10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001

or

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

Commission File Number	Registrant, State of Incorporation, Address and Telephone Number	I.R.S. Employer Identification No.
1-11377	CINERGY CORP. (A Delaware Corporation) 139 East Fourth Street Cincinnati, Ohio 45202 (513) 421-9500	31-1385023
1-1232	THE CINCINNATI GAS & ELECTRIC COMPANY (An Ohio Corporation) 139 East Fourth Street Cincinnati, Ohio 45202 (513) 421-9500	31-0240030
1-3543	PSI ENERGY, INC. (An Indiana Corporation) 1000 East Main Street Plainfield, Indiana 46168 (513) 421-9500	35-0594457
2-7793	THE UNION LIGHT, HEAT AND POWER COMPANY (A Kentucky Corporation) 139 East Fourth Street Cincinnati, Ohio 45202 (513) 421-9500	31-0473080

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     

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

The Union Light, Heat and Power Company meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing its company specific information with the reduced disclosure format specified in General Instruction H(2) of Form 10-Q.

As of April 30, 2001, shares of Common Stock outstanding for each registrant were as listed:

Registrant	Description	Shares
Cinergy Corp.	Par value $.01 per share	159,008,514
The Cincinnati Gas & Electric Company	Par value $8.50 per share	89,663,086
PSI Energy, Inc.	Without par value, stated value $.01 per share	53,913,701
The Union Light, Heat and Power Company	Par value $15.00 per share	585,333

TABLE OF CONTENTS

Item
Number

PART 1 FINANCIAL INFORMATION

  1         Financial Statements
                 Cinergy Corp.
                    Consolidated Statements of Income
                    Consolidated Balance Sheets
                    Consolidated Statements of Changes in Common Stock Equity
                    Consolidated Statements of Cash Flows

                 The Cincinnati Gas & Electric Company
                    Consolidated Statements of Income and Comprehensive Income
                    Consolidated Balance Sheets
                    Consolidated Statements of Cash Flows

                 PSI Energy, Inc.
                    Consolidated Statements of Income and Comprehensive Income
                    Consolidated Balance Sheets
                    Consolidated Statements of Cash Flows

                 The Union Light, Heat and Power Company
                    Statements of Income
                    Balance Sheets
                    Statements of Cash Flows

             Notes to Financial Statements

             Cautionary Statements Regarding Forward-Looking Information

  2         Management’s Discussion and Analysis of Financial Condition and
                Results of Operations
                 Introduction
                 Organization
                 Liquidity
                 Capital Resources
                 First Quarter 2001 Results of Operations- Historical
                 Results of Operations- Future

  3         Quantitative and Qualitative Disclosures About Market Risk

PART II OTHER INFORMATION

  1         Legal Proceedings

  4         Submissions of Matters to a Vote of Security Holders

  6         Exhibits and Reports on Form 8-K

             Signatures

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                                  CINERGY CORP.
                        CONSOLIDATED STATEMENTS OF INCOME

                                                                Quarter Ended
                                                                   March 31
                                                       2001                  2000
                                                         (dollars in thousands,
                                                        except per share amounts)
                                                   (unaudited)
Operating Revenues
   Electric                                        $1,874,685           $1,066,697
   Gas                                              1,813,822              498,728
   Other                                               18,022               17,652
        Total Operating Revenues                    3,706,529            1,583,077


Operating Expenses
   Fuel and purchased and exchanged power           1,345,881              500,778
   Gas purchased                                    1,710,610              406,145
   Operation and maintenance                          249,490              252,927
   Depreciation and amortization                       88,564               82,631
   Taxes other than income taxes                       63,092               66,131
        Total Operating Expenses                    3,457,637            1,308,612


Operating Income                                      248,892              274,465



Equity in Earnings of Unconsolidated Subsidiaries      (1,239)               1,842
Miscellaneous - Net                                    (4,694)              (2,503)
Interest                                               63,550               51,430


Income Before Taxes                                   179,409              222,374


Income Taxes                                           58,304               82,572
   Preferred Dividend Requirements of Subsidiaries        858                1,363
Net Income                                          $ 120,247            $ 138,439


Average Common Shares Outstanding                     158,989              158,923


Earnings Per Common Share
   Net Income                                       $    0.76            $    0.87


Earnings Per Common Share - Assuming Dilution
   Net Income                                       $    0.75            $    0.87


Dividends Declared Per Common Share                 $    0.45            $    0.45

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

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                                  CINERGY CORP.
                           CONSOLIDATED BALANCE SHEETS

ASSETS
                                                             March 31       December 31
                                                               2001             2000
                                                           (unaudited)
                                                              (dollars in thousands)

Current Assets
   Cash and cash equivalents                                $  187,491      $   93,054
   Restricted deposits                                           8,021           4,195
   Notes receivable                                             31,655          35,945
   Accounts receivable less accumulated provision for
        doubtful accounts of $39,480 at March 31, 2001,
        and $29,951 at December 31, 2000                     1,853,313       1,623,402
   Materials, supplies, and fuel - at average cost             161,952         159,340
   Energy risk management current assets (Note 1(c))         1,044,763       1,413,281
   Prepayments and other                                       133,028         129,666
                Total Current Assets                         3,420,223       3,458,883


Property, Plant, and Equipment  - at Cost
   Utility plant in service                                  7,772,840       7,681,612
   Construction work in progress                               358,452         323,350
        Total Utility Plant                                  8,131,292       8,004,962
   Non-regulated property, plant, and equipment              3,975,889       3,401,203
   Accumulated depreciation                                  4,642,983       4,586,089
                Net Property, Plant, and Equipment           7,464,198       6,820,076



Other Assets
   Regulatory assets                                           972,705         976,614
   Investments in unconsolidated subsidiaries                  529,339         538,322
   Energy risk management non-current assets (Note 1(c))        65,984          37,228
   Other investments                                           150,327         146,986
   Other                                                       334,760         351,619
                Total Other Assets                           2,053,115       2,050,769


Total Assets                                               $12,937,536     $12,329,728


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

                                  CINERGY CORP.
                           CONSOLIDATED BALANCE SHEETS

LIABILITIES AND SHAREHOLDERS' EQUITY
                                                                           March 31         December 31
                                                                             2001              2000
                                                                          (unaudited)
                                                                             (dollars in thousands)

Current Liabilities
   Accounts payable                                                         $1,708,847      $1,496,494
   Accrued taxes                                                               286,263         247,006
   Accrued interest                                                             59,211          47,351
   Notes payable and other short-term obligations                            1,809,080       1,128,657
   Long-term debt due within one year  (Note 2)                                 44,149          40,545
   Energy risk management current liabilities (Note 1(c))                    1,073,819       1,456,375
   Other                                                                        81,078         106,679
               Total Current Liabilities                                     5,062,447       4,523,107



Non-Current Liabilities
   Long-term debt (Note 2)                                                   2,887,702       2,876,367
   Deferred income taxes                                                     1,190,221       1,185,968
   Unamortized investment tax credits                                          134,134         137,965
   Accrued pension and other postretirement benefit costs                      410,308         404,764
   Energy risk management non-current liabilities (Note 1(c))                  121,529          97,507
   Other                                                                       233,209         252,255
               Total Non-Current Liabilities                                 4,977,103       4,954,826


Total Liabilities                                                            10,039,550      9,477,933


Cumulative Preferred Stock of Subsidiaries
   Not subject to mandatory redemption                                          62,834          62,834


Common Stock Equity
   Common Stock -  $.01 par value; authorized shares  -  600,000,000;
     outstanding shares - 159,001,531 at March 31, 2001 and 158,967,661
     at December 31, 2000                                                        1,590           1,590
   Paid-in capital                                                           1,619,366       1,619,153
   Retained earnings                                                         1,229,552       1,179,113
   Accumulated other comprehensive loss                                        (15,356)        (10,895)
               Total Common Stock Equity                                     2,835,152       2,788,961


Commitments and Contingencies (Note 3)

Total Liabilities and Shareholders' Equity                                 $12,937,536     $12,329,728

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

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                                  CINERGY CORP.
            CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY

                                                                                                   Accumulated     Total
                                                                                                      Other       Common
                                                                    Common   Paid-in   Retained   Comprehensive    Stock
                                                                    Stock    Capital   Earnings   Income (Loss)   Equity
                                                                                   (dollars in thousands)
                                                                                           (unaudited)

Quarter Ended March 31, 2001

Balance at January 1, 2001                                         $1,590   $1,619,153  $1,179,113  $ (10,895)  $2,788,961

Comprehensive income:
   Net income                                                                              120,247                 120,247
  Other comprehensive income (loss), net of tax effect of ($817)
        Foreign currency translation adjustment                                                           696          696
     Minimum pension liability adjustment                                                                  91           91
     Unrealized gain (loss) on investment trusts                                                         (683)        (683)
     FAS 133 transition charge (Note 1(b))                                                             (2,500)      (2,500)
     Cash flow hedges (Note 1(b))                                                                      (2,065)      (2,065)
   Total comprehensive income                                                                                      115,786

Issuance of 33,870 shares of common stock-net                                      826                                 826
Treasury shares purchased                                                       (2,191)                             (2,191)
Treasury shares reissued                                                           378                                 378
Dividends on common stock ($.45 per share)                                                 (71,541)                (71,541)
Other                                                                            1,200       1,733                   2,933

Ending balance at March 31, 2001                                   $1,590   $1,619,366  $1,229,552  $ (15,356)  $2,835,152

Quarter Ended March 31, 2000

Balance at January 1, 2000                                         $1,589   $1,597,554  $1,064,319  $  (9,741)  $2,653,721

Comprehensive income:
  Net income                                                                               138,439                 138,439
  Other comprehensive income (loss), net of tax effect of $534
     Foreign currency translation adjustment                                                           (1,728)      (1,728)
     Unrealized gain (loss) on investment trusts                                                          957          957
   Total comprehensive income                                                                                      137,668

Treasury shares reissued                                                         4,570                               4,570
Dividends on common stock ($.45 per share)                                                 (71,077)                (71,077)
Other                                                                            1,972          14                   1,986

Ending balance at March 31, 2000                                   $1,589   $1,604,096  $1,131,695  $ (10,512)  $2,726,868


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

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                                  CINERGY CORP.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                        Quarter Ended
                                                                                          March 31
                                                                                2001             2000
                                                                                (dollars in thousands)
                                                                                      (unaudited)
Operating Activities
   Net income                                                                  $120,247        $138,439
   Items providing or (using) cash currently:
     Depreciation and amortization                                               88,564          82,631
     Unrealized gain from energy risk management activities                     (18,772)        (18,182)
     Deferred income taxes and investment tax credits - net                      (1,418)           (841)
     Equity in earnings of unconsolidated subsidiaries                            1,239          (1,842)
     Allowance for equity funds used during construction                         (1,143)           (902)
     Regulatory assets - net                                                      4,556           6,853
     Changes in other current assets and current liabilities:
        Restricted deposits                                                      (1,375)            (30)
        Accounts and notes receivable, net of reserves on receivables sold     (231,528)         35,226
        Materials, supplies, and fuel                                            (2,605)         30,763
        Accounts payable                                                        209,709        (130,662)
        Accrued taxes and interest                                               51,117          39,628
     Other items-net                                                            (33,289)          7,072

               Net cash provided by operating activities                        185,302         188,153

Financing Activities
   Change in short-term debt                                                    680,423          89,127
   Issuance of long-term debt                                                    28,148               -
   Redemption of long-term debt                                                 (27,599)           (594)
   Retirement of preferred stock of subsidiaries                                      -            (105)
   Issuance of common stock                                                         826               -
   Dividends on common stock                                                    (71,541)        (71,077)

               Net cash provided by financing activities                        610,257          17,351

Investing Activities
   Construction expenditures (less allowance for equity funds used during
     construction)                                                             (187,184)       (102,635)
   Acquisitions and other investments                                          (513,938)       (108,184)

               Net cash used in investing activities                           (701,122)       (210,819)

Net increase (decrease) in cash and cash equivalents                             94,437          (5,315)

Cash and cash equivalents at beginning of period                                 93,054          81,919

Cash and cash equivalents at end of period                                     $187,491        $ 76,604


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

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                      THE CINCINNATI GAS & ELECTRIC COMPANY
           CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

                                                                              Quarter Ended
                                                                                March 31
                                                                    2001           2000
                                                                     (dollars in thousands)
                                                                          (unaudited)

Operating Revenues
   Electric                                                       $ 932,745      $538,018
   Gas                                                              325,093       178,462
     Total Operating Revenues                                     1,257,838       716,480


Operating Expenses
   Fuel and purchased and exchanged power                           660,680       240,352
   Gas purchased                                                    238,291        89,616
   Operation and maintenance                                        111,625       112,283
   Depreciation and amortization                                     45,607        43,757
   Taxes other than income taxes                                     47,371        49,931
     Total Operating Expenses                                     1,103,574       535,939


Operating Income                                                    154,264       180,541


Miscellaneous - Net                                                  (2,404)       (1,973)
Interest                                                             27,396        25,749


Income Before Taxes                                                 124,464       152,819


Income Taxes                                                         42,889        56,855

Net Income                                                        $  81,575      $ 95,964

Preferred Dividend Requirement                                          211           213

Net Income Applicable to Common Stock                             $  81,364      $ 95,751


Net Income                                                        $  81,575      $ 95,964

Other Comprehensive Income (Loss), Net of Tax Effect of $2,537       (3,915)            -

Comprehensive Income                                              $  77,660      $ 95,964

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

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                      THE CINCINNATI GAS & ELECTRIC COMPANY
                           CONSOLIDATED BALANCE SHEETS

ASSETS
                                                            March 31      December 31
                                                              2001           2000
                                                           (unaudited)
                                                             (dollars in thousands)

Current Assets
   Cash and cash equivalents                                 $  18,961     $  20,637
   Restricted deposits                                             604           160
   Notes receivable from affiliated companies                  186,393        91,732
   Accounts receivable less accumulated provision for
     doubtful accounts of $27,020 at March 31, 2001,
     and $19,044 at December 31, 2000                          657,202       494,501
   Accounts receivable from affiliated companies                 8,648        26,743
   Materials, supplies, and fuel - at average cost              85,555        99,061
   Energy risk management current assets (Note 1(c))           515,601       697,488
   Prepayments and other                                        43,940        39,320
                Total Current Assets                         1,516,904     1,469,642

Property, Plant, and Equipment - at Cost
   Utility plant in service
     Electric                                                1,958,691     1,905,795
     Gas                                                       883,495       865,303
     Common                                                    212,427       211,424
       Total Utility Plant In Service                        3,054,613     2,982,522
   Construction work in progress                                95,691       132,577
       Total Utility Plant                                   3,150,304     3,115,099
   Non-regulated property, plant, and equipment              3,201,873     3,181,076
   Accumulated depreciation                                  2,473,781     2,444,867
                Net Property, Plant, and Equipment           3,878,396     3,851,308

Other Assets
   Regulatory assets                                           510,219       502,328
   Energy risk management non-current assets                    23,684         7,000
   Other                                                       138,390       156,692
                Total Other Assets                             672,293       666,020


Total Assets                                                $6,067,593    $5,986,970

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

                      THE CINCINNATI GAS & ELECTRIC COMPANY
                           CONSOLIDATED BALANCE SHEETS

LIABILITIES AND SHAREHOLDER'S EQUITY
                                                                         March 31      December 31
                                                                           2001           2000
                                                                       (unaudited)
                                                                           (dollars in thousands)

Current Liabilities
   Accounts payable                                                       $ 667,069     $ 543,006
   Accounts payable to affiliated companies                                  20,564        23,927
   Accrued taxes                                                            165,819       152,750
   Accrued interest                                                          24,098        17,645
   Notes payable and other short-term obligations                           184,000       264,000
   Notes payable to affiliated companies                                    376,190       163,478
   Long-term debt due within one year                                         1,200         1,200
   Energy risk management current liabilities (Note 1(c))                   529,087       717,902
   Other                                                                     41,254        37,603
       Total Current Liabilities                                          2,009,281     1,921,511


Non-Current Liabilities
   Long-term debt                                                         1,205,147     1,205,061
   Deferred income taxes                                                    728,800       735,799
   Unamortized investment tax credits                                        95,611        98,624
   Accrued pension and other postretirement benefit costs                   163,544       164,901
   Energy risk management non-current liabilities (Note 1(c))                40,885        26,337
   Other                                                                    102,096       118,421
       Total Non-Current Liabilities                                      2,336,083     2,349,143


Total Liabilities                                                         4,345,364     4,270,654


Cumulative Preferred Stock
   Not subject to mandatory redemption                                       20,486        20,486


Common Stock Equity
   Common Stock - $8.50 par value; authorized shares-120,000,000;
     outstanding shares-89,663,086 at March 31, 2001 and December 31,
     2000                                                                   762,136       762,136
   Paid-in capital                                                          565,777       565,777
   Retained earnings                                                        378,739       368,911
   Accumulated other comprehensive loss                                      (4,909)         (994)
       Total Common Stock Equity                                          1,701,743     1,695,830


Commitments and Contingencies (Note 3)

Total Liabilities and Shareholder's Equity                               $6,067,593    $5,986,970

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

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                      THE CINCINNATI GAS & ELECTRIC COMPANY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                Quarter Ended
                                                                                  March 31
                                                                              2001          2000
                                                                             (dollars in thousands)
                                                                                  (unaudited)

Operating Activities
   Net income                                                             $   81,575    $   95,964
   Items providing or (using) cash currently:
    Depreciation and amortization                                             45,607        43,757
    Deferred income taxes and investment tax credits - net                    (5,890)        1,660
    Unrealized gain from energy risk management activities                    (9,064)      (10,542)
    Allowance for equity funds used during construction                         (427)         (734)
    Regulatory assets - net                                                   (6,530)        4,182
    Changes in other current assets and current liabilities:
       Restricted deposits                                                      (444)            -
       Accounts and notes receivable, net of reserves on receivables sold   (243,936)       12,569
       Materials, supplies, and fuel                                          13,506        13,254
       Accounts payable                                                      120,700       (68,046)
       Accrued taxes and interest                                             19,522        22,456
    Other items-net                                                           (6,000)       (2,664)

               Net cash provided by operating activities                       8,619       111,856

Financing Activities
   Change in short-term debt                                                 132,712        (7,199)
   Retirement of preferred stock                                                   -           (68)
   Dividends on preferred stock                                                 (212)         (214)
   Dividends on common stock                                                 (71,535)      (53,600)

               Net cash provided by (used in) financing activities            60,965       (61,081)

Investing Activities
   Construction expenditures (less allowance for equity funds used during
     construction)                                                           (71,260)      (56,143)

               Net cash used in investing activities                         (71,260)      (56,143)

Net decrease in cash and cash equivalents                                     (1,676)       (5,368)

Cash and cash equivalents at beginning of period                              20,637         9,554

Cash and cash equivalents at end of period                                $   18,961    $    4,186

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

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                                PSI ENERGY, INC.
           CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

                                                                   Quarter Ended
                                                                      March 31
                                                                  2001        2000
                                                               (dollars in thousands)
                                                                    (unaudited)
Operating Revenues
      Electric                                                  $915,544    $533,752


Operating Expenses
    Fuel and purchased and exchanged power                       688,091     271,429
    Operation and maintenance                                     90,862     111,343
    Depreciation and amortization                                 36,793      34,692
    Taxes other than income taxes                                 14,984      14,609
     Total Operating Expenses                                    830,730     432,073


Operating Income                                                  84,814     101,679


Miscellaneous - Net                                               (1,770)       (859)
Interest                                                          17,940      20,084


Income Before Taxes                                               65,104      80,736


Income Taxes                                                      23,672      30,523

Net Income                                                      $ 41,432    $ 50,213

Preferred Dividend Requirement                                       647       1,150

Net Income Applicable to Common Stock                           $ 40,785    $ 49,063


Net Income                                                      $ 41,432    $ 50,213

Other Comprehensive Income (Loss), Net of Tax Effect of $134        (465)        632

Comprehensive Income                                            $ 40,967    $ 50,845

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

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                                PSI ENERGY, INC.
                           CONSOLIDATED BALANCE SHEETS

ASSETS
                                                                          March 31    December 31
                                                                            2001          2000
                                                                          (unaudited)
                                                                            (dollars in thousands)
Current Assets
   Cash and cash equivalents                                             $   7,098   $   1,311
   Restricted deposits                                                         810         341
   Notes receivable                                                              3           3
   Notes receivable from affiliated companies                                6,618      12,798
   Accounts receivable less accumulated provision for doubtful accounts
     of $10,342 at March 31, 2001, and $9,317  at December 31, 2000        655,218     464,930
   Accounts receivable from affiliated companies                             4,843       5,385
   Materials, supplies, and fuel - at average cost                          72,495      53,838
   Energy risk management current assets (Note 1(c))                       515,601     697,488
   Prepayments and other                                                    49,308      49,049
                Total Current Assets                                     1,311,994   1,285,143


Property, Plant, and Equipment - at Cost
   Utility plant in service                                              4,718,227   4,699,090
   Construction work in progress                                           262,761     190,773
       Total Utility Plant                                               4,980,988   4,889,863
   Accumulated depreciation                                              2,134,149   2,110,747
                Net Property, Plant, and Equipment                       2,846,839   2,779,116


Other Assets
   Regulatory assets                                                       462,486     474,286
   Energy risk management non-current assets (Note 1(c))                    23,684       7,000
   Other investments                                                        53,175      51,343
   Other                                                                    37,251      32,887
                Total Other Assets                                         576,596     565,516


Total Assets                                                            $4,735,429  $4,629,775

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

                                PSI ENERGY, INC.
                           CONSOLIDATED BALANCE SHEETS

LIABILITIES AND SHAREHOLDER'S EQUITY
                                                                    March 31    December 31
                                                                      2001         2000
                                                                   (unaudited)
                                                                    (dollars in thousands)

Current Liabilities
   Accounts payable                                                 $ 580,865   $ 392,206
   Accounts payable to affiliated companies                            23,555      32,448
   Accrued taxes                                                      115,592      80,995
   Accrued interest                                                    18,782      23,708
   Notes payable and other short-term obligations                     152,600     188,391
   Notes payable to affiliated companies                              237,277     146,381
   Long-term debt due within one year                                  42,423      38,325
   Energy risk management current liabilities (Note 1(c))             529,087     717,902
   Other                                                               13,365      12,748
       Total Current Liabilities                                    1,713,546   1,633,104


Non-Current Liabilities
   Long-term debt  (Note 2)                                         1,050,491   1,074,255
   Deferred income taxes                                              461,820     458,593
   Unamortized investment tax credits                                  38,523      39,341
   Accrued pension and other postretirement benefit costs             147,499     143,990
   Energy risk management non-current liabilities (Note 1(c))          40,885      26,337
   Other                                                               66,302      78,112
       Total Non-Current Liabilities                                1,805,520   1,820,628


Total Liabilities                                                   3,519,066   3,453,732


Cumulative Preferred Stock
   Not subject to mandatory redemption                                 42,348      42,348


Common Stock Equity
   Common Stock - without par value;  $.01 stated value;
     authorized shares-60,000,000; outstanding shares-53,913,701
     at March 31, 2001 and December 31, 2000                              539         539
   Paid-in capital                                                    413,523     413,523
   Retained earnings                                                  760,938     720,153
   Accumulated other comprehensive loss                                  (985)       (520)
       Total Common Stock Equity                                    1,174,015   1,133,695


Commitments and Contingencies (Note 3)

Total Liabilities and Shareholder's Equity                         $4,735,429  $4,629,775

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

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                                PSI ENERGY, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                        Quarter Ended
                                                                                           March 31
                                                                                   2001         2000
                                                                                 (dollars in thousands)
                                                                                      (unaudited)

Operating Activities
   Net income                                                                  $  41,432    $  50,213
   Items providing or (using) cash currently:
     Depreciation and amortization                                                36,793       34,692
     Deferred income taxes and investment tax credits - net                        2,467       (2,166)
     Unrealized gain from energy risk management activities                       (9,064)     (10,542)
     Allowance for equity funds used during construction                            (716)        (168)
     Regulatory assets - net                                                      11,086        2,671
     Changes in other current assets and current liabilities:
        Restricted deposits                                                         (469)         (52)
        Accounts and notes receivable, net of reserves on receivables sold      (177,278)      48,533
        Materials, supplies, and fuel                                            (18,657)      17,804
        Accounts payable                                                         179,766       42,897
        Accrued taxes and interest                                                29,671       (7,637)
     Other items - net                                                           (20,114)      (4,027)

               Net cash provided by operating activities                          74,917      172,218

Financing Activities
   Change in short-term debt                                                      55,105      (83,796)
   Redemption of long-term debt                                                  (19,825)        (150)
   Retirement of preferred stock                                                       -          (37)
   Dividends on preferred stock                                                     (647)      (1,150)
   Dividends on common stock                                                           -      (18,000)

               Net cash provided by (used in) financing activities                34,633     (103,133)

Investing Activities
   Construction expenditures (less allowance for equity funds used during       (101,931)
     construction)                                                                            (51,091)
   Other investments                                                              (1,832)      (2,919)

               Net cash used in investing activities                            (103,763)     (54,010)

Net increase in cash and cash equivalents                                          5,787       15,075

Cash and cash equivalents at beginning of period                                   1,311        8,842

Cash and cash equivalents at end of period                                     $   7,098    $  23,917

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

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                     THE UNION LIGHT, HEAT AND POWER COMPANY
                              STATEMENTS OF INCOME

                                                                  Quarter Ended
                                                                     March 31
                                                               2001            2000
                                                               (dollars in thousands)
                                                                    (unaudited)

Operating Revenues
   Electric                                                  $  54,602       $ 49,288
   Gas                                                          59,162         33,487
     Total Operating Revenues                                  113,764         82,775


Operating Expenses
   Electricity purchased from parent company for resale         36,844         35,211
   Gas purchased                                                42,912         17,994
   Operation and maintenance                                     9,247          9,228
   Depreciation and amortization                                 4,165          3,736
   Taxes other than income taxes                                 1,107          1,098
     Total Operating Expenses                                   94,275         67,267


Operating Income                                                19,489         15,508


Miscellaneous - Net                                               (469)          (191)
Interest                                                         1,693          1,571


Income Before Taxes                                             17,327         13,746


Income Taxes                                                     3,472          5,600

Net Income                                                   $  13,855       $  8,146

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

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                                      THE UNION LIGHT, HEAT AND POWER COMPANY
                                                  BALANCE SHEETS


ASSETS
                                                                   March 31    December 31
                                                                     2001         2000
                                                                  (unaudited)
                                                                   (dollars in thousands)

Current Assets
   Cash and cash equivalents                                        $  6,896    $  6,460
    Accounts receivable less accumulated provision for
     doubtful accounts of $2,262 at March 31, 2001, and $1,492 at
     December 31, 2000                                                22,844      28,518
   Accounts receivable from affiliated companies                         697       2,279
   Materials, supplies, and fuel - at average cost                     2,982       6,300
   Prepayments and other                                                 137         274
                Total Current Assets                                  33,556      43,831


Property, Plant, and Equipment - at Cost
   Utility plant in service
     Electric                                                        241,668     234,482
     Gas                                                             186,913     184,878
     Common                                                           44,949      44,603
         Total Utility Plant In Service                              473,530     463,963
   Construction work in progress                                      12,078      15,069
         Total Utility Plant                                         485,608     479,032
   Accumulated depreciation                                          172,879     169,403
                Net Property, Plant, and Equipment                   312,729     309,629


Other Assets
   Regulatory assets                                                  10,362      10,177
   Other                                                               6,614       5,110
                Total Other Assets                                    16,976      15,287


Total Assets                                                        $363,261    $368,747

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

                     THE UNION LIGHT, HEAT AND POWER COMPANY
                                 BALANCE SHEETS



LIABILITIES AND SHAREHOLDER'S EQUITY
                                                                  March 31    December 31
                                                                    2001         2000
                                                                  (unaudited)
                                                                    (dollars in thousands)

Current Liabilities
   Accounts payable                                                $ 10,426    $ 24,249
   Accounts payable to affiliated companies                          13,629      20,192
   Accrued taxes                                                      1,098      (5,760)
   Accrued interest                                                   1,188       1,215
   Notes payable to affiliated companies                             24,275      29,403
   Other                                                             13,846      11,669
       Total Current Liabilities                                     64,462      80,968


Non-Current Liabilities
   Long-term debt                                                    74,597      74,589
   Deferred income taxes                                             35,625      35,822
   Unamortized investment tax credits                                 3,615       3,684
   Accrued pension and other postretirement benefit costs            13,007      13,041
   Amounts due to customers - income taxes                            7,439       7,439
   Other                                                              3,474       6,016
       Total Non-Current Liabilities                                137,757     140,591


Total Liabilities                                                   202,219     221,559


Common Stock Equity
   Common Stock - $15.00 par value; authorized shares-1,000,000;
     outstanding shares-585,333 at March 31, 2001
     and December 31, 2000                                            8,780       8,780
   Paid-in capital                                                   20,305      20,305
   Retained earnings                                                131,957     118,103
       Total Common Stock Equity                                    161,042     147,188


Commitments and Contingencies (Note 3)

Total Liabilities and Shareholder's Equity                         $363,261    $368,747

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

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

                                                                                   Quarter Ended
                                                                                     March 31
                                                                                  2001        2000
                                                                                (dollars in thousands)
                                                                                    (unaudited)

Operating Activities
   Net income                                                                   $ 13,855    $ 8,146
   Items providing or (using) cash currently:
     Depreciation and amortization                                                 4,165      3,736
     Deferred income taxes and investment tax credits - net                         (266)      (536)
     Allowance for equity funds used during construction                              14          -
     Regulatory assets - net                                                        (270)       169
     Changes in other current assets and current liabilities:
         Accounts and notes receivable, net of reserves on receivables sold        6,474      7,351
         Materials, supplies, and fuel                                             3,318      4,438
         Accounts payable                                                        (20,386)    (8,242)
         Accrued taxes and interest                                                6,831      5,367
     Other items - net                                                            (1,112)     3,514

               Net cash provided by operating activities                          12,623     23,943

Financing Activities
   Change in short-term debt                                                      (5,128)   (18,615)

               Net cash used in financing activities                              (5,128)   (18,615)

Investing Activities
   Construction expenditures (less allowance for equity funds used during
     construction)                                                                (7,059)    (7,069)

               Net cash used in investing activities                              (7,059)    (7,069)

Net increase (decrease) in cash and cash equivalents                                 436     (1,741)

Cash and cash equivalents at beginning of period                                   6,460      3,641

Cash and cash equivalents at end of period                                      $  6,896    $ 1,900

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

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NOTES TO FINANCIAL STATEMENTS

In this report Cinergy (which includes Cinergy Corp. and all of our regulated and non-regulated subsidiaries) is, at times, referred to in the first person as “we,” “our,” or “us.”

1.     Summary of Significant Accounting Policies

(a)     Presentation     Our Financial Statements reflect all adjustments (which include normal, recurring adjustments) necessary in the opinion of the registrants for a fair presentation of the interim results. These statements should be read in conjunction with the Financial Statements and the notes thereto included in the combined 2000 Form 10-K of the registrants. Certain amounts in the 2000 Financial Statements have been reclassified to conform to the 2001 presentation.

(b)     Financial Derivatives     We use derivative financial instruments to manage:

• funding costs;
• exposure to fluctuations in interest rates; and
• exposure to foreign currency exchange rates.

We account for derivatives under Statement of Financial Accounting Standards No. 133, Accounting for Derivatives and Hedging Activities (Statement 133), which requires all derivatives that are not exempted to be accounted for at fair value. Changes in the derivative’s fair value must be recognized currently in earnings unless specific hedge accounting criteria are met. Gains and losses on derivatives that qualify as hedges can (a) offset related fair value changes on the hedged item in the income statement for fair value hedges; or (b) be recorded in other comprehensive income for cash flow hedges. To qualify for hedge accounting, financial instruments must be designated as a hedge (for example, an offset of foreign exchange or interest rate risks) at the inception of the contract and must be effective at reducing the risk associated with the hedged item. Accordingly, changes in the fair values or cash flows of instruments designated as hedges must be highly correlated with changes in the fair values or cash flows of the related hedged items.

From time to time, we may use foreign exchange forward contracts (for example, a contract obligating one party to buy, and the other to sell, a specified quantity of a foreign currency for a fixed price at a future date) and currency swaps (for example, a contract whereby two parties exchange principal and interest cash flows denominated in different currencies) to hedge foreign currency denominated purchase and sale commitments (cash flow hedges) and certain of our net investments in foreign operations (net investment hedges) against currency exchange rate fluctuations. At March 31, 2001, the fair value, and ineffectiveness, of instruments that we have classified as foreign currency cash flow hedges was not material. Reclassification of unrealized gains or losses on foreign currency cash flow hedges from other comprehensive income occurs when the underlying hedged item is recorded in income.

We also use interest rate swaps (an agreement by two parties to exchange fixed-interest rate cash flows for floating-interest rate cash flows). Through December 31, 2000, we utilized the accrual method to account for these interest rate swaps. Accordingly, gains and losses were calculated based on the difference between the fixed-rate and the floating-rate interest amounts, using agreed upon notional amounts. These gains and losses were recognized in our Consolidated Statements of Income as a component of Interest over the life of the agreement. Effective with our adoption of Statement 133 in the first quarter of 2001, we began accounting for interest rate swaps using mark-to-market accounting and are assessing the effectiveness of any swaps used in hedging activities. At March 31, 2001, the fair value, and ineffectiveness, of instruments that we have classified as cash flow hedges of variable rate debt instruments was not material. Reclassification of unrealized gains or losses on cash flow hedges of variable rate debt instruments occurs from other comprehensive income as interest payments are made on the debt instrument. See Note 1(d) below for further discussion of Statement 133.

(c)     Energy Marketing and Trading      We market and trade electricity, natural gas, and other energy-related products. We designate transactions as physical or trading at the time they are originated. Physical refers to our intent and projected ability to fulfill substantially all obligations from company-owned assets. We sell generation to third parties when it is not required to meet native load requirements (end-use customers within our public utilities companies’ franchise service territory). All other energy contracts (including most natural gas contracts) are classified as trading. We account for physical transactions on a settlement basis and trading transactions using the mark-to-market method of accounting, consistent with our application of EITF 98-10, Accounting for Contracts Involved in Energy Trading and Risk Management Activities. To the extent that physical transactions constitute derivatives under Statement 133, we typically apply the normal purchases and sales exemption. To the extent trading transactions constitute derivatives under Statement 133, we typically do not attempt to identify them as a hedging instrument. Under the mark-to-market method of accounting, trading transactions are shown at fair value in our Consolidated Balance Sheets as Energy risk management assets – and Energy risk management liabilities – current and non-current. We reflect changes in fair value resulting in unrealized gains and losses in Fuel and purchased and exchanged power and Gas purchased. We record the revenues and costs for all transactions in our Consolidated Statements of Income when the contracts are settled. We recognize revenues in Operating revenues; costs are recorded in Fuel and purchased and exchanged power and Gas purchased.

Although we intend to settle physical contracts with company-owned generation, occasionally we settle these contracts with power purchased on the open trading markets. The cost of these purchases could be in excess of the associated revenues. We recognize the gains or losses on these transactions as the power is delivered. Due to the infrequency of such settlements, both historical and projected, and the fact that physical power settlement to the customer still occurs, we continue to apply the normal purchases and sales exemptions to such physical contracts that constitute derivatives. Open market purchases may occur for the following reasons:

• generating station outages;
• least-cost alternative;
• native load requirements; and
• extreme weather.

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

• closing exchange prices (that is, closing prices for standardized electricity and natural gas products traded on an organized exchange such as the New York Mercantile Exchange);
• broker-dealer and over-the-counter price quotations; and
• model pricing (which considers time value and historical volatility factors of electricity and natural gas pricing underlying any options and contractual commitments).

We anticipate that some of the electricity obligations, even though considered trading contracts, will ultimately be settled using company-owned generation. The cost of this generation is usually below the market price at which the trading portfolio has been valued. We expect earnings volatility from period to period due to the risks associated with marketing and trading electricity, natural gas, and other energy-related products.

During the first quarter, our natural gas trading volumes increased substantially. Because of this volume change and the increasing volatility of gas prices, our risk exposure to these markets has increased. However, we continue to employ value-at-risk analysis and other methodologies to mitigate our risks in all trading operations, including natural gas trading.

(d)      Accounting Changes      During 1998, the Financial Accounting Standards Board (FASB) issued Statement 133. This standard is effective for fiscal years beginning after June 15, 2000, and requires companies to record derivative instruments which are not exempt under certain provisions of Statement 133 as assets or liabilities, measured at fair value (i.e., marked-to-market). Our financial statements reflect the adoption of Statement 133 in January 2001. Since many of our derivatives were previously required to use mark-to-market accounting, the effects of implementation are immaterial.

These effects do not reflect the potential impact of applying mark-to-market accounting to selected call options and forwards we use to hedge peak period exposure to electricity demand. We have not historically marked these instruments to market because they are intended as hedges of peak period exposure and are not considered trading instruments. We currently classify these types of instruments as normal purchases under Statement 133. However, the FASB-sponsored Derivatives Implementation Group (DIG) has yet to issue final guidance on these types of instruments. In April 2001, the DIG posted tentative guidance that would preclude these contracts from qualifying for the normal purchases and sales exemption. This guidance will not be final until the FASB staff considers all comments provided during a 35-day comment period. These instruments will require mark-to-market accounting unless the FASB staff reconsiders its guidance based on the comments provided. The FASB has scheduled an open meeting with utility industry representatives to discuss these issues. If ultimately required to mark these instruments to market, this could result in additional earnings volatility. At March 31, 2001, the fair value of these instruments was $14 million.

2.     Long-Term Debt

In January 2001, PSI Energy, Inc. (PSI) retired $19.8 million principal amount of non-interest bearing Series 1994 Promissory Note, which had matured. The securities were not replaced by new issues of debt. In March 2001, Cinergy Global Resources, Inc., a subsidiary of Cinergy, borrowed $26 million at a fixed interest rate of 6.10%, maturing on March 31, 2003.

3.     Commitments and Contingencies

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

Nitrogen Oxide (NOx) SIP Call     In October 1998, the EPA finalized its ozone transport rule, also known as the NOx SIP Call. It applied to 22 states in the eastern half of the United States (U.S.), including the three states in which our electric utilities operate, and also proposed a model NOx emission allowance-trading program. This rule recommended states reduce NOx emissions primarily from industrial and utility sources to a certain level by May 2003. The EPA gave the affected states until September 30, 1999, to incorporate NOx reductions and, at the discretion of the state, a NOx trading program into their SIPs. The EPA proposed to implement a federal plan to accomplish the equivalent NOx reductions by May 1, 2003, if states failed to revise their SIPs.

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

In March 2000, the Court of Appeals substantially upheld the EPA’s rule. On April 11, 2000, the EPA asked the Court of Appeals to remove its May 25, 1999 suspension of the rule and also directed states to submit SIP revisions by September 1, 2000. On April 17, 2000, various states and industry groups (some of which we are a member) filed a request with the Court of Appeals for a rehearing of the NOx SIP Call decisions. On April 24, 2000, the same group filed a request with the Court of Appeals to require a rulemaking and a comment period to determine a new compliance date. The states also filed a request to obtain more time to file their SIPs. On June 23, 2000, the Court of Appeals denied both requests and directed the states to submit their SIP revisions by October 30, 2000. The states of Indiana, Kentucky, and Ohio subsequently submitted letters stating their intent to revise their SIPs in response to the NOx SIP Call. On December 26, 2000, the EPA took final action against Indiana, Kentucky, Ohio, and most other SIP Call affected states for failing to make complete SIP revisions. This action triggers an 18-month time clock for mandatory sanctions under a Federal Implementation Plan. The states of Indiana, Kentucky, and Ohio now anticipate final adoption of compliant SIP Call rules by late summer 2001.

In August 2000, the Court of Appeals extended the May 1, 2003, deadline for NOx reductions to May 31, 2004. The states and other groups appealed the Court of Appeals ruling to the U.S. Supreme Court (Supreme Court). In March 2001, the Supreme Court decided not to accept their appeal.

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

• install up to 11 selective catalytic reduction units (SCRs) at several different generating stations;
• install other pollution control technologies, including new computer software, at all generating stations;
• make combustion improvements; and
• utilize market opportunities to buy and sell NOx allowances.

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

Section 126 Petitions In February 1998, the northeast states filed petitions seeking the EPA’s assistance in reducing ozone in the eastern U.S. under Section 126 of the Clean Air Act (CAA). The EPA believes that Section 126 petitions allow a state to claim that sources in another state are contributing to its air quality problem and request that the EPA require the upwind sources to reduce their emissions.

In December 1999, the EPA granted four Section 126 petitions relating to NOx emissions.

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

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

See Note 3(d) below for a discussion of the tentative EPA settlement, which relates to matters discussed within this note.

(b)     New Source Review (NSR)      The CAA’s NSR provisions require that a company obtain a pre-construction permit if it plans to build a new stationary source of pollution or make a major modification to an existing facility unless the changes are exempt. In July 1998, the EPA requested comments on proposed revisions to the NSR rules that would change NSR applicability by eliminating exemptions contained in the current regulation.

Since July 1999, The Cincinnati Gas & Electric Company (CG&E) and PSI have received requests from the EPA (Region 5), under Section 114 of the CAA, seeking documents and information regarding capital and maintenance expenditures at several of their respective generating stations. These requests were part of an industry-wide investigation assessing compliance with the NSR and the New Source Performance Standards (NSPS) of the CAA at electric generating stations.

On September 15, 1999, November 3, 1999, and February 2, 2001, the Attorneys General of New York, Connecticut, and New Jersey, respectively, issued letters notifying Cinergy and CG&E of their intent to sue under the citizens’ suit provisions of the CAA. These states allege violations of the CAA by constructing and continuing to operate a major modification to CG&E’s W.C. Beckjord Generating Station (Beckjord Station) without obtaining the required NSR pre-construction permits.

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

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

The amended complaint sought (1) injunctive relief to require installation of pollution control technology on each of the generating units at Beckjord Station, Cayuga Station, and PSI’s Wabash River Generating Station and Gallagher Generating Station, and such other measures as necessary, and (2) civil penalties in amounts of up to $27,500 per day for each violation.

On March 1, 2000, the EPA also filed an amended complaint in a separate lawsuit alleging violations of the CAA relating to NSR, Prevention of Significant Deterioration (PSD), and Ohio SIP requirements regarding various generating stations, including a generating station operated by the Columbus Southern Power Company (CSP) and jointly-owned by CSP, the Dayton Power and Light Company (DP&L), and CG&E. The EPA is seeking injunctive relief and civil penalties of up to $27,500 per day for each violation. This suit is being defended by CSP. On April 4, 2001, the District Court in that case ruled that neither the Government nor the intervening plaintiff environmental groups could obtain civil penalties for any alleged violations that occurred more than five years prior to the filing of the complaint, but that both parties could seek injunctive relief for alleged violations that occurred more than five years before the filing of the complaint. Thus, if the plaintiffs prevail in their claims, any calculation for penalties will not start on the date of the alleged violations unless those alleged violations occurred after November 3, 1994, but CSP would be forced to install the controls required under the CAA. There is no indication at this time if any party intends to appeal this decision.

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

See Note 3(d) below for a discussion of the tentative EPA settlement, which relates to matters discussed within this note.

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

See Note 3(d) below for a discussion of the tentative EPA settlement, which relates to matters discussed within this note.

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

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

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

• shut down or repower with natural gas nine small coal-fired boilers at three power plants beginning in 2004;
• build four additional sulfur dioxide (SO2) scrubbers, the first of which must be operational by December 31, 2007;
• upgrade existing pollution control systems;
• phase in the operation of NOX reduction technology year-round starting in 2004;
• retire 50,000 tons of SO2 allowances between 2001 and 2005 and reduce our SO2 cap by 35% in 2013;
• pay a civil penalty of $8.5 million to the U.S. government; and
• implement $21.5 million in environmental mitigation projects.

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

In reaching the tentative agreement, we did not admit any wrongdoing and remain free to continue our current maintenance practices, as well as implement future projects for improved reliability. If the settlement is not completed, we intend to defend the suit vigorously in court. In such an event, it is not possible to determine the likelihood that the plaintiffs would prevail on their claims or whether resolution of this matter would have a material effect on our financial condition or results of operations.

(e)     Manufactured Gas Plant (MGP) Sites

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

       (ii)     PSI     Coal tar residues, related hydrocarbons, and various metals associated with MGP sites have been found at former MGP sites in Indiana, including at least 21 sites which PSI or its predecessors previously owned. PSI acquired four of the sites from Northern Indiana Public Service Company (NIPSCO) in 1931. At the same time, PSI sold NIPSCO the sites located in Goshen and Warsaw, Indiana. In 1945, PSI sold 19 of these sites (including the four sites it acquired from NIPSCO) to the predecessor of the Indiana Gas Company, Inc. (IGC). IGC later sold the site located in Rochester, Indiana, to NIPSCO.

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

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

PSI notified its insurance carriers of the claims related to MGP sites raised by IGC, NIPSCO, and the IDEM. In April 1998, PSI filed suit in Hendricks County Circuit Court in the State of Indiana (Court) against its general liability insurance carriers. Subsequently, PSI sought a declaratory judgment to obligate its insurance carriers to (1) defend MGP claims against PSI, or (2) pay PSI’s costs of defense and compensate PSI for its costs of investigating, preventing, mitigating, and remediating damage to property and paying claims related to MGP sites. The Court rescheduled the trial date for the case from May 2001 to January 2002. The Court ordered the parties to submit the case to mediation in February 2001. The mediation was not successful in resolving PSI’s claims against all of the insurance carriers. Settlement discussions with some of the insurance carriers have been ongoing. At the present time, PSI cannot predict either the progress or outcome of these discussions or the outcome of this litigation.

PSI has accrued costs for the sites related to investigation, remediation, and groundwater monitoring to the extent such costs are probable and can be reasonably estimated. PSI does not believe it can provide an estimate of the reasonably possible total remediation costs for any site before a remedial investigation/feasibility study has been completed. To the extent remediation is necessary, the timing of the remediation activities impacts the cost of remediation. Therefore, PSI currently cannot determine the total costs that may be incurred in connection with the remediation of all sites, to the extent that remediation is required. According to current information, these future costs at the 21 Indiana MGP sites are not material to our financial condition or results of operations. As further investigation and remediation activities are performed at these sites, the potential liability for the 21 Indiana MGP sites could be material to our financial position or results of operations.

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

(f)     Gas Customer Choice      In January 2000, Cinergy Investments, Inc. (Investments) sold Cinergy Resources, Inc. (CRI), a former subsidiary, to Licking Rural Electrification, Inc. doing business as The Energy Cooperative (Energy Cooperative). In February 2001, Cinergy, CG&E and CRI were named as defendants in three class actions lawsuits. These lawsuits are in connection with Energy Cooperative's removal from the Ohio Gas Customer Choice program and the failure to deliver gas to customers. Subsequently, these class action suits were amended and consolidated into one suit. CG&E has been dismissed as a defendant in the consolidated suit. On March 30, 2001, Cinergy, CG&E and Investments were named as defendants in a lawsuit filed by both Energy Cooperative and CRI. This lawsuit concerns any obligations or liability Investments may have to Energy Cooperative following its sale of CRI. We intend to vigorously defend these lawsuits. At the present time, Cinergy cannot predict the outcome of these suits.

(g)     Other     In compliance with an electric wholesale rate case settlement adopted by the Federal Energy Regulatory Commission (FERC) effective February 2000, CG&E reduced the cost of fuel reflected in its wholesale base rates and revised its wholesale fuel adjustment factor. Beginning March 1, 2000, The Union Light, Heat and Power Company (ULH&P) began passing through to retail customers the fuel costs incurred pursuant to the revised wholesale fuel adjustment factor but did not synchronize the cost of fuel reflected in retail base rates with the reduced cost of fuel reflected in wholesale base rates. As a result, on an annual basis, ULH&P is recovering and recognizing as revenue approximately $18 million more in costs than it incurred. While ULH&P believes its position is consistent with applicable rate regulation, the issue was brought to the Kentucky Public Service Commission (KPSC) for a final determination. In March 2001, a tentative settlement with the KPSC staff was reached which, if approved by the KPSC, would allow ULH&P to retain the revenues collected to date and maintain retail base rates at their current level. On May 11, 2001, the settlement was approved by the KPSC.

4.     Financial Information by Business Segment

As discussed in the 2000 Form 10-K, in early 2001, Cinergy announced certain organizational changes which further aligned the business units to reflect Cinergy’s strategic vision. The revised structure has three business units, as follows:

• Energy Merchant Business Unit (Energy Merchant);
• Regulated Businesses Business Unit (Regulated Businesses); and
• Power Technology and Infrastructure Services Business Unit (PTIS).

Energy Merchant manages wholesale generation and the buying and selling of energy commodities. Energy Merchant earns revenues from the electric generation and the operation of power plants; wholesale energy trading, marketing, and risk management; and customized energy solutions.

Regulated Businesses consists of a regulated, integrated utility, and regulated electric and gas transmission and distribution services. Regulated Businesses plans, constructs, operates, and maintains the Cinergy operating companies' transmission and distribution systems and delivers gas and electric energy to consumers. Regulated Businesses also earns revenues from wholesale customers primarily by transmitting electric power through Cinergy’s transmission system.

PTIS primarily manages the development, marketing, and sales of our non-regulated retail energy and energy-related products and services. Products and services offered by PTIS include energy management and consulting services to commercial customers that operate retail facilities; utility operations and infrastructure services to utilities; and building and maintaining fiber optic telecommunication networks for businesses, municipalities, telecommunications carriers, and schools. PTIS also manages Cinergy Ventures, LLC (Ventures), the company's venture capital subsidiary. Ventures invests in emerging energy technologies with promising commercial applications that can benefit future PTIS business development activities.

Financial results by business unit for the quarters ended March 31, 2001 and 2000, are as indicated below. Amounts for the prior year have been restated to reflect segment restructuring which includes the consolidation of the former International Business unit into the Energy Merchant and Regulated Businesses business units. This restructuring became effective January 1, 2001.

Business Units
                                          Cinergy Business Units
                                 Energy          Regulated                                                     Reconciling
                              Merchant(5)      Businesses(5)       PTIS           Total       All Other (1)    Eliminations (2)  Consolidated
                                             (in thousands)
                                                                                       2001
Operating revenues -
  External customers          $2,874,277 (4)    $ 817,811         $ 14,441      $3,706,529      $     -        $       -          $3,706,529
  Intersegment revenues          35,203                 -                -          35,203            -          (35,203)                  -
Segment profit (loss) (3)        39,295            85,750           (4,798)        120,247            -                -             120,247

                                                                                       2000
Operating revenues -
  External customers          $ 704,642 (4)     $ 859,948         $ 18,487      $1,583,077      $     -        $       -          $1,583,077
  Intersegment revenues         241,588                 -                -         241,588            -         (241,588)                  -
Segment profit (loss) (3)        51,277            87,772             (610)        138,439            -                -             138,439


(1)  The All Other category represents miscellaneous corporate items, which are not allocated to business units for purposes of segment performance measurement.
(2)  The Reconciling Eliminations category eliminates the intersegment revenues of Energy Merchant.
(3)  Management utilizes segment profit (loss) to evaluate segment performance.
(4)  The increase in 2001 as compared to 2000 is primarily due to the increase in volumes and average price realized on non-firm wholesale transactions.
(5)  Effective January 2001, electric customer choice legislation was implemented in Ohio.  For comparative purposes, the estimated pro forma adjustment to reflect
    this effect on first quarter 2000 results would be as follows:

                                                               Regulated
                                             Energy Merchant   Businesses
                    Operating revenues           (31,297)        31,297
                    Segment profit (loss)        (11,091)        11,091

Total segment assets at March 31, 2001 and December 31, 2000, are as indicated below.

Business Units
                                                           Cinergy Business Units
                                                     Energy        Regulated
                                                    Merchant      Businesses         PTIS            Total        All Other (1)        Consolidated
                                                                (in thousands)

Total segment assets at March 31, 2001            $5,921,620        $6,794,748     $184,118        $12,900,486       $37,050             $12,937,536
Total segment assets at December 31, 2000          5,947,824         6,162,141      177,275         12,287,240        42,488              12,329,728

(1)  The All Other category represents miscellaneous corporate items, which are not allocated to business units for purposes of segment performance
measurement.

5.     Earnings Per Common Share

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

                                             Income        Shares      EPS
                                           (in thousands, except per share amounts)

Quarter ended March 31, 2001
EPS:
   Net income                                $120,247      158,989     $0.76

Effect of dilutive securities:
   Common stock options                                       961
   Share saver plan common stock                               33
   Directors' compensation plans                              140
   Contingently issuable common stock                         300

EPS-assuming dilution:
   Net income plus assumed conversions       $120,247      160,423     $0.75

Quarter ended March 31, 2000
EPS:
   Net income                                $138,439      158,923     $0.87

Effect of dilutive securities:
   Common stock options                                         9
   Contingently issuable common stock                         343

EPS-assuming dilution:
   Net income plus assumed conversions       $138,439      159,275     $0.87

Options to purchase shares of common stock are excluded from the calculation of diluted EPS when the exercise prices of these options are greater than the average market price of the common shares during the period. For the quarters ended March 31, 2001, and 2000, approximately two million and seven million shares, respectively, were excluded from the diluted EPS calculation.

6.     Ohio Deregulation

As discussed in the 2000 Form 10-K, on July 6, 1999, Ohio Governor Robert Taft signed Amended Substitute Senate Bill No. 3 (Electric Restructuring Bill), beginning the transition to electric deregulation and customer choice for the state of Ohio. The Electric Restructuring Bill created a competitive electric retail service market effective January 1, 2001. The legislation provided for a market development period that began January 1, 2001, and ends no later than December 31, 2005.

On May 8, 2000, CG&E reached a stipulated agreement with the Public Utilities Commission of Ohio (PUCO) staff and various other interested parties with respect to its proposal to implement electric customer choice in Ohio effective January 1, 2001. On August 31, 2000, the PUCO approved CG&E’s stipulation agreement. Two parties filed applications for rehearing with the PUCO. On October 18, 2000, the PUCO denied these applications. One of the parties appealed to the Ohio Supreme Court in the fourth quarter of 2000 and CG&E subsequently intervened in that case. On April 6, 2001, CG&E filed for dismissal of this appeal. CG&E is unable to predict the outcome of this proceeding.

As previously discussed, the August 31, 2000 order authorizes CG&E to transfer its generation assets to one or more non-regulated corporate subsidiary(ies). This transfer may require the approval or consent of one or more of the following regulatory agencies: the Indiana Utility Regulatory Commission, the KPSC, the FERC, the Securities and Exchange Commission under the Public Utility Holding Company Act of 1935, as amended, and various third parties. As the transfer is contingent upon CG&E receiving various consents and approvals, the timing and receipt of which are unknown, the completion date of the transfer of generation assets to the non-regulated subsidiary(ies) is uncertain.

7.     Power Trading

Contracts within the trading portfolio of the power marketing and trading operations are primarily with power marketers and other investor-owned utilities. The majority of these contracts are for terms of one year or less. Electric power prices can be extremely volatile, and the market can, at times, lack liquidity. Because of these issues, credit risk is generally greater than with other commodity trading, especially when dealing with new market entrants. Credit discounts are included in the determination of fair value for all open positions in the power-trading portfolio.

As stated in our 2000 Form 10-K, in 2000 the Western U.S., primarily California, began experiencing unprecedented price levels for wholesale electricity. Because of the nature of deregulation in California, California’s two largest utilities have accumulated significant unpaid obligations, are having difficulty obtaining capital, and one of these utilities has declared bankruptcy. We continue to maintain a balanced Western U.S. portfolio and have no unrealized gain positions directly with these utilities. A significant portion of our Energy risk management assets and Energy risk management liabilities-current are with counterparties in the Western U.S. If prices continue at elevated levels or should these utilities be unable to fund their unpaid obligations, credit failures by power marketers could result. Given these issues, the fair values of our positions in the Western U.S. have been adjusted to reflect a higher level of credit discount. Nonperformance by any of the Western U.S. counterparties could have a material effect on the operating results of Cinergy, CG&E, and PSI.

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CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION

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

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

• Factors affecting operations, such as:
  
  
  1. unusual weather conditions;
  2. catastrophic weather-related damage;
  3. unscheduled generation outages;
  4. unusual maintenance or repairs;
  5. unanticipated changes in fossil fuel costs, gas supply costs, or availability constraints;
  6. environmental incidents; and
  7. electric transmission or gas pipeline system constraints.
  
  
• Legislative and regulatory initiatives regarding deregulation of the industry, potential national deregulation legislation and the potential repeal of the Public Utility Holding Company Act of 1935 (PUHCA).
  
  
• The timing and extent of the entry of additional competition in electric or gas markets and the effects of continued industry consolidation through the pursuit of mergers, acquisitions, and strategic alliances.
  
  
• Regulatory factors such as changes in the policies or procedures that set rates; changes in our ability to recover capital expenditures for environmental compliance, purchased power costs and investments made under traditional regulation through rates; and changes to the frequency and timing of rate increases.
  
  
• Financial or regulatory accounting principles or policies imposed by governing bodies.
  
  
• Political, legal, and economic conditions and developments in the United States (U.S.) and the foreign countries in which we have a presence. This would include inflation rates and monetary fluctuations.
  
  
• Changing market conditions and other factors related to physical energy and financial trading activities. These would include price, basis, credit, liquidity, volatility, capacity, transmission, currency exchange rates, interest rates, and warranty risks.
  
  
• The performance of projects undertaken by our non-regulated businesses and the success of efforts to invest in and develop new opportunities.
  
  
• Availability of, or cost of, capital.
  
  
• Employee workforce factors, including changes in key executives, collective bargaining agreements with union employees, and work stoppages.
  
  
• Legal and regulatory delays and other obstacles associated with mergers, acquisitions, and investments in joint ventures.
  
  
• Costs and effects of legal and administrative proceedings, settlements, investigations, and claims. Examples can be found in Note 3 of the "Notes to Financial Statements" in "Part I. Financial Information."
  
  
• Changes in international, federal, state, or local legislative requirements, such as changes in tax laws, tax rates, and environmental laws and regulations.
  

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

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In this report Cinergy (which includes Cinergy Corp. and all of our regulated and non-regulated subsidiaries) is, at times, referred to in the first person as “we,” “our,” or “us.”

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INTRODUCTION

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

• factors affecting current and future operations;
• why revenues and expenses changed from period to period; and
• how the above items affect our overall financial condition.

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ORGANIZATION

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

• Cinergy Services, Inc. (Services) - is a service company that provides our regulated and non-regulated subsidiaries with a variety of centralized administrative, management, and support services;
• Cinergy Investments, Inc. (Investments) - holds most of our domestic non-regulated, energy-related businesses and investments;
• Cinergy Global Resources, Inc. - holds our international businesses and investments and directs our renewable energy investing activities (for example, wind farms);
• Cinergy Technologies, Inc. - primarily holds our portfolio of technology related investments; and
• Cinergy Wholesale Energy, Inc. - was formed to act as a holding company for Cinergy's energy merchant businesses, including production, as the generation assets eventually become unbundled from the utility subsidiaries.

CG&E an Ohio corporation, is a combination electric and gas public utility company that provides service in the southwestern portion of Ohio and, through its subsidiaries, in nearby areas of Kentucky and Indiana. It has three wholly-owned utility subsidiaries and two wholly-owned non-utility subsidiaries. CG&E’s principal utility subsidiary, The Union Light, Heat and Power Company (ULH&P), is a Kentucky corporation that provides electric and gas service in northern Kentucky. CG&E’s other subsidiaries are insignificant to its results of operations. PSI, an Indiana corporation, is an electric utility that provides service in north central, central, and southern Indiana.

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

In early 2001, we announced certain organizational changes which further aligned the business units to reflect Cinergy’s strategic vision. The revised structure reflects three business units, as follows:

• Energy Merchant Business Unit – operates power plants, both domestically and abroad, and conducts all wholesale energy marketing, trading, origination and risk management services;
• Regulated Businesses Business Unit – operates all gas and electric transmission and distribution services, both domestically and abroad, and is responsible for all regulatory planning for the regulated utility businesses of CG&E, PSI, and ULH&P; and
• Power Technology and Infrastructure Services Business Unit – originates and manages a portfolio of emerging energy businesses.

See Note 4 of the "Notes to Financial Statements" in "Part I. Financial Information," for financial information by business unit.

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LIQUIDITY

In the “Liquidity” section, we discuss environmental issues as they relate to our current and future cash needs. In the “Capital Resources” section, we discuss how we intend to meet these capital requirements.

Environmental Issues

Ambient Air Standards

As discussed in the 2000 Form 10-K, in 1997 the U.S. Environmental Protection Agency (EPA) revised the National Ambient Air Quality Standards for ozone and fine particulate matter. The EPA estimated that it will take up to five years to collect sufficient ambient air monitoring data to determine fine particulate matter non-attainment areas. The states will then determine the sources of the particulates and determine a regional emission reduction plan. We currently cannot predict the exact amount and timing of required reductions.

On May 14, 1999, the U.S. Circuit Court of Appeals for the District of Columbia (Court of Appeals) ruled that both the new eight-hour ozone standard and the fine particulate matter standard were questionable and were determined to be unenforceable by the EPA. In June 1999, the EPA appealed the decision. On October 29, 1999, the full Court of Appeals rejected the EPA’s request for reconsideration. In January 2000, the EPA appealed to the U.S. Supreme Court (Supreme Court) and on February 27, 2001 the Supreme Court upheld the standards in question. However, the Supreme Court invalidated the EPA’s implementation procedure for the portion of the case dealing with the eight-hour ozone standard. Neither the Court of Appeals nor the EPA has responded to the ruling to date. We currently cannot determine the outcome of the future rulings and the effects on future emissions reduction requirements.

See also Notes 3(a), (b), (c), (d), and (e), respectively, of the "Notes to Financial Statements" in "Part I. Financial Information."

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CAPITAL RESOURCES

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

In early May 2001, Cinergy Corp.'s certificate of incorporation was amended to authorize the issuance of preferred securities in addition to common stock, following approval by the SEC under the PUHCA and the shareholders of Cinergy Corp.

Debt

Cinergy Corp. has current authorization from the SEC under the PUHCA to increase its total capitalization at December 31, 1999 (excluding retained earnings and accumulated other comprehensive income) by an additional $5 billion, through issuance of any combination of equity and debt securities. This increased authorization is subject to certain conditions, including, among others, that common equity comprises at least 30% of Cinergy Corp.’s consolidated capital structure and that Cinergy Corp., under certain circumstances, maintains an investment grade rating on its senior debt obligations.

Short-term Debt     In connection with the current SEC authorization, Cinergy Corp. has $1.7 billion in established lines of credit. As of March 31, 2001, $233 million was unused and available on these lines.

As of March 31, 2001, our operating companies had regulatory authority to borrow up to a total of $853 million in short-term debt ($453 million for CG&E and its subsidiaries, including $50 million for ULH&P, and $400 million for PSI). On April 6, 2001, Cinergy Corp. filed an application with the SEC to increase PSI’s authority to $600 million and ULH&P’s authority to $65 million. In connection with the current authority, CG&E and PSI have established lines of credit of $15 million and $60 million respectively, of which $15 million for CG&E remained unused and available at March 31, 2001.

On March 21, 2001, Cinergy Corp. placed a $500 million, 364-day senior revolving credit facility. The facility is intended to provide short-term, interim financing. Also, on May 4, 2001, Cinergy Corp. placed a $400 million, three-year senior revolving credit facility. The facility replaced Cinergy Corp.’s $400 million, five-year revolving credit facility that expired on May 6, 2001. Cinergy Corp.’s $200 million, three-year revolving credit facility will expire July 20, 2001.

Certain of our non-regulated subsidiaries also have established lines of credit. As of March 31, 2001, $3 million was unused and available on these established lines. Our non-regulated subsidiaries have the availability of funds from Cinergy Corp. if the need arises.

Commercial Paper     As of March 31, 2001, the commercial paper program is limited to a maximum outstanding principal amount of $800 million for Cinergy Corp. In early 2001, Cinergy Corp. expanded the commercial paper program to this amount and reduced the established lines of credit at CG&E and PSI. The expansion of the commercial paper program at the Cinergy Corp. level will, in part, support the short-term borrowing needs of CG&E and PSI and will eliminate the need for commercial paper programs at CG&E and PSI. The Cinergy Corp. commercial paper program expansion is supported by the new $400 million, 364-day revolving credit facility that was placed in early 2001. As of March 31, 2001, Cinergy Corp. had issued $309 million in commercial paper.

Long-term Debt     Under the PUHCA authorization mentioned above, we are able to issue and sell long-term debt at the parent holding company level. As of March 31, 2001, Cinergy Corp. had $400 million of long-term debt outstanding. As of March 31, 2001, CG&E, PSI, and ULH&P have remaining state regulatory authority for long-term debt issuances of $200 million, $346 million, and $30 million, respectively. We may, at any time, request additional long-term debt authorization, which is subject to regulatory approval.

Variable Rate Pollution Control Notes     CG&E and PSI have issued variable rate pollution control notes (tax-exempt notes obtained to finance equipment or land development for pollution control purposes). Because the holders of these notes have the right to redeem their notes on any business day, they are reflected in Notes payable and other short-term obligations in the Consolidated Balance Sheets for Cinergy (Cinergy Corp. and all of its regulated and non-regulated subsidiaries), CG&E, and PSI. At March 31, 2001, CG&E and PSI had $184 million and $83 million, respectively, outstanding in pollution control notes.

Money Pool     Cinergy Corp., Services, and our operating companies and their subsidiaries participate in a money pool arrangement to better manage cash and working capital requirements. Under this arrangement, those companies with surplus short-term funds provide short-term loans to others. This surplus cash may be from internal or external sources. The amounts outstanding under this money pool arrangement are shown as Notes receivable from affiliated companies or Notes payable to affiliated companies on the Consolidated Balance Sheets for CG&E and PSI and on the Balance Sheets for ULH&P.

Guarantees

We are subject to a SEC order under the PUHCA, which limits the amounts Cinergy Corp. can have outstanding under guarantees (promises to pay by one party in the event of default by another party) at any one time to $2 billion. As of March 31, 2001, we had $1.1 billion outstanding under the guarantees issued. This amount represents Cinergy Corp.’s guarantees of liabilities and commitments of our consolidated subsidiaries, unconsolidated subsidiaries, and joint ventures.

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2001 RESULTS OF OPERATIONS

SUMMARY OF RESULTS

Electric and gas margins and net income for Cinergy, CG&E, and PSI for the quarters ended March 31, 2001 and 2000 were as follows:

                                   Cinergy (1)       CG&E and subsidiaries           PSI
                                2001         2000     2001          2000       2001        2000
                                                        (in thousands)

   Electric gross margin      $ 528,804   $ 565,919  $ 272,065   $ 297,666   $ 227,453   $ 262,323
   Gas gross margin             103,212      92,583     86,802      88,846           -           -
   Net income                   120,247     138,439     81,575      95,964      41,432      50,213

     (1) The results of Cinergy also include amounts related to non-registrants.

Diluted earnings per share for the first quarter 2001 was $.75 per share as compared to $.87 per share for the same period last year. The decrease in earnings is primarily attributable to the effects of implementation of customer choice legislation in Ohio, reduced industrial demand and higher interest and depreciation expenses, reflecting increased investment activity over the past twelve months.

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

ELECTRIC OPERATING REVENUES


                      Cinergy (1)               CG&E and subsidiaries                PSI
              2001      2000     % Change    2001      2000      % Change    2001   2000   % Change
                                                    (in millions)
Retail       $   628  $   650       (3)     $ 339     $ 351         (3)     $ 289  $ 298      (3)
Wholesale      1,170      384      205        586       182        222        619    227     173
Other             77       33      133          8         5         60          8      9     (11)
  Total      $ 1,875  $ 1,067       76      $ 933     $ 538         73      $ 916  $ 534      72

     (1) The results of Cinergy also include amounts related to non-registrants.

Electric operating revenues for Cinergy, CG&E, and PSI increased for the quarter ended March 31, 2001, as compared to 2000, mainly due to an increase in volumes on non-firm wholesale transactions related to energy marketing and trading activity. Non-firm power is power without a guaranteed commitment for physical delivery. Partially offsetting this increase was a decrease in the average realization on retail sales, reflecting, in part, the expiration of certain interim tariff adjustments (riders).

  GAS OPERATING REVENUES


                           Cinergy (1)              CG&E and subsidiaries
                   2001       2000   % Change       2001    2000  % Change
                                         (in millions)
 Non-regulated    $ 1,489    $ 321     364          $   -   $   -     -
 Retail               307      154      99            307     154    99
 Transportation        16       22     (27)            16      22   (27)
 Other                  2        2       -              2       2     -
    Total         $ 1,814    $ 499     264          $ 325   $ 178    83

     (1) The results of Cinergy also include amounts related to non-registrants.

Gas operating revenues for Cinergy increased in the first quarter of 2001, when compared to the same period last year. This increase is primarily the result of increased volumes and a higher price received per thousand cubic feet (mcf) sold by Cinergy Marketing and Trading, LLC.

CG&E’s retail gas revenues increased primarily due to a higher price received per mcf sold and an increase in retail gas sales resulting from colder weather in the first quarter of 2001. The higher price reflects a substantial increase in the wholesale gas commodity cost, which is passed directly to the retail customer dollar-for-dollar under the state mandated gas cost recovery mechanism. Retail sales increased and transportation revenues decreased as a result of approximately 30,000 customers switching back to CG&E gas service.

OPERATING EXPENSES


                                    Cinergy (1)           CG&E and subsidiaries                PSI

                              2001     2000   % Change    2001      2000   % Change  2001      2000  % Change
                                                               (in millions)
Fuel                          $  200  $  186       8    $   96     $  82       17   $  99     $  99       -
Purchased and
  exchanged power              1,146     315     264       565       158      258     589       172     242
Gas purchased                  1,711     406     321       238        90      164       -         -       -
Operation and maintenance        249     252      (1)      112       112        -      91       111     (18)
Depreciation and
  amortization                    89      83       7        46        44        5      37        35       6
Taxes other than income           63      66      (5)       47        50       (6)     15        15
   taxes                                                                                                  -
  Total                       $3,458  $1,308     164    $1,104     $ 536     106    $ 831     $ 432      92

     (1) The results of Cinergy also include amounts related to non-registrants.

Fuel

Fuel represents the cost of coal, natural gas, and oil that is used to generate electricity. The following table details the changes to fuel expense from the quarter ended March 31, 2000, to the quarter ended March 31, 2001:

                                      Cinergy (1)       CG&E        PSI
                                                   (in millions)
Fuel expense - March 31, 2000          $ 186           $ 82        $ 99

Increase (Decrease) due to changes in:
Price of fuel                             21             12           9
Deferred fuel cost                        (1)             -          (1)
MWh generation                            (6)             2          (8)
Fuel expense - March 31, 2001          $ 200           $ 96        $ 99

     (1) The results of Cinergy also include amounts related to non-registrants.

Purchased and Exchanged Power

Purchased and exchanged power increased for Cinergy, CG&E, and PSI for the first quarter of 2001 as compared to last year, primarily due to an increase in purchases of non-firm wholesale power, reflecting higher sales volumes in the energy marketing and trading operations.

Gas Purchased

Gas purchased expense increased for Cinergy and CG&E for the first quarter of 2001, when compared to the same period last year, primarily due to increased gas commodity trading volumes and an increase in the average cost per mcf of gas purchased. The wholesale commodity cost is passed directly to the retail customer dollar-for-dollar under the gas cost recovery mechanism.

Operation and Maintenance

PSI’s Operation and maintenance expense decreased for the quarter ended March 31, 2001, as compared to the same period last year, due in part to the discontinuation of contract fees associated with the coal gasification services agreement that was terminated in 2000. Also contributing to this decrease was a reduction in the amortization of demand-side management costs, resulting from the expiration of the agreement in May 2000.

Depreciation and Amortization

Cinergy’s, CG&E’s, and PSI’s Depreciation and amortization costs increased for the quarter ended March 31, 2001, as compared to the same period last year, primarily due to additions to depreciable plant.

INTEREST

Cinergy’s Interest expense increased $12.1 million for the first quarter of 2001, when compared to the same period last year. This increase is primarily due to the financing activities related to our non-regulated affiliates. PSI’s expense decreased $2.1 million, when compared to the first quarter of 2000, primarily due to the net redemption of long-term debt and an increase in the allowance for funds used during construction. Partially offsetting this decrease was an increase in interest related to borrowings under the money pool.

ULH&P

The Results of Operations discussion for ULH&P is presented only for the quarter ended March 31, 2001, in accordance with General Instruction H(2)(a) of Form 10-Q.

Electric and gas margins and net income for ULH&P for the quarters ended March 31, 2001 and 2000 were as follows:

                                               ULH&P
                                         2001          2000
                                          (in thousands)

    Electric gross margin             $ 17,758      $ 14,077
    Gas gross margin                    16,250        15,493
    Net income                          13,855         8,146

Electric operating revenues for the quarter ended March 31, 2001, compared to last year, increased mainly due to higher megawatt hour (MWh) sales. Also contributing to this increase was the effects of a Federal Energy Regulatory Commission (FERC) wholesale rate case that became effective during 2000. For further information see Note 3(g) in the “Notes to Financial Statements” in “Part I. Financial Information.” Electricity purchased from parent company for resale increased due to higher MWh sales.

The increase in Gas operating revenues for the quarter ended March 31, 2001, compared to last year, was mainly due to a higher price received per mcf sold. Gas purchased expense increased due to an increase in the average cost per mcf of gas purchased. The market price of natural gas has increased significantly since the first quarter of 2000, which has caused ULH&P to pay more for the gas it delivers to customers. The wholesale gas commodity cost is passed directly to the retail customer dollar-for-dollar under the gas cost recovery mechanism that is mandated under state law.

The increase in Depreciation and amortization costs for the quarter ended March 31, 2001, as compared to the same period last year, was primarily due to an increase in depreciable plant.

Return to Table of Contents

ELECTRIC INDUSTRY

Wholesale Market Developments

Supply-side Actions     As discussed in the 2000 Form 10-K, on September 30, 1999, one of our non-regulated subsidiaries formed a partnership (each party having a 50 percent ownership) with Duke Energy North America LLC, to increase the available generating capacity for use during peak demand periods. The partnership was formed for the purpose of jointly constructing and owning three wholesale generating facilities.

On March 9, 2000, the Indiana Utility Regulatory Commission (IURC) issued an order, requiring the partnership to immediately suspend all construction activities at the site located near Cadiz, (Henry County) Indiana (a peaking plant with a total capacity of 129 megawatts (MW) of which we own 65 MW). In making this decision the IURC found that it needed additional information related to the project before issuing a final decision. The issues raised were air quality, water supply, noise control, landscaping, plant abandonment, and emergency services training. The IURC held a hearing on this matter on November 17, 2000, and a favorable ruling was received on April 23, 2001. Construction has resumed and is expected to be completed by July 2001. With regard to this facility, we have entered into a contract with the Wabash Valley Power Association, Inc. to provide 50 MW of capacity from the facility for the next 20 years.

On March 23, 2001, Cinergy Capital & Trading, Inc., an energy merchant-focused affiliate of Cinergy Corp., announced that it had completed the acquisition of two merchant generating facilities in the Southeast U.S. from Enron. The acquisition consists of the 494 MW Brownsville generation facility located in Haywood County, Tennessee and the 504 MW Caledonia generation facility located in Lowndes County, Mississippi. Brownsville has four natural gas-fired combustion turbines and Caledonia has six.

In addition to the above mentioned facilities, CG&E and PSI also have an additional 856 MW of natural gas-fired peaking capacity. These units are used to meet the demand for electric commodity in periods of high electric use by our customers. In the latter part of 2000, natural gas was selling at record prices. If it is necessary for Cinergy to call upon the use of our natural gas-fired peakers, the cost of natural gas will directly affect Cinergy’s cost to supply the electric commodity to our customers.

As stated in the 2000 Form 10-K, Cinergy has 9,764 MW of coal-fired generation and we consume approximately 27 million tons of coal annually. Cinergy procures the majority of its coal through long-term supply contracts. The remainder is purchased in the spot market, which recently has experienced significant price increases. These price increases will have a direct effect upon Cinergy’s cost to supply the electric commodity to our customers.

With the implementation of electric deregulation in the state of Ohio and the associated termination of the fuel cost recovery mechanism, CG&E may not fully recover its retail related fuel costs.

Retail Market Developments

Federal Update     President Bush has indicated that legislation addressing the energy security needs of America deserves prompt consideration. He has appointed Vice President Cheney to head an interagency-task force to recommend a course of action. The task force is looking into ways to increase the supply of electricity, oil and natural gas. The task force is also looking at the energy shortages in California. The start of a new congressional session and presidential administration makes comprehensive electric industry deregulation uncertain in the near future.

Ohio     As discussed in the 2000 Form 10-K, on July 6, 1999, Ohio Governor Robert Taft signed Amended Substitute Senate Bill No. 3 (Electric Restructuring Bill), beginning the transition to electric deregulation and customer choice for the state of Ohio. The Electric Restructuring Bill created a competitive electric retail service market effective January 1, 2001. The legislation provided for a market development period that began January 1, 2001, and ends no later than December 31, 2005.

On May 8, 2000, CG&E reached a stipulated agreement with the Public Utilities Commission of Ohio (PUCO) staff and various other interested parties with respect to its proposal to implement electric customer choice in Ohio effective January 1, 2001. On August 31, 2000, the PUCO approved CG&E’s stipulation agreement. Two parties filed applications for rehearing with the PUCO. On October 18, 2000, the PUCO denied these applications. One of the parties appealed to the Ohio Supreme Court in the fourth quarter of 2000 and CG&E subsequently intervened in that case. On April 6, 2001, CG&E filed for dismissal of this appeal. CG&E is unable to predict the outcome of this proceeding.

The August 31, 2000 order authorizes CG&E to transfer its generation assets to one or more non-regulated corporate subsidiary(ies). This transfer may require the approval or consent of one or more of the following regulatory agencies: the IURC, the Kentucky Public Service Commission (KPSC), the FERC, the SEC under the PUHCA, and various third parties. As the transfer is contingent upon CG&E receiving various consents and approvals, the timing and receipt of which are unknown, the completion date of the transfer of generation assets to the non-regulated subsidiary(ies) is uncertain.

Midwest Independent Transmission System Operator, Inc. (Midwest ISO)

As discussed in the 2000 Form 10-K, in the fall of 2000, three transmission owners (Departing Companies) announced their intent to leave the Midwest ISO and join the proposed Alliance Regional Transmission Organization (Alliance) by the end of 2001. On December 13, 2000, six additional transmission owners, including Cinergy, announced a plan for conditional withdrawal from the Midwest ISO if the Departing Companies left the organization.

On January 24, 2001, the FERC issued an order providing 30 days of confidential settlement talks between the Alliance and the Midwest ISO and its stakeholders, in an effort to resolve issues related to such withdrawals. Cinergy actively participated in the settlement process. On February 23, 2001, the settlement judge reported to the FERC that settlement talks produced a unanimous comprehensive settlement between all related parties. The settlement includes three major components:

• a commitment by the Midwest ISO and the Alliance to establish compatible/common operating practices and protocols to promote a seamless market within the Midwest;
• a commitment by the three Departing Companies to pay the Midwest ISO $60 million as their share of the Midwest ISO’s startup costs as well as other commercial considerations; and
• agreement upon a methodology to establish a single “within” rate for energy transactions that take place entirely within the Midwest ISO-Alliance Super Region, and a commitment by the Midwest ISO, Alliance, and PJM Interconnection, L.L.C. to establish a single “through and out” rate for transactions among the three regional transmission organizations.

The settlement, which was signed by Cinergy, was filed on March 21, 2001. On May 8, 2001 the FERC approved the settlement. With the FERC approved settlement, the Departing Companies will be permitted to leave the Midwest ISO, and the other transmission owner members of the Midwest ISO, including Cinergy, will remain as members of the Midwest ISO until at least December 31, 2002. Also, as part of the settlement, both organizations have committed to begin operations by the end of 2001.

Repeal of PUHCA

Early in 2001, S.206, a bill to repeal the PUHCA was introduced in the U.S. Senate (Senate). It has been referred to the Senate Committee on Banking, Housing and Urban Affairs for action. Consequently, a hearing was held in the Subcommittee on Securities and Investment to identify support and opposition to this legislation. S. 206 is now awaiting action by the full Senate Committee on Banking, Housing and Urban Affairs. In addition, PUHCA repeal is part of Title VIII of S. 388, a bill introduced in the Senate that deals with a multitude of issues concerning national energy security. S. 388 is now pending before the Senate Committee on Energy and Natural Resources.

In March 2001 H.R. 1101, a bill to repeal the PUHCA, was introduced in the U.S. House of Representatives as a companion piece of legislation to S. 206. It has been referred to the House Committee on Energy and Commerce for action.

President Bush has identified the need for the repeal of the PUHCA as a priority of the federal energy legislation. We support the repeal of the PUHCA either as part of broader restructuring of the electricity industry or as separate legislation.

Significant Rate Developments

Purchased Power Tracker     As discussed in the 2000 Form 10-K, in May 1999, PSI filed a petition with the IURC seeking approval of a purchased power tracking mechanism (Tracker). This request was designed to provide for the recovery of costs related to purchases of power necessary to meet native load requirements to the extent such costs are not sought through the existing fuel adjustment clause.

Amounts relating to PSI’s 2000 purchases (approximately $20 million) have been deferred for subsequent recovery. A hearing was held on March 15, 2001 to review PSI’s 2000 purchases and rule on its associated request for recovery of costs. An IURC order in this continuing phase is expected in the second quarter of 2001.

A hearing was held on February 15, 2001 to determine whether it was appropriate for PSI to continue the Tracker for future periods. On April 11, 2001, a favorable order was received. The Tracker was extended for two years, through the summer of 2002. PSI is authorized to recover 90% of its purchased power expenses through the Tracker (net of the displaced energy portion recovered through the fuel recovery process and net of the mitigation credit portions), with the remaining 10% deferred for subsequent recovery in PSI's next general rate case (subject to a showing of prudence).

Purchased Power Agreement      ULH&P purchases its energy from CG&E pursuant to a FERC-approved contract that is due to expire on December 31, 2001. On March 20, 2001, a hearing was held before the KPSC on a proposed new five-year wholesale power supply agreement that provides for the collection of the wholesale amounts through retail rates. The power supply pass-through to retail rates will be frozen until December 31, 2006, and the transmission and distribution portion of retail rates cannot be changed before January 1, 2004. On May, 11, 2001, the agreement was approved by the KPSC.

Termination of Operating Agreement     Upon consummation of the merger between CG&E and PSI Resources Inc. in 1994, an operating agreement entered into between CG&E, PSI, and Services was filed with and approved by the FERC. This agreement was established to provide for the coordinated planning and operation of the two regulated entities' generation and transmission systems, and addressed issues such as joint dispatch of the generating systems, joint capacity and environmental compliance planning, and coordinated planning and operation of the joint transmission system.

In October 2000, CG&E, PSI, and Services filed a notice of termination of the operating agreement with the FERC. The reason for the termination filing is that, with the introduction of deregulation in the state of Ohio, the companies no longer share the common characteristics that formed the basis for the operating agreement. On December 22, 2000, the FERC ruled that the companies have the contractual right to terminate the operating agreement. Additionally, the FERC established a termination effective date of May 22, 2001, and set a May 1, 2001, hearing date on the issue of the reasonableness of termination.

Certain parties have initiated an appeal of the FERC's December 22, 2000 decision. Additionally, on March 14, 2001, the IURC initiated an investigation into the termination of the operating agreement. The parties filed a settlement with the FERC on May 9, 2001, resolving termination issues and certain compensation and damage issues. This settlement, which is pending FERC approval, extends the termination of the existing operating agreement until a new successor agreement has been allowed to become effective by the FERC. The settlement also provides that the parties will engage in negotiations concerning such a successor agreement and that PSI will file a proposed successor agreement with the IURC in the IURC investigation proceeding. As of October 15, 2001, pursuant to the settlement, Cinergy has the right to file the proposed successor agreement with the FERC for approval. The parties would then be free to contest the new agreement at the FERC. Also as part of the settlement, the parties agreed to ultimately dismiss the appeals of the December 2000 FERC decision, with prejudice, after holding such appeals in abeyance pending Cinergy's compliance with the terms of the settlement. The settlement is subject to FERC approval. At this time, we cannot predict the outcome of this matter.

MARKET RISK SENSITIVE INSTRUMENTS AND POSITIONS

We market and trade electricity, natural gas, and other energy-related products. We use over-the-counter forward and option contracts for the purchase and sale of electricity and also trade exchange-traded futures contracts.

As stated in our 2000 Form 10-K, in 2000 the Western U.S., primarily California, began experiencing unprecedented price levels for wholesale electricity. Because of the nature of deregulation in California, California’s two largest utilities have accumulated significant unpaid obligations, are having difficulty obtaining capital, and one of these utilities has declared bankruptcy. We continue to maintain a balanced Western U.S. portfolio and have no unrealized gain positions directly with these utilities. A significant portion of our Energy risk management assets and Energy risk management liabilities-current are with counterparties in the Western U.S. If prices continue at elevated levels or should these utilities be unable to fund their unpaid obligations, credit failures by power marketers could result. Given these issues, the fair values of our positions in the Western U.S. have been adjusted to reflect a higher level of credit discount. Nonperformance by any of the Western U.S. counterparties could have a material effect on the operating results of Cinergy, CG&E, and PSI.

During the first quarter, our natural gas trading volumes increased substantially. Because of this volume change and the increasing volatility of gas prices, our risk exposure to these markets has increased. However, we continue to employ value-at-risk analysis and other methodologies to mitigate our risks in all trading operations, including natural gas trading.

From time to time, we may utilize foreign exchange forward contracts and currency swaps to hedge certain of our net investments in foreign operations.

Our net exposure to changes in interest rates primarily consists of debt instruments with floating interest rates that are benchmarked to various market indices. To manage the exposure to fluctuations in interest rates and to lower funding costs, we evaluate the use of, and have entered into, interest rate swaps.

See Notes 1(b) and (c) of the “Notes to Financial Statements” in “Part I. Financial Information” for our accounting policies for certain derivative instruments. Our market risks have not changed materially from the market risks reported in the 2000 Form 10-K.

GAS INDUSTRY

ULH&P Gas Rate Case     On May 4, 2001, ULH&P filed an application with the KPSC seeking to increase base rates for natural gas distribution services by approximately $7 million annually, or 8% overall. We expect that any rate change as a result of this filing will be effective in late 2001. Simultaneously, ULH&P announced a major gas main replacement program with a capital cost of approximately $112 million over the next ten years. ULH&P has requested recovery of the costs of this program through a tracking mechanism.

Gas Customer Choice     In January 2000, Investments sold Cinergy Resources, Inc. (CRI), a former subsidiary, to Licking Rural Electrification, Inc. doing business as The Energy Cooperative (Energy Cooperative). In February 2001, Cinergy, CG&E and CRI were named as defendants in three class actions lawsuits. These lawsuits are in connection with Energy Cooperative's removal from the Ohio Gas Customer Choice program and the failure to deliver gas to customers. Subsequently, these class action suits were amended and consolidated into one suit. CG&E has been dismissed as a defendant in the consolidated suit. On March 30, 2001, Cinergy, CG&E and Investments were named as defendants in a lawsuit filed by both Energy Cooperative and CRI. This lawsuit concerns any obligations or liability Investments may have to Energy Cooperative following its sale of CRI. We intend to vigorously defend these lawsuits. At the present time, Cinergy cannot predict the outcome of these suits.

ACCOUNTING CHANGES

During 1998, the Financial Accounting Standards Board (FASB) issued Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (Statement 133). This standard is effective for fiscal years beginning after June 15, 2000, and requires companies to record derivative instruments which are not exempt under certain provisions of Statement 133 as assets or liabilities, measured at fair value (i.e., marked-to-market). Our financial statements reflect the adoption of Statement 133 in January 2001. Since many of our derivatives were previously required to use mark-to-market accounting, the effects of implementation are immaterial.

These effects do not reflect the potential impact of applying mark-to-market accounting to selected call options and forwards we use to hedge peak period exposure to electricity demand. We have not historically marked these instruments to market because they are intended as hedges of peak period exposure and are not considered trading instruments. We currently classify these types of instruments as normal purchases under Statement 133. However, the FASB-sponsored Derivatives Implementation Group (DIG) has yet to issue final guidance on these types of instruments. In April 2001, the DIG posted tentative guidance that would preclude these contracts from qualifying for the normal purchases and sales exemption. This guidance will not be final until the FASB staff considers all comments provided during a 35-day comment period. These instruments will require mark-to-market accounting unless the FASB staff reconsiders its guidance based on the comments provided. The FASB has scheduled an open meeting with utility industry representatives to discuss these issues. If ultimately required to mark these instruments to market, this could result in additional earnings volatility. At March 31, 2001, the fair value of these instruments was $14 million.

Return to Table of Contents

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This information is provided in, and incorporated by reference from, the “Market Risk Sensitive Instruments and Positions” section in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in “Part I. Financial Information” and Notes 1(b) and (c) and Note 7 of the “Notes to Financial Statements” in “Part I. Financial Information.”

Return to Table of Contents

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

NEW SOURCE REVIEW AND NOTICES OF VIOLATION

See Notes 3(b), (c) and (d) of the “Notes to Financial Statements” in “Part I. Financial Information” for a discussion of the lawsuit and notices of violation filed by the U.S. Environmental Protection Agency (EPA) against Cinergy, CG&E and PSI.

MANUFACTURED GAS PLANT SITES

See Notes 3(e) of the “Notes to Financial Statements” in “Part I. Financial Information” for a discussion of manufactured gas plant sites as they relate to our operating companies.

M METALS SUPERFUND SITE

On July 6, 2000, the EPA identified PSI and Indianapolis Power and Light Company (IPL) as Potentially Responsible Parties for the release of hazardous substances at the M Metals Superfund Site (Site) located in Indianapolis, Indiana. The EPA advised that it had taken response actions relating to the Site and had incurred costs of approximately $500,000. The EPA has demanded reimbursement of these costs incurred related to the Site and has encouraged PSI and IPL to work out an allocation between themselves for the payment of the costs. On April 19, 2001, PSI reached an agreement in principle with the EPA. Specific details of the settlement are still being negotiated.

GAS CUSTOMER CHOICE

See Note 3(f) of the "Notes to Financial Statements" in "Part I. Financial Information" for discussion of customer choice litigation. Return to Table of Contents

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

The annual meeting of shareholders of Cinergy Corp. was held May 1, 2001, in Cincinnati, Ohio. At the meeting, four Class I directors were elected to the board of Cinergy Corp. to serve three-year terms ending in 2004, as set forth below:

                       Class I              Votes For       Votes Withheld

              James K. Baker               136,738,313       3,830,186
              Michael G. Browning          136,815,180       3,753,319
              John A. Hillenbrand II       136,728,275       3,840,224
              George C. Juilfs             136,875,154       3,693,345

Additionally, an amendment to Article FOURTH of the Certificate of Incorporation of Cinergy Corp. authorizing the issuance of up to 10,000,000 shares of preferred stock, $.01 par value, was approved. Cinergy Corp.’s Board of Directors will have the right to establish, for each series of preferred stock issued from time to time, the series’ designation and number of shares; dividend rights and rates; voting, conversion and redemption rights, if any; liquidation rights; powers, preferences and relative, participating, optional or other special rights, if any; and any qualifications, limitations or restrictions on those rights. Cinergy Corp.’s Board of Directors believes that the availability of preferred stock will provide the corporation with increased flexibility in connection with future financing and similar corporate transactions. The Board of Directors has adopted resolutions that state that the preferred stock: (i) is not to be used for the principal purpose of acting as an anti-takeover device without prior shareholder approval; and (ii) is not to be given super-majority voting rights. There were 101,007,026 common shares voted for the amendment, 18,708,002 voted against the amendment, 1,864,279 abstentions, and 18,989,192 broker non-votes.

In lieu of the annual meeting of shareholders of CG&E, a resolution was duly adopted via unanimous written consent of Cinergy Corp., CG&E’s sole shareholder, effective April 30, 2001, electing the following members of the Board of Directors for one-year terms expiring in 2002:

• James E. Rogers
• R. Foster Duncan
• William J. Grealis

The annual meeting of shareholders of PSI was held May 1, 2001, in Cincinnati, Ohio. Proxies were not solicited for the annual meeting. Cinergy Corp. owns all of the 53,913,701 outstanding shares, representing a like number of votes, of the common stock of PSI. By unanimous vote, the following members of the Board of Directors were re-elected at the annual meeting for one-year terms expiring in 2002:

• Vicky A. Bailey
• James K. Baker
• Michael G. Browning
• John A. Hillenbrand II
• James E. Rogers

None of the 651,136 outstanding shares, representing 423,478 votes, of the preferred stock of PSI, were present or voted at the annual meeting.

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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

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

Exhibit
DesignationArticles of
Incorporation
/By-Laws 3a
3b

4a

Material
Contracts10a



Registrant


Cinergy
Cinergy Corp.

Cinergy Corp.
CG&E


Cinergy Corp.
CG&E
PSI

Nature of Exhibit


By-Laws of Cinergy as amended December 14, 2000.
Certificate of Incorporation of Cinergy Corp., a Delaware
Corporation.
Thirty-eighth Supplemental Indenture between CG&E and
The Bank of New York dated as of February 1, 2001.


Employment Agreement dated February 12, 2001, among
Cinergy Corp., Cinergy Services, Inc., CG&E, and PSI,
and R. Foster Duncan.
Previously Filed
as Exhibit to:









Cinergy Corp.
2000 Form 10-K.

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

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SIGNATURES

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although Cinergy Corp., The Cincinnati Gas & Electric Company (CG&E), PSI Energy Inc. (PSI), and The Union Light, Heat and Power Company (ULH&P) believe that the disclosures are adequate to make the information presented not misleading. In the opinion of Cinergy Corp., CG&E, PSI, and ULH&P, these statements reflect all adjustments (which include normal, recurring adjustments) necessary to reflect the results of operations for the respective periods. The unaudited statements are subject to such adjustments as the annual audit by independent public accountants may disclose to be necessary.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed by an officer and the chief accounting officer on their behalf by the undersigned thereunto duly authorized.

Date: May 15, 2001 CINERGY CORP.
THE CINCINNATI GAS & ELECTRIC COMPANY
PSI ENERGY, INC.
THE UNION LIGHT, HEAT AND POWER COMPANY(Registrants)



/s/ Bernard F. Roberts
Bernard F. Roberts
Duly Authorized Officer
and
Chief Accounting Officer

EX-3

                                     BY-LAWS


                                       OF

                                  CINERGY CORP.



















Adopted: October 24, 1994
Amended: January 25, 1996
Amended: December 18, 1997
Amended: April 22, 1998
Amended: October 15, 1998
Amended: April 21, 1999
Amended: April 27, 2000
Amended: December 14, 2000



                                TABLE OF CONTENTS


                                      Page

                                    ARTICLE I
                            Offices and Headquarters

Section 1.1  Offices.......................................................... 1
        1.2  Headquarters......................................................1
                                   ARTICLE II
                                  Stockholders

Section 2.1  Annual Meeting................................................... 2
        2.2  Special Meetings................................................. 4
        2.3  Notice of Meetings............................................... 4
        2.4  Quorum........................................................... 6
        2.5  Voting........................................................... 6
        2.6  Presiding Officer and Secretary.................................. 7
        2.7  Proxies.......................................................... 8
        2.8  List of Stockholders............................................. 8

                                   ARTICLE III
                                    Directors

Section 3.1  Number of Directors.............................................. 9
        3.2  Election and Term of Directors................................... 9
        3.3  Vacancies and Newly Created Directorships........................11
        3.4  Resignation..................................................... 12
        3.5  Meetings........................................................ 12
        3.6  Quorum and Voting............................................... 13
        3.7  Written Consent of Directors in Lieu of a Meeting............... 13
        3.8  Compensation.................................................... 14
        3.9  Contracts and Transactions Involving Directors.................. 14

                                   ARTICLE IV
                      Committees of the Board of Directors

Section 4.1  Appointment and Powers.......................................... 15

                                    ARTICLE V
                         Officers, Agents and Employees

Section 5.1  Appointment and Term of Office.................................. 16
        5.2  The Chairman of the Board....................................... 17
        5.3  Vice-Chairman................................................... 18
        5.4  Chief Executive Officer......................................... 18
        5.5  The President................................................... 18
        5.6  The Vice-Presidents............................................. 19
        5.7  The Secretary................................................... 19
        5.8  The Treasurer................................................... 20
        5.9  The Comptroller................................................. 21
        5.10 Resignation, Compensation and Bond.............................. 21

                                   ARTICLE VI
                                 Indemnification

Section 6.1 Indemnification of Directors, Officers, Employees and Agents..... 22
        6.2 Advances for Litigation Expenses................................. 24
        6.3 Indemnification Nonexclusive..................................... 25
        6.4 Indemnity Insurance.............................................. 25
        6.5 Definitions...................................................... 25


                                   ARTICLE VII
                                  Common Stock

Section 7.1 Certificates..................................................... 26
        7.2 Transfers of Stock............................................... 27
        7.3 Lost, Stolen or Destroyed Certificates........................... 27
        7.4 Stockholder Record Date.......................................... 27
        7.5 Beneficial Owners................................................ 29

                                  ARTICLE VIII
                                      Seal

Section 8.1 Seal............................................................. 30

                                   ARTICLE IX
                                Waiver of Notice

Section 9.1 Waiver of Notice................................................. 30

                                    ARTICLE X
                                   Fiscal Year

Section 10.1 Fiscal Year..................................................... 31

                                   ARTICLE XI
                             Contracts, Checks, etc.

Section 11.1 Contracts, Checks, etc.......................................... 31

                                   ARTICLE XII
                                   Amendments

Section 12.1 Amendments...................................................... 31

                                  ARTICLE XIII
                                    Dividends

Section 13.1 Dividends....................................................... 33





                                     BY-LAWS
                                       OF
                        CINERGY CORP. (THE "CORPORATION")

                                    ARTICLE I
                            Offices and Headquarters

     Section 1.1 Offices.  The location of the  Corporation's  principal  office
shall be in the City of  Cincinnati,  County  of  Hamilton,  State of Ohio.  The
Corporation may, in addition to the aforesaid  principal  office,  establish and
maintain an office or offices elsewhere in Delaware,  Ohio or Indiana or in such
other  states  and places as the Board of  Directors  may from time to time find
necessary or  desirable,  at which office or offices the books,  documents,  and
papers of the Corporation may be kept.
     Section 1.2  Headquarters.  Subject to the  sentence  next  following,  the
Corporation's  headquarters and executive offices,  shall be located in the City
of  Cincinnati,  County  of  Hamilton,  State  of  Ohio.  The  location  of  the
Corporation's headquarters and executive offices may be changed from the City of
Cincinnati,  County of Hamilton,  State of Ohio only by the affirmative  vote of
80% of the full Board of Directors of the Corporation and not by the vote of any
committee of the Board of  Directors.  As used in these  By-Laws,  the term "the
full Board of Directors"  shall mean all directors then in office  together with
any  vacancies,  however  created.  For the avoidance of doubt and as an example
only, if the Board of Directors  consists of 17 members and two vacancies exist,
the  affirmative  vote of 14 of the 15  members  of the  Corporation's  Board of
Directors  then in office would be required to authorize a change in location of
the  Corporation's  headquarters  and executive  offices.  The  headquarters and
executive offices of the Corporation's  subsidiary,  PSI Energy,  Inc., shall be
located in the City of Plainfield,  Indiana and the  headquarters  and executive
offices of the Corporation's subsidiary,  The Cincinnati Gas & Electric Company,
shall be located in the City of Cincinnati, Ohio.

                                   ARTICLE II
                                  Stockholders

     Section  2.1  Annual  Meeting.  An annual  meeting of  stockholders  of the
Corporation  for the election of directors and for the  transaction of any other
proper business shall be held at such time and date in each year as the Board of
Directors may from time to time determine. The annual meeting in each year shall
be held at such hour on said day and at such place  within or without  the State
of Delaware as may be fixed by the Board of  Directors,  or if not so fixed,  at
the principal  business  office of the  Corporation  in the City of  Cincinnati,
County of Hamilton, State of Ohio.
     In lieu  of the  foregoing  and at the  sole  discretion  of the  Board  of
Directors, an annual meeting of stockholders of the Corporation for the election
of directors and for the transaction of any other proper business may be held by
means of remote  communication  (e.g.,  via the Internet) to the fullest  extent
permitted by Section 211 of the Delaware General Corporation Law.
     No business may be transacted at an annual meeting of  stockholders,  other
than  business  that is either:  (a)  specified in the notice of meeting (or any
supplement  thereto)  given by or at the direction of the Board of Directors (or
any duly authorized  committee  thereof);  (b) otherwise properly brought before
the annual meeting by or at the direction of the Board of Directors (or any duly
authorized  committee  thereof);  or (c) otherwise  properly  brought before the
annual meeting by any stockholder of the  Corporation:  (i) who is a stockholder
of record on the date of the giving of the notice  provided  for in this Section
2.1 and on the record date for the  determination  of  stockholders  entitled to
vote at such annual  meeting;  and (ii) who complies with the notice  procedures
set forth in this Section 2.1.
     In  addition  to any other  applicable  requirements,  for  business  to be
properly  brought before an annual meeting by a  stockholder,  such  stockholder
must have given timely notice thereof in proper written form to the Secretary of
the Corporation.
     To be timely, a stockholder's  notice to the Secretary must be delivered to
or mailed and received at the principal executive offices of the Corporation not
less than  ninety (90)  calendar  days nor more than one  hundred  twenty  (120)
calendar days prior to the anniversary date of the immediately  preceding annual
meeting of stockholders;  provided,  however,  that in the event that the annual
meeting is called for a date that is not within thirty (30) calendar days before
or after such anniversary  date, notice by the stockholder in order to be timely
must be so received  not later than the close of  business  on the tenth  (10th)
calendar  day  following  the day on which such notice of the date of the annual
meeting was mailed or such public  disclosure of the date of the annual  meeting
was made, whichever first occurs.
     To be in proper written form, a stockholder's  notice to the Secretary must
set forth as to each matter such stockholder proposes to bring before the annual
meeting:  (i) a brief  description of the business  desired to be brought before
the annual  meeting and the reasons for  conducting  such business at the annual
meeting;  (ii) the name and record address of such stockholder;  (iii) the class
or series  and number of shares of capital  stock of the  Corporation  which are
owned  beneficially or of record by such stockholder;  (iv) a description of all
arrangements or understandings  between such stockholder and any other person or
persons (including their names) in connection with the proposal of such business
by such  stockholder  and any  material  interest  of such  stockholder  in such
business;  and (v) a representation  that such stockholder  intends to appear in
person or by proxy at the  annual  meeting  to bring  such  business  before the
meeting.
     Notwithstanding  anything to the contrary in the By-Laws, no business shall
be conducted  at the annual  meeting of  stockholders  except  business  brought
before the annual  meeting in accordance  with the  procedures set forth in this
Section 2.1;  provided,  however,  that once business has been properly  brought
before the annual meeting in accordance  with such  procedures,  nothing in this
Section 2.1 shall be deemed to preclude  discussion  by any  stockholder  of any
such business.  If the presiding  officer of an annual meeting  determines  that
business was not properly  brought before the annual meeting in accordance  with
the foregoing  procedures,  the  presiding  officer shall declare to the meeting
that the business was not properly  brought before the meeting and such business
shall not be transacted.
     Section 2.2 Special Meetings.  A special meeting of the stockholders of the
Corporation  entitled  to vote on any  business  to be  considered  at any  such
meeting  may be called by the  Chairman  of the Board or the  President  or by a
majority of the members of the Board of Directors then in office, acting with or
without a meeting,  or by the persons who hold 50% of all shares outstanding and
entitled to vote  thereat  upon notice in writing,  stating the time,  place and
purpose of the special meeting.  The business  transacted at the special meeting
shall be confined to the purposes and objects stated in the call.
     Section  2.3 Notice of  Meetings.  Whenever  stockholders  are  required or
permitted to take any action at a meeting, unless notice is waived in writing by
all  stockholders  entitled  to vote at the  meeting,  a  written  notice of the
meeting shall be given which shall state the place, if any, date and hour of the
meeting,  the means of remote  communication,  if any, by which stockholders and
proxy  holders  may be deemed to be present in person and vote at such  meeting,
and, in the case of a special  meeting,  the  purpose or purposes  for which the
meeting is called.
     In lieu of and/or in  addition to the  foregoing,  notice of any meeting of
the stockholders of the Corporation may be given via electronic transmission, to
the fullest extent permitted by Section 232 of the Delaware General  Corporation
Law. To be valid, such electronic transmission notice must be in a form to which
the  stockholder  has consented.  Any  stockholder can revoke consent to receive
notice  by  a  form  of  electronic   transmission  by  written  notice  to  the
Corporation.  Such  consent  shall  be  deemed  revoked  after  two  consecutive
electronic  transmissions  by the  Corporation  are  returned as  undeliverable;
provided,  however,  the  inadvertent  failure  to treat any such  undeliverable
notices as a  revocation  shall not  invalidate  any  meeting  or other  action.
"Electronic  transmission"  shall mean any form of  communication,  not directly
involving the physical transmission of paper, that creates a record and that may
be retained,  retrieved,  and reviewed by a recipient  thereof,  and that may be
directly  reproduced  in paper form by such a  recipient  through  an  automated
process.
     Unless  otherwise  provided by law, and except as to any  stockholder  duly
waiving notice, the written notice of any meeting shall be given personally,  by
mail, or by a form of electronic transmission consented to by the stockholder to
whom  notice is given,  not less than 10 days nor more than 60 days  before  the
date of the meeting to each  stockholder  entitled to vote at such  meeting.  If
mailed,  notice  shall be deemed  given  when  deposited  in the  mail,  postage
prepaid,  directed to the stockholder at his or her address as it appears on the
records of the  Corporation.  If by a form of  electronic  transmission,  notice
shall be deemed given when transmitted to the stockholder in accordance with the
provisions  set  forth  herein;  provided,   however,  that  if  the  electronic
transmission  notice is posted on an  electronic  network  (e.g.,  a website  or
chatroom),  notice  shall be deemed given upon the later of (A) such posting and
(B) the giving of separate notice of the posting to the stockholder.
     When a meeting is adjourned  to another  time or place,  notice need not be
given of the adjourned  meeting if the time,  place,  if any,  thereof,  and the
means of remote communications,  if any, by which stockholders and proxy holders
may be deemed to be  present in person and vote at such  adjourned  meeting  are
announced at the meeting at which the  adjournment  is taken.  At the  adjourned
meeting  the  Corporation  may  transact  any  business  which  might  have been
transacted at the original  meeting.  If,  however,  the adjournment is for more
than 30 days,  or if after the  adjournment  a new record  date is fixed for the
adjourned  meeting,  a notice of the  adjourned  meeting  shall be given to each
stockholder of record entitled to vote at the meeting.
     Section  2.4  Quorum.  Except  as  otherwise  provided  by  law  or by  the
Certificate of Incorporation or by these By-Laws in respect of the vote required
for a specified action, at any meeting of stockholders the holders of a majority
of the outstanding stock entitled to vote thereat,  either present, in person or
represented  by proxy,  shall  constitute  a quorum for the  transaction  of any
business, but the stockholders present, although less than a quorum, may adjourn
the  meeting  to  another  time or place  and,  except as  provided  in the last
paragraph  of  Section  2.3 of these  By-Laws,  notice  need not be given of the
adjourned meeting.
     Section 2.5 Voting. Whenever directors are to be elected at a meeting, they
shall be elected by a plurality of the votes of the shares  present in person or
represented  by proxy at the meeting and entitled to vote thereon.  Whenever any
corporate action,  other than the election of directors,  is to be taken by vote
of stockholders at a meeting,  it shall,  except as otherwise required by law or
by the Certificate of  Incorporation  or by these By-Laws,  be authorized by the
affirmative  vote of the majority of shares  present in person or represented by
proxy at the meeting and entitled to vote thereon.
     Except  as   otherwise   provided  by  law,  or  by  the   Certificate   of
Incorporation,  each  holder of record of stock of the  Corporation  entitled to
vote on any matter at any meeting of  stockholders  shall be entitled to one (1)
vote for each share of such  stock  standing  in the name of such  holder on the
stock ledger of the Corporation on the record date for the  determination of the
stockholders entitled to vote at the meeting.
     Upon the demand of any stockholder entitled to vote, the vote for directors
or the vote on any other  matter at a meeting  shall be by written  ballot,  but
otherwise  the method of voting and the manner in which votes are counted  shall
be discretionary with the presiding officer at the meeting.
     Section  2.6  Presiding   Officer  and  Secretary.   At  every  meeting  of
stockholders,  and where the offices of the  Chairman of the Board and the Chief
Executive  Officer  are  held by  different  individuals,  the  Chief  Executive
Officer, or, in his or her absence, the Chairman of the Board, or, in his or her
absence, the appointee of the meeting, shall preside. The Secretary,  or, in his
or her absence, an Assistant Secretary,  or if none be present, the appointee of
the presiding officer of the meeting, shall act as secretary of the meeting. The
presiding  officer  shall have the  authority  to make all rules  regarding  the
conduct of any meeting including,  but not limited to, setting the agenda and/or
determining the proper order of business,  making  arrangements  with respect to
matters of safety and security,  determining  reserved seating  arrangements for
certain  stockholders  and/or others in attendance,  establishing  guidelines or
procedures for  participation by stockholders  and/or others in attendance,  and
making  any   determination   with  respect  to  possible   adjournment   and/or
postponement.
     Section  2.7  Proxies.  Each  stockholder  entitled to vote at a meeting of
stockholders  or to express  consent or dissent to  corporate  action in writing
without a meeting may authorize  another person or persons to act for him or her
by proxy,  but no such proxy shall be voted or acted upon after three years from
its date,  unless the proxy provides for a longer  period.  Every proxy shall be
signed by the stockholder or by his duly authorized  attorney. A stockholder may
authorize  another person or persons to act for him as proxy by  transmitting or
authorizing  the  transmission  of a  telegram,  cablegram,  or  other  means of
electronic  transmission to the person who will be the holder of the proxy or to
a proxy solicitation firm, proxy support service organization or like agent duly
authorized  by the person  who will be the  holder of the proxy to receive  such
transmission if such  transmission is submitted with  information  from which it
may be determined that the transmission was authorized by the stockholder.
     Section 2.8 List of  Stockholders.  The officer who has charge of the stock
ledger of the Corporation  shall prepare and make, at least 10 days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting,  arranged in  alphabetical  order,  and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any  stockholder,  for any purpose
germane to the  meeting,  for a period of at least 10 days prior to the meeting:
(i) on a reasonably accessible electronic network, provided that the information
required to gain access to such list is provided with the notice of the meeting,
or (ii) during  ordinary  business  hours, at the principal place of business of
the Corporation. If the meeting is to be held at a place, the list shall also be
produced  and kept at the time and place of the  meeting  during  the whole time
thereof, and may be inspected by any stockholder who is present.
     If any meeting of the  Corporation's  stockholders  is to be held solely by
means of  remote  communications  (e.g.,  the  Internet),  the list must be made
available  to  the  stockholders  during  the  entire  meeting  on a  reasonably
accessible electronic network. The notice of meeting must provide information by
which the stockholder can gain access to the electronic list.
     The stock ledger shall be the only evidence as to who are the  stockholders
entitled to examine the stock  ledger,  the list required by this Section or the
books of the  Corporation,  or to vote in person or by proxy at any  meeting  of
stockholders.

                                   ARTICLE III
                                    Directors

     Section 3.1 Number of Directors.  The Board of Directors shall consist of a
number of directors not less than seven (7) and not more than  twenty-three (23)
as  determined  by a vote of not less  than 75% of the full  Board of  Directors
("Supermajority  Vote").  Any such  determination made by the Board of Directors
shall  continue in effect  unless and until changed by the Board of Directors by
Supermajority  Vote,  but no such change  shall  affect the term of any director
then in office.
     Section 3.2 Election and Term of Directors.  Only persons who are nominated
in accordance  with the following  procedures  shall be eligible for election as
directors. Except as may be required by applicable law, no person who is, at the
time of nomination, 70 years of age or older shall be eligible for election as a
director.  Nominations of persons as candidates for election as directors of the
Corporation may be made at a meeting of stockholders  (i) by or at the direction
of the Board of Directors acting by  Supermajority  Vote (or by a unanimous vote
of the remaining directors if a Supermajority Vote is not obtainable because the
number of vacancies on the Board of  Directors);  or (ii) by any  stockholder of
the  Corporation  entitled to vote for the election of directors at such meeting
who complies with the notice  procedures set forth herein.  Any nomination other
than  those  governed  by clause  (i) of the  preceding  sentence  shall be made
pursuant to timely notice in writing to the Secretary of the Corporation.  To be
timely,  a stockholder's  notice shall be delivered to or mailed and received at
the principal  office of the  Corporation  in the State of Ohio not less than 50
days prior to the meeting; provided,  however, that if less than 60 days' notice
or prior public  disclosure of the date of the meeting is given to  stockholders
or made public,  to be timely  notice by a  stockholder  must be so received not
later than the close of  business  on the tenth day  following  the day on which
such notice of the date of the meeting was mailed or such public  disclosure was
made. Such stockholder's notice to the Secretary shall set forth: (a) as to each
person whom the stockholder  proposes to nominate for election as director:  (i)
the name, age, business address,  and residence address of such person; (ii) the
principal occupation or employment of such person; (iii) the class and number of
any shares of capital stock of the Corporation  that are  beneficially  owned by
such  person;  and (iv) any other  information  relating  to such person that is
required to be  disclosed  in  solicitations  for  proxies  for the  election of
directors  pursuant to any then existing rules or regulations  promulgated under
the Securities  Exchange Act of 1934, as amended;  and (b) as to the stockholder
giving  notice:  (i) the name and record address of such  stockholder;  (ii) the
class  and  number  of  shares  of  capital  stock of the  Corporation  that are
beneficially  owned by such  stockholder,  and  (iii)  the  period  of time such
stockholder  has held such  shares.  The  Corporation  may require any  proposed
nominee to furnish such other  information  as may reasonably be required by the
Corporation to determine the eligibility of such proposed  nominee to serve as a
director.  No person  otherwise  eligible  for  election as a director  shall be
eligible for election as a director unless nominated as set forth herein.
     Commencing on October 24, 1994 (the "Classification  Date") of the Board of
Directors  of the  Corporation,  the terms of  office of the Board of  Directors
shall be divided  into three (3)  classes,  Class I, Class II and Class III,  as
determined  by the Board of  Directors.  All classes shall be as nearly equal in
number as possible.
     The terms of office of directors  classified shall be as follows:  (1) that
of Class I shall expire at the annual meeting of stockholders that occurs within
the first year after the Classification  Date, (2) that of Class II shall expire
at the annual meeting of  stockholders  that occurs within the second year after
the  Classification  Date,  and (3) that of Class III shall expire at the annual
meeting  of   stockholders   that  occurs   within  the  third  year  after  the
Classification   Date.  At  each  annual  meeting  of  stockholders   after  the
Classification  Date, the successors to directors whose terms shall expire shall
be elected to serve from the time of election and qualification  until the third
annual meeting following  election and until a successor shall have been elected
and qualified or until his earlier resignation, removal from office or death. As
being under 70 years of age constitutes a continuing  qualification  for service
on the Board of Directors, any director who reaches the age of 70 years while in
office shall,  except as limited by  applicable  law,  promptly  resign from the
Corporation's Board of Directors.
     Section 3.3 Vacancies and Newly Created Directorships.  Vacancies and newly
created  directorships  resulting from any increase in the authorized  number of
directors  may be filled by  election  at a meeting of  stockholders.  Except as
otherwise provided by law, and notwithstanding the provision of Section 3.6, the
remaining  directors,  whether  or not  constituting  a  majority  of the  whole
authorized number of directors,  may, by not less than a Supermajority  Vote (or
by a unanimous vote of the remaining  directors if a  Supermajority  Vote is not
obtainable  because of the number of vacancies on the Board of  Directors)  fill
any vacancy in the Board,  however arising,  for the unexpired term thereof. Any
person  elected  to fill a vacancy  in the Board  shall  hold  office  until the
expiration of the term of office for the class to which he or she is elected and
until  a  successor  is  elected  and  qualified  or  until  his or her  earlier
resignation, removal from office or death.
     Section 3.4  Resignation.  Any  director may resign at any time upon notice
given in writing or by  electronic  transmission  to the  Corporation.  Any such
resignation  shall take effect at the time specified  therein or, if the time be
not specified,  upon receipt  thereof,  and the acceptance of such  resignation,
unless  required  by the  terms  thereof,  shall not be  necessary  to make such
resignation effective.
     Section  3.5  Meetings.  Meetings  of the Board of  Directors,  regular  or
special,  may be held at any place  within  or  without  the State of  Delaware.
Members of the Board of Directors,  or of any committee designated by the Board,
may  participate  in a meeting of such Board or committee by means of conference
telephone  or other  communications  equipment  by means  of which  all  persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall  constitute  presence in person at such  meeting.  An annual
meeting of the Board of Directors shall be held within 10 days after each annual
election  of  directors.  If  such  election  occurs  at an  annual  meeting  of
stockholders, the annual meeting of the Board of Directors shall be held at such
time and place as shall be specified by the Board, and no notice thereof need be
given.  The Board of Directors may fix times and places for regular  meetings of
the Board and no notice of such meetings need be given. A special meeting of the
Board of Directors  shall be held whenever  called by the Chairman of the Board,
the Chief  Executive  Officer,  the  President  or by the  written  request of a
majority  of the  members of the Board of  Directors,  at such time and place as
shall be  specified  in the  notice or waiver  thereof.  Notice of each  special
meeting  shall be given by the  Secretary or by a person  calling the meeting to
each  director  in  writing,  through  the  mail,  or  personally  served  or by
telephone,  telecopy,  telegram,  cablegram  or  radiogram,  or via any  form of
electronic transmission,  in each such case within such time frame as the person
calling the meeting shall deem  appropriate,  and such notice shall be deemed to
be given at the time when the same shall be transmitted.
     Section  3.6 Quorum and Voting.  A majority of the full Board of  Directors
shall constitute a quorum for the transaction of business, but, if there be less
than a quorum  at any  meeting  of the Board of  Directors,  a  majority  of the
directors  present may adjourn  the  meeting  from time to time,  and no further
notice thereof need be given other than  announcement at the meeting which shall
be so  adjourned.  Except as otherwise  provided by law, by the  Certificate  of
Incorporation,  or by these By-Laws (including,  without  limitation,  where any
Supermajority  Vote or any other vote in excess of a majority is required),  the
vote of a majority  of the  directors  present at a meeting at which a quorum is
present shall be the act of the Board of Directors.
     Section 3.7 Written  Consent of Directors in Lieu of a Meeting.  Any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting if all members of the Board
or of such  committee,  as the case may be,  consent  thereto  in  writing or by
electronic transmission, and the writing or writings or electronic transmissions
are filed with the minutes of proceedings of the Board or committee.
     Section 3.8  Compensation.  Each  director of the  Corporation  (other than
directors  who  are  salaried   officers  of  the  Corporation  or  any  of  its
subsidiaries)  shall be entitled to receive as  compensation  for services  such
reasonable  compensation,  which  may  include  pension,  disability  and  death
benefits,  as may be  determined  from time to time by the  Board of  Directors.
Reasonable  compensation  may also be paid to any  person  other than a director
officially called to attend any such meeting.
     Section 3.9 Contracts and Transactions Involving Directors.  No contract or
transaction  between  the  Corporation  and  one or  more  of its  directors  or
officers,  or between the  Corporation and any other  corporation,  partnership,
association,  or other  organization  in which one or more of its  directors  or
officers are directors or officers, or have a financial interest,  shall be void
or voidable solely for this reason, or solely because the director or officer is
present at or participates in the meeting of the Board of Directors or committee
thereof which authorizes the contract or transaction, or solely because his, her
or their votes are counted for such  purpose,  if: (1) the material  facts as to
his or her  relationship  or interest and as to the contract or transaction  are
disclosed or are known to the Board of Directors or the committee, and the Board
or  committee  in good faith  authorizes  the  contract  or  transaction  by the
affirmative votes of a majority of the disinterested directors,  even though the
disinterested  directors be less than a quorum;  or (2) the material facts as to
his or her  relationship  or interest and as to the contract or transaction  are
disclosed or are known to the  stockholders  entitled to vote  thereon,  and the
contract or  transaction is  specifically  approved in good faith by vote of the
stockholders;  or (3) the contract or transaction is fair as to the  Corporation
as of  the  time  it is  authorized,  approved  or  ratified,  by the  Board  of
Directors,  a  committee  thereof,  or the  stockholders.  Common or  interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of  Directors  or of a  committee  which  authorizes  the  contract or
transaction.

                                   ARTICLE IV
                      Committees of the Board of Directors

     Section  4.1  Appointment  and  Powers.  The  Board of  Directors  may,  by
resolution  adopted by a  majority  of the  Board,  designate  from time to time
(subject to Article V hereof) no less than three (3) and no more than six (6) of
their  number to  constitute  an Executive  Committee,  and may delegate to such
committee  power to authorize the seal of the  Corporation  to be affixed to all
papers  which may  require  it and to  exercise  in the  intervals  between  the
meetings of the Board of Directors the powers of the Board in the  management of
the business and affairs of the  Corporation to the fullest extent  permitted by
Section 141(c)(1) of the Delaware General  Corporation Law;  provided,  however,
that the Executive  Committee  shall not have the power or authority to take any
action for which a  Supermajority  Vote or other vote in excess of a majority of
the Board of Directors is required. Each member of the Executive Committee shall
continue to be a member  thereof  only during the  pleasure of a majority of the
full Board of Directors.
     The  Executive  Committee may act by a majority of its members at a meeting
or by a writing signed by all of its members.
     All action by the  Executive  Committee  shall be  reported to the Board of
Directors at its meeting next succeeding such action.
     Non-employee  members of such  Executive  Committee  shall be  entitled  to
receive such fees and compensation as the Board of Directors may determine.
     The Board of Directors  may also appoint a Finance  Committee,  a Corporate
Governance  Committee,  an Audit  Committee,  a Public  Policy  Committee  and a
Compensation  Committee  and may also appoint  such other  standing or temporary
committees from time to time as they may see fit,  delegating to such committees
all or any  part of  their  own  powers  (subject  to the  provisions  of  these
By-Laws);  provided, however, that any compensation or benefits to be paid to an
executive  officer  who is also a  director  must be  approved  by the  Board of
Directors. The members of such committees shall be entitled to receive such fees
as the Board may determine.
     The Board of Directors  shall not amend,  modify,  vary or waive any of the
terms of the Amended and Restated  Agreement and Plan of  Reorganization  by and
among The Cincinnati Gas & Electric  Company,  PSI Resources,  Inc., PSI Energy,
Inc., the Corporation, Cinergy Corp., an Ohio corporation, and Cinergy Sub, Inc.
dated as of December 11, 1992, as amended and restated as of July 2, 1993 and as
of September 10, 1993 and as further amended as of June 20, 1994, as of July 26,
1994 and as of  September  30,  1994 (the  "Merger  Agreement")  other than by a
Supermajority Vote of the Board of Directors.

                                    ARTICLE V
                         Officers, Agents and Employees

     Section 5.1 Appointment and Term of Office.  The executive  officers of the
Corporation,  shall consist of a Chairman of the Board, a Vice-Chairman, a Chief
Executive  Officer, a President,  one or more  Vice-Presidents,  a Secretary,  a
Treasurer  and a  Comptroller,  all of whom  shall be  elected  by the  Board of
Directors by a  Supermajority  Vote,  and shall hold office for one (1) year and
until their successors are chosen and qualified.  Any number of such offices may
be held by the same person, but no officer shall execute,  acknowledge or verify
any instrument in more than one capacity. Any vacancy occurring in the office of
the  Chairman,   Chief  Executive   Officer  or  President  shall  be  filed  by
Supermajority  Vote of the Board of  Directors.  The Chairman,  Chief  Executive
Officer  or  President  shall  be  subject  to  removal  without  cause  only by
Supermajority  Vote of the Board of Directors at a special  meeting of the Board
of Directors called for that purpose.
     The Board of Directors may appoint, and may delegate power to appoint, such
other non-executive  officers,  agents and employees as it may deem necessary or
proper,  who shall hold their  offices or  positions  for such terms,  have such
authority  and perform such duties as may from time to time be  determined by or
pursuant to authorization of the Board of Directors.
     Section 5.2 The Chairman of the Board. The Chairman of the Board shall be a
director and shall preside at all meetings of the Board of Directors and, in the
absence  or  inability  to act of  the  Chief  Executive  Officer,  meetings  of
stockholders  and shall,  subject to the Board's  direction and control,  be the
Board's representative and medium of communication, and shall perform such other
duties as may from  time-to-time  be  assigned  to the  Chairman of the Board by
Supermajority  Vote of the Board of  Directors.  The Chairman of the Board shall
direct the long-term  strategic  planning  process of the  Corporation and shall
also  lend his or her  expertise  to the  President,  as may be  requested  from
time-to-time  by the President.  The Chairman shall be a member of the Executive
Committee.
     Section  5.3  Vice-Chairman.  The  Vice-Chairman  of the  Board  shall be a
director and shall  preside at meetings of the Board of Directors in the absence
or inability to act of the Chairman of the Board or meetings of  stockholders in
the absence or inability to act of the Chief Executive  Officer and the Chairman
of the Board.  The  Vice-Chairman  shall  perform  such other duties as may from
time-to-time  be  assigned to him or her by  Supermajority  Vote of the Board of
Directors.  The Vice-Chairman  shall be a member of the Executive  Committee and
may be a member of such other  committees  of the Board as it shall from time to
time deem appropriate.
     Section 5.4 Chief Executive Officer. The Chief Executive Officer shall be a
director  and shall  preside at all  meetings of the  stockholders,  and, in the
absence or inability to act of the Chairman of the Board and the  Vice-Chairman,
meetings of the Board of Directors,  and shall submit a report of the operations
of the  Corporation  for the fiscal  year to the  stockholders  at their  annual
meeting and from time-to-time shall report to the Board of Directors all matters
within his or her knowledge  which the interests of the  Corporation may require
be brought to their notice. The Chief Executive Officer shall be the chairman of
the  Executive  Committee  and ex officio a member of all  standing  committees.
Where the offices of President and Chief Executive Officer are held by different
individuals, the President will report directly to the Chief Executive Officer.
     Section  5.5 The  President.  The  President  shall be the chief  operating
officer  of the  Corporation.  The  President  shall  have  general  and  active
management  and  direction  of  the  affairs  of  the  Corporation,  shall  have
supervision of all departments and of all officers of the Corporation, shall see
that the orders and  resolutions  of the Board of Directors and of the Executive
Committee are carried into effect,  and shall have the general powers and duties
of  supervision  and  management  usually vested in the office of President of a
corporation.  All corporate officers and functions except those reporting to the
Chairman of the Board or the Chief  Executive  Officer shall report  directly to
the President.
     Section 5.6 The  Vice-Presidents.  The  Vice-Presidents  shall perform such
duties as the Board of  Directors  shall,  from  time to time,  require.  In the
absence or incapacity of the  President,  the Vice  President  designated by the
President or Board of Directors or Executive Committee shall exercise the powers
and duties of the President.
     Section 5.7 The Secretary.  The Secretary  shall attend all meetings of the
Board of Directors,  of the Executive  Committee and any other  committee of the
Board of Directors and of the  stockholders  and act as clerk thereof and record
all  votes  and the  minutes  of all  proceedings  in a book to be kept for that
purpose,  and  shall  perform  like  duties  for the  standing  committees  when
required.
     The Secretary shall keep in safe custody the seal of the  Corporation  and,
whenever authorized by the Board of Directors or the Executive Committee,  affix
the seal to any instrument requiring the same.
     The Secretary  shall see that proper notice is given of all the meetings of
the  stockholders  of the  Corporation  and of the Board of Directors  and shall
perform such other duties as may be prescribed from time to time by the Board of
Directors, the Chairman, the Chief Executive Officer, or the President.
     Assistant  Secretaries.  At the request of the Secretary,  or in his or her
absence or inability to act, the  Assistant  Secretary or, if there be more than
one, the  Assistant  Secretary  designated by the  Secretary,  shall perform the
duties of the  Secretary  and when so acting shall have all the powers of and be
subject to all the  restrictions  of the  Secretary.  The Assistant  Secretaries
shall  perform such other duties as may from time to time be assigned to them by
the President, the Secretary, or the Board of Directors.
     Section 5.8 The Treasurer.  The Treasurer shall be the financial officer of
the  Corporation,  shall keep full and  accurate  accounts  of all  collections,
receipts and disbursements in books belonging to the Corporation,  shall deposit
all moneys and other valuables in the name and to the credit of the Corporation,
in such  depositories  as may be  directed  by the  Board  of  Directors,  shall
disburse  the  funds  of the  Corporation  as may be  ordered  by the  Board  of
Directors,  the Chairman, the Chief Executive Officer, or the President,  taking
proper vouchers therefor, and shall render to the President, the Chief Executive
Officer, the Chairman, and/or directors at all regular meetings of the Board, or
whenever they may require it, and to the annual meeting of the stockholders,  an
account  of all  his or  her  transactions  as  Treasurer  and of the  financial
condition of the Corporation.
     The  Treasurer  shall  also  perform  such  other  duties  as the  Board of
Directors,  the Chairman, the Chief Executive Officer, or the President may from
time to time require.
     If  required  by the  Board  of  Directors  the  Treasurer  shall  give the
Corporation a bond in a form and in a sum with surety  satisfactory to the Board
of Directors for the faithful performance of the duties of his or her office and
the restoration to the Corporation in the case of his or her death,  resignation
or removal from office of all books, papers,  vouchers, money and other property
of whatever kind in his or her possession belonging to the Corporation.
     Assistant  Treasurers.  At the request of the  Treasurer,  or in his or her
absence or inability to act, the  Assistant  Treasurer or, if there be more than
one, the  Assistant  Treasurer  designated by the  Treasurer,  shall perform the
duties of the  Treasurer  and when so acting shall have all the powers of and be
subject to all the restrictions of the Treasurer. The Assistant Treasurers shall
perform  such other  duties as may from time to time be  assigned to them by the
President, the Treasurer, or the Board of Directors.
     Section 5.9 The  Comptroller.  The Comptroller  shall have control over all
accounts  and  records of the  Corporation  pertaining  to  moneys,  properties,
materials  and  supplies.  He or she shall  have  executive  direction  over the
bookkeeping and accounting  departments and shall have general  supervision over
the records in all other departments pertaining to moneys, properties, materials
and supplies.  He or she shall have such other powers and duties as are incident
to the office of Comptroller of a corporation  and shall be subject at all times
to the direction and control of the Board of Directors,  the Chairman, the Chief
Executive Officer, the President, or a Vice President.
     Assistant Comptrollers. At the request of the Comptroller, or in his or her
absence or inability to act, the Assistant Comptroller or, if there be more than
one, the Assistant Comptroller designated by the Comptroller,  shall perform the
duties of the Comptroller and when so acting shall have all the powers of and be
subject to all the restrictions of the Comptroller.  The Assistant  Comptrollers
shall  perform such other duties as may from time to time be assigned to them by
the President, the Comptroller, or the Board of Directors.
     Section 5.10  Resignation,  Compensation  and Bond.  Any  resignation  from
office by any  officer of the  Corporation  also shall be deemed,  to the extent
applicable,  to be a resignation  from any similar office held by such resigning
officer at any  affiliate or  subsidiary of the  Corporation,  unless  otherwise
expressly provided for within the resigning officer's letter of resignation. The
compensation  of  the  officers  of  the  Corporation  shall  be  fixed  by  the
Compensation Committee of the Board of Directors or, in lieu of the Compensation
Committee,  by the Board of  Directors,  but this power may be  delegated to any
officer in respect of other officers under his or her control.  The  Corporation
may secure the  fidelity of any or all of its  officers,  agents or employees by
bond or otherwise.

                                   ARTICLE VI
                                 Indemnification

    Section 6.1 Indemnification of Directors, Officers, Employees and Agents.
     (A) Any person who was or is a party or is threatened to be made a party to
any threatened,  pending or completed action, suit or proceeding, whether civil,
criminal,  administrative or investigative  (other than any action or suit by or
in the right of the  Corporation) by reason of the fact that he or she is or was
a director,  officer, employee or agent of the Corporation, or is or was serving
at the request of the Corporation as a director,  officer,  employee or agent of
another  corporation,  partnership,  joint  venture,  trust or other  enterprise
(specifically  including  employee  benefit plans),  shall be indemnified by the
Corporation,  if, as and to the extent  authorized  by applicable  law,  against
expenses   (specifically   including   attorney's   fees),   judgments,    fines
(specifically including any excise taxes assessed on a person with respect to an
employee  benefit plan) and amounts paid in settlement  actually and  reasonably
incurred  by him or her in  connection  with the defense or  settlement  of such
action, suit or proceeding,  if he or she acted in good faith and in a manner he
or she reasonably  believed to be in or not opposed to the best interests of the
Corporation  and,  with respect to any  criminal  action or  proceeding,  had no
reasonable cause to believe his or her conduct was unlawful.  The termination of
any action, suit or proceeding by judgment, order, settlement, or conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption  that the person did not act in good faith and in a manner he or she
reasonably  believed  to be in and not  opposed  to the  best  interests  of the
Corporation  and, with respect to any criminal  action or proceeding,  he or she
had no reasonable cause to believe his or her conduct was unlawful.
     (B) The Corporation  shall, to the extent not prohibited by applicable law,
indemnify  or  agree  to  indemnify  any  person  who was or is a  party,  or is
threatened to be made a party, to any threatened,  pending,  or completed action
or suit by or in the right of the Corporation to procure a judgment in its favor
by reason of the fact that he or she is or was a director, officer, employee, or
agent of the  Corporation or is or was serving at the request of the Corporation
as a director,  trustee,  officer,  employee,  or agent of another  corporation,
domestic or foreign, non-profit or for-profit, partnership, joint venture, trust
or other enterprise  (specifically  including  employee benefit plans),  against
expenses (including  attorneys' fees) actually and reasonably incurred by him or
her in connection with the defense or settlement of such action or suit if he or
she acted in good  faith  and in a manner  reasonably  believed  to be in or not
opposed  to  the  best   interests  of  the   Corporation;   provided  that,  no
indemnification  shall be made in respect  of any  claim,  issue or matter as to
which such  person  shall  have been  adjudged  to be liable to the  Corporation
unless and only to the extent  that the Court of  Chancery or the court in which
such action or suit was brought shall determine upon application  that,  despite
the adjudication of liability but in view of all the  circumstances of the case,
such person is fairly and  reasonably  entitled to indemnity  for such  expenses
which the Court of Chancery or such other court shall deem proper.
     (C) To the extent  that a director or officer of the  Corporation  has been
successful  on the  merits or  otherwise  in  defense of any  action,  suit,  or
proceeding  referred  to in the  paragraphs  (A) or (B) of this  Section,  or in
defense of any claim,  issue, or matter therein,  he or she shall be indemnified
against  expenses,   specifically   including   attorneys'  fees,  actually  and
reasonably incurred by him or her in connection therewith.
     (D) Any  indemnification  under  Paragraphs  (A)  and (B) of this  Section,
unless ordered by a court,  shall be made by the Corporation  only as authorized
in the specific case upon a determination that  indemnification of the director,
officer, employee, or agent is proper in the circumstances because he or she has
met the applicable standard of conduct set forth in such Paragraphs (A) and (B).
Such determination shall be made as follows: (1) by a majority vote of the Board
of Directors,  even if less than a quorum,  consisting of directors who were not
parties  to  such  action,  suit,  or  proceeding;  (2) by a  committee  of such
directors  designated by a majority vote of such directors,  even if less than a
quorum;  (3) if the quorum described in (D)(1) of this Section is not obtainable
or, even if  obtainable  a quorum of  disinterested  directors  so  directs,  by
independent legal counsel in a written opinion; or (4) by the stockholders.
     Section  6.2  Advances  for  Litigation   Expenses.   Expenses   (including
attorneys'  fees)  incurred by a director,  officer,  employee,  or agent of the
Corporation in defending any civil,  criminal,  administrative  or investigative
action,  suit  or  proceeding,  shall  be paid by the  Corporation  as they  are
incurred in advance of the final disposition of such action,  suit or proceeding
upon  receipt  of an  undertaking  by or on  behalf of such  director,  officer,
employee,  or  agent:  (1) to  repay  such  amount  if it  shall  ultimately  be
determined  that he is not  entitled to be  indemnified  by the  Corporation  as
authorized  in  this  Article  VI;  and (2) to  cooperate  reasonably  with  the
Corporation concerning the action, suit or proceeding.
     Section 6.3 Indemnification  Nonexclusive.  The indemnification provided by
this  Article  shall not be  exclusive  of and shall be in addition to any other
rights  granted  to those  seeking  indemnification  under  the  Certificate  of
Incorporation,  these  By-Laws,  any  agreement,  any  vote of  stockholders  or
disinterested  directors or otherwise,  both as to action in his or her official
capacity  and as to action in another  capacity  while  holding  such office and
shall continue as to a person who has ceased to be a director, trustee, officer,
employee, or agent and shall inure to the benefit of the heirs,  executors,  and
administrators of such a person.
     Section 6.4 Indemnity Insurance.  The Corporation may purchase and maintain
insurance  or furnish  similar  protection,  including  but not limited to trust
funds, letters of credit, or self-insurance,  on behalf of or for any person who
is or was a director,  officer, employee, or agent of the Corporation,  or is or
was serving at the request of the Corporation as a director,  trustee,  officer,
employee or agent of another corporation,  domestic or foreign, nonprofit or for
profit,  partnership,  joint venture,  trust, or other  enterprise,  against any
liability  asserted  against  him or her and  incurred by him or her in any such
capacity,  or  arising  out of his or her  status  as such,  whether  or not the
Corporation  would have the power to indemnify him or her against such liability
under this Article.  Insurance may be purchased from or maintained with a person
in which the Corporation has a financial interest.
     Section 6.5  Definitions.  For purposes of this  Article:  (1) a person who
acted in good faith and in a manner he or she  reasonably  believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
conclusively  be  deemed  to have  acted in a manner  "not  opposed  to the best
interests  of the  Corporation";  (2) a person  shall be deemed to have acted in
"good faith" and in a manner he  reasonably  believed to be in or not opposed to
the best interests of the  Corporation,  or, with respect to any criminal action
or  proceeding,  to have had no  reasonable  cause to believe  his  conduct  was
unlawful,  if his  action is based on the  records  or books of  account  of the
Corporation  or another  enterprise,  or on  information  supplied to him by the
officers of the Corporation or another enterprise in the course of their duties,
or on the advice of legal counsel for the  Corporation or another  enterprise or
on  information  or records given or reports made to the  Corporation or another
enterprise by an independent  certified public  accountant or by an appraiser or
other  expert  selected  with  reasonable  care by the  Corporation  or  another
enterprise;  (3) the term "another  enterprise" as used in this Article VI shall
mean any other corporation or any partnership,  joint venture,  trust,  employee
benefit plan or other  enterprise  of which such person is or was serving at the
request of the Corporation as a director,  officer,  employee or agent;  and (4)
references  to "the  Corporation"  shall  include,  in addition to the resulting
corporation,  any  constituent  corporation  (including  any  constituent  of  a
constituent)  absorbed in a  consolidation  or merger,  which,  if its  separate
existence  had  continued,  would have had power and  authority to indemnify its
directors, officers, employees, and agents.

                                   ARTICLE VII
                                  Common Stock

     Section 7.1  Certificates.  Certificates for stock of the Corporation shall
be in such  form as shall be  approved  by the Board of  Directors  and shall be
signed in the name of the Corporation by the Chairman or the President or a Vice
President,  and by the Treasurer or an Assistant Treasurer,  or the Secretary or
an Assistant  Secretary.  Such  certificates  may be sealed with the seal of the
Corporation  or  a  facsimile  thereof.  Any  of  or  all  the  signatures  on a
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose  facsimile  signature has been placed upon a certificate
shall have ceased to be such officer,  transfer  agent or registrar  before such
certificate is issued,  it may be issued by the Corporation with the same effect
as if he or she were such  officer,  transfer  agent or registrar at the date of
issue.
     Section 7.2 Transfers of Stock.  Transfers of stock shall be made only upon
the books of the  Corporation  by the  holder,  in person or by duly  authorized
attorney, and on the surrender of the certificate or certificates for such stock
properly endorsed.  The Board of Directors shall have the power to make all such
rules and regulations,  not  inconsistent  with the Certificate of Incorporation
and these  By-Laws and the law, as the Board of Directors  may deem  appropriate
concerning the issue, transfer and registration of certificates for stock of the
Corporation. The Board of Directors or the Finance Committee may appoint one (1)
or more transfer agents or registrars of transfers, or both, and may require all
stock certificates to bear the signature of either or both.
     Section 7.3 Lost,  Stolen or Destroyed  Certificates.  The  Corporation may
issue a new stock certificate in the place of any certificate theretofore issued
by it, alleged to have been lost,  stolen or destroyed,  and the Corporation may
require the owner of the lost,  stolen or  destroyed  certificate  or his or her
legal  representative  to give the Corporation a bond sufficient to indemnify it
against any claim that may be made  against it on account of the  alleged  loss,
theft or  destruction  of any such  certificate  or the issuance of any such new
certificate.  The Board of  Directors  may require  such owner to satisfy  other
reasonable requirements.
     Section 7.4 Stockholder  Record Date. (A) In order that the Corporation may
determine  the  stockholders  entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the Board of Directors may fix a record
date, which record date shall not be more than sixty (60) nor less than ten (10)
days before the date of such meeting.
     If no record date is fixed by the Board of  Directors,  the record date for
determining  stockholders  entitled  to  notice  of or to vote at a  meeting  of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given,  or, if notice is waived,  at the close of business on
the day next preceding the day on which the meeting is held.
     A determination  of stockholders of record entitled to notice of or to vote
at a meeting of  stockholders  shall apply to any  adjournment  of the  meeting;
providing,  however,  that the Board of Directors  may fix a new record date for
the adjourned meeting.
     (B) In order that the Corporation may determine the  stockholders  entitled
to  consent to  corporate  action in  writing  without a  meeting,  the Board of
Directors  may fix a record  date,  which record date shall not precede the date
upon which the  resolution  fixing  the  record  date is adopted by the Board of
Directors,  and which record date shall not be more than ten days after the date
upon which the  resolution  fixing  the  record  date is adopted by the Board of
Directors.  If no  record  date has been  fixed by the Board of  Directors,  the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting,  when no prior action by the Board of Directors is
required  by law,  shall be the  first  date on which a signed  written  consent
setting  forth the action  taken or  proposed  to be taken is  delivered  to the
Corporation  by delivery to its registered  office in this State,  its principal
place of business,  or an officer or agent of the Corporation  having custody of
the book in which proceedings of meetings of stockholders are recorded. Delivery
made to a  corporation's  registered  office shall be by hand or by certified or
registered mail, return receipt  requested.  If no record date has been fixed by
the Board of Directors and prior action by the Board of Directors is required by
law,  the  record  date for  determining  stockholders  entitled  to  consent to
corporate  action in writing without a meeting shall be at the close of business
on the day on which the Board of Directors  adopts the  resolutions  taking such
prior action.
     (C) In order that the Corporation may determine the  stockholders  entitled
to receive  payment of any  dividend or other  distribution  or allotment of any
rights or the  stockholders  entitled to  exercise  any rights in respect of any
change,  conversion or exchange of stock, or for the purpose of any other lawful
action,  the Board of Directors  may fix a record date,  which record date shall
not  precede  the date upon  which the  resolution  fixing  the  record  date is
adopted,  and which  record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such  purpose  shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
     Section  7.5  Beneficial  Owners.  The  Corporation  shall be  entitled  to
recognize the exclusive  right of a person  registered on its books as the owner
of shares to receive  dividends,  and to vote as such owner,  and to hold liable
for  calls  and  assessments  a person  registered  on its books as the owner of
shares,  and shall not be bound to recognize  any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof,  except as otherwise  provided by
law.
                                  ARTICLE VIII
                                      Seal

     Section 8.1 Seal. The seal of the Corporation shall be circular in form and
shall bear,  in addition to any other emblem or device  approved by the Board of
Directors,  the name of the Corporation,  the year of its  incorporation and the
words "Corporate  Seal" and "Delaware".  The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or in any other manner reproduced.

                                   ARTICLE IX
                                Waiver of Notice
     Section  9.1 Waiver of Notice.  Whenever  notice is required to be given by
statute,  or under any provision of the  Certificate of  Incorporation  or these
By-Laws, a written waiver thereof, signed by the person entitled to notice, or a
waiver by  electronic  transmission  by the person  entitled to notice,  whether
before or after the time stated therein,  shall be deemed  equivalent to notice.
In the case of a  stockholder,  such  waiver  of  notice  may be  signed by such
stockholder's  attorney  or proxy duly  appointed  in writing.  Attendance  of a
person at a meeting shall constitute a waiver of notice of such meeting,  except
when the person attends a meeting for the express  purpose of objecting,  at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully  called or convened.  Neither the business to be transacted  at,
nor the  purpose  of,  any  regular  or  special  meeting  of the  stockholders,
directors  or members of a  committee  of  directors  need be  specified  in any
written waiver of notice or any waiver by electronic transmission.


                                    ARTICLE X
                                   Fiscal Year

     Section 10.1 Fiscal Year. The Fiscal Year of the Corporation shall begin on
the first day of January and terminate on the  thirty-first day of December each
year.
                                                     ARTICLE XI
                                               Contracts, Checks, etc.

     Section 11.1 Contracts,  Checks, etc. The Board of Directors or the Finance
Committee may by  resolution  adopted at any meeting  designate  officers of the
Corporation who may in the name of the Corporation  execute  contracts,  checks,
drafts, and orders for the payment of money in its behalf and, in the discretion
of the Board of  Directors  or the Finance  Committee,  such  officers may be so
authorized  to sign such  contracts or checks  singly  without the  necessity of
counter-signature.

                                                     ARTICLE XII
                                                     Amendments

     Section 12.1  Amendments.  Except as set forth below,  these By-Laws may be
amended or repealed by the Board of Directors or by the affirmative  vote of the
holders  of a  majority  of the  issued  and  outstanding  common  stock  of the
Corporation,  or by the unanimous  written  consent of the holders of the issued
and outstanding common stock of the Corporation.
     Notwithstanding  the  foregoing  paragraph,  the  affirmative  vote  of the
holders of at least 80% of the issued and outstanding  shares of common stock of
the  Corporation  shall be  required  to amend,  alter or  repeal,  or adopt any
provision  inconsistent  with,  the  requirements  of Section 2.2,  Section 3.1,
Section 3.2, Section 3.3 or this paragraph of Section 12.1 of these By-Laws,  in
addition to any  requirements  of law and any  provisions of the  Certificate of
Incorporation,  any By-law,  or any resolution of the Board of Directors adopted
pursuant to the Certificate of Incorporation (and  notwithstanding that a lesser
percentage  may be specified by law, the  Certificate  of  Incorporation,  these
By-Laws, such resolution, or otherwise).
     Notwithstanding any of the foregoing, the affirmative vote of a majority of
the holders of the issued and outstanding  common stock of the Corporation shall
be required to amend, alter or repeal, or adopt any provision  inconsistent with
(i) any provision of these By-Laws  requiring a Supermajority  Vote of the Board
of  Directors   (including   this   provision  of  Section  12.1)  or  (ii)  the
responsibilities  of the Chief  Executive  Officer or  President as set forth in
Section 5.4 or Section 5.5, and the Board of Directors  shall not  recommend any
such  amendment  to such  provisions  to the  stockholders  unless the  proposed
amendment is approved by the Board of Directors acting by Supermajority Vote.

                                  ARTICLE XIII
                                    Dividends

     Section  13.1   Dividends.   Dividends   upon  the  capital  stock  of  the
Corporation,  subject to the provisions of the Certificate of Incorporation,  if
any,  may be  declared  by the Board of  Directors  at any  regular  or  special
meeting,  and may be paid in cash,  in  property,  or in shares  of the  capital
stock.  Before payment of any dividend,  there may be set aside out of any funds
of the  Corporation  available  for  dividends  such sum or sums as the Board of
Directors  from time to time,  in its  absolute  discretion,  deems  proper as a
reserve or reserves to meet contingencies,  or for equalizing dividends,  or for
repairing  or  maintaining  any property of the  Corporation,  or for any proper
purpose, and the Board of Directors may modify or abolish any such reserve.

EX-3

                          CERTIFICATE OF INCORPORATION
                                       OF
                                  Cinergy Corp.
                        (as amended through may 10, 2001)

     The  undersigned,  for the purpose of  organizing a  corporation  under the
General Corporation Law of the State of Delaware (the "DGCL"), certifies:
     FIRST: The name of the corporation is Cinergy Corp.
     SECOND: The address of the corporation's  registered office in the State of
Delaware  is 1209  Orange  Street,  Wilmington,  Delaware  19801,  County of New
Castle.  The name of its  registered  agent at such  address is The  Corporation
Trust Company.
     THIRD:  The  purpose of the  corporation  is to engage in any lawful act or
activity for which corporations may be organized under the DGCL.
     FOURTH:  The total  number of shares of stock which the  corporation  shall
have authority to issue is 610,000,000 shares, of which 600,000,000 shares shall
be designated  common stock,  par value $.01 per share,  and  10,000,000  shares
shall be  designated  preferred  stock,  par  value  $.01 per  share.  Except as
provided in this Certificate of Incorporation, each holder of common stock shall
have one vote in  respect  of each  share  of stock  held by him on all  matters
submitted  to a vote of  stockholders  of the  corporation.  In the  election of
directors  of the  corporation,  the  principle of  cumulative  voting shall not
apply.
     The Board of  Directors  is hereby  expressly  authorized  to provide  for,
designate  and issue out of the  authorized  but  unissued  shares of  preferred
stock,  one or  more  series  of  preferred  stock,  subject  to the  terms  and
conditions  set forth  herein.  Before any shares of any such series are issued,
the Board of Directors  shall fix, and hereby is expressly  empowered to fix, by
resolution or  resolutions,  the following  provisions of the shares of any such
series:
i.   the  designation  of such series,  the number of shares to constitute  such
     series  and the  stated  value  thereof,  if  different  from the par value
     thereof;
ii.  whether the shares of such series  shall have voting  rights or powers,  in
     addition to any voting  rights  required  by law,  and, if so, the terms of
     such voting rights or powers, which may be full or limited;
iii. the dividends,  if any, payable on such series,  whether any such dividends
     shall be cumulative,  and, if so, from what dates, the conditions and dates
     upon which such  dividends  shall be payable,  the  preference  or relation
     which  such  dividends  shall  bear to the  dividends  payable on any other
     series of preferred stock or on any other class of stock of the corporation
     or any series of such class;
iv.  whether the shares of such  series  shall be subject to  redemption  by the
     corporation,  and, if so, the times,  prices and other  conditions  of such
     redemption;
v.   the amount or amounts  payable  upon  shares of such series  upon,  and the
     rights of the  holders  of such  series in, the  voluntary  or  involuntary
     liquidation,  dissolution  or winding up, or upon any  distribution  of the
     assets, of the corporation and the preference or relation which such amount
     or amounts shall bear to the amount or amounts  payable on any other series
     of preferred stock or on any other class of stock of the corporation or any
     series of such class;
vi.  whether the shares of such series  shall be subject to the  operation  of a
     retirement  or sinking  fund and,  if so, the extent to and manner in which
     any such  retirement  or sinking  fund shall be applied to the  purchase or
     redemption of the shares of such series for  retirement or other  corporate
     purposes and the terms and provisions relative to the operation thereof;
vii. whether  the  shares  of  such  series  shall  be   convertible   into,  or
     exchangeable  for,  shares of  preferred  stock of any other  series or any
     other class of stock of the  corporation or any series of such class or any
     other  securities  and,  if so, the price or prices or the rate or rates of
     conversion or exchange and the method,  if any, of adjusting the same,  and
     any other terms and conditions of such conversion or exchange;
viii.the limitations and restrictions,  if any, to be effective while any shares
     of such series are outstanding  upon the payment of dividends or the making
     of other  distributions  on,  and upon the  purchase,  redemption  or other
     acquisition by the  corporation of, the common stock or shares of preferred
     stock of any other series or any other class of stock of the corporation or
     any series of such class;
ix.  the conditions or restrictions, if any, to be effective while any shares of
     such  series are  outstanding  upon the  creation  of  indebtedness  of the
     corporation  or  upon  the  issuance  of any  additional  stock,  including
     additional  shares of such series or of any other  series of the  preferred
     stock or of any  class of stock of the  corporation  or any  series of such
     class; and
x.   any other powers,  designations,  preferences and relative,  participating,
     optional or other special rights,  and any  qualifications,  limitations or
     restrictions thereof.

The powers, designations,  preferences and relative, participating,  optional or
other special rights of each series of preferred stock, and the  qualifications,
limitations or  restrictions  thereof,  if any, may differ from those of any and
all other  series at any time  outstanding.  The  Board of  Directors  is hereby
expressly  authorized  from  time to time to  increase  (but not above the total
number of authorized  shares of preferred  stock) or decrease (but not below the
number of shares thereof then  outstanding) the number of shares of stock of any
series of  preferred  stock  designated  as any one or more series of  preferred
stock.
     FIFTH:  The  name  and  mailing  address  of the  incorporator  is  Brad J.
Schwartzberg, 1 Chase Manhattan Plaza, 55th Floor, New York, New York 10005.
     SIXTH: A director of the corporation  shall not be personally liable to the
corporation  or its  stockholders  for monetary  damages for breach of fiduciary
duty as a director,  except for liability  (i) for any breach of the  director's
duty of  loyalty  to the  corporation  or its  stockholders,  (ii)  for  acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation  of  law,  (iii)  under  Section  174 of the  DGCL,  or  (iv)  for any
transaction from which the director derived any improper  personal  benefit.  If
the  DGCL is  amended  after  the  date of the  filing  of this  Certificate  of
Incorporation to authorize  corporate action further eliminating or limiting the
personal  liability  of  directors,  then the  liability  of a  director  of the
corporation  shall be eliminated or limited to the fullest  extent  permitted by
the DGCL, as so amended.  No repeal or  modification of this Article SIXTH shall
apply to or have  any  effect  on the  liability  or  alleged  liability  of any
director of the corporation for or with respect to any acts or omissions of such
director occurring prior to such repeal or modification.
     SEVENTH:  The directors  shall have the power to make,  alter or repeal the
By-Laws of this corporation  (subject to any stockholder  approvals  required in
this Certificate of  Incorporation or By-Laws of the corporation)  except as may
otherwise be provided in this Certificate of Incorporation or in the By-Laws.
     EIGHTH:  The affirmative  vote of the holders of at least 80% of the issued
and outstanding  shares of common stock of the corporation  shall be required to
amend,  alter  or  repeal,  or  adopt  any  provision   inconsistent  with,  the
requirements of Section 2.2, Section 3.1, Section 3.2, Section 3.3 or the second
paragraph of Section 12.1 of the By-Laws of this corporation.
     NINTH:  Elections of directors need not be by written ballot, except as may
otherwise be provided in the By-Laws.
     TENTH:  Any or all of the  directors  may be removed  at any time,  with or
without cause, only by an affirmative vote of the holders of at least 80% of the
issued and outstanding shares of common stock of the corporation.
     ELEVENTH:  In  addition  to the powers  and  authority  hereinbefore  or by
statute  expressly  conferred upon them,  the directors are hereby  empowered to
exercise  all such powers and do all such acts and things as may be exercised or
done by the corporation,  subject,  nevertheless, to the provisions of the DGCL,
this Certificate of Incorporation,  and any By-Laws adopted by the stockholders;
provided,  however,  that no By-Laws hereafter adopted by the stockholders shall
invalidate  any prior act of the  directors  which would have been valid if such
By-Laws had not been adopted.
     TWELFTH:  Meetings of stockholders  may be held within or without the State
of Delaware,  as the By-Laws may provide.  The books of the  corporation  may be
kept  (subject  to any  provision  contained  in the DGCL)  outside the State of
Delaware at such place or places as may be  designated  from time to time by the
Board of Directors or in the By-Laws of the corporation.
     THIRTEENTH:  Any action  required or permitted to be taken at any Annual or
Special  Meeting  of  Stockholders  of the  corporation  may be taken  without a
meeting,  without prior notice,  and without a vote only if a consent in writing
setting  forth  the  action  so  taken  is  signed  by all  the  holders  of the
corporation's issued and outstanding capital stock entitled to vote thereon.

EX-4

                      THE CINCINNATI GAS & ELECTRIC COMPANY
                                       and
                              THE BANK OF NEW YORK,
                                     Trustee











                      Thirty-eighth Supplemental Indenture


                          Dated as of February 1, 2001




THIRTY-EIGHTH  SUPPLEMENTAL INDENTURE, dated as of February 1, 2001, between The
Cincinnati  Gas &  Electric  Company,  a  corporation  of the State of Ohio (the
Company),  and The Bank of New York, a New York banking corporation,  as Trustee
(the Trustee).  WHEREAS, the Company has executed and delivered to the Trustee a
certain  Indenture,  dated as of August 1, 1936 (the First Mortgage),  to secure
the  payment  of the  principal  of and  interest  on an  issue  of bonds of the
Company, unlimited in aggregate principal amount (the Bonds);
WHEREAS,  the Company and the Trustee  have amended and  supplemented  the First
Mortgage by means of thirty-seven supplemental indentures (the First Mortgage as
amended);
WHEREAS,  Article  Eighteen of the First  Mortgage as amended  provides that the
Company and the Trustee may from time to time enter into one or more  indentures
supplemental to the First Mortgage for the purpose of curing any ambiguity or of
curing,  correcting or  supplementing  any defective or inconsistent  provisions
contained in the First Mortgage or in any supplemental  indenture;  WHEREAS, the
Company has requested the Trustee,  pursuant to Section 1 of Article Eighteen of
the First  Mortgage as amended,  to enter into this  Thirty-eighth  Supplemental
Indenture  for the purpose of curing an  ambiguity or of curing,  correcting  or
supplementing  defective  or  inconsistent  provisions  in  Section 3 of Article
Eleven of the First Mortgage as amended.

                                  ARTICLE ONE

                   Amendments of Section 3 of Article Eleven

SECTION 1. Clause (a) of  subdivision  (3) of Section 3 of Article Eleven of the
First Mortgage as amended is hereby restated to read as follows:
(a) the  principal  amount of any  obligations  simultaneously  delivered to the
Trustee  consisting of  obligations  secured by purchase money mortgage upon the
property to be released,  Bonds outstanding hereunder, or outstanding prior lien
bonds;  plus the principal  amount of any Bonds that the Company then waives its
right to have  authenticated  and delivered  hereunder  pursuant to Section 1 of
Article Six hereof;
SECTION  2.  Section 3 of  Article  Eleven of the First  Mortgage  as amended is
hereby amended to add the following paragraph at the end of such Section 3:
In case the  release of  property is based upon the waiver by the Company of its
right to have Bonds authenticated and delivered pursuant to Section 1 of Article
Six hereof,  the Trustee shall also be furnished  with (a) a waiver signed by an
officer of the  Company  stating  the  principal  amount and series of the paid,
retired,  redeemed,  cancelled  or  surrendered  Bonds  the use of which for the
authentication  and delivery of additional  Bonds under Section 1 of Article Six
the Company is then electing to waive, (b) the Treasurer's  certificate required
by Section 1 of Article Six, (c) the further Treasurer's certificate required by
Section  1 of  Article  Six,  and,  (d) if any of the paid,  retired,  redeemed,
cancelled or surrendered  Bonds  identified in such waiver have not been at some
time held by the public, the net earnings  certificate  required by Section 1 of
Article  Six.  The paid,  retired,  redeemed,  cancelled  or  surrendered  Bonds
identified  in such waiver shall  thereafter  be deemed to have been used as the
basis for the issuance of  additional  Bonds under Section 1 of Article Six, and
such  additional  Bonds shall be deemed to have been canceled under Section 3 of
Article Eleven to obtain the release of such property.

                                  ARTICLE TWO

                                 Miscellaneous

SECTION 1. The provisions of this  Thirty-eighth  Supplemental  Indenture  shall
become effective  immediately  upon the execution and delivery hereof.  From and
after such time this Thirty-eighth  Supplemental  Indenture shall form a part of
the First Mortgage as amended and all the terms and  conditions  hereof shall be
deemed to be part of the terms of the First  Mortgage as  amended,  as fully and
with the same  effect  as if they had been set forth in the  First  Mortgage  as
originally  executed.  Except  as  modified  or  amended  by this  Thirty-eighth
Supplemental Indenture,  the First Mortgage as amended shall remain and continue
in full force and effect in accordance  with the terms and  provisions  thereof,
and all the covenants, conditions, terms and provisions of the First Mortgage as
amended with respect to the Trustee shall remain in full force and effect and be
applicable to the Trustee under this Thirty-eighth Supplemental Indenture in the
same manner as though set out herein at length. All representations and recitals
contained in this Thirty-eighth Supplemental Indenture are made by and on behalf
of the  Company,  and the Trustee is in no way  responsible  therefor or for any
statement therein contained.
SECTION 2. The terms  defined in Article  One of the First  Mortgage as amended,
when used in this Thirty-eighth Supplemental Indenture shall, respectively, have
the meanings set forth in such Article.
SECTION 3. This Thirty-eighth  Supplemental Indenture may be executed in several
counterparts and each counterpart shall be an original instrument.
     IN WITNESS  WHEREOF,  THE CINCINNATI GAS & ELECTRIC COMPANY has caused this
instrument  to be signed  on its  behalf  by one of its Vice  Presidents  or its
Treasurer  and its  corporate  seal to be hereunto  affixed  and  attested by an
Assistant  Secretary,  and THE BANK OF NEW YORK has caused this instrument to be
signed on its behalf by a Vice  President,  its  Secretary or an Assistant  Vice
President  or an  Assistant  Secretary  and its  corporate  seal to be  hereunto
affixed and  attested by a Vice  President,  an Assistant  Vice  President or an
Assistant Treasurer, as of the day and year first above written.

                                          THE CINCINNATI GAS & ELECTRIC COMPANY,

                                          By /s/ Lisa D. Gamblin
                                             ----------------------
                                          Vice President and Treasurer


Attest:     /s/ Julia S. Janson
            --------------------
             Assistant Secretary

Signed and acknowledged in our presence on behalf of
  THE CINCINNATI GAS & ELECTRIC COMPANY

    /s/ Cecilia A. Temple
    ---------------------
    /s/ T. M. O'Neill
    -----------------

                                                   THE BANK OF NEW YORK,
                                                   By /s/ Terence Rawlings
                                                      ---------------------
                                                   Assistant Vice President

Attest:    /s/ Michael Pitfick
           --------------------
           Assistant Treasurer

Signed and acknowledged in our presence on behalf of
  THE BANK OF NEW YORK

    /s/ Suzanne Young
    -----------------
    /s/ Michael C. Daly
    -------------------



STATE OF OHIO                       )
                                            )  ss.:
COUNTY OF HAMILTON                  )


On this 1st day of  February,  2001,  LISA D.  GAMBLIN  and JULIA S. JANSON came
before me and  acknowledged  that they signed and sealed this instrument as Vice
President  and  Assistant  Secretary,  respectively,  of  THE  CINCINNATI  GAS &
ELECTRIC  COMPANY and that the same were free acts;  and such Vice President and
Treasurer,  being duly sworn,  said that she resides in Hamilton  County,  Ohio,
that she is a Vice President and Treasurer of the  corporation and that the seal
affixed hereto is its corporate seal.

IN WITNESS WHEREOF I have signed my name and affixed my official seal.

                                                 /s/ Cecilia A. Temple
                                                 ---------------------
                                                  CECILIA A. TEMPLE
                                                  Notary Public, State of Ohio
                                                  My Commission Expires 09-28-03



STATE OF NEW YORK                   )
                                    )  ss.:
COUNTY OF NEW YORK                  )


On this 1st day of  February,  2001,  TERENCE  RAWLINS and MICHAEL  PITFICK came
before me and  acknowledged  that they  signed and  sealed  this  instrument  as
Assistant Vice President and Assistant Treasurer,  respectively,  of THE BANK OF
NEW YORK and that the same were free acts; and such Assistant Vice President and
Assistant  Treasurer,  being duly sworn, said that he resides in Sayreville,  N.
J., that he is an Assistant Vice  President and Assistant  Treasurer of THE BANK
OF NEW YORK and that the seal affixed hereto is its corporate seal.

     IN WITNESS WHEREOF I have signed my name and affixed my official seal.

                                              /s/ William J. Cassels
                                                  -------------------
                                                WILLIAM J. CASSELS
                                                Notary Public, State of New York
                                                No. 01CA5027729
                                                Qualified in Bronx County
                                                Commission Expires May 16, 2002