in                    Capital** |   | **Retained                    Earnings** |   | **Accumulated                    Other Comprehensive Income (Loss)** |    | **Total** |   |
|-----------------------------------------------------------------------------------------------------|--------|-------------------------------------|---------|----------------------------------------|--------|------------------------------------------|--------|----------------------------------------------------------------------|---------|-----------|--------|
| **DECEMBER                    31, 2002**                                                            |   | $                                   | 137,214 |                                   | $      | 2,351                                    |   | $                                                                    | 71,942  |      | $      | (30,763 | ) | $ | 180,744 |   |
|                                                                                                |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| Common                    Stock Dividends                                                           |   |                                |    |                                   |   |                                     |   |                                                                 | (4,970  | )         |   |   |   |   | (4,970 | ) |
| Preferred                    Stock Dividends                                                        |   |                                |    |                                   |   |                                     |   |                                                                 | (104    | )         |   |   |   |   | (104 | ) |
| Gain                    on Reacquired Preferred Stock                                               |   |                                |    |                                   |   |                                     |   |                                                                 | 3       |      |   |   |   |   | 3 |   |
| **TOTAL**                                                                                           |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   | 175,673 |   |
|                                                                                                |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                    INCOME**                                                         |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| **Other                    Comprehensive Income (Loss),**** Net                    of Taxes:** |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| Cash                    Flow Hedges, Net of Tax of $316                                             |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   | (586 | ) |   | (586 | ) |
| Minimum                    Pension Liability, Net of Tax of                    $2,498               |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   | 4,631 |   |   | 4,631 |   |
| **NET                    INCOME**                                                                   |   |                                |    |                                   |   |                                     |   |                                                                 | 58,557  |      |   |   |   |   | 58,557 |   |
| **TOTAL                    COMPREHENSIVE INCOME**                                                   |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   | 62,602 |   |
|                                                                                                |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| **DECEMBER                    31, 2003**                                                            |   |                                | 137,214 |                                   |   | 2,351                                    |   |                                                                 | 125,428 |      |   | (26,718 | ) |   | 238,275 |   |
|                                                                                                |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| Common                    Stock Dividends                                                           |   |                                |    |                                   |   |                                     |   |                                                                 | (2,000  | )         |   |   |   |   | (2,000 | ) |
| Preferred                    Stock Dividends                                                        |   |                                |    |                                   |   |                                     |   |                                                                 | (103    | )         |   |   |   |   | (103 | ) |
| **TOTAL**                                                                                           |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   | 236,172 |   |
|                                                                                                |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                    INCOME**                                                         |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| **Other                    Comprehensive Income, Net of Taxes:**                                    |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| Cash                    Flow Hedges, Net of Tax of $477                                             |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   | 886 |   |   | 886 |   |
| Minimum                    Pension Liability, Net of Tax of                    $13,841              |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   | 25,704 |   |   | 25,704 |   |
| **NET                    INCOME**                                                                   |   |                                |    |                                   |   |                                     |   |                                                                 | 47,659  |      |   |   |   |   | 47,659 |   |
| **TOTAL                    COMPREHENSIVE INCOME**                                                   |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   | 74,249 |   |
|                                                                                                |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| **DECEMBER                    31, 2004**                                                            |   |                                | 137,214 |                                   |   | 2,351                                    |   |                                                                 | 170,984 |      |   | (128 | ) |   | 310,421 |   |
|                                                                                                |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| Common                    Stock Dividends                                                           |   |                                |    |                                   |   |                                     |   |                                                                 | (29,026 | )         |   |   |   |   | (29,026 | ) |
| Preferred                    Stock Dividends                                                        |   |                                |    |                                   |   |                                     |   |                                                                 | (104    | )         |   |   |   |   | (104 | ) |
| **TOTAL**                                                                                           |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   | 281,291 |   |
|                                                                                                |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                    INCOME**                                                         |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| **Other                    Comprehensive Income (Loss),**** Net                    of Taxes:** |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| Cash                    Flow Hedges, Net of Tax of $213                                             |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   | (396 | ) |   | (396 | ) |
| Minimum                    Pension Liability, Net of Tax of                    $11                  |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   | 20 |   |   | 20 |   |
| **NET                    INCOME**                                                                   |   |                                |    |                                   |   |                                     |   |                                                                 | 33,004  |      |   |   |   |   | 33,004 |   |
| **TOTAL                    COMPREHENSIVE INCOME**                                                   |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   | 32,628 |   |
|                                                                                                |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| **DECEMBER                    31, 2005**                                                            |   | $                                   | 137,214 |                                   | $      | 2,351                                    |   | $                                                                    | 174,858 |      | $      | (504 | ) | $ | 313,919 |   |

*See          Notes to Financial Statements of Registrant Subsidiaries.*

----

**AEP          TEXAS NORTH COMPANY**

**BALANCE          SHEETS**

**ASSETS**

**December          31, 2005 and 2004**

**(in          thousands)**

|                                                         |   | **2005**     |      | **2004**     |   |
|--------------------------------------------------------------|--------|--------------|-----------|--------------|--------|
| **CURRENT                    ASSETS**                        |   |    |      |    |   |
| Cash                    and Cash Equivalents                 |   | $            | -         |         | $      | - |   |
| Advances                    to Affiliates                    |   |         | 34,286    |         |   | 51,504 |   |
| Accounts                    Receivable:                      |   |         |      |         |   |   |   |
| Customers                                                    |   |         | 77,678    |         |   | 81,836 |   |
| Affiliated                    Companies                      |   |         | 26,149    |         |   | 21,474 |   |
| Accrued                    Unbilled Revenues                 |   |         | 5,016     |         |   | 3,789 |   |
| Allowance                    for Uncollectible Accounts      |   |         | (18       | )            |   | (787 | ) |
|                      Total Accounts Receivable          |   |         | 108,825   |         |   | 106,312 |   |
| Unbilled                    Construction Costs               |   |         | 1,321     |         |   | 22,065 |   |
| Fuel                                                         |   |         | 2,636     |         |   | 3,148 |   |
| Materials                    and Supplies                    |   |         | 6,858     |         |   | 8,273 |   |
| Risk                    Management Assets                    |   |         | 7,114     |         |   | 6,071 |   |
| Prepayments                    and Other                     |   |         | 3,883     |         |   | 4,660 |   |
| **TOTAL**                                                    |   |         | 164,923   |         |   | 202,033 |   |
|                                                         |   |         |      |         |   |   |   |
| **PROPERTY,                    PLANT AND EQUIPMENT**         |   |         |      |         |   |   |   |
| Electric:                                                    |   |         |      |         |   |   |   |
| Production                                                   |   |         | 288,934   |         |   | 287,212 |   |
| Transmission                                                 |   |         | 289,029   |         |   | 281,359 |   |
| Distribution                                                 |   |         | 492,878   |         |   | 474,961 |   |
| Other                                                        |   |         | 167,849   |         |   | 238,418 |   |
| Construction                    Work in Progress             |   |         | 46,424    |         |   | 23,621 |   |
| **Total**                                                    |   |         | 1,285,114 |         |   | 1,305,571 |   |
| Accumulated                    Depreciation and Amortization |   |         | 478,519   |         |   | 527,770 |   |
| **TOTAL                    - NET**                           |   |         | 806,595   |         |   | 777,801 |   |
|                                                         |   |         |      |         |   |   |   |
| **OTHER                    NONCURRENT ASSETS**               |   |         |      |         |   |   |   |
| Regulatory                    Assets                         |   |         | 9,787     |         |   | 12,023 |   |
| Long-term                    Risk Management Assets          |   |         | 5,772     |         |   | 4,110 |   |
| Employee                    Benefits and Pension Assets      |   |         | 46,289    |         |   | 44,912 |   |
| Deferred                    Charges and Other                |   |         | 10,468    |         |   | 2,283 |   |
| **TOTAL**                                                    |   |         | 72,316    |         |   | 63,328 |   |
|                                                         |   |         |      |         |   |   |   |
| **TOTAL                    ASSETS**                          |   | $            | 1,043,834 |         | $      | 1,043,162 |   |

*See          Notes to Financial Statements of Registrant Subsidiaries.*

----

**AEP          TEXAS NORTH COMPANY**

**BALANCE          SHEETS**

**LIABILITIES          AND **
**SHAREHOLDERS’**
**          EQUITY**

**December          31, 2005 and 2004**

|                                                                              |   |  **2005**                        |      | **2004** |   |
|-----------------------------------------------------------------------------------|--------|---------------------------------------|-----------|----------|--------|
| **CURRENT                    LIABILITIES**                                        |   | **(in                    thousands)** |      |
| Accounts                    Payable:                                              |   |                                  |      |     |   |   |   |
| General                                                                           |   | $                                     | 19,739    |     | $      | 14,077 |   |
| Affiliated                    Companies                                           |   |                                  | 84,923    |     |   | 52,801 |   |
| Long-term                    Debt Due Within One Year - Nonaffiliated             |   |                                  | -         |     |   | 37,609 |   |
| Risk                    Management Liabilities                                    |   |                                  | 6,475     |     |   | 3,628 |   |
| Accrued                    Taxes                                                  |   |                                  | 21,212    |     |   | 37,269 |   |
| Other                                                                             |   |                                  | 21,050    |     |   | 15,912 |   |
| **TOTAL**                                                                         |   |                                  | 153,399   |     |   | 161,296 |   |
|                                                                              |   |                                  |      |     |   |   |   |
| **NONCURRENT                    LIABILITIES**                                     |   |                                  |      |     |   |   |   |
| Long-term                    Debt - Nonaffiliated                                 |   |                                  | 276,845   |     |   | 276,748 |   |
| Long-term                    Risk Management Liabilities                          |   |                                  | 3,906     |     |   | 2,116 |   |
| Deferred                    Income Taxes                                          |   |                                  | 132,335   |     |   | 138,465 |   |
| Regulatory                    Liabilities and Deferred Investment Tax Credits     |   |                                  | 139,732   |     |   | 140,774 |   |
| Deferred                    Credits and Other                                     |   |                                  | 21,341    |     |   | 10,985 |   |
| **TOTAL**                                                                         |   |                                  | 574,159   |     |   | 569,088 |   |
|                                                                              |   |                                  |      |     |   |   |   |
| **TOTAL                    LIABILITIES**                                          |   |                                  | 727,558   |     |   | 730,384 |   |
|                                                                              |   |                                  |      |     |   |   |   |
| Cumulative                    Preferred Stock Not Subject to Mandatory Redemption |   |                                  | 2,357     |     |   | 2,357 |   |
|                                                                              |   |                                  |      |     |   |   |   |
| Commitments                    and Contingencies (Note 7)                         |   |                                  |      |     |   |   |   |
|                                                                              |   |                                  |      |     |   |   |   |
| **COMMON                    SHAREHOLDER’S EQUITY**                          |   |                                  |      |     |   |   |   |
| Common                    Stock - $25 Par Value Per Share:                        |   |                                  |      |     |   |   |   |
| Authorized                    - 7,800,000 Shares                                  |   |                                  |      |     |   |   |   |
| Outstanding                    - 5,488,560 Shares                                 |   |                                  | 137,214   |     |   | 137,214 |   |
| Paid-in                    Capital                                                |   |                                  | 2,351     |     |   | 2,351 |   |
| Retained                    Earnings                                              |   |                                  | 174,858   |     |   | 170,984 |   |
| Accumulated                    Other Comprehensive Income (Loss)                  |   |                                  | (504      | )        |   | (128 | ) |
| **TOTAL**                                                                         |   |                                  | 313,919   |     |   | 310,421 |   |
|                                                                              |   |                                  |      |     |   |   |   |
| **TOTAL                    LIABILITIES AND SHAREHOLDERS’ EQUITY**           |   | $                                     | 1,043,834 |     | $      | 1,043,162 |   |

*See          Notes to Financial Statements of Registrant Subsidiaries.*

----

**AEP          TEXAS NORTH COMPANY**

**STATEMENTS          OF CASH FLOWS**

**For          the Years Ended December 31, 2005, 2004 and 2003**

**(in          thousands)**

|                                                                       |   |  **2005** |    |  **2004** |   |  **2003** |   |
|----------------------------------------------------------------------------|--------|----------------|---------|----------------|--------|----------------|--------|
| **OPERATING                    ACTIVITIES**                                |   |      |    |      |   |      |   |
| **Net                    Income**                                          |   | $              | 33,004  |           | $      | 47,659         |   | $ | 58,557 |   |
| **Adjustments                    for Noncash Items:**                      |   |           |    |           |   |           |   |   |   |   |
| Depreciation                    and Amortization                           |   |           | 41,466  |           |   | 39,025         |   |   | 36,242 |   |
| Deferred                    Income Taxes                                   |   |           | (4,578  | )              |   | 4,236          |   |   | (3,493 | ) |
| Cumulative                    Effect of Accounting Changes, Net of Tax     |   |           | 8,472   |           |   | -              |   |   | (3,071 | ) |
| Extraordinary                    Loss, Net of Tax                          |   |           | -       |           |   | -              |   |   | 177 |   |
| Mark-to-Market                    of Risk Management Contracts             |   |           | 1,494   |           |   | 428            |   |   | (2,558 | ) |
| Pension                    Contributions to Qualified Plan Trusts          |   |           | (1,409  | )              |   | (21,172        | )      |   | (410 | ) |
| Over/Under                    Fuel Recovery                                |   |           | 996     |           |   | 10,100         |   |   | 15,960 |   |
| Change                    in Other Noncurrent Assets                       |   |           | (3,003  | )              |   | (9,264         | )      |   | 6,987 |   |
| Change                    in Other Noncurrent Liabilities                  |   |           | (1,897  | )              |   | 12,444         |   |   | (6,506 | ) |
| **Changes                    in Components of Working Capital:**           |   |           |    |           |   |           |   |   |   |   |
| Accounts                    Receivable, Net                                |   |           | (2,513  | )              |   | (20,620        | )      |   | 38,367 |   |
| Fuel,                    Materials and Supplies                            |   |           | 1,927   |           |   | 8,374          |   |   | 2,462 |   |
| Accounts                    Payable                                        |   |           | 35,659  |           |   | 8,238          |   |   | (64,760 | ) |
| Accrued                    Taxes, Net                                      |   |           | (16,057 | )              |   | 14,392         |   |   | 19,180 |   |
| Unbilled                    Construction Costs                             |   |           | 20,744  |           |   | (5,122         | )      |   | (14,287 | ) |
| Other                    Current Assets                                    |   |           | (99     | )              |   | 764            |   |   | (2,052 | ) |
| Other                    Current Liabilities                               |   |           | 5,138   |           |   | 90             |   |   | (4,485 | ) |
| **Net                    Cash Flows From Operating Activities**            |   |           | 119,344 |           |   | 89,572         |   |   | 76,310 |   |
|                                                                       |   |           |    |           |   |           |   |   |   |   |
| **INVESTING                    ACTIVITIES**                                |   |           |    |           |   |           |   |   |   |   |
| Construction                    Expenditures                               |   |           | (63,014 | )              |   | (35,901        | )      |   | (45,641 | ) |
| Change                    in Other Cash Deposits, Net                      |   |           | 876     |           |   | 555            |   |   | (1,706 | ) |
| Change                    In Advances to Affiliates, Net                   |   |           | 17,218  |           |   | (9,911         | )      |   | (41,593 | ) |
| Proceeds                    from Sale of Assets                            |   |           | 1,033   |           |   | 510            |   |   | 688 |   |
| Other                                                                      |   |           | (8,469  | )              |   | -              |   |   | - |   |
| **Net                    Cash Flows Used for Investing Activities**        |   |           | (52,356 | )              |   | (44,747        | )      |   | (88,252 | ) |
|                                                                       |   |           |    |           |   |           |   |   |   |   |
|                                                                       |   |           |    |           |   |           |   |   |   |   |
| **FINANCING                    ACTIVITIES**                                |   |           |    |           |   |           |   |   |   |   |
| Issuance                    of Long-term Debt                              |   |           | -       |           |   | -              |   |   | 222,455 |   |
| Change                    in Short-term Debt, Net - Affiliated             |   |           | -       |           |   | -              |   |   | (125,000 | ) |
| Change                    in Advances From Affiliates, Net                 |   |           | -       |           |   | -              |   |   | (80,407 | ) |
| Retirement                    of Long-term Debt - Nonaffiliated            |   |           | (37,609 | )              |   | (42,506        | )      |   | - |   |
| Retirement                    of Preferred Stock                           |   |           | -       |           |   | -              |   |   | (10 | ) |
| Principal                    Payments for Capital Lease Obligations        |   |           | (249    | )              |   | (216           | )      |   | (84 | ) |
| Dividends                    Paid on Common Stock                          |   |           | (29,026 | )              |   | (2,000         | )      |   | (4,970 | ) |
| Dividends                    Paid on Cumulative Preferred Stock            |   |           | (104    | )              |   | (103           | )      |   | (104 | ) |
| **Net                    Cash Flows From (Used For) Financing Activities** |   |           | (66,988 | )              |   | (44,825        | )      |   | 11,880 |   |
|                                                                       |   |           |    |           |   |           |   |   |   |   |
| **Net                    Decrease in Cash and Cash Equivalents**           |   |           | -       |           |   | -              |   |   | (62 | ) |
| **Cash                    and Cash Equivalents at Beginning of Period**    |   |           | -       |           |   | -              |   |   | 62 |   |
| **Cash                    and Cash Equivalents at End of Period**          |   | $              | -       |           | $      | -              |   | $ | - |   |

| **SUPPLEMENTAL                    DISCLOSURE:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|
| Cash                    paid for interest net of capitalized amounts was $19,042,000,                    $20,860,000                    and $16,384,000 and for income taxes was $41,306,000, $6,905,000                    and                    $16,081,000 in 2005, 2004 and 2003, respectively. Noncash capital                    lease                    acquisitions were $442,000, $282,000 and $560,000 in 2005, 2004                    and 2003,                    respectively. Noncash construction expenditures included in Accounts                    Payable of $3,159,000, $1,034,000 and $977,000 were outstanding                    as of                    December 31, 2005, 2004 and 2003,                    respectively. |

*See          Notes to Financial Statements of Registrant Subsidiaries.*

----

**AEP          TEXAS NORTH COMPANY**

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

|                                                                                                                                                    | **Footnote                    Reference** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------|
| Organization                    and Summary of Significant Accounting Policies                                                                          | Note                    1                 |
| New                    Accounting Pronouncements, Extraordinary Items and Cumulative                    Effect of                    Accounting Changes | Note                    2                 |
| Rate                    Matters                                                                                                                         | Note                    4                 |
| Effects                    of Regulation                                                                                                                | Note                    5                 |
| Customer                    Choice and Industry Restructuring                                                                                           | Note                    6                 |
| Commitments                    and Contingencies                                                                                                        | Note                    7                 |
| Guarantees                                                                                                                                              | Note                    8                 |
| Company-wide                    Staffing and Budget Review                                                                                              | Note                    9                 |
| Acquisitions,                    Dispositions, Impairments, Assets Held for Sale and Other                    Losses                                    | Note                    10                |
| Benefit                    Plans                                                                                                                        | Note                    11                |
| Business                    Segments                                                                                                                    | Note                    12                |
| Derivatives,                    Hedging and Financial Instruments                                                                                       | Note                    13                |
| Income                    Taxes                                                                                                                         | Note                    14                |
| Leases                                                                                                                                                  | Note                    15                |
| Financing                    Activities                                                                                                                 | Note                    16                |
| Related                    Party Transactions                                                                                                           | Note                    17                |
| Jointly-Owned                    Electric Utility Plant                                                                                                 | Note                    18                |
| Unaudited                    Quarterly Financial Information                                                                                            | Note                    19                |

----

**REPORT          OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

*.*

* *

----

**APPALACHIAN          POWER COMPANY**

**AND          SUBSIDIARIES**

----

**APPALACHIAN          POWER COMPANY AND SUBSIDIARIES**

**SELECTED          CONSOLIDATED FINANCIAL DATA**

**(in          thousands)**

|                                                                                                                                |   | **2005** |      | **2004** |   | **2003**  |   | **2002** |      | **2001** |   |
|-------------------------------------------------------------------------------------------------------------------------------------|--------|----------|-----------|----------|--------|-----------|--------|----------|-----------|----------|--------|
|                                                                                                                                |   |     |      |     |   |      |   |     |      |     |   |
| **STATEMENTS                    OF INCOME DATA**                                                                                    |   |     |      |     |   |      |   |     |      |     |   |
| Total                    Revenues                                                                                                   |   | $        | 2,176,273 |     | $      | 1,957,846 |   | $        | 1,950,867 |     | $      | 1,848,258 |   | $ | 1,845,740 |   |
|                                                                                                                                |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Operating                    Income                                                                                                 |   | $        | 283,388   |     | $      | 328,561   |   | $        | 416,410   |     | $      | 430,189 |   | $ | 376,114 |   |
|                                                                                                                                |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Income                    Before Cumulative Effect of Accounting Changes                                                            |   | $        | 135,832   |     | $      | 153,115   |   | $        | 202,783   |     | $      | 205,492 |   | $ | 161,818 |   |
| Cumulative                    Effect of Accounting Changes, Net                    of Tax                                      |   |     | (2,256    | )        |   | -         |   |     | 77,257    |     |   | - |   |   | - |   |
| Net                    Income                                                                                                       |   | $        | 133,576   |     | $      | 153,115   |   | $        | 280,040   |     | $      | 205,492 |   | $ | 161,818 |   |
|                                                                                                                                |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| **BALANCE                    SHEETS DATA**                                                                                          |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Property,                    Plant and Equipment                                                                                    |   | $        | 7,176,961 |     | $      | 6,563,207 |   | $        | 6,174,158 |     | $      | 5,929,348 |   | $ | 5,698,230 |   |
| Accumulated                    Depreciation and Amortization                                                                        |   |     | 2,524,855 |     |   | 2,456,417 |   |     | 2,334,013 |     |   | 2,343,507 |   |   | 2,219,014 |   |
| **Net                    Property, Plant and Equipment**                                                                            |   | $        | 4,652,106 |     | $      | 4,106,790 |   | $        | 3,840,145 |     | $      | 3,585,841 |   | $ | 3,479,216 |   |
|                                                                                                                                |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Total                    Assets                                                                                                     |   | $        | 6,254,093 |     | $      | 5,239,918 |   | $        | 4,977,011 |     | $      | 4,722,442 |   | $ | 4,572,194 |   |
|                                                                                                                                |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Long-term                    Debt (a)                                                                                               |   | $        | 2,151,378 |     | $      | 1,784,598 |   | $        | 1,864,081 |     | $      | 1,893,861 |   | $ | 1,556,559 |   |
|                                                                                                                                |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Cumulative                    Preferred Stock Not                    Subject to                      Mandatory Redemption |   | $        | 17,784    |     | $      | 17,784    |   | $        | 17,784    |     | $      | 17,790 |   | $ | 17,790 |   |
|                                                                                                                                |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Cumulative                    Preferred Stock Subject                    to                      Mandatory Redemption (a)      |   | $        | -         |     | $      | -         |   | $        | 5,360     |     | $      | 10,860 |   | $ | 10,860 |   |
|                                                                                                                                |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Common                    Shareholder’s Equity                                                                                |   | $        | 1,803,701 |     | $      | 1,409,718 |   | $        | 1,336,987 |     | $      | 1,166,057 |   | $ | 1,126,701 |   |
|                                                                                                                                |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Obligations                    Under Capital Leases (a)                                                                             |   | $        | 14,892    |     | $      | 19,878    |   | $        | 25,352    |     | $      | 33,589 |   | $ | 46,285 |   |
|                                                                                                                                |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
|                                                                                                                                |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
|                                                                                                                                |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |

| (a) | Including                    portion due within one year. |
|-----|-----------------------------------------------------------|

----

**APPALACHIAN          POWER COMPANY AND SUBSIDIARIES**

**MANAGEMENT’S          FINANCIAL DISCUSSION AND ANALYSIS**

**Results          of Operations**

**Reconciliation          of Year Ended December 31, 2004 to Year Ended December 31,          2005**

**Income          Before Cumulative Effect of Accounting Changes**

**(in          millions)**

| **Year                    Ended December 31, 2004**                 |   |   |   |   | $      | 153    |   |
|---------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                |   |   |   |   |   |   |   |
| **Changes                    in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                    Margins                                   |   |   | (55    | )      |   |   |   |
| Off-system                    Sales                                 |   |   | 60     |   |   |   |   |
| Transmission                    Revenues                            |   |   | (15    | )      |   |   |   |
| Other                    Revenues                                   |   |   | 2      |   |   |   |   |
| **Total                    Change in Gross Margin**                 |   |   |   |   |   | (8     | )      |
|                                                                |   |   |   |   |   |   |   |
| **Changes                    in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                    Operation and Maintenance                  |   |   | (40    | )      |   |   |   |
| Depreciation                    and Amortization                    |   |   | 3      |   |   |   |   |
| Carrying                    Costs Income                            |   |   | 14     |   |   |   |   |
| Interest                    Expense                                 |   |   | (7     | )      |   |   |   |
| Other                    Income                                     |   |   | 2      |   |   |   |   |
| **Total                    Change in Operating Expenses and Other** |   |   |   |   |   | (28    | )      |
|                                                                |   |   |   |   |   |   |   |
| Income                    Tax Expense                               |   |   |   |   |   | 19     |   |
|                                                                |   |   |   |   |   |   |   |
| **Year                    Ended December 31, 2005**                 |   |   |   |   | $      | 136    |   |

| **·** | Retail                    Margins decreased by $55 million in comparison to 2004 primarily                    due to our higher MLR share caused by the increase in our peak                    demand that                    was established in December 2004 resulting in a $57 million increase                    in                    capacity settlement payments under the Interconnection Agreement.                    In                    addition, there was a $27 million decrease in fuel margins resulting                    from                    higher fuel costs. The decrease in retail margins was partially                    offset by                    an increase of $26 million in retail sales due to favorable weather                    conditions. |
|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **·** | Margins                    from Off-system Sales for 2005 increased by $60 million compared                    to 2004                    primarily due to increased AEP Power Pool physical sales as well                    as                    favorable optimization activity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| **·** | Transmission                    Revenues decreased $15 million primarily due to the elimination                    of                    revenues related to through and out rates partially offset by                    an increase                    in revenues due to replacement SECA rates. See “FERC Order on Regional                    Through and Out Rates and Mitigating SECA Revenue” section of Note                    4.                                                                                                                                                                                                                                                                                                                                    |

| **·** | Other                    Operation and Maintenance expenses increased $40 million primarily                    due to                    a $15 million increase in generation operation and maintenance                    expenses, a                    $10 million increase in system dispatch costs related to our                    operation in                    PJM and a $9 million increase in costs associated with the AEP                    Transmission Equalization Agreement. |
|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **·** | Carrying                    Costs Income increased $14 million primarily related to the establishment                    of a regulatory asset for carrying costs related to the Virginia                    environmental and reliability costs incurred.                                                                                                                                                                                                                                       |
| **·** | Interest                    Expense increased $7 million primarily due to long-term debt                    issuances in                    2005.                                                                                                                                                                                                                                                                                                                                                |

*Income          Taxes*

**Reconciliation          of Year Ended December 31, 2003 to Year Ended December 31,          2004**

**Income          Before Cumulative Effect of Accounting Changes**

**(in          millions)**

| **Year                    Ended December 31, 2003**                 |   |   |   |   | $      | 203    |   |
|---------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                |   |   |   |   |   |   |   |
| **Changes                    in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                    Margins                                   |   |   | 5      |   |   |   |   |
| Off-system                    Sales                                 |   |   | 1      |   |   |   |   |
| Transmission                    Revenues                            |   |   | (9     | )      |   |   |   |
| Other                    Revenues                                   |   |   | 5      |   |   |   |   |
| **Total                    Change in Gross Margin**                 |   |   |   |   |   | 2      |   |
|                                                                |   |   |   |   |   |   |   |
| **Changes                    in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                    Operation and Maintenance                  |   |   | (69    | )      |   |   |   |
| Depreciation                    and Amortization                    |   |   | (18    | )      |   |   |   |
| Taxes                    Other Than Income Taxes                    |   |   | (3     | )      |   |   |   |
| Interest                    Expense                                 |   |   | 16     |   |   |   |   |
| Other                    Income                                     |   |   | 2      |   |   |   |   |
| **Total                    Change in Operating Expenses and Other** |   |   |   |   |   | (72    | )      |
|                                                                |   |   |   |   |   |   |   |
| Income                    Tax Expense                               |   |   |   |   |   | 20     |   |
|                                                                |   |   |   |   |   |   |   |
| **YYear                    Ended December 31, 2004**                |   |   |   |   | $      | 153    |   |

| **·** | Retail                    Margins increased by $5 million in comparison to 2003 primarily                    due to                    increases in retail sales and purchasing less power from the                    AEP Power                    Pool. Cooling degree days were 28% higher than 2003. The increase                    in                    retail sales were offset by a decrease in fuel margins resulting                    from                    higher fuel costs. |
|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **·** | Transmission                    Revenues decreased $9 million primarily due to the elimination                    of $8                    million of revenues related to through and out rates. See “FERC Order on                    Regional Through and Out Rates and Mitigating SECA Revenue” section of                    Note 4.                                                                                                                                          |
| **·** | Other                    Revenues increased $5 million primarily due to increased gains                    recorded on                    the disposition of emission allowances in                    2004.                                                                                                                                                                                                                                                                                  |

| **·** | Other                    Operation and Maintenance expenses increased $69 million primarily                    due to                    $40 million in boiler plant maintenance in 2004. In addition,                    there were                    increased administrative and support expenses, increased insurance                    premiums and increased removal costs in 2004. These increases                    were offset                    by reduced labor costs. |
|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **·** | Depreciation                    and Amortization increased $18 million due to a greater depreciable                    base                    in 2004 including the addition of capitalized software costs                    partially                    offset by reduced amortization of Virginia’s transition generation                    regulatory assets.                                                                                                            |
| **·** | Interest                    Expense decreased $16 million due to reduced interest rates from                    refinancing higher cost debt and increased construction-related                    capitalized interest.                                                                                                                                                                                                                                                              |

*Income          Taxes*

**Financial          Condition**

**Credit          Ratings**

|                                     | **Moody’s** |   | **S&P** |   | **Fitch** |
|------------------------------------------|-------------------|--------|-------------|--------|-----------|
|                                     |              |   |        |   |      |
| First                    Mortgage Bonds  | Baa1              |   | BBB         |   | A-        |
| Senior                    Unsecured Debt | Baa2              |   | BBB         |   | BBB+      |

**Cash          Flow**

|                                                                    |   | **2005**                              |     | **2004** |   | **2003** |   |
|-------------------------------------------------------------------------|--------|---------------------------------------|----------|----------|--------|----------|--------|
|                                                                    |   | **(in                    thousands)** |     |
| **Cash                    and Cash Equivalents at Beginning of Period** |   | $                                     | 1,543    |     | $      | 4,714    |   | $ | 4,285 |   |
| Cash                    Flows From (Used For):                          |   |                                  |     |     |   |     |   |   |   |   |
| Operating                    Activities                                 |   |                                  | 151,474  |     |   | 406,324  |   |   | 449,848 |   |
| Investing                    Activities                                 |   |                                  | (687,515 | )        |   | (391,904 | )      |   | (307,243 | ) |
| Financing                    Activities                                 |   |                                  | 536,239  |     |   | (17,591  | )      |   | (142,176 | ) |
| Net                    Increase (Decrease) in Cash and Cash Equivalents |   |                                  | 198      |     |   | (3,171   | )      |   | 429 |   |
| **Cash                    and Cash Equivalents at End of Period**       |   | $                                     | 1,741    |     | $      | 1,543    |   | $ | 4,714 |   |

*Operating          Activities*

*Investing          Activities*

*Financing          Activities*

**Summary          Obligation Information**

**Payments          Due by Period**

**(in          millions)**

| **Contractual                    Cash Obligations**                                             |   | **Less                    Than 1 year** |    | **2-3                    years** |   | **4-5                    years** |   | **After****5                    years** |   | **Total** |   |
|-------------------------------------------------------------------------------------------------|--------|-----------------------------------------|---------|----------------------------------|--------|----------------------------------|--------|-----------------------------------------|--------|-----------|--------|
| Advances                    from Affiliates (a)                                                 |   | $                                       | 194.1   |                             | $      | -                                |   | $                                       | -      |      | $      | - |   | $ | 194.1 |   |
| Interest                    on Fixed Rate Portion of Long-term Debt                    (b) |   |                                    | 99.3    |                             |   | 176.7                            |   |                                    | 137.8  |      |   | 862.5 |   |   | 1,276.3 |   |
| Fixed                    Rate Portion of Long-term Debt (c)                                     |   |                                    | 147.0   |                             |   | 399.2                            |   |                                    | 400.0  |      |   | 1,051.9 |   |   | 1,998.1 |   |
| Variable                    Rate Portion of Long-term Debt (d)                                  |   |                                    | -       |                             |   | 125.0                            |   |                                    | -      |      |   | 40.0 |   |   | 165.0 |   |
| Capital                    Lease Obligations (e)                                                |   |                                    | 6.7     |                             |   | 7.6                              |   |                                    | 2.5    |      |   | 0.3 |   |   | 17.1 |   |
| Noncancelable                    Operating Leases (e)                                           |   |                                    | 9.8     |                             |   | 14.1                             |   |                                    | 10.1   |      |   | 11.5 |   |   | 45.5 |   |
| Fuel                    Purchase Contracts (f)                                                  |   |                                    | 583.6   |                             |   | 736.2                            |   |                                    | 433.3  |      |   | 536.9 |   |   | 2,290.0 |   |
| Energy                    and Capacity Purchase Contracts (g)                                   |   |                                    | 0.6     |                             |   | 0.4                              |   |                                    | -      |      |   | - |   |   | 1.0 |   |
| Construction                    Contracts for Capital Assets (h)                                |   |                                    | 197.7   |                             |   | 250.0                            |   |                                    | -      |      |   | - |   |   | 447.7 |   |
| **Total**                                                                                       |   | $                                       | 1,238.8 |                             | $      | 1,709.2                          |   | $                                       | 983.7  |      | $      | 2,503.1 |   | $ | 6,434.8 |   |

| (a) | Represents                    short-term borrowings from the Utility Money Pool.                                                                                                                                                                                                                          |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Interest                    payments are estimated based on final maturity dates of debt                    securities                    outstanding at December 31, 2005 and do not reflect anticipated                    future                    refinancings, early redemptions or debt issuances. |
| (c) | See                    Note 16. Represents principal only excluding interest.                                                                                                                                                                                                                             |
| (d) | See                    Note 16. Represents principal only excluding interest. Variable                    rate debt                    had interest rates that ranged between 3.10% and 4.85% at December                    31,                    2005.                                                 |
| (e) | See                    Note 15.                                                                                                                                                                                                                                                                           |
| (f) | Represents                    contractual obligations to purchase coal and natural gas as fuel                    for                    electric generation along with related transportation of the                    fuel.                                                                            |
| (g) | Represents                    contractual cash flows of energy and capacity purchase                    contracts.                                                                                                                                                                                        |
| (h) | Represents                    only capital assets that are contractual                    obligations.                                                                                                                                                                                                    |

**Significant          Factors**

**Critical          Accounting Estimates**

----

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

**Market          Risks**

**MTM          Risk Management Contract Net Assets**

**Reconciliation          of MTM Risk Management Contracts to**

**Consolidated          Balance Sheet**

**As          of December 31, 2005**

**(in          thousands)**

|                                                                          |   | **MTM                    Risk Management Contracts** |     | **Cash                    Flow &****Fair                    Value Hedges** |   | **DETM                    Assignment (a)** |   | **Total** |    |
|-------------------------------------------------------------------------------|--------|------------------------------------------------------|----------|--------------------------------------------------------------------------------|--------|--------------------------------------------|--------|-----------|---------|
| Current                    Assets                                             |   | $                                                    | 131,135  |                                                                           | $      | 1,112                                      |   | $         | -       |   | $ | 132,247 |   |
| Noncurrent                    Assets                                          |   |                                                 | 176,231  |                                                                           |   | -                                          |   |      | -       |   |   | 176,231 |   |
| **Total                    MTM Derivative Contract Assets**                   |   |                                                 | 307,366  |                                                                           |   | 1,112                                      |   |      | -       |   |   | 308,478 |   |
|                                                                          |   |                                                 |     |                                                                           |   |                                       |   |      |    |   |   |   |   |
| Current                    Liabilities                                        |   |                                                 | (116,644 | )                                                                              |   | (3,771                                     | )      |      | (750    | ) |   | (121,165 | ) |
| Noncurrent                    Liabilities                                     |   |                                                 | (134,315 | )                                                                              |   | (1,234                                     | )      |      | (11,568 | ) |   | (147,117 | ) |
| **Total                    MTM Derivative Contract Liabilities**              |   |                                                 | (250,959 | )                                                                              |   | (5,005                                     | )      |      | (12,318 | ) |   | (268,282 | ) |
|                                                                          |   |                                                 |     |                                                                           |   |                                       |   |      |    |   |   |   |   |
| **Total                    MTM Derivative Contract Net Assets (Liabilities)** |   | $                                                    | 56,407   |                                                                           | $      | (3,893                                     | )      | $         | (12,318 | ) | $ | 40,196 |   |

| (a) | See                    “Natural Gas Contracts with DETM” section of Note                    17. |
|-----|-------------------------------------------------------------------------------------------------------------|

**MTM          Risk Management Contract Net Assets**

**Year          Ended December 31, 2005**

**(in          thousands)**

| **Total                    MTM Risk Management Contract Net Assets at December 31,                    2004**                                                              |   | $      | 54,124  |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|
| (Gain)                    Loss from Contracts Realized/Settled During the Period and Entered                    in a                    Prior Period                      |   |   | (13,085 | )      |
| Fair                    Value of New Contracts at Inception When Entered During the Period                    (a)                                                         |   |   | 1,053   |   |
| Net                    Option Premiums Paid/(Received) for Unexercised or Unexpired                    Option                    Contracts Entered During the Period |   |   | (1,518  | )      |
| Change                    in Fair Value Due to Valuation Methodology Changes on Forward                    Contracts                                                      |   |   | -       |   |
| Changes                    in Fair Value due to Market Fluctuations During the Period                    (b)                                                              |   |   | 13,300  |   |
| Changes                    in Fair Value Allocated to Regulated Jurisdictions (c)                                                                                         |   |   | 2,533   |   |
| **Total                    MTM Risk Management Contract Net Assets**                                                                                                      |   |   | 56,407  |   |
| Net                    Cash Flow & Fair Value Hedge Contracts                                                                                                         |   |   | (3,893  | )      |
| DETM                    Assignment (d)                                                                                                                                    |   |   | (12,318 | )      |
| **Total                    MTM Risk Management Contract Net Assets at December 31, 2005**                                                                                 |   | $      | 40,196  |   |

| (a) | Most                    of the fair value comes from longer term fixed price contracts                    with                    customers that seek to limit their risk against fluctuating energy                    prices.                    Inception value is only recorded if observable market data can                    be obtained                    for valuation inputs for the entire contract term. The contract                    prices are                    valued against market curves associated with the delivery location                    and                    delivery term. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Market                    fluctuations are attributable to various factors such as supply/demand,                    weather, storage, etc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| (c) | “Changes                    in Fair Value Allocated to Regulated Jurisdictions” relates to the net                    gains (losses) of those contracts that are not reflected in the                    Consolidated Statements of Income. These net gains (losses) are                    recorded                    as regulatory liabilities/assets for those subsidiaries that                    operate in                    regulated jurisdictions.                                                                                                                                       |
| (d) | See                    “Natural Gas Contracts with DETM” section of Note                    17.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |

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

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

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

**Risk          Management Contract Net Assets**

**Fair          Value of Contracts as of December 31, 2005**

**(in          thousands)**

|                                                                                                                    |   | **2006** |    | **2007** |   | **2008** |   | **2009** |   | **2010** |   | **After****2010** |   | **Total** |    |
|-------------------------------------------------------------------------------------------------------------------------|--------|----------|---------|----------|--------|----------|--------|----------|--------|----------|--------|-------------------|--------|-----------|---------|
| Prices Actively Quoted                  - Exchange                  Traded Contracts      |   | $        | 6,884   |     | $      | 3,854    |   | $        | 1,115  |     | $      | -                 |   | $         |  - |   | $ | - |   | $ | 11,853 |   |
| Prices                    Provided by Other External Sources                    - OTC Broker Quotes (a)                 |   |     | 17,630  |     |   | 13,388   |   |     | 12,251 |     |   | 6,137             |   |      | -       |   |   | - |   |   | 49,406 |   |
| Prices                    Based on Models and Other Valuation                    Methods (b)                            |   |     | (10,023 | )        |   | (4,117   | )      |     | (2,248 | )        |   | 3,272             |   |      | 7,818   |   |   | 446 |   |   | (4,852 | ) |
| **Total**                                                                                                               |   | $        | 14,491  |     | $      | 13,125   |   | $        | 11,118 |     | $      | 9,409             |   | $         | 7,818   |   | $ | 446 |   | $ | 56,407 |   |

| (a) | “Prices                    Provided by Other External Sources - OTC Broker Quotes” reflects                    information obtained from over-the-counter brokers, industry                    services, or                    multiple-party on-line platforms.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | “Prices                    Based on Models and Other Valuation Methods” is used in absence of pricing                    information from external sources. Modeled information is derived                    using                    valuation models developed by the reporting entity, reflecting                    when                    appropriate, option pricing theory, discounted cash flow concepts,                    valuation adjustments, etc. and may require projection of prices                    for                    underlying commodities beyond the period that prices are available                    from                    third-party sources. In addition, where external pricing information                    or                    market liquidity are limited, such valuations are classified                    as modeled.                    The determination of the point at which a market is no longer                    liquid for                    placing it in the modeled category varies by                    market. |

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

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

**Year          Ended December 31, 2005**

**(in          thousands)**

|                                                                                                                |   | **Power** |   | **Foreign****Currency** |   | **Interest****Rate** |   | **Total** |    |
|---------------------------------------------------------------------------------------------------------------------|--------|-----------|--------|-------------------------|--------|----------------------|--------|-----------|---------|
| **Beginning                    Balance in AOCI December 31, 2004**                                                  |   | $         | 2,422  |                    | $      | (176                 | )      | $         | (11,570 | ) | $ | (9,324 | ) |
| Changes                    in Fair Value                                                                            |   |      | 330    |                    |   | -                    |   |      | (4,845  | ) |   | (4,515 | ) |
| Reclassifications                    from AOCI to Net Income for                      Cash Flow Hedges Settled |   |      | (4,232 | )                       |   | 5                    |   |      | 1,645   |   |   | (2,582 | ) |
| **Ending                    Balance in AOCI December 31, 2005**                                                     |   | $         | (1,480 | )                       | $      | (171                 | )      | $         | (14,770 | ) | $ | (16,421 | ) |

**Credit          Risk**

**VaR          Associated with Risk Management Contracts**

| **December                    31, 2005** |   |     |   |        | **December                    31, 2004** |
|------------------------------------------|--------|----------|--------|-------------|------------------------------------------|
| **(in                    thousands)**    |   |     |   |        | **(in                    thousands)**    |
| **End**                                  |   | **High** |   | **Average** |                                     | **Low** |   |   |   |   | **End** |   | **High** |   | **Average** |   | **Low** |
| $732                                     |   | $1,216   |   | $579        |                                     | $209 |   |   |   |   | $577 |   | $1,883 |   | $812 |   | $277 |

**VaR          Associated with Debt Outstanding**

----

**APPALACHIAN          POWER COMPANY AND SUBSIDIARIES**

**CONSOLIDATED          STATEMENTS OF INCOME**

**For          the Years Ended December 31, 2005, 2004 and 2003**

**(in          thousands)**

|                                                                                                                                                             |   | **2005** |      | **2004** |   | **2003**  |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|-----------|----------|--------|-----------|--------|
| **REVENUES**                                                                                                                                                     |   |     |      |     |   |      |   |
| Electric                    Generation, Transmission and Distribution                                                                                            |   | $        | 1,845,170 |     | $      | 1,698,220 |   | $ | 1,671,976 |   |
| Sales                    to AEP Affiliates                                                                                                                       |   |     | 322,333   |     |   | 252,128   |   |   | 267,345 |   |
| Other                                                                                                                                                            |   |     | 8,770     |     |   | 7,498     |   |   | 11,546 |   |
| **TOTAL**                                                                                                                                                        |   |     | 2,176,273 |     |   | 1,957,846 |   |   | 1,950,867 |   |
|                                                                                                                                                             |   |     |      |     |   |      |   |   |   |   |
| **EXPENSES**                                                                                                                                                     |   |     |      |     |   |      |   |   |   |   |
| Fuel                    and Other Consumables for Electric Generation                                                                                            |   |     | 549,773   |     |   | 432,420   |   |   | 465,221 |   |
| Purchased                    Electricity for Resale                                                                                                              |   |     | 110,693   |     |   | 84,433    |   |   | 66,084 |   |
| Purchased                    Electricity from AEP Affiliates                                                                                                     |   |     | 453,600   |     |   | 370,953   |   |   | 351,210 |   |
| Other                    Operation                                                                                                                               |   |     | 316,517   |     |   | 279,906   |   |   | 250,333 |   |
| Maintenance                                                                                                                                                      |   |     | 179,119   |     |   | 175,283   |   |   | 135,596 |   |
| Depreciation                    and Amortization                                                                                                                 |   |     | 190,216   |     |   | 193,525   |   |   | 175,772 |   |
| Taxes                    Other Than Income Taxes                                                                                                                 |   |     | 92,967    |     |   | 92,765    |   |   | 90,241 |   |
| **TOTAL**                                                                                                                                                        |   |     | 1,892,885 |     |   | 1,629,285 |   |   | 1,534,457 |   |
|                                                                                                                                                             |   |     |      |     |   |      |   |   |   |   |
| **OPERATING                    INCOME**                                                                                                                          |   |     | 283,388   |     |   | 328,561   |   |   | 416,410 |   |
|                                                                                                                                                             |   |     |      |     |   |      |   |   |   |   |
| **Other                    Income (Expense):**                                                                                                                   |   |     |      |     |   |      |   |   |   |   |
| Interest                    Income                                                                                                                               |   |     | 2,540     |     |   | 1,985     |   |   | 3,395 |   |
| Carrying                    Costs Income                                                                                                                         |   |     | 14,438    |     |   | 255       |   |   | 199 |   |
| Allowance                    for Equity Funds Used During Construction                                                                                           |   |     | 7,956     |     |   | 6,560     |   |   | 3,201 |   |
| Interest                    Expense                                                                                                                              |   |     | (106,301  | )        |   | (99,135   | )      |   | (115,202 | ) |
|                                                                                                                                                             |   |     |      |     |   |      |   |   |   |   |
| **INCOME                    BEFORE INCOME TAXES**                                                                                                                |   |     | 202,021   |     |   | 238,226   |   |   | 308,003 |   |
|                                                                                                                                                             |   |     |      |     |   |      |   |   |   |   |
| Income                    Tax Expense                                                                                                                            |   |     | 66,189    |     |   | 85,111    |   |   | 105,220 |   |
|                                                                                                                                                             |   |     |      |     |   |      |   |   |   |   |
| **INCOME                    BEFORE CUMULATIVE EFFECT OF**** ACCOUNTING                    CHANGES**                                                         |   |     | 135,832   |     |   | 153,115   |   |   | 202,783 |   |
|                                                                                                                                                             |   |     |      |     |   |      |   |   |   |   |
| **CUMULATIVE                    EFFECT OF ACCOUNTING CHANGES,****Net                    of Tax**                                                                 |   |     | (2,256    | )        |   | -         |   |   | 77,257 |   |
|                                                                                                                                                             |   |     |      |     |   |      |   |   |   |   |
| **NET                    INCOME**                                                                                                                                |   |     | 133,576   |     |   | 153,115   |   |   | 280,040 |   |
|                                                                                                                                                             |   |     |      |     |   |      |   |   |   |   |
| Preferred                    Stock Dividend Requirements including Capital Stock** **Expense                    and Other                      Expense |   |     | 2,178     |     |   | 3,215     |   |   | 3,495 |   |
|                                                                                                                                                             |   |     |      |     |   |      |   |   |   |   |
| **EARNINGS                    APPLICABLE TO COMMON STOCK**                                                                                                       |   | $        | 131,398   |     | $      | 149,900   |   | $ | 276,545 |   |

*The          common stock of APCo is wholly-owned by AEP.*

*See          Notes to Financial Statements of Registrant Subsidiaries.*

----

**APPALACHIAN          POWER COMPANY AND SUBSIDIARIES**

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

**EQUITY          AND COMPREHENSIVE INCOME (LOSS)**

**For          the Years Ended December 31, 2005, 2004 and 2003**

**(in          thousands)**

|                                                                                                |   | **Common                    Stock** |    | **Paid-in                    Capital** |   | **Retained                    Earnings** |   | **Accumulated                    Other Comprehensive Income (Loss)** |     | **Total** |   |
|-----------------------------------------------------------------------------------------------------|--------|-------------------------------------|---------|----------------------------------------|--------|------------------------------------------|--------|----------------------------------------------------------------------|----------|-----------|--------|
| **DECEMBER                    31, 2002**                                                            |   | $                                   | 260,458 |                                   | $      | 717,242                                  |   | $                                                                    | 260,439  |      | $      | (72,082 | ) | $ | 1,166,057 |   |
|                                                                                                |   |                                |    |                                   |   |                                     |   |                                                                 |     |      |   |   |   |   |   |   |
| Common                    Stock Dividends                                                           |   |                                |    |                                   |   |                                     |   |                                                                 | (128,266 | )         |   |   |   |   | (128,266 | ) |
| Preferred                    Stock Dividends                                                        |   |                                |    |                                   |   |                                     |   |                                                                 | (1,001   | )         |   |   |   |   | (1,001 | ) |
| Capital                    Stock Expense                                                            |   |                                |    |                                   |   | 2,494                                    |   |                                                                 | (2,494   | )         |   |   |   |   | - |   |
| SFAS                    71 Capitalization                                                           |   |                                |    |                                   |   | 163                                      |   |                                                                 |     |      |   |   |   |   | 163 |   |
| **TOTAL**                                                                                           |   |                                |    |                                   |   |                                     |   |                                                                 |     |      |   |   |   |   | 1,036,953 |   |
|                                                                                                |   |                                |    |                                   |   |                                     |   |                                                                 |     |      |   |   |   |   |   |   |
| **COMPREHENSIVE                    INCOME**                                                         |   |                                |    |                                   |   |                                     |   |                                                                 |     |      |   |   |   |   |   |   |
| **Other                    Comprehensive Income,**** Net                    of Taxes:**        |   |                                |    |                                   |   |                                     |   |                                                                 |     |      |   |   |   |   |   |   |
| Cash                    Flow Hedges, Net of Tax of $199                                             |   |                                |    |                                   |   |                                     |   |                                                                 |     |      |   | 351 |   |   | 351 |   |
| Minimum                    Pension Liability, Net of Tax** **of                    $10,577     |   |                                |    |                                   |   |                                     |   |                                                                 |     |      |   | 19,643 |   |   | 19,643 |   |
| **NET                    INCOME**                                                                   |   |                                |    |                                   |   |                                     |   |                                                                 | 280,040  |      |   |   |   |   | 280,040 |   |
| **TOTAL                    COMPREHENSIVE INCOME**                                                   |   |                                |    |                                   |   |                                     |   |                                                                 |     |      |   |   |   |   | 300,034 |   |
|                                                                                                |   |                                |    |                                   |   |                                     |   |                                                                 |     |      |   |   |   |   |   |   |
| **DECEMBER                    31, 2003**                                                            |   |                                | 260,458 |                                   |   | 719,899                                  |   |                                                                 | 408,718  |      |   | (52,088 | ) |   | 1,336,987 |   |
|                                                                                                |   |                                |    |                                   |   |                                     |   |                                                                 |     |      |   |   |   |   |   |   |
| Common                    Stock Dividends                                                           |   |                                |    |                                   |   |                                     |   |                                                                 | (50,000  | )         |   |   |   |   | (50,000 | ) |
| Preferred                    Stock Dividends                                                        |   |                                |    |                                   |   |                                     |   |                                                                 | (800     | )         |   |   |   |   | (800 | ) |
| Capital                    Stock Expense                                                            |   |                                |    |                                   |   | 2,415                                    |   |                                                                 | (2,415   | )         |   |   |   |   | - |   |
| **TOTAL**                                                                                           |   |                                |    |                                   |   |                                     |   |                                                                 |     |      |   |   |   |   | 1,286,187 |   |
|                                                                                                |   |                                |    |                                   |   |                                     |   |                                                                 |     |      |   |   |   |   |   |   |
| **COMPREHENSIVE                    INCOME**                                                         |   |                                |    |                                   |   |                                     |   |                                                                 |     |      |   |   |   |   |   |   |
| **Other                    Comprehensive Loss,**** Net                    of Taxes:**          |   |                                |    |                                   |   |                                     |   |                                                                 |     |      |   |   |   |   |   |   |
| Cash                    Flow Hedges, Net of Tax of                    $4,176                        |   |                                |    |                                   |   |                                     |   |                                                                 |     |      |   | (7,755 | ) |   | (7,755 | ) |
| Minimum                    Pension Liability, Net of Tax of                    $11,754              |   |                                |    |                                   |   |                                     |   |                                                                 |     |      |   | (21,829 | ) |   | (21,829 | ) |
| **NET                    INCOME**                                                                   |   |                                |    |                                   |   |                                     |   |                                                                 | 153,115  |      |   |   |   |   | 153,115 |   |
| **TOTAL                    COMPREHENSIVE INCOME**                                                   |   |                                |    |                                   |   |                                     |   |                                                                 |     |      |   |   |   |   | 123,531 |   |
|                                                                                                |   |                                |    |                                   |   |                                     |   |                                                                 |     |      |   |   |   |   |   |   |
| **DECEMBER                    31, 2004**                                                            |   |                                | 260,458 |                                   |   | 722,314                                  |   |                                                                 | 508,618  |      |   | (81,672 | ) |   | 1,409,718 |   |
|                                                                                                |   |                                |    |                                   |   |                                     |   |                                                                 |     |      |   |   |   |   |   |   |
| Capital                    Contribution From Parent                                                 |   |                                |    |                                   |   | 200,000                                  |   |                                                                 |     |      |   |   |   |   | 200,000 |   |
| Common                    Stock Dividends                                                           |   |                                |    |                                   |   |                                     |   |                                                                 | (5,000   | )         |   |   |   |   | (5,000 | ) |
| Preferred                    Stock Dividends                                                        |   |                                |    |                                   |   |                                     |   |                                                                 | (800     | )         |   |   |   |   | (800 | ) |
| Capital                    Stock Expense and Other                                                  |   |                                |    |                                   |   | 2,523                                    |   |                                                                 | (1,378   | )         |   |   |   |   | 1,145 |   |
| **TOTAL**                                                                                           |   |                                |    |                                   |   |                                     |   |                                                                 |     |      |   |   |   |   | 1,605,063 |   |
|                                                                                                |   |                                |    |                                   |   |                                     |   |                                                                 |     |      |   |   |   |   |   |   |
| **COMPREHENSIVE                    INCOME**                                                         |   |                                |    |                                   |   |                                     |   |                                                                 |     |      |   |   |   |   |   |   |
| **Other                    Comprehensive Income (Loss),**** Net                    of Taxes:** |   |                                |    |                                   |   |                                     |   |                                                                 |     |      |   |   |   |   |   |   |
| Cash                    Flow Hedges, Net of Tax of                    $3,821                        |   |                                |    |                                   |   |                                     |   |                                                                 |     |      |   | (7,097 | ) |   | (7,097 | ) |
| Minimum                    Pension Liability, Net of Tax of                    $38,855              |   |                                |    |                                   |   |                                     |   |                                                                 |     |      |   | 72,159 |   |   | 72,159 |   |
| **NET                    INCOME**                                                                   |   |                                |    |                                   |   |                                     |   |                                                                 | 133,576  |      |   |   |   |   | 133,576 |   |
| **TOTAL                    COMPREHENSIVE INCOME**                                                   |   |                                |    |                                   |   |                                     |   |                                                                 |     |      |   |   |   |   | 198,638 |   |
|                                                                                                |   |                                |    |                                   |   |                                     |   |                                                                 |     |      |   |   |   |   |   |   |
| **DECEMBER                    31, 2005**                                                            |   | $                                   | 260,458 |                                   | $      | 924,837                                  |   | $                                                                    | 635,016  |      | $      | (16,610 | ) | $ | 1,803,701 |   |
|                                                                                                |   |                                |    |                                   |   |                                     |   |                                                                 |     |      |   |   |   |   |   |   |

*See          Notes to Financial Statements of Registrant Subsidiaries.*

----

**APPALACHIAN          POWER COMPANY AND SUBSIDIARIES**

**CONSOLIDATED          BALANCE SHEETS**

**ASSETS**

**December          31, 2005 and 2004**

**(in          thousands)**

|                                                         |   | **2005**     |      | **2004**     |   |
|--------------------------------------------------------------|--------|--------------|-----------|--------------|--------|
| **CURRENT                    ASSETS**                        |   |    |      |    |   |
| Cash                    and Cash Equivalents                 |   | $            | 1,741     |         | $      | 1,543 |   |
| Accounts                    Receivable:                      |   |         |      |         |   |   |   |
| Customers                                                    |   |         | 141,810   |         |   | 126,422 |   |
| Affiliated                    Companies                      |   |         | 153,453   |         |   | 140,950 |   |
| Accrued                    Unbilled Revenues                 |   |         | 51,201    |         |   | 51,427 |   |
| Miscellaneous                                                |   |         | 527       |         |   | 1,264 |   |
| Allowance                    for Uncollectible Accounts      |   |         | (1,805    | )            |   | (5,561 | ) |
|                       Total Accounts Receivable    |   |         | 345,186   |         |   | 314,502 |   |
| Fuel                                                         |   |         | 64,657    |         |   | 45,756 |   |
| Materials                    and Supplies                    |   |         | 54,967    |         |   | 45,644 |   |
| Risk                    Management Assets                    |   |         | 132,247   |         |   | 81,811 |   |
| Accrued                    Tax Benefits                      |   |         | 32,979    |         |   | - |   |
| Prepayments                    and Other                     |   |         | 75,129    |         |   | 19,576 |   |
| **TOTAL**                                                    |   |         | 706,906   |         |   | 508,832 |   |
|                                                         |   |         |      |         |   |   |   |
| **PROPERTY,                    PLANT AND EQUIPMENT**         |   |         |      |         |   |   |   |
| Electric:                                                    |   |         |      |         |   |   |   |
| Production                                                   |   |         | 2,798,157 |         |   | 2,502,273 |   |
| Transmission                                                 |   |         | 1,266,855 |         |   | 1,255,390 |   |
| Distribution                                                 |   |         | 2,141,153 |         |   | 2,070,377 |   |
| Other                                                        |   |         | 323,158   |         |   | 336,051 |   |
| Construction                    Work in Progress             |   |         | 647,638   |         |   | 399,116 |   |
| **Total**                                                    |   |         | 7,176,961 |         |   | 6,563,207 |   |
| Accumulated                    Depreciation and Amortization |   |         | 2,524,855 |         |   | 2,456,417 |   |
| **TOTAL                    - NET**                           |   |         | 4,652,106 |         |   | 4,106,790 |   |
|                                                         |   |         |      |         |   |   |   |
| **OTHER                    NONCURRENT ASSETS**               |   |         |      |         |   |   |   |
| Regulatory                    Assets                         |   |         | 457,294   |         |   | 423,407 |   |
| Long-term                    Risk Management Assets          |   |         | 176,231   |         |   | 81,245 |   |
| Deferred                    Charges and Other                |   |         | 261,556   |         |   | 119,644 |   |
| **TOTAL**                                                    |   |         | 895,081   |         |   | 624,296 |   |
|                                                         |   |         |      |         |   |   |   |
| **TOTAL                    ASSETS**                          |   | $            | 6,254,093 |         | $      | 5,239,918 |   |

*See          Notes to Financial Statements of Registrant Subsidiaries.*

----

**APPALACHIAN          POWER COMPANY AND SUBSIDIARIES**

**CONSOLIDATED          BALANCE SHEETS**

**LIABILITIES          AND SHAREHOLDERS' EQUITY**

**December          31, 2005 and 2004**

|                                                                              |   |  **2005**                        |      | **2004** |   |
|-----------------------------------------------------------------------------------|--------|---------------------------------------|-----------|----------|--------|
| **CURRENT                    LIABILITIES**                                        |   | **(in                    thousands)** |      |
| Advances                    from Affiliates                                       |   | $                                     | 194,133   |     | $      | 211,060 |   |
| Accounts                    Payable:                                              |   |                                  |      |     |   |   |   |
| General                                                                           |   |                                  | 230,570   |     |   | 133,827 |   |
| Affiliated                    Companies                                           |   |                                  | 85,941    |     |   | 76,314 |   |
| Long-term                    Debt Due Within One Year - Nonaffiliated             |   |                                  | 146,999   |     |   | 530,010 |   |
| Customer                    Deposits                                              |   |                                  | 79,854    |     |   | 42,822 |   |
| Risk                    Management Liabilities                                    |   |                                  | 121,165   |     |   | 89,136 |   |
| Accrued                    Taxes                                                  |   |                                  | 49,833    |     |   | 90,404 |   |
| Other                                                                             |   |                                  | 108,746   |     |   | 87,118 |   |
| **TOTAL**                                                                         |   |                                  | 1,017,241 |     |   | 1,260,691 |   |
|                                                                              |   |                                  |      |     |   |   |   |
| **NONCURRENT                    LIABILITIES**                                     |   |                                  |      |     |   |   |   |
| Long-term                    Debt - Nonaffiliated                                 |   |                                  | 1,904,379 |     |   | 1,254,588 |   |
| Long-term                    Debt - Affiliated                                    |   |                                  | 100,000   |     |   | - |   |
| Long-term                    Risk Management Liabilities                          |   |                                  | 147,117   |     |   | 57,349 |   |
| Deferred                    Income Taxes                                          |   |                                  | 952,497   |     |   | 852,536 |   |
| Regulatory                    Liabilities and Deferred Investment Tax Credits     |   |                                  | 201,230   |     |   | 201,486 |   |
| Deferred                    Credits and Other                                     |   |                                  | 110,144   |     |   | 185,766 |   |
| **TOTAL**                                                                         |   |                                  | 3,415,367 |     |   | 2,551,725 |   |
|                                                                              |   |                                  |      |     |   |   |   |
| **TOTAL                    LIABILITIES**                                          |   |                                  | 4,432,608 |     |   | 3,812,416 |   |
|                                                                              |   |                                  |      |     |   |   |   |
| Cumulative                    Preferred Stock Not Subject to Mandatory Redemption |   |                                  | 17,784    |     |   | 17,784 |   |
|                                                                              |   |                                  |      |     |   |   |   |
| Commitments                    and Contingencies (Note 7)                         |   |                                  |      |     |   |   |   |
|                                                                              |   |                                  |      |     |   |   |   |
| **COMMON                    SHAREHOLDER’S EQUITY**                          |   |                                  |      |     |   |   |   |
| Common                    Stock - No Par Value:                                   |   |                                  |      |     |   |   |   |
| Authorized                    - 30,000,000 Shares                                 |   |                                  |      |     |   |   |   |
| Outstanding                    - 13,499,500 Shares                                |   |                                  | 260,458   |     |   | 260,458 |   |
| Paid-in                    Capital                                                |   |                                  | 924,837   |     |   | 722,314 |   |
| Retained                    Earnings                                              |   |                                  | 635,016   |     |   | 508,618 |   |
| Accumulated                    Other Comprehensive Income (Loss)                  |   |                                  | (16,610   | )        |   | (81,672 | ) |
| **TOTAL**                                                                         |   |                                  | 1,803,701 |     |   | 1,409,718 |   |
|                                                                              |   |                                  |      |     |   |   |   |
| **TOTAL                    LIABILITIES AND SHAREHOLDERS' EQUITY**                 |   | $                                     | 6,254,093 |     | $      | 5,239,918 |   |

*See          Notes to Financial Statements of Registrant Subsidiaries.*

----

**APPALACHIAN          POWER COMPANY AND SUBSIDIARIES**

**CONSOLIDATED          STATEMENTS OF CASH FLOWS**

**For          the Years Ended December 31, 2005, 2004 and 2003**

**(in          thousands)**

|                                                                        |   |  **2005** |     |  **2004** |   |  **2003** |   |
|-----------------------------------------------------------------------------|--------|----------------|----------|----------------|--------|----------------|--------|
| **OPERATING                    ACTIVITIES**                                 |   |      |     |      |   |      |   |
| **Net                    Income**                                           |   | $              | 133,576  |           | $      | 153,115        |   | $ | 280,040 |   |
| **Adjustments                    for Noncash Items:**                       |   |           |     |           |   |           |   |   |   |   |
| Depreciation                    and Amortization                            |   |           | 190,216  |           |   | 193,525        |   |   | 175,772 |   |
| Deferred                    Income Taxes                                    |   |           | 72,763   |           |   | 47,585         |   |   | 24,563 |   |
| Cumulative                    Effect of Accounting Changes, Net of Tax      |   |           | 2,256    |           |   | -              |   |   | (77,257 | ) |
| Carrying                    Costs Income                                    |   |           | (14,438  | )              |   | (255           | )      |   | (199 | ) |
| Mark-to-Market                    of Risk Management Contracts              |   |           | (13,701  | )              |   | 5,391          |   |   | 56,409 |   |
| Pension                    Contributions to Qualified Plan Trusts           |   |           | (129,117 | )              |   | (1,429         | )      |   | (9,268 | ) |
| Over/Under                    Fuel Recovery, Net                            |   |           | (36,499  | )              |   | (10,861        | )      |   | 74,071 |   |
| Rate                    Stabilization Deferral                              |   |           | -        |           |   | -              |   |   | (75,601 | ) |
| Change                    in Other Noncurrent Assets                        |   |           | (14,097  | )              |   | (23,228        | )      |   | (14,520 | ) |
| Change                    in Other Noncurrent Liabilities                   |   |           | (13,741  | )              |   | 36,022         |   |   | 47,951 |   |
| **Changes                    in Components of Working Capital:**            |   |           |     |           |   |           |   |   |   |   |
| Accounts                    Receivable, Net                                 |   |           | (26,665  | )              |   | (6,608         | )      |   | (6,825 | ) |
| Fuel,                    Materials and Supplies                             |   |           | (25,419  | )              |   | (2,795         | )      |   | 8,114 |   |
| Accounts                    Payable                                         |   |           | 61,086   |           |   | (21,696        | )      |   | (34,996 | ) |
| Accrued                    Taxes, Net                                       |   |           | (73,550  | )              |   | 40,145         |   |   | 21,078 |   |
| Customer                    Deposits                                        |   |           | 37,032   |           |   | 8,892          |   |   | 7,744 |   |
| Other                    Current Assets                                     |   |           | (24,831  | )              |   | (3,237         | )      |   | (16,634 | ) |
| Other                    Current Liabilities                                |   |           | 26,603   |           |   | (8,242         | )      |   | (10,594 | ) |
| **Net                    Cash Flows From Operating Activities**             |   |           | 151,474  |           |   | 406,324        |   |   | 449,848 |   |
|                                                                        |   |           |     |           |   |           |   |   |   |   |
| **INVESTING                    ACTIVITIES**                                 |   |           |     |           |   |           |   |   |   |   |
| Construction                    Expenditures                                |   |           | (597,808 | )              |   | (436,535       | )      |   | (268,269 | ) |
| Change                    in Other Cash Deposits, Net                       |   |           | (24      | )              |   | 41,040         |   |   | (41,166 | ) |
| Purchase                    of Ceredo Generating Station                    |   |           | (100,000 | )              |   | -              |   |   | - |   |
| Proceeds                    from Sales of Assets                            |   |           | 10,317   |           |   | 3,591          |   |   | 2,192 |   |
| **Net                    Cash Flows Used For Investing Activities**         |   |           | (687,515 | )              |   | (391,904       | )      |   | (307,243 | ) |
|                                                                        |   |           |     |           |   |           |   |   |   |   |
| **FINANCING                    ACTIVITIES**                                 |   |           |     |           |   |           |   |   |   |   |
| Capital                    Contributions from Parent Company                |   |           | 200,000  |           |   | -              |   |   | - |   |
| Issuance                    of Long-term Debt - Nonaffiliated               |   |           | 840,469  |           |   | 124,398        |   |   | 580,649 |   |
| Issuance                    of Long-term Debt - Affiliated                  |   |           | 100,000  |           |   | -              |   |   | - |   |
| Change                    in Advances from Affiliates, Net                  |   |           | (16,927  | )              |   | 128,066        |   |   | 43,789 |   |
| Retirement                    of Long-term Debt - Nonaffiliated             |   |           | (575,010 | )              |   | (206,008       | )      |   | (622,737 | ) |
| Retirement                    of Preferred Stock                            |   |           | -        |           |   | (5,360         | )      |   | (5,506 | ) |
| Principal                    Payments for Capital Lease Obligations         |   |           | (6,493   | )              |   | (7,887         | )      |   | (9,104 | ) |
| Dividends                    Paid on Common Stock                           |   |           | (5,000   | )              |   | (50,000        | )      |   | (128,266 | ) |
| Dividends                    Paid on Cumulative Preferred Stock             |   |           | (800     | )              |   | (800           | )      |   | (1,001 | ) |
| **Net                    Cash Flows From (Used For) Financing Activities**  |   |           | 536,239  |           |   | (17,591        | )      |   | (142,176 | ) |
|                                                                        |   |           |     |           |   |           |   |   |   |   |
| **Net                    Increase (Decrease) in Cash and Cash Equivalents** |   |           | 198      |           |   | (3,171         | )      |   | 429 |   |
| **Cash                    and Cash Equivalents at Beginning of Period**     |   |           | 1,543    |           |   | 4,714          |   |   | 4,285 |   |
| **Cash                    and Cash Equivalents at End of Period**           |   | $              | 1,741    |           | $      | 1,543          |   | $ | 4,714 |   |

| **SUPPLEMENTAL                    DISCLOSURE:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Cash                    paid (received) for interest net of capitalized amounts was $91,373,000,                    $92,773,000 and $108,045,000 and for income taxes was $75,160,000,                    $(831,000) and $62,673,000 in 2005, 2004 and 2003, respectively.                    Noncash                    capital lease acquisitions were $1,988,000, $3,791,000 and $2,332,000                    in                    2005, 2004 and 2003, respectively. Noncash construction expenditures                    included in Accounts Payable of $82,640,000, $37,356,000 and                    $29,857,000                    were outstanding as of December 31, 2005, 2004 and 2003, respectively.                    In                    connection with the acquisition of Ceredo Generating Station                    in December                    2005, we assumed $556,000 of liabilities. |

*See          Notes to Financial Statements of Registrant Subsidiaries.*

----

**APPALACHIAN          POWER COMPANY AND SUBSIDIARIES**

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

|                                                                                                                                                    | **Footnote                    Reference** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------|
| Organization                    and Summary of Significant Accounting Policies                                                                          | Note                    1                 |
| New                    Accounting Pronouncements, Extraordinary Items and Cumulative                    Effect of                    Accounting Changes | Note                    2                 |
| Rate                    Matters                                                                                                                         | Note                    4                 |
| Effects                    of Regulation                                                                                                                | Note                    5                 |
| Customer                    Choice and Industry Restructuring                                                                                           | Note                    6                 |
| Commitments                    and Contingencies                                                                                                        | Note                    7                 |
| Guarantees                                                                                                                                              | Note                    8                 |
| Company-wide                    Staffing and Budget Review                                                                                              | Note                    9                 |
| Acquisitions,                    Dispositions, Impairments, Assets Held for Sale and Other                    Losses                                    | Note                    10                |
| Benefit                    Plans                                                                                                                        | Note                    11                |
| Business                    Segments                                                                                                                    | Note                    12                |
| Derivatives,                    Hedging and Financial Instruments                                                                                       | Note                    13                |
| Income                    Taxes                                                                                                                         | Note                    14                |
| Leases                                                                                                                                                  | Note                    15                |
| Financing                    Activities                                                                                                                 | Note                    16                |
| Related                    Party Transactions                                                                                                           | Note                    17                |
| Unaudited                    Quarterly Financial Information                                                                                            | Note                    19                |

----

**REPORT          OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

*.*

* *

----

**COLUMBUS          SOUTHERN POWER COMPANY**

**AND          SUBSIDIARIES**

----

**COLUMBUS          SOUTHERN POWER COMPANY AND SUBSIDIARIES**

**SELECTED          CONSOLIDATED FINANCIAL DATA**

**(in          thousands)**

|                                                                                                                                   |   | **2005** |      | **2004** |   | **2003**  |   | **2002** |      | **2001** |   |
|----------------------------------------------------------------------------------------------------------------------------------------|--------|----------|-----------|----------|--------|-----------|--------|----------|-----------|----------|--------|
| **STATEMENTS                      OF INCOME DATA**                                                                                     |   |     |      |     |   |      |   |     |      |     |   |
| Total                      Revenues                                                                                                    |   | $        | 1,542,332 |     | $      | 1,447,925 |   | $        | 1,420,549 |     | $      | 1,424,583 |   | $ | 1,385,932 |   |
|                                                                                                                                   |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Operating                      Income                                                                                                  |   | $        | 242,880   |     | $      | 258,579   |   | $        | 295,412   |     | $      | 344,178 |   | $ | 362,156 |   |
|                                                                                                                                   |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Income                      Before Extraordinary Loss and **  **Cumulative                      Effect of Accounting Changes |   | $        | 137,799   |     | $      | 140,258   |   | $        | 173,147   |     | $      | 181,173 |   | $ | 191,900 |   |
| Extraordinary                      Loss, Net of Tax                                                                                    |   |     | -         |     |   | -         |   |     | -         |     |   | - |   |   | (30,024 | ) |
| Cumulative                      Effect of Accounting Changes, **  **Net                      of Tax                          |   |     | (839      | )        |   | -         |   |     | 27,283    |     |   | - |   |   | - |   |
| **Net                      Income**                                                                                                    |   | $        | 136,960   |     | $      | 140,258   |   | $        | 200,430   |     | $      | 181,173 |   | $ | 161,876 |   |
|                                                                                                                                   |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| **BALANCE                      SHEETS DATA**                                                                                           |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Property,                      Plant and Equipment                                                                                     |   | $        | 4,026,653 |     | $      | 3,717,075 |   | $        | 3,598,388 |     | $      | 3,497,187 |   | $ | 3,387,121 |   |
| Accumulated                      Depreciation and Amortization                                                                         |   |     | 1,500,858 |     |   | 1,475,457 |   |     | 1,395,113 |     |   | 1,375,035 |   |   | 1,287,222 |   |
| **Net                      Property, Plant and Equipment**                                                                             |   | $        | 2,525,795 |     | $      | 2,241,618 |   | $        | 2,203,275 |     | $      | 2,122,152 |   | $ | 2,099,899 |   |
|                                                                                                                                   |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Total                      Assets                                                                                                      |   | $        | 3,432,794 |     | $      | 3,029,896 |   | $        | 2,838,366 |     | $      | 2,849,261 |   | $ | 2,815,708 |   |
|                                                                                                                                   |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Common                      Shareholder's Equity                                                                                       |   | $        | 981,546   |     | $      | 898,650   |   | $        | 897,881   |     | $      | 847,664 |   | $ | 791,498 |   |
|                                                                                                                                   |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Cumulative                      Preferred Stock Subject to **  **Mandatory                      Redemption (a)               |   | $        | -         |     | $      | -         |   | $        | -         |     | $      | - |   | $ | 10,000 |   |
|                                                                                                                                   |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Long-term                      Debt (a)                                                                                                |   | $        | 1,196,920 |     | $      | 987,626   |   | $        | 897,564   |     | $      | 621,626 |   | $ | 791,848 |   |
|                                                                                                                                   |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Obligations                      Under Capital Leases (a)                                                                              |   | $        | 9,576     |     | $      | 12,514    |   | $        | 15,618    |     | $      | 27,610 |   | $ | 34,887 |   |
|                                                                                                                                   |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |

| (a) | Including                    portion due within one year. |
|-----|-----------------------------------------------------------|

----

**COLUMBUS          SOUTHERN POWER COMPANY AND SUBSIDIARIES**

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

**Results          of Operations**

**Reconciliation          of Year Ended December 31, 2004 to Year Ended December 31,          2005**

**Income          Before Cumulative Effect of Accounting Changes**

**(in          millions)**

| **Year                    Ended December 31, 2004**                 |   |   |   |   | $      | 140    |   |
|---------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                |   |   |   |   |   |   |   |
| **Changes                    in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                    Margins                                   |   |   | 31     |   |   |   |   |
| Off-system                    Sales                                 |   |   | 22     |   |   |   |   |
| Transmission                    Revenues                            |   |   | (13    | )      |   |   |   |
| Other                    Revenues                                   |   |   | (7     | )      |   |   |   |
| **Total                    Change in Gross Margin**                 |   |   |   |   |   | 33     |   |
|                                                                |   |   |   |   |   |   |   |
| **Changes                    in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Asset                    Impairments and Other Related Charges      |   |   | (39    | )      |   |   |   |
| Depreciation                    and Amortization                    |   |   | 6      |   |   |   |   |
| Taxes                    Other Than Income Taxes                    |   |   | (15    | )      |   |   |   |
| Carrying                    Costs Income                            |   |   | 10     |   |   |   |   |
| Other                    Income                                     |   |   | 2      |   |   |   |   |
| Interest                    Expense                                 |   |   | (5     | )      |   |   |   |
| **Total                    Change in Operating Expenses and Other** |   |   |   |   |   | (41    | )      |
|                                                                |   |   |   |   |   |   |   |
| Income                    Tax Expense                               |   |   |   |   |   | 6      |   |
|                                                                |   |   |   |   |   |   |   |
| **Year                    Ended December 31, 2005**                 |   |   |   |   | $      | 138    |   |

| **·** | Retail                    Margins were $31 million higher than the prior period primarily                    due to                    favorable weather and lower capacity settlement costs partially                    offset by                    lower fuel margins.                                                                  |
|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **·** | Off-system                    Sales margins increased $22 million primarily due to increased                    AEP Power                    Pool physical sales.                                                                                                                                                                           |
| **·** | Transmission                    Revenues decreased $13 million primarily due to the loss of through                    and                    out rates, net of replacement SECA rates. See “FERC Order on Regional                    Through and Out Rates and Mitigating SECA Revenue” section of Note                    4. |
| **·** | Other                    Revenues decreased $7 million primarily due to lower gains on                    sale of                    emission allowances.                                                                                                                                                                                   |

| **·** | Asset                    Impairments and Other Related Charges increased $39 million due                    to the                    commitment to a plan to retire units 1 and 2 at our Conesville                    Plant. In                    September we formally requested permission from PJM to retire                    the two                    units effective December 29, 2005. We received final approval                    on January                    1, 2006.                                                                                |
|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **·** | Depreciation                    and Amortization expense decreased $6 million primarily due to                    the Ohio                    Rate Stabilization Plan order which resulted in a reversal of                    unused                    shopping credits of $18 million partially offset by the establishment                    of a                    $7 million regulatory liability to benefit low income customers                    and for                    economic development and by increased depreciation                    accruals. |
| **·** | Taxes                    Other Than Income Taxes increased $15 million due to an increase                    in                    property tax accruals as a result of increased property values.                    The                    increase is also a result of increased state excise taxes due                    to higher                    taxable KWH sales.                                                                                                                                                                                           |
| **·** | Carrying                    Costs Income increased $10 million primarily due to the carrying                    costs on                    environmental capital expenditures as a result of the Ohio Rate                    Stabilization Plan order.                                                                                                                                                                                                                                                                                                                |
| **·** | Interest                    Expense increased $5 million primarily due to new long-term debt                    issuances                    during 2005 and third quarter 2004.                                                                                                                                                                                                                                                                                                                                                                                        |

*Income          Tax*

**Financial          Condition**

**Credit          Ratings**

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

**Summary          Obligation Information**

**Payment          Due by Period**

**(in          millions)**

| **Contractual                    Cash Obligations**                                        |   | **Less                    Than 1 year** |   | **2-3                    years** |   | **4-5                    years** |   | **After****5                    years** |   | **Total** |   |
|--------------------------------------------------------------------------------------------|--------|-----------------------------------------|--------|----------------------------------|--------|----------------------------------|--------|-----------------------------------------|--------|-----------|--------|
| Advances                    to Affiliates (a)                                              |   | $                                       | 17.6   |                             | $      | -                                |   | $                                       | -      |      | $      | - |   | $ | 17.6 |   |
| Interest                    on Fixed Rate Portion of Long-term Debt                    (b) |   |                                    | 62.9   |                             |   | 124.5                            |   |                                    | 109.9  |      |   | 771.3 |   |   | 1,068.6 |   |
| Fixed                    Rate Portion of Long-term Debt (c)                                |   |                                    | -      |                             |   | 112.0                            |   |                                    | 250.0  |      |   | 750.0 |   |   | 1,112.0 |   |
| Variable                    Rate Portion of Long-term Debt (d)                             |   |                                    | -      |                             |   | -                                |   |                                    | -      |      |   | 92.2 |   |   | 92.2 |   |
| Capital                    Lease Obligations (e)                                           |   |                                    | 3.5    |                             |   | 4.9                              |   |                                    | 2.3    |      |   | - |   |   | 10.7 |   |
| Noncancelable                    Operating Leases (e)                                      |   |                                    | 4.1    |                             |   | 6.5                              |   |                                    | 4.6    |      |   | 4.0 |   |   | 19.2 |   |
| Fuel                    Purchase Contracts (f)                                             |   |                                    | 144.0  |                             |   | 223.1                            |   |                                    | 78.8   |      |   | 197.0 |   |   | 642.9 |   |
| Energy                    and Capacity Purchase Contracts (g)                              |   |                                    | 81.3   |                             |   | 34.0                             |   |                                    | -      |      |   | - |   |   | 115.3 |   |
| Construction                    Contracts Assets (h)                                       |   |                                    | 167.1  |                             |   | -                                |   |                                    | -      |      |   | - |   |   | 167.1 |   |
| **Total**                                                                                  |   | $                                       | 480.5  |                             | $      | 505.0                            |   | $                                       | 445.6  |      | $      | 1,814.5 |   | $ | 3,245.6 |   |

| (a) | Represents                    short-term borrowings from the Utility Money Pool.                                                                                                                                                                                                                          |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Interest                    payments are estimated based on final maturity dates of debt                    securities                    outstanding at December 31, 2005 and do not reflect anticipated                    future                    refinancings, early redemptions or debt issuances. |
| (c) | See                    Note 16. Represents principal only excluding interest.                                                                                                                                                                                                                             |
| (d) | See                    Note 16. Represents principal only excluding interest. Variable                    rate debt                    had interest rates that ranged between 3.20% and 3.35% at December                    31                    2005.                                                  |
| (e) | See                    Note 15.                                                                                                                                                                                                                                                                           |
| (f) | Represents                    contractual obligations to purchase coal and natural gas as fuel                    for                    electric generation along with related transportation of the                    fuel.                                                                            |
| (g) | Represents                    contractual cash flows of energy and capacity purchase                    contracts.                                                                                                                                                                                        |
| (h) | Represents                    only capital assets that are contractual                    obligations.                                                                                                                                                                                                    |

**Significant          Factors**

**Critical          Accounting Estimates**

----

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

**Market          Risks**

**MTM          Risk Management Contract Net Assets**

**Reconciliation          of MTM Risk Management Contracts to**

**Consolidated          Balance Sheet**

**As          of December 31, 2005**

**(in          thousands)**

|                                                                                                   |   | **MTM                    Risk Management Contracts** |     | **Cash                    Flow Hedges** |   | **DETM                    Assignment (a)** |   | **Total** |   |
|--------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------|----------|-----------------------------------------|--------|--------------------------------------------|--------|-----------|--------|
| Current                    Assets                                                                      |   | $                                                    | 75,881   |                                    | $      | 626                                        |   | $         | -      |   | $ | 76,507 |   |
| Noncurrent                    Assets                                                                   |   |                                                 | 101,512  |                                    |   | -                                          |   |      | -      |   |   | 101,512 |   |
| **Total                    MTM Derivative Contract Assets**                                            |   |                                                 | 177,393  |                                    |   | 626                                        |   |      | -      |   |   | 178,019 |   |
|                                                                                                   |   |                                                 |     |                                    |   |                                       |   |      |   |   |   |   |   |
| Current                    Liabilities                                                                 |   |                                                 | (66,711  | )                                       |   | (1,890                                     | )      |      | (435   | ) |   | (69,036 | ) |
| Noncurrent                    Liabilities                                                              |   |                                                 | (77,360  | )                                       |   | (224                                       | )      |      | (6,707 | ) |   | (84,291 | ) |
| **Total                    MTM Derivative Contract  Liabilities**                                 |   |                                                 | (144,071 | )                                       |   | (2,114                                     | )      |      | (7,142 | ) |   | (153,327 | ) |
|                                                                                                   |   |                                                 |     |                                    |   |                                       |   |      |   |   |   |   |   |
| **Total                    MTM Derivative Contract Net  Assets                    (Liabilities)** |   | $                                                    | 33,322   |                                    | $      | (1,488                                     | )      | $         | (7,142 | ) | $ | 24,692 |   |

| (a) | See                    “Natural Gas Contracts with DETM” section of Note                    17. |
|-----|-------------------------------------------------------------------------------------------------------------|

**MTM          Risk Management Contract Net Assets**

**Year          Ended December 31, 2005**

**(in          thousands)**

| **Total                    MTM Risk Management Contract Net Assets at December 31,                    2004**                                                               |   | $      | 30,919 |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| (Gain)                    Loss from Contracts Realized/Settled During the Period and Entered                    in a                    Prior Period                       |   |   | (9,389 | )      |
| Fair                    Value of New Contracts at Inception When Entered During the Period                    (a)                                                          |   |   | 969    |   |
| Net                    Option Premiums Paid/(Received) for Unexercised or Unexpired                    Option                    Contracts Entered  During the Period |   |   | (596   | )      |
| Change                    in Fair Value Due to Valuation Methodology Changes on Forward                    Contracts                                                       |   |   | -      |   |
| Changes                    in Fair Value due to Market Fluctuations During the Period                    (b)                                                               |   |   | 11,336 |   |
| Changes                    in Fair Value Allocated to Regulated Jurisdictions (c)                                                                                          |   |   | 83     |   |
| **Total                    MTM Risk Management Contract Net Assets**                                                                                                       |   |   | 33,322 |   |
| Net                    Cash Flow Hedge Contracts                                                                                                                           |   |   | (1,488 | )      |
| DETM                    Assignment (d)                                                                                                                                     |   |   | (7,142 | )      |
| **Total                    MTM Risk Management Contract Net Assets at December 31, 2005**                                                                                  |   | $      | 24,692 |   |

| (a) | Most                    of the fair value comes from longer term fixed price contracts                    with                    customers that seek to limit their risk against fluctuating energy                    prices.                    Inception value is only recorded if observable market data can                    be obtained                    for valuation inputs for the entire contract term. The contract                    prices are                    valued against market curves associated with the delivery location                    and                    delivery term. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Market                    fluctuations are attributable to various factors such as supply/demand,                    weather, storage, etc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| (c) | “Changes                    in Fair Value Allocated to Regulated Jurisdictions” relates to the net                    gains (losses) of those contracts that are not reflected in the                    Consolidated Statements of Income. These net gains (losses) are                    recorded                    as regulatory liabilities/assets for those subsidiaries that                    operate in                    regulated jurisdictions.                                                                                                                                       |
| (d) | See                    “Natural Gas Contracts with DETM” section of Note                    17.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |

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

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

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

**Risk          Management Contract Net Assets**

**Fair          Value of Contracts as of December 31, 2005**

**(in          thousands)**

|                                                                                                    |   | **2006** |        | **2007** |   | **2008** |   | **2009** |   | **2010** |   | **After****2010** |   | **Total** |   |
|---------------------------------------------------------------------------------------------------------|--------|----------|-------------|----------|--------|----------|--------|----------|--------|----------|--------|-------------------|--------|-----------|--------|
| Prices Actively Quoted                  - Exchange                  Traded Contracts                    |   | $        | 3,992  |     | $      | 2,235    |   | $        | 647    |     | $      | -                 |   | $         | -      |   | $ | -  |   | $ | 6,874 |   |
| Prices                    Provided by Other External Sources                    - OTC Broker Quotes (a) |   |     | 10,849      |     |   | 7,421    |   |     | 7,058  |     |   | 3,558             |   |      | -      |   |   | - |   |   | 28,886 |   |
| Prices                    Based on Models and Other Valuation                    Methods (b)            |   |     | (5,671      | )        |   | (2,276   | )      |     | (1,180 | )        |   | 1,897             |   |      | 4,533  |   |   | 259 |   |   | (2,438 | ) |
| **Total**                                                                                               |   | $        | 9,170       |     | $      | 7,380    |   | $        | 6,525  |     | $      | 5,455             |   | $         | 4,533  |   | $ | 259 |   | $ | 33,322 |   |

| (a) | “Prices                    Provided by Other External Sources - OTC Broker Quotes” reflects                    information obtained from over-the-counter brokers, industry                    services, or                    multiple-party on-line platforms.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | “Prices                    Based on Models and Other Valuation Methods” is used in absence of pricing                    information from external sources. Modeled information is derived                    using                    valuation models developed by the reporting entity, reflecting                    when                    appropriate, option pricing theory, discounted cash flow concepts,                    valuation adjustments, etc. and may require projection of prices                    for                    underlying commodities beyond the period that prices are available                    from                    third-party sources. In addition, where external pricing information                    or                    market liquidity are limited, such valuations are classified                    as modeled.                    The determination of the point at which a market is no longer                    liquid for                    placing it in the modeled category varies by                    market. |

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

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

**Year          Ended December 31, 2005**

**(in          thousands)**

|                                                                                      |   | **Power** |   |
|-------------------------------------------------------------------------------------------|--------|-----------|--------|
| **Beginning                    Balance in AOCI December 31, 2004**                        |   | $         | 1,393  |   |
| Changes                    in Fair Value                                                  |   |      | (71    | ) |
| Reclassifications                    from AOCI to Net Income for Cash Flow Hedges Settled |   |      | (2,181 | ) |
| **Ending                    Balance in AOCI December 31, 2005**                           |   | $         | (859   | ) |

**Credit          Risk**

**VaR          Associated with Risk Management Contracts**

| **December                    31, 2005** |   |     |   |        | **December                    31, 2004** |
|------------------------------------------|--------|----------|--------|-------------|------------------------------------------|
| **(in                    thousands)**    |   |     |   |        | **(in                    thousands)**    |
| **End**                                  |   | **High** |   | **Average** |                                     | **Low** |   |   |   |   | **End** |   | **High** |   | **Average** |   | **Low** |
| $424                                     |   | $705     |   | $335        |                                     | $121 |   |   |   |   | $332 |   | $1,083 |   | $467 |   | $160 |

**VaR          Associated with Debt Outstanding**

----

**COLUMBUS          SOUTHERN POWER COMPANY AND SUBSIDIARIES**

**CONSOLIDATED          STATEMENTS OF INCOME**

**For          the Years Ended December 31, 2005, 2004 and 2003**

**(in          thousands)**

|                                                                                                                                                                       |   | **2005** |      | **2004** |   | **2003**  |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|-----------|----------|--------|-----------|--------|
| **REVENUES**                                                                                                                                                               |   |     |      |     |   |      |   |
| Electric                    Generation, Transmission and Distribution                                                                                                      |   | $        | 1,413,056 |     | $      | 1,340,152 |   | $ | 1,310,416 |   |
| Sales                    to AEP Affiliates                                                                                                                                 |   |     | 124,410   |     |   | 104,747   |   |   | 106,307 |   |
| Other                                                                                                                                                                      |   |     | 4,866     |     |   | 3,026     |   |   | 3,826 |   |
| **TOTAL**                                                                                                                                                                  |   |     | 1,542,332 |     |   | 1,447,925 |   |   | 1,420,549 |   |
|                                                                                                                                                                       |   |     |      |     |   |      |   |   |   |   |
| **EXPENSES**                                                                                                                                                               |   |     |      |     |   |      |   |   |   |   |
| Fuel                    and Other Consumables for Electric Generation                                                                                                      |   |     | 255,913   |     |   | 211,314   |   |   | 193,378 |   |
| Fuel                    from Affiliates for Electric Generation                                                                                                            |   |     | -         |     |   | 10,603    |   |   | 27,328 |   |
| Purchased                    Electricity for Resale                                                                                                                        |   |     | 37,012    |     |   | 25,322    |   |   | 17,730 |   |
| Purchased                    Electricity from AEP Affiliates                                                                                                               |   |     | 362,959   |     |   | 347,002   |   |   | 337,323 |   |
| Other                    Operation                                                                                                                                         |   |     | 225,896   |     |   | 217,381   |   |   | 204,005 |   |
| Maintenance                                                                                                                                                                |   |     | 87,303    |     |   | 95,036    |   |   | 75,319 |   |
| Asset                    Impairments and Other Related Charges                                                                                                             |   |     | 39,109    |     |   | -         |   |   | - |   |
| Depreciation                    and Amortization                                                                                                                           |   |     | 142,346   |     |   | 148,529   |   |   | 135,964 |   |
| Taxes                    Other Than Income Taxes                                                                                                                           |   |     | 148,914   |     |   | 134,159   |   |   | 134,090 |   |
| **TOTAL**                                                                                                                                                                  |   |     | 1,299,452 |     |   | 1,189,346 |   |   | 1,125,137 |   |
|                                                                                                                                                                       |   |     |      |     |   |      |   |   |   |   |
| **OPERATING                    INCOME**                                                                                                                                    |   |     | 242,880   |     |   | 258,579   |   |   | 295,412 |   |
|                                                                                                                                                                       |   |     |      |     |   |      |   |   |   |   |
| **Other                    Income (Expense):**                                                                                                                             |   |     |      |     |   |      |   |   |   |   |
| Interest                    Income                                                                                                                                         |   |     | 3,972     |     |   | 1,993     |   |   | 1,060 |   |
| Carrying                    Costs Income                                                                                                                                   |   |     | 10,367    |     |   | 486       |   |   | 99 |   |
| Allowance                    for Equity Funds Used During Construction                                                                                                     |   |     | 1,579     |     |   | 1,117     |   |   | 1,186 |   |
| Interest                    Expense                                                                                                                                        |   |     | (59,539   | )        |   | (54,246   | )      |   | (50,948 | ) |
|                                                                                                                                                                       |   |     |      |     |   |      |   |   |   |   |
| **INCOME                    BEFORE INCOME TAXES**                                                                                                                          |   |     | 199,259   |     |   | 207,929   |   |   | 246,809 |   |
|                                                                                                                                                                       |   |     |      |     |   |      |   |   |   |   |
| Income                    Tax Expense                                                                                                                                      |   |     | 61,460    |     |   | 67,671    |   |   | 73,662 |   |
|                                                                                                                                                                       |   |     |      |     |   |      |   |   |   |   |
| **INCOME                    BEFORE CUMULATIVE EFFECT OF**** ACCOUNTING                    CHANGES**                                                                   |   |     | 137,799   |     |   | 140,258   |   |   | 173,147 |   |
|                                                                                                                                                                       |   |     |      |     |   |      |   |   |   |   |
| **CUMULATIVE                    EFFECT OF ACCOUNTING CHANGES, Net of Tax**                                                                                                 |   |     | (839      | )        |   | -         |   |   | 27,283 |   |
|                                                                                                                                                                            |   |     |      |     |   |      |   |   |   |   |
| **NET                  INCOME**                                                                                                                                            |   |     | 136,960   |     |   | 140,258   |   |   | 200,430 |   |
|                                                                                                                                                                       |   |     |      |     |   |      |   |   |   |   |
| Preferred                    Stock Dividend Requirements including Capital Stock Expense and                    Other                                         Expense |   |     | 2,620     |     |   | 1,015     |   |   | 1,016 |   |
|                                                                                                                                                                       |   |     |      |     |   |      |   |   |   |   |
| **EARNINGS                  APPLICABLE TO COMMON STOCK**                                                                                                                   |   | $        | 134,340   |     | $      | 139,243   |   | $ | 199,414 |   |

*The          common stock of CSPCo is wholly-owned by AEP.*

*See          Notes to Financial Statements of Registrant Subsidiaries.*

----

**COLUMBUS          SOUTHERN POWER COMPANY AND SUBSIDIARIES**

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

**EQUITY          AND COMPREHENSIVE INCOME (LOSS)**

**For          the Years Ended December 31, 2005, 2004 and 2003**

**(in          thousands)**

|                                                                                          |   | **Common                    Stock** |   | **Paid-in                    Capital** |   | **Retained                    Earnings** |   | **Accumulated                    Other Comprehensive Income (Loss)** |     | **Total** |   |
|-----------------------------------------------------------------------------------------------|--------|-------------------------------------|--------|----------------------------------------|--------|------------------------------------------|--------|----------------------------------------------------------------------|----------|-----------|--------|
| **DECEMBER                    31, 2002**                                                      |   | $                                   | 41,026 |                                   | $      | 575,384                                  |   | $                                                                    | 290,611  |      | $      | (59,357 | ) | $ | 847,664 |   |
|                                                                                          |   |                                |   |                                   |   |                                     |   |                                                                 |     |      |   |   |   |   |   |   |
| Common                    Stock Dividends                                                     |   |                                |   |                                   |   |                                     |   |                                                                 | (163,243 | )         |   |   |   |   | (163,243 | ) |
| Capital                    Stock Expense                                                      |   |                                |   |                                   |   | 1,016                                    |   |                                                                 | (1,016   | )         |   |   |   |   | - |   |
| **TOTAL**                                                                                     |   |                                |   |                                   |   |                                     |   |                                                                 |     |      |   |   |   |   | 684,421 |   |
|                                                                                          |   |                                |   |                                   |   |                                     |   |                                                                 |     |      |   |   |   |   |   |   |
| **COMPREHENSIVE                    INCOME**                                                   |   |                                |   |                                   |   |                                     |   |                                                                 |     |      |   |   |   |   |   |   |
| **Other                    Comprehensive Income, ****Net                    of Taxes:**  |   |                                |   |                                   |   |                                     |   |                                                                 |     |      |   |   |   |   |   |   |
| Cash                    Flow Hedges, Net of Tax of $253                                       |   |                                |   |                                   |   |                                     |   |                                                                 |     |      |   | 469 |   |   | 469 |   |
| Minimum                    Pension Liability, Net of Tax of $6,763                            |   |                                |   |                                   |   |                                     |   |                                                                 |     |      |   | 12,561 |   |   | 12,561 |   |
| **NET                    INCOME**                                                             |   |                                |   |                                   |   |                                     |   |                                                                 | 200,430  |      |   |   |   |   | 200,430 |   |
| **TOTAL                    COMPREHENSIVE INCOME**                                             |   |                                |   |                                   |   |                                     |   |                                                                 |     |      |   |   |   |   | 213,460 |   |
|                                                                                          |   |                                |   |                                   |   |                                     |   |                                                                 |     |      |   |   |   |   |   |   |
| **DECEMBER                    31, 2003**                                                      |   |                                | 41,026 |                                   |   | 576,400                                  |   |                                                                 | 326,782  |      |   | (46,327 | ) |   | 897,881 |   |
|                                                                                          |   |                                |   |                                   |   |                                     |   |                                                                 |     |      |   |   |   |   |   |   |
| Common                    Stock Dividends                                                     |   |                                |   |                                   |   |                                     |   |                                                                 | (125,000 | )         |   |   |   |   | (125,000 | ) |
| Capital                    Stock Expense                                                      |   |                                |   |                                   |   | 1,015                                    |   |                                                                 | (1,015   | )         |   |   |   |   | - |   |
| **TOTAL**                                                                                     |   |                                |   |                                   |   |                                     |   |                                                                 |     |      |   |   |   |   | 772,881 |   |
|                                                                                          |   |                                |   |                                   |   |                                     |   |                                                                 |     |      |   |   |   |   |   |   |
| **COMPREHENSIVE                    INCOME**                                                   |   |                                |   |                                   |   |                                     |   |                                                                 |     |      |   |   |   |   |   |   |
| **Other                    Comprehensive Income (Loss),****Net                    of Taxes:** |   |                                |   |                                   |   |                                     |   |                                                                 |     |      |   |   |   |   |   |   |
| Cash                    Flow Hedges, Net of Tax of $641                                       |   |                                |   |                                   |   |                                     |   |                                                                 |     |      |   | 1,191 |   |   | 1,191 |   |
| Minimum                    Pension Liability, Net of Tax of $8,443                            |   |                                |   |                                   |   |                                     |   |                                                                 |     |      |   | (15,680 | ) |   | (15,680 | ) |
| **NET                    INCOME**                                                             |   |                                |   |                                   |   |                                     |   |                                                                 | 140,258  |      |   |   |   |   | 140,258 |   |
| **TOTAL                    COMPREHENSIVE INCOME**                                             |   |                                |   |                                   |   |                                     |   |                                                                 |     |      |   |   |   |   | 125,769 |   |
|                                                                                          |   |                                |   |                                   |   |                                     |   |                                                                 |     |      |   |   |   |   |   |   |
| **DECEMBER                    31, 2004**                                                      |   |                                | 41,026 |                                   |   | 577,415                                  |   |                                                                 | 341,025  |      |   | (60,816 | ) |   | 898,650 |   |
|                                                                                          |   |                                |   |                                   |   |                                     |   |                                                                 |     |      |   |   |   |   |   |   |
| Common                    Stock Dividends                                                     |   |                                |   |                                   |   |                                     |   |                                                                 | (114,000 | )         |   |   |   |   | (114,000 | ) |
| Capital                    Stock Expense and Other                                            |   |                                |   |                                   |   | 2,620                                    |   |                                                                 | (2,620   | )         |   |   |   |   | - |   |
| **TOTAL**                                                                                     |   |                                |   |                                   |   |                                     |   |                                                                 |     |      |   |   |   |   | 784,650 |   |
|                                                                                          |   |                                |   |                                   |   |                                     |   |                                                                 |     |      |   |   |   |   |   |   |
| **COMPREHENSIVE                    INCOME**                                                   |   |                                |   |                                   |   |                                     |   |                                                                 |     |      |   |   |   |   |   |   |
| **Other                    Comprehensive Income (Loss),****Net                    of Taxes:** |   |                                |   |                                   |   |                                     |   |                                                                 |     |      |   |   |   |   |   |   |
| Cash                    Flow Hedges, Net of Tax of $1,212                                     |   |                                |   |                                   |   |                                     |   |                                                                 |     |      |   | (2,252 | ) |   | (2,252 | ) |
|    Minimum Pension                  Liability, Net of Tax of $33,486                |   |                                |   |                                   |   |                                     |   |                                                                 |          |      |   | 62,188 |   |   | 62,188 |   |
| **NET                    INCOME**                                                             |   |                                |   |                                   |   |                                     |   |                                                                 | 136,960  |      |   |   |   |   | 136,960 |   |
| **TOTAL                    COMPREHENSIVE INCOME**                                             |   |                                |   |                                   |   |                                     |   |                                                                 |     |      |   |   |   |   | 196,896 |   |
|                                                                                          |   |                                |   |                                   |   |                                     |   |                                                                 |     |      |   |   |   |   |   |   |
| **DECEMBER                    31, 2005**                                                      |   | $                                   | 41,026 |                                   | $      | 580,035                                  |   | $                                                                    | 361,365  |      | $      | (880 | ) | $ | 981,546 |   |
|                                                                                          |   |                                |   |                                   |   |                                     |   |                                                                 |     |      |   |   |   |   |   |   |

*See          Notes to Financial Statements of Registrant Subsidiaries.*

----

**COLUMBUS          SOUTHERN POWER COMPANY AND SUBSIDIARIES**

**CONSOLIDATED          BALANCE SHEETS**

**ASSETS**

**December          31, 2005 and 2004**

**(in          thousands)**

|                                                         |   | **2005**     |      | **2004**     |   |
|--------------------------------------------------------------|--------|--------------|-----------|--------------|--------|
| **CURRENT                    ASSETS**                        |   |    |      |    |   |
| Cash                    and Cash Equivalents                 |   | $            | 940       |         | $      | 58 |   |
| Advances                    to Affiliates                    |   |         | -         |         |   | 141,550 |   |
| Accounts                    Receivable:                      |   |         |      |         |   |   |   |
| Customers                                                    |   |         | 43,143    |         |   | 41,130 |   |
| Affiliated                    Companies                      |   |         | 67,694    |         |   | 72,854 |   |
| Accrued                    Unbilled Revenues                 |   |         | 10,086    |         |   | 19,580 |   |
| Miscellaneous                                                |   |         | 2,012     |         |   | 1,145 |   |
| Allowance                    for Uncollectible Accounts      |   |         | (1,082    | )            |   | (674 | ) |
|                      Total Accounts Receivable          |   |         | 121,853   |         |   | 134,035 |   |
| Fuel                                                         |   |         | 28,579    |         |   | 34,026 |   |
| Materials                    and Supplies                    |   |         | 27,519    |         |   | 21,902 |   |
| Emission                    Allowances                       |   |         | 20,181    |         |   | 15,235 |   |
| Risk                    Management Assets                    |   |         | 76,507    |         |   | 46,631 |   |
| Margin                    Deposits                           |   |         | 16,832    |         |   | 4,848 |   |
| Accrued                    Tax Benefits                      |   |         | 36,838    |         |   | - |   |
| Prepayments                    and Other                     |   |         | 6,714     |         |   | 10,689 |   |
| **TOTAL**                                                    |   |         | 335,963   |         |   | 408,974 |   |
|                                                         |   |         |      |         |   |   |   |
| **PROPERTY,                    PLANT AND EQUIPMENT**         |   |         |      |         |   |   |   |
| Electric:                                                    |   |         |      |         |   |   |   |
| Production                                                   |   |         | 1,874,652 |         |   | 1,658,552 |   |
| Transmission                                                 |   |         | 457,937   |         |   | 432,714 |   |
| Distribution                                                 |   |         | 1,380,722 |         |   | 1,300,252 |   |
| Other                                                        |   |         | 184,096   |         |   | 193,814 |   |
| Construction                    Work in Progress             |   |         | 129,246   |         |   | 131,743 |   |
| **Total**                                                    |   |         | 4,026,653 |         |   | 3,717,075 |   |
| Accumulated                    Depreciation and Amortization |   |         | 1,500,858 |         |   | 1,475,457 |   |
| **TOTAL                    - NET**                           |   |         | 2,525,795 |         |   | 2,241,618 |   |
|                                                         |   |         |      |         |   |   |   |
| **OTHER                    NONCURRENT ASSETS**               |   |         |      |         |   |   |   |
| Regulatory                    Assets                         |   |         | 231,599   |         |   | 212,003 |   |
| Long-term                    Risk Management Assets          |   |         | 101,512   |         |   | 46,735 |   |
| Deferred                    Charges and Other                |   |         | 237,925   |         |   | 120,566 |   |
| **TOTAL**                                                    |   |         | 571,036   |         |   | 379,304 |   |
|                                                         |   |         |      |         |   |   |   |
| **TOTAL                    ASSETS**                          |   | $            | 3,432,794 |         | $      | 3,029,896 |   |

*See          Notes to Financial Statements of Registrant Subsidiaries.*

----

**COLUMBUS          SOUTHERN POWER COMPANY AND SUBSIDIARIES**

**CONSOLIDATED          BALANCE SHEETS**

**LIABILITIES          AND SHAREHOLDER’S EQUITY**

**December          31, 2005 and 2004**

|                                                                          |   | **2005**                              |      | **2004** |   |
|-------------------------------------------------------------------------------|--------|---------------------------------------|-----------|----------|--------|
| **CURRENT                    LIABILITIES**                                    |   | **(in                    thousands)** |      |
| Advances                    from Affiliates                                   |   | $                                     | 17,609    |     | $      | - |   |
| Accounts                    Payable:                                          |   |                                  |      |     |   |   |   |
| General                                                                       |   |                                  | 59,134    |     |   | 64,415 |   |
| Affiliated                    Companies                                       |   |                                  | 59,399    |     |   | 45,745 |   |
| Long-term                    Debt Due Within One Year - Nonaffiliated         |   |                                  | -         |     |   | 36,000 |   |
| Risk                    Management Liabilities                                |   |                                  | 69,036    |     |   | 42,172 |   |
| Customer                    Deposits                                          |   |                                  | 47,013    |     |   | 24,890 |   |
| Accrued                    Taxes                                              |   |                                  | 157,729   |     |   | 195,284 |   |
| Accrued                    Interest                                           |   |                                  | 18,908    |     |   | 16,320 |   |
| Other                                                                         |   |                                  | 31,321    |     |   | 27,383 |   |
| **TOTAL**                                                                     |   |                                  | 460,149   |     |   | 452,209 |   |
|                                                                          |   |                                  |      |     |   |   |   |
| **NONCURRENT                    LIABILITIES**                                 |   |                                  |      |     |   |   |   |
| Long-term                    Debt - Nonaffiliated                             |   |                                  | 1,096,920 |     |   | 851,626 |   |
| Long-term                    Debt - Affiliated                                |   |                                  | 100,000   |     |   | 100,000 |   |
| Long-term                    Risk Management Liabilities                      |   |                                  | 84,291    |     |   | 32,731 |   |
| Deferred                    Income Taxes                                      |   |                                  | 498,232   |     |   | 464,545 |   |
| Regulatory                    Liabilities and Deferred Investment Tax Credits |   |                                  | 165,344   |     |   | 131,037 |   |
| Deferred                    Credits and Other                                 |   |                                  | 46,312    |     |   | 99,098 |   |
| **TOTAL**                                                                     |   |                                  | 1,991,099 |     |   | 1,679,037 |   |
|                                                                          |   |                                  |      |     |   |   |   |
| **TOTAL                    LIABILITIES**                                      |   |                                  | 2,451,248 |     |   | 2,131,246 |   |
|                                                                          |   |                                  |      |     |   |   |   |
| Commitments                    and Contingencies (Note 7)                     |   |                                  |      |     |   |   |   |
|                                                                          |   |                                  |      |     |   |   |   |
| **COMMON                    SHAREHOLDER’S EQUITY**                      |   |                                  |      |     |   |   |   |
| Common                    Stock - No Par Value Per Share:                     |   |                                  |      |     |   |   |   |
| Authorized                    - 24,000,000 Shares                             |   |                                  |      |     |   |   |   |
| Outstanding                    - 16,410,426 Shares                            |   |                                  | 41,026    |     |   | 41,026 |   |
| Paid-in                    Capital                                            |   |                                  | 580,035   |     |   | 577,415 |   |
| Retained                    Earnings                                          |   |                                  | 361,365   |     |   | 341,025 |   |
| Accumulated                    Other Comprehensive Income (Loss)              |   |                                  | (880      | )        |   | (60,816 | ) |
| **TOTAL**                                                                     |   |                                  | 981,546   |     |   | 898,650 |   |
|                                                                          |   |                                  |      |     |   |   |   |
| **TOTAL                    LIABILITIES AND SHAREHOLDER’S EQUITY**       |   | $                                     | 3,432,794 |     | $      | 3,029,896 |   |

*See          Notes to Financial Statements of Registrant Subsidiaries.*

----

**COLUMBUS          SOUTHERN POWER COMPANY AND SUBSIDIARIES**

**CONSOLIDATED          STATEMENTS OF CASH FLOWS**

**For          the Years Ended December 31, 2005, 2004 and 2003**

**(in          thousands)**

|                                                                           |   | **2005**     |     | **2004**     |   | **2003**     |   |
|--------------------------------------------------------------------------------|--------|--------------|----------|--------------|--------|--------------|--------|
| **OPERATING                    ACTIVITIES**                                    |   |    |     |    |   |    |   |
| **Net                    Income**                                              |   | $            | 136,960  |         | $      | 140,258      |   | $ | 200,430 |   |
| **Adjustments                    for Noncash Items:**                          |   |         |     |         |   |         |   |   |   |   |
| Depreciation                    and Amortization                               |   |         | 142,346  |         |   | 148,529      |   |   | 135,964 |   |
| Deferred                    Income Taxes                                       |   |         | 19,209   |         |   | 13,395       |   |   | (4,514 | ) |
| Cumulative                    Effect of Accounting Changes, Net of Tax         |   |         | 839      |         |   | -            |   |   | (27,283 | ) |
| Asset                    Impairment                                            |   |         | 39,109   |         |   | -            |   |   | - |   |
| Carrying                    Costs Income                                       |   |         | (10,367  | )            |   | (486         | )      |   | (99 | ) |
| Mark-to-Market                    of Risk Management Contracts                 |   |         | (8,915   | )            |   | 2,887        |   |   | 41,830 |   |
|                       Pension Contributions to Qualified Plan Trusts |   |         | (85,871  | )            |   | (32          | )      |   | (4,002 | ) |
| Change                    in Other Noncurrent Assets                           |   |         | (26,711  | )            |   | (23,837      | )      |   | (13,462 | ) |
| Change                    in Other Noncurrent Liabilities                      |   |         | 9,979    |         |   | 3,904        |   |   | (14,795 | ) |
| **Changes                    in Components of Working Capital:**               |   |         |     |         |   |         |   |   |   |   |
| Accounts                    Receivable, Net                                    |   |         | 12,182   |         |   | 9,681        |   |   | (5,590 | ) |
| Fuel,                    Materials and Supplies                                |   |         | 2,030    |         |   | (20,636      | )      |   | 9,681 |   |
| Accounts                    Payable                                            |   |         | 3,075    |         |   | (1,604       | )      |   | (64,329 | ) |
| Accrued                    Taxes, Net                                          |   |         | (78,278  | )            |   | 62,431       |   |   | 20,681 |   |
| Customer                    Deposits                                           |   |         | 22,123   |         |   | 5,163        |   |   | 5,009 |   |
| Other                    Current Assets                                        |   |         | (12,001  | )            |   | (7,802       | )      |   | (12,593 | ) |
| Other                    Current Liabilities                                   |   |         | 5,525    |         |   | (1,864       | )      |   | 14,257 |   |
| **Net                    Cash Flows From Operating Activities**                |   |         | 171,234  |         |   | 329,987      |   |   | 281,185 |   |
|                                                                           |   |         |     |         |   |         |   |   |   |   |
| **INVESTING                    ACTIVITIES**                                    |   |         |     |         |   |         |   |   |   |   |
| Construction                    Expenditures                                   |   |         | (165,452 | )            |   | (147,102     | )      |   | (130,331 | ) |
| Change                    in Advances to Affiliates, Net                       |   |         | 141,550  |         |   | (141,550     | )      |   | 31,257 |   |
| Purchase                    of Waterford Plant                                 |   |         | (218,357 | )            |   | -            |   |   | - |   |
| Purchase                    of Monongahela Power’s Ohio Assets           |   |         | (41,762  | )            |   | -            |   |   | - |   |
| Proceeds                    from Sale of Assets                                |   |         | 4,639    |         |   | 3,393        |   |   | 1,644 |   |
| **Net                    Cash Flows Used For Investing Activities**            |   |         | (279,382 | )            |   | (285,259     | )      |   | (97,430 | ) |
|                                                                           |   |         |     |         |   |         |   |   |   |   |
| **FINANCING                    ACTIVITIES**                                    |   |         |     |         |   |         |   |   |   |   |
| Issuance                    of Long-term Debt - Nonaffiliated                  |   |         | 244,733  |         |   | 89,883       |   |   | 643,097 |   |
| Issuance                    of Long-term Debt - Affiliated                     |   |         | -        |         |   | 100,000      |   |   | - |   |
| Change                    in Short-term Debt, Net - Affiliated                 |   |         | -        |         |   | -            |   |   | (290,000 | ) |
| Change                    in Advances from Affiliates, Net                     |   |         | 17,609   |         |   | (6,517       | )      |   | 6,517 |   |
| Retirement                    of Long-term Debt - Nonaffiliated                |   |         | (36,000  | )            |   | (103,245     | )      |   | (212,500 | ) |
| Retirement                    of Long-term Debt - Affiliated                   |   |         | -        |         |   | -            |   |   | (160,000 | ) |
| Principal                    Payments for Capital Lease Obligations            |   |         | (3,312   | )            |   | (3,933       | )      |   | (4,962 | ) |
| Dividends                    Paid on Common Stock                              |   |         | (114,000 | )            |   | (125,000     | )      |   | (163,243 | ) |
| **Net                    Cash Flows From (Used For) Financing Activities**     |   |         | 109,030  |         |   | (48,812      | )      |   | (181,091 | ) |
|                                                                           |   |         |     |         |   |         |   |   |   |   |
| **Net                    Increase (Decrease) in Cash and Cash Equivalents**    |   |         | 882      |         |   | (4,084       | )      |   | 2,664 |   |
| **Cash                    and Cash Equivalents at Beginning of Period**        |   |         | 58       |         |   | 4,142        |   |   | 1,478 |   |
| **Cash                    and Cash Equivalents at End of Period**              |   | $            | 940      |         | $      | 58           |   | $ | 4,142 |   |

| **SUPPLEMENTAL                    DISCLOSURE:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Cash                    paid (received) for interest net of capitalized amounts was $54,767,000,                    $48,461,000 and $42,601,000 and for income taxes was $136,239,000,                    $(5,282,000) and $63,907,000 in 2005, 2004 and 2003, respectively.                    Noncash                    capital lease acquisitions in 2005, 2004 and 2003 were $998,000,                    $1,302,000 and $7,411,000, respectively. Noncash construction                    expenditures                    included in Accounts Payable of $11,254,000, $5,955,000 and $6,530,000                    were outstanding as of December 31, 2005, 2004 and 2003, respectively.                    In                    connection with the acquisition of the Waterford Plant in September                    2005,                    we assumed $2,295,000 of liabilities. In connection with the                    acquisition                    of Monongahela Power’s Ohio assets in December 2005, we assumed $1,839,000                    of liabilities. |

*See          Notes to Financial Statements of Registrant Subsidiaries.*

----

**COLUMBUS          SOUTHERN POWER COMPANY AND SUBSIDIARIES**

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

|                                                                                                                                                    | **Footnote****Reference**  |
|---------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------|
| Organization                    and Summary of Significant Accounting Policies                                                                          | Note                    1  |
| New                    Accounting Pronouncements, Extraordinary Items and Cumulative                    Effect of                    Accounting Changes | Note                    2  |
| Rate                    Matters                                                                                                                         | Note                    4  |
| Effects                    of Regulation                                                                                                                | Note                    5  |
| Customer                    Choice and Industry Restructuring                                                                                           | Note                    6  |
| Commitments                    and Contingencies                                                                                                        | Note                    7  |
| Guarantees                                                                                                                                              | Note                    8  |
| Company-wide                    Staffing and Budget Review                                                                                              | Note                    9  |
| Acquisitions,                    Dispositions, Impairments, Assets Held for Sale and Other                    Losses                                    | Note                    10 |
| Benefit                    Plans                                                                                                                        | Note                    11 |
| Business                    Segments                                                                                                                    | Note                    12 |
| Derivatives,                    Hedging and Financial Instruments                                                                                       | Note                    13 |
| Income                    Taxes                                                                                                                         | Note                    14 |
| Leases                                                                                                                                                  | Note                    15 |
| Financing                    Activities                                                                                                                 | Note                    16 |
| Related                    Party Transactions                                                                                                           | Note                    17 |
| Jointly-Owned                    Electric Utility Plant                                                                                                 | Note                    18 |
| Unaudited                    Quarterly Financial Information                                                                                            | Note                    19 |

----

**REPORT          OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

*.*

* *

----

**INDIANA            MICHIGAN POWER COMPANY**

**AND            SUBSIDIARIES**

----

**INDIANA            MICHIGAN POWER COMPANY AND SUBSIDIARIES**

**SELECTED            CONSOLIDATED FINANCIAL DATA**

**(in            thousands)**

|                                                                                                            |   | **2005**     |      | **2004**     |   | **2003**     |   | **2002**     |      | **2001**     |   |
|-----------------------------------------------------------------------------------------------------------------|--------|--------------|-----------|--------------|--------|--------------|--------|--------------|-----------|--------------|--------|
| **STATEMENTS                      OF INCOME DATA**                                                              |   |    |      |    |   |    |   |    |      |    |   |
| Total                      Revenues                                                                             |   | $            | 1,892,602 |         | $      | 1,741,485    |   | $            | 1,650,505 |         | $      | 1,609,047 |   | $ | 1,615,762 |   |
|                                                                                                            |   |         |      |         |   |         |   |         |      |         |   |   |   |   |   |   |
| Operating                      Income                                                                           |   | $            | 286,660   |         | $      | 269,559      |   | $            | 204,654   |         | $      | 206,825 |   | $ | 225,572 |   |
|                                                                                                            |   |         |      |         |   |         |   |         |      |         |   |   |   |   |   |   |
| Income                      Before Cumulative Effect of Accounting                      Change                  |   | $            | 146,852   |         | $      | 133,222      |   | $            | 89,548    |         | $      | 73,992 |   | $ | 75,788 |   |
| Cumulative                      Effect of Accounting Change, Net of                      Tax                    |   |         | -         |         |   | -            |   |         | (3,160    | )            |   | - |   |   | - |   |
| **Net                      Income**                                                                             |   | $            | 146,852   |         | $      | 133,222      |   | $            | 86,388    |         | $      | 73,992 |   | $ | 75,788 |   |
|                                                                                                            |   |         |      |         |   |         |   |         |      |         |   |   |   |   |   |   |
|                                                                                                            |   |         |      |         |   |         |   |         |      |         |   |   |   |   |   |   |
| **BALANCE                      SHEETS DATA**                                                                    |   |         |      |         |   |         |   |         |      |         |   |   |   |   |   |   |
| Property,                      Plant and Equipment                                                              |   | $            | 5,962,282 |         | $      | 5,717,480    |   | $            | 5,465,207 |         | $      | 5,209,982 |   | $ | 5,109,424 |   |
| Accumulated                      Depreciation and Amortization                                                  |   |         | 2,822,558 |         |   | 2,708,122    |   |         | 2,597,634 |         |   | 2,428,835 |   |   | 2,306,932 |   |
| **Net                      Property, Plant and Equipment**                                                      |   | $            | 3,139,724 |         | $      | 3,009,358    |   | $            | 2,867,573 |         | $      | 2,781,147 |   | $ | 2,802,492 |   |
|                                                                                                            |   |         |      |         |   |         |   |         |      |         |   |   |   |   |   |   |
| Total                      Assets                                                                               |   | $            | 5,262,309 |         | $      | 4,863,222    |   | $            | 4,654,171 |         | $      | 4,832,832 |   | $ | 4,627,610 |   |
|                                                                                                            |   |         |      |         |   |         |   |         |      |         |   |   |   |   |   |   |
| Common                      Shareholder’s Equity                                                          |   | $            | 1,220,092 |         | $      | 1,091,498    |   | $            | 1,078,047 |         | $      | 1,018,653 |   | $ | 860,570 |   |
|                                                                                                            |   |         |      |         |   |         |   |         |      |         |   |   |   |   |   |   |
| Cumulative                      Preferred Stock Not Subject to Mandatory  Redemption                       |   | $            | 8,084     |         | $      | 8,084        |   | $            | 8,101     |         | $      | 8,101 |   | $ | 8,736 |   |
|                                                                                                            |   |         |      |         |   |         |   |         |      |         |   |   |   |   |   |   |
| Cumulative                      Preferred Stock Subject to Mandatory                        Redemption (a) |   | $            | -         |         | $      | 61,445       |   | $            | 63,445    |         | $      | 64,945 |   | $ | 64,945 |   |
|                                                                                                            |   |         |      |         |   |         |   |         |      |         |   |   |   |   |   |   |
| Long-term                      Debt (a)                                                                         |   | $            | 1,444,940 |         | $      | 1,312,843    |   | $            | 1,339,359 |         | $      | 1,617,062 |   | $ | 1,652,082 |   |
|                                                                                                            |   |         |      |         |   |         |   |         |      |         |   |   |   |   |   |   |
| Obligations                      Under Capital Leases (a)                                                       |   | $            | 43,976    |         | $      | 50,732       |   | $            | 37,843    |         | $      | 50,848 |   | $ | 61,933 |   |

| (a) | Including                      portion due within one year. |
|-----|-------------------------------------------------------------|

----

**INDIANA            MICHIGAN POWER COMPANY AND SUBSIDIARIES**

**MANAGEMENT’S            FINANCIAL DISCUSSION AND ANALYSIS**

**Results            of Operations**

**Reconciliation            of Year Ended December 31, 2004 to Year Ended December 31,            2005**

**Income            Before Cumulative Effect of Accounting Change**

**(in            millions)**

| **Year                      Ended December 31, 2004**                 |   |   |   |   | $      | 133    |   |
|-----------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                  |   |   |   |   |   |   |   |
| **Changes                      in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                      Margins                                   |   |   | 69     |   |   |   |   |
| Off-System                      Sales Margins (a)                     |   |   | 7      |   |   |   |   |
| Transmission                      Revenues                            |   |   | (15    | )      |   |   |   |
| Other                      Revenues                                   |   |   | 4      |   |   |   |   |
| **Total                      Change in Gross Margin**                 |   |   |   |   |   | 65     |   |
|                                                                  |   |   |   |   |   |   |   |
| **Changes                      in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                      Operation and Maintenance                  |   |   | (38    | )      |   |   |   |
| Taxes                      Other Than Income Taxes                    |   |   | (11    | )      |   |   |   |
| Depreciation                      and Amortization                    |   |   | 1      |   |   |   |   |
| Other                      Income                                     |   |   | 2      |   |   |   |   |
| Interest                      Expense                                 |   |   | 4      |   |   |   |   |
| **Total                      Change in Operating Expenses and Other** |   |   |   |   |   | (42    | )      |
|                                                                  |   |   |   |   |   |   |   |
| Income                      Tax Expense                               |   |   |   |   |   | (9     | )      |
|                                                                  |   |   |   |   |   |   |   |
| **Year                      Ended December 31, 2005**                 |   |   |   |   | $      | 147    |   |

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

| **·** | Retail                      Margins increased $69 million primarily due to increases in                      retail sales                      to residential and commercial customers and capacity settlement                      revenues                      of $39 million under the SIA related to the increase in an                      affiliate’s                      peak load. Increased retail sales primarily reflect warmer                      summer weather                      and colder weather in December 2005. Cooling degree days were                      approximately 20% higher than normal and approximately 60%                      higher than                      2004. Heating degree days were 13% higher than normal and prior                      year for                      December. |
|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **·** | Transmission                      Revenues decreased $15 million primarily due to the loss of                      through and                      out rates, net of replacement SECA rates. See “FERC Order on Regional                      Through and Out Rates and Mitigating SECA Revenue” section of Note                      4.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |

| **·** | Other                      Operation and Maintenance expenses increased $38 million primarily                      due to                      an $18 million increase in power generation maintenance expense                      due to                      planned maintenance at Tanners Creek Plant and a $5 million                      increase in                      system dispatch cost related to operation in PJM. A $12 million                      increase                      in distribution maintenance expense for overhead power lines                      included the                      January 2005 ice storm and reliability initiatives. |
|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **·** | Taxes                      Other Than Income Taxes increased due to a $7 million increase                      in real and                      personal property taxes and a $2 million increase in payroll-related                      taxes.                                                                                                                                                                                                                                                                                                                                                                                                                             |

*Income            Taxes*

**Reconciliation            of Year Ended December 31, 2003 to Year Ended December 31,            2004**

**Income            Before Cumulative Effect of Accounting Change**

**(in            millions)**

| **Year                      Ended December 31, 2003**                 |   |   |   |   | $      | 90     |   |
|-----------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                  |   |   |   |   |   |   |   |
| **Changes                      in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                      Margins                                   |   |   | 34     |   |   |   |   |
| Off-system                      Sales Margins (a)                     |   |   | 8      |   |   |   |   |
| Other                      Revenues                                   |   |   | 11     |   |   |   |   |
| **Total                      Change in Gross Margin**                 |   |   |   |   |   | 53     |   |
|                                                                  |   |   |   |   |   |   |   |
| **Changes                      in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                      Operation and Maintenance                  |   |   | 4      |   |   |   |   |
| Asset                      Impairments                                |   |   | 10     |   |   |   |   |
| Depreciation                      and Amortization                    |   |   | (1     | )      |   |   |   |
| Taxes                      Other Than Income Taxes                    |   |   | (2     | )      |   |   |   |
| Other                      Income                                     |   |   | (5     | )      |   |   |   |
| Interest                      Expense                                 |   |   | 14     |   |   |   |   |
| **Total                      Change in Operating Expenses and Other** |   |   |   |   |   | 20     |   |
|                                                                  |   |   |   |   |   |   |   |
| Income                      Tax Expense                               |   |   |   |   |   | (30    | )      |
|                                                                  |   |   |   |   |   |   |   |
| **Year                      Ended December 31, 2004**                 |   |   |   |   | $      | 133    |   |

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

| **·** | Retail                      Margins increased $34 million primarily due to increases in                      retail sales                      to commercial and industrial customers reflecting the economic                      recovery                      and the end of amortization of Cook Plant outage                      settlements.                                                                                                                                          |
|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **·** | Other                      Revenues increased $11 million primarily due to increased revenues                      for                      barging coal to our affiliated companies’ plants. Related expenses which                      offset the revenue increases are included in Other Operation                      on the                      Consolidated Statements of Income resulting in RTD earning                      only its                      approved return. |

| **·** | Asset                      Impairments decreased due to a $10 million write-down in 2003                      of western                      coal lands (see “Blackhawk Coal Company” section of Note                      10).                         |
|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **·** | Interest                      Expense decreased $14 million primarily due to a reduction                      in outstanding                      long-term debt and lower interest rates from refunding higher                      cost                      debt. |

*Income            Taxes*

**Financial            Condition**

**Credit            Ratings**

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

**Cash            Flow**

|                                                                      |   | **2005**                                |     | **2004**     |   | **2003**     |   |
|---------------------------------------------------------------------------|--------|-----------------------------------------|----------|--------------|--------|--------------|--------|
|                                                                      |   | **(in                      thousands)** |     |
|                                                                      |   |                               |     |    |   |    |   |
| **Cash                      and Cash Equivalents at Beginning of Period** |   | $                                       | 511      |         | $      | 3,914        |   | $ | 3,237 |   |
| Cash                      Flows From (Used For):                          |   |                                    |     |         |   |         |   |   |   |   |
| Operating                      Activities                                 |   |                                    | 292,146  |         |   | 510,903      |   |   | 361,793 |   |
| Investing                      Activities                                 |   |                                    | (379,593 | )            |   | (270,964     | )      |   | (123,131 | ) |
| Financing                      Activities                                 |   |                                    | 87,790   |         |   | (243,342     | )      |   | (237,985 | ) |
| Net                      Increase (Decrease) in Cash and Cash Equivalents |   |                                    | 343      |         |   | (3,403       | )      |   | 677 |   |
| **Cash                      and Cash Equivalents at End of Period**       |   | $                                       | 854      |         | $      | 511          |   | $ | 3,914 |   |

*Operating            Activities*

*Investing            Activities*

*Financing            Activities*

**Off-Balance            Sheet Arrangements**

***Rockport            Plant Unit 2***

**Summary            Obligation Information**
** **

**Payment            Due by Period**

**(in            millions)**

| **Contractual                      Cash Obligations**                                          |   | **Less                      Than****1                      year** |   | **2-3                      years** |   | **4-5                      years** |   | **After****5                      years** |   | **Total** |   |
|------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------|--------|------------------------------------|--------|------------------------------------|--------|-------------------------------------------|--------|-----------|--------|
| Advances                      from Affiliates (a)                                              |   | $                                                                 | 93.7   |                               | $      | -                                  |   | $                                         | -      |      | $      | - |   | $ | 93.7 |   |
| Interest                      on Fixed Rate Portion of Long-term Debt                      (b) |   |                                                              | 60.1   |                               |   | 76.0                               |   |                                      | 69.1   |      |   | 328.9 |   |   | 534.1 |   |
| Fixed                      Rate Portion of Long-term Debt (c)                                  |   |                                                              | 364.5  |                               |   | 100.0                              |   |                                      | -      |      |   | 835.8 |   |   | 1,300.3 |   |
| Variable                      Rate Portion of Long-term Debt (d)                               |   |                                                              | -      |                               |   | -                                  |   |                                      | 45.0   |      |   | 102.0 |   |   | 147.0 |   |
| Capital                      Lease Obligations (e)                                             |   |                                                              | 9.2    |                               |   | 21.1                               |   |                                      | 6.5    |      |   | 20.7 |   |   | 57.5 |   |
| Noncancelable                      Operating Leases (e)                                        |   |                                                              | 100.7  |                               |   | 194.1                              |   |                                      | 186.3  |      |   | 949.8 |   |   | 1,430.9 |   |
| Fuel                      Purchase Contracts (f)                                               |   |                                                              | 255.3  |                               |   | 330.1                              |   |                                      | 265.4  |      |   | 204.8 |   |   | 1,055.6 |   |
| Energy                      and Capacity Purchase Contracts (g)                                |   |                                                              | 0.4    |                               |   | 0.2                                |   |                                      | -      |      |   | - |   |   | 0.6 |   |
| Construction                      Contracts for Capital Assets (h)                             |   |                                                              | 95.8   |                               |   | 33.1                               |   |                                      | -      |      |   | - |   |   | 128.9 |   |
| **Total**                                                                                      |   | $                                                                 | 979.7  |                               | $      | 754.6                              |   | $                                         | 572.3  |      | $      | 2,442.0 |   | $ | 4,748.6 |   |

| (a) | Represents                      short-term borrowings from the Utility Money Pool.                                                                                                                                                                                                                                  |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Interest                      payments are estimated based on final maturity dates of debt                      securities                      outstanding at December 31, 2005 and do not reflect anticipated                      future                      refinancings, early redemptions or debt issuances. |
| (c) | See                      Note 16. Represents principal only excluding interest.                                                                                                                                                                                                                                     |
| (d) | See                      Note 16. Represents principal only excluding interest. Variable                      rate debt                      had an interest rate of 3.23% at December 31, 2005.                                                                                                                    |
| (e) | See                      Note 15.                                                                                                                                                                                                                                                                                   |
| (f) | Represents                      contractual obligations to purchase coal and natural gas as                      fuel for                      electric generation along with related transportation of the                      fuel.                                                                              |
| (g) | Represents                      contractual cash flows of energy and capacity purchase                      contracts.                                                                                                                                                                                              |
| (h) | Represents                      only capital assets that are contractual                      obligations.                                                                                                                                                                                                          |

**Significant            Factors**

**Critical            Accounting Estimates**

----

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

**Market            Risks**

**MTM            Risk Management Contract Net Assets**

**Reconciliation            of MTM Risk Management Contracts to**

**Consolidated            Balance Sheet**

**As            of December 31, 2005**

**(in            thousands)**

|                                                                                                       |   | **MTM                      Risk Management Contracts** |     | **Cash                      Flow &****Fair                      Value Hedges** |   | **DETM                      Assignment (a)** |   | **Total** |   |
|------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------|----------|------------------------------------------------------------------------------------|--------|----------------------------------------------|--------|-----------|--------|
| Current                      Assets                                                                        |   | $                                                      | 77,494   |                                                                               | $      | 640                                          |   | $         | -      |   | $ | 78,134 |   |
| Noncurrent                      Assets                                                                     |   |                                                   | 103,645  |                                                                               |   | -                                            |   |      | -      |   |   | 103,645 |   |
| **Total                      MTM Derivative Contract Assets**                                              |   |                                                   | 181,139  |                                                                               |   | 640                                          |   |      | -      |   |   | 181,779 |   |
|                                                                                                       |   |                                                   |     |                                                                               |   |                                         |   |      |   |   |   |   |   |
| Current                      Liabilities                                                                   |   |                                                   | (68,126  | )                                                                                  |   | (2,462                                       | )      |      | (444   | ) |   | (71,032 | ) |
| Noncurrent                      Liabilities                                                                |   |                                                   | (79,081  | )                                                                                  |   | (228                                         | )      |      | (6,850 | ) |   | (86,159 | ) |
| **Total                      MTM Derivative Contract  Liabilities**                                   |   |                                                   | (147,207 | )                                                                                  |   | (2,690                                       | )      |      | (7,294 | ) |   | (157,191 | ) |
|                                                                                                       |   |                                                   |     |                                                                               |   |                                         |   |      |   |   |   |   |   |
| **Total                      MTM Derivative Contract Net  Assets                      (Liabilities)** |   | $                                                      | 33,932   |                                                                               | $      | (2,050                                       | )      | $         | (7,294 | ) | $ | 24,588 |   |

| (a) | See                      “Natural Gas Contracts with DETM” section of Note                      17. |
|-----|-----------------------------------------------------------------------------------------------------------------|

**MTM            Risk Management Contract Net Assets**

**Year            Ended December 31, 2005**

**(in            thousands)**

| **Total                      MTM Risk Management Contract Net Assets at December 31,                      2004**                                                                                |   | $      | 34,573 |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| (Gain)                      Loss from Contracts Realized/Settled During the Period and                      Entered in a                      Prior Period                                      |   |   | 331    |   |
| Fair                      Value of New Contracts at Inception When Entered During the                      Period                      (a)                                                      |   |   | -      |   |
| Net                      Option Premiums Paid/(Received) for Unexercised or Unexpired                      Option                      Contracts Entered During                      the Period |   |   | (734   | )      |
| Change                      in Fair Value Due to Valuation Methodology Changes on Forward                      Contracts                                                                        |   |   | -      |   |
| Changes                      in Fair Value due to Market Fluctuations During the Period                      (b)                                                                                |   |   | 545    |   |
| Changes                      in Fair Value Allocated to Regulated Jurisdictions (c)                                                                                                             |   |   | (783   | )      |
| **Total                      MTM Risk Management Contract Net Assets**                                                                                                                          |   |   | 33,932 |   |
| Net                      Cash Flow & Fair Value Hedge Contracts                                                                                                                             |   |   | (2,050 | )      |
| DETM                      Assignment (d)                                                                                                                                                        |   |   | (7,294 | )      |
| **Total                      MTM Risk Management Contract Net Assets at December 31, 2005**                                                                                                     |   | $      | 24,588 |   |

| (a) | Most                      of the fair value comes from longer term fixed price contracts                      with                      customers that seek to limit their risk against fluctuating                      energy prices.                      Inception value is only recorded if observable market data                      can be obtained                      for valuation inputs for the entire contract term. The contract                      prices are                      valued against market curves associated with the delivery location                      and                      delivery term. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Market                      fluctuations are attributable to various factors such as supply/demand,                      weather, storage, etc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| (c) | “Changes                      in Fair Value Allocated to Regulated Jurisdictions” relates to the net                      gains (losses) of those contracts that are not reflected in                      our                      Consolidated Statements of Income. These net gains (losses)                      are recorded                      as regulatory liabilities/assets for those subsidiaries that                      operate in                      regulated jurisdictions.                                                                                                                          |
| (d) | See                      “Natural Gas Contracts with DETM” section of Note                      17.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |

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

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

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

**Risk            Management Contract Net Assets**

**Fair            Value of Contracts as of December 31, 2005**

**(in            thousands)**

|                                                                                                                                              |   | **2006** |   | **2007** |   | **2008** |   | **2009** |   | **2010** |   | **After****2010** |   | **Total** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|----------|--------|-------------------|--------|-----------|--------|
| Prices                      Actively Quoted - Exchange Traded                      Contracts                                                      |   | $        | 4,077  |     | $      | 2,282    |   | $        | 660    |     | $      | -                 |   | $         | -      |   | $ | - |   | $ | 7,019 |   |
| Prices                      Provided by Other External Sources                      -                        OTC Broker Quotes (a) |   |     | 11,125 |     |   | 7,556    |   |     | 7,206  |     |   | 3,635             |   |      | -      |   |   | - |   |   | 29,522 |   |
| Prices                      Based on Models and Other Valuation                      Methods (b)                                             |   |     | (5,834 | )        |   | (2,358   | )      |     | (1,249 | )        |   | 1,938             |   |      | 4,630  |   |   | 264 |   |   | (2,609 | ) |
| **Total**                                                                                                                                         |   | $        | 9,368  |     | $      | 7,480    |   | $        | 6,617  |     | $      | 5,573             |   | $         | 4,630  |   | $ | 264 |   | $ | 33,932 |   |

| (a) | “Prices                      Provided by Other External Sources - OTC Broker Quotes” reflects                      information obtained from over-the-counter brokers, industry                      services, or                      multiple-party on-line platforms.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | “Prices                      Based on Models and Other Valuation Methods” is used in absence of pricing                      information from external sources. Modeled information is derived                      using                      valuation models developed by the reporting entity, reflecting                      when                      appropriate, option pricing theory, discounted cash flow concepts,                      valuation adjustments, etc. and may require projection of prices                      for                      underlying commodities beyond the period that prices are available                      from                      third-party sources. In addition, where external pricing information                      or                      market liquidity are limited, such valuations are classified                      as modeled.                      The determination of the point at which a market is no longer                      liquid for                      placing it in the modeled category varies by                      market. |

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

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

**Year            Ended December 31, 2005**

**(in            thousands)**

|                                                                                                                                         |   | **Power** |   | **Interest                      Rate** |   | **Total** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------|--------|----------------------------------------|--------|-----------|--------|
| **Beginning                      Balance in AOCI December 31, 2004**                                                                         |   | $         | 1,558  |                                   | $      | (5,634    | )      | $ | (4,076 | ) |
| Changes                      in Fair Value                                                                                                   |   |      | (5     | )                                      |   | 2,494     |   |   | 2,489 |   |
| Reclassifications                      from AOCI to Net Income for Cash Flow                                             Hedges Settled |   |      | (2,430 | )                                      |   | 550       |   |   | (1,880 | ) |
| **Ending                      Balance in AOCI December 31, 2005**                                                                            |   | $         | (877   | )                                      | $      | (2,590    | )      | $ | (3,467 | ) |

**Credit            Risk**

**VaR            Associated with Risk Management Contracts**

| **December                      31, 2005** |   |     |   |        | **December                      31, 2004** |
|--------------------------------------------|--------|----------|--------|-------------|--------------------------------------------|
| **(in                      thousands)**    |   |     |   |        | **(in                      thousands)**    |
| **End**                                    |   | **High** |   | **Average** |                                       | **Low** |   |   |   |   | **End** |   | **High** |   | **Average** |   | **Low** |
| $433                                       |   | $720     |   | $343        |                                       | $124 |   |   |   |   | $371 |   | $1,211 |   | $522 |   | $178 |

**VaR            Associated with Debt Outstanding**

----

**INDIANA            MICHIGAN POWER COMPANY AND SUBSIDIARIES**

**CONSOLIDATED            STATEMENTS OF INCOME**

**For            the Years Ended December 31, 2005, 2004 and 2003**

**(in            thousands)**

|                                                                                                        |   | **2005** |      | **2004** |   | **2003**  |   |
|-------------------------------------------------------------------------------------------------------------|--------|----------|-----------|----------|--------|-----------|--------|
| **REVENUES**                                                                                                |   |     |      |     |   |      |   |
| Electric                      Generation, Transmission and Distribution                                     |   | $        | 1,445,866 |     | $      | 1,378,844 |   | $ | 1,302,269 |   |
| Sales                      to AEP Affiliates                                                                |   |     | 366,032   |     |   | 286,310   |   |   | 283,094 |   |
| Other                      - Affiliated                                                                     |   |     | 46,719    |     |   | 42,968    |   |   | 34,972 |   |
| Other                      - Nonaffiliated                                                                  |   |     | 33,985    |     |   | 33,363    |   |   | 30,170 |   |
| **TOTAL**                                                                                                   |   |     | 1,892,602 |     |   | 1,741,485 |   |   | 1,650,505 |   |
|                                                                                                        |   |     |      |     |   |      |   |   |   |   |
| **EXPENSES**                                                                                                |   |     |      |     |   |      |   |   |   |   |
| Fuel                      and Other Consumables for Electric Generation                                     |   |     | 327,263   |     |   | 286,211   |   |   | 255,395 |   |
| Purchased                      Electricity for Resale                                                       |   |     | 48,378    |     |   | 37,013    |   |   | 28,327 |   |
| Purchased                      Electricity from AEP Affiliates                                              |   |     | 306,117   |     |   | 272,452   |   |   | 274,400 |   |
| Other                      Operation                                                                        |   |     | 476,560   |     |   | 473,234   |   |   | 487,712 |   |
| Maintenance                                                                                                 |   |     | 202,909   |     |   | 168,304   |   |   | 158,281 |   |
| Asset                      Impairments                                                                      |   |     | -         |     |   | -         |   |   | 10,300 |   |
| Depreciation                      and Amortization                                                          |   |     | 171,030   |     |   | 172,099   |   |   | 171,281 |   |
| Taxes                      Other Than Income Taxes                                                          |   |     | 73,685    |     |   | 62,613    |   |   | 60,155 |   |
| **TOTAL**                                                                                                   |   |     | 1,605,942 |     |   | 1,471,926 |   |   | 1,445,851 |   |
|                                                                                                        |   |     |      |     |   |      |   |   |   |   |
| **OPERATING                      INCOME**                                                                   |   |     | 286,660   |     |   | 269,559   |   |   | 204,654 |   |
|                                                                                                        |   |     |      |     |   |      |   |   |   |   |
| **Other                      Income (Expense):**                                                            |   |     |      |     |   |      |   |   |   |   |
| Interest                      Income                                                                        |   |     | 2,006     |     |   | 2,011     |   |   | 4,006 |   |
| Allowance                      for Equity Funds Used During Construction                                    |   |     | 4,457     |     |   | 2,338     |   |   | 5,090 |   |
| Interest                      Expense                                                                       |   |     | (65,041   | )        |   | (69,071   | )      |   | (83,054 | ) |
|                                                                                                        |   |     |      |     |   |      |   |   |   |   |
| **INCOME                      BEFORE INCOME TAXES**                                                         |   |     | 228,082   |     |   | 204,837   |   |   | 130,696 |   |
|                                                                                                        |   |     |      |     |   |      |   |   |   |   |
| Income                      Tax Expense                                                                     |   |     | 81,230    |     |   | 71,615    |   |   | 41,148 |   |
|                                                                                                        |   |     |      |     |   |      |   |   |   |   |
| **INCOME                      BEFORE CUMULATIVE EFFECT OF**** ACCOUNTING                      CHANGE** |   |     | 146,852   |     |   | 133,222   |   |   | 89,548 |   |
|                                                                                                        |   |     |      |     |   |      |   |   |   |   |
| **CUMULATIVE                      EFFECT OF ACCOUNTING CHANGE,****Net                      of Tax**         |   |     | -         |     |   | -         |   |   | (3,160 | ) |
|                                                                                                        |   |     |      |     |   |      |   |   |   |   |
| **NET                      INCOME**                                                                         |   |     | 146,852   |     |   | 133,222   |   |   | 86,388 |   |
|                                                                                                        |   |     |      |     |   |      |   |   |   |   |
| Preferred                      Stock Dividend Requirements including Capital Stock Expense             |   |     | 395       |     |   | 474       |   |   | 2,509 |   |
|                                                                                                        |   |     |      |     |   |      |   |   |   |   |
| **EARNINGS                      APPLICABLE TO COMMON STOCK**                                                |   | $        | 146,457   |     | $      | 132,748   |   | $ | 83,879 |   |

*The            common stock of I&M is wholly-owned by AEP.*

*See            Notes to Financial Statements of Registrant Subsidiaries.*

----

**INDIANA            MICHIGAN POWER COMPANY AND SUBSIDIARIES**

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

**EQUITY            AND COMPREHENSIVE INCOME (LOSS)**

**For            the Years Ended December 31, 2005, 2004 and 2003**

**(in            thousands)**

|                                                                                             |   | **Common                      Stock** |   | **Paid-in                      Capital** |   | **Retained                      Earnings** |   | **Accumulated                      Other Comprehensive Income (Loss)** |    | **Total** |   |
|--------------------------------------------------------------------------------------------------|--------|---------------------------------------|--------|------------------------------------------|--------|--------------------------------------------|--------|------------------------------------------------------------------------|---------|-----------|--------|
| **DECEMBER                      31, 2002**                                                       |   | $                                     | 56,584 |                                     | $      | 858,560                                    |   | $                                                                      | 143,996 |      | $      | (40,487 | ) | $ | 1,018,653 |   |
|                                                                                             |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| Common                      Stock Dividends                                                      |   |                                  |   |                                     |   |                                       |   |                                                                   | (40,000 | )         |   |   |   |   | (40,000 | ) |
| Preferred                      Stock Dividends                                                   |   |                                  |   |                                     |   |                                       |   |                                                                   | (2,375  | )         |   |   |   |   | (2,375 | ) |
| Capital                      Stock Expense                                                       |   |                                  |   |                                     |   | 134                                        |   |                                                                   | (134    | )         |   |   |   |   | - |   |
| **TOTAL**                                                                                        |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   | 976,278 |   |
|                                                                                             |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                      INCOME**                                                    |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **Other                      Comprehensive Income,****Net                      of Taxes:**       |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| Cash                      Flow Hedges, Net of Tax of $273                                        |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   | 508 |   |   | 508 |   |
| Minimum                      Pension Liability, Net of Tax of                      $8,009        |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   | 14,873 |   |   | 14,873 |   |
| **NET                      INCOME**                                                              |   |                                  |   |                                     |   |                                       |   |                                                                   | 86,388  |      |   |   |   |   | 86,388 |   |
| **TOTAL                      COMPREHENSIVE INCOME**                                              |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   | 101,769 |   |
|                                                                                             |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **DECEMBER                      31, 2003**                                                       |   |                                  | 56,584 |                                     |   | 858,694                                    |   |                                                                   | 187,875 |      |   | (25,106 | ) |   | 1,078,047 |   |
|                                                                                             |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| Common                      Stock Dividends                                                      |   |                                  |   |                                     |   |                                       |   |                                                                   | (99,293 | )         |   |   |   |   | (99,293 | ) |
| Preferred                      Stock Dividends                                                   |   |                                  |   |                                     |   |                                       |   |                                                                   | (340    | )         |   |   |   |   | (340 | ) |
| Capital                      Stock Expense                                                       |   |                                  |   |                                     |   | 141                                        |   |                                                                   | (134    | )         |   |   |   |   | 7 |   |
| **TOTAL**                                                                                        |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   | 978,421 |   |
|                                                                                             |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                      INCOME**                                                    |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **Other                      Comprehensive Loss,****Net                      of Taxes:**         |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| Cash                      Flow Hedges, Net of Tax of $2,314                                      |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   | (4,298 | ) |   | (4,298 | ) |
| Minimum                      Pension Liability, Net of Tax of                      $8,533        |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   | (15,847 | ) |   | (15,847 | ) |
| **NET                      INCOME**                                                              |   |                                  |   |                                     |   |                                       |   |                                                                   | 133,222 |      |   |   |   |   | 133,222 |   |
| **TOTAL                      COMPREHENSIVE INCOME**                                              |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   | 113,077 |   |
|                                                                                             |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **DECEMBER                      31, 2004**                                                       |   |                                  | 56,584 |                                     |   | 858,835                                    |   |                                                                   | 221,330 |      |   | (45,251 | ) |   | 1,091,498 |   |
|                                                                                             |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| Common                      Stock Dividends                                                      |   |                                  |   |                                     |   |                                       |   |                                                                   | (62,000 | )         |   |   |   |   | (62,000 | ) |
| Preferred                      Stock Dividends                                                   |   |                                  |   |                                     |   |                                       |   |                                                                   | (339    | )         |   |   |   |   | (339 | ) |
| Capital                      Stock Expense and Other                                             |   |                                  |   |                                     |   | 2,455                                      |   |                                                                   | (56     | )         |   |   |   |   | 2,399 |   |
| **TOTAL**                                                                                        |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   | 1,031,558 |   |
|                                                                                             |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                      INCOME**                                                    |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **Other                      Comprehensive Income, ****Net                      of Taxes:** |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| Cash                      Flow Hedges, Net of Tax of $328                                        |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   | 609 |   |   | 609 |   |
| Minimum                      Pension Liability, Net of Tax of                      $22,116       |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   | 41,073 |   |   | 41,073 |   |
| **NET                      INCOME**                                                              |   |                                  |   |                                     |   |                                       |   |                                                                   | 146,852 |      |   |   |   |   | 146,852 |   |
| **TOTAL                      COMPREHENSIVE INCOME**                                              |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   | 188,534 |   |
|                                                                                             |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **DECEMBER                      31, 2005**                                                       |   | $                                     | 56,584 |                                     | $      | 861,290                                    |   | $                                                                      | 305,787 |      | $      | (3,569 | ) | $ | 1,220,092 |   |

*See            Notes to Financial Statements of Registrant Subsidiaries.*

----

**INDIANA            MICHIGAN POWER COMPANY AND SUBSIDIARIES**

**CONSOLIDATED            BALANCE SHEETS**

**ASSETS**

**December            31, 2005 and 2004**

**(in            thousands)**

|                                                                                                          |   | **2005**     |      | **2004**     |   |
|---------------------------------------------------------------------------------------------------------------|--------|--------------|-----------|--------------|--------|
| **CURRENT                      ASSETS**                                                                       |   |    |      |    |   |
| Cash                      and Cash Equivalents                                                                |   | $            | 854       |         | $      | 511 |   |
| Advances                      to Affiliates                                                                   |   |         | -         |         |   | 5,093 |   |
| Accounts                      Receivable:                                                                     |   |         |      |         |   |   |   |
| Customers                                                                                                     |   |         | 62,614    |         |   | 62,608 |   |
| Affiliated                      Companies                                                                     |   |         | 127,981   |         |   | 124,134 |   |
| Miscellaneous                                                                                                 |   |         | 1,982     |         |   | 4,339 |   |
| Allowance                      for Uncollectible Accounts                                                     |   |         | (898      | )            |   | (187 | ) |
|                        Total Accounts Receivable                                                         |   |         | 191,679   |         |   | 190,894 |   |
| Fuel                                                                                                          |   |         | 25,894    |         |   | 27,218 |   |
| Materials                      and Supplies                                                                   |   |         | 118,039   |         |   | 103,342 |   |
| Risk                      Management Assets                                                                   |   |         | 78,134    |         |   | 52,141 |   |
| Accrued                      Tax Benefits                                                                     |   |         | 51,846    |         |   | - |   |
| Margin                      Deposits                                                                          |   |         | 17,115    |         |   | 5,400 |   |
| Prepayments                      and Other                                                                    |   |         | 14,188    |         |   | 11,295 |   |
| **TOTAL**                                                                                                     |   |         | 497,749   |         |   | 395,894 |   |
|                                                                                                          |   |         |      |         |   |   |   |
| **PROPERTY,                      PLANT AND EQUIPMENT**                                                        |   |         |      |         |   |   |   |
| Electric:                                                                                                     |   |         |      |         |   |   |   |
| Production                                                                                                    |   |         | 3,128,078 |         |   | 3,122,883 |   |
| Transmission                                                                                                  |   |         | 1,028,496 |         |   | 1,009,551 |   |
| Distribution                                                                                                  |   |         | 1,029,498 |         |   | 990,826 |   |
| Other                      (including nuclear fuel and coal mining)                                           |   |         | 465,130   |         |   | 430,705 |   |
| Construction                      Work in Progress                                                            |   |         | 311,080   |         |   | 163,515 |   |
| **Total**                                                                                                     |   |         | 5,962,282 |         |   | 5,717,480 |   |
| Accumulated                      Depreciation, Depletion and Amortization                                     |   |         | 2,822,558 |         |   | 2,708,122 |   |
| **TOTAL                      - NET**                                                                          |   |         | 3,139,724 |         |   | 3,009,358 |   |
|                                                                                                          |   |         |      |         |   |   |   |
| **OTHER                      NONCURRENT ASSETS**                                                              |   |         |      |         |   |   |   |
| Regulatory                      Assets                                                                        |   |         | 222,686   |         |   | 251,090 |   |
| Nuclear                      Decommissioning and Spent Nuclear Fuel Disposal Trust                      Funds |   |         | 1,133,567 |         |   | 1,053,439 |   |
| Long-term                      Risk Management Assets                                                         |   |         | 103,645   |         |   | 52,256 |   |
| Deferred                      Charges and Other                                                               |   |         | 164,938   |         |   | 101,185 |   |
| **TOTAL**                                                                                                     |   |         | 1,624,836 |         |   | 1,457,970 |   |
|                                                                                                          |   |         |      |         |   |   |   |
| **TOTAL                      ASSETS**                                                                         |   | $            | 5,262,309 |         | $      | 4,863,222 |   |

*See            Notes to Financial Statements of Registrant Subsidiaries.*

----

**INDIANA            MICHIGAN POWER COMPANY AND SUBSIDIARIES**

**CONSOLIDATED            BALANCE SHEETS**

**LIABILITIES            AND SHAREHOLDERS’ EQUITY**

**December            31, 2005 and 2004**

|                                                                                |   | **2005**                                |      | **2004** |   |
|-------------------------------------------------------------------------------------|--------|-----------------------------------------|-----------|----------|--------|
| **CURRENT                      LIABILITIES**                                        |   | **(in                      thousands)** |      |
| Advances                      from Affiliates                                       |   | $                                       | 93,702    |     | $      | - |   |
| Accounts                      Payable:                                              |   |                                    |      |     |   |   |   |
| General                                                                             |   |                                    | 139,334   |     |   | 92,916 |   |
| Affiliated                      Companies                                           |   |                                    | 60,324    |     |   | 51,066 |   |
| Long-term                      Debt Due Within One Year                             |   |                                    | 364,469   |     |   | - |   |
| Cumulative                      Preferred Stock Due Within One Year                 |   |                                    | -         |     |   | 61,445 |   |
| Risk                      Management Liabilities                                    |   |                                    | 71,032    |     |   | 47,174 |   |
| Customer                      Deposits                                              |   |                                    | 49,258    |     |   | 29,366 |   |
| Accrued                      Taxes                                                  |   |                                    | 56,567    |     |   | 123,159 |   |
| Other                                                                               |   |                                    | 112,839   |     |   | 87,363 |   |
| **TOTAL**                                                                           |   |                                    | 947,525   |     |   | 492,489 |   |
|                                                                                |   |                                    |      |     |   |   |   |
| **NONCURRENT                      LIABILITIES**                                     |   |                                    |      |     |   |   |   |
| Long-term                      Debt                                                 |   |                                    | 1,080,471 |     |   | 1,312,843 |   |
| Long-term                      Risk Management Liabilities                          |   |                                    | 86,159    |     |   | 36,815 |   |
| Deferred                      Income Taxes                                          |   |                                    | 335,264   |     |   | 315,730 |   |
| Regulatory                      Liabilities and Deferred Investment Tax Credits     |   |                                    | 710,015   |     |   | 677,260 |   |
| Asset                      Retirement Obligations                                   |   |                                    | 737,959   |     |   | 711,769 |   |
| Deferred                      Credits and Other                                     |   |                                    | 136,740   |     |   | 216,734 |   |
| **TOTAL**                                                                           |   |                                    | 3,086,608 |     |   | 3,271,151 |   |
|                                                                                |   |                                    |      |     |   |   |   |
| **TOTAL                      LIABILITIES**                                          |   |                                    | 4,034,133 |     |   | 3,763,640 |   |
|                                                                                |   |                                    |      |     |   |   |   |
| Cumulative                      Preferred Stock Not Subject to Mandatory Redemption |   |                                    | 8,084     |     |   | 8,084 |   |
|                                                                                |   |                                    |      |     |   |   |   |
| Commitments                      and Contingencies (Note 7)                         |   |                                    |      |     |   |   |   |
|                                                                                |   |                                    |      |     |   |   |   |
| **COMMON                      SHAREHOLDER’S EQUITY**                          |   |                                    |      |     |   |   |   |
| Common                      Stock - No Par Value:                                   |   |                                    |      |     |   |   |   |
| Authorized                      - 2,500,000 Shares                                  |   |                                    |      |     |   |   |   |
| Outstanding                      - 1,400,000 Shares                                 |   |                                    | 56,584    |     |   | 56,584 |   |
| Paid-in                      Capital                                                |   |                                    | 861,290   |     |   | 858,835 |   |
| Retained                      Earnings                                              |   |                                    | 305,787   |     |   | 221,330 |   |
| Accumulated                      Other Comprehensive Income (Loss)                  |   |                                    | (3,569    | )        |   | (45,251 | ) |
| **TOTAL**                                                                           |   |                                    | 1,220,092 |     |   | 1,091,498 |   |
|                                                                                |   |                                    |      |     |   |   |   |
| **TOTAL                      LIABILITIES AND SHAREHOLDERS’ EQUITY**           |   | $                                       | 5,262,309 |     | $      | 4,863,222 |   |

*See            Notes to Financial Statements of Registrant Subsidiaries.*

----

**INDIANA            MICHIGAN POWER COMPANY AND SUBSIDIARIES**

**CONSOLIDATED            STATEMENTS OF CASH FLOWS**

**For            the Years Ended December 31, 2005, 2004 and 2003**

**(in            thousands)**

|                                                                                                                    |   | **2005**     |     | **2004**     |   | **2003**     |   |
|-------------------------------------------------------------------------------------------------------------------------|--------|--------------|----------|--------------|--------|--------------|--------|
| **OPERATING                      ACTIVITIES**                                                                           |   |    |     |    |   |    |   |
| **Net                      Income**                                                                                     |   | $            | 146,852  |         | $      | 133,222      |   | $ | 86,388 |   |
| **Adjustments                      for Noncash Items:**                                                                 |   |         |     |         |   |         |   |   |   |   |
| Depreciation                      and Amortization                                                                      |   |         | 171,030  |         |   | 172,099      |   |   | 171,281 |   |
| Accretion                      of Asset Retirement Obligations                                                          |   |         | 47,368   |         |   | 39,825       |   |   | 37,150 |   |
| Deferred                      Income Taxes                                                                              |   |         | 26,873   |         |   | (5,548       | )      |   | (14,894 | ) |
| Deferred                      Investment Tax Credits                                                                    |   |         | (7,725   | )            |   | (7,476       | )      |   | (7,431 | ) |
| Cumulative                      Effect of Accounting Change, Net of Tax                                                 |   |         | -        |         |   | -            |   |   | 3,160 |   |
| Asset                      Impairments                                                                                  |   |         | -        |         |   | -            |   |   | 10,300 |   |
| Amortization                      (Deferral) of Incremental Nuclear Refueling                      Outage Expenses, Net |   |         | 21,273   |         |   | 13,082       |   |   | (27,754 | ) |
|    Amortization of                    Nuclear Fuel                                                            |   |         | 56,038   |         |   | 52,455       |   |   | 44,276 |   |
| Amortization                      of Cook Plant Outage Costs                                                            |   |         | -        |         |   | -            |   |   | 40,000 |   |
| Mark-to-Market                      of Risk Management Contracts                                                        |   |         | (7,331   | )            |   | 2,756        |   |   | 43,938 |   |
| Pension                      Contributions to Qualified Plan Trusts                                                     |   |         | (90,668  | )            |   | (3,888       | )      |   | (9,437 | ) |
| Unrecovered                      Fuel and Purchased Power Costs                                                         |   |         | (1,681   | )            |   | (1,689       | )      |   | 37,501 |   |
| Change                      in Other Noncurrent Assets                                                                  |   |         | 37,997   |         |   | 24,736       |   |   | 40,481 |   |
| Change                      in Other Noncurrent Liabilities                                                             |   |         | (17,355  | )            |   | 8,526        |   |   | 16,444 |   |
| **Changes                      in Components of Working Capital:**                                                      |   |         |     |         |   |         |   |   |   |   |
| Accounts                      Receivable, Net                                                                           |   |         | (785     | )            |   | 983          |   |   | 34,346 |   |
| Fuel,                      Materials and Supplies                                                                       |   |         | (13,373  | )            |   | (10,977      | )      |   | (7,320 | ) |
| Accounts                      Payable                                                                                   |   |         | 9,630    |         |   | (1,304       | )      |   | (85,312 | ) |
| Accrued                      Taxes, Net                                                                                 |   |         | (118,438 | )            |   | 80,970       |   |   | (29,370 | ) |
| Customer                      Deposits                                                                                  |   |         | 19,892   |         |   | 7,411        |   |   | 5,294 |   |
| Other                      Current Assets                                                                               |   |         | (12,927  | )            |   | (478         | )      |   | (3,353 | ) |
| Other                      Current Liabilities                                                                          |   |         | 25,476   |         |   | 6,198        |   |   | (23,895 | ) |
| **Net                      Cash Flows From Operating Activities**                                                       |   |         | 292,146  |         |   | 510,903      |   |   | 361,793 |   |
|                                                                                                                    |   |         |     |         |   |         |   |   |   |   |
| **INVESTING                      ACTIVITIES**                                                                           |   |         |     |         |   |         |   |   |   |   |
| Construction                      Expenditures                                                                          |   |         | (298,632 | )            |   | (179,414     | )      |   | (163,391 | ) |
| Change                      in Advances to Affiliates, Net                                                              |   |         | 5,093    |         |   | (5,093       | )      |   | 191,226 |   |
| Purchases                      of Investment Securities                                                                 |   |         | (606,936 | )            |   | (901,356     | )      |   | (656,557 | ) |
| Sales                      of Investment Securities                                                                     |   |         | 556,667  |         |   | 862,976      |   |   | 579,932 |   |
| Acquisition of Nuclear                    Fuel                                                                          |   |         | (52,579  | )            |   | (50,865      | )      |   | (76,177 | ) |
| Proceeds                      from Sale of Assets                                                                       |   |         | 16,794   |         |   | 2,788        |   |   | 1,836 |   |
| **Net                      Cash Flows Used For Investing Activities**                                                   |   |         | (379,593 | )            |   | (270,964     | )      |   | (123,131 | ) |
|                                                                                                                    |   |         |     |         |   |         |   |   |   |   |
| **FINANCING                      ACTIVITIES**                                                                           |   |         |     |         |   |         |   |   |   |   |
| Issuance                      of Long-term Debt                                                                         |   |         | 123,761  |         |   | 268,057      |   |   | 64,434 |   |
| Change                      in Advances from Affiliates, Net                                                            |   |         | 93,702   |         |   | (98,822      | )      |   | 98,822 |   |
| Retirement                      of Long-term Debt                                                                       |   |         | -        |         |   | (304,017     | )      |   | (350,000 | ) |
| Retirement                      of Cumulative Preferred Stock                                                           |   |         | (61,445  | )            |   | (2,011       | )      |   | (1,500 | ) |
| Principal                      Payments for Capital Lease Obligations                                                   |   |         | (5,889   | )            |   | (6,916       | )      |   | (7,366 | ) |
| Dividends                      Paid on Common Stock                                                                     |   |         | (62,000  | )            |   | (99,293      | )      |   | (40,000 | ) |
| Dividends                      Paid on Cumulative Preferred Stock                                                       |   |         | (339     | )            |   | (340         | )      |   | (2,375 | ) |
| **Net                      Cash Flows From (Used For) Financing Activities**                                            |   |         | 87,790   |         |   | (243,342     | )      |   | (237,985 | ) |
|                                                                                                                    |   |         |     |         |   |         |   |   |   |   |
| **Net                      Increase (Decrease) in Cash and Cash Equivalents**                                           |   |         | 343      |         |   | (3,403       | )      |   | 677 |   |
| **Cash                      and Cash Equivalents at Beginning of Period**                                               |   |         | 511      |         |   | 3,914        |   |   | 3,237 |   |
| **Cash                      and Cash Equivalents at End of Period**                                                     |   | $            | 854      |         | $      | 511          |   | $ | 3,914 |   |

| **SUPPLEMENTAL                      DISCLOSURE:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Cash                      paid (received) for interest net of capitalized amounts was                      $59,339,000,                      $70,988,000 and $82,593,000 and for income taxes was $184,061,000,                      and                      $(2,244,000) and $94,440,000 in 2005, 2004 and 2003, respectively.                      Noncash                      capital lease acquisitions were $2,639,000, $20,557,000 and                      $3,216,000 in                      2005, 2004 and 2003, respectively. Noncash construction expenditures                      included in Accounts Payable of $38,523,000, $16,530,000 and                      $21,487,000                      were outstanding as of December 31, 2005, 2004 and 2003,                      respectively.  Noncash acquisition of nuclear fuel included in                      Accounts Payable was $24,053,000 as of December 31, 2005. |

*See            Notes to Financial Statements of Registrant Subsidiaries.*

----

**INDIANA            MICHIGAN POWER COMPANY AND SUBSIDIARIES**

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

|                                                                                                                                                          | **Footnote****Reference**    |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------|
| Organization                      and Summary of Significant Accounting Policies                                                                              | Note                      1  |
| New                      Accounting Pronouncements, Extraordinary Items and Cumulative                      Effect of                      Accounting Changes | Note                      2  |
| Rate                      Matters                                                                                                                             | Note                      4  |
| Effects                      of Regulation                                                                                                                    | Note                      5  |
| Customer                      Choice and Industry Restructuring                                                                                               | Note                      6  |
| Commitments                      and Contingencies                                                                                                            | Note                      7  |
| Guarantees                                                                                                                                                    | Note                      8  |
| Company-wide                      Staffing and Budget Review                                                                                                  | Note                      9  |
| Acquisitions,                      Dispositions, Impairments, Assets Held for Sale and Other                      Losses                                      | Note                      10 |
| Benefit                      Plans                                                                                                                            | Note                      11 |
| Business                      Segments                                                                                                                        | Note                      12 |
| Derivatives,                      Hedging and Financial Instruments                                                                                           | Note                      13 |
| Income                      Taxes                                                                                                                             | Note                      14 |
| Leases                                                                                                                                                        | Note                      15 |
| Financing                      Activities                                                                                                                     | Note                      16 |
| Related                      Party Transactions                                                                                                               | Note                      17 |
| Unaudited                      Quarterly Financial Information                                                                                                | Note                      19 |

----

**REPORT            OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

*.*

* *

----

**KENTUCKY            POWER COMPANY**

----

**KENTUCKY            POWER COMPANY**

**SELECTED            FINANCIAL DATA**

**(in            thousands)**

|                                                                      |   | **2005** |      | **2004** |   | **2003**  |   | **2002** |      | **2001** |   |
|---------------------------------------------------------------------------|--------|----------|-----------|----------|--------|-----------|--------|----------|-----------|----------|--------|
| **STATEMENTS                      OF INCOME DATA**                        |   |     |      |     |   |      |   |     |      |     |   |
| Total                      Revenues                                       |   | $        | 531,343   |     | $      | 448,961   |   | $        | 412,667   |     | $      | 391,516 |   | $ | 394,021 |   |
|                                                                      |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Operating                      Income                                     |   | $        | 60,831    |     | $      | 63,339    |   | $        | 70,749    |     | $      | 57,579 |   | $ | 58,824 |   |
|                                                                      |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Income                      Before Cumulative Effect of Accounting Change |   | $        | 20,809    |     | $      | 25,905    |   | $        | 33,464    |     | $      | 20,567 |   | $ | 21,565 |   |
| Cumulative                      Effect of Accounting Change, Net of Tax   |   |     | -         |     |   | -         |   |     | (1,134    | )        |   | - |   |   | - |   |
| Net                      Income                                           |   | $        | 20,809    |     | $      | 25,905    |   | $        | 32,330    |     | $      | 20,567 |   | $ | 21,565 |   |
|                                                                      |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| **BALANCE                      SHEETS DATA**                              |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Property,                      Plant and Equipment                        |   | $        | 1,414,426 |     | $      | 1,367,138 |   | $        | 1,355,315 |     | $      | 1,301,332 |   | $ | 1,134,149 |   |
| Accumulated                      Depreciation and Amortization            |   |     | 425,817   |     |   | 398,608   |   |     | 382,022   |     |   | 373,874 |   |   | 360,531 |   |
| **Net                      Property, Plant and Equipment**                |   | $        | 988,609   |     | $      | 968,530   |   | $        | 973,293   |     | $      | 927,458 |   | $ | 773,618 |   |
|                                                                      |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Total                      Assets                                         |   | $        | 1,320,026 |     | $      | 1,243,247 |   | $        | 1,221,634 |     | $      | 1,188,342 |   | $ | 1,022,833 |   |
|                                                                      |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Long-term                      Debt (a)                                   |   | $        | 486,990   |     | $      | 508,310   |   | $        | 487,602   |     | $      | 466,632 |   | $ | 346,093 |   |
|                                                                      |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Common                      Shareholder’s Equity                    |   | $        | 347,841   |     | $      | 320,980   |   | $        | 317,138   |     | $      | 298,018 |   | $ | 256,130 |   |
|                                                                      |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Obligations                      Under Capital Leases (a)                 |   | $        | 3,168     |     | $      | 4,363     |   | $        | 5,292     |     | $      | 7,248 |   | $ | 9,583 |   |
|                                                                      |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |

| (a) | Including                      portion due within one year. |
|-----|-------------------------------------------------------------|

----

**KENTUCKY            POWER COMPANY**

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

**Results            of Operations**

**Reconciliation            of Year Ended December 31, 2004 to Year Ended December 31,            2005**

**Income            Before Cumulative Effect of Accounting Change**

**(in            millions)**

| **Year                      Ended December 31, 2004**                 |   |   |   |   | $      | 26     |   |
|-----------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                  |   |   |   |   |   |   |   |
| **Changes                      in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                      Margins                                   |   |   | (3     | )      |   |   |   |
| Off-system                      Sales                                 |   |   | 14     |   |   |   |   |
| Transmission                      Revenues                            |   |   | (3     | )      |   |   |   |
| Other                      Revenues                                   |   |   | (4     | )      |   |   |   |
| **Total                      Change in Gross Margin**                 |   |   |   |   |   | 4      |   |
|                                                                  |   |   |   |   |   |   |   |
| **Changes                      in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                      Operation and Maintenance                  |   |   | (5     | )      |   |   |   |
| Depreciation                      and Amortization                    |   |   | (1     | )      |   |   |   |
| **Total                      Change in Operating Expenses and Other** |   |   |   |   |   | (6     | )      |
|                                                                  |   |   |   |   |   |   |   |
| Income                      Tax Expense                               |   |   |   |   |   | (3     | )      |
|                                                                  |   |   |   |   |   |   |   |
| **Year                      Ended December 31, 2005**                 |   |   |   |   | $      | 21     |   |
|                                                                  |   |   |   |   |   |   |   |

| **·** | Retail                      Margins decreased by $3 million in comparison to 2004 primarily                      due to our                      higher MLR share caused by the increase in our peak demand                      that was                      established in January 2005 resulting in an increase in capacity                      payments                      under the Interconnection Agreement. This decrease was partially                      offset by                      an increase in retail sales due to favorable weather conditions                      and an                      increase in industrial sales. |
|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **·** | Off-system                      Sales margins for 2005 increased by $14 million compared to                      2004 primarily                      due to increased AEP Power Pool sales.                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| **·** | Transmission                      Revenues decreased $3 million primarily due to the elimination                      of revenues                      related to through and out rates, net of replacement SECA rates.                      See “FERC                      Order on Regional Through and Out Rates and Mitigating SECA                      Revenue”                      section of Note 4.                                                                                                                                                                                                                              |
| **·** | Other                      Revenues decreased $4 million due primarily to a $3 million                      adjustment of                      the Demand Side Management Program regulatory asset in March                      2005.                                                                                                                                                                                                                                                                                                                                                                                                                 |

| **·** | Other                      Operation and Maintenance expenses increased $5 million primarily                      due to a                      $3 million increase in costs associated with the AEP Transmission                      Equalization Agreement and a $2 million increase in system                      dispatch costs                      related to our operation in PJM. |
|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Income            Taxes*

**Financial            Condition**

**Credit            Ratings**

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

**Summary            Obligation Information**

**Payment            Due by Period**

**(in            millions)**

| **Contractual                      Cash Obligations**              |   | **Less                      Than****1                      year** |   | **2-3                      years** |   | **4-5                      years** |   | **After****5                      years** |   | **Total** |   |
|--------------------------------------------------------------------|--------|-------------------------------------------------------------------|--------|------------------------------------|--------|------------------------------------|--------|-------------------------------------------|--------|-----------|--------|
| Advances                      from Affiliates (a)                  |   | $                                                                 | 6.0    |                               | $      | -                                  |   | $                                         | -      |      | $      | - |   | $ | 6.0 |   |
| Interest                      on Long-term Debt (b)                |   |                                                              | 25.2   |                               |   | 31.3                               |   |                                      | 10.5   |      |   | 97.5 |   |   | 164.5 |   |
| Long-term                      Debt (c)                            |   |                                                              | 39.8   |                               |   | 352.4                              |   |                                      | -      |      |   | 95.0 |   |   | 487.2 |   |
| Capital                      Lease Obligations (d)                 |   |                                                              | 1.3    |                               |   | 1.7                                |   |                                      | 0.4    |      |   | 0.1 |   |   | 3.5 |   |
| Noncancelable                      Operating Leases (d)            |   |                                                              | 1.8    |                               |   | 2.8                                |   |                                      | 2.1    |      |   | 2.0 |   |   | 8.7 |   |
| Fuel                      Purchase Contracts (e)                   |   |                                                              | 128.2  |                               |   | 75.9                               |   |                                      | -      |      |   | - |   |   | 204.1 |   |
| Energy                      and Capacity Purchase Contracts (f)    |   |                                                              | 0.1    |                               |   | 0.1                                |   |                                      | -      |      |   | - |   |   | 0.2 |   |
| Construction                      Contracts for Capital Assets (g) |   |                                                              | 32.5   |                               |   | -                                  |   |                                      | -      |      |   | - |   |   | 32.5 |   |
| **Total**                                                          |   | $                                                                 | 234.9  |                               | $      | 464.2                              |   | $                                         | 13.0   |      | $      | 194.6 |   | $ | 906.7 |   |

| (a) | Represents                      short-term borrowings from the Utility Money Pool.                                                                                                                                                                                                                                  |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Interest                      payments are estimated based on final maturity dates of debt                      securities                      outstanding at December 31, 2005 and do not reflect anticipated                      future                      refinancings, early redemptions or debt issuances. |
| (c) | See                      Note 16. Represents principal only excluding interest.                                                                                                                                                                                                                                     |
| (d) | See                      Note 15.                                                                                                                                                                                                                                                                                   |
| (e) | Represents                      contractual obligations to purchase coal and natural gas as                      fuel for                      electric generation along with related transportation of the                      fuel.                                                                              |
| (f) | Represents                      contractual cash flows of energy and capacity purchase                      contracts.                                                                                                                                                                                              |
| (g) | Represents                      only capital assets that are contractual                      obligations.                                                                                                                                                                                                          |

**Significant            Factors**

**Critical            Accounting Estimates**

----

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

**Market            Risks**

**MTM            Risk Management Contract Net Assets**

**Reconciliation            of MTM Risk Management Contracts to**

**Balance            Sheet**

**As            of December 31, 2005**

**(in            thousands)**

|                                                                                                       |   | **MTM                      Risk Management Contracts** |    | **Cash                      Flow &****Fair                      Value Hedges** |   | **DETM                      Assignment (a)** |   | **Total** |   |
|------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------|---------|------------------------------------------------------------------------------------|--------|----------------------------------------------|--------|-----------|--------|
| Current                      Assets                                                                        |   | $                                                      | 31,180  |                                                                               | $      | 257                                          |   | $         | -      |   | $ | 31,437 |   |
| Noncurrent                      Assets                                                                     |   |                                                   | 41,810  |                                                                               |   | -                                            |   |      | -      |   |   | 41,810 |   |
| **Total                      MTM Derivative Contract Assets**                                              |   |                                                   | 72,990  |                                                                               |   | 257                                          |   |      | -      |   |   | 73,247 |   |
|                                                                                                       |   |                                                   |    |                                                                               |   |                                         |   |      |   |   |   |   |   |
| Current                      Liabilities                                                                   |   |                                                   | (27,586 | )                                                                                  |   | (1,005                                       | )      |      | (179   | ) |   | (28,770 | ) |
| Noncurrent                      Liabilities                                                                |   |                                                   | (31,886 | )                                                                                  |   | (663                                         | )      |      | (2,753 | ) |   | (35,302 | ) |
| **Total                      MTM Derivative Contract  Liabilities**                                   |   |                                                   | (59,472 | )                                                                                  |   | (1,668                                       | )      |      | (2,932 | ) |   | (64,072 | ) |
|                                                                                                       |   |                                                   |    |                                                                               |   |                                         |   |      |   |   |   |   |   |
| **Total                      MTM Derivative Contract Net  Assets                      (Liabilities)** |   | $                                                      | 13,518  |                                                                               | $      | (1,411                                       | )      | $         | (2,932 | ) | $ | 9,175 |   |

| (a) | See                      “Natural Gas Contracts with DETM” section of Note                      17. |
|-----|-----------------------------------------------------------------------------------------------------------------|

**MTM            Risk Management Contract Net Assets**

**Year            Ended December 31, 2005**

**(in            thousands)**

| **Total                      MTM Risk Management Contract Net Assets at December 31,                      2004**                                                           |   | $      | 12,691 |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| (Gain)                      Loss from Contracts Realized/Settled During the Period and                      Entered in a                      Prior Period                 |   |   | 73     |   |
| Fair                      Value of New Contracts at Inception When Entered During the                      Period                      (a)                                 |   |   | -      |   |
| Net                      Option Premiums Paid/(Received) for Unexercised or Unexpired                      Option                      Contracts Entered During the Period |   |   | (337   | )      |
| Change                      in Fair Value Due to Valuation Methodology Changes on Forward                      Contracts                                                   |   |   | -      |   |
| Changes                      in Fair Value due to Market Fluctuations During the Period                      (b)                                                           |   |   | 443    |   |
| Changes                      in Fair Value Allocated to Regulated Jurisdictions (c)                                                                                        |   |   | 648    |   |
| **Total                      MTM Risk Management Contract Net Assets**                                                                                                     |   |   | 13,518 |   |
| Net                      Cash Flow & Fair Value Hedge Contracts                                                                                                        |   |   | (1,411 | )      |
| DETM                      Assignment (d)                                                                                                                                   |   |   | (2,932 | )      |
| **Total                      MTM Risk Management Contract Net Assets at December 31, 2005**                                                                                |   | $      | 9,175  |   |

| (a) | Most                      of the fair value comes from longer term fixed price contracts                      with                      customers that seek to limit their risk against fluctuating                      energy prices.                      Inception value is only recorded if observable market data                      can be obtained                      for valuation inputs for the entire contract term. The contract                      prices are                      valued against market curves associated with the delivery location                      and                      delivery term. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Market                      fluctuations are attributable to various factors such as supply/demand,                      weather, storage, etc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| (c) | “Changes                      in Fair Value Allocated to Regulated Jurisdictions” relates to the net                      gains (losses) of those contracts that are not reflected in                      the Statements                      of Income. These net gains (losses) are recorded as regulatory                      liabilities/assets for those subsidiaries that operate in regulated                      jurisdictions.                                                                                                                                                                                 |
| (d) | See                      “Natural Gas Contracts with DETM” section of Note                      17.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |

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

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

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

**Risk            Management Contract Net Assets**

**Fair            Value of Contracts as of December 31, 2005**

**(in            thousands)**

|                                                                                                                                        |   | **2006** |   | **2007** |   | **2008** |   | **2009** |   | **2010** |   | **After****2010** |   | **Total** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|----------|--------|-------------------|--------|-----------|--------|
| Prices                      Actively Quoted - Exchange Traded                      Contracts                                                |   | $        | 1,639  |     | $      | 917      |   | $        | 265    |     | $      | -                 |   | $         | -      |   | $ | - |   | $ | 2,821 |   |
| Prices                      Provided by Other External Sources                      - OTC Broker  Quotes                      (a) |   |     | 4,324  |     |   | 3,116    |   |     | 2,907  |     |   | 1,461             |   |      | -      |   |   | - |   |   | 11,808 |   |
| Prices                      Based on Models and Other Valuation                      Methods (b)                                            |   |     | (2,369 | )        |   | (965     | )      |     | (522   | )        |   | 778               |   |      | 1,861  |   |   | 106 |   |   | (1,111 | ) |
| **Total**                                                                                                                                   |   | $        | 3,594  |     | $      | 3,068    |   | $        | 2,650  |     | $      | 2,239             |   | $         | 1,861  |   | $ | 106 |   | $ | 13,518 |   |

| (a) | “Prices                      Provided by Other External Sources - OTC Broker Quotes” reflects                      information obtained from over-the-counter brokers, industry                      services, or                      multiple-party on-line platforms.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | “Prices                      Based on Models and Other Valuation Methods” is used in absence of pricing                      information from external sources. Modeled information is derived                      using                      valuation models developed by the reporting entity, reflecting                      when                      appropriate, option pricing theory, discounted cash flow concepts,                      valuation adjustments, etc. and may require projection of prices                      for                      underlying commodities beyond the period that prices are available                      from                      third-party sources. In addition, where external pricing information                      or                      market liquidity are limited, such valuations are classified                      as modeled.                      The determination of the point at which a market is no longer                      liquid for                      placing it in the modeled category varies by                      market. |

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

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

**Year            Ended December 31, 2005**

**(in            thousands)**

|                                                                                                                    |   | **Power** |   | **Interest                      Rate** |   | **Total** |   |
|-------------------------------------------------------------------------------------------------------------------------|--------|-----------|--------|----------------------------------------|--------|-----------|--------|
| **Beginning                      Balance in AOCI December 31, 2004**                                                    |   | $         | 569    |                                   | $      | 244       |   | $ | 813 |   |
| Changes                      in Fair Value                                                                              |   |      | 81     |                                   |   | -         |   |   | 81 |   |
| Reclassifications                      from AOCI to Net Income for                        Cash Flow Hedges Settled |   |      | (1,002 | )                                      |   | (86       | )      |   | (1,088 | ) |
| **Ending                      Balance in AOCI December 31, 2005**                                                       |   | $         | (352   | )                                      | $      | 158       |   | $ | (194 | ) |

**Credit            Risk**

**VaR            Associated with Risk Management Contracts**

| **December                      31, 2005** |   |     |   |        | **December                      31, 2004** |
|--------------------------------------------|--------|----------|--------|-------------|--------------------------------------------|
| **(in                      thousands)**    |   |     |   |        | **(in                      thousands)**    |
| **End**                                    |   | **High** |   | **Average** |                                       | **Low** |   |   |   |   | **End** |   | **High** |   | **Average** |   | **Low** |
| $174                                       |   | $289     |   | $138        |                                       | $50 |   |   |   |   | $135 |   | $442 |   | $191 |   | $65 |

**VaR            Associated with Debt Outstanding**

----

**KENTUCKY            POWER COMPANY**

**STATEMENTS            OF INCOME**

**For            the Years Ended December 31, 2005, 2004 and 2003**

**(in            thousands)**

|                                                                                                        |   | **2005** |    | **2004** |   | **2003** |   |
|-------------------------------------------------------------------------------------------------------------|--------|----------|---------|----------|--------|----------|--------|
| **REVENUES**                                                                                                |   |     |    |     |   |     |   |
| Electric                      Generation, Transmission and Distribution                                     |   | $        | 458,858 |     | $      | 397,581  |   | $ | 361,198 |   |
| Sales                      to AEP Affiliates                                                                |   |     | 70,803  |     |   | 48,717   |   |   | 49,466 |   |
| Other                                                                                                       |   |     | 1,682   |     |   | 2,663    |   |   | 2,003 |   |
| **TOTAL**                                                                                                   |   |     | 531,343 |     |   | 448,961  |   |   | 412,667 |   |
|                                                                                                        |   |     |    |     |   |     |   |   |   |   |
| **EXPENSES**                                                                                                |   |     |    |     |   |     |   |   |   |   |
| Fuel                      and Other Consumables for Electric Generation                                     |   |     | 142,672 |     |   | 103,881  |   |   | 78,974 |   |
| Purchased                      Electricity for Resale                                                       |   |     | 7,213   |     |   | 3,407    |   |   | 963 |   |
| Purchased                      Electricity from AEP Affiliates                                              |   |     | 176,350 |     |   | 140,758  |   |   | 141,690 |   |
| Other                      Operation                                                                        |   |     | 59,024  |     |   | 51,782   |   |   | 44,866 |   |
| Maintenance                                                                                                 |   |     | 30,652  |     |   | 32,802   |   |   | 27,328 |   |
| Depreciation                      and Amortization                                                          |   |     | 45,110  |     |   | 43,847   |   |   | 39,309 |   |
| Taxes                      Other Than Income Taxes                                                          |   |     | 9,491   |     |   | 9,145    |   |   | 8,788 |   |
| **TOTAL**                                                                                                   |   |     | 470,512 |     |   | 385,622  |   |   | 341,918 |   |
|                                                                                                        |   |     |    |     |   |     |   |   |   |   |
| **OPERATING                      INCOME**                                                                   |   |     | 60,831  |     |   | 63,339   |   |   | 70,749 |   |
|                                                                                                        |   |     |    |     |   |     |   |   |   |   |
| **Other                      Income (Expense):**                                                            |   |     |    |     |   |     |   |   |   |   |
| Interest                      Income                                                                        |   |     | 880     |     |   | 462      |   |   | 39 |   |
| Allowance                      for Equity Funds Used During Construction                                    |   |     | 305     |     |   | 245      |   |   | 971 |   |
| Interest                      Expense                                                                       |   |     | (29,071 | )        |   | (29,470  | )      |   | (28,620 | ) |
|                                                                                                        |   |     |    |     |   |     |   |   |   |   |
| **INCOME                      BEFORE INCOME TAXES**                                                         |   |     | 32,945  |     |   | 34,576   |   |   | 43,139 |   |
|                                                                                                        |   |     |    |     |   |     |   |   |   |   |
| Income                      Tax Expense                                                                     |   |     | 12,136  |     |   | 8,671    |   |   | 9,675 |   |
|                                                                                                        |   |     |    |     |   |     |   |   |   |   |
| **INCOME                      BEFORE CUMULATIVE EFFECT OF**** ACCOUNTING                      CHANGE** |   |     | 20,809  |     |   | 25,905   |   |   | 33,464 |   |
|                                                                                                        |   |     |    |     |   |     |   |   |   |   |
| **CUMULATIVE                      EFFECT OF ACCOUNTING CHANGE,****Net                      of Tax**         |   |     | -       |     |   | -        |   |   | (1,134 | ) |
|                                                                                                        |   |     |    |     |   |     |   |   |   |   |
| **NET                      INCOME**                                                                         |   | $        | 20,809  |     | $      | 25,905   |   | $ | 32,330 |   |

*The            common stock of KPCo is wholly-owned by AEP.*

*See            Notes to Financial Statements of Registrant Subsidiaries.*

----

**KENTUCKY            POWER COMPANY**

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

**EQUITY            AND COMPREHENSIVE INCOME (LOSS)**

**For            the Years Ended December 31, 2005, 2004 and 2003**

**(in            thousands)**

|                                                                                                    |   | **Common                      Stock** |   | **Paid-in                      Capital** |   | **Retained                      Earnings** |   | **Accumulated                      Other Comprehensive Income (Loss)** |    | **Total** |   |
|---------------------------------------------------------------------------------------------------------|--------|---------------------------------------|--------|------------------------------------------|--------|--------------------------------------------|--------|------------------------------------------------------------------------|---------|-----------|--------|
| **DECEMBER                      31, 2002**                                                              |   | $                                     | 50,450 |                                     | $      | 208,750                                    |   | $                                                                      | 48,269  |      | $      | (9,451 | ) | $ | 298,018 |   |
|                                                                                                    |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| Common                      Stock Dividends                                                             |   |                                  |   |                                     |   |                                       |   |                                                                   | (16,448 | )         |   |   |   |   | (16,448 | )  |
| **TOTAL**                                                                                               |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   | 281,570 |   |
|                                                                                                    |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                      INCOME**                                                           |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **Other                      Comprehensive Income,**** Net                      of Taxes:**        |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| Cash                      Flow Hedges, Net of Tax of $53                                                |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   | 98 |   |   | 98 |   |   |
| Minimum                      Pension Liability, Net of Tax of                      $1,691               |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   | 3,140 |   |   | 3,140 |   |   |
| **NET                      INCOME**                                                                     |   |                                  |   |                                     |   |                                       |   |                                                                   | 32,330  |      |   |   |   |   | 32,330 |   |
| **TOTAL                      COMPREHENSIVE INCOME**                                                     |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   | 35,568 |   |
|                                                                                                    |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **DECEMBER                      31, 2003**                                                              |   |                                  | 50,450 |                                     |   | 208,750                                    |   |                                                                   | 64,151  |      |   | (6,213 | ) |   | 317,138 |   |
|                                                                                                    |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| Common                      Stock Dividends                                                             |   |                                  |   |                                     |   |                                       |   |                                                                   | (19,501 | )         |   |   |   |   | (19,501 | )  |
| **TOTAL**                                                                                               |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   | 297,637 |   |
|                                                                                                    |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                      INCOME**                                                           |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **Other                      Comprehensive Income (Loss),**** Net                      of Taxes:** |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| Cash                      Flow Hedges, Net of Tax of $212                                               |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   | 393 |   |   | 393 |   |
| Minimum                      Pension Liability, Net of Tax of                      $1,592               |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   | (2,955 | ) |   | (2,955 | )  |
| **NET                      INCOME**                                                                     |   |                                  |   |                                     |   |                                       |   |                                                                   | 25,905  |      |   |   |   |   | 25,905 |   |
| **TOTAL                      COMPREHENSIVE INCOME**                                                     |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   | 23,343 |   |
|                                                                                                    |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **DECEMBER                      31, 2004**                                                              |   |                                  | 50,450 |                                     |   | 208,750                                    |   |                                                                   | 70,555  |      |   | (8,775 | ) |   | 320,980 |   |
|                                                                                                    |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| Common                      Stock Dividends                                                             |   |                                  |   |                                     |   |                                       |   |                                                                   | (2,500  | )         |   |   |   |   | (2,500 | )  |
| **TOTAL**                                                                                               |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   | 318,480 |   |
|                                                                                                    |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                      INCOME**                                                           |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **Other                      Comprehensive Income (Loss),**** Net                      of Taxes:** |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| Cash                      Flow Hedges, Net of Tax of $542                                               |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   | (1,007 | ) |   | (1,007 | )  |
| Minimum                      Pension Liability, Net of Tax of                      $5,147               |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   | 9,559 |   |   | 9,559 |   |
| **NET                      INCOME**                                                                     |   |                                  |   |                                     |   |                                       |   |                                                                   | 20,809  |      |   |   |   |   | 20,809 |   |
| **TOTAL                      COMPREHENSIVE INCOME**                                                     |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   | 29,361 |   |
|                                                                                                    |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **DECEMBER                      31, 2005**                                                              |   | $                                     | 50,450 |                                     | $      | 208,750                                    |   | $                                                                      | 88,864  |      | $      | (223 | ) | $ | 347,841 |   |

*See            Notes to Financial Statements of Registrant Subsidiaries.*

----

**KENTUCKY            POWER COMPANY**

**BALANCE            SHEETS**

**ASSETS**

**December            31, 2005 and 2004**

**(in            thousands)**

|                                                           |   | **2005**     |      | **2004**     |   |
|----------------------------------------------------------------|--------|--------------|-----------|--------------|--------|
| **CURRENT                      ASSETS**                        |   |    |      |    |   |
| Cash                      and Cash Equivalents                 |   | $            | 526       |         | $      | 132 |   |
| Advances                      to Affiliates                    |   |         | -         |         |   | 16,127 |   |
| Accounts                      Receivable:                      |   |         |      |         |   |   |   |
| Customers                                                      |   |         | 26,533    |         |   | 22,130 |   |
| Affiliated                      Companies                      |   |         | 23,525    |         |   | 23,046 |   |
| Accrued                      Unbilled Revenues                 |   |         | 6,311     |         |   | 7,340 |   |
| Miscellaneous                                                  |   |         | 35        |         |   | 94 |   |
| Allowance                      for Uncollectible Accounts      |   |         | (147      | )            |   | (34 | ) |
|                        Total Accounts Receivable          |   |         | 56,257    |         |   | 52,576 |   |
| Fuel                                                           |   |         | 8,490     |         |   | 6,551 |   |
| Materials                      and Supplies                    |   |         | 10,181    |         |   | 9,385 |   |
| Risk                      Management Assets                    |   |         | 31,437    |         |   | 19,845 |   |
| Margin                      Deposits                           |   |         | 6,895     |         |   | 1,960 |   |
| Accrued                      Tax Benefits                      |   |         | 6,598     |         |   | - |   |
| Prepayments                      and Other                     |   |         | 6,324     |         |   | 1,993 |   |
| **TOTAL**                                                      |   |         | 126,708   |         |   | 108,569 |   |
|                                                           |   |         |      |         |   |   |   |
| **PROPERTY,                      PLANT AND EQUIPMENT**         |   |         |      |         |   |   |   |
| Electric:                                                      |   |         |      |         |   |   |   |
| Production                                                     |   |         | 472,575   |         |   | 462,641 |   |
| Transmission                                                   |   |         | 386,945   |         |   | 385,667 |   |
| Distribution                                                   |   |         | 456,063   |         |   | 438,766 |   |
| Other                                                          |   |         | 63,382    |         |   | 63,520 |   |
| Construction                      Work in Progress             |   |         | 35,461    |         |   | 16,544 |   |
| **Total**                                                      |   |         | 1,414,426 |         |   | 1,367,138 |   |
| Accumulated                      Depreciation and Amortization |   |         | 425,817   |         |   | 398,608 |   |
| **TOTAL                      - NET**                           |   |         | 988,609   |         |   | 968,530 |   |
|                                                           |   |         |      |         |   |   |   |
| **OTHER                      NONCURRENT ASSETS**               |   |         |      |         |   |   |   |
| Regulatory                      Assets                         |   |         | 117,432   |         |   | 118,407 |   |
| Long-term                      Risk Management Assets          |   |         | 41,810    |         |   | 19,067 |   |
| Deferred                      Charges and Other                |   |         | 45,467    |         |   | 28,674 |   |
| **TOTAL**                                                      |   |         | 204,709   |         |   | 166,148 |   |
|                                                           |   |         |      |         |   |   |   |
| **TOTAL                      ASSETS**                          |   | $            | 1,320,026 |         | $      | 1,243,247 |   |

*See            Notes to Financial Statements of Registrant Subsidiaries.*

----

**KENTUCKY            POWER COMPANY**

**BALANCE            SHEETS**

**LIABILITIES            AND SHAREHOLDER’S EQUITY**

**December            31, 2005 and 2004**

|                                                                            |   | **2005**                                |      | **2004** |   |
|---------------------------------------------------------------------------------|--------|-----------------------------------------|-----------|----------|--------|
| **CURRENT                      LIABILITIES**                                    |   | **(in                      thousands)** |      |
| Advances                      from Affiliates                                   |   | $                                       | 6,040     |     | $      | - |   |
| Accounts                      Payable:                                          |   |                                    |      |     |   |   |   |
| General                                                                         |   |                                    | 32,454    |     |   | 20,080 |   |
| Affiliated                      Companies                                       |   |                                    | 29,326    |     |   | 24,899 |   |
| Long-term                      Debt Due Within One Year - Affiliated            |   |                                    | 39,771    |     |   | - |   |
| Risk                      Management Liabilities                                |   |                                    | 28,770    |     |   | 17,205 |   |
| Customer                      Deposits                                          |   |                                    | 21,643    |     |   | 12,309 |   |
| Accrued                      Taxes                                              |   |                                    | 8,805     |     |   | 9,248 |   |
| Other                                                                           |   |                                    | 21,524    |     |   | 19,935 |   |
| **TOTAL**                                                                       |   |                                    | 188,333   |     |   | 103,676 |   |
|                                                                            |   |                                    |      |     |   |   |   |
| **NONCURRENT                      LIABILITIES**                                 |   |                                    |      |     |   |   |   |
| Long-term                      Debt - Nonaffiliated                             |   |                                    | 427,219   |     |   | 428,310 |   |
| Long-term                      Debt - Affiliated                                |   |                                    | 20,000    |     |   | 80,000 |   |
| Long-term                      Risk Management Liabilities                      |   |                                    | 35,302    |     |   | 13,484 |   |
| Deferred                      Income Taxes                                      |   |                                    | 234,719   |     |   | 227,536 |   |
| Regulatory                      Liabilities and Deferred Investment Tax Credits |   |                                    | 56,794    |     |   | 47,994 |   |
| Deferred                      Credits and Other                                 |   |                                    | 9,818     |     |   | 21,267 |   |
| **TOTAL**                                                                       |   |                                    | 783,852   |     |   | 818,591 |   |
|                                                                            |   |                                    |      |     |   |   |   |
| **TOTAL                      LIABILITIES**                                      |   |                                    | 972,185   |     |   | 922,267 |   |
|                                                                            |   |                                    |      |     |   |   |   |
| Commitments                      and Contingencies (Note 7)                     |   |                                    |      |     |   |   |   |
|                                                                            |   |                                    |      |     |   |   |   |
| **COMMON                      SHAREHOLDER’S EQUITY**                      |   |                                    |      |     |   |   |   |
| Common                      Stock - $50 Par Value Per Share:                    |   |                                    |      |     |   |   |   |
| Authorized                      - 2,000,000 Shares                              |   |                                    |      |     |   |   |   |
| Outstanding                      - 1,009,000 Shares                             |   |                                    | 50,450    |     |   | 50,450 |   |
| Paid-in                      Capital                                            |   |                                    | 208,750   |     |   | 208,750 |   |
| Retained                      Earnings                                          |   |                                    | 88,864    |     |   | 70,555 |   |
| Accumulated                      Other Comprehensive Income (Loss)              |   |                                    | (223      | )        |   | (8,775 | ) |
| **TOTAL**                                                                       |   |                                    | 347,841   |     |   | 320,980 |   |
|                                                                            |   |                                    |      |     |   |   |   |
| **TOTAL                      LIABILITIES AND SHAREHOLDER’S EQUITY**       |   | $                                       | 1,320,026 |     | $      | 1,243,247 |   |

*See            Notes to Financial Statements of Registrant Subsidiaries.*

----

**KENTUCKY            POWER COMPANY**

**STATEMENTS            OF CASH FLOWS**

**For            the Years Ended December 31, 2005, 2004 and 2003**

**(in            thousands)**

|                                                                          |   | **2005**     |    | **2004**     |   | **2003**     |   |
|-------------------------------------------------------------------------------|--------|--------------|---------|--------------|--------|--------------|--------|
| **OPERATING                      ACTIVITIES**                                 |   |    |    |    |   |    |   |
| **Net                      Income**                                           |   | $            | 20,809  |         | $      | 25,905       |   | $ | 32,330 |   |
| **Adjustments                      for Noncash Items:**                       |   |         |    |         |   |         |   |   |   |   |
| Depreciation                      and Amortization                            |   |         | 45,110  |         |   | 43,847       |   |   | 39,309 |   |
| Deferred                      Income Taxes                                    |   |         | 10,555  |         |   | 12,774       |   |   | 20,107 |   |
| Cumulative                      Effect of Accounting Change, Net of Tax       |   |         | -       |         |   | -            |   |   | 1,134 |   |
| Mark-to-Market                      of Risk Management Contracts              |   |         | (3,465  | )            |   | 1,020        |   |   | 15,112 |   |
| Pension                      Contributions to Qualified Plan Trusts           |   |         | (18,894 | )            |   | (451         | )      |   | (1,614 | ) |
| Change                      in Other Noncurrent Assets                        |   |         | (419    | )            |   | (6,902       | )      |   | (16,613 | ) |
| Change                      in Other Noncurrent Liabilities                   |   |         | 3,844   |         |   | 9,126        |   |   | 8,720 |   |
| **Changes                      in Components of Working Capital:**            |   |         |    |         |   |         |   |   |   |   |
| Accounts                      Receivable, Net                                 |   |         | (3,681  | )            |   | (1,177       | )      |   | 2,445 |   |
| Fuel,                      Materials and Supplies                             |   |         | (2,735  | )            |   | 2,724        |   |   | 1,077 |   |
| Accounts                      Payable                                         |   |         | 13,184  |         |   | (1,745       | )      |   | (31,000 | ) |
| Accrued                      Taxes, Net                                       |   |         | (7,041  | )            |   | 1,919        |   |   | 8,582 |   |
| Customer                      Deposits                                        |   |         | 9,334   |         |   | 2,415        |   |   | 1,846 |   |
| Other                      Current Assets                                     |   |         | (9,261  | )            |   | 474          |   |   | (1,055 | ) |
| Other                      Current Liabilities                                |   |         | 1,589   |         |   | 65           |   |   | (3,505 | ) |
| **Net                      Cash Flows From Operating Activities**             |   |         | 58,929  |         |   | 89,994       |   |   | 76,875 |   |
|                                                                          |   |         |    |         |   |         |   |   |   |   |
| **INVESTING                      ACTIVITIES**                                 |   |         |    |         |   |         |   |   |   |   |
| Construction                      Expenditures                                |   |         | (56,979 | )            |   | (36,957      | )      |   | (94,836 | ) |
| Change                      in Other Cash Deposits, Net                       |   |         | (5      | )            |   | -            |   |   | - |   |
| Change                      in Advances to Affiliates, Net                    |   |         | 16,127  |         |   | (16,127      | )      |   | - |   |
| Proceeds                      from Sale of Assets                             |   |         | 300     |         |   | 1,538        |   |   | 967 |   |
| **Net                      Cash Flows Used For Investing Activities**         |   |         | (40,557 | )            |   | (51,546      | )      |   | (93,869 | ) |
|                                                                          |   |         |    |         |   |         |   |   |   |   |
| **FINANCING                      ACTIVITIES**                                 |   |         |    |         |   |         |   |   |   |   |
| Issuance                      of Long-term Debt - Nonaffiliated               |   |         | -       |         |   | -            |   |   | 74,263 |   |
| Issuance                      of Long-term Debt - Affiliated                  |   |         | -       |         |   | 20,000       |   |   | - |   |
| Change                      in Advances from Affiliates, Net                  |   |         | 6,040   |         |   | (38,096      | )      |   | 14,710 |   |
| Retirement                      of Long-term Debt - Nonaffiliated             |   |         | -       |         |   | -            |   |   | (40,000 | ) |
| Retirement                      of Long-term Debt - Affiliated                |   |         | (20,000 | )            |   | -            |   |   | (15,000 | ) |
| Principal                      Payments for Capital Lease Obligations         |   |         | (1,518  | )            |   | (1,605       | )      |   | (1,949 | ) |
| Dividends                      Paid on Common Stock                           |   |         | (2,500  | )            |   | (19,501      | )      |   | (16,448 | ) |
| **Net                      Cash Flows From (Used For) Financing Activities**  |   |         | (17,978 | )            |   | (39,202      | )      |   | 15,576 |   |
|                                                                          |   |         |    |         |   |         |   |   |   |   |
| **Net                      Increase (Decrease) in Cash and Cash Equivalents** |   |         | 394     |         |   | (754         | )      |   | (1,418 | ) |
| **Cash                      and Cash Equivalents at Beginning of Period**     |   |         | 132     |         |   | 886          |   |   | 2,304 |   |
| **Cash                      and Cash Equivalents at End of Period**           |   | $            | 526     |         | $      | 132          |   | $ | 886 |   |

| **SUPPLEMENTAL                      DISCLOSURE:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Cash                      paid (received) for interest net of capitalized amounts was                      $27,354,000,                      $28,367,000 and $26,988,000 and for income taxes was $11,655,000,                      $(3,233,000) and $(17,574,000) in 2005, 2004 and 2003, respectively.                      Noncash acquisitions under capital leases were $419,000, $925,000                      and                      $344,000 in 2005, 2004 and 2003, respectively. Noncash construction                      expenditures included in Accounts Payable of $6,553,000, $2,936,000                      and                      $1,662,000 were outstanding as of December 31, 2005, 2004 and                      2003,                      respectively. |

*See            Notes to Financial Statements of Registrant Subsidiaries.*

----

**KENTUCKY            POWER COMPANY**

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

|                                                                                                                                                          | **Footnote                      Reference** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------|
| Organization                      and Summary of Significant Accounting Policies                                                                              | Note                      1                 |
| New                      Accounting Pronouncements, Extraordinary Items and Cumulative                      Effect of                      Accounting Changes | Note                      2                 |
| Rate                      Matters                                                                                                                             | Note                      4                 |
| Effects                      of Regulation                                                                                                                    | Note                      5                 |
| Commitments                      and Contingencies                                                                                                            | Note                      7                 |
| Guarantees                                                                                                                                                    | Note                      8                 |
| Company-wide                      Staffing and Budget Review                                                                                                  | Note                      9                 |
| Acquisitions,                      Dispositions, Impairments, Assets Held for Sale and Other                      Losses                                      | Note                      10                |
| Benefit                      Plans                                                                                                                            | Note                      11                |
| Business                      Segments                                                                                                                        | Note                      12                |
| Derivatives,                      Hedging and Financial Instruments                                                                                           | Note                      13                |
| Income                      Taxes                                                                                                                             | Note                      14                |
| Leases                                                                                                                                                        | Note                      15                |
| Financing                      Activities                                                                                                                     | Note                      16                |
| Related                      Party Transactions                                                                                                               | Note                      17                |
| Unaudited                      Quarterly Financial Information                                                                                                | Note                      19                |

----

**REPORT            OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

*.*

* *

----

**OHIO            POWER COMPANY CONSOLIDATED**

----

**OHIO            POWER COMPANY CONSOLIDATED**

**SELECTED            CONSOLIDATED FINANCIAL DATA**

**(in            thousands)**

|                                                                                                                                                         |   | **2005** |      | **2004** |   | **2003**  |   | **2002** |      | **2001** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|-----------|----------|--------|-----------|--------|----------|-----------|----------|--------|
| **STATEMENTS                      OF INCOME DATA**                                                                                                           |   |     |      |     |   |      |   |     |      |     |   |
| Total                      Revenues                                                                                                                          |   | $        | 2,634,549 |     | $      | 2,372,725 |   | $        | 2,250,132 |     | $      | 2,163,082 |   | $ | 2,153,150 |   |
|                                                                                                                                                         |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Operating                      Income                                                                                                                        |   | $        | 425,487   |     | $      | 419,539   |   | $        | 491,844   |     | $      | 433,983 |   | $ | 349,533 |   |
|                                                                                                                                                         |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Income                      Before Extraordinary Loss and Cumulative                      Effect of   Accounting                      Changes |   | $        | 250,419   |     | $      | 210,116   |   | $        | 251,031   |     | $      | 220,023 |   | $ | 165,793 |   |
| Extraordinary                      Loss, Net of Tax                                                                                                          |   |     | -         |     |   | -         |   |     | -         |     |   | - |   |   | (18,348 | ) |
| Cumulative                      Effect of Accounting Changes, Net of Tax                                                                                     |   |     | (4,575    | )        |   | -         |   |     | 124,632   |     |   | - |   |   | - |   |
| **Net                      Income**                                                                                                                          |   | $        | 245,844   |     | $      | 210,116   |   | $        | 375,663   |     | $      | 220,023 |   | $ | 147,445 |   |
|                                                                                                                                                         |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| **BALANCE                      SHEETS DATA**                                                                                                                 |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Property,                      Plant and Equipment                                                                                                           |   | $        | 7,523,288 |     | $      | 6,858,771 |   | $        | 6,575,577 |     | $      | 5,732,008 |   | $ | 5,436,218 |   |
| Accumulated                      Depreciation and Amortization                                                                                               |   |     | 2,738,899 |     |   | 2,633,203 |   |     | 2,500,918 |     |   | 2,486,982 |   |   | 2,374,377 |   |
| **Net** **Property,                      Plant and Equipment**                                                                                          |   | $        | 4,784,389 |     | $      | 4,225,568 |   | $        | 4,074,659 |     | $      | 3,245,026 |   | $ | 3,061,841 |   |
|                                                                                                                                                         |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Total                      Assets (b)                                                                                                                        |   | $        | 6,330,670 |     | $      | 5,593,265 |   | $        | 5,374,518 |     | $      | 4,554,023 |   | $ | 4,485,787 |   |
|                                                                                                                                                         |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Common                      Shareholder’s Equity                                                                                                       |   | $        | 1,767,947 |     | $      | 1,473,838 |   | $        | 1,464,025 |     | $      | 1,233,114 |   | $ | 1,184,785 |   |
|                                                                                                                                                         |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Cumulative                      Preferred Stock Not Subject to                        Mandatory Redemption                                              |   | $        | 16,639    |     | $      | 16,641    |   | $        | 16,645    |     | $      | 16,648 |   | $ | 16,648 |   |
|                                                                                                                                                         |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Cumulative                      Preferred Stock Subject to Mandatory                        Redemption (a)                                         |   | $        | -         |     | $      | 5,000     |   | $        | 7,250     |     | $      | 8,850 |   | $ | 8,850 |   |
|                                                                                                                                                         |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Long-term                      Debt (a)(b)                                                                                                                   |   | $        | 2,199,670 |     | $      | 2,011,060 |   | $        | 2,039,940 |     | $      | 1,067,314 |   | $ | 1,203,841 |   |
|                                                                                                                                                         |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Obligations                      Under Capital Leases (a)                                                                                                    |   | $        | 39,924    |     | $      | 40,733    |   | $        | 34,688    |     | $      | 65,626 |   | $ | 80,666 |   |
|                                                                                                                                                         |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |

| (a) | Including                      portion due within one year.                                                                                                                                     |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Due                      to the implementation of FIN 46, OPCo was required to consolidate                      JMG                      during the third quarter of                      2003. |

----

**OHIO            POWER COMPANY CONSOLIDATED**

**MANAGEMENT’S            FINANCIAL DISCUSSION AND ANALYSIS**

**Results            of Operations**

**Reconciliation            of Year Ended December 31, 2004 to Year Ended December 31,            2005**

**Income            Before Cumulative Effect of Accounting Changes**

**(in            millions)**

| **Year                      Ended December 31, 2004**                 |   |   |   |   | $      | 210    |   |
|-----------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                  |   |   |   |   |   |   |   |
| **Changes                      in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                      Margins                                   |   |   | 35     |   |   |   |   |
| Off-system                      Sales                                 |   |   | 45     |   |   |   |   |
| Transmission                      Revenues                            |   |   | (15    | )      |   |   |   |
| Other                      Revenues                                   |   |   | 1      |   |   |   |   |
| **Total                      Change in Gross Margin**                 |   |   |   |   |   | 66     |   |
|                                                                  |   |   |   |   |   |   |   |
| **Changes                      in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                      Operation and Maintenance                  |   |   | (32    | )      |   |   |   |
| Depreciation                      and Amortization                    |   |   | (16    | )      |   |   |   |
| Taxes                      Other Than Income Taxes                    |   |   | (12    | )      |   |   |   |
| Carrying                      Costs Income                            |   |   | 48     |   |   |   |   |
| Interest                      Expense                                 |   |   | 15     |   |   |   |   |
| **Total                      Change in Operating Expenses and Other** |   |   |   |   |   | 3      |   |
|                                                                  |   |   |   |   |   |   |   |
| Income                      Tax Expense                               |   |   |   |   |   | (29    | )      |
|                                                                  |   |   |   |   |   |   |   |
| **Year                      Ended December 31, 2005**                 |   |   |   |   | $      | 250    |   |

| **·** | Retail                      Margins were $35 million higher than the prior period primarily                      due                      to:                                                                                                                                                                                                          |
|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       | -                                                                                                                                                                                                                                                                                                                                                      | increased                      retail sales of $44 million due to increased residential, commercial                      and                      industrial sales from higher usage and favorable weather                      conditions, |
|       | -                                                                                                                                                                                                                                                                                                                                                      | a                      favorable variance of $18 million from the receipt of SO2                      allowances from Buckeye Power, Inc. under the Cardinal Station                      Allowance                      Agreement, |
|       | -                                                                                                                                                                                                                                                                                                                                                      | and                      an increase of $7 million from capacity settlements under the                      Interconnection Agreement related to an increase in an affiliate’s                      peak, |
|       | -                                                                                                                                                                                                                                                                                                                                                      | partially                      offset by decreased fuel margins of $18 million which includes                      an                      amendment to the PJM Services and Cost Allocation Agreement                      and the                      Buckeye Station Agreement of $9 million. |
| **·** | Margins                      from Off-system Sales increased $45 million primarily due to                      increased AEP                      Power Pool physical sales.                                                                                                                                                                           |
| **·** | Transmission                      Revenues decreased $15 million primarily due to the loss of                      through and                      out rates, net of replacement SECA rates. See “FERC Order on Regional                      Through and Out Rates and Mitigating SECA Revenues” section of Note                      4. |

| **·** | Other                      Operation and Maintenance expenses increased $32 million primarily                      due to                      increased planned outages and maintenance on several units,                      maintenance of                      overhead lines due to increased tree trimming expenses and                      decreased                      expenses in 2004 as a result of a settlement related to the                      sale of the                      coal companies prior to 2003. These increases were partially                      offset by the                      settlement and cancellation of the COLI (corporate owned life                      insurance)                      policy in February 2005 and decreased administrative expenses                      related to                      the Gavin scrubber. |
|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **·** | Depreciation                      and Amortization expense increased $16 million due to the establishment                      of                      a $7 million regulatory liability to benefit low-income customers                      and for                      economic development, as ordered in the Ohio Rate Stabilization                      Plan. The                      increase is also attributable to a higher depreciation base                      in electric                      utility plants.                                                                                                                                                                                                                                                                                                                                                    |
| **·** | Taxes                      Other Than Income Taxes increased $12 million primarily due                      to an increase                      in property tax accruals as a result of increased property                      values. The                      increase is also a result of increased state excise taxes due                      to higher                      taxable KWH sales.                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| **·** | Carrying                      Costs Income increased $48 million primarily due to the carrying                      costs on                      environmental capital expenditures as a result of the Ohio                      Rate                      Stabilization Plan order.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| **·** | Interest                      Expense decreased $15 million primarily due to capitalized                      interest                      related to construction of the Mitchell Plant and Cardinal                      Plant scrubbers                      and the Mitchell Plant SCR project that began after June 2004.                      Interest                      Expense also decreased due to optional redemptions and subsequent                      refinancings with lower cost debt.                                                                                                                                                                                                                                                                                                                                                                        |

*Income            Taxes*

**Reconciliation            of Year Ended December 31, 2003 to Year Ended December 31,            2004**

**Income            Before Cumulative Effect of Accounting Changes**

**(in            millions)**

| **Year                      Ended December 31, 2003**                 |   |   |   |   | $      | 251    |   |
|-----------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                  |   |   |   |   |   |   |   |
| **Changes                      in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                      Margins                                   |   |   | (29    | )      |   |   |   |
| Off-system                      Sales                                 |   |   | 30     |   |   |   |   |
| Transmission                      Revenues                            |   |   | (5     | )      |   |   |   |
| Other                      Revenues                                   |   |   | (18    | )      |   |   |   |
| **Total                      Change in Gross Margin**                 |   |   |   |   |   | (22    | )      |
|                                                                  |   |   |   |   |   |   |   |
| **Changes                      in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                      Operation and Maintenance                  |   |   | (19    | )      |   |   |   |
| Depreciation                      and Amortization                    |   |   | (29    | )      |   |   |   |
| Taxes                      Other Than Income Taxes                    |   |   | (2     | )      |   |   |   |
| Other                      Income                                     |   |   | 1      |   |   |   |   |
| Interest                      Expense                                 |   |   | (12    | )      |   |   |   |
| **Total                      Change in Operating Expenses and Other** |   |   |   |   |   | (61    | )      |
|                                                                  |   |   |   |   |   |   |   |
| Income                      Tax Expense                               |   |   |   |   |   | 42     |   |
|                                                                  |   |   |   |   |   |   |   |
| **Year                      Ended December 31, 2004**                 |   |   |   |   | $      | 210    |   |

| **·** | Retail                      Margins were $29 million lower than the prior period primarily                      due to                      higher fuel costs.                                                                                                                                                                                                     |
|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **·** | Margins                      from Off-system Sales increased $30 million primarily due to                      favorable                      optimization activity.                                                                                                                                                                                               |
| **·** | Other                      Revenues decreased by $18 million primarily due to 2003 recovery                      of                      employee benefits, reclamation and other charges as a result                      of a                      settlement related to the sale of the coal companies prior                      to                      2003. |

| **·** | Other                      Operation and Maintenance expenses increased $19 million primarily                      due to                      expense associated with costs incurred as a result of a major                      ice storm in                      December 2004 and increased employee benefit expenses including                      pension                      plan costs and workers’ compensation expenses.                                                                                                                                                                                                                            |
|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **·** | A                      $29 million increase in Depreciation and Amortization expense                      primarily                      associated with the consolidation of JMG (there was no change                      in Net                      Income due to the consolidation of JMG). In addition, the increase                      is a                      result of a greater depreciable asset base in 2004, including                      capitalized                      software costs and the increased amortization of transition                      generation                      regulatory assets due to normal operating adjustments. |
| **·** | Interest                      Expense increased $12 million primarily due to the consolidation                      of JMG in                      July 2003 and its associated debt. There was no change in Net                      Income due                      to the consolidation of JMG.                                                                                                                                                                                                                                                                                                                                                                    |

*Income            Taxes*

**Financial            Condition**

**Credit            Ratings**

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

**Cash            Flow**

|                                                                      |   | **2005**                                |     | **2004**     |   | **2003**     |   |
|---------------------------------------------------------------------------|--------|-----------------------------------------|----------|--------------|--------|--------------|--------|
|                                                                      |   | **(in                      thousands)** |     |
|                                                                      |   |                               |     |    |   |    |   |
| **Cash                      and Cash Equivalents at Beginning of Period** |   | $                                       | 9,337    |         | $      | 7,294        |   | $ | 5,285 |   |
| Cash                      Flows From (Used For):                          |   |                                    |     |         |   |         |   |   |   |   |
| Operating                      Activities                                 |   |                                    | 368,805  |         |   | 545,855      |   |   | 391,989 |   |
| Investing                      Activities                                 |   |                                    | (571,184 | )            |   | (324,392     | )      |   | (365,207 | ) |
| Financing                      Activities                                 |   |                                    | 194,282  |         |   | (219,420     | )      |   | (24,773 | ) |
| Net                      Increase (Decrease) in Cash and Cash Equivalents |   |                                    | (8,097   | )            |   | 2,043        |   |   | 2,009 |   |
| **Cash                      and Cash Equivalents at End of Period**       |   | $                                       | 1,240    |         | $      | 9,337        |   | $ | 7,294 |   |

*Operating            Activities*

*Investing            Activities*

*Financing            Activities*

**Summary            Obligation Information**

**Payment            Due by Period**

**(in            millions)**

| **Contractual                      Cash Obligations**                                          |   | **Less                      Than****1                      year** |    | **2-3                      years** |   | **4-5                      years** |   | **After****5                      years** |    | **Total** |   |
|------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------|---------|------------------------------------|--------|------------------------------------|--------|-------------------------------------------|---------|-----------|--------|
| Short-term                      Debt (a)                                                       |   | $                                                                 | 10.4    |                               | $      | -                                  |   | $                                         | -       |      | $      | - |   | $ | 10.4 |   |
| Advances                      from Affiliates (b)                                              |   |                                                              | 70.1    |                               |   | -                                  |   |                                      | -       |      |   | - |   |   | 70.1 |   |
| Interest                      on Fixed Rate Portion of Long-term Debt                      (c) |   |                                                              | 94.9    |                               |   | 181.2                              |   |                                      | 165.3   |      |   | 887.9 |   |   | 1,329.3 |   |
| Fixed                      Rate Portion of Long-term Debt (d)                                  |   |                                                              | 212.4   |                               |   | 73.0                               |   |                                      | 277.5   |      |   | 1,239.1 |   |   | 1,802.0 |   |
| Variable                      Rate Portion of Long-term Debt (e)                               |   |                                                              | -       |                               |   | -                                  |   |                                      | -       |      |   | 403.0 |   |   | 403.0 |   |
| Capital                      Lease Obligations (f)                                             |   |                                                              | 10.1    |                               |   | 14.5                               |   |                                      | 8.0     |      |   | 22.5 |   |   | 55.1 |   |
| Noncancelable                      Operating Leases (f)                                        |   |                                                              | 17.9    |                               |   | 32.9                               |   |                                      | 28.6    |      |   | 65.5 |   |   | 144.9 |   |
| Fuel                      Purchase Contracts (g)                                               |   |                                                              | 614.5   |                               |   | 1,252.2                            |   |                                      | 1,402.9 |      |   | 4,827.5 |   |   | 8,097.1 |   |
| Energy                      and Capacity Purchase Contracts (h)                                |   |                                                              | 47.8    |                               |   | 96.4                               |   |                                      | 112.7   |      |   | 289.2 |   |   | 546.1 |   |
| Construction                      Contracts for Capital Assets (i)                             |   |                                                              | 365.8   |                               |   | 168.0                              |   |                                      | -       |      |   | - |   |   | 533.8 |   |
| **Total**                                                                                      |   | $                                                                 | 1,443.9 |                               | $      | 1,818.2                            |   | $                                         | 1,995.0 |      | $      | 7,734.7 |   | $ | 12,991.8 |   |

| (a) | Represents                      principal only excluding interest.                                                                                                                                                                                                                                                  |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Represents                      short-term borrowing from the Utility Money Pool.                                                                                                                                                                                                                                   |
| (c) | Interest                      payments are estimated based on final maturity dates of debt                      securities                      outstanding at December 31, 2005 and do not reflect anticipated                      future                      refinancings, early redemptions or debt issuances. |
| (d) | See                      Note 16. Represents principal only excluding interest.                                                                                                                                                                                                                                     |
| (e) | See                      Note 16. Represents principal only excluding interest. Variable                      rate debt                      had interest rates that ranged between 3.10% and 3.45% at December                      31,                      2005.                                                 |
| (f) | See                      Note 15.                                                                                                                                                                                                                                                                                   |
| (g) | Represents                      contractual obligations to purchase coal and natural gas as                      fuel for                      electric generation along with related transportation of the                      fuel.                                                                              |
| (h) | Represents                      contractual cash flows of energy and capacity purchase                      contracts.                                                                                                                                                                                              |
| (i) | Represents                      only capital assets that are contractual                      obligations.                                                                                                                                                                                                          |

**Significant            Factors**

**Critical            Accounting Estimates**

----

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

**Market            Risks**

**MTM            Risk Management Contract Net Assets**

**Reconciliation            of MTM Risk Management Contracts to**

**Consolidated            Balance Sheet**

**As            of December 31, 2005**

**(in            thousands)**

|                                                                            |   | **MTM                      Risk Management Contracts** |     | **Cash                      Flow Hedges** |   | **DETM                      Assignment (a)** |   | **Total** |   |
|---------------------------------------------------------------------------------|--------|--------------------------------------------------------|----------|-------------------------------------------|--------|----------------------------------------------|--------|-----------|--------|
| Current                      Assets                                             |   | $                                                      | 108,029  |                                      | $      | 6,991                                        |   | $         | -      |   | $ | 115,020 |   |
| Noncurrent                      Assets                                          |   |                                                   | 144,015  |                                      |   | -                                            |   |      | -      |   |   | 144,015 |   |
| **Total                      MTM Derivative Contract Assets**                   |   |                                                   | 252,044  |                                      |   | 6,991                                        |   |      | -      |   |   | 259,035 |   |
|                                                                            |   |                                                   |     |                                      |   |                                         |   |      |   |   |   |   |   |
| Current                      Liabilities                                        |   |                                                   | (101,422 | )                                         |   | (6,777                                       | )      |      | (598   | ) |   | (108,797 | ) |
| Noncurrent                      Liabilities                                     |   |                                                   | (109,728 | )                                         |   | (307                                         | )      |      | (9,212 | ) |   | (119,247 | ) |
| **Total                      MTM Derivative Contract ****Liabilities**     |   |                                                   | (211,150 | )                                         |   | (7,084                                       | )      |      | (9,810 | ) |   | (228,044 | ) |
|                                                                            |   |                                                   |     |                                      |   |                                         |   |      |   |   |   |   |   |
| **Total                      MTM Derivative Contract Net Assets (Liabilities)** |   | $                                                      | 40,894   |                                      | $      | (93                                          | )      | $         | (9,810 | ) | $ | 30,991 |   |

| (a) | See                      “Natural Gas Contracts with DETM” section of Note                      17. |
|-----|-----------------------------------------------------------------------------------------------------------------|

**MTM            Risk Management Contract Net Assets**

**Year            Ended December 31, 2005**

**(in            thousands)**

| **Total                      MTM Risk Management Contract Net Assets at December 31,                      2004**                                                                 |   | $      | 47,777  |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|
| (Gain)                      Loss from Contracts Realized/Settled During the Period and                      Entered in a                      Prior Period                       |   |   | (16,803 | )      |
| Fair                      Value of New Contracts at Inception When Entered During the                      Period                      (a)                                       |   |   | 1,343   |   |
| Net                      Option Premiums Paid/(Received) for Unexercised or Unexpired                      Option                      Contracts Entered  During the Period |   |   | (2,358  | )      |
| Change                      in Fair Value Due to Valuation Methodology Changes on Forward                      Contracts                                                         |   |   | -       |   |
| Changes                      in Fair Value due to Market Fluctuations During the Period                      (b)                                                                 |   |   | 10,821  |   |
| Changes                      in Fair Value Allocated to Regulated Jurisdictions (c)                                                                                              |   |   | 114     |   |
| **Total                      MTM Risk Management Contract Net Assets**                                                                                                           |   |   | 40,894  |   |
| Net                      Cash Flow Hedge Contracts                                                                                                                               |   |   | (93     | )      |
| DETM                      Assignment (d)                                                                                                                                         |   |   | (9,810  | )      |
| **Total                      MTM Risk Management Contract Net Assets at December 31, 2005**                                                                                      |   | $      | 30,991  |   |

| (a) | Most                      of the fair value comes from longer term fixed price contracts                      with                      customers that seek to limit their risk against fluctuating                      energy prices.                      Inception value is only recorded if observable market data                      can be obtained                      for valuation inputs for the entire contract term. The contract                      prices are                      valued against market curves associated with the delivery location                      and                      delivery term. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Market                      fluctuations are attributable to various factors such as supply/demand,                      weather, storage, etc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| (c) | “Changes                      in Fair Value Allocated to Regulated Jurisdictions” relates to the net                      gains (losses) of those contracts that are not reflected in                      the                      Consolidated Statements of Income. These net gains (losses)                      are recorded                      as regulatory liabilities/assets for those subsidiaries that                      operate in                      regulated jurisdictions.                                                                                                                          |
| (d) | See                      “Natural Gas Contracts with DETM” section of Note                      17.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |

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

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

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

**Risk            Management Contract Net Assets**

**Fair            Value of Contracts as of December 31, 2005**

**(in            thousands)**

|                                                                                                                         |   | **2006** |   | **2007** |   | **2008** |   | **2009** |   | **2010** |   | **After                        2010** |   | **Total** |   |
|------------------------------------------------------------------------------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|----------|--------|---------------------------------------|--------|-----------|--------|
| Prices                        Actively Quoted - ExchangeTraded Contracts                                                     |   | $        | 6,061  |     | $      | 3,069    |   | $        | 888    |     | $      | -                                     |   | $         | -      |   | $ | - |   | $ | 10,018 |   |
| Prices                        Provided by Other External Sources - OTC Broker                          Quotes  (a) |   |     | 9,153  |     |   | 12,354   |   |     | 9,976  |     |   | 4,888                                 |   |      | -      |   |   | - |   |   | 36,371 |   |
| Prices                        Based on Models and Other Valuation Methods (b)                                                |   |     | (8,607 | )        |   | (3,770   | )      |     | (2,304 | )        |   | 2,605                                 |   |      | 6,226  |   |   | 355 |   |   | (5,495 | ) |
| **Total**                                                                                                                    |   | $        | 6,607  |     | $      | 11,653   |   | $        | 8,560  |     | $      | 7,493                                 |   | $         | 6,226  |   | $ | 355 |   | $ | 40,894 |   |

| (a) | “Prices                      Provided by Other External Sources - OTC Broker Quotes” reflects                      information obtained from over-the-counter brokers, industry                      services, or                      multiple-party on-line platforms.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | “Prices                      Based on Models and Other Valuation Methods” is used in absence of pricing                      information from external sources. Modeled information is derived                      using                      valuation models developed by the reporting entity, reflecting                      when                      appropriate, option pricing theory, discounted cash flow concepts,                      valuation adjustments, etc. and may require projection of prices                      for                      underlying commodities beyond the period that prices are available                      from                      third-party sources. In addition, where external pricing information                      or                      market liquidity are limited, such valuations are classified                      as modeled.                      The determination of the point at which a market is no longer                      liquid for                      placing it in the modeled category varies by                      market. |

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

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

**Year            Ended December 31, 2005**

**(in            thousands)**

|                                                                                                                                              |   | **Power** |   | **Foreign****Currency** |   | **Interest                      Rate** |   | **Total** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------|--------|-------------------------|--------|----------------------------------------|--------|-----------|--------|
| **Beginning                      Balance in AOCI December 31, 2004**                                                                              |   | $         | 1,599  |                    | $      | (358                                   | )      | $         | -      |   | $ | 1,241 |   |
| Changes                      in Fair Value                                                                                                        |   |      | 700    |                    |   | -                                      |   |      | 1,581  |   |   | 2,281 |   |
| Reclassifications                      from AOCI to Net Income                        for Cash                      Flow Hedges Settled |   |      | (2,691 | )                       |   | 14                                     |   |      | (90    | ) |   | (2,767 | ) |
| **Ending                      Balance in AOCI December 31, 2005**                                                                                 |   | $         | (392   | )                       | $      | (344                                   | )      | $         | 1,491  |   | $ | 755 |   |

**Credit            Risk**

**VaR            Associated with Risk Management Contracts**

| **December                      31, 2005** |   |     |   |        | **December                      31, 2004** |
|--------------------------------------------|--------|----------|--------|-------------|--------------------------------------------|
| **(in                      thousands)**    |   |     |   |        | **(in                      thousands)**    |
| **End**                                    |   | **High** |   | **Average** |                                       | **Low** |   |   |   |   | **End** |   | **High** |   | **Average** |   | **Low** |
| $583                                       |   | $968     |   | $461        |                                       | $166 |   |   |   |   | $464 |   | $1,513 |   | $652 |   | $223 |

**VaR            Associated with Debt Outstanding**

----

**OHIO            POWER COMPANY CONSOLIDATED**

**CONSOLIDATED            STATEMENTS OF INCOME**

**For            the Years Ended December 31, 2005, 2004 and 2003**

**(in            thousands)**

|                                                                                                                   |   | **2005** |      | **2004** |   | **2003**  |   |
|------------------------------------------------------------------------------------------------------------------------|--------|----------|-----------|----------|--------|-----------|--------|
| **REVENUES**                                                                                                           |   |     |      |     |   |      |   |
| Electric                        Generation, Transmission and Distribution                                              |   | $        | 1,922,280 |     | $      | 1,752,766 |   | $ | 1,612,301 |   |
| Sales                        to AEP Affiliates                                                                         |   |     | 681,852   |     |   | 594,357   |   |   | 600,803 |   |
| Other                        - Affiliated                                                                              |   |     | 15,437    |     |   | 15,013    |   |   | 13,233 |   |
| Other                        - Nonaffiliated                                                                           |   |     | 14,980    |     |   | 10,589    |   |   | 23,795 |   |
| **TOTAL**                                                                                                              |   |     | 2,634,549 |     |   | 2,372,725 |   |   | 2,250,132 |   |
|                                                                                                                   |   |     |      |     |   |      |   |   |   |   |
| **EXPENSES**                                                                                                           |   |     |      |     |   |      |   |   |   |   |
| Fuel                        and Other Consumables for Electric Generation                                              |   |     | 975,180   |     |   | 819,787   |   |   | 674,607 |   |
| Purchased                        Electricity for Resale                                                                |   |     | 77,173    |     |   | 64,229    |   |   | 63,486 |   |
| Purchased                        Electricity from AEP Affiliates                                                       |   |     | 116,890   |     |   | 89,355    |   |   | 90,821 |   |
| Other                        Operation                                                                                 |   |     | 340,085   |     |   | 336,330   |   |   | 329,725 |   |
| Maintenance                                                                                                            |   |     | 207,226   |     |   | 179,290   |   |   | 166,438 |   |
| Depreciation                        and Amortization                                                                   |   |     | 302,495   |     |   | 286,300   |   |   | 257,417 |   |
| Taxes                        Other Than Income Taxes                                                                   |   |     | 190,013   |     |   | 177,895   |   |   | 175,794 |   |
| **TOTAL**                                                                                                              |   |     | 2,209,062 |     |   | 1,953,186 |   |   | 1,758,288 |   |
|                                                                                                                   |   |     |      |     |   |      |   |   |   |   |
| **OPERATING                        INCOME**                                                                            |   |     | 425,487   |     |   | 419,539   |   |   | 491,844 |   |
|                                                                                                                   |   |     |      |     |   |      |   |   |   |   |
| **Other                        Income (Expense):**                                                                     |   |     |      |     |   |      |   |   |   |   |
| Interest                        Income                                                                                 |   |     | 3,311     |     |   | 3,155     |   |   | 2,365 |   |
| Carrying                        Costs Income                                                                           |   |     | 48,510    |     |   | 735       |   |   | 592 |   |
| Allowance                        for Equity Funds Used During Construction                                             |   |     | 1,441     |     |   | 1,482     |   |   | 1,093 |   |
| Interest                        Expense                                                                                |   |     | (103,352  | )        |   | (118,685  | )      |   | (106,464 | ) |
|                                                                                                                   |   |     |      |     |   |      |   |   |   |   |
| **INCOME                        BEFORE INCOME TAXES**                                                                  |   |     | 375,397   |     |   | 306,226   |   |   | 389,430 |   |
|                                                                                                                   |   |     |      |     |   |      |   |   |   |   |
| Income                        Tax Expense                                                                              |   |     | 124,978   |     |   | 96,110    |   |   | 138,399 |   |
|                                                                                                                   |   |     |      |     |   |      |   |   |   |   |
| **INCOME                        BEFORE CUMULATIVE EFFECT OF**  **ACCOUNTING                        CHANGES** |   |     | 250,419   |     |   | 210,116   |   |   | 251,031 |   |
|                                                                                                                   |   |     |      |     |   |      |   |   |   |   |
| **CUMULATIVE                        EFFECT OF ACCOUNTING CHANGES,**  **Net                        of Tax**   |   |     | (4,575    | )        |   | -         |   |   | 124,632 |   |
|                                                                                                                   |   |     |      |     |   |      |   |   |   |   |
| **NET                        INCOME**                                                                                  |   |     | 245,844   |     |   | 210,116   |   |   | 375,663 |   |
|                                                                                                                   |   |     |      |     |   |      |   |   |   |   |
| Preferred                        Stock Dividend Requirements including Other Expense                                   |   |     | 906       |     |   | 733       |   |   | 1,098 |   |
|                                                                                                                   |   |     |      |     |   |      |   |   |   |   |
| **EARNINGS                        APPLICABLE TO COMMON STOCK**                                                         |   | $        | 244,938   |     | $      | 209,383   |   | $ | 374,565 |   |

*The            common stock of OPCo is wholly-owned by AEP.*

*See            Notes to Financial Statements of Registrant Subsidiaries.*

----

**OHIO            POWER COMPANY CONSOLIDATED**

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

**EQUITY            AND COMPREHENSIVE INCOME (LOSS)**

**For            the Years Ended December 31, 2005, 2004 and 2003**

**(in            thousands)**

|                                                                                                  |   | **Common                        Stock** |    | **Paid-in                        Capital** |   | **Retained                        Earnings** |   | **Accumulated                        Other Comprehensive Income (Loss)** |     | **Total** |   |
|-------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|---------|--------------------------------------------|--------|----------------------------------------------|--------|--------------------------------------------------------------------------|----------|-----------|--------|
| **DECEMBER                        31, 2002**                                                          |   | $                                       | 321,201 |                                       | $      | 462,483                                      |   | $                                                                        | 522,316  |      | $      | (72,886 | ) | $ | 1,233,114 |   |
| Common                        Stock Dividends                                                         |   |                                    |    |                                       |   |                                         |   |                                                                     | (167,734 | )         |   |   |   |   | (167,734 | ) |
| Preferred                        Stock Dividends                                                      |   |                                    |    |                                       |   |                                         |   |                                                                     | (1,098   | )         |   |   |   |   | (1,098 | ) |
| Capital                        Stock Gains                                                            |   |                                    |    |                                       |   | 1                                            |   |                                                                     |     |      |   |   |   |   | 1 |   |
| **TOTAL**                                                                                             |   |                                    |    |                                       |   |                                         |   |                                                                     |     |      |   |   |   |   | 1,064,283 |   |
|                                                                                                  |   |                                    |    |                                       |   |                                         |   |                                                                     |     |      |   |   |   |   |   |   |
| **COMPREHENSIVE                        INCOME**                                                       |   |                                    |    |                                       |   |                                         |   |                                                                     |     |      |   |   |   |   |   |   |
| **Other                        Comprehensive Income,****Net                        of Taxes:**        |   |                                    |    |                                       |   |                                         |   |                                                                     |     |      |   |   |   |   |   |   |
| Cash                        Flow Hedges, Net of Tax of $342                                           |   |                                    |    |                                       |   |                                         |   |                                                                     |     |      |   | 635 |   |   | 635 |   |
| Minimum                        Pension Liability, Net of Tax of                        $13,495        |   |                                    |    |                                       |   |                                         |   |                                                                     |     |      |   | 23,444 |   |   | 23,444 |   |
| **NET                        INCOME**                                                                 |   |                                    |    |                                       |   |                                         |   |                                                                     | 375,663  |      |   |   |   |   | 375,663 |   |
| **TOTAL                        COMPREHENSIVE INCOME**                                                 |   |                                    |    |                                       |   |                                         |   |                                                                     |     |      |   |   |   |   | 399,742 |   |
|                                                                                                  |   |                                    |    |                                       |   |                                         |   |                                                                     |     |      |   |   |   |   |   |   |
| **DECEMBER                        31, 2003**                                                          |   |                                    | 321,201 |                                       |   | 462,484                                      |   |                                                                     | 729,147  |      |   | (48,807 | ) |   | 1,464,025 |   |
| Common                        Stock Dividends                                                         |   |                                    |    |                                       |   |                                         |   |                                                                     | (174,114 | )         |   |   |   |   | (174,114 | ) |
| Preferred                        Stock Dividends                                                      |   |                                    |    |                                       |   |                                         |   |                                                                     | (733     | )         |   |   |   |   | (733 | ) |
| Capital                        Stock Gains                                                            |   |                                    |    |                                       |   | 1                                            |   |                                                                     |     |      |   |   |   |   | 1 |   |
| **TOTAL**                                                                                             |   |                                    |    |                                       |   |                                         |   |                                                                     |     |      |   |   |   |   | 1,289,179 |   |
|                                                                                                  |   |                                    |    |                                       |   |                                         |   |                                                                     |     |      |   |   |   |   |   |   |
| **COMPREHENSIVE                        INCOME**                                                       |   |                                    |    |                                       |   |                                         |   |                                                                     |     |      |   |   |   |   |   |   |
| **Other                        Comprehensive Income (Loss),****Net                        of Taxes:** |   |                                    |    |                                       |   |                                         |   |                                                                     |     |      |   |   |   |   |   |   |
| Cash                        Flow Hedges, Net of Tax of $723                                           |   |                                    |    |                                       |   |                                         |   |                                                                     |     |      |   | 1,344 |   |   | 1,344 |   |
| Minimum                        Pension Liability, Net of Tax of                        $14,432        |   |                                    |    |                                       |   |                                         |   |                                                                     |     |      |   | (26,801 | ) |   | (26,801 | ) |
| **NET                        INCOME**                                                                 |   |                                    |    |                                       |   |                                         |   |                                                                     | 210,116  |      |   |   |   |   | 210,116 |   |
| **TOTAL                        COMPREHENSIVE INCOME**                                                 |   |                                    |    |                                       |   |                                         |   |                                                                     |     |      |   |   |   |   | 184,659 |   |
|                                                                                                  |   |                                    |    |                                       |   |                                         |   |                                                                     |     |      |   |   |   |   |   |   |
| **DECEMBER                        31, 2004**                                                          |   |                                    | 321,201 |                                       |   | 462,485                                      |   |                                                                     | 764,416  |      |   | (74,264 | ) |   | 1,473,838 |   |
| Common                        Stock Dividends                                                         |   |                                    |    |                                       |   |                                         |   |                                                                     | (30,000  | )         |   |   |   |   | (30,000 | ) |
| Preferred                        Stock Dividends                                                      |   |                                    |    |                                       |   |                                         |   |                                                                     | (732     | )         |   |   |   |   | (732 | ) |
| Other                                                                                                 |   |                                    |    |                                       |   | 4,152                                        |   |                                                                     | (174     | )         |   |   |   |   | 3,978 |   |
| **TOTAL**                                                                                             |   |                                    |    |                                       |   |                                         |   |                                                                     |     |      |   |   |   |   | 1,447,084 |   |
|                                                                                                  |   |                                    |    |                                       |   |                                         |   |                                                                     |     |      |   |   |   |   |   |   |
| **COMPREHENSIVE                        INCOME**                                                       |   |                                    |    |                                       |   |                                         |   |                                                                     |     |      |   |   |   |   |   |   |
| **Other                        Comprehensive Income (Loss),****Net                        of Taxes:** |   |                                    |    |                                       |   |                                         |   |                                                                     |     |      |   |   |   |   |   |   |
| Cash                        Flow Hedges, Net of Tax of $262                                           |   |                                    |    |                                       |   |                                         |   |                                                                     |     |      |   | (486 | ) |   | (486 | ) |
| Minimum                        Pension Liability, Net of Tax of                        $40,657        |   |                                    |    |                                       |   |                                         |   |                                                                     |     |      |   | 75,505 |   |   | 75,505 |   |
| **NET                        INCOME**                                                                 |   |                                    |    |                                       |   |                                         |   |                                                                     | 245,844  |      |   |   |   |   | 245,844 |   |
| **TOTAL                        COMPREHENSIVE INCOME**                                                 |   |                                    |    |                                       |   |                                         |   |                                                                     |     |      |   |   |   |   | 320,863 |   |
|                                                                                                  |   |                                    |    |                                       |   |                                         |   |                                                                     |     |      |   |   |   |   |   |   |
| **DECEMBER                        31, 2005**                                                          |   | $                                       | 321,201 |                                       | $      | 466,637                                      |   | $                                                                        | 979,354  |      | $      | 755 |   | $ | 1,767,947 |   |

*See            Notes to Financial Statements of Registrant Subsidiaries.*

----

**OHIO            POWER COMPANY CONSOLIDATED**

**CONSOLIDATED            BALANCE SHEETS**

**ASSETS**

**December            31, 2005 and 2004**

**(in            thousands)**

|                                                           |   | **2005**     |      | **2004**     |   |
|----------------------------------------------------------------|--------|--------------|-----------|--------------|--------|
| **CURRENT                      ASSETS**                        |   |    |      |    |   |
| Cash                      and Cash Equivalents                 |   | $            | 1,240     |         | $      | 9,337 |   |
| Advances                      to Affiliates                    |   |         | -         |         |   | 125,971 |   |
| Accounts                      Receivable:                      |   |         |      |         |   |   |   |
| Customers                                                      |   |         | 125,404   |         |   | 98,951 |   |
| Affiliated                      Companies                      |   |         | 167,579   |         |   | 144,175 |   |
| Accrued                      Unbilled Revenues                 |   |         | 14,817    |         |   | 10,641 |   |
| Miscellaneous                                                  |   |         | 15,644    |         |   | 7,626 |   |
| Allowance                      for Uncollectible Accounts      |   |         | (1,517    | )            |   | (93 | ) |
|                        Total Accounts Receivable          |   |         | 321,927   |         |   | 261,300 |   |
| Fuel                                                           |   |         | 97,600    |         |   | 70,309 |   |
| Materials                      and Supplies                    |   |         | 60,937    |         |   | 55,569 |   |
| Emission                      Allowances                       |   |         | 39,251    |         |   | 95,303 |   |
| Risk                      Management Assets                    |   |         | 115,020   |         |   | 79,541 |   |
| Accrued                      Tax Benefits                      |   |         | 39,965    |         |   | - |   |
| Prepayments                      and Other                     |   |         | 27,439    |         |   | 15,877 |   |
| **TOTAL**                                                      |   |         | 703,379   |         |   | 713,207 |   |
|                                                           |   |         |      |         |   |   |   |
| **PROPERTY,                      PLANT AND EQUIPMENT**         |   |         |      |         |   |   |   |
| Electric:                                                      |   |         |      |         |   |   |   |
| Production                                                     |   |         | 4,278,553 |         |   | 4,127,284 |   |
| Transmission                                                   |   |         | 1,002,255 |         |   | 978,492 |   |
| Distribution                                                   |   |         | 1,258,518 |         |   | 1,202,550 |   |
| Other                                                          |   |         | 293,794   |         |   | 309,488 |   |
| Construction                      Work in Progress             |   |         | 690,168   |         |   | 240,957 |   |
| **Total**                                                      |   |         | 7,523,288 |         |   | 6,858,771 |   |
| Accumulated                      Depreciation and Amortization |   |         | 2,738,899 |         |   | 2,633,203 |   |
| **TOTAL                      - NET**                           |   |         | 4,784,389 |         |   | 4,225,568 |   |
|                                                           |   |         |      |         |   |   |   |
| **OTHER                      NONCURRENT ASSETS**               |   |         |      |         |   |   |   |
| Regulatory                      Assets                         |   |         | 398,007   |         |   | 428,374 |   |
| Long-term                      Risk Management Assets          |   |         | 144,015   |         |   | 66,727 |   |
| Deferred                      Charges and Other                |   |         | 300,880   |         |   | 159,389 |   |
| **TOTAL**                                                      |   |         | 842,902   |         |   | 654,490 |   |
|                                                           |   |         |      |         |   |   |   |
| **TOTAL                      ASSETS**                          |   | $            | 6,330,670 |         | $      | 5,593,265 |   |

*See            Notes to Financial Statements of Registrant Subsidiaries.*

----

**OHIO            POWER COMPANY CONSOLIDATED**

**CONSOLIDATED            BALANCE SHEETS**

**LIABILITIES            AND SHAREHOLDERS’ EQUITY**

**December            31, 2005 and 2004**

|                                                                                |   | **2005**                                |      | **2004** |   |
|-------------------------------------------------------------------------------------|--------|-----------------------------------------|-----------|----------|--------|
| **CURRENT                      LIABILITIES**                                        |   | **(in                      thousands)** |      |
| Advances                      from Affiliates                                       |   | $                                       | 70,071    |     | $      | - |   |
| Accounts                      Payable:                                              |   |                                    |      |     |   |   |   |
| General                                                                             |   |                                    | 210,752   |     |   | 145,826 |   |
| Affiliated                      Companies                                           |   |                                    | 147,470   |     |   | 116,615 |   |
| Short-term                      Debt - Nonaffiliated                                |   |                                    | 10,366    |     |   | 23,498 |   |
| Long-term                      Debt Due Within One Year - Affiliated                |   |                                    | 200,000   |     |   | - |   |
| Long-term                      Debt Due Within One Year - Nonaffiliated             |   |                                    | 12,354    |     |   | 12,354 |   |
| Cumulative                      Preferred Stock Subject to Mandatory Redemption     |   |                                    | -         |     |   | 5,000 |   |
| Risk                      Management Liabilities                                    |   |                                    | 108,797   |     |   | 70,311 |   |
| Customer                      Deposits                                              |   |                                    | 51,209    |     |   | 22,620 |   |
| Accrued                      Taxes                                                  |   |                                    | 158,774   |     |   | 233,026 |   |
| Accrued                      Interest                                               |   |                                    | 36,298    |     |   | 39,254 |   |
| Other                                                                               |   |                                    | 111,480   |     |   | 81,479 |   |
| **TOTAL**                                                                           |   |                                    | 1,117,571 |     |   | 749,983 |   |
|                                                                                |   |                                    |      |     |   |   |   |
| **NONCURRENT                      LIABILITIES**                                     |   |                                    |      |     |   |   |   |
| Long-term                      Debt - Nonaffiliated                                 |   |                                    | 1,787,316 |     |   | 1,598,706 |   |
| Long-term                      Debt - Affiliated                                    |   |                                    | 200,000   |     |   | 400,000 |   |
| Long-term                      Risk Management Liabilities                          |   |                                    | 119,247   |     |   | 46,261 |   |
| Deferred                      Income Taxes                                          |   |                                    | 987,386   |     |   | 943,465 |   |
| Regulatory                      Liabilities and Deferred Investment Tax Credits     |   |                                    | 168,492   |     |   | 115,414 |   |
| Deferred                      Credits and Other                                     |   |                                    | 154,770   |     |   | 234,874 |   |
| **TOTAL**                                                                           |   |                                    | 3,417,211 |     |   | 3,338,720 |   |
|                                                                                |   |                                    |      |     |   |   |   |
| **TOTAL                      LIABILITIES**                                          |   |                                    | 4,534,782 |     |   | 4,088,703 |   |
|                                                                                |   |                                    |      |     |   |   |   |
| Minority                      Interest                                              |   |                                    | 11,302    |     |   | 14,083 |   |
|                                                                                |   |                                    |      |     |   |   |   |
| Cumulative                      Preferred Stock Not Subject to Mandatory Redemption |   |                                    | 16,639    |     |   | 16,641 |   |
|                                                                                |   |                                    |      |     |   |   |   |
| Commitments                      and Contingencies (Note 7)                         |   |                                    |      |     |   |   |   |
|                                                                                |   |                                    |      |     |   |   |   |
| **COMMON                      SHAREHOLDER’S EQUITY**                          |   |                                    |      |     |   |   |   |
| Common                      Stock - No Par Value Per Share:                         |   |                                    |      |     |   |   |   |
| Authorized                      - 40,000,000 Shares                                 |   |                                    |      |     |   |   |   |
| Outstanding                      - 27,952,473 Shares                                |   |                                    | 321,201   |     |   | 321,201 |   |
| Paid-in                      Capital                                                |   |                                    | 466,637   |     |   | 462,485 |   |
| Retained                      Earnings                                              |   |                                    | 979,354   |     |   | 764,416 |   |
| Accumulated                      Other Comprehensive Income (Loss)                  |   |                                    | 755       |     |   | (74,264 | ) |
| **TOTAL**                                                                           |   |                                    | 1,767,947 |     |   | 1,473,838 |   |
|                                                                                |   |                                    |      |     |   |   |   |
| **TOTAL                      LIABILITIES AND SHAREHOLDERS’ EQUITY**           |   | $                                       | 6,330,670 |     | $      | 5,593,265 |   |

*See            Notes to Financial Statements of Registrant Subsidiaries.*

----

**OHIO            POWER COMPANY CONSOLIDATED**

**CONSOLIDATED            STATEMENTS OF CASH FLOWS**

**For            the Years Ended December 31, 2005, 2004 and 2003**

**(in            thousands)**

|                                                                          |   |  **2005** |     |  **2004** |   |  **2003** |   |
|-------------------------------------------------------------------------------|--------|----------------|----------|----------------|--------|----------------|--------|
| **OPERATING                      ACTIVITIES**                                 |   |      |     |      |   |      |   |
| **Net                      Income**                                           |   | $              | 245,844  |           | $      | 210,116        |   | $ | 375,663 |   |
| **Adjustments                      for Noncash Items:**                       |   |           |     |           |   |           |   |   |   |   |
| Depreciation                      and Amortization                            |   |           | 302,495  |           |   | 286,300        |   |   | 257,417 |   |
| Deferred                      Income Taxes                                    |   |           | 59,593   |           |   | 23,329         |   |   | 24,482 |   |
| Cumulative                      Effect of Accounting Changes, Net of Tax      |   |           | 4,575    |           |   | -              |   |   | (124,632 | ) |
| Carrying                      Costs Income                                    |   |           | (48,510  | )              |   | (735           | )      |   | (592 | ) |
| Mark-to-Market                      of Risk Management Contracts              |   |           | (2,372   | )              |   | 1,171          |   |   | 60,064 |   |
| Pension                      Contributions to Qualified Plan Trusts           |   |           | (132,496 | )              |   | (764           | )      |   | (6,989 | ) |
| Change                      in Other Noncurrent Assets                        |   |           | 5,806    |           |   | (10,398        | )      |   | (25,319 | ) |
| Change                      in Other Noncurrent Liabilities                   |   |           | (15,180  | )              |   | (2,563         | )      |   | (22,027 | ) |
| **Changes                      in Components of Working Capital:**            |   |           |     |           |   |           |   |   |   |   |
| Accounts                      Receivable, Net                                 |   |           | (60,627  | )              |   | (22,640        | )      |   | (3,966 | ) |
| Fuel,                      Materials and Supplies                             |   |           | (32,659  | )              |   | 1,329          |   |   | 7,472 |   |
| Accounts                      Payable                                         |   |           | 56,403   |           |   | 31,023         |   |   | (163,191 | ) |
| Accrued                      Taxes, Net                                       |   |           | (114,217 | )              |   | 100,233        |   |   | 21,015 |   |
| Customer                      Deposits                                        |   |           | 28,589   |           |   | 5,312          |   |   | 4,339 |   |
| Other                      Current Assets                                     |   |           | 44,516   |           |   | (71,141        | )      |   | (13,209 | ) |
| Other                      Current Liabilities                                |   |           | 27,045   |           |   | (4,717         | )      |   | 1,462 |   |
| **Net                      Cash Flows From Operating Activities**             |   |           | 368,805  |           |   | 545,855        |   |   | 391,989 |   |
|                                                                          |   |           |     |           |   |           |   |   |   |   |
| **INVESTING                      ACTIVITIES**                                 |   |           |     |           |   |           |   |   |   |   |
| Construction                      Expenditures                                |   |           | (710,536 | )              |   | (320,215       | )      |   | (259,010 | ) |
| Change                      in Other Cash Deposits, Net                       |   |           | (29      | )              |   | 50,956         |   |   | (50,956 | ) |
| Change                      in Advances to Affiliates, Net                    |   |           | 125,971  |           |   | (58,053        | )      |   | (67,918 | ) |
| Proceeds                      from Sale of Assets                             |   |           | 13,409   |           |   | 2,920          |   |   | 12,671 |   |
| Other                                                                         |   |           | 1        |           |   | -              |   |   | 6 |   |
| **Net                      Cash Flows Used For Investing Activities**         |   |           | (571,184 | )              |   | (324,392       | )      |   | (365,207 | ) |
|                                                                          |   |           |     |           |   |           |   |   |   |   |
| **FINANCING                      ACTIVITIES**                                 |   |           |     |           |   |           |   |   |   |   |
| Issuance                      of Long-term Debt - Nonaffiliated               |   |           | 545,746  |           |   | -              |   |   | 988,914 |   |
| Issuance                      of Long-term Debt - Affiliated                  |   |           | -        |           |   | 400,000        |   |   | - |   |
| Change                      in Short-term Debt, Net - Nonaffiliated           |   |           | (13,132  | )              |   | (2,443         | )      |   | (671 | ) |
| Change                      in Short-term Debt, Net - Affiliated              |   |           | -        |           |   | -              |   |   | (275,000 | ) |
| Change                      in Advances from Affiliates, Net                  |   |           | 70,071   |           |   | -              |   |   | (129,979 | ) |
| Retirement                      of Long-term Debt - Nonaffiliated             |   |           | (365,354 | )              |   | (431,854       | )      |   | (128,378 | ) |
| Retirement                      of Long-term Debt - Affiliated                |   |           | -        |           |   | -              |   |   | (300,000 | ) |
| Retirement                      of Cumulative Preferred Stock                 |   |           | (5,000   | )              |   | (2,254         | )      |   | (1,603 | ) |
| Principal                      Payments for Capital Lease Obligations         |   |           | (7,317   | )              |   | (8,022         | )      |   | (9,224 | ) |
| Dividends                      Paid on Common Stock                           |   |           | (30,000  | )              |   | (174,114       | )      |   | (167,734 | ) |
| Dividends                      Paid on Cumulative Preferred Stock             |   |           | (732     | )              |   | (733           | )      |   | (1,098 | ) |
| **Net                      Cash Flows From (Used For) Financing Activities**  |   |           | 194,282  |           |   | (219,420       | )      |   | (24,773 | ) |
|                                                                          |   |           |     |           |   |           |   |   |   |   |
| **Net                      Increase (Decrease) in Cash and Cash Equivalents** |   |           | (8,097   | )              |   | 2,043          |   |   | 2,009 |   |
| **Cash                      and Cash Equivalents at Beginning of Period**     |   |           | 9,337    |           |   | 7,294          |   |   | 5,285 |   |
| **Cash                      and Cash Equivalents at End of Period**           |   | $              | 1,240    |           | $      | 9,337          |   | $ | 7,294 |   |

| **SUPPLEMENTAL                      DISCLOSURE:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Cash                      paid (received) for interest net of capitalized amounts was                      $102,656,000,                      $119,562,000 and $77,170,000 and for income taxes was $198,078,000,                      $(21,600,000) and $98,923,000 in 2005, 2004 and 2003, respectively.                      Noncash acquisitions under capital leases were $9,218,000,                      $14,727,000 and                      $1,556,000 in 2005, 2004 and 2003, respectively. Noncash activity                      in 2003                      included an increase in assets and liabilities of $469.6 million                      resulting                      from the consolidation of JMG (see “Gavin Scrubber Financing Arrangement”                      section of Note 15). Noncash construction expenditures included                      in                      Accounts Payable of $74,848,000, $35,470,000 and $12,178,000                      were                      outstanding as of December 31, 2005, 2004 and 2003,                      respectively. |

*See            Notes to Financial Statements of Registrant Subsidiaries.*

----

**OHIO            POWER COMPANY CONSOLIDATED**

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

|                                                                                                                                                          | **Footnote****Reference**    |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------|
| Organization                      and Summary of Significant Accounting Policies                                                                              | Note                      1  |
| New                      Accounting Pronouncements, Extraordinary Items and Cumulative                      Effect of                      Accounting Changes | Note                      2  |
| Rate                      Matters                                                                                                                             | Note                      4  |
| Effects                      of Regulation                                                                                                                    | Note                      5  |
| Customer                      Choice and Industry Restructuring                                                                                               | Note                      6  |
| Commitments                      and Contingencies                                                                                                            | Note                      7  |
| Guarantees                                                                                                                                                    | Note                      8  |
| Company-wide                      Staffing and Budget Review                                                                                                  | Note                      9  |
| Acquisitions,                      Dispositions, Impairments, Assets Held for Sale and Other                      Losses                                      | Note                      10 |
| Benefit                      Plans                                                                                                                            | Note                      11 |
| Business                      Segments                                                                                                                        | Note                      12 |
| Derivatives,                      Hedging and Financial Instruments                                                                                           | Note                      13 |
| Income                      Taxes                                                                                                                             | Note                      14 |
| Leases                                                                                                                                                        | Note                      15 |
| Financing                      Activities                                                                                                                     | Note                      16 |
| Related                      Party Transactions                                                                                                               | Note                      17 |
| Unaudited                      Quarterly Financial Information                                                                                                | Note                      19 |

----

**REPORT            OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

*.*

----

**PUBLIC            SERVICE COMPANY OF OKLAHOMA**

----

**PUBLIC            SERVICE COMPANY OF OKLAHOMA**

**SELECTED            FINANCIAL DATA**

**(in            thousands)**

|                                                                                                                                 |   | **2005** |      | **2004** |   | **2003**  |   | **2002** |      | **2001** |   |
|--------------------------------------------------------------------------------------------------------------------------------------|--------|----------|-----------|----------|--------|-----------|--------|----------|-----------|----------|--------|
| **STATEMENTS                      OF INCOME DATA**                                                                                   |   |     |      |     |   |      |   |     |      |     |   |
| Total                      Revenues                                                                                                  |   | $        | 1,304,078 |     | $      | 1,047,820 |   | $        | 1,107,931 |     | $      | 793,282 |   | $ | 957,173 |   |
|                                                                                                                                 |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Operating                      Income                                                                                                |   | $        | 118,016   |     | $      | 82,806    |   | $        | 135,840   |     | $      | 101,911 |   | $ | 129,934 |   |
|                                                                                                                                 |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Net                      Income                                                                                                      |   | $        | 57,893    |     | $      | 37,542    |   | $        | 53,891    |     | $      | 41,060 |   | $ | 57,759 |   |
|                                                                                                                                 |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| **BALANCE                      SHEETS DATA**                                                                                         |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Property,                      Plant and Equipment                                                                                   |   | $        | 2,994,995 |     | $      | 2,875,839 |   | $        | 2,818,514 |     | $      | 2,771,161 |   | $ | 2,699,573 |   |
| Accumulated                      Depreciation and Amortization                                                                       |   |     | 1,175,858 |     |   | 1,117,535 |   |     | 1,069,417 |     |   | 1,037,222 |   |   | 989,426 |   |
| **Net** **Property,                      Plant and Equipment**                                                                  |   | $        | 1,819,137 |     | $      | 1,758,304 |   | $        | 1,749,097 |     | $      | 1,733,939 |   | $ | 1,710,147 |   |
|                                                                                                                                 |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Total                      Assets                                                                                                    |   | $        | 2,355,464 |     | $      | 2,066,825 |   | $        | 1,976,477 |     | $      | 1,987,077 |   | $ | 1,946,475 |   |
|                                                                                                                                 |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Common                      Shareholder’s Equity                                                                               |   | $        | 548,597   |     | $      | 529,256   |   | $        | 483,008   |     | $      | 399,247 |   | $ | 480,240 |   |
|                                                                                                                                 |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Cumulative                      Preferred Stock Not                      Subject to                        Mandatory Redemption |   | $        | 5,262     |     | $      | 5,262     |   | $        | 5,267     |     | $      | 5,267 |   | $ | 5,267 |   |
|                                                                                                                                 |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Trust                      Preferred Securities (a)                                                                                  |   | $        | -         |     | $      | -         |   | $        | -         |     | $      | 75,000 |   | $ | 75,000 |   |
|                                                                                                                                 |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Long-term                      Debt (b)                                                                                              |   | $        | 571,071   |     | $      | 546,092   |   | $        | 574,298   |     | $      | 545,437 |   | $ | 451,129 |   |
|                                                                                                                                 |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Obligations                      Under Capital Leases (b)                                                                            |   | $        | 2,534     |     | $      | 1,284     |   | $        | 1,010     |     | $      | - |   | $ | - |   |

| (a) | See                      “Trust Preferred Securities” section of Note 16. |
|-----|---------------------------------------------------------------------------------------|
| (b) | Including                      portion due within one year.                           |

----

**PUBLIC            SERVICE COMPANY OF OKLAHOMA**

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

**Results            of Operations**

**Reconciliation            of Year Ended December 31, 2004 to December 31, 2005**

**Net            Income**

**(in            millions)**

| **Year                      Ended December 31, 2004**                 |   |   |   |   | $      | 38     |   |
|-----------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                  |   |   |   |   |   |   |   |
| **Changes                      in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                      and Off-system Sales Margins              |   |   | 25     |   |   |   |   |
| Transmission                      Revenues                            |   |   | 6      |   |   |   |   |
| Other                      Revenue                                    |   |   | 2      |   |   |   |   |
| **Total                      Change in Gross Margin**                 |   |   |   |   |   | 33     |   |
|                                                                  |   |   |   |   |   |   |   |
| **Changes                      in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                      Operation and Maintenance                  |   |   | (5     | )      |   |   |   |
| Depreciation                      and Amortization                    |   |   | 3      |   |   |   |   |
| Taxes                      Other Than Income Taxes                    |   |   | 4      |   |   |   |   |
| Interest                      Expense                                 |   |   | 4      |   |   |   |   |
| Other                      Income                                     |   |   | 4      |   |   |   |   |
| **Total                      Change in Operating Expenses and Other** |   |   |   |   |   | 10     |   |
|                                                                  |   |   |   |   |   |   |   |
| Income                      Tax Expense                               |   |   |   |   |   | (23    | )      |
|                                                                  |   |   |   |   |   |   |   |
| **Year                      Ended December 31, 2005**                 |   |   |   |   | $      | 58     |   |

| **·** | Retail                      and Off-system Sales Margins increased $25 million primarily                      due to higher retail sales volumes resulting from a 12% increase                      in degree                      days and an increased number of customers. |
|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **·** | Transmission                      Revenues increased $6 million primarily due to higher rates                      within                      SPP.                                                                                                                           |

| **·** | Other                      Operation and Maintenance expenses increased $5 million, primarily                      due to                      a $10 million increase in power plant operation and maintenance                      expenses.                      The increase was partially offset by a $3 million decrease                      in                      transmission-related expenses due to adjustments in 2004 for                      affiliated                      OATT and ancillary services. This adjustment was a result of                      revised ERCOT                      data for the years 2001 through 2003. In addition, distribution                      expenses                      decreased $2 million primarily due to 2004 storm-related expenses                      and a                      one-time labor-related settlement, partially offset by higher                      overhead                      line expense in 2005. |
|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **·** | Depreciation                      and Amortization decreased $3 million primarily due to a change                      in                      depreciation rates effective June 2005, resulting from the                      settlement of                      our 2005 rate review proceedings (See “PSO Rate Review” Section of Note 4                      ).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| **·** | Taxes                      Other Than Income Taxes decreased $4 million primarily due                      to an                      adjustment for property- related taxes recorded in                      2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| **·** | Interest                      Expense decreased $4 million primarily due to the 2004 replacement                      of                      higher rate first mortgage bonds and trust preferred securities                      with lower                      rate senior unsecured notes and affiliated notes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| **·** | Other                      Income increased $4 million. The key drivers were an increase                      in retail                      interest on deferred fuel and a $2 million favorable Internal                      Revenue                      Service audit settlement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |

*Income            Taxes*

**Financial            Condition**

**Credit            Ratings**

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

**Summary            Obligation Information**

**Payment            Due by Period**

**(in            millions)**

| **Contractual                      Cash Obligations**                                          |   | **Less                      Than****1                      year** |   | **2-3                      years** |   | **4-5                      years** |   | **After****5                      years** |   | **Total** |   |
|------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------|--------|------------------------------------|--------|------------------------------------|--------|-------------------------------------------|--------|-----------|--------|
| Advances                      from Affiliates (a)                                              |   | $                                                                 | 75.9   |                               | $      | -                                  |   | $                                         | -      |      | $      | - |   | $ | 75.9 |   |
| Interest                      on Fixed Rate Portion of Long-term Debt                      (b) |   |                                                              | 26.7   |                               |   | 51.8                               |   |                                      | 48.3   |      |   | 273.0 |   |   | 399.8 |   |
| Fixed                      Rate Portion of Long-term Debt (c)                                  |   |                                                              | 50.0   |                               |   | -                                  |   |                                      | 200.0  |      |   | 287.7 |   |   | 537.7 |   |
| Variable                      Rate Portion of Long-term Debt (d)                               |   |                                                              | -      |                               |   | -                                  |   |                                      | -      |      |   | 33.7 |   |   | 33.7 |   |
| Capital                      Lease Obligations (e)                                             |   |                                                              | 0.9    |                               |   | 1.2                                |   |                                      | 0.7    |      |   | 0.1 |   |   | 2.9 |   |
| Noncancelable                      Operating Leases (e)                                        |   |                                                              | 6.2    |                               |   | 9.2                                |   |                                      | 6.5    |      |   | 6.4 |   |   | 28.3 |   |
| Fuel                      Purchase Contracts (f)                                               |   |                                                              | 277.4  |                               |   | 185.1                              |   |                                      | 136.8  |      |   | 259.9 |   |   | 859.2 |   |
| Energy                      and Capacity Purchase Contracts (g)                                |   |                                                              | 78.5   |                               |   | 150.7                              |   |                                      | 124.4  |      |   | 219.9 |   |   | 573.5 |   |
| Construction                      Contracts for Capital Assets (h)                             |   |                                                              | 55.1   |                               |   | -                                  |   |                                      | -      |      |   | - |   |   | 55.1 |   |
| **Total**                                                                                      |   | $                                                                 | 570.7  |                               | $      | 398.0                              |   | $                                         | 516.7  |      | $      | 1,080.7 |   | $ | 2,566.1 |   |

| (a) | Represents                      short-term borrowings from the Utility Money Pool.                                                                                                                                                                                                                                  |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Interest                      payments are estimated based on final maturity dates of debt                      securities                      outstanding at December 31, 2005 and do not reflect anticipated                      future                      refinancings, early redemptions or debt issuances. |
| (c) | See                      Note 16. Represents principal only excluding interest.                                                                                                                                                                                                                                     |
| (d) | See                      Note 16. Represents principal only excluding interest. Variable                      rate debt                      had an interest rate of 3.15% at December 31, 2005.                                                                                                                    |
| (e) | See                      Note 15.                                                                                                                                                                                                                                                                                   |
| (f) | Represents                      contractual obligations to purchase coal and natural gas as                      fuel for                      electric generation along with related transportation of the                      fuel.                                                                              |
| (g) | Represents                      contractual cash flows of energy and capacity purchase                      contracts.                                                                                                                                                                                              |
| (h) | Represents                      only capital assets that are contractual                      obligations.                                                                                                                                                                                                          |

**Significant            Factors**

**Critical            Accounting Estimates**

----

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

**Market            Risks**

**MTM            Risk Management Contract Net Assets**

**Reconciliation            of MTM Risk Management Contracts to**

**Balance            Sheet**

**As            of December 31, 2005**

**(in            thousands)**

|                                                                            |   | **MTM                      Risk Management Contracts** |    | **Cash                      Flow Hedges** |   | **Total** |   |
|---------------------------------------------------------------------------------|--------|--------------------------------------------------------|---------|-------------------------------------------|--------|-----------|--------|
| Current                      Assets                                             |   | $                                                      | 39,924  |                                      | $      | 459       |   | $ | 40,383 |   |
| Noncurrent                      Assets                                          |   |                                                   | 33,566  |                                      |   | -         |   |   | 33,566 |   |
| **Total                      MTM Derivative Contract Assets**                   |   |                                                   | 73,490  |                                      |   | 459       |   |   | 73,949 |   |
|                                                                            |   |                                                   |    |                                      |   |      |   |   |   |   |
| Current                      Liabilities                                        |   |                                                   | (36,858 | )                                         |   | (1,385    | )      |   | (38,243 | ) |
| Noncurrent                      Liabilities                                     |   |                                                   | (22,418 | )                                         |   | (164      | )      |   | (22,582 | ) |
| **Total                      MTM Derivative Contract Liabilities**              |   |                                                   | (59,276 | )                                         |   | (1,549    | )      |   | (60,825 | ) |
|                                                                            |   |                                                   |    |                                      |   |      |   |   |   |   |
| **Total                      MTM Derivative Contract Net Assets (Liabilities)** |   | $                                                      | 14,214  |                                      | $      | (1,090    | )      | $ | 13,124 |   |

**MTM            Risk Management Contract Net Assets**

**Year            Ended December 31, 2005**

**(in            thousands)**

| **Total                      MTM Risk Management Contract Net Assets at December 31,                      2004**                                                                                |   | $      | 14,771 |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| (Gain)                      Loss from Contracts Realized/Settled During the Period and                      Entered in a                      Prior Period                                      |   |   | 293    |   |
| Fair                      Value of New Contracts at Inception When Entered During the                      Period                      (a)                                                      |   |   | -      |   |
| Net                      Option Premiums Paid/(Received) for Unexercised or Unexpired                      Option                      Contracts Entered During                      the Period |   |   | (88    | )      |
| Change                      in Fair Value Due to Valuation Methodology Changes on Forward                      Contracts                                                                        |   |   | -      |   |
| Changes                      in Fair Value due to Market Fluctuations During the Period                      (b)                                                                                |   |   | (469   | )      |
| Changes                      in Fair Value Allocated to Regulated Jurisdictions (c)                                                                                                             |   |   | (293   | )      |
| **Total                      MTM Risk Management Contract Net Assets**                                                                                                                          |   |   | 14,214 |   |
| Net                      Cash Flow Hedge Contracts                                                                                                                                              |   |   | (1,090 | )      |
| **Total                      MTM Risk Management Contract Net Assets at December 31,                      2005**                                                                                |   | $      | 13,124 |   |

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

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

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

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

**Risk            Management Contract Net Assets**

**Fair            Value of Contracts as of December 31, 2005**

**(in            thousands)**

|                                                                                                                                         |   | **2006** |   | **2007** |   | **2008** |   | **2009** |   | **2010** |   | **After****2010** |   | **Total** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|----------|--------|-------------------|--------|-----------|--------|
| Prices                      Actively Quoted - Exchange Traded                      Contracts                                            |   | $        | 2,489  |     | $      | 1,638    |   | $        | 474    |     | $      | -                 |   | $         | -      |   | $ | - |   | $ | 4,601 |   |
| Prices                      Provided by Other External Sources                      - OTC Broker                        Quotes (a) |   |     | 5,973  |     |   | 4,178    |   |     | 4,460  |     |   | 2,173             |   |      | -      |   |   | - |   |   | 16,784 |   |
| Prices                      Based on Models and Other Valuation                      Methods (b)                                             |   |     | (5,395 | )        |   | (3,075   | )      |     | (1,733 | )        |   | 348               |   |      | 1,694  |   |   | 990 |   |   | (7,171 | ) |
| **Total**                                                                                                                                    |   | $        | 3,067  |     | $      | 2,741    |   | $        | 3,201  |     | $      | 2,521             |   | $         | 1,694  |   | $ | 990 |   | $ | 14,214 |   |

| (a) | “Prices                      Provided by Other External Sources - OTC Broker Quotes” reflects                      information obtained from over-the-counter brokers, industry                      services, or                      multiple-party on-line platforms.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | “Prices                      Based on Models and Other Valuation Methods” is used in absence of pricing                      information from external sources. Modeled information is derived                      using                      valuation models developed by the reporting entity, reflecting                      when                      appropriate, option pricing theory, discounted cash flow concepts,                      valuation adjustments, etc. and may require projection of prices                      for                      underlying commodities beyond the period that prices are available                      from                      third-party sources. In addition, where external pricing information                      or                      market liquidity are limited, such valuations are classified                      as modeled.                      The determination of the point at which a market is no longer                      liquid for                      placing it in the modeled category varies by                      market. |

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

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

**Year            Ended December 31, 2005**

**(in            thousands)**

|                                                                                                                    |   | **Power** |   | **Interest                      Rate** |   | **Total** |   |
|-------------------------------------------------------------------------------------------------------------------------|--------|-----------|--------|----------------------------------------|--------|-----------|--------|
| **Beginning                      Balance in AOCI December 31, 2004**                                                    |   | $         | 1,000  |                                   | $      | (600      | )      | $ | 400 |   |
| Changes                      in Fair Value                                                                              |   |      | (1,217 | )                                      |   | 49        |   |   | (1,168 | ) |
| Reclassifications                      from AOCI to Net Income for                        Cash Flow Hedges Settled |   |      | (412   | )                                      |   | 68        |   |   | (344 | ) |
| **Ending                      Balance in AOCI December 31, 2005**                                                       |   | $         | (629   | )                                      | $      | (483      | )      | $ | (1,112 | ) |

**Credit            Risk**

**VaR            Associated with Risk Management Contracts**

| **December                      31, 2005** |   |     |   |        | **December                      31, 2004** |
|--------------------------------------------|--------|----------|--------|-------------|--------------------------------------------|
| **(in                      thousands)**    |   |     |   |        | **(in                      thousands)**    |
| **End**                                    |   | **High** |   | **Average** |                                       | **Low** |   |   |   |   | **End** |   | **High** |   | **Average** |   | **Low** |
| $311                                       |   | $517     |   | $246        |                                       | $89 |   |   |   |   | $238 |   | $778 |   | $335 |   | $115 |

**VaR            Associated with Debt Outstanding**

----

**PUBLIC            SERVICE COMPANY OF OKLAHOMA**

**STATEMENTS            OF INCOME**

**For            the Years Ended December 31, 2005, 2004 and 2003**

**(in            thousands)**

|                                                                                                                          |   | **2005** |      | **2004** |   | **2003**  |   |
|-------------------------------------------------------------------------------------------------------------------------------|--------|----------|-----------|----------|--------|-----------|--------|
| **REVENUES**                                                                                                                  |   |     |      |     |   |      |   |
| Electric                      Generation, Transmission and Distribution                                                       |   | $        | 1,261,424 |     | $      | 1,035,306 |   | $ | 1,077,422 |   |
| Sales                      to AEP Affiliates                                                                                  |   |     | 39,678    |     |   | 10,690    |   |   | 23,130 |   |
| Other                                                                                                                         |   |     | 2,976     |     |   | 1,824     |   |   | 7,379 |   |
| **TOTAL**                                                                                                                     |   |     | 1,304,078 |     |   | 1,047,820 |   |   | 1,107,931 |   |
|                                                                                                                          |   |     |      |     |   |      |   |   |   |   |
| **EXPENSES**                                                                                                                  |   |     |      |     |   |      |   |   |   |   |
| Fuel                      and Other Consumables for Electric Generation                                                       |   |     | 619,657   |     |   | 434,390   |   |   | 526,405 |   |
| Fuel                      from Affiliates for Electric Generation                                                             |   |     | -         |     |   | 30        |   |   | 158 |   |
| Purchased                      Electricity for Resale                                                                         |   |     | 116,345   |     |   | 79,325    |   |   | 35,685 |   |
| Purchased                      Electricity from AEP Affiliates                                                                |   |     | 105,361   |     |   | 104,001   |   |   | 109,639 |   |
| Other                      Operation                                                                                          |   |     | 156,451   |     |   | 155,441   |   |   | 128,386 |   |
| Maintenance                                                                                                                   |   |     | 67,077    |     |   | 63,529    |   |   | 53,076 |   |
| Depreciation                      and Amortization                                                                            |   |     | 86,762    |     |   | 89,711    |   |   | 86,455 |   |
| Taxes                      Other Than Income Taxes                                                                            |   |     | 34,409    |     |   | 38,587    |   |   | 32,287 |   |
| **TOTAL**                                                                                                                     |   |     | 1,186,062 |     |   | 965,014   |   |   | 972,091 |   |
|                                                                                                                          |   |     |      |     |   |      |   |   |   |   |
| **OPERATING                      INCOME**                                                                                     |   |     | 118,016   |     |   | 82,806    |   |   | 135,840 |   |
|                                                                                                                          |   |     |      |     |   |      |   |   |   |   |
| **Other                      Income (Expense):**                                                                              |   |     |      |     |   |      |   |   |   |   |
| Interest                      Income                                                                                          |   |     | 3,591     |     |   | 166       |   |   | 341 |   |
| Allowance                      for Equity Funds Used During Construction                                                      |   |     | 865       |     |   | 336       |   |   | 331 |   |
| Interest                      Expense                                                                                         |   |     | (34,094   | )        |   | (37,957   | )      |   | (44,784 | ) |
|                                                                                                                          |   |     |      |     |   |      |   |   |   |   |
| **INCOME                      BEFORE INCOME TAXES**                                                                           |   |     | 88,378    |     |   | 45,351    |   |   | 91,728 |   |
|                                                                                                                          |   |     |      |     |   |      |   |   |   |   |
| Income                      Tax Expense                                                                                       |   |     | 30,485    |     |   | 7,809     |   |   | 37,837 |   |
|                                                                                                                          |   |     |      |     |   |      |   |   |   |   |
| **NET                      INCOME**                                                                                           |   |     | 57,893    |     |   | 37,542    |   |   | 53,891 |   |
|                                                                                                                          |   |     |      |     |   |      |   |   |   |   |
| Preferred                      Stock Dividend Requirements, Including Gain on Reacquired Preferred                      Stock |   |     | 213       |     |   | 211       |   |   | 213 |   |
|                                                                                                                          |   |     |      |     |   |      |   |   |   |   |
| **EARNINGS                      APPLICABLE TO COMMON STOCK**                                                                  |   | $        | 57,680    |     | $      | 37,331    |   | $ | 53,678 |   |

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

*See            Notes to Financial Statements of Registrant Subsidiaries.*

----

**PUBLIC            SERVICE COMPANY OF OKLAHOMA**

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

**EQUITY            AND COMPREHENSIVE INCOME (LOSS)**

**For            the Years Ended December 31, 2005, 2004 and 2003**

**(in            thousands)**

|                                                                                                                         |   | **Common                      Stock** |    | **Paid-in                      Capital** |   | **Retained                      Earnings** |   | **Accumulated                      Other Comprehensive Income (Loss)** |       | **Total** |   |
|------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|---------|------------------------------------------|--------|--------------------------------------------|--------|------------------------------------------------------------------------|------------|-----------|--------|
| **DECEMBER                      31, 2002**                                                                                   |   | $                                     | 157,230 |                                     | $      | 180,016                                    |   | $                                                                      | 116,474    |      | $      | (54,473 | ) | $ | 399,247 |   |
|                                                                                                                         |   |                                  |    |                                     |   |                                       |   |                                                                   |       |      |   |   |   |   |   |   |
| Capital                      Contribution from Parent Company                                                                |   |                                  |    |                                     |   | 50,000                                     |   |                                                                   |       |      |   |   |   |   | 50,000 |   |
| Common                      Stock Dividends                                                                                  |   |                                  |    |                                     |   |                                       |   |                                                                   | (30,000    | )         |   |   |   |   | (30,000 | ) |
| Preferred                      Stock Dividends                                                                               |   |                                  |    |                                     |   |                                       |   |                                                                   | (213       | )         |   |   |   |   | (213 | ) |
| Distribution                      of Investment in AEMT, Inc.                        Preferred Shares to Parent Company |   |                                  |    |                                     |   |                                            |   |                                                                   |  (548 | )    |   |   |   |   |  (548 | )  |
| **TOTAL**                                                                                                                    |   |                                  |    |                                     |   |                                       |   |                                                                   |       |      |   |   |   |   | 418,486 |   |
|                                                                                                                         |   |                                  |    |                                     |   |                                       |   |                                                                   |       |      |   |   |   |   |   |   |
| **COMPREHENSIVE                      INCOME**                                                                                |   |                                  |    |                                     |   |                                       |   |                                                                   |       |      |   |   |   |   |   |   |
| **Other                      Comprehensive Income,****Net                      of Taxes:**                                   |   |                                  |    |                                     |   |                                       |   |                                                                   |       |      |   |   |   |   |   |   |
| Cash                      Flow Hedges, Net of Tax of $106                                                                    |   |                                  |    |                                     |   |                                       |   |                                                                   |       |      |   | 198 |   |   | 198 |   |
| Minimum                      Pension Liability, Net of Tax of                      $5,649                                    |   |                                  |    |                                     |   |                                       |   |                                                                   |       |      |   | 10,433 |   |   | 10,433 |   |
| **NET                      INCOME**                                                                                          |   |                                  |    |                                     |   |                                       |   |                                                                   | 53,891     |      |   |   |   |   | 53,891 |   |
| **TOTAL                      COMPREHENSIVE INCOME**                                                                          |   |                                  |    |                                     |   |                                       |   |                                                                   |       |      |   |   |   |   | 64,522 |   |
|                                                                                                                         |   |                                  |    |                                     |   |                                       |   |                                                                   |       |      |   |   |   |   |   |   |
| **DECEMBER                      31, 2003**                                                                                   |   |                                  | 157,230 |                                     |   | 230,016                                    |   |                                                                   | 139,604    |      |   | (43,842 | ) |   | 483,008 |   |
|                                                                                                                         |   |                                  |    |                                     |   |                                       |   |                                                                   |       |      |   |   |   |   |   |   |
| Gain                      on Reacquired Preferred Stock                                                                      |   |                                  |    |                                     |   |                                       |   |                                                                   | 2          |      |   |   |   |   | 2 |   |
| Common                      Stock Dividends                                                                                  |   |                                  |    |                                     |   |                                       |   |                                                                   | (35,000    | )         |   |   |   |   | (35,000 | ) |
| Preferred                      Stock Dividends                                                                               |   |                                  |    |                                     |   |                                       |   |                                                                   | (213       | )         |   |   |   |   | (213 | ) |
| **TOTAL**                                                                                                                    |   |                                  |    |                                     |   |                                       |   |                                                                   |       |      |   |   |   |   | 447,797 |   |
|                                                                                                                         |   |                                  |    |                                     |   |                                       |   |                                                                   |       |      |   |   |   |   |   |   |
| **COMPREHENSIVE                      INCOME**                                                                                |   |                                  |    |                                     |   |                                       |   |                                                                   |       |      |   |   |   |   |   |   |
| **Other                      Comprehensive Income,****Net                      of Taxes:**                                   |   |                                  |    |                                     |   |                                       |   |                                                                   |       |      |   |   |   |   |   |   |
| Cash                      Flow Hedges, Net of Tax of $131                                                                    |   |                                  |    |                                     |   |                                       |   |                                                                   |       |      |   | 244 |   |   | 244 |   |
| Minimum                      Pension Liability, Net of Tax of                      $23,516                                   |   |                                  |    |                                     |   |                                       |   |                                                                   |       |      |   | 43,673 |   |   | 43,673 |   |
| **NET                      INCOME**                                                                                          |   |                                  |    |                                     |   |                                       |   |                                                                   | 37,542     |      |   |   |   |   | 37,542 |   |
| **TOTAL                      COMPREHENSIVE INCOME**                                                                          |   |                                  |    |                                     |   |                                       |   |                                                                   |       |      |   |   |   |   | 81,459 |   |
|                                                                                                                         |   |                                  |    |                                     |   |                                       |   |                                                                   |       |      |   |   |   |   |   |   |
| **DECEMBER                      31, 2004**                                                                                   |   |                                  | 157,230 |                                     |   | 230,016                                    |   |                                                                   | 141,935    |      |   | 75 |   |   | 529,256 |   |
|                                                                                                                         |   |                                  |    |                                     |   |                                       |   |                                                                   |       |      |   |   |   |   |   |   |
| Common                      Stock Dividends                                                                                  |   |                                  |    |                                     |   |                                       |   |                                                                   | (37,000    | )         |   |   |   |   | (37,000 | ) |
| Preferred                      Stock Dividends                                                                               |   |                                  |    |                                     |   |                                       |   |                                                                   | (213       | )         |   |   |   |   | (213 | ) |
| **TOTAL**                                                                                                                    |   |                                  |    |                                     |   |                                       |   |                                                                   |       |      |   |   |   |   | 492,043 |   |
|                                                                                                                         |   |                                  |    |                                     |   |                                       |   |                                                                   |       |      |   |   |   |   |   |   |
| **COMPREHENSIVE                      INCOME**                                                                                |   |                                  |    |                                     |   |                                       |   |                                                                   |       |      |   |   |   |   |   |   |
| **Other                      Comprehensive Income (Loss),****Net                      of Taxes:**                            |   |                                  |    |                                     |   |                                       |   |                                                                   |       |      |   |   |   |   |   |   |
| Cash                      Flow Hedges, Net of Tax of $814                                                                    |   |                                  |    |                                     |   |                                       |   |                                                                   |       |      |   | (1,512 | ) |   | (1,512 | ) |
| Minimum                      Pension Liability, Net of Tax of                      $93                                       |   |                                  |    |                                     |   |                                       |   |                                                                   |       |      |   | 173 |   |   | 173 |   |
| **NET                      INCOME**                                                                                          |   |                                  |    |                                     |   |                                       |   |                                                                   | 57,893     |      |   |   |   |   | 57,893 |   |
| **TOTAL                      COMPREHENSIVE INCOME**                                                                          |   |                                  |    |                                     |   |                                       |   |                                                                   |       |      |   |   |   |   | 56,554 |   |
|                                                                                                                         |   |                                  |    |                                     |   |                                       |   |                                                                   |       |      |   |   |   |   |   |   |
| **DECEMBER                      31, 2005**                                                                                   |   | $                                     | 157,230 |                                     | $      | 230,016                                    |   | $                                                                      | 162,615    |      | $      | (1,264 | ) | $ | 548,597 |   |

*See            Notes to Financial Statements of Registrant Subsidiaries.*

----

**PUBLIC            SERVICE COMPANY OF OKLAHOMA**

**BALANCE            SHEETS**

**ASSETS**

**December            31, 2005 and 2004**

|                                                                 |   | **2005**                                      |      | **2004** |   |
|----------------------------------------------------------------------|--------|-----------------------------------------------|-----------|----------|--------|
| **CURRENT                      ASSETS**                              |   |  **(in                      thousands)** |      |
| Cash                      and Cash Equivalents                       |   | $                                             | 1,520     |     | $      | 279 |   |
| Accounts                      Receivable:                            |   |                                          |      |     |   |   |   |
| Customers                                                            |   |                                          | 37,740    |     |   | 32,009 |   |
| Affiliated                      Companies                            |   |                                          | 73,321    |     |   | 46,399 |   |
| Miscellaneous                                                        |   |                                          | 10,501    |     |   | 9,066 |   |
| Allowance                      for Uncollectible Accounts            |   |                                          | (240      | )        |   | (76 | ) |
|                        Total Accounts Receivable                |   |                                          | 121,322   |     |   | 87,398 |   |
| Fuel                                                                 |   |                                          | 16,431    |     |   | 14,268 |   |
| Materials                      and Supplies                          |   |                                          | 38,545    |     |   | 35,485 |   |
| Risk                      Management Assets                          |   |                                          | 40,383    |     |   | 21,388 |   |
| Regulatory                      Asset for Under-Recovered Fuel Costs |   |                                          | 108,732   |     |   | 366 |   |
| Accrued                      Tax Benefits                            |   |                                          | 11,972    |     |   | - |   |
| Prepayments                      and Other                           |   |                                          | 14,287    |     |   | 6,200 |   |
| **TOTAL**                                                            |   |                                          | 353,192   |     |   | 165,384 |   |
|                                                                 |   |                                          |      |     |   |   |   |
| **PROPERTY,                      PLANT AND EQUIPMENT**               |   |                                          |      |     |   |   |   |
| Electric:                                                            |   |                                          |      |     |   |   |   |
| Production                                                           |   |                                          | 1,072,928 |     |   | 1,072,022 |   |
| Transmission                                                         |   |                                          | 479,272   |     |   | 468,735 |   |
| Distribution                                                         |   |                                          | 1,140,535 |     |   | 1,089,187 |   |
| Other                                                                |   |                                          | 211,805   |     |   | 204,867 |   |
| Construction                      Work in Progress                   |   |                                          | 90,455    |     |   | 41,028 |   |
| **Total**                                                            |   |                                          | 2,994,995 |     |   | 2,875,839 |   |
| Accumulated                      Depreciation and Amortization       |   |                                          | 1,175,858 |     |   | 1,117,535 |   |
| **TOTAL                      - NET**                                 |   |                                          | 1,819,137 |     |   | 1,758,304 |   |
|                                                                 |   |                                          |      |     |   |   |   |
| **OTHER                      NONCURRENT ASSETS**                     |   |                                          |      |     |   |   |   |
| Regulatory                      Assets                               |   |                                          | 50,723    |     |   | 31,951 |   |
| Long-term                      Risk Management Assets                |   |                                          | 33,566    |     |   | 14,477 |   |
| Employee                      Benefits and Pension Assets            |   |                                          | 82,559    |     |   | 82,423 |   |
| Deferred                      Charges and Other                      |   |                                          | 16,287    |     |   | 14,286 |   |
| **TOTAL**                                                            |   |                                          | 183,135   |     |   | 143,137 |   |
|                                                                 |   |                                          |      |     |   |   |   |
| **TOTAL                      ASSETS**                                |   | $                                             | 2,355,464 |     | $      | 2,066,825 |   |

*See            Notes to Financial Statements of Registrant Subsidiaries.*

----

**PUBLIC            SERVICE COMPANY OF OKLAHOMA **

**BALANCE            SHEETS**

**LIABILITIES            AND SHAREHOLDERS’ EQUITY**

**December            31, 2005 and 2004**

|                                                                                |   |  **2005**                          |      | **2004** |   |
|-------------------------------------------------------------------------------------|--------|-----------------------------------------|-----------|----------|--------|
| **CURRENT                      LIABILITIES**                                        |   | **(in                      thousands)** |      |
| Advances                      from Affiliates                                       |   | $                                       | 75,883    |     | $      | 55,002 |   |
| Accounts                      Payable:                                              |   |                                    |      |     |   |   |   |
| General                                                                             |   |                                    | 130,627   |     |   | 69,449 |   |
| Affiliated                      Companies                                           |   |                                    | 89,786    |     |   | 58,632 |   |
| Long-term                      Debt Due Within One Year - Nonaffiliated             |   |                                    | -         |     |   | 50,000 |   |
| Long-term                      Debt Due Within One Year - Affiliated                |   |                                    | 50,000    |     |   | - |   |
| Risk                      Management Liabilities                                    |   |                                    | 38,243    |     |   | 13,705 |   |
| Customer                      Deposits                                              |   |                                    | 53,844    |     |   | 33,757 |   |
| Accrued                      Taxes                                                  |   |                                    | 22,420    |     |   | 18,835 |   |
| Other                                                                               |   |                                    | 51,548    |     |   | 35,037 |   |
| **TOTAL**                                                                           |   |                                    | 512,351   |     |   | 334,417 |   |
|                                                                                |   |                                    |      |     |   |   |   |
| **NONCURRENT                      LIABILITIES**                                     |   |                                    |      |     |   |   |   |
| Long-term                      Debt - Nonaffiliated                                 |   |                                    | 521,071   |     |   | 446,092 |   |
| Long-term                      Debt - Affiliated                                    |   |                                    | -         |     |   | 50,000 |   |
| Long-term                      Risk Management Liabilities                          |   |                                    | 22,582    |     |   | 7,455 |   |
| Deferred                      Income Taxes                                          |   |                                    | 436,382   |     |   | 384,090 |   |
| Regulatory                      Liabilities and Deferred Investment Tax Credits     |   |                                    | 284,640   |     |   | 290,557 |   |
| Deferred                      Credits and Other                                     |   |                                    | 24,579    |     |   | 19,696 |   |
| **TOTAL**                                                                           |   |                                    | 1,289,254 |     |   | 1,197,890 |   |
|                                                                                |   |                                    |      |     |   |   |   |
| **TOTAL                      LIABILITIES**                                          |   |                                    | 1,801,605 |     |   | 1,532,307 |   |
|                                                                                |   |                                    |      |     |   |   |   |
| Cumulative                      Preferred Stock Not Subject to Mandatory Redemption |   |                                    | 5,262     |     |   | 5,262 |   |
|                                                                                |   |                                    |      |     |   |   |   |
| Commitments                      and Contingencies (Note 7)                         |   |                                    |      |     |   |   |   |
|                                                                                |   |                                    |      |     |   |   |   |
| **COMMON                      SHAREHOLDER’S EQUITY**                          |   |                                    |      |     |   |   |   |
| Common                      Stock - $15 Par Value Per Share:                        |   |                                    |      |     |   |   |   |
| Authorized                      - 11,000,000 Shares                                 |   |                                    |      |     |   |   |   |
| Issued                      - 10,482,000 Shares                                     |   |                                    |      |     |   |   |   |
| Outstanding                      - 9,013,000 Shares                                 |   |                                    | 157,230   |     |   | 157,230 |   |
| Paid-in                      Capital                                                |   |                                    | 230,016   |     |   | 230,016 |   |
| Retained                      Earnings                                              |   |                                    | 162,615   |     |   | 141,935 |   |
| Accumulated                      Other Comprehensive Income (Loss)                  |   |                                    | (1,264    | )        |   | 75 |   |
| **TOTAL**                                                                           |   |                                    | 548,597   |     |   | 529,256 |   |
|                                                                                |   |                                    |      |     |   |   |   |
| **TOTAL                      LIABILITIES AND SHAREHOLDERS’ EQUITY**           |   | $                                       | 2,355,464 |     | $      | 2,066,825 |   |

*See            Notes to Financial Statements of Registrant Subsidiaries.*

----

**PUBLIC            SERVICE COMPANY OF OKLAHOMA**

**STATEMENTS            OF CASH FLOWS**

**For            the Years Ended December 31, 2005, 2004 and 2003**

**(in            thousands)**

|                                                                          |   | **2005**     |     | **2004**     |   | **2003**     |   |
|-------------------------------------------------------------------------------|--------|--------------|----------|--------------|--------|--------------|--------|
| **OPERATING                      ACTIVITIES**                                 |   |    |     |    |   |    |   |
| **Net                      Income**                                           |   | $            | 57,893   |         | $      | 37,542       |   | $ | 53,891 |   |
| **Adjustments                      for Noncash Items:**                       |   |         |     |         |   |         |   |   |   |   |
| Depreciation                      and Amortization                            |   |         | 86,762   |         |   | 89,711       |   |   | 86,455 |   |
| Deferred                      Income Taxes                                    |   |         | 46,342   |         |   | 22,034       |   |   | (14,641 | ) |
| Mark-to-Market                      of Risk Management Contracts              |   |         | 557      |         |   | (714         | )      |   | (10,511 | ) |
| Pension                      Contributions to Qualified Plan Trusts           |   |         | (286     | )            |   | (48,701      | )      |   | (88 | ) |
| Change                      in Other Noncurrent Assets                        |   |         | (30,602  | )            |   | (24,711      | )      |   | (10,619 | ) |
| Change                      in Other Noncurrent Liabilities                   |   |         | 8,603    |         |   | 24,848       |   |   | 15,234 |   |
| **Changes                      in Components of Working Capital:**            |   |         |     |         |   |         |   |   |   |   |
| Accounts                      Receivable, Net                                 |   |         | (33,924  | )            |   | (37,826      | )      |   | (818 | ) |
| Fuel,                      Materials and Supplies                             |   |         | (5,223   | )            |   | 6,731        |   |   | 906 |   |
| Accounts                      Payable                                         |   |         | 86,314   |         |   | 23,535       |   |   | (36,887 | ) |
| Accrued                      Taxes, Net                                       |   |         | (8,387   | )            |   | (8,322       | )      |   | 20,303 |   |
| Customer                      Deposits                                        |   |         | 20,087   |         |   | 7,210        |   |   | 4,758 |   |
| Over/Under                      Fuel Recovery                                 |   |         | (108,366 | )            |   | 23,804       |   |   | 52,300 |   |
| Other                      Current Assets                                     |   |         | (8,081   | )            |   | 755          |   |   | (3,625 | ) |
| Other                      Current Liabilities                                |   |         | 16,511   |         |   | (4,353       | )      |   | 7,456 |   |
| **Net                      Cash Flows From Operating Activities**             |   |         | 128,200  |         |   | 111,543      |   |   | 164,114 |   |
|                                                                          |   |         |     |         |   |         |   |   |   |   |
| **INVESTING                      ACTIVITIES**                                 |   |         |     |         |   |         |   |   |   |   |
| Construction                      Expenditures                                |   |         | (134,358 | )            |   | (82,618      | )      |   | (84,598 | ) |
| Change                      in Other Cash Deposits, Net                       |   |         | (6       | )            |   | 10,258       |   |   | (3,289 | ) |
| Proceeds                      from Sales of Assets                            |   |         | -        |         |   | 458          |   |   | 2,862 |   |
| **Net                      Cash Flows Used For Investing Activities**         |   |         | (134,364 | )            |   | (71,902      | )      |   | (85,025 | ) |
|                                                                          |   |         |     |         |   |         |   |   |   |   |
| **FINANCING                      ACTIVITIES**                                 |   |         |     |         |   |         |   |   |   |   |
| Capital                      Contributions from Parent Company                |   |         | -        |         |   | -            |   |   | 50,000 |   |
| Issuance                      of Long-term Debt - Nonaffiliated               |   |         | 74,405   |         |   | 82,255       |   |   | 148,734 |   |
| Issuance                      of Long-term Debt - Affiliated                  |   |         | -        |         |   | 50,000       |   |   | - |   |
| Change                      in Advances from Affiliates, Net                  |   |         | 20,881   |         |   | 22,138       |   |   | (53,241 | ) |
| Retirement                      of Long-term Debt - Nonaffiliated             |   |         | (50,000  | )            |   | (162,020     | )      |   | (200,000 | ) |
| Retirement                      of Preferred Stock                            |   |         | -        |         |   | (2           | )      |   | - |   |
| Principal                      Payments for Capital Lease Obligations         |   |         | (668     | )            |   | (520         | )      |   | (174 | ) |
| Dividends                      Paid on Common Stock                           |   |         | (37,000  | )            |   | (35,000      | )      |   | (30,000 | ) |
| Dividends                      Paid on Cumulative Preferred Stock             |   |         | (213     | )            |   | (213         | )      |   | (213 | ) |
| **Net                      Cash Flows From (Used For) Financing Activities**  |   |         | 7,405    |         |   | (43,362      | )      |   | (84,894 | ) |
|                                                                          |   |         |     |         |   |         |   |   |   |   |
| **Net                      Increase (Decrease) in Cash and Cash Equivalents** |   |         | 1,241    |         |   | (3,721       | )      |   | (5,805 | ) |
| **Cash                      and Cash Equivalents at Beginning of Period**     |   |         | 279      |         |   | 4,000        |   |   | 9,805 |   |
| **Cash                      and Cash Equivalents at End of Period**           |   | $            | 1,520    |         | $      | 279          |   | $ | 4,000 |   |

| **SUPPLEMENTAL                      DISCLOSURE:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Cash                      paid (received) for interest net of capitalized amounts was                      $29,607,000,                      $32,961,000 and $44,703,000 and for income taxes was $(5,244,000),                      $2,387,000 and $36,470,000 in 2005, 2004 and 2003, respectively.                      Noncash                      capital lease acquisitions were $1,918,000, $796,000 and $1,248,000,                      in                      2005, 2004 and 2003, respectively. Noncash construction expenditures                      included in Accounts Payable of $8,495,000, $2,477,000 and                      $3,106,000 were                      outstanding as of December 31, 2005, 2004 and 2003, respectively.                      There                      was a noncash distribution of $548,000 in preferred shares                      in AEMT, Inc.                      to PSO’s Parent Company in 2003. |

*See            Notes to Financial Statements of Registrant Subsidiaries.*

----

**PUBLIC            SERVICE COMPANY OF OKLAHOMA**

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

|                                                                                                                                                          | **Footnote                      Reference** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------|
| Organization                      and Summary of Significant Accounting Policies                                                                              | Note                      1                 |
| New                      Accounting Pronouncements, Extraordinary Items and Cumulative                      Effect of                      Accounting Changes | Note                      2                 |
| Rate                      Matters                                                                                                                             | Note                      4                 |
| Effects                      of Regulation                                                                                                                    | Note                      5                 |
| Commitments                      and Contingencies                                                                                                            | Note                      7                 |
| Guarantees                                                                                                                                                    | Note                      8                 |
| Company-wide                      Staffing and Budget Review                                                                                                  | Note                      9                 |
| Benefit                      Plans                                                                                                                            | Note                      11                |
| Business                      Segments                                                                                                                        | Note                      12                |
| Derivatives,                      Hedging and Financial Instruments                                                                                           | Note                      13                |
| Income                      Taxes                                                                                                                             | Note                      14                |
| Leases                                                                                                                                                        | Note                      15                |
| Financing                      Activities                                                                                                                     | Note                      16                |
| Related                      Party Transactions                                                                                                               | Note                      17                |
| Jointly-Owned                      Electric Utility Plant                                                                                                     | Note                      18                |
| Unaudited                      Quarterly Financial Information                                                                                                | Note                      19                |

----

**REPORT            OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

*.*

----

**SOUTHWESTERN            ELECTRIC POWER COMPANY CONSOLIDATED**

----

**SOUTHWESTERN            ELECTRIC POWER COMPANY CONSOLIDATED**

**SELECTED            CONSOLIDATED FINANCIAL DATA**

**(in            thousands)**

|                                                                                                            |   | **2005** |      | **2004** |   | **2003**  |   | **2002** |      | **2001** |   |
|-----------------------------------------------------------------------------------------------------------------|--------|----------|-----------|----------|--------|-----------|--------|----------|-----------|----------|--------|
| **STATEMENTS                      OF INCOME DATA**                                                              |   |     |      |     |   |      |   |     |      |     |   |
| Total                      Revenues                                                                             |   | $        | 1,405,379 |     | $      | 1,091,072 |   | $        | 1,148,812 |     | $      | 1,085,100 |   | $ | 1,101,663 |   |
|                                                                                                            |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Operating                      Income                                                                           |   | $        | 160,537   |     | $      | 179,239   |   | $        | 203,778   |     | $      | 174,711 |   | $ | 185,431 |   |
|                                                                                                            |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Income                      Before Cumulative Effect of Accounting                      Changes                 |   | $        | 75,190    |     | $      | 89,457    |   | $        | 89,624    |     | $      | 82,992 |   | $ | 89,367 |   |
| Cumulative                      Effect of Accounting Changes,                      Net of Tax                   |   |     | (1,252    | )        |   | -         |   |     | 8,517     |     |   | - |   |   | - |   |
| **Net                      Income**                                                                             |   | $        | 73,938    |     | $      | 89,457    |   | $        | 98,141    |     | $      | 82,992 |   | $ | 89,367 |   |
|                                                                                                            |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| **BALANCE                      SHEETS DATA**                                                                    |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Property,                      Plant and Equipment                                                              |   | $        | 4,006,639 |     | $      | 3,892,508 |   | $        | 3,804,600 |     | $      | 3,600,407 |   | $ | 3,464,997 |   |
| Accumulated                      Depreciation and Amortization                                                  |   |     | 1,776,216 |     |   | 1,710,850 |   |     | 1,619,178 |     |   | 1,477,904 |   |   | 1,342,003 |   |
| **Net                      Property, Plant and Equipment**                                                      |   | $        | 2,230,423 |     | $      | 2,181,658 |   | $        | 2,185,422 |     | $      | 2,122,503 |   | $ | 2,122,994 |   |
|                                                                                                            |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Total                      Assets                                                                               |   | $        | 2,797,347 |     | $      | 2,646,849 |   | $        | 2,581,727 |     | $      | 2,429,366 |   | $ | 2,510,746 |   |
|                                                                                                            |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Common                      Shareholder's Equity                                                                |   | $        | 782,378   |     | $      | 768,618   |   | $        | 696,660   |     | $      | 661,769 |   | $ | 689,578 |   |
|                                                                                                            |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Cumulative                      Preferred Stock Not Subject to                        Mandatory Redemption |   | $        | 4,700     |     | $      | 4,700     |   | $        | 4,700     |     | $      | 4,701 |   | $ | 4,701 |   |
|                                                                                                            |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Trust                      Preferred Securities (a)                                                             |   | $        | -         |     | $      | -         |   | $        | -         |     | $      | 110,000 |   | $ | 110,000 |   |
|                                                                                                            |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Long-term                      Debt (b)                                                                         |   | $        | 746,035   |     | $      | 805,369   |   | $        | 884,308   |     | $      | 693,448 |   | $ | 645,283 |   |
|                                                                                                            |   |     |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Obligations                      Under Capital Leases (b)                                                       |   | $        | 42,545    |     | $      | 34,546    |   | $        | 21,542    |     | $      | - |   | $ | - |   |

| (a) | See                      “Trust Preferred Securities” section of Note 16. |
|-----|---------------------------------------------------------------------------------------|
| (b) | Including                      portion due within one year.                           |

----

**SOUTHWESTERN            ELECTRIC POWER COMPANY CONSOLIDATED**

**MANAGEMENT’S            FINANCIAL DISCUSSION AND ANALYSIS**

**Results            of Operations**

**Reconciliation            of Year Ended December 31, 2004 to Year Ended December 31, 2005**

**Income            Before Cumulative Effect of Accounting Changes**

**(in            millions)**

| **Year                      Ended December 31, 2004**                 |   |   |   |   | $      | 89     |   |
|-----------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                  |   |   |   |   |   |   |   |
| **Changes                      in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                      and Off-system Sales Margins (a)          |   |   | 23     |   |   |   |   |
| Transmission                      Revenues                            |   |   | 4      |   |   |   |   |
| Other                      Revenues                                   |   |   | 8      |   |   |   |   |
| **Total                      Change in Gross Margin**                 |   |   |   |   |   | 35     |   |
|                                                                  |   |   |   |   |   |   |   |
| **Changes                      in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                      Operation and Maintenance                  |   |   | (49    | )      |   |   |   |
| Depreciation                      and Amortization                    |   |   | (2     | )      |   |   |   |
| Taxes                      Other Than Income Taxes                    |   |   | (3     | )      |   |   |   |
| Interest                      Expense                                 |   |   | 4      |   |   |   |   |
| Other                      Income                                     |   |   | 1      |   |   |   |   |
| **Total                      Change in Operating Expenses and Other** |   |   |   |   |   | (49    | )      |
|                                                                  |   |   |   |   |   |   |   |
| **Year                      Ended December 31, 2005**                 |   |   |   |   | $      | 75     |   |

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

| **·** | Retail                      and Off-system Sales Margins increased $23 million primarily                      due to higher wholesale volumes and higher retail sales volumes                      resulting                      from a 10% increase in degree days. This was offset by the                      2005 absence of                      a $9 million refund received in 2004 for prior year purchased                      capacity                      amounts. Capacity-related transactions are excluded from fuel                      adjustment                      clauses. Therefore, these transactions impact gross                      margin. |
|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **·** | Transmission                      Revenues increased $4 million primarily due to higher rates                      within                      SPP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| **·** | Other                      Revenues increased $8 million primarily due to a $4 million                      increase in                      pole attachment billings and other miscellaneous                      revenues.                                                                                                                                                                                                                                                                                                                                                                                                                                                |

| **·** | Other                      Operation and Maintenance expense increased $49 million. This                      was                      primarily due to a $27 million increase in power plant operation                      and                      maintenance during extended planned power plant outages. Distribution                      expense increased $14 million, comprised primarily of a $10                      million                      increase in tree trimming and right-of-way clearing and $3                      million of                      storm damage related to hurricanes. Transmission expenses decreased                      $2                      million. This was due to the absence in 2005 of a 2004 adjustment                      related                      to revised ERCOT data for the years 2001 through 2003, offset                      in part by                      higher SPP charges. Customer-related expense increased $6 million                      due to                      increased collection activities as well as increased factoring                      expense                      resulting from higher interest rates and higher volumes of                      receivables                      factored. |
|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **·** | Taxes                      Other Than Income Taxes increased $3 million primarily due                      to higher gross                      receipts and payroll-related taxes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| **·** | Interest                      Expense decreased $4 million primarily due to decreased long-term                      debt and                      decreased interest expense related to fuel recovery.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |

**Reconciliation            of Year Ended December 31, 2003 to Year Ended December 31, 2004**

**Income            Before Cumulative Effect of Accounting Changes **

**(in            millions)**

| **Year                      Ended December 31, 2003**                 |   |   |   |   | $      | 90     |   |
|-----------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                  |   |   |   |   |   |   |   |
| **Changes                      in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                      and Off-system Sales Margins (a)          |   |   | 13     |   |   |   |   |
| Transmission                      Revenues                            |   |   | 2      |   |   |   |   |
| Other                      Revenues                                   |   |   | (3     | )      |   |   |   |
| **Total                      Change in Gross Margin**                 |   |   |   |   |   | 12     |   |
|                                                                  |   |   |   |   |   |   |   |
| **Changes                      in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                      Operation and Maintenance                  |   |   | (18    | )      |   |   |   |
| Depreciation                      and Amortization                    |   |   | (8     | )      |   |   |   |
| Taxes                      Other Than Income Taxes                    |   |   | (11    | )      |   |   |   |
| Interest                      Expense                                 |   |   | 10     |   |   |   |   |
| **Total                      Change in Operating Expenses and Other** |   |   |   |   |   | (27    | )      |
|                                                                  |   |   |   |   |   |   |   |
| Income                      Tax Expense                               |   |   |   |   |   | 16     |   |
| Minority                      Interest Expense                        |   |   |   |   |   | (2     | )      |
|                                                                  |   |   |   |   |   |   |   |
| **Year                      Ended December 31, 2004**                 |   |   |   |   | $      | 89     |   |

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

| **·** | Retail                      and Off-system Sales Margins increased $13 million primarily                      due to a $9 million refund received in 2004 for purchased capacity                      amounts. Capacity-related transactions are excluded from fuel                      adjustment                      clauses. Therefore, these transactions impact gross margin.                      In addition,                      provisions for rate refund decreased $2 million due to 2003                      wholesale                      refunds. |
|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **·** | Transmission                      Revenues increased $2 million due to higher affiliated transmission                      services.                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| **·** | Other                      Revenues decreased $3 million primarily due to decreased rent                      from                      electric property.                                                                                                                                                                                                                                                                                                                                                                                                           |

| **·** | Other                      Operation and Maintenance expense increased $18 million.                      Transmission-related expenses increased $14 million primarily                      due to a                      2004 adjustment related to revised ERCOT data for the years                      2001 through                      2003. In addition, maintenance expense increased $4 million                      as a result of                      scheduled power plant maintenance and increased overhead line                      maintenance. |
|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **·** | Depreciation                      and Amortization increased $8 million primarily due to the                      recovery and                      amortization of a regulatory asset for fuel-related costs in                      Arkansas in                      2003. Depreciation also increased due to additions of depreciable                      plant                      assets.                                                                                                                                                                  |
| **·** | Taxes                      Other Than Income Taxes increased $11 million primarily due                      to an $8                      million increase in franchise taxes resulting from a 2003 true-up                      of prior                      years in addition to increased property-related taxes.                                                                                                                                                                                                                                             |
| **·** | Interest                      Expense decreased $10 million as a result of refinancing higher                      interest                      rate debt with lower interest rate                      debt.                                                                                                                                                                                                                                                                                                                                                    |

*Income            Taxes*

**Financial            Condition**

**Credit            Ratings**

|                                       | **Moody’s** |   | **S&P** |   | **Fitch** |
|--------------------------------------------|-------------------|--------|-------------|--------|-----------|
|                                       |              |   |        |   |      |
| First                      Mortgage Bonds  | A3                |   | A-          |   | A         |
| Senior                      Unsecured Debt | Baa1              |   | BBB         |   | A-        |

**Cash            Flow**

|                                                                          |   | **2005**                                    |     | **2004** |   | **2003** |   |
|-------------------------------------------------------------------------------|--------|---------------------------------------------|----------|----------|--------|----------|--------|
|                                                                          |   | **(in                          thousands)** |     |
| **Cash                          and Cash Equivalents at Beginning of Period** |   | $                                           | 3,715    |     | $      | 6,215    |   | $ | 349 |   |
| Cash                          Flows From (Used For):                          |   |                                        |     |     |   |     |   |   |   |   |
|                             Operating Activities                    |   |                                        | 208,153  |     |   | 209,107  |   |   | 248,503 |   |
|                             Investing Activities                    |   |                                        | (115,073 | )        |   | (65,525  | )      |   | (180,089 | ) |
|                             Financing Activities                    |   |                                        | (93,746  | )        |   | (146,082 | )      |   | (62,548 | ) |
| Net                          Increase (Decrease) in Cash and Cash Equivalents |   |                                        | (666     | )        |   | (2,500   | )      |   | 5,866 |   |
| **Cash                          and Cash Equivalents at End of Period**       |   | $                                           | 3,049    |     | $      | 3,715    |   | $ | 6,215 |   |

*Operating            Activities*

*Investing            Activities*

*Financing            Activities*

**Summary            Obligation Information**

**Payment            Due by Period**

**(in            millions)**

| **Contractual                      Cash Obligations**                                          |   | **Less                      Than****1                      year** |   | **2-3                      years** |   | **4-5                      years** |   | **After****5                      years** |   | **Total** |   |
|------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------|--------|------------------------------------|--------|------------------------------------|--------|-------------------------------------------|--------|-----------|--------|
| Advances                      from Affiliates (a)                                              |   | $                                                                 | 28.2   |                               | $      | -                                  |   | $                                         | -      |      | $      | - |   | $ | 28.2 |   |
| Interest                      on Fixed Rate Portion of Long-term Debt                      (b) |   |                                                              | 35.0   |                               |   | 62.0                               |   |                                      | 42.1   |      |   | 100.4 |   |   | 239.5 |   |
| Fixed                      Rate Portion of Long-term Debt (c)                                  |   |                                                              | 12.8   |                               |   | 103.7                              |   |                                      | 58.8   |      |   | 466.6 |   |   | 641.9 |   |
| Variable                      Rate Portion of Long-term Debt (d)                               |   |                                                              | 4.4    |                               |   | 4.5                                |   |                                      | -      |      |   | 94.6 |   |   | 103.5 |   |
| Capital                      Lease Obligations (e)                                             |   |                                                              | 8.5    |                               |   | 16.6                               |   |                                      | 11.7   |      |   | 22.8 |   |   | 59.6 |   |
| Noncancelable                      Operating Leases (e)                                        |   |                                                              | 6.2    |                               |   | 10.8                               |   |                                      | 7.2    |      |   | 6.4 |   |   | 30.6 |   |
| Fuel                      Purchase Contracts (f)                                               |   |                                                              | 267.0  |                               |   | 284.8                              |   |                                      | 284.9  |      |   | 284.9 |   |   | 1,121.6 |   |
| Energy                      and Capacity Purchase Contracts (g)                                |   |                                                              | 115.1  |                               |   | 187.0                              |   |                                      | 153.8  |      |   | 324.1 |   |   | 780.0 |   |
| Construction                      Contracts for Capital Assets (h)                             |   |                                                              | 39.9   |                               |   | -                                  |   |                                      | -      |      |   | - |   |   | 39.9 |   |
| **Total**                                                                                      |   | $                                                                 | 517.1  |                               | $      | 669.4                              |   | $                                         | 558.5  |      | $      | 1,299.8 |   | $ | 3,044.8 |   |

| (a) | Represents                      short-term borrowings from the Utility Money Pool.                                                                                                                                                                                                                                  |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Interest                      payments are estimated based on final maturity dates of debt                      securities                      outstanding at December 31, 2005 and do not reflect anticipated                      future                      refinancings, early redemptions or debt issuances. |
| (c) | See                      Note 16. Represents principal only excluding interest.                                                                                                                                                                                                                                     |
| (d) | See                      Note 16. Represents principal only excluding interest. Variable                      rate debt                      had interest rates of 3.10% and 5.31% at December 31,                      2005                                                                                        |
| (e) | See                      Note 15.                                                                                                                                                                                                                                                                                   |
| (f) | Represents                      contractual obligations to purchase coal and natural gas as                      fuel for                      electric generation along with related transportation of the                      fuel.                                                                              |
| (g) | Represents                      contractual cash flows of energy and capacity purchase                      contracts.                                                                                                                                                                                              |
| (h) | Represents                      only capital assets that are contractual                      obligations.                                                                                                                                                                                                          |

**Amount            of Commitment Expiration Per Period**

**(in            millions)**

| **Other                      Commercial****Commitments**                                       |   | **Less                      Than****1                      year** |   | **2-3                      years** |   | **4-5                      years** |   | **After****5                      years** |   | **Total** |   |
|------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------|--------|------------------------------------|--------|------------------------------------|--------|-------------------------------------------|--------|-----------|--------|
| Standby                      Letters of Credit (a)                                             |   | $                                                                 | 4      |                               | $      | -                                  |   | $                                         | -      |      | $      | - |   | $ | 4 |   |
| Guarantees                      of the Performance of Outside                      Parties (b) |   |                                                              | 8      |                               |   | -                                  |   |                                      | 25     |      |   | 105 |   |   | 138 |   |
| **Total**                                                                                      |   | $                                                                 | 12     |                               | $      | -                                  |   | $                                         | 25     |      | $      | 105 |   |   | 142 |   |

| (a) | We                      have issued standby letters of credit to third parties. These                      letters of                      credit cover insurance programs, security deposits, debt service                      reserves                      and credit enhancements for issued bonds. All of these letters                      of credit                      were issued in our ordinary course of business. The maximum                      future                      payments of these letters of credit are $4 million maturing                      in March 2006.                      There is no recourse to third parties in the event these letters                      of credit                      are drawn. See “Letters of Credit” section of Note 8. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | See                      “SWEPCo” section of Note 8.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

**Other**

**Significant            Factors**

**Critical            Accounting Estimates**

----

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

**Market            Risks**

**MTM            Risk Management Contract Net Assets**

**Reconciliation            of MTM Risk Management Contracts to**

**Consolidated            Balance Sheet**

**As            of December 31, 2005**

**(in            thousands)**

|                                                                            |   | **MTM                      Risk Management Contracts** |    | **Cash                      Flow Hedges** |   | **Total** |   |
|---------------------------------------------------------------------------------|--------|--------------------------------------------------------|---------|-------------------------------------------|--------|-----------|--------|
| Current                      Assets                                             |   | $                                                      | 46,783  |                                      | $      | 536       |   | $ | 47,319 |   |
| Noncurrent                      Assets                                          |   |                                                   | 39,796  |                                      |   | -         |   |   | 39,796 |   |
| **Total                      MTM Derivative Contract Assets**                   |   |                                                   | 86,579  |                                      |   | 536       |   |   | 87,115 |   |
|                                                                            |   |                                                   |    |                                      |   |      |   |   |   |   |
| Current                      Liabilities                                        |   |                                                   | (43,409 | )                                         |   | (1,689    | )      |   | (45,098 | ) |
| Noncurrent                      Liabilities                                     |   |                                                   | (26,783 | )                                         |   | (300      | )      |   | (27,083 | ) |
| **Total                      MTM Derivative Contract Liabilities**              |   |                                                   | (70,192 | )                                         |   | (1,989    | )      |   | (72,181 | ) |
|                                                                            |   |                                                   |    |                                      |   |      |   |   |   |   |
| **Total                      MTM Derivative Contract Net Assets (Liabilities)** |   | $                                                      | 16,387  |                                      | $      | (1,453    | )      | $ | 14,934 |   |

**MTM            Risk Management Contract Net Assets**

**Year            Ended December 31, 2005**

**(in            thousands)**

| **Total                      MTM Risk Management Contract Net Assets at December 31,                      2004**                                                           |   | $      | 17,527 |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| (Gain)                      Loss from Contracts Realized/Settled During the Period and                      Entered in a                      Prior Period                 |   |   | (4,439 | )      |
| Fair                      Value of New Contracts at Inception When Entered During the                      Period                      (a)                                 |   |   | 158    |   |
| Net                      Option Premiums Paid/(Received) for Unexercised or Unexpired                      Option                      Contracts Entered During the Period |   |   | (561   | )      |
| Change                      in Fair Value Due to Valuation Methodology Changes on Forward                      Contracts                                                   |   |   | -      |   |
| Changes                      in Fair Value due to Market Fluctuations During the Period                      (b)                                                           |   |   | 3,555  |   |
| Changes                      in Fair Value Allocated to Regulated Jurisdictions (c)                                                                                        |   |   | 147    |   |
| **Total                      MTM Risk Management Contract Net Assets**                                                                                                     |   |   | 16,387 |   |
| Net                      Cash Flow Hedge Contracts                                                                                                                         |   |   | (1,453 | )      |
| **Total                      MTM Risk Management Contract Net Assets at December 31,                      2005**                                                           |   | $      | 14,934 |   |

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

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

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

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

**Risk            Management Contract Net Assets**

**Fair            Value of Contracts as of December 31, 2005**

**(in            thousands)**

|                                                                                                                                         |   | **2006** |   | **2007** |   | **2008** |   | **2009** |   | **2010** |   | **After****2010** |   | **Total** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|----------|--------|-------------------|--------|-----------|--------|
| Prices                      Actively Quoted - Exchange Traded                      Contracts                                            |   | $        | 3,419  |     | $      | 1,914    |   | $        | 554    |     | $      | -                 |   | $         | -      |   | $ | - |   | $ | 5,887 |   |
| Prices                      Provided by Other External Sources                      - OTC Broker                        Quotes (a) |   |     | 6,456  |     |   | 5,167    |   |     | 5,250  |     |   | 2,540             |   |      | -      |   |   | - |   |   | 19,413 |   |
| Prices                      Based on Models and Other Valuation                      Methods (b)                                             |   |     | (6,501 | )        |   | (3,746   | )      |     | (2,209 | )        |   | 406               |   |      | 1,980  |   |   | 1,157 |   |   | (8,913 | ) |
| **Total**                                                                                                                                    |   | $        | 3,374  |     | $      | 3,335    |   | $        | 3,595  |     | $      | 2,946             |   | $         | 1,980  |   | $ | 1,157 |   | $ | 16,387 |   |

| (a) | “Prices                      Provided by Other External Sources - OTC Broker Quotes” reflects                      information obtained from over-the-counter brokers, industry                      services, or                      multiple-party on-line platforms.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | “Prices                      Based on Models and Other Valuation Methods” is used in absence of pricing                      information from external sources. Modeled information is derived                      using                      valuation models developed by the reporting entity, reflecting                      when                      appropriate, option pricing theory, discounted cash flow concepts,                      valuation adjustments, etc. and may require projection of prices                      for                      underlying commodities beyond the period that prices are available                      from                      third-party sources. In addition, where external pricing information                      or                      market liquidity are limited, such valuations are classified                      as modeled.                      The determination of the point at which a market is no longer                      liquid for                      placing it in the modeled category varies by                      market. |

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

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

**Year            Ended December 31, 2005**

**(in            thousands)**

|                                                                                                                   |   | **Power** |   | **Interest                      Rate** |   | **Total** |   |
|------------------------------------------------------------------------------------------------------------------------|--------|-----------|--------|----------------------------------------|--------|-----------|--------|
| **Beginning                      Balance in AOCI December 31, 2004**                                                   |   | $         | 1,188  |                                   | $      | (2,008    | )      | $ | (820 | ) |
| Changes                      in Fair Value                                                                             |   |      | (1,438 | )                                      |   | (3,379    | )      |   | (4,817 | ) |
| Reclassifications                      from AOCI to Net Income for  Cash                      Flow Hedges Settled |   |      | (486   | )                                      |   | 271       |   |   | (215 | ) |
| **Ending                      Balance in AOCI December 31, 2005**                                                      |   | $         | (736   | )                                      | $      | (5,116    | )      | $ | (5,852 | ) |

**Credit            Risk**

**VaR            Associated with Risk Management Contracts**

| **December                      31, 2005** |   |     |   |        | **December                      31, 2004** |
|--------------------------------------------|--------|----------|--------|-------------|--------------------------------------------|
| **(in                      thousands)**    |   |     |   |        | **(in                      thousands)**    |
| **End**                                    |   | **High** |   | **Average** |                                       | **Low** |   |   |   |   | **End** |   | **High** |   | **Average** |   | **Low** |
| $363                                       |   | $604     |   | $287        |                                       | $104 |   |   |   |   | $283 |   | $923 |   | $398 |   | $136 |

**VaR            Associated with Debt Outstanding**

----

**SOUTHWESTERN            ELECTRIC POWER COMPANY CONSOLIDATED**

**CONSOLIDATED            STATEMENTS OF INCOME**

**For            the Years Ended December 31, 2005, 2004 and 2003**

**(in            thousands)**

|                                                                                                                                                                                    |   | **2005** |      | **2004** |   | **2003**  |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|-----------|----------|--------|-----------|--------|
| **REVENUES**                                                                                                                                                                            |   |     |      |     |   |      |   |
| Electric                      Generation, Transmission and Distribution                                                                                                                 |   | $        | 1,338,882 |     | $      | 1,018,209 |   | $ | 1,078,414 |   |
| Sales                      to AEP Affiliates                                                                                                                                            |   |     | 65,408    |     |   | 71,190    |   |   | 68,854 |   |
| Other                                                                                                                                                                                   |   |     | 1,089     |     |   | 1,673     |   |   | 1,544 |   |
| **TOTAL**                                                                                                                                                                               |   |     | 1,405,379 |     |   | 1,091,072 |   |   | 1,148,812 |   |
|                                                                                                                                                                                    |   |     |      |     |   |      |   |   |   |   |
| **EXPENSES**                                                                                                                                                                            |   |     |      |     |   |      |   |   |   |   |
| Fuel                      and Other Consumables for Electric Generation                                                                                                                 |   |     | 527,525   |     |   | 388,380   |   |   | 440,080 |   |
| Purchased                      Electricity for Resale                                                                                                                                   |   |     | 133,403   |     |   | 35,521    |   |   | 34,850 |   |
| Purchased                      Electricity from AEP Affiliates                                                                                                                          |   |     | 70,911    |     |   | 29,054    |   |   | 47,914 |   |
| Other                      Operation                                                                                                                                                    |   |     | 213,629   |     |   | 191,898   |   |   | 177,510 |   |
| Maintenance                                                                                                                                                                             |   |     | 101,049   |     |   | 74,091    |   |   | 70,443 |   |
| Depreciation                      and Amortization                                                                                                                                      |   |     | 131,620   |     |   | 129,329   |   |   | 121,072 |   |
| Taxes                      Other Than Income Taxes                                                                                                                                      |   |     | 66,705    |     |   | 63,560    |   |   | 53,165 |   |
| **TOTAL**                                                                                                                                                                               |   |     | 1,244,842 |     |   | 911,833   |   |   | 945,034 |   |
|                                                                                                                                                                                    |   |     |      |     |   |      |   |   |   |   |
| **OPERATING                      INCOME**                                                                                                                                               |   |     | 160,537   |     |   | 179,239   |   |   | 203,778 |   |
|                                                                                                                                                                                    |   |     |      |     |   |      |   |   |   |   |
| **Other                      Income (Expense):**                                                                                                                                        |   |     |      |     |   |      |   |   |   |   |
| Interest                      Income                                                                                                                                                    |   |     | 1,499     |     |   | 1,658     |   |   | 1,426 |   |
| Allowance                      for Equity Funds Used During Construction                                                                                                                |   |     | 2,394     |     |   | 781       |   |   | 1,100 |   |
| Interest                      Expense                                                                                                                                                   |   |     | (50,089   | )        |   | (54,261   | )      |   | (64,105 | ) |
|                                                                                                                                                                                    |   |     |      |     |   |      |   |   |   |   |
| **INCOME                      BEFORE INCOME TAXES,****                       MINORITY INTEREST****EXPENSE                      AND ****EQUITY                      EARNINGS** |   |     | 114,341   |     |   | 127,417   |   |   | 142,199 |   |
|                                                                                                                                                                                    |   |     |      |     |   |      |   |   |   |   |
| Income                      Tax Expense                                                                                                                                                 |   |     | 34,922    |     |   | 34,727    |   |   | 51,072 |   |
| Minority                      Interest Expense                                                                                                                                          |   |     | 4,226     |     |   | 3,230     |   |   | 1,500 |   |
| Equity                      Earnings of Unconsolidated Subsidiaries                                                                                                                     |   |     | (3        | )        |   | (3        | )      |   | (3 | ) |
|                                                                                                                                                                                    |   |     |      |     |   |      |   |   |   |   |
| **INCOME                      BEFORE CUMULATIVE EFFECT OF****  ACCOUNTING                      CHANGES**                                                                      |   |     | 75,190    |     |   | 89,457    |   |   | 89,624 |   |
|                                                                                                                                                                                    |   |     |      |     |   |      |   |   |   |   |
| **CUMULATIVE                      EFFECT OF ACCOUNTING CHANGES,****Net                      of Tax**                                                                                    |   |     | (1,252    | )        |   | -         |   |   | 8,517 |   |
|                                                                                                                                                                                    |   |     |      |     |   |      |   |   |   |   |
| **NET                      INCOME**                                                                                                                                                     |   |     | 73,938    |     |   | 89,457    |   |   | 98,141 |   |
|                                                                                                                                                                                    |   |     |      |     |   |      |   |   |   |   |
| Preferred                      Stock Dividend Requirements                                                                                                                              |   |     | 229       |     |   | 229       |   |   | 229 |   |
|                                                                                                                                                                                    |   |     |      |     |   |      |   |   |   |   |
| **EARNINGS                      APPLICABLE TO COMMON STOCK**                                                                                                                            |   | $        | 73,709    |     | $      | 89,228    |   | $ | 97,912 |   |

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

*See            Notes to Financial Statements of Registrant Subsidiaries.*

----

**SOUTHWESTERN            ELECTRIC POWER COMPANY CONSOLIDATED**

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

**EQUITY            AND COMPREHENSIVE INCOME (LOSS)**

**For            the Years Ended December 31, 2005, 2004 and 2003**

**(in            thousands)**

|                                                                                              |   | **Common                      Stock** |    | **Paid-in                      Capital** |   | **Retained                      Earnings** |   | **Accumulated                      Other Comprehensive Income (Loss)** |    | **Total** |   |
|---------------------------------------------------------------------------------------------------|--------|---------------------------------------|---------|------------------------------------------|--------|--------------------------------------------|--------|------------------------------------------------------------------------|---------|-----------|--------|
| **DECEMBER                      31, 2002**                                                        |   | $                                     | 135,660 |                                     | $      | 245,003                                    |   | $                                                                      | 334,789 |      | $      | (53,683 | ) | $ | 661,769 |   |
|                                                                                              |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| Common                      Stock Dividends                                                       |   |                                  |    |                                     |   |                                       |   |                                                                   | (72,794 | )         |   |   |   |   | (72,794 | ) |
| Preferred                      Stock Dividends                                                    |   |                                  |    |                                     |   |                                       |   |                                                                   | (229    | )         |   |   |   |   | (229 | ) |
| **TOTAL**                                                                                         |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   | 588,746 |   |
|                                                                                              |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                      INCOME**                                                     |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **Other                      Comprehensive Income,****Net                      of Taxes:**        |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| Cash                      Flow Hedges, Net of Tax of $125                                         |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   | 232 |   |   | 232 |   |
| Minimum                      Pension Liability, Net of Tax of                      $5,138         |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   | 9,541 |   |   | 9,541 |   |
| **NET                      INCOME**                                                               |   |                                  |    |                                     |   |                                       |   |                                                                   | 98,141  |      |   |   |   |   | 98,141 |   |
| **TOTAL                      COMPREHENSIVE INCOME**                                               |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   | 107,914 |   |
|                                                                                              |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **DECEMBER                      31, 2003**                                                        |   |                                  | 135,660 |                                     |   | 245,003                                    |   |                                                                   | 359,907 |      |   | (43,910 | ) |   | 696,660 |   |
|                                                                                              |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| Common                      Stock Dividends                                                       |   |                                  |    |                                     |   |                                       |   |                                                                   | (60,000 | )         |   |   |   |   | (60,000 | ) |
| Preferred                      Stock Dividends                                                    |   |                                  |    |                                     |   |                                       |   |                                                                   | (229    | )         |   |   |   |   | (229 | ) |
| **TOTAL**                                                                                         |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   | 636,431 |   |
|                                                                                              |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                      INCOME**                                                     |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **Other                      Comprehensive Income (Loss),****Net                      of Taxes:** |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| Cash                      Flow Hedges, Net of Tax of $541                                         |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   | (1,004 | ) |   | (1,004 | ) |
| Minimum                      Pension Liability, Net of Tax of                      $23,550        |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   | 43,734 |   |   | 43,734 |   |
| **NET                      INCOME**                                                               |   |                                  |    |                                     |   |                                       |   |                                                                   | 89,457  |      |   |   |   |   | 89,457 |   |
| **TOTAL                      COMPREHENSIVE INCOME**                                               |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   | 132,187 |   |
|                                                                                              |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **DECEMBER                      31, 2004**                                                        |   |                                  | 135,660 |                                     |   | 245,003                                    |   |                                                                   | 389,135 |      |   | (1,180 | ) |   | 768,618 |   |
|                                                                                              |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| Common                      Stock Dividends                                                       |   |                                  |    |                                     |   |                                       |   |                                                                   | (55,000 | )         |   |   |   |   | (55,000 | ) |
| Preferred                      Stock Dividends                                                    |   |                                  |    |                                     |   |                                       |   |                                                                   | (229    | )         |   |   |   |   | (229 | ) |
| **TOTAL**                                                                                         |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   | 713,389 |   |
|                                                                                              |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                      INCOME**                                                     |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **Other                      Comprehensive Income (Loss),****Net                      of Taxes:** |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| Cash                      Flow Hedges, Net of Tax of $2,709                                       |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   | (5,032 | ) |   | (5,032 | ) |
| Minimum                      Pension Liability, Net of Tax of                      $44            |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   | 83 |   |   | 83 |   |
| **NET                      INCOME**                                                               |   |                                  |    |                                     |   |                                       |   |                                                                   | 73,938  |      |   |   |   |   | 73,938 |   |
| **TOTAL                      COMPREHENSIVE INCOME**                                               |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   | 68,989 |   |
|                                                                                              |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **DECEMBER                      31, 2005**                                                        |   | $                                     | 135,660 |                                     | $      | 245,003                                    |   | $                                                                      | 407,844 |      | $      | (6,129 | ) | $ | 782,378 |   |

*See            Notes to Financial Statements of Registrant Subsidiaries.*

----

**SOUTHWESTERN            ELECTRIC POWER COMPANY CONSOLIDATED**

**CONSOLIDATED            BALANCE SHEETS**

**ASSETS**

**December            31, 2005 and 2004**

**(in            thousands)**

|                                                                 |   | **2005**     |      | **2004**     |   |
|----------------------------------------------------------------------|--------|--------------|-----------|--------------|--------|
| **CURRENT                      ASSETS**                              |   |    |      |    |   |
| Cash                      and Cash Equivalents                       |   | $            | 3,049     |         | $      | 3,715 |   |
| Advances                      to Affiliates                          |   |         | -         |         |   | 39,106 |   |
| Accounts                      Receivable:                            |   |         |      |         |   |   |   |
| Customers                                                            |   |         | 47,515    |         |   | 39,425 |   |
| Affiliated                      Companies                            |   |         | 49,226    |         |   | 28,817 |   |
| Miscellaneous                                                        |   |         | 7,984     |         |   | 8,145 |   |
| Allowance                      for Uncollectible Accounts            |   |         | (548      | )            |   | (45 | ) |
|                        Total Accounts Receivable                |   |         | 104,177   |         |   | 76,342 |   |
| Fuel                                                                 |   |         | 40,333    |         |   | 45,793 |   |
| Materials                      and Supplies                          |   |         | 34,821    |         |   | 36,051 |   |
| Risk                      Management Assets                          |   |         | 47,319    |         |   | 25,379 |   |
| Regulatory                      Asset for Under-Recovered Fuel Costs |   |         | 51,387    |         |   | 4,844 |   |
| Prepayments                      and Other                           |   |         | 34,010    |         |   | 29,011 |   |
| **TOTAL**                                                            |   |         | 315,096   |         |   | 260,241 |   |
|                                                                 |   |         |      |         |   |   |   |
| **PROPERTY,                      PLANT AND EQUIPMENT**               |   |         |      |         |   |   |   |
| Electric:                                                            |   |         |      |         |   |   |   |
| Production                                                           |   |         | 1,660,392 |         |   | 1,663,161 |   |
| Transmission                                                         |   |         | 645,297   |         |   | 632,964 |   |
| Distribution                                                         |   |         | 1,153,026 |         |   | 1,114,480 |   |
| Other                                                                |   |         | 443,749   |         |   | 433,051 |   |
| Construction                      Work in Progress                   |   |         | 104,175   |         |   | 48,852 |   |
| **Total**                                                            |   |         | 4,006,639 |         |   | 3,892,508 |   |
| Accumulated                      Depreciation and Amortization       |   |         | 1,776,216 |         |   | 1,710,850 |   |
| **TOTAL                      - NET**                                 |   |         | 2,230,423 |         |   | 2,181,658 |   |
|                                                                 |   |         |      |         |   |   |   |
| **OTHER                      NONCURRENT ASSETS**                     |   |         |      |         |   |   |   |
| Regulatory                      Assets                               |   |         | 81,776    |         |   | 55,115 |   |
| Long-term                      Risk Management Assets                |   |         | 39,796    |         |   | 17,179 |   |
| Employee                      Benefits and Pension Assets            |   |         | 83,330    |         |   | 81,144 |   |
| Deferred                      Charges and Other                      |   |         | 46,926    |         |   | 51,512 |   |
| **TOTAL**                                                            |   |         | 251,828   |         |   | 204,950 |   |
|                                                                 |   |         |      |         |   |   |   |
| **TOTAL                      ASSETS**                                |   | $            | 2,797,347 |         | $      | 2,646,849 |   |

*See            Notes to Financial Statements of Registrant Subsidiaries.*

----

**SOUTHWESTERN            ELECTRIC POWER COMPANY CONSOLIDATED**

**CONSOLIDATED            BALANCE SHEETS**

**LIABILITIES            AND SHAREHOLDERS’ EQUITY**

**December            31, 2005 and 2004**

|                                                                                |   |  **2005**                          |      | **2004** |   |
|-------------------------------------------------------------------------------------|--------|-----------------------------------------|-----------|----------|--------|
| **CURRENT                      LIABILITIES**                                        |   | **(in                      thousands)** |      |
| Advances                      from Affiliates                                       |   | $                                       | 28,210    |     | $      | - |   |
| Accounts                      Payable:                                              |   |                                    |      |     |   |   |   |
| General                                                                             |   |                                    | 71,138    |     |   | 40,384 |   |
| Affiliated                      Companies                                           |   |                                    | 53,019    |     |   | 33,285 |   |
| Long-term                      Debt Due Within One Year - Nonaffiliated             |   |                                    | 17,149    |     |   | 209,974 |   |
| Risk                      Management Liabilities                                    |   |                                    | 45,098    |     |   | 18,607 |   |
| Customer                      Deposits                                              |   |                                    | 50,848    |     |   | 30,550 |   |
| Accrued                      Taxes                                                  |   |                                    | 42,799    |     |   | 45,474 |   |
| Other                                                                               |   |                                    | 82,699    |     |   | 59,666 |   |
| **TOTAL**                                                                           |   |                                    | 390,960   |     |   | 437,940 |   |
|                                                                                |   |                                    |      |     |   |   |   |
| **NONCURRENT                      LIABILITIES**                                     |   |                                    |      |     |   |   |   |
| Long-term                      Debt - Nonaffiliated                                 |   |                                    | 678,886   |     |   | 545,395 |   |
| Long-term                      Debt - Affiliated                                    |   |                                    | 50,000    |     |   | 50,000 |   |
| Long-term                      Risk Management Liabilities                          |   |                                    | 27,083    |     |   | 9,128 |   |
| Deferred                      Income Taxes                                          |   |                                    | 409,513   |     |   | 399,756 |   |
| Regulatory                      Liabilities and Deferred Investment Tax Credits     |   |                                    | 320,066   |     |   | 309,918 |   |
| Deferred                      Credits and Other                                     |   |                                    | 131,477   |     |   | 120,269 |   |
| **TOTAL**                                                                           |   |                                    | 1,617,025 |     |   | 1,434,466 |   |
|                                                                                |   |                                    |      |     |   |   |   |
| **TOTAL                      LIABILITIES**                                          |   |                                    | 2,007,985 |     |   | 1,872,406 |   |
|                                                                                |   |                                    |      |     |   |   |   |
| Minority                      Interest                                              |   |                                    | 2,284     |     |   | 1,125 |   |
|                                                                                |   |                                    |      |     |   |   |   |
| Cumulative                      Preferred Stock Not Subject to Mandatory Redemption |   |                                    | 4,700     |     |   | 4,700 |   |
|                                                                                |   |                                    |      |     |   |   |   |
| Commitments                      and Contingencies (Note 7)                         |   |                                    |      |     |   |   |   |
|                                                                                |   |                                    |      |     |   |   |   |
| **COMMON                      SHAREHOLDER’S EQUITY**                          |   |                                    |      |     |   |   |   |
| Common                      Stock - $18 Par Value Per Share:                        |   |                                    |      |     |   |   |   |
| Authorized                      - 7,600,000 Shares                                  |   |                                    |      |     |   |   |   |
| Outstanding                      - 7,536,640 Shares                                 |   |                                    | 135,660   |     |   | 135,660 |   |
| Paid-in                      Capital                                                |   |                                    | 245,003   |     |   | 245,003 |   |
| Retained                      Earnings                                              |   |                                    | 407,844   |     |   | 389,135 |   |
| Accumulated                      Other Comprehensive Income (Loss)                  |   |                                    | (6,129    | )        |   | (1,180 | ) |
| **TOTAL**                                                                           |   |                                    | 782,378   |     |   | 768,618 |   |
|                                                                                |   |                                    |      |     |   |   |   |
| **TOTAL                      LIABILITIES AND SHAREHOLDERS’ EQUITY**           |   | $                                       | 2,797,347 |     | $      | 2,646,849 |   |

*See            Notes to Financial Statements of Registrant Subsidiaries.*

----

**SOUTHWESTERN            ELECTRIC POWER COMPANY CONSOLIDATED**

**CONSOLIDATED            STATEMENTS OF CASH FLOWS**

**For            the Years Ended December 31, 2005, 2004 and 2003**

**(in            thousands)**

|                                                                          |   | **2005**     |     | **2004**     |   | **2003**     |   |
|-------------------------------------------------------------------------------|--------|--------------|----------|--------------|--------|--------------|--------|
| **OPERATING                      ACTIVITIES**                                 |   |    |     |    |   |    |   |
| **Net                      Income**                                           |   | $            | 73,938   |         | $      | 89,457       |   | $ | 98,141 |   |
| **Adjustments                      for Noncash Items:**                       |   |         |     |         |   |         |   |   |   |   |
| Depreciation                      and Amortization                            |   |         | 131,620  |         |   | 129,329      |   |   | 121,072 |   |
| Deferred                      Income Taxes                                    |   |         | (4,942   | )            |   | 12,782       |   |   | 9,942 |   |
| Cumulative                      Effect of Accounting Change, Net of Tax       |   |         | 1,252    |         |   | -            |   |   | (8,517 | ) |
| Mark-to-Market                      of Risk Management Contracts              |   |         | 1,140    |         |   | (921         | )      |   | (12,403 | ) |
| Pension                      Contributions to Qualified Plan Trusts           |   |         | (3,450   | )            |   | (45,688      | )      |   | (805 | ) |
| Change                      in Other Noncurrent Assets                        |   |         | (27,432  | )            |   | (20,447      | )      |   | 21,492 |   |
| Change                      in Other Noncurrent Liabilities                   |   |         | 25,625   |         |   | 36,224       |   |   | 44,937 |   |
| **Changes                      in Components of Working Capital:**            |   |         |     |         |   |         |   |   |   |   |
| Accounts                      Receivable, Net                                 |   |         | (27,835  | )            |   | (19,832      | )      |   | 28,991 |   |
| Fuel,                      Materials and Supplies                             |   |         | 6,690    |         |   | 15,824       |   |   | 4,177 |   |
| Accounts                      Payable                                         |   |         | 45,742   |         |   | (2,267       | )      |   | (53,076 | ) |
| Accrued                      Taxes, Net                                       |   |         | (2,675   | )            |   | 16,783       |   |   | 8,446 |   |
| Customer                      Deposits                                        |   |         | 20,298   |         |   | 6,290        |   |   | 4,150 |   |
| Over/Under                      Fuel Recovery, Net                            |   |         | (53,410  | )            |   | 12,420       |   |   | (21,577 | ) |
| Other                      Current Assets                                     |   |         | (8,307   | )            |   | 858          |   |   | (6,331 | ) |
| Other                      Current Liabilities                                |   |         | 29,899   |         |   | (21,705      | )      |   | 9,864 |   |
| **Net                      Cash Flows From Operating Activities**             |   |         | 208,153  |         |   | 209,107      |   |   | 248,503 |   |
|                                                                          |   |         |     |         |   |         |   |   |   |   |
| **INVESTING                      ACTIVITIES**                                 |   |         |     |         |   |         |   |   |   |   |
| Construction                      Expenditures                                |   |         | (157,595 | )            |   | (98,954      | )      |   | (120,099 | ) |
| Change                      in Other Cash Deposits, Net                       |   |         | 3,308    |         |   | 624          |   |   | (3,789 | ) |
| Change                      in Advances to Affiliates, Net                    |   |         | 39,106   |         |   | 27,370       |   |   | (66,476 | ) |
| Proceeds                      from Sales of Assets                            |   |         | 108      |         |   | 5,435        |   |   | 3,800 |   |
| Other                                                                         |   |         | -        |         |   | -            |   |   | 6,475 |   |
| **Net                      Cash Flows Used For Investing Activities**         |   |         | (115,073 | )            |   | (65,525      | )      |   | (180,089 | ) |
|                                                                          |   |         |     |         |   |         |   |   |   |   |
| **FINANCING                      ACTIVITIES**                                 |   |         |     |         |   |         |   |   |   |   |
| Issuance                      of Long-term Debt - Nonaffiliated               |   |         | 154,574  |         |   | 91,999       |   |   | 254,630 |   |
| Issuance                      of Long-term Debt - Affiliated                  |   |         | -        |         |   | 50,000       |   |   | - |   |
| Retirement                      of Long-term Debt - Nonaffiliated             |   |         | (215,101 | )            |   | (224,309     | )      |   | (219,482 | ) |
| Change                      in Advances from Affiliates, Net                  |   |         | 28,210   |         |   | -            |   |   | (23,239 | ) |
| Principal                      Payments for Capital Lease Obligations         |   |         | (6,200   | )            |   | (3,543       | )      |   | (1,434 | ) |
| Dividends                      Paid on Common Stock                           |   |         | (55,000  | )            |   | (60,000      | )      |   | (72,794 | ) |
| Dividends                      Paid on Cumulative Preferred Stock             |   |         | (229     | )            |   | (229         | )      |   | (229 | ) |
| **Net                      Cash Flows Used For Financing Activities**         |   |         | (93,746  | )            |   | (146,082     | )      |   | (62,548 | ) |
|                                                                          |   |         |     |         |   |         |   |   |   |   |
| **Net                      Increase (Decrease) in Cash and Cash Equivalents** |   |         | (666     | )            |   | (2,500       | )      |   | 5,866 |   |
| **Cash                      and Cash Equivalents at Beginning of Period**     |   |         | 3,715    |         |   | 6,215        |   |   | 349 |   |
| **Cash                      and Cash Equivalents at End of Period**           |   | $            | 3,049    |         | $      | 3,715        |   | $ | 6,215 |   |

| **SUPPLEMENTAL                      DISCLOSURE:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Cash                      paid for interest net of capitalized amounts was $43,673,000,                      $49,739,000                      and $57,775,000 and for income taxes was $52,756,000, $11,326,000                      and                      $33,616,000 in 2005, 2004 and 2003, respectively. Noncash capital                      lease                      acquisitions were $9,629,000, $19,687,000 and $1,846,000 in                      2005, 2004 and                      2003, respectively. Noncash construction expenditures included                      in Accounts                      Payable of $10,221,000, $5,475,000 and $2,086,000 were outstanding                      as of                      December 31, 2005, 2004 and 2003, respectively. Noncash activity                      in 2003                      included an increase in assets and liabilities of $78 million                      resulting                      from the consolidation of Sabine Mining                      Company. |

*See            Notes to Financial Statements of Registrant Subsidiaries.*

----

**SOUTHWESTERN            ELECTRIC POWER COMPANY CONSOLIDATED**

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

|                                                                                                                                                          | **Footnote                      Reference** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------|
| Organization                      and Summary of Significant Accounting Policies                                                                              | Note                      1                 |
| New                      Accounting Pronouncements, Extraordinary Items and Cumulative                      Effect of                      Accounting Changes | Note                      2                 |
| Goodwill                      and Other Intangible Assets                                                                                                     | Note                      3                 |
| Rate                      Matters                                                                                                                             | Note                      4                 |
| Effects                      of Regulation                                                                                                                    | Note                      5                 |
| Customer                      Choice and Industry Restructuring                                                                                               | Note                      6                 |
| Commitments                      and Contingencies                                                                                                            | Note                      7                 |
| Guarantees                                                                                                                                                    | Note                      8                 |
| Company-wide                      Staffing and Budget Review                                                                                                  | Note                      9                 |
| Benefit                      Plans                                                                                                                            | Note                      11                |
| Business                      Segments                                                                                                                        | Note                      12                |
| Derivatives,                      Hedging and Financial Instruments                                                                                           | Note                      13                |
| Income                      Taxes                                                                                                                             | Note                      14                |
| Leases                                                                                                                                                        | Note                      15                |
| Financing                      Activities                                                                                                                     | Note                      16                |
| Related                      Party Transactions                                                                                                               | Note                      17                |
| Jointly-Owned                      Electric Utility Plant                                                                                                     | Note                      18                |
| Unaudited                      Quarterly Financial Information                                                                                                | Note                      19                |

----

**REPORT            OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

*.*

* *

----

**NOTES      TO FINANCIAL STATEMENTS OF REGISTRANT SUBSIDIARIES**

| The                notes to financial statements that follow are a combined presentation                for                the Registrant Subsidiaries. The following list indicates the registrants                to which the footnotes apply: |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                              |   |   |
| 1.                                                                                                                                                                                                                                                | Organization                and Summary                of Significant Accounting Policies | AEGCo,                APCo, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, TCC, TNC |
| 2.                                                                                                                                                                                                                                                | New                Accounting Pronouncements, Extraordinary Items and                  Cumulative Effect of Accounting Changes | AEGCo,                APCo, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, TCC, TNC |
| 3.                                                                                                                                                                                                                                                | Goodwill                and Other Intangible                Assets | SWEPCo |
| 4.                                                                                                                                                                                                                                                | Rate                Matters | APCo,                CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, TCC, TNC |
| 5.                                                                                                                                                                                                                                                | Effects                of Regulation | AEGCo,                APCo, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, TCC, TNC |
| 6.                                                                                                                                                                                                                                                | Customer                Choice and Industry                Restructuring | APCo,                CSPCo, I&M, OPCo, SWEPCo, TCC, TNC |
| 7.                                                                                                                                                                                                                                                | Commitments                and Contingencies | AEGCo,                APCo, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, TCC, TNC |
| 8.                                                                                                                                                                                                                                                | Guarantees | AEGCo,                APCo, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, TCC, TNC |
| 9.                                                                                                                                                                                                                                                | Company-wide                Staffing and  Budget Review | AEGCo,                APCo, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, TCC, TNC |
| 10.                                                                                                                                                                                                                                               | Acquisitions,                Dispositions, Impairments, Assets Held for Sale and                  Other Losses | APCo,                CSPCo, I&M, KPCo, OPCo, TCC, TNC |
| 11.                                                                                                                                                                                                                                               | Benefit                Plans | AEGCo,                APCo, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, TCC, TNC |
| 12.                                                                                                                                                                                                                                               | Business                Segments | AEGCo,                APCo, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, TCC, TNC |
| 13.                                                                                                                                                                                                                                               | Derivatives,                Hedging and Financial Instruments | AEGCo,                APCo, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, TCC, TNC |
| 14.                                                                                                                                                                                                                                               | Income                Taxes | AEGCo,                APCo, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, TCC, TNC |
| 15.                                                                                                                                                                                                                                               | Leases | AEGCo,                APCo, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, TCC, TNC |
| 16.                                                                                                                                                                                                                                               | Financing                Activities | AEGCo,                APCo, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, TCC, TNC |
| 17.                                                                                                                                                                                                                                               | Related                Party Transactions | AEGCo,                APCo, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, TCC, TNC |
| 18.                                                                                                                                                                                                                                               | Jointly-Owned                Electric Utility Plant | CSPCo,                PSO, SWEPCo, TCC, TNC |
| 19.                                                                                                                                                                                                                                               | Unaudited                Quarterly Financial Information | AEGCo,                APCo, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, TCC,                TNC |

----

**              1.**
**ORGANIZATION      AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

**ORGANIZATION**

**SUMMARY      OF SIGNIFICANT ACCOUNTING POLICIES**

***Rate      Regulation***

***Principles      of Consolidation***
** **

***Accounting      for the Effects of Cost-Based Regulation***

***Use      of Estimates***

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

***Depreciation,      Depletion and Amortization***

|                                            |   | **AEGCo**                                        |          | **KPCo**                                    |
|-------------------------------------------------|--------|--------------------------------------------------|---------------|---------------------------------------------|
|                                            |   |                                             |          |                                        |
| **2005**                                        |   | **Regulated**                                    |          | **Regulated**                               |
|                                            |   |                                             |          |                                        |   |   |   |   |   |   |   |   |   |   |   |   |
| **Functional                Class of Property** |   | **Property,                Plant and Equipment** |          | **Accumulated                Depreciation** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |   | **Property,                Plant and Equipment** |   | **Accumulated                Depreciation** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |
|                                            |   | **(in                thousands)**                |          |                                        |   | **(in                years)** |   | **(in                thousands)** |   |   |   | **(in                years)** |
| Production                                      |   | $                                                |  684,721 |                                        | $ |  379,641 |   | 3.5 | % | 31 |   | $ |  472,575 |   | $ |  151,389 |   | 3.8 | % | 40-50 |
| Transmission                                    |   |                                             | -             |                                        |   | - |   | N.M. |   | N.M. |   |   | 386,945 |   |   | 119,048 |   | 1.7 | % | 25-75 |
| Distribution                                    |   |                                             | -             |                                        |   | - |   | N.M. |   | N.M. |   |   | 456,063 |   |   | 136,106 |   | 3.5 | % | 11-75 |
| CWIP                                            |   |                                             |  12,252  |                                        |   |  2,226 |   | N.M. |   | N.M. |   |   |  35,461 |   |   | (1,126 | )  | N.M. |   | N.M. |
| Other                                           |   |                                             |  2,251   |                                        |   |  1,058 |   | 16.0 | % | N.M. |   |   |  57,776 |   |   |  20,241 |   | 9.4 | % | N.M. |
| Total                                           |   | $                                                |  699,224 |                                        | $ |  382,925 |   |   |   |   |   | $ |  1,408,820 |   | $ |  425,658 |   |   |   |   |
|                                            |   |                                             |          |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                            |   | **Nonregulated**                                 |          | **Nonregulated**                            |
| **Functional                Class of Property** |   | **Property,                Plant and Equipment** |          | **Accumulated                Depreciation** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |   | **Property,                Plant and Equipment** |   | **Accumulated                Depreciation** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |
|                                            |   | **(in                thousands)**                |          |                                        |   | **(in                years)** |   | **(in                thousands)** |   |   |   | **(in                years)** |
| Other                                           |   | $                                                | 118           |                                        | $ | - |   | N.M. |   | N.M. |   | $ | 5,606 |   | $ | 159 |   | 2.0 | % | N.M. |

| **2004**                                        |   | **Regulated**                                    |          | **Regulated**                               |
|-------------------------------------------------|--------|--------------------------------------------------|---------------|---------------------------------------------|
|                                            |   |                                             |          |                                        |   |   |   |   |   |   |   |   |   |   |   |   |
| **Functional                Class of Property** |   | **Property,                Plant and Equipment** |          | **Accumulated                Depreciation** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |   | **Property,                Plant and Equipment** |   | **Accumulated                Depreciation** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |
|                                            |   | **(in                thousands)**                |          |                                        |   | **(in                years)** |   | **(in                thousands)** |   |   |   | **(in                years)** |
| Production                                      |   | $                                                | 681,254       |                                        | $ | 364,779 |   | 3.5 | % | 31 |   | $ | 462,641 |   | $ | 139,677 |   | 3.8 | % | 40-50 |
| Transmission                                    |   |                                             | -             |                                        |   | - |   | N.M. |   | N.M. |   |   | 385,667 |   |   | 113,199 |   | 1.7 | % | 25-75 |
| Distribution                                    |   |                                             | -             |                                        |   | - |   | N.M. |   | N.M. |   |   | 438,766 |   |   | 127,858 |   | 3.5 | % | 11-75 |
| CWIP                                            |   |                                             | 7,729         |                                        |   |  1,341 |   | N.M. |   | N.M. |   |   |  16,544 |   |   | (987 | )  | N.M. |   | N.M. |
| Other                                           |   |                                             |  3,739   |                                        |   |  2,364 |   | 16.4 | % | N.M. |   |   |  57,929 |   |   |  18,708 |   | 9.2 | % | N.M. |
| Total                                           |   | $                                                |  692,722 |                                        | $ |  368,484 |   |   |   |   |   | $ |  1,361,547 |   | $ |  398,455 |   |   |   |   |
|                                            |   |                                             |          |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                            |   | **Nonregulated**                                 |          | **Nonregulated**                            |
|                                            |   |                                             |          |                                        |   |   |   |   |   |   |   |   |   |   |   |   |
| **Functional                Class of Property** |   | **Property,                Plant and Equipment** |          | **Accumulated                Depreciation** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |   | **Property,                Plant and Equipment** |   | **Accumulated                Depreciation** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |
|                                            |   | **(in                thousands)**                |          |                                        |   | **(in                years)** |   | **(in                thousands)** |   |   |   | **(in                years)** |
| Other                                           |   | $                                                | 119           |                                        | $ | - |   | N.M. |   | N.M. |   | $ | 5,591 |   | $ | 153 |   | 2.0 | % | N.M. |

| **2003**                                        |   | **AEGCo****Regulated**                                |    | **KPCo****Regulated**                      |   |
|-------------------------------------------------|--------|-------------------------------------------------------|---------|--------------------------------------------|--------|
|                                            |   |                                                  |    |                                       |   |   |   |   |   |
| **Functional                Class of Property** |   | **Annual                Composite Depreciation Rate** |    | **Depreciable                Life Ranges** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |   |
|                                            |   |                                                  |    | **(in                years)**              |   |   |   | **(in                years)** |   |
| Production                                      |   | 3.5                                                   | %       | 31                                         |   | 3.8 | % | 40-50 |   |
| Transmission                                    |   | N.M.                                                  |    | N.M.                                       |   | 1.7 | % | 25-75 |   |
| Distribution                                    |   | N.M.                                                  |    | N.M.                                       |   | 3.5 | % | 11-75 |   |
| Other                                           |   | 16.7                                                  | %  | N.M.                                       |   | 7.1 | % | N.M. |   |

**TCC**

| **2005**                                        |   | **Regulated**                                    |            | **Nonregulated**                            |
|-------------------------------------------------|--------|--------------------------------------------------|-----------------|---------------------------------------------|
|                                            |   |                                             |            |                                        |   |   |   |   |   |   |   |   |   |   |   |   |
| **Functional                Class of Property** |   | **Property,                Plant and Equipment** |            | **Accumulated                Depreciation** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |   | **Property,                Plant and Equipment** |   | **Accumulated                Depreciation** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |
|                                            |   | **(in                thousands)**                |            |                                        |   | **(in                years)** |   | **(in                thousands)** |   |   |   | **(in                years)** |
| Transmission                                    |   | $                                                |  817,351   |                                        | $ |  204,426 |   | 2.1 | % | 40-71 |   | $  | - |   | $ | - |   | N.M. |   | N.M. |
| Distribution                                    |   |                                             |  1,476,683 |                                        |   | 332,143 |   | 3.4 | % | 15-62 |   |   | - |   |   |  - |   | N.M. |   | N.M. |
| CWIP                                            |   |                                             |  129,800   |                                        |   |  1,147 |   | N.M. |   | N.M. |   |   | - |   |   |  - |   | N.M. |   | N.M. |
| Other                                           |   |                                             |  229,893   |                                        |   |  97,196 |   | 6.5 | % | N.M. |   |   |  3,468 |   |   |  1,166 |   | 2.9 | % | N.M. |
| Total                                           |   | $                                                |  2,653,727 |                                        | $ |  634,912 |   |   |   |   |   | $ |  3,468 |   | $ |  1,166 |   |   |   |   |
|                                            |   |                                             |            |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| **2004**                                        |   | **Regulated**                                    |            | **Nonregulated**                            |
|-------------------------------------------------|--------|--------------------------------------------------|-----------------|---------------------------------------------|
|                                            |   |                                             |            |                                        |   |   |   |   |   |   |   |   |   |   |   |   |
| **Functional                Class of Property** |   | **Property,                Plant and Equipment** |            | **Accumulated                Depreciation** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |   | **Property,                Plant and Equipment** |   | **Accumulated                Depreciation** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |
|                                            |   | **(in                thousands)**                |            |                                        |   | **(in                years)** |   | **(in                thousands)** |   |   |   | **(in                years)** |
| Transmission                                    |   | $                                                | 788,371         |                                        | $ |  234,914 |   | 2.3 | % | 35-60 |   | $  | - |   | $ | - |   | N.M. |   | N.M. |
| Distribution                                    |   |                                             |  1,433,380 |                                        |   | 405,412 |   | 3.4 | % | 25-60 |   |   | - |   |   | - |   | N.M. |   | N.M. |
| CWIP                                            |   |                                             |  50,612    |                                        |   |  8,256 |   | N.M. |   | N.M. |   |   | - |   |   | - |   | N.M. |   | N.M. |
| Other                                           |   |                                             |  219,759   |                                        |   |  76,644 |   | 6.5 | % | N.M. |   |   | 3,799 |   |   |  1,545 |   | 2.9 | % | N.M. |
| Total                                           |   | $                                                | 2,492,122       |                                        | $ |  725,226 |   |   |   |   |   | $ | 3,799 |   | $ | 1,545 |   |   |   |   |
|                                            |   |                                             |            |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| **2003**                                        |   | **Regulated**                                         |    | **Nonregulated**                           |   |
|-------------------------------------------------|--------|-------------------------------------------------------|---------|--------------------------------------------|--------|
|                                            |   |                                                  |    |                                       |   |   |   |   |   |
| **Functional                Class of Property** |   | **Annual                Composite Depreciation Rate** |    | **Depreciable                Life Ranges** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |   |
| Production                                      |   | 2.5                                                   | %  | N.M.                                       |   | 2.3 | % | N.M. |   |
| Transmission                                    |   | 2.3                                                   | %       | 35-60                                      |   | 2.1 | % | N.M. |   |
| Distribution                                    |   | 3.5                                                   | %       | 25-60                                      |   | N.M. |   | N.M. |   |
| Other                                           |   | 8.1                                                   | %       | N.M.                                       |   | 2.9 | % | N.M. |   |

**TNC**

| **2005**                                        |   | **Regulated**                                    |         | **Nonregulated**                            |
|-------------------------------------------------|--------|--------------------------------------------------|--------------|---------------------------------------------|
|                                            |   |                                             |         |                                        |   |   |   |   |   |   |   |   |   |   |   |   |
| **Functional                Class of Property** |   | **Property,                Plant and Equipment** |         | **Accumulated                Depreciation** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |   | **Property,                Plant and Equipment** |   | **Accumulated                Depreciation** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |
|                                            |   | **(in                thousands)**                |         |                                        | **(in                years)** |   | **(in                thousands)** |   |   |   | **(in                years)** |
| Production                                      |   | $                                                | -            |                                        | $ | - |   | N.M. |   | N.M. |   | $ |  288,934 |   | $ |  117,963 |   | 2.6 | % | 20-49 |
| Transmission                                    |   |                                             | 289,029      |                                        |   |  98,630 |   | 3.0 | % | 40-75 |   |   | - |   |   | - |   | N.M. |   | N.M. |
| Distribution                                    |   |                                             | 492,878      |                                        |   |  144,465 |   | 3.2 | % | 19-55 |   |   | - |   |   | - |   | N.M. |   | N.M. |
| CWIP                                            |   |                                             |  42,929 |                                        |   | (327 | ) | N.M. |   | N.M. |   |   | 3,495 |   |   | - |   | N.M. |   | N.M. |
| Other                                           |   |                                             | 109,264      |                                        |   | 60,376 |   | 9.7 | % | N.M. |   |   | 58,585 |   |   | 57,412 |   | 4.9 | % | N.M. |
| Total                                           |   | $                                                | 934,100      |                                        | $ | 303,144 |   |   |   |   |   | $ | 351,014 |   | $ |  175,375 |   |   |   |   |
|                                            |   |                                             |         |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| **2004**                                        |   | **Regulated**                                    |          | **Nonregulated**                            |
|-------------------------------------------------|--------|--------------------------------------------------|---------------|---------------------------------------------|
|                                            |   |                                             |          |                                        |   |   |   |   |   |   |   |   |   |   |   |   |
| **Functional                Class of Property** |   | **Property,                Plant and Equipment** |          | **Accumulated                Depreciation** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |   | **Property,                Plant and Equipment** |   | **Accumulated                Depreciation** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |
|                                            |   | **(in                thousands)**                |          |                                        | **(in                years)** |   | **(in                thousands)** |   |   |   | **(in                years)** |
| Production                                      |   | $                                                | -             |                                        | $ | - |   | N.M. |   | N.M. |   | $ |  287,212 |   | $ |  110,492 |   | 2.6 | % | 20-49 |
| Transmission                                    |   |                                             |  281,359 |                                        |   |  97,389 |   | 3.0 | % | 40-75 |   |   | - |   |   | - |   | N.M. |   | N.M. |
| Distribution                                    |   |                                             |  474,961 |                                        |   |  138,925 |   | 3.2 | % | 19-55 |   |   | - |   |   | - |   | N.M. |   | N.M. |
| CWIP                                            |   |                                             |  20,724  |                                        |   | (2,768 | )  | N.M. |   | N.M. |   |   |  2,897 |   |   | - |   | N.M. |   | N.M. |
| Other                                           |   |                                             | 115,174       |                                        |   | 61,895 |   | 8.4 | % | N.M. |   |   | 123,244 |   |   | 121,837 |   | 4.9 | % | N.M. |
| Total                                           |   | $                                                | 892,218       |                                        | $ | 295,441 |   |   |   |   |   | $ | 413,353 |   | $ | 232,329 |   |   |   |   |
|                                            |   |                                             |          |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| **2003**                                        |   | **Regulated**                                         |   | **Nonregulated**                           |   |
|-------------------------------------------------|--------|-------------------------------------------------------|--------|--------------------------------------------|--------|
|                                            |   |                                                  |   |                                       |   |   |   |   |   |
| **Functional                Class of Property** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |   |
| Production                                      |   | N.M.                                                  |   | N.M.                                       |   |  2.6 | %  | 20-49 |   |
| Transmission                                    |   | 3.1                                                   | %      | 40-75                                      |   | N.M. |   | N.M. |   |
| Distribution                                    |   | 3.3                                                   | %      | 19-55                                      |   | N.M. |   | N.M. |   |
| Other                                           |   | 10.2                                                  | %      | N.M.                                       |   | 4.9 | % | N.M. |   |

**APCo**

| **2005**                                        |   | **Regulated**                                    |            | **Nonregulated**                            |
|-------------------------------------------------|--------|--------------------------------------------------|-----------------|---------------------------------------------|
|                                            |   |                                             |            |                                        |   |   |   |   |   |   |   |   |   |   |   |   |
| **Functional                Class of Property** |   | **Property,                Plant and Equipment** |            | **Accumulated                Depreciation** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |   | **Property,                Plant and Equipment** |   | **Accumulated                Depreciation** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |
|                                            |   | **(in                thousands)**                |            |                                        | **(in                years)** |   | **(in                thousands)** |   |   |   | **(in                years)** |
| Production                                      |   | $                                                |  1,140,438 |                                        | $ |  515,967 |   | 2.9 | % | 40-120 |   | $ |  1,657,719 |   | $ |  748,739 |   | 2.9 | % | 40-120 |
| Transmission                                    |   |                                             |  1,266,855 |                                        |   |  481,978 |   | 2.2 | % | 35-65 |   |   | - |   |   | - |   | N.M. |   | N.M. |
| Distribution                                    |   |                                             |  2,141,153 |                                        |   |  655,856 |   | 3.2 | % | 10-60 |   |   | - |   |   | - |   | N.M. |   | N.M. |
| CWIP                                            |   |                                             |  481,579   |                                        |   | (4,844 | ) | N.M. |   | N.M. |   |   |  166,059 |   |   | (5,210 | )  | N.M. |   | N.M. |
| Other                                           |   |                                             | 289,924         |                                        |   |  119,178 |   | 9.3 | % | N.M. |   |   |  33,234 |   |   | 13,191 |   | 3.2 | % | N.M. |
| Total                                           |   | $                                                |  5,319,949 |                                        | $ |  1,768,135 |   |   |   |   |   | $ |  1,857,012 |   | $ | 756,720 |   |   |   |   |
|                                            |   |                                             |            |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| **2004**                                        |   | **Regulated**                                    |            | **Nonregulated**                            |
|-------------------------------------------------|--------|--------------------------------------------------|-----------------|---------------------------------------------|
|                                            |   |                                             |            |                                        |   |   |   |   |   |   |   |   |   |   |   |   |
| **Functional                Class of Property** |   | **Property,                Plant and Equipment** |            | **Accumulated                Depreciation** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |   | **Property,                Plant and Equipment** |   | **Accumulated                Depreciation** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |
|                                            |   | **(in                thousands)**                |            |                                        | **(in                years)** |   | **(in                thousands)** |   |   |   | **(in                years)** |
| Production                                      |   | $                                                |  1,019,851 |                                        | $ |  500,928 |   | 2.8 | % | 40-120 |   | $ |  1,482,422 |   | $ |  728,148 |   | 2.8 | % | 40-120 |
| Transmission                                    |   |                                             | 1,255,390       |                                        |   | 458,247 |   | 2.2 | % | 35-65 |   |   | - |   |   | - |   | N.M. |   | N.M. |
| Distribution                                    |   |                                             |  2,070,377 |                                        |   |  626,406 |   | 3.3 | % | 10-60 |   |   | - |   |   | - |   | N.M. |   | N.M. |
| CWIP                                            |   |                                             |  273,987   |                                        |   | (29 | )  | N.M. |   | N.M. |   |   |  125,129 |   |   | (2,610 | )  | N.M. |   | N.M. |
| Other                                           |   |                                             | 302,474         |                                        |   |  132,130 |   | 9.4 | % | N.M. |   |   | 33,577 |   |   | 13,197 |   | 3.2 | % | N.M. |
| Total                                           |   | $                                                |  4,922,079 |                                        | $ |  1,717,682 |   |   |   |   |   | $ |  1,641,128 |   | $ | 738,735 |   |   |   |   |
|                                            |   |                                             |            |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| **2003**                                        |   | **Regulated**                                         |   | ** Nonregulated**                     |   |
|-------------------------------------------------|--------|-------------------------------------------------------|--------|--------------------------------------------|--------|
|                                            |   |                                                  |   |                                       |   |   |   |   |   |
| **Functional                Class of Property** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |   |
|                                            |   |                                                  |   | **(in                years)**              |   |   |   | **(in                years)** |   |
| Production                                      |   | 3.2                                                   | %      | 40-120                                     |   | 3.2 | % | 40-120 |   |
| Transmission                                    |   | 2.2                                                   | %      | 35-65                                      |   | N.M. |   | N.M. |   |
| Distribution                                    |   | 3.3                                                   | %      | 10-60                                      |   | N.M. |   | N.M. |   |
| Other                                           |   | 9.3                                                   | %      | N.M.                                       |   | 3.2 | % | N.M. |   |

**CSPCo**

| **2005**                                        |   | **Regulated**                                    |            | **Nonregulated**                            |
|-------------------------------------------------|--------|--------------------------------------------------|-----------------|---------------------------------------------|
|                                            |   |                                             |            |                                        |   |   |   |   |   |   |   |   |   |   |   |   |
| **Functional                Class of Property** |   | **Property,                Plant and Equipment** |            | **Accumulated                Depreciation** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |   | **Property,                Plant and Equipment** |   | **Accumulated                Depreciation** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |
|                                            |   | **(in                thousands)**                |            |                                        |   | **(in                years)** |   | **(in                thousands)** |   |   |   | **(in                years)** |
| Production                                      |   | $                                                |  -         |                                        | $ | - |   | N.M. |   | N.M. |   | $ |  1,874,652 |   | $ |  759,789 |   | 3.1 | % | 40-59 |
| Transmission                                    |   |                                             | 457,937         |                                        |   |  192,282 |   | 2.3 | % | 33-50 |   |   | - |   |   | - |   | N.M. |   | N.M. |
| Distribution                                    |   |                                             |  1,380,722 |                                        |   |  475,669 |   | 3.6 | % | 12-56 |   |   | - |   |   | - |   | N.M. |   | N.M. |
| CWIP                                            |   |                                             |  69,800    |                                        |   | (3,781 | )  | N.M. |   | N.M. |   |   |  59,446 |   |   |  63 |   | N.M. |   | N.M. |
| Other                                           |   |                                             |  161,205   |                                        |   |  73,505 |   | 10.2 | % | N.M. |   |   | 22,891 |   |   | 3,331 |   | N.M. |   | N.M. |
| Total                                           |   | $                                                |  2,069,664 |                                        | $ |  737,675 |   |   |   |   |   | $ | 1,956,989 |   | $ |  763,183 |   |   |   |   |
|                                            |   |                                             |            |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| **2004**                                        |   | **Regulated**                                    |            | **Nonregulated**                            |
|-------------------------------------------------|--------|--------------------------------------------------|-----------------|---------------------------------------------|
|                                            |   |                                             |            |                                        |   |   |   |   |   |   |   |   |   |   |   |   |
| **Functional                Class of Property** |   | **Property,                Plant and Equipment** |            | **Accumulated                Depreciation** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |   | **Property,                Plant and Equipment** |   | **Accumulated                Depreciation** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |
|                                            |   | **(in                thousands)**                |            |                                        |   | **(in                years)** |   | **(in                thousands)** |   |   |   | **(in                years)** |
| Production                                      |   | $                                                | -               |                                        | $ | - |   | N.M. |   | N.M. |   | $ |  1,658,552 |   | $ |  761,085 |   | 2.9 | % | 40-50 |
| Transmission                                    |   |                                             |  432,714   |                                        |   |  186,052 |   | 2.3 | % | 33-50 |   |   | - |   |   | - |   | N.M. |   | N.M. |
| Distribution                                    |   |                                             |  1,300,252 |                                        |   |  448,762 |   | 3.6 | % | 12-56 |   |   | - |   |   | - |   | N.M. |   | N.M. |
| CWIP                                            |   |                                             |  34,631    |                                        |   |  1,016 |   | N.M. |   | N.M. |   |   |  97,112 |   |   | 52 |   | N.M. |   | N.M. |
| Other                                           |   |                                             |  167,986   |                                        |   |  74,984 |   | 10.3 | % | N.M. |   |   | 25,828 |   |   | 3,506 |   | N.M. |   | N.M. |
| Total                                           |   | $                                                |  1,935,583 |                                        | $ |  710,814 |   |   |   |   |   | $ | 1,781,492 |   | $ | 764,643 |   |   |   |   |
|                                            |   |                                             |            |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| **2003**                                        |   | **Regulated**                                         |   | **Nonregulated**                           |   |
|-------------------------------------------------|--------|-------------------------------------------------------|--------|--------------------------------------------|--------|
|                                            |   |                                                  |   |                                       |   |   |   |   |   |
| **Functional                Class of Property** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |   |
|                                            |   |                                                  |   | **(in                years)**              |   |   |   | **(in                years)** |   |
| Production                                      |   | N.M.                                                  |   | N.M.                                       |   | 3.0 | %  | 40-50 |   |
| Transmission                                    |   | 2.3                                                   | %      | 33-50                                      |   | N.M. |   | N.M. |   |
| Distribution                                    |   | 3.6                                                   | %      | 12-56                                      |   | N.M. |   | N.M. |   |
| Other                                           |   | 9.9                                                   | %      | N.M.                                       |   | N.M. |   | N.M. |   |

|                                            |   | **I&M**                                      |            | **PSO**                                     |
|-------------------------------------------------|--------|--------------------------------------------------|-----------------|---------------------------------------------|
|                                            |   |                                             |            |                                        |
| **2005**                                        |   | **Regulated**                                    |            | **Regulated**                               |
|                                            |   |                                             |            |                                        |   |   |   |   |   |   |   |   |   |   |   |   |
| **Functional                Class of Property** |   | **Property,                Plant and Equipment** |            | **Accumulated                Depreciation** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |   | **Property,                Plant and Equipment** |   | **Accumulated                Depreciation** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |
|                                            |   | **(in                thousands)**                |            |                                        |   | **(in                years)** |   | **(in                thousands)** |   |   |   | **(in                years)** |
| Production                                      |   | $                                                |  3,128,078 |                                        | $ |  1,901,698 |   | 3.8 | % | 40-119 |   | $ |  1,072,928 |   | $ |  639,256 |   | 2.7 | % | 30-57 |
| Transmission                                    |   |                                             |  1,028,496 |                                        |   |  401,024 |   | 1.9 | % | 30-65 |   |   |  479,272 |   |   |  153,998 |   | 2.1 | % | 40-75 |
| Distribution                                    |   |                                             |  1,029,498 |                                        |   |  335,642 |   | 4.1 | % | 12-65 |   |   |  1,140,535 |   |   |  262,763 |   | 3.1 | % | 25-65 |
| CWIP                                            |   |                                             |  311,080   |                                        |   | (1,544 | )  | N.M. |   | N.M. |   |   |  90,455 |   |   | (7,798 | )  | N.M. |   | N.M. |
| Other                                           |   |                                             | 309,217         |                                        |   |  79,741 |   | 11.7 | % | N.M. |   |   |  207,211 |   |   |  127,639 |   | 7.4 | % | N.M. |
| Total                                           |   | $                                                | 5,806,369       |                                        | $ |  2,716,561 |   |   |   |   |   | $ |  2,990,401 |   | $ |  1,175,858 |   |   |   |   |
|                                            |   |                                             |            |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                            |   | **Nonregulated**                                 |            | **Nonregulated**                            |
| **Functional                Class of Property** |   | **Property,                Plant and Equipment** |            | **Accumulated                Depreciation** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |   | **Property,                Plant and Equipment** |   | **Accumulated                Depreciation** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |
|                                            |   | **(in                thousands)**                |            |                                        |   | **(in                years)** |   | **(in                thousands)** |   |   |   | **(in                years)** |
| Other                                           |   | $                                                | 155,913         |                                        | $ | 105,997 |   | 3.4 | % | N.M. |   | $ | 4,594 |   | $ | - |   | N.M. |   | N.M. |

| **2004**                                        |   | **Regulated**                                    |            | **Regulated**                               |
|-------------------------------------------------|--------|--------------------------------------------------|-----------------|---------------------------------------------|
|                                            |   |                                             |            |                                        |   |   |   |   |   |   |   |   |   |   |   |   |
| **Functional                Class of Property** |   | **Property,                Plant and Equipment** |            | **Accumulated                Depreciation** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |   | **Property,                Plant and Equipment** |   | **Accumulated                Depreciation** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |
|                                            |   | **(in                thousands)**                |            |                                        |   | **(in                years)** |   | **(in                thousands)** |   |   |   | **(in                years)** |
| Production                                      |   | $                                                |  3,122,883 |                                        | $ |  1,813,130 |   | 3.7 | % | 40-119 |   | $ |  1,072,022 |   | $ |  619,348 |   | 2.7 | % | 30-57 |
| Transmission                                    |   |                                             |  1,009,551 |                                        |   |  391,980 |   | 1.9 | % | 30-65 |   |   |  468,735 |   |   |  150,799 |   | 2.3 | % | 40-75 |
| Distribution                                    |   |                                             |  990,826   |                                        |   |  329,665 |   | 4.1 | % | 12-65 |   |   |  1,089,187 |   |   |  260,623 |   | 3.3 | % | 25-65 |
| CWIP                                            |   |                                             |  163,515   |                                        |   | (1,545 | )  | N.M. |   | N.M. |   |   |  41,028 |   |   | (9,899 | )  | N.M. |   | N.M. |
| Other                                           |   |                                             | 275,627         |                                        |   |  70,249 |   | 11.2 | % | N.M. |   |   |  200,044 |   |   | 96,242 |   | 7.9 | % | N.M. |
| Total                                           |   | $                                                | 5,562,402       |                                        | $ |  2,603,479 |   |   |   |   |   | $ | 2,871,016 |   | $ |  1,117,113 |   |   |   |   |
|                                            |   |                                             |            |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                            |   | **Nonregulated**                                 |            | **Nonregulated**                            |
| **Functional                Class of Property** |   | **Property,                Plant and Equipment** |            | **Accumulated                Depreciation** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |   | **Property,                Plant and Equipment** |   | **Accumulated                Depreciation** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |
|                                            |   | **(in                thousands)**                |            |                                        |   | **(in                years)** |   | **(in                thousands)** |   |   |   | **(in                years)** |
| Other                                           |   | $                                                | 155,078         |                                        | $ | 104,643 |   | 3.4 | % | N.M. |   | $ | 4,823 |   | $ | 422 |   | N.M. |   | N.M. |

| **2003**                                        |   | **I&M****Regulated**                              |   | **PSO****Regulated**                       |   |
|-------------------------------------------------|--------|-------------------------------------------------------|--------|--------------------------------------------|--------|
|                                            |   |                                                  |   |                                       |   |   |   |   |   |
| **Functional                Class of Property** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |   |
|                                            |   |                                                  |   | **(in                years)**              |   |   |   | **(in                years)** |   |
| Production                                      |   |  3.8                                             | %      | 40-119                                     |   |  2.7 | % | 30-57 |   |
| Transmission                                    |   |  1.9                                             | %      | 30-65                                      |   |  2.4 | % | 40-75 |   |
| Distribution                                    |   |  4.2                                             | %      | 12-65                                      |   |  3.4 | % | 25-65 |   |
| Other                                           |   |  11.8                                            | %      | N.M.                                       |   |  9.7 | % | N.M. |   |

**OPCo**

| **2005**                                        |   | **Regulated**                                    |            | **Nonregulated**                            |
|-------------------------------------------------|--------|--------------------------------------------------|-----------------|---------------------------------------------|
|                                            |   |                                             |            |                                        |   |   |   |   |   |   |   |   |   |   |   |   |
| **Functional                Class of Property** |   | **Property,                Plant and Equipment** |            | **Accumulated                Depreciation** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |   | **Property,                Plant and Equipment** |   | **Accumulated                Depreciation** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |
|                                            |   | **(in                thousands)**                |            |                                        |   | **(in                years)** |   | **(in                thousands)** |   |   |   | **(in                years)** |
| Production                                      |   | $                                                | -               |                                        | $ | - |   | N.M. |   | N.M. |   | $ | 4,278,553 |   | $ |  1,876,732 |   | 2.8 | % | 35-61 |
| Transmission                                    |   |                                             | 1,002,255       |                                        |   | 403,260 |   | 2.3 | % | 27-70 |   |   | - |   |   | - |   | N.M. |   | N.M. |
| Distribution                                    |   |                                             |  1,258,518 |                                        |   |  338,652 |   | 3.9 | % | 12-55 |   |   | - |   |   | - |   | N.M. |   | N.M. |
| CWIP                                            |   |                                             |  66,103    |                                        |   | (1,361 | )  | N.M. |   | N.M. |   |   |  624,065 |   |   |  1,494 |   | N.M. |   | N.M. |
| Other                                           |   |                                             | 234,569         |                                        |   |  110,743 |   | 10.7 | % | N.M. |   |   | 59,225 |   |   | 9,379 |   | 3.0 | % | N.M. |
| Total                                           |   | $                                                | 2,561,445       |                                        | $ | 851,294 |   |   |   |   |   | $ | 4,961,843 |   | $ | 1,887,605 |   |   |   |   |
|                                            |   |                                             |            |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| **2004**                                        |   | **Regulated**                                    |            | **Nonregulated**                            |
|-------------------------------------------------|--------|--------------------------------------------------|-----------------|---------------------------------------------|
|                                            |   |                                             |            |                                        |   |   |   |   |   |   |   |   |   |   |   |   |
| **Functional                Class of Property** |   | **Property,                Plant and Equipment** |            | **Accumulated                Depreciation** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |   | **Property,                Plant and Equipment** |   | **Accumulated                Depreciation** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |
|                                            |   | **(in                thousands)**                |            |                                        |   | **(in                years)** |   | **(in                thousands)** |   |   |   | **(in                years)** |
| Production                                      |   | $                                                | -               |                                        | $ | - |   | N.M. |   | N.M. |   | $ | 4,127,284 |   | $ |  1,785,442 |   | 2.8 | % | 35-42 |
| Transmission                                    |   |                                             | 978,492         |                                        |   | 396,365 |   | 2.3 | % | 27-70 |   |   | - |   |   | - |   | N.M. |   | N.M. |
| Distribution                                    |   |                                             |  1,202,550 |                                        |   |  323,765 |   | 4.0 | % | 12-55 |   |   | - |   |   | - |   | N.M. |   | N.M. |
| CWIP                                            |   |                                             |  48,732    |                                        |   | (1,454 | )  | N.M. |   | N.M. |   |   |  192,225 |   |   | 493 |   | N.M. |   | N.M. |
| Other                                           |   |                                             | 248,748         |                                        |   | 112,628 |   | 10.1 | % | N.M. |   |   | 60,740 |   |   | 15,964 |   | 3.0 | % | N.M. |
| Total                                           |   | $                                                | 2,478,522       |                                        | $ | 831,304 |   |   |   |   |   | $ |  4,380,249 |   | $ |  1,801,899 |   |   |   |   |
|                                            |   |                                             |            |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| **2003**                                        |   | **Regulated**                                         |   | **Nonregulated**                           |   |
|-------------------------------------------------|--------|-------------------------------------------------------|--------|--------------------------------------------|--------|
|                                            |   |                                                  |   |                                       |   |   |   |   |   |
| **Functional                Class of Property** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |   |
|                                            |   |                                                  |   | **(in                years)**              |   |   |   | **(in                years)** |   |
| Production                                      |   | N.M.                                                  |   | N.M.                                       |   | 2.8 | % | 35-42 |   |
| Transmission                                    |   | 2.3                                                   | %      | 27-70                                      |   | N.M. |   | N.M. |   |
| Distribution                                    |   | 4.0                                                   | %      | 12-55                                      |   | N.M. |   | N.M. |   |
| Other                                           |   | 10.5                                                  | %      | N.M.                                       |   | 3.0 | % | N.M. |   |

**SWEPCo**

| **2005**                                        |   | **Regulated**                                    |            | **Nonregulated**                            |
|-------------------------------------------------|--------|--------------------------------------------------|-----------------|---------------------------------------------|
|                                            |   |                                             |            |                                        |   |   |   |   |   |   |   |   |   |   |   |   |
| **Functional                Class of Property** |   | **Property,                Plant and Equipment** |            | **Accumulated                Depreciation** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |   | **Property,                Plant and Equipment** |   | **Accumulated                Depreciation** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |
|                                            |   | **(in                thousands)**                |            |                                        |   | **(in                years)** |   | **(in                thousands)** |   |   |   | **(in                years)** |
| Production                                      |   | $                                                | 912,044         |                                        | $ | 577,611 |   | 3.3 | % | 30-57 |   | $ | 748,348 |   | $ | 483,743 |   | 3.3 | % | 30-57 |
| Transmission                                    |   |                                             | 645,297         |                                        |   | 201,521 |   | 2.8 | % | 40-55 |   |   | - |   |   | - |   | N.M. |   | N.M. |
| Distribution                                    |   |                                             |  1,153,026 |                                        |   |  339,258 |   | 3.6 | % | 16-65 |   |   | - |   |   | - |   | N.M. |   | N.M. |
| CWIP                                            |   |                                             |  81,437    |                                        |   | (73 | )  | N.M. |   | N.M. |   |   | 22,738 |   |   |  667 |   | N.M. |   | N.M. |
| Other                                           |   |                                             | 362,572         |                                        |   |  134,575 |   | 7.2 | % | N.M. |   |   | 81,177 |   |   | 38,914 |   | N.M. |   | N.M. |
| Total                                           |   | $                                                |  3,154,376 |                                        | $ |  1,252,892 |   |   |   |   |   | $ | 852,263 |   | $ | 523,324 |   |   |   |   |
|                                            |   |                                             |            |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| **2004**                                        |   | **Regulated**                                    |            | **Nonregulated**                            |
|-------------------------------------------------|--------|--------------------------------------------------|-----------------|---------------------------------------------|
|                                            |   |                                             |            |                                        |   |   |   |   |   |   |   |   |   |   |   |   |
| **Functional                Class of Property** |   | **Property,                Plant and Equipment** |            | **Accumulated                Depreciation** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |   | **Property,                Plant and Equipment** |   | **Accumulated                Depreciation** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |
|                                            |   | **(in                thousands)**                |            |                                        |   | **(in                years)** |   | **(in                thousands)** |   |   |   | **(in                years)** |
| Production                                      |   | $                                                |  916,912   |                                        | $ |  566,513 |   | 3.3 | % | 30-57 |   | $ |  746,249 |   | $ | 470,541 |   | 3.3 | % | 30-57 |
| Transmission                                    |   |                                             |  632,964   |                                        |   |  188,455 |   | 2.8 | % | 40-55 |   |   | - |   |   | - |   | N.M. |   | N.M. |
| Distribution                                    |   |                                             |  1,114,480 |                                        |   |  318,915 |   | 3.6 | % | 16-65 |   |   | - |   |   | - |   | N.M. |   | N.M. |
| CWIP                                            |   |                                             |  40,647    |                                        |   |  6,202 |   | N.M. |   | N.M. |   |   |  8,205 |   |   |  1,537 |   | N.M. |   | N.M. |
| Other                                           |   |                                             | 358,119         |                                        |   | 126,480 |   | 6.9 | % | N.M. |   |   | 74,932 |   |   | 32,207 |   | N.M. |   | N.M. |
| Total                                           |   | $                                                | 3,063,122       |                                        | $ | 1,206,565 |   |   |   |   |   | $ | 829,386 |   | $ | 504,285 |   |   |   |   |
|                                            |   |                                             |            |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| **2003**                                        |   | **Regulated**                                         |   | **Nonregulated**                           |   |
|-------------------------------------------------|--------|-------------------------------------------------------|--------|--------------------------------------------|--------|
|                                            |   |                                                  |   |                                       |   |   |   |   |   |
| **Functional                Class of Property** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |   | **Annual                Composite Depreciation Rate** |   | **Depreciable                Life Ranges** |   |
|                                            |   |                                                  |   | **(in                years)**              |   |   |   | **(in                years)** |   |
| Production                                      |   | 3.3                                                   | %      | 30-57                                      |   |  3.3 | % | 30-57 |   |
| Transmission                                    |   | 2.8                                                   | %      | 40-55                                      |   |  N.M. |   | N.M. |   |
| Distribution                                    |   | 3.6                                                   | %      | 16-65                                      |   |  N.M. |   | N.M. |   |
| Other                                           |   | 8.0                                                   | %      | N.M.                                       |   | N.M. |   | N.M. |   |

***Accounting      for Asset Retirement Obligations (ARO)***

|                               |   | **ARO                at****January                1,****2004,****Including****Held                for Sale** |    | **Accretion                Expense** |   | **Liabilities                Incurred** |   | **Liabilities                Settled** |   | **Revisions                in Cash Flow****Estimates** |   | **ARO                at December 31, 2004****Including****Held****for                Sale** |    |
|------------------------------------|--------|--------------------------------------------------------------------------------------------------------------|---------|--------------------------------------|--------|-----------------------------------------|--------|----------------------------------------|--------|--------------------------------------------------------|--------|---------------------------------------------------------------------------------------------|---------|
|                               |   |                                                                                                         |    |                                 |   |                                    |   |                                   |   |                                                   |   |                                                                                        |    |
| AEGCo                (a)           |   | $                                                                                                            | 1,126   |                                 | $      | 90                                      |   | $                                      | -      |                                                   | $      | -                                                                                           |    | $ | - |   | $ | 1,216 |   |
| APCo                (a)            |   |                                                                                                         | 21,776  |                                 |   | 1,740                                   |   |                                   | -      |                                                   |   | (469                                                                                        | )       |   | 1,579 |   |   | 24,626 |   |
| CSPCo                (a)           |   |                                                                                                         | 8,740   |                                 |   | 703                                     |   |                                   | -      |                                                   |   | (2                                                                                          | )       |   | 2,144 |   |   | 11,585 |   |
| I&M                (a)(b)      |   |                                                                                                         | 553,219 |                                 |   | 39,825                                  |   |                                   | -      |                                                   |   | -                                                                                           |    |   | 118,725 |   |   | 711,769 |   |
| OPCo                (a)            |   |                                                                                                         | 42,656  |                                 |   | 3,430                                   |   |                                   | -      |                                                   |   | -                                                                                           |    |   | (480 | ) |   | 45,606 |   |
| SWEPCo                (c)          |   |                                                                                                         | 8,429   |                                 |   | 1,274                                   |   |                                   | 17,658 |                                                   |   | -                                                                                           |    |   | - |   |   | 27,361 |   |
| TCC                (d)             |   |                                                                                                         | 218,771 |                                 |   | 16,726                                  |   |                                   | -      |                                                   |   | -                                                                                           |    |   | 13,375 |   |   | 248,872 |   |
|                               |   |                                                                                                         |    |                                 |   |                                    |   |                                   |   |                                                   |   |                                                                                        |    |   |   |   |   |   |   |
|                               |   | **ARO                at****January                1,****2005,****Including****Held                for Sale** |    | **Accretion                Expense** |   | **Liabilities                Incurred** |   | **Liabilities                Settled** |   | **Revisions                in Cash Flow****Estimates** |   | **ARO                at December 31, 2005**                                                 |    |
|                               |   |                                                                                                         |    |                                 |   |                                    |   |                                   |   |                                                   |   |                                                                                        |    |   |   |   |   |   |   |
| AEGCo                (a)(e)        |   | $                                                                                                            | 1,216   |                                 | $      | 98                                      |   | $                                      | 56     |                                                   | $      | -                                                                                           |    | $ | - |   | $ | 1,370 |   |
| APCo                (a)(e)         |   |                                                                                                         | 24,626  |                                 |   | 1,928                                   |   |                                   | 8,972  |                                                   |   |  (32                                                                                   | )  |   | 2 |   |   | 35,496 |   |
| CSPCo                (a)(e)        |   |                                                                                                         | 11,585  |                                 |   | 864                                     |   |                                   | 1,981  |                                                   |   | (9                                                                                          | )       |   | 3,423 |   |   | 17,844 |   |
| I&M                (a)(b)(e)   |   |                                                                                                         | 711,769 |                                 |   | 47,368                                  |   |                                   | 5,801  |                                                   |   | -                                                                                           |    |   | (26,979 | ) |   | 737,959 |   |
| KPCo                (e)            |   |                                                                                                         | -       |                                 |   | -                                       |   |                                   | 1,190  |                                                   |   | -                                                                                           |    |   | - |   |   | 1,190 |   |
| OPCo                (a)(e)         |   |                                                                                                         | 45,606  |                                 |   | 3,665                                   |   |                                   | 9,513  |                                                   |   | -                                                                                           |    |   | 6,773 |   |   | 65,557 |   |
| PSO                (e)             |   |                                                                                                         | -       |                                 |   | -                                       |   |                                   | 6,056  |                                                   |   | -                                                                                           |    |   | - |   |   | 6,056 |   |
| SWEPCo                (a)(c)(e)(f) |   |                                                                                                         | 27,361  |                                 |   | 1,491                                   |   |                                   | 18,071 |                                                   |   | (3,449                                                                                      | )       |   | (397 | ) |   | 43,077 |   |
| TCC                (d)(e)          |   |                                                                                                         | 248,872 |                                 |   | 7,549                                   |   |                                   | 1,165  |                                                   |   | (256,421                                                                                    | )       |   | - |   |   | 1,165 |   |
| TNC                (e)             |   |                                                                                                         | -       |                                 |   | -                                       |   |                                   | 13,514 |                                                   |   | -                                                                                           |    |   | - |   |   | 13,514 |   |

| (a) | Includes                ARO related to ash ponds.                                                                                                                                                                                                                                                                                             |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Includes                ARO related to nuclear decommissioning costs for the Cook Plant ($731                million and $711 million at December 31, 2005 and 2004,                respectively).                                                                                                                                            |
| (c) | Includes                ARO related to Sabine Mining Company and Dolet Hills Lignite Company,                LLC.                                                                                                                                                                                                                             |
| (d) | Includes                ARO related to nuclear decommissioning costs for TCC’s share of STP which                is included in Liabilities Held for Sale - Texas Generation Plants                on                TCC’s 2004 Consolidated Balance Sheet. STP was sold in May 2005 (see                Note                10). |
| (e) | Includes                ARO related to asbestos removal.                                                                                                                                                                                                                                                                                      |
| (f) | The                current portion of SWEPCo’s ARO, totaling $2 million, is included in Other                in the Current Liabilities section of SWEPCo’s 2005 Consolidated Balance                Sheet.                                                                                                                       |

***Allowance      for Funds Used During Construction (AFUDC) and Interest      Capitalization***

|    |   | **2005**                         |   | **2004** |   | **2003** |   |
|---------|--------|----------------------------------|--------|----------|--------|----------|--------|
|    |   | **(in                millions)** |   |
| AEGCo   |   | $                                | 0.3    |     | $      | -        |   | $ | - |   |
| APCo    |   |                             | 16.7   |     |   | 14.7     |   |   | 8.5 |   |
| CSPCo   |   |                             | 3.1    |     |   | 6.1      |   |   | 6.3 |   |
| I&M |   |                             | 8.8    |     |   | 4.1      |   |   | 8.2 |   |
| KPCo    |   |                             | 0.6    |     |   | 0.5      |   |   | 1.7 |   |
| OPCo    |   |                             | 17.8   |     |   | 6.3      |   |   | 5.0 |   |
| PSO     |   |                             | 1.5    |     |   | 0.6      |   |   | 0.8 |   |
| SWEPCo  |   |                             | 3.6    |     |   | 1.1      |   |   | 1.7 |   |
| TCC     |   |                             | 2.5    |     |   | 1.9      |   |   | 1.1 |   |
| TNC     |   |                             | 1.1    |     |   | 0.6      |   |   | 0.8 |   |

***Valuation      of Nonderivative Financial Instruments***

***Cash      and Cash Equivalents***

***Other      Cash Deposits***

***Inventory***

***Accounts      Receivable***

***Concentrations      of Credit Risk and Significant Customers***

|                                                         |   | **2005**                           |   | **2004**     |   | **2003**     |   |
|--------------------------------------------------------------|--------|------------------------------------|--------|--------------|--------|--------------|--------|
|                                                         |   | **(in                percentage)** |   |
|                                                         |   |                          |   |    |   |    |   |
| **TCC                -ERCOT and Centrica**                   |   |                          |   |    |   |    |   |
| Percentage                of Operating Revenues              |   |                               | 29     | %            |   | 72           | %      |   | 55 | % |
| Percentage                of Accounts Receivable - Customers |   |                               | 7      |         |   | 54           |   |   | N/A |   |
|                                                         |   |                               |   |         |   |         |   |   |   |   |
| **TNC                -ERCOT and Centrica**                   |   |                               |   |         |   |         |   |   |   |   |
| Percentage                of Operating Revenues              |   |                               | 27     |         |   | 57           |   |   | 55 |   |
| Percentage                of Accounts Receivable - Customers |   |                               | 12     |         |   | 59           |   |   | N/A |   |

***Deferred      Fuel Costs***
** **

***Revenue      Recognition***

*Regulatory      Accounting*

*Traditional      Electricity Supply and Delivery Activities*

*Energy      Marketing and Risk Management Activities*

*Construction      Projects for Outside Parties*

***Levelization      of Nuclear Refueling Outage Costs***

***Maintenance      Costs***

***Income      Taxes and Investment Tax Credits***

***Excise      Taxes***

***Debt      and Preferred Stock***

***Goodwill      and Intangible Assets***

***Emission      Allowances***

***Nuclear      Trust Funds***

| · | acceptable                investments (rated investment grade or above);                                                |
|--------|-------------------------------------------------------------------------------------------------------------------------|
| · | maximum                percentage invested in a specific type of investment;                                            |
| · | prohibition                of investment in obligations of the applicable company or its affiliates;                and |
| · | withdrawals                permitted only for payment of decommissioning costs and trust                expenses.       |

|                                                              |   | **2005** |   | **2004**                         |   |
|-------------------------------------------------------------------|--------|----------|--------|----------------------------------|--------|
| **($                millions)**                                   |   | **Cost** |   | **Gross****Unrealized****Gains** |   | **Gross****Unrealized****Losses** |   | **Estimated****Fair****Value** |   | **Cost** |   | **Gross****Unrealized****Gains** |   | **Gross****Unrealized****Losses** |   | **Estimated****Fair****Value** |   |
| Cash                                                              |   | $        | 21     |                             | $      | - |   | $ | - |   | $ | 21 |   | $ | 20 |   | $ | - |   | $ | - |   | $ | 20 |   |
| Debt                Securities                                    |   |     | 691    |                             |   | 7 |   |   | (7 | ) |   | 691 |   |   | 634 |   |   | 8 |   |   | (3 | ) |   | 639 |   |
| Equity                Securities                                  |   |     | 277    |                             |   | 148 |   |   | (3 | ) |   | 422 |   |   | 282 |   |   | 114 |   |   | (2 | ) |   | 394 |   |
| Spent                Nuclear Fuel and Decommissioning Trusts |   | $        | 989    |                             | $      | 155 |   | $ | (10 | ) | $ | 1,134 |   | $ | 936 |   | $ | 122 |   | $ | (5 | ) | $ | 1,053 |   |

|                                                                                        |   | **2004** |   |
|---------------------------------------------------------------------------------------------|--------|----------|--------|
| **($                millions)**                                                             |   | **Cost** |   | **Gross****Unrealized****Gains** |   | **Gross****Unrealized****Losses** |   | **Estimated****Fair****Value** |   |
| Cash                                                                                        |   | $        | 2      |   | $ | - |   | $ | - |   | $ | 2 |   |
| Debt                Securities                                                              |   |     | 57     |   |   | 2 |   |   | (1 | ) |   | 58 |   |
| Equity                Securities                                                            |   |     | 48     |   |   | 35 |   |   | - |   |   | 83 |   |
| Decommissioning                Trusts Included in Assets Held for                 Sale |   | $        | 107    |   | $ | 37 |   | $ | (1 | ) | $ | 143 |   |

|                              |   | **Fair                Value**    |   |
|-----------------------------------|--------|----------------------------------|--------|
|                              |   | **(in                millions)** |   |
|                              |   |                        |   |
| Within                1 year      |   | $                                | 17     |   |
| 1                year - 5 years   |   |                             | 298    |   |
| 5                years - 10 years |   |                             | 173    |   |
| After                10 years     |   |                             | 203    |   |
|                              |   | $                                | 691    |   |
|                              |   |                             |   |   |

***Comprehensive      Income***
** **
***(Loss)***

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

|                                          |   | **December                31,**   |    |
|-----------------------------------------------|--------|-----------------------------------|---------|
|                                          |   | **2005**                          |    | **2004** |   |
|                                          |   | **(in                thousands)** |    |
| **Components**                                |   |                         |    |    |   |
| **Cash                Flow Hedges:**          |   |                         |    |    |   |
| APCo                                          |   | $                                 | (16,421 | ) | $ | (9,324 | ) |
| CSPCo                                         |   |                              | (859    | ) |   | 1,393 |   |
| I&M                                       |   |                              | (3,467  | ) |   | (4,076 | ) |
| KPCo                                          |   |                              | (194    | ) |   | 813 |   |
| OPCo                                          |   |                              | 755     |   |   | 1,241 |   |
| PSO                                           |   |                              | (1,112  | ) |   | 400 |   |
| SWEPCo                                        |   |                              | (5,852  | ) |   | (820 | ) |
| TCC                                           |   |                              | (224    | ) |   | 657 |   |
| TNC                                           |   |                              | (111    | ) |   | 285 |   |
|                                          |   |                              |    |   |   |   |   |
| **Minimum                Pension Liability:** |   |                              |    |   |   |   |   |
| APCo                                          |   | $                                 | (189    | ) | $ | (72,348 | ) |
| CSPCo                                         |   |                              | (21     | ) |   | (62,209 | ) |
| I&M                                       |   |                              | (102    | ) |   | (41,175 | ) |
| KPCo                                          |   |                              | (29     | ) |   | (9,588 | ) |
| OPCo                                          |   |                              | -       |   |   | (75,505 | ) |
| PSO                                           |   |                              | (152    | ) |   | (325 | ) |
| SWEPCo                                        |   |                              | (277    | ) |   | (360 | ) |
| TCC                                           |   |                              | (928    | ) |   | (4,816 | ) |
| TNC                                           |   |                              | (393    | ) |   | (413 | ) |

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

***Reclassifications***

|    |   | **Year                  Ended December 31,** |   |
|---------|--------|----------------------------------------------|--------|
|    |   | **2004**                                     |   | **2003** |   |
|    |   | **(in                  thousands)**          |   |
| AEGCo   |   | $                                            | **-**  |   | $ | **-** |   |
| APCo    |   |                                         | 12,233 |   |   | 10,320 |   |
| CSPCo   |   |                                         | 19,736 |   |   | 17,308 |   |
| I&M |   |                                         | 6,693  |   |   | 4,505 |   |
| KPCo    |   |                                         | 4,425  |   |   | 4,826 |   |
| OPCo    |   |                                         | 68,237 |   |   | 57,927 |   |
| PSO     |   |                                         | 24     |   |   | - |   |
| SWEPCo  |   |                                         | 826    |   |   | - |   |
| TCC     |   |                                         | 1,213  |   |   | - |   |
| TNC     |   |                                         | 5      |   |   | - |   |

|   |   | **December                31,**   |   |
|--------|--------|-----------------------------------|--------|
|   |   | **2004**                          |   |
|   |   | **(in                thousands)** |   |
| PSO    |   | $                                 | 1,993  |   |
| SWEPCo |   |                              | (383   | ) |
| TCC    |   |                              | 17,470 |   |
| TNC    |   |                              | 8,367  |   |
|   |   |                              |   |   |

**2.**
**NEW      ACCOUNTING PRONOUNCEMENTS, EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT OF      ACCOUNTING CHANGES**

**NEW      ACCOUNTING PRONOUNCEMENTS**

***SFAS      123 (revised 2004) “Share-Based Payment” (SFAS 123R)***

***SFAS      154 “Accounting Changes and Error Corrections” (SFAS      154)***

***FASB      Interpretation No. 47 “Accounting for Conditional Asset Retirement Obligations”(FIN 47)***

|    |                                                                        | **Liability** |   | **Cumulative                Effect** |   |
|---------|-----------------------------------------------------------------------------|---------------|--------|--------------------------------------|--------|
|    |                                                                        | **Recorded**  |   | **Pretax**                           |   | **Net                of Tax** |   |
|    |        **(in                thousands)** |          |
| AEGCo   |                                                                        | $             | 56     |                                 | $      | - |   | $ | - |   |
| APCo    |                                                                        |          | 8,972  |                                 |   | (3,470 | ) |   | (2,256 | ) |
| CSPCo   |                                                                        |          | 1,981  |                                 |   | (1,292 | ) |   | (839 | ) |
| I&M |                                                                        |          | 5,801  |                                 |   | - |   |   | - |   |
| KPCo    |                                                                        |          | 1,190  |                                 |   | - |   |   | - |   |
| OPCo    |                                                                        |          | 9,513  |                                 |   | (7,039 | ) |   | (4,575 | ) |
| PSO     |                                                                        |          | 6,056  |                                 |   | - |   |   | - |   |
| SWEPCo  |                                                                        |          | 6,702  |                                 |   | (1,926 | ) |   | (1,252 | ) |
| TCC     |                                                                        |          | 1,165  |                                 |   | - |   |   | - |   |
| TNC     |                                                                        |          | 13,514 |                                 |   | (13,034 | ) |   | (8,472 | ) |

|    |   | **December                  31,**   |   |
|---------|--------|-------------------------------------|--------|
|    |   | **2004**                            |   | **2003** |   |
|    |   | **(in                  thousands)** |   |
| AEGCo   |   | $                                   | 53     |   | $ | 50 |   |
| APCo    |   |                                | 8,434  |   |   | 7,928 |   |
| CSPCo   |   |                                | 1,862  |   |   | 1,750 |   |
| I&M |   |                                | 5,453  |   |   | 5,126 |   |
| KPCo    |   |                                | 1,119  |   |   | 1,052 |   |
| OPCo    |   |                                | 8,943  |   |   | 8,407 |   |
| PSO     |   |                                | 5,693  |   |   | 5,352 |   |
| SWEPCo  |   |                                | 6,757  |   |   | 6,351 |   |
| TCC     |   |                                | 1,085  |   |   | 1,020 |   |
| TNC     |   |                                | 12,704 |   |   | 11,942 |   |

***EITF      Issue 03-13 “Applying the Conditions in Paragraph 42 of FASB Statement No. 144,      Accounting for the Impairment or Disposal of Long-Lived Assets, in Determining      Whether to Report Discontinued Operations”***

***EITF      Issue 04-13 “Accounting for Purchases and Sales of Inventory with the Same      Counterparty”***

***Future      Accounting Changes***

**EXTRAORDINARY      ITEMS**

**CUMULATIVE      EFFECT OF ACCOUNTING CHANGES**

***Accounting      for Risk Management Contracts***

***Asset      Retirement Obligations***

|    |   | **2005**                                                      |   | **2003**                                                        |   |
|---------|--------|---------------------------------------------------------------|--------|-----------------------------------------------------------------|--------|
|    |   | **FIN                47****Cumulative                Effect** |   | **SFAS                143****Cumulative                Effect** |   | **EITF                02-3****Cumulative                Effect** |   |
|    |   | **(in                millions)**                              |   |
|    |   | **Pretax****Income                (Loss)**                    |   | **Net                of Tax Income (Loss)**                     |   | **Pretax****Income                (Loss)** |   | **Net                of Tax Income (Loss)** |   | **Pretax****Income                (Loss)** |   | **Net                of Tax****Income                (Loss)** |   |
| APCo    |   | $                                                             | (3.5   | )                                                               | $      | (2.3 | ) | $ | 128.3 |   | $ | 80.3 |   | $ | (4.7 | ) | $ | (3.0 | ) |
| CSPCo   |   |                                                          | (1.3   | )                                                               |   | (0.8 | ) |   | 49.0 |   |   | 29.3 |   |   | (3.1 | ) |   | (2.0 | ) |
| I&M |   |                                                          | -      |                                                            |   | - |   |   | - |   |   | - |   |   | (4.9 | ) |   | (3.2 | ) |
| KPCo    |   |                                                          | -      |                                                            |   | - |   |   | - |   |   | - |   |   | (1.7 | ) |   | (1.1 | ) |
| OPCo    |   |                                                          | (7.0   | )                                                               |   | (4.6 | ) |   | 213.6 |   |   | 127.3 |   |   | (4.2 | ) |   | (2.7 | ) |
| SWEPCo  |   |                                                          | (1.9   | )                                                               |   | (1.3 | ) |   | 13.0 |   |   | 8.4 |   |   | 0.2 |   |   | 0.1 |   |
| TCC     |   |                                                          | -      |                                                            |   | - |   |   | - |   |   | - |   |   | 0.2 |   |   | 0.1 |   |
| TNC     |   |                                                          | (13.0  | )                                                               |   | (8.5 | ) |   | 4.7 |   |   | 3.1 |   |   | - |   |   | - |   |

**3.**
**GOODWILL      AND OTHER INTANGIBLE ASSETS**

***Goodwill***

***Acquired      Intangible Assets***

|                              |   |                                 |   | **December                31, 2005**     |   | **December                31, 2004**        |   |
|-----------------------------------|--------|--------------------------------------|--------|------------------------------------------|--------|---------------------------------------------|--------|
|                              |   | **Amortization                Life** |   | **Gross                Carrying Amount** |   | **Accumulated                Amortization** |   | **Gross                Carrying Amount** |   | **Accumulated                Amortization** |   |
|                              |   | **(in                years)**        |   | **(in                millions)**         |   | **(in                millions)**            |   |
| Advanced                royalties |   |                                 | 10     |                                     | $      | 29.4                                        |   | $ | 13.6 |   | $ | 29.4 |   | $ | 10.6 |   |

**4.**
**RATE      MATTERS**

***APCo      Virginia Environmental and Reliability Costs - Affecting APCo***

***APCo      West Virginia Rate Case - Affecting APCo***

***I&M      Indiana Settlement Agreement - Affecting I&M***

***I&M      Depreciation Study Filing- Affecting I&M***

***KPCo      Rate Filing - Affecting KPCo***

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

***PSO      2005 Fuel Factor Filing - Affecting PSO***

***PSO      Rate Review - Affecting PSO***

***PSO      2005 Vegetation Management Filing - Affecting PSO***

***SWEPCo      PUCT Staff Review of Earnings - Affecting SWEPCo***

***SWEPCo      Louisiana Fuel Issues - Affecting SWEPCo***

***SWEPCo      Louisiana Compliance Filing - Affecting SWEPCo***

***TCC      Rate Case - Affecting TCC***

***ERCOT      Price-to-Beat (PTB) Fuel Factor Appeal - Affecting TCC and      TNC***

***RTO      Formation/Integration - Affecting APCo, CSPCo, I&M, KPCo and      OPCo***

|   **Company** |   | **PJM-Billed                Integration Costs** |   | **Non-PJM                Billed Formation/****Integration                Costs** |   |
|-------------------------|--------|-------------------------------------------------|--------|----------------------------------------------------------------------------------|--------|
|                    |   | **(in                millions)**                |   |
| APCo                    |   | $                                               | 4.8    |                                                                             | $      | 5.1 |   |
| CSPCo                   |   |                                            | 2.0    |                                                                             |   | 2.2 |   |
| I&M                 |   |                                            | 3.8    |                                                                             |   | 3.8 |   |
| KPCo                    |   |                                            | 1.1    |                                                                             |   | 1.1 |   |
| OPCo                    |   |                                            | 5.5    |                                                                             |   | 5.7 |   |

|    |   | **December                31, 2005**            |   | **December                31, 2004**                           |   |
|---------|--------|-------------------------------------------------|--------|----------------------------------------------------------------|--------|
|    |   | **PJM-Billed                Integration Costs** |   | **Non-PJM                Billed Formation/ Integration Costs** |   | **PJM-Billed                Integration Costs** |   | **Non-PJM                Billed Formation/ Integration Costs** |   |
|    |   |  **(in                millions)**          |   |
| APCo    |   | $                                               | 4.1    |                                                           | $      | 4.9 |   | $ | 4.7 |   | $ | 4.7 |   |
| CSPCo   |   |                                            | 1.7    |                                                           |   | 1.9 |   |   | 2.0 |   |   | 1.8 |   |
| I&M |   |                                            | 3.2    |                                                           |   | 3.7 |   |   | 3.5 |   |   | 3.8 |   |
| KPCo    |   |                                            | 1.0    |                                                           |   | 1.1 |   |   | 1.0 |   |   | 1.2 |   |
| OPCo    |   |                                            | 4.7    |                                                           |   | 5.1 |   |   | 5.3 |   |   | 5.3 |   |

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

*FERC      Order on Regional Through and Out Rates and Mitigating SECA      Revenue*

|    |   | **2005**                         |   | **December                2004** |   |
|---------|--------|----------------------------------|--------|----------------------------------|--------|
|    |   | **(in                millions)** |   |
| APCo    |   | $                                | 41.0   |                             | $      | 3.5 |   |
| CSPCo   |   |                             | 22.3   |                             |   | 2.0 |   |
| I&M |   |                             | 23.7   |                             |   | 2.3 |   |
| KPCo    |   |                             | 9.7    |                             |   | 0.8 |   |
| OPCo    |   |                             | 30.8   |                             |   | 2.8 |   |

*AEP      East Transmission Revenue Requirement and Rates*

*PJM      Regional Transmission Rate Proceeding*

| ·   | the                SECA transition rates do not fully compensate AEP for its lost T&O                revenues through March 31, 2006, or |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | the                newly approved AEP zonal transmission rates are not sufficient to                replace                the lost T&O/SECA revenues, or |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | the                FERC’s review of our current SECA rates results in a rate reduction which                is subject to refund, or |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | any                increase in the AEP East companies’ transmission costs from the loss of                transmission revenues are not fully recovered in retail rates on                a timely                basis, or |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | the                FERC does not approve a new regional rate within                PJM. |
|--------------------|-----------------------------------------------------------------------------------------|

***FERC      Market Power Mitigation - Affecting AEP East companies and AEP West      companies***

***Allocation      Agreement between AEP East companies and AEP West companies***

**5.**
**EFFECTS      OF REGULATION**

***Regulatory      Assets and Liabilities***

|                                                                                                                                             |   | **AEGCo**                         |   | **APCo** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|--------|----------|--------|
|                                                                                                                                             |   | **2005**                          |   | **2004** |   | **Recovery/Refund                Period** |   | **2005** |   | **2004** |   | **Recovery/Refund                Period** |   |
|                                                                                                                                             |   | **(in                thousands)** |   |
| **Regulatory                Assets:**                                                                                                            |   |                              |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| SFAS                109 Regulatory Asset, Net                                                                                                    |   |                              |   |     |   |   |   |   |   | $ | 337,544 |   | $ | 343,415 |   | Various                Periods (a) |   |
| Transition                Regulatory Assets - Virginia                                                                                           |   |                              |   |     |   |   |   |   |   |   | 21,223 |   |   | 25,467 |   | Up                to 5 Years (a) |   |
| Unamortized                Loss on Reacquired Debt                                                                                               |   | $                                 | 4,258  |     | $      | 4,496 |   | 20                Years (b) |   |   | 17,652 |   |   | 18,157 |   | Up                to 27 Years (b) |   |
| Other                                                                                                                                            |   |                              | 1,314  |     |   | 1,117 |   | Various                Periods (a) |   |   | 80,875 |   |   | 36,368 |   | Various                Periods (a) |   |
| **Total                Noncurrent Regulatory Assets**                                                                                            |   | $                                 | 5,572  |     | $      | 5,613 |   |   |   | $ | 457,294 |   | $ | 423,407 |   |   |   |
|                                                                                                                                             |   |                              |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Current                Regulatory Assets**-                **Under-recovered                Fuel****                 Costs**-**Virginia** |   |                              |   |     |   |   |   |   |   | $ | 30,697 |   | $ | - |   | 1                Year (b) |   |
|                                                                                                                                             |   |                              |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Regulatory                Liabilities:**                                                                                                       |   |                              |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                             |   |                              |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Asset                Removal Costs                                                                                                               |   | $                                 | 27,640 |     | $      | 25,428 |   | (d) |   | $ | 86,315 |   | $ | 95,763 |   | (d) |   |
| Deferred                Investment Tax Credits                                                                                                   |   |                              | 42,718 |     |   | 46,250 |   | Up                to 17 Years (a) |   |   | 25,723 |   |   | 30,382 |   | Up                to 15 Years (c) |   |
| SFAS                109 Regulatory Liability, Net                                                                                                |   |                              | 12,331 |     |   | 12,852 |   | Various                Periods (a) |   |   |   |   |   |   |   |   |   |
| Over-recovery                of Fuel Costs - West                Virginia                                                                   |   |                              |   |     |   |   |   |   |   |   | 52,399 |   |   | 52,071 |   | (a) |   |
| Other                                                                                                                                            |   |                              |   |     |   |   |   |   |   |   | 36,793 |   |   | 23,270 |   | Various                Periods (a) |   |
| **Total                Noncurrent Regulatory Liabilities**                                                                                       |   | $                                 | 82,689 |     | $      | 84,530 |   |   |   | $ | 201,230 |   | $ | 201,486 |   |   |   |

| (a) | Amount                does not earn a return.                                                                                                                                                                  |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Amount                effectively earns a return.                                                                                                                                                              |
| (c) | A                portion of this amount effectively earns a return.                                                                                                                                            |
| (d) | The                liability for removal cost, which reduces the investment rate base                and the                resultant return, will be discharged as removal costs are                incurred. |

|                                                       |   | **CSPCo**                         |    | **I&M** |   |
|------------------------------------------------------------|--------|-----------------------------------|---------|-------------|--------|
|                                                       |   | **2005**                          |    | **2004**    |   | **Recovery/Refund                Period** |   | **2005** |   | **2004** |   | **Recovery/Refund                Period** |   |
|                                                       |   | **(in                thousands)** |    |
| **Regulatory                Assets:**                      |   |                              |    |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| SFAS                109 Regulatory Asset, Net              |   | $                                 | 17,723  |        | $      | 16,481 |   | Various                Periods (a) |   | $ | 118,743 |   | $ | 147,167 |   | Various                Periods (a) |   |
| Transition                Regulatory Assets                |   |                              | 144,868 |        |   | 156,676 |   | Up                to 3 Years (a) |   |   |   |   |   |   |   |   |   |
| Other                                                      |   |                              | 69,008  |        |   | 38,846 |   | Various                Periods (a) |   |   | 103,943 |   |   | 103,923 |   | Various                Periods(b) |   |
| **Total                Noncurrent Regulatory Assets**      |   | $                                 | 231,599 |        | $      | 212,003 |   |   |   | $ | 222,686 |   | $ | 251,090 |   |   |   |
|                                                       |   |                              |    |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Regulatory                Liabilities:**                 |   |                              |    |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                       |   |                              |    |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Asset                Removal Costs                         |   | $                                 | 117,942 |        | $      | 103,104 |   | (c) |   | $ | 280,819 |   | $ | 280,054 |   | (c) |   |
| Deferred                Investment Tax Credits             |   |                              | 25,215  |        |   | 27,933 |   | Up                to 15 Years (a) |   |   | 75,077 |   |   | 82,802 |   | Up                to 17 Years (a) |   |
| Excess                ARO for Nuclear Decommissioning      |   |                              |    |        |   |   |   |   |   |   | 271,318 |   |   | 245,175 |   | (d) |   |
| Other                                                      |   |                              | 22,187  |        |   | - |   | Various                Periods(b) |   |   | 82,801 |   |   | 69,229 |   | Various                Periods(b) |   |
| **Total                Noncurrent Regulatory Liabilities** |   | $                                 | 165,344 |        | $      | 131,037 |   |   |   | $ | 710,015 |   | $ | 677,260 |   |   |   |

| (a) | Amount                does not earn a return.                                                                                                                                                                                                                                                                                   |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | A                portion of the amount effectively earns a return.                                                                                                                                                                                                                                                              |
| (c) | The                liability for removal costs will be discharged as removal costs are                incurred over the life of the plant and lowers plant investment reducing                overall return.                                                                                                                   |
| (d) | This                is the cumulative difference in the amount provided through rates                and the                amount as measured by applying SFAS 143. This amount earns a return,                which                accrues monthly, and will be paid when the nuclear plant is                decommissioned. |

|                                                       |   | **KPCo**                          |    | **OPCo** |   |
|------------------------------------------------------------|--------|-----------------------------------|---------|----------|--------|
|                                                       |   | **2005**                          |    | **2004** |   | **Recovery/Refund                Period** |   | **2005** |   | **2004** |   | **Recovery/Refund                Period** |   |
|                                                       |   | **(in                thousands)** |    |
| **Regulatory                Assets:**                      |   |                              |    |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| SFAS                109 Regulatory Asset, Net              |   | $                                 | 96,578  |     | $      | 103,849 |   | Various                Periods (a) |   | $ | 159,742 |   | $ | 169,866 |   | Various                Periods (a) |   |
| Transition                Regulatory Assets                |   |                              |    |     |   |   |   |   |   |   | 139,632 |   |   | 225,273 |   | 2                years (a) |   |
| Other                                                      |   |                              | 20,854  |     |   | 14,558 |   | Various                Periods(b) |   |   | 98,633 |   |   | 33,235 |   | Various                Periods(b) |   |
| **Total                Noncurrent Regulatory Assets**      |   | $                                 | 117,432 |     | $      | 118,407 |   |   |   | $ | 398,007 |   | $ | 428,374 |   |   |   |
|                                                       |   |                              |    |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Regulatory                Liabilities:**                 |   |                              |    |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                       |   |                              |    |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Asset                Removal Costs                         |   | $                                 | 30,291  |     | $      | 28,232 |   | (c) |   | $ | 110,098 |   | $ | 102,875 |   | (c) |   |
| Deferred                Investment Tax Credits             |   |                              | 5,500   |     |   | 6,722 |   | Up                to 15 Years (a) |   |   | 9,416 |   |   | 12,539 |   | Up                to 15 Years (a) |   |
| Other                                                      |   |                              | 21,003  |     |   | 13,040 |   | Various                Periods(b) |   |   | 48,978 |   |   | - |   | Various                Periods(b) |   |
| **Total                Noncurrent Regulatory Liabilities** |   | $                                 | 56,794  |     | $      | 47,994 |   |   |   | $ | 168,492 |   | $ | 115,414 |   |   |   |

| (a) | Amount                does not earn a return.                                                                                                                                                                  |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | A                portion of the amount effectively earns a return.                                                                                                                                             |
| (c) | The                liability for removal cost, which reduces the investment rate base                and the                resultant return, will be discharged as removal costs are                incurred. |

|                                                                                                 |   | **PSO**                           |    | **SWEPCo** |   |
|------------------------------------------------------------------------------------------------------|--------|-----------------------------------|---------|------------|--------|
|                                                                                                 |   | **2005**                          |    | **2004**   |   | **Recovery/Refund                Period** |   | **2005** |   | **2004** |   | **Recovery/Refund                Period** |   |
|                                                                                                 |   | **(in                thousands)** |    |
| **Regulatory                Assets:**                                                                |   |                              |    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| SFAS                109 Regulatory Asset, Net                                                        |   | $                                 | -       |       | $      | - |   |   |   | $ | 38,793 |   | $ | 18,000 |   | Various                Periods(b) |   |
| Unrealized                Loss on Forward Commitments                                                |   |                              | 18,279  |       |   | 4,730 |   |   |   |   | 13,922 |   |   | 4,032 |   |   |   |
| Unamortized                Loss on Reacquired Debt                                                   |   |                              | 12,456  |       |   | 14,705 |   | Up                to 10 Years (b) |   |   | 17,973 |   |   | 20,765 |   | Up                to 38 Years (b) |   |
| Other                                                                                                |   |                              | 19,988  |       |   | 12,516 |   | Various                Periods(d) |   |   | 11,088 |   |   | 12,318 |   | Various                Periods (c) |   |
| **Total                Noncurrent Regulatory Assets**                                                |   | $                                 | 50,723  |       | $      | 31,951 |   |   |   | $ | 81,776 |   | $ | 55,115 |   |   |   |
|                                                                                                 |   |                              |    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Current                Regulatory Asset - Under-****recovered                Fuel**** Costs** |   | $                                 | 108,732 |       | $      | 366 |   | 1                Year (a) |   | $ | 51,387 |   | $ | 4,844 |   | 1                Year (a) |   |
|                                                                                                 |   |                              |    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Regulatory                Liabilities:**                                                           |   |                              |    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                 |   |                              |    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Asset                Removal Costs                                                                   |   | $                                 | 212,346 |       | $      | 220,298 |   | (e) |   | $ | 255,920 |   | $ | 249,892 |   | (e) |   |
| Deferred                Investment Tax Credits                                                       |   |                              | 27,273  |       |   | 28,620 |   | Up                to 24 Years (d) |   |   | 31,246 |   |   | 35,539 |   | Up                to 12 Years (d) |   |
| SFAS                109 Regulatory Liability, Net                                                    |   |                              | 12,089  |       |   | 21,963 |   | Various                Periods(b) |   |   |   |   |   |   |   |   |   |
| Other                                                                                                |   |                              | 32,932  |       |   | 19,676 |   | Various                Periods(d) |   |   | 32,900 |   |   | 24,487 |   | Various                Periods (c) |   |
| **Total                Noncurrent Regulatory Liabilities**                                           |   | $                                 | 284,640 |       | $      | 290,557 |   |   |   | $ | 320,066 |   | $ | 309,918 |   |   |   |

| (a) | Over/Under-recovered                fuel for SWEPCo’s Arkansas and Louisiana jurisdictions does not earn a                return. Texas jurisdictional amounts for SWEPCo do earn a return.                PSO fuel                balances began earning a return in June 2005. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Amount                effectively earns a return.                                                                                                                                                                                                                                      |
| (c) | Amounts                are both earning and not earning a return.                                                                                                                                                                                                                      |
| (d) | Amount                does not earn a return.                                                                                                                                                                                                                                          |
| (e) | The                liability for removal cost, which reduces the investment rate base                and the                resultant return, will be discharged as removal costs are                incurred.                                                                         |

|                                                                |   | **TCC**                           |      | **TNC**  |   |
|---------------------------------------------------------------------|--------|-----------------------------------|-----------|----------|--------|
|                                                                |   | **2005**                          |      | **2004** |   | **Recovery/Refund                Period** |   | **2005** |   | **2004** |   | **Recovery/Refund                Period** |   |
|                                                                |   | **(in                thousands)** |      |
| **Regulatory                Assets:**                               |   |                              |      |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| SFAS                109 Regulatory Asset, Net                       |   | $                                 | 20,616    |     | $      | 15,236 |   | Various                Periods (a) |   |   |   |   |   |   |   |   |   |
| Designated                for Securitization                        |   |                              | 1,435,597 |     |   | 1,361,299 |   | (b) |   |   |   |   |   |   |   |   |   |
| Wholesale                Capacity Auction True-up                   |   |                              | 76,464    |     |   | 559,973 |   | (c) |   |   |   |   |   |   |   |   |   |
| Refunded                Excess Earnings                             |   |                              | 55,461    |     |   | - |   | (c) |   |   |   |   |   |   |   |   |   |
| Other                                                               |   |                              | 100,649   |     |   | 125,470 |   | Various                Periods (e) |   | $ | 9,787 |   | $ | 12,023 |   | Various                Periods (e) |   |
| **Total                Noncurrent Regulatory Assets**               |   | $                                 | 1,688,787 |     | $      | 2,061,978 |   |   |   | $ | 9,787 |   | $ | 12,023 |   |   |   |
|                                                                |   |                              |      |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Regulatory                Liabilities:**                          |   |                              |      |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                |   |                              |      |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Asset                Removal Costs                                  |   | $                                 | 231,990   |     | $      | 102,624 |   | (f) |   | $ | 82,639 |   | $ | 81,143 |   | (f) |   |
| Deferred                Investment Tax Credits                      |   |                              | 105,134   |     |   | 107,743 |   | Up                to 23 Years                (d) |   |   | 17,427 |   |   | 18,698 |   | Up                to 17 Years (d) |   |
| Over-recovery                of                Fuel Costs           |   |                              | 177,198   |     |   | 211,526 |   | (c) |   |   | 4,915 |   |   | 3,920 |   | (c) |   |
| Retail                Clawback                                      |   |                              | 61,384    |     |   | 61,384 |   | (c) |   |   | 13,924 |   |   | 13,924 |   | (c) |   |
| SFAS                109 Regulatory Liability, Net                   |   |                              |      |     |   |   |   |   |   |   | 6,828 |   |   | 8,500 |   | Various                Periods (a) |   |
| Other                                                               |   |                              | 76,437    |     |   | 76,653 |   | Various                Periods (e) |   |   | 13,999 |   |   | 14,589 |   | Various                Periods (e) |   |
| **Total                Noncurrent Regulatory ****Liabilities** |   | $                                 | 652,143   |     | $      | 559,930 |   |   |   | $ | 139,732 |   | $ | 140,774 |   |   |   |

| (a) | Amount                earns a return.                                                                                                                                                                                                                                                                                                                                                                       |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Amount                includes a carrying cost, was included in TCC’s True-up Proceeding and is                designated for possible securitization. The cost of the securitization                bonds would be recovered over a time period to be determined in a                future                PUCT proceeding. See “Texas Restructuring” section of Note                6.  |
| (c) | See                “Texas Restructuring” and “Carrying Costs on Net True-up Regulatory                Assets” sections of Note 6 for discussion of carrying costs. Amounts were                included in TCC’s and TNC’s True-up Proceedings for future recovery/refund                over a time period to be determined in future PUCT                proceedings. |
| (d) | Amount                does not earn a return.                                                                                                                                                                                                                                                                                                                                                               |
| (e) | Amounts                are both earning and not earning a return.                                                                                                                                                                                                                                                                                                                                           |
| (f) | The                liability for removal cost, which reduces the investment rate base                and the                resultant return, will be discharged as removal costs are                incurred.                                                                                                                                                                                              |

***Texas      Restructuring Related Regulatory Assets and      Liabilities***

***Nuclear      Plant Restart***

***Merger      with CSW***

| **State/Company**                       |   | **Ratemaking                Provisions**                                                                                       |
|-----------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------|
| Texas                - SWEPCo, TCC, TNC |   | Rate                reductions of $221 million over 6 years.                                                                   |
| Indiana                - I&M        |   | Rate                reductions of $67 million over 8 years.                                                                    |
| Michigan                - I&M       |   | Customer                billing credits of approximately $14 million over 8                years.                              |
| Kentucky                - KPCo          |   | Rate                reductions of approximately $28 million over 8 years.                                                      |
| Louisiana                - SWEPCo       |   | Rate                reductions to share merger savings estimated to be $18 million over                8                years. |

**6.**
**CUSTOMER      CHOICE AND INDUSTRY RESTRUCTURING**

**TEXAS      RESTRUCTURING - Affecting TCC, TNC and SWEPCo**

| ● | net                  stranded generation plant costs and net generation-related regulatory                  assets less any excess earnings (net stranded generation                  costs),                                                                                                                                 |
|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ● | a                  true-up of actual market prices determined through legislatively-mandated                  capacity auctions to the projected power costs used in the PUCT’s excess                  cost over market (ECOM) model for 2002 and 2003 (wholesale capacity                  auction true-up revenues), |
| ● | excess                  of price-to-beat revenues over market prices subject to certain                  conditions                  and limitations (retail clawback),                                                                                                                                                       |
| ● | final                  approved deferred fuel balance, and                                                                                                                                                                                                                                                                    |
| ● | net                  carrying costs on certain of the above true-up amounts.                                                                                                                                                                                                                                                  |

|                                                                          |   | **in                  millions** |   |
|-------------------------------------------------------------------------------|--------|----------------------------------|--------|
| **True-Up                  Proceeding Requested Amount**                      |   | $                                | 2,406  |   |
| Wholesale                  Capacity Auction True-up, including carrying costs |   |                             | (572   | ) |
| Commercial                  Unreasonableness Disallowance                     |   |                             | (122   | ) |
| Return                  on and of Stranded Costs Disallowance                 |   |                             | (159   | ) |
| Other                                                                         |   |                             | (78    | ) |
| **Amount                  Approved by the PUCT**                              |   |                             | 1,475  |   |
| Unrecognized                  but Recoverable Equity Carrying Costs and Other |   |                             | (200   | ) |
| **Total                  Recorded Net True-up Regulatory Asset**              |   | $                                | 1,275  |   |

***The        Components of TCC’s Net True-up Regulatory Asset as of December 31, 2005 and        December 31, 2004 are:***

|                                                                     |   | **TCC**                                |   |
|--------------------------------------------------------------------------|--------|----------------------------------------|--------|
|                                                                     |   | **December                  31, 2005** |   | **December                  31, 2004** |   |
|                                                                     |   | **(in                  millions)**     |   |
| Stranded                  Generation Plant Costs                         |   | $                                      | 969    |   | $ | 897 |   |
| Net                  Generation-related Regulatory Asset                 |   |                                   | 249    |   |   | 249 |   |
| Excess                  Earnings                                         |   |                                   | (49    | ) |   | (10 | ) |
| **Net                  Stranded Generation Costs Before Carrying Costs** |   |                                   | 1,169  |   |   | 1,136 |   |
| Carrying                  Costs on Stranded Generation Plant Costs       |   |                                   | 267    |   |   | 225 |   |
| **Net                  Stranded Generation Costs After Carrying Costs**  |   |                                   | 1,436  |   |   | 1,361 |   |
|                                                                     |   |                                   |   |   |   |   |   |
| Wholesale                  Capacity Auction True-up                      |   |                                   | 61     |   |   | 483 |   |
| Carrying                  Costs on Wholesale Capacity Auction True-up    |   |                                   | 16     |   |   | 77 |   |
| Retail                  Clawback                                         |   |                                   | (61    | ) |   | (61 | ) |
| Deferred                  Over-recovered Fuel Balance                    |   |                                   | (177   | ) |   | (212 | ) |
| **Net                  Other Recoverable True-up Amounts**               |   |                                   | (161   | ) |   | 287 |   |
| **Total                  Recorded Net True-up Regulatory Asset**         |   | $                                      | 1,275  |   | $ | 1,648 |   |

***Deferred        Investment Tax Credits Included in Stranded Generation Plant        Costs***

***Excess        Earnings***

***Wholesale        Capacity Auction True-up and Stranded Plant Cost***

***Retail        Clawback***

***Fuel        Balance Recoveries***

***Carrying        Costs on Net True-up Regulatory Assets***

***TCC        Securitization Proceeding***

|                                                                                                      |   | **in                  millions** |      |
|-----------------------------------------------------------------------------------------------------------|--------|----------------------------------|-----------|
| **Total                  Recorded Net True-up Regulatory Asset as of December 31,                  2005** |   | $                                | **1,275** |   |
| Unrecognized                  but Recoverable Equity Carrying Costs and Other                             |   |                             | 200       |   |
| Estimated                  January 2006 - August 2006 Carrying Costs                                      |   |                             | 144       |   |
| Securitization                  Issuance Costs                                                            |   |                             | 24        |   |
| Net                  Other Recoverable True-up Amounts (a)                                                |   |                             | 161       |   |
| **Estimated                  Securitization Request**                                                     |   | $                                | **1,804** |   |

| (a) | If                  included in the proposed securitization as described above, this                  amount,                  along with the ADFIT benefit, is refundable to customers over future                  periods through a negative competition transition                  charge. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

***TCC        True-up Proceeding Summary***

***The        Components of TNC’s True-up Regulatory Liability as of December 31, 2005 and        December 31, 2004 are:***

|                                                                 |   | **TNC**                                |   |
|----------------------------------------------------------------------|--------|----------------------------------------|--------|
|                                                                 |   | **December                  31, 2005** |   | **December                  31, 2004** |   |
|                                                                 |   | **(in                  millions)**     |   |
| Retail                  Clawback                                     |   | $                                      | (14    | ) | $ | (14 | ) |
| Deferred                  Over-recovered Fuel Balance                |   |                                   | (5     | ) |   | (4 | ) |
| **Total                  Recorded Net True-up Regulatory Liability** |   | $                                      | (19    | ) | $ | (18 | ) |

**OHIO      RESTRUCTURING - Affecting CSPCo and OPCo**

**MICHIGAN      RESTRUCTURING - Affecting I&M**

**VIRGINIA      RESTRUCTURING - Affecting APCo**

**ARKANSAS      RESTRUCTURING - Affecting SWEPCo**

**WEST      VIRGINIA RESTRUCTURING - Affecting APCo**

**7.**
**COMMITMENTS      AND CONTINGENCIES**

**ENVIRONMENTAL**

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

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

***Carbon      Dioxide Public Nuisance Claims - Affecting AEP East Companies and West      Companies***

***Ontario      Litigation - Affecting CSPCo and OPCo***

***The      Comprehensive Environmental Response Compensation and Liability Act (Superfund)      and State Remediation - Affecting AEP System***

**NUCLEAR      **
***-      Affecting I&M***

***Nuclear      Plant***

***Nuclear      Incident Liability***

***SNF      Disposal***

***SNF      Litigation***

***Decommissioning      and Low Level Waste Accumulation Disposal***

**OPERATIONAL**

***Construction      and Commitments***
** **
***-      Affecting AEGCo, APCo, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, TCC and      TNC***

|    |   | **(in                millions)** |   |
|---------|--------|----------------------------------|--------|
| AEGCo   |   | $                                | 14     |   |
| APCo    |   |                             | 943    |   |
| CSPCo   |   |                             | 343    |   |
| I&M |   |                             | 311    |   |
| KPCo    |   |                             | 100    |   |
| OPCo    |   |                             | 1,070  |   |
| PSO     |   |                             | 279    |   |
| SWEPCo  |   |                             | 288    |   |
| TCC     |   |                             | 278    |   |
| TNC     |   |                             | 73     |   |

***Potential      Uninsured Losses - Affecting AEGCo, APCo, CSPCo, I&M, KPCo, OPCo, PSO,      SWEPCo, TCC and TNC***

***Power      Generation Facility - Affecting OPCo***

***Merger      Litigation - Affecting AEGCo, APCo, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, TCC      and TNC***

***Texas      Commercial Energy, LLP Lawsuit - Affecting TCC and      TNC***

***Coal      Transportation Dispute - Affecting PSO, TCC and TNC***

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

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

**8.**
**GUARANTEES**

***Letters      of Credit***

***SWEPCo***

***Indemnifications      and Other Guarantees***

**Contracts**

**Master      Operating Lease**

| **Maximum                Potential Loss** |   |
|-------------------------------------------|--------|
| **Subsidiary**                            |   | **(in                millions)** |   |
| APCo                                      |   | $ | 6 |   |
| CSPCo                                     |   |   | 3 |   |
| I&M                                   |   |   | 4 |   |
| KPCo                                      |   |   | 2 |   |
| OPCo                                      |   |   | 5 |   |
| PSO                                       |   |   | 5 |   |
| SWEPCo                                    |   |   | 5 |   |
| TCC                                       |   |   | 6 |   |
| TNC                                       |   |   | 3 |   |

**9.**
**COMPANY-WIDE      STAFFING AND BUDGET REVIEW**

| **Year                Ended**        |   |
|--------------------------------------|--------|
| **December                31, 2005** |   |
| **Company**                          |   | **(in                millions)** |   |
| AEGCo                                |   | $ | 0.3 |   |
| APCo                                 |   |   | 4.5 |   |
| CSPCo                                |   |   | 2.6 |   |
| I&M                              |   |   | 4.7 |   |
| KPCo                                 |   |   | 1.1 |   |
| OPCo                                 |   |   | 3.9 |   |
| PSO                                  |   |   | 1.4 |   |
| SWEPCo                               |   |   | 1.8 |   |
| TCC                                  |   |   | 4.3 |   |
| TNC                                  |   |   | 1.3 |   |

**10.**
**ACQUISITIONS,      DISPOSITIONS, IMPAIRMENTS, ASSETS HELD FOR SALE AND OTHER      LOSSES**

**ACQUISITIONS**

**2005**

***Waterford      Plant - Affecting CSPCo***

***Monongahela      Power Company - Affecting CSPCo***

***Ceredo      Generating Station - Affecting APCo***

**DISPOSITIONS**

**2005**

***Texas      Plants - South Texas Project - Affecting TCC***

**2004**

***Texas      Plants - TCC and TNC Generation Assets***

**-**

**2003**

***Water      Heater Assets - Affecting APCo, CSPCo, I&M, KPCo and      OPCo***

| **Subsidiary                Company** |   | **Loss                on Sale Recorded in 2003 (Pretax)** |   |
|---------------------------------------|--------|-----------------------------------------------------------|--------|
|                                  |   | **(in                thousands)**                         |   |
| APCo                                  |   | $                                                         | 56     |   |
| CSPCo                                 |   |                                                      | 740    |   |
| I&M                               |   |                                                      | 787    |   |
| KPCo                                  |   |                                                      | 11     |   |
| OPCo                                  |   |                                                      | 2,165  |   |

**ASSETS      HELD FOR SALE**

***Texas      Plants - Oklaunion Power Station-Affecting TCC***

|                                                                                            |   | **As                  of December 31,** |   |
|-------------------------------------------------------------------------------------------------|--------|-----------------------------------------|--------|
| **Texas                  Plants (TCC)**                                                         |   | **2005**                                |   | **2004** |   |
| **Assets:**                                                                                     |   | **(in                  millions)**      |   |
| Other                  Current Assets                                                           |   | $                                       | 1      |   | $ | 24 |   |
| Property,                  Plant and Equipment, Net                                             |   |                                    | 43     |   |   | 413 |   |
| Regulatory                  Assets                                                              |   |                                    | -      |   |   | 48 |   |
| Nuclear                  Decommissioning Trust Fund                                             |   |                                    | -      |   |   | 143 |   |
| **Total                  Assets Held for Sale - Texas Generation Plants**                       |   | $                                       | 44     |   | $ | 628 |   |
|                                                                                            |   |                                    |   |   |   |   |   |
| **Liabilities:**                                                                                |   |                                    |   |   |   |   |   |
| Regulatory                  Liabilities                                                         |   | $                                       | -      |   | $ | 1 |   |
| Asset                  Retirement Obligations                                                   |   |                                    | -      |   |   | 249 |   |
| **Total                  Liabilities Held for Sale - Texas Generation                  Plants** |   | $                                       | -      |   | $ | 250 |   |

**OTHER      LOSSES**

**2005**

***Conesville      Units 1 and 2 - Affecting CSPCo***

**2003**

***Blackhawk      Coal Company - Affecting I&M***

**11.**
**BENEFIT      PLANS**

|    |   | **Postretirement                Benefit Cost Reduction** |   |
|---------|--------|----------------------------------------------------------|--------|
|    |   | **(in                thousands)**                        |   |
| APCo    |   | $                                                        | 5,208  |   |
| CSPCo   |   |                                                     | 2,417  |   |
| I&M |   |                                                     | 3,647  |   |
| KPCo    |   |                                                     | 690    |   |
| OPCo    |   |                                                     | 4,106  |   |
| PSO     |   |                                                     | 1,520  |   |
| SWEPCo  |   |                                                     | 1,571  |   |
| TCC     |   |                                                     | 1,849  |   |
| TNC     |   |                                                     | 770    |   |

***Pension      Obligations, Plan Assets, Funded Status as of December 31, 2005 and      2004***

|                                                        |   | **Pension                Plans** |   | **Other                Postretirement Benefit Plans** |   |
|-------------------------------------------------------------|--------|----------------------------------|--------|-------------------------------------------------------|--------|
|                                                        |   | **2005**                         |   | **2004**                                              |   | **2005** |   | **2004** |   |
|                                                        |   | **(in                millions)** |   |
| **Change                in Projected Benefit Obligation:**  |   |                        |   |                                             |   |    |   |    |   |
| Projected                Obligation at January 1            |   | $                                | 4,108  |                                                  | $      | 3,688 |   | $ | 2,100 |   | $ | 2,163 |   |
| Service                Cost                                 |   |                             | 93     |                                                  |   | 86 |   |   | 42 |   |   | 41 |   |
| Interest                Cost                                |   |                             | 228    |                                                  |   | 228 |   |   | 107 |   |   | 117 |   |
| Participant                Contributions                    |   |                             | -      |                                                  |   | - |   |   | 20 |   |   | 18 |   |
| Actuarial                (Gain) Loss                        |   |                             | 191    |                                                  |   | 379 |   |   | (320 | ) |   | (130 | ) |
| Benefit                Payments                             |   |                             | (273   | )                                                     |   | (273 | ) |   | (118 | ) |   | (109 | ) |
| **Projected                Obligation at December 31**      |   | $                                | 4,347  |                                                  | $      | 4,108 |   | $ | 1,831 |   | $ | 2,100 |   |
|                                                        |   |                             |   |                                                  |   |   |   |   |   |   |   |   |   |
| **Change                in Fair Value of Plan Assets:**     |   |                             |   |                                                  |   |   |   |   |   |   |   |   |   |
| Fair                Value of Plan Assets at January 1       |   | $                                | 3,555  |                                                  | $      | 3,180 |   | $ | 1,093 |   | $ | 950 |   |
| Actual                Return on Plan Assets                 |   |                             | 224    |                                                  |   | 409 |   |   | 70 |   |   | 98 |   |
| Company                Contributions                        |   |                             | 637    |                                                  |   | 239 |   |   | 107 |   |   | 136 |   |
| Participant                Contributions                    |   |                             | -      |                                                  |   | - |   |   | 20 |   |   | 18 |   |
| Benefit                Payments                             |   |                             | (273   | )                                                     |   | (273 | ) |   | (118 | ) |   | (109 | ) |
| **Fair                Value of Plan Assets at December 31** |   | $                                | 4,143  |                                                  | $      | 3,555 |   | $ | 1,172 |   | $ | 1,093 |   |
|                                                        |   |                             |   |                                                  |   |   |   |   |   |   |   |   |   |
| **Funded                Status:**                           |   |                             |   |                                                  |   |   |   |   |   |   |   |   |   |
| Funded                Status at December 31                 |   | $                                | (204   | )                                                     | $      | (553 | ) | $ | (659 | ) | $ | (1,007 | ) |
| Unrecognized                Net Transition Obligation       |   |                             | -      |                                                  |   | - |   |   | 152 |   |   | 179 |   |
| Unrecognized                Prior Service Cost (Benefit)    |   |                             | (9     | )                                                     |   | (9 | ) |   | 5 |   |   | 5 |   |
| Unrecognized                Net Actuarial Loss              |   |                             | 1,266  |                                                  |   | 1,040 |   |   | 471 |   |   | 795 |   |
| **Net                Asset (Liability) Recognized**         |   | $                                | 1,053  |                                                  | $      | 478 |   | $ | (31 | ) | $ | (28 | ) |

***Amounts      Recognized in the Balance Sheets as of December 31, 2005 and      2004***

|                                                         |   | **Pension                Plans** |   | **Other                Postretirement Benefit Plans** |   |
|--------------------------------------------------------------|--------|----------------------------------|--------|-------------------------------------------------------|--------|
|                                                         |   | **2005**                         |   | **2004**                                              |   | **2005** |   | **2004** |   |
|                                                         |   | **(in                millions)** |   |
| Prepaid                Benefit Costs                         |   | $                                | 1,099  |                                                  | $      | 524 |   | $ | - |   | $ | - |   |
| Accrued                Benefit Liability                     |   |                             | (46    | )                                                     |   | (46 | ) |   | (31 | ) |   | (28 | ) |
| Additional                Minimum Liability                  |   |                             | (35    | )                                                     |   | (566 | ) |   | N/A |   |   | N/A |   |
| Intangible                Asset                              |   |                             | 6      |                                                  |   | 36 |   |   | N/A |   |   | N/A |   |
| Pretax                Accumulated Other Comprehensive Income |   |                             | 29     |                                                  |   | 530 |   |   | N/A |   |   | N/A |   |
| **Net                Asset (Liability) Recognized**          |   | $                                | 1,053  |                                                  | $      | 478 |   | $ | (31 | ) | $ | (28 | ) |

***Pension      and Other Postretirement Plans’ Assets***

|                                     |   | **Target                Allocation** |   | **Percentage                of Plan Assets at Year End** |   |
|------------------------------------------|--------|--------------------------------------|--------|----------------------------------------------------------|--------|
|                                     |   | **2006**                             |   | **2005**                                                 |   | **2004** |   |
| **Asset                Category**        |   | **(in                percentages)**  |   |
| Equity                Securities         |   |                                 | 70     |                                                     |   | 66 |   |   | 68 |   |
| Debt                Securities           |   |                                 | 28     |                                                     |   | 25 |   |   | 25 |   |
| Cash                and Cash Equivalents |   |                                 | 2      |                                                     |   | 9 |   |   | 7 |   |
| **Total**                                |   |                                 | 100    |                                                     |   | 100 |   |   | 100 |   |

|                                |   | **Target                  Allocation** |   | **Percentage                  of Plan Assets at Year End** |   |
|-------------------------------------|--------|----------------------------------------|--------|------------------------------------------------------------|--------|
|                                |   | **2006**                               |   | **2005**                                                   |   | **2004** |   |
| **Asset                  Category** |   | **(in                  percentages)**  |   |
| Equity                  Securities  |   |                                   | 66     |                                                       |   | 68 |   |   | 70 |   |
| Debt                  Securities    |   |                                   | 31     |                                                       |   | 30 |   |   | 28 |   |
| Other                               |   |                                   | 3      |                                                       |   | 2 |   |   | 2 |   |
| **Total**                           |   |                                   | 100    |                                                       |   | 100 |   |   | 100 |   |

|                                                |   | **2005**                           |   | **2004** |   |
|-----------------------------------------------------|--------|------------------------------------|--------|----------|--------|
| **Accumulated                  Benefit Obligation** |   | **(in                  millions)** |   |
| Qualified                  Pension Plans            |   | $                                  | 4,053  |     | $      | 3,918 |   |
| Nonqualified                  Pension Plans         |   |                               | 81     |     |   | 80 |   |
| **Total**                                           |   | $                                  | 4,134  |     | $      | 3,998 |   |

***Minimum      Pension Liability***

|                                                                                |   | **Underfunded                Pension Plans** |   |
|-------------------------------------------------------------------------------------|--------|----------------------------------------------|--------|
|                                                                                |   | **As                of December 31,**        |   |
|                                                                                |   | **2005**                                     |   | **2004** |   |
|                                                                                |   | **(in                millions)**             |   |
| Projected                Benefit Obligation                                         |   | $                                            | 84     |   | $ | 2,978 |   |
| Accumulated                Benefit Obligation                                       |   |                                         | 81     |   |   | 2,880 |   |
| Fair                Value of Plan Assets                                            |   |                                         | -      |   |   | 2,406 |   |
| Accumulated                Benefit Obligation Exceeds the Fair Value of Plan Assets |   |                                         | 81     |   |   | 474 |   |

|                                      |   | **Decrease                in Minimum****Pension                Liability** |   |
|-------------------------------------------|--------|----------------------------------------------------------------------------|--------|
|                                      |   | **2005**                                                                   |   | **2004** |   |
|                                      |   | **(in                millions)**                                           |   |
| Other                Comprehensive Income |   | $                                                                          | (330   | ) | $ | (92 | ) |
| Deferred                Income Taxes      |   |                                                                       | (175   | ) |   | (52 | ) |
| Intangible                Asset           |   |                                                                       | (30    | ) |   | (3 | ) |
| Other                                     |   |                                                                       | 4      |   |   | (10 | ) |
| Minimum                Pension Liability  |   | $                                                                          | (531   | ) | $ | (157 | ) |

***Actuarial      Assumptions for Benefit Obligations***

|                                         |   |  **Pension                Plans**    |   | **Other                Postretirement Benefit Plans** |   |
|----------------------------------------------|--------|-------------------------------------------|--------|-------------------------------------------------------|--------|
|                                         |   |  **2005**                            |   |  **2004**                                        |   | **2005** |   | **2004** |   |
|                                         |   |  **(in                percentages)** |   |
| Discount                Rate                 |   |                                      | 5.50   |                                                  |   | 5.50 |   |   | 5.65 |   |   | 5.80 |   |
| Rate                of Compensation Increase |   |                                      | 5.90   | (a)                                              |   | 3.70 |   |   | N/A |   |   | N/A |   |
|                                         |   |                                      |   |                                                  |   |   |   |   |   |   |   |   |   |

***Estimated      Future Benefit Payments and Contributions***

|                                                    |   | **Pension                  Plans** |   | **Other                  Postretirement****Benefit                  Plans** |   |
|---------------------------------------------------------|--------|------------------------------------|--------|-----------------------------------------------------------------------------|--------|
|                                                    |   | **2006**                           |   | **2005**                                                                    |   | **2006** |   | **2005** |   |
| **Employer                    Contributions**           |   | **(in                  millions)** |   |
| Required                  Contributions (a)             |   | $                                  | 8      |                                                                        | $      | 10 |   |   | N/A |   |   | N/A |   |
| Additional                  Discretionary Contributions |   |                               | -      |                                                                        | $      | 626 | (b) | $ | 96 |   | $ | 107 |   |

| (a) | Contribution                required to meet minimum funding requirement per the U.S. Department                of                Labor and to fund nonqualified benefit payments. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Contribution                in 2005 in excess of the required contribution to fully fund AEP’s                qualified pension plans by the end of                2005.     |

|                                        |   | **Pension                Plans**    |   | **Other                Postretirement Benefit Plans** |   |
|---------------------------------------------|--------|-------------------------------------|--------|-------------------------------------------------------|--------|
|                                        |   | **Pension                Payments** |   | **Benefit****Payments**                               |   | **Medicare                Subsidy Receipts** |   |
|                                        |   | **(in                millions)**    |   |
| 2006                                        |   | $                                   | 291    |                                                  | $      | 117 |   | $ | (9 | ) |
| 2007                                        |   |                                | 305    |                                                  |   | 125 |   |   | (10 | ) |
| 2008                                        |   |                                | 316    |                                                  |   | 133 |   |   | (10 | ) |
| 2009                                        |   |                                | 335    |                                                  |   | 140 |   |   | (11 | ) |
| 2010                                        |   |                                | 344    |                                                  |   | 148 |   |   | (11 | ) |
| Years                2011 to 2015, in Total |   |                                | 1,811  |                                                  |   | 857 |   |   | (65 | ) |

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

|                                                                                                |   | **Pension                Plans** |   | **Other                Postretirement****Benefit                Plans** |   |
|-----------------------------------------------------------------------------------------------------|--------|----------------------------------|--------|-------------------------------------------------------------------------|--------|
|                                                                                                |   | **2005**                         |   | **2004**                                                                |   | **2003** |   | **2005** |   | **2004** |   | **2003** |   |
|                                                                                                |   | **(in                millions)** |   |
| Service                Cost                                                                         |   | $                                | 93     |                                                                    | **$**  | 86 |   | $ | 80 |   | $ | 42 |   | $ | 41 |   | $ | 42 |   |
| Interest                Cost                                                                        |   |                             | 228    |                                                                    |   | 228 |   |   | 233 |   |   | 107 |   |   | 117 |   |   | 130 |   |
| Expected                Return on Plan Assets                                                       |   |                             | (314   | )                                                                       |   | (292 | ) |   | (318 | ) |   | (92 | ) |   | (81 | ) |   | (64 | ) |
| Amortization                of Transition (Asset) Obligation                                        |   |                             | -      |                                                                    |   | 2 |   |   | (8 | ) |   | 27 |   |   | 28 |   |   | 28 |   |
| Amortization                of Prior Service Cost                                                   |   |                             | (1     | )                                                                       |   | (1 | ) |   | (1 | ) |   | - |   |   | - |   |   | - |   |
| Amortization                of Net Actuarial Loss                                                   |   |                             | 55     |                                                                    |   | 17 |   |   | 11 |   |   | 25 |   |   | 36 |   |   | 52 |   |
| **Net                Periodic Benefit Cost (Credit)**                                               |   |                             | 61     |                                                                    |   | 40 |   |   | (3 | ) |   | 109 |   |   | 141 |   |   | 188 |   |
| Capitalized                Portion                                                                  |   |                             | (17    | )                                                                       |   | (10 | ) |   | (3 | ) |   | (33 | ) |   | (46 | ) |   | (43 | ) |
| **Net                Periodic Benefit Cost (Credit) Recognized**** as                Expense** |   | $                                | 44     |                                                                    | **$**  | 30 |   | $ | (6 | ) | $ | 76 |   | **$** | 95 |   | $ | 145 |   |

***Net      Pension Cost by Registrant***

|    |   | **Pension                Plans**  |   | **Other                Postretirement****Benefit                Plans** |   |
|---------|--------|-----------------------------------|--------|-------------------------------------------------------------------------|--------|
|    |   | **2005**                          |   | **2004**                                                                |   | **2003** |   | **2005** |   | **2004** |   | **2003** |   |
|    |   | **(in                thousands)** |   |
| APCo    |   | $                                 | 7,391  |                                                                    | **$**  | 1,272 |   | $ | (5,202 | ) | $ | 20,005 |   | $ | 25,847 |   | $ | 33,747 |   |
| CSPCo   |   |                              | 2,143  |                                                                    |   | (1,626 | ) |   | (5,399 | ) |   | 8,202 |   |   | 11,050 |   |   | 14,684 |   |
| I&M |   |                              | 9,463  |                                                                    |   | 4,460 |   |   | (812 | ) |   | 13,524 |   |   | 17,259 |   |   | 22,999 |   |
| KPCo    |   |                              | 1,506  |                                                                    |   | 571 |   |   | (566 | ) |   | 2,204 |   |   | 2,961 |   |   | 4,043 |   |
| OPCo    |   |                              | 4,825  |                                                                    |   | (415 | ) |   | (6,251 | ) |   | 15,442 |   |   | 20,975 |   |   | 28,143 |   |
| PSO     |   |                              | 295    |                                                                    |   | 2,795 |   |   | (291 | ) |   | 6,989 |   |   | 8,449 |   |   | 9,885 |   |
| SWEPCo  |   |                              | 1,462  |                                                                    |   | 3,602 |   |   | 1,018 |   |   | 6,849 |   |   | 8,400 |   |   | 10,264 |   |
| TCC     |   |                              | (880   | )                                                                       |   | 2,987 |   |   | (123 | ) |   | 7,521 |   |   | 10,144 |   |   | 12,951 |   |
| TNC     |   |                              | 158    |                                                                    |   | 1,351 |   |   | 606 |   |   | 3,291 |   |   | 4,280 |   |   | 5,875 |   |

***Actuarial      Assumptions for Net Periodic Benefit Costs***

|                                          |   | **Pension                Plans**    |   | **Other                Postretirement****Benefit                Plans** |   |
|-----------------------------------------------|--------|-------------------------------------|--------|-------------------------------------------------------------------------|--------|
|                                          |   | **2005**                            |   |  **2004**                                                          |   |  **2003** |   | **2005** |   |  **2004** |   |  **2003** |   |
|                                          |   | **(in                percentages)** |   |
| Discount                Rate                  |   |                                | 5.50   |                                                                    |   | 6.25 |   |   | 6.75 |   |   | 5.80 |   |   | 6.25 |   |   | 6.75 |   |
| Expected                Return on Plan Assets |   |                                | 8.75   |                                                                    |   | 8.75 |   |   | 9.00 |   |   | 8.37 |   |   | 8.35 |   |   | 8.75 |   |
| Rate                of Compensation Increase  |   |                                | 3.70   |                                                                    |   | 3.70 |   |   | 3.70 |   |   | N/A |   |   | N/A |   |   | N/A |   |

| **Health                Care Trend Rates** |   | **2005** |   | **2004** |   |
|--------------------------------------------|--------|----------|--------|----------|--------|
| Initial                                    |   |     | 9.00   | %        |   | 10.0 | % |
| Ultimate                                   |   |     | 5.00   | %        |   | 5.0 | % |
| Year                Ultimate Reached       |   |     | 2009   |     |   | 2009 |   |

|                                                                                                                                           |   | **1%                  Increase**   |   | **1%                  Decrease** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------|--------|----------------------------------|--------|
|                                                                                                                                           |   | **(in                  millions)** |   |
| Effect                  on Total Service and Interest Cost Components of Net Periodic                  Postretirement Health Care Benefit Cost |   | $                                  | 22     |                             | $      | (18 | ) |
|                                                                                                                                           |   |                               |   |                             |   |   |   |
| Effect                  on the Health Care Component of the Accumulated Postretirement                  Benefit                  Obligation    |   |                               | 263    |                             |   | (215 | ) |

**Retirement      Savings Plan**

|    |   | **2005**                          |   | **2004** |   | **2003** |   |
|---------|--------|-----------------------------------|--------|----------|--------|----------|--------|
|    |   | **(in                thousands)** |   |
| APCo    |   | $                                 | 6,780  |     | $      | 6,538    |   | $ | 6,450 |   |
| CSPCo   |   |                              | 2,929  |     |   | 2,723    |   |   | 2,745 |   |
| I&M |   |                              | 7,892  |     |   | 7,262    |   |   | 7,616 |   |
| KPCo    |   |                              | 1,166  |     |   | 1,030    |   |   | 1,042 |   |
| OPCo    |   |                              | 5,962  |     |   | 5,688    |   |   | 5,719 |   |
| PSO     |   |                              | 2,915  |     |   | 2,731    |   |   | 2,350 |   |
| SWEPCo  |   |                              | 3,935  |     |   | 3,571    |   |   | 3,418 |   |
| TCC     |   |                              | 2,452  |     |   | 2,544    |   |   | 2,757 |   |
| TNC     |   |                              | 1,022  |     |   | 1,126    |   |   | 1,332 |   |

**12.**
**BUSINESS      SEGMENTS**

**13.**
**DERIVATIVES,      HEDGING AND FINANCIAL INSTRUMENTS **

**DERIVATIVES      AND HEDGING**

***Fair      Value Hedging Strategies***

***Cash      Flow Hedging Strategies***

|                                                      |   | **(in                thousands)** |    |
|-----------------------------------------------------------|--------|-----------------------------------|---------|
| **APCo**                                                  |   |                         |    |
| **Balance                at December 31, 2002**           |   | $                                 | (1,920  | ) |
| Effective                portion of changes in fair value |   |                              | (448    | ) |
| Reclasses                from AOCI to net income          |   |                              | 799     |   |
| **Balance                at December 31, 2003**           |   |                              | (1,569  | ) |
| Effective                portion of changes in fair value |   |                              | (6,269  | ) |
| Reclasses                from AOCI to net income          |   |                              | (1,486  | ) |
| **Balance                at December 31, 2004**           |   |                              | (9,324  | ) |
| Effective                portion of changes in fair value |   |                              | (4,515  | ) |
| Reclasses                from AOCI to net income          |   |                              | (2,582  | ) |
| **Ending                Balance, December 31, 2005**      |   | $                                 | (16,421 | ) |
|                                                      |   |                              |    |   |
| **CSPCo**                                                 |   |                              |    |   |
| **Balance                at December 31, 2002**           |   | $                                 | (267    | ) |
| Effective                portion of changes in fair value |   |                              | 194     |   |
| Reclasses                from AOCI to net income          |   |                              | 275     |   |
| **Balance                at December 31, 2003**           |   |                              | 202     |   |
| Effective                portion of changes in fair value |   |                              | 2,304   |   |
| Reclasses                from AOCI to net income          |   |                              | (1,113  | ) |
| **Balance                at December 31, 2004**           |   |                              | 1,393   |   |
| Effective                portion of changes in fair value |   |                              | (71     | ) |
| Reclasses                from AOCI to net income          |   |                              | (2,181  | ) |
| **Ending                Balance, December 31, 2005**      |   | $                                 | (859    | ) |
|                                                      |   |                              |    |   |
| **I&M**                                               |   |                              |    |   |
| **Balance                at December 31, 2002**           |   | $                                 | (286    | ) |
| Effective                portion of changes in fair value |   |                              | 209     |   |
| Reclasses                from AOCI to net income          |   |                              | 299     |   |
| **Balance                at December 31, 2003**           |   |                              | 222     |   |
| Effective                portion of changes in fair value |   |                              | (3,141  | ) |
| Reclasses                from AOCI to net income          |   |                              | (1,157  | ) |
| **Balance                at December 31, 2004**           |   |                              | (4,076  | ) |
| Effective                portion of changes in fair value |   |                              | 2,489   |   |
| Reclasses                from AOCI to net income          |   |                              | (1,880  | ) |
| **Ending                Balance, December 31, 2005**      |   | $                                 | (3,467  | ) |
|                                                      |   |                              |    |   |
| **KPCo**                                                  |   |                              |    |   |
| **Balance                at December 31, 2002**           |   | $                                 | 322     |   |
| Effective                portion of changes in fair value |   |                              | 75      |   |
| Reclasses                from AOCI to net income          |   |                              | 23      |   |
| **Balance                at December 31, 2003**           |   |                              | 420     |   |
| Effective                portion of changes in fair value |   |                              | 918     |   |
| Reclasses                from AOCI to net income          |   |                              | (525    | ) |
| **Balance                at December 31, 2004**           |   |                              | 813     |   |
| Effective                portion of changes in fair value |   |                              | 81      |   |
| Reclasses                from AOCI to net income          |   |                              | (1,088  | ) |
| **Ending                Balance, December 31, 2005**      |   | $                                 | (194    | ) |
|                                                      |   |                              |    |   |
| **OPCo**                                                  |   |                              |    |   |
| **Balance                at December 31, 2002**           |   | $                                 | (738    | ) |
| Effective                portion of changes in fair value |   |                              | 256     |   |
| Reclasses                from AOCI to net income          |   |                              | 379     |   |
| **Balance                at December 31, 2003**           |   |                              | (103    | ) |
| Effective                portion of changes in fair value |   |                              | 2,830   |   |
| Reclasses                from AOCI to net income          |   |                              | (1,486  | ) |
| **Balance                at December 31, 2004**           |   |                              | 1,241   |   |
| Effective                portion of changes in fair value |   |                              | 2,281   |   |
| Reclasses                from AOCI to net income          |   |                              | (2,767  | ) |
| **Ending                Balance, December 31, 2005**      |   | $                                 | 755     |   |
|                                                      |   |                              |    |   |
| **PSO**                                                   |   |                              |    |   |
| **Balance                at December 31, 2002**           |   | $                                 | (42     | ) |
| Effective                portion of changes in fair value |   |                              | 18      |   |
| Reclasses                from AOCI to net income          |   |                              | 180     |   |
| **Balance                at December 31, 2003**           |   |                              | 156     |   |
| Effective                portion of changes in fair value |   |                              | 713     |   |
| Reclasses                from AOCI to net income          |   |                              | (469    | ) |
| **Balance                at December 31, 2004**           |   |                              | 400     |   |
| Effective                portion of changes in fair value |   |                              | (1,168  | ) |
| Reclasses                from AOCI to net income          |   |                              | (344    | ) |
| **Ending                Balance, December 31, 2005**      |   | $                                 | (1,112  | ) |
|                                                      |   |                              |    |   |
| **SWEPCo**                                                |   |                              |    |   |
| **Balance                at December 31, 2002**           |   | $                                 | (48     | ) |
| Effective                portion of changes in fair value |   |                              | 21      |   |
| Reclasses                from AOCI to net income          |   |                              | 211     |   |
| **Balance                at December 31, 2003**           |   |                              | 184     |   |
| Effective                portion of changes in fair value |   |                              | (450    | ) |
| Reclasses                from AOCI to net income          |   |                              | (554    | ) |
| **Balance                at December 31, 2004**           |   |                              | (820    | ) |
| Effective                portion of changes in fair value |   |                              | (4,817  | ) |
| Reclasses                from AOCI to net income          |   |                              | (215    | ) |
| **Ending                Balance, December 31, 2005**      |   | $                                 | (5,852  | ) |
|                                                      |   |                              |    |   |
| **TCC**                                                   |   |                              |    |   |
| **Balance                at December 31, 2002**           |   | $                                 | (36     | ) |
| Effective                portion of changes in fair value |   |                              | (1,931  | ) |
| Reclasses                from AOCI to net income          |   |                              | 139     |   |
| **Balance                at December 31, 2003**           |   |                              | (1,828  | ) |
| Effective                portion of changes in fair value |   |                              | 866     |   |
| Reclasses                from AOCI to net income          |   |                              | 1,619   |   |
| **Balance                at December 31, 2004**           |   |                              | 657     |   |
| Effective                portion of changes in fair value |   |                              | (635    | ) |
| Reclasses                from AOCI to net income          |   |                              | (246    | ) |
| **Ending                Balance, December 31, 2005**      |   | $                                 | (224    | ) |
|                                                      |   |                              |    |   |
| **TNC**                                                   |   |                              |    |   |
| **Balance                at December 31, 2002**           |   | $                                 | (15     | ) |
| Effective                portion of changes in fair value |   |                              | (641    | ) |
| Reclasses                from AOCI to net income          |   |                              | 55      |   |
| **Balance                at December 31, 2003**           |   |                              | (601    | ) |
| Effective                portion of changes in fair value |   |                              | 373     |   |
| Reclasses                from AOCI to net income          |   |                              | 513     |   |
| **Balance                at December 31, 2004**           |   |                              | 285     |   |
| Effective                portion of changes in fair value |   |                              | (290    | ) |
| Reclasses                from AOCI to net income          |   |                              | (106    | ) |
| **Ending                Balance, December 31, 2005**      |   | $                                 | (111    | ) |
|                                                      |   |                              |    |   |

|    |   | **(in                thousands)** |   |
|---------|--------|-----------------------------------|--------|
|    |   |                         |   |
| APCo    |   | $                                 | 3,414  |   |
| CSPCo   |   |                              | 713    |   |
| I&M |   |                              | 1,050  |   |
| KPCo    |   |                              | 207    |   |
| OPCo    |   |                              | (332   | ) |
| PSO     |   |                              | 632    |   |
| SWEPCo  |   |                              | 1,150  |   |
| TCC     |   |                              | 186    |   |
| TNC     |   |                              | 93     |   |

**FINANCIAL      INSTRUMENTS**

|                                                                                     |   | **2005**                          |      | **2004**                      |   |
|------------------------------------------------------------------------------------------|--------|-----------------------------------|-----------|-------------------------------|--------|
|                                                                                     |   | **Book                Value**     |      | **Fair                Value** |   | **Book                Value** |   | **Fair                Value** |   |
|                                                                                     |   | **(in                thousands)** |      |
| **AEGCo**                                                                                |   |                         |      |                     |   |    |   |    |   |
| Long-term                Debt                                                            |   | $                                 | 44,828    |                          | $      | 45,216 |   | $ | 44,820 |   | $ | 46,249 |   |
|                                                                                     |   |                              |      |                          |   |   |   |   |   |   |   |   |   |
| **APCo**                                                                                 |   |                              |      |                          |   |   |   |   |   |   |   |   |   |
| Long-term                Debt                                                            |   |                              | 2,151,378 |                          |   | 2,134,973 |   |   | 1,784,598 |   |   | 1,822,687 |   |
|                                                                                     |   |                              |      |                          |   |   |   |   |   |   |   |   |   |
| **CSPCo**                                                                                |   |                              |      |                          |   |   |   |   |   |   |   |   |   |
| Long-term                Debt                                                            |   |                              | 1,196,920 |                          |   | 1,232,553 |   |   | 987,626 |   |   | 1,040,885 |   |
|                                                                                     |   |                              |      |                          |   |   |   |   |   |   |   |   |   |
| **I&M**                                                                              |   |                              |      |                          |   |   |   |   |   |   |   |   |   |
| Long-term                Debt                                                            |   |                              | 1,444,940 |                          |   | 1,456,000 |   |   | 1,312,843 |   |   | 1,349,614 |   |
| Cumulative                Preferred Stock Subject to Mandatory                Redemption |   |                              | -         |                          |   | - |   |   | 61,445 |   |   | 61,637 |   |
|                                                                                     |   |                              |      |                          |   |   |   |   |   |   |   |   |   |
| **KPCo**                                                                                 |   |                              |      |                          |   |   |   |   |   |   |   |   |   |
| Long-term                Debt                                                            |   |                              | 486,990   |                          |   | 484,834 |   |   | 508,310 |   |   | 521,776 |   |
|                                                                                     |   |                              |      |                          |   |   |   |   |   |   |   |   |   |
| **OPCo**                                                                                 |   |                              |      |                          |   |   |   |   |   |   |   |   |   |
| Long-term                Debt                                                            |   |                              | 2,199,670 |                          |   | 2,250,708 |   |   | 2,011,060 |   |   | 2,092,645 |   |
| Cumulative                Preferred Stock Subject to Mandatory                Redemption |   |                              | -         |                          |   | - |   |   | 5,000 |   |   | 5,016 |   |
|                                                                                     |   |                              |      |                          |   |   |   |   |   |   |   |   |   |
| **PSO**                                                                                  |   |                              |      |                          |   |   |   |   |   |   |   |   |   |
| Long-term                Debt                                                            |   |                              | 571,071   |                          |   | 568,998 |   |   | 546,092 |   |   | 557,630 |   |
|                                                                                     |   |                              |      |                          |   |   |   |   |   |   |   |   |   |
| **SWEPCo**                                                                               |   |                              |      |                          |   |   |   |   |   |   |   |   |   |
| Long-term                Debt                                                            |   |                              | 746,035   |                          |   | 744,915 |   |   | 805,369 |   |   | 833,246 |   |
|                                                                                     |   |                              |      |                          |   |   |   |   |   |   |   |   |   |
| **TCC**                                                                                  |   |                              |      |                          |   |   |   |   |   |   |   |   |   |
| Long-term                Debt                                                            |   |                              | 1,853,496 |                          |   | 1,916,511 |   |   | 1,907,294 |   |   | 2,013,546 |   |
|                                                                                     |   |                              |      |                          |   |   |   |   |   |   |   |   |   |
| **TNC**                                                                                  |   |                              |      |                          |   |   |   |   |   |   |   |   |   |
| Long-term                Debt                                                            |   |                              | 276,845   |                          |   | 281,047 |   |   | 314,357 |   |   | 329,514 |   |

***Other      Financial Instruments - Nuclear Trust Funds Recorded at Market Value***

|                      |   | **I&M**                       |      | **TCC**  |   |
|---------------------------|--------|-----------------------------------|-----------|----------|--------|
|                      |   | **2005**                          |      | **2004** |   | **2005** |   | **2004** |   |
|                      |   | **(in                thousands)** |      |
| Fair                Value |   | $                                 | 1,133,600 |     | $      | 1,053,400 |   | $ | - |   | $ | 143,200 |   |
| Cost                Basis |   |                              | 988,500   |     |   | 936,500 |   |   | - |   |   | 107,000 |   |

|                                      |   | **I&M**                       |   | **TCC**  |   |
|-------------------------------------------|--------|-----------------------------------|--------|----------|--------|
|                                      |   | **2005**                          |   | **2004** |   | **2003** |   | **2005** |   | **2004** |   | **2003** |   |
|                                      |   | **(in                thousands)** |   |
| Net                Unrealized Gain (Loss) |   | $                                 | 28,200 |     | $      | 34,500 |   | $ | 35,500 |   | $ | - |   | $ | 6,400 |   | $ | 16,700 |   |

**14.**
**INCOME      TAXES**

|                                                |   | **AEGCo**                         |   | **APCo**     |   | **CSPCo**    |   | **I&M**  |   | **KPCo**     |   |
|-----------------------------------------------------|--------|-----------------------------------|--------|--------------|--------|--------------|--------|--------------|--------|--------------|--------|
|                                                |   | **(in                thousands)** |   |
| **Year                Ended December 31, 2005**     |   |                         |   |    |   |    |   |    |   |    |   |
| Income                Tax Expense (Credit)          |   |                         |   |    |   |    |   |    |   |    |   |
| Current                                             |   | $                                 | 5,089  |         | $      | (1,915       | )      | $            | 44,968 |         | $      | 62,082 |   | $ | 2,803 |   |
| Deferred                                            |   |                              | (1,666 | )            |   | 72,763       |   |         | 19,209 |         |   | 26,873 |   |   | 10,555 |   |
| Deferred                Investment Tax Credits |   |                              | (3,532 | )            |   | (4,659       | )      |         | (2,717 | )            |   | (7,725 | ) |   | (1,222 | ) |
| **Total                Income Tax as Reported**     |   | $                                 | (109   | )            | $      | 66,189       |   | $            | 61,460 |         | $      | 81,230 |   | $ | 12,136 |   |

|                                            |   | **OPCo**                          |    | **PSO**      |   | **SWEPCo**   |   | **TCC**      |   | **TNC**      |   |
|-------------------------------------------------|--------|-----------------------------------|---------|--------------|--------|--------------|--------|--------------|--------|--------------|--------|
|                                            |   | **(in                thousands)** |    |
| **Year                Ended December 31, 2005** |   |                         |    |    |   |    |   |    |   |    |   |
| Income                Tax Expense (Credit)      |   |                              |    |         |   |         |   |         |   |         |   |   |   |   |   |   |
| Current                                         |   | $                                 | 68,508  |         | $      | (14,510      | )      | $            | 44,156 |         | $      | 106,437 |   | $ | 24,426 |   |
| Deferred                                        |   |                              | 59,593  |         |   | 46,342       |   |         | (4,942 | )            |   | (91,387 | ) |   | (4,578 | ) |
| Deferred                Investment Tax Credits  |   |                              | (3,123  | )            |   | (1,347       | )      |         | (4,292 | )            |   | (2,609 | ) |   | (1,271 | ) |
| **Total                Income Tax as Reported** |   | $                                 | 124,978 |         | $      | 30,485       |   | $            | 34,922 |         | $      | 12,441 |   | $ | 18,577 |   |

|                                                |   | **AEGCo**                         |   | **APCo**     |   | **CSPCo**    |   | **I&M**  |   | **KPCo**     |   |
|-----------------------------------------------------|--------|-----------------------------------|--------|--------------|--------|--------------|--------|--------------|--------|--------------|--------|
|                                                |   | **(in                thousands)** |   |
| **Year                Ended December 31, 2004**     |   |                         |   |    |   |    |   |    |   |    |   |
| Income                Tax Expense (Credit)          |   |                         |   |    |   |    |   |    |   |    |   |
| Current                                             |   | $                                 | 5,442  |         | $      | 37,689       |   | $            | 57,140 |         | $      | 84,639 |   | $ | (2,870 | ) |
| Deferred                                            |   |                              | (2,219 | )            |   | 47,585       |   |         | 13,395 |         |   | (5,548 | ) |   | 12,774 |   |
| Deferred                Investment Tax Credits |   |                              | (3,339 | )            |   | (163         | )      |         | (2,864 | )            |   | (7,476 | ) |   | (1,233 | ) |
| **Total                Income Tax as Reported**     |   | $                                 | (116   | )            | $      | 85,111       |   | $            | 67,671 |         | $      | 71,615 |   | $ | 8,671 |   |

|                                            |   | **OPCo**                          |   | **PSO**      |   | **SWEPCo**   |   | **TCC**      |   | **TNC**      |   |
|-------------------------------------------------|--------|-----------------------------------|--------|--------------|--------|--------------|--------|--------------|--------|--------------|--------|
|                                            |   | **(in                thousands)** |   |
| **Year                Ended December 31, 2004** |   |                         |   |    |   |    |   |    |   |    |   |
| Income                Tax Expense (Credit)      |   |                         |   |    |   |    |   |    |   |    |   |
| Current                                         |   | $                                 | 75,883 |         | $      | (12,434      | )      | $            | 26,271 |         | $      | 123,304 |   | $ | 19,565 |   |
| Deferred                                        |   |                              | 23,329 |         |   | 22,034       |   |         | 12,782 |         |   | 16,490 |   |   | 4,236 |   |
| Deferred                Investment Tax Credits  |   |                              | (3,102 | )            |   | (1,791       | )      |         | (4,326 | )            |   | (4,736 | ) |   | (1,292 | ) |
| **Total                Income Tax as Reported** |   | $                                 | 96,110 |         | $      | 7,809        |   | $            | 34,727 |         | $      | 135,058 |   | $ | 22,509 |   |

|                                            |   | **AEGCo**                         |   | **APCo**     |   | **CSPCo**    |   | **I&M**  |   | **KPCo**     |   |
|-------------------------------------------------|--------|-----------------------------------|--------|--------------|--------|--------------|--------|--------------|--------|--------------|--------|
|                                            |   | **(in                thousands)** |   |
| **Year                Ended December 31, 2003** |   |                         |   |    |   |    |   |    |   |    |   |
| Income                Tax Expense (Credit)      |   |                         |   |    |   |    |   |    |   |    |   |
| Current                                         |   | $                                 | 7,285  |         | $      | 83,803       |   | $            | 81,286 |         | $      | 63,473 |   | $ | (9,222 | ) |
| Deferred                                        |   |                              | (5,838 | )            |   | 24,563       |   |         | (4,514 | )            |   | (14,894 | ) |   | 20,107 |   |
| Deferred                Investment Tax Credits  |   |                              | (3,354 | )            |   | (3,146       | )      |         | (3,110 | )            |   | (7,431 | ) |   | (1,210 | ) |
| **Total                Income Tax as Reported** |   | $                                 | (1,907 | )            | $      | 105,220      |   | $            | 73,662 |         | $      | 41,148 |   | $ | 9,675 |   |

|                                                          |   | **OPCo**                            |    | **PSO**      |   | **SWEPCo**   |   | **TCC**      |   | **TNC**      |   |
|---------------------------------------------------------------|--------|-------------------------------------|---------|--------------|--------|--------------|--------|--------------|--------|--------------|--------|
|                                                          |   | **(in                  thousands)** |    |
| **Year                  Ended December 31, 2003**             |   |                           |    |    |   |    |   |    |   |    |   |
| Income                  Tax Expense (Credit)                  |   |                           |    |    |   |    |   |    |   |    |   |
|                     Current                         |   | $                                   | 117,024 |         | $      | 54,268       |   | $            | 45,456 |         | $      | 90,986 |   | $ | 35,276 |   |
|                     Deferred                        |   |                                | 24,482  |         |   | (14,641      | )      |         | 9,942  |         |   | 19,393 |   |   | (3,493 | ) |
|                     Deferred Investment Tax Credits |   |                                | (3,107  | )            |   | (1,790       | )      |         | (4,326 | )            |   | (5,207 | ) |   | (1,520 | ) |
| **Total                  Income Tax as Reported**             |   | $                                   | 138,399 |         | $      | 37,837       |   | $            | 51,072 |         | $      | 105,172 |   | $ | 30,263 |   |

|                                                                                                     |   | **AEGCo**                         |   | **APCo**     |   | **CSPCo**    |   | **I&M**  |    | **KPCo**     |   |
|----------------------------------------------------------------------------------------------------------|--------|-----------------------------------|--------|--------------|--------|--------------|--------|--------------|---------|--------------|--------|
|                                                                                                     |   | **(in                thousands)** |   |
| **Year                Ended December 31, 2005**                                                          |   |                         |   |    |   |    |   |    |    |    |   |
| Net                Income                                                                                |   | $                                 | 8,695  |         | $      | 133,576      |   | $            | 136,960 |         | $      | 146,852 |   | $ | 20,809 |   |
| Cumulative                Effect of Accounting Changes                                                   |   |                              | -      |         |   | 2,256        |   |         | 839     |         |   | - |   |   | - |   |
| Income                Taxes                                                                              |   |                              | (109   | )            |   | 66,189       |   |         | 61,460  |         |   | 81,230 |   |   | 12,136 |   |
| **Pretax                Income**                                                                         |   | $                                 | 8,586  |         | $      | 202,021      |   | $            | 199,259 |         | $      | 228,082 |   | $ | 32,945 |   |
|                                                                                                     |   |                              |   |         |   |         |   |         |    |         |   |   |   |   |   |   |
| Income                Tax on Pretax Income at Statutory                Rate (35%)                        |   | $                                 | 3,005  |         | $      | 70,707       |   | $            | 69,741  |         | $      | 79,829 |   | $ | 11,531 |   |
| Increase                (Decrease) in Income Tax resulting                from the following items: |   |                              |   |         |   |         |   |         |    |         |   |   |   |   |   |   |
| Depreciation                                                                                             |   |                              | 757    |         |   | 11,257       |   |         | 1,614   |         |   | 19,492 |   |   | 1,644 |   |
| Nuclear                Fuel Disposal Costs                                                               |   |                              | -      |         |   | -            |   |         | -       |         |   | (3,413 | ) |   | - |   |
| Allowance                for Funds Used During Construction                                         |   |                              | (1,097 | )            |   | (4,786       | )      |         | (679    | )            |   | (3,819 | ) |   | (614 | ) |
| Rockport                Plant Unit 2 Investment Tax                Credit                           |   |                              | 374    |         |   | -            |   |         | -       |         |   | 397 |   |   | - |   |
| Removal                Costs                                                                             |   |                              | -      |         |   | (4,275       | )      |         | (357    | )            |   | (5,476 | ) |   | (995 | ) |
| Investment                Tax Credits (net)                                                              |   |                              | (3,532 | )            |   | (4,659       | )      |         | (2,717  | )            |   | (7,725 | ) |   | (1,222 | ) |
| State                and Local Income Taxes                                                              |   |                              | 723    |         |   | 2,223        |   |         | 448     |         |   | 6,598 |   |   | 778 |   |
| Other                                                                                                    |   |                              | (339   | )            |   | (4,278       | )      |         | (6,590  | )            |   | (4,653 | ) |   | 1,014 |   |
| **Total                Income Taxes as Reported**                                                        |   | $                                 | (109   | )            | $      | 66,189       |   | $            | 61,460  |         | $      | 81,230 |   | $ | 12,136 |   |
|                                                                                                     |   |                              |   |         |   |         |   |         |    |         |   |   |   |   |   |   |
| **Effective                Income Tax Rate**                                                             |   |                              | N.M.   |         |   | 32.8         | %      |         | 30.8    | %            |   | 35.6 | % |   | 36.8 | % |

|                                                                                                |   | **OPCo**                          |    | **PSO**      |   | **SWEPCo**   |   | **TCC**      |    | **TNC**      |   |
|-----------------------------------------------------------------------------------------------------|--------|-----------------------------------|---------|--------------|--------|--------------|--------|--------------|---------|--------------|--------|
|                                                                                                |   | **(in                thousands)** |    |
| **Year                Ended December 31, 2005**                                                     |   |                         |    |    |   |    |   |    |    |    |   |
| Net                Income (Loss)                                                                    |   | $                                 | 245,844 |         | $      | 57,893       |   | $            | 73,938  |         | $      | (173,779 | ) | $ | 33,004 |   |
| Extraordinary                Loss                                                                   |   |                              | -       |         |   | -            |   |         | -       |         |   | 224,551 |   |   | - |   |
| Cumulative                Effect of Accounting Changes                                              |   |                              | 4,575   |         |   | -            |   |         | 1,252   |         |   | - |   |   | 8,472 |   |
| Income                Taxes                                                                         |   |                              | 124,978 |         |   | 30,485       |   |         | 34,922  |         |   | 12,441 |   |   | 18,577 |   |
| **Pretax                Income**                                                                    |   | $                                 | 375,397 |         | $      | 88,378       |   | $            | 110,112 |         | $      | 63,213 |   | $ | 60,053 |   |
|                                                                                                |   |                              |    |         |   |         |   |         |    |         |   |   |   |   |   |   |
| Income                Tax on Pretax Income at Statutory                Rate (35%)              |   | $                                 | 131,389 |         | $      | 30,932       |   | $            | 38,539  |         | $      | 22,125 |   | $ | 21,019 |   |
| Increase                (Decrease) in Income Tax resulting                from the following items: |   |                              |    |         |   |         |   |         |    |         |   |   |   |   |   |   |
| Depreciation                                                                                        |   |                              | 5,201   |         |   | (775         | )      |         | (211    | )            |   | (519 | ) |   | (513 | ) |
| Depletion                                                                                           |   |                              | -       |         |   | -            |   |         | (3,150  | )            |   | - |   |   | - |   |
| Investment                Tax Credits (net)                                                         |   |                              | (3,123  | )            |   | (1,347       | )      |         | (4,292  | )            |   | (2,609 | ) |   | (1,271 | ) |
| State                and Local Income Taxes                                                         |   |                              | (5,437  | )            |   | (1,387       | )      |         | 1,831   |         |   | 300 |   |   | 718 |   |
| Other                                                                                               |   |                              | (3,052  | )            |   | 3,062        |   |         | 2,205   |         |   | (6,856 | )* |   | (1,376 | ) |
| **Total                Income Taxes as Reported**                                                   |   | $                                 | 124,978 |         | $      | 30,485       |   | $            | 34,922  |         | $      | 12,441 |   | $ | 18,577 |   |
|                                                                                                |   |                              |    |         |   |         |   |         |    |         |   |   |   |   |   |   |
| **Effective                Income Tax Rate**                                                        |   |                              | 33.3    | %            |   | 34.5         | %      |         | 31.7    | %            |   | 19.7 | % |   | 30.9 | % |

| N.M.                = Not Meaningful                                                      |
|-------------------------------------------------------------------------------------------|
| *Includes                $(3,900) of consolidated tax savings from                parent. |

|                                                                                                     |   | **AEGCo**                         |   | **APCo**     |   | **CSPCo**    |   | **I&M**  |    | **KPCo**     |   |
|----------------------------------------------------------------------------------------------------------|--------|-----------------------------------|--------|--------------|--------|--------------|--------|--------------|---------|--------------|--------|
|                                                                                                     |   | **(in                thousands)** |   |
| **Year                Ended December 31, 2004**                                                          |   |                         |   |    |   |    |   |    |    |    |   |
| Net                Income                                                                                |   | $                                 | 7,842  |         | $      | 153,115      |   | $            | 140,258 |         | $      | 133,222 |   | $ | 25,905 |   |
| Income                Taxes                                                                              |   |                              | (116   | )            |   | 85,111       |   |         | 67,671  |         |   | 71,615 |   |   | 8,671 |   |
| **Pretax                Income**                                                                         |   | $                                 | 7,726  |         | $      | 238,226      |   | $            | 207,929 |         | $      | 204,837 |   | $ | 34,576 |   |
|                                                                                                     |   |                              |   |         |   |         |   |         |    |         |   |   |   |   |   |   |
| Income                Tax on Pretax Income at Statutory                Rate (35%)                   |   | $                                 | 2,704  |         | $      | 83,379       |   | $            | 72,775  |         | $      | 71,693 |   | $ | 12,102 |   |
| Increase                (Decrease) in Income Tax resulting                from the following items: |   |                              |   |         |   |         |   |         |    |         |   |   |   |   |   |   |
| Depreciation                                                                                             |   |                              | 808    |         |   | 10,719       |   |         | 2,570   |         |   | 19,023 |   |   | 1,466 |   |
| Nuclear                Fuel Disposal Costs                                                               |   |                              | -      |         |   | -            |   |         | -       |         |   | (3,338 | ) |   | - |   |
| Allowance                for Funds Used During Construction                                         |   |                              | (1,060 | )            |   | (3,948       | )      |         | (515    | )            |   | (3,160 | ) |   | (603 | ) |
| Rockport                Plant Unit 2 Investment Tax                Credit                           |   |                              | 374    |         |   | -            |   |         | -       |         |   | 397 |   |   | - |   |
| Removal                Costs                                                                             |   |                              | -      |         |   | (1,632       | )      |         | (336    | )            |   | (2,974 | ) |   | (1,497 | ) |
| Investment                Tax Credits (net)                                                              |   |                              | (3,339 | )            |   | (163         | )      |         | (2,864  | )            |   | (7,476 | ) |   | (1,233 | ) |
| State                and Local Income Taxes                                                              |   |                              | 933    |         |   | 6,629        |   |         | 159     |         |   | 7,102 |   |   | (197 | ) |
| Other                                                                                                    |   |                              | (536   | )            |   | (9,873       | )      |         | (4,118  | )            |   | (9,652 | ) |   | (1,367 | ) |
| **Total                Income Taxes as Reported**                                                        |   | $                                 | (116   | )            | $      | 85,111       |   | $            | 67,671  |         | $      | 71,615 |   | $ | 8,671 |   |
|                                                                                                     |   |                              |   |         |   |         |   |         |    |         |   |   |   |   |   |   |
| **Effective                Income Tax Rate**                                                             |   |                              | N.M.   |         |   | 35.7         | %      |         | 32.5    | %            |   | 35.0 | % |   | 25.1 | % |

| N.M.                = Not Meaningful |
|--------------------------------------|

|                                                                                                     |   | **OPCo**                          |    | **PSO**      |   | **SWEPCo**   |   | **TCC**      |    | **TNC**      |   |
|----------------------------------------------------------------------------------------------------------|--------|-----------------------------------|---------|--------------|--------|--------------|--------|--------------|---------|--------------|--------|
|                                                                                                     |   | **(in                thousands)** |    |
| **Year                Ended December 31, 2004**                                                          |   |                         |    |    |   |    |   |    |    |    |   |
| Net                Income                                                                                |   | $                                 | 210,116 |         | $      | 37,542       |   | $            | 89,457  |         | $      | 174,122 |   | $ | 47,659 |   |
| Extraordinary                Loss                                                                        |   |                              | -       |         |   | -            |   |         | -       |         |   | 120,534 |   |   | - |   |
| Income                Taxes                                                                              |   |                              | 96,110  |         |   | 7,809        |   |         | 34,727  |         |   | 135,058 |   |   | 22,509 |   |
| **Pretax                Income**                                                                         |   | $                                 | 306,226 |         | $      | 45,351       |   | $            | 124,184 |         | $      | 429,714 |   | $ | 70,168 |   |
|                                                                                                     |   |                              |    |         |   |         |   |         |    |         |   |   |   |   |   |   |
| Income                Tax on Pretax Income at Statutory                Rate (35%)                   |   | $                                 | 107,179 |         | $      | 15,873       |   | $            | 43,464  |         | $      | 150,400 |   | $ | 24,559 |   |
| Increase                (Decrease) in Income Tax resulting                from the following items: |   |                              |    |         |   |         |   |         |    |         |   |   |   |   |   |   |
| Depreciation                                                                                             |   |                              | 4,977   |         |   | (937         | )      |         | (1,622  | )            |   | (812 | ) |   | (739 | ) |
| Depletion                                                                                                |   |                              | -       |         |   | -            |   |         | (2,100  | )            |   | - |   |   | - |   |
| Investment                Tax Credits (net)                                                              |   |                              | (3,102  | )            |   | (1,791       | )      |         | (4,326  | )            |   | (4,736 | ) |   | (1,292 | ) |
| State                and Local Income Taxes                                                              |   |                              | 305     |         |   | 1,882        |   |         | 4,736   |         |   | 543 |   |   | 2,762 |   |
| Other                                                                                                    |   |                              | (13,249 | )            |   | (7,218       | )      |         | (5,425  | )            |   | (10,337 | ) |   | (2,781 | ) |
| **Total                Income Taxes as Reported**                                                        |   | $                                 | 96,110  |         | $      | 7,809        |   | $            | 34,727  |         | $      | 135,058 |   | $ | 22,509 |   |
|                                                                                                     |   |                              |    |         |   |         |   |         |    |         |   |   |   |   |   |   |
| **Effective                Income Tax Rate**                                                             |   |                              | 31.4    | %            |   | 17.2         | %      |         | 28.0    | %            |   | 31.4 | % |   | 32.1 | % |

|                                                                                                     |   | **AEGCo**                         |   | **APCo**     |   | **CSPCo**    |   | **I&M**  |    | **KPCo**     |   |
|----------------------------------------------------------------------------------------------------------|--------|-----------------------------------|--------|--------------|--------|--------------|--------|--------------|---------|--------------|--------|
|                                                                                                     |   | **(in                thousands)** |   |
| **Year                Ended December 31, 2003**                                                          |   |                         |   |    |   |    |   |    |    |    |   |
| Net                Income                                                                                |   | $                                 | 7,964  |         | $      | 280,040      |   | $            | 200,430 |         | $      | 86,388 |   | $ | 32,330 |   |
| Cumulative                Effect of Accounting Changes                                                   |   |                              | -      |         |   | (77,257      | )      |         | (27,283 | )            |   | 3,160 |   |   | 1,134 |   |
| Income                Taxes                                                                              |   |                              | (1,907 | )            |   | 105,220      |   |         | 73,662  |         |   | 41,148 |   |   | 9,675 |   |
| **Pretax                Income**                                                                         |   | $                                 | 6,057  |         | $      | 308,003      |   | $            | 246,809 |         | $      | 130,696 |   | $ | 43,139 |   |
|                                                                                                     |   |                              |   |         |   |         |   |         |    |         |   |   |   |   |   |   |
| Income                Tax on Pretax Income at Statutory                Rate (35%)                   |   | $                                 | 2,120  |         | $      | 107,801      |   | $            | 86,383  |         | $      | 45,744 |   | $ | 15,099 |   |
| Increase                (Decrease) in Income Tax resulting                from the following items: |   |                              |   |         |   |         |   |         |    |         |   |   |   |   |   |   |
| Depreciation                                                                                             |   |                              | 371    |         |   | 9,209        |   |         | 2,220   |         |   | 17,735 |   |   | 1,538 |   |
| Nuclear                Fuel Disposal Costs                                                               |   |                              | -      |         |   | -            |   |         | -       |         |   | (6,465 | ) |   | - |   |
| Allowance                for Funds Used During Construction                                         |   |                              | (1,053 | )            |   | (2,048       | )      |         | (232    | )            |   | (4,127 | ) |   | (851 | ) |
| Rockport                Plant Unit 2 Investment Tax                Credit                           |   |                              | 374    |         |   | -            |   |         | -       |         |   | 397 |   |   | - |   |
| Removal                Costs                                                                             |   |                              | -      |         |   | (2,280       | )      |         | (7      | )            |   | (693 | ) |   | (735 | ) |
| Investment                Tax Credits (net)                                                              |   |                              | (3,354 | )            |   | (3,146       | )      |         | (3,110  | )            |   | (7,431 | ) |   | (1,210 | ) |
| State                and Local Income Taxes                                                              |   |                              | 372    |         |   | 1,123        |   |         | (3,074  | )            |   | 4,634 |   |   | (58 | ) |
| Other                                                                                                    |   |                              | (737   | )            |   | (5,439       | )      |         | (8,518  | )            |   | (8,646 | ) |   | (4,108 | ) |
| **Total                Income Taxes as Reported**                                                        |   | $                                 | (1,907 | )            | $      | 105,220      |   | $            | 73,662  |         | $      | 41,148 |   | $ | 9,675 |   |
|                                                                                                     |   |                              |   |         |   |         |   |         |    |         |   |   |   |   |   |   |
| **Effective                Income Tax Rate**                                                             |   |                              | N.M.   |         |   | 34.2         | %      |         | 29.8    | %            |   | 31.5 | % |   | 22.4 | % |

|                                                                                                     |   | **OPCo**                          |     | **PSO**      |   | **SWEPCo**   |   | **TCC**      |    | **TNC**      |   |
|----------------------------------------------------------------------------------------------------------|--------|-----------------------------------|----------|--------------|--------|--------------|--------|--------------|---------|--------------|--------|
|                                                                                                     |   | **(in                thousands)** |     |
| **Year                Ended December 31, 2003**                                                          |   |                         |     |    |   |    |   |    |    |    |   |
| Net                Income                                                                                |   | $                                 | 375,663  |         | $      | 53,891       |   | $            | 98,141  |         | $      | 217,669 |   | $ | 58,557 |   |
| Cumulative                Effect of Accounting Changes                                              |   |                              | (124,632 | )            |   | -            |   |         | (8,517  | )            |   | (122 | ) |   | (3,071 | ) |
| Extraordinary                Loss                                                                        |   |                              | -        |         |   | -            |   |         | -       |         |   | - |   |   | 177 |   |
| Income                Taxes                                                                              |   |                              | 138,399  |         |   | 37,837       |   |         | 51,072  |         |   | 105,172 |   |   | 30,263 |   |
| **Pretax                Income**                                                                         |   | $                                 | 389,430  |         | $      | 91,728       |   | $            | 140,696 |         | $      | 322,719 |   | $ | 85,926 |   |
|                                                                                                     |   |                              |     |         |   |         |   |         |    |         |   |   |   |   |   |   |
| Income                Tax on Pretax Income at Statutory                Rate (35%)                   |   | $                                 | 136,301  |         | $      | 32,105       |   | $            | 49,244  |         | $      | 112,952 |   | $ | 30,074 |   |
| Increase                (Decrease) in Income Tax resulting                from the following items: |   |                              |     |         |   |         |   |         |    |         |   |   |   |   |   |   |
| Depreciation                                                                                             |   |                              | 4,096    |         |   | (467         | )      |         | (390    | )            |   | (957 | ) |   | (214 | ) |
| Depletion                                                                                                |   |                              | -        |         |   | -            |   |         | (2,100  | )            |   | - |   |   | - |   |
| Investment                Tax Credits (net)                                                              |   |                              | (3,107   | )            |   | (1,791       | )      |         | (4,326  | )            |   | (5,207 | ) |   | (1,521 | ) |
| State                and Local Income Taxes                                                              |   |                              | 4,717    |         |   | 2,886        |   |         | 9,723   |         |   | (10,434 | ) |   | 3,078 |   |
| Other                                                                                                    |   |                              | (3,608   | )            |   | 5,104        |   |         | (1,079  | )            |   | 8,818 |   |   | (1,154 | ) |
| **Total                Income Taxes as Reported**                                                        |   | $                                 | 138,399  |         | $      | 37,837       |   | $            | 51,072  |         | $      | 105,172 |   | $ | 30,263 |   |
|                                                                                                     |   |                              |     |         |   |         |   |         |    |         |   |   |   |   |   |   |
| **Effective                Income Tax Rate**                                                             |   |                              | 35.5     | %            |   | 41.2         | %      |         | 36.3    | %            |   | 32.6 | % |   | 35.2 | % |

| N.M.                = Not Meaningful |
|--------------------------------------|

|                                                                                             |   | **AEGCo**                         |    | **APCo**     |   | **CSPCo**    |   | **I&M**  |     | **KPCo**     |   |
|--------------------------------------------------------------------------------------------------|--------|-----------------------------------|---------|--------------|--------|--------------|--------|--------------|----------|--------------|--------|
|                                                                                             |   | **(in                thousands)** |    |
| **As                of December 31, 2005**                                                       |   |                         |    |    |   |    |   |    |     |    |   |
| Deferred                Tax Assets                                                               |   | $                                 | 61,315  |         | $      | 221,910      |   | $            | 76,785   |         | $      | 614,838 |   | $ | 26,806 |   |
| Deferred                Tax Liabilities                                                          |   |                              | (84,932 | )            |   | (1,174,407   | )      |         | (575,017 | )            |   | (950,102 | ) |   | (261,525 | ) |
| **Net                Deferred Tax Liabilities**                                                  |   | $                                 | (23,617 | )            | $      | (952,497     | )      | $            | (498,232 | )            | $      | (335,264 | ) | $ | (234,719 | ) |
|                                                                                             |   |                              |    |         |   |         |   |         |     |         |   |   |   |   |   |   |
| Property                Related Temporary Differences                                            |   | $                                 | (56,297 | )            | $      | (695,698     | )      | $            | (391,117 | )            | $      | (42,401 | ) | $ | (175,512 | ) |
| Amounts                Due From Customers For Future                Federal Income Taxes    |   |                              | 5,711   |         |   | (93,171      | )      |         | (6,053   | )            |   | (28,714 | ) |   | (24,720 | ) |
| Deferred                State Income Taxes                                                       |   |                              | (3,987  | )            |   | (108,455     | )      |         | (9,409   | )            |   | (36,352 | ) |   | (25,950 | ) |
| Transition                Regulatory Assets                                                      |   |                              | -       |         |   | (7,428       | )      |         | (50,719  | )            |   | - |   |   | - |   |
| Deferred                Income Taxes on Other Comprehensive                Loss             |   |                              | -       |         |   | 8,944        |   |         | 473      |         |   | 1,922 |   |   | 120 |   |
| Net                Deferred Gain on Sale and Leaseback-Rockport                Plant Unit 2 |   |                              | 32,018  |         |   | -            |   |         | -        |         |   | 21,303 |   |   | - |   |
| Accrued                Nuclear Decommissioning Expense                                      |   |                              | -       |         |   | -            |   |         | -        |         |   | (214,126 | ) |   | - |   |
| Deferred                Fuel and Purchased Power                                                 |   |                              | -       |         |   | 7,471        |   |         | (39      | )            |   | (1,200 | ) |   | - |   |
| Deferred                Cook Plant Restart Costs                                                 |   |                              | -       |         |   | -            |   |         | -        |         |   | - |   |   | - |   |
| Accrued                Pensions                                                                  |   |                              | -       |         |   | (48,649      | )      |         | (40,460  | )            |   | (28,443 | ) |   | (6,488 | ) |
| Nuclear                Fuel                                                                      |   |                              | -       |         |   | -            |   |         | -        |         |   | (8,040 | ) |   | - |   |
| All                Other (Net)                                                                   |   |                              | (1,062  | )            |   | (15,511      | )      |         | (908     | )            |   | 787 |   |   | (2,169 | ) |
| **Net                Deferred Tax Liabilities**                                                  |   | $                                 | (23,617 | )            | $      | (952,497     | )      | $            | (498,232 | )            | $      | (335,264 | ) | $ | (234,719 | ) |

|                                                                                          |   | **OPCo**                          |       | **PSO**      |   | **SWEPCo**   |   | **TCC**      |     | **TNC**      |   |
|-----------------------------------------------------------------------------------------------|--------|-----------------------------------|------------|--------------|--------|--------------|--------|--------------|----------|--------------|--------|
|                                                                                          |   | **(in                thousands)** |       |
| **As                of December 31, 2005**                                                    |   |                         |       |    |   |    |   |    |     |    |   |
| Deferred                Tax Assets                                                            |   | $                                 | 138,836    |         | $      | 50,570       |   | $            | 67,226   |         | $      | 146,877 |   | $ | 37,158 |   |
| Deferred                Tax Liabilities                                                       |   |                              | (1,126,222 | )            |   | (486,952     | )      |         | (476,739 | )            |   | (1,195,249 | ) |   | (169,493 | ) |
| **Net                Deferred Tax Liabilities**                                               |   | $                                 | (987,386   | )            | $      | (436,382     | )      | $            | (409,513 | )            | $      | (1,048,372 | ) | $ | (132,335 | ) |
|                                                                                          |   |                              |       |         |   |         |   |         |     |         |   |   |   |   |   |   |
| Property                Related Temporary Differences                                         |   | $                                 | (789,885   | )            | $      | (336,743     | )      | $            | (321,810 | )            | $      | (240,361 | ) | $ | (121,192 | ) |
| Amounts                Due From Customers For Future                Federal Income Taxes |   |                              | (51,780    | )            |   | 4,231        |   |         | (961     | )            |   | 7,216 |   |   | 3,892 |   |
| Deferred                State Income Taxes                                                    |   |                              | (41,366    | )            |   | (59,574      | )      |         | (45,218  | )            |   | (43,427 | ) |   | (7,316 | ) |
| Transition                Regulatory Assets                                                   |   |                              | (49,505    | )            |   | -            |   |         | 14       |         |   | (68,076 | ) |   | - |   |
| Accrued                Nuclear Decommissioning Expense                                   |   |                              | -          |         |   | -            |   |         | -        |         |   | (1,983 | ) |   | - |   |
| Nuclear                Fuel                                                                   |   |                              | -          |         |   | -            |   |         | -        |         |   | - |   |   | - |   |
| Deferred                Income Taxes on Other Comprehensive                Loss          |   |                              | (406       | )            |   | 681          |   |         | 3,300    |         |   | 620 |   |   | 271 |   |
| Deferred                Fuel and Purchased Power                                              |   |                              | -          |         |   | (37,984      | )      |         | (26,449  | )            |   | (1,738 | ) |   | (8,554 | ) |
| Accrued                Pensions                                                               |   |                              | (52,450    | )            |   | (32,387      | )      |         | (29,041  | )            |   | (41,894 | ) |   | (17,698 | ) |
| Provision                for Refund                                                           |   |                              | -          |         |   | 67           |   |         | 843      |         |   | 40,111 |   |   | 11,671 |   |
| Regulatory                Assets                                                              |   |                              | 7,340      |         |   | -            |   |         | (496     | )            |   | (464,080 | ) |   | (2,915 | ) |
| Securitized                Transition Assets                                                  |   |                              | -          |         |   | -            |   |         | -        |         |   | (231,587 | ) |   | - |   |
| All                Other (Net)                                                                |   |                              | (9,334     | )            |   | 25,327       |   |         | 10,305   |         |   | (3,173 | ) |   | 9,506 |   |
| **Net                Deferred Tax Liabilities**                                               |   | $                                 | (987,386   | )            | $      | (436,382     | )      | $            | (409,513 | )            | $      | (1,048,372 | ) | $ | (132,335 | ) |

|                                                                                             |   | **AEGCo**                         |    | **APCo** |   | **CSPCo**    |   | **I&M**  |     | **KPCo**     |   |
|--------------------------------------------------------------------------------------------------|--------|-----------------------------------|---------|----------|--------|--------------|--------|--------------|----------|--------------|--------|
|                                                                                             |   | **(in                thousands)** |    |
| **As                of December 31, 2004**                                                       |   |                         |    |     |   |    |   |    |     |    |   |
| Deferred                Tax Assets                                                               |   | $                                 | 65,740  |     | $      | 238,784      |   | $            | 98,848   |         | $      | 650,596 |   | $ | 39,511 |   |
| Deferred                Tax Liabilities                                                          |   |                              | (90,502 | )        |   | (1,091,320   | )      |         | (563,393 | )            |   | (966,326 | ) |   | (267,047 | ) |
| **Net                Deferred Tax Liabilities**                                                  |   | $                                 | (24,762 | )        | $      | (852,536     | )      | $            | (464,545 | )            | $      | (315,730 | ) | $ | (227,536 | ) |
|                                                                                             |   |                              |    |     |   |         |   |         |     |         |   |   |   |   |   |   |
| Property                Related Temporary Differences                                            |   | $                                 | (58,895 | )        | $      | (680,324     | )      | $            | (385,426 | )            | $      | (71,771 | ) | $ | (169,452 | ) |
| Amounts                Due From Customers For Future                Federal Income Taxes    |   |                              | 6,266   |     |   | (94,438      | )      |         | (5,652   | )            |   | (34,260 | ) |   | (25,112 | ) |
| Deferred                State Income Taxes                                                       |   |                              | (5,050  | )        |   | (106,817     | )      |         | (25,658  | )            |   | (48,830 | ) |   | (32,099 | ) |
| Transition                Regulatory Assets                                                      |   |                              | -       |     |   | (8,914       | )      |         | (54,852  | )            |   | - |   |   | - |   |
| Deferred                Income Taxes on Other Comprehensive                Loss             |   |                              | -       |     |   | 43,978       |   |         | 32,747   |         |   | 24,366 |   |   | 4,725 |   |
| Net                Deferred Gain on Sale and Leaseback-Rockport                Plant Unit 2 |   |                              | 33,967  |     |   | -            |   |         | -        |         |   | 22,600 |   |   | - |   |
| Accrued                Nuclear Decommissioning Expense                                      |   |                              | -       |     |   | -            |   |         | -        |         |   | (188,428 | ) |   | - |   |
| Deferred                Fuel and Purchased Power                                                 |   |                              | -       |     |   | 20,245       |   |         | (39      | )            |   | (19 | ) |   | - |   |
| Accrued                Pensions                                                                  |   |                              | -       |     |   | (8,306       | )      |         | (12,528  | )            |   | 6,135 |   |   | (768 | ) |
| Nuclear                Fuel                                                                      |   |                              | -       |     |   | -            |   |         | -        |         |   | (15,485 | ) |   | - |   |
| All                Other (Net)                                                                   |   |                              | (1,050  | )        |   | (17,960      | )      |         | (13,137  | )            |   | (10,038 | ) |   | (4,830 | ) |
| **Net                Deferred Tax Liabilities**                                                  |   | $                                 | (24,762 | )        | $      | (852,536     | )      | $            | (464,545 | )            | $      | (315,730 | ) | $ | (227,536 | ) |

|                                                                                          |   | **OPCo**                          |       | **PSO**      |   | **SWEPCo**   |   | **TCC**      |     | **TNC**      |   |
|-----------------------------------------------------------------------------------------------|--------|-----------------------------------|------------|--------------|--------|--------------|--------|--------------|----------|--------------|--------|
|                                                                                          |   | **(in                thousands)** |       |
| **As                of Ended December 31, 2004**                                              |   |                         |       |    |   |    |   |    |     |    |   |
| Deferred                Tax Assets                                                            |   | $                                 | 165,891    |         | $      | 76,411       |   | $            | 70,039   |         | $      | 248,456 |   | $ | 33,063 |   |
| Deferred                Tax Liabilities                                                       |   |                              | (1,109,356 | )            |   | (460,501     | )      |         | (469,795 | )            |   | (1,495,567 | ) |   | (171,528 | ) |
| **Net                Deferred Tax Liabilities**                                               |   | $                                 | (943,465   | )            | $      | (384,090     | )      | $            | (399,756 | )            | $      | (1,247,111 | ) | $ | (138,465 | ) |
|                                                                                          |   |                              |       |         |   |         |   |         |     |         |   |   |   |   |   |   |
| Property                Related Temporary Differences                                         |   | $                                 | (781,479   | )            | $      | (323,357     | )      | $            | (329,073 | )            | $      | (386,287 | ) | $ | (126,359 | ) |
| Amounts                Due From Customers For Future                Federal Income Taxes |   |                              | (55,121    | )            |   | 7,687        |   |         | 5,927    |         |   | 7,513 |   |   | 4,552 |   |
| Deferred                State Income Taxes                                                    |   |                              | (78,060    | )            |   | (59,598      | )      |         | (44,074  | )            |   | (42,693 | ) |   | (7,705 | ) |
| Transition                Regulatory Assets                                                   |   |                              | (79,480    | )            |   | -            |   |         | (153     | )            |   | (68,076 | ) |   | - |   |
| Accrued                Nuclear Decommissioning Expense                                   |   |                              | -          |         |   | -            |   |         | -        |         |   | (1,853 | ) |   | - |   |
| Deferred                Income Taxes on Other Comprehensive                Loss          |   |                              | 39,989     |         |   | (40          | )      |         | 635      |         |   | 188 |   |   | 69 |   |
| Deferred                Fuel and Purchased Power                                              |   |                              | -          |         |   | (126         | )      |         | (10,274  | )            |   | (1,738 | ) |   | (8,554 | ) |
| Accrued                Pensions                                                               |   |                              | (7,963     | )            |   | (30,463      | )      |         | (26,219  | )            |   | (38,836 | ) |   | (16,432 | ) |
| Provision                for Refund                                                           |   |                              | -          |         |   | 67           |   |         | 1,915    |         |   | 51,838 |   |   | 11,513 |   |
| Deferred                Book Gain                                                             |   |                              | -          |         |   | -            |   |         | -        |         |   | 71,749 |   |   | - |   |
| Regulatory                Assets                                                              |   |                              | -          |         |   | -            |   |         | (581     | )            |   | (580,736 | ) |   | 2,886 |   |
| Securitized                Transition Assets                                                  |   |                              | -          |         |   | -            |   |         | -        |         |   | (257,612 | ) |   | - |   |
| All                Other (Net)                                                                |   |                              | 18,649     |         |   | 21,740       |   |         | 2,141    |         |   | (568 | ) |   | 1,565 |   |
| **Net                Deferred Tax Liabilities**                                               |   | $                                 | (943,465   | )            | $      | (384,090     | )      | $            | (399,756 | )            | $      | (1,247,111 | ) | $ | (138,465 | ) |

| **Company** |   |  **Other                Regulatory Liabilities (a)** |   |  **SFAS                109 Regulatory Asset, Net (b)** |   |  **State                Income Tax Expense (c)** |   |  **Deferred                State Income Tax Liabilities (d)** |   |
|-------------|--------|-----------------------------------------------------------|--------|-------------------------------------------------------------|--------|-------------------------------------------------------|--------|--------------------------------------------------------------------|--------|
| APCo        |   | $                                                         | -      |                                                        | $      | 10,945                                                |   | $                                                                  | 2,769  |   | $ | 13,714 |   |
| CSPCo       |   |                                                      | 15,104 |                                                        |   | -                                                     |   |                                                               | -      |   |   | 15,104 |   |
| I&M     |   |                                                      | -      |                                                        |   | 5,195                                                 |   |                                                               | -      |   |   | 5,195 |   |
| KPCo        |   |                                                      | -      |                                                        |   | 3,648                                                 |   |                                                               | -      |   |   | 3,648 |   |
| OPCo        |   |                                                      | 41,864 |                                                        |   | -                                                     |   |                                                               | -      |   |   | 41,864 |   |
| PSO         |   |                                                      | -      |                                                        |   | -                                                     |   |                                                               | 706    |   |   | 706 |   |
| SWEPCo      |   |                                                      | -      |                                                        |   | 582                                                   |   |                                                               | 119    |   |   | 701 |   |
| TCC         |   |                                                      | -      |                                                        |   | 1,156                                                 |   |                                                               | 365    |   |   | 1,521 |   |
| TNC         |   |                                                      | -      |                                                        |   | 120                                                   |   |                                                               | 75     |   |   | 195 |   |

| (a) | The                reversal of deferred state income taxes for the Ohio companies was                recorded as a regulatory liability pending rate-making treatment                in                Ohio.                                                                                          |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Deferred                state income tax adjustments related to those companies in which                state                income taxes flow through for rate-making purposes reduced the regulatory                asset associated with the deferred state income tax                liabilities. |
| (c) | These                amounts were recorded as a reduction to Income Tax                Expense.                                                                                                                                                                                                       |
| (d) | Total                deferred state income tax liabilities that reversed during 2005 related                to                Ohio law change.                                                                                                                                                        |

**15.**
**LEASES**

|                                              |   | **AEGCo**                         |   | **APCo** |   | **CSPCo** |   | **I&M** |   | **KPCo** |   |
|---------------------------------------------------|--------|-----------------------------------|--------|----------|--------|-----------|--------|-------------|--------|----------|--------|
| **Year                Ended December 31, 2005**   |   | **(in                thousands)** |   |
| Lease                Payments on Operating Leases |   | $                                 | 77,872 |     | $      | 8,539     |   | $           | 6,194  |     | $      | 97,700 |   | $ | 1,735 |   |
| Amortization                of Capital Leases     |   |                              | 284    |     |   | 6,273     |   |        | 3,313  |     |   | 6,681 |   |   | 1,519 |   |
| Interest                on Capital Leases         |   |                              | 709    |     |   | 449       |   |        | 540    |     |   | 2,442 |   |   | 34 |   |
| **Total                Lease Rental Costs**       |   | $                                 | 78,865 |     | $      | 15,261    |   | $           | 10,047 |     | $      | 106,823 |   | $ | 3,288 |   |

|                                              |   | **OPCo**                          |   | **PSO** |   | **SWEPCo** |   | **TCC** |   | **TNC** |   |
|---------------------------------------------------|--------|-----------------------------------|--------|---------|--------|------------|--------|---------|--------|---------|--------|
| **Year                Ended December 31, 2005**   |   | **(in                thousands)** |   |
| Lease                Payments on Operating Leases |   | $                                 | 10,528 |    | $      | 5,658      |   | $       | 5,867  |    | $      | 5,594 |   | $ | 2,275 |   |
| Amortization                of Capital Leases     |   |                              | 7,940  |    |   | 668        |   |    | 6,200  |    |   | 478 |   |   | 249 |   |
| Interest                on Capital Leases         |   |                              | 2,275  |    |   | 93         |   |    | 2,738  |    |   | 60 |   |   | 34 |   |
| **Total                Lease Rental Costs**       |   | $                                 | 20,743 |    | $      | 6,419      |   | $       | 14,805 |    | $      | 6,132 |   | $ | 2,558 |   |

|                                              |   | **AEGCo**                         |   | **APCo** |   | **CSPCo** |   | **I&M** |   | **KPCo** |   |
|---------------------------------------------------|--------|-----------------------------------|--------|----------|--------|-----------|--------|-------------|--------|----------|--------|
| **Year                Ended December 31, 2004**   |   | **(in                thousands)** |   |
| Lease                Payments on Operating Leases |   | $                                 | 75,545 |     | $      | 6,832     |   | $           | 5,313  |     | $      | 111,344 |   | $ | 1,416 |   |
| Amortization                of Capital Leases     |   |                              | 92     |     |   | 7,906     |   |        | 3,933  |     |   | 6,825 |   |   | 1,605 |   |
| Interest                on Capital Leases         |   |                              | 7      |     |   | 1,260     |   |        | 705    |     |   | 1,403 |   |   | 258 |   |
| **Total                Lease Rental Costs**       |   | $                                 | 75,644 |     | $      | 15,998    |   | $           | 9,951  |     | $      | 119,572 |   | $ | 3,279 |   |

|                                              |   | **OPCo**                          |   | **PSO** |   | **SWEPCo** |   | **TCC** |   | **TNC** |   |
|---------------------------------------------------|--------|-----------------------------------|--------|---------|--------|------------|--------|---------|--------|---------|--------|
| **Year                Ended December 31, 2004**   |   | **(in                thousands)** |   |
| Lease                Payments on Operating Leases |   | $                                 | 14,390 |    | $      | 3,697      |   | $       | 4,877  |    | $      | 3,949 |   | $ | 1,458 |   |
| Amortization                of Capital Leases     |   |                              | 8,232  |    |   | 520        |   |    | 3,543  |    |   | 437 |   |   | 216 |   |
| Interest                on Capital Leases         |   |                              | 2,259  |    |   | 53         |   |    | 2,054  |    |   | 66 |   |   | 27 |   |
| **Total                Lease Rental Costs**       |   | $                                 | 24,881 |    | $      | 4,270      |   | $       | 10,474 |    | $      | 4,452 |   | $ | 1,701 |   |

|                                              |   | **AEGCo**                         |   | **APCo** |   | **CSPCo** |   | **I&M** |   | **KPCo** |   |
|---------------------------------------------------|--------|-----------------------------------|--------|----------|--------|-----------|--------|-------------|--------|----------|--------|
| **Year                Ended December 31, 2003**   |   | **(in                thousands)** |   |
| Lease                Payments on Operating Leases |   | $                                 | 76,322 |     | $      | 6,148     |   | $           | 5,277  |     | $      | 111,923 |   | $ | 1,258 |   |
| Amortization                of Capital Leases     |   |                              | 269    |     |   | 9,217     |   |        | 4,898  |     |   | 7,370 |   |   | 1,951 |   |
| Interest                on Capital Leases         |   |                              | -      |     |   | 1,123     |   |        | 899    |     |   | 1,276 |   |   | 148 |   |
| **Total                Lease Rental Costs**       |   | $                                 | 76,591 |     | $      | 16,488    |   | $           | 11,074 |     | $      | 120,569 |   | $ | 3,357 |   |

|                                              |   | **OPCo**                          |   | **PSO** |   | **SWEPCo** |   | **TCC** |   | **TNC** |   |
|---------------------------------------------------|--------|-----------------------------------|--------|---------|--------|------------|--------|---------|--------|---------|--------|
| **Year                Ended December 31, 2003**   |   | **(in                thousands)** |   |
| Lease                Payments on Operating Leases |   | $                                 | 40,034 |    | $      | 4,883      |   | $       | 4,708  |    | $      | 6,360 |   | $ | 2,132 |   |
| Amortization                of Capital Leases     |   |                              | 9,437  |    |   | 174        |   |    | 1,434  |    |   | 161 |   |   | 83 |   |
| Interest                on Capital Leases         |   |                              | 2,472  |    |   | 17         |   |    | 899    |    |   | 16 |   |   | 9 |   |
| **Total                Lease Rental Costs**       |   | $                                 | 51,943 |    | $      | 5,074      |   | $       | 7,041  |    | $      | 6,537 |   | $ | 2,224 |   |

|                                                                                                   |   | **AEGCo**                         |   | **APCo** |   | **CSPCo** |   | **I&M** |   | **KPCo** |   |
|--------------------------------------------------------------------------------------------------------|--------|-----------------------------------|--------|----------|--------|-----------|--------|-------------|--------|----------|--------|
| **As                of December 31, 2005**                                                             |   | **(in                thousands)** |   |
| **Property,                Plant and Equipment ****Under                Capital Leases:**    |   |                              |   |     |   |      |   |        |   |     |   |   |   |   |   |   |
| Production                                                                                             |   | $                                 | 12,316 |     | $      | 1,275     |   | $           | 7,104  |     | $      | 18,964 |   | $ | 436 |   |
| Distribution                                                                                           |   |                              | -      |     |   | -         |   |        | -      |     |   | 14,589 |   |   | - |   |
| Other                                                                                                  |   |                              | 349    |     |   | 36,792    |   |        | 16,059 |     |   | 38,568 |   |   | 9,128 |   |
| Total                Property, Plant and Equipment                                                     |   |                              | 12,665 |     |   | 38,067    |   |        | 23,163 |     |   | 72,121 |   |   | 9,564 |   |
| Accumulated                Amortization                                                                |   |                              | 438    |     |   | 23,185    |   |        | 13,609 |     |   | 28,145 |   |   | 6,396 |   |
| **Net                Property, Plant and**** Equipment                Under Capital Leases** |   | $                                 | 12,227 |     | $      | 14,882    |   | $           | 9,554  |     | $      | 43,976 |   | $ | 3,168 |   |
|                                                                                                   |   |                              |   |     |   |      |   |        |   |     |   |   |   |   |   |   |
| **Obligations                Under Capital Leases:**                                                   |   |                              |   |     |   |      |   |        |   |     |   |   |   |   |   |   |
| Noncurrent                Liability                                                                    |   | $                                 | 11,930 |     | $      | 9,292     |   | $           | 6,545  |     | $      | 38,645 |   | $ | 2,030 |   |
| Liability                Due Within One Year                                                           |   |                              | 297    |     |   | 5,600     |   |        | 3,031  |     |   | 5,331 |   |   | 1,138 |   |
| ** Total                Obligations Under ****Capital                Leases**                |   | $                                 | 12,227 |     | $      | 14,892    |   | $           | 9,576  |     | $      | 43,976 |   | $ | 3,168 |   |

|                                                                                                   |   | **OPCo**                          |   | **PSO**      |   | **SWEPCo**   |   | **TCC**      |   | **TNC**      |   |
|--------------------------------------------------------------------------------------------------------|--------|-----------------------------------|--------|--------------|--------|--------------|--------|--------------|--------|--------------|--------|
| **As                of December 31, 2005**                                                             |   | **(in                thousands)** |   |
| **Property,                Plant and Equipment ****Under                Capital Leases**:         |   |                         |   |    |   |    |   |    |   |    |   |
| Production                                                                                             |   | $                                 | 40,554 |         | $      | -            |   | $            | 14,270 |         | $      | - |   | $ | - |   |
| Distribution                                                                                           |   |                              | -      |         |   | -            |   |         | -      |         |   | - |   |   | - |   |
| Other                                                                                                  |   |                              | 37,867 |         |   | 3,378        |   |         | 65,014 |         |   | 2,072 |   |   | 1,045 |   |
| Total                Property, Plant and Equipment                                                     |   |                              | 78,421 |         |   | 3,378        |   |         | 79,284 |         |   | 2,072 |   |   | 1,045 |   |
| Accumulated                Amortization                                                                |   |                              | 39,912 |         |   | 844          |   |         | 36,803 |         |   | 694 |   |   | 321 |   |
| **Net                Property, Plant and**** Equipment                Under Capital Leases** |   | $                                 | 38,509 |         | $      | 2,534        |   | $            | 42,481 |         | $      | 1,378 |   | $ | 724 |   |
|                                                                                                   |   |                              |   |         |   |         |   |         |   |         |   |   |   |   |   |   |
| **Obligations                Under Capital Leases:**                                                   |   |                              |   |         |   |         |   |         |   |         |   |   |   |   |   |   |
| Noncurrent                Liability                                                                    |   | $                                 | 30,750 |         | $      | 1,778        |   | $            | 37,055 |         | $      | 888 |   | $ | 506 |   |
| Liability                Due Within One Year                                                           |   |                              | 9,174  |         |   | 756          |   |         | 5,490  |         |   | 490 |   |   | 218 |   |
| **Total                Obligations Under ****Capital                Leases**                 |   | $                                 | 39,924 |         | $      | 2,534        |   | $            | 42,545 |         | $      | 1,378 |   | $ | 724 |   |

|                                                                                           |   | **AEGCo**                         |   | **APCo**     |   | **CSPCo**    |   | **I&M**  |   | **KPCo**     |   |
|------------------------------------------------------------------------------------------------|--------|-----------------------------------|--------|--------------|--------|--------------|--------|--------------|--------|--------------|--------|
| **As                of December 31, 2004**                                                     |   | **(in                thousands)** |   |
| **Property,                Plant and Equipment ****Under                Capital Leases:** |   |                         |   |    |   |    |   |    |   |    |   |
| Production                                                                                     |   | $                                 | 12,339 |         | $      | 1,759        |   | $            | 7,104  |         | $      | 22,917 |   | $ | 797 |   |
| Distribution                                                                                   |   |                              | -      |         |   | -            |   |         | -      |         |   | 14,589 |   |   | - |   |
| Other                                                                                          |   |                              | 353    |         |   | 45,892       |   |         | 21,270 |         |   | 43,478 |   |   | 10,405 |   |
| Total                Property, Plant and Equipment                                             |   |                              | 12,692 |         |   | 47,651       |   |         | 28,374 |         |   | 80,984 |   |   | 11,202 |   |
| Accumulated                Amortization                                                        |   |                              | 218    |         |   | 27,709       |   |         | 15,884 |         |   | 30,252 |   |   | 6,839 |   |
| **Net                Property, Plant and Equipment Under Capital                Leases**  |   | $                                 | 12,474 |         | $      | 19,942       |   | $            | 12,490 |         | $      | 50,732 |   | $ | 4,363 |   |
|                                                                                           |   |                              |   |         |   |         |   |         |   |         |   |   |   |   |   |   |
| **Obligations                Under Capital Leases:**                                           |   |                              |   |         |   |         |   |         |   |         |   |   |   |   |   |   |
| Noncurrent                Liability                                                            |   | $                                 | 12,264 |         | $      | 13,136       |   | $            | 8,660  |         | $      | 44,608 |   | $ | 2,802 |   |
| Liability                Due Within One Year                                                   |   |                              | 210    |         |   | 6,742        |   |         | 3,854  |         |   | 6,124 |   |   | 1,561 |   |
| **Total                Obligations Under ****Capital                Leases**         |   | $                                 | 12,474 |         | $      | 19,878       |   | $            | 12,514 |         | $      | 50,732 |   | $ | 4,363 |   |

|                                                                                                 |   | **OPCo**                          |   | **PSO**      |   | **SWEPCo**   |   | **TCC**      |   | **TNC**      |   |
|------------------------------------------------------------------------------------------------------|--------|-----------------------------------|--------|--------------|--------|--------------|--------|--------------|--------|--------------|--------|
| **As                of December 31, 2004**                                                           |   | **(in                thousands)** |   |
| **Property,                Plant and Equipment ****Under                Capital Leases:**  |   |                         |   |    |   |    |   |    |   |    |   |
| Production                                                                                           |   | $                                 | 34,796 |         | $      | -            |   | $            | 14,269 |         | $      | - |   | $ | - |   |
| Distribution                                                                                         |   |                              | -      |         |   | -            |   |         | -      |         |   | - |   |   | - |   |
| Other                                                                                                |   |                              | 46,131 |         |   | 1,813        |   |         | 53,620 |         |   | 1,364 |   |   | 780 |   |
| Total                Property, Plant and Equipment                                                   |   |                              | 80,927 |         |   | 1,813        |   |         | 67,889 |         |   | 1,364 |   |   | 780 |   |
| Accumulated                Amortization                                                              |   |                              | 41,187 |         |   | 529          |   |         | 33,343 |         |   | 484 |   |   | 246 |   |
| **Net                Property, Plant and**** Equipment                Under Capital Leases**    |   | $                                 | 39,740 |         | $      | 1,284        |   | $            | 34,546 |         | $      | 880 |   | $ | 534 |   |
|                                                                                                 |   |                              |   |         |   |         |   |         |   |         |   |   |   |   |   |   |
| **Obligations                Under Capital Leases:**                                                 |   |                              |   |         |   |         |   |         |   |         |   |   |   |   |   |   |
| Noncurrent                Liability                                                                  |   | $                                 | 31,652 |         | $      | 747          |   | $            | 30,854 |         | $      | 468 |   | $ | 314 |   |
| Liability                Due Within One Year                                                         |   |                              | 9,081  |         |   | 537          |   |         | 3,692  |         |   | 412 |   |   | 220 |   |
| **Total                Obligations Under ****Capital                Leases**                    |   | $                                 | 40,733 |         | $      | 1,284        |   | $            | 34,546 |         | $      | 880 |   | $ | 534 |   |

|                                                                        |   | **AEGCo**                         |   | **APCo** |   | **CSPCo** |   | **I&M** |   | **KPCo** |   |
|-----------------------------------------------------------------------------|--------|-----------------------------------|--------|----------|--------|-----------|--------|-------------|--------|----------|--------|
| **Capital                Leases**                                           |   | **(in                thousands)** |   |
| 2006                                                                        |   | $                                 | 996    |     | $      | 6,741     |   | $           | 3,489  |     | $      | 9,182 |   | $ | 1,309 |   |
| 2007                                                                        |   |                              | 987    |     |   | 4,057     |   |        | 2,519  |     |   | 15,403 |   |   | 1,065 |   |
| 2008                                                                        |   |                              | 977    |     |   | 3,500     |   |        | 2,344  |     |   | 5,686 |   |   | 612 |   |
| 2009                                                                        |   |                              | 968    |     |   | 1,381     |   |        | 1,334  |     |   | 4,290 |   |   | 251 |   |
| 2010                                                                        |   |                              | 963    |     |   | 1,118     |   |        | 977    |     |   | 2,201 |   |   | 166 |   |
| Later                Years                                                  |   |                              | 17,036 |     |   | 293       |   |        | 4      |     |   | 20,768 |   |   | 89 |   |
| Total                Future Minimum Lease Payments                          |   |                              | 21,927 |     |   | 17,090    |   |        | 10,667 |     |   | 57,530 |   |   | 3,492 |   |
| Less                Estimated Interest Element                              |   |                              | 9,700  |     |   | 2,198     |   |        | 1,091  |     |   | 13,554 |   |   | 324 |   |
| **Estimated                Present Value of Future Minimum Lease Payments** |   | $                                 | 12,227 |     | $      | 14,892    |   | $           | 9,576  |     | $      | 43,976 |   | $ | 3,168 |   |

|                                                                                            |   | **OPCo**                          |   | **PSO** |   | **SWEPCo** |   | **TCC** |   | **TNC** |   |
|-------------------------------------------------------------------------------------------------|--------|-----------------------------------|--------|---------|--------|------------|--------|---------|--------|---------|--------|
| **Capital                Leases**                                                               |   | **(in                thousands)** |   |
| 2006                                                                                            |   | $                                 | 10,080 |    | $      | 870        |   | $       | 8,498  |    | $      | 547 |   | $ | 249 |   |
| 2007                                                                                            |   |                              | 8,316  |    |   | 666        |   |    | 8,341  |    |   | 362 |   |   | 165 |   |
| 2008                                                                                            |   |                              | 6,215  |    |   | 497        |   |    | 8,228  |    |   | 291 |   |   | 144 |   |
| 2009                                                                                            |   |                              | 4,329  |    |   | 397        |   |    | 7,791  |    |   | 219 |   |   | 133 |   |
| 2010                                                                                            |   |                              | 3,700  |    |   | 272        |   |    | 3,871  |    |   | 106 |   |   | 87 |   |
| Later                Years                                                                      |   |                              | 22,426 |    |   | 150        |   |    | 22,847 |    |   | 4 |   |   | 39 |   |
| Total                Future Minimum Lease Payments                                              |   |                              | 55,066 |    |   | 2,852      |   |    | 59,576 |    |   | 1,529 |   |   | 817 |   |
| Less                Estimated Interest Element                                                  |   |                              | 15,142 |    |   | 318        |   |    | 17,031 |    |   | 151 |   |   | 93 |   |
| **Estimated                Present Value of Future Minimum Lease                Payments** |   | $                                 | 39,924 |    | $      | 2,534      |   | $       | 42,545 |    | $      | 1,378 |   | $ | 724 |   |

|                                                                           |   | **AEGCo**                         |      | **APCo** |   | **CSPCo** |   | **I&M** |   | **KPCo** |   |
|--------------------------------------------------------------------------------|--------|-----------------------------------|-----------|----------|--------|-----------|--------|-------------|--------|----------|--------|
| **Noncancelable                Operating Leases**                              |   | **(in                thousands)** |      |
| 2006                                                                           |   | $                                 | 77,474    |     | $      | 9,772     |   | $           | 4,110  |     | $      | 100,745 |   | $ | 1,820 |   |
| 2007                                                                           |   |                              | 77,180    |     |   | 7,797     |   |        | 3,553  |     |   | 98,324 |   |   | 1,564 |   |
| 2008                                                                           |   |                              | 77,178    |     |   | 6,286     |   |        | 2,934  |     |   | 95,815 |   |   | 1,256 |   |
| 2009                                                                           |   |                              | 77,175    |     |   | 5,555     |   |        | 2,558  |     |   | 94,833 |   |   | 1,097 |   |
| 2010                                                                           |   |                              | 77,023    |     |   | 4,572     |   |        | 2,002  |     |   | 91,467 |   |   | 1,020 |   |
| Later                Years                                                     |   |                              | 890,920   |     |   | 11,502    |   |        | 4,001  |     |   | 949,711 |   |   | 1,942 |   |
| **Total                Future Minimum**** Lease                Payments** |   | $                                 | 1,276,950 |     | $      | 45,484    |   | $           | 19,158 |     | $      | 1,430,895 |   | $ | 8,699 |   |

|                                                                           |   | **OPCo**                          |    | **PSO** |   | **SWEPCo** |   | **TCC** |   | **TNC** |   |
|--------------------------------------------------------------------------------|--------|-----------------------------------|---------|---------|--------|------------|--------|---------|--------|---------|--------|
| **Noncancelable                Operating Leases**                              |   | **(in                thousands)** |    |
| 2006                                                                           |   | $                                 | 17,869  |    | $      | 6,223      |   | $       | 6,236  |    | $      | 5,848 |   | $ | 2,418 |   |
| 2007                                                                           |   |                              | 16,920  |    |   | 5,639      |   |    | 5,748  |    |   | 4,972 |   |   | 2,061 |   |
| 2008                                                                           |   |                              | 15,973  |    |   | 3,600      |   |    | 5,030  |    |   | 3,534 |   |   | 1,831 |   |
| 2009                                                                           |   |                              | 15,003  |    |   | 3,049      |   |    | 4,286  |    |   | 3,037 |   |   | 1,933 |   |
| 2010                                                                           |   |                              | 13,578  |    |   | 3,417      |   |    | 2,934  |    |   | 3,304 |   |   | 1,599 |   |
| Later                Years                                                     |   |                              | 65,561  |    |   | 6,348      |   |    | 6,382  |    |   | 3,838 |   |   | 2,367 |   |
| **Total                Future Minimum**** Lease                Payments** |   | $                                 | 144,904 |    | $      | 28,276     |   | $       | 30,616 |    | $      | 24,533 |   | $ | 12,209 |   |

***Gavin      Scrubber Financing Arrangement***

***Rockport      Lease***

**16.**
**FINANCING      ACTIVITIES**

***Preferred      Stock***

| **Registrant****Subsidiary** |   |     | **Par****Value** |   |   | **Authorized                Shares** |   |   | **Shares                Outstanding at****December                31,****2005** |   |   | **Call                Price at****December                31, 2005 (a)** |   |   | **Series** |   |   | **Redemption**          |   |                              | **December                31,** |   |
|------------------------------|--------|----------|------------------|--------|--------|--------------------------------------|--------|--------|---------------------------------------------------------------------------------|--------|--------|--------------------------------------------------------------------------|--------|--------|------------|--------|--------|-------------------------|--------|-----------------------------------|---------------------------------|--------|
| **2005**                     |   | **2004** |
|                         |   |     |             |   |   |                                 |   |   |                                                                            |   |   |                                                                     |   |   |       |   |   |                    |   | **(in                thousands)** |                            |
|                         |   |     |             |   |   |                                 |   |   |                                                                            |   |   |                                                                     |   |   |       |   |   |                    |   |                              |                            |   |   |   |   |
| APCo                         |   | $        | 0                | (b)    |   | 8,000,000                            |   |   | 177,836                                                                         |   | $      | 110.00                                                                   |   |   | 4.50%      |   |   | Any                time |   | $                                 | 17,784                          |   | $ | 17,784 |   |
| CSPCo                        |   |     | 25               |   |   | 7,000,000                            |   |   | -                                                                               |   |   | -                                                                        |   |   | -          |   |   | -                       |   |                              | -                               |   |   | - |   |
| CSPCo                        |   |     | 100              |   |   | 2,500,000                            |   |   | -                                                                               |   |   | -                                                                        |   |   | -          |   |   | -                       |   |                              | -                               |   |   | - |   |
| I&M                      |   |     | 25               |   |   | 11,200,000                           |   |   | -                                                                               |   |   | -                                                                        |   |   | -          |   |   | -                       |   |                              | -                               |   |   | - |   |
| I&M                      |   |     | 100              |   |   | (c)                                  |   |   | 55,369                                                                          |   |   | 106.125                                                                  |   |   | 4.125%     |   |   | Any                time |   |                              | 5,537                           |   |   | 5,537 |   |
| I&M                      |   |     | 100              |   |   | (c)                                  |   |   | 14,412                                                                          |   |   | 102.000                                                                  |   |   | 4.560%     |   |   | Any                time |   |                              | 1,441                           |   |   | 1,441 |   |
| I&M                      |   |     | 100              |   |   | (c)                                  |   |   | 11,055                                                                          |   |   | 102.728                                                                  |   |   | 4.120%     |   |   | Any                time |   |                              | 1,106                           |   |   | 1,106 |   |
| I&M                      |   |     | 100              |   |   | (c)                                  |   |   | -                                                                               |   |   | -                                                                        |   |   | 5.900%     |   |   | 1/1/2009                |   |                              | -                               |   |   | 13,200 |   |
| I&M                      |   |     | 100              |   |   | (c)                                  |   |   | -                                                                               |   |   | -                                                                        |   |   | 6.250%     |   |   | 4/1/2009                |   |                              | -                               |   |   | 19,250 |   |
| I&M                      |   |     | 100              |   |   | (c)                                  |   |   | -                                                                               |   |   | -                                                                        |   |   | 6.300%     |   |   | 7/1/2009                |   |                              | -                               |   |   | 13,245 |   |
| I&M                      |   |     | 100              |   |   | (c)                                  |   |   | -                                                                               |   |   | -                                                                        |   |   | 6.875%     |   |   | 4/1/2008                |   |                              | -                               |   |   | 15,750 |   |
| OPCo                         |   |     | 25               |   |   | 4,000,000                            |   |   | -                                                                               |   |   | -                                                                        |   |   | -          |   |   | -                       |   |                              | -                               |   |   | - |   |
| OPCo                         |   |     | 100              |   |   | (d)                                  |   |   | 14,595                                                                          |   |   | 103.00                                                                   |   |   | 4.08%      |   |   | Any                time |   |                              | 1,460                           |   |   | 1,460 |   |
| OPCo                         |   |     | 100              |   |   | (d)                                  |   |   | 22,824                                                                          |   |   | 103.20                                                                   |   |   | 4.20%      |   |   | Any                time |   |                              | 2,282                           |   |   | 2,282 |   |
| OPCo                         |   |     | 100              |   |   | (d)                                  |   |   | 31,512                                                                          |   |   | 104.00                                                                   |   |   | 4.40%      |   |   | Any                time |   |                              | 3,151                           |   |   | 3,151 |   |
| OPCo                         |   |     | 100              |   |   | (d)                                  |   |   | 97,462                                                                          |   |   | 110.00                                                                   |   |   | 4.50%      |   |   | Any                time |   |                              | 9,746                           |   |   | 9,748 |   |
| OPCo                         |   |     | 100              |   |   | (d)                                  |   |   | -                                                                               |   |   | -                                                                        |   |   | 5.90%      |   |   | 1/1/2009                |   |                              | -                               |   |   | 5,000 |   |
| PSO                          |   |     | 100              |   |   | (e)                                  |   |   | 44,548                                                                          |   |   | 105.75                                                                   |   |   | 4.00%      |   |   | Any                time |   |                              | 4,455                           |   |   | 4,455 |   |
| PSO                          |   |     | 100              |   |   | (e)                                  |   |   | 8,069                                                                           |   |   | 103.19                                                                   |   |   | 4.24%      |   |   | Any                time |   |                              | 807                             |   |   | 807 |   |
| SWEPCo                       |   |     | 100              |   |   | (f)                                  |   |   | 7,386                                                                           |   |   | 103.90                                                                   |   |   | 4.28%      |   |   | Any                time |   |                              | 740                             |   |   | 740 |   |
| SWEPCo                       |   |     | 100              |   |   | (f)                                  |   |   | 1,907                                                                           |   |   | 102.75                                                                   |   |   | 4.65%      |   |   | Any                time |   |                              | 190                             |   |   | 190 |   |
| SWEPCo                       |   |     | 100              |   |   | (f)                                  |   |   | 37,703                                                                          |   |   | 109.00                                                                   |   |   | 5.00%      |   |   | Any                time |   |                              | 3,770                           |   |   | 3,770 |   |
| TCC                          |   |     | 100              |   |   | (g)                                  |   |   | 41,922                                                                          |   |   | 105.75                                                                   |   |   | 4.00%      |   |   | Any                time |   |                              | 4,192                           |   |   | 4,192 |   |
| TCC                          |   |     | 100              |   |   | (g)                                  |   |   | 17,476                                                                          |   |   | 103.75                                                                   |   |   | 4.20%      |   |   | Any                time |   |                              | 1,748                           |   |   | 1,748 |   |
| TNC                          |   |     | 100              |   |   | 810,000                              |   |   | 23,566                                                                          |   |   | 107.00                                                                   |   |   | 4.40%      |   |   | Any                time |   |                              | 2,357                           |   |   | 2,357 |   |

| (a) | The                cumulative preferred stock is callable at the price indicated plus                accrued                dividends. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Stated                value is $100 per share.                                                                                         |
| (c) | I&M                has 2,250,000 authorized $100 par value per share shares in                total.                               |
| (d) | OPCo                has 3,762,403 authorized $100 par value per share shares in                total.                                  |
| (e) | PSO                has 700,000 authorized shares in total.                                                                             |
| (f) | SWEPCo                has 1,860,000 authorized shares in total.                                                                        |
| (g) | TCC                has 3,035,000 authorized shares in                total.                                                            |

|   |           |   |   |       |   |   | **Number                of Shares Redeemed for the****Year                Ended December 31,** |   |
|--------|----------------|--------|--------|------------|--------|--------|------------------------------------------------------------------------------------------------|--------|
|   | **Registrant** |   |   | **Series** |   |   | **2005**                                                                                       |   |   | **2004** |   |   | **2003** |   |
|   | APCo           |   |   | 4.50%      |   |   | -                                                                                              |   |   | 3 |   |   | 60 |   |
|   | APCo           |   |   | 5.90%      |   |   | -                                                                                              |   |   | 22,100 |   |   | 25,000 |   |
|   | APCo           |   |   | 5.92%      |   |   | -                                                                                              |   |   | 31,500 |   |   | 30,000 |   |
|   | I&M        |   |   | 4.120%     |   |   | -                                                                                              |   |   | 175 |   |   | - |   |
|   | I&M        |   |   | 5.90%      |   |   | 132,000                                                                                        |   |   | 20,000 |   |   | - |   |
|   | I&M        |   |   | 6.25%      |   |   | 192,500                                                                                        |   |   | - |   |   | - |   |
|   | I&M        |   |   | 6.30%      |   |   | 132,450                                                                                        |   |   | - |   |   | - |   |
|   | I&M        |   |   | 6.875%     |   |   | 157,500                                                                                        |   |   | - |   |   | 15,000 |   |
|   | OPCo           |   |   | 4.50%      |   |   | 20                                                                                             |   |   | 41 |   |   | 23 |   |
|   | OPCo           |   |   | 5.90%      |   |   | 50,000                                                                                         |   |   | 22,500 |   |   | - |   |
|   | PSO            |   |   | 4.00%      |   |   | -                                                                                              |   |   | 50 |   |   | 2 |   |
|   | SWEPCo         |   |   | 5.00%      |   |   | -                                                                                              |   |   | - |   |   | 12 |   |
|   | TCC            |   |   | 4.00%      |   |   | -                                                                                              |   |   | 5 |   |   | 11 |   |
|   | TNC            |   |   | 4.40%      |   |   | -                                                                                              |   |   | 4 |   |   | 102 |   |

***Long-term      Debt***

|                                                   |   |         |                           |     | **Weighted                  Average Interest Rate at** |     | **Interest                  Rates at** |     |                              |     |                                      |          |   |   |
|--------------------------------------------------------|--------|--------------|--------------------------------|----------|--------------------------------------------------------|----------|----------------------------------------|----------|-----------------------------------|----------|-------------------------------------------|---------------|--------|--------|
|                                                   |   |         |                           |     | **December                  31,**                      |     | **December                  31,**      |     | **December                  31,** |     |
| **Registrant**                                         |   | **Maturity** |                           | **2005** |                                                   | **2005** |                                   | **2004** |                              | **2005** |                                      | **2004**      |   |
| **INSTALLMENT                  PURCHASE CONTRACTS**(a) |   |         |                           |     |                                                   |     |                                   |     |                              |     | **(in                  thousands)**  |          |
| AEGCo                                                  |   |         | 2025(b)                        |     |                                                   | 4.05%    |                                   |     | 4.05%                             |     |                                      | 4.05%         |   | $      | 44,828 |   | $ | 44,820 |   |
| APCo                                                   |   |         | 2007-2024                  (c) |     |                                                   | 4.57%    |                                   |     | 2.70%-6.05%                       |     |                                      | 1.85%-6.05%   |   |   | 236,771 |   |   | 236,759 |   |
| CSPCo                                                  |   |         | 2038                           |     |                                                   | 3.27%    |                                   |     | 3.20%-3.35%                       |     |                                      | 1.75%-2.00%   |   |   | 92,082 |   |   | 92,077 |   |
| I&M                                                |   |         | 2009-2025                  (d) |     |                                                   | 3.89%    |                                   |     | 2.625%-6.55%                      |     |                                      | 1.75%-6.55%   |   |   | 311,267 |   |   | 311,230 |   |
| OPCo                                                   |   |         | 2014-2029                      |     |                                                   | 3.63%    |                                   |     | 3.10%-5.5625%                     |     |                                      | 2.10%-6.375%  |   |   | 492,130 |   |   | 490,028 |   |
| PSO                                                    |   |         | 2014-2020                      |     |                                                   | 3.93%    |                                   |     | 3.15%-6.00%                       |     |                                      | 1.75%-6.00%   |   |   | 46,360 |   |   | 46,360 |   |
| SWEPCo                                                 |   |         | 2011-2019                      |     |                                                   | 4.58%    |                                   |     | 3.10%-6.10%                       |     |                                      | 1.70%-6.10%   |   |   | 177,678 |   |   | 177,879 |   |
| TCC                                                    |   |         | 2015-2030                  (e) |     |                                                   | 3.95%    |                                   |     | 3.15%-6.125%                      |     |                                      | 2.15%-6.125%  |   |   | 489,603 |   |   | 327,894 |   |
| TNC                                                    |   |         | 2020                           |     |                                                   | 6.00%    |                                   |     | 6.00%                             |     |                                      | 6.00%         |   |   | 44,310 |   |   | 44,310 |   |
|                                                   |   |         |                           |     |                                                   |     |                                   |     |                              |     |                                      |          |   |   |   |   |   |   |   |
| **SENIOR                  UNSECURED NOTES**            |   |         |                           |     |                                                   |     |                                   |     |                              |     |                                      |          |   |   |   |   |   |   |   |
| APCo                                                   |   |         | 2005-2035                      |     |                                                   | 5.05%    |                                   |     | 3.60%-6.60%                       |     |                                      | 2.88%-6.60%   |   |   | 1,713,476 |   |   | 1,320,663 |   |
| CSPCo                                                  |   |         | 2005-2035                      |     |                                                   | 5.81%    |                                   |     | 4.40%-6.60%                       |     |                                      | 4.40%-6.85%   |   |   | 1,004,838 |   |   | 795,549 |   |
| I&M                                                |   |         | 2006-2032                      |     |                                                   | 5.88%    |                                   |     | 5.05%-6.45%                       |     |                                      | 5.05%-6.45%   |   |   | 898,398 |   |   | 772,712 |   |
| KPCo                                                   |   |         | 2007-2032                      |     |                                                   | 5.34%    |                                   |     | 4.3148%-6.91%                     |     |                                      | 4.31%-6.91%   |   |   | 427,790 |   |   | 428,310 |   |
| OPCo                                                   |   |         | 2008-2033                      |     |                                                   | 5.76%    |                                   |     | 4.85%-6.60%                       |     |                                      | 4.85%-6.60%   |   |   | 1,181,869 |   |   | 983,008 |   |
| PSO                                                    |   |         | 2009-2032                      |     |                                                   | 5.29%    |                                   |     | 4.70%-6.00%                       |     |                                      | 4.70%-6.00%   |   |   | 474,711 |   |   | 399,762 |   |
| SWEPCo                                                 |   |         | 2005-2015                      |     |                                                   | 5.09%    |                                   |     | 4.90%-5.375%                      |     |                                      | 4.50%-5.375%  |   |   | 249,801 |   |   | 299,686 |   |
| TCC                                                    |   |         | 2005-2033                      |     |                                                   | 6.08%    |                                   |     | 5.50%-6.65%                       |     |                                      | 3.00%-6.65%   |   |   | 548,042 |   |   | 797,863 |   |
| TNC                                                    |   |         | 2013                           |     |                                                   | 5.50%    |                                   |     | 5.50%                             |     |                                      | 5.50%         |   |   | 224,385 |   |   | 224,295 |   |
|                                                   |   |         |                           |     |                                                   |     |                                   |     |                              |     |                                      |          |   |   |   |   |   |   |   |
| **FIRST                  MORTGAGE BONDS**(f)           |   |         |                           |     |                                                   |     |                                   |     |                              |     |                                      |          |   |   |   |   |   |   |   |
| APCo                                                   |   |         | 2005-2025                      |     |                                                   | 6.80%    |                                   |     | 6.80%                             |     |                                      | 6.80%-8.00%   |   |   | 99,987 |   |   | 224,662 |   |
| PSO                                                    |   |         | 2005                           |     |                                                   | -        |                                   |     | -                                 |     |                                      | 6.50%         |   |   | - |   |   | 49,970 |   |
| SWEPCo                                                 |   |         | 2006-2007                      |     |                                                   | 6.95%    |                                   |     | 6.20%-7.00%                       |     |                                      | 6.20%-7.00%   |   |   | 95,951 |   |   | 96,024 |   |
| TCC                                                    |   |         | 2005-2008                      |     |                                                   | 7.125%   |                                   |     | 7.13%                             |     |                                      | 6.625%-7.125% |   |   | 18,581 |   |   | 84,344 |   |
| TNC                                                    |   |         | 2005-2007                      |     |                                                   | 7.75%    |                                   |     | 7.75%                             |     |                                      | 6.375%-7.75%  |   |   | 8,150 |   |   | 45,752 |   |
|                                                   |   |         |                           |     |                                                   |     |                                   |     |                              |     |                                      |          |   |   |   |   |   |   |   |
| **NOTES                  PAYABLE -AFFILIATED**         |   |         |                           |     |                                                   |     |                                   |     |                              |     |                                      |          |   |   |   |   |
| APCo                                                   |   |         | 2010                           |     |                                                   | 4.708%   |                                   |     | 4.708%                            |     |                                      | -             |   |   | 100,000 |   |   | - |   |
| CSPCo                                                  |   |         | 2010                           |     |                                                   | 4.64%    |                                   |     | 4.64%                             |     |                                      | 4.64%         |   |   | 100,000 |   |   | 100,000 |   |
| KPCo                                                   |   |         | 2006-2015                      |     |                                                   | 6.08%    |                                   |     | 5.25%-6.501%                      |     |                                      | 5.25%-6.501%  |   |   | 60,000 |   |   | 80,000 |   |
| OPCo                                                   |   |         | 2006-2015                      |     |                                                   | 4.29%    |                                   |     | 3.32%-5.25%                       |     |                                      | 3.32%-5.25%   |   |   | 400,000 |   |   | 400,000 |   |
| PSO                                                    |   |         | 2006                           |     |                                                   | 3.35%    |                                   |     | 3.35%                             |     |                                      | 3.35%         |   |   | 50,000 |   |   | 50,000 |   |
| SWEPCo                                                 |   |         | 2010                           |     |                                                   | 4.45%    |                                   |     | 4.45%                             |     |                                      | 4.45%         |   |   | 50,000 |   |   | 50,000 |   |
| TCC                                                    |   |         | 2007                           |     |                                                   | 4.58%    |                                   |     | 4.58%                             |     |                                      | -             |   |   | 150,000 |   |   | - |   |
|                                                   |   |         |                           |     |                                                   |     |                                   |     |                              |     |                                      |          |   |   |   |   |   |   |   |
| **NOTES                  PAYABLE - NONAFFILIATED**     |   |         |                           |     |                                                   |     |                                   |     |                              |     |                                      |          |   |   |   |   |
| OPCo                                                   |   |         | 2008-2009                      |     |                                                   | 7.09%    |                                   |     | 6.27%-7.49%                       |     |                                      | 6.27%-7.49%   |   |   | 125,671 |   |   | 138,024 |   |
| SWEPCo                                                 |   |         | 2006-2012                      |     |                                                   | 5.56%    |                                   |     | 4.47%-7.03%                       |     |                                      | 2.325%-7.03%  |   |   | 59,577 |   |   | 68,761 |   |
|                                                   |   |         |                           |     |                                                   |     |                                   |     |                              |     |                                      |          |   |   |   |   |   |   |   |
| **SECURITIZATION                  BONDS**              |   |         |                           |     |                                                   |     |                                   |     |                              |     |                                      |          |   |   |   |   |   |   |   |
| TCC                                                    |   |         | 2007-2017                      |     |                                                   | 5.78%    |                                   |     | 5.01%-6.25%                       |     |                                      | 3.54%-6.25%   |   |   | 647,270 |   |   | 697,193 |   |
|                                                   |   |         |                           |     |                                                   |     |                                   |     |                              |     |                                      |          |   |   |   |   |   |   |   |
| **NOTES                  PAYABLE TO TRUST**            |   |         |                           |     |                                                   |     |                                   |     |                              |     |                                      |          |   |   |   |   |   |   |   |
| SWEPCo                                                 |   |         | 2043                           |     |                                                   | 5.25%    |                                   |     | 5.25%                             |     |                                      | 5.25%         |   |   | 113,029 |   |   | 113,019 |   |
|                                                   |   |         |                           |     |                                                   |     |                                   |     |                              |     |                                      |          |   |   |   |   |   |   |   |
| **OTHER                  LONG-TERM DEBT**              |   |         |                           |     |                                                   |     |                                   |     |                              |     |                                      |          |   |   |   |   |   |   |   |
| APCo                                                   |   |         | 2026                           |     |                                                   | 13.718%  |                                   |     | 13.718%                           |     |                                      | 13.718%       |   |   | 2,504 |   |   | 2,514 |   |
| I&M                  (g)                           |   |         |                           |     |                                                   |     |                                   |     |                              |     |                                      |          |   |   | 235,805 |   |   | 228,901 |   |

| (a) | Under                    the terms of the installment purchase contracts, each Registrant                    Subsidiary is required to pay amounts sufficient to enable the                    payment of                    interest on and the principal of (at stated maturities and upon                    mandatory                    redemptions) related pollution control revenue bonds issued to                    finance the                    construction of pollution control facilities at certain plants.                    For                    certain series of installment purchase contracts, interest rates                    are                    subject to periodic adjustment. Interest payments range from                    monthly to                    semi-annually. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | The                    bonds due in 2025 are subject to mandatory tender for purchase                    in July                    2006. Consequently, the bonds have been classified for repayment                    purposes                    in 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (c) | The                    fixed rate bonds due 2007 and 2019 are subject to mandatory tender                    for                    purchase on November 1, 2006. Consequently, the fixed rate bonds                    have been                    classified for repayment purposes in 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| (d) | The                    fixed rate bonds due 2019 and 2025 are subject to mandatory tender                    for                    purchase on October 1, 2006. Consequently, the fixed rate bonds                    have been                    classified for repayment purposes in 2006. The term rate bonds                    due 2025                    are subject to mandatory tender for purchase on the term maturity                    date                    (June 1, 2007). Accordingly, the term rate bonds have been classified                    for                    repayment purposes in 2007 (the term end date).                                                                                                                                                                  |
| (e) | Installment                    purchase contract maturing in 2029 provides for bonds to be tendered                    in                    2006. Therefore, this installment purchase contract has been                    classified                    for payment in 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| (f) | First                    mortgage bonds are secured by the first mortgage liens on Electric                    Property, Plant and Equipment. Certain supplemental indentures                    to the                    first mortgage liens contain maintenance and replacement provisions                    requiring the deposit of cash or bonds with the trustee, or in                    lieu                    thereof, certification of unfunded property additions. Interest                    payments                    are made semi-annually. In 2004, TCC’s first mortgage bonds were defeased                    and in 2005, TNC’s first mortgage bonds were defeased.                                                                                                      |
| (g) | Pursuant                    to the Nuclear Waste Policy Act of 1982, I&M (a nuclear licensee) has                    an obligation with the United States Department of Energy for                    spent                    nuclear fuel disposal. The obligation includes a one-time fee                    for nuclear                    fuel consumed prior to April 7, 1983. Trust fund assets of $264                    million                    and $262 million related to this obligation are included in Nuclear                    Decommissioning and Spent Nuclear Fuel Disposal Trust Funds in                    its                    Consolidated Balance Sheets at December 31, 2005 and 2004,                    respectively.                                                    |

|                                            |   | **AEGCo**                                 |           | **APCo** |   | **CSPCo** |   | **I&M** |       | **KPCo** |   |
|-------------------------------------------------|--------|-------------------------------------------|----------------|----------|--------|-----------|--------|-------------|------------|----------|--------|
|                                            |   |  **(in                  thousands)** |           |
| 2006                                            |   | $                                         | 45,000         |     | $      | 146,999   |   | $           | -          |     | $      | 364,469 |   | $ | 39,771 |   |
| 2007                                            |   |                                      | -              |     |   | 324,445   |   |        | -          |     |   | 50,000 |   |   | 322,393 |   |
| 2008                                            |   |                                      | -              |     |   | 199,734   |   |        | 112,000    |     |   | 50,000 |   |   | 30,000 |   |
| 2009                                            |   |                                      | -              |     |   | 150,017   |   |        | -          |     |   | 45,000 |   |   | - |   |
| 2010                                            |   |                                      | -              |     |   | 250,019   |   |        | 250,000    |     |   | - |   |   | - |   |
| Later                  Years                    |   |                                      | -              |     |   | 1,091,930 |   |        | 842,245    |     |   | 937,805 |   |   | 95,000 |   |
| Total                  Principal Amount         |   |                                      | 45,000         |     |   | 2,163,144 |   |        | 1,204,245  |     |   | 1,447,274 |   |   | 487,164 |   |
| Unamortized                  Discount           |   |                                      | (172           | )        |   | (11,766   | )      |        | (7,325     | )        |   | (2,334 | ) |   | (174 | ) |
| Total                                           |   | $                                         | 44,828         |     | $      | 2,151,378 |   | $           | 1,196,920  |     | $      | 1,444,940 |   | $ | 486,990 |   |
|                                            |   |                                      |           |     |   |      |   |        |            |     |   |   |   |   |   |   |
|                                            |   |                                      | **OPCo**  |     |   | **PSO**   |   |        | **SWEPCo** |     |   | **TCC** |   |   | **TNC** |   |
|                                            |   | **(in                  thousands)**       |
|                                            |   |                                      |           |     |   |      |   |        |       |     |   |   |   |   |   |   |
| 2006                                            |   | $                                         | 212,354        |     | $      | 50,000    |   | $           | 17,149     |     | $      | 152,900 |   | $ | - |   |
| 2007                                            |   |                                      | 17,854         |     |   | -         |   |        | 102,312    |     |   | 202,729 |   |   | 8,150 |   |
| 2008                                            |   |                                      | 55,188         |     |   | -         |   |        | 5,906      |     |   | 68,688 |   |   | - |   |
| 2009                                            |   |                                      | 77,500         |     |   | 50,000    |   |        | 4,406      |     |   | 53,627 |   |   | - |   |
| 2010                                            |   |                                      | 200,000        |     |   | 150,000   |   |        | 54,406     |     |   | 56,575 |   |   | - |   |
| Later                  Years                    |   |                                      | 1,642,130      |     |   | 321,360   |   |        | 561,206    |     |   | 1,321,673 |   |   | 269,310 |   |
| Total                  Principal Amount         |   |                                      | 2,205,026      |     |   | 571,360   |   |        | 745,385    |     |   | 1,856,192 |   |   | 277,460 |   |
| Unamortized                  Premium/(Discount) |   |                                      | (5,356         | )        |   | (289      | )      |        | 650        |     |   | (2,696 | ) |   | (615 | ) |
| Total                                           |   | $                                         | 2,199,670      |     | $      | 571,071   |   | $           | 746,035    |     | $      | 1,853,496 |   | $ | 276,845 |   |

***Dividend      Restrictions***

***Trust      Preferred Securities***

***Lines      of Credit - AEP System***

**Year      Ended December 31, 2005:**

| **Company** |   | **Maximum                Borrowings from Utility Money Pool** |    | **Maximum                Loans to Utility Money Pool** |   | **Average                Borrowings from Utility Money Pool** |   | **Average                Loans to Utility Money Pool** |    | **Loans                (Borrowings) to/from Utility Money Pool as of December 31,                2005** |   | **Authorized                Short-Term Borrowing Limit** |   |
|-------------|--------|---------------------------------------------------------------|---------|--------------------------------------------------------|--------|---------------------------------------------------------------|--------|--------------------------------------------------------|---------|---------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------|--------|
|        |   | **(in                thousands)**                             |    |
| AEGCo       |   | $                                                             | 45,694  |                                                   | $      | 9,305                                                         |   | $                                                      | 15,551  |                                                                                                    | $      | 4,272                                                    |   | $ | (35,131 | ) | $ | 125,000 |   |
| APCo        |   |                                                          | 242,718 |                                                   |   | 321,977                                                       |   |                                                   | 134,079 |                                                                                                    |   | 44,622                                                   |   |   | (194,133 | ) |   | 600,000 |   |
| CSPCo       |   |                                                          | 180,397 |                                                   |   | 181,238                                                       |   |                                                   | 143,885 |                                                                                                    |   | 94,083                                                   |   |   | (17,609 | ) |   | 350,000 |   |
| I&M     |   |                                                          | 203,248 |                                                   |   | 11,768                                                        |   |                                                   | 87,208  |                                                                                                    |   | 5,797                                                    |   |   | (93,702 | ) |   | 500,000 |   |
| KPCo        |   |                                                          | 9,964   |                                                   |   | 35,779                                                        |   |                                                   | 2,969   |                                                                                                    |   | 12,653                                                   |   |   | (6,040 | ) |   | 200,000 |   |
| OPCo        |   |                                                          | 162,907 |                                                   |   | 182,495                                                       |   |                                                   | 64,142  |                                                                                                    |   | 75,186                                                   |   |   | (70,071 | ) |   | 600,000 |   |
| PSO         |   |                                                          | 101,962 |                                                   |   | 66,159                                                        |   |                                                   | 30,205  |                                                                                                    |   | 32,632                                                   |   |   | (75,883 | ) |   | 300,000 |   |
| SWEPCo      |   |                                                          | 55,756  |                                                   |   | 188,215                                                       |   |                                                   | 17,657  |                                                                                                    |   | 34,490                                                   |   |   | (28,210 | ) |   | 350,000 |   |
| TCC         |   |                                                          | 320,508 |                                                   |   | 120,937                                                       |   |                                                   | 109,463 |                                                                                                    |   | 39,060                                                   |   |   | (82,080 | ) |   | 600,000 |   |
| TNC         |   |                                                          | 13,606  |                                                   |   | 119,569                                                       |   |                                                   | 10,930  |                                                                                                    |   | 58,067                                                   |   |   | 34,286 |   |   | 250,000 |   |

| **Year                Ended December 31, 2004:** |   |
|--------------------------------------------------|--------|
|                                             |   |
| **Company**                                      |   | **Maximum                Borrowings from Utility Money Pool** |   | **Maximum                Loans to Utility Money Pool** |   | **Average                Borrowings from Utility Money Pool** |   | **Average                Loans to Utility Money Pool** |   | **Loans                (Borrowings) to/from Utility Money Pool as of December 31,                2004** |   | **Authorized                Short-Term Borrowing Limit** |   |
|                                             |   | **(in                thousands)** |   |
| AEGCo                                            |   | $ | 56,525 |   | $ | 932 |   | $ | 23,532 |   | $ | 731 |   | $ | (26,915 | ) | $ | 125,000 |   |
| APCo                                             |   |   | 211,060 |   |   | 32,575 |   |   | 76,100 |   |   | 13,501 |   |   | (211,060 | ) |   | 600,000 |   |
| CSPCo                                            |   |   | 29,687 |   |   | 184,962 |   |   | 12,808 |   |   | 75,580 |   |   | 141,550 |   |   | 350,000 |   |
| I&M                                          |   |   | 216,528 |   |   | 70,363 |   |   | 89,578 |   |   | 29,290 |   |   | 5,093 |   |   | 500,000 |   |
| KPCo                                             |   |   | 44,749 |   |   | 41,501 |   |   | 13,580 |   |   | 15,282 |   |   | 16,127 |   |   | 200,000 |   |
| OPCo                                             |   |   | 81,862 |   |   | 297,136 |   |   | 29,578 |   |   | 152,442 |   |   | 125,971 |   |   | 600,000 |   |
| PSO                                              |   |   | 145,619 |   |   | 35,158 |   |   | 47,099 |   |   | 16,204 |   |   | (55,002 | ) |   | 300,000 |   |
| SWEPCo                                           |   |   | 71,252 |   |   | 107,966 |   |   | 38,073 |   |   | 64,386 |   |   | 39,106 |   |   | 350,000 |   |
| TCC                                              |   |   | 109,696 |   |   | 427,414 |   |   | 62,494 |   |   | 120,312 |   |   | (207 | ) |   | 600,000 |   |
| TNC                                              |   |   | 16,136 |   |   | 110,430 |   |   | 6,704 |   |   | 41,500 |   |   | 51,504 |   |   | 250,000 |   |

| **Company** |   |  **Average                Interest Rate for Funds Borrowed from the Utility Money Pool for                Year                Ended December 31, 2005** |   |  **Average                Interest Rate for Funds Borrowed from the Utility Money Pool for                Year                Ended December 31, 2004** |   |  **Average                Interest Rate for Funds Loaned to the Utility Money Pool for Year                Ended                December 31, 2005** |   |  **Average                Interest Rate for Funds Loaned to the Utility Money Pool for Year                Ended                December 31, 2004** |   |
|-------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|        |   |  **(in                percentage)**                                                                                                                     |   |
| AEGCo       |   |                                                                                                                                                         | 3.27   |                                                                                                                                                         |   | 1.47                                                                                                                                                     |   |                                                                                                                                                     | 3.17   |   |   | 1.91 |   |
| APCo        |   |                                                                                                                                                         | 3.40   |                                                                                                                                                         |   | 1.68                                                                                                                                                     |   |                                                                                                                                                     | 3.15   |   |   | 1.48 |   |
| CSPCo       |   |                                                                                                                                                         | 3.95   |                                                                                                                                                         |   | 1.50                                                                                                                                                     |   |                                                                                                                                                     | 3.03   |   |   | 1.69 |   |
| I&M     |   |                                                                                                                                                         | 3.43   |                                                                                                                                                         |   | 1.45                                                                                                                                                     |   |                                                                                                                                                     | 2.12   |   |   | 1.93 |   |
| KPCo        |   |                                                                                                                                                         | 3.70   |                                                                                                                                                         |   | 1.59                                                                                                                                                     |   |                                                                                                                                                     | 2.70   |   |   | 1.61 |   |
| OPCo        |   |                                                                                                                                                         | 3.86   |                                                                                                                                                         |   | 1.29                                                                                                                                                     |   |                                                                                                                                                     | 2.57   |   |   | 1.46 |   |
| PSO         |   |                                                                                                                                                         | 3.37   |                                                                                                                                                         |   | 1.38                                                                                                                                                     |   |                                                                                                                                                     | 3.56   |   |   | 1.80 |   |
| SWEPCo      |   |                                                                                                                                                         | 4.10   |                                                                                                                                                         |   | 1.37                                                                                                                                                     |   |                                                                                                                                                     | 2.62   |   |   | 1.67 |   |
| TCC         |   |                                                                                                                                                         | 3.18   |                                                                                                                                                         |   | 1.40                                                                                                                                                     |   |                                                                                                                                                     | 2.43   |   |   | 1.47 |   |
| TNC         |   |                                                                                                                                                         | 4.41   |                                                                                                                                                         |   | 1.09                                                                                                                                                     |   |                                                                                                                                                     | 3.29   |   |   | 1.56 |   |

|    |   | **Year                Ended December 31,** |   |
|---------|--------|--------------------------------------------|--------|
|    |   | **2005**                                   |   | **2004** |   | **2003** |   |
|    |   | **(in                thousands)**          |   |
| AEGCo   |   | $                                          | 418    |   | $ | 338 |   | $ | 289 |   |
| APCo    |   |                                       | 2,830  |   |   | 1,136 |   |   | 147 |   |
| CSPCo   |   |                                       | 280    |   |   | 32 |   |   | 732 |   |
| I&M |   |                                       | 2,854  |   |   | 1,127 |   |   | 313 |   |
| KPCo    |   |                                       | 18     |   |   | 65 |   |   | 897 |   |
| OPCo    |   |                                       | 1,056  |   |   | 51 |   |   | 2,332 |   |
| PSO     |   |                                       | 637    |   |   | 486 |   |   | 1,218 |   |
| SWEPCo  |   |                                       | 293    |   |   | 219 |   |   | 787 |   |
| TCC     |   |                                       | 3,272  |   |   | 177 |   |   | 617 |   |
| TNC     |   |                                       | 8      |   |   | 8 |   |   | 449 |   |

|    |   | **Year                Ended December 31,** |   |
|---------|--------|--------------------------------------------|--------|
|    |   | **2005**                                   |   | **2004** |   | **2003** |   |
|    |   | **(in                thousands)**          |   |
| AEGCo   |   | $                                          | 24     |   | $ | 1 |   | $ | 8 |   |
| APCo    |   |                                       | 543    |   |   | 24 |   |   | 1,589 |   |
| CSPCo   |   |                                       | 2,757  |   |   | 1,076 |   |   | 777 |   |
| I&M |   |                                       | 6      |   |   | 84 |   |   | 1,814 |   |
| KPCo    |   |                                       | 287    |   |   | 177 |   |   | - |   |
| OPCo    |   |                                       | 1,129  |   |   | 1,965 |   |   | 700 |   |
| PSO     |   |                                       | 431    |   |   | 76 |   |   | 156 |   |
| SWEPCo  |   |                                       | 649    |   |   | 649 |   |   | 662 |   |
| TCC     |   |                                       | 66     |   |   | 1,445 |   |   | 589 |   |
| TNC     |   |                                       | 1,897  |   |   | 587 |   |   | 164 |   |

***Sale      of Receivables - AEP Credit***

|                                                                                                                                 |   | **Year                Ended December 31,** |   |
|--------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------|--------|
|                                                                                                                                 |   | **2005**                                   |   | **2004** |   |
|                                                                                                                                 |   | **($                in millions)**         |   |
| Proceeds                from Sale of Accounts Receivable                                                                             |   | $                                          | 5,925  |   | $ | 5,163 |   |
| Accounts                Receivable Retained Interest and Pledged as Collateral Less                Uncollectible  Accounts |   | $                                          | 106    |   | $ | 80 |   |
| Deferred                Revenue from Servicing Accounts Receivable                                                                   |   | $                                          | 1      |   | $ | 1 |   |
| Loss                on Sale of Accounts Receivables                                                                                  |   | $                                          | 18     |   | $ | 7 |   |
| Average                Variable Discount Rate                                                                                        |   |                                       | 3.23   | % |   | 1.50 | % |
| Retained                Interest if 10% Adverse Change in Uncollectible Accounts                                                |   | $                                          | 103    |   | $ | 78 |   |
| Retained                Interest if 20% Adverse Change in Uncollectible Accounts                                                |   | $                                          | 101    |   | $ | 76 |   |

|                                                         |   | **Face                Value****December                31,** |   |
|--------------------------------------------------------------|--------|--------------------------------------------------------------|--------|
|                                                         |   | **2005**                                                     |   | **2004** |   |
|                                                         |   | **($                in millions)**                           |   |
| Customer                Accounts Receivable Retained         |   | $                                                            | 826    |   | $ | 830 |   |
| Accrued                Unbilled Revenues Retained            |   |                                                         | 374    |   |   | 665 |   |
| Miscellaneous                Accounts Receivable Retained    |   |                                                         | 51     |   |   | 84 |   |
| Allowance                for Uncollectible Accounts Retained |   |                                                         | (31    | ) |   | (77 | ) |
| Total                Net Balance Sheet Accounts Receivable   |   |                                                         | 1,220  |   |   | 1,502 |   |
|                                                         |   |                                                         |   |   |   |   |   |
| Customer                Accounts Receivable Securitized      |   |                                                         | 516    |   |   | 435 |   |
| **Total                Accounts Receivable Managed**         |   | $                                                            | 1,736  |   | $ | 1,937 |   |
|                                                         |   |                                                         |   |   |   |   |   |
| **Net                Uncollectible Accounts Written Off**    |   | $                                                            | 74     |   | $ | 86 |   |

|    |   | **As                of December 31,** |   |
|---------|--------|---------------------------------------|--------|
|    |   | **2005**                              |   | **2004** |   |
|    |   | **(in                millions)**      |   |
| APCo    |   | $                                     | 77.1   |   | $ | 58.7 |   |
| CSPCo   |   |                                  | 124.4  |   |   | 110.1 |   |
| I&M |   |                                  | 102.7  |   |   | 91.4 |   |
| KPCo    |   |                                  | 38.7   |   |   | 34.4 |   |
| OPCo    |   |                                  | 122.1  |   |   | 106.0 |   |
| PSO     |   |                                  | 146.5  |   |   | 96.7 |   |
| SWEPCo  |   |                                  | 100.4  |   |   | 72.0 |   |

|    |   | **Year                Ended December 31,** |   |
|---------|--------|--------------------------------------------|--------|
|    |   | **2005**                                   |   | **2004** |   | **2003** |   |
|    |   | **(in                millions)**           |   |
| APCo    |   | $                                          | 5.1    |   | $ | 3.9 |   | $ | 3.4 |   |
| CSPCo   |   |                                       | 7.4    |   |   | 10.2 |   |   | 9.8 |   |
| I&M |   |                                       | 7.4    |   |   | 6.5 |   |   | 6.1 |   |
| KPCo    |   |                                       | 2.9    |   |   | 2.6 |   |   | 2.4 |   |
| OPCo    |   |                                       | 6.1    |   |   | 7.7 |   |   | 8.7 |   |
| PSO     |   |                                       | 11.1   |   |   | 8.9 |   |   | 5.8 |   |
| SWEPCo  |   |                                       | 8.3    |   |   | 5.8 |   |   | 4.9 |   |

**17.**
**RELATED      PARTY TRANSACTIONS**

**AEP      System Power Pool**

**CSW      Operating Agreement**

**AEP      East Companies and AEP West Companies Affiliated Revenues and Purchases**

|                                            |   | **APCo**                          |    | **CSPCo**    |   | **I&M**  |   | **KPCo**     |    | **OPCo**     |   | **AEGCo**    |   |
|-------------------------------------------------|--------|-----------------------------------|---------|--------------|--------|--------------|--------|--------------|---------|--------------|--------|--------------|--------|
| **Related                Party Revenues**       |   | **(in                thousands)** |    |
| **2005**                                        |   |                         |    |    |   |    |   |    |    |    |   |    |   |
| Sales                to East System Pool        |   | $                                 | 162,014 |         | $      | 70,165       |   | $            | 314,677 |         | $      | 49,791       |   | $ | 542,364 |   | $ | - |   |
| Direct                Sales to East Affiliates  |   |                              | 70,130  |         |   | -            |   |         | -       |         |   | -            |   |   | 64,449 |   |   | 270,545 |   |
| Direct                Sales to West Affiliates  |   |                              | 25,776  |         |   | 14,162       |   |         | 14,998  |         |   | 6,122        |   |   | 19,562 |   |   | - |   |
| Natural                Gas Contracts with AEPES |   |                              | 60,793  |         |   | 34,324       |   |         | 33,461  |         |   | 14,586       |   |   | 46,751 |   |   | - |   |
| Other                                           |   |                              | 3,620   |         |   | 5,759        |   |         | 2,896   |         |   | 304          |   |   | 8,726 |   |   | - |   |
| Total                Revenues                   |   | $                                 | 322,333 |         | $      | 124,410      |   | $            | 366,032 |         | $      | 70,803       |   | $ | 681,852 |   | $ | 270,545 |   |

|                                            |   | **APCo**                          |    | **CSPCo**    |   | **I&M**  |   | **KPCo**     |    | **OPCo**     |   | **AEGCo**    |   |
|-------------------------------------------------|--------|-----------------------------------|---------|--------------|--------|--------------|--------|--------------|---------|--------------|--------|--------------|--------|
| **Related                Party Revenues**       |   | **(in                thousands)** |    |
| **2004**                                        |   |                         |    |    |   |    |   |    |    |    |   |    |   |
| Sales                to East System Pool        |   | $                                 | 138,566 |         | $      | 69,309       |   | $            | 250,356 |         | $      | 36,853       |   | $ | 487,794 |   | $ | - |   |
| Direct                Sales to East Affiliates  |   |                              | 62,018  |         |   | -            |   |         | -       |         |   | -            |   |   | 55,017 |   |   | 241,578 |   |
| Direct                Sales to West Affiliates  |   |                              | 22,238  |         |   | 13,322       |   |         | 14,682  |         |   | 5,206        |   |   | 17,899 |   |   | - |   |
| Natural                Gas Contracts with AEPES |   |                              | 25,733  |         |   | 15,732       |   |         | 17,886  |         |   | 6,306        |   |   | 22,971 |   |   | - |   |
| Other                                           |   |                              | 3,573   |         |   | 6,384        |   |         | 3,386   |         |   | 352          |   |   | 10,676 |   |   | - |   |
| Total                Revenues                   |   | $                                 | 252,128 |         | $      | 104,747      |   | $            | 286,310 |         | $      | 48,717       |   | $ | 594,357 |   | $ | 241,578 |   |

|                                                           |   | **APCo**                            |    | **CSPCo**    |   | **I&M**  |   | **KPCo**     |    | **OPCo**     |   | **AEGCo**    |   |
|----------------------------------------------------------------|--------|-------------------------------------|---------|--------------|--------|--------------|--------|--------------|---------|--------------|--------|--------------|--------|
| **Related                  Party Revenues**                    |   | **(in                  thousands)** |    |
| **2003**                                                       |   |                           |    |    |   |    |   |    |    |    |   |    |   |
|                     Sales to East System Pool        |   | $                                   | 136,581 |         | $      | 59,184       |   | $            | 238,538 |         | $      | 33,607       |   | $ | 490,896 |   | $ | - |   |
|                     Direct Sales to East Affiliates  |   |                                | 60,638  |         |   | -            |   |         | -       |         |   | -            |   |   | 50,764 |   |   | 232,955 |   |
|                     Direct Sales to West Affiliates  |   |                                | 27,978  |         |   | 16,437       |   |         | 17,691  |         |   | 6,432        |   |   | 21,780 |   |   | - |   |
|                     Natural Gas Contracts with AEPES |   |                                | 39,010  |         |   | 21,971       |   |         | 24,082  |         |   | 8,877        |   |   | 29,065 |   |   | - |   |
|                     Other                            |   |                                | 3,138   |         |   | 8,715        |   |         | 2,783   |         |   | 550          |   |   | 8,298 |   |   | - |   |
|                     Total Revenues                   |   | $                                   | 267,345 |         | $      | 106,307      |   | $            | 283,094 |         | $      | 49,466       |   | $ | 600,803 |   | $ | 232,955 |   |

|                                           |   | **PSO**                           |   | **SWEPCo**   |   | **TCC**      |   | **TNC**      |   |
|------------------------------------------------|--------|-----------------------------------|--------|--------------|--------|--------------|--------|--------------|--------|
| **Related                Party Revenues**      |   | **(in                thousands)** |   |
| **2005**                                       |   |                         |   |    |   |    |   |    |   |
| Direct                Sales to West Affiliates |   | $                                 | 33,992 |         | $      | 61,555       |   | $            | -      |   | $ | 98 |   |
| Other                                          |   |                              | 5,686  |         |   | 3,853        |   |         | 14,973 |   |   | 47,066 |   |
| Total                Revenues                  |   | $                                 | 39,678 |         | $      | 65,408       |   | $            | 14,973 |   | $ | 47,164 |   |

|                                           |   | **PSO**                           |   | **SWEPCo**   |   | **TCC**      |   | **TNC**      |   |
|------------------------------------------------|--------|-----------------------------------|--------|--------------|--------|--------------|--------|--------------|--------|
| **Related                Party Revenues**      |   | **(in                thousands)** |   |
| **2004**                                       |   |                         |   |    |   |    |   |    |   |
| Sales                to West System Pool       |   | $                                 | 103    |         | $      | 521          |   | $            | -      |   | $ | 159 |   |
| Direct                Sales to East Affiliates |   |                              | 2,652  |         |   | 1,878        |   |         | 188    |   |   | 78 |   |
| Direct                Sales to West Affiliates |   |                              | 3,203  |         |   | 63,141       |   |         | 3,027  |   |   | 71 |   |
| Other                                          |   |                              | 4,732  |         |   | 5,650        |   |         | 43,824 |   |   | 51,372 |   |
| Total                Revenues                  |   | $                                 | 10,690 |         | $      | 71,190       |   | $            | 47,039 |   | $ | 51,680 |   |

|                                           |   | **PSO**                           |   | **SWEPCo**   |   | **TCC**      |   | **TNC**      |    |
|------------------------------------------------|--------|-----------------------------------|--------|--------------|--------|--------------|--------|--------------|---------|
| **Related                Party Revenues**      |   | **(in                thousands)** |   |
| **2003**                                       |   |                         |   |    |   |    |   |    |    |
| Sales                to West System Pool       |   | $                                 | 793    |         | $      | 600          |   | $            | 15,157  |   | $ | 651 |   |
| Direct                Sales to East Affiliates |   |                              | 1,159  |         |   | 706          |   |         | 677     |   |   | 6 |   |
| Direct                Sales to West Affiliates |   |                              | 17,855 |         |   | 64,802       |   |         | 23,248  |   |   | 1,929 |   |
| Other                                          |   |                              | 3,323  |         |   | 2,746        |   |         | 114,688 |   |   | 52,800 |   |
| Total                Revenues                  |   | $                                 | 23,130 |         | $      | 68,854       |   | $            | 153,770 |   | $ | 55,386 |   |

|                                                 |   | **APCo**                          |    | **CSPCo**    |   | **I&M**  |   | **KPCo**     |    | **OPCo**     |   |
|------------------------------------------------------|--------|-----------------------------------|---------|--------------|--------|--------------|--------|--------------|---------|--------------|--------|
| **Related                Party Purchases**           |   | **(in                thousands)** |    |
| **2005**                                             |   |                         |    |    |   |    |   |    |    |    |   |
| Purchases                from East System Pool       |   | $                                 | 453,600 |         | $      | 362,959      |   | $            | 116,735 |         | $      | 95,187 |   | $ | 104,777 |   |
| Direct                Purchases from East Affiliates |   |                              | -       |         |   | -            |   |         | 189,382 |         |   | 81,163 |   |   | 12,113 |   |
| Total                Purchases                       |   | $                                 | 453,600 |         | $      | 362,959      |   | $            | 306,117 |         | $      | 176,350 |   | $ | 116,890 |   |

|                                                 |   | **APCo**                          |    | **CSPCo**    |   | **I&M**  |   | **KPCo**     |    | **OPCo**     |   |
|------------------------------------------------------|--------|-----------------------------------|---------|--------------|--------|--------------|--------|--------------|---------|--------------|--------|
| **Related                Party Purchases**           |   | **(in                thousands)** |    |
| **2004**                                             |   |                         |    |    |   |    |   |    |    |    |   |
| Purchases                from East System Pool       |   | $                                 | 370,038 |         | $      | 346,463      |   | $            | 102,760 |         | $      | 68,072 |   | $ | 84,042 |   |
| Direct                Purchases from East Affiliates |   |                              | -       |         |   | -            |   |         | 169,103 |         |   | 72,475 |   |   | 4,334 |   |
| Direct                Purchases from West Affiliates |   |                              | 915     |         |   | 539          |   |         | 589     |         |   | 211 |   |   | 979 |   |
| Total                Purchases                       |   | $                                 | 370,953 |         | $      | 347,002      |   | $            | 272,452 |         | $      | 140,758 |   | $ | 89,355 |   |

|                                                 |   | **APCo**                          |    | **CSPCo**    |   | **I&M**  |   | **KPCo**     |    | **OPCo**     |   |
|------------------------------------------------------|--------|-----------------------------------|---------|--------------|--------|--------------|--------|--------------|---------|--------------|--------|
| **Related                Party Purchases**           |   | **(in                thousands)** |    |
| **2003**                                             |   |                         |    |    |   |    |   |    |    |    |   |
| Purchases                from East System Pool       |   | $                                 | 348,899 |         | $      | 335,916      |   | $            | 109,826 |         | $      | 71,259 |   | $ | 88,962 |   |
| Direct                Purchases from East Affiliates |   |                              | 1,546   |         |   | 936          |   |         | 164,069 |         |   | 70,249 |   |   | 1,234 |   |
| Direct                Purchases from West Affiliates |   |                              | 765     |         |   | 471          |   |         | 505     |         |   | 182 |   |   | 625 |   |
| Total                Purchases                       |   | $                                 | 351,210 |         | $      | 337,323      |   | $            | 274,400 |         | $      | 141,690 |   | $ | 90,821 |   |

|                                                 |   | **PSO**                           |    | **SWEPCo**   |   | **TCC**      |   | **TNC**      |   |
|------------------------------------------------------|--------|-----------------------------------|---------|--------------|--------|--------------|--------|--------------|--------|
| **Related                Party Purchases**           |   | **(in                thousands)** |    |
| **2005**                                             |   |                         |    |    |   |    |   |    |   |
| Purchases                from East System Pool       |   | $                                 | 43,516  |         | $      | 36,573       |   | $            | -      |   | $ | - |   |
| Direct                Purchases from East Affiliates |   |                              | 281     |         |   | 278          |   |         | -      |   |   | - |   |
| Direct                Purchases from West Affiliates |   |                              | 61,564  |         |   | 34,060       |   |         | -      |   |   | 23 |   |
| Total                Purchases                       |   | $                                 | 105,361 |         | $      | 70,911       |   | $            | -      |   | $ | 23 |   |

|                                                 |   | **PSO**                           |    | **SWEPCo**   |   | **TCC**      |   | **TNC**      |   |
|------------------------------------------------------|--------|-----------------------------------|---------|--------------|--------|--------------|--------|--------------|--------|
| **Related                Party Purchases**           |   | **(in                thousands)** |    |
| **2004**                                             |   |                         |    |    |   |    |   |    |   |
| Purchases                from East System Pool       |   | $                                 | 66      |         | $      | 177          |   | $            | -      |   | $ | - |   |
| Purchases                from West System Pool       |   |                              | 49      |         |   | 191          |   |         | -      |   |   | 568 |   |
| Direct                Purchases from East Affiliates |   |                              | 45,689  |         |   | 24,988       |   |         | 1,984  |   |   | 1,278 |   |
| Direct                Purchases from West Affiliates |   |                              | 58,197  |         |   | 3,698        |   |         | 4,156  |   |   | 3,365 |   |
| Total                Purchases                       |   | $                                 | 104,001 |         | $      | 29,054       |   | $            | 6,140  |   | $ | 5,211 |   |

|                                                 |   | **PSO**                           |    | **SWEPCo**   |   | **TCC**      |   | **TNC**      |   |
|------------------------------------------------------|--------|-----------------------------------|---------|--------------|--------|--------------|--------|--------------|--------|
| **Related                Party Purchases**           |   | **(in                thousands)** |    |
| **2003**                                             |   |                         |    |    |   |    |   |    |   |
| Purchases                from East System Pool       |   | $                                 | 639     |         | $      | -            |   | $            | -      |   | $ | - |   |
| Purchases                from West System Pool       |   |                              | 704     |         |   | 741          |   |         | 289    |   |   | 15,467 |   |
| Direct                Purchases from East Affiliates |   |                              | 46,384  |         |   | 28,376       |   |         | 10,238 |   |   | 4,677 |   |
| Direct                Purchases from West Affiliates |   |                              | 61,912  |         |   | 18,087       |   |         | 8,570  |   |   | 19,265 |   |
| Other                                                |   |                              | -       |         |   | 710          |   |         | -      |   |   | - |   |
| Total                Purchases                       |   | $                                 | 109,639 |         | $      | 47,914       |   | $            | 19,097 |   | $ | 39,409 |   |

**AEP      System Transmission Pool**

|    |   | **2005**                          |    | **2004** |   | **2003** |   |
|---------|--------|-----------------------------------|---------|----------|--------|----------|--------|
|    |   | **(in                thousands)** |    |
| APCo    |   | $                                 | 8,900   |     | $      | (500     | )      | $ | - |   |
| CSPCo   |   |                              | 34,600  |     |   | 37,700   |   |   | 38,200 |   |
| I&M |   |                              | (47,000 | )        |   | (40,800  | )      |   | (39,800 | ) |
| KPCo    |   |                              | (3,500  | )        |   | (6,100   | )      |   | (5,600 | ) |
| OPCo    |   |                              | 7,000   |     |   | 9,700    |   |   | 7,200 |   |

|   |   | **2005**                          |   | **2004** |   | **2003** |   |
|--------|--------|-----------------------------------|--------|----------|--------|----------|--------|
|   |   | **(in                thousands)** |   |
| PSO    |   | $                                 | 3,500  |     | $      | 8,100    |   | $ | 4,200 |   |
| SWEPCo |   |                              | 5,200  |     |   | 13,800   |   |   | 5,000 |   |
| TCC    |   |                              | (3,800 | )        |   | (12,200  | )      |   | (3,600 | ) |
| TNC    |   |                              | (4,900 | )        |   | (9,700   | )      |   | (5,600 | ) |

| · | The                allocation of transmission costs and revenues and                                                                      |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------|
| · | The                allocation of third-party transmission costs and revenues and AEP                System                dispatch costs. |

**CSPCo      Coal Purchases from AEP Coal, Inc.**

**Coal      Transactions with AEP Coal Marketing**

**Natural      Gas Contracts with DETM**

|        |   | **2005**                          |    | **2004** |   |
|-------------|--------|-----------------------------------|---------|----------|--------|
| **Company** |   | **(in                thousands)** |    |
| APCo        |   | $                                 | (12,318 | )        | $      | (23,736 | ) |
| CSPCo       |   |                              | (7,142  | )        |   | (13,654 | ) |
| I&M     |   |                              | (7,294  | )        |   | (15,266 | ) |
| KPCo        |   |                              | (2,932  | )        |   | (5,570 | ) |
| OPCo        |   |                              | (9,810  | )        |   | (19,065 | ) |
| **Total**   |   | $                                 | (39,496 | )        | $      | (77,291 | ) |

**Fuel      Agreement between OPCo and AEPES**

|        |   | **Year                Ended December 31,** |   |
|-------------|--------|--------------------------------------------|--------|
|        |   | **2005**                                   |   | **2004** |   | **2003** |   |
| **Company** |   | **(in                thousands)**          |   |
| APCo        |   | $                                          | 3,905  |   | $ | 1,230 |   | $ | 1,546 |   |
| CSPCo       |   |                                       | 2,113  |   |   | 732 |   |   | 936 |   |
| I&M     |   |                                       | 2,255  |   |   | 805 |   |   | 1,000 |   |
| KPCo        |   |                                       | 924    |   |   | 286 |   |   | 363 |   |
| OPCo        |   |                                       | 2,916  |   |   | 1,281 |   |   | 1,234 |   |
| **Total**   |   | $                                          | 12,113 |   | $ | 4,334 |   | $ | 5,079 |   |

**Unit      Power Agreements **

**Jointly-Owned      Electric Utility Plants**

**Cook      Coal Terminal**

|        |   | **Year                Ended December 31,** |   |
|-------------|--------|--------------------------------------------|--------|
| **Company** |   | **2005**                                   |   | **2004** |   | **2003** |   |
|        |   | **(in                thousands)**          |   |
| APCo        |   | $                                          | 1,770  |   | $ | 730 |   | $ | - |   |
| I&M     |   |                                       | 13,653 |   |   | 14,275 |   |   | 13,114 |   |

**I&M      Barging and Other Services**

|                                                          |   | **Year                Ended December 31,** |   |
|---------------------------------------------------------------|--------|--------------------------------------------|--------|
| **Company**                                                   |   | **2005**                                   |   | **2004** |   | **2003** |   |
|                                                          |   | **(in                millions)**           |   |
| I&M                - revenues                             |   | $                                          | 43.1   |   | $ | 38.2 |   | $ | 31.9 |   |
| AEGCo                - expense                                |   |                                       | 11.4   |   |   | 9.5 |   |   | 8.1 |   |
| APCo                - expense                                 |   |                                       | 18.5   |   |   | 13.0 |   |   | 12.3 |   |
| KPCo                - expense                                 |   |                                       | 0.1    |   |   | 0.1 |   |   | 0.1 |   |
| OPCo                - expense                                 |   |                                       | 2.5    |   |   | 4.9 |   |   | 4.3 |   |
| MEMCO                - expense (Nonutility subsidiary of AEP) |   |                                       | 10.6   |   |   | 10.7 |   |   | 7.1 |   |

**Services      Provided by MEMCO**

**Gas      Purchases from HPL**

|        |   | **Year                Ended December 31,** |   |
|-------------|--------|--------------------------------------------|--------|
| **Company** |   | **2005**                                   |   | **2004** |   | **2003** |   |
|        |   | **(in                thousands)**          |   |
| TCC         |   | $                                          | -      |   | $ | 129,682 |   | $ | 195,527 |   |
| TNC         |   |                                       | 42     |   |   | 45,767 |   |   | 44,197 |   |

**OPCo      Indemnification Agreement with AEP Resources**

**Purchased      Power from Ohio Valley Electric Corporation**

|        |   | **Year                Ended December 31,** |   |
|-------------|--------|--------------------------------------------|--------|
|        |   | **2005**                                   |   | **2004** |   | **2003** |   |
| **Company** |   | **(in                thousands)**          |   |
| APCo        |   | $                                          | 77,337 |   | $ | 62,101 |   | $ | 55,219 |   |
| CSPCo       |   |                                       | 20,602 |   |   | 16,724 |   |   | 15,259 |   |
| I&M     |   |                                       | 30,961 |   |   | 27,474 |   |   | 25,659 |   |
| OPCo        |   |                                       | 66,680 |   |   | 55,052 |   |   | 50,995 |   |

**Purchased      Power from Sweeny**

|              |   | **Year                Ended December 31, 2005** |   |
|-------------------|--------|-------------------------------------------------|--------|
| **Company**  |   | **(in                thousands)**               |   |
| PSO               |   | $                                               | 57,742 |   |
| SWEPCo            |   |                                            | 50,618 |   |
| TCC               |   |                                            | 4,560  |   |
| TNC               |   |                                            | 27,804 |   |

**OPCo      Coal Transfers**

**Sales      of Property**

|                           |   | **2005**                                |     |
|--------------------------------|--------|-----------------------------------------|----------|
|                           |   | **(in                thousands)**       |     |
| APCo                to I&M |   | $                                       | 554      |   |
| APCo                to OPCo    |   |                                    | 637      |   |
| I&M                to APCo |   |                                    | 1,135    |   |
| I&M                to OPCo |   |                                    | 3,423    |   |
| KPCo                to OPCo    |   |                                    | 101      |   |
| OPCo                to APCo    |   |                                    | 1,057    |   |
| OPCo                to I&M |   |                                    | 2,142    |   |
|                           |
|                           |   |                                    | **2004** |   |
|                           |   |  **(in                thousands)** |     |
| APCo                to OPCo    |   | $                                       | 2,992    |   |
| I&M                to APCo |   |                                    | 1,630    |   |
|                           |
|                           |   |                                    | **2003** |   |
|                           |   |  **(in                thousands)** |     |
| AEGCo                to OPCo   |   | $                                       | 105      |   |
| APCo                to OPCo    |   |                                    | 1,079    |   |
| I&M                to OPCo |   |                                    | 1,492    |   |
| OPCo                to APCo    |   |                                    | 2,768    |   |
| OPCo                to I&M |   |                                    | 1,096    |   |

**AEPSC**

**18.**
**JOINTLY-OWNED      ELECTRIC UTILITY PLANT**

|                                                                             |   |                                    |   | **Company’s                Share December 31,** |   |
|----------------------------------------------------------------------------------|--------|-----------------------------------------|--------|-------------------------------------------------------|--------|
|                                                                             |   |                                    |   | **2005**                                              |   | **2004** |   |
|                                                                             |   | **Percent                of Ownership** |   | **Utility                Plant in Service**           |   | **Construction                Work in Progress** |   | **Utility                Plant in Service** |   | **Construction                Work in Progress** |   |
| **CSPCo**                                                                        |   |                                    |   | **(in                thousands)**                     |   |
| W.C.                Beckjord Generating Station (Unit                No. 6) |   |                                    | 12.5   | %                                                     | $      | 15,681 |   | $ | 52 |   | $ | 15,531 |   | $ | 139 |   |
| Conesville                Generating Station (Unit No. 4)                        |   |                                    | 43.5   |                                                  |   | 85,162 |   |   | 7,583 |   |   | 85,036 |   |   | 654 |   |
| J.M.                Stuart Generating Station                                    |   |                                    | 26.0   |                                                  |   | 266,136 |   |   | 35,461 |   |   | 209,842 |   |   | 60,535 |   |
| Wm.                H. Zimmer Generating Station                                  |   |                                    | 25.4   |                                                  |   | 749,112 |   |   | 2,295 |   |   | 741,043 |   |   | 7,976 |   |
| Transmission                                                                     |   |                                    | (a     | )                                                     |   | 62,553 |   |   | 1,344 |   |   | 62,287 |   |   | 3,744 |   |
| **Total**                                                                        |   |                                    |   |                                                  | $      | 1,178,644 |   | $ | 46,735 |   | $ | 1,113,739 |   | $ | 73,048 |   |
|                                                                             |   |                                    |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |
| **PSO**                                                                          |   |                                    |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |
| Oklaunion                Generating Station (Unit No. 1)                         |   |                                    | 15.6   | %                                                     | $      | 86,051 |   | $ | 700 |   | $ | 85,834 |   | $ | 345 |   |
|                                                                             |   |                                    |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |
| **SWEPCo**                                                                       |   |                                    |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |
| Dolet                Hills Generating Station (Unit No. 1)                       |   |                                    | 40.2   | %                                                     | $      | 237,941 |   | $ | 3,829 |   | $ | 237,741 |   | $ | 2,559 |   |
| Flint                Creek Generating Station (Unit No. 1)                       |   |                                    | 50.0   |                                                  |   | 94,261 |   |   | 2,494 |   |   | 93,887 |   |   | 756 |   |
| Pirkey                Generating Station (Unit No. 1)                            |   |                                    | 85.9   |                                                  |   | 459,513 |   |   | 10,447 |   |   | 456,730 |   |   | 2,373 |   |
| **Total**                                                                        |   |                                    |   |                                                  | $      | 791,715 |   | $ | 16,770 |   | $ | 788,358 |   | $ | 5,688 |   |
|                                                                             |   |                                    |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |
| **TCC                (b)**                                                       |   |                                    |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |
| Oklaunion                Generating Station (Unit No. 1)                         |   |                                    | 7.8    | %                                                     | $      | 39,656 |   | $ | 321 |   | $ | 39,464 |   | $ | 271 |   |
| STP                Generation Station (Units No. 1 and 2)                        |   |                                    | 0.0    |                                                  |   | - |   |   | - |   |   | 2,386,961 |   |   | 2,144 |   |
| **Total**                                                                        |   |                                    |   |                                                  | $      | 39,656 |   | $ | 321 |   | $ | 2,426,425 |   | $ | 2,415 |   |
|                                                                             |   |                                    |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |
| **TNC**                                                                          |   |                                    |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |
| Oklaunion                Generating Station (Unit No. 1)                         |   |                                    | 54.7   | %                                                     | $      | 288,934 |   | $ | 2,165 |   | $ | 287,198 |   | $ | 1,418 |   |

| (a) | Varying                percentages of ownership.                                                                                                                                                                                               |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Included                in Assets Held for Sale - Texas Generation Plants on TCC’s Consolidated                Balance Sheets. STP was completed in May 2005. TCC owned 25.2% of                STP at                December 31, 2004. |

|                   |   | **Year                Ended December 31,** |    |
|------------------------|--------|--------------------------------------------|---------|
|                   |   | **2005**                                   |    | ** 2004** |   |
| **Company**            |   |  **(in                thousands)**    |    |
| CSPCo                  |   | $                                          | 497,548 |   | $ | 464,136 |   |
| PSO                    |   |                                       | 54,401  |   |   | 52,679 |   |
| SWEPCo                 |   |                                       | 512,742 |   |   | 491,269 |   |
| TCC                (a) |   |                                       | 19,765  |   |   | 991,410 |   |
| TNC                    |   |                                       | 117,963 |   |   | 110,763 |   |

| (a) | Included                in Assets Held for Sale - Texas Generation Plants on TCC’s Consolidated                Balance Sheets. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------|

**19.**
**UNAUDITED      QUARTERLY FINANCIAL INFORMATION**

| **Quarterly                Periods Ended:**                                |   | **AEGCo**                         |   | **APCo**     |   | **CSPCo**    |   | **I&M**  |    | **KPCo**     |   |
|----------------------------------------------------------------------------|--------|-----------------------------------|--------|--------------|--------|--------------|--------|--------------|---------|--------------|--------|
|                                                                       |   | **(in                thousands)** |   |
| **March                31, 2005**                                          |   |                         |   |    |   |    |   |    |    |    |   |
| Operating                Revenues                                          |   | $                                 | 66,546 |         | $      | 557,695      |   | $            | 367,133 |         | $      | 457,559 |   | $ | 128,060 |   |
| Operating                Income                                            |   |                              | 3,195  |         |   | 92,359       |   |         | 78,667  |         |   | 72,890 |   |   | 21,083 |   |
| Income                Before Cumulative Effect of  Accounting Changes |   |                              | 2,516  |         |   | 46,672       |   |         | 47,468  |         |   | 39,669 |   |   | 9,885 |   |
| Net                Income                                                  |   |                              | 2,516  |         |   | 46,672       |   |         | 47,468  |         |   | 39,669 |   |   | 9,885 |   |
|                                                                       |   |                              |   |         |   |         |   |         |    |         |   |   |   |   |   |   |
| **June                30, 2005**                                           |   |                              |   |         |   |         |   |         |    |         |   |   |   |   |   |   |
| Operating                Revenues                                          |   | $                                 | 65,082 |         | $      | 497,102      |   | $            | 359,990 |         | $      | 457,560 |   | $ | 122,709 |   |
| Operating                Income                                            |   |                              | 2,340  |         |   | 53,752       |   |         | 63,558  |         |   | 69,589 |   |   | 9,743 |   |
| Income                Before Cumulative Effect of  Accounting Changes |   |                              | 2,073  |         |   | 24,213       |   |         | 34,651  |         |   | 35,593 |   |   | 2,446 |   |
| Net                Income                                                  |   |                              | 2,073  |         |   | 24,213       |   |         | 34,651  |         |   | 35,593 |   |   | 2,446 |   |
|                                                                       |   |                              |   |         |   |         |   |         |    |         |   |   |   |   |   |   |
| **September                30, 2005**                                      |   |                              |   |         |   |         |   |         |    |         |   |   |   |   |   |   |
| Operating                Revenues                                          |   | $                                 | 69,640 |         | $      | 570,122      |   | $            | 454,568 |         | $      | 515,079 |   | $ | 143,996 |   |
| Operating                Income                                            |   |                              | 2,912  |         |   | 79,477       |   |         | 65,604  |         |   | 100,754 |   |   | 18,223 |   |
| Income                Before Cumulative Effect of  Accounting Changes |   |                              | 2,239  |         |   | 37,372       |   |         | 34,225  |         |   | 53,012 |   |   | 7,727 |   |
| Net                Income                                                  |   |                              | 2,239  |         |   | 37,372       |   |         | 34,225  |         |   | 53,012 |   |   | 7,727 |   |
|                                                                       |   |                              |   |         |   |         |   |         |    |         |   |   |   |   |   |   |
| **December                31, 2005**                                       |   |                              |   |         |   |         |   |         |    |         |   |   |   |   |   |   |
| Operating                Revenues                                          |   | $                                 | 69,487 |         | $      | 551,354      |   | $            | 360,641 |         | $      | 462,404 |   | $ | 136,578 |   |
| Operating                Income                                            |   |                              | 2,454  |         |   | 57,800       |   |         | 35,051  |         |   | 43,427 |   |   | 11,782 |   |
| Income                Before Cumulative Effect of  Accounting Changes |   |                              | 1,867  |         |   | 27,575       |   |         | 21,455  |         |   | 18,578 |   |   | 751 |   |
| Net                Income                                                  |   |                              | 1,867  |         |   | 25,319       |   |         | 20,616  |         |   | 18,578 |   |   | 751 |   |

| **Quarterly                Periods Ended:**                                                                                            |   | **OPCo**                          |    | **PSO**      |   | **SWEPCo**   |   | **TCC**      |    | **TNC**      |   |
|----------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|---------|--------------|--------|--------------|--------|--------------|---------|--------------|--------|
|                                                                                                                                   |   | **(in                thousands)** |    |
| **March                31, 2005**                                                                                                      |   |                         |    |    |   |    |   |    |    |    |   |
| Operating                Revenues                                                                                                      |   | $                                 | 655,154 |         | $      | 253,082      |   | $            | 247,211 |         | $      | 201,357 |   | $ | 118,907 |   |
| Operating                Income                                                                                                        |   |                              | 151,434 |         |   | 7,113        |   |         | 29,163  |         |   | 30,284 |   |   | 15,817 |   |
| Income                Before Cumulative Effect of  Accounting Changes                                                             |   |                              | 99,483  |         |   | 505          |   |         | 12,205  |         |   | 1,137 |   |   | 7,394 |   |
| Net                Income                                                                                                              |   |                              | 99,483  |         |   | 505          |   |         | 12,205  |         |   | 1,137 |   |   | 7,394 |   |
|                                                                                                                                   |   |                              |    |         |   |         |   |         |    |         |   |   |   |   |   |   |
| **June                30, 2005**                                                                                                       |   |                              |    |         |   |         |   |         |    |         |   |   |   |   |   |   |
| Operating                Revenues                                                                                                      |   | $                                 | 650,999 |         | $      | 286,602      |   | $            | 332,851 |         | $      | 202,326 |   | $ | 114,704 |   |
| Operating                Income                                                                                                        |   |                              | 123,901 |         |   | 32,435       |   |         | 37,363  |         |   | 42,922 |   |   | 20,160 |   |
| Income                Before Cumulative Effect of  Accounting Changes                                                             |   |                              | 71,481  |         |   | 18,570       |   |         | 19,304  |         |   | 28,368 |   |   | 12,004 |   |
| Net                Income                                                                                                              |   |                              | 71,481  |         |   | 18,570       |   |         | 19,304  |         |   | 28,368 |   |   | 12,004 |   |
|                                                                                                                                   |   |                              |    |         |   |         |   |         |    |         |   |   |   |   |   |   |
| **September                30, 2005**                                                                                                  |   |                              |    |         |   |         |   |         |    |         |   |   |   |   |   |   |
| Operating                Revenues                                                                                                      |   | $                                 | 687,140 |         | $      | 432,633      |   | $            | 474,283 |         | $      | 203,365 |   | $ | 126,097 |   |
| Operating                Income                                                                                                        |   |                              | 99,437  |         |   | 85,387       |   |         | 88,135  |         |   | 63,399 |   |   | 36,924 |   |
| Income                Before Cumulative Effect of  Accounting Changes                                                             |   |                              | 56,408  |         |   | 48,654       |   |         | 49,731  |         |   | 40,476 |   |   | 22,304 |   |
| Net                Income                                                                                                              |   |                              | 56,408  |         |   | 48,654       |   |         | 49,731  |         |   | 40,476 |   |   | 22,304 |   |
|                                                                                                                                   |   |                              |    |         |   |         |   |         |    |         |   |   |   |   |   |   |
| **December                31, 2005**                                                                                                   |   |                              |    |         |   |         |   |         |    |         |   |   |   |   |   |   |
| Operating                Revenues                                                                                                      |   | $                                 | 641,256 |         | $      | 331,761      |   | $            | 351,034 |         | $      | 186,198 |   | $ | 99,180 |   |
| Operating                Income (Loss)                                                                                                 |   |                              | 50,715  |         |   | (6,919       | )      |         | 5,876   |         |   | 40,676 |   |   | 3,798 |   |
| Income                (Loss) Before Extraordinary Item and                Cumulative Effect of  Accounting Changes |   |                              | 23,047  |         |   | (9,836       | )      |         | (6,050  | )            |   | (19,209 | ) |   | (226 | ) |
| Extraordinary                Loss on Stranded Cost  Recovery, Net of Tax (a)                                                      |   |                              | -       |         |   | -            |   |         | -       |         |   | (224,551 | ) |   | - |   |
| Net                Income (Loss)                                                                                                       |   |                              | 18,472  |         |   | (9,836       | )      |         | (7,302  | )            |   | (243,760 | ) |   | (8,698 | ) |

| (a) | See                “Extraordinary Items” section of Note 2 and “Texas Restructuring” section                of Note 6 for discussions of the extraordinary loss booked in the                fourth                quarter of 2005. |   |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|

----

| **Quarterly                Periods Ended:**                          |   | **AEGCo**                         |   | **APCo**     |   | **CSPCo**    |   | **I&M**  |    | **KPCo**     |   |
|----------------------------------------------------------------------|--------|-----------------------------------|--------|--------------|--------|--------------|--------|--------------|---------|--------------|--------|
|                                                                 |   | **(in                thousands)** |   |
| **March                31, 2004**                                    |   |                         |   |    |   |    |   |    |    |    |   |
| Operating                Revenues                                    |   | $                                 | 55,282 |         | $      | 530,454      |   | $            | 365,395 |         | $      | 430,411 |   | $ | 114,579 |   |
| Operating                Income                                      |   |                              | 2,175  |         |   | 128,656      |   |         | 82,888  |         |   | 85,259 |   |   | 25,282 |   |
| Income                Before Cumulative Effect of Accounting Changes |   |                              | 1,827  |         |   | 65,336       |   |         | 45,119  |         |   | 43,008 |   |   | 11,611 |   |
| Net                Income                                            |   |                              | 1,827  |         |   | 65,336       |   |         | 45,119  |         |   | 43,008 |   |   | 11,611 |   |
|                                                                 |   |                              |   |         |   |         |   |         |    |         |   |   |   |   |   |   |
| **June                30, 2004**                                     |   |                              |   |         |   |         |   |         |    |         |   |   |   |   |   |   |
| Operating                Revenues                                    |   | $                                 | 56,348 |         | $      | 466,750      |   | $            | 358,757 |         | $      | 423,060 |   | $ | 106,891 |   |
| Operating                Income                                      |   |                              | 2,026  |         |   | 63,547       |   |         | 60,001  |         |   | 57,967 |   |   | 12,564 |   |
| Income                Before Cumulative Effect of Accounting Changes |   |                              | 1,506  |         |   | 21,826       |   |         | 30,755  |         |   | 27,030 |   |   | 4,068 |   |
| Net                Income                                            |   |                              | 1,506  |         |   | 21,826       |   |         | 30,755  |         |   | 27,030 |   |   | 4,068 |   |
|                                                                 |   |                              |   |         |   |         |   |         |    |         |   |   |   |   |   |   |
| **September                30, 2004**                                |   |                              |   |         |   |         |   |         |    |         |   |   |   |   |   |   |
| Operating                Revenues                                    |   | $                                 | 65,303 |         | $      | 486,041      |   | $            | 391,612 |         | $      | 462,641 |   | $ | 113,785 |   |
| Operating                Income                                      |   |                              | 2,990  |         |   | 77,988       |   |         | 90,359  |         |   | 94,636 |   |   | 13,968 |   |
| Income                Before Cumulative Effect of Accounting Changes |   |                              | 2,404  |         |   | 38,459       |   |         | 52,570  |         |   | 51,548 |   |   | 6,160 |   |
| Net                Income                                            |   |                              | 2,404  |         |   | 38,459       |   |         | 52,570  |         |   | 51,548 |   |   | 6,160 |   |
|                                                                 |   |                              |   |         |   |         |   |         |    |         |   |   |   |   |   |   |
| **December                31, 2004**                                 |   |                              |   |         |   |         |   |         |    |         |   |   |   |   |   |   |
| Operating                Revenues                                    |   | $                                 | 64,855 |         | $      | 474,601      |   | $            | 332,161 |         | $      | 425,373 |   | $ | 113,706 |   |
| Operating                Income                                      |   |                              | 2,939  |         |   | 58,370       |   |         | 25,331  |         |   | 31,697 |   |   | 11,525 |   |
| Income                Before Cumulative Effect of Accounting Changes |   |                              | 2,105  |         |   | 27,494       |   |         | 11,814  |         |   | 11,636 |   |   | 4,066 |   |
| Net                Income                                            |   |                              | 2,105  |         |   | 27,494       |   |         | 11,814  |         |   | 11,636 |   |   | 4,066 |   |

| **Quarterly                Periods Ended:**                                                                           |   | **OPCo**                          |    | **PSO**      |   | **SWEPCo**   |   | **TCC**      |    | **TNC**      |   |
|-----------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|---------|--------------|--------|--------------|--------|--------------|---------|--------------|--------|
|                                                                                                                  |   | **(in                thousands)** |    |
| **March                31, 2004**                                                                                     |   |                         |    |    |   |    |   |    |    |    |   |
| Operating                Revenues                                                                                     |   | $                                 | 604,165 |         | $      | 207,267      |   | $            | 236,537 |         | $      | 297,584 |   | $ | 116,945 |   |
| Operating                Income (Loss)                                                                                |   |                              | 155,999 |         |   | (6,938       | )      |         | 20,544  |         |   | 73,062 |   |   | 25,870 |   |
| Income                (Loss) Before Cumulative Effect of Accounting Changes                                           |   |                              | 80,164  |         |   | (9,003       | )      |         | 5,021   |         |   | 29,404 |   |   | 13,096 |   |
| Net                Income (Loss)                                                                                      |   |                              | 80,164  |         |   | (9,003       | )      |         | 5,021   |         |   | 29,404 |   |   | 13,096 |   |
|                                                                                                                  |   |                              |    |         |   |         |   |         |    |         |   |   |   |   |   |   |
| **June                30, 2004**                                                                                      |   |                              |    |         |   |         |   |         |    |         |   |   |   |   |   |   |
| Operating                Revenues                                                                                     |   | $                                 | 577,282 |         | $      | 231,899      |   | $            | 269,325 |         | $      | 280,561 |   | $ | 117,734 |   |
| Operating                Income                                                                                       |   |                              | 87,439  |         |   | 18,632       |   |         | 55,671  |         |   | 25,176 |   |   | 16,730 |   |
| Income                (Loss) Before Cumulative Effect of Accounting Changes                                           |   |                              | 38,783  |         |   | 7,391        |   |         | 27,946  |         |   | (341 | ) |   | 7,751 |   |
| Net                Income (Loss)                                                                                      |   |                              | 38,783  |         |   | 7,391        |   |         | 27,946  |         |   | (341 | ) |   | 7,751 |   |
|                                                                                                                  |   |                              |    |         |   |         |   |         |    |         |   |   |   |   |   |   |
| **September                30, 2004**                                                                                 |   |                              |    |         |   |         |   |         |    |         |   |   |   |   |   |   |
| Operating                Revenues                                                                                     |   | $                                 | 603,054 |         | $      | 356,741      |   | $            | 331,815 |         | $      | 359,440 |   | $ | 160,885 |   |
| Operating                Income                                                                                       |   |                              | 102,179 |         |   | 71,096       |   |         | 83,640  |         |   | 87,028 |   |   | 30,296 |   |
| Income                Before Cumulative Effect of Accounting Changes                                                  |   |                              | 50,685  |         |   | 38,980       |   |         | 47,209  |         |   | 43,012 |   |   | 16,853 |   |
| Net                Income                                                                                             |   |                              | 50,685  |         |   | 38,980       |   |         | 47,209  |         |   | 43,012 |   |   | 16,853 |   |
|                                                                                                                  |   |                              |    |         |   |         |   |         |    |         |   |   |   |   |   |   |
| **December                31, 2004**                                                                                  |   |                              |    |         |   |         |   |         |    |         |   |   |   |   |   |   |
| Operating                Revenues                                                                                     |   | $                                 | 588,224 |         | $      | 251,913      |   | $            | 253,395 |         | $      | 275,264 |   | $ | 157,894 |   |
| Operating                Income                                                                                       |   |                              | 73,922  |         |   | 16           |   |         | 19,384  |         |   | 58,815 |   |   | 18,175 |   |
| Income                Before Extraordinary Item and Cumulative Effect of                  Accounting Changes (a) |   |                              | 40,484  |         |   | 174          |   |         | 9,281   |         |   | 222,581 |   |   | 9,959 |   |
| Extraordinary                Loss on Stranded Cost  Recovery, Net of Tax (b)                                     |   |                              | -       |         |   | -            |   |         | -       |         |   | (120,534 | ) |   | - |   |
| Net                Income                                                                                             |   |                              | 40,484  |         |   | 174          |   |         | 9,281   |         |   | 102,047 |   |   | 9,959 |   |

| (a) | Carrying                costs income on stranded cost recovery of $302 million was recorded                in the                fourth quarter of 2004.                              |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | See                “Extraordinary Items” section of Note 2 for a discussion of the                extraordinary loss booked in the fourth quarter of                2004. |

----

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

**Source      of Funding**

**Dividend      Restrictions**

**Sale      of Receivables Through AEP Credit**

**Budgeted      Construction Expenditures**

|        |   | **Projected                Construction Expenditures** |   |
|-------------|--------|--------------------------------------------------------|--------|
| **Company** |   | **(in                millions)**                       |   |
| AEGCo       |   | $                                                      | 14     |   |
| APCo        |   |                                                   | 943    |   |
| CSPCo       |   |                                                   | 343    |   |
| I&M     |   |                                                   | 311    |   |
| KPCo        |   |                                                   | 100    |   |
| OPCo        |   |                                                   | 1,070  |   |
| PSO         |   |                                                   | 279    |   |
| SWEPCo      |   |                                                   | 288    |   |
| TCC         |   |                                                   | 278    |   |
| TNC         |   |                                                   | 73     |   |

**Significant      Factors**

**Integration      Gasification Combined Cycle (IGCC) Power Plants**

**Pension      and Postretirement Benefit Plans**

|                                       |   | **2005**                         |   | **2004** |   |
|--------------------------------------------|--------|----------------------------------|--------|----------|--------|
|                                       |   | **(in                millions)** |   |
| **Net                Periodic Cost:**      |   |                             |   |
| Pension                Plans               |   | $                                | 61     |     | $      | 40 |   |
| Postretirement                Plans        |   |                             | 109    |     |   | 141 |   |
| **Assumed                Rate of Return:** |   |                             |   |     |   |   |   |
| Pension                Plans               |   |                             | 8.75   | %        |   | 8.75 | % |
| Postretirement                Plans        |   |                             | 8.37   | %        |   | 8.35 | % |

|                                     |   | **Pension**                                           |   | **Other                Postretirement****Benefit                Plans** |   |                                      |   |
|------------------------------------------|--------|-------------------------------------------------------|--------|-------------------------------------------------------------------------|--------|-------------------------------------------|--------|
|                                     |   | **2005****Actual****Asset                Allocation** |   | **2006****Target****Asset****Allocation**                               |   | **2005****Actual****Asset****Allocation** |   | **2006****Target****Asset****Allocation** |   | **Assumed/****Expected****Long-term****Rate                of****Return** |   |
|                                     |   |                                                  |   |                                                                    |   |                                      |   |   |   |   |   |
| Equity                                   |   |                                                  | 66     | %                                                                       |   | 70                                        | %      |   | 68 | % |   | 66 | % |   | 10.00 | % |
| Fixed                Income              |   |                                                  | 25     | %                                                                       |   | 28                                        | %      |   | 30 | % |   | 31 | % |   | 5.25 | % |
| Cash                and Cash Equivalents |   |                                                  | 9      | %                                                                       |   | 2                                         | %      |   | 2 | % |   | 3 | % |   | 3.50 | % |
| **Total**                                |   |                                                  | 100    | %                                                                       |   | 100                                       | %      |   | 100 | % |   | 100 | % |   |   |   |

|                                                                          |   | **Pension** |   | **Other                Postretirement****Benefit                Plans** |   |
|-------------------------------------------------------------------------------|--------|-------------|--------|-------------------------------------------------------------------------|--------|
| Overall                Expected Return (weighted                average) |   |        | 8.50   | %                                                                       |   | 8.00 | % |

|                                      |   | **Decrease                in Minimum****Pension                Liability** |   |
|-------------------------------------------|--------|----------------------------------------------------------------------------|--------|
|                                      |   | **2005**                                                                   |   | **2004** |   |
|                                      |   | **(in                millions)**                                           |   |
| Other                Comprehensive Income |   | $                                                                          | (330   | ) | $ | (92 | ) |
| Deferred                Income Taxes      |   |                                                                       | (175   | ) |   | (52 | ) |
| Intangible                Asset           |   |                                                                       | (30    | ) |   | (3 | ) |
| Other                                     |   |                                                                       | 4      |   |   | (10 | ) |
| Minimum                Pension Liability  |   | $                                                                          | (531   | ) | $ | (157 | ) |

**Litigation**

***Potential      Uninsured Losses***

**Environmental      Matters**

| · | Requirements                under the Clean Air Act (CAA) to reduce emissions of sulfur dioxide                (SO2),                nitrogen oxide (NOx),                particulate matter (PM), and mercury from fossil fuel-fired power                plants; |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Requirements                under the Clean Water Act (CWA) to reduce the impacts of water intake                structures on aquatic species at certain power plants;                and                                                                         |
| · | Possible                future requirements to reduce carbon dioxide (CO2)                emissions to address concerns about global climate                change.                                                                                                |

***Clean      Air Act Requirements***

***Estimated      Air Quality Environmental Investments***

|   |   | **Estimated                Investment** |   |
|--------|--------|-----------------------------------------|--------|
|   |   |  **(in                millions)**  |   |
| APCo   |   | $                                       | 2      |   |
| CSPCo  |   |                                    | 42     |   |
| OPCo   |   |                                    | 137    |   |
| PSO    |   |                                    | 1      |   |
| SWEPCo |   |                                    | 9      |   |

|   |   | **Cost                of Additional Scrubbers** |   |
|--------|--------|-------------------------------------------------|--------|
|   |   | **(in                millions)**                |   |
| APCo   |   | $                                               | 1,251  |   |
| CSPCo  |   |                                            | 234    |   |
| KPCo   |   |                                            | 308    |   |
| OPCo   |   |                                            | 979    |   |
| SWEPCo |   |                                            | 18     |   |

***Clean      Water Act Regulation***

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

***Potential      Regulation of CO***
***2***

***Emissions***

***Environmental      Litigation***

***Other      Environmental Concerns***

**Critical      Accounting Estimates**

| · | it                requires assumptions to be made that were uncertain at the time the                estimate was made; and                                                                                            |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | changes                in the estimate or different estimates that could have been selected                could                have a material effect on results of operations or financial                condition. |

***Regulatory      Accounting***

*Nature      of Estimates Required*

*Assumptions      and Approach Used*

*Effect      if Different Assumptions Used*

***Revenue      Recognition - Unbilled Revenues***

*Nature      of Estimates Required - *

|    |   | **2005**                          |   | **2004** |   | **2003** |   |
|---------|--------|-----------------------------------|--------|----------|--------|----------|--------|
|    |   | **(in                thousands)** |   |
| APCo    |   | $                                 | 14,024 |     | $      | 18,206   |   | $ | 1,876 |   |
| CSPCo   |   |                              | (5,404 | )        |   | 283      |   |   | (5,881 | ) |
| I&M |   |                              | 1,783  |     |   | (2,942   | )      |   | 10,722 |   |
| KPCo    |   |                              | 1,105  |     |   | 3,833    |   |   | (448 | ) |
| OPCo    |   |                              | 14,689 |     |   | (2,793   | )      |   | (18,502 | ) |
| PSO     |   |                              | 494    |     |   | 2,789    |   |   | 984 |   |
| SWEPCo  |   |                              | 606    |     |   | 1,814    |   |   | (6,996 | ) |
| TCC     |   |                              | (164   | )        |   | (1,579   | )      |   | 4,636 |   |
| TNC     |   |                              | 1,250  |     |   | (1,160   | )      |   | 1,834 |   |

*Assumptions      and Approach Used - *

*Effect      if Different Assumptions Used - *

***Revenue      Recognition - Accounting for Derivative      Instruments***

*Nature      of Estimates Required*

*Assumptions      and Approach Used - *

*Effect      if Different Assumptions Used*

***Long-Lived      Assets***

*Nature      of Estimates Required*

*Assumptions      and Approach Used*

*Effect      if Different Assumptions Used*

***Pension      and Other Postretirement Benefits***

*Nature      of Estimates Required*

*Assumptions      and Approach Used*

| · | discount                rate                  |
|--------|-----------------------------------------------|
| · | expected                return on plan assets |
| · | health                care cost trend rates   |
| · | rate                of compensation increases |

*Effect      if Different Assumptions Used*

|                                                                     |   | **Pension                Plans** |   | **Other                Postretirement Benefits Plans** |   |
|--------------------------------------------------------------------------|--------|----------------------------------|--------|--------------------------------------------------------|--------|
|                                                                     |   | +0.5%                            |   | -0.5%                                                  |   | +0.5% |   | -0.5% |   |
|                                                                     |   | **(in                millions)** |   |
|                                                                     |   |                        |   |                                              |   |    |   |    |   |
| **Effect                on December 31, 2005 Benefit Obligations:** |   |                        |   |                                              |   |    |   |    |   |
| Discount                Rate                                             |   | $                                | (198   | )                                                      | $      | 207 |   | $ | (116 | ) | $ | 124 |   |
| Salary                Scale                                              |   |                             | 30     |                                                   |   | (30 | ) |   | 4 |   |   | (4 | ) |
| Cash                Balance Crediting Rate                               |   |                             | (16    | )                                                      |   | 17 |   |   | N/A |   |   | N/A |   |
| Health                Care Cost Trend Rate                               |   |                             | N/A    |                                                   |   | N/A |   |   | 112 |   |   | (106 | ) |
|                                                                     |   |                             |   |                                                   |   |   |   |   |   |   |   |   |   |
| **Effect                on 2005 Periodic Cost:**                         |   |                             |   |                                                   |   |   |   |   |   |   |   |   |   |
| Discount                Rate                                             |   |                             | (10    | )                                                      |   | 10 |   |   | (10 | ) |   | 10 |   |
| Salary                Scale                                              |   |                             | 6      |                                                   |   | (5 | ) |   | 1 |   |   | (1 | ) |
| Cash                Balance Crediting Rate                               |   |                             | 3      |                                                   |   | (2 | ) |   | N/A |   |   | N/A |   |
| Health                Care Cost Trend Rate                               |   |                             | N/A    |                                                   |   | N/A |   |   | 18 |   |   | (17 | ) |
| Expected                Return on Assets                                 |   |                             | (18    | )                                                      |   | 18 |   |   | (5 | ) |   | 5 |   |

**New      Accounting Pronouncements**

|   |   | **Cumulative                Effect**       |   |
|--------|--------|--------------------------------------------|--------|
|   |   | **Pretax****Income                (Loss)** |   | **Net                of Tax Income (Loss)** |   |
|   |   | **(in                millions)**           |   |
| APCo   |   | $                                          | (3.5   | ) | $ | (2.3 | ) |
| CSPCo  |   |                                       | (1.3   | ) |   | (0.8 | ) |
| OPCo   |   |                                       | (7.0   | ) |   | (4.6 | ) |
| SWEPCo |   |                                       | (1.9   | ) |   | (1.3 | ) |
| TNC    |   |                                       | (13.0  | ) |   | (8.5 | ) |