AEP Texas North Company 2005 10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

___________________

FORM 10-K

___________________

(Mark One)

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

For the fiscal year ended December 31, 2005

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

For the transition period from __________ to_________

Commission File Number		Registrants; States of Incorporation; Address and Telephone Number	I.R.S. Employer Identification Nos.
	1-3525	American Electric Power Company, Inc. (A New York Corporation)	13-4922640
	0-18135	AEP Generating Company (An Ohio Corporation)	31-1033833
	0-346	AEP Texas Central Company (A Texas Corporation)	74-0550600
	0-340	AEP Texas North Company (A Texas Corporation)	75-0646790
	1-3457	Appalachian Power Company (A Virginia Corporation)	54-0124790
	1-2680	Columbus Southern Power Company (An Ohio Corporation)	31-4154203
	1-3570	Indiana Michigan Power Company (An Indiana Corporation)	35-0410455
	1-6858	Kentucky Power Company (A Kentucky Corporation)	61-0247775
	1-6543	Ohio Power Company (An Ohio Corporation)	31-4271000
	0-343	Public Service Company of Oklahoma (An Oklahoma Corporation)	73-0410895
	1-3146	Southwestern Electric Power Company (A Delaware Corporation) 1 Riverside Plaza, Columbus, Ohio 43215 Telephone (614) 716-1000	72-0323455

Indicate by check mark if the registrant with respect to American Electric Power Company, Inc., is a well-known seasoned issuer, as defined in Rule 405 on the Securities Act.			Yes x	No. o

Indicate by check mark if the registrant with respect to AEP Generating Company, AEP Texas Central Company, AEP Texas North Company, Appalachian Power Company, Columbus Southern Power Company, Indiana Michigan Power Company, Kentucky Power Company, Ohio Power Company, Public Service Company of Oklahoma and Southwestern Electric Power Company, are well-known seasoned issuers, as defined in Rule 405 on the Securities Act.			Yes x	No. o

Indicate by check mark if the registrant with respect to American Electric Power Company, Inc., is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.			Yes o	No. x

Indicate by check mark if the registrant with respect to AEP Generating Company, AEP Texas Central Company, AEP Texas North Company, Appalachian Power Company, Columbus Southern Power Company, Indiana Michigan Power Company, Kentucky Power Company, Ohio Power Company, Public Service Company of Oklahoma and Southwestern Electric Power Company, are not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.			Yes o	No. x

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

Indicate by check mark if disclosure of delinquent filers with respect to Appalachian Power Company or Ohio Power Company pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements of Appalachian Power Company or Ohio Power Company incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.			x

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

Indicate by check mark whether AEP Generating Company, AEP Texas Central Company, AEP Texas North Company, Appalachian Power Company, Columbus Southern Power Company, Indiana Michigan Power Company, Kentucky Power Company, Ohio Power Company, Public Service Company of Oklahoma and Southwestern Electric Power Company are large accelerated filers, accelerated filers, or non-accelerated filers. See definition of ‘accelerated filer and large accelerated filer’ in Rule 12b-2 of the Exchange Act. (Check One)
Large accelerated filer o	Accelerated filer o	Non-accelerated filer x

Indicate by check mark if the registrants are shell companies, as defined in Rule 12b-2 of the Exchange Act.			Yes o	No. x

AEP Generating Company, AEP Texas North Company, Columbus Southern Power Company, Kentucky Power Company and Public Service Company of Oklahoma meet the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K and are therefore filing this Form 10-K with the reduced disclosure format specified in General Instruction I(2) to such Form 10-K.

Securities registered pursuant to Section 12(b) of the Act:

Registrant	Title of each class	Name of each exchange on which registered
AEP Generating Company	None
AEP Texas Central Company	None
AEP Texas North Company	None
American Electric Power Company, Inc.	Common Stock, $6.50 par value	New York Stock Exchange
Appalachian Power Company	None
Columbus Southern Power Company	None
Indiana Michigan Power Company	6% Senior Notes, Series D, Due 2032	New York Stock Exchange
Kentucky Power Company	None
Ohio Power Company	None
Public Service Company of Oklahoma	6% Senior Notes, Series B, Due 2032	New York Stock Exchange
Southwestern Electric Power Company	None

Securities registered pursuant to Section 12(g) of the Act:

Registrant		Title of each class
AEP Generating Company		None
AEP Texas Central Company		4.00% Cumulative Preferred Stock, Non-Voting, $100 par value
		4.20% Cumulative Preferred Stock, Non-Voting, $100 par value
AEP Texas North Company		None
American Electric Power Company, Inc.		None
Appalachian Power Company		4.50% Cumulative Preferred Stock, Voting, no par value
Columbus Southern Power Company		None
Indiana Michigan Power Company		4.125% Cumulative Preferred Stock, Non-Voting, $100 par value
Kentucky Power Company		None
Ohio Power Company		4.50% Cumulative Preferred Stock, Voting, $100 par value
Public Service Company of Oklahoma		None
Southwestern Electric Power Company		4.28% Cumulative Preferred Stock, Non-Voting, $100 par value
		4.65% Cumulative Preferred Stock, Non-Voting, $100 par value
		5.00% Cumulative Preferred Stock, Non-Voting, $100 par value

	Aggregate market value of voting and non-voting common equity held by non-affiliates of the registrants as of June 30, 2005, the last trading date of the registrants’ most recently completed second fiscal quarter	Number of shares of common stock outstanding of the registrants at December 31, 2005
AEP Generating Company	None	1,000
		($1,000 par value)
AEP Texas Central Company	None	2,211,678
		($25 par value)
AEP Texas North Company	None	5,488,560
		($25 par value)
American Electric Power Company, Inc.	$14,172,701,867	393,718,838
		($6.50 par value)
Appalachian Power Company	None	13,499,500
		(no par value)
Columbus Southern Power Company	None	16,410,426
		(no par value)
Indiana Michigan Power Company	None	1,400,000
		(no par value)
Kentucky Power Company	None	1,009,000
		($50 par value)
Ohio Power Company	None	27,952,473
		(no par value)
Public Service Company of Oklahoma	None	9,013,000
		($15 par value)
Southwestern Electric Power Company	None	7,536,640
		($18 par value)

Note On Market Value Of Common Equity Held By Non-Affiliates

American Electric Power Company, Inc. owns, directly or indirectly, all of the common stock of AEP Generating Company, AEP Texas Central Company, AEP Texas North Company, Appalachian Power Company, Columbus Southern Power Company, Indiana Michigan Power Company, Kentucky Power Company, Ohio Power Company, Public Service Company of Oklahoma and Southwestern Electric Power Company (see Item 12 herein).

Documents Incorporated By Reference

Description	Part of Form 10-K Into Which Document Is Incorporated

Portions of Annual Reports of the following companies for the fiscal year ended December 31, 2005:	Part II
AEP Generating Company
AEP Texas Central Company
AEP Texas North Company
American Electric Power Company, Inc.
Appalachian Power Company
Columbus Southern Power Company
Indiana Michigan Power Company
Kentucky Power Company
Ohio Power Company
Public Service Company of Oklahoma
Southwestern Electric Power Company

Portions of Proxy Statement of American Electric Power Company, Inc. for 2006 Annual Meeting of Shareholders, to be filed within 120 days after December 31, 2005	Part III

Portions of Information Statements of the following companies for 2006 Annual Meeting of Shareholders, to be filed within 120 days after December 31, 2005:	Part III
Appalachian Power Company
Ohio Power Company

This combined Form 10-K is separately filed by AEP Generating Company, AEP Texas Central Company, AEP Texas North Company, American Electric Power Company, Inc., Appalachian Power Company, Columbus Southern Power Company, Indiana Michigan Power Company, Kentucky Power Company, Ohio Power Company, Public Service Company of Oklahoma and Southwestern Electric Power Company. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. Except for American Electric Power Company, Inc., each registrant makes no representation as to information relating to the other registrants.

You can access financial and other information at AEP’s website, including AEP’s Principles of Business Conduct (which also serves as a code of ethics applicable to Item 10 of this Form 10-K), certain committee charters and Principles of Corporate Governance. The address is www.AEP.com. AEP makes available, free of charge on its website, copies of its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the SEC.

TABLE OF CONTENTS

Item Number					Page Number
				Glossary of Terms	i
				Forward-Looking Information	iv
PART I
1			Business
			General		1
			Utility Operations		8
			Investments		24
1	A		Risk Factors		25
1	B		Unresolved Staff Comments		37
2			Properties		37
			Generation Facilities		37
			Transmission and Distribution Facilities		39
			Titles		40
			System Transmission Lines and Facility Siting		40
			Construction Program		40
			Potential Uninsured Losses		42
3			Legal Proceedings		43
4			Submission Of Matters To A Vote Of Security Holders		43
			Executive Officers of the Registrant		43
PART II
5		Market For Registrant’s Common Equity, Related Stockholder Matters And Issuer Purchases Of Equity Securities			46
6		Selected Financial Data			47
7		Management’s Discussion And Analysis Of Financial Condition And Results Of Operations			47
7	A	Quantitative And Qualitative Disclosures About Market Risk			47
8		Financial Statements And Supplementary Data			48
9		Changes In And Disagreements With Accountants On Accounting And Financial Disclosure			48
9	A	Controls And Procedures			48
9	B	Other Information			48
PART III
10		Directors And Executive Officers Of The Registrant			49
11		Executive Compensation			50
12		Security Ownership Of Certain Beneficial Owners And Management and Related Stockholder Matters			51
		Equity Compensation Plan Information			55
13		Certain Relationships And Related Transactions			55
14		Principal Accounting Fees And Services			55
PART IV
15		Exhibits, Financial Statement Schedules			57
		Financial Statements			57
		Signatures			58
		Index to Financial Statement Schedules			S-1
		Report of Independent Registered Public Accounting Firm			S-2
		Exhibit Index			E-1

GLOSSARY OF TERMS

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

Abbreviation or Acronym	Definition
AEGCo	AEP Generating Company, an electric utility subsidiary of AEP
AEP	American Electric Power Company, Inc.
AEP Power Pool	APCo, CSPCo, I&M, KPCo and OPCo, as parties to the Interconnection Agreement
AEPSC or Service Corporation	American Electric Power Service Corporation, a service subsidiary of AEP
AEP System or the System	The American Electric Power System, an integrated electric utility system, owned and operated by AEP’s electric utility subsidiaries
AEP Utilities	AEP Utilities, Inc., subsidiary of AEP, formerly, Central and South West Corporation
AFUDC	Allowance for funds used during construction (the net cost of borrowed funds, and a reasonable rate of return on other funds, used for construction under regulatory accounting)
ALJ	Administrative law judge
APCo	Appalachian Power Company, an electric utility subsidiary of AEP
Buckeye	Buckeye Power, Inc., an unaffiliated corporation
CAA	Clean Air Act
CAAA	Clean Air Act Amendments of 1990
Cardinal Station	Generating facility co-owned by Buckeye and OPCo
CERCLA	Comprehensive Environmental Response, Compensation and Liability Act of 1980
CG&E	The Cincinnati Gas & Electric Company, an unaffiliated utility company
Cook Plant	The Donald C. Cook Nuclear Plant (2,143 MW), owned by I&M, and located near Bridgman, Michigan
CSPCo	Columbus Southern Power Company, a public utility subsidiary of AEP
CSW Operating Agreement	Agreement, dated January 1, 1997, by and among PSO, SWEPCo, TCC and TNC governing generating capacity allocation
DOE	United States Department of Energy
Dow	The Dow Chemical Company, and its affiliates collectively, unaffiliated companies
DP&L	The Dayton Power and Light Company, an unaffiliated utility company
East zone public utility subsidiaries	APCo, CSPCo, I&M, KPCo and OPCo
EMF	Electric and Magnetic Fields
ENEC	Expanded net energy clause
EPA	United States Environmental Protection Agency
EPACT	The Energy Policy Act of 2005
ERCOT	Electric Reliability Council of Texas
FERC	Federal Energy Regulatory Commission
Fitch	Fitch Ratings, Inc.
FPA	Federal Power Act
I&M	Indiana Michigan Power Company, a public utility subsidiary of AEP
I&M Power Agreement	Unit Power Agreement Between AEGCo and I&M, dated March 31, 1982
Interconnection Agreement	Agreement, dated July 6, 1951, by and among APCo, CSPCo, I&M, KPCo and OPCo, defining the sharing of costs and benefits associated with their respective generating plants
IURC	Indiana Utility Regulatory Commission
KPCo	Kentucky Power Company, a public utility subsidiary of AEP
LLWPA	Low-Level Waste Policy Act of 1980
LPSC	Louisiana Public Service Commission
MECPL	Mutual Energy CPL, L.P., a Texas REP and former AEP affiliate
MEWTU	Mutual Energy WTU, L.P., a Texas REP and former AEP affiliate
MISO	Midwest Independent Transmission System Operator
Moody’s	Moody’s Investors Service, Inc.
MW	Megawatt
NOx	Nitrogen oxide
NPC	National Power Cooperatives, Inc., an unaffiliated corporation
NRC	Nuclear Regulatory Commission
OASIS	Open Access Same-time Information System
OATT	Open Access Transmission Tariff, filed with FERC
OCC	Corporation Commission of the State of Oklahoma
Ohio Act	Ohio electric restructuring legislation
OPCo	Ohio Power Company, a public utility subsidiary of AEP
OVEC	Ohio Valley Electric Corporation, an electric utility company in which AEP and CSPCo together own a 43.47% equity interest
PJM	PJM Interconnection, L.L.C., a regional transmission organization
PSO	Public Service Company of Oklahoma, a public utility subsidiary of AEP
PUCO	The Public Utilities Commission of Ohio
PUCT	Public Utility Commission of Texas
PUHCA	Public Utility Holding Company Act of 1935, as amended (repealed effective February 8, 2006)
RCRA	Resource Conservation and Recovery Act of 1976, as amended
REP	Retail electricity provider
Rockport Plant	A generating plant owned and partly leased by AEGCo and I&M (1,300 MW, coal-fired) located near Rockport, Indiana
RTO	Regional Transmission Organization
SEC	Securities and Exchange Commission
S&P	Standard & Poor’s Ratings Service
SO₂	Sulfur dioxide
SPP	Southwest Power Pool
STP	South Texas Project Nuclear Generating Plant, of which TCC owned 25.2%
SWEPCo	Southwestern Electric Power Company, a public utility subsidiary of AEP
TCA	Transmission Coordination Agreement dated January 1, 1997 by and among, PSO, SWEPCo, TCC, TNC and AEPSC, which allocates costs and benefits in connection with the operation of the transmission assets of the four public utility subsidiaries
TCC	AEP Texas Central Company, formerly Central Power and Light Company, a public utility subsidiary of AEP
TEA	Transmission Equalization Agreement dated April 1, 1984 by and among APCo, CSPCo, I&M, KPCo and OPCo, which allocates costs and benefits in connection with the operation of transmission assets
Texas Act	Texas electric restructuring legislation
TNC	AEP Texas North Company, formerly West Texas Utilities Company, a public utility subsidiary of AEP
Tractebel	Tractebel Energy Marketing, Inc.
TVA	Tennessee Valley Authority
VSCC	Virginia State Corporation Commission
West zone public utility subsidiaries	PSO, SWEPCo, TCC and TNC
WPCo	Wheeling Power Company
WVPSC	West Virginia Public Service Commission

FORWARD-LOOKING INFORMATION

This report made by AEP and certain of its registrant subsidiaries contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Although AEP and each of its registrant subsidiaries believe that their expectations are based on reasonable assumptions, any such statements may be influenced by factors that could cause actual outcomes and results to be materially different from those projected. Among the factors that could cause actual results to differ materially from those in the forward-looking statements are:

·	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 on 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.
·	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.

PART I

ITEM 1. BUSINESS

GENERAL

OVERVIEW AND DESCRIPTION OF SUBSIDIARIES

AEP was incorporated under the laws of the State of New York in 1906 and reorganized in 1925. It is a public utility holding company that owns, directly or indirectly, all of the outstanding common stock of its public utility subsidiaries and varying percentages of other subsidiaries.

The service areas of AEP’s public utility subsidiaries cover portions of the states of Arkansas, Indiana, Kentucky, Louisiana, Michigan, Ohio, Oklahoma, Tennessee, Texas, Virginia and West Virginia. The generating and transmission facilities of AEP’s public utility subsidiaries are interconnected and their operations are coordinated. Transmission networks are interconnected with extensive distribution facilities in the territories served. The public utility subsidiaries of AEP have traditionally provided electric service, consisting of generation, transmission and distribution, on an integrated basis to their retail customers. Restructuring legislation in Michigan, Ohio, Texas and Virginia has caused AEP public utility subsidiaries in those states to unbundle previously integrated regulated rates for their retail customers.

The AEP System is an integrated electric utility system and, as a result, the member companies of the AEP System have contractual, financial and other business relationships with the other member companies, such as participation in the AEP System savings and retirement plans and tax returns, sales of electricity and transportation and handling of fuel. The member companies of the AEP System also obtain certain accounting, administrative, information systems, engineering, financial, legal, maintenance and other services at cost from a common provider, AEPSC.

At December 31, 2005, the subsidiaries of AEP had a total of 19,630 employees. Because it is a holding company rather than an operating company, AEP has no employees. The public utility subsidiaries of AEP are:

APCo (organized in Virginia in 1926) is engaged in the generation, transmission and distribution of electric power to approximately 942,000 retail customers in the southwestern portion of Virginia and southern West Virginia, and in supplying and marketing electric power at wholesale to other electric utility companies, municipalities and other market participants. At December 31, 2005, APCo and its wholly owned subsidiaries had 2,408 employees. Among the principal industries served by APCo are coal mining, primary metals, chemicals and textile mill products. In addition to its AEP System interconnections, APCo also is interconnected with the following unaffiliated utility companies: Carolina Power & Light Company, Duke Energy Corporation and Virginia Electric and Power Company. APCo has several points of interconnection with TVA and has entered into agreements with TVA under which APCo and TVA interchange and transfer electric power over portions of their respective systems. APCo is a member of PJM.

CSPCo (organized in Ohio in 1937, the earliest direct predecessor company having been organized in 1883) is engaged in the generation, transmission and distribution of electric power to approximately 710,000 retail customers in Ohio, and in supplying and marketing electric power at wholesale to other electric utilities, municipalities and other market participants. At December 31, 2005, CSPCo had 1,178 employees. CSPCo’s service area is comprised of two areas in Ohio, which include portions of twenty-five counties. One area includes the City of Columbus and the other is a predominantly rural area in south central Ohio. Among the principal industries served are food processing, chemicals, primary metals, electronic machinery and paper products. In addition to its AEP System interconnections, CSPCo also is interconnected with the following unaffiliated utility companies: CG&E, DP&L and Ohio Edison Company. CSPCo is a member of PJM. Pursuant to an acquisition that closed on December 31, 2005, CSPCo purchased the electric utility operations of Monongahela Power Company in Ohio. As a result, in January 2006 approximately 29,000 customers in six southeastern Ohio counties, together with the transmission and distribution used to serve such customers, were added to CSPCo’s service territory.

I&M (organized in Indiana in 1925) is engaged in the generation, transmission and distribution of electric power to approximately 581,000 retail customers in northern and eastern Indiana and southwestern Michigan, and in supplying and marketing electric power at wholesale to other electric utility companies, rural electric cooperatives, municipalities and other market participants. At December 31, 2005, I&M had 2,633 employees. Among the principal industries served are primary metals, transportation equipment, electrical and electronic machinery, fabricated metal products, rubber and miscellaneous plastic products and chemicals and allied products. Since 1975, I&M has leased and operated the assets of the municipal system of the City of Fort Wayne, Indiana. In addition to its AEP System interconnections, I&M also is interconnected with the following unaffiliated utility companies: Central Illinois Public Service Company, CG&E, Commonwealth Edison Company, Consumers Energy Company, Illinois Power Company, Indianapolis Power & Light Company, Louisville Gas and Electric Company, Northern Indiana Public Service Company, PSI Energy Inc. and Richmond Power & Light Company. I&M is a member of PJM.

KPCo (organized in Kentucky in 1919) is engaged in the generation, transmission and distribution of electric power to approximately 176,000 retail customers in an area in eastern Kentucky, and in supplying and marketing electric power at wholesale to other electric utility companies, municipalities and other market participants. At December 31, 2005, KPCo had 454 employees. In addition to its AEP System interconnections, KPCo also is interconnected with the following unaffiliated utility companies: Kentucky Utilities Company and East Kentucky Power Cooperative Inc. KPCo is also interconnected with TVA. KPCo is a member of PJM.

Kingsport Power Company (organized in Virginia in 1917) provides electric service to approximately 46,000 retail customers in Kingsport and eight neighboring communities in northeastern Tennessee. Kingsport Power Company does not own any generating facilities and is a member of PJM. It purchases electric power from APCo for distribution to its customers. At December 31, 2005, Kingsport Power Company had 55 employees.

OPCo (organized in Ohio in 1907 and re-incorporated in 1924) is engaged in the generation, transmission and distribution of electric power to approximately 710,000 retail customers in the northwestern, east central, eastern and southern sections of Ohio, and in supplying and marketing electric power at wholesale to other electric utility companies, municipalities and other market participants. At December 31, 2005, OPCo had 2,220 employees. Among the principal industries served by OPCo are primary metals, rubber and plastic products, stone, clay, glass and concrete products, petroleum refining and chemicals. In addition to its AEP System interconnections, OPCo also is interconnected with the following unaffiliated utility companies: CG&E, The Cleveland Electric Illuminating Company, DP&L, Duquesne Light Company, Kentucky Utilities Company, Monongahela Power Company, Ohio Edison Company, The Toledo Edison Company and West Penn Power Company. OPCo is a member of PJM.

PSO (organized in Oklahoma in 1913) is engaged in the generation, transmission and distribution of electric power to approximately 514,000 retail customers in eastern and southwestern Oklahoma, and in supplying and marketing electric power at wholesale to other electric utility companies, municipalities, rural electric cooperatives and other market participants. At December 31, 2005, PSO had 1,176 employees. Among the principal industries served by PSO are natural gas and oil production, oil refining, steel processing, aircraft maintenance, paper manufacturing and timber products, glass, chemicals, cement, plastics, aerospace manufacturing, telecommunications, and rubber goods. In addition to its AEP System interconnections, PSO also is interconnected with Ameren Corporation, Empire District Electric Co., Oklahoma Gas & Electric Co., Southwestern Public Service Co. and Westar Energy Inc. PSO is a member of SPP.

SWEPCo (organized in Delaware in 1912) is engaged in the generation, transmission and distribution of electric power to approximately 450,000 retail customers in northeastern Texas, northwestern Louisiana and western Arkansas, and in supplying and marketing electric power at wholesale to other electric utility companies, municipalities, rural electric cooperatives and other market participants. At December 31, 2005, SWEPCo had 1,498 employees. Among the principal industries served by SWEPCo are natural gas and oil production, petroleum refining, manufacturing of pulp and paper, chemicals, food processing, and metal refining. The territory served by SWEPCo also includes several military installations, colleges, and universities. In addition to its AEP System interconnections, SWEPCo is also interconnected with CLECO Corp., Empire District Electric Co., Entergy Corp. and Oklahoma Gas & Electric Co. SWEPCo is a member of SPP.

TCC (organized in Texas in 1945) is engaged in the generation (to an extremely limited extent), transmission and sale of power to affiliated and non-affiliated entities and the distribution of electric power to approximately 729,000 retail customers through REPs in southern Texas, and (to a limited extent) in supplying and marketing electric power at wholesale to other electric utility companies and market participants. Under the Texas Act, TCC is completing the final stage of exiting the generation business and has already sold most of its generation assets, including STP. At December 31, 2005, TCC had 1,160 employees. Among the principal industries served by TCC are oil and gas extraction, food processing, apparel, metal refining, chemical and petroleum refining, plastics, and machinery equipment. In addition to its AEP System interconnections, TCC is a member of ERCOT.

TNC (organized in Texas in 1927) is engaged in the generation, transmission and sale of power to affiliated and non-affiliated entities and the distribution of electric power to approximately 189,000 retail customers through REPs in west and central Texas, and in supplying and marketing electric power at wholesale to other electric utility companies, municipalities, rural electric cooperatives and other market participants. At December 31, 2005, TNC had 387 employees. Among the principal industries served by TNC are agriculture and the manufacturing or processing of cotton seed products, oil products, precision and consumer metal products, meat products and gypsum products. The territory served by TNC also includes several military installations and correctional facilities. In addition to its AEP System interconnections, TNC is a member of ERCOT.

WPCo (organized in West Virginia in 1883 and reincorporated in 1911) provides electric service to approximately 41,000 retail customers in northern West Virginia. WPCo does not own any generating facilities. WPCo is a member of PJM. It purchases electric power from OPCo for distribution to its customers. At December 31, 2005, WPCo had 59 employees.

AEGCo (organized in Ohio in 1982) is an electric generating company. AEGCo sells power at wholesale to I&M and KPCo. AEGCo has no employees.

SERVICE COMPANY SUBSIDIARY

AEP also owns a service company subsidiary, AEPSC. AEPSC provides accounting, administrative, information systems, engineering, financial, legal, maintenance and other services at cost to the AEP System companies. The executive officers of AEP and certain of its public utility subsidiaries are employees of AEPSC. At December 31, 2005, AEPSC had 5,760 employees.

CLASSES OF SERVICE

The principal classes of service from which the public utility subsidiaries of AEP derive revenues and the amount of such revenues during the year ended December 31, 2005 are as follows:

Description		AEP System(a)		APCo		CSPCo		I&M		KPCo
	(in thousands)
UTILITY OPERATIONS:
Retail Sales
Residential Sales	$	3,486,000	$	668,259	$	555,487	$	396,739	$	143,606
Commercial Sales		2,468,000		334,511		495,771		301,998		83,261
Industrial Sales		2,211,000		363,441		127,819		345,853		127,676
Total Other Retail Sales		240,000		62,586		15,671		17,431		5,460
Total Retail		8,405,000		1,428,797		1,194,748		1,062,021		360,003
Wholesale
Off-System Sales		1,905,000		309,456		160,783		324,280		73,970
Transmission		408,000		70,337		38,439		41,099		16,663
Total Wholesale		2,313,000		379,793		199,222		365,379		90,633
Other Electric Revenues		260,000		36,580		19,086		18,466		8,222
Other Operating Revenues		186,000		8,770		4,865		33,985		1,682
Sales To Affiliates		-		322,333		124,411		412,751		70,803
Gross Utility Operating Revenues		11,164,000		2,176,273		1,542,332		1,892,602		531,343
Provision For Rate Refund		29,000		-		-		-		-
Utility Operating Revenues, Net		11,193,000		2,176,273		1,542,332		1,892,602		531,343
Investments - Gas Operations		463,000		-		-		-		-
Investments - Other		455,000		-		-		-		-
TOTAL REVENUES	$	12,111,000	$	2,176,273	$	1,542,332	$	1,892,602	$	531,343

Description		OPCo		PSO		SWEPCo			TCC(b	)		TNC(b	)
	(in thousands)
UTILITY OPERATIONS:
Retail Sales
Residential Sales	$	503,833	$	453,572	$	408,269		$	231,266		$	57,449
Commercial Sales		324,925		310,495		337,773			171,128			28,538
Industrial Sales		560,883		301,778		263,772			35,800			8,106
Total Other Retail Sales		23,469		87,160		6,892			9,327			11,221
Total Retail		1,413,110		1,153,005		1,016,706			447,521			105,314
Wholesale
Off-System Sales		388,138		77,403		230,646			134,710			218,959
Transmission		53,554		20,345		36,765			89,769			40,851
Total Wholesale		441,692		97,748		267,411			224,479			259,810
Other Electric Revenues		67,478		10,671		55,532			24,310			5,684
Other Operating Revenues		30,417		2,976		1,089			48,458			41,770
Sales to Affiliates		681,852		39,678		65,408			14,973			47,164
Gross Utility Operating Revenues		2,634,549		1,304,078		1,406,146			759,741			459,742
Provision for Rate Refund		-		-		(767	)		33,505			(854	)
Utility Operating Revenues, Net		2,634,549		1,304,078		1,405,379			793,246			458,888
Investments - Gas Operations		-		-		-			-			-
Investments - Other		-		-		-			-			-
TOTAL REVENUES	$	2,634,549	$	1,304,078	$	1,405,379		$	793,246		$	458,888

(a)	Includes revenues of other subsidiaries not shown. Intercompany transactions have been eliminated, including $270,545,000 of AEGCo’s revenues for the year ended December 31, 2005, which resulted from its wholesale business, including its marketing and trading of power.
(b)	TCC and TNC revenues from distribution and transmission services to REPs are reflected in retail classes of customer.

EPACT AND THE REPEAL OF PUHCA

EPACT was signed into law on August 8, 2005. Among other things, EPACT repealed PUHCA, effective February 8, 2006. PUHCA regulated many significant aspects of a registered holding company system, such as the AEP System. PUHCA limited the operations of a registered holding company system to a single integrated public utility system and such other businesses as were incidental or necessary to the operations of the system. PUHCA also required that transactions between associated companies in a registered holding company system be performed at cost, with limited exceptions. As a result of PUHCA’s repeal, utility holding companies, including the AEP system, are no longer limited to a single integrated public utility system. Further, utility holding companies are no longer restricted from acquiring businesses that may not be related to the utility business. Jurisdiction over certain holding company related activities has been transferred to the FERC. Specifically, the FERC has jurisdiction over the issuances of securities of our public utility subsidiaries, the acquisition of securities of utilities, the acquisition or sale of certain utility assets, and mergers with another electric utility or holding company. In addition, both FERC and state regulators will be permitted to review the books and records of any company within a holding company system.

EPACT contains key provisions affecting the electric power industry. These provisions include tax changes for the utility industry, incentives for emissions reductions and federal insurance and incentives to build new nuclear power plants. It gives the FERC “backstop” transmission siting authority as well as increased utility merger oversight. The law also provides incentives and funding for clean coal technologies and initiatives to voluntarily reduce greenhouse gases. The law required the FERC to issue certain regulations implementing EPACT within 120 days of enactment. We have reviewed the proposed rules and are participating in the public comment process. However, we cannot currently predict what impact the final rules will have on our financial condition and results of operations.

AEP-CSW MERGER

On June 15, 2000, a wholly owned merger subsidiary of AEP merged with and into CSW (now known as AEP Utilities, Inc.). As a result, CSW became a wholly owned subsidiary of AEP. The four wholly owned public utility subsidiaries of CSW - PSO, SWEPCo, TCC and TNC - became indirect wholly owned public utility subsidiaries of AEP as a result of the merger. The merger was approved by the FERC and the SEC.

On January 18, 2002, the U.S. Court of Appeals for the District of Columbia ruled that the SEC failed to properly explain how the merger met the requirements of PUHCA and remanded the case to the SEC for further review. Upon PUHCA’s repeal in February 2006, we received a letter from the SEC which formally dismissed the proceeding challenging our merger.

FINANCING

General

Companies within the AEP System generally use short-term debt to finance working capital needs. Short-term debt is also used to finance acquisitions, construction and redemption or repurchase of outstanding securities until such needs can be financed with long-term debt. In recent history, short-term funding needs have been provided for by cash on hand and AEP’s commercial paper program. Funds are made available to subsidiaries under the AEP corporate borrowing program. Certain public utility subsidiaries of AEP also sell accounts receivable to provide liquidity.

AEP’s revolving credit agreements (which backstop the commercial paper program) include covenants and events of default typical for this type of facility, including a maximum debt/capital test and a $50 million cross-acceleration provision. At December 31, 2005, AEP was in compliance with its debt covenants. With the exception of a voluntary bankruptcy or insolvency, any event of default has either or both a cure period or notice requirement before termination of the agreements. A voluntary bankruptcy or insolvency would be considered an immediate termination event. See Management’s Financial Discussion and Analysis of Results of Operations, included in the 2005 Annual Reports, under the heading entitled Financial Condition for additional information with respect to AEP’s credit agreements.

AEP’s subsidiaries have also utilized, and expect to continue to utilize, additional financing arrangements, such as leasing arrangements, including the leasing of utility assets and coal mining and transportation equipment and facilities.

Credit Ratings

In September 2005, Moody’s upgraded AEP’s senior unsecured rating to Baa2 from Baa3 and its commercial paper rating to Prime-2 from Prime-3. There were no changes in the ratings or rating outlook for AEP’s rated subsidiaries in 2005. S&P and Fitch did not change the ratings of AEP or its rated subsidiaries during 2005.

See Management’s Financial Discussion and Analysis of Results of Operations, included in the 2005 Annual Reports, under the heading entitled Financial Condition for additional information with respect to the credit ratings of the registrants other than AEGCo.

ENVIRONMENTAL AND OTHER MATTERS

General

AEP’s subsidiaries are currently subject to regulation by federal, state and local authorities with regard to air and water-quality control and other environmental matters, and are subject to zoning and other regulation by local authorities. The environmental issues that are potentially material to the AEP system include:

The CAA and CAAA and state laws and regulations (including State Implementation Plans) that require compliance, obtaining permits and reporting as to air emissions. See Management’s Financial Discussion and Analysis of Results of Operations under the headings entitled Environmental Matters - Clean Air Act Requirements and Estimated Air Quality Environmental Investments.

Litigation with the federal and certain state governments and certain special interest groups regarding whether modifications to or maintenance of certain coal-fired generating plants required additional permitting or pollution control technology, and/or whether emissions from coal-fired generating plants cause or contribute to global climate changes. See Management’s Financial Discussion and Analysis of Results of Operations under the heading entitled Environmental Matters - Environmental Litigation and Note 7 to the consolidated financial statements entitled Commitments and Contingencies, included in the 2005 Annual Reports, for further information.

Rules issued by the EPA and certain states that require substantial reductions in SO₂, mercury and NOx emissions, some of which became effective in 2005. The remaining compliance dates and proposals would take effect periodically through as late as 2018. AEP is installing (and has installed) emission control technology and is taking other measures to comply with required reductions. See Management’s Financial Discussion and Analysis of Results of Operations under the headings entitled Environmental Matters - Clean Air Act Requirements and Estimated Air Quality Environmental Investments included in the 2005 Annual Reports for further information.

CERCLA, which imposes costs for environmental remediation upon owners and previous owners of sites, as well as transporters and generators of hazardous material disposed of at such sites. AEP does not, however, anticipate that any of its currently identified CERCLA-related issues will result in material costs or penalties to the AEP System. See Note 7, included in the 2005 Annual Reports, under the heading entitled The Comprehensive Environmental Response Compensation and Liability Act (Superfund) and State Remediation for further information.

The Federal Clean Water Act, which prohibits the discharge of pollutants into waters of the United States except pursuant to appropriate permits. In July 2004, the EPA adopted a new Clean Water Act rule to reduce the number of fish and other aquatic organisms killed at once-through cooled power plants. See Management’s Financial Discussion and Analysis of Results of Operations, included in the 2005 Annual Reports, under the heading entitled Environmental Matters - Clean Water Act Regulations for additional information.

Solid and hazardous waste laws and regulations, which govern the management and disposal of certain wastes. The majority of solid waste created from the combustion of coal and fossil fuels is fly ash and other coal combustion byproducts, which the EPA has determined are not hazardous waste subject to RCRA.

In addition to imposing continuing compliance obligations, these laws and regulations authorize the imposition of substantial penalties for noncompliance, including fines, injunctive relief and other sanctions. See Management’s Financial Discussion and Analysis of Results of Operations under the heading entitled Environmental Matters, included in the 2005 Annual Reports, for further information with respect to environmental issues.

If our expenditures for pollution control technologies, replacement generation and associated operating costs are not recoverable from customers through regulated rates (in regulated jurisdictions) or market prices (in deregulated jurisdictions), those costs could adversely affect future results of operations and cash flows, and possibly financial condition.

The cost of complying with applicable environmental laws, regulations and rules is expected to be material to the AEP System.

See Management’s Financial Discussion and Analysis of Results of Operations under the heading entitled Environmental Matters and Note 7 to the consolidated financial statements entitled Commitments and Contingencies, included in the 2005 Annual Reports, for further information with respect to environmental matters.

Environmental Investments

Investments related to improving AEP System plants’ environmental performance and compliance with air and water quality standards during 2004 and 2005 and the current estimates for 2006, 2007 and 2008 are shown below, in each case excluding AFUDC. Substantial investments in addition to the amounts set forth below are expected by the System in future years in connection with the modification and addition of facilities at generating plants for environmental quality controls in order to comply with air and water quality standards which have been or may be adopted. Future investments could be significantly greater if litigation regarding whether AEP properly installed emission control equipment on its plants is resolved against any AEP subsidiaries or emissions reduction requirements are accelerated or otherwise become more onerous. See Management’s Financial Discussion and Analysis of Results of Operations under the heading entitled Environmental Matters and Note 7 to the consolidated financial statements, entitled Commitments and Contingencies, included in the 2005 Annual Reports, for more information regarding this litigation and environmental expenditures in general.

Historical and Projected Environmental Investments

		2004 Actual		2005 Actual			2006 Estimate		2007 Estimate		2008 Estimate
	(in thousands)
AEGCo	$	6,500	$	1,400		$	2,400	$	1,300	$	11,700
APCo		159,100		231,200			537,200		291,800		198,000
CSPCo		23,200		32,200			152,200		112,500		43,000
I&M		11,800		62,900			22,200		8,600		13,500
KPCo		2,700		13,100			54,800		68,900		67,800
OPCo		133,000		458,600			735,300		513,000		72,700
PSO		100		200			300		1,200		0
SWEPCo		4,000		11,900			26,600		20,700		13,100
TCC		0		0			0		0		0
TNC		0		(100	)		300		100		0
AEP System	$	340,400	$	811,400		$	1,531,300	$	1,018,100	$	419,800

Electric and Magnetic Fields

EMF are found everywhere there is electricity. Electric fields are created by the presence of electric charges. Magnetic fields are produced by the flow of those charges. This means that EMF are created by electricity flowing in transmission and distribution lines, electrical equipment, household wiring, and appliances.

A number of studies in the past several years have examined the possibility of adverse health effects from EMF. While some of the epidemiological studies have indicated some association between exposure to EMF and health effects, none has produced any conclusive evidence that EMF does or does not cause adverse health effects.

Management cannot predict the ultimate impact of the question of EMF exposure and adverse health effects. If further research shows that EMF exposure contributes to increased risk of cancer or other health problems, or if the courts conclude that EMF exposure harms individuals and that utilities are liable for damages, or if states limit the strength of magnetic fields to such a level that the current electricity delivery system must be significantly changed, then the results of operations and financial condition of AEP and its operating subsidiaries could be materially adversely affected unless these costs can be recovered from customers.

UTILITY OPERATIONS

GENERAL

Utility operations constitute most of AEP’s business operations. Utility operations include (i) the generation, transmission and distribution of electric power to retail customers and (ii) the supplying and marketing of electric power at wholesale (through the electric generation function) to other electric utility companies, municipalities and other market participants. AEPSC, as agent for AEP’s public utility subsidiaries, performs marketing, generation dispatch, fuel procurement and power-related risk management and trading activities.

ELECTRIC GENERATION

Facilities

AEP’s public utility subsidiaries own or lease approximately 35,000 MW of domestic generation. See Item 2 — Properties for more information regarding AEP’s generation capacity.

AEP Power Pool and CSW Operating Agreement

APCo, CSPCo, I&M, KPCo and OPCo are parties to the Interconnection Agreement, dated July 6, 1951, as amended (Interconnection Agreement), defining how they share the costs and benefits associated with their generating plants. This sharing is based upon each company’s “member-load-ratio.” The Interconnection Agreement has been approved by the FERC.

The member-load-ratio is calculated monthly by dividing such company’s highest monthly peak demand for the last twelve months by the aggregate of the highest monthly peak demand for the last twelve months for all east zone public utility subsidiaries. As of December 31, 2005, the member-load-ratios were as follows:

	Peak Demand (MW)	Member-Load Ratio (%)
APCo	7,080	31.2
CSPCo	4,105	18.1
I&M	4,193	18.5
KPCo	1,685	7.4
OPCo	5,638	24.8

The Ohio Act was enacted in 2001. To comply with that law CSPCo and OPCo functionally separated their generation business from their remaining operations. They plan to remain functionally separated through at least December 31, 2008 as authorized by their rate stabilization plan approved by the PUCO. See Management’s Financial Discussion and Analysis of Results of Operations, under the heading entitled Ohio Regulatory Activity included in the 2005 Annual Reports under the heading entitled Significant Factors and Note 6 to the consolidated financial statements, entitled Customer Choice and Industry Restructuring, included in the 2005 Annual Reports, for more information.

Since 1995, APCo, CSPCo, I&M, KPCo and OPCo have been parties to the AEP System Interim Allowance Agreement (Allowance Agreement), which provides, among other things, for the transfer of emission allowances associated with transactions under the Interconnection Agreement. The following table shows the net (credits) or charges allocated among the parties under the Interconnection Agreement and the Allowance Agreement during the years ended December 31, 2003, 2004 and 2005:

		2003			2004			2005
	(in thousands)
APCo	$	218,000		$	239,400		$	288,000
CSPCo		276,800			284,900			285,600
I&M		(118,800	)		(141,500	)		(197,400	)
KPCo		38,400			31,600			42,200
OPCo		(414,400	)		(414,400	)		(418,400	)

PSO, SWEPCo, TCC, TNC, and AEPSC are parties to a Restated and Amended Operating Agreement originally dated as of January 1, 1997 (CSW Operating Agreement), which has been approved by the FERC. The CSW Operating Agreement requires the west zone public utility subsidiaries to maintain adequate annual planning reserve margins and requires the subsidiaries that have capacity in excess of the required margins to make such capacity available for sale to other AEP west zone public utility subsidiaries as capacity commitments. Parties are compensated for energy delivered to recipients based upon the deliverer’s incremental cost plus a portion of the recipient’s savings realized by the purchaser that avoids the use of more costly alternatives. Revenues and costs arising from third party sales in their region are generally shared based on the amount of energy each west zone public utility subsidiary contributes that is sold to third parties. The separation of the generation business undertaken by TCC and TNC to comply with the Texas Act has made the business operations of TCC and TNC incompatible with the CSW Operating Agreement. We have applied with the FERC to remove these two companies from the CSW Operating Agreement. Upon approval (or earlier for TCC, if the sale of its interest in the Oklaunion plant occurs first), these companies will no longer supply generating capacity under the CSW Operating Agreement.

The following table shows the net (credits) or charges allocated among the parties under the CSW Operating Agreement during the years ended December 31, 2003, 2004 and 2005:

		2003			2004			2005
	(in thousands)
PSO	$	44,000		$	55,000		$	27,600
SWEPCo		(46,600	)		(59,800	)<