10-K405

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

FORM 10-K

(Mark One)
/x/	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 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

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

Registrant	Title of each class
Cinergy Corp.	Common Stock
	Income PRIDES
The Cincinnati Gas & Electric Company	Cumulative Preferred Stock	4%
	Junior Subordinated Debentures	8.28%
PSI Energy, Inc.	Cumulative Preferred Stock	4.32%
	Cumulative Preferred Stock	4.16%
	Cumulative Preferred Stock	67/8%

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

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

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /x/

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

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

      As of January 31, 2002, the aggregate market value of the common equity of Cinergy Corp. held by nonaffiliates (shareholders who are not directors or executive officers) was $5.1 billion. All of the common stock of The Cincinnati Gas & Electric Company and PSI Energy, Inc. is owned by Cinergy Corp., and all of the common stock of The Union Light, Heat and Power Company is owned by The Cincinnati Gas & Electric Company. As of January 31, 2002, each registrant had the following shares of common stock outstanding:

Registrant	Description	Shares
Cinergy Corp.	Par value $.01 per share	159,765,197
The Cincinnati Gas & Electric Company	Par value $8.50 per share	89,663,086
PSI Energy, Inc.	Without par value, stated value $.01 per share	53,913,701
The Union Light, Heat and Power Company	Par value $15.00 per share	585,333

DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the Proxy Statement of Cinergy Corp. and the Information Statement of PSI Energy, Inc. filed, or to be filed, with the Securities and Exchange Commission are incorporated by reference into Part III of this report.

      This combined Form 10-K is separately filed 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 registrants other than itself.

TABLE OF CONTENTS

Item Number		Page Number
	Cautionary Statements Regarding Forward-Looking Information	3
	PART I
1	Business
	Organization	5
	Current Trends	7
	Business Units	8
	Other Developments	14
	Environmental Matters	14
	Future Expectations/Trends	15
2	Properties
	Energy Merchant	16
	Regulated Businesses	18
3	Legal Proceedings
	New Source Review and Notices of Violation	19
	Manufactured Gas Plant Sites	20
	M Metals Superfund Site	21
	Gas Customer Choice	21
	City of Newport, Kentucky	22
4	Submission of Matters to a Vote of Security Holders	23
	PART II
5	Market for Registrant's Common Equity and Related Stockholder Matters	24
6	Selected Financial Data	25
7	Management's Discussion and Analysis of Financial Condition and Results of Operations
	Introduction	27
	Liquidity and Capital Resources	27
	2001 Results of Operations—Historical	39
	2000 Results of Operations—Historical	43
	Results of Operations—Future
7A	Quantitative and Qualitative Disclosures About Market Risk	64
	Index to Financial Statements and Financial Statement Schedules	65
8	Financial Statements and Supplementary Data	66
9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	145
	PART III
10	Directors and Executive Officers of the Registrants
	Board of Directors	146
	Executive Officers	147
11	Executive Compensation	151
12	Security Ownership of Certain Beneficial Owners and Management	151
13	Certain Relationships and Related Transactions	152
	PART IV
14	Exhibits, Financial Statement Schedules, and Reports on Form 8-K
	Financial Statements and Schedules	153
	Reports on Form 8-K	153
	Exhibits	153
	Signatures	166

2

        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".

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. These forward-looking statements are identified by terms and phrases such as "anticipate", "believe", "intend", "estimate", "expect", "continue", "should", "could", "may", "plan", "project", "predict", "will", and similar expressions.

        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 or potential national deregulation legislation.



•

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.

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•

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 13 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data".



•

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.

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PART I

ITEM 1.    BUSINESS

ORGANIZATION

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

•

Cinergy Wholesale Energy, Inc. (Wholesale Energy);



•

Cinergy Services, Inc. (Services);



•

Cinergy Investments, Inc. (Investments);



•

Cinergy Global Resources, Inc. (Global Resources); and



•

Cinergy Technologies, Inc. (Technologies).

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. CG&E's principal 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.

        In 2001, CG&E began a transition to electric deregulation and customer choice. Currently, the competitive retail electric market in Ohio is in the development stage. CG&E is recovering its Public Utilities Commission of Ohio (PUCO) approved costs and retail electric rates are frozen during this market development period. See the "Retail Market Developments" section in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" for a discussion of key elements on Ohio deregulation.

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

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

		Principal Line(s) of Business	Major Cities Served	Approximate Population Served
CG&E and subsidiaries	•	Generation, transmission, distribution, and sale of electricity	Cincinnati, OH Middletown, OH Covington, KY	2,012,000
	•	Sale and/or transportation of natural gas	Florence, KY Newport, KY Lawrenceburg, IN
PSI	•	Generation, transmission, distribution, and sale of electricity	Bloomington, IN Carmel, IN Columbus, IN Kokomo, IN Lafayette, IN New Albany, IN Terre Haute, IN	2,220,000
ULH&P	•	Transmission, distribution, and sale of electricity	Covington, KY Florence, KY Newport, KY	338,000
	•	Sale and transportation of natural gas

        Wholesale Energy is a holding company for Cinergy's energy commodity businesses, including electric production, as the generation assets eventually become unbundled from the utility subsidiaries. See the "Retail Market Developments" section in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" for a discussion on Ohio deregulation. Cinergy Power Generation Services, LLC (Generation Services), a wholly-owned subsidiary of Wholesale Energy, provides electric production-related construction, operation and maintenance services to certain affiliates and non-affiliated third parties.

        Services is a service company that provides our subsidiaries with a variety of centralized administrative, management, and support services. Investments holds most of our domestic non-regulated, energy-related businesses and investments. Global Resources holds most of our international businesses and investments and directs our renewable energy investing activities (for example, wind farms). Technologies primarily holds our portfolio of technology-related investments.

        We have collective bargaining agreements with the International Brotherhood of Electrical Workers (IBEW), the United Steelworkers of America (USWA), the Independent Utilities Union (IUU), and various international union organizations.

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        The following table indicates the number of employees by classification at December 31, 2001:

	Regulated				Non-Regulated
Classification	CG&E(4)	PSI	ULH&P	Total Regulated	Domestic(5)(6)	International	Total Non- Regulated	Cinergy Total
IBEW(1)	525	1,313	58	1,896	946	—	946	2,842
USWA(2)	296	—	90	386	16	—	16	402
IUU(3)	428	—	61	489	423	—	423	912
Various Union Organizations	—	—	—	—	51	492	543	543
Non-Bargaining	234	410	25	669	3,007	394	3,401	4,070
	1,483	1,723	234	3,440	4,443	886	5,329	8,769

(1)

IBEW #1347 contract will expire on April 1, 2006, IBEW #1393 contract will expire on April 30, 2002, and IBEW #399 contract will expire on November 15, 2006. The parties are currently negotiating an extension to the IBEW #1393 contract.

(2)

USWA #12049 and #5541-06 contracts will expire on May 15, 2007.

(3)

Contract will expire April 1, 2002. The parties are currently negotiating an extension to the IUU contract.

(4)

CG&E and subsidiaries excluding ULH&P.

(5)

Includes 2,601 Services' employees, who provide services to both regulated and non-regulated operations.

(6)

Includes 1,431 Generation Services' employees who provide services to certain affiliates and non-affiliated third parties.

CURRENT TRENDS

        For many years our industry has been relatively stable and dominated by vertically integrated companies. However, in recent years a number of federal and state developments, aimed at promoting competition, initiated a de-integration of the traditional value chain and triggered industry restructuring.

        New business models are emerging as market participants seek to exploit opportunities along the de-integrated value chain. The market place is being characterized by independent power producers, energy marketers and traders, energy merchants, transmission and distribution providers and retail energy suppliers. New market entrants and activity among the traditional participants, such as mergers, acquisitions, asset sales and spin-offs of lines of business, are reshaping the industry. Power generators are attempting to differentiate themselves to attract a new customer base; large wholesalers are expanding through acquisitions of regional businesses; transmission systems are being operated by Regional Transmission Operators; and the sale of retail energy is no longer the exclusive business of the traditional integrated utility.

        By the end of 2000, approximately one-half of the states and the District of Columbia had adopted deregulation plans. However, recent events are significantly influencing political and legislative activity. In late 2000 and early 2001, California experienced unprecedented high prices, extreme price volatility, a lack of market liquidity and inadequate generation supply, leading to customer blackouts. Ultimately, California's two largest utilities accumulated significant unpaid obligations, which resulted in one of the utilities declaring bankruptcy during 2001. In December 2001, Enron Corp. (Enron), a dominant energy trader and seventh largest company of the Fortune 500 in terms of revenue, filed for bankruptcy protection after disclosing substantial third quarter losses and a restatement of prior period results,

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which contributed to a significant downgrade in its credit ratings. The SEC, the Federal Energy Regulatory Commission (FERC), the U.S. Department of Justice (Justice Department) and numerous Congressional committees are investigating Enron's collapse. These recent events could significantly influence the future industry landscape. In 2001, eight of the states which had previously adopted deregulation plans, including California, decided to delay or suspend their activities. No additional states passed deregulation legislation in 2001.

        Within our own service territory, in 1999 Ohio enacted legislation which deregulated electric generation and provided for retail competition beginning in January 2001. In December 2001, the PUCO indicated that while still in the early stages of electric choice, "the campaign is successfully on track". The states of Indiana and Kentucky have not passed restructuring legislation. A special Kentucky Electricity Restructuring Task Force established in 2000 found no compelling reasons for Kentucky to act on the issue of deregulation and recommended the Kentucky General Assembly wait until 2002 to reconsider any type of legislation.

BUSINESS UNITS

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

•

Energy Merchant Business Unit (Energy Merchant);



•

Regulated Businesses Business Unit (Regulated Businesses); and



•

Power Technology and Infrastructure Services Business Unit (Power Technology).

        The following section describes the activities of our business units as of December 31, 2001. See Note 16 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" for financial information by business segment.

Energy Merchant

        Energy Merchant manages wholesale generation and the domestic and foreign energy marketing and trading of energy commodities. Energy Merchant operates and maintains our regulated and non-regulated electric generating plants including some of our jointly-owned plants, both domestically and abroad. As of December 31, 2001, the total winter electric capability (including our portion of the total capacity for the jointly-owned plants) of our domestic generating plants was 13,088 megawatts (MW). Approximately 75% of this generation portfolio is coal-fired. See "Item 2. Properties" for a further discussion of the generating facilities.

        Energy Merchant also conducts the following activities:

•

energy risk management;



•

financial restructuring services;



•

proprietary arbitrage activities;



•

customized energy solutions; and



•

directs our renewable energy investing activities.

        See the "Market Risk Sensitive Instruments and Positions" section of "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" for information on risks associated with these activities.

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Fuel Supply

        Each year, through CG&E and PSI, we purchase approximately 29 million tons of coal to generate electricity. We purchase approximately 80% of our coal supply through long-term coal supply agreements and approximately 20% through the spot market or through short-term supply agreements. We receive our coal supply primarily from mines located in Indiana, West Virginia, Ohio, Kentucky, Pennsylvania, and Illinois. In early 2001, the market price for coal increased due to the buildup of inventories at various generators and the low production levels of coal mines. However, we anticipate the market prices of coal to level off in 2002.

Cinergy has a fleet of natural gas-fired peaking plants that have a capacity of 2,695 MW. The fuel for these units is obtained through the natural gas open market. For further information on the risk of purchasing natural gas see the "Market Risk Sensitive Instruments and Positions" section of "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations".

        Energy Merchant monitors alternative sources of coal and gas to assure a continuing availability of economical fuel supplies. As such, it will maintain its practice of purchasing a portion of coal and gas requirements on the open market and will continue to investigate least-cost coal options to comply with new and existing environmental requirements. Cinergy, CG&E, and PSI believe that they can continue to obtain enough coal and gas to meet future needs. However, future environmental requirements may significantly impact the availability and price of these fuels.

Purchased Power

        At times, we purchase power to meet the energy needs of our wholesale customers and to meet the requirements of our retail native load customers (end-use customers within our operating companies' franchise territory). Factors that could cause Cinergy to purchase power for retail native load customers include generating plant outages, extreme weather conditions, growth, and other factors associated with supplying full requirements electricity. We believe we can obtain enough purchased power to meet future needs. However, during periods of excessive demand, the price and availability of these purchases may be significantly impacted. See the "Significant Rate Developments" section of "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" for additional information on PSI's Purchased Power Tracker.

Trading Operations and Risk Management

        Energy Merchant's energy marketing and trading activities principally consist of energy marketing and trading operations for CG&E, PSI, and Cinergy Capital & Trading, Inc. (Capital & Trading). CG&E and PSI principally market and trade over-the-counter (an informal market where the buying/selling of commodities occurs) contracts for the purchase and sale of electricity, primarily in the Midwest region of the U.S. Energy Merchant also actively markets physical natural gas through Cinergy Marketing & Trading, LP's gas trading operations. See the "Market Risk Sensitive Instruments and Positions" section of "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" for information on risks associated with these activities.

International

        As of December 31, 2001, we had ownership interests in generation assets located in seven countries. The majority of these assets are district heating plants in the Czech Republic, of which we own 100% of four plants and have a minority interest in the fifth. These assets serve retail and wholesale customers in the Czech Republic.

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Regulated Businesses

        Regulated Businesses consists of a regulated, integrated utility, and regulated electric and gas transmission and distribution systems. Regulated Businesses plans, constructs, operates, and maintains Cinergy's transmission and distribution systems and delivers gas and electric energy to consumers, both domestically and abroad. Regulated Businesses operated approximately 46,100 circuit miles (the total length in miles of separate circuits) of domestic electric lines to provide regulated transmission and distribution service to 1.5 million customers as of December 31, 2001.

        Regulated Businesses operated approximately 8,200 miles of gas mains (gas distribution lines that serve as a common source of supply for more than one service line) and service lines to provide domestic regulated transmission and distribution services to approximately 495,000 customers as of December 31, 2001. See "Item 2. Properties" for a further discussion of the transmission and distribution systems owned by our operating companies.

Electric Operations

        Regulated Businesses (through our operating companies) and other non-affiliated utilities in a nine-state region are parties to the East Central Area Reliability Council Agreement (ECAR Agreement). The ECAR Agreement coordinates the planning and operation of generation and transmission facilities, which provides for maximum reliability of regional bulk power supply.

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Transmission System Interconnections

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

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

        As part of the effort to create a competitive wholesale power marketplace, the FERC approved the formation of the Midwest ISO during 1998. In that same year, Cinergy agreed to join the Midwest ISO in preparation for meeting anticipated changes in the FERC regulations and future deregulation requirements. The Midwest ISO was established as a non-profit organization to maintain functional control over the combined transmission systems of its members. For further information on the Midwest ISO, see the "Midwest Independent Transmission System Operator, Inc." section of "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations".

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Electricity Supply

        Regulated Businesses currently receives its electricity from Energy Merchant at a transfer price based upon current regulatory ratemaking methodology. With the implementation of electric deregulation in Ohio, effective January 1, 2001, Regulated Businesses continues, through a market development period, to acquire its electricity requirements through Energy Merchant for those retail customers who do not switch suppliers.

ULH&P purchases energy from CG&E pursuant to a new contract effective January 1, 2002, which was approved by the FERC and the Kentucky Public Service Commission (KPSC). This five-year agreement is a negotiated fixed-rate contract with CG&E and replaces the previous cost of service based contract, which expired on December 31, 2001.

        For further details on electricity supply of CG&E, PSI, and ULH&P, refer to the "Retail Market Developments" section of "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations".

Gas Supply

        Regulated Businesses is responsible for the purchase and the subsequent delivery of natural gas to native load customers. Regulated Businesses' natural gas procurement strategy is to buy firm gas supplies (gas intended to be available at all times) and firm interstate pipeline capacity during the winter season (November through March) and buy spot supply and capacity during the non-heating season (April through October). This strategy allows Regulated Businesses to assure reliable gas supply for its high priority (non-curtailable) customers during peak winter conditions and provides Regulated Businesses the flexibility to reduce its contract commitments if firm customers choose alternate gas suppliers under the Regulated Businesses' customer choice/gas transportation programs. In 2001, firm supply purchase commitment agreements provided approximately 56% of the natural gas supply with the remaining gas purchased on the spot market. These firm supply agreements feature two levels of gas supply, specifically (1) base load, which is a continuous supply to meet normal demand requirements, and (2) swing load, which is gas available on a daily basis to accommodate changes in demand due primarily to changing weather conditions. Regulated Businesses pays reservation charges for base and swing load.

        Regulated Businesses manages gas procurement-hedging programs for CG&E and ULH&P. These programs include the use of fixed purchase prices as well as variable price arrangements (collars), which have a minimum (floor) and maximum (cap) established on the price to be paid. ULH&P has received approval from the KPSC for its hedging program. In accordance with a PUCO ruling, CG&E may apply for approval of its hedging program on an after-the-fact basis. As of December 31, 2001, both CG&E and ULH&P had hedged approximately 50% of their winter 2001/2002 base load requirements. See the "Gas Industry" section of "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" for further information.

        Interstate pipelines either (1) transport gas purchased directly to the distribution systems or (2) inject gas purchased into pipeline storage facilities for future withdrawal and delivery. The majority of the gas supply comes from the Gulf of Mexico coastal areas of Texas and Louisiana. In addition, a limited supply comes from the mid-continent (Arkansas-Oklahoma) basin. Also, industrial transportation customers behind Cinergy's city gate (point where the distribution system connects to an interstate gas pipeline) are obtaining methane gas recovered locally from an Ohio landfill.

        Regulated Businesses expects the natural gas market will remain competitive in future years. Throughout the year 2001, natural gas prices returned to more normal levels. However, short-term price fluctuations, such as those that occurred in late 2000 and early 2001, could reappear, and reflect the effects of weather conditions, availability of supply, and changes in demand and storage inventories.

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Currently, neither CG&E nor ULH&P profit from changes in the cost of gas. Natural gas purchase costs are passed directly to the customer dollar-for-dollar under the gas cost recovery mechanism that is mandated under state law.

        In December 2001, CG&E and ULH&P entered into an agreement with Mirant Americas Energy Marketing, LP (Mirant) to manage their interstate pipeline transportation and storage capacity and gas supply contracts. Under this agreement, which expires in October 2003, Mirant is obligated to deliver gas to meet CG&E's and ULH&P's firm requirements.

International

        Regulated Businesses also manages our international electric transmission and distribution systems and natural-gas distribution systems business holdings, which include wholly-owned or jointly-owned companies in four foreign countries, namely Zambia, South Africa, Estonia, and Greece.

Revenue Data and Customer Base

        The percent of retail operating revenues derived from electricity and gas sales, including transportation, for each of the three years ended December 31 were as follows:

	Retail Operating Revenues
	2001		2000		1999
Registrant
	Electric %	Gas %	Electric %	Gas %	Electric %	Gas %
Cinergy(1)	81	19	84	16	87	13
CG&E and subsidiaries	71	29	75	25	80	20
PSI	100	—	100	—	100	—
ULH&P	68	32	71	29	75	25

(1)

Excludes the results of our International business which are immaterial.

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

        The service territory of CG&E and its utility subsidiaries, including ULH&P, is heavily populated and is characterized by a stable residential customer base and a diverse mix of industrial customers. The territory served by PSI is composed of residential, agricultural, and widely diversified industrial customers. No single customer provides more than ten percent of total operating revenues (electric or gas) for any of our operating companies.

Power Technology

        Power Technology primarily manages the development, marketing, and sales of our non-regulated retail energy and energy-related businesses. This is accomplished through various subsidiaries and joint ventures and includes the following products and services:

•

providing energy management and consulting services to customers that operate retail facilities;



•

providing various utility operations and infrastructure services to utilities (for example, providing underground locating and construction services for utilities); and



•

building and maintaining fiber optic telecommunication networks for businesses, municipalities, telecommunications carriers, and schools.

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        Power Technology also manages Cinergy Ventures, LLC (Ventures), Cinergy's venture capital subsidiary. Ventures invests in emerging energy technologies that can benefit future Cinergy business development activities.

OTHER DEVELOPMENTS

Investment in "Exempt Wholesale Generators" (EWG) and "Foreign Utility Companies" (FUCO)

        Our ability to invest in growth initiatives, such as EWGs and FUCOs is limited by certain legal and regulatory requirements, including the PUHCA. An EWG is an entity, certified by the FERC, devoted exclusively to owning and/or operating and selling power from one or more electric generating facilities. An EWG whose generating facilities are located in the U.S. is limited to making only wholesale sales of electricity. FUCOs are companies whose utility assets and operations are located outside the U.S. and which are used for the generation, transmission, or distribution of electric energy for sale at retail or wholesale, or the distribution of gas at retail. An entity claiming status as a FUCO must provide notification thereof to the SEC under PUHCA.

        In March 1998, the SEC granted us authority under PUHCA to invest in EWGs and FUCOs in an aggregate amount equal to our consolidated retained earnings, as determined from time to time. Following our request for an increase in investment authority, in May 2001, the SEC issued a supplemental order, authorizing us to invest an additional $2 billion in EWGs and FUCOs, in addition to an amount equal to our consolidated retained earnings. See the "Liquidity and Capital Resources" section of "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" for information on other investing activities.

Sale of Common Stock

        On February 19, 2002, Cinergy Corp. filed a registration statement to increase the available issuance under the shelf registration statement filed in November 2001, to approximately $200 million. On February 22, 2002, Cinergy Corp. sold 6.5 million shares of common stock of Cinergy Corp. with net proceeds of approximately $200 million under these registration statements. The net proceeds from the transaction were used to reduce short-term debt of Cinergy Corp. and its subsidiaries and for other general corporate purposes.

Sales of Accounts Receivable

        On February 19, 2002, CG&E, PSI, and ULH&P replaced their existing agreement to sell certain of their accounts receivable and related collections. Cinergy Corp. formed Cinergy Receivables Company, LLC (Cinergy Receivables) to purchase, on a revolving basis, nearly all of the retail accounts receivable and related collections of CG&E, PSI, and ULH&P in exchange for a note payable. Cinergy Receivables is not consolidated by Cinergy Corp. since it meets the requirements of Statement of Financial Accounting Standards No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities to be considered a qualified special-purpose entity. Cinergy Receivables has an agreement with unrelated parties to borrow up to $400 million, collateralized by its purchased receivables. Cinergy Receivables uses the proceeds from those borrowings to reduce the note payable with CG&E, PSI, and ULH&P. CG&E retains servicing responsibilities for its role as a collection agent on the amounts due on the sold receivables. However, Cinergy Receivables assumes the risk of collection on the purchased receivables without recourse to CG&E, PSI, and ULH&P in the event of a loss.

ENVIRONMENTAL MATTERS

        On December 21, 2000, Cinergy, CG&E, and PSI reached an agreement in principle with the U.S. Environmental Protection Agency (EPA), the Justice Department, three northeast states, and two

14

environmental groups that could serve as the basis for a negotiated resolution of Clean Air Act (CAA) Amendments claims and other related matters brought against coal-fired power plants owned and operated by Cinergy's operating companies. The estimated cost for these capital expenditures is expected to be approximately $700 million. These capital expenditures are in addition to our previously announced commitment to install nitrogen oxide (NO_X) controls at an estimated cost of approximately $800 million (in nominal dollars) between 2001 and 2005. In 2001, we spent $260 million for NO_X and other environmental compliance projects. Forecasted expenditures for NO_X and other environmental compliance projects (in nominal dollars) are approximately $250 million for 2002 and $600 million for the 2002-2006 period. See Note 13 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" for a discussion of the EPA Agreement and related environmental issues.

FUTURE EXPECTATIONS/TRENDS

        See the information appearing under the same caption in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" for the following discussions:

•

Wholesale Market Developments;



•

Retail Market Developments;



•

Midwest ISO;



•

Repeal of PUHCA;



•

Significant Rate Developments;



•

Gas Industry; and



•

Other Future Expectations.

15

ITEM 2. PROPERTIES

ENERGY MERCHANT

        Our operating companies' total winter electric capabilities, reflected in MW, as of December 31, 2001, are shown in the table that follows. Our electric generating plants are located in Ohio, Kentucky, and Indiana and are wholly-owned or jointly-owned facilities.

Registrant(1)	Stations	Coal MW	Natural Gas MW	Oil MW	Hydro MW	Total MW
CG&E	9	4,186	736	323	—	5,245
PSI	9	5,578	120	261	45	6,004
Total	18	9,764	856	584	45	11,249

(1)

This table includes only our portion of the total capacity for the jointly-owned plants. Refer to Note 14 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" for a discussion of the jointly-owned plants.

        During 2001, electric generating plants, including those that we own but do not operate, performed reliably, as evidenced by our annual capacity factor of 68% (excluding natural gas and fuel oil peaking stations), a utilization factor at greater than 84% and an equivalent availability factor of 82%. A capacity factor is a percentage that indicates how much of a power plant's capacity is used over time. A utilization factor is a percentage that indicates how much of a power plant's capacity is used while being available. An equivalent availability factor is a percentage that indicates how much a unit is available to generate compared to its potential maximum generation.

        In August 2001, we experienced record peak loads of 11,083 MW, 5,094 MW, and 6,019 MW for Cinergy, CG&E, and PSI, respectively. At times, we purchase power to meet the energy needs of our wholesale customers and to meet the requirements of our retail native load customers. Factors that could cause Cinergy to purchase power for retail native load customers include outages, extreme weather conditions, growth, economics, and other factors associated with supplying full requirements electricity. We believe we can obtain enough purchased power to meet future needs.

Ohio Deregulation

        After receipt of FERC, SEC, and applicable third-party approvals and consents, CG&E anticipates transferring its generating stations and their related assets and obligations to an EWG affiliate. Subsequent to this transfer, CG&E will continue operations as a transmission and distribution company. To facilitate this transfer, the generation assets of CG&E, as of August 2000, were released from the first mortgage indenture lien allowing them to move unencumbered to the EWG affiliate. Generating assets added after August 2000, remain subject to the lien of CG&E's first mortgage bond indenture and will require release at some future date prior to being transferred. For a further discussion on Ohio deregulation, see the "Retail Market Developments" section of "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations".

Merchant Plants

Domestic

        In March 2001, Capital & Trading completed the acquisition of the 480 MW Brownsville generation facility located in Haywood County, Tennessee and the 550 MW Caledonia generation facility located in Lowndes County, Mississippi. Brownsville has four natural gas-fired combustion turbines and Caledonia has six.

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        In June 2001, Capital & Trading and Duke announced they would dissolve their partnership, which was formed in 1999 for the purpose of jointly constructing and owning three wholesale generating facilities. In September 2001, the partnership was dissolved and Capital & Trading obtained ownership of the wholesale generating facilities located in Butler County, Ohio (680 MW) and Henry County, Indiana (129 MW). In exchange for the two generating facilities, Duke received the Vermillion County, Indiana (680 MW) generating facility, which will be operated by Cinergy until June 2005. See the "Wholesale Market Developments" section of "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" for further discussion.

        At December 31, 2001, our domestic merchant plant capacity consisted of four gas-fired peaking plants with a total capacity of 1,839 MW. However, in December 2001, PSI petitioned the Indiana Utility Regulatory Commission to transfer the Henry County, Indiana, and Butler County, Ohio, gas-fired peaking plants to its regulated operations to serve its growing demand in Indiana. See the "Significant Rate Developments" section of "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" for more information.

International

        As of December 31, 2001, we had ownership interests in generation assets located in seven countries. The majority of these assets are district heating plants in the Czech Republic, of which we own 100% of four plants and have a minority interest in the fifth. These assets serve retail and wholesale customers in the Czech Republic.

Cogeneration

        In 1997, Cinergy and Trigen Energy Corporation entered into a joint venture agreement to develop, construct, own, operate, and maintain combined heat and power facilities for large industrial customers. As of December 31, 2001, we had an ownership interest in and/or operated seven domestic cogeneration plants producing 548 MW of electricity through our Trigen-Cinergy Solutions LLC joint venture. Cogeneration is the simultaneous production of two or more forms of useable energy from a single fuel source. During 2002-2003, Cinergy Solutions, Inc. (Cinergy Solutions) anticipates completing construction of four new cogeneration plants, which will produce an additional 772 MW of electricity.

        In October 2000, Cinergy Solutions announced a partnership with British Petroleum Global Power, Inc. (BP) to construct, own, and operate two new cogeneration plants for BP's Texas City, Texas, and Chocolate Bayou, Texas, refining and chemical sites. In May 2001, BP cancelled the Chocolate Bayou project. The operation of the Texas City cogeneration plant will coincide with the decommissioning of older, less efficient energy facilities. This new plant, along with existing facilities to be acquired by the partnership, will produce 705 MW of electricity. The Texas City plant is scheduled to be operational in 2004.

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REGULATED BUSINESSES

Electric

        Metrics for our operating companies' electric transmission and distribution systems located in Ohio, Kentucky, and Indiana (excluding our proportionate share of jointly-owned facilities) are as follows:

Registrant		Electric Transmission Systems	Electric Distribution Systems	Substation Combined Capacity
		(circuit miles)	(circuit miles)	(kilovolt-amperes)(1)
CG&E		1,652	15,489	20,951,521
	ULH&P	105	2,708	1,213,998
	Other subsidiaries	40	—	—
CG&E and subsidiaries		1,797	18,197	22,165,519
PSI		5,387	20,707	29,413,407
Total		7,184	38,904	51,578,926

(1)

Kilovolt-amperes (1,000 volt-amperes) are a broad measure of our substation transformer capacity.

        At the end of 2001, our operating companies' electric systems were interconnected with fifteen other utilities.

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

Gas

        As of December 31, 2001, the natural gas transmission and distribution systems of CG&E and its subsidiaries had approximately 8,200 miles of mains and service lines located in southwestern Ohio, southeastern Indiana, and northern Kentucky. CG&E and its subsidiaries also jointly own three underground caverns with a total storage capacity of 22 million gallons of liquid propane. As of December 31, 2001, we had 17 million gallons of liquid propane in storage. This liquid propane is used in the three propane/air peak shaving plants located in Ohio and Kentucky to convert liquid propane into natural gas to be used only during peak demand periods and emergencies. During 2001, CG&E and its subsidiaries' natural gas transmission and distribution systems operated reliably, at a load factor of 37%.

        In December 2001, CG&E and ULH&P entered into an agreement with Mirant to manage CG&E's and ULH&P's interstate pipeline transportation and storage capacity and gas supply contracts. The agreement expires in October 2003. Under this agreement, Mirant is obligated to deliver gas to meet CG&E's and ULH&P's firm requirements.

International

        We own interests in approximately 2,700 miles of gas and electric transmission and distribution systems through jointly-owned investments in four countries. We serve approximately 59,600 transmission and distribution customers. In November 2001, Attiki Denmark ApS, a joint venture between CGP Global Greece Holdings S.A., (an indirect wholly-owned subsidiary of Cinergy) and Shell Gas B.V. closed on its transaction to acquire a 49% interest in Attiki Gas Supply Company S.A. (Attiki Gas). Attiki Gas distributes, supplies, and sells natural gas to retail customers in the Athens, Greece area.

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ITEM 3.    LEGAL PROCEEDINGS

NEW SOURCE REVIEW (NSR) AND NOTICES OF VIOLATION (NOV)

        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 could have the affect of changing NSR applicability by limiting exemptions contained in the current regulation. On June 22, 2001, the EPA issued an NSR 90-Day Review Paper and scheduled four public forums across the U.S. to gather more information on the impacts of NSR. Cinergy provided oral testimony at an EPA public forum held in Cincinnati, Ohio, on July 10, 2001, and submitted written comments as well.

        Since July 1999, 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 of 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 an NOV filed by the EPA on November 3, 1999. It also added claims for relief of alleged violations of nonattainment NSR, Indiana and Ohio State Implementation Plans (SIP), and particulate matter emission limits.

        The amended complaint sought (1) injunctive relief to require installation of pollution control technology on each of the generating units at Beckjord Station and PSI's Cayuga Station, 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 CSP and jointly-owned by CSP, 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. Neither party appealed that decision.

19

        On June 28, 2000, the EPA issued an 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 an NOV to DP&L 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.

        On August 2, 2001, the states of New York, New Jersey, and Connecticut filed an Assented to Motion to Intervene in this litigation. Their motion was granted by the District Court on August 3, 2001. The states' proposed complaint is an exhibit to the motion to intervene. Cinergy, CG&E, and PSI are in the process of evaluating the states' complaint but, at this time, are unable to determine the effect, if any, this filing will have on the issues affecting us regarding NSR, as framed in the EPA's Amended Complaint.

        See Note 13(f) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" for a discussion of the tentative EPA Agreement.

MANUFACTURED GAS PLANT SITES (MGP)

(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 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 (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

20

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 IDEM. In April 1998, PSI filed suit in Hendricks County Circuit Court in the State of Indiana 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 lawsuit was moved to the Hendricks Superior Court (Superior Court) in July 1998. Discovery closed in the case at the end of August 2001. PSI and its insurance carriers filed briefs on various issues for decision by the Superior Court in hearings held in November 2001. In December 2001, the Superior Court rescheduled the trial to June 2002. On February 1, 2002, the Superior Court issued rulings on motions for summary judgment. The Superior Court granted the motions of several insurance carriers who claimed that there was insufficient evidence concerning the terms of their policies. The insurance policies in question were between 1950-1958 and 1961-1964. With respect to the remaining policies (between 1958-1961 and 1964-1984), the Superior Court denied all of the insurance carriers' motions. This included motions on the issues of Trigger of Coverage, Expected or Intended Damage, Late Notice and Voluntary Payments. The Superior Court found triable issues of fact for the jury to decide as to the former two issues, and ruled in PSI's favor, as a matter of law, on the latter two issues. The trial against the remaining insurance carriers will go forward in June 2002. At the present time, PSI cannot predict 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. Until investigation and remediation activities have been completed on these sites, we are unable to reasonably estimate the total costs and impact on our financial position or results of operations.

M METALS SUPERFUND SITE

        On July 6, 2000, the EPA identified PSI and IPL, among others, 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, for which it demanded reimbursement. On September 25, 2001, PSI and the EPA signed an Agreement for Recovery of Past Response Costs (The Agreement), which called for PSI to compensate the EPA $100,000 for costs incurred by the EPA in cleaning up the M Metals site. The Agreement became final on November 28, 2001, and PSI tendered payment to the EPA, closing this matter.

GAS CUSTOMER CHOICE

        In January 2000, Investments sold Cinergy Resources, Inc. (Resources), a former subsidiary, to Licking Rural Electrification, Inc. doing business as The Energy Cooperative (Energy Cooperative). In February 2001, Cinergy, CG&E, and Resources were named as defendants in three class action lawsuits relating to 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. In March 2001, Cinergy,

21

CG&E, and Investments were named as defendants in a lawsuit filed by both Energy Cooperative and Resources. This lawsuit concerns any obligations or liabilities Investments may have to Energy Cooperative following its sale of Resources. We intend to vigorously defend these lawsuits. At the present time, Cinergy cannot predict the outcome of these suits.

CITY OF NEWPORT, KENTUCKY

        On January 29, 2002, ULH&P instituted litigation proceedings in the Campbell County Circuit Court in the Commonwealth of Kentucky against the City of Newport, Kentucky, City of Newport doing business as (d/b/a/) the Newport Water Works and also known as (a/k/a) City of Newport Water Department and the Kentucky Risk Management Association. The complaint states that on or about October 5, 2000, a water main owned and under the control of the City of Newport and/or the City of Newport d/b/a/ Newport Water Works and a/k/a/ City of Newport Water Department located in and underground at the Newport Shopping Center on Monmouth Street, Newport, Campbell County, Kentucky ruptured. The water in the main was under pressure and upon the failure of the water main, the pressure, water, sand and gravel provided an environment which resulted in "cutting" a hole in the adjacent gas distribution main owned by and under the control of ULH&P. The hole that breached the adjacent natural gas main was caused by the abrasive action of the pressurized stream of water combined with the sand, gravel and dirt flowing directly on the surface of the natural gas main. ULH&P has incurred total damages in excess of $3.5 million.

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

        In lieu of special meetings of shareholders of CG&E and ULH&P, resolutions were duly adopted via unanimous written consents of the respective sole shareholders of CG&E and ULH&P. Cinergy Corp. owns all of the 89,663,086 outstanding shares of common stock, representing a like number of votes, of CG&E. CG&E owns all of the 585,333 outstanding shares of common stock, representing a like number of votes, of ULH&P. These written resolutions authorized the election of Mr. James L. Turner to the respective boards of directors of CG&E and ULH&P effective October 1, 2001. He is to serve as the successor-Director to Mr. William J. Grealis until the respective 2002 annual meetings of shareholders of CG&E and ULH&P. Mr. James E. Rogers and Mr. R. Foster Duncan continued their directorships on the boards of directors of CG&E and ULH&P. Their terms will also expire at the respective 2002 annual meetings of shareholders of CG&E and ULH&P.

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PART II

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

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

	High		Low
2001
First Quarter	$	35.15	$	28.81
Second Quarter		35.60		32.20
Third Quarter		35.00		28.00
Fourth Quarter		33.85		28.16
2000
First Quarter	$	25.88	$	20.00
Second Quarter		28.13		21.19
Third Quarter		33.25		25.56
Fourth Quarter		35.25		28.50

Cinergy Corp. holds all outstanding CG&E and PSI common stock, and CG&E holds all ULH&P common stock. Therefore, no public trading market exists for the common stock of CG&E, PSI, and ULH&P.

        As of January 31, 2002, Cinergy Corp. had 58,601 common stockholders of record.

Cinergy Corp. declared dividends on its common stock of $.45 per share for each quarter of 2001 and 2000. The quarterly dividends paid to Cinergy Corp. by CG&E and PSI, and to CG&E by ULH&P for the past two years were as follows:

Registrant	Quarter	2001		2000
		(in thousands)
CG&E	First	$	71,535	$	53,600
	Second		71,551		53,600
	Third		71,588		53,600
	Fourth		71,595		71,534
PSI	First	$	—	$	18,000
	Second		—		18,000
	Third		—		18,000
	Fourth		—		—
ULH&P	First	$	—	$	—
	Second		4,829		4,974
	Third		—		—
	Fourth		6,878		4,683

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

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ITEM 6.    SELECTED FINANCIAL DATA

			2001		2000		1999			1998		1997
			(in millions, except per share amounts)
Cinergy
Operating revenues			$	12,923	$	8,422	$	5,938		$	5,911	$	4,387
Net income before extraordinary item				442		399		404			261		363
Net income				442		399		404	(1)		261		253	(1)
Common stock
	Earnings per share (EPS)
		Net income before extraordinary item		2.78		2.51		2.54			1.65		2.30
		Net income		2.78		2.51		2.54	(1)		1.65		1.61	(1)
	EPS—assuming dilution
		Net income before extraordinary item		2.75		2.50		2.53			1.65		2.28
		Net income		2.75		2.50		2.53	(1)		1.65		1.59	(1)
	Dividends declared per share			1.80		1.80		1.80			1.80		1.80
Total assets				12,300		12,330		9,617			9,687		8,858
Long-term debt				3,597		2,876		2,989			2,604		2,151
Long-term debt due within one year				148		41		31			136		85
CG&E
Operating revenues			$	4,694	$	3,230	$	2,551		$	2,856	$	2,452
Net income				327		267		234			216		239
Total assets				5,360		5,987		4,917			5,154		4,914
Long-term debt				1,105		1,205		1,206			1,220		1,324
Long-term debt due within one year				100		1		—			130		—
PSI
Operating revenues			$	4,075	$	2,684	$	2,136		$	2,403	$	1,960
Net income				162		135		117			52		132
Total assets				4,571		4,630		3,835			3,584		3,406
Long-term debt				1,325		1,074		1,212			1,026		826
Long-term debt due within one year				23		38		31			6		85

(1)

Included in net income for 1997 was a one-time extraordinary charge of $110 million ($.69 per share and diluted) for the windfall profits tax levied against our 50% ownership interest in Midlands Electricity plc (Midlands). In the third quarter of 1999, we sold our ownership interest in Midlands. For further information on the sale of our ownership interest in Midlands see Note 11 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data".

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ITEM 7.    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".

        The following discussion should be read in conjunction with the accompanying financial statements and related notes included elsewhere in this report. The results discussed below are not necessarily indicative of the results to be expected in any future periods.

INTRODUCTION

        In Management's Discussion and Analysis of Financial Condition and Results of Operations (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;



•

what our expenditures for construction and other commitments were during 2001, and what we expect them to be in 2002-2006;



•

potential sources of cash for future capital expenditures;



•

why revenues and expenses changed from period to period; and



•

how the above items affect our overall financial condition.

LIQUIDITY AND CAPITAL RESOURCES

Comparative Cash Flow Analysis

Cinergy

        At December 31, 2001, Cinergy's consolidated cash and cash equivalents totaled $111.1 million compared to $93.1 million at December 31, 2000. The increase reflects increases in cash from operating activities and new financings, offset in part by additional expenditures for our operating companies' construction programs and additional investments, including peaking generation assets.

The Cincinnati Gas & Electric Company (CG&E)

        At December 31, 2001, CG&E's consolidated cash and cash equivalents totaled $9.1 million compared to $20.6 million at December 31, 2000. Additional construction expenditures were largely offset by cash from operating activities.

PSI Energy, Inc. (PSI)

        At December 31, 2001, PSI's consolidated cash and cash equivalents totaled $1.6 million as compared to $1.3 million at December 31, 2000. Increases in cash from operating activities and financing activities were offset by additional construction expenditures.

26

Operating Activities

        For each of the years ended December 31, 2001, 2000, and 1999, our cash flows from operating activities were as follows:

Net Cash Provided by (Used in) Operating Activities

	2001		2000		1999
	(in thousands)
Cinergy(1)	$	694,412	$	618,001	$	478,267
CG&E and subsidiaries		333,099		463,875		399,008
PSI		388,171		339,115		124,053
The Union Light, Heat and Power Company (ULH&P)		46,513		49,258		32,537

(1)

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

Cinergy's net cash provided by operating activities increased during 2001, as compared to 2000, primarily due to increased income and a net cash inflow from working capital fluctuations. CG&E's net cash provided by operating activities decreased primarily due to working capital fluctuations, offset in part by increased income. PSI's cash from operating activities increased primarily due to increased income.

Cinergy's and PSI's net cash provided by operating activities increased during 2000, as compared to 1999, primarily due to the one-time cash payment in 1999 for the purchase of the remainder of Dynegy Inc.'s 25 year contract for coal gasification services. CG&E's cash provided by operating activities increased primarily due to increased income and fluctuations in working capital.

        The tariff-based gross margins of our operating companies continue to be the principal source of cash from operating activities. The diversified retail customer mix of residential, commercial, and industrial classes and a commodity mix of gas and electric service provides a reasonably predictable gross cash flow.

Financing Activities

        For each of the years ended December 31, 2001, 2000, and 1999, our cash flows from financing activities were as follows:

Net Cash Provided by (Used in) Financing Activities

	2001			2000			1999
	(in thousands)
Cinergy(1)	$	866,438		$	157,771		$	(355,986	)
CG&E and subsidiaries		16,841			(192,665	)		(222,311	)
PSI		34,723			(77,955	)		89,092
ULH&P		(14,678	)		(18,006	)		(3,906	)

(1)

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

Cinergy's net cash provided by financing activities increased during 2001, as compared to 2000, primarily due to the net proceeds from the issuance of Preferred trust securities and proceeds from debt issuances to fund the purchase of new generating facilities and environmental compliance expenditures as discussed in the "Investing Activities" section. CG&E's net cash provided by financing activities increased primarily as the result of increased short-term borrowings offset by an increase in dividends

27

paid on common stock. PSI's net cash provided by financing activities increased primarily as the result of no dividends paid on common stock in 2001 and the retirement of preferred stock in 2000.

Cinergy's net cash provided by financing activities increased in 2000, as compared to 1999, primarily due to a net increase in long-term and short-term borrowings. CG&E's net cash used in financing activities decreased primarily as a result of the redemption of $164 million in long-term debt that occurred during 1999 partially offset by a decrease in short-term borrowings. PSI's net cash used in financing activities increased primarily due to a net reduction in short-term and long-term debt offset in part by fewer debt redemptions in 2000.

Investing Activities

        For each of the years ended December 31, 2001, 2000, and 1999, our cash flows used in investing activities were as follows:

Net Cash Used in Investing Activities

	2001			2000			1999
	(in thousands)
Cinergy(1)	$	(1,542,837	)	$	(764,637	)	$	(140,516	)
CG&E and subsidiaries		(361,503	)		(260,127	)		(194,132	)
PSI		(422,618	)		(268,691	)		(223,091	)
ULH&P		(34,196	)		(28,433	)		(28,234	)

(1)

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

Cinergy's, CG&E's, and PSI's net cash used in investing activities increased in 2001, as compared to 2000, as a result of an increase in capital expenditures related to environmental compliance projects. See the "Environmental Commitment and Contingency Issues" section for further information. Cinergy's increase also reflects the acquisition of additional peaking capacity including the 480 megawatt (MW) Brownsville and the 550 MW Caledonia peaking stations.

        The increase in Cinergy's cash used in investing activities in 2000, as compared to 1999, primarily reflects the impact from proceeds of $690 million received in 1999 from the sale of our 50% ownership interest in Midlands Electricity plc (Midlands). CG&E's and PSI's net cash used in investing activities increased primarily as a result of an increase in construction expenditures.

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Capital Requirements

        Actual construction and other committed expenditures for 2001 and forecasted construction and other committed expenditures for the year 2002 and for the five-year period 2002-2006 (in nominal dollars), including allowance for funds used during construction, are presented in the table below:

Actual Capital and Investment Expenditures and Future Projections

			Forecasted Expenditures
	Actual Expenditures 2001
			2002		2002-2006
	(in millions)
By Registrant
Cinergy(1)	$	1,551	$	889	$	3,070
CG&E and subsidiaries		364		275		1,135
PSI		429		478		1,522
ULH&P		34		43		212

(1)

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

        This forecast includes an estimate of expenditures in accordance with the companies' plans regarding nitrogen oxide (NO_X) emission control standards and other environmental compliance (excluding implementation of the tentative United States (U.S.) Environmental Protection Agency (EPA) agreement), as discussed in EPA Agreement below.

        All forecasted amounts and the underlying assumptions are subject to risks and uncertainties as disclosed in the "Cautionary Statements Regarding Forward-Looking Information."

Environmental Commitment and Contingency Issues

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 Clean Air Act Amendments claims and other related matters brought against coal-fired power plants owned and operated by Cinergy's operating companies. The estimated cost for these capital expenditures is expected to be approximately $700 million. These capital expenditures are in addition to our previously announced commitment to install NO_X controls at an estimated cost of approximately $800 million (in nominal dollars) between 2001 and 2005. In 2001, we spent $260 million for NO_X and other environmental compliance projects. Forecasted expenditures for NO_X and other environmental compliance projects (in nominal dollars) are approximately $250 million for 2002 and $600 million for the 2002-2006 period. See Note 13 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" for a discussion of the EPA Agreement and related environmental issues.

Manufactured Gas Plant (MGP) Sites

        In November 1998, PSI entered into a Site Participation and Cost Sharing Agreement with Northern Indiana Public Service Company and Indiana Gas Company, Inc. related to contamination at MGP sites, which PSI or its predecessors previously owned. Until investigation and remediation activities have been completed on the sites, we are unable to reasonably estimate the total costs and impact on our financial position or results of operations. In relation to the MGP claims, PSI also filed suit 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

29

and compensate PSI for its costs of investigating, preventing, mitigating, and remediating damage to property and paying claims related to MGP sites. At the present time, PSI cannot predict the outcome of this litigation. See Note 13(g) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" for further information.

Ambient Air Standards

        In 1997, the EPA revised the National Ambient Air Quality Standards for ozone and fine particulate matter. Fine particulate matter refers to very small solid or liquid particles in the air. The EPA has estimated that it will take up to five years to collect sufficient ambient air monitoring data to determine fine particulate matter non-attainment areas. A fine particulate monitoring network was put in place during 1999 and 2000. Following identification of non-attainment areas, the states will identify the sources of particulate emissions and develop emission reduction plans. These plans may be state-specific or regional. 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 the EPA's final rule establishing the new eight-hour ozone standard and the fine particulate matter standard constituted an invalid delegation of legislative authority. In June 1999, the EPA appealed the decision. On February 27, 2001, the U.S. Supreme Court (Supreme Court) reversed the Court of Appeals' ruling. However, the Supreme Court invalidated the EPA's implementation procedure for the portion of the case dealing with the eight-hour ozone standard. The EPA currently is evaluating approaches for implementing the eight-hour ozone standard in accordance with the Supreme Court's opinion. Meanwhile, the Court of Appeals continues to consider the validity of the eight-hour ozone standard and the fine particulate matter standard, as a number of issues that were raised by the parties were not addressed in its original opinion invalidating those standards. The parties have filed supplemental briefs on these issues, and further oral argument was held in December 2001. A decision by the Court of Appeals is expected in the spring of 2002. We currently cannot determine the outcome of this litigation or of future EPA actions in response to the litigation and the effects on future emissions reduction requirements.

Regional Haze

        The EPA published the final regional haze rule on July 1, 1999. This rule established planning and emission reduction timelines for states to use to improve visibility in national parks throughout the U.S. The ultimate effect of the new regional haze rule could be requirements for (1) newer and cleaner technologies and additional controls on conventional particulates and (2) reductions in sulfur dioxide (SO₂) and NO_X emissions from utility sources. If more utility emissions reductions are required, the compliance cost could be significant. In August 1999, several industry groups (some of which we are a member) filed a challenge to the regional haze rules with the Court of Appeals. Parties have filed their briefs in this case and oral argument will be held in the first quarter of 2002. In addition, several industry groups (some of which we are a member) have petitioned the Bush Administration to reconsider its approach to regional haze, including possible modifications to the rule and/or settlement of the lawsuit. We currently cannot determine the outcome or effects of the EPA's, courts', or states' determinations.

        In July 2001, the EPA proposed guidance to implement portions of the regional haze rule. This guidance recommends that states require widespread installation of scrubbers to reduce SO₂ emissions. Several industry groups (some of which we are a member) commented that the EPA's recommendations exceed the scope of the law and the regional haze recommendations. We currently cannot determine whether or how the EPA will modify the scope of this guidance, or whether the states in which we operate will adopt the EPA's proposed guidance.

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Global Climate

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

        In March 2001, the Bush Administration announced that the U.S. was not interested in ratifying the Kyoto Protocol. Talks resumed without active U.S. participation at the Conference of the Parties in Bonn, Germany in July 2001, where the parties reached broad political agreement on the major outstanding issues. The Marrakech Accord, concluded at the seventh Conference of the Parties in November 2001, turned broad principles into a detailed set of rules that more clearly define the operating framework for the instruments and institutions created under the Kyoto Protocol. The Marrakech Accord set the stage for ratification of the Kyoto Protocol, although the U.S. continues to maintain its position against ratification. Because of a lack of U.S. support for the Kyoto Protocol or similar legislation, significant uncertainty exists about how and when greenhouse gas emissions reductions will be required. Our plan for managing the potential risk and uncertainty of regulations relating to climate change includes the following:

•

implementing cost-effective greenhouse gas emission reduction and offsetting activities;



•

funding research of more efficient and alternative electric generating technologies;



•

funding research to better understand the causes and consequences of climate change;



•

encouraging a global discussion of the issues and how best to manage them; and



•

advocating comprehensive legislation for fossil-fired power plants.

Mercury

        The EPA's 1997 Mercury Study Report and Utility Report to Congress both conveyed that mercury is not a risk to the average American and expressed uncertainty about whether reductions in current domestic sources would reduce human mercury exposure. On December 14, 2000, the EPA made a determination that additional regulation of mercury emissions from coal-fired power plants was appropriate. It is currently developing a Maximum Achievable Control Technology standard for mercury. The EPA is expected to issue draft regulations in 2003 and final rules by 2004, with reductions required before 2010. We currently cannot predict the outcome or costs relating to the EPA's determination and subsequent regulation.

Other Investing Activities

        Our ability to invest in growth initiatives is limited by certain legal and regulatory requirements, including the Public Utility Holding Company Act of 1935, as amended (PUHCA). The PUHCA limits the types of non-utility businesses in which Cinergy and other registered holding companies under PUHCA can invest as well as the amount of capital that can be invested in permissible non-utility businesses. Also, the timing and amount of investments in the non-utility businesses is dependent on the development and favorable evaluations of opportunities. Under the PUHCA restrictions, we are allowed to invest or commit to invest in certain non-utility businesses, including:

1.

Exempt Wholesale Generators (EWG) and Foreign Utility Companies (FUCO)

An EWG is an entity, certified by the Federal Energy Regulatory Commission (FERC), devoted exclusively to owning and/or operating, and selling power from one or more electric

31

generating facilities. An EWG whose generating facilities are located in the U.S. is limited to making only wholesale sales of electricity.

A FUCO is a company all of whose utility assets and operations are located outside the U.S. and which are used for the generation, transmission, or distribution of electric energy for sale at retail or wholesale, or the distribution of gas at retail. An entity claiming status as a FUCO must provide notification thereof to the Securities and Exchange Commission (SEC) under PUHCA.

In May 2001, the SEC issued an order under PUHCA authorizing Cinergy to invest (including by way of guarantees) an aggregate amount in EWGs and FUCOs equal to the sum of (1) our average consolidated retained earnings from time to time plus (2) $2 billion. As of December 31, 2001, we had invested or committed to invest $1.3 billion in EWGs and FUCOs, leaving available investment capacity under the May 2001 order of $2 billion.

2.

Qualifying Facilities and Energy-Related Non-utility Entities

SEC regulations under the PUHCA permit Cinergy and other registered holding companies to invest and/or guarantee an amount equal to 15% of consolidated capitalization (consolidated capitalization is the sum of Notes payable and other short-term obligations, Long-term debt (including amounts due within one year), Preferred Trust Securities, Cumulative preferred stock of subsidiaries, and total Common stock equity) in domestic qualifying cogeneration and small power production plants (qualifying facilities) and certain other domestic energy-related non-utility entities. At December 31, 2001, we had invested and/or guaranteed approximately $.5 billion of the $1.2 billion available.

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Financing Obligations

        The following table presents Cinergy's, PSI's, CG&E's, and ULH&P's financing obligations:

			Payments Due by Period
Financing Obligations
			2002		2003			2004		2005			2006		Thereafter			Total
			(in millions)
Cinergy(1)
	Notes payable and other short-term obligations		$	877	$	—		$	—	$	—		$	—	$	279	(2)	$	1,156
	Capital lease obligations			3		3			3		3			4		19			35
	Operating leases			45		36			26		21			18		61			207
	Long-term debt (including due within one year)			148		192	(3)		814		203	(4)(5)		334		2,065			3,756
	Preferred trust securities			—		—			—		—			—		316			316
		Total Cinergy	$	1,073	$	231		$	843	$	227		$	356	$	2,740		$	5,470
CG&E and subsidiaries
	Notes payable and other short-term obligations(6)		$	445	$	—		$	—	$	—		$	—	$	196	(2)	$	641
	Capital lease obligations			1		2			2		2			2		11			20
	Operating leases			20		15			10		7			6		15			73
	Long-term debt (including due within one year)			100		120	(3)		110		150	(5)		—		728			1,208
		Total CG&E and subsidiaries	$	566	$	137		$	122	$	159		$	8	$	950		$	1,942
PSI
	Notes payable and other short-term obligations(6)		$	43	$	—		$	—	$	—		$	—	$	83	(2)	$	126
	Capital lease obligations			2		1			1		1			2		8			15
	Operating leases			17		14			9		7			7		23			77
	Long-term debt (including due within one year)			23		58			1		51	(4)		328		895			1,356
		Total PSI	$	85	$	73		$	11	$	59		$	337	$	1,009		$	1,574
ULH&P
	Notes payable and other short-term obligations(6)		$	26	$	—		$	—	$	—		$	—	$	—		$	26
	Capital lease obligations			—		—			1		1			1		3			6
	Operating leases			1		1			—		—			—		—			2
	Long-term debt			—		20			—		—			—		55			75
		Total ULH&P	$	27	$	21		$	1	$	1		$	1	$	58		$	109

(1)

Includes amounts for non-registrants.

(2)

Includes Variable Rate Pollution Control Notes depicted according to scheduled maturities, which the holders have the right to redeem on any business day, with the remainder being redeemable annually. See Variable Rate Pollution Control Notes below.

(3)

Includes 6.35% Debentures due June 15, 2038, reflected as maturing in 2003, as the interest rate resets on June 15, 2003.

(4)

Includes 6.50% Debentures due August 1, 2026, reflected as maturing in 2005, as the interest rate resets on August 1, 2005.

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(5)

Includes 6.90% Debentures due June 1, 2025, reflected as maturing in 2005, as the debentures are putable to CG&E at the option of the holders on June 1, 2005.

(6)

Includes net Notes receivable from/Notes payable to affiliated companies.

Capital Resources

Notes Payable and Other Short-term Obligations

Short-term Borrowings

        At December 31, 2001, Cinergy Corp. had $437 million remaining unused and available capacity relating to its $1.2 billion revolving credit facilities. The revolving credit facilities were comprised of $400 million under a three-year senior revolving credit facility expiring in May 2004 and $775 million in revolving facilities expiring during the first half of 2002. In early 2002, Cinergy Corp. placed a $600 million, 364-day senior revolving credit facility to replace the facilities expiring in 2002. At December 31, 2001, certain of our non-regulated subsidiaries had $8 million of unused and available revolving credit lines.

        In May 2001, CG&E filed an application with the Public Utilities Commission of Ohio (PUCO) to increase its short-term debt authority to $600 million and in June 2001, the PUCO granted this request. In April 2001, Cinergy Corp. filed an application with the SEC to increase PSI's and ULH&P's short-term debt authority to $600 million and $65 million, respectively. In August 2001, the SEC granted our request. As of December 31, 2001, our operating companies had regulatory authority to borrow up to a total of $1.27 billion in short-term debt ($671 million for CG&E and its subsidiaries, including $65 million for ULH&P, and $600 million for PSI.) As of December 31, 2001, CG&E and its subsidiaries had $226 million (including $39 million for ULH&P) unused and available and PSI had $557 million unused and available under their respective regulatory authority.

        Our short-term financial arrangements include customary default provisions that could impact the continued availability of credit or result in the acceleration of repayment. These events include bankruptcy, defaults in payment of other indebtedness, judgments against Cinergy that are not paid or insured, or failure to meet or maintain covenants.

Uncommitted Lines

        In addition to revolving credit facilities, Cinergy, CG&E, and PSI also maintain uncommitted lines of credit. These facilities are not firm sources of capital and represent an informal agreement to lend money, subject to availability, with pricing to be determined at the time of advance. At December 31, 2001, Cinergy Corp.'s $40 million uncommitted line and CG&E's $15 million uncommitted line were unused. PSI's uncommitted line of $60 million was fully drawn at year-end.

Commercial Paper

        In early 2001, Cinergy Corp. expanded the commercial paper program to a maximum outstanding principal amount of $800 million and reduced the established lines of credit 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 separate commercial paper programs. As of December 31, 2001, Cinergy Corp.'s commercial paper program was supported by $1.2 billion in revolving credit facilities, of which it had $125 million in commercial paper outstanding.

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 a

34

majority of these notes have the right to redeem their notes on any business day, with the remainder being redeemable annually, they are reflected in Notes payable and other short-term obligations in the Balance Sheets for Cinergy, CG&E, and PSI. At December 31, 2001, CG&E had $196 million and PSI had $83 million outstanding in pollution control notes, classified as short-term debt.

Money Pool

Cinergy Corp., Cinergy Services, Inc. (Services), and our operating companies 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 affiliates (other than Cinergy Corp.) participating under this arrangement. 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 Balance Sheets for CG&E, PSI, and ULH&P.

Capital Leases

        Our operating companies are able to enter into capital leases subject to the authorization limitations of the applicable state utility commissions. Increases in these limits are subject to the approval of the respective commissions. As of December 31, 2001, unused capital lease authority was $74 million for CG&E and $19 million for ULH&P. PSI did not have any remaining authority at December 31, 2001. During the first quarter of 2002, PSI intends to file an application with the Indiana Utility Regulatory Commission (IURC) requesting additional capital lease authority of up to $100 million. See Note 8(b) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" for additional information regarding capital leases.

Operating Leases

        We have entered into operating lease agreements for various facilities and properties such as computer, communication and transportation equipment, and office space. See Note 8(a) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" for additional information regarding operating leases.

Long-term Debt

        We are required to secure authority to issue long-term debt from the SEC under the PUHCA and the state utility commissions of Ohio, Kentucky, and Indiana. The SEC under the PUHCA regulates the issuance of long-term debt by Cinergy Corp. The respective state utility commissions regulate the issuance of long-term debt by our operating companies. In June 2000, the SEC issued an order under the PUHCA authorizing Cinergy Corp., over a five-year period expiring in June 2005, to increase its total capitalization based on a balance at December 31, 1999 (excluding retained earnings and accumulated other comprehensive income (loss)) by an additional $5 billion, through the 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.

        In May 2001, CG&E filed an application with the PUCO to increase its long-term debt authority to $400 million and in June 2001, the PUCO granted this request. As of December 31, 2001, $400 million remained unused and available under the PUCO authorization. PSI intends to file an application with the IURC requesting additional long-term debt issuance authority of up to $500 million. In November 2001, Cinergy Corp. filed a shelf registration statement with the SEC with respect to the issuance of common stock, preferred stock, and other securities with an aggregate

35

amount of $800 million, and at December 31, 2001, $168 million remained unused and available under this registration statement. We may, at any time, seek to issue additional long-term debt, subject to regulatory approval.

        As of December 31, 2001, through shelf registration statements filed with the SEC under the Securities Act of 1933, as amended, we could issue the following amounts of debt securities:

	CG&E		PSI		ULH&P
	(in millions)
First Mortgage Bonds and Other Secured Notes	$	300	$	205	$	20
Senior or Junior Unsecured Debt		50		400		30

Off-Balance Sheet Financing

Cinergy uses special-purpose entities (SPEs) from time to time to facilitate financing of various projects. Due to our lack of control of these entities, a substantive investment by unrelated parties, and various other criteria, Cinergy does not consolidate these SPEs. The following describes the major off-balance sheet financings.

(i) Power Sales

        Cinergy Capital & Trading, Inc. (Capital & Trading) is a 10% owner of two SPEs that were created to facilitate power sales to Central Maine Power (CMP). The SPEs raised capital to purchase CMP's existing power supply contracts from two independent power producers. The SPEs restructured the terms of the agreements, resulting in power sales contracts for approximately 45 MW, ending in 2009, and 35 MW, ending in 2016. Since the SPEs have no generation sources, power purchase agreements were entered into with Capital & Trading with near equivalent terms. The total debt outstanding at December 31, 2001, within these two SPEs is approximately $250 million. This debt is non-recourse to Cinergy and Capital & Trading in the event of non-performance by CMP. A portion of the cash flows received by the SPEs from CMP is reserved to pay the interest and principal on the debt.

        Capital & Trading provides various services, including certain credit support facilities. All but one of these credit support facilities is capped at immaterial amounts. The non-capped facility can only be called upon in the event the SPE breaches representations, violates covenants, or other unlikely events.

        Capital & Trading accounts for its 10% interest in both SPEs under the equity method of accounting.

(ii) Leasing

Cinergy has an arrangement with an SPE that has contracted to buy five combustion turbines from an unrelated party. Cinergy will act as agent for the SPE in all turbine-related matters. Progress payments are being made by the SPE as the turbines are constructed, with estimated completion in 2003 for two of the turbines and 2004 for the remaining three. Total cost of the turbines being constructed, including interest during construction, is estimated at $185 million. The arrangement with the SPE allows Cinergy to elect any of the following at construction completion: (a) purchase the turbines for the total costs incurred by the SPE, (b) enter into a five-year operating lease, or (c) remarket the turbines with the proceeds distributed first to the debt holders and then to the equity holders of the SPE. Should Cinergy elect to remarket the turbines on behalf of the owners of the SPE, we are required to pay up to 89.9% of the turbine costs (including interest) to the SPE for use in payment of outstanding senior debt. The proceeds from the sales of turbines would then be used to recover the remaining turbine cost, with any residuals returned to Cinergy. During the construction period, Cinergy has agreed to indemnify the SPE for 89.9% of the construction cost of the turbines in

36

an event of default under Cinergy's agency agreement. At December 31, 2001, approximately $30 million of progress payments had been made by the SPE. Neither the turbines nor any related debt is reflected in the financial statements because we have no ownership in, nor control of, the SPE. Cinergy is uncertain whether it will exercise the purchase option or enter into the five-year operating lease at the completion of construction.

(iii) Sales of Accounts Receivable

CG&E, PSI, and ULH&P have an agreement to sell, on a revolving basis, undivided interests in certain accounts receivable. At December 31, 2001, approximately $322 million of receivables were sold. Cash proceeds from these sales, net of a purchaser holdback of approximately 20%, were $257 million. For a more detailed discussion of our sales of accounts receivable, see Note 7 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data".

        In addition to the items above, Cinergy holds investments in various unconsolidated subsidiaries which are accounted for under the equity method (see Note 1(b) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data"). Cinergy has guaranteed approximately $12 million of the debt of these entities.

Securities Ratings

        As of January 31, 2002, the major credit ratings agencies rated our securities as follows:

		Fitch	Moody's(1)	S&P(2)
Cinergy Corp.
	Corporate Credit	BBB+	Baa2	BBB+/A-2
	Senior Unsecured Debt	BBB+	Baa2	BBB+
	Commercial Paper	F-2	P-2	A-2
	Preferred Trust Securities	BBB+	Baa2	BBB
CG&E
	Senior Secured Debt	A-	A3	A-
	Senior Unsecured Debt	BBB+	Baa1	BBB+
	Junior Unsecured Debt	BBB	Baa2	BBB
	Preferred Stock	BBB	Baa3	BBB
	Commercial Paper	F-2	P-2	Not Rated
PSI
	Senior Secured Debt	A-	A3	A-
	Senior Unsecured Debt	BBB+	Baa1	BBB+
	Junior Unsecured Debt	BBB	Baa2	BBB
	Preferred Stock	BBB	Baa3	BBB
	Commercial Paper	F-2	P-2	Not Rated
ULH&P
	Senior Unsecured Debt	Not Rated	Baa1	BBB+

(1)

Moody's Investors Service (Moody's)

(2)

Standard & Poor's Ratings Services (S&P)

        On December 12, 2000, S&P placed its ratings of Cinergy Corp. and its operating affiliates, CG&E and PSI, on CreditWatch with negative implications. On January 22, 2001, Moody's announced it had assigned negative outlooks to the debt and preferred stock securities of Cinergy Corp. and all of its

37

subsidiaries. These actions were primarily in response to Cinergy's acquisition of the Brownsville and Caledonia power plants. See "Supply-side Actions" under "Electric Industry" for further discussion. Other items of concern included (1) the announcement that Cinergy Corp., CG&E, and PSI have reached an agreement in principle with the EPA; (2) the continuing uncertainty surrounding CG&E's post-deregulation corporate and financial structure; (3) the absence of restructuring legislation and stranded investment resolution in Indiana; and (4) Cinergy's emphasis on higher-risk non-regulated activities.

        On September 4, 2001, Moody's placed the debt ratings of Cinergy Corp. on review for possible downgrade. These actions are primarily in response to Cinergy Corp.'s increased debt associated with its growing portfolio of peaking generation.

        On November 14, 2001, Fitch changed the outlook of Cinergy's 'BBB+' Senior unsecured debt to negative from stable due to increased leverage and planned environmental expenditures.

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

Equity Securities

        In addition to the authority to issue common stock pursuant to the SEC's June 2000 Order permitting Cinergy Corp. to increase its total capitalization by $5 billion (as previously discussed), Cinergy Corp. may issue an additional 50 million shares of common stock for various stock-based plans, of which approximately 6 million shares had been issued as of December 31, 2001. We also have the option of purchasing shares of common stock on the open market to satisfy the obligations of our various stock-based plans. The proceeds from any new issuances will be used for general corporate purposes.

        In November 2001, Cinergy Corp. chose to reinstitute the practice of issuing new Cinergy Corp. common shares to meet its obligations under the various employee stock plans and the Cinergy Corp. Direct Stock Purchase and Dividend Reinvestment Plan. This replaces the previous practice of purchasing open market shares to fulfill plan obligations.

        The following table reflects the number of newly issued shares and purchased shares used to satisfy obligations under our various stock-based plans:

	2001	2000	1999
	(in thousands)
Purchased Shares	820	2,299	748
Issued Shares	508	77	291

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

        In November 2001, Cinergy filed a shelf registration statement with the SEC with respect to the issuance of common stock, preferred stock, and other securities with an aggregate amount of $800 million. In December 2001, Cinergy issued approximately $316 million notional amount of combined securities, a component of which was stock purchase contracts. These contracts obligate the holder to purchase common shares of Cinergy Corp. on or before February 2005. See Note 4 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" for additional information regarding the stock purchase contracts.

Dividend Restrictions

Cinergy Corp.'s ability to pay dividends to holders of its common stock is principally dependent on the ability of CG&E and PSI to pay Cinergy Corp. common dividends. Cinergy Corp., CG&E, and PSI

38

cannot pay dividends on their common stock if preferred stock dividends or preferred trust dividends are in arrears. The amount of common stock dividends that each company can pay is also limited by certain capitalization and earnings requirements under CG&E's and PSI's credit instruments. Currently, these requirements do not impact the ability of either company to pay dividends on its common stock.

Guarantees

        We are subject to an SEC order under the PUHCA, which limits the amounts Cinergy Corp. can have outstanding under guarantees at any one time to $2 billion. As of December 31, 2001, we had $558 million outstanding under the guarantees issued, of which approximately 70% represents guarantees of obligations reflected on Cinergy's Consolidated Balance Sheet. The amount outstanding represents Cinergy Corp.'s guarantees of liabilities and commitments of its consolidated subsidiaries, unconsolidated subsidiaries, and joint ventures. See Note 13(b) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" for a further discussion of guarantees.

Collateral Requirements

Cinergy has certain contracts in place, primarily with trading counterparties, that require the issuance of collateral in the event our debt ratings are downgraded below investment grade. Based upon our December 31, 2001 trading portfolio, if such an event were to occur, Cinergy would be required to issue up to approximately $30 million in collateral related to its gas trading operations.

Other

        Where subject to rate regulations, our operating companies have the ability to timely recover certain cash outlays through regulatory mechanisms such as fuel adjustment clause, purchased power tracker, gas cost recovery, and construction work in progress (CWIP) ratemaking. For further discussion see "Electric Industry" and "Gas Industry".

        We are exploring opportunities to monetize certain non-core investments, which would include our international and renewable assets operated by Cinergy Global Resources, Inc. (Global Resources) and other technology investments. In that regard, management believes that the effects of potential asset dispositions will not result in material gains or losses or be material to our results of operations.

2001 RESULTS OF OPERATIONS—HISTORICAL

SUMMARY OF RESULTS

        Electric and gas gross margins and net income for Cinergy, CG&E, and PSI for the years ended December 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	$	2,270,274	$	2,229,869	$	1,215,385	$	1,183,816	$	942,530	$	959,541
Gas gross margin		231,017		267,304		199,665		224,633		—		—
Net income		442,279		399,466		326,654		266,820		162,333		135,398

(1)

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

        Diluted earnings per share (diluted EPS) for the year ended December 31, 2001, was $2.75 as compared to $2.50 for the year ended December 31, 2000. Included in 2000 results were previously reported one-time charges totaling $.11 per share related to a tentative agreement reached with the EPA and a limited early retirement program (LERP) offered to employees during 2000.

39

        The increase in 2001 earnings was primarily attributable to increased electric gross margins within Energy Merchant Business Unit's (Energy Merchant) origination, marketing and trading segment, and reduced operating expenditures. Partially offsetting this increase were lower electric gross margins within our regulated operations, mainly driven by mild weather and a slowed economy, and increased depreciation and interest expenses associated with new investments. Gas gross margins decreased for the year ended December 31, 2001, as compared to the same period last year, primarily as a result of mild weather.

        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		$	2,691	$	2,692	—	$	1,444	$	1,482	(3	)	$	1,247	$	1,210	3
Wholesale			5,432		2,640	106		2,612		1,226	113			2,802		1,443	94
Transportation			3		—	—		3		—	—			—		—	—
Other			55		52	6		38		31	23			26		31	(16	)
	Total	$	8,181	$	5,384	52	$	4,097	$	2,739	50		$	4,075	$	2,684	52

(1)

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

Electric operating revenues for Cinergy, CG&E, and PSI increased for the year ended December 31, 2001, as compared to the same period last year, mainly due to an increase in volumes and average price per megawatt-hour (MWh) realized on non-firm wholesale transactions related to energy marketing and trading activities. Non-firm power is power without a guaranteed commitment for physical delivery.

GAS OPERATING REVENUES

		Cinergy(1)						CG&E and subsidiaries
		2001		2000		% Change		2001		2000		% Change
		(in millions)
Retail		$	547	$	429	28		$	547	$	429	28
Wholesale			4,071		2,454	66			3		1	—
Transportation			40		56	(29	)		40		56	(29	)
Other			5		3	67			6		5	20
	Total	$	4,663	$	2,942	58		$	596	$	491	21

(1)

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

Gas operating revenues for Cinergy and CG&E increased for the year ended December 31, 2001, as compared to the same period last year. Cinergy's increase was primarily the result of increased volumes sold by Cinergy Marketing & Trading, LP (Marketing & Trading).

CG&E's retail gas revenues increased primarily due to a higher price received per thousand cubic feet (mcf) sold. This increase was partially offset by a decrease in retail gas sales resulting from warmer weather during the fourth quarter of 2001. The higher price reflects a substantial increase in the wholesale gas commodity cost during the first six months, which is passed directly to the retail customer dollar-for-dollar under the gas cost recovery mechanism that is mandated by state law. Retail sales also

40

increased and transportation sales decreased due to transportation customers (customers who purchase gas directly from other suppliers) returning to full gas service (customers who purchase gas and utilize the transportation services of CG&E).

OPERATING EXPENSES

		Cinergy(1)						CG&E and subsidiaries						PSI
		2001		2000		% Change		2001		2000		% Change		2001		2000		% Change
		(in millions)
Fuel		$	771	$	773	—		$	307	$	344	(11	)	$	453	$	407	11
Purchased and exchanged power			5,140		2,382	116			2,575		1,211	113			2,679		1,318	103
Gas purchased			4,432		2,674	66			397		266	49			—		—	—
Operation and maintenance			1,032		1,119	(8	)		442		492	(10	)		413		464	(11	)
Depreciation			378		344	10			187		181	3			150		141	6
Taxes other than income taxes			228		268	(15	)		174		208	(16	)		50		57	(12	)
	Total	$	11,981	$	7,560	58		$	4,082	$	2,702	51		$	3,745	$	2,387	57

(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 year ended December 31, 2000, to the year ended December 31, 2001:

	Cinergy(1)			CG&E			PSI
	(in millions)
2000 fuel expense	$	773		$	344		$	407
Increase (Decrease) due to changes in:
Price of fuel		47			22			25
Deferred fuel cost		45			2			43
MWh generation		(58	)		(36	)		(22	)
Other(2)		(36	)		(25	)		—
2001 fuel expense	$	771		$	307		$	453

(1)

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

(2)

Includes fair value adjustments of contracted coal options. See Note 1(k) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" for further discussion.

Purchased and Exchanged Power

Purchased and exchanged power expense for Cinergy, CG&E, and PSI increased for the year ended December 31, 2001, as compared to the same period last year, primarily due to an increase in purchases of non-firm wholesale power, reflecting higher sales volumes and higher prices paid per MWh.

Gas Purchased

Gas purchased expense for Cinergy increased for the year ended December 31, 2001, as compared to the same period last year, primarily due to an increase in gas commodity trading volumes. CG&E's

41

expense increased for the year ended December 31, 2001, as compared to the same period last year, primarily due to higher prices paid per mcf during the first six months of 2001. CG&E's wholesale gas commodity cost is passed directly to the retail customer dollar-for-dollar under the gas cost recovery mechanism that is mandated by state law.

Operation and Maintenance

Operation and maintenance expense for Cinergy, CG&E, and PSI decreased for the year ended December 31, 2001, as compared to the same period last year, due in part to one-time charges related to a tentative agreement reached with the EPA in late 2000 and the LERP offered during 2000, as part of a corporate restructuring initiative. Cinergy's and CG&E's decrease is also attributable to a sale of emission allowances, due to decreased electric generation, and Cinergy's and PSI's decrease reflects the reduction in amortization of demand-side management costs, resulting from the expiration of the agreement in May 2000.

Depreciation

Depreciation expense for Cinergy increased for the year ended December 31, 2001, as compared to the same period last year. This increase was primarily attributable to the acquisition of additional depreciable plant, including investments in peaking generation.

Taxes Other Than Income Taxes

Taxes other than income taxes expense for Cinergy, CG&E, and PSI decreased for the year ended December 31, 2001, as compared to the same period last year, primarily due to reduced property tax expense and other tax changes associated with deregulation in Ohio.

MISCELLANEOUS—NET

Miscellaneous—net for PSI increased $15 million for the year ended December 31, 2001, as compared to the same period last year, primarily due to income associated with capitalized financing costs of its pollution control projects and gains associated with the demutualization of one of our medical insurance carriers.

INTEREST

Interest expense for Cinergy increased $44 million for the year ended December 31, 2001, as compared to the same period last year, mainly due to debt issuances principally associated with the acquisition of additional peaking generation. Partially offsetting this increase was a decrease in short-term interest rates.

INCOME TAXES

Income tax expense for Cinergy, CG&E, and PSI increased $4 million, $27 million and $18 million, respectively for the year ended December 31, 2001, as compared to the same period last year, primarily due to an increase in taxable income.

ULH&P

        The Results of Operations discussion for ULH&P is presented only for the year ended December 31, 2001, in accordance with General Instruction I(2)(a).

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

	ULH&P
	2001		2000
	(in thousands)
Electric gross margin	$	79,398	$	65,686
Gas gross margin		36,740		40,359
Net income		35,924		24,632

Electric gross margins increased for the year ended December 31, 2001, as compared to the same period last year, primarily due to the recognition of revenues previously reserved as they were subject to refund. These revenues were recorded in connection with a 2000 retail rate filing with the Kentucky Public Service Company (KPSC). A settlement agreement was reached with the KPSC in May 2001, which granted ULH&P retention of these revenues. For further information regarding the settlement agreement, see Note 13(j) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data".

Gas gross margins decreased for the year ended December 31, 2001, as compared to the same period last year, as a result of milder weather and reduced industrial consumption.

        The Results of Operations discussions for Cinergy, CG&E, and PSI are combined within this section.

2000 RESULTS OF OPERATIONS—HISTORICAL

SUMMARY OF RESULTS

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

	Cinergy(1)				CG&E and subsidiaries				PSI
	2000		1999		2000		1999		2000		1999
	(in thousands)
Electric gross margin	$	2,229,869	$	2,052,602	$	1,183,816	$	1,108,371	$	959,541	$	922,053
Gas gross margin		267,304		212,153		224,633		204,016		—		—
Net income		399,466		403,641		266,820		233,576		135,398		117,199

(1)

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

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

        The contribution to earnings of our international operations decreased $.70 per share for the year ended December 31, 2000, as compared to 1999, primarily due to the loss of equity earnings and resulting gain from the sale of our share of Midlands, which took place in July 1999. For further details regarding this transaction, refer to Note 11 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data". Earnings from our regulated operations had a net increase of $.66 per share for the year 2000, as compared to 1999. This increase was primarily attributable to growth in electric margins and continued improvement in our commodity supply business. Growth in residential, commercial, and industrial customer bases, along with improvements in cost of sales, were somewhat offset by the effects of mild weather experienced during 2000.

43

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

        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
		2000		1999		% Change		2000		1999		% Change	2000		1999		% Change
		(in millions)
Retail		$	2,692	$	2,725	(1	)	$	1,482	$	1,468	1	$	1,210	$	1,258	(4	)
Wholesale			2,640		1,539	72			1,226		687	78		1,443		840	72
Other			52		49	6			31		20	55		31		38	(18	)
	Total	$	5,384	$	4,313	25		$	2,739	$	2,175	26	$	2,684	$	2,136	26

(1)

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

Electric operating revenues for Cinergy, CG&E, and PSI increased for the year ended December 31, 2000, as compared to 1999, mainly due to an increase in volumes and the average price per MWh realized on non-firm wholesale transactions related to energy marketing and trading activities.

        The increase in other electric operating revenues for Cinergy primarily reflected marketing activities of Capital & Trading, a Cinergy non-regulated affiliate.

GAS OPERATING REVENUES

		Cinergy(1)					CG&E and subsidiaries
		2000		1999		% Change	2000		1999		% Change
		(in millions)
Retail		$	429	$	320	34	$	429	$	320	34
Wholesale			2,454		1,222	101		1		1	—
Transportation			56		51	10		56		51	10
Other			3		3	—		5		4	25
	Total	$	2,942	$	1,596	84	$	491	$	376	31

(1)

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

Gas operating revenues for Cinergy increased in 2000, as compared to 1999, primarily as a result of a higher price realized per mcf sold by Marketing & Trading.

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

        The market price of natural gas increased significantly in 2000, which caused CG&E to pay more for the gas it delivered 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 by state law.

OTHER REVENUES

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

44

OPERATING EXPENSES

		Cinergy(1)					CG&E and subsidiaries						PSI
		2000		1999		% Change	2000		1999		% Change		2000		1999		% Change
		(in millions)
Fuel		$	773	$	761	2	$	344	$	341	1		$	407	$	397	3
Purchased and exchanged power			2,382		1,499	59		1,211		726	67			1,318		817	61
Gas purchased			2,674		1,384	93		266		172	55			—		—	—
Operation and maintenance			1,119		1,012	11		492		445	11			464		462	—
Depreciation			344		323	7		181		175	3			141		135	4
Taxes other than income taxes			268		266	1		208		212	(2	)		57		53	8
	Total	$	7,560	$	5,245	44	$	2,702	$	2,071	30		$	2,387	$	1,864	28

(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 1999 to 2000:

	Cinergy(1)			CG&E			PSI
	(in millions)
1999 fuel expense	$	761		$	341		$	397
Increase (Decrease) due to changes in:
Price of fuel		(14	)		(12	)		(2	)
Deferred fuel cost		(17	)		9			(26	)
MWh generation		44			6			38
Other		(1	)		—			—
2000 fuel expense	$	773		$	344		$	407

(1)

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

Purchased and Exchanged Power

Purchased and exchanged power expense increased for Cinergy, CG&E, and PSI for 2000, as compared to 1999. This increase was primarily due to an increase in purchases of non-firm wholesale power as a result of an increase in sales volumes from Marketing & Trading.

Gas Purchased

Gas purchased expense increased for Cinergy in 2000, as compared to 1999, primarily due to increased gas commodity trading activity and, for both Cinergy and CG&E, an increase in the average cost per mcf of gas purchased.

45

Operation and Maintenance

Cinergy's Operation and maintenance expense increased in 2000, as compared to 1999, primarily due to a full year's realization of operating expenses resulting from the acquisition of an energy-related services affiliate in late 1999. Additionally for 2000, operation expenses increased for Cinergy, CG&E, and PSI as a result of one-time charges related to a tentative agreement reached with the EPA and the LERP offered as part of a corporate restructuring initiative.

Depreciation

Cinergy's, CG&E's, and PSI's Depreciation expense increased in 2000, as compared to 1999, due to additions to depreciable plant.

EQUITY IN EARNINGS (LOSSES) OF UNCONSOLIDATED SUBSIDIARIES

Cinergy's Equity in earnings (losses) of unconsolidated subsidiaries decreased $53 million in 2000, as compared to 1999. This decrease was primarily due to the loss in earnings resulting from the July 1999 sale of our 50% ownership interest in Midlands. For further information see Note 11 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data".

INTEREST

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

FUTURE EXPECTATIONS/TRENDS

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

ELECTRIC INDUSTRY

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

Wholesale Market Developments

        In 1996, the FERC issued orders to open the wholesale electric markets to competition. Competitors within the wholesale market include both utilities and non-utilities such as EWG's, independent power producers, and power marketers. We are involved in wholesale power marketing and trading and exempt wholesale generation through Energy Merchant.

        In both 1998 and 1999, the Midwest wholesale electric power markets experienced record price spikes. These spikes were caused by a number of factors including unseasonably hot weather, unplanned generating unit outages, transmission constraints, and increased electric commodity market volatility. These simultaneous events created temporary but extreme prices in the Midwest electricity markets. In response to these events, we have aggressively adopted a model that is focused on a balance of supply and demand.

46

Supply-side Actions

        In September 1999, Capital & Trading formed a partnership (each party having a 50% ownership) with Duke Energy North America, LLC (Duke), to increase the available generating capacity for use during peak demand periods. The partnership was formed for the purpose of jointly constructing and owning three wholesale generating facilities.

        In March 2000, the IURC issued an order, requiring the partnership to immediately suspend all construction activities at the site located in Henry County, Indiana (a peaking plant with a total capacity of 129 MW of which we owned 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 in November 2000, and a favorable ruling was received in April 2001. The plant, which began generating power commercially in the summer of 2001, consists of three gas turbine engines.

        In June 2001, Capital & Trading and Duke announced they would dissolve their partnership. In September 2001, the partnership was dissolved and Capital & Trading obtained 100% ownership of the 680 MW wholesale generating facility located in Butler County, Ohio and the 129 MW wholesale generating facility located in Henry County, Indiana. In exchange for the Butler County, Ohio and Henry County, Indiana generating facilities, Duke received 100% ownership of the Vermillion County, Indiana generating facility (680 MW), which will be operated by Cinergy for five years.

        In March 2001, Capital & Trading completed the acquisition of the 480 MW Brownsville generation facility located in Haywood County, Tennessee and the 550 MW Caledonia generation facility located in Lowndes County, Mississippi. Brownsville has four natural gas-fired combustion turbines and Caledonia has six natural gas-fired combustion turbines.

        In December 2001, the IURC approved PSI's plan for environmental improvements that will increase the electric generating capacity at its Noblesville generating station from 100 MW to 300 MW. In addition to increasing capacity, upon completion of the project, overall emissions to the environment will be reduced.

Demand-side Actions

        Pursuant to Ohio's customer choice legislation enacted in 2001, 20% of CG&E's retail electric load is expected to switch suppliers by December 2003. CG&E currently has no plans to replace these customers by acquiring new retail customers, although CG&E reserves the flexibility to replace load in the wholesale market to the extent it chooses. For a further discussion on Ohio deregulation, see "Retail Market Developments" of this section.

FERC Notice of Proposed Rulemaking

        On September 27, 2001, the FERC issued a Notice of Proposed Rulemaking, proposing to promulgate new standards of conduct regulations that would apply uniformly to natural gas pipelines and transmitting public utilities that are currently subject to FERC's standards of conduct. The FERC is proposing to adopt one set of standards of conduct to govern the relationships between regulated transmission providers and all their energy affiliates, broadening the definition of an affiliate covered by the standards of conduct, from the more narrow definition in the existing regulations. At this time, we are unable to predict either the outcome of this proceeding or its effect on Cinergy.

Retail Market Developments

        Currently, regulatory and legislative initiatives shaping the transition to a competitive retail market are the responsibilities of the individual states. Many states, including Ohio, have enacted electric utility

47

deregulation legislation. In general, these initiatives have sought to separate the electric utility service into its basic components (generation, transmission, and distribution) and offer each component separately for sale. This separation is referred to as unbundling of the integrated services. Under the customer choice initiatives in Ohio, we continue to transmit and distribute electricity; however, the customer can purchase electricity from any available supplier and we are compensated by a "wires" charge. The following sections further discuss the current status of federal energy policies and deregulation legislation in the states of Ohio, Indiana, and Kentucky, each of which includes a portion of our service territory.

Federal Update

        President Bush has indicated that legislation addressing the energy security needs of America deserves prompt consideration. He appointed Vice President Cheney to head an inter-agency task force which recommended a number of actions, many of which are embodied in HR 4, which passed the House of Representatives last summer. This legislation includes a number of tax provisions, research and development provisions for clean coal technology, and provisions to increase supplies of natural gas.

        Legislation considering many of the President's recommendations has also been developed by Senator Bingaman and other Senate leaders and is scheduled to be considered by the full Senate in February 2002.

        The President also recognized the need to balance the energy and environmental needs of the country and supported combining the multitude of environmental regulations facing electric utilities into one legislative package. The intent is to give the industry one clear set of environmental goals, along with an appropriate amount of time to meet necessary emission reductions, while providing environmental benefits to consumers. Cinergy has supported this approach within the industry, Congress, and the Bush Administration in the interest of achieving an energy and environmental balance in any final legislative package.

Ohio

        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 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. The major features of the agreement include:

•

Residential customer rates are frozen through December 31, 2005;



•

Residential customers received a five-percent reduction in the generation portion of their electric rates, effective January 1, 2001;



•

CG&E will provide four million dollars from 2001 to 2005 in support of energy efficiency and weatherization services for low income customers;



•

The creation of a Regulatory Transition Charge designed to recover CG&E's regulatory assets and other transition costs over a ten-year period;

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•

Authority for CG&E to transfer its generation assets to one or more, non-regulated affiliates to provide flexibility to manage its generation asset portfolio in a manner that enhances opportunities in a competitive marketplace;



•

Authority for CG&E to apply the proceeds of transition cost recovery to costs incurred during the transition period including implementation costs and purchased power costs that may be incurred by CG&E to maintain an operating reserve margin sufficient to provide reliable service to its customers;



•

CG&E will provide standard offer default supplier service (i.e., CG&E will be the supplier of last resort, so that no customer will be without an electric supplier); and



•

CG&E has agreed to provide shopping credits to switching customers.

With regard to the PUCO's order, two parties filed applications for rehearing with the PUCO. On October 18, 2000, the PUCO denied these applications. One of the parties appealed to the Ohio Supreme Court in the fourth quarter of 2000 and CG&E subsequently intervened in that case. On April 6, 2001, CG&E filed for dismissal of this appeal. On July 25, 2001, the Ohio Supreme Court denied CG&E's motion to dismiss. CG&E is unable to predict the outcome of this proceeding.

        As indicated above, the August 31, 2000 order authorizes CG&E to transfer its generation assets to a non-regulated affiliate. In addition to the regulatory approvals received from the PUCO, the IURC, and the KPSC, this transfer requires the approval of the FERC and the SEC under PUHCA. On October 29, 2001, Cinergy Power Investments, Inc., (Power Investments) filed an application with the FERC seeking EWG status. CG&E also filed an application seeking approval to transfer its generating assets to Power Investments. On December 21, 2001, the FERC issued an order certifying Power Investments' EWG status. As the transfer is contingent upon CG&E receiving FERC approval, SEC approval under PUHCA, and various third party consents, the timing and receipt of which are unknown, the completion date of the transfer of generation assets to Power Investments cannot be predicted.

        In anticipation of transferring the generation assets, Cinergy Wholesale Energy, Inc. (Wholesale Energy) was formed in the fourth quarter of 2000. Wholesale Energy is a direct subsidiary of Cinergy Corp. and will be the holding company for Cinergy's non-regulated energy commodities businesses, including Power Investments and Cinergy Power Generation Services, LLC.

        Upon FERC authorization, Power Investments will enter into a power sale arrangement with CG&E for the duration of the market development period, which is scheduled to terminate no later than December 31, 2005. Power Investments will supply CG&E with sufficient power to meet the standard service obligations of CG&E's customers that do not choose an alternate electric commodity supplier. In addition, Power Investments will enter into a second power sale agreement with CG&E to provide sufficient power to fulfill the electric commodity obligations of CG&E's wholesale customers. Power Investments will also replace CG&E as the electric commodity supplier in a power sale arrangement with ULH&P. This new contract will replace the power sales agreement that is in place between CG&E and ULH&P.

        The transfer of CG&E's generating assets to Power Investments will also affect the operating agreement between CG&E, PSI, and Services that has been in place since 1994. In 1994, when the operating agreement was entered into, both CG&E and PSI were vertically integrated regulated electric utilities. PSI is still a vertically integrated electric utility and the operations of its generating assets are still dedicated to Indiana ratepayers. Due to this situation, the IURC, CG&E, PSI, and Power Investments reached an agreement on a new Joint Generation Dispatch Agreement (JGDA). The JGDA allows for the joint dispatch of regulated PSI generation with Power Investments deregulated generation. If energy is transferred between PSI and Power Investments it will be priced at market

49

rates. The majority of PSI's electric commodity requirements will be provided by PSI's generation. For more information refer to the "Termination of Operating Agreement" of this section.

Indiana

        Indiana lawmakers are involved in creating an Energy Policy Commission to assist in completing a comprehensive energy plan. Indiana Governor Frank O'Bannon will appoint members representing various stakeholder groups, including state government, industry, labor, and environmental representatives. This commission is expected to present a final report in December 2002.

Kentucky

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

Other States

        At the end of 2000, approximately one half of the states and the District of Columbia had adopted deregulation plans. However, recent events are significantly influencing political and legislative activity. At the end of 2001, eight of the states decided to delay or suspend their deregulation activities. While we believe the situation in Ohio, as described above, and generally within the Midwest are different, we cannot predict the consequences, if any, on efforts to deregulate or discontinue deregulation within our service territory or markets.

Other

        Under generally accepted accounting principles, CG&E, PSI, and ULH&P apply the provisions of Statement of Financial Accounting Standards No. 71, Accounting for the Effects of Certain Types of Regulation (Statement 71) to the applicable rate-regulated portions of their businesses. The provisions of Statement 71 allow CG&E, PSI, and ULH&P to capitalize (record as a deferred asset) costs that would normally be charged to expense. These costs are classified as regulatory assets in the accompanying financial statements and the majority have been approved by regulators for future recovery from customers through our rates. As of December 31, 2001, CG&E, PSI, and ULH&P have approximately $1 billion of net regulatory assets, of which $952 million have been approved for recovery.

        Except with respect to the generation assets of CG&E, as of December 31, 2001, CG&E, PSI, and ULH&P continue to meet each of the criteria required for the application of Statement 71. However, to the extent other states implement deregulation legislation, the application of Statement 71 will need to be reviewed. Based on our operating companies' current regulatory orders and the regulatory environment in which they currently operate, the future recovery of regulatory assets recognized in the accompanying Balance Sheets as of December 31, 2001, is probable. The effect of future discontinuance of Statement 71 on the results of operations, cash flows, or statements of position cannot be determined until deregulation legislation plans have been approved by each state in which we do business. See Note 1(c) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" for a further discussion of our regulatory assets.

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

Historical

        As part of the effort to create a competitive wholesale power marketplace, the FERC approved the formation of the Midwest ISO during 1998. In that same year, Cinergy agreed to join the Midwest ISO in preparation for meeting anticipated changes in the FERC regulations and future deregulation requirements. The Midwest ISO was established as a non-profit organization to maintain functional control over the combined transmission systems of its members.

FERC Orders

        On December 19, 2001, the FERC issued several key orders having considerable impact upon the Midwest ISO and its transmission owning members. Among other determinations, the FERC approved the proposal of the Midwest ISO to become the first FERC-approved Regional Transmission Organization (RTO). It also denied a similar proposal from the companies seeking to form the Alliance Regional Transmission Organization (Alliance RTO) on the basis that the proposal lacked sufficient scope. The Alliance RTO is a planned for-profit transmission company involving various utilities, which have transmission systems that cover parts of Michigan, Ohio, Indiana, West Virginia, and Virginia. The FERC encouraged the Alliance RTO companies to explore joining the Midwest ISO and set a 60-day deadline for those companies to provide the FERC a statement of their plans to join an RTO. In addition, the FERC also directed the Midwest ISO to file a plan with the FERC within 60 days to address interim operations for the period of time in which the Midwest ISO is operational and the Alliance RTO companies have not yet joined an RTO.

        In related activity, the FERC issued an order on December 14, 2001, in response to protests of the Midwest ISO's proposed methodology related to the calculation of its administrative adder fees for the services it provides. Cinergy and a number of other parties filed protests to the proposed methodology, suggesting, among other things, that the methodology was inconsistent with the transmission owners' prior agreement with the Midwest ISO, and selectively allowed only independent transmission companies to choose which unbundled administrative adder services they wished to purchase from the Midwest ISO. In its December 14, 2001 Order, the FERC found that the Midwest ISO's proposed methodology for determination of the administrative adder fees had not been shown to be just and reasonable, and provided the Midwest ISO and the protesting parties a period of 60 days to reach settlement on the issues before an evidentiary hearing would be conducted.

Operations Updates

        On November 30, 2001, the Midwest ISO and Mid-Continent Area Power Pool (MAPP) closed a financial transaction in which the Midwest ISO agreed to acquire certain assets and liabilities of MAPP, including its St. Paul, Minnesota control center. In addition, since the third quarter of 2001, the Midwest ISO and Southwest Power Pool (SPP) have been in a process of agreeing upon a definitive document to establish a business combination which would include the Midwest ISO's purchase of substantially all of the assets of SPP and the assumption of appropriate liabilities. A firm date for the closure of this transaction has not been established.

        On December 15, 2001, the Midwest ISO initiated startup of its operations with the provision of a variety of support or stand alone services to its transmission owning members. The Midwest ISO achieved full startup, including implementation of tariff administration, on February 1, 2002.

State Regulatory Agencies Filings

        In June 2001, Cinergy and various other Indiana Midwest ISO transmission owners made a joint state filing with the IURC seeking permission to transfer functional control of their transmission

51

facilities to the Midwest ISO. On December 17, 2001, Cinergy and four other transmission owning Indiana companies received conditional approval from the IURC to transfer functional control of their transmission facilities to the Midwest ISO. The conditional terms of the approval were satisfied prior to the Midwest ISO full startup date of February 1, 2002.

Repeal of PUHCA

        Early in 2001, S. 206, a bill to repeal the PUHCA, was introduced in the Senate. It was referred to the Senate Committee on Banking, Housing and Urban Affairs for action. Subsequently, a hearing was held in the Subcommittee on Securities and Investment to identify support for and opposition to this legislation. S. 206 was favorably reported out by a 19-1 vote by the full Senate Committee on Banking, Housing and Urban Affairs in April 2001. This legislation has been included as part of the Senate Energy Bill which will proceed directly to the Senate floor for debate. Issues surrounding the Enron Corp. (Enron) collapse may have an adverse impact on full repeal of PUHCA, and some Senators have indicated an interest in strengthening consumer protection aspects of the law. However, it currently remains as part of the Senate Energy Bill, scheduled for consideration in the first quarter of 2002.

        In the House of Representatives, Subcommittee on Energy and Air Quality Chairman Joe Barton has drafted an electricity deregulation bill which includes PUHCA repeal. That legislation is also scheduled for consideration in the first quarter of 2002, but again several Committee members have expressed concern about PUHCA repeal in light of the Enron collapse. Cinergy supports PUHCA repeal and will continue to monitor developments as well as possibilities for limited repeal.

Significant Rate Developments

Purchased Power Tracker

        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 recovered through the existing fuel adjustment clause.

        A hearing was held before the IURC in February 2001, to determine whether it was appropriate for PSI to continue the Tracker for future periods. In April 2001, a favorable order was received extending the Tracker 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).

        In March 2001, the IURC held a hearing to review PSI's 2000 purchases and rule on its associated request for recovery of costs. In May 2001, the IURC issued an order approving the recovery of PSI's summer 2000 purchased power costs ($18.5 million) via the Tracker.

        In June 2001, PSI filed a petition with the IURC seeking approval of the recovery through the Tracker of its summer 2001 purchased power costs. In October 2001, PSI filed an amended petition with the IURC, seeking approval of the costs associated with additional power purchases made during July and August 2001. Hearings before the IURC were held in January 2002, with a decision expected in the second quarter of 2002.

Purchased Power Agreement

ULH&P purchases energy from CG&E pursuant to a new contract effective January 1, 2002, which was approved by the FERC and the KPSC. This five-year agreement is a negotiated fixed-rate contract with CG&E and replaces the previous cost of service based contract, which expired on December 31, 2001.

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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.

        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 was 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. In December 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 appealed the FERC's December 2000 decision. In March 2001, the IURC initiated an investigation proceeding into the termination of the operating agreement. In May 2001, the parties to the FERC proceeding reached a settlement resolving termination issues and certain compensation and damage issues. This settlement, which was approved by the FERC in June 2001, delayed the termination of the existing operating agreement until a new successor agreement has been approved by the FERC. The settlement also provided that the parties would engage in negotiations concerning the terms and conditions of a successor agreement(s).

        In August 2001, the parties to both the IURC investigation proceeding and the previous FERC proceeding entered into two complementary settlement agreements. Both agreements addressed, among other things, the terms and conditions of a proposed new joint generation operating agreement and a proposed new joint transmission operating agreement. The IURC settlement agreement was approved by the IURC in September 2001. Both the IURC and the FERC settlement agreements are conditioned upon FERC acceptance of the proposed successor agreements. Cinergy filed the successor agreements with the FERC in October 2001. At this time, we cannot predict the outcome or the timing of the FERC proceedings regarding the proposed successor agreements.

PSI Fuel Adjustment Charge

PSI defers fuel costs that are recoverable in future periods subject to IURC approval under a fuel recovery mechanism. In June 2001, the IURC issued an order in a PSI fuel recovery proceeding, disallowing approximately $14 million of deferred costs. On June 26, 2001, PSI formally requested that the IURC reconsider its disallowance decision. In August 2001, the IURC indicated that it will reconsider its decision. PSI believes it has strong legal and factual arguments in its favor and that it will ultimately be permitted to recover these costs. However, PSI cannot definitively predict the ultimate outcome of this matter.

        In June 2001, PSI filed a petition with the IURC requesting authority to recover $16 million in under billed deferred fuel costs incurred from March 2001 through May 2001. The IURC approved recovery of these costs subject to refund pending the findings of an investigative sub-docket. The sub-docket was opened to investigate the reasonableness of, and underlying reasons for, the under billed deferred fuel costs. A hearing is scheduled for April 2002.

CWIP Ratemaking Treatment for NO_X  Equipment

        During the third quarter of 2001, PSI filed an application with the IURC requesting CWIP ratemaking treatment for costs related to NO_X equipment currently being installed at certain PSI generation facilities. CWIP ratemaking treatment allows for the recovery of carrying costs on the equipment during the construction period. PSI filed its case-in-chief testimony in January 2002. PSI anticipates that hearings before the IURC will be scheduled during the second quarter of 2002. At this time, we cannot predict the outcome of this matter.

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Transfer of Generating Assets to PSI

        In December 2001, PSI filed a petition with the IURC requesting approval, under Indiana's Power Plant Construction Act, to acquire the Butler County, Ohio and Henry County, Indiana peaking plants from Capital & Trading in order to maintain adequate reserve margins. The IURC has scheduled a pre-hearing conference for February 2002 at which time the procedural schedule will be determined. This transfer is also contingent upon receipt of approval from the FERC and the SEC. PSI is unable to predict the outcome of this request.

GAS INDUSTRY

ULH&P Gas Rate Case

        On June 6, 2001, ULH&P filed a retail gas rate case with the KPSC seeking to increase base rates for natural gas distribution services by $7.3 million annually, or 8.4% overall. In addition to an increase in base rates, ULH&P requested recovery through a tracking mechanism of the costs of an accelerated gas main replacement program with a capital cost of approximately $112 million over the next ten years. A hearing on this matter was held in November 2001 and an order was issued on January 31, 2002. In the order the KPSC authorized a base rate increase of $2.7 million or 2.8% overall, to be effective on January 31, 2002. In addition, the KPSC authorized ULH&P to implement the tracking mechanism to recover the costs of the accelerated gas main replacement program for an initial period of three years, with the possibility of renewal for the full ten years. Per the terms of the order, the tracker will be set annually and the first filing will be made by March 31, 2002. ULH&P will request rehearing before the KPSC on selected items within the order. We expect a decision on these matters by the end of the first quarter 2002.

CG&E Gas Rate Case

        On July 31, 2001, CG&E filed a retail gas rate case with the PUCO seeking to increase base rates for natural gas distribution services by approximately $26 million or 5% overall. We expect that any rate change as a result of this filing will be effective in the second quarter of 2002. Simultaneously, CG&E requested recovery through a tracking mechanism of the costs of an accelerated gas main replacement program with a capital cost of approximately $716 million over the next ten years. A hearing in this case will be held in the first quarter of 2002.

Gas Prices

        As the result of the market price of natural gas increasing significantly in 2000, CG&E's and ULH&P's gas supply costs increased. These costs are passed directly through to customers dollar-for-dollar under the gas cost recovery mechanisms that are mandated by state law in Ohio and Kentucky. During 2001, the market price of natural gas decreased and CG&E and ULH&P lowered their rates in accordance with the downward trending gas prices.

        On May 14, 2001, ULH&P filed an application with the KPSC requesting approval of a gas procurement-hedging program designed to mitigate the effects of gas price volatility on customers. On July 16, 2001, the KPSC approved the pilot program for the 2001-2002 heating season, subject to certain restrictions. The approved hedging program allows the pre-arranging of between 50-75% of winter heating season base load gas requirements. ULH&P made advance arrangements for approximately 50% of its winter 2001/2002 base load requirements under the program.

        In July 2001, CG&E filed an application with the PUCO requesting approval of its gas procurement-hedging program. This request was subsequently denied. However, in denying CG&E's request for pre-approval of a hedging program, the PUCO order provided clarification that prudently incurred hedging costs are a valid component of CG&E's gas purchasing strategy. As a result, CG&E

54

has hedged approximately 50% of its winter 2001/2002 base load requirements and CG&E will seek PUCO approval for its hedging program on an after the fact basis. At this time, we cannot predict the outcome of this event.

MARKET RISK SENSITIVE INSTRUMENT AND POSITIONS

Energy Commodities Sensitivity

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

        The energy marketing and trading activities of Energy Merchant principally consist of CG&E's and PSI's power marketing and trading operations and Marketing & Trading's natural gas marketing and trading operations. These operations market and trade over-the-counter (an informal market where the buying/selling of commodities occurs) contracts for the purchase and sale of electricity (primarily in the Midwest region of the U.S.), natural gas, and other energy-related products. In addition, Energy Merchant also trades natural gas and other energy-related products on the New York Mercantile Exchange. The power marketing and trading operation consists of both physical activities (accounted for when the transaction settles) and trading activities (accounted for on a fair value basis). Transactions are designated as a physical activity when there is intent and ability to physically deliver the power from company-owned generation. Substantially all of the electricity in the physical portfolio requires settlement by physical delivery. All other transactions (including most natural gas contracts) are considered trading activities due to (a) the intent to financially settle the contracts, (b) the lack of hard assets, or (c) the inability to serve with company-owned assets. Some contracts within the trading portfolio may require settlement by physical delivery, but often times can be netted in accordance with industry standards at time of settlement.

        Many of the contracts in both the physical and trading portfolios commit us to purchase or sell electricity, natural gas, and other energy-related products at fixed prices in the future. The majority of the contracts in the natural gas and other energy-related product portfolios are financially settled contracts (i.e., there is no physical delivery related with these items). In addition, Energy Merchant also markets and trades over-the-counter option contracts. The use of these types of commodity instruments is designed to allow Energy Merchant to:

•

manage and economically hedge contractual commitments;



•

reduce exposure relative to the volatility of cash market prices;



•

take advantage of selected arbitrage opportunities; and



•

originate customized transactions with municipalities and end-use customers.

        Energy Merchant structures and modifies its net position to capture the following:

•

expected changes in future demand;



•

seasonal market pricing characteristics;



•

overall market sentiment; and



•

price relationships between different time periods and trading regions.

        At times, a net open position is created or is allowed to continue when Energy Merchant believes future changes in prices and market conditions may possibly result in profitable positions. Position

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imbalances can also occur due to the basic lack of liquidity in the wholesale power market. The existence of net open positions can potentially result in an adverse impact on our financial condition or results of operations. This potential adverse impact could be realized if the market price of electric power does not react in the manner or direction expected.

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

        Our VaR is reported as a percentage of operating income, based on a 95% confidence interval, utilizing one-day holding periods. This means that on a given day (one-day holding period) there is a 95% chance (confidence interval) that our trading portfolio will lose less than the stated percentage of operating income. We disclose our VaR for power activities as a percent of consolidated operating income on a one-day basis at December 31, the average one-day basis at the end of each quarter, and the daily basis at December 31 of each year. On a one-day basis as of December 31, 2001, the VaR for the power trading activity was less than 1% of 2001 consolidated operating income and as of December 31, 2000, was less than 1% of 2000 consolidated operating income. On a one-day basis at the end of each quarter, the VaR for the power trading activity was less than 2% of consolidated operating income in 2001, and less than 1% in 2000. The daily VaR for the power trading portfolio as of December 31, 2000, was less than 1% of 2001 consolidated operating income and as of December 31, 1999, was also less than 1% of 2000 consolidated operating income. The VaR model uses the variance-covariance statistical modeling technique and historical volatilities and correlations over the past 200-day period. The estimated market prices used to value these transactions for VaR purposes reflect the use of established pricing models and various factors including quotations from exchanges and over-the-counter markets, price volatility factors, the time value of money, and location differentials.

        Energy Merchant, through some of our non-regulated subsidiaries, actively markets physical natural gas and actively trades derivative commodity instruments which are usually settled in cash including: forwards, futures, swaps, and options. The aggregated VaR amounts associated with these other trading and hedging activities were slightly more than one million dollars as of December 31, 2001, and less than one million dollars at December 31, 2000. On a one-day basis as of December 31, 2001, the VaR for the gas trading activity was less than 1% of 2001 consolidated operating income and as of December 31, 2000, was less than 1% of 2000 consolidated operating income. On a one-day basis at the end of each quarter, the VaR for the gas trading activity was less than 1% of consolidated operating income in 2001, and less than 1% in 2000. The daily VaR for gas trading portfolio as of December 31, 2000, was less than 1% of 2001 consolidated operating income and as of December 31, 1999, was also less than 1% of 2000 consolidated operating income. The VaR is calculated using a variance-covariance methodology and historical volatilities and correlations over the past 21-day period with a 95% confidence interval and a one-day holding period.

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        The changes in fair value of the energy risk management assets and liabilities for the year ended December 31, 2001, are presented in the table below:

Change in Fair Value for the Year Ended
December 31, 2001
(in millions)

Fair value of contracts outstanding at the beginning of the period		$	(78	)
Fair value of new contracts when entered into during the period:
	Options(1)		15
	Other trading instruments		29
Changes in fair value attributable to changes in valuation techniques and assumptions			10
Other changes in fair value			53
Less: Contracts realized or otherwise settled during the period			11
Fair value of contracts outstanding at the end of the period		$	18

(1)

Represents net option premiums paid.

        The following table presents the expected maturity of the energy risk management assets and liabilities as of December 31, 2001:

	Fair Value of Contracts at December 31, 2001
	Maturing
Source of Fair Value(1)										Total Fair Value
	2002		2003-2004			2005-2006		Thereafter
	(in millions)
Prices actively quoted	$	14	$	(27	)	$	—	$	—	$	(13	)
Prices based on models and other valuation methods		6		6			10		9		31
Total	$	20	$	(21	)	$	10	$	9	$	18

(1)

Active quotes are considered to be available for two years for standard electricity transactions and three years for standard gas transactions. Non-standard transactions are classified based on the extent, if any, of modeling used in determining fair value.

Concentrations of Credit Risk

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

Trade Receivables and Physical Power Portfolio

        Our concentration of credit risk with respect to trade accounts receivable from electric and gas retail customers is limited. The large number of customers and diversified customer base of residential, commercial, and industrial customers significantly reduces our credit risk. Contracts within the physical portfolio of power marketing and trading operations are primarily with the traditional electric cooperatives and municipalities and other investor-owned utilities. At December 31, 2001, we do not believe we had significant exposure to credit risk with our trade accounts receivable or our physical portfolio.

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Energy Trading

Cinergy's extension of credit for energy marketing and trading is governed by a Corporate Credit Policy. Written guidelines document the management approval levels for credit limits, evaluation of creditworthiness and credit risk mitigation procedures. Exposures to credit risks are monitored daily by the Corporate Credit Risk function. As of December 31, 2001, approximately 97% of the credit exposure related to energy trading and marketing activity was with counterparties rated Investment Grade or higher. Energy commodity 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.

        In December 2001, Enron filed for protection under Chapter 11 of the U.S. Bankruptcy Code in the Southern District of New York. We decreased our trading activities with Enron in the months prior to its bankruptcy filing. We intend to resolve any contract differences pursuant to the terms of those contracts, business practices and the applicable provisions of the Bankruptcy Code, as approved by the court. While we cannot predict the court's resolution of these matters, we do not believe that any exposure relating to those contracts would have a material impact on our financial position or results of operations. While most of our contracts with Enron were considered trading and thus recorded at fair value, a few contracts were accounted for utilizing the normal exemption under Statement of Financial Accounting Standards No. 133, Accounting for Derivatives Instruments and Hedging Activities (Statement 133) (see Note 1(k) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data"). These contracts were recognized at fair value when the contracts were terminated in the fourth quarter of 2001. Fair value for these contracts, and all terminated contracts with Enron, is governed by the provisions of each contract, but typically approximates fair value at contract termination. However, the effect of the loss of Enron's participation in the energy markets on long-term liquidity and price volatility, or on the creditworthiness of common counterparties cannot be determined. We continually review and monitor our credit exposure to all counterparties and adjust the fair value of our position, as appropriate.

Financial Derivatives

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

Risk Management

        We manage, on a portfolio basis, the market risks in our energy marketing and trading transactions subject to parameters established by our Risk Policy Committee. Our market and credit risks are monitored by the Corporate Risk Management function to ensure compliance with stated risk management policies and procedures. The Corporate Risk Management function operates independently from the business units and other corporate functions, which originate and actively manage the market and credit risk exposures. Policies and procedures are periodically reviewed and monitored to ensure their responsiveness to changing market and business conditions. In addition, efforts are ongoing to develop systems to improve the timeliness and quality of market and credit risk information. Credit risk mitigation practices include requiring parent company guarantees, various forms of collateral, and the use of mutual netting/closeout agreements.

Exchange Rate Sensitivity

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

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foreign operations. These contracts and swaps allow us to potentially hedge our position against currency exchange rate fluctuations and would qualify as derivatives.

Cinergy has exposure to fluctuations in exchange rates between the U.S. dollar and the currencies of foreign countries where we have investments. When it is appropriate we will hedge our exposure to cash flow transactions, such as a dividend payment by one of our foreign subsidiaries. As of December 31, 2001, we had no outstanding foreign currency derivatives.

Interest Rate Sensitivity

        Our net exposure to changes in interest rates consists of short-term debt instruments (including net Notes receivable from/Notes payable to affiliated companies), pollution control debt, and sales of accounts receivable. The following table reflects the different instruments used and the method of benchmarking interest rates, as of December 31, 2001, and 2000:

	Interest Benchmark		2001		2000
			(in millions)
Short-term Bank Loans/Commercial Paper	• Short-term Money Market • LIBOR(1)	Cinergy CG&E PSI ULH&P	$	877 445 43 26	$	862 152 239 29
Pollution Control Debt	• Daily Market • Auction Rate	Cinergy CG&E PSI		279 196 83		267 184 83
Sales of Accounts Receivable	• Short-term Money Market	Cinergy CG&E PSI ULH&P		257 150 107 22		257 156 101 26
Variable Rate Capital Leases	• LIBOR(1)	Cinergy CG&E		— —		31 31

(1)

London Inter-Bank Offered Rate (LIBOR)

        The weighted-average interest rates on the above instruments at December 31, 2001, and 2000, were as follows:

	2001	2000
Short-term Bank Loans/Commercial Paper	2.9%	7.0%
Pollution Control Debt	2.1%	4.5%
Sales of Accounts Receivable	2.4%	7.0%
Variable Rate Capital Leases	—	7.5%

        At December 31, 2001, forward yield curves project an increase in applicable short-term interest rates over the next five years.

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        The following table presents principal cash repayments, by maturity date and other selected information, for each registrant's long-term fixed-rate debt, other debt, and capital lease obligations as of December 31, 2001:

		Expected Maturity Date
Liabilities		2002			2003			2004			2005			2006			Thereafter			Total			Fair Value
		(in millions)
Cinergy
Long-term Debt(1)		$	123		$	178	(4)	$	811		$	201	(5)(6)	$	328		$	1,823		$	3,464		$	3,520
	Weighted-average interest rate(2)		7.3	%		6.2	%		6.2	%		6.8	%		6.7	%		6.9	%		6.7	%
Other(3)		$	25		$	14		$	3		$	2		$	6		$	242		$	292		$	285
	Weighted-average interest rate(2)		6.8	%		6.7	%		6.6	%		5.5	%		5.0	%		6.4	%		6.4	%
Capital Leases
	Fixed-rate leases	$	2.8		$	3.0		$	3.1		$	3.3		$	3.6		$	19.1		$	34.9		$	34.9
	Interest rate		6.2	%		6.2	%		6.2	%		6.2	%		6.2	%		6.2	%		6.2	%
CG&E and subsidiaries
Long-term Debt(1)		$	100		$	120	(4)	$	110		$	150	(6)	$	—		$	728		$	1,208		$	1,214
	Weighted-average interest rate(2)		7.3	%		6.3	%		6.5	%		6.9	%		—			7.0	%		6.9	%
Capital Leases
	Fixed-rate leases	$	1.5		$	1.6		$	1.7		$	1.9		$	2.0		$	10.8		$	19.5		$	19.5
	Interest rate		6.2	%		6.2	%		6.2	%		6.2	%		6.2	%		6.2	%		6.2	%
PSI
Long-term Debt(1)		$	23		$	58		$	1		$	51	(5)	$	328		$	895		$	1,356		$	1,379
	Weighted-average interest rate(2)		7.6	%		5.9	%		6.0	%		6.5	%		6.7	%		7.1	%		6.9	%
Capital Leases
	Fixed-rate leases	$	1.3		$	1.3		$	1.4		$	1.5		$	1.6		$	8.4		$	15.5		$	15.5
	Interest rate		6.2	%		6.2	%		6.2	%		6.2	%		6.2	%		6.2	%		6.2	%
ULH&P
Long-term Debt(1)		$	—		$	20		$	—		$	—		$	—		$	55		$	75		$	76
	Weighted-average interest rate(2)		—			6.1	%		—			—			—			7.3	%		7.0	%
Capital Leases
	Fixed-rate leases	$	0.5		$	0.5		$	0.5		$	0.5		$	0.6		$	3.2		$	5.8		$	5.8
	Interest rate		6.2	%		6.2	%		6.2	%		6.2	%		6.2	%		6.2	%		6.2	%

(1)

All long-term debt is fixed-rate and includes amounts reflected as long-term debt due within one year.

(2)

The weighted-average interest rate is calculated as follows: (1) for long-term debt obligations, the weighted-average interest rate is based on the coupon rates of the debt that is maturing in the year reported; (2) for the fixed-rate capital leases, the interest rate is fixed at approximately 6.2% with an amortizing principal structure; and (3) for the Global Resources investments, the interest rate is based on a spread over 6- and 12-month LIBOR.

(3)

Variable rate debt related to investments under Global Resources.

(4)

Includes 6.35% Debentures due June 15, 2038, reflected as maturing in 2003, as the interest rate resets on June 15, 2003.

(5)

Includes 6.50% Debentures due August 1, 2026, reflected as maturing in 2005, as the interest rate resets on August 1, 2005.

(6)

Includes 6.90% Debentures due June 1, 2025, reflected as maturing in 2005, as the debentures are putable to CG&E at the option of the holders on June 1, 2005.

        Our current policy in managing exposure to fluctuations in interest rates is to maintain the total amount of outstanding debt in floating interest rate debt instruments of approximately 30%. In maintaining this level of exposure, we use interest rate swaps. Under these swaps, we agree with other parties to exchange, at specified intervals, the difference between fixed-rate and floating-rate interest amounts calculated on an agreed notional amount. CG&E has an outstanding interest rate swap agreement that decreased the percentage of floating-rate debt. Under the provisions of the swap, which has a notional amount of $100 million, CG&E pays a fixed-rate and receives a floating-rate through October 2007. This swap qualifies as a cash flow hedge under the provisions of Statement 133. As the terms of the swap agreement mirror the terms of the debt agreement that it is hedging, we anticipate

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that this swap will continue to be effective as a hedge. Changes in fair value of this swap are recorded in Accumulated other comprehensive income (loss), beginning with our adoption of Statement 133 on January 1, 2001. In October 2001, Cinergy Corp. executed three interest rate swaps with a combined notional amount of $250 million. Under the provisions of the swaps, Cinergy Corp. will receive fixed-rate interest payments and pay floating-rate interest payments through September 2004. These swaps qualify as fair value hedges under the provisions of Statement 133. We anticipate that these swaps will continue to be effective as hedges. See Note 1(l) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" for additional information on financial derivatives. In the future, we will continually monitor market conditions to evaluate whether to modify our level of exposure to fluctuations in interest rates.

INFLATION

        We believe that the recent inflation rates do not materially impact our financial condition. However, under existing regulatory practice for all of PSI, ULH&P, and the non-generating portion of CG&E, only the historical cost of plant is recoverable from customers. As a result, cash flows designed to provide recovery of historical plant costs may not be adequate to replace plant in future years.

ACCOUNTING MATTERS

Accounting Estimates

Fair Value Accounting for Energy Marketing and Trading

        We use fair value accounting for energy trading contracts, which is required, with certain exceptions, by Statement 133 and Emerging Issues Task Force (EITF) 98-10, Accounting for Contracts Involved in Energy Trading and Risk Management Activities. Most of the contracts used in our trading activities are short-term in nature and are priced using exchange based or over-the-counter price quotes. Long-term contracts typically must be valued using model pricing due to the lack of actively quoted prices. The period for which actively quoted prices are available varies by commodity and pricing point, but is generally shorter for electricity than gas. Use of model pricing requires estimation surrounding factors such as volatility and future price expectations beyond the actively quoted portion of the price curve. In addition, some contracts do not have fixed notional amounts and therefore must be valued using estimates of volumes to be consumed by the counterparty.

        We attempt to mitigate these risks by using complex valuation tools, both external and proprietary, which allow us to model prices for periods for which active quotes are unavailable. These models are dynamic and are constantly updated with the most recent data to improve estimates of future expectations. We attempt to mitigate risks for contracts that do not contain fixed notional amounts by obtaining historical data and projecting expected consumption. These models incorporate expectations surrounding the impacts that weather may play in future consumption. We also have a Corporate Risk Management function within Cinergy that is independent of the marketing and trading function and is under the oversight of a risk policy committee comprised primarily of senior company executives. This group's function is to provide an independent evaluation of both forward price curves and the valuation of energy contracts.

        There is inherent risk in valuation modeling given the complexity and volatility of energy markets. Fair value accounting has risk, including its application to short-term contracts, as gains and losses recorded through its use are not yet realized. Therefore, it is possible that results in future periods may be materially different as contracts are ultimately settled.

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Retail Customer Revenue Recognition

        Our retail revenues include amounts that are not yet billed to customers. Customers are billed throughout the month as both gas and electric meters are read. We recognize revenues for retail energy sales that have not yet been billed, but where gas or electricity has been consumed. This is termed "unbilled revenue" and is a widely recognized and accepted practice for utilities. In making our estimates of unbilled revenue, we must estimate the effect of weather on consumption. We use complex systems that consider various factors, including weather, in estimation of retail customer consumption at the end of each month. Given the use of these systems and the fact that customers are billed monthly, we believe it is unlikely that materially different results will occur in future periods when revenue is billed.

Accounting Changes

Business Combinations and Intangible Assets

        In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 141, Business Combinations (Statement 141), and No. 142, Goodwill and Other Intangible Assets (Statement 142). Statement 141 requires all business combinations initiated after June 30, 2001, to be accounted for using the purchase method. With the adoption of Statement 142, goodwill and other intangibles with indefinite lives will no longer be subject to amortization. Goodwill will be initially assessed for impairment shortly after adoption and at least annually thereafter by applying a fair-value-based test, as opposed to the undiscounted cash flow test applied under current accounting standards. This test must be applied at the "reporting unit" level, which is not permitted to be broader than the current business segments discussed in Note 16 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data". Under Statement 142, an acquired intangible asset should be separately recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented, or exchanged, regardless of the acquirer's intent to do so. We began applying Statement 141 in the third quarter of 2001 and we will adopt Statement 142 in the first quarter of 2002. The discontinuance of amortization of goodwill beginning in the first quarter of 2002 will not be material to our results of operations. We have identified the reporting units for Cinergy and are in the process of performing the initial impairment test. Preliminary estimates indicate that the effects of this test will not be material to our results of operations.

Asset Retirement Obligations

        In July 2001, the FASB issued Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations (Statement 143). Statement 143 requires fair value recognition of legal obligations to retire long-lived assets at the time such obligations are incurred. The initial recognition of this liability will be accompanied by a corresponding increase in property, plant, and equipment. Subsequent to the initial recognition, the liability will be adjusted for any revisions to the expected cash flows of the retirement obligation (with corresponding adjustments to property, plant, and equipment), and for accretion of the liability due to the passage of time (recognized as an operation expense). Additional depreciation expense will be recorded prospectively for any property, plant, and equipment increases. We currently accrue costs of removal on many regulated, long-lived assets through depreciation expense, with a corresponding charge to accumulated depreciation, as allowed by each regulatory jurisdiction. For assets that we conclude have a retirement obligation under Statement 143, the accounting we currently use will be modified to comply with this standard. We will adopt Statement 143 in the first quarter of 2003. We are beginning to analyze the impact of this statement, but, at this time, we are unable to predict whether the implementation of this accounting standard will be material to our financial position or results of operations.

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Derivatives

        During 1998, the FASB issued Statement 133. This standard was effective for Cinergy beginning in 2001, and requires us to record derivative instruments which are not exempt under certain provisions of Statement 133 as assets or liabilities, measured at fair value (i.e., mark-to-market). Our financial statements reflect the adoption of Statement 133 in the first quarter of 2001. Since many of our derivatives were previously required to use mark-to-market accounting, the effects of implementation were not material.

        Our adoption did not reflect the potential impact of applying mark-to-market accounting to selected electricity options and capacity contracts. We had not historically marked these instruments to market because they are intended as either hedges of peak period exposure or sales contracts served with physical generation, neither of which were considered trading activities. At adoption, we classified these contracts as normal purchases or sales based on our interpretation of Statement 133 and in the absence of definitive guidance on such contracts. In June 2001, the FASB staff issued guidance on the application of the normal purchases and sales exemption to electricity contracts containing characteristics of options. While much of the criteria this guidance requires is consistent with the existing guidance in Statement 133, some criteria were added. We adopted the new guidance in the third quarter of 2001, and the effects of implementation for these contracts were not material. We will continue to apply this guidance to any new electricity contracts that meet the definition of a derivative.

        In October 2001, the FASB staff posted revised guidance on the normal purchases and sales exemption for these contracts. This revised guidance proposed changes in certain quantitative criteria that were critical to determining whether or not a contract with option characteristics qualified for the normal exemption. In December 2001, the FASB staff again revised this guidance to make the changes proposed by the October guidance more qualitative than quantitative. This new guidance uses several factors to distinguish between capacity contracts, which qualify for the normal purchases and sales exemption, and options, which do not. These factors include deal tenor, pricing structure, specification of the source of power, and various other factors. Based on a review of existing contracts, we do not believe this revised guidance, which will be effective in the third quarter of 2002, will have a material impact on our financial position or results of operations upon adoption. However, given our activity in energy trading, it could increase volatility in future results.

        In October 2001, the FASB staff released final guidance on the applicability of the normal purchases and sales exemption to contracts that contain a minimum quantity (a forward component) and flexibility to take additional quantity (an option component). While this guidance was issued primarily to address optionality in fuel supply contracts, it is applicable to all derivatives (subject to certain exceptions for capacity contracts in electricity discussed in the previous paragraphs). This guidance concludes that such contracts are not eligible for the normal purchases and sales exemption due to the existence of optionality in the contract. Cinergy has certain contracts that contain optionality, primarily coal contracts, for which the accounting may be impacted by this new guidance. We will adopt this guidance in the second quarter of 2002, consistent with the transition provisions. We have begun analyzing contracts to determine the applicability of this guidance and to determine the interaction between this guidance and Statement 71. Due to a lack of liquidity with respect to coal purchased under certain contracts, some of our contracts may fail to meet the net settlement criteria of Statement 133, which would preclude such contracts from being considered derivatives. For other possibly affected contracts, we are evaluating the potential for contract restructuring prior to the adoption of this new guidance. To the extent this restructuring results in separate forwards and options, we would plan to apply the normal exemption to the forwards. The options would either be accounted for as cash flow hedges, to the extent all criteria were met, or marked to market similar to all other energy trading contracts. Given these evaluations are ongoing, we are unable to predict whether the implementation of this accounting standard will be material to our results of operations or financial position.

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Asset Impairment

        In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144, Accounting for the Impairment of Long-Lived Assets (Statement 144). Statement 144 addresses accounting and reporting for the impairment or disposal of long-lived assets. It supersedes previous guidance on (a) accounting for the impairment or disposal of long-lived assets and (b) accounting and reporting for the disposal of a segment of a business (commonly known as discontinued operations). While Statement 144 incorporates many of the impairment tests and criteria from previous guidance, it does include additional guidance and resolution of inconsistencies and overlaps with other pronouncements. These include adding clarity around when assets are considered held for disposal (which requires an immediate impairment charge if fair value is less than book value) and requiring the use of one accounting model for long-lived assets to be disposed of. We will begin applying Statement 144 in the first quarter of 2002. The impact of implementation on our results of operations and financial position is expected to be immaterial.

INSURANCE

        On September 11, 2001, the U.S. experienced terrorists' attacks which resulted in significant loss of life and property. As a result of this tragedy, insurers generally re-evaluated coverage limitations and premium levels. While Cinergy is anticipating increases in its current premiums, we do not expect a material change in the availability of coverage. Management does not believe potential premium increases will be material to our results of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

			Page Number
FINANCIAL STATEMENTS
Report of Independent Public Accountants			66
Cinergy Corp. and Subsidiaries
	Consolidated Statements of Income for the three years ended December 31, 2001		68
	Consolidated Balance Sheets at December 31, 2001 and 2000		69
	Consolidated Statements of Changes in Common Stock Equity for the three years ended December 31, 2001		71
	Consolidated Statements of Cash Flows for the three years ended December 31, 2001		72
The Cincinnati Gas & Electric Company and Subsidiaries
	Consolidated Statements of Income for the three years ended December 31, 2001		74
	Consolidated Balance Sheets at December 31, 2001 and 2000		75
	Consolidated Statements of Changes in Common Stock Equity for the three years ended December 31, 2001		77
	Consolidated Statements of Cash Flows for the three years ended December 31, 2001		78
	Consolidated Statements of Capitalization at December 31, 2001, and 2000		79
PSI Energy, Inc. and Subsidiary
	Consolidated Statements of Income for the three years ended December 31, 2001		82
	Consolidated Balance Sheets at December 31, 2001 and 2000		83
	Consolidated Statements of Changes in Common Stock Equity for the three years ended December 31, 2001		85
	Consolidated Statements of Cash Flows for the three years ended December 31, 2001		86
	Consolidated Statements of Capitalization at December 31, 2001, and 2000		87
The Union Light, Heat and Power Company
	Statements of Income for the three years ended December 31, 2001		90
	Balance Sheets at December 31, 2001 and 2000		91
	Statements of Changes in Common Stock Equity for the three years ended December 31, 2001		93
	Statements of Cash Flows for the three years ended December 31, 2001		94
	Statements of Capitalization at December 31, 2001, and 2000		95
Notes to Financial Statements			96
FINANCIAL STATEMENT SCHEDULES
	Schedule II—Valuation and Qualifying Accounts
		Cinergy	162
		CG&E	163
		PSI	164
		ULH&P	165

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

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

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

        We have audited the financial statements of Cinergy Corp. (a Delaware Corporation), The Cincinnati Gas & Electric Company (an Ohio Corporation), PSI Energy, Inc. (an Indiana Corporation) and The Union Light, Heat and Power Company (a Kentucky Corporation), as of December 31, 2001 and 2000, and each of the three years in the period ended December 31, 2001, as listed in the Index to Financial Statements and Financial Statement Schedules. These financial statements and the schedules referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Cinergy Corp., The Cincinnati Gas & Electric Company, PSI Energy, Inc., and The Union Light, Heat and Power Company as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States.

        Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed in the Index to Financial Statements and Financial Statement Schedules pursuant to Item 14, are presented for purposes of complying with the Securities and Exchange Commission's Rules of 1934 and are not part of the basic financial statements. The schedules have been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.

Arthur Andersen LLP
Cincinnati, Ohio
January 24, 2002

66

CINERGY CORP.
AND SUBSIDIARY COMPANIES

67

CINERGY CORP.
CONSOLIDATED STATEMENTS OF INCOME

			2001		2000		1999
			(dollars in thousands, except per share amounts)
Operating Revenues
	Electric		$	8,181,233	$	5,384,082	$	4,312,899
	Gas			4,662,916		2,941,753		1,596,146
	Other			78,388		96,129		28,843
		Total Operating Revenues		12,922,537		8,421,964		5,937,888
Operating Expenses
	Fuel and purchased and exchanged power			5,910,959		3,154,213		2,260,297
	Gas purchased			4,431,899		2,674,449		1,383,993
	Operation and maintenance			1,032,031		1,119,379		1,011,606
	Depreciation			378,140		343,949		323,268
	Taxes other than income taxes			227,652		268,346		265,501
		Total Operating Expenses		11,980,681		7,560,336		5,244,665
Operating Income				941,856		861,628		693,223
Equity in Earnings (Losses) of Unconsolidated Subsidiaries				2,266		5,048		58,021
Gain on Sale of Investment in Unconsolidated Subsidiary (Note 11)				—		—		99,272
Miscellaneous — Net				26,290		13,391		2,031
Interest				268,127		224,459		234,778
Preferred Dividend Requirement of Subsidiary Trust (Note 4)				1,067		—		—
Income Before Taxes				701,218		655,608		617,769
Income Taxes (Note 12)				255,506		251,557		208,671
Preferred Dividend Requirements of Subsidiaries				3,433		4,585		5,457
Net Income			$	442,279	$	399,466	$	403,641
Average Common Shares Outstanding				159,110		158,938		158,863
Earnings Per Common Share (Note 17)
	Net Income		$	2.78	$	2.51	$	2.54
Earnings Per Common Share — Assuming Dilution (Note 17)
	Net Income		$	2.75	$	2.50	$	2.53
Dividends Declared Per Common Share			$	1.80	$	1.80	$	1.80

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

				December 31
				2001		2000
				(dollars in thousands)
ASSETS
Current Assets
	Cash and cash equivalents			$	111,067	$	93,054
	Restricted deposits				8,055		4,195
	Notes receivable				31,173		35,945
	Accounts receivable less accumulated provision for doubtful accounts of $35,580 at December 31, 2001, and $29,951 at December 31, 2000 (Note 7)				1,123,214		1,623,402
	Materials, supplies, and fuel — at average cost				240,812		159,340
	Energy risk management current assets (Note 1(k))				449,397		1,438,233
	Prepayments and other				110,311		116,257
			Total Current Assets		2,074,029		3,470,426
Property, Plant, and Equipment — at Cost
	Utility plant in service				8,089,961		7,681,612
	Construction work in progress				464,560		323,350
		Total Utility Plant			8,554,521		8,004,962
	Non-regulated property, plant, and equipment				4,527,994		3,401,203
	Accumulated depreciation				4,845,620		4,586,089
			Net Property, Plant, and Equipment		8,236,895		6,820,076
Other Assets
	Regulatory assets (Note 1(c))				1,015,863		976,614
	Investments in unconsolidated subsidiaries				339,059		538,322
	Energy risk management non-current assets (Note 1(k))				134,445		37,228
	Other investments				164,155		146,986
	Goodwill				53,587		58,997
	Other intangible assets				22,250		18,500
	Other				259,530		262,579
			Total Other Assets		1,988,889		2,039,226
Total Assets				$	12,299,813	$	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 BALANCE SHEETS

			December 31
			2001			2000
			(dollars in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
	Accounts payable		$	1,029,173		$	1,496,494
	Accrued taxes			195,976			247,006
	Accrued interest			56,216			47,351
	Notes payable and other short-term obligations (Note 6)			1,155,786			1,128,657
	Long-term debt due within one year (Note 5)			148,431			40,545
	Energy risk management current liabilities (Note 1(k))			429,794			1,456,375
	Other			127,375			106,679
		Total Current Liabilities		3,142,751			4,523,107
Non-Current Liabilities
	Long-term debt (Note 5)			3,596,730			2,876,367
	Deferred income taxes (Note 12)			1,301,407			1,185,968
	Unamortized investment tax credits			127,385			137,965
	Accrued pension and other postretirement benefit costs (Note 10)			438,962			404,764
	Energy risk management non-current liabilities (Note 1(k))			135,619			97,507
	Other			246,340			252,255
		Total Non-Current Liabilities		5,846,443			4,954,826
Total Liabilities				8,989,194			9,477,933
Preferred Trust Securities (Note 4)
	Company obligated, mandatorily redeemable, preferred trust securities of subsidiary, holding solely debt securities of the company			306,327			—
Cumulative Preferred Stock of Subsidiaries (Note 3)
	Not subject to mandatory redemption			62,833			62,834
Common Stock Equity (Note 2)
	Common Stock — $.01 par value; authorized shares — 600,000,000; outstanding shares — 159,402,839 at December 31, 2001, and 158,967,661 at December 31, 2000			1,594			1,590
	Paid-in capital			1,619,659			1,619,153
	Retained earnings			1,337,135			1,179,113
	Accumulated other comprehensive income (loss) (Note 19)			(16,929	)		(10,895	)
		Total Common Stock Equity		2,941,459			2,788,961
Commitments and Contingencies (Note 13)
Total Liabilities and Shareholders' Equity			$	12,299,813		$	12,329,728

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

70

CINERGY CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY

			Common Stock		Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Common Stock Equity
			(dollars in thousands)
1999
Beginning balance			$	1,587	$	1,595,237		$	945,214		$	(807	)	$	2,541,231
Comprehensive income:
	Net income			—		—			403,641			—			403,641
	Other comprehensive income (loss), net of tax effect of $5,289 (Note 19)
		Foreign currency translation adjustment		—		—			—			(9,781	)		(9,781	)
		Minimum pension liability adjustment		—		—			—			(1,239	)		(1,239	)
		Unrealized gain (loss) on investment trusts		—		—			—			2,086			2,086
	Total comprehensive income			—		—			—			—			394,707
Issuance of 258,867 shares of common stock — net				2		6,720			—			—			6,722
Treasury shares purchased				—		(233	)		—			—			(233	)
Treasury shares reissued				—		3,660			—			—			3,660
Dividends on common stock ($1.80 per share)				—		—			(284,545	)		—			(284,545	)
Other				—		(7,830	)		9			—			(7,821	)
Ending balance			$	1,589	$	1,597,554		$	1,064,319		$	(9,741	)	$	2,653,721
2000
Comprehensive income:
	Net income			—		—			399,466			—			399,466
	Other comprehensive income (loss), net of tax effect of $2,755 (Note 19)
		Foreign currency translation adjustment		—		—			—			2,074			2,074
		Minimum pension liability adjustment		—		—			—			(1,099	)		(1,099	)
		Unrealized gain (loss) on investment trusts		—		—			—			(2,129	)		(2,129	)
	Total comprehensive income			—		—			—			—			398,312
Issuance of 44,262 shares of common stock — net				1		1,769			—			—			1,770
Treasury shares purchased				—		(3,969	)		—			—			(3,969	)
Treasury shares reissued				—		11,008			—			—			11,008
Dividends on common stock ($1.80 per share)				—		—			(285,242	)		—			(285,242	)
Other				—		12,791			570			—			13,361
Ending balance			$	1,590	$	1,619,153		$	1,179,113		$	(10,895	)	$	2,788,961
2001
Comprehensive income:
	Net income			—		—			442,279			—			442,279
	Other comprehensive income (loss), net of tax effect of $1,454 (Note 19)
		Foreign currency translation adjustment		—		—			—			1,641			1,641
		Minimum pension liability adjustment		—		—			—			(1,555	)		(1,555	)
		Unrealized gain (loss) on investment trusts		—		—			—			(841	)		(841	)
		Cumulative effect of change in accounting principle		—		—			—			(2,500	)		(2,500	)
		Cash flow hedges (Note 1(l))		—		—			—			(2,779	)		(2,779	)
	Total comprehensive income			—		—			—			—			436,245
Issuance of 435,178 shares of common stock — net				4		9,896			—			—			9,900
Treasury shares purchased				—		(10,015	)		—			—			(10,015	)
Treasury shares reissued				—		9,157			—			—			9,157
Dividends on common stock ($1.80 per share)				—		—			(286,289	)		—			(286,289	)
Stock purchase contracts (Note 4)				—		(23,200	)		—			—			(23,200	)
Other				—		14,668			2,032			—			16,700
Ending balance			$	1,594	$	1,619,659		$	1,337,135		$	(16,929	)	$	2,941,459

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

71

CINERGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS

					2001			2000			1999
					(dollars in thousands)
Operating Activities
	Net income				$	442,279		$	399,466		$	403,641
	Items providing or (using) cash currently:
		Depreciation				378,140			343,949			323,268
		Change in net position of energy risk management activities				(96,850	)		(22,533	)		(47,192	)
		Deferred income taxes and investment tax credits — net				124,577			47,404			96,067
		Gain on sale of investment in unconsolidated subsidiary				—			—			(99,272	)
		Equity in earnings of unconsolidated subsidiaries				(2,266	)		(5,048	)		(44,904	)
		Allowance for equity funds used during construction				(8,628	)		(5,813	)		(3,633	)
		Regulatory assets deferrals				(141,324	)		(99,661	)		(306,340	)
		Regulatory assets amortization				118,508			92,856			103,116
		Changes in current assets and current liabilities:
				Restricted deposits		(1,409	)		(3,567	)		2,959
				Accounts and notes receivable, net of reserves on receivables sold		492,183			(963,309	)		(118,561	)
				Materials, supplies, and fuel		(81,465	)		46,409			(3,002	)
				Accounts payable		(469,965	)		761,557			61,590
				Accrued taxes and interest		(42,165	)		25,737			(11,406	)
	Other items — net					(17,203	)		554			121,936
			Net cash provided by (used in) operating activities			694,412			618,001			478,267
Financing Activities
	Change in short-term debt					27,129			578,463			(353,506	)
	Issuance of long-term debt					940,785			126,420			829,948
	Issuance of preferred trust securities					306,327			—			—
	Redemption of long-term debt					(131,413	)		(234,247	)		(553,191	)
	Retirement of preferred stock of subsidiaries					(1	)		(29,393	)		(34	)
	Issuance of common stock					9,900			1,770			6,722
	Dividends on common stock					(286,289	)		(285,242	)		(285,925	)
			Net cash provided by (used in) financing activities			866,438			157,771			(355,986	)
Investing Activities
	Construction expenditures (less allowance for equity funds used during construction)					(846,159	)		(514,193	)		(434,294	)
	Acquisitions and other investments					(696,678	)		(250,444	)		(396,491	)
	Sale of investment in unconsolidated subsidiary					—			—			690,269
		Net cash provided by (used in) investing activities				(1,542,837	)		(764,637	)		(140,516	)
Net increase (decrease) in cash and cash equivalents						18,013			11,135			(18,235	)
Cash and cash equivalents at beginning of period						93,054			81,919			100,154
Cash and cash equivalents at end of period					$	111,067		$	93,054		$	81,919
Supplemental Disclosure of Cash Flow Information
	Cash paid during the year for:
		Interest (net of amount capitalized)			$	264,213		$	223,666		$	232,019
		Income taxes			$	153,092		$	216,556		$	130,179

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

72

THE CINCINNATI GAS & ELECTRIC COMPANY
AND SUBSIDIARY COMPANIES

73

THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF INCOME

			2001		2000			1999
			(dollars in thousands)
Operating Revenues
	Electric		$	4,097,347	$	2,738,775		$	2,174,861
	Gas			596,429		490,972			376,013
		Total Operating Revenues		4,693,776		3,229,747			2,550,874
Operating Expenses
	Fuel and purchased and exchanged power			2,881,962		1,554,959			1,066,490
	Gas purchased			396,764		266,339			171,997
	Operation and maintenance			442,173		491,545			445,737
	Depreciation			186,986		180,978			174,988
	Taxes other than income taxes			174,320		208,385			212,193
		Total Operating Expenses		4,082,205		2,702,206			2,071,405
Operating Income				611,571		527,541			479,469
Miscellaneous — Net				4,657		(2,119	)		(2,480	)
Interest				103,047		99,204			99,737
Income Before Taxes				513,181		426,218			377,252
Income Taxes (Note 12)				186,527		159,398			143,676
Net Income			$	326,654	$	266,820		$	233,576
Preferred Dividend Requirement				846		847			856
Net Income Applicable to Common Stock			$	325,808	$	265,973		$	232,720

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

74

THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEETS

					December 31
					2001		2000
					(dollars in thousands)
ASSETS
Current Assets
	Cash and cash equivalents				$	9,074	$	20,637
	Restricted deposits					3,540		160
	Notes receivable from affiliated companies					—		91,732
	Accounts receivable less accumulated provision for doubtful accounts of $25,874 at December 31, 2001, and $19,044 at December 31, 2000 (Note 7)					332,970		494,501
	Accounts receivable from affiliated companies					12,112		26,743
	Materials, supplies, and fuel — at average cost					138,119		99,061
	Energy risk management current assets (Note 1(k))					44,360		697,488
	Prepayments and other					13,087		39,320
				Total Current Assets		553,262		1,469,642
Property, Plant, and Equipment — at Cost
	Utility plant in service
		Electric				2,000,595		1,905,795
		Gas				926,381		865,303
		Common				253,978		211,424
			Total Utility Plant In Service			3,180,954		2,982,522
	Construction work in progress					96,247		132,577
			Total Utility Plant			3,277,201		3,115,099
	Non-regulated property, plant, and equipment					3,314,285		3,181,076
	Accumulated depreciation					2,555,639		2,444,867
				Net Property, Plant, and Equipment		4,035,847		3,851,308
Other Assets
	Regulatory assets (Note 1(c))					592,491		502,328
	Energy risk management non-current assets (Note 1(k))					48,982		7,000
	Other					129,162		156,692
				Total Other Assets		770,635		666,020
Total Assets					$	5,359,744	$	5,986,970

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

75

THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEETS

				December 31
				2001			2000
				(dollars in thousands)
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities
	Accounts payable			$	352,450		$	543,006
	Accounts payable to affiliated companies				30,419			23,927
	Accrued taxes				116,616			152,750
	Accrued interest				16,570			17,645
	Notes payable and other short-term obligations (Note 6)				196,100			264,000
	Notes payable to affiliated companies				444,801			163,478
	Long-term debt due within one year (Note 5)				100,000			1,200
	Energy risk management current liabilities (Note 1(k))				23,341			717,902
	Other				33,217			37,603
			Total Current Liabilities		1,313,514			1,921,511
Non-Current Liabilities
	Long-term debt (Note 5)				1,105,333			1,205,061
	Deferred income taxes (Note 12)				779,295			735,799
	Unamortized investment tax credits				91,246			98,624
	Accrued pension and other postretirement benefit costs (Note 10)				165,326			164,901
	Energy risk management non-current liabilities (Note 1(k))				41,773			26,337
	Other				105,681			118,421
			Total Non-Current Liabilities		2,288,654			2,349,143
Total Liabilities					3,602,168			4,270,654
Cumulative Preferred Stock
	Not subject to mandatory redemption				20,486			20,486
Common Stock Equity (Note 2)
		Common Stock — $8.50 par value; authorized shares — 120,000,000; outstanding shares — 89,663,086 at December 31, 2001, and December 31, 2000			762,136			762,136
		Paid-in capital			571,926			565,777
		Retained earnings			408,706			368,911
		Accumulated other comprehensive income (loss)			(5,678	)		(994	)
			Total Common Stock Equity		1,737,090			1,695,830
Commitments and Contingencies (Note 13)
Total Liabilities and Shareholder's Equity				$	5,359,744		$	5,986,970

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

76

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

			Common Stock		Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Common Stock Equity
			(dollars in thousands)
1999
Beginning balance			$	762,136	$	553,926	$	351,505		$	(1,124	)	$	1,666,443
Comprehensive income:
	Net income			—		—		233,576			—			233,576
	Other comprehensive income (loss), net of tax effect of $(85)
		Minimum pension liability adjustment		—		—		—			158			158
	Total comprehensive income			—		—		—			—			233,734
Dividends on preferred stock				—		—		(856	)		—			(856	)
Dividends on common stock				—		—		(250,100	)		—			(250,100	)
Contribution from parent company for reallocation of taxes				—		8,920		—			—			8,920
Other				—		5		1,019			—			1,024
Ending balance			$	762,136	$	562,851	$	335,144		$	(966	)	$	1,659,165
2000
Comprehensive income:
	Net income			—		—		266,820			—			266,820
	Other comprehensive income (loss), net of tax effect of $15
		Minimum pension liability adjustment		—		—		—			(28	)		(28	)
	Total comprehensive income			—		—		—			—			266,792
Dividends on preferred stock				—		—		(847	)		—			(847	)
Dividends on common stock				—		—		(232,334	)		—			(232,334	)
Contribution from parent company for reallocation of taxes				—		2,894		—			—			2,894
Other				—		32		128			—			160
Ending balance			$	762,136	$	565,777	$	368,911		$	(994	)	$	1,695,830
2001
Comprehensive income:
	Net income			—		—		326,654			—			326,654
	Other comprehensive income (loss), net of tax effect of $2,970
		Minimum pension liability adjustment		—		—		—			134			134
		Unrealized gain (loss) on investment trust		—		—		—			461			461
		Cumulative effect of change in accounting principle		—		—		—			(2,500	)		(2,500	)
		Cash flow hedges (Note 1(l))		—		—		—			(2,779	)		(2,779	)
	Total comprehensive income			—		—		—			—			321,970
Dividends on preferred stock				—		—		(846	)		—			(846	)
Dividends on common stock				—		—		(286,269	)		—			(286,269	)
Contribution from parent company for reallocation of taxes				—		6,149		—			—			6,149
Other				—		—		256			—			256
Ending balance			$	762,136	$	571,926	$	408,706		$	(5,678	)	$	1,737,090

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

77

THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS

				2001			2000			1999
				(dollars in thousands)
Operating Activities
	Net income			$	326,654		$	266,820		$	233,576
	Items providing or (using) cash currently:
		Depreciation			186,986			180,978			174,988
		Deferred income taxes and investment tax credits — net			43,834			36,238			2,366
		Change in net position of energy risk management activities			(67,979	)		(7,077	)		(27,245	)
		Allowance for equity funds used during construction			(2,672	)		(4,459	)		(2,565	)
		Regulatory assets deferrals			(116,365	)		(35,777	)		(11,868	)
		Regulatory assets amortization			55,867			18,154			26,193
		Changes in current assets and current liabilities:
			Restricted deposits		(3,380	)		(28	)		1,040
			Accounts and notes receivable, net of reserves on receivables sold		174,385			(235,094	)		(66,682	)
			Materials, supplies, and fuel		(39,058	)		(62	)		16,295
			Accounts payable		(184,064	)		248,562			22,462
			Accrued taxes and interest		(37,209	)		16,902			(18,533	)
		Other items — net			(3,900	)		(21,282	)		48,981
			Net cash provided by (used in) operating activities		333,099			463,875			399,008
Financing Activities
	Change in short-term debt, including net affiliate notes				305,155			40,684			173,117
	Issuance of long-term debt				—			—			19,818
	Redemption of long-term debt				(1,200	)		—			(164,264	)
	Retirement of preferred stock				—			(168	)		(26	)
	Dividends on preferred stock				(845	)		(847	)		(856	)
	Dividends on common stock				(286,269	)		(232,334	)		(250,100	)
			Net cash provided by (used in) financing activities		16,841			(192,665	)		(222,311	)
Investing Activities
	Construction expenditures (less allowance for equity funds used during construction)				(361,503	)		(260,127	)		(194,132	)
			Net cash provided by (used in) investing activities		(361,503	)		(260,127	)		(194,132	)
Net increase (decrease) in cash and cash equivalents					(11,563	)		11,083			(17,435	)
Cash and cash equivalents at beginning of period					20,637			9,554			26,989
Cash and cash equivalents at end of period				$	9,074		$	20,637		$	9,554
Supplemental Disclosure of Cash Flow Information
	Cash paid during the year for:
		Interest (net of amount capitalized)		$	108,079		$	99,009		$	101,264
		Income taxes		$	147,471		$	121,158		$	159,241

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

78

THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION

					December 31
					2001			2000
					(dollars in thousands)
Long-term Debt (excludes current portion)
	CG&E
		First Mortgage Bonds:
			71/4 % Series due September 1, 2002		$	—		$	100,000
			6.45% Series due February 15, 2004			110,000			110,000
			7.20% Series due October 1, 2023			265,500			265,500
			5.45% Series due January 1, 2024 (Pollution Control)			46,700			46,700
			51/2 % Series due January 1, 2024 (Pollution Control)			48,000			48,000
				Total First Mortgage Bonds		470,200			570,200
		Pollution Control Notes:
			6.50% due November 15, 2022			12,721			12,721
		Other Long-term Debt:
			Liquid Asset Notes with Coupon Exchange due October 1, 2007 (Executed interest rate swap set at 6.87% through maturity commencing at October 19, 2000)			100,000			100,000
			6.40% Debentures due April 1, 2008			100,000			100,000
			6.90% Debentures due June 1, 2025 (Redeemable at the option of the holders on June 1, 2005)			150,000			150,000
			8.28% Junior Subordinated Debentures due July 1, 2025			100,000			100,000
			6.35% Debentures due June 15, 2038 (Interest rate resets June 15, 2003)			100,000			100,000
				Total Other Long-term Debt		550,000			550,000
		Unamortized Premium and Discount — Net				(2,209	)		(2,449	)
				Total Long-term Debt		1,030,712			1,130,472
ULH&P
		Other Long-term Debt:
			6.11  % Debentures due December 8, 2003			20,000			20,000
			6.50  % Debentures due April 30, 2008			20,000			20,000
			7.65  % Debentures due July 15, 2025			15,000			15,000
			7.875% Debentures due September 15, 2009			20,000			20,000
				Total Other Long-term Debt		75,000			75,000
		Unamortized Premium and Discount — Net				(379	)		(411	)
				Total Long-term Debt		74,621			74,589
Total CG&E Consolidated Long-term Debt					$	1,105,333		$	1,205,061

79

THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION (cont.)

Cumulative Preferred Stock
								December 31
Par/Stated Value				Authorized Shares	Shares Outstanding at December 31, 2001		Mandatory Redemption
						Series		2001			2000
								(dollars in thousands)
$100				6,000,000	204,859	4% - 43/4%	No	$	20,486		$	20,486
Common Stock Equity
	Common Stock — $8.50 par value; authorized shares — 120,000,000; outstanding shares — 89,663,086 at December 31, 2001, and December 31, 2000							$	762,136		$	762,136
	Paid-in capital								571,926			565,777
	Retained earnings								408,706			368,911
	Accumulated other comprehensive income (loss)								(5,678	)		(994	)
		Total Common Stock Equity							1,737,090			1,695,830
			Total Capitalization					$	2,862,909		$	2,921,377

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

80

PSI ENERGY, INC.
AND SUBSIDIARY COMPANY

81

PSI ENERGY, INC.

CONSOLIDATED STATEMENTS OF INCOME

			2001		2000		1999
			(dollars in thousands)
Operating Revenues
	Electric		$	4,075,024	$	2,684,197	$	2,135,706
Operating Expenses
	Fuel and purchased and exchanged power			3,132,494		1,724,656		1,213,653
	Operation and maintenance			413,275		463,649		461,779
	Depreciation			149,467		141,512		135,330
	Taxes other than income taxes			49,955		56,908		52,920
		Total Operating Expenses		3,745,191		2,386,725		1,863,682
Operating Income				329,833		297,472		272,024
Miscellaneous — Net				19,541		4,723		655
Interest				80,955		78,250		86,265
Income Before Taxes				268,419		223,945		186,414
Income Taxes (Note 12)				106,086		88,547		69,215
Net Income			$	162,333	$	135,398	$	117,199
Preferred Dividend Requirement				2,587		3,738		4,601
Net Income Applicable to Common Stock			$	159,746	$	131,660	$	112,598

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

82

PSI ENERGY, INC.
CONSOLIDATED BALANCE SHEETS

				December 31
				2001		2000
				(dollars in thousands)
ASSETS
Current Assets
	Cash and cash equivalents			$	1,587	$	1,311
	Restricted deposits				519		341
	Notes receivable				—		3
	Notes receivable from affiliated companies				444,801		12,798
	Accounts receivable less accumulated provision for doubtful accounts of $6,773 at December 31, 2001, and $9,317 at December 31, 2000 (Note 7)				336,994		464,930
	Accounts receivable from affiliated companies				10,470		5,385
	Materials, supplies, and fuel — at average cost				87,661		53,838
	Energy risk management current assets (Note 1(k))				28,201		697,488
	Prepayments and other				41,041		49,049
			Total Current Assets		951,274		1,285,143
Property, Plant, and Equipment — at Cost
	Utility plant in service				4,909,007		4,699,090
	Construction work in progress				368,313		190,773
		Total Utility Plant			5,277,320		4,889,863
	Accumulated depreciation				2,216,908		2,110,747
			Net Property, Plant, and Equipment		3,060,412		2,779,116
Other Assets
	Regulatory assets (Note 1(c))				423,372		474,286
	Energy risk management non-current assets (Note 1(k))				30,164		7,000
	Other investments				57,633		51,343
	Other				47,927		32,887
			Total Other Assets		559,096		565,516
Total Assets				$	4,570,782	$	4,629,775

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

83

PSI ENERGY, INC.
CONSOLIDATED BALANCE SHEETS

			December 31
			2001			2000
			(dollars in thousands)
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities
	Accounts payable		$	312,707		$	392,206
	Accounts payable to affiliated companies			27,370			32,448
	Accrued taxes			102,317			80,995
	Accrued interest			23,760			23,708
	Notes payable and other short-term obligations (Note 6)			148,600			188,391
	Notes payable to affiliated companies			422,263			146,381
	Long-term debt due within one year (Note 5)			23,000			38,325
	Energy risk management current liabilities (Note 1(k))			23,185			717,902
	Other			41,695			12,748
		Total Current Liabilities		1,124,897			1,633,104
Non-Current Liabilities
	Long-term debt (Note 5)			1,325,089			1,074,255
	Deferred income taxes (Note 12)			486,694			458,593
	Unamortized investment tax credits			36,139			39,341
	Accrued pension and other postretirement benefit costs (Note 10)			154,799			143,990
	Energy risk management non-current liabilities (Note 1(k))			41,773			26,337
	Other			63,557			78,112
		Total Non-Current Liabilities		2,108,051			1,820,628
Total Liabilities				3,232,948			3,453,732
Cumulative Preferred Stock (Note 3)
	Not subject to mandatory redemption			42,347			42,348
Common Stock Equity (Note 2)
	Common Stock — without par value; $.01 stated value; authorized shares — 60,000,000; outstanding shares — 53,913,701 at December 31, 2001, and December 31, 2000			539			539
	Paid-in capital			416,414			413,523
	Retained earnings			880,129			720,153
	Accumulated other comprehensive income (loss)			(1,595	)		(520	)
		Total Common Stock Equity		1,295,487			1,133,695
Commitments and Contingencies (Note 13)
Total Liabilities and Shareholder's Equity			$	4,570,782		$	4,629,775

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

84

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

			Common Stock		Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Common Stock Equity
			(dollars in thousands)
1999
Beginning balance			$	539	$	410,739		$	564,865		$	(495	)	$	975,648
Comprehensive income:
	Net income			—		—			117,199			—			117,199
	Other comprehensive income (loss), net of tax effect of $(418)
		Minimum pension liability adjustment		—		—			—			(163	)		(163	)
		Unrealized gain (loss) on investment trust		—		—			—			2,049			2,049
	Total comprehensive income			—		—			—			—			119,085
Dividends on preferred stock				—		—			(4,601	)		—			(4,601	)
Dividends on common stock				—		—			(35,900	)		—			(35,900	)
Contribution from parent company for reallocation of taxes				—		457			—			—			457
Other				—		2			1,006			—			1,008
Ending balance			$	539	$	411,198		$	642,569		$	1,391		$	1,055,697
2000
Comprehensive income:
	Net income			—		—			135,398			—			135,398
	Other comprehensive income (loss), net of tax effect of $584
		Minimum pension liability adjustment		—		—			—			(47	)		(47	)
		Unrealized gain (loss) on investment trust		—		—			—			(1,864	)		(1,864	)
	Total comprehensive income			—		—			—			—			133,487
Dividends on preferred stock				—		—			(3,738	)		—			(3,738	)
Dividends on common stock				—		—			(54,000	)		—			(54,000	)
Contribution from parent company for reallocation of taxes				—		1,989			—			—			1,989
Other				—		336			(76	)		—			260
Ending balance			$	539	$	413,523		$	720,153		$	(520	)	$	1,133,695
2001
Comprehensive income:
	Net income			—		—			162,333			—			162,333
	Other comprehensive income (loss), net of tax effect of $538
		Minimum pension liability adjustment		—		—			—			(49	)		(49	)
		Unrealized gain (loss) on investment trusts		—		—			—			(1,026	)		(1,026	)
	Total comprehensive income			—		—			—			—			161,258
Dividends on preferred stock				—		—			(2,587	)		—			(2,587	)
Contribution from parent company for reallocation of taxes				—		2,894			—			—			2,894
Other				—		(3	)		230			—			227
Ending balance			$	539	$	416,414		$	880,129		$	(1,595	)	$	1,295,487

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

85

PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

				2001			2000			1999
				(dollars in thousands)
Operating Activities
	Net income			$	162,333		$	135,398		$	117,199
	Items providing or (using) cash currently:
		Depreciation			149,467			141,512			135,330
		Deferred income taxes and investment tax credits — net			41,543			(6,582	)		102,878
		Change in net position of energy risk management activities			(33,158	)		(7,077	)		(27,245	)
		Allowance for equity funds used during construction			(5,956	)		(1,354	)		(1,068	)
		Regulatory assets deferrals			(24,959	)		(63,884	)		(294,472	)
		Regulatory assets amortization			62,641			74,702			76,923
		Changes in current assets and current liabilities:
			Restricted deposits		(178	)		(341	)		2,414
			Accounts and notes receivable, net of reserves on receivables sold		119,311			(178,453	)		(74,847	)
			Materials, supplies, and fuel		(33,823	)		49,652			(23,045	)
			Accounts payable		(84,577	)		176,820			(270	)
			Accrued taxes and interest		21,374			(15,342	)		32,809
	Other items — net				14,153			34,064			77,447
			Net cash provided by (used in) operating activities		388,171			339,115			124,053
Financing Activities
	Change in short-term debt, including net affiliate notes				(195,912	)		143,030			(80,140	)
	Issuance of long-term debt				322,471			53,075			589,225
	Redemption of long-term debt				(89,248	)		(187,097	)		(379,484	)
	Retirement of preferred stock				(1	)		(29,225	)		(8	)
	Dividends on preferred stock				(2,587	)		(3,738	)		(4,601	)
	Dividends on common stock				—			(54,000	)		(35,900	)
			Net cash provided by (used in) financing activities		34,723			(77,955	)		89,092
Investing Activities
	Construction expenditures (less allowance for equity funds used during construction)				(414,047	)		(259,394	)		(189,207	)
	Other investments				(8,571	)		(9,297	)		(33,884	)
			Net cash provided by (used in) investing activities		(422,618	)		(268,691	)		(223,091	)
Net increase (decrease) in cash and cash equivalents					276			(7,531	)		(9,946	)
Cash and cash equivalents at beginning of period					1,311			8,842			18,788
Cash and cash equivalents at end of period				$	1,587		$	1,311		$	8,842
Supplemental Disclosure of Cash Flow Information
	Cash paid during the year for:
		Interest (net of amount capitalized)		$	84,306		$	80,854		$	86,256
		Income taxes		$	41,419		$	112,210		$	(54,099	)

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

86

PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF CAPITALIZATION

					December 31
					2001			2000
					(dollars in thousands)
Long-term Debt (excludes current portion)
	First Mortgage Bonds:
		Series ZZ, 53/4% due February 15, 2028 (Pollution Control)			$	50,000		$	50,000
		Series AAA, 71/8% due February 1, 2024				30,000			30,000
		Series BBB, 8.0% due July 15, 2009				124,665			124,665
		Series CCC, 8.85% due January 15, 2022				53,055			53,055
		Series DDD, 8.31% due September 1, 2032				38,000			38,000
		Series EEE, 6.65% due June 15, 2006				325,000			—
				Total First Mortgage Bonds		620,720			295,720
	Secured Medium-term Notes:
		Series A, 8.37% to 8.81%, due November 8, 2006 to June 1, 2022				34,300			57,300
		Series B, 5.93% to 8.24%, due September 17, 2003 to August 22, 2022				126,000			126,000
			(Series A and B, 7.105% weighted average interest rate and 8 year weighted average remaining life)
				Total Secured Medium-term Notes		160,300			183,300
	Other Long-term Debt:
		Series 2000A, Pollution Control Revenue Refunding Bond, due May 1, 2035				44,025			44,025
		Series 2000B, Pollution Control Revenue Refunding Bond, due April 1, 2022				10,000			10,000
		6.35% Debentures due November 15, 2006				50			50
		6.00% Debentures due December 14, 2016 (Note 5)				—			50,000
		6.50% Synthetic Putable Yield Securities due August 1, 2026 (Interest rate resets August 1, 2005)				50,000			50,000
		7.25% Junior Maturing Principal Securities due March 15, 2028				2,658			2,658
		6.00% Rural Utilities Service (RUS) Obligation payable in annual installments				83,004			83,927
		6.52% Senior Notes due March 15, 2009				97,342			97,342
		7.85% Debentures due October 15, 2007				265,000			265,000
				Total Other Long-term Debt		552,079			603,002
	Unamortized Premium and Discount — Net					(8,010	)		(7,767	)
				Total Long-term Debt		1,325,089			1,074,255

87

PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF CAPITALIZATION (cont.)

Cumulative Preferred Stock
								December 31
Par/Stated Value				Authorized Shares	Shares Outstanding at December 31, 2001		Mandatory Redemption
						Series		2001			2000
								(dollars in thousands)
$100				5,000,000	347,581	31/2% - 67/8%	No	$	34,758		$	34,759
$25				5,000,000	303,544	4.16% – 4.32%	No		7,589			7,589
		Total Preferred Stock							42,347			42,348
Common Stock Equity
	Common Stock — without par value; $0.01 stated value; authorized shares — 60,000,000; outstanding shares — 53,913,701 at December 31, 2001, and December 31, 2000							$	539		$	539
	Paid-in capital								416,414			413,523
	Retained earnings								880,129			720,153
	Accumulated other comprehensive income (loss)								(1,595	)		(520	)
		Total Common Stock Equity							1,295,487			1,133,695
			Total Capitalization					$	2,662,923		$	2,250,298

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

88

THE UNION LIGHT, HEAT
AND POWER COMPANY

89

THE UNION LIGHT, HEAT AND POWER COMPANY
STATEMENTS OF INCOME

		2001		2000			1999
		(dollars in thousands)
Operating Revenues
	Electric	$	230,960	$	225,601		$	210,234
	Gas		109,333		91,950			70,728
Total Operating Revenues			340,293		317,551			280,962
Operating Expenses
	Electricity purchased from parent company for resale (Note 1(o))		151,562		159,915			158,556
	Gas purchased		72,593		51,591			34,690
	Operation and maintenance		39,501		40,699			38,611
	Depreciation		17,039		15,685			14,830
	Taxes other than income taxes		3,901		3,938			4,136
Total Operating Expenses			284,596		271,828			250,823
Operating Income			55,697		45,723			30,139
Miscellaneous — Net			239		(982	)		(1,567	)
Interest			6,313		6,308			6,114
Income Before Taxes			49,623		38,433			22,458
Income Taxes (Note 12)			13,699		13,801			10,184
Net Income		$	35,924	$	24,632		$	12,274

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

90

THE UNION LIGHT, HEAT AND POWER COMPANY
BALANCE SHEETS

					December 31
					2001		2000
					(dollars in thousands)
ASSETS
Current Assets
	Cash and cash equivalents				$	4,099	$	6,460
	Accounts receivable less accumulated provision for doubtful accounts of $1,196 at December 31, 2001, and $1,492 at December 31, 2000 (Note 7)					16,785		28,518
	Accounts receivable from affiliated companies					2,401		2,279
	Materials, supplies, and fuel — at average cost					10,835		6,300
	Prepayments and other					300		274
				Total Current Assets		34,420		43,831
Property, Plant, and Equipment — at Cost
	Utility plant in service
		Electric				248,223		234,482
		Gas				197,301		184,878
		Common				50,289		44,603
			Total Utility Plant In Service			495,813		463,963
	Construction work in progress					11,004		15,069
			Total Utility Plant			506,817		479,032
	Accumulated depreciation					178,567		169,403
				Net Property, Plant, and Equipment		328,250		309,629
Other Assets
	Regulatory assets (Note 1(c))					7,838		10,177
	Other					6,582		5,110
				Total Other Assets		14,420		15,287
Total Assets					$	377,090	$	368,747

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

91

THE UNION LIGHT, HEAT AND POWER COMPANY
BALANCE SHEETS

			December 31
			2001			2000
			(dollars in thousands)
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities
	Accounts payable		$	7,960		$	24,249
	Accounts payable to affiliated companies			16,156			20,192
	Accrued taxes			7,051			(5,760	)
	Accrued interest			643			1,215
	Notes payable to affiliated companies			26,432			29,403
	Other			5,322			11,669
		Total Current Liabilities		63,564			80,968
Non-Current Liabilities
	Long-term debt (Note 5)			74,621			74,589
	Deferred income taxes (Note 12)			28,323			35,822
	Unamortized investment tax credits			3,411			3,684
	Accrued pension and other postretirement benefit costs (Note 10)			13,198			13,041
	Amounts due to customers — income taxes			7,148			7,439
	Other			14,622			6,016
		Total Non-Current Liabilities		141,323			140,591
Total Liabilities				204,887			221,559
Common Stock Equity (Note 2)
	Common Stock — $15.00 par value; authorized shares — 1,000,000; outstanding shares — 585,333 at December 31, 2001, and December 31, 2000			8,780			8,780
	Paid-in capital			21,111			20,305
	Retained earnings			142,320			118,103
	Accumulated other comprehensive income (loss)			(8	)		—
		Total Common Stock Equity		172,203			147,188
Commitments and Contingencies (Note 13)
Total Liabilities and Shareholder's Equity			$	377,090		$	368,747

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

92

THE UNION LIGHT, HEAT AND POWER COMPANY
STATEMENTS OF CHANGES IN COMMON STOCK EQUITY

		Common Stock		Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Common Stock Equity
		(dollars in thousands)
1999
Beginning balance		$	8,780	$	19,525	$	100,513		$	—		$	128,818
Net income			—		—		12,274			—			12,274
Dividends on common stock			—		—		(9,659	)		—			(9,659	)
Contribution from parent for reallocation of taxes			—		617		—			—			617
Ending balance		$	8,780	$	20,142	$	103,128		$	—		$	132,050
2000
Net income			—		—		24,632			—			24,632
Dividends on common stock			—		—		(9,657	)		—			(9,657	)
Contribution from parent for reallocation of taxes			—		163		—			—			163
Ending balance		$	8,780	$	20,305	$	118,103		$	—		$	147,188
2001
Comprehensive income:
	Net income		—		—		35,924			—			35,924
	Other comprehensive income (loss), net of tax effect of $5 Minimum pension liability adjustment		—		—		—			(8	)		(8	)
	Total comprehensive income (loss)												35,916
Dividends on common stock			—		—		(11,707	)		—			(11,707	)
Contribution from parent for reallocation of taxes			—		806		—			—			806
Ending balance		$	8,780	$	21,111	$	142,320		$	(8	)	$	172,203

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

93

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

					2001			2000			1999
					(dollars in thousands)
Operating Activities
	Net income				$	35,924		$	24,632		$	12,274
	Items providing or (using) cash currently:
		Depreciation				17,039			15,685			14,830
		Deferred income taxes and investment tax credits — net				(7,116	)		8,926			(738	)
		Allowance for equity funds used during construction				(143	)		(61	)		(36	)
		Regulatory assets deferrals				1,098			(12	)		—
		Regulatory assets amortization				901			271			138
		Changes in current assets and current liabilities:
				Accounts and notes receivable, net of reserves on receivables sold		12,112			(14,269	)		(5,099	)
				Materials, supplies, and fuel		(4,535	)		1,354			615
				Accounts payable		(20,325	)		15,832			7,720
				Accrued taxes and interest		12,239			(6,582	)		(3,138	)
		Other items — net				(681	)		3,482			5,971
			Net cash provided by (used in) operating activities			46,513			49,258			32,537
Financing Activities
	Change in short-term debt					(2,971	)		(8,349	)		5,935
	Issuance of long-term debt					—			—			19,818
	Redemption of long-term debt					—			—			(20,000	)
	Dividends on common stock					(11,707	)		(9,657	)		(9,659	)
			Net cash provided by (used in) financing activities			(14,678	)		(18,006	)		(3,906	)
Investing Activities
	Construction expenditures (less allowance for equity funds used during construction)					(34,196	)		(28,433	)		(28,234	)
			Net cash provided by (used in) investing activities			(34,196	)		(28,433	)		(28,234	)
Net increase (decrease) in cash and cash equivalents						(2,361	)		2,819			397
Cash and cash equivalents at beginning of period						6,460			3,641			3,244
Cash and cash equivalents at end of period					$	4,099		$	6,460		$	3,641
Supplemental Disclosure of Cash Flow Information
	Cash paid during the year for:
		Interest (net of amount capitalized)			$	6,775		$	6,534		$	6,691
		Income taxes			$	10,848		$	11,760		$	12,794

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

94

THE UNION LIGHT, HEAT AND POWER COMPANY
STATEMENTS OF CAPITALIZATION

					December 31
					2001			2000
					(dollars in thousands)
Long-term Debt (excludes current portion)
	Other Long-term Debt:
		6.11% Debentures due December 8, 2003			$	20,000		$	20,000
		6.50% Debentures due April 30, 2008				20,000			20,000
		7.65% Debentures due July 15, 2025				15,000			15,000
		7.875% Debentures due September 15, 2009				20,000			20,000
			Total Other Long-term Debt			75,000			75,000
		Unamortized Premium and Discount — Net				(379	)		(411	)
			Total Long-term Debt			74,621			74,589
Common Stock Equity
	Common Stock — $15.00 par value; authorized shares — 1,000,000; outstanding shares — 585,333 at December 31, 2001, and December 31, 2000				$	8,780		$	8,780
	Paid-in capital					21,111			20,305
	Retained earnings					142,320			118,103
	Accumulated other comprehensive income (loss)					(8	)		—
			Total Common Stock Equity			172,203			147,188
				Total Capitalization	$	246,824		$	221,777

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

95

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)  Nature of Operations

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

•

Cinergy Wholesale Energy, Inc. (Wholesale Energy);



•

Cinergy Services, Inc. (Services);



•

Cinergy Investments, Inc. (Investments);



•

Cinergy Global Resources, Inc. (Global Resources); and



•

Cinergy Technologies, Inc. (Technologies).

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. CG&E's principal 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.

        In 2001, CG&E began a transition to electric deregulation and customer choice. Currently, the competitive retail electric market in Ohio is in the development stage. CG&E is recovering its Public Utilities Commission of Ohio (PUCO) approved costs and retail electric rates are frozen during this market development period. See Note 18 for a discussion of key elements on Ohio deregulation.

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

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

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

        Wholesale Energy is a holding company for Cinergy's energy commodity businesses, including electric production, as the generation assets eventually become unbundled from the utility subsidiaries. See Note 18 for a discussion on Ohio deregulation. Cinergy Power Generation Services, LLC (Generation Services), a wholly-owned subsidiary of Wholesale Energy, provides electric production-

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related construction, operation and maintenance services to certain affiliates and non-affiliated third parties.

        Services is a service company that provides our subsidiaries with a variety of centralized administrative, management, and support services. Investments holds most of our domestic non-regulated, energy-related businesses and investments. Global Resources holds most of our international businesses and investments and directs our renewable energy investing activities (for example, wind farms). Technologies primarily holds our portfolio of technology-related investments.

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

•

Energy Merchant Business Unit (Energy Merchant);



•

Regulated Businesses Business Unit (Regulated Businesses); and



•

Power Technology and Infrastructure Services Business Unit (Power Technology).

        For further discussion of business units see Note 16.

(b)  Presentation

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

•

the reported amounts of assets and liabilities in our Balance Sheets at the dates of the financial statements;



•

the disclosure of contingent assets and liabilities at the dates of the financial statements; and



•

the reported amounts of revenues and expenses in our Statements of Income during the reporting periods.

        Additionally, we have reclassified certain prior-year amounts in the financial statements of Cinergy, CG&E, PSI, and ULH&P to conform to current presentation.

        We use three different methods to report investments in subsidiaries or other companies: the consolidation method, the equity method, and the cost method.

(i)  Consolidation Method

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

(ii)  Equity Method

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

•

our investment in the entity as Investments in unconsolidated subsidiaries in our Consolidated Balance Sheets; and



•

our percentage share of the earnings from the entity as Equity in earnings (losses) of unconsolidated subsidiaries in our Consolidated Statements of Income.

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(iii)  Cost Method

        We use the cost method to report investments, joint ventures, partnerships, subsidiaries, and affiliated companies in which we do not have control and are unable to exercise significant influence over operating and financial policies (generally, up to 20% ownership). Under the cost method we report our investments in the entity as Other investments in our Consolidated Balance Sheets.

(c)  Regulation

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

        Our operating companies use the same accounting policies and practices for financial reporting purposes as non-regulated companies under GAAP. However, sometimes actions by the FERC and the state utility commissions result in accounting treatment different from that used by non-regulated companies. When this occurs, we apply the provisions of Statement of Financial Accounting Standards No. 71, Accounting for the Effects of Certain Types of Regulation (Statement 71). In accordance with Statement 71, we record regulatory assets and liabilities (expenses deferred for future recovery from customers or obligations to be refunded to customers) on our Balance Sheets.

        Comprehensive electric deregulation legislation was passed in Ohio on July 6, 1999. As required by the legislation, CG&E filed its Proposed Transition Plan for approval by the PUCO on December 28, 1999. On August 31, 2000, the PUCO approved a stipulation agreement relating to CG&E's transition plan. This plan created a Regulatory Transition Charge (RTC), designed to recover CG&E's generation-related regulatory assets and transition costs over a ten-year period which began January 1, 2001. Accordingly, Statement 71 was discontinued for the generation portion of CG&E's business and Statement of Financial Accounting Standards No. 101, Regulated Enterprises—Accounting for the Discontinuation of Application of FASB Statement No. 71 was applied. The effect of this change to the financial statements was immaterial. Except with respect to the generation-related assets and liabilities of CG&E, as of December 31, 2001, PSI, CG&E, and ULH&P continue to meet the criteria of Statement 71. However, as other states implement deregulation legislation, the application of Statement 71 will need to be reviewed. Based on our operating companies' current regulatory orders and the regulatory environment in which they currently operate, the recovery of regulatory assets recognized in the accompanying Balance Sheets as of December 31, 2001, is probable. The effect of future discontinuance of Statement 71 on results of operations, cash flows, or statements of position cannot be determined until deregulation legislation plans have been approved by each state in which we do business. For a further discussion of Ohio deregulation see Note 18.

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        Our regulatory assets and amounts authorized for recovery through regulatory orders at December 31, 2001, and 2000, are as follows:

		2001						2000
		CG&E(1)		PSI		Cinergy		CG&E(1)		PSI		Cinergy
		(in millions)
Amounts due from customers — income taxes(2)		$	57	$	5	$	62	$	53	$	20	$	73
Gasification services agreement buyout costs(3)			—		244		244		—		251		251
Post-in-service carrying costs and deferred operating expenses			—		39		39		—		41		41
Coal contract buyout cost(4)			—		26		26		—		53		53
Deferred demand-side management costs			—		9		9		—		—		—
Deferred merger costs			6		56		62		7		60		67
Unamortized costs of reacquiring debt			10		33		43		11		31		42
Coal gasification services expenses			—		8		8		—		12		12
RTC recoverable assets(5)			511		—		511		432		—		432
Other			9		3		12		—		6		6
	Total regulatory assets	$	593	$	423	$	1,016	$	503	$	474	$	977
	Authorized for recovery(6)	$	573	$	379	$	952	$	494	$	404	$	898

(1)

Includes $8 million at December 31, 2001, and $10 million at December 31, 2000, related to ULH&P. Of these amounts, $.6 million at December 31, 2001, and $3.4 million at December 31, 2000, have been authorized for recovery.

(2)

The various regulatory commissions overseeing the regulated business operations of our operating companies regulate income tax provisions reflected in customer rates. In accordance with the provisions of Statement 71, we have recorded net regulatory assets for CG&E and PSI and a regulatory liability for ULH&P.

(3)

PSI reached an agreement with Dynegy, Inc. to purchase the remainder of its 25-year contract for coal gasification services. In accordance with an order from the Indiana Utility Regulatory Commission (IURC), PSI began recovering this asset over an 18-year period that commenced upon the termination of the gas services agreement in 2000.

(4)

In August 1996, PSI entered into a coal supply agreement, which expired December 31, 2000. The agreement provided for a buyout charge, which is being recovered through the fuel adjustment clause through December 2002.

(5)

In August 2000, CG&E's deregulation transition plan was approved. Effective January 1, 2001, a RTC went into effect and provides for recovery of all then existing generation-related regulatory assets and various transition costs over a ten-year period. Because a separate charge provides for recovery, these assets were aggregated and are included as a single amount in this presentation. The classification of all transmission and distribution related regulatory assets has remained the same.

(6)

At December 31, 2001, these amounts were being recovered through rates charged to customers over a period ranging from 1 to 22 years for CG&E, 1 to 32 years for PSI, and 1 to 19 years for ULH&P.

(d)  Statements of Cash Flows

        We define Cash equivalents as investments with maturities of three months or less when acquired.

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(e)  Operating Revenues and Fuel Costs

        Our operating companies record Operating revenues for electric and gas service, including unbilled revenues and the associated expenses, when they provide the service to the customers. The associated expenses include:

•

fuel used to generate electricity;



•

electricity purchased from others;



•

natural gas purchased from others; and



•

transportation costs associated with the purchase of fuel, electricity, and natural gas.

        These expenses are shown in our Statements of Income of Cinergy, CG&E, and PSI as Fuel and purchased and exchanged power and Gas purchased. These expenses are shown in ULH&P's Statements of Income as Electricity purchased from parent for resale and Gas purchased. Any portion of these costs that are recoverable or refundable to customers in future periods is deferred in either Accounts receivable or Accounts payable in our Balance Sheets.

        Indiana law limits the amount of fuel costs that PSI can recover to an amount that will not result in earning a return in excess of that allowed by the IURC. Due to deregulation in the state of Ohio, the recovery of fuel costs in retail rates has been frozen.

(f)    Property, Plant, and Equipment

Property, plant, and equipment includes the utility and non-regulated business property and equipment that is in use, being held for future use, or under construction. We report our Property, plant, and equipment at its original cost, which includes:

•

materials;



•

salaries;



•

payroll taxes;



•

fringe benefits;



•

financing costs of funds used during construction (described below in (h) and (i)); and



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other miscellaneous amounts.

        In August 2000, the generation assets of CG&E were released from the first mortgage indenture lien. CG&E's transmission assets, distribution assets, and any generating assets added after August 2000, remain subject to the lien of the first mortgage bond indenture. The utility property of PSI is also subject to the lien of its first mortgage bond indenture.

(g)  Depreciation

        We determine the provisions for depreciation expense using the straight-line method. The depreciation rates are based on periodic studies of the estimated useful lives (the number of years we expect to be able to use the properties) and the net cost to remove the properties. The average

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depreciation rates for Property, plant, and equipment, excluding software, are presented in the table below.

		2001		2000		1999
Cinergy
	Non-regulated(1)	4.2	%	—	%	—	%
CG&E and subsidiaries
	Electric	2.5		2.6		2.9	(2)
	Gas	2.9		2.9		2.9
	Common	2.9		3.3		2.7
	Non-regulated electric generation	3.2		3.1		—
PSI		3.0		3.0		3.0
ULH&P
	Electric	3.2		3.3		3.3
	Gas	3.2		3.1		3.1
	Common	5.0		5.1		5.2

(1)

Excluding CG&E's electric generation. Amounts in 1999 and 2000 were immaterial.

(2)

Prior to Ohio deregulation in 2000, electric generation was included in the electric line item.

(h)  Allowance for Funds Used During Construction (AFUDC)

        Our operating companies finance construction projects with borrowed funds and equity funds. Regulatory authorities allow us to record the costs of these funds as part of the cost of construction projects. AFUDC is calculated using a methodology authorized by the regulatory authorities. AFUDC rates are compounded semi-annually and are as follows:

	2001		2000		1999
Cinergy average	7.4	%	8.0	%	7.3	%
CG&E and subsidiaries average	8.6		8.4		8.0
PSI average	7.1		7.4		6.5
ULH&P average	5.7		6.6		5.3

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

	2001		2000		1999
	(in millions)
Cinergy	$	8.4	$	8.2	$	5.6
CG&E and subsidiaries		1.0		5.0		3.4
PSI		7.4		3.2		2.2
ULH&P		0.2		0.4		0.2

        With the deregulation of CG&E's generation assets, the AFUDC method is no longer used to capitalize the cost of funds used during generation-related construction at CG&E. See (i) below for a discussion of capitalized interest.

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(i)    Capitalized Interest

Cinergy capitalizes interest costs for non-regulated construction projects in accordance with Statement of Financial Accounting Standards No. 34, Capitalization of Interest Cost (Statement 34). The primary differences from AFUDC are that Statement 34 methodology does not include a component for equity funds and does not emphasize short-term borrowings over long-term borrowings. Capitalized interest costs, which are recorded on a pre-tax basis, were $7.1 million and $5.5 million for Cinergy and CG&E, respectively, for the year ended December 31, 2001. Capitalized interest costs for the years 1999 and 2000 were immaterial.

(j)    Federal and State Income Taxes

        Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, requires an asset and liability approach for financial accounting and reporting of income taxes. The tax effects of differences between the financial reporting and tax basis of accounting are reported as Deferred income tax assets or liabilities in our Balance Sheets and are based on currently enacted income tax rates.

        Investment tax credits, which have been used to reduce our federal income taxes payable, have been deferred for financial reporting purposes. These deferred investment tax credits are being amortized over the useful lives of the property to which they are related. For a further discussion of income taxes see Note 12.

(k)  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 utility 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 Emerging Issues Task Force (EITF) 98-10, Accounting for Contracts Involved in Energy Trading and Risk Management Activities. To the extent that physical transactions constitute derivatives under Statement of Financial Accounting Standards No. 133, Accounting for Derivatives and Hedging Activities, (Statement 133), we typically utilize the normal purchases and sales exemption when the criteria for the application of the normal exemption are met, the most critical criterion being probability of delivery under the contract. Should we determine that delivery under a previously exempted contract is no longer probable, that contract would be recognized at fair value and subsequently marked to market. 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 Balance Sheets as Energy risk management assets and Energy risk management liabilities. We reflect changes in fair value resulting in unrealized gains and losses in Fuel and purchased and exchanged power and Gas purchased on our Statements of Income. We record the revenues and costs for all transactions in our 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 electricity 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

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apply the normal purchases and sales exemption 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).

        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. The potential for earnings volatility from period to period is increased due to the risks associated with marketing and trading electricity, natural gas, and other energy-related products.

        Throughout 2001, our natural gas trading volumes increased substantially. Because of this volume change and the potential 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.

        We are in the process of evaluating the feasibility of coal marketing as a commercial activity. While our review of establishing a dedicated commercial activity is ongoing, we executed a small number of sales contracts in the fourth quarter of 2001. These contracts were entered into primarily to balance forecasted supply and demand in 2002 as we had some coal under option, accounted for at fair value, that our forecast indicated would not be internally consumed. Since option contracts cannot utilize the normal exemption (see Note 1(m)(iii) for certain exceptions to this rule), the coal from this option was designated to source these sales contracts. We have concluded that these sales contracts meet the definition of a derivative and are therefore accounted for at fair value. Should coal begin to be marketed in 2002 under a formal commercial activity, it is likely that the volume of coal transactions accounted for under mark-to-market could increase substantially. Since we are still evaluating the viability of this as a commercial activity, the impact to either our financial position or results of operations cannot be determined at this time.

(l)    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 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

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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 currency 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. 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 current period difference between the fixed-rate and the floating-rate interest amounts, using agreed upon notional amounts. These gains and losses were recognized in our 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 fair value accounting and are assessing the effectiveness of any swaps used in hedging activities. At December 31, 2001, the fair value, and ineffectiveness, of instruments that we have classified as fair value or cash flow hedges of debt instruments was not material. Reclassification of unrealized gains or losses on cash flow hedges of variable-rate debt instruments from other comprehensive income occurs as interest payments are accrued on the debt instrument. See Note 1(m)(iii) below for further discussion of Statement 133.

(m)  Accounting Changes

(i)  Business Combinations and Intangible Assets

        In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 141, Business Combinations (Statement 141), and No. 142, Goodwill and Other Intangible Assets (Statement 142). Statement 141 requires all business combinations initiated after June 30, 2001, to be accounted for using the purchase method. With the adoption of Statement 142, goodwill and other intangibles with indefinite lives will no longer be subject to amortization. Goodwill will be initially assessed for impairment shortly after adoption and at least annually thereafter by applying a fair-value-based test, as opposed to the undiscounted cash flow test applied under current accounting standards. This test must be applied at the "reporting unit" level, which is not permitted to be broader than the current business segments discussed in Note 16. Under Statement 142, an acquired intangible asset should be separately recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented, or exchanged, regardless of the acquirer's intent to do so. We began applying Statement 141 in the third quarter of 2001 and we will adopt Statement 142 in the first quarter of 2002. The discontinuance of amortization of goodwill beginning in the first quarter of 2002 will not be material to our results of operations. We have identified the reporting units for Cinergy and are in the process of performing the initial impairment test. Preliminary estimates indicate that the effects of this test will not be material to our results of operations.

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(ii) Asset Retirement Obligations

        In July 2001, the FASB issued Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations (Statement 143). Statement 143 requires fair value recognition of legal obligations to retire long-lived assets at the time such obligations are incurred. The initial recognition of this liability will be accompanied by a corresponding increase in property, plant, and equipment. Subsequent to the initial recognition, the liability will be adjusted for any revisions to the expected cash flows of the retirement obligation (with corresponding adjustments to property, plant, and equipment), and for accretion of the liability due to the passage of time (recognized as an operation expense). Additional depreciation expense will be recorded prospectively for any property, plant, and equipment increases. We currently accrue costs of removal on many regulated, long-lived assets through depreciation expense, with a corresponding charge to accumulated depreciation, as allowed by each regulatory jurisdiction. For assets that we conclude have a retirement obligation under Statement 143, the accounting we currently use will be modified to comply with this standard. We will adopt Statement 143 in the first quarter of 2003. We are beginning to analyze the impact of this statement, but, at this time, we are unable to predict whether the implementation of this accounting standard will be material to our financial position or results of operations.

(iii)  Derivatives

        During 1998, the FASB issued Statement 133. This standard was effective for Cinergy beginning in 2001, and requires us to record derivative instruments which are not exempt under certain provisions of Statement 133 as assets or liabilities, measured at fair value (i.e., mark-to-market). Our financial statements reflect the adoption of Statement 133 in the first quarter of 2001. Since many of our derivatives were previously required to use mark-to-market accounting, the effects of implementation were not material.

        Our adoption did not reflect the potential impact of applying mark-to-market accounting to selected electricity options and capacity contracts. We had not historically marked these instruments to market because they are intended as either hedges of peak period exposure or sales contracts served with physical generation, neither of which were considered trading activities. At adoption, we classified these contracts as normal purchases or sales based on our interpretation of Statement 133 and in the absence of definitive guidance on such contracts. In June 2001, the FASB staff issued guidance on the application of the normal purchases and sales exemption to electricity contracts containing characteristics of options. While much of the criteria this guidance requires is consistent with the existing guidance in Statement 133, some criteria were added. We adopted the new guidance in the third quarter of 2001, and the effects of implementation for these contracts were not material. We will continue to apply this guidance to any new electricity contracts that meet the definition of a derivative.

        In October 2001, the FASB staff posted revised guidance on the normal purchases and sales exemption for these contracts. This revised guidance proposed changes in certain quantitative criteria that were critical to determining whether or not a contract with option characteristics qualified for the normal exemption. In December 2001, the FASB staff again revised this guidance to make the changes proposed by the October guidance more qualitative than quantitative. This new guidance uses several factors to distinguish between capacity contracts, which qualify for the normal purchases and sales exemption, and options, which do not. These factors include deal tenor, pricing structure, specification of the source of power, and various other factors. Based on a review of existing contracts, we do not believe this revised guidance, which will be effective in the third quarter of 2002, will have a material impact on our financial position or results of operations upon adoption. However, given our activity in energy trading, it could increase volatility in future results.

        In October 2001, the FASB staff released final guidance on the applicability of the normal purchases and sales exemption to contracts that contain a minimum quantity (a forward component) and flexibility to take additional quantity (an option component). While this guidance was issued

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primarily to address optionality in fuel supply contracts, it is applicable to all derivatives (subject to certain exceptions for capacity contracts in electricity discussed in the previous paragraphs). This guidance concludes that such contracts are not eligible for the normal purchases and sales exemption due to the existence of optionality in the contract. Cinergy has certain contracts that contain optionality, primarily coal contracts, for which the accounting may be impacted by this new guidance. We will adopt this guidance in the second quarter of 2002, consistent with the transition provisions. We have begun analyzing contracts to determine the applicability of this guidance and to determine the interaction between this guidance and Statement 71. Due to a lack of liquidity with respect to coal purchased under certain contracts, some of our contracts may fail to meet the net settlement criteria of Statement 133, which would preclude such contracts from being considered derivatives. For other possibly affected contracts, we are evaluating the potential for contract restructuring prior to the adoption of this new guidance. To the extent this restructuring results in separate forwards and options, we would plan to apply the normal exemption to the forwards. The options would either be accounted for as cash flow hedges, to the extent all criteria were met, or marked to market similar to all other energy trading contracts. Given these evaluations are ongoing, we are unable to predict whether the implementation of this accounting standard will be material to our results of operations or financial position.

(iv)  Asset Impairment

        In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144, Accounting for the Impairment of Long-Lived Assets (Statement 144). Statement 144 addresses accounting and reporting for the impairment or disposal of long-lived assets. It supersedes previous guidance on (a) accounting for the impairment or disposal of long-lived assets and (b) accounting and reporting for the disposal of a segment of a business (commonly known as discontinued operations). While Statement 144 incorporates many of the impairment tests and criteria from previous guidance, it does include additional guidance and resolution of inconsistencies and overlaps with other pronouncements. These include adding clarity around when assets are considered held for disposal (which requires an immediate impairment charge if fair value is less than book value) and requiring the use of one accounting model for long-lived assets to be disposed of. We will begin applying Statement 144 in the first quarter of 2002. The impact of implementation on our results of operations and financial position is expected to be immaterial.

(n)  Translation of Foreign Currency

        We translate the assets and liabilities of foreign subsidiaries, whose functional currency (generally, the local currency of the country in which the subsidiary is located) is not the United States (U.S.) dollar, using the appropriate exchange rate as of the end of the year. We translate income and expense items using the average exchange rate prevailing during the month the respective transaction occurs. We record translation gains and losses in Accumulated other comprehensive income (loss), which is a component of common stock equity.

(o)  Related Party Transactions

Cinergy and its subsidiaries engage in related party transactions. These transactions are generally performed at cost and in accordance with the SEC regulations under the PUHCA. The Balance Sheets of our operating companies reflect amounts payable to and/or receivable from related parties as Accounts payable to affiliated companies and Accounts receivable from affiliated companies. The significant related party transactions are disclosed below.

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

•

sales;



•

electric peak load;



•

number of employees;



•

number of customers;



•

construction expenditures; and



•

other statistical information.

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

	2001		2000		1999
	(in millions)
Cinergy(1)	$	483	$	479	$	416
CG&E and subsidiaries		240		250		208
PSI		196		187		168
ULH&P		24		25		23

(1)

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

        Generation Services, which began operations on January 1, 2001, supplies electric production-related construction, operation and maintenance services to certain of our subsidiaries pursuant to agreements approved by the SEC under the PUHCA.

        The cost of these services were as follows for the year ended December 31, 2001:

	2001
	(in millions)
Cinergy(1)	$	92
CG&E		67
PSI		21

(1)

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

ULH&P purchases energy from CG&E pursuant to a new contract effective January 1, 2002, which was approved by the FERC and the Kentucky Public Service Commission (KPSC). This five-year agreement is a negotiated fixed-rate contract with CG&E and replaces the previous cost-of-service based contract, which expired on December 31, 2001.

ULH&P purchased energy from CG&E for resale in the amounts of $152 million, $160 million, and $159 million for the years ended 2001, 2000, and 1999, respectively.

Cinergy Corp. and our operating companies participate in a money pool arrangement by which those companies with surplus cash provide short-term loans to others. For a further discussion on the money pool agreement see Note 6.

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2.    Common Stock

(a)    Changes In Common Stock Outstanding

        The following table reflects information related to shares of common stock issued for stock-based plans.

	Newly Issued Shares Used to Grant or Settle Awards
	2001	2000	1999
Cinergy Corp. 1996 Long-term Incentive Compensation Plan (LTIP)	64,851	—	—
Cinergy Corp. Stock Option Plan (SOP)	197,957	77,042	255,828
Cinergy Corp. Employee Stock Purchase and Savings Plan	1,504	208	266
Cinergy Corp. UK Sharesave Scheme	121	—	—
Cinergy Corp. Retirement Plan for Directors	—	—	—
Cinergy Corp. Directors' Equity Compensation Plan	—	—	—
Cinergy Corp. Directors' Deferred Compensation Plan	—	—	—
Cinergy Corp. 401(k) Plans	69,500	—	—
Cinergy Corp. Direct Stock Purchase and Dividend Reinvestment Plan	173,984	—	—
Cinergy Corp. Performance Shares Plan	—	—	34,550
Cinergy Corp. Union Employees' Savings Incentive Plan	—	—	—

        We retired 72,739 shares of common stock in 2001; 32,988 shares in 2000; and 31,777 shares in 1999, mainly representing shares tendered as payment for the exercise of previously granted stock options.

        In April of 2001, Cinergy adopted the Direct Stock Purchase and Dividend Reinvestment Plan, a plan designed to provide investors with a convenient method to purchase shares of Cinergy Corp. common stock and to reinvest cash dividends in the purchase of additional shares. This plan replaced the Dividend Reinvestment and Stock Purchase Plan.

        In November 2001, Cinergy chose to reinstitute the practice of issuing new Cinergy Corp. common shares to satisfy obligations under its various employee stock plans and the Cinergy Corp. Direct Stock Purchase and Dividend Reinvestment Plan. This replaces our previous practice of purchasing shares in the open market to fulfill certain plan obligations.

        In January 2002, Cinergy registered 100,000 shares of common stock under the Cinergy Corp. 401(k) Excess Plan.

Cinergy Corp. owns all of the common stock of CG&E and PSI. All of ULH&P's common stock is held by CG&E.

(b)    Dividend Restrictions

Cinergy Corp.'s ability to pay dividends to holders of its common stock is principally dependent on the ability of CG&E and PSI to pay Cinergy Corp. common dividends. Cinergy Corp., CG&E, and PSI cannot pay dividends on their common stock if preferred stock dividends or preferred trust dividends are in arrears. The amount of common stock dividends that each company can pay is also limited by certain capitalization and earnings requirements under CG&E's and PSI's credit instruments. Currently, these requirements do not impact the ability of either company to pay dividends on its common stock.

(c)    Stock-based Compensation Plans

        We currently have the following stock-based compensation plans:

•

LTIP;

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•

SOP;



•

Employee Stock Purchase and Savings Plan;



•

UK Sharesave Scheme;



•

Retirement Plan for Directors;



•

Directors' Equity Compensation Plan; and



•

Directors' Deferred Compensation Plan.

        The LTIP, the SOP, and the Employee Stock Purchase and Savings Plan are discussed below. The activity in 2001, 2000, and 1999 for the remaining stock-based compensation plans was not significant.

        We account for our stock-based compensation plans under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. In 2001, 2000, and 1999, we recognized compensation cost related to stock-based compensation plans, before income taxes, of $12.5 million, $12.8 million, and $(7) million, respectively, in the Statements of Income. The $7 million reduction in 1999 was a result of our revised estimates for the performance-based shares accrued under the LTIP plan for Performance Cycle (Cycle) I. These amounts primarily reflect compensation cost related to the LTIP performance-based shares. For further discussion see section (i) below.

        Net income, assuming compensation cost for these plans had been determined at fair value, consistent with the provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (Statement 123), would have been decreased by $4.4 million for 2001, $4.0 million for 2000, and $2.6 million for 1999. Earnings per common share (EPS) would have been decreased by $.03 for both basic EPS and earnings per common share assuming dilution (EPS—assuming dilution) for 2001, $.03 for both basic and EPS—assuming dilution for 2000, and $.02 for both basic and EPS—assuming dilution for 1999.

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

        (i) LTIP

        The LTIP was originally adopted in 1996. Under this plan, certain key employees may be granted stock options and the opportunity to earn performance-based shares. Stock options are granted to participants with an option price equal to the fair market value on the grant date and a vesting period of either three or five years. The vesting period begins on the grant date and all options expire ten years from that date. The number of shares of common stock issuable under the LTIP is limited to a total of 7,000,000 shares.

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

Cycle	Grant Date	Performance Period	Target Grant of Shares
			(in thousands)
IV	1/2000	2000-2002	359
V	1/2001	2001-2003	315
VI	1/2002	2002-2004	342

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        Participants may earn additional performance shares if Cinergy's TSR exceeds that of the peer group. For the 2000-2001 performance period (Cycle III), 372,149 shares were earned, based on a TSR of 140%.

        (ii)    SOP

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

        (iii)    Employee Stock Purchase and Savings Plan

        The Employee Stock Purchase and Savings Plan allows essentially all full-time, regular employees to purchase shares of common stock pursuant to a stock option feature. Under the Employee Stock Purchase and Savings Plan, after-tax funds are withheld from a participant's compensation during a 26-month offering period and are deposited in an interest-bearing account. At the end of the offering period, participants may apply amounts deposited in the account, plus interest, toward the purchase of shares of common stock. The purchase price is equal to 95% of the fair market value of a share of common stock on the first date of the offering period. Any funds not applied toward the purchase of shares are returned to the participant. A participant may elect to terminate participation in the plan at any time. Participation also will terminate if the participant's employment ceases. Upon termination of participation, all funds, including interest, are returned to the participant without penalty. The sixth (current) offering period began May 1, 2001, and ends June 30, 2003. The purchase price for all shares under this offering is $32.78. The fifth offering period ended April 30, 2001, with 227,968 shares purchased and the remaining cash distributed to the respective participants. The total number of shares of common stock issuable under the Employee Stock Purchase and Savings Plan may not exceed 2,000,000.

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        Activity for 2001, 2000, and 1999 for the LTIP, SOP, and Employee Stock Purchase and Savings Plan is summarized as follows:

		LTIP and SOP				Employee Stock Purchase and Savings Plan
		Shares Subject to Option		Weighted Average Exercise Price		Shares Subject to Option		Weighted Average Exercise Price
Balance at December 31, 1998		3,676,514		$	28.28	297,374		$	31.83
	Options granted	2,866,100			25.41	368,889			27.73
	Options exercised	(259,865	)		21.51	(266	)		31.83
	Options forfeited	(95,500	)		31.97	(306,692	)		31.70
Balance at December 31, 1999		6,187,249			27.17	359,305			27.73
	Options granted	1,329,800			24.59	—			—
	Options exercised	(123,978	)		23.50	(2,718	)		27.73
	Options forfeited	(402,200	)		26.68	(76,261	)		27.73
Balance at December 31, 2000		6,990,871			26.77	280,326			27.73
	Options granted	811,700			33.90	299,793			32.78
	Options exercised	(275,393	)		24.39	(227,968	)		27.73
	Options forfeited	(79,400	)		27.29	(73,826	)		29.20
Balance at December 31, 2001		7,447,778		$	27.63	278,325		$	32.78
Options Exercisable(1):
	At December 31, 1999	1,986,749		$	25.17
	At December 31, 2000	3,195,191		$	26.20
	At December 31, 2001	3,763,558		$	27.32

(1)

The options under the Employee Stock Purchase and Savings Plan are only exercisable at the end of the offering period.

        The weighted average fair value of options granted under the combined LTIP and the SOP plans was $5.42 in 2001, $2.75 in 2000, and $2.60 in 1999. The weighted average fair value of options granted under the Employee Stock Purchase and Savings Plan was $5.85 in 2001, and $3.89 in 1999 (no options were granted in 2000). The fair values of options granted were estimated as of the grant date using the Black-Scholes option-pricing model and the following assumptions:

	LTIP and SOP						Employee Stock Purchase and Savings Plan(1)
	2001		2000		1999		2001		1999
Risk-free interest rate	4.78	%	6.57	%	5.86	%	4.22	%	4.98	%
Expected dividend yield	5.42	%	7.32	%	7.13	%	5.26	%	6.17	%
Expected lives	5.37	yrs.	4.86	yrs.	6.55	yrs.	2.17	yrs.	2.17	yrs.
Expected volatility	25.01	%	20.18	%	19.42	%	30.67	%	22.79	%

(1)

Options were not granted under the Employee Stock Purchase and Savings Plan in 2000.

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        Price ranges, along with certain other information, for options outstanding under the combined LTIP and SOP plan at December 31, 2001, were as follows:

	Outstanding			Exercisable
Exercise Price Range	Number of Shares	Weighted Average Exercise Price	Weighted Average Remaining Contractual Life	Number of Shares	Weighted Average Exercise Price
$17.35 — $23.81	2,885,473	$23.55	6.64 yrs.	1,674,393	$23.37
$23.88 — $32.65	2,489,905	$25.67	6.23 yrs.	1,089,165	$25.24
$33.50 — $38.59	2,072,400	$35.67	6.87 yrs.	1,000,000	$36.19

(d)    Director, Officer, and Key Employee Stock Purchase Program

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

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

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

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

(e)    Stock Purchase Contracts

        In December 2001, Cinergy Corp. issued approximately $316 million notional amount of combined securities, a component of which was stock purchase contracts. These contracts obligate the holder to purchase common shares of Cinergy Corp. stock on or before February 2005. The number of shares to be issued is contingent upon the market price of Cinergy Corp. stock, but subject to predetermined ceiling and floor prices. See Note 4 for further discussion of these securities.

3.    Change in Preferred Stock of Subsidiaries

        In 2000, PSI redeemed 289,250 shares of its $100 par value, 6.875% Series preferred stock for $29 million. All other preferred stock redemptions from 1999 to 2001 were immaterial for CG&E and PSI. Refer to the Statements of Capitalization of CG&E and PSI for detailed information on preferred stock.

4.    Preferred Trust Securities

        In December 2001, Cinergy Corp. issued approximately $316 million notional amount of combined securities consisting of (a) 6.9% preferred trust securities, due February 2007, and (b) stock purchase contracts obligating the holders to purchase between 9.2 and 10.8 million shares of Cinergy Corp. common stock on or before February 2005. A $50 preferred trust security and stock purchase contract were sold together as a single security unit (Unit). The proceeds of $306 million, which is net of

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approximately $10 million of issuance costs, were used to pay down Cinergy Corp.'s short-term indebtedness. In February 2005, the preferred trust securities will be remarketed and the dividend rate reset, no lower than 6.9%, to yield $316 million in the remarketing. The holders will use the proceeds from this remarketing to fund their obligation to purchase shares of Cinergy Corp. common stock under the stock purchase contract. The holders will pay the market price for the stock at that time, subject to a ceiling of $34.40 per share and a floor of $29.15 per share. The number of shares to be issued will vary according to the stock price, subject to the total proceeds equaling $316 million. These securities were issued through a wholly-owned trust of Cinergy Corp. The preferred trust securities are recorded on Cinergy Corp.'s Balance Sheets, net of discount and expense, as Company obligated, mandatorily redeemable, preferred trust securities of subsidiary, holding solely debt securities of the company. The fair value of the stock purchase contract was charged to Paid-in capital with a corresponding credit to Non-current liabilities—other.

        Each Unit will receive quarterly cash payments of 9.5% per annum of the notional amount, which includes the preferred trust security dividend of 6.9% and payment of 2.6%, which represents principal and interest on the stock purchase contract. Upon delivery of the shares, these stock purchase contract payments will cease.

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5.    Long-Term Debt

        Refer to the Statements of Capitalization for detailed information for CG&E, PSI, and ULH&P. In addition, Cinergy Corp. and Global Resources also have the following total long-term debt (excluding Long-term debt due within one year, which is reflected in Current liabilities in the Balance Sheets):

				December 31
				2001			2000
				(in thousands)
Cinergy Corp.
	Other Long-term Debt
		6.53% Debentures due December 16, 2008		$	200,000		$	200,000
		6.125% Debentures due April 15, 2004			200,000			200,000
		6.25% Debentures due September 1, 2004 (Executed interest rate swaps of $250 million set at London Inter-Bank Offered Rate (LIBOR) plus 2.44%)			500,341			—
			Total Other Long-term Debt		900,341			400,000
	Unamortized Discount				(255	)		(265	)
			Total—Cinergy Corp.	$	900,086		$	399,735
Global Resources
	Other Long-term Debt
		6.20% Debentures due November 3, 2008		$	150,000		$	150,000
		Variable interest rate of LIBOR plus 1.75%, due July 2015			14,042			14,156
		Variable interest rate of LIBOR plus 2.5%, due July 2015			5,840			6,323
		Variable interest rates ranging between the 3 month Prague Inter-Bank Offered Rate plus 0.55% to the 3 month Euro Inter-Bank Offered Rate (EURIBOR) plus 4.12%, maturing March 2004 to March 2005			2,752			8,314
		Fixed interest rates 6.1% - 7.4% maturing March 2003 to May 2003			10,271			18,783
		Fixed interest rates ranging between 9.423% and 9.911%, maturing September 2010 to September 2019			13,420			—
		Fixed interest rate of 11.5%, maturing December 2023 to March 2025			17,850			—
		Variable interest rate of EURIBOR plus 1.2%, maturing November 2016			52,274			—
			Total Other Long-term Debt		266,449			197,576
	Unamortized Discount				(227	)		(260	)
			Total—Global Resources		266,222			197,316
Operating Companies
	CG&E and subsidiaries			$	1,105,333		$	1,205,061
	PSI				1,325,089			1,074,255
			Total—Operating Companies	$	2,430,422		$	2,279,316
Total—Cinergy				$	3,596,730		$	2,876,367

        In January 2001, PSI retired $19.8 million principal amount of non-interest bearing Series 1994A Promissory Note, which had matured. The securities were not replaced by new issues of debt. In June 2001, PSI issued $325 million principal amount of First Mortgage Bonds Series EEE, 6.65% with a maturity date of June 15, 2006. The net proceeds of the offering were used to repay short-term indebtedness. In November 2001, the note holders exercised their option to call the $50 million PSI 6% Putable/Callable Notes (Notes) on December 14, 2001, with the intent to reset the interest rate and

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remarket the Notes. However, in December 2001, PSI exercised its option to purchase, and subsequently retired the Notes.

        In September 2001, Cinergy Corp. issued $500 million principal amount of 6.25% debentures with a maturity date of September 1, 2004. The net proceeds of the offering were used to repay short-term indebtedness. In October 2001, Cinergy Corp. executed three receive-fixed, pay-floating interest rate swaps with a combined notional amount of $250 million. These swaps are designated as fair value hedges of 50% of Cinergy Corp.'s $500 million debentures issue.

        During 2001, Global Resources borrowed funds at variable and fixed rates to fund various projects. These loans are classified as Long-term debt and Long-term debt due within one year based upon scheduled maturities.

        The following table reflects the long-term debt maturities, excluding any redemptions due to the exercise of call or put provisions or capital lease obligations. Callable means the issuer has the right to buy back a given security from the holder at a specified price before maturity. Putable means the holder has the right to sell a given security back to the issuer at a specified price before maturity.

	Cinergy(1)		CG&E and subsidiaries			PSI
	(in millions)
2002	$	148	$	100		$	23
2003		92		20	(2)		58
2004		814		110			1
2005		3		—			1
2006		334		—			328
Thereafter(3)		2,365		978			945
	$	3,756	$	1,208		$	1,356

(1)

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

(2)

CG&E and subsidiaries includes ULH&P's $20 million maturing in 2003.

(3)

Includes long-term debt with put provisions of $100 million in 2003 and $150 million in 2005 for CG&E and $50 million in 2005 for PSI.

        Maintenance and replacement fund provisions contained in PSI's first mortgage bond indenture require: (1) cash payments, (2) bond retirements, or (3) pledges of unfunded property additions each year based on an amount related to PSI's net revenues.

6.    Notes Payable and Other Short-term Obligations

        Short-term obligations may include:

•

short-term notes;



•

commercial paper;



•

variable rate pollution control notes; and



•

money pooling.

Short-term Notes

        Short-term borrowings mature within one year from the date of issuance. We primarily use unsecured revolving lines of credit for short-term borrowings. A portion of each company's revolving lines is used to provide credit support for commercial paper (discussed below). When revolving lines are reserved for commercial paper or backing letters of credit, they are not available for additional borrowings. The fees we paid to secure short-term borrowings were immaterial during each of the periods 1999, 2000, and 2001.

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        At December 31, 2001, Cinergy Corp. had $437 million remaining unused and available capacity relating to its $1.2 billion revolving credit facilities. In February 2001, Cinergy Corp. placed a $400 million, 364-day senior revolving credit facility and in March 2001, Cinergy Corp. placed a $500 million, 364-day senior revolving credit facility. These facilities provide short-term financing. Also, in May 2001, Cinergy Corp. placed a $400 million, three-year senior revolving credit facility. This facility replaced Cinergy Corp.'s $400 million, five-year revolving credit facility that expired in May 2001, and its $200 million, three-year revolving credit facility that expired in July 2001. In December 2001, Cinergy Corp. permanently reduced the size of its $500 million, 364-day senior revolving credit facility to $225 million.

        In early 2002, Cinergy Corp. placed a $600 million, 364-day senior revolving credit facility. This facility replaces the $400 million, 364-day senior revolving credit facility that expired in February 2002 and will replace the $225 million, 364-day senior revolving credit facility expiring in March 2002, and a $150 million, three-year senior revolving credit facility expiring in June 2002.

        In addition to revolving credit facilities, Cinergy Corp., CG&E, and PSI also maintain uncommitted lines of credit. These facilities are not guaranteed sources of capital and represent an informal agreement to lend money, subject to availability, with pricing to be determined at the time of advance. At December 31, 2001, Cinergy Corp.'s $40 million uncommitted line and CG&E's $15 million uncommitted line were unused. PSI's uncommitted line of $60 million was fully drawn at year-end.

Commercial Paper

        In early 2001, Cinergy Corp. expanded the commercial paper program to a maximum outstanding principal amount of $800 million and reduced the established lines of credit at CG&E and PSI. The expansion of the commercial paper program at the Cinergy Corp. level supports, in part, the short-term borrowing needs of CG&E and PSI and eliminates their need for separate commercial paper programs. As of December 31, 2001, Cinergy Corp. had $125 million in commercial paper outstanding.

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 to control pollution). Because the holders of these notes have the right to redeem their notes on any business day, with the remainder being redeemable annually, they are reflected in Notes payable and other short-term obligations in the Balance Sheets of Cinergy, CG&E, and PSI.

        In August 2001, CG&E issued $12.1 million of Ohio Air Quality Development Authority Air Quality Development Revenue Bonds 2001, Series A with a final maturity date of August 1, 2033, and an initial interest rate of 3.7%. The interest rate will reset annually on August 1, as negotiated, based on the Municipal Market Data Index as a benchmark. The net proceeds were used to finance the cost of air quality and solid waste disposal facilities at the William H. Zimmer Generating Station (Zimmer Station).

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        The following table summarizes our Notes payable and other short-term obligations, excluding Notes payable to affiliated companies.

		December 31, 2001						December 31, 2000
		Established Lines		Outstanding		Weighted Average Rate		Established Lines		Outstanding		Weighted Average Rate
		(in millions)
Cinergy Corp.
	Revolving lines(1)	$	1,175	$	599	2.55	%	$	750	$	359	6.84	%
	Uncommitted lines		40		—	—			45		12	7.25
	Commercial paper		800		125	3.49			400		216	7.06
Operating companies
	Revolving lines		—		—	—			180		180	7.18
	Uncommitted lines		75		66	3.73			125		5	7.00
	Pollution control notes		N/A		279	2.10			N/A		267	4.52
Non-regulated subsidiaries
	Revolving lines		46		38	3.37			13		11	5.86
	Short-term debt		49		49	4.90			79		79	6.77
Cinergy Total				$	1,156	2.74	%			$	1,129	6.38	%
CG&E and subsidiaries
	Revolving lines	$	—	$	—	—	%	$	80	$	80	7.06	%
	Uncommitted lines		15		—	—			40		—	—
	Pollution control notes		N/A		196	2.00			N/A		184	4.61
CG&E Total				$	196	2.00	%			$	264	5.35	%
PSI
	Revolving lines	$	—	$	—	—	%	$	100	$	100	7.27	%
	Uncommitted lines		60		66	3.73			85		5	7.00
	Pollution control notes		N/A		83	2.33			N/A		83	4.34
PSI Total				$	149	2.95	%			$	188	5.97	%

(1)

Excludes a $600 million credit facility placed in the first quarter of 2002.

Money Pool

Cinergy Corp., Services, and our operating companies 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 affiliates (other than Cinergy Corp.) participating under this arrangement. 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 Balance Sheets of CG&E, PSI, and ULH&P.

7.    Sales of Accounts Receivable

CG&E, PSI, and ULH&P have an agreement to sell, on a revolving basis, undivided percentage interests in certain of their accounts receivable and the related collections up to an aggregate maximum of $350 million. CG&E retains servicing responsibilities for its role as a collection agent of the amounts due on the sold receivables. However, the purchaser assumes the risk of collection on the sold

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receivables without recourse to CG&E, PSI, and ULH&P in the event of a loss. Proceeds from a portion of the sold receivables are held back as a reserve to reduce the purchaser's credit risk. CG&E, PSI, and ULH&P do not retain any ownership interest in the sold receivables, but do retain undivided interests in their remaining balances of accounts receivable. The recorded amounts of the retained interests are measured at net realizable value.

        The Accounts receivable on the Balance Sheets of Cinergy, CG&E, PSI, and ULH&P are net of the amounts sold at December 31, 2001, and 2000.

        The following table shows the receivables sold, the associated reserves held back, and the net amounts received as of December 31, 2001, and 2000:

	Receivables Sold		Reserves		Net Amount
	(in millions)
2001
Cinergy	$	322	$	65	$	257
CG&E and subsidiaries		188		38		150
PSI		134		27		107
ULH&P		27		5		22
2000
Cinergy	$	316	$	59	$	257
CG&E and subsidiaries		192		36		156
PSI		124		23		101
ULH&P		32		6		26

8.    Leases

(a) Operating Leases

        We have entered into operating lease agreements for various facilities and properties such as computer, communication and transportation equipment, and office space. Total rental payments on operating leases for each of the past three years are detailed in the table below. This table also shows future minimum lease payments required for operating leases with remaining non-cancelable lease terms in excess of one year as of December 31, 2001:

	Actual Payments						Estimated Minimum Payments
	1999		2000		2001		2002		2003		2004		2005		2006		After 2006		Total
	(in millions)						(in millions)
Cinergy(1)	$	50	$	56	$	61	$	45	$	36	$	26	$	21	$	18	$	61	$	207
CG&E and subsidiaries		27		30		33		20		15		10		7		6		15		73
PSI		21		21		21		17		14		9		7		7		23		77
ULH&P(2)		4		4		5		—		—		—		—		—		—		—

(1)

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

(2)

Estimated minimum lease payments are immaterial.

(b)  Capital Leases

        In 2001, 2000, and 1999, CG&E, PSI, and ULH&P entered into capital lease agreements to fund the purchase of gas and electric meters. The lease terms are for 120 months commencing December 2001, 2000, and 1999, with early buyout options at 48, 72, and 105 months. Since the objective is to own the meters indefinitely, the companies plan to exercise the buyout option at month

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105. The lease rates used to determine the monthly payments were 6.00%, 6.09%, and 6.71% for 2001, 2000, and 1999, respectively. The meters are depreciated at the same rate as if they were owned by the companies. CG&E, PSI, and ULH&P each recorded a capital lease obligation, included in Non-current liabilities— other.

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

	Total Minimum Lease Payments
	Cinergy			CG&E and subsidiaries			PSI			ULH&P
	(in millions)
Total minimum lease payments(1)	$	46		$	26		$	20		$	8
Less: amount representing interest		(11	)		(6	)		(5	)		(2	)
Present value of minimum lease payments	$	35		$	20		$	15		$	6

(1)

Annual minimum lease payments are immaterial.

        In 2000, CG&E entered into a capital lease agreement to fund the purchase of equipment for Zimmer Station. In August 2001, CG&E purchased the equipment at Zimmer Station, effectively terminating the lease.

        In 1996, CG&E entered into a sale-leaseback agreement for certain equipment at Woodsdale Generating Station. The lease was a capital lease with an initial lease term of five years expiring on October 31, 2001. At the end of this term, CG&E purchased the equipment.

9.    Financial Instruments

(a) Financial Derivatives

        We have entered into financial derivative contracts for the purposes described below.

(i) Interest Rate Risk Management

        Our current policy in managing exposure to fluctuations in interest rates is to maintain the total amount of outstanding debt in floating interest rate debt instruments of approximately 30%. In maintaining this level of exposure, we use interest rate swaps. Under these swaps, we agree with other parties to exchange, at specified intervals, the difference between fixed-rate and floating-rate interest amounts calculated on an agreed notional amount. CG&E has an outstanding interest rate swap agreement that decreased the percentage of floating-rate debt. Under the provisions of the swap, which has a notional amount of $100 million, CG&E pays a fixed-rate and receives a floating-rate through October 2007. This swap qualifies as a cash flow hedge under the provisions of Statement 133. As the terms of the swap agreement mirror the terms of the debt agreement that it is hedging, we anticipate that this swap will continue to be effective as a hedge. Changes in fair value of this swap are recorded in Accumulated other comprehensive income (loss), beginning with our adoption of Statement 133 on January 1, 2001. In October 2001, Cinergy Corp. executed three interest rate swaps with a combined notional amount of $250 million. Under the provisions of the swaps, Cinergy Corp. will receive fixed-rate interest payments and pay floating-rate interest payments through September 2004. These swaps qualify as fair value hedges under the provisions of Statement 133. We anticipate that these swaps will continue to be effective as hedges. See Note 1(l) for additional information on financial derivatives. In the future, we will continually monitor market conditions to evaluate whether to modify our level of exposure to fluctuations in interest rates.

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(ii) Foreign Exchange Hedging Activity

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

Cinergy has exposure to fluctuations in exchange rates between the U.S. dollar and the currencies of foreign countries where we have investments. When it is appropriate we will hedge our exposure to cash flow transactions, such as a dividend payment by one of our foreign subsidiaries. As of December 31, 2001, we had no outstanding foreign currency derivatives.

(b)  Fair Value of Other Financial Instruments

        The estimated fair values of other financial instruments were as follows (this information does not claim to be a valuation of the companies as a whole):

	December 31, 2001				December 31, 2000
Financial Instruments	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(in millions)
Cinergy(1)
First mortgage bonds and other long-term debt (includes amounts reflected as Long-term debt due within one year)	$	3,745	$	3,805	$	2,917	$	2,950
CG&E and subsidiaries
First mortgage bonds and other long-term debt (includes amounts reflected as Long-term debt due within one year)	$	1,205	$	1,214	$	1,206	$	1,203
PSI
First mortgage bonds and other long-term debt (includes amounts reflected as Long-term debt due within one year)	$	1,348	$	1,379	$	1,113	$	1,136
ULH&P
Other long-term debt	$	75	$	76	$	75	$	76

(1)

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

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

(i) Cash and cash equivalents, Restricted deposits, and Notes payable and other short-term obligations

        Due to the short period to maturity, the carrying amounts reflected on the Balance Sheets approximate fair values.

(ii) Long-term debt

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

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(c) Concentrations of Credit Risk

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

(i) Trade Receivables and Physical Power Portfolio

        Our concentration of credit risk with respect to trade accounts receivable from electric and gas retail customers is limited. The large number of customers and diversified customer base of residential, commercial, and industrial customers significantly reduces our credit risk. Contracts within the physical portfolio of power marketing and trading operations are primarily with the traditional electric cooperatives and municipalities and other investor-owned utilities. At December 31, 2001, we do not believe we had significant exposure to credit risk with our trade accounts receivable or our physical portfolio.

(ii) Energy Trading

Cinergy's extension of credit for energy marketing and trading is governed by a Corporate Credit Policy. Written guidelines document the management approval levels for credit limits, evaluation of creditworthiness and credit risk mitigation procedures. Exposures to credit risks are monitored daily by the Corporate Credit Risk function. As of December 31, 2001, approximately 97% of the credit exposure related to energy trading and marketing activity was with counterparties rated Investment Grade or higher. Energy commodity 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.

        In December 2001, Enron Corp. (Enron) filed for protection under Chapter 11 of the U.S. Bankruptcy Code in the Southern District of New York. We decreased our trading activities with Enron in the months prior to its bankruptcy filing. We intend to resolve any contract differences pursuant to the terms of those contracts, business practices and the applicable provisions of the Bankruptcy Code, as approved by the court. While we cannot predict the courts resolution of these matters, we do not believe that any exposure relating to those contracts would have a material impact on our financial position or results of operations. While most of our contracts with Enron were considered trading and thus recorded at fair value, a few contracts were accounted for utilizing the normal exemption under Statement 133 (see Note 1(k)). These contracts were recognized at fair value when the contracts were terminated in the fourth quarter of 2001. Fair value for these contracts, and all terminated contracts with Enron, is governed by the provisions of each contract, but typically approximates fair value at contract termination. However, the effect of the loss of Enron's participation in the energy markets on long-term liquidity and price volatility, or on the creditworthiness of common counterparties cannot be determined. We continually review and monitor our credit exposure to all counterparties and adjust the fair value of our position, as appropriate.

(iii) Financial Derivatives

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

10. Pension and Other Postretirement Benefits

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

121

        Our defined benefit pension plans cover substantially all U.S. employees meeting certain minimum age and service requirements. A final average pay formula determines plan benefits. These plan benefits are based on:

•

years of participation;



•

age at retirement; and



•

the applicable average Social Security wage base or benefit amount.

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

        We provide certain health care and life insurance benefits to retired U.S. employees and their eligible dependents. These benefits are subject to minimum age and service requirements. The health care benefits include medical coverage, dental coverage, and prescription drugs and are subject to certain limitations, such as deductibles and co-payments. Neither CG&E nor ULH&P pre-fund their obligations for these postretirement benefits. In 1999, PSI began pre-funding its obligations through a grantor trust as authorized by the IURC.

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

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

		Pension Benefits									Other Postretirement Benefits
		2001			2000			1999			2001			2000			1999
		(in millions)
Service cost		$	27.9		$	27.4		$	24.8		$	3.8		$	3.4		$	3.5
Interest cost			77.5			73.0			70.8			17.9			17.0			16.2
Expected return on plans' assets			(81.9	)		(77.0	)		(72.0	)		—			—			—
Amortization of transition (asset) obligation			(1.3	)		(1.3	)		(1.3	)		5.0			5.0			5.0
Amortization of prior service cost			4.6			4.5			4.5			—			—			—
Recognized actuarial (gain) loss			(3.2	)		(2.4	)		0.6			0.1			—			0.8
LERP Statement 88 cost			—			11.9			—			—			—			—
Net periodic benefit cost		$	23.6		$	36.1		$	27.4		$	26.8		$	25.4		$	25.5
Actuarial assumptions:
	Discount rate		7.50	%		7.50	%		7.50	%		7.50	%		7.50	%		7.50	%
	Rate of future compensation increase		4.00			4.50			4.50			N/A			N/A			N/A
	Rate of return on plans' assets		9.25			9.00			9.00			N/A			N/A			N/A

        For measurement purposes, we assumed an eight percent annual rate of increase in the per capita cost of covered health care benefits for 2001. It was assumed that the rate would decrease gradually to five percent in 2008 and remain at that level thereafter.

122

        The following table provides a reconciliation of the changes in the plans' benefit obligations and fair value of assets over the two-year period ended December 31, 2001, and a statement of the funded status as of December 31 of both years.

	Pension Benefits						Other Postretirement Benefits
	2001			2000			2001			2000
	(in millions)
Change in benefit obligation
Benefit obligation at beginning of period	$	1,064.5		$	1,002.0		$	247.1		$	234.4
Service cost		27.9			27.4			3.8			3.4
Interest cost		77.5			73.0			17.9			17.0
Amendments(1)		18.0			13.1			—			—
Actuarial (gain) loss		(43.6	)		12.0			17.9			6.7
Benefits paid		(60.8	)		(63.0	)		(16.3	)		(14.4	)
Benefit obligation at end of period		1,083.5			1,064.5			270.4			247.1
Change in plan assets
Fair value of plan assets at beginning of period		1,043.6			946.1			—			—
Actual return on plan assets		(108.1	)		160.5			—			—
Employer contribution		0.7			—			16.3			14.4
Benefits paid		(60.8	)		(63.0	)		(16.3	)		(14.4	)
Fair value of plan assets at end of period		875.4			1,043.6			—			—
Funded status		(208.1	)		(20.9	)		(270.4	)		(247.1	)
Unrecognized prior service cost		50.0			36.6			—			—
Unrecognized net actuarial (gain) loss		(100.1	)		(249.6	)		45.7			26.6
Unrecognized net transition (asset) obligation		(3.2	)		(4.5	)		50.8			55.8
Accrued benefit cost at December 31	$	(261.4	)	$	(238.4	)	$	(173.9	)	$	(164.7	)

(1)

For 2000, the amount of $13.1 million includes $11.9 million of LERP expenses in accordance with Statement 88, as previously discussed.

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

	One-Percentage- Point Increase		One-Percentage- Point Decrease
	(in millions)
Effect on total of service and interest cost components	$	3.2	$	(2.8	)
Effect on postretirement benefit obligation		34.7		(30.3	)

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

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

	2001		2000
	(in millions)
Pension benefit obligation	$	70.9	$	67.0
Pension cost		8.7		8.3

11. Disposition of Unconsolidated Subsidiary

        On July 15, 1999, we sold our 50% ownership interest in Midlands Electricity plc (Midlands) to GPU, Inc. In exchange for our interest in Midlands, we received 452.5 million pounds sterling (approximately $700 million). As a result of the transaction, we realized a net contribution to earnings of approximately $.43 EPS and EPS-assuming dilution, after deducting financing, transaction, and currency costs.

        The pro forma information presented below reflects Cinergy's net income and EPS without the investment in Midlands for 1999.

		Year Ended December 31 1999
		Net Income			EPS(1)
		(in millions, except for earnings per share)
Reported results		$	404		$	2.54
Pro forma adjustments:
	Equity in earnings of Midlands		(58	)
	Gain on sale of investment in Midlands		(99	)
	Interest		21
	Income taxes		40
Pro forma results		$	308		$	1.94

(1)

Represents basic EPS. Actual EPS — assuming dilution were $2.53, and pro forma EPS — assuming dilution were $1.93.

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12. Income Taxes

        The following table shows the significant components of Cinergy's, CG&E's, and PSI's net deferred income tax liabilities as of December 31, 2001, and 2000:

		Cinergy(1)				CG&E and subsidiaries				PSI
		2001		2000		2001		2000		2001		2000
		(in millions)				(in millions)				(in millions)
Deferred Income Tax Liability
	Property, plant, and equipment	$	1,172.0	$	1,135.9	$	708.0	$	703.0	$	453.2	$	432.8
	Unamortized costs of reacquiring debt		13.4		18.2		3.2		8.1		10.2		10.1
	Deferred operating expenses and carrying costs		10.3		60.2		—		40.7		10.3		19.5
	Purchased power tracker		9.7		—		—		—		9.7		—
	RTC		206.0		—		206.0		—		—		—
	Net energy risk management assets		12.2		—		8.4		—		—		—
	Amounts due from customers—income taxes		22.9		96.2		16.0		91.2		6.9		5.0
	Gasification services agreement buyout costs		92.3		94.8		—		—		92.3		94.8
	Other		47.6		60.9		8.7		37.0		2.3		9.0
Total Deferred Income Tax Liability			1,586.4		1,466.2		950.3		880.0		584.9		571.2
Deferred Income Tax Asset
	Unamortized investment tax credits		45.9		56.1		36.0		42.8		10.0		13.2
	Accrued pension and other benefit costs		162.4		137.7		96.6		67.5		47.2		39.8
	Net energy risk management liabilities		—		24.6		—		6.1		5.5		18.5
	Rural Utilities Service (RUS) obligation		28.2		28.2		—		—		28.2		28.2
	Other		48.5		33.6		38.4		27.8		7.3		12.9
Total Deferred Income Tax Asset			285.0		280.2		171.0		144.2		98.2		112.6
Net Deferred Income Tax Liability		$	1,301.4	$	1,186.0	$	779.3	$	735.8	$	486.7	$	458.6

(1)

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

        We will file a consolidated federal income tax return for the year ended December 31, 2001. The current tax liability is allocated among the members of the Cinergy consolidated group, pursuant to a tax sharing agreement filed with the SEC under the PUHCA.

125

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

			Cinergy(1)									CG&E and subsidiaries									PSI
			2001			2000			1999			2001			2000			1999			2001			2000			1999
			(in millions)									(in millions)									(in millions)
Current Income Taxes
	Federal		$	122.4		$	187.3		$	114.0		$	135.1		$	121.5		$	137.3		$	59.9		$	84.4		$	(30.6	)
	State			9.3			16.9			(1.5	)		7.6			1.6			4.0			4.6			10.8			(3.1	)
Total Current Income Taxes				131.7			204.2			112.5			142.7			123.1			141.3			64.5			95.2			(33.7	)
Deferred Income Taxes
	Federal
		Depreciation and other property, plant, and equipment-related items		42.7			26.1			24.0			23.3			19.0			13.8			10.7			7.1			10.2
		Pension and other benefit costs		(11.8	)		(21.3	)		(10.5	)		(4.2	)		(7.5	)		(5.3	)		(7.6	)		(11.5	)		(5.0	)
		Deferred excise taxes		14.5			—			—			14.5			—			—			—			—			—
		Unrealized energy risk management transactions		44.0			10.9			(5.1	)		23.9			5.6			(11.6	)		11.6			2.0			6.5
		Fuel costs		5.7			28.7			4.3			(8.0	)		26.7			2.7			13.7			2.0			1.6
		Purchased power tracker		8.5			—			—			—			—			—			8.5			—			—
		Gasification services agreement buyout costs		(2.2	)		(0.1	)		83.6			—			—			—			(2.2	)		(0.1	)		83.6
		Other—net		16.1			11.0			(5.1	)		(4.8	)		(3.0	)		8.3			5.3			(1.2	)		(4.5	)
Total Deferred Federal Income Taxes				117.5			55.3			91.2			44.7			40.8			7.9			40.0			(1.7	)		92.4
	State			15.4			1.7			14.2			5.0			1.5			0.6			4.8			(1.4	)		13.6
Total Deferred Income Taxes				132.9			57.0			105.4			49.7			42.3			8.5			44.8			(3.1	)		106.0
Investment Tax Credits—Net				(9.1	)		(9.6	)		(9.2	)		(5.9	)		(6.0	)		(6.1	)		(3.2	)		(3.6	)		(3.1	)
Total Income Taxes			$	255.5		$	251.6		$	208.7		$	186.5		$	159.4		$	143.7		$	106.1		$	88.5		$	69.2

(1)

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

126

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

		Cinergy(1)									CG&E and subsidiaries									PSI
		2001			2000			1999			2001			2000			1999			2001			2000			1999
		(in millions)									(in millions)									(in millions)
Statutory federal income tax provision		$	235.6		$	221.3		$	209.9		$	175.2		$	148.1		$	130.4		$	90.7		$	75.1		$	61.6
Increases (Reductions) in taxes resulting from:
	Amortization of investment tax credits		(9.1	)		(9.6	)		(9.2	)		(5.9	)		(6.0	)		(6.1	)		(3.2	)		(3.6	)		(3.1	)
	Depreciation and other property, plant, and equipment-related differences		3.2			17.7			14.4			2.6			14.0			11.6			0.6			3.6			2.8
	Preferred dividend requirements of subsidiaries		1.2			1.6			1.9			—			—			—			—			—			—
	Foreign tax adjustments		(1.3	)		—			(15.5	)		—			—			—			—			—			—
	Other—net		1.2			2.0			(5.5	)		2.0			0.2			3.2			8.6			4.0			(2.6	)
Federal Income Tax Expense		$	230.8		$	233.0		$	196.0		$	173.9		$	156.3		$	139.1		$	96.7		$	79.1		$	58.7

(1)

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

        The following table shows the significant components of ULH&P's net deferred income tax liability as of December 31, 2001 and 2000:

		ULH&P
		2001		2000
		(in thousands)
Deferred Income Tax Liability
	Property, plant, and equipment	$	34,218	$	32,674
	Unamortized costs of reacquiring debt		699		747
	Deferred fuel costs		—		6,934
	Other		4,158		3,620
Total Deferred Income Tax Liability			39,075		43,975
Deferred Income Tax Asset
	Unamortized investment tax credits		1,035		1,309
	Amounts due to customers-income taxes		2,524		2,627
	Deferred fuel costs		520		—
	Accrued pension and other benefit costs		3,947		2,660
	Other		2,726		1,557
Total Deferred Income Tax Asset			10,752		8,153
Net Deferred Income Tax Liability		$	28,323	$	35,822

127

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

			ULH&P
			2001			2000			1999
			(in thousands)
Current Income Taxes
	Federal		$	23,109		$	5,003		$	8,668
	State			(2,293	)		(129	)		2,253
Total Current Income Taxes				20,816			4,874			10,921
Deferred Income Taxes
	Federal
		Depreciation and other property, plant, and equipment-related items		1,042			1,059			831
		Pension and other benefit costs		(140	)		(605	)		40
		Fuel costs		(7,338	)		8,564			(1,385	)
		Unamortized costs of reacquiring debt		(30	)		(30	)		(39	)
		Service company allocations		192			251			324
		Other—net		212			(338	)		(155	)
Total Deferred Federal Income Taxes				(6,062	)		8,901			(384	)
Deferred State Income Taxes				(781	)		303			(76	)
Total Deferred Income Taxes				(6,843	)		9,204			(460	)
Investment Tax Credits—Net				(274	)		(277	)		(277	)
Total Income Taxes			$	13,699		$	13,801		$	10,184

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

		ULH&P
		2001			2000			1999
		(in thousands)
Statutory federal income tax provision		$	18,444		$	13,391		$	7,098
Increases (Reductions) in taxes resulting from:
	Amortization of investment tax credits		(274	)		(277	)		(277	)
	Depreciation and other property, plant, and equipment-related differences		23			830			94
	Other—net		(1,420	)		(317	)		1,092
Federal Income Tax Expense		$	16,773		$	13,627		$	8,007

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13. Commitments and Contingencies

(a) Construction and Other Commitments

        Forecasted construction and other committed expenditures, including AFUDC, for the year 2002 and for the five-year period 2002-2006 (in nominal dollars) are presented in the table below:

	2002		2002-2006
	(in millions)
Cinergy(1)	$	889	$	3,070
CG&E and subsidiaries		275		1,135
PSI		478		1,522
ULH&P		43		212

(1)

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

        This forecast includes an estimate of expenditures in accordance with the companies' plans regarding nitrogen oxide (NO_X) emission control standards and other environmental compliance (excluding implementation of the tentative U.S. Environmental Protection Agency (EPA) Agreement), as discussed below.

(b) Guarantees

Cinergy Corp. has made separate guarantees to certain counterparties regarding performance of commitments by our consolidated subsidiaries, unconsolidated subsidiaries and joint ventures. We are subject to an SEC order under PUHCA, which limits the amount we can have outstanding under guarantees at any one time to $2 billion. As of December 31, 2001, we had $558 million outstanding under the guarantees issued, of which approximately 70% represents guarantees of obligations reflected on Cinergy's Consolidated Balance Sheet. These outstanding guarantees relate to subsidiary and joint venture indebtedness and performance commitments.

(c) Ozone Transport Rulemakings

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

(i) NO_X SIP Call

        In October 1998, the EPA finalized its ozone transport rule, also known as the NO_X SIP Call. It applied to 22 states in the Eastern half of the U.S., including the three states in which our electric utilities operate, and proposed a model NO_X emission allowance-trading program. This rule recommended states reduce NO_X 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
NO_X reductions and, at the discretion of the state, a NO_X trading program into their SIPs. The EPA proposed to implement a federal plan to accomplish the equivalent NO_X 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 NO_X SIP Call with the U.S. Circuit Court of Appeals for the District of Columbia (Court of Appeals).

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        Following a number of rulings and appeals, in August 2000, the Court of Appeals extended the deadline for NO_X reductions to May 31, 2004. The states and other groups sought review of the Court of Appeals ruling by the U.S. Supreme Court (Supreme Court). In March 2001, the Supreme Court decided not to grant that review.

        In June 2001, the Court of Appeals remanded portions of the NO_X SIP Call to the EPA for reconsideration of how growth was factored into the state NO_X budgets. It is unclear whether this decision will result in an increase or decrease in the size of the NO_X reduction requirement. On August 3, 2001, the EPA published, in the Federal Register, a notice of data availability for justification of the state NO_X budgets. Comments on the justification were filed prior to the September 19, 2001 deadline by various industry groups (some of which we are members) and states.

        The states of Indiana and Kentucky developed final NO_X SIP rules in response to the NO_X SIP Call, through cap and trade programs, in June and July of 2001, respectively. On November 8, 2001, the EPA approved Indiana's SIP rules which became effective December 10, 2001. The EPA is expected to approve Kentucky's rules in the near future. The state of Ohio is still in the process of developing its NO_X SIP rules in response to the NO_X SIP Call. Cinergy's current plans for compliance with the EPA's NO_X SIP Call would also satisfy compliance with Indiana's SIP rules and Kentucky's proposed rules.

        On September 25, 2000, Cinergy announced a plan for its subsidiaries, CG&E and PSI, to invest in pollution control equipment and other methods to reduce NO_X emissions. The current estimate of additional expenditures for this investment is approximately $550 million (in nominal dollars) and includes the following:

•

install 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 NO_X allowances.

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

(ii) Section 126 Petitions

        In February 1998, several 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 NO_X 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 NO_X emissions to a certain level by May 2003. In May 2001, the Court of Appeals substantially upheld a challenge to the Section 126 requirements, and remanded portions of the rule to the EPA for reconsideration of how growth was factored into the emission limitations. On August 24, 2001, the Court of Appeals temporarily suspended the Section 126 compliance deadline, pending the EPA's reconsideration of growth factors. On January 19, 2002, the EPA issued a memorandum to all Regional Air Division Directors confirming that the Agency would extend the Section 126 rule compliance deadline to May 31, 2004, thus harmonizing the deadline with that for NO_X SIP Call.

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(iii) State Ozone Plans

        On November 15, 1999, the states of Indiana and 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 Greater Louisville Area has since attained the one-hour ozone standard, and on October 23, 2001, the EPA re-designated the area as being in attainment with that standard. Previous SIP amendments called for, among other things, statewide NO_X reductions from utilities in Indiana, Kentucky, and surrounding states which are less stringent than the EPA's NO_X SIP Call. Indiana and Kentucky committed to adopt utility NO_X control rules by December 2000, that would require controls be installed by May 2003. However, Indiana halted the rulemaking for NO_X controls at this level, but completed NO_X SIP Call level reduction regulations. Kentucky has completed its rulemaking, and issued a final rule that changed the compliance deadline to mirror the NO_X SIP Call of May 31, 2004. However, on November 1, 2001, the intent to withdraw the regulation was noted in the Kentucky Administrative Register.

        See (f) below for a discussion of the tentative EPA Agreement, the implementation of which could affect our strategy for compliance with the final NO_X SIP Call.

(d) 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 could have the affect of changing NSR applicability by limiting exemptions contained in the current regulation. On June 22, 2001, the EPA issued an NSR 90-Day Review Paper and scheduled four public forums across the U.S. to gather more information on the impacts of NSR. Cinergy provided oral testimony at an EPA public forum held in Cincinnati, Ohio, on July 10, 2001, and submitted written comments as well.

        Since July 1999, 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 of 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).

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        The amended complaint sought (1) injunctive relief to require installation of pollution control technology on each of the generating units at Beckjord Station and PSI's Cayuga Station, 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. Neither party appealed that decision.

        On June 28, 2000, the EPA issued an NOV to Cinergy, CG&E, and PSI for alleged violations of NSR, PSD, and SIP requirements at CG&E's Miami Fort Generating Station (Miami Fort Station) and PSI's Gibson Generating Station (Gibson 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 an NOV to DP&L 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.

        On August 2, 2001, the states of New York, New Jersey, and Connecticut filed an Assented to Motion to Intervene in this litigation. Their motion was granted by the District Court on August 3, 2001. The states' proposed complaint is an exhibit to the motion to intervene. Cinergy, CG&E, and PSI are in the process of evaluating the states' complaint but, at this time, are unable to determine the effect, if any, this filing will have on the issues affecting us regarding NSR, as framed in the EPA's Amended Complaint.

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

(e) Beckjord Station NOV

        On November 30, 1999, the EPA filed an 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 (d) above. On June 22, 2000, the EPA issued an NOV and a finding of violation (FOV) alleging additional particulate emission violations at Beckjord Station and offered us an opportunity to meet and discuss the allegations and corrective measures. The NOV/FOV indicated the EPA may issue an administrative compliance order, issue an administrative penalty order, or bring a civil or criminal action.

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

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(f) 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 (Justice Department), 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, it would resolve past claims of NSR violations as well as the Beckjord Station NOVs/FOV discussed previously under (d) and (e).

        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 claims regarding past maintenance activities as well as future operational certainty, and 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 particulate control systems;



•

phase in the operation of NO_X 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 NO_X controls over the next four years 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.

        In January 2002, the Justice Department completed its review of NSR, after considering dismissal of the lawsuits, and decided to pursue the pending lawsuits, including the suit against Cinergy, CG&E, and PSI. We will continue to pursue a negotiated settlement of these lawsuits if that continues to be in the best interests of the company. If the settlement is not completed, we intend to defend against the allegations, discussed in (d) and (e) above, 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 these matters would have a material effect on our financial condition or results of operations.

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(g) 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 (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 IDEM. In April 1998, PSI filed suit in Hendricks County Circuit Court in the State of Indiana 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 lawsuit was moved to the Hendricks Superior Court (Superior Court) in July 1998. Discovery closed in the case at the end of August 2001. PSI and its insurance carriers filed briefs on various issues for decision by the Superior Court in hearings held in November 2001. In December 2001, the Superior Court rescheduled the trial to June 2002. On February 1, 2002, the Superior Court issued rulings on motions for summary judgment. The Superior Court granted the motions of several insurance carriers who claimed that there was insufficient evidence concerning the terms of their policies. The insurance policies in question were between 1950-1958 and 1961-1964. With respect to the remaining policies (between 1958-1961 and 1964-1984), the Superior Court denied all of the insurance carriers' motions. This included motions on the issues of Trigger of Coverage, Expected or Intended Damage, Late Notice and Voluntary Payments. The Superior Court found triable issues of fact for the jury to decide as to the former two issues, and ruled in PSI's favor, as a matter of law, on the latter two issues. The trial against the remaining insurance

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carriers will go forward in June 2002. At the present time, PSI cannot predict 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. Until investigation and remediation activities have been completed on these sites, we are unable to reasonably estimate the total costs and impact on 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.

(h) Gas Customer Choice

        In January 2000, Investments sold Cinergy Resources, Inc. (Resources), a former subsidiary, to Licking Rural Electrification, Inc., doing business as The Energy Cooperative (Energy Cooperative). In February 2001, Cinergy, CG&E, and Resources were named as defendants in three class action lawsuits relating to 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. In March 2001, Cinergy, CG&E, and Investments were named as defendants in a lawsuit filed by both Energy Cooperative and Resources. This lawsuit concerns any obligations or liabilities Investments may have to Energy Cooperative following its sale of Resources. We intend to vigorously defend these lawsuits. At the present time, Cinergy cannot predict the outcome of these suits.

(i) PSI Fuel Adjustment Charge

PSI defers fuel costs that are recoverable in future periods subject to IURC approval under a fuel recovery mechanism. In June 2001, the IURC issued an order in a PSI fuel recovery proceeding, disallowing approximately $14 million of deferred costs. On June 26, 2001, PSI formally requested that the IURC reconsider its disallowance decision. In August 2001, the IURC indicated that it will reconsider its decision. PSI believes it has strong legal and factual arguments in its favor and that it will ultimately be permitted to recover these costs. However, PSI cannot definitively predict the ultimate outcome of this matter.

        In June 2001, PSI filed a petition with the IURC requesting authority to recover $16 million in under billed deferred fuel costs incurred from March 2001 through May 2001. The IURC approved recovery of these costs subject to refund pending the findings of an investigative sub-docket. The sub-docket was opened to investigate the reasonableness of, and underlying reasons for, the under billed deferred fuel costs. A hearing is scheduled for April 2002.

(j) Other

        In compliance with an electric wholesale rate case settlement adopted by the FERC, effective February 2000, CG&E reduced the cost of fuel reflected in its wholesale base rates and revised its

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wholesale fuel adjustment factor. Beginning March 1, 2000, 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.

        In May 2001, the KPSC approved an offer of settlement by ULH&P, which allows it to maintain existing retail electric base rates and fuel adjustment clause at current levels through December 2003 and limits electric rate increases for three years thereafter, resolving all related matters previously pending before the KPSC. The settlement also approved the proposed wholesale power supply contract between ULH&P and CG&E, beginning January 1, 2002, and made the necessary determinations under the PUHCA, for CG&E to transfer its generating assets and liabilities to an exempt wholesale generator. In connection with this settlement, ULH&P recognized revenues of approximately $7.3 million in 2001, which had been previously reserved in 2000 subject to refund.

14. Jointly-Owned Plant

CG&E, CSP, and DP&L jointly own electric generating units and related transmission facilities. PSI is a joint-owner of Gibson Station Unit No. 5 with Wabash Valley Power Association, Inc. (WVPA), and Indiana Municipal Power Agency (IMPA). Additionally, PSI is a joint-owner with WVPA and IMPA of certain transmission property and local facilities. These facilities constitute part of the integrated transmission and distribution systems, which are operated and maintained by PSI. The Statements of Income reflect CG&E's and PSI's portions of all operating costs associated with the jointly-owned facilities.

CG&E's and PSI's investments in jointly-owned plant or facilities are as follows:

			Ownership Share		Property, Plant, and Equipment		Accumulated Depreciation		Construction Work in Progress
			(in millions)
CG&E
	Production:
		Miami Fort Station (Units 7 and 8)	64.00	%	$	222	$	127	$	68
		Beckjord Station (Unit 6)	37.50			43		28		3
		Stuart Station(1)	39.00			292		148		42
		Conesville Station (Unit 4)(1)	40.00			77		45		—
		Zimmer Station	46.50			1,235		367		7
		East Bend Station	69.00			336		194		36
		Killen Station(1)	33.00			187		105		7
	Transmission		Various			84		36		—
PSI
	Production:
		Gibson Station (Unit 5)	50.05			213		113		2
	Transmission and local facilities		94.68			2		1		—

(1)

Station is not operated by CG&E.

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15. Quarterly Financial Data (unaudited)

						CG&E and subsidiaries
		Cinergy(1)								PSI
Quarter Ended
		2001		2000		2001		2000		2001		2000
		(in millions, except per share amounts)
March 31
	Operating Revenues	$	3,707	$	1,583	$	1,258	$	716	$	916	$	534
	Operating Income		249		274		154		181		85		102
	Net Income		120		138		82		96		41		50
	Basic EPS		.76		.87		N/A		N/A		N/A		N/A
	EPS — assuming dilution		.75		.87		N/A		N/A		N/A		N/A
June 30
	Operating Revenues	$	3,642	$	1,770	$	1,277	$	707	$	1,184	$	620
	Operating Income		178		167		98		113		66		49
	Net Income		83		75		49		56		34		19
	Basic EPS		.51		.47		N/A		N/A		N/A		N/A
	EPS — assuming dilution		.51		.47		N/A		N/A		N/A		N/A
September 30
	Operating Revenues	$	3,324	$	2,300	$	1,321	$	840	$	1,258	$	804
	Operating Income		275		196		166		81		110		63
	Net Income		128		94		89		39		57		31
	Basic EPS		.81		.59		N/A		N/A		N/A		N/A
	EPS — assuming dilution		.80		.58		N/A		N/A		N/A		N/A
December 31
	Operating Revenues	$	2,250	$	2,769	$	838	$	967	$	717	$	726
	Operating Income		240		225		194		153		69		83
	Net Income		111		92		107		76		30		35
	Basic EPS		.70		.58		N/A		N/A		N/A		N/A
	EPS — assuming dilution		.69		.58		N/A		N/A		N/A		N/A
Total
	Operating Revenues	$	12,923	$	8,422	$	4,694	$	3,230	$	4,075	$	2,684
	Operating Income		942		862		612		528		330		297
	Net Income		442		399		327		267		162		135
	Basic EPS		2.78		2.51		N/A		N/A		N/A		N/A
	EPS — assuming dilution		2.75		2.50		N/A		N/A		N/A		N/A

(1)

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

16. Financial Information by Business Segment

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

•

Energy Merchant Business Unit (Energy Merchant);



•

Regulated Businesses Business Unit (Regulated Businesses); and



•

Power Technology and Infrastructure Services Business Unit (Power Technology).

        The following section describes the activities of our business units as of December 31, 2001.

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        Energy Merchant manages wholesale generation and the domestic and foreign energy marketing and trading of energy commodities. Energy Merchant operates and maintains our regulated and non-regulated electric generating plants including some of our jointly-owned plants, both domestically and abroad. Energy Merchant also conducts the following activities:

•

energy risk management;



•

financial restructuring services;



•

proprietary arbitrage activities;



•

customized energy solutions; and



•

directs our renewable energy investing activities.

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

        Power Technology primarily manages the development, marketing, and sales of our non-regulated retail energy and energy-related businesses. This is accomplished through various subsidiaries and joint ventures and includes the following products and services:

•

providing energy management and consulting services to customers that operate retail facilities;



•

providing various utility operations and infrastructure services to utilities (for example, providing underground locating and construction services for utilities); and



•

building and maintaining fiber optic telecommunication networks for businesses, municipalities, telecommunications carriers, and schools.

        Power Technology also manages Cinergy Ventures, LLC (Ventures), Cinergy's venture capital subsidiary. Ventures invests in emerging energy technologies that can benefit future Cinergy business development activities.

        Financial information by (1) business units, (2) products and services, and (3) geographic areas and long-lived assets for the years ending December 31, 2001, 2000, and 1999, are as follows:

Business Units

		2001
		Cinergy Business Units
		Energy Merchant		Regulated Businesses		Power Technology			Total		All Other(1)		Reconciling Eliminations(2)			Consolidated
		(in millions)
Operating revenues —
	External customers(3)	$	10,024	$	2,850	$	49		$	12,923	$	—	$	—		$	12,923
	Intersegment revenues(4)		144		—		—			144		—		(144	)		—
Depreciation(5)			137		238		3			378		—		—			378
Equity in earnings (losses) of unconsolidated subsidiaries			3		7		(8	)		2		—		—			2
Interest(6)			110		144		14			268		—		—			268
Income taxes			103		162		(9	)		256		—		—			256
Segment profit (loss)(7)			196		265		(19	)		442		—		—			442
Total segment assets			4,803		7,238		213			12,254		46		—			12,300
Investments in unconsolidated subsidiaries			131		132		76			339		—		—			339
Total expenditures for long-lived assets			769		630		—			1,399		—		—			1,399

(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)

The increase in 2001, as compared to 2000, is primarily due to the increase in volumes and average price realized on wholesale commodity transactions.

(4)

In connection with deregulation in Ohio, beginning in 2001, certain revenues which were previously recorded through intersegment transfer pricing, are now directly recorded to the business segment.

(5)

The components of Depreciation include depreciation of fixed assets and amortization of intangible assets.

(6)

Interest income is deemed immaterial.

(7)

Management utilizes segment profit (loss) after taxes to evaluate segment profitability.

138

Business Units (cont.)

		2000
		Cinergy Business Units
		Energy Merchant(7)			Regulated Businesses(7)		Power Technology			Total		All Other(1)		Reconciling Eliminations(2)			Consolidated
		(in millions)
Operating revenues —
	External customers(3)	$	4,831		$	3,515	$	76		$	8,422	$	—	$	—		$	8,422
	Intersegment revenues		1,021			—		—			1,021		—		(1,021	)		—
Depreciation(4)			121			220		3			344		—		—			344
Equity in earnings (losses) of unconsolidated subsidiaries			(1	)		7		(1	)		5		—		—			5
Interest(5)			82			133		9			224		—		—			224
Income taxes			94			165		(7	)		252		—		—			252
Segment profit (loss)(6)			152			260		(13	)		399		—		—			399
Total segment assets			5,949			6,162		177			12,288		42		—			12,330
Investments in unconsolidated subsidiaries			453			33		52			538		—		—			538
Total expenditures for long-lived assets			130			387		—			517		3		—			520

(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)

The increase in 2000, as compared to 1999, is primarily due to the increase in volumes and average price realized on wholesale commodity transactions.

(4)

The components of Depreciation include depreciation of fixed assets and amortization of intangible assets.

(5)

Interest income is deemed immaterial.

(6)

Management utilizes segment profit (loss) after taxes to evaluate segment profitability.

(7)

Effective January 2001, electric customer choice legislation was implemented in Ohio. For comparative purposes, the estimated pro forma adjustment to reflect this effect on the twelve months ended December 31, 2000 results would be as follows:

	Energy Merchant			Regulated Businesses
Operating revenues	$	(119	)	$	119
Segment profit (loss)	$	(41	)	$	41

139

Business Units (cont.)

		1999
		Cinergy Business Units
		Energy Merchant		Regulated Businesses		Power Technology			Total		All Other(1)		Reconciling Eliminations(2)			Consolidated
		(in millions)
Operating revenues —
	External customers	$	2,561	$	3,318	$	59		$	5,938	$	—	$	—		$	5,938
	Intersegment revenues		988		—		—			988		—		(988	)		—
Depreciation(3)			113		210		—			323		—		—			323
Gain on sale of investment in unconsolidated subsidiary			99		—		—			99		—		—			99
Equity in earnings (losses) of unconsolidated subsidiaries			59		1		(2	)		58		—		—			58
Interest(4)			89		142		3			234		1		—			235
Income taxes			50		165		(6	)		209		—		—			209
Segment profit (loss)(5)			169		245		(10	)		404		—		—			404
Total segment assets			3,584		5,889		97			9,570		47		—			9,617
Investments in unconsolidated subsidiaries			334		17		8			359		—		—			359
Total expenditures for long-lived assets			171		304		2			477		—		—			477

(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)

The components of Depreciation include depreciation of fixed assets and amortization of intangible assets.

(4)

Interest income is deemed immaterial.

(5)

Management utilizes segment profit (loss) after taxes to evaluate segment profitability.

Products and Services
(in millions)

	Revenues
	Utility						Energy Marketing and Trading
Year	Electric		Gas		Total		Electric		Gas		Total		Other		Consolidated
2001	$	2,248	$	595	$	2,843	$	5,933	$	4,068	$	10,001	$	79	$	12,923
2000		3,019		497		3,516		2,365		2,445		4,810		96		8,422
1999		2,944		420		3,364		1,369		1,176		2,545		29		5,938

140

Geographic Areas and Long-Lived Assets
(in millions)

	Revenues
			International
Year	Domestic		United Kingdom(1)		All Other(2)		Total		Consolidated
2001	$	12,748	$	—	$	175	$	175	$	12,923
2000		8,339		—		83		83		8,422
1999		5,877		—		61		61		5,938

	Long-Lived Assets
			International
Year	Domestic		United Kingdom(1)		All Other(2)		Total		Consolidated
2001	$	9,682	$	—	$	482	$	482	$	10,164
2000		8,267		—		328		328		8,595
1999		7,841		2		277		279		8,120

(1)

As discussed in Note 11, on July 15, 1999, we sold our 50% ownership interest in Midlands. Prior to the sale, Midlands had provided the majority of our international earnings.

(2)

International revenues are primarily from assets which we own in the Czech Republic, the majority of which are four district heating plants. The Czech Republic assets and results of operations are consolidated into our financial statements.

141

17. Earnings Per Common Share

        A reconciliation of EPS to EPS—assuming dilution is presented below:

		Income		Shares	EPS
		(in thousands, except per share amounts)
Year ended December 31, 2001
EPS:
	Net income	$	442,279	159,110	$	2.78
Effect of dilutive securities:
	Common stock options			975
	Directors' compensation plans			152
	Contingently issuable common stock			810
EPS — assuming dilution:
	Net income plus assumed conversions	$	442,279	161,047	$	2.75
Year ended December 31, 2000
EPS:
	Net income	$	399,466	158,938	$	2.51
Effect of dilutive securities:
	Common stock options			491
	Directors' compensation plans			177
	Contingently issuable common stock			262
EPS — assuming dilution:
	Net income plus assumed conversions	$	399,466	159,868	$	2.50
Year ended December 31, 1999
EPS:
	Net income	$	403,641	158,863	$	2.54
Effect of dilutive securities:
	Common stock options			344
	Employee stock purchase and savings plan			22
	Contingently issuable common stock			26
EPS — assuming dilution:
	Net income plus assumed conversions	$	403,641	159,255	$	2.53

        Options to purchase shares of common stock are excluded from the calculation of EPS—assuming dilution when the exercise prices of these options are greater than the average market price of the common shares during the period. For 2001, 2000, and 1999, approximately two million shares per year were excluded from the EPS—assuming dilution calculation.

18. Ohio Deregulation

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

142

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

•

Residential customer rates are frozen through December 31, 2005;



•

Residential customers received a five-percent reduction in the generation portion of their electric rates, effective January 1, 2001;



•

CG&E will provide four million dollars from 2001 to 2005 in support of energy efficiency and weatherization services for low income customers;



•

The creation of a RTC designed to recover CG&E's regulatory assets and other transition costs over a ten-year period;



•

Authority for CG&E to transfer its generation assets to one or more non-regulated affiliates to provide flexibility to manage its generation asset portfolio in a manner that enhances opportunities in a competitive marketplace;



•

Authority for CG&E to apply the proceeds of transition cost recovery to costs incurred during the transition period including implementation costs and purchased power costs that may be incurred by CG&E to maintain an operating reserve margin sufficient to provide reliable service to its customers;



•

CG&E will provide standard offer default supplier service (i.e., CG&E will be the supplier of last resort, so that no customer will be without an electric supplier); and



•

CG&E has agreed to provide shopping credits to switching customers.

        With regard to the PUCO's order, two parties filed applications for rehearing with the PUCO. On October 18, 2000, the PUCO denied these applications. One of the parties appealed to the Ohio Supreme Court in the fourth quarter of 2000 and CG&E subsequently intervened in that case. On April 6, 2001, CG&E filed for dismissal of this appeal. On July 25, 2001, the Ohio Supreme Court denied CG&E's motion to dismiss. CG&E is unable to predict the outcome of this proceeding.

        As indicated above, the August 31, 2000 order authorizes CG&E to transfer its generation assets to a non-regulated affiliate. In addition to the regulatory approvals received from the PUCO, the IURC, and the KPSC, this transfer requires the approval of the FERC and the SEC under PUHCA. On October 29, 2001, CG&E filed an application with the FERC seeking authorization to transfer these assets. As the transfer is contingent upon CG&E receiving FERC approval, SEC approval under PUHCA, and various third party consents, the timing and receipt of which are unknown, the completion date of the transfer of generation assets to a non-regulated affiliate cannot be predicted.

143

19. Comprehensive Income

        The elements of Comprehensive income and their related tax effects for the years ended 2001, 2000 and 1999 are as follows:

		Comprehensive Income
		2001									2000									1999
		Before-tax Amount			Tax (Expense) Benefit			Net-of-Tax Amount			Before-tax Amount			Tax (Expense) Benefit			Net-of-Tax Amount			Before-tax Amount			Tax (Expense) Benefit			Net-of-Tax Amount
		(dollars in thousands)
Cinergy(1)
	Net income	$	697,785		$	(255,506	)	$	442,279		$	651,023		$	(251,557	)	$	399,466		$	612,312		$	(208,671	)	$	403,641
Other comprehensive income (loss):
	Foreign currency translation adjustment		4,996			(3,355	)		1,641			721			1,353			2,074			(14,771	)		4,990			(9,781	)
	Minimum pension liability adjustment		(2,636	)		1,081			(1,555	)		(1,852	)		753			(1,099	)		(2,081	)		842			(1,239	)
	Unrealized gain (loss) on investment trusts		(1,345	)		504			(841	)		(2,778	)		649			(2,129	)		2,629			(543	)		2,086
	Cumulative effect of change in accounting principle		(4,026	)		1,526			(2,500	)		—			—			—			—			—			—
	Cash flow hedges		(4,477	)		1,698			(2,779	)		—			—			—			—			—			—
Total other comprehensive income (loss)			(7,488	)		1,454			(6,034	)		(3,909	)		2,755			(1,154	)		(14,223	)		5,289			(8,934	)
Total comprehensive income		$	690,297		$	(254,052	)	$	436,245		$	647,114		$	(248,802	)	$	398,312		$	598,089		$	(203,382	)	$	394,707

(1)

The results of Cinergy also include amounts related to non-registrants. Individual amounts for CG&E, PSI, and ULH&P are deemed immaterial.

        The after-tax components of Accumulated other comprehensive income (loss) as of December 31, 2001, 2000, and 1999 are as follows:

		Accumulated Other Comprehensive Income (Loss) Classification
		Foreign Currency Translation Adjustment			Minimum Pension Liability Adjustment			Unrealized Gain (Loss) on Investment Trusts			Cash Flow Hedges			Total Other Comprehensive Income (Loss)
		(dollars in thousands)
Cinergy(1)
Balance at December 31, 1998		$	1,635		$	(2,442	)	$	—		$	—		$	(807	)
	Current-period change		(9,781	)		(1,239	)		2,086			—			(8,934	)
Balance at December 31, 1999		$	(8,146	)	$	(3,681	)	$	2,086		$	—		$	(9,741	)
	Current-period change		2,074			(1,099	)		(2,129	)		—			(1,154	)
Balance at December 31, 2000		$	(6,072	)	$	(4,780	)	$	(43	)	$	—		$	(10,895	)
	Cumulative effect of change in accounting principle		—			—			—			(2,500	)		(2,500	)
	Current-period change		1,641			(1,555	)		(841	)		(2,779	)		(3,534	)
Balance at December 31, 2001		$	(4,431	)	$	(6,335	)	$	(884	)	$	(5,279	)	$	(16,929	)

(1)

The results of Cinergy also include amounts related to non-registrants. Individual amounts for CG&E, PSI, and ULH&P are deemed immaterial.

144

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

        None.

145

PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS

BOARD OF DIRECTORS

        Information regarding Cinergy Corp.'s directors is incorporated by reference from its definitive Proxy Statement for the 2002 Annual Meeting of Shareholders.

        The directors of The Cincinnati Gas & Electric Company (CG&E) at January 31, 2002, are as follows:

•

R. Foster Duncan—Mr. Duncan, age 47, is Executive Vice President and Chief Financial Officer of CG&E, a position he has held since February 2001. He has served as director of CG&E since April 2001. His current term as director expires May 1, 2002.



•

James E. Rogers—Mr. Rogers, age 54, is Chairman of the Board and Chief Executive Officer of CG&E. He has served as a director of CG&E since 1994. His current term as director expires May 1, 2002.



•

James L. Turner—Mr. Turner, age 42, is Vice President of CG&E, a position he has held since July 2000. He served as a director of CG&E from February 15, 1999 to April 30, 2001, at which time Mr. William J. Grealis was elected as successor-director to Mr. Turner. Mr. Turner was re-elected, effective October 1, 2001, as successor-director to Mr. Grealis. Mr. Turner's current term as director expires May 1, 2002.

        Additional information on each of the directors of CG&E is presented in the following "Executive Officers" section.

        Information regarding PSI Energy, Inc.'s (PSI) directors is incorporated by reference from PSI's 2002 Information Statement.

146

EXECUTIVE OFFICERS

        The names of the executive officers of each registrant, their ages (as of December 31, 2001), the positions they hold, held, or have been elected to as of this report filing date, and their business experience during the past five years is included in the chart below.

		Positions and Length of Service
Name
	Age	Cinergy Corp.	CG&E	PSI
Wendy Aumiller	49	Acting Treasurer 10/01 - present Assistant Treasurer 10/00 - 10/01 General Manager, Generation Financial Planning 6/00 - 10/00 Assistant Treasurer 9/96 - 6/00
John Bryant(1)	55	Vice President 1/98 - present President, International Business Unit 7/00 - 2/01
Michael J. Cyrus(2)	46	Executive Vice President 2/01 - present Chief Executive Officer, Energy Merchant Business Unit 2/01 - present President, Energy Commodities Business Unit 3/99 - 2/01 Vice President 4/98 - 2/01 Chief Operating Officer, Energy Commodities Business Unit 11/98 - 3/99	Executive Vice President 2/01 - present Vice President 4/99 - 2/01	Executive Vice President 2/01 - present Vice President 4/99 - 2/01
R. Foster Duncan(3)	47	Executive Vice President and Chief Financial Officer 2/01 - present	Executive Vice President and Chief Financial Officer 2/01 - present	Executive Vice President and Chief Financial Officer 2/01 - present
Douglas F. Esamann	44	Vice President and Chief Financial Officer, Energy Merchant Business Unit 2/01 - 10/01 Vice President and Chief Financial Officer, Energy Commodities Business Unit 3/99 - 2/01 General Manager, Business Development, Energy Commodities Business Unit 3/98 - 3/99 Finance Manager, Energy Commodities Business Unit 5/96 - 3/98		President 10/01 - present

147

Gregory C. Ficke	49	Vice President and Chief Information Officer, Regulated Businesses Business Unit 2/01 - 10/01 Vice President and Chief Information Officer, Energy Delivery Business Unit 7/00 - 2/01 Vice President, Operations Services, Energy Delivery Business Unit 4/99 - 7/00 Vice President, Gas Operations, Energy Delivery Business Unit 12/98 - 4/99 General Manager, Gas Operations, Energy Delivery Business Unit 8/96 - 12/98	President 10/01 - present
William J. Grealis(4)	56	Executive Vice President 7/00 - present Chief Executive Officer, Regulated Businesses Business Unit 2/01 - 10/01 Chief of Staff 7/00 - 2/01 Vice President, Corporate Services, and Chief Strategic Officer 8/98 - 7/00 Vice President 1/95 - 8/98	Executive Vice President 7/00 - present Chief of Staff 7/00 - 2/01 Vice President, Corporate Services, and Chief Strategic Officer 8/98 - 7/00 Vice President 4/98 - 8/98 President 1/95 - 3/98	Executive Vice President 7/00 - present Chief of Staff 7/00 - 2/01 Vice President, Corporate Services, and Chief Strategic Officer 8/98 - 7/00 Vice President 4/98 - 8/98
J. Joseph Hale, Jr.(5)	52	Vice President 12/96 - present	Vice President 10/01 - present President 7/00 - 10/01 Vice President 8/98 - 7/00 General Manager, Marketing Operations 1/95 - 8/98	Vice President 10/01 - present Vice President 2/00 - 7/00 Interim President 6/99 - 2/00 Vice President 8/98 - 6/99
M. Stephen Harkness(6)	53	Vice President 12/96 - present
Donald B. Ingle, Jr.(7)	52	President, Power Technology and Infrastructure Services Business Unit 2/01 - present President, Cinergy Investments Business Unit 3/99 - 2/01 Vice President 10/97 - present	Vice President 10/97 - 3/99	Vice President 10/97 - 3/99
Julia S. Janson	37	Secretary 7/00 - present Senior Counsel 7/98 - present Counsel 5/96 - 7/98	Assistant Secretary 7/00 - present Senior Counsel 7/98 - present Counsel 5/96 - 7/98	Secretary 7/00 - present Senior Counsel 7/98 - present Counsel 5/96 - 7/98

148

Bernard F. Roberts	49	Vice President and Comptroller 3/99 - present Vice President and Chief Financial Officer, Energy Commodities Business Unit 7/96 - 3/99	Vice President and Comptroller 3/99 - present	Vice President and Comptroller 3/99 - present
James E. Rogers	54	Chairman of the Board 12/00 - present President and Chief Executive Officer 12/95 - present Vice Chairman 12/95 - 12/00	Chairman of the Board 12/00 - present Chief Executive Officer 12/95 - present Vice Chairman 12/95 - 12/00	Chairman of the Board 12/00 - present Chief Executive Officer 12/95 - present Vice Chairman 12/95 - 12/00
Larry E. Thomas(8)	56	Executive Vice President 2/01 - present Chief Executive Officer, Power Technology and Infrastructure Services Business Unit 2/01 - 7/01 Group President 7/00 - 2/01 Vice President 4/97 - 7/00 President, Energy Delivery Business Unit 5/96 - 7/00 Group Vice President and Chief Transformation Officer 9/95 - 4/97	Executive Vice President 2/01 - present Group President 7/00 - 2/01 Vice President 4/97 - 7/00 Group Vice President and Chief Transformation Officer 9/95 - 4/97	Vice Chairman 7/01 - present Executive Vice President 2/01 - 7/01 Group President 7/00 - 2/01 Vice President 4/97 - 7/00 Group Vice President and Chief Transformation Officer 9/95 - 4/97
James L. Turner(9)	42	Executive Vice President 10/01 - present Chief Executive Officer, Regulated Businesses Business Unit 12/01 - present President, Regulated Businesses Business Unit 2/01 - 12/01 President, Energy Delivery Business Unit 7/00 - 2/01 Vice President 4/99 - 12/01 Senior Counsel 6/95 - 3/97	Vice President 7/00 - present President 2/99 - 7/00	Vice President 7/00 - present
Jerome A. Vennemann	51	Vice President and General Counsel 1/00 - present Acting General Counsel 3/99 - 1/00 Associate General Counsel 2/96 - 3/99 Assistant Secretary 12/94 - present	Vice President and General Counsel 1/00 - present Acting General Counsel 3/99 - 1/00 Secretary 4/98 - present Associate General Counsel 2/96 - 3/99 Assistant Secretary 1/95 - 4/98	Vice President and General Counsel 1/00 - present Acting General Counsel 3/99 - 1/00 Associate General Counsel 2/96 - 3/99 Assistant Secretary 12/94 - present
Timothy J. Verhagen(10)	55	Vice President 1/01 - present

149

Charles J. Winger 56 Vice President
4/97 - present
Acting Chief Financial Officer
6/00 - 2/01
Chief Financial Officer
4/98 - 3/99
Comptroller
12/94 - 8/97 Vice President and Acting Chief Financial Officer
6/00 - 2/01
Vice President and Chief Financial Officer
4/98 - 3/99
Vice President
4/97 - 8/97
Comptroller
1/95 - 8/97 Vice President and Acting Chief Financial Officer
6/00 - 2/01
Vice President and Chief Financial Officer
4/98 - 3/99
Vice President
4/97 - 8/97
Comptroller
3/84 - 8/97

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

(1)

Mr. Bryant also serves as the President of Cinergy Global Resources, Inc. (Global Resources) and Cinergy Global Power, Inc., and as the Managing Director of Cinergy Global Power Services Limited, Cinergy's (which includes Cinergy Corp. and all of our regulated and non-regulated subsidiaries) international project development subsidiary from 1997 to present. Previously, he served as the Executive Generation Director of Midlands Electricity plc (Midlands; a non-affiliate of Cinergy) from 1996 to 1997, and Generation Director of Midlands from 1992 to 1996.

(2)

Prior to joining Cinergy, Mr. Cyrus was Senior Vice President of Trading and Operations with Electric Clearinghouse, Inc. (a non-affiliate of Cinergy), the power subsidiary of Natural Gas Clearinghouse (NGC; a non-affiliate of Cinergy) in Houston, Texas, a position he had held since 1997. Prior to that, Mr. Cyrus was President of NGC Canada and Executive Vice President of Novagas Clearinghouse, Ltd. Previously, Mr. Cyrus held various executive positions involving energy trading, marketing, and risk management with NGC since 1993.

150

(3)

Prior to joining Cinergy, Mr. Duncan was Executive Vice President and Chief Financial Officer of LG&E Energy Corporation (LG&E) (a non-affiliate of Cinergy) in Louisville, Kentucky since December 1998. Prior to that, he was Executive Vice President of Planning and Corporate Development at LG&E from January 1998 to December 1998. Prior to joining LG&E, in January 1998, he was Vice President and Treasurer of Freeport-McMoRan, Inc. and Freeport-McMoRan Copper & Gold (non-affiliates of Cinergy), global natural resource companies headquartered in New Orleans, Louisiana since May 1994.

(4)

As Executive Vice President and Chief of Staff, Mr. Grealis had responsibility for all shared service functions, including legal, external communications, human resources, creative services, information technology, budgets and certain accounting functions. Mr. Grealis served as President of Cinergy Investments, Inc. (Investments) from 1995 to March 1999. Mr. Grealis also served as President of the former Energy Services Business Unit from 1996 to May 1997.

(5)

Since 1992, Mr. Hale has served as President of Cinergy Foundation, Inc., a Cinergy affiliate that is organized and operated exclusively for charitable purposes.

(6)

Mr. Harkness also serves as Chief Operating and Chief Financial Officer of the Energy Merchant Business Unit.

(7)

From 1995 to March 1999, Mr. Ingle served as Contract Consultant for Investments. Mr. Ingle also served as President of the former Energy Services Business Unit from 1997 to March 1999.

(8)

As Group President, Mr. Thomas had responsibility for Cinergy's new technology initiatives and energy delivery. Effective January 10, 2000, Cinergy's Economic Development, Community Affairs, State Regulatory Affairs and State Governmental Affairs were merged into the former Energy Delivery Business Unit.

(9)

In March 1997, Mr. Turner was appointed Vice President of Cinergy Services, Inc., (Services) having responsibility for the coordination of transition issues across all corporate subsidiaries in the move for full customer choice. Beginning in April 1998 until January 2000, Mr. Turner had full responsibility for Cinergy's Government and Regulatory Affairs Department. Mr. Turner served as Vice President of Customer Services from January 2000 until July 2000.

(10)

Prior to joining Cinergy, Mr. Verhagen served as Senior Vice President, Human Resources and Administration of United Dominion Industries Ltd. (United Dominion; a non-affiliate of Cinergy), a diversified manufacturer of industrial test equipment in Charlotte, North Carolina, from 1998 to 2000. From 1993 to 1998 he served as Vice President, Human Resources of United Dominion.

ITEM 11.    EXECUTIVE COMPENSATION

        Information in response to this item for Cinergy Corp. and CG&E is incorporated by reference from Cinergy Corp.'s definitive Proxy Statement for the 2002 Annual Meeting of the Shareholders.

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

        Information in response to this item for PSI executive compensation is incorporated by reference from PSI's 2002 Information Statement.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        Information in response to this item for Cinergy Corp. is incorporated by reference from its definitive Proxy Statement for the 2002 Annual Meeting of Shareholders.

Cinergy Corp. owns all outstanding shares of common stock of CG&E, CG&E's only voting security. Pursuant to Section 13(d) of the Securities Exchange Act of 1934, a beneficial owner of a security is any person who directly or indirectly has or shares voting or investment power over such security. No person or group is known by the management of CG&E to be the beneficial owner of more than 5% of any series of CG&E's class of cumulative preferred stock as of December 31, 2001.

CG&E's directors and executive officers did not beneficially own shares of any series of the class of CG&E's cumulative preferred stock as of January 31, 2002. The beneficial ownership of Cinergy

151

Corp. common stock by each director and named executive officer of CG&E as of January 31, 2002, is set forth in the following table:

Name of Beneficial Owner(1)	Amount and Nature of Beneficial Ownership(2)
Michael J. Cyrus	213,528 shares
R. Foster Duncan	44,704 shares
William J. Grealis	340,697 shares
James E. Rogers	1,276,277 shares
Larry E. Thomas	360,589 shares
James L. Turner	33,890 shares
All directors and executive officers as a group (10 persons)	2,489,486 shares (representing 1.56% of the class)

(1)

No individual listed beneficially owned more than 0.80% of the outstanding shares of our common stock.

(2)

Includes shares which there is a right to acquire within 60 days pursuant to the exercise of stock options in the following amounts: Mr. Cyrus—108,600; Mr. Duncan—40,000; Mr. Grealis—201,535; Mr. Rogers—931,829; Mr. Thomas—193,345; Mr. Turner—16,900; and all directors and executive officers as a group—1,615,787.

        Information in response to this item for PSI is incorporated by reference from its 2002 Information Statement.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        Information in response to this item for Cinergy Corp. and CG&E is incorporated by reference from Cinergy Corp.'s definitive Proxy Statement for the 2002 Annual Meeting of Shareholders.

        Information in response to this item for PSI is incorporated by reference from PSI's 2002 Information Statement.

152

PART IV

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

FINANCIAL STATEMENTS AND SCHEDULES

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

REPORTS ON FORM 8-K

        The following reports on Form 8-K were filed during the quarter ended December 31, 2001:

Date of Filing	Registrant(s)	Item Filed
December 19, 2001	Cinergy Corp.	Item 5. Other Events Item 7. Financial Statements and Exhibits

EXHIBITS

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

Exhibit Designation	Registrant(s)(1)	Nature of Exhibit	Previously Filed as Exhibit to:
Articles of Incorporation/ By-laws
3-a	Cinergy Corp.	Certificate of Incorporation of Cinergy Corp., a Delaware corporation, as amended December 14, 2000.	Cinergy Corp. March 31, 2001, Form 10-Q
3-b	Cinergy Corp.	By-Laws of Cinergy Corp., as amended on December 14, 2000.	Cinergy Corp. 2000 Form 10-K
3-c	CG&E	Amended Articles of Incorporation of CG&E effective October 23, 1996.	CG&E September 30, 1996, Form 10-Q
3-d	CG&E	Regulations of CG&E, as amended, April 25, 1996.	CG&E March 31, 1996, Form 10-Q
3-e	PSI	Amended Articles of Consolidation of PSI, as amended April 20, 1995.	PSI June 30, 1995, Form 10-Q
3-f	PSI	Amendment to Article D of the Amended Articles of Consolidation of PSI, effective July 10, 1997.	Cinergy Corp. 1997 Form 10-K
3-g	PSI	By-Laws of PSI, as amended to December 17, 1996.	PSI March 31, 1997, Form 10-Q
3-h	ULH&P	Restated Articles of Incorporation made effective May 7, 1976.	ULH&P Form 8-K, May 1976
3-i	ULH&P	By-Laws of ULH&P as amended, adopted May 8, 1996.	ULH&P March 31, 1996, Form 10-Q
3-j	ULH&P	Amendment to Restated Articles of Incorporation of ULH&P (Article Third) and Amendment to the By-Laws of ULH&P (Article 1), both effective July 24, 1997.	Cinergy Corp. 1997 Form 10-K

153

Instruments defining the rights of holders, incl. Indentures
4-a	Cinergy Corp. PSI	Original Indenture (First Mortgage Bonds) dated September 1, 1939, between PSI and The First National Bank of Chicago, as Trustee, and LaSalle National Bank, as Successor Trustee.	Exhibit A-Part 3 in File No. 70-258 Supplemental Indenture dated March 30, 1984
4-b	Cinergy Corp. PSI	Twenty-fifth Supplemental Indenture between PSI and The First National Bank of Chicago dated September 1, 1978.	File No. 2-62543
4-c	Cinergy Corp. PSI	Thirty-fifth Supplemental Indenture between PSI and The First National Bank of Chicago dated March 30, 1984.	PSI 1984 Form 10-K
4-d	Cinergy Corp. PSI	Forty-second Supplemental Indenture between PSI and LaSalle National Bank dated August 1, 1988.	PSI 1988 Form 10-K
4-e	Cinergy Corp. PSI	Forty-fourth Supplemental Indenture between PSI and LaSalle National Bank dated March 15, 1990.	PSI 1990 Form 10-K
4-f	Cinergy Corp. PSI	Forty-fifth Supplemental Indenture between PSI and LaSalle National Bank dated March 15, 1990.	PSI 1990 Form 10-K
4-g	Cinergy Corp. PSI	Forty-sixth Supplemental Indenture between PSI and LaSalle National Bank dated June 1, 1990.	PSI 1991 Form 10-K
4-h	Cinergy Corp. PSI	Forty-seventh Supplemental Indenture between PSI and LaSalle National Bank dated July 15, 1991.	PSI 1991 Form 10-K
4-i	Cinergy Corp. PSI	Forty-eighth Supplemental Indenture between PSI and LaSalle National Bank dated July 15, 1992.	PSI 1992 Form 10-K
4-j	Cinergy Corp. PSI	Forty-ninth Supplemental Indenture between PSI and LaSalle National Bank dated February 15, 1993.	PSI 1992 Form 10-K
4-k	Cinergy Corp. PSI	Fiftieth Supplemental Indenture between PSI and LaSalle National Bank dated February 15, 1993.	PSI 1992 Form 10-K
4-l	Cinergy Corp. PSI	Fifty-first Supplemental Indenture between PSI and LaSalle National Bank dated February 1, 1994.	PSI 1993 Form 10-K
4-m	Cinergy Corp. PSI	Fifty-second Supplemental Indenture between PSI and LaSalle National Bank, as Trustee, dated as of April 30, 1999.	PSI March 31, 1999, Form 10-Q
4-n	Cinergy Corp. PSI	Fifty-third Supplemental Indenture between PSI and LaSalle National Bank dated June 15, 2001.	Cinergy Corp. June 30, 2001, Form 10-Q
4-o	Cinergy Corp. PSI	Indenture (Secured Medium-term Notes, Series A), dated July 15, 1991, between PSI and LaSalle National Bank, as Trustee.	PSI Form 10-K/A, Amendment No. 2, dated July 15, 1993
4-p	Cinergy Corp. PSI	Indenture (Secured Medium-term Notes, Series B), dated July 15, 1992, between PSI and LaSalle National Bank, as Trustee.	PSI Form 10-K/A, Amendment No. 2, dated July 15, 1993
4-q	Cinergy Corp. PSI	Loan Agreement between PSI and the City of Princeton, Indiana dated as of November 7, 1996.	PSI September 30, 1996, Form 10-Q

154

4-r	Cinergy Corp. PSI	Loan Agreement between PSI and the City of Princeton, Indiana dated as of February 1, 1997.	Cinergy Corp. 1996 Form 10-K
4-s	Cinergy Corp. PSI	Indenture dated November 15, 1996, between PSI and The Fifth Third Bank, as Trustee.	Cinergy Corp. 1996 Form 10-K
4-t	Cinergy Corp. PSI	First Supplemental Indenture dated November 15, 1996, between PSI and The Fifth Third Bank, as Trustee.	Cinergy Corp. 1996 Form 10-K
4-u	Cinergy Corp. PSI	Third Supplemental Indenture dated as of March 15, 1998, between PSI and The Fifth Third Bank, as Trustee.	Cinergy Corp. 1997 Form 10-K
4-v	Cinergy Corp. PSI	Fourth Supplemental Indenture dated as of August 5, 1998, between PSI and The Fifth Third Bank, as Trustee.	PSI June 30, 1998, Form 10-Q
4-w	Cinergy Corp. PSI	Fifth Supplemental Indenture dated as of December 15, 1998, between PSI and The Fifth Third Bank, as Trustee.	PSI 1998 Form 10-K
4-x	Cinergy Corp. PSI	Sixth Supplemental Indenture dated as of April 30, 1999, between PSI and Fifth Third Bank, as Trustee.	PSI March 31, 1999, Form 10-Q
4-y	Cinergy Corp. PSI	Seventh Supplemental Indenture dated as of October 20, 1999, between PSI and Fifth Third Bank, as Trustee.	PSI September 30, 1999, Form 10-Q
4-z	Cinergy Corp. PSI	Unsecured Promissory Note dated October 14, 1998, between PSI and the Rural Utilities Service.	PSI 1998 Form 10-K
4-aa	Cinergy Corp. PSI	Loan Agreement between PSI and the Indiana Development Finance Authority dated as of July 15, 1998.	PSI June 30, 1998, Form 10-Q
4-bb	Cinergy Corp. PSI	Loan Agreement between PSI and the Indiana Development Finance Authority dated as of May 1, 2000.	PSI June 30, 2000, Form 10-Q
4-cc	Cinergy Corp. CG&E	Original Indenture (First Mortgage Bonds) between CG&E and The Bank of New York (as Trustee) dated as of August 1, 1936.	CG&E Registration Statement No. 2-2374
4-dd	Cinergy Corp. CG&E	Fourteenth Supplemental Indenture between CG&E and The Bank of New York dated as of November 2, 1972.	CG&E Registration Statement No. 2-60961
4-ee	Cinergy Corp. CG&E	Thirty-third Supplemental Indenture between CG&E and The Bank of New York dated as of September 1, 1992.	CG&E Registration Statement No. 33-53578
4-ff	Cinergy Corp. CG&E	Thirty-fourth Supplemental Indenture between CG&E and The Bank of New York dated as of October 1, 1993.	CG&E September 30, 1993, Form 10-Q
4-gg	Cinergy Corp. CG&E	Thirty-fifth Supplemental Indenture between CG&E and The Bank of New York dated as of January 1, 1994.	CG&E Registration Statement No. 33-52335
4-hh	Cinergy Corp. CG&E	Thirty-sixth Supplemental Indenture between CG&E and The Bank of New York dated as of February 15, 1994.	CG&E Registration Statement No. 33-52335
4-ii	Cinergy Corp. CG&E	Thirty-seventh Supplemental Indenture between CG&E and The Bank of New York dated as of October 14, 1996.	Cinergy Corp. 1996 Form 10-K

155

4-jj	Cinergy Corp. CG&E	Thirty-eighth Supplemental Indenture between CG&E and The Bank of New York dated as of February 1, 2001.	Cinergy Corp. March 31, 2001, Form 10-Q
4-kk	Cinergy Corp. CG&E	Loan Agreement between CG&E and the County of Boone, Kentucky dated as of February 1, 1985.	CG&E 1984 Form 10-K
4-ll	Cinergy Corp. CG&E	Repayment Agreement between CG&E and The Dayton Power and Light Company dated as of December 23, 1992.	CG&E 1992 Form 10-K
4-mm	Cinergy Corp. CG&E	Loan Agreement between CG&E and the County of Boone, Kentucky dated as of January 1, 1994.	CG&E 1993 Form 10-K
4-nn	Cinergy Corp. CG&E	Loan Agreement between CG&E and the State of Ohio Air Quality Development Authority dated as of December 1, 1985.	CG&E 1985 Form 10-K
4-oo	Cinergy Corp. CG&E	Loan Agreement between CG&E and the State of Ohio Air Quality Development Authority dated as of September 13, 1995.	CG&E September 30, 1995, Form 10-Q
4-pp	Cinergy Corp. CG&E	Loan Agreement between CG&E and the State of Ohio Water Development Authority dated as of January 1, 1994.	CG&E 1993 Form 10-K
4-qq	Cinergy Corp. CG&E	Loan Agreement between CG&E and the State of Ohio Air Quality Development Authority dated as of January 1, 1994.	CG&E 1993 Form 10-K
4-rr	CG&E	Loan Agreement between CG&E and the State of Ohio Air Quality Development Authority dated August 1, 2001.	Cinergy Corp. September 30, 2001, Form 10-Q
4-ss	Cinergy Corp. CG&E	Original Indenture (Unsecured Debt Securities) between CG&E and The Fifth Third Bank dated as of May 15, 1995.	CG&E Form 8-A dated July 24, 1995
4-tt	Cinergy Corp. CG&E	First Supplemental Indenture between CG&E and The Fifth Third Bank dated as of June 1, 1995.	CG&E June 30, 1995, Form 10-Q
4-uu	Cinergy Corp. CG&E	Second Supplemental Indenture between CG&E and The Fifth Third Bank dated as of June 30, 1995.	CG&E Form 8-A dated July 24, 1995
4-vv	Cinergy Corp. CG&E	Third Supplemental Indenture between CG&E and The Fifth Third Bank dated as of October 9, 1997.	CG&E September 30, 1997, Form 10-Q
4-ww	Cinergy Corp. CG&E	Fourth Supplemental Indenture between CG&E and The Fifth Third Bank dated as of April 1, 1998.	CG&E March 31, 1998, Form 10-Q
4-xx	Cinergy Corp. CG&E	Fifth Supplemental Indenture between CG&E and The Fifth Third Bank dated as of June 9, 1998.	CG&E June 30, 1998, Form 10-Q
4-yy	Cinergy Corp. CG&E ULH&P	Original Indenture (First Mortgage Bonds) between ULH&P and The Bank of New York dated as of February 1, 1949.	ULH&P Registration Statement No. 2-7793
4-zz	Cinergy Corp. CG&E ULH&P	Fifth Supplemental Indenture between ULH&P and The Bank of New York dated as of January 1, 1967.	CG&E Registration Statement No. 2-60961
4-aaa	Cinergy Corp. CG&E ULH&P	Thirteenth Supplemental Indenture between ULH&P and The Bank of New York dated as of August 1, 1992.	ULH&P 1992 Form 10-K
4-bbb	Cinergy Corp. CG& ULH&P	Original Indenture (Unsecured Debt Securities) between ULH&P and The Fifth Third Bank dated as of July 1, 1995.	ULH&P June 30, 1995, Form 10-Q

156

4-ccc	Cinergy Corp. CG&E ULH&P	First Supplemental Indenture between ULH&P and The Fifth Third Bank dated as of July 15, 1995.	ULH&P June 30, 1995, Form 10-Q
4-ddd	Cinergy Corp. CG&E ULH&P	Second Supplemental Indenture between ULH&P and The Fifth Third Bank dated as of April 30, 1998.	ULH&P March 31, 1998, Form 10-Q
4-eee	Cinergy Corp. CG&E ULH&P	Third Supplemental Indenture between ULH&P and The Fifth Third Bank dated as of December 8, 1998.	ULH&P 1998 Form 10-K
4-fff	Cinergy Corp. CG&E ULH&P	Fourth Supplemental Indenture between ULH&P and The Fifth Third Bank, as Trustee, dated as of September 17, 1999.	ULH&P September 30, 1999, Form 10-Q
4-ggg	Cinergy Corp.	Base Indenture dated as of October 15, 1998, between Global Resources and The Fifth Third Bank, as Trustee.	Cinergy Corp. September 30, 1998, Form 10-Q
4-hhh	Cinergy Corp.	First Supplemental Indenture dated as of October 15, 1998, between Global Resources and The Fifth Third Bank, as Trustee.	Cinergy Corp. September 30, 1998, Form 10-Q
4-iii	Cinergy Corp.	Indenture dated as of December 16, 1998, between Cinergy Corp. and The Fifth Third Bank.	Cinergy Corp. 1998 Form 10-K
4-jjj	Cinergy Corp.	Indenture between Cinergy Corp. and The Fifth Third Bank, as Trustee, dated as of April 15, 1999.	Cinergy Corp. March 31, 1999, Form 10-Q
4-kkk	Cinergy Corp.	Indenture between Cinergy Corp. and The Fifth Third Bank, as Trustee, dated September 12, 2001.	Cinergy Corp. September 30, 2001, Form 10-Q
4-lll	Cinergy Corp.	First Supplemental Indenture between Cinergy Corp. and The Fifth Third Bank, as Trustee, dated September 12, 2001.	Cinergy Corp. September 30, 2001, Form 10-Q
4-mmm	Cinergy Corp.	Second Supplemental Indenture, dated December 18, 2001, between Cinergy Corp. and The Fifth Third Bank, as Trustee.	Cinergy Corp. Form 8-K, December 19, 2001
4-nnn	Cinergy Corp.	Rights Agreement between Cinergy Corp. and The Fifth Third Bank, as Rights Agent, dated October 16, 2000.	Cinergy Corp. Registration Statement on Form 8-A dated October 16, 2000
4-ooo	Cinergy Corp.	Purchase Contract Agreement, dated December 18, 2001, between Cinergy Corp. and The Bank of New York, as Purchase Contract Agent.	Cinergy Corp. Form 8-K, December 19, 2001
4-ppp	Cinergy Corp.	Pledge Agreement, dated December 18, 2001, among Cinergy Corp., JP Morgan Chase Bank, as Collateral Agent, Custodial Agent and Securities Intermediary, and The Bank of New York, as Purchase Contract Agent.	Cinergy Corp. Form 8-K, December 19, 2001
Material contracts
10-a	Cinergy Corp. CG&E PSI	Amended and Restated Employment Agreement dated October 24, 1994, among CG&E, Cinergy Corp., PSI Resources, Inc., and PSI, and Jackson H. Randolph.	Cinergy Corp. 1994 Form 10-K
10-b	Cinergy Corp. CG&E PSI	Amended and Restated Employment Agreement dated December 30, 1999, among Services, CG&E, and PSI, and James E. Rogers.	Cinergy Corp. 1999 Form 10-K

157

10-c	Cinergy Corp. CG&E PSI	Amended and Restated Employment Agreement dated December 30, 1999, among Cinergy Corp., Services, CG&E, and PSI, and William J. Grealis.	Cinergy Corp. 1999 Form 10-K
10-d	Cinergy Corp. CG&E PSI	Amended and Restated Employment Agreement dated December 30, 1999, among Cinergy Corp., Services, CG&E, and PSI, and Larry E. Thomas.	Cinergy Corp. 1999 Form 10-K
10-e	Cinergy Corp. CG&E PSI	Amended and Restated Employment Agreement dated December 30, 1999, among Cinergy Corp., Services, CG&E, and PSI, and Donald B. Ingle, Jr.	Cinergy Corp. 1999 Form 10-K
10-f	Cinergy Corp. CG&E PSI	Amended and Restated Employment Agreement dated December 30, 1999, among Cinergy Corp., Services, CG&E, and PSI, and Michael J. Cyrus.	Cinergy Corp. 1999 Form 10-K
10-g	Cinergy Corp. CG&E PSI	Employment Agreement dated December 30, 1999, among Cinergy Corp., Services, CG&E, and PSI, and Jerome A. Vennemann.	Cinergy Corp. 1999 Form 10-K
10-h	Cinergy Corp. CG&E PSI	Amended and Restated Employment Agreement dated August 31, 2001, among Cinergy Corp., Services, CG&E, and PSI, and Charles J. Winger.
10-i	Cinergy Corp. CG&E PSI	Employment Agreement dated February 12, 2001, among Cinergy Corp., Services, CG&E, and PSI, and R. Foster Duncan.	Cinergy Corp. 2000 Form 10-K
10-j	Cinergy Corp. CG&E	Employment Agreement dated May 15, 2001, among Cinergy Corp., and CG&E, and J. Joseph Hale, Jr.	Cinergy Corp. June 30, 2001, Form 10-Q
10-k	Cinergy Corp.	Employment Agreement dated May 15, 2001, between Cinergy Corp. and M. Stephen Harkness.	Cinergy Corp. June 30, 2001, Form 10-Q
10-l	Cinergy Corp. CG&E PSI	Employment Agreement dated May 15, 2001, among Cinergy Corp., CG&E, and PSI, and Bernard F. Roberts.	Cinergy Corp. June 30, 2001, Form 10-Q
10-m	Cinergy Corp.	Employment Agreement dated March 9, 2001, between Cinergy Corp. and Timothy J. Verhagen.	Cinergy Corp. June 30, 2001, Form 10-Q
10-n	Cinergy Corp.	Amended and Restated Separation and Retirement Agreement and Waiver and Release of Liability dated February 15, 2002, between Cinergy Corp. and Larry E. Thomas.
10-o	Cinergy Corp. PSI	Deferred Compensation Agreement, effective as of January 1, 1992, between PSI and James E. Rogers.	PSI Form 10-K/A, Amendment No. 1, dated April 29, 1993
10-p	Cinergy Corp. PSI	Split Dollar Life Insurance Agreement, effective as of January 1, 1992, between PSI and James E. Rogers.	PSI Form 10-K/A, Amendment No. 1, dated April 29, 1993
10-q	Cinergy Corp. PSI	First Amendment to Split Dollar Life Insurance Agreement between PSI and James E. Rogers dated December 11, 1992.	PSI Form 10-K/A, Amendment No. 1, dated April 29, 1993
10-r	Cinergy Corp. CG&E	Deferred Compensation Agreement between CG&E and Jackson H. Randolph dated January 1, 1992.	CG&E 1992 Form 10-K

158

10-s	Cinergy Corp. CG&E	Split Dollar Insurance Agreement, effective as of May 1, 1993, between CG&E and Jackson H. Randolph.	Cinergy Corp. 1994 Form 10-K
10-t	Cinergy Corp. CG&E	Amended and Restated Supplemental Retirement Income Agreement between CG&E and Jackson H. Randolph dated January 1, 1995.	Cinergy Corp. 1995 Form 10-K
10-u	Cinergy Corp. CG&E	Amended and Restated Supplemental Executive Retirement Income Agreement between CG&E and certain executive officers.	Cinergy Corp. 1997 Form 10-K
10-v	Cinergy Corp.	Cinergy Corp. Union Employees' Savings Incentive Plan as amended and restated effective January 1, 1998, adopted December 18, 1997.	Cinergy Corp. 1999 Form 10-K
10-w	Cinergy Corp.	Amendment to Cinergy Corp. Union Employees' Savings Incentive Plan, effective December 1, 1999, adopted December 10, 1999.	Cinergy Corp. 1999 Form 10-K
10-x	Cinergy Corp.	Amendment to Cinergy Corp. Union Employees' Savings Incentive Plan, adopted January 1, 1998, effective January 1, 2001.	Cinergy Corp. June 30, 2001, Form 10-Q
10-y	Cinergy Corp.	Cinergy Corp. Supplemental Executive Retirement Plan amended and restated effective January 1, 1999, adopted October 15, 1998.	Cinergy Corp. 1999 Form 10-K
10-z	Cinergy Corp.	1997 Amendments to Various Compensation and Benefit Plans of Cinergy Corp., adopted January 30, 1997.	Cinergy Corp. 1997 Form 10-K
10-aa	Cinergy Corp.	Cinergy Corp. Stock Option Plan, adopted October 18, 1994, effective October 24, 1994.	Cinergy Corp. Form S-8, filed October 19, 1994
10-bb	Cinergy Corp.	Amendment to Cinergy Corp. Stock Option Plan, amended October 22, 1996, effective November 1, 1996.	Cinergy Corp. September 30, 1996, Form 10-Q
10-cc	Cinergy Corp.	Cinergy Corp. Annual Incentive Plan, adopted October 18, 1994, effective October 24, 1994.	Cinergy Corp. 1994 Form 10-K
10-dd	Cinergy Corp.	Amendment to Cinergy Corp. Annual Incentive Plan, amended January 25, 1996, effective January 1, 1996.	Cinergy Corp. 1996 Form 10-K
10-ee	Cinergy Corp.	Amended and Restated Cinergy Corp. Annual Incentive Plan, effective January 25, 2002.
10-ff	Cinergy Corp.	Cinergy Corp. Employee Stock Purchase and Savings Plan, adopted October 18, 1994, effective October 24, 1994.	Cinergy Corp. Form S-8, filed October 19, 1994
10-gg	Cinergy Corp.	Amendment to Cinergy Corp. Employee Stock Purchase and Savings Plan, adopted April 26, 1996, effective January 1, 1996.	Cinergy Corp. June 30, 1996, Form 10-Q
10-hh	Cinergy Corp.	Amendment to Cinergy Corp. Employee Stock Purchase and Savings Plan, adopted October 22, 1996, effective November 1, 1996.	Cinergy Corp. September 30, 1996, Form 10-Q
10-ii	Cinergy Corp.	Cinergy Corp. UK Sharesave Scheme, adopted and effective December 16, 1999.	Cinergy Corp. 1999 Form 10-K
10-jj	Cinergy Corp.	Cinergy Corp. Directors' Deferred Compensation Plan, adopted October 18, 1994, effective October 24, 1994.	Cinergy Corp. Form S-8, filed October 19, 1994
10-kk	Cinergy Corp.	Amendment to Cinergy Corp. Directors' Deferred Compensation Plan, adopted October 22, 1996.	Cinergy Corp. September 30, 1996, Form 10-Q

159

10-ll	Cinergy Corp.	Cinergy Corp. Retirement Plan for Directors, amended and restated effective January 1, 1999, adopted October 15, 1998.	Cinergy Corp. Schedule 14A Definitive Proxy Statement filed March 12, 1999
10-mm	Cinergy Corp.	Cinergy Corp. Directors' Equity Compensation Plan adopted October 15, 1998, effective January 1, 1999.	Cinergy Corp. Schedule 14A Definitive Proxy Statement filed March 12, 1999
10-nn	Cinergy Corp.	Cinergy Corp. Executive Supplemental Life Insurance Program adopted October 18, 1994, effective October 24, 1994, consisting of Defined Benefit Deferred Compensation Agreement, Executive Supplemental Life Insurance Program Split Dollar Agreement I, and Executive Supplemental Life Insurance Program Split Dollar Agreement II.	Cinergy Corp. 1994 Form 10-K
10-oo	Cinergy Corp.	Cinergy Corp. 1996 Long-term Incentive Compensation Plan, adopted April 26, 1996.	Cinergy Corp. Schedule 14A Definitive Proxy Statement filed March 13, 1996
10-pp	Cinergy Corp.	Amendment to Cinergy Corp. 1996 Long-term Incentive Compensation Plan, adopted October 22, 1996, effective November 1, 1996.	Cinergy Corp. September 30, 1996, Form 10-Q
10-qq	Cinergy Corp.	Amended and Restated Cinergy Corp. 1996 Long-term Incentive Compensation Plan, effective January 25, 2002.
10-rr	Cinergy Corp.	Cinergy Corp. 401(k) Excess Plan, effective January 1, 1997, adopted December 17, 1996.	Cinergy Corp. 1996 Form 10-K
10-ss	Cinergy Corp.	Amendment to Cinergy Corp. 401(k) Excess Plan, adopted January 24, 2002, effective January 1, 2002.	Cinergy Corp. Form S-8, filed January 31, 2002
10-tt	Cinergy Corp.	Cinergy Corp. Nonqualified Deferred Incentive Compensation Plan, effective January 1, 1997, adopted December 17, 1996.	Cinergy Corp. 1996 Form 10-K
10-uu	Cinergy Corp.	Cinergy Corp. Director, Officer and Key Employee Stock Purchase Program, effective January 7, 2000, adopted December 10, 1999.	Cinergy Corp. 1999 Form 10-K
10-vv	Cinergy Corp.	Cinergy Corp. Non-Union Employees' Pension Plan as amended and restated effective January 1, 1998, adopted December 18, 1997.	Cinergy Corp. 1999 Form 10-K
10-ww	Cinergy Corp.	Cinergy Corp. Non-Union Employees' Severance Opportunity Plan as amended and restated effective June 1, 2001, adopted May 30, 2001.	Cinergy Corp. June 30, 2001, Form 10-Q
10-xx	Cinergy Corp.	Cinergy Corp. Union Employees' Retirement Income Plan as amended and restated effective January 1, 1998, adopted December 18, 1997.	Cinergy Corp. 1999 Form 10-K
Subsidiaries of the registrant
21	Cinergy Corp. CG&E PSI	Subsidiaries of Cinergy Corp., CG&E, and PSI

160

Consent of experts and counsel
23	Cinergy Corp. CG&E PSI ULH&P	Consent of Independent Public Accountants
Power of attorney
24	Cinergy Corp. CG&E PSI ULH&P	Power of Attorney

(1)

Regulation S-K 229.10(d) requires Registrants to identify the physical location, by SEC file number reference, all documents that are incorporated by reference and have been on file with the SEC for more than five years. The SEC file number references for Cinergy and its subsidiaries, which are registrants are provided below:
Cinergy Corp. in file number 1-11377
CG&E in file number 1-1232
PSI in file number 1-3543
ULH&P in file number 2-7793

Each registrant hereby undertakes to furnish to the Commission upon request a copy of any long-term debt instrument not listed above.

161

CINERGY CORP.

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

FOR THE THREE YEARS ENDED DECEMBER 31, 2001

(in thousands)

Col. A			Col. B		Col. C				Col. D				Col. E
					Additions				Deductions
Description			Balance at Beginning of Period		Charged to Expenses		Charged to Other Accounts		For Purposes for Which Reserves Were Created		Other		Balance at Close of Period
Accumulated Provisions     Deducted from Applicable     Assets
	Allowance for Doubtful Accounts
		2001	$	29,951	$	41,163	$	5,254	$	40,788	$	—	$	35,580
		2000	$	26,811	$	22,746	$	4,486	$	24,092	$	—	$	29,951
		1999	$	25,622	$	20,805	$	3,777	$	23,393	$	—	$	26,811

162

THE CINCINNATI GAS & ELECTRIC COMPANY

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

FOR THE THREE YEARS ENDED DECEMBER 31, 2001

(in thousands)

Col. A			Col. B		Col. C				Col. D				Col. E
					Additions				Deductions
Description			Balance at Beginning of Period		Charged to Expenses		Charged to Other Accounts		For Purposes for Which Reserves Were Created		Other		Balance at Close of Period
Accumulated Provisions     Deducted from Applicable     Assets
	Allowance for Doubtful Accounts
		2001	$	19,044	$	30,166	$	4,089	$	27,425	$	—	$	25,874
		2000	$	16,740	$	14,056	$	4,486	$	16,238	$	—	$	19,044
		1999	$	17,607	$	9,754	$	4,017	$	14,638	$	—	$	16,740

163

PSI ENERGY, INC.

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

FOR THE THREE YEARS ENDED DECEMBER 31, 2001

(in thousands)

Col. A			Col. B		Col. C					Col. D				Col. E
					Additions					Deductions
Description			Balance at Beginning of Period		Charged to Expenses		Charged to Other Accounts			For Purposes for Which Reserves Were Created		Other		Balance at Close of Period
Accumulated Provisions     Deducted from Applicable     Assets
	Allowance for Doubtful Accounts
		2001	$	9,317	$	8,339	$	1,165		$	12,048	$	—	$	6,773
		2000	$	9,934	$	7,088	$	—		$	7,705	$	—	$	9,317
		1999	$	7,893	$	11,036	$	(240	)	$	8,755	$	—	$	9,934

164

THE UNION LIGHT, HEAT AND POWER COMPANY

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

FOR THE THREE YEARS ENDED DECEMBER 31, 2001

(in thousands)

Col. A			Col. B		Col. C				Col. D				Col. E
					Additions				Deductions
Description			Balance at Beginning of Period		Charged to Expenses		Charged to Other Accounts		For Purposes for Which Reserves Were Created		Other		Balance at Close of Period
Accumulated Provisions     Deducted from Applicable     Assets
	Allowance for Doubtful Accounts
		2001	$	1,492	$	3,050	$	4	$	3,350	$	—	$	1,196
		2000	$	1,513	$	2,555	$	746	$	3,322	$	—	$	1,492
		1999	$	1,248	$	2,169	$	693	$	2,597	$	—	$	1,513

165

SIGNATURES

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

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

Date: February 28, 2002
	By	/s/  JAMES E. ROGERS James E. Rogers Chairman

166

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

Signature		Title	Date
Cinergy Corp.
	Phillip R. Cox*	Director of Cinergy Corp.
	George C. Juilfs*	Director of Cinergy Corp.
	Thomas E. Petry*	Director of Cinergy Corp.
	Jackson H. Randolph*	Director of Cinergy Corp.
	Mary L. Schapiro*	Director of Cinergy Corp.
	John J. Schiff, Jr.*	Director of Cinergy Corp.
	Philip R. Sharp*	Director of Cinergy Corp.
	Dudley S. Taft*	Director of Cinergy Corp.
Cinergy Corp. and PSI
	James K. Baker*	Director of Cinergy Corp.
	Michael G. Browning*	Director of Cinergy Corp.
	John A. Hillenbrand II*	Director of Cinergy Corp.
CG&E and ULH&P
	James L. Turner*	Vice President and Director of CG&E and ULH&P
PSI
	Larry E. Thomas*	Vice Chairman and Director of PSI
Cinergy Corp., CG&E, PSI, and ULH&P
/s/  JAMES E. ROGERS James E. Rogers		Chairman, Chief Executive Officer, and Director of Cinergy Corp., CG&E, PSI, and ULH&P (Principal Executive Officer)	February 28, 2002
/s/  R. FOSTER DUNCAN R. Foster Duncan		Executive Vice President and Chief Financial Officer of Cinergy Corp., CG&E, PSI, and ULH&P and Director of CG&E and ULH&P (Principal Financial Officer)	February 28, 2002
/s/  BERNARD F. ROBERTS Bernard F. Roberts		Vice President and Comptroller of Cinergy Corp., CG&E, PSI, and ULH&P (Principal Accounting Officer)	February 28, 2002

167

*

The undersigned, by signing his name hereto, does hereby execute this Form 10-K on behalf of the officers and directors of the registrant indicated above by asterisks, pursuant to powers of attorney duly executed by such officers and directors and incorporated by reference as an exhibit to this Form 10-K.

/s/  JAMES E. ROGERS James E. Rogers
Attorney-In-Fact
February 28, 2002

/s/  R. FOSTER DUNCAN R. Foster Duncan
Attorney-In-Fact
February 28, 2002

168

QuickLinks

TABLE OF CONTENTS
PART I

ITEM 1. BUSINESS
Fuel Supply
Purchased Power
Trading Operations and Risk Management
International
Electric Operations

Transmission System Interconnections
Midwest Independent Transmission System Operator, Inc. (Midwest ISO)
Electricity Supply
Gas Supply
International
Revenue Data and Customer Base

ITEM 2. PROPERTIES
Domestic
International

ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
ITEM 6. SELECTED FINANCIAL DATA

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
LIQUIDITY AND CAPITAL RESOURCES
Comparative Cash Flow Analysis
Cinergy
Operating Activities
Financing Activities
Investing Activities
Capital Requirements
Environmental Commitment and Contingency Issues

Other Investing Activities
Financing Obligations
Capital Resources
Notes Payable and Other Short-term Obligations
Capital Leases
Operating Leases
Long-term Debt
Off-Balance Sheet Financing
Securities Ratings
Equity Securities
Dividend Restrictions
Guarantees
Collateral Requirements
Other
2001 RESULTS OF OPERATIONS—HISTORICAL
SUMMARY OF RESULTS

ELECTRIC OPERATING REVENUES
GAS OPERATING REVENUES
OPERATING EXPENSES
Fuel
Purchased and Exchanged Power
Gas Purchased
Operation and Maintenance
Depreciation
Taxes Other Than Income Taxes
MISCELLANEOUS—NET
INTEREST
INCOME TAXES
ULH&P
2000 RESULTS OF OPERATIONS—HISTORICAL
SUMMARY OF RESULTS
ELECTRIC OPERATING REVENUES
GAS OPERATING REVENUES
OTHER REVENUES
OPERATING EXPENSES
Fuel
Purchased and Exchanged Power
Gas Purchased

Operation and Maintenance
Depreciation
EQUITY IN EARNINGS (LOSSES) OF UNCONSOLIDATED SUBSIDIARIES
INTEREST
FUTURE EXPECTATIONS/TRENDS
ELECTRIC INDUSTRY
Wholesale Market Developments
Supply-side Actions
Demand-side Actions
FERC Notice of Proposed Rulemaking
Retail Market Developments
Federal Update
Ohio
Indiana
Kentucky
Other States
Other
Midwest Independent Transmission System Operator, Inc. (Midwest ISO)
Historical
FERC Orders
Operations Updates
State Regulatory Agencies Filings
Repeal of PUHCA
Significant Rate Developments
Purchased Power Tracker
Purchased Power Agreement
Termination of Operating Agreement
PSI Fuel Adjustment Charge
CWIP Ratemaking Treatment for NO_X Equipment

Transfer of Generating Assets to PSI
GAS INDUSTRY
ULH&P Gas Rate Case
CG&E Gas Rate Case
Gas Prices
MARKET RISK SENSITIVE INSTRUMENT AND POSITIONS
Energy Commodities Sensitivity
Concentrations of Credit Risk
Risk Management
Exchange Rate Sensitivity
Interest Rate Sensitivity

INFLATION
ACCOUNTING MATTERS
Accounting Estimates
Fair Value Accounting for Energy Marketing and Trading
Retail Customer Revenue Recognition
Accounting Changes
Business Combinations and Intangible Assets
Asset Retirement Obligations
Derivatives
Asset Impairment
INSURANCE
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
CINERGY CORP. AND SUBSIDIARY COMPANIES
CINERGY CORP. CONSOLIDATED STATEMENTS OF INCOME
CINERGY CORP. CONSOLIDATED BALANCE SHEETS
CINERGY CORP. CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY
CINERGY CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS
THE CINCINNATI GAS & ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
THE CINCINNATI GAS & ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF INCOME
THE CINCINNATI GAS & ELECTRIC COMPANY CONSOLIDATED BALANCE SHEETS
THE CINCINNATI GAS & ELECTRIC COMPANY CONSOLIDATED BALANCE SHEETS
THE CINCINNATI GAS & ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY
THE CINCINNATI GAS & ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS
THE CINCINNATI GAS & ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF CAPITALIZATION
PSI ENERGY, INC. AND SUBSIDIARY COMPANY
PSI ENERGY, INC. CONSOLIDATED STATEMENTS OF INCOME
PSI ENERGY, INC. CONSOLIDATED BALANCE SHEETS
PSI ENERGY, INC. CONSOLIDATED BALANCE SHEETS
PSI ENERGY, INC. CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY
PSI ENERGY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
PSI ENERGY, INC. CONSOLIDATED STATEMENTS OF CAPITALIZATION
THE UNION LIGHT, HEAT AND POWER COMPANY
THE UNION LIGHT, HEAT AND POWER COMPANY STATEMENTS OF INCOME
THE UNION LIGHT, HEAT AND POWER COMPANY BALANCE SHEETS
THE UNION LIGHT, HEAT AND POWER COMPANY BALANCE SHEETS
THE UNION LIGHT, HEAT AND POWER COMPANY STATEMENTS OF CHANGES IN COMMON STOCK EQUITY
THE UNION LIGHT, HEAT AND POWER COMPANY STATEMENTS OF CASH FLOWS
THE UNION LIGHT, HEAT AND POWER COMPANY STATEMENTS OF CAPITALIZATION
NOTES TO FINANCIAL STATEMENTS
Products and Services (in millions)
Geographic Areas and Long-Lived Assets (in millions)

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

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
EXECUTIVE OFFICERS
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

PART IV

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

CINERGY CORP. SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS FOR THE THREE YEARS ENDED DECEMBER 31, 2001 (in thousands)
THE CINCINNATI GAS & ELECTRIC COMPANY SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS FOR THE THREE YEARS ENDED DECEMBER 31, 2001 (in thousands)
PSI ENERGY, INC. SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS FOR THE THREE YEARS ENDED DECEMBER 31, 2001 (in thousands)
THE UNION LIGHT, HEAT AND POWER COMPANY SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS FOR THE THREE YEARS ENDED DECEMBER 31, 2001 (in thousands)
SIGNATURES

EX-10.H

                              AMENDED AND RESTATED
                              EMPLOYMENT AGREEMENT


         This AMENDED AND RESTATED EMPLOYMENT AGREEMENT is made and entered into
as of the 31st day of August, 2001, by and between Cinergy and Charles J. Winger
(the "Executive"). This Agreement replaces and supersedes any and all prior
employment agreements between Cinergy and the Executive. The capitalized words
and terms used throughout this Agreement are defined in Section 11.


                                    RECITALS

         A. The Executive is currently serving as Vice President of Cinergy, and
Vice President, Corporate Development of Cinergy, and Cinergy desires to secure
the continued employment of the Executive in accordance with this Agreement.

         B. The Executive is willing to continue to remain in the employ of
Cinergy on the terms and conditions set forth in this Agreement.

         C. The parties intend that this Agreement will replace and supersede
any and all prior employment agreements between Cinergy (or any component
company or business unit of Cinergy) and the Executive.


                                    AGREEMENT

         In consideration of the mutual promises, covenants and agreements set
forth below, the parties agree as follows:

1.       EMPLOYMENT AND TERM

         a.       Cinergy agrees to employ the Executive, and the Executive
                  agrees to remain in the employ of Cinergy, in accordance with
                  the terms and provisions of this Agreement, for the Employment
                  Period set forth in Subsection b. The parties agree that the
                  Company will be responsible for carrying out all of the
                  promises, covenants, and agreements of Cinergy set forth in
                  this Agreement.

         b.       The Employment Period of this Agreement will commence as of
                  the Effective Date and continue until December 31, 2004;
                  provided that, commencing on December 31, 2002, and on each
                  subsequent December 31, the Employment Period will be extended
                  for one (1) additional year unless either party gives the
                  other party written notice not to extend this Agreement at
                  least ninety (90) days before the extension would otherwise
                  become effective.





2.       DUTIES AND POWERS OF EXECUTIVE

         a.       POSITION. The Executive will serve Cinergy as Vice President
                  of Cinergy, and Vice President, Corporate Development of
                  Cinergy, and he will have such responsibilities, duties, and
                  authority as are customary for someone of that position and
                  such additional duties, consistent with his position, as may
                  be assigned to him from time to time during the Employment
                  Period by the Board of Directors, the Chief Executive Officer,
                  or the senior executive officer to whom he directly reports.
                  Executive shall devote substantially all of Executive's
                  business time, efforts and attention to the performance of
                  Executive's duties under this Agreement; provided, however,
                  that this requirement shall not preclude Executive from
                  reasonable participation in civic, charitable or professional
                  activities or the management of Executive's passive
                  investments, so long as such activities do not materially
                  interfere with the performance of Executive's duties under
                  this Agreement.

         b.       PLACE OF PERFORMANCE. In connection with the Executive's
                  employment, the Executive will be based at the principal
                  executive offices of Cinergy, 221 East Fourth Street,
                  Cincinnati, Ohio. Except for required business travel to an
                  extent substantially consistent with the present business
                  travel obligations of Cinergy executives who have positions of
                  authority comparable to that of the Executive, the Executive
                  will not be required to relocate to a new principal place of
                  business that is more than thirty (30) miles from Cinergy's
                  principal executive offices.

3.       COMPENSATION. The Executive will receive the following compensation for
         his services under this Agreement.

         a.       SALARY. The Executive's Annual Base Salary, payable in pro
                  rata installments not less often than semi-monthly, will be at
                  the annual rate of not less than $350,004.00. Any increase in
                  the Annual Base Salary will not serve to limit or reduce any
                  other obligation of Cinergy under this Agreement. The Annual
                  Base Salary will not be reduced except for across-the-board
                  salary reductions similarly affecting all Cinergy management
                  personnel. If Annual Base Salary is increased or reduced
                  during the Employment Period, then such adjusted salary will
                  thereafter be the Annual Base Salary for all purposes under
                  this Agreement.

         b.       RETIREMENT, INCENTIVE, WELFARE BENEFIT PLANS AND OTHER
                  BENEFITS. During the Employment Period, the Executive will be
                  eligible, and Cinergy will take all necessary action to cause
                  the Executive to become eligible, to participate in short-term
                  and long-term incentive, stock option, restricted stock,
                  performance unit, savings, retirement and welfare plans,
                  practices, policies and programs applicable generally to other
                  senior executives of Cinergy who are considered Tier II
                  executives for compensation purposes, except with respect to
                  any plan, practice, policy or program to which the Executive
                  has waived his rights in writing.


                                      -2-



                  The Executive will be entitled and fully vested in a
                  supplemental retirement benefit equal to the difference
                  between (1) his total benefit under all Executive Retirement
                  Plans, and (2) 60% of the Executive's Highest Average
                  Earnings. The form, timing, and method of payment of the
                  supplemental retirement benefit payable under this Paragraph
                  will be the same as those elected by the Executive under the
                  Pension Plan. If the Executive dies prior to his retirement,
                  and if his Spouse, on the date of his death, is living on the
                  date the first installment of the supplemental retirement
                  benefit would be payable under this Paragraph, the Spouse will
                  be entitled to receive the supplemental retirement benefit as
                  a Spouse's benefit. The form, timing, and method of payment of
                  any Spouse's benefit under this Paragraph will be the same as
                  those applicable to the Spouse under the Pension Plan.

                  Upon his retirement, the Executive will be eligible for
                  comprehensive medical and dental benefits which are not
                  materially different from the benefits provided under the
                  Retirees' Medical Plan and the Retirees' Dental Plan. The
                  Executive, however, will receive the maximum level of subsidy
                  currently applicable to similarly situated active Cinergy
                  employees that is provided by Cinergy to retirees, as of the
                  Effective Date of this Agreement, for purposes of determining
                  the amount of monthly premiums due from the Executive.

                  The Executive will be a participant in the Annual Incentive
                  Plan, and the Executive will be paid pursuant to the terms and
                  conditions of that plan an annual benefit of up to seventy
                  percent (70%) of the Executive's Annual Base Salary (the
                  "Maximum Annual Bonus"), with a target of no less than forty
                  percent (40%) of the Executive's Annual Base Salary (the
                  "Target Annual Bonus").

                  The Executive will be a participant in the Long-Term Incentive
                  Plan (the "LTIP"), and the Executive's annualized target award
                  opportunity under the LTIP will be equal to no less than
                  ninety percent (90%) of his Annual Base Salary (the "Target
                  LTIP Bonus").

         c.       FRINGE BENEFITS AND PERQUISITES. During the Employment Period,
                  the Executive will be entitled to the following additional
                  fringe benefits in accordance with the terms and conditions of
                  Cinergy's policies and practices for such fringe benefits:

                  (i)      Cinergy will furnish to the Executive an automobile
                           appropriate for the Executive's level of position,
                           or, at Cinergy's discretion, a cash allowance of
                           equivalent value. Cinergy will also pay all of the
                           related expenses for gasoline, insurance,
                           maintenance, and repairs, or provide for such
                           expenses within the cash allowance.

                  (ii)     Cinergy will pay the initiation fee and the annual
                           dues, assessments, and other membership charges of
                           the Executive for membership in a country club
                           selected by the Executive.


                                      -3-



                  (iii)    Cinergy will provide paid vacation for four (4) weeks
                           per year (or such longer period for which Executive
                           is otherwise eligible under Cinergy's policy).

                  (iv)     Cinergy will furnish to the Executive annual
                           financial planning and tax preparation services.

                  (v)      Cinergy will provide other fringe benefits in
                           accordance with Cinergy plans, practices, programs,
                           and policies in effect from time to time,
                           commensurate with his position and at least
                           comparable to those received by other Cinergy Tier II
                           executives.

         d.       EXPENSES. Cinergy agrees to reimburse the Executive for all
                  expenses, including those for travel and entertainment,
                  properly incurred by him in the performance of his duties
                  under this Agreement in accordance with the policies
                  established from time to time by the Board of Directors.

         e.       RELOCATION BENEFITS. Following termination of the Executive's
                  employment for any reason (other than death), the Executive
                  will be entitled to reimbursement from Cinergy for the
                  reasonable costs of relocating from the Cincinnati, Ohio, area
                  to a new primary residence in a manner that is consistent with
                  the terms of the Relocation Program. Notwithstanding the
                  foregoing, if the Executive becomes employed by another
                  employer and is eligible to receive relocation benefits under
                  another employer-provided plan, any benefits provided to the
                  Executive under this Subsection 3e will be secondary to those
                  provided under the other employer-provided relocation plan.
                  The executive must report to Cinergy any such relocation
                  benefits that he actually receives under another
                  employer-provided plan.

4.       TERMINATION OF EMPLOYMENT

         a.       DEATH. The Executive's employment will terminate automatically
                  upon the Executive's death during the Employment Period.

         b.       BY CINERGY FOR CAUSE. Cinergy may terminate the Executive's
                  employment during the Employment Period for Cause. For
                  purposes of this Employment Agreement, "Cause" means the
                  following:

                  (i)      The willful and continued failure by the Executive to
                           substantially perform the Executive's duties with
                           Cinergy (other than any such failure resulting from
                           the Executive's incapacity due to physical or mental
                           illness) that, if curable, has not been cured within
                           30 days after the Board of Directors or the Chief
                           Executive Officer has delivered to the Executive a
                           written demand for substantial performance, which
                           demand specifically identifies the manner in which
                           the Executive has not substantially performed his


                                      -4-



                           duties. This event will constitute Cause even if the
                           Executive issues a Notice of Termination for Good
                           Reason pursuant to Subsection 4d after the Board of
                           Directors or Chief Executive Officer delivers a
                           written demand for substantial performance.

                  (ii)     The breach by the Executive of the confidentiality
                           provisions set forth in Section 9.

                  (iii)    The conviction of the Executive for the commission of
                           a felony, including the entry of a guilty or nolo
                           contendere plea, or any willful or grossly negligent
                           action or inaction by the Executive that has a
                           materially adverse effect on Cinergy. For purposes of
                           this definition of Cause, no act, or failure to act,
                           on the Executive's part will be deemed "willful"
                           unless it is done, or omitted to be done, by the
                           Executive in bad faith and without reasonable belief
                           that the Executive's act, or failure to act, was in
                           the best interest of Cinergy.

         c.       BY CINERGY WITHOUT CAUSE. Cinergy may, upon at least 30 days
                  advance written notice to the Executive, terminate the
                  Executive's employment during the Employment Period for a
                  reason other than Cause, but the obligations placed upon
                  Cinergy in Section 5 will apply.

         d.       BY THE EXECUTIVE FOR GOOD REASON. The Executive may terminate
                  his employment during the Employment Period for Good Reason.
                  For purposes of this Agreement, "Good Reason" means the
                  following:

                  (i)      A reduction in the Executive's Annual Base Salary,
                           except for across-the-board salary reductions
                           similarly affecting all Cinergy management personnel,
                           or a reduction in any other benefit or payment
                           described in Section 3 of this Agreement, except for
                           changes to the employee benefits programs generally
                           affecting Cinergy management personnel, provided that
                           those changes, in the aggregate, will not result in a
                           material adverse change with respect to the benefits
                           to which the Executive was entitled as of the
                           Effective Date.

                  (ii)     The material reduction without his consent of the
                           Executive's title, authority, duties, or
                           responsibilities from those in effect immediately
                           prior to the reduction, or a material adverse change
                           in the Executive's reporting responsibilities.

                  (iii)    Any breach by Cinergy of any other material provision
                           of this Agreement (including but not limited to the
                           place of performance as specified in Subsection 2b).


                                      -5-



                  (iv)     The Executive's disability due to physical or mental
                           illness or injury that precludes the Executive from
                           performing any job for which he is qualified and able
                           to perform based upon his education, training or
                           experience.

                  (v)      A failure by the Company to require any successor
                           entity to the Company specifically to assume in
                           writing all of the Company's obligations to the
                           Executive under this Agreement.

         For purposes of determining whether Good Reason exists with respect to
a Qualifying Termination occurring on or within 24 months following a Change in
Control, any claim by the Executive that Good Reason exists shall be presumed to
be correct unless the Company establishes to the Board by clear and convincing
evidence that Good Reason does not exist.

         e.       BY THE EXECUTIVE WITHOUT GOOD REASON. The Executive may
                  terminate his employment without Good Reason upon prior
                  written notice to the Company.

         f.       NOTICE OF TERMINATION. Any termination of the Executive's
                  employment by Cinergy or by the Executive during the
                  Employment Period (other than a termination due to the
                  Executive's death) will be communicated by a written Notice of
                  Termination to the other party to this Agreement in accordance
                  with Subsection 12b. For purposes of this Agreement, a "Notice
                  of Termination" means a written notice that specifies the
                  particular provision of this Agreement relied upon and that
                  sets forth in reasonable detail the facts and circumstances
                  claimed to provide a basis for terminating the Executive's
                  employment under the specified provision. The failure by the
                  Executive or Cinergy to set forth in the Notice of Termination
                  any fact or circumstance that contributes to a showing of Good
                  Reason or Cause will not waive any right of the Executive or
                  Cinergy under this Agreement or preclude the Executive or
                  Cinergy from asserting that fact or circumstance in enforcing
                  rights under this Agreement.

5.       OBLIGATIONS OF CINERGY UPON TERMINATION.

         a.       CERTAIN TERMINATIONS.

                  (i)      If a Qualifying Termination occurs during the
                           Employment Period, Cinergy will pay to the Executive
                           a lump sum amount, in cash, equal to the sum of the
                           following Accrued Obligations:

                           (1)      the pro-rated portion of the Executive's
                                    Annual Base Salary payable through the Date
                                    of Termination, to the extent not previously
                                    paid.

                           (2)      any amount payable to the Executive under
                                    the Annual Incentive Plan in respect of the
                                    most recently completed fiscal year, to the
                                    extent not theretofore paid.


                                      -6-



                           (3)      an amount equal to the AIP Benefit for the
                                    fiscal year that includes the Date of
                                    Termination multiplied by a fraction, the
                                    numerator of which is the number of days
                                    from the beginning of that fiscal year to
                                    and including the Date of Termination and
                                    the denominator of which is three hundred
                                    and sixty-five (365). The AIP Benefit
                                    component of the calculation will be equal
                                    to the annual bonus that would have been
                                    earned by the Executive pursuant to any
                                    annual bonus or incentive plan maintained by
                                    Cinergy in respect of the fiscal year in
                                    which occurs the Date of Termination,
                                    determined by projecting Cinergy's
                                    performance and other applicable goals and
                                    objectives for the entire fiscal year based
                                    on Cinergy's performance during the period
                                    of such fiscal year occurring prior to the
                                    Date of Termination, and based on such other
                                    assumptions and rates as Cinergy deems
                                    reasonable.

                           (4)      the Accrued Obligations described in this
                                    Paragraph 5a(i) will be paid within thirty
                                    (30) days after the Date of Termination.
                                    These Accrued Obligations are payable to the
                                    Executive regardless of whether a Change in
                                    Control has occurred.

                  (ii)     In the event of a Qualifying Termination either prior
                           to the occurrence of a Change in Control, or more
                           than twenty-four (24) months following the occurrence
                           of a Change in Control, Cinergy will pay the Accrued
                           Obligations, and Cinergy will have the following
                           additional obligations:

                           (1)      Cinergy will pay to the Executive a lump sum
                                    amount, in cash, equal to three (3) times
                                    the sum of the Annual Base Salary and the
                                    Annual Bonus. For this purpose, the Annual
                                    Base Salary will be at the rate in effect at
                                    the time Notice of Termination is given
                                    (without giving effect to any reduction in
                                    Annual Base Salary, if any, prior to the
                                    termination, other than across-the-board
                                    reductions), and the Annual Bonus will be
                                    the higher of (A) the annual bonus earned by
                                    the Executive pursuant to any annual bonus
                                    or incentive plan maintained by Cinergy in
                                    respect of the year ending immediately prior
                                    to the fiscal year in which occurs the Date
                                    of Termination, and (B) the annual bonus
                                    that would have been earned by the Executive
                                    pursuant to any annual bonus or incentive
                                    plan maintained by Cinergy in respect of the
                                    fiscal year in which occurs the Date of
                                    Termination, calculated by projecting
                                    Cinergy's performance and other applicable
                                    goals and objectives for the entire fiscal
                                    year based on Cinergy's performance during
                                    the period of such fiscal year occurring
                                    prior to the Date of Termination, and based
                                    on such other assumptions and rates as
                                    Cinergy deems reasonable; provided, however
                                    that for purposes of this Subsection
                                    5a(ii)(1)(B), the Annual Bonus shall not be
                                    less


                                      -7-



                                    than the Target Annual Bonus, nor greater
                                    than the Maximum Annual Bonus for the year
                                    in which the Date of Termination occurs.
                                    This lump sum will be paid within thirty
                                    (30) days of the Date of Termination.

                           (2)      Subject to Clauses (A), (B) and (C) below,
                                    Cinergy will provide, until the end of the
                                    Employment Period, medical and dental
                                    benefits to the Executive and/or the
                                    Executive's dependents at least equal to
                                    those that would have been provided if the
                                    Executive's employment had not been
                                    terminated (excluding benefits to which the
                                    Executive has waived his rights in writing).
                                    The benefits described in the preceding
                                    sentence will be in accordance with the
                                    medical and welfare benefit plans,
                                    practices, programs, or policies of Cinergy
                                    (the "M&W Plans") as then currently in
                                    effect and applicable generally to other
                                    Cinergy senior executives and their
                                    families.

                                    (A)     If, as of the Executive's Date of
                                            Termination, the Executive meets the
                                            eligibility requirements for
                                            Cinergy's retiree medical and
                                            welfare benefit plans, the provision
                                            of those retiree medical and welfare
                                            benefit plans to the Executive will
                                            satisfy Cinergy's obligation under
                                            this Subparagraph 5a(ii)(2).

                                    (B)      If, as of the Executive's Date of
                                             Termination, the provision to the
                                             Executive of the M&W Plan benefits
                                             described in this Subparagraph
                                             5a(ii)(2) would either (1) violate
                                             the terms of the M&W Plans (or any
                                             related insurance policies) or (2)
                                             violate any of the Code's
                                             nondiscrimination requirements
                                             applicable to the M&W Plans, then
                                             Cinergy, in its sole discretion,
                                             may elect to pay the Executive, in
                                             lieu of the M&W Plan benefits
                                             described under this Subparagraph
                                             5a(ii)(2), a lump sum cash payment
                                             equal to the total monthly premiums
                                             (or in the case of a self funded
                                             plan, the cost of COBRA
                                             continuation coverage) that would
                                             have been paid by Cinergy for the
                                             Executive under the M&W Plans from
                                             the Date of Termination through the
                                             end of the Employment Period,
                                             grossed up for the effect of
                                             federal, state and local income
                                             taxes. Nothing in this Clause will
                                             affect the Executive's right to
                                             elect COBRA continuation coverage
                                             under a M&W Plan in accordance with
                                             applicable law, and Cinergy will
                                             make the payment described in this
                                             Clause whether or not the Executive
                                             elects COBRA continuation coverage,
                                             and whether or not the Executive
                                             receives health coverage from
                                             another employer.


                                      -8-



                                    (C)     If the Executive becomes employed by
                                            another employer and is eligible to
                                            receive medical or other welfare
                                            benefits under another
                                            employer-provided plan, any benefits
                                            provided to the Executive under the
                                            M&W Plans will be secondary to those
                                            provided under the other
                                            employer-provided plan during the
                                            Executive's applicable period of
                                            eligibility.

                           (3)      Cinergy will provide tax counseling services
                                    through an agency selected by the Executive,
                                    not to exceed fifteen thousand dollars
                                    ($15,000.00) in cost.

                  (iii) In the event of a Qualifying Termination during the
                  twenty-four (24) month period beginning upon the occurrence of
                  a Change in Control, Cinergy will pay the Accrued Obligations,
                  and Cinergy will also have the following additional
                  obligations:

                           (1)      Cinergy will pay to the Executive a lump sum
                                    severance payment, in cash, equal to three
                                    (3) times the higher of (x) the sum of the
                                    Executive's current Annual Base Salary and
                                    Target Annual Bonus and (y) the sum of the
                                    Executive's Annual Base Salary in effect
                                    immediately prior to the Change in Control
                                    and the Change in Control Bonus. For
                                    purposes of this Agreement, the Change in
                                    Control Bonus shall mean the higher of (A)
                                    the annual bonus earned by the Executive
                                    pursuant to any annual bonus or incentive
                                    plan maintained by Cinergy in respect of the
                                    year ending immediately prior to the fiscal
                                    year in which occurs the Date of Termination
                                    or, if higher, immediately prior to the
                                    fiscal year in which occurs the Change in
                                    Control, and (B) the annual bonus that would
                                    have been earned by the Executive pursuant
                                    to any annual bonus or incentive plan
                                    maintained by Cinergy in respect of the year
                                    in which occurs the Date of Termination,
                                    calculated by projecting Cinergy's
                                    performance and other applicable goals and
                                    objective for the entire fiscal year based
                                    on Cinergy's performance during the period
                                    of such fiscal year occurring prior to the
                                    Date of Termination, and based on such other
                                    assumptions and rates as Cinergy deems
                                    reasonable, provided, however, that for
                                    purposes of this Subsection 5a(iii)(1)(B),
                                    such Change in Control Annual Bonus shall
                                    not be less than the Target Annual Bonus,
                                    nor greater than the Maximum Annual Bonus.
                                    This lump sum will be paid within thirty
                                    (30) days of the Date of Termination.

                           (2)      Cinergy will pay to the Executive the lump
                                    sum present value of any benefits under the
                                    Executive Supplemental Life Program under
                                    the terms of the applicable plan or program
                                    as of the Date of Termination, calculated as
                                    if the Executive was fully vested as of the


                                      -9-



                                    Date of Termination. The lump sum present
                                    value, assuming commencement at age as of
                                    the Date of Termination, will be determined
                                    using the interest rate applicable to lump
                                    sum payments in the Cinergy Corp. Non-Union
                                    Employees' Pension Plan or any successor to
                                    that plan for the plan year that includes
                                    the Date of Termination. To the extent no
                                    such interest rate is provided therein, the
                                    annual interest rate applicable under
                                    section 417(e)(3) of the Code, or any
                                    successor provision thereto, for the second
                                    full calendar month preceding the first day
                                    of the calendar year that includes the Date
                                    of Termination will be used. This lump sum
                                    will be paid within thirty (30) days of the
                                    Date of Termination.

                           (3)      The Executive shall be fully vested in his
                                    accrued benefits as of the Date of
                                    Termination under the Executive Retirement
                                    Plans, and his accrued benefits thereunder
                                    will be calculated as if the Executive was
                                    credited with three (3) additional years of
                                    age and service as of the Date of
                                    Termination. For purposes of determining
                                    benefits under the Executive Retirement
                                    Plans, the definition of earnings will be
                                    the same as defined in such plans.

                           (4)      For a thirty-six (36) month period after the
                                    Date of Termination, Cinergy will arrange to
                                    provide to the Executive and/or the
                                    Executive's dependents life, disability,
                                    accident, and health insurance benefits
                                    substantially similar to those that the
                                    Executive and/or the Executive's dependents
                                    are receiving immediately prior to the
                                    Notice of Termination at a substantially
                                    similar cost to the Executive (without
                                    giving effect to any reduction in those
                                    benefits subsequent to a Change in Control
                                    that constitutes Good Reason), except for
                                    any benefits that were waived by the
                                    Executive in writing. If Cinergy arranges to
                                    provide the Executive and/or the Executive's
                                    dependents with life, disability, accident,
                                    and health insurance benefits, those
                                    benefits will be reduced to the extent
                                    comparable benefits are actually received by
                                    or made available to the Executive and/or
                                    the Executive's dependents during the
                                    thirty-six (36) month period following the
                                    Executive's Date of Termination. The
                                    Executive must report to Cinergy any such
                                    benefits that he or his dependents actually
                                    receives. In lieu of the benefits described
                                    in the preceding sentences, Cinergy, in its
                                    sole discretion, may elect to pay to the
                                    Executive a lump sum cash payment equal to
                                    thirty-six (36) times the monthly premiums
                                    (or in the case of a self funded plan, the
                                    cost of COBRA continuation coverage) that
                                    would have been paid by Cinergy to provide
                                    those benefits to the Executive and/or the
                                    Executive's dependents, grossed up for the
                                    effect of federal, state and local income
                                    taxes. Nothing in this Subparagraph
                                    5a(iii)(4) will affect the Executive's right
                                    to elect COBRA continuation coverage in
                                    accordance with


                                      -10-



                                    applicable law, and Cinergy will make the
                                    payment described in this Clause whether or
                                    not the Executive elects COBRA continuation
                                    coverage, and whether or not the Executive
                                    receives health coverage from another
                                    employer.

                           (5)      Title and ownership of the automobile
                                    assigned to the Executive by Cinergy will be
                                    transferred to the Executive within thirty
                                    (30) days of the Date of Termination. To the
                                    extent there is imputed income to the
                                    Executive resulting from the transfer of
                                    title, the Executive will receive a cash
                                    payment equal to the amount of federal,
                                    state and local income taxes resulting from
                                    this transfer as soon as administratively
                                    feasible after the transfer is effective. At
                                    Cinergy's discretion, a cash payment of an
                                    equivalent value of the automobile and
                                    corresponding income taxes may be paid in
                                    lieu of the assignment of the automobile.

                           (6)      Cinergy will provide tax counseling services
                                    through an agency selected by the Executive,
                                    not to exceed fifteen thousand dollars
                                    ($15,000.00) in cost.

                           (7)      Cinergy will provide annual dues and
                                    assessments of the Executive for membership
                                    in a country club selected by the Executive
                                    until the end of the Employment Period.

                           (8)      Cinergy will provide outplacement services
                                    suitable to the Executive's position until
                                    the end of the Employment Period or, if
                                    earlier, until the first acceptance by the
                                    Executive of an offer of employment. At the
                                    Executive's discretion, 15% of Annual Base
                                    Salary may be paid in lieu of outplacement
                                    services.

         For purposes of this Paragraph 5a(iii), the Executive will be deemed to
have incurred a Qualifying Termination upon a Change in Control if the
Executive's employment is terminated prior to a Change in Control, without Cause
at the direction of a Person who has entered into an agreement with Cinergy, the
consummation of which will constitute a Change in Control, or if the Executive
terminates his employment for Good Reason prior to a Change in Control if the
circumstances or event that constitutes Good Reason occurs at the direction of
such a Person.

         b.       TERMINATION BY CINERGY FOR CAUSE OR BY THE EXECUTIVE OTHER
                  THAN FOR GOOD REASON. Subject to the provisions of Section 7,
                  and notwithstanding any other provisions of this Agreement, if
                  the Executive's employment is terminated for Cause during the
                  Employment Period, or if the Executive terminates employment
                  during the Employment Period other than a termination for Good
                  Reason, Cinergy will have no further obligations to the
                  Executive under this Agreement other than the obligation to
                  pay to the Executive the Accrued Obligations, plus any other
                  earned but unpaid compensation, in each case to the extent not
                  previously paid.


                                      -11-



         c.       CERTAIN TAX CONSEQUENCES.

                  (i)      In the event that any Severance Benefits paid or
                           payable to the Executive or for his benefit pursuant
                           to the terms of this Agreement or otherwise in
                           connection with, or arising out of, his employment
                           with Cinergy or a change in ownership or effective
                           control of Cinergy or of a substantial portion of its
                           assets (a "Payment" or "Payments") would be subject
                           to any Excise Tax, then the Executive will be
                           entitled to receive an additional payment (a
                           "Gross-Up Payment") in an amount such that after
                           payment by the Executive of all taxes (including any
                           interest, penalties, additional tax, or similar items
                           imposed with respect thereto and the Excise Tax),
                           including any Excise Tax imposed upon the Gross-Up
                           Payment, the Executive retains an amount of the
                           Gross-Up Payment equal to the Excise Tax imposed upon
                           or assessable against the Executive due to the
                           Payments.

                  (ii)     Subject to the provisions of Section 5(iii), all
                           determinations required to be made under this Section
                           5c, including whether and when a Gross-Up Payment is
                           required and the amount of such Gross-Up Payment and
                           the assumptions to be utilized in arriving at such
                           determination, shall be made by the Accounting Firm,
                           which shall provide detailed supporting calculations
                           both to the Company and the Executive within fifteen
                           (15) business days of the receipt of notice from the
                           Executive that there has been a Payment, or such
                           earlier time as is requested by the Company. All fees
                           and expenses of the Accounting Firm shall be borne
                           solely by the Company. Any Gross-Up Payment, as
                           determined pursuant to this Section 5c, shall be paid
                           by Cinergy to the Executive within five (5) days of
                           the receipt of the Accounting Firm's determination.
                           Any determination by the Accounting Firm shall be
                           binding upon Cinergy and the Executive. However, as a
                           result of the uncertainty in the application of
                           Section 4999 of the Code at the time of the initial
                           determination by the Accounting Firm hereunder, it is
                           possible that Gross-Up Payments which will not have
                           been made by Cinergy should have been made
                           ("Underpayment"), consistent with the calculations
                           required to be made hereunder. In the event that
                           Cinergy exhausts its remedies pursuant to Section
                           5c(iii) and the Executive thereafter is required to
                           make a payment of any Excise Tax, the Accounting Firm
                           shall determine the amount of the Underpayment that
                           has occurred and any such Underpayment shall be
                           promptly paid by Cinergy to or for the benefit of the
                           Executive. In the event that the Excise Tax is
                           subsequently determined to be less than the amount
                           taken into account hereunder at the time of
                           termination of the Executive's employment, the
                           Executive shall repay to the Company, at the time
                           that the amount of such reduction in Excise Tax is
                           finally determined, the portion of the Gross-Up
                           Payment attributable to such reduction (plus that
                           portion of the Gross-Up Payment attributable to the
                           Excise Tax and federal, state and local income


                                      -12-



                           and employment tax imposed on the Gross-Up Payment
                           being repaid by the Executive to the extent that such
                           repayment results in a reduction in Excise Tax and/or
                           a federal, state or local income or employment tax
                           deduction) plus interest on the amount of such
                           repayment at the rate provided in Code section
                           1274(b)(2)(B).

                  (iii)    The value of any non-cash benefits or any deferred
                           payment or benefit paid or payable to the Executive
                           will be determined in accordance with the principles
                           of Code sections 280G(d)(3) and (4). For purposes of
                           determining the amount of the Gross-Up Payment, the
                           Executive will be deemed to pay federal income taxes
                           at the highest marginal rate of federal income
                           taxation in the calendar year in which the Gross-Up
                           Payment is to be made and applicable state and local
                           income taxes at the highest marginal rate of taxation
                           in the state and locality of the Executive's
                           residence on the Date of Termination, net of the
                           maximum reduction in federal income taxes that would
                           be obtained from deduction of those state and local
                           taxes.

                  (iv)     Notwithstanding anything contained in this Agreement
                           to the contrary, in the event that, according to the
                           Accounting Firm's determination, an Excise Tax will
                           be imposed on any Payment or Payments, Cinergy will
                           pay to the applicable government taxing authorities
                           as Excise Tax withholding, the amount of the Excise
                           Tax that Cinergy has actually withheld from the
                           Payment or Payments in accordance with law.

         d.       VALUE CREATION PLAN AND STOCK OPTIONS. Upon the Executive's
                  termination of employment for any reason, the Executive's
                  entitlement to restricted shares and performance shares under
                  the Value Creation Plan and any stock options granted under
                  the Stock Option Plan or the LTIP will be determined under the
                  terms of the appropriate plan and any applicable
                  administrative guidelines and written agreements.

         e.       DEFERRED COMPENSATION PLAN AND 401(K) EXCESS PLAN. Upon the
                  Executive's termination of employment for any reason, the
                  Executive's entitlements, if any, under the Non-Qualified
                  Deferred Compensation Plan and 401(k) Excess Plan shall be
                  distributed under the terms of such plans and any applicable
                  administrative guidelines and written agreements.

         f.       OTHER FEES AND EXPENSES. Cinergy will also reimburse the
                  Executive for all reasonable legal fees and expenses incurred
                  by the Executive in successfully disputing a Qualifying
                  Termination that entitles the Executive to Severance Benefits.
                  Payment will be made within five (5) business days after
                  delivery of the Executive's written request for payment
                  accompanied by such evidence of fees and expenses incurred as
                  Cinergy reasonably may require.


                                      -13-



6.       NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement will prevent or
         limit the Executive's continuing or future participation in any
         benefit, plan, program, policy, or practice provided by Cinergy and for
         which the Executive may qualify, except with respect to any benefit to
         which the Executive has waived his rights in writing or any plan,
         program, policy, or practice that expressly excludes the Executive from
         participation. In addition, nothing in this Agreement will limit or
         otherwise affect the rights the Executive may have under any other
         contract or agreement with Cinergy entered into after the Effective
         Date. Amounts that are vested benefits or that the Executive is
         otherwise entitled to receive under any benefit, plan, program, policy,
         or practice of, or any contract or agreement entered into after the
         Effective Date with Cinergy, at or subsequent to the Date of
         Termination, will be payable in accordance with that benefit, plan,
         program, policy or practice, or that contract or agreement, except as
         explicitly modified by this Agreement.

7.       FULL SETTLEMENT: MITIGATION. Cinergy's obligation to make the payments
         provided for in this Agreement and otherwise to perform its obligations
         under this Agreement will not be affected by any set-off, counterclaim,
         recoupment, defense, or other claim, right, or action that Cinergy may
         have against the Executive or others. In no event will the Executive be
         obligated to seek other employment or take any other action by way of
         mitigation of the amounts (including amounts for damages for breach)
         payable to the Executive under any of the provisions of this Agreement
         and, except as provided in Subsection 3e and Subparagraphs 5a(ii)(2)
         and 5a(iii)(4), those amounts will not be reduced simply because the
         Executive obtains other employment. If the Executive finally prevails
         on the substantial claims brought with respect to any dispute between
         Cinergy and the Executive as to the interpretation, terms, validity, or
         enforceability of (including any dispute about the amount of any
         payment pursuant to) this Agreement, Cinergy agrees to pay all
         reasonable legal fees and expenses that the Executive may reasonably
         incur as a result of that dispute.

8.       ARBITRATION. The parties agree that any dispute, claim, or controversy
         based on common law, equity, or any federal, state, or local statute,
         ordinance, or regulation (other than workers' compensation claims)
         arising out of or relating in any way to the Executive's employment,
         the terms, benefits, and conditions of employment, or concerning this
         Agreement or its termination and any resulting termination of
         employment, including whether such a dispute is arbitrable, shall be
         settled by arbitration. This agreement to arbitrate includes but is not
         limited to all claims for any form of illegal discrimination, improper
         or unfair treatment or dismissal, and all tort claims. The Executive
         will still have a right to file a discrimination charge with a federal
         or state agency, but the final resolution of any discrimination claim
         will be submitted to arbitration instead of a court or jury. The
         arbitration proceeding will be conducted under the employment dispute
         resolution arbitration rules of the American Arbitration Association in
         effect at the time a demand for arbitration under the rules is made.
         The decision of the arbitrator(s), including determination of the
         amount of any damages suffered, will be exclusive, final, and binding
         on all parties, their heirs, executors, administrators, successors and
         assigns. Each party will bear its own expenses in the arbitration for
         arbitrators' fees and attorneys'


                                      -14-



         fees, for its witnesses, and for other expenses of presenting its case.
         Other arbitration costs, including administrative fees and fees for
         records or transcripts, will be borne equally by the parties.
         Notwithstanding anything in this Section to the contrary, if the
         Executive prevails with respect to any dispute submitted to arbitration
         Section, Cinergy will reimburse or pay all legal fees and expenses that
         under this the Executive may reasonably incur as a result of the
         dispute as required by Section 7.

9.       CONFIDENTIAL INFORMATION. The Executive will hold in a fiduciary
         capacity for the benefit of Cinergy, as well as all of Cinergy's
         successors and assigns, all secret, confidential information,
         knowledge, or data relating to Cinergy, and its affiliated businesses,
         that the Executive obtains during the Executive's employment by Cinergy
         or any of its affiliated companies, and that has not been or
         subsequently becomes public knowledge (other than by acts by the
         Executive or representatives of the Executive in violation of this
         Agreement). During the Employment Period and thereafter, the Executive
         will not, without Cinergy's prior written consent or as may otherwise
         by required by law or legal process, communicate or divulge any such
         information, knowledge, or data to anyone other than Cinergy and those
         designated by it. The Executive understands that during the Employment
         Period, Cinergy may be required from time to time to make public
         disclosure of the terms or existence of the Executive's employment
         relationship to comply with various laws and legal requirements. In
         addition to all other remedies available to Cinergy in law and equity,
         this Agreement is subject to termination by Cinergy for Cause under
         Section 4b in the event the Executive violates any provision of this
         Section.

10.      SUCCESSORS.

         a.       This Agreement is personal to the Executive and, without
                  Cinergy's prior written consent, cannot be assigned by the
                  Executive other than Executive's designation of a beneficiary
                  of any amounts payable hereunder after the Executive's death.
                  This Agreement will inure to the benefit of and be enforceable
                  by the Executive's legal representatives.

         b.       This Agreement will inure to the benefit of and be binding
                  upon Cinergy and its successors and assigns.

         c.       Cinergy will require any successor (whether direct or
                  indirect, by purchase, merger, consolidation or otherwise) to
                  all or substantially all of the business and/or assets of
                  Cinergy to assume expressly and agree to perform this
                  Agreement in the same manner and to the same extent that
                  Cinergy would be required to perform it if no succession had
                  taken place. Cinergy's failure to obtain such an assumption
                  and agreement prior to the effective date of a succession will
                  be a breach of this Agreement and will entitle the Executive
                  to compensation from Cinergy in the same amount and on the
                  same terms as if the Executive were to terminate his
                  employment for Good Reason upon a Change in Control, except


                                      -15-



                  that, for purposes of implementing the foregoing, the date on
                  which any such succession becomes effective will be deemed the
                  Date of Termination.

11.      DEFINITIONS. As used in this Agreement, the following terms, when
         capitalized, will have the following meanings:

         a.       ACCOUNTING FIRM. "Accounting Firm" means Cinergy's independent
                  auditors.

         b.       ACCRUED OBLIGATIONS. "Accrued Obligations" means the accrued
                  obligations described in Paragraph 5a(i).

         c.       AGREEMENT. "Agreement" means this Amended and Restated
                  Employment Agreement between Cinergy and the Executive.

         d.       AIP BENEFIT. "AIP Benefit" means the Annual Incentive Plan
                  benefit described in Subsection 5a(i).

         e.       ANNUAL BASE SALARY. "Annual Base Salary" means the annual base
                  salary payable to the Executive pursuant to Subsection 3a.

         f.       ANNUAL BONUS. "Annual Bonus" has the meaning set forth in
                  Subsection 5a(ii)(1).

         g.       ANNUAL INCENTIVE PLAN. "Annual Incentive Plan" means the
                  Cinergy Corp. Annual Incentive Plan or any similar plan or
                  successor to the Annual Incentive Plan.

         h.       BOARD OF DIRECTORS. "Board of Directors" means the board of
                  directors of the Company.

         i.       COBRA. "COBRA" means the Consolidated Omnibus Budget
                  Reconciliation Act of 1985, as amended.

         j.       CAUSE.  "Cause" has the meaning set forth in Subsection 4b.

         k.       CHANGE IN CONTROL. "A Change in Control" will be deemed to
                  have occurred if any of the following events occur, after the
                  Effective Date:

                  (i)      Any "person" or "group" (within the meaning of
                           subsection 13(d) and paragraph 14(d)(2) of the 1934
                           Act) is or becomes the beneficial owner (as defined
                           in Rule l3d-3 under the 1934 Act), directly or
                           indirectly, of securities of the Company (not
                           including in the securities beneficially owned by
                           such a Person any securities acquired directly from
                           the Company or its affiliates) representing more than
                           twenty percent (20%) of the combined voting power of
                           the Company's then outstanding securities,


                                      -16-



                           excluding any person who becomes such a beneficial
                           owner in connection with a transaction described in
                           Clause (1) of Paragraph (ii) below; or

                  (ii)     There is consummated a merger or consolidation of the
                           Company or any direct or indirect subsidiary of the
                           Company with any other corporation, other than (1) a
                           merger or consolidation that would result in the
                           voting securities of the Company outstanding
                           immediately prior to that merger or consolidation
                           continuing to represent (either by remaining
                           outstanding or by being converted into voting
                           securities of the surviving entity or its parent) at
                           least sixty percent (60%) of the combined voting
                           power of the securities of the Company or the
                           surviving entity or its parent outstanding
                           immediately after the merger or consolidation, or (2)
                           a merger or consolidation effected to implement a
                           recapitalization of the Company (or similar
                           transaction) in which no person is or becomes the
                           beneficial owner, directly or indirectly, of
                           securities of the Company (not including in the
                           securities beneficially owned by such a Person any
                           securities acquired directly from the Company or its
                           affiliates other than in connection with the
                           acquisition by the Company or its affiliates of a
                           business) representing twenty percent (20%) or more
                           of the combined voting power of the Company's then
                           outstanding securities; or

                  (iii)    During any period of two (2) consecutive years,
                           individuals who at the beginning of that period
                           constitute the Board of Directors and any new
                           director (other than a director whose initial
                           assumption of office is in connection with an actual
                           or threatened election contest, including but not
                           limited to a consent solicitation, relating to the
                           election of directors of the Company) whose
                           appointment or election by the Company's shareholders
                           was approved or recommended by a vote of at least
                           two-thirds (2/3) of the directors then still in
                           office who either were directors at the beginning of
                           that period or whose appointment, election, or
                           nomination for election was previously so approved or
                           recommended cease for any reason to constitute a
                           majority of the Board of Directors; or

                  (iv)     The shareholders of the Company approve a plan of
                           complete liquidation or dissolution of the Company or
                           there is consummated an agreement for the sale or
                           disposition by the Company of all or substantially
                           all of the Company's assets, other than a sale or
                           disposition by the Company of all or substantially
                           all of the Company's assets to an entity, at least
                           sixty percent (60%) of the combined voting power of
                           the voting securities of which are owned by
                           shareholders of the Company in substantially the same
                           proportions as their ownership of the Company
                           immediately prior to the sale.

         l.       CHANGE IN CONTROL BONUS. "Change in Control Bonus" has the
                  meaning set forth in Subsection 5a(iii)(1).


                                      -17-



         m.       CHIEF EXECUTIVE OFFICER. "Chief Executive Officer" means the
                  chief executive officer of the Company.

         n.       CINERGY. "Cinergy" means the Company, its subsidiaries, and/or
                  its affiliates, and any successors to the foregoing.

         o.       CODE. "Code" means the Internal Revenue Code of 1986, as
                  amended, and interpretive rules and regulations.

         p.       COMPANY.  "Company" means Cinergy Corp.

         q.       DATE OF TERMINATION.  "Date of Termination" means:

                  (i)      if the Executive's employment is terminated by the
                           Company for Cause, or by the Executive with Good
                           Reason, the date of receipt of the Notice of
                           Termination or any later date specified in the
                           notice, as the case may be;

                  (ii)     if the Executive's employment is terminated by the
                           Executive without Good Reason, thirty (30) days after
                           the date on which the Executive notifies the Company
                           of the termination;

                  (iii)    if the Executive's employment is terminated by the
                           Company other than for Cause, thirty (30) days after
                           the date on which the Company notifies the Executive
                           of the termination; and

                  (iv)     if the Executive's employment is terminated by reason
                           of death, the date of death.

         r.       DEFERRED COMPENSATION PLAN. "Deferred Compensation Plan" means
                  the Cinergy Corp. Non-Qualified Deferred Incentive
                  Compensation Plan or any similar plan or successor to that
                  plan.

         s.       EFFECTIVE DATE.  "Effective Date" means August 31, 2001.

         t.       EMPLOYMENT PERIOD. "Employment Period" has the meaning set
                  forth in Subsection 1b.

         u.       EXCISE TAX. "Excise Tax" means any excise tax imposed by Code
                  section 4999, together with any interest, penalties,
                  additional tax or similar items that are incurred by the
                  Executive with respect to the excise tax imposed by Code
                  section 4999.

         v.       EXECUTIVE.  "Executive" means Charles J. Winger.


                                      -18-



         w.       EXECUTIVE RETIREMENT PLANS. "Executive Retirement Plans" means
                  the Cinergy Corp. Non-Union Employees' Pension Plan, the
                  Cinergy Corp. Supplemental Executive Retirement Plan and the
                  Cinergy Corp. Excess Pension Plan or any similar plans or
                  successors to those plans.

         x.       EXECUTIVE SUPPLEMENTAL LIFE PROGRAM. "Executive Supplemental
                  Life Program" means the Cinergy Corp. Executive Supplemental
                  Life Insurance Program or any similar program or successor to
                  the Executive Supplemental Life Program.

         y.       401(K) EXCESS PLAN. "401(k) Excess Plan" means the Cinergy
                  Corp. 401(k) Excess Plan, or any similar plan or successor to
                  that plan.

         z.       GOOD REASON. "Good Reason" has the meaning set forth in
                  Subsection 4d.

         aa.      GROSS-UP PAYMENT. "Gross-Up Payment" has the meaning set forth
                  in Subsection 5c.

         bb.      HIGHEST AVERAGE EARNINGS. "Highest Average Earnings" means the
                  greater of (a) the Executive's "Highest Average Earnings" as
                  defined in the Pension Plan (without regard to the limitation
                  of Code paragraph 401(a)(17)) or (b) the Executive's Earnings
                  for the 12 consecutive calendar months immediately preceding
                  his termination of employment with Cinergy.

         cc.      LONG-TERM INCENTIVE PLAN OR LTIP. "Long-Term Incentive Plan"
                  or "LTIP" means the long-term incentive plan implemented under
                  the Cinergy Corp. 1996 Long-Term Incentive Compensation Plan
                  or any successor to that plan.

         dd.      M&W PLANS. "M&W Plans" has the meaning set forth in
                  Subparagraph 5a(ii)(2).

         ee.      MAXIMUM ANNUAL BONUS. "Maximum Annual Bonus" has the meaning
                  set forth in Subsection 3b.

         ff.      NOTICE OF TERMINATION. "Notice of Termination" has the meaning
                  set forth in Subsection 4f.

         gg.      PAYMENT OR PAYMENTS. "Payment" or "Payments" has the meaning
                  set forth in Subsection 5c.

         hh.      PENSION PLAN. "Pension Plan" means the Cinergy Corp. Non-Union
                  Employees' Pension Plan or any successor to that plan.

         ii.      PERSON. "Person" has the meaning set forth in paragraph
                  3(a)(9) of the 1934 Act, as modified and used in subsections
                  13(d) and 14(d) of the 1934 Act; however, a Person will not
                  include the following:


                                      -19-



                  (i)      Cinergy or any of its subsidiaries;

                  (ii)     A trustee or other fiduciary holding securities under
                           an employee benefit plan of Cinergy or its
                           subsidiaries;

                  (iii)    An underwriter temporarily holding securities
                           pursuant to an offering of those securities; or

                  (iv)     A corporation owned, directly or indirectly, by the
                           stockholders of the Company in substantially the same
                           proportions as their ownership of stock of the
                           Company.

         jj.      QUALIFYING TERMINATION. "Qualifying Termination" means (i) the
                  termination by the Company of the Executive's employment with
                  Cinergy other than a termination for Cause or (ii) the
                  termination by the Executive of the Executive's employment
                  with Cinergy for Good Reason.

         kk.      RELOCATION PROGRAM. "Relocation Program" means the Cinergy
                  Corp. Relocation Program, or any similar program or successor
                  to that program, as in effect on the date of the Executive's
                  termination of employment.

         ll.      RETIREES' DENTAL PLAN. "Retirees' Dental Plan" means the
                  Cinergy Corp. Retirees' Dental program or any similar program
                  or successor to that program.

         mm.      RETIREES' MEDICAL PLAN. "Retirees' Medical Plan" means the
                  Cinergy Corp. Retirees' Medical program or any similar program
                  or successor to that program.

         nn.      SEVERANCE BENEFITS. "Severance Benefits" means the payments
                  and benefits payable to the Executive pursuant to Section 5.

         oo.      SPOUSE. "Spouse" means the Executive's lawfully married
                  spouse. For this purpose, common law marriage or a similar
                  arrangement will not be recognized unless otherwise required
                  by federal law.

         pp.      STOCK RELATED DOCUMENTS. "Stock Related Documents" means the
                  LTIP, the Cinergy Corp. Stock Option Plan, and the Value
                  Creation Plan and any applicable administrative guidelines and
                  written agreements relating to those plans.

         qq.      TARGET ANNUAL BONUS. "Target Annual Bonus" has the meaning set
                  forth in Subsection 3b.

         rr.      TARGET LTIP BONUS. "Target LTIP Bonus" has the meaning set
                  forth in Subsection 3b.


                                      -20-



         ss.      VALUE CREATION PLAN. "Value Creation Plan" means the Value
                  Creation Plan or any similar plan, or successor plan of the
                  LTIP.

12.      MISCELLANEOUS.

         a.       This Agreement will be governed by and construed in accordance
                  with the laws of the State of Ohio, without reference to
                  principles of conflict of laws. The captions of this Agreement
                  are not part of its provisions and will have no force or
                  effect. This Agreement may not be amended, modified, repealed,
                  waived, extended, or discharged except by an agreement in
                  writing signed by the party against whom enforcement of the
                  amendment, modification, repeal, waiver, extension, or
                  discharge is sought. Only the Chief Executive Officer or his
                  designee will have authority on behalf of Cinergy to agree to
                  amend, modify, repeal, waive, extend, or discharge any
                  provision of this Agreement.

         b.       All notices and other communications under this Agreement will
                  be in writing and will be given by hand delivery to the other
                  party or by Federal Express or other comparable national or
                  international overnight delivery service, addressed as
                  follows:

                  IF TO THE EXECUTIVE:
                  Charles J. Winger
                  Cinergy Corp.
                  221 East Fourth Street
                  Cincinnati, Ohio 45201-0960

                  IF TO CINERGY:
                  Cinergy Corp.
                  221 East Fourth Street
                  Cincinnati, Ohio  45201-0960
                  Attn: Chief Executive Officer

                  or to such other address as either party has furnished to the
                  other in writing in accordance with this Agreement. All
                  notices and communications will be effective when actually
                  received by the addressee.

         c.       The invalidity or unenforceability of any provision of this
                  Agreement will not affect the validity or enforceability of
                  any other provision of this Agreement.

         d.       Cinergy may withhold from any amounts payable under this
                  Agreement such federal, state, or local taxes as are required
                  to be withheld pursuant to any applicable law or regulation.

         e.       The Executive's or Cinergy's failure to insist upon strict
                  compliance with any provision of this Agreement or the failure
                  to assert any right the Executive or


                                      -21-



                  Cinergy may have under this Agreement, including without
                  limitation the right of the Executive to terminate employment
                  for Good Reason pursuant to Subsection 4d or the right of
                  Cinergy to terminate the Executive's employment for Cause
                  pursuant to Subsection 4b, will not be deemed to be a waiver
                  of that provision or right or any other provision or right of
                  this Agreement.

         f.       References in this Agreement to the masculine include the
                  feminine unless the context clearly indicates otherwise.

         g.       This instrument contains the entire agreement of the Executive
                  and Cinergy with respect to the subject matter of this
                  Agreement; and subject to any agreements evidencing stock
                  option or restricted stock grants described in Subsection 3b
                  and the Stock Related Documents, all promises,
                  representations, understandings, arrangements, and prior
                  agreements are merged into this Agreement and accordingly
                  superseded.

         h.       This Agreement may be executed in counterparts, each of which
                  will be deemed to be an original but all of which together
                  will constitute one and the same instrument.

         i.       Cinergy and the Executive agree that Cinergy Services, Inc.
                  will be authorized to act for Cinergy with respect to all
                  aspects pertaining to the administration and interpretation of
                  this Agreement.

         IN WITNESS WHEREOF, the Executive and the Company have caused this
Agreement to be executed as of the Effective Date.

                                   CINERGY SERVICES, INC.


                                   By:  /s/ James E. Rogers
                                      ------------------------------
                                        James E. Rogers
                                        Chairman and
                                        Chief Executive Officer

                                   EXECUTIVE

                                     /s/ Charles J. Winger
                                   ---------------------------------
                                   Charles J. Winger


                                      -22-

EX-10.N

                                  CINERGY CORP.
            AMENDED AND RESTATED SEPARATION AND RETIREMENT AGREEMENT
                       AND WAIVER AND RELEASE OF LIABILITY

         This Amended and Restated Separation and Retirement Agreement and
Waiver and Release of Liability (the "Agreement"), which is effective as of this
15th day of February, 2002, is entered into by and between Larry E. Thomas (the
"Executive") and Cinergy Corp., with the mutual exchange of promises as
consideration. Capitalized words and terms used throughout this Agreement that
are not defined elsewhere in this Agreement are defined in Section 22.

                                    RECITALS

     A.   The Executive has elected to terminate voluntarily his employment with
Cinergy and retire effective March 31, 2002.

     B.   The Executive resigned from his position as Chief Executive Officer of
the Power Technology & Infrastructure Services Business Unit ("Former Position")
effective June 30, 2001 and continued in the employ of Cinergy in a new position
with the title of Vice Chairman of Public Service Indiana (PSI) ("New Position")
following such resignation from such Former Position and plans to continue in
such New Position until his retirement on March 31, 2002. Cinergy desires to
have the Executive serve in the New Position until his retirement and is willing
to relocate the Executive to Indianapolis, Indiana and to provide certain
additional benefits and arrangements to the Executive, provided that the
Executive executes and does not timely revoke this Agreement.

     C.   Previously, the Executive and Cinergy negotiated certain additional
separation benefits to be paid to the Executive in exchange for his voluntary
retirement provided that the Executive executed (and did not timely revoke) the
Cinergy Corp. Separation and Retirement Agreement and Waiver and Release of
Liability and timely executed and did not timely revoke a waiver and release, in
the form attached to the Cinergy Corp. Separation and Retirement Agreement and
Waiver and Release of Liability as Exhibit A, of all claims that the Executive
might be able to assert against Cinergy and certain related entities and
individuals.

     D.   The parties have agreed to enter into this Agreement, which has been
specifically negotiated between the Executive and Cinergy. The parties
acknowledge and agree that this Agreement replaces and supersedes (i) the
Amended and Restated Employment Agreement dated December 30, 1999 ("Employment
Agreement") and (ii) and the Cinergy Corp. Separation and Retirement Agreement
and Waiver and Release of Liability.

     THEREFORE, Cinergy and the Executive enter into the following Agreement:

                                    AGREEMENT

     1.   NEW POSITION, RELOCATION, AND RETIREMENT.

          a.   RESIGNATION FROM FORMER POSITION. The Executive agreed to resign
from his Former Position effective June 30, 2001, and did so resign.





          b.   NEW POSITION. Cinergy extended to the Executive, and the
Executive accepted, the New Position effective July 1, 2001. The New Position is
located in the metropolitan area of Indianapolis, Indiana. The duties of the New
Position are those duties assigned to the Executive by the Chief Executive
Officer of the Company from time to time. Until March 31, 2002, the compensation
and prerequisites for the New Position will be the same as those for the
Executive's Former Position as provided in Section 3 of the Employment
Agreement.

          c.   RELOCATION. In June of 2001, the Executive relocated to the
metropolitan area of Indianapolis, Indiana, pursuant to the terms of the
Executive Relocation Agreement.

          d.   TERMINATION OF EMPLOYMENT. The Executive will retire, and his
employment with Cinergy will terminate, effective as of the close of business on
March 31, 2002.

          e.   EFFECT ON OTHER AGREEMENTS. This Agreement replaces and
supersedes, except as otherwise provided in Section 1.b of this Agreement, any
and all prior employment, separation and retirement agreements between Cinergy
and the Executive, including but not limited to (i) the Employment Agreement and
(ii) the Cinergy Corp. Separation and Retirement Agreement and Waiver and
Release of Liability.

     2.   SEPARATION BENEFITS. In exchange for resigning from employment,
entering into this Agreement, and satisfying any additional conditions set forth
in this Agreement, the Executive will receive the following benefits, as a
result of negotiations between the parties, which benefits shall be payable
following March 31, 2002 as described below:

          a.   SEVERANCE PAY. After March 31, 2002, provided that the Executive
timely executes and does not timely revoke a waiver and release, in the form
attached to this Agreement as EXHIBIT A, of all claims that the Executive might
be able to assert against Cinergy and certain related entities and individuals
(the "Waiver and Release"), Cinergy agrees to pay the Executive, in lieu of any
other severance benefits that might be payable to the Executive under the
Employment Agreement, severance pay in the gross amount of $3,382,276.00. This
amount, less applicable tax withholdings, will be paid in a lump sum within 10
days after the expiration of the revocation period described in the Waiver and
Release.

          b.   RETIREE WELFARE BENEFITS. After March 31, 2002, provided that the
Executive executes and does not timely revoke the Waiver and Release, upon his
retirement, pursuant to this Agreement, the Executive will be entitled to
comprehensive retiree medical and dental coverage pursuant to the terms of the
Cinergy Corp. Welfare Benefits Program. The Executive will receive the maximum
subsidy provided by Cinergy to retirees for purposes of determining the amount
of the monthly premiums due from the Executive.

          c.   VACATION PAY. After March 31, 2002, provided that the Executive
executes and does not timely revoke the Waiver and Release, within 10 days after
the expiration of the revocation period described in the Waiver and Release, the
Executive will receive, in a lump sum cash payment, fifteen (15) weeks of
accrued but unused vacation pay in the gross amount of $158,656.20, less
applicable tax withholdings.

                                       -2-



          d.   WAIVER OF PREPAYMENT PENALTY. If the prepayment penalty under
Cinergy's Executive Stock Purchase Program is waived for any participant in that
program, it will also be waived for the Executive.

          e.   EXECUTIVE SUPPLEMENTAL LIFE INSURANCE. After March 31, 2002,
provided that the Executive timely executes and does not timely revoke the
Waiver and Release, the Executive will receive the value of the additional life
insurance provided to the Executive under the Executive Supplemental Life
Insurance Program, which is $150,000. This amount will be paid to the Executive
in cash, in equal annual installments of $15,000, less applicable tax
withholdings, over a 10-year period beginning in February of 2003.

          f.   STOCK OPTIONS. Any rights the Executive may have with respect to
the stock options granted to the Executive on October 24, 1994 will be
determined under the terms of the incentive stock option agreement dated October
24, 1994 the nonqualified stock option agreement dated October 24, 1994, and the
Cinergy Corp. Stock Option Plan effective October 24, 1994. Similarly, any
rights the Executive may have with respect to the stock options granted to the
Executive pursuant to the Cinergy Corp. 1996 Long-Term Incentive Compensation
Plan ("LTIP") will be determined under the LTIP, the relevant Administrative
Guidelines and any incentive stock option agreement or nonqualified stock option
agreement that the Executive may have been required to sign with regard to those
options.

          g.   LONG-TERM INCENTIVE PLAN. After March 31, 2002, provided that the
Executive timely executes and does not revoke the Waiver and Release, the
Executive shall receive any performance shares award to which he may become
entitled under Cycle IV, Cycle V and Cycle VI of the LTIP and the Cinergy Corp.
Value Creation Plan The amount of any such award shall be determined and
pro-rated, and any such award shall be paid to the Executive, in accordance with
the terms of the LTIP, the Value Creation Plan, any relevant administrative
guidelines, and any applicable performance shares agreements.

          h.   TAX COUNSELING. After March 31, 2002, provided that the Executive
timely executes and does not timely revoke the Waiver and Release, Cinergy will
provide tax counseling services to the Executive through an agency selected by
the Executive, not to exceed $15,000 in cost.

          i.   AUTOMOBILE ALLOWANCE. After March 31, 2002, provided that the
Executive executes and does not timely revoke the Waiver and Release, the
Executive will receive a lump sum payment of $50,000, grossed up to cover any
applicable federal and state income taxes, to cover the cost of the Executive's
automobile. This amount, less applicable withholding taxes, will be paid to the
Executive within fifteen (15) days after the expiration of the revocation period
described in the Waiver and Release.

          j.   COMPUTER ALLOWANCE. After March 31, 2002, provided that the
Executive executes and does not timely revoke the Waiver and Release, the
Executive will receive a lump sum payment of $2,000, grossed up for applicable
federal and state income taxes, which payment will be reduced by applicable
withholding taxes, to cover the cost of a computer and printer. This amount will
be paid to the Executive within fifteen (15) days after the expiration of the
revocation period described in the Waiver and Release.

                                      -3-



          k.   SUPPLEMENTAL RETIREMENT BENEFIT. The Executive shall be entitled
to the benefits described in this Section 2.k but only if, after March 31, 2002,
he timely executes and does not revoke the Waiver and Release. The Executive
will be entitled to, and fully vested in, a supplemental retirement benefit in
an annual amount equal to the excess of (1) 60% of the Executive's Highest
Average Earnings over (2) his total aggregate annual benefit under the Pension
Plan and the Cinergy Corp. Excess Pension Plan, PROVIDED, HOWEVER, that the
amount in clause (2) above shall be calculated based upon the assumption that
the Executive elects to receive the distribution of his benefits under the
Pension Plan and the Cinergy Corp. Excess Pension Plan in the form of a
contingent pension option which provides a reduced pension to the Executive
during his lifetime and an equal amount (i.e., the 100% option) to the
Executive's Spouse during her lifetime if she survives the Executive; and
PROVIDED FURTHER, HOWEVER, that the Executive's Spouse, if she survives the
Executive, shall be entitled to receive a supplemental retirement benefit in an
amount equal to the monthly amount received by the Executive, the payment of
which shall commence upon the Executive's death and shall continue during the
remaining portion of the Spouse's life. Notwithstanding the preceding sentence,
the amount of the supplemental retirement benefit payable to the Executive shall
be calculated without regard to the fact that the Spouse, if she survives the
Executive, shall also be entitled to a benefit under this Section 2.k. All terms
in this Section 2.k with initial capital letters that are not defined in this
Agreement shall have the meaning given to such terms in the Employment
Agreement. The benefits provided pursuant to this Section 2.k shall be provided
to the Executive in accordance with the funding provisions of Article 12 of the
Cinergy Corp. Supplemental Executive Retirement Plan ("SERP") and any trust that
has been established in connection with the SERP (including the Master Trust for
Cinergy Corp. Nonqualified Deferred Compensation Plans); PROVIDED, HOWEVER, that
the benefit provided to the Executive pursuant to this Section 2.k shall be in
lieu of any benefit provided to the Executive under the SERP and the Executive
shall not be entitled to any benefit under that plan.

          l.   2001 ANNUAL INCENTIVE PLAN. The Executive shall receive a lump
sum payment, less applicable withholding taxes, equal to the excess of (a) the
incentive award the Executive would have received under the Cinergy Corp. Annual
Incentive Plan ("AIP") for the 2001 performance period if he attained a level
three payout with respect to both corporate and individual goals over (b) the
incentive award the Executive actually received under the AIP for the 2001
performance period.

          m.   2002 ANNUAL INCENTIVE PLAN. After March 31, 2002, provided the
Executive timely executes and does not timely revoke the Waiver and Release, the
Executive will receive an AIP award for the 2002 performance period equal to 25%
of the award that he would have received if he had remained employed until the
date of payment of the award, which award will be paid based on a level three
payout with respect to both individual and corporate goals, which payment shall
be reduced by applicable withholding taxes and shall be payable in March, 2003.

     3.   RELEASE AND INDEMNITY. Cinergy irrevocably and unconditionally
releases and discharges the Executive and will indemnify, save and hold
harmless, and defend the Executive from any and all claims, losses, demands,
suits, actions, causes of action, damages, costs, and expenses, including
attorneys' fees, payments, judgments, and any and all liability arising, or
alleged to arise, in whole or in part, from or out of, in any manner whatsoever,
any work performed by the Executive while he was employed by Cinergy.

                                      -4-



     4.   BASIS FOR ENTITLEMENT. The Executive acknowledges that he would not be
entitled to certain of the benefits described in this Agreement absent his
election to terminate employment voluntarily and retire voluntarily and his
execution of this Agreement and the Waiver and Release.

     5.   ADEQUATE CONSIDERATION. The Executive agrees that this Agreement
provides good, valuable, and sufficient consideration for the obligations he
assumes in Sections 6 through 13 and Section 17 and the Waiver and Release.

     6.   WAIVER OF CLAIMS. The Executive irrevocably and unconditionally waives
and releases any and all rights or claims that he has or may have, as of the
date of the execution of this Agreement, based on or arising out of the
employment relationship, or the termination of the employment relationship,
against Cinergy, its employee benefit plans, or any of their respective current
or former officers, directors, agents, employees, fiduciaries, attorneys,
insurers, predecessors, successors, or assigns (together, the "Releasees"),
other than workers' compensation claims filed prior to the date of execution of
this Agreement and claims for vested benefits under the terms of Cinergy's
qualified pension and profit sharing plans. The rights and claims so waived
include, but are not limited to, the following:

          a.   Claims and rights arising under any federal, state, or local
statute, ordinance, or common law (including, but not limited to, claims for
breach of promise, breach of contract, promissory estoppel, intentional
infliction of emotional distress, negligent misrepresentation, defamation, and
wrongful discharge) or claims in equity or public policy;

          b.   Claims and rights arising under any law relating to sex, race,
age, religion, disability, or national origin discrimination (including but not
limited to any rights or claims arising under Title VII of the Civil Rights Act
of 1964, the Age Discrimination in Employment Act of 1967, the Employee
Retirement Income Security Act of 1974, the Americans with Disabilities Act, the
Fair Labor Standards Act of 1938, the Family and Medical Leave Act, the Indiana
Civil Rights Law, the Kentucky Labor and Human Rights Law, and the Ohio Fair
Employment Practices Law, as those laws may be amended from time to time);

          c.   Claims or rights arising under the civil rights laws of any state
or municipality; and

          d.   Any claims for compensatory damages, punitive damages, attorneys'
fees, expenses, and litigation costs.

     7.   FUTURE EMPLOYMENT. The Executive waives any right to assert any claim
or demand for reemployment with Cinergy. The Executive, however, may accept an
offer of reemployment with Cinergy in the event such an offer is made.

     8.   NONDISCLOSURE OF CONFIDENTIAL INFORMATION. The Executive will not at
any time, directly or indirectly, use any trade secrets or confidential
information of Cinergy for his benefit or the benefit of any other person or,
directly or indirectly, disclose any trade secrets or confidential information
of Cinergy to any other person, unless he is required by law or any lawful
authority to do so. For purposes of this Section, "confidential information of
Cinergy" means all secret, proprietary information, knowledge, or data relating
to Cinergy and its businesses that have been obtained by the Executive during
the Executive's employment by

                                      -5-



Cinergy that have not been now or subsequently become public knowledge (other
than by acts of the Executive or representatives of the Executive in
violation of this Agreement).

     9.   CONSULTING ARRANGEMENT. The Executive agrees to serve as a business
consultant to Cinergy for a period of three (3) years beginning on the
Termination Date (the "Consulting Period"). The consulting services to be
provided by the Executive during the Consulting Period will consist of
consultation with, and advice to, the officers and managerial employees of
Cinergy, as requested by Cinergy, on matters relating to Cinergy's business
affairs about which the Executive has knowledge and experience. The consulting
services will be performed at reasonable times when and as needed, as determined
by mutual agreement between Cinergy and the Executive. The parties understand
and agree that all of the consulting services to be provided by the Executive
under this Agreement will be performed by him as an independent contractor and
not as an employee of Cinergy. The Executive will not have any authority to act
as an agent or representative of Cinergy, except to the extent expressly
authorized in writing by Cinergy. The Executive will perform his consulting
services to the best of his abilities. The Executive's duties pursuant to this
Paragraph are purely those of a consultant, and Cinergy is free to accept or
reject his advice as it deems appropriate. Cinergy is responsible for all
actions it chooses to take based on the Executive's advice, and Cinergy agrees
to hold the Executive harmless for the results of those actions, including all
losses and damages resulting from any legal or regulatory action. Cinergy will
reimburse the Executive for all expenses authorized by Cinergy and incurred by
the Executive, including but not limited to telephone, duplication, secretarial
services, mail and courier services, and normal supplies that may reasonably be
required. Reimbursement will be made within thirty (30) days of Cinergy's
receipt of reasonable and customary documentation. For any travel requested and
authorized by Cinergy, the Executive will be reimbursed for all reasonable and
customary expenses, including transportation, parking, food, and lodging.
Nothing in this Section 9 will prohibit the Executive from seeking or accepting
other employment, engaging in any other consulting services, or participating in
any other endeavor for profit, as he deems appropriate, provided that, in so
doing, he does not breach any of his other obligations under this Agreement.

     10.  NON-SOLICITATION AND NON-COMPETITION. At no time during the Consulting
Period will the Executive: (a) employ or seek to employ any person employed at
that time by Cinergy or otherwise encourage or entice any such person to leave
employment with Cinergy; (b) become employed by, enter into a consulting
arrangement with, or otherwise agree to perform personal services for, a
Competitor; (c) acquire an ownership interest in a Competitor, provided that the
Executive may, for investment purposes, own not more than 3% of the outstanding
stock of any class of a Competitor that is publicly traded; or (d) solicit any
customers or vendors of Cinergy on behalf of or for the benefit of a Competitor.

          The Executive acknowledges that monetary damages will not be an
adequate remedy for Cinergy in the event of a breach of this Section 10, and
that it would be impossible for Cinergy to measure damages in the even of such a
breach. Therefore, the Executive agrees that, in lieu of any other remedy that
Cinergy may have for such a breach, Cinergy is entitled to an injunction
preventing the Executive from any breach of this Section 10.

     11.  COOPERATION WITH LITIGATION. Upon Cinergy's request, the Executive
agrees to render reasonable assistance to Cinergy in connection with any
litigation or investigation relating to Cinergy's business, provided that
rendering such assistance does not impose an unreasonable

                                      -6-



burden on the Executive. Such assistance will include, but will not be limited
to, providing information, attending meetings, assisting with interrogatories,
giving depositions, and making court appearances. The Executive agrees to notify
the General Counsel of the Company promptly of any requests for information or
testimony that the Executive receives in connection with any litigation or
investigation relating to Cinergy's business. Cinergy agrees to advance to the
Executive, without any expectation of repayment, any monies reasonably
anticipated by the Executive as necessary to discharge the Executive's
obligations under this Section and to reimburse the Executive for his time and
out-of-pocket expenses in meeting those obligations.

     12.  RETURN OF CORPORATE PROPERTY. Except as otherwise provided in this
Agreement, the Executive agrees to return to Cinergy all keys, identification
badges, electronic passes, credit cards, computer programs, and other property
belonging to Cinergy when requested and to do so by Cinergy's representative.

     13.  COMMUNICATIONS. While the Executive is employed by Cinergy and
thereafter, Cinergy will not make any untrue, disparaging, defamatory, or
derogatory statements about the Executive, and the Executive will not make any
untrue, disparaging, defamatory, or derogatory statements about Cinergy.

     14.  SEVERABILITY. If any portion of this Agreement is found to be
unenforceable for any reason, the parties agree that the remaining portions will
remain in effect (to the extent the invalidity of the particular portion does
not substantially undermine the purpose of this Agreement).

     15.  CONSULTATION WITH ATTORNEY ADVISED. The Executive is advised to
consult with an attorney prior to executing this Agreement. The Executive
acknowledges being given that advice. The Executive represents that he has read
and fully understands all of the provisions of this Agreement. The Executive
represents that he is voluntarily signing this Agreement.

     16.  TIME TO CONSIDER. The Executive acknowledges that he has been given a
period of at least twenty-one (21) days within which to consider and sign this
Agreement.

          a.   To enter into this Agreement, the Executive must execute it by
signing, dating, and returning it to James E. Rogers, Jr., Cinergy Corp., 221
East Fourth Street, Cincinnati, Ohio, 45202.

          b.   The Executive acknowledges that if he has signed this Agreement,
it is because he freely chose to do so.

          c.   The Executive may revoke this Agreement during the seven (7)
calendar days after he signs it. To be effective, a revocation must be
communicated in writing to James E. Rogers, Jr., Cinergy Corp., 221 East Fourth
Street, Cincinnati, Ohio, 45202, and delivered no later than 5:00 p.m. Eastern
Standard Time on the final day of the seven (7) day period.

     17.  CONFIDENTIALITY. The Executive covenants and agrees to keep completely
confidential and not to disclose the existence or terms of this Agreement except
to Executive's spouse, legal counsel, accountant, and financial advisors, unless
he is required by law or any lawful authority to do so. The Executive will
advise those to whom proper disclosure is made that this is a confidential
agreement, and he will instruct them that they are not to disclose the

                                      -7-




existence or terms of this Agreement. In addition, the Executive covenants and
agrees that any breach of this confidentiality provision will be considered a
breach of this Agreement.

     18.  BINDING EFFECT OF AGREEMENT. This Agreement will be binding upon and
will operate for the benefit of, the heirs, executors, administrators, assigns,
and successors in interest of the Executive and Cinergy. Cinergy agrees that in
the event of a sale, merger, acquisition, or other change in structure
(including the cessation or restructuring of any part of Cinergy's business)
and/or ownership, Cinergy will ensure that the contract language pertaining to
the transaction confirms the continuing liability of Cinergy (and its assigns
and successors in interest) to the Executive under this Agreement.

     19.  COMPLETE AGREEMENT. Except as otherwise expressly provided in this
Agreement, the terms of this Agreement and the Waiver and Release constitute the
entire Agreement between the parties and supersede all previous communications,
representations, and agreements, oral or written, between the parties with
respect to the subject matter of this Agreement. No agreement or understanding
modifying this Agreement will be binding on either party unless it is in writing
and signed by an authorized representative of the party sought to be bound. If
any part of this Agreement is adjudged by a court of competent jurisdiction to
be contrary to law, then this Agreement will, in all other respects, remain
effective and binding to the full extent permitted by law.

     20.  ARBITRATION. The parties agree that any dispute, claim, or controversy
based on common law, equity, or any federal, state, or local statute, ordinance,
or regulation (other than workers' compensation claims) arising out of or
relating in any way to the Executive's employment, the terms, benefits, and
conditions of employment, or concerning this Agreement or its termination and
any resulting termination of employment, including whether such a dispute is
arbitrable, will be settled by arbitration. This agreement to arbitrate includes
but is not limited to all claims for any form of illegal discrimination,
improper or unfair treatment or dismissal, and all tort claims. The Executive
will still have a right to file a discrimination charge with a federal or state
agency, but the final resolution of any discrimination claim will be submitted
to arbitration instead of a court or jury. The arbitration proceeding will be
conducted under the employment dispute resolution arbitration rules of the
American Arbitration Association in effect at the time a demand for arbitration
under the rules is made. The decision of the arbitrator(s), including
determination of the amount of any damages suffered, will be exclusive, final,
and binding on all parties, their heirs, executors, administrators, successors
and assigns. Each party will bear its own expenses in the arbitration for
arbitrators' fees and attorneys' fees, for its witnesses, and for other expenses
of presenting its case. Other arbitration costs, including administrative fees
and fees for records or transcripts, will be borne equally by the parties.
Notwithstanding anything in this Section to the contrary, if the Executive
prevails with respect to any dispute submitted to arbitration under this
Section, Cinergy will reimburse or pay all legal fees and expenses that the
Executive may reasonably incur as a result of the dispute.

     21.  GOVERNING LAW. This Agreement will be interpreted, enforced, and
governed under the laws of the State of Ohio, without regard to any principles
of conflicts of laws.

     22.  DEFINITIONS. As used in this Agreement, the following terms, when
capitalized, will have the following meanings:

                                      -8-



          a.   AGREEMENT. "Agreement" means this Amended and Restated Separation
and Retirement Agreement and Waiver and Release of Liability.

          b.   ANNUAL INCENTIVE PLAN. "Annual Incentive Plan" means the Cinergy
Corp. Annual Incentive Plan or any successor to that Plan.

          c.   CINERGY. "Cinergy" means the Company, Cinergy Services, Inc., The
Cincinnati Gas & Electric Company, and PSI Energy, Inc.

          d.   COMPANY. "Company" means Cinergy Corp.

          e.   COMPETITOR. "Competitor" means any person or entity that sells
goods or services that are directly competitive with those sold by a business
that (1) is being conducted by Cinergy at the time in question and (2) was being
conducted by Cinergy on the Termination Date. Notwithstanding anything in the
preceding sentence, goods or services will not be deemed to be competitive with
those of Cinergy solely as a result of the Executive being employed by or
otherwise associated with a business that is in competition with Cinergy but as
to which the Executive does not have direct or indirect responsibilities for the
products or services involved.

          f.   EMPLOYMENT AGREEMENT. "Employment Agreement" means the Amended
and Restated Employment Agreement between the Executive and Cinergy dated
December 30, 1999.

          g.   EXECUTIVE. "Executive" means Larry E. Thomas.

          h.   EXECUTIVE RELOCATION AGREEMENT. "Executive Relocation Agreement"
means the Cinergy Corp. Executive Relocation Agreement.

          i.   EXECUTIVE SUPPLEMENTAL LIFE PROGRAM. "Executive Supplemental Life
Program" means the Cinergy Corp. Executive Supplemental Life Insurance Program
and any successor that that plan.

          j.   NEW POSITION. "New Position" has the meaning set forth in
Subsection l.b.


          k.   TERMINATION DATE. "Termination Date" means March 31, 2002.

         IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed, effective as of the date above written.

CINERGY CORP.                                  Larry E. Thomas



By:
   -------------------------------             ---------------------------------
   James E. Rogers, Jr.                        Executive


                                      -9-

EX-10.EE

(NOTE:   THIS TABLE OF CONTENTS IS NOT PART OF THE CINERGY CORP. ANNUAL
         INCENTIVE PLAN; INSTEAD, THIS TABLE OF CONTENTS IS MERELY FOR
         CONVENIENCE OF REFERENCE.)

                            TABLE OF CONTENTS



                                                          Page
                                                         Numbers
                                                         -------
                                                               
INTRODUCTION......................................................1

ARTICLE 1 DEFINITIONS.............................................1
  1.1  "Actual Incentive".........................................1
  1.2  "Annual Performance Award".................................2
  1.3  "Annual Program"...........................................2
  1.4  "Beneficiary"..............................................2
  1.5  "Chief Executive Officer"..................................2
  1.6  "Cinergy"..................................................2
  1.7  "Cinergy's Board of Directors".............................2
  1.8  "Cinergy's Committee"......................................2
  1.9  "Corporate Target Goal"....................................2
  1.10 "Covered Employee".........................................3
  1.11 "Earnings".................................................3
  1.12 "Effective Time of the Mergers"............................4
  1.13 "Employee".................................................4
  1.14 "Employer".................................................4
  1.15 "Employer's Board of Directors"............................4
  1.16 "Exempt Employee"..........................................4
  1.17 "FLSA".....................................................4
  1.18 "Incentive Factor".........................................4
  1.19 "Individual Goal"..........................................5
  1.20 "Maximum Incentive"........................................5
  1.21 "Minimum Incentive"........................................5
  1.22 "1934 Act".................................................5
  1.23 "Non-Exempt Employee"......................................5
  1.24 "Nonqualified Deferred Compensation Plan"..................6
  1.25 "Participant"..............................................6
  1.26 "Performance Period".......................................6
  1.27 "Plan".....................................................6
  1.28 "Total Disability".........................................6
  1.29 "Union Employee"...........................................6
ARTICLE 2 EFFECTIVE DATE OF PLAN..................................7
ARTICLE 3 PURPOSE OF PLAN.........................................7
ARTICLE 4 EMPLOYER'S ELECTION TO PARTICIPATE IN PLAN..............8


                                       -i-


                                                              
ARTICLE 5 EFFECT OF PLAN ON OTHER PLANS...........................8
ARTICLE 6 ELIGIBILITY.............................................9
ARTICLE 7 ANNUAL PERFORMANCE AWARD...............................10
ARTICLE 8 CORPORATE TARGET GOALS AND INDIVIDUAL GOALS............11
ARTICLE 9 DISTRIBUTION...........................................12
ARTICLE 10 CONDITIONS TO ANNUAL PERFORMANCE AWARDS...............12
 10.1  Government Regulations....................................12
 10.2  Continued Employment......................................12
ARTICLE 11 BENEFICIARY...........................................14
ARTICLE 12 NON-ALIENATION OF BENEFITS............................15
ARTICLE 13 FUNDING POLICY AND METHOD.............................15
ARTICLE 14 CHANGE IN CONTROL.....................................15
ARTICLE 15 ADMINISTRATION........................................19
ARTICLE 16 MISCELLANEOUS.........................................20
 16.1  No Enlargement of Employee Benefits.......................20
 16.2  Notice of Address.........................................20
 16.3  No Individual Liability...................................21
 16.4  Delegation of Administrative Duties.......................21
 16.5  Governing Laws............................................21
 16.6  Risk of Participation.....................................21
 16.7  Headings..................................................21
ARTICLE 17 CONTRIBUTIONS.........................................22
ARTICLE 18 AMENDMENT AND TERMINATION.............................22
ARTICLE 19 CONTINUANCE BY A SUCCESSOR............................22
ARTICLE 20 COVERED EMPLOYEES.....................................22



                                      -ii-


                                 CINERGY CORP.
                              ANNUAL INCENTIVE PLAN
           (AS AMENDED AND RESTATED EFFECTIVE AS OF JANUARY 25, 2002)

                                  INTRODUCTION

       On October 18, 1994, Cinergy Corp. adopted a short-term incentive
compensation plan known as the "CINergy Corp. Annual Incentive Plan" (the
"Plan") for the exclusive benefit of eligible employees of Cinergy Corp. and its
subsidiaries (the "Employers"). Upon the "Effective Time of the Mergers" as
defined in this document, Cinergy Corp. became the holding company for PSI
Energy, Inc. and The Cincinnati Gas & Electric Company. The Plan allows the
Employers to implement annual incentive compensation programs in which certain
employees are granted awards payable in cash based upon the extent to which
certain predetermined goals are attained during the applicable calendar year.
The Plan was originally effective as of the Effective Time of the Mergers.
Effective as of January 25, 2002, the Plan is re-named the "Cinergy Corp. Annual
Incentive Plan" and is amended and restated in its entirety as set forth herein.

                                    ARTICLE 1

                                   DEFINITIONS

       Whenever used in this document, the following terms shall have the
respective meanings set forth below, unless a different meaning is plainly
required by the context:

       1.1 "Actual Incentive" means, with respect to each Participant, the
Minimum Incentive which, when adjusted in the manner set forth in Article 7
(Annual Performance Award), constitutes the percentage applied to a
Participant's Earnings as of the applicable date as determined by an Employer's
Board of Directors (or with respect to each Covered Employee, the

                                       -1-


AIP Committee (as defined in Article 20 (Covered Employees)) which is the actual
amount of incentive compensation opportunity available for a particular
Performance Period. However, a Participant's Actual Incentive may not exceed his
Maximum Incentive.

       1.2 "Annual Performance Award" means, with respect to each Participant,
the short-term incentive compensation award to which a Participant becomes
entitled upon the attainment of certain Corporate Target Goals and Individual
Goals for a particular Performance Period, and which is calculated in the manner
set forth in Article 7 (Annual Performance Award).

       1.3  "Annual Program" means, with respect to each Employer, the annual
short-term incentive compensation program adopted by that Employer's Board of
Directors to implement the Plan as set forth in Article 4 (Employer's Election
to Participate in Plan).

       1.4  "Beneficiary" means, with respect to each Participant, the recipient
designated by the Participant who is, upon the Participant's death, entitled in
accordance with the Plan's terms to receive the benefits to be paid with respect
to the Participant.

       1.5  "Chief Executive Officer" means the Employee elected by an
Employer's  Board of Directors to serve as the chief  executive  officer of that
Employer.

       1.6  "Cinergy" means Cinergy Corp., a Delaware corporation, and any
corporation which shall succeed to its business as described in Article 19
(Continuance by a Successor).

       1.7  "Cinergy's Board of Directors" means the duly constituted board of
directors of Cinergy on the applicable date.

       1.8  "Cinergy's Committee" means the duly designated Compensation
Committee of Cinergy's Board of Directors.

       1.9  "Corporate Target Goal" means an objective performance criterion
pertaining to an Employer's performance, efficiency, or profitability measured
by specified levels or of growth in one or more performance criteria including,
but without limitation, stock price, total

                                       -2-


shareholder return, market share, sales, earnings per share, costs, operating
income, net income, cash flow, fuel cost per million BTU, cost per
kilowatt-hour, retained earnings, return on equity, return on assets, return on
capital employed, return on invested capital, return on sales, completion of
acquisitions, and other objective financial ratios used in determining whether a
Participant is entitled to receive an Annual Performance Award at the end of a
Performance Period. A Corporate Target Goal is considered objective if a third
party having knowledge of the relevant facts could determine whether the goal is
met.

       1.10 "Covered Employee" shall have the meaning set forth in Paragraph
162(m)(3) of the Internal Revenue Code of 1986, as amended (the "Code").

       1.11 "Earnings" means (a) with respect to an Exempt Employee, the amount
of the Employee's total annual base salary (based on the Employee's monthly base
salary received as remuneration for services performed for the Performance
Period, exclusive of any allowances, premiums, bonuses, overtime, or other forms
or types of compensation) for the Performance Period; provided, however, that
with respect to each Covered Employee, Earnings means the Covered Employee's
monthly base salary (exclusive of any allowances, premiums, bonuses, overtime,
or other forms or types of compensation) determined as of the first day of the
applicable Performance Period multiplied by 12, and (b) with respect to either a
Non-Exempt Employee or a Union Employee, the amount of the Employee's total
annual base wage (based on the Employee's hourly base rate of pay received for
services performed for the Performance Period, exclusive of any allowances,
premiums, bonuses, overtime, or other forms or types of compensation) for the
Performance Period. Notwithstanding the preceding sentence, a Participant's
"Earnings" for a Performance Period shall be increased by the amount of any
nonelective contribution (other than a matching contribution) made on behalf of
such Participant under the Cinergy Corp. 401(k) Excess Plan (as amended from
time to time) for such

                                       -3-


Performance Period but only to the extent that Cinergy's Committee (or any
committee to which it has delegated such authority) specifies that such
nonelective contribution will be included in "Earnings" under this Plan, which
specification must be made for any Covered Employee within the time necessary to
satisfy the requirements of Code Subsection 162(m).

       1.12 "Effective Time of the Mergers" means "Effective Time" as defined
in the Amended and Restated Agreement and Plan of Reorganization by and among
The Cincinnati Gas & Electric Company, PSI Resources, Inc., PSI Energy, Inc.,
CINergy, and CINergy Sub, Inc., dated as of December 11, 1992, as subsequently
amended and restated.

       1.13 "Employee" means any person who, at any time on or after the
Effective Time of the Mergers, is (a) in the employ of an Employer, (b) in the
employ of an Employer, but whose time is allocated 100 percent to another
Employer, or (c) in the employ of an Employer, but who is assigned full-time to
another Employer.

       1.14 "Employer" means Cinergy and all of its directly or indirectly held
majority or greater-owned subsidiaries.

       1.15 "Employer's Board of Directors" means the duly constituted board of
directors of an Employer on the applicable date, or its designee.

       1.16 "Exempt Employee" means an Employee who is regularly employed by his
Employer for 30 or more hours per week, whose pay is customarily computed on a
monthly basis, and whose employment is not subject to FLSA overtime and record
keeping provisions.

       1.17 "FLSA" means the Fair Labor Standards Act of 1938, as amended from
time to time, and interpretive rulings and regulations.

       1.18 "Incentive Factor" means the numerical variable assigned by an
Employer's Board of Directors which corresponds to the extent to which a
Corporate Target Goal or an Individual Goal has been met for a particular
Performance Period.

                                       -4-


       1.19 "Individual Goal" means an objective or subjective performance
criterion pertaining to individual effort as to enhancement of either individual
performance or achievement or attainment of Corporate Target Goals or other
Individual Goals used in determining whether a Participant is entitled to
receive an Annual Performance Award at the end of a Performance Period. An
Individual Goal is considered objective if a third party having knowledge of the
relevant facts could determine whether the goal is met; otherwise an Individual
Goal is considered subjective.

       1.20 "Maximum Incentive" means, with respect to each Participant, the
percentage applied to a Participant's Earnings as of the applicable date
determined by an Employer's Board of Directors to be the appropriate maximum
incentive compensation opportunity for a particular Performance Period.

       1.21 "Minimum Incentive" means, with respect to each Participant, the
percentage applied to a Participant's Earnings as of the applicable date
determined by an Employer's Board of Directors to be the appropriate minimum
incentive compensation opportunity for a particular Performance Period.

       1.22 "1934 Act" means the Securities Exchange Act of 1934, as amended
from time to time, and interpretive rulings and regulations.

       1.23 "Non-Exempt Employee" means an Employee who is regularly employed by
his Employer for 30 or more hours per week, whose pay is customarily computed on
an hourly, weekly, or bi-weekly basis, whose employment is subject to FLSA
overtime and record keeping provisions, and who is not assigned to an employment
position covered by a collective bargaining agreement to which his Employer is a
party.

                                       -5-


       1.24 "Nonqualified Deferred Compensation Plan" means the nonqualified
deferred compensation arrangement known as the "Cinergy Corp. Nonqualified
Deferred Incentive Compensation Plan," as amended from time to time, and any
successor plan thereto.

       1.25 "Participant" means any Exempt Employee, Non-Exempt Employee, or
Union Employee selected by an Employer's Board of Directors to participate in
the Employer's Annual Program pursuant to Article 6 (Eligibility).

       1.26 "Performance Period" means the period of time over which performance
with respect to a Corporate Target Goal or an Individual Goal is measured. Each
Performance Period shall consist of a one-year period beginning on January 1 of
each calendar year and ending on December 31 of the same calendar year. The term
"Performance Period" shall include any performance period in effect under the
"PSI Resources, Inc. Annual Incentive Plan," as amended from time to time, and
the "PSI Energy, Inc. Annual Incentive Plan," as amended from time to time, as
of the Effective Time of the Mergers.

       1.27 "Plan" means the short-term incentive compensation plan known as the
"Cinergy Corp. Annual Incentive Plan," as amended from time to time.

       1.28 "Total Disability" means, with respect to any Participant, a mental
or physical condition as result of an illness or injury which, in the judgment
of an Employer's Board of Directors, based upon medical reports and other
evidence satisfactory to the Employer's Board of Directors prevents the
Participant from engaging in any gainful occupation for which the Participant is
reasonably qualified by reason of education, training, or experience.

       1.29 "Union Employee" means an Employee who is regularly employed by his
Employer for 30 or more hours per week, whose pay is customarily computed on an
hourly, weekly, or bi-weekly basis, whose employment is subject to FLSA overtime
and record keeping

                                       -6-


provisions, and who is assigned to an employment position covered by a
collective bargaining agreement to which his Employer is a party.

         The uses of singular and masculine words are for practical purposes
only and shall be deemed to include the plural and feminine, respectively,
unless the context plainly indicates a distinction. Certain other definitions,
as required, appear in the following Articles of the Plan.

                                    ARTICLE 2

                             EFFECTIVE DATE OF PLAN

       The Plan's provisions, as amended and restated as set forth in this
document, are effective as of January 25, 2002 and shall be applicable only to
Annual Programs adopted on or after such date for Performance Periods commencing
on or after January 1, 2002. The provisions of the Plan as in effect on January
24, 2002 shall be effective for all other Annual Programs.

                                    ARTICLE 3
                                 PURPOSE OF PLAN

       The Plan's purposes are to benefit Employers, shareholders, and
ratepayers by the accomplishment of specific challenging and demanding corporate
or personalized goals, enhancement of teamwork, motivation, high achievement,
and the attraction and retention of qualified Employees. Upon the accomplishment
of these corporate or personalized goals, the Plan provides a reward for
performance and maximum effort by Employees who contribute to an Employer's
success. The Plan is an annual incentive compensation plan in which an Exempt
Employee, a Non-Exempt Employee, or a Union Employee who is selected to
participate in an Employer's Annual Program under the Plan is granted an award
payable in cash, but only to the extent that certain predetermined goals are
attained during the applicable calendar year used to measure performance.

                                       -7-


                                    ARTICLE 4

                   EMPLOYER'S ELECTION TO PARTICIPATE IN PLAN

       Each Employer, by action of the Employer's Board of Directors, may elect
to participate in the Plan by adopting an Annual Program. Each Employer's Annual
Program shall consist of Corporate Target Goals, Individual Goals, Actual
Incentives, Incentive Factors, Maximum Incentives, and Minimum Incentives which
will further the Employer's business objectives consistent with the Plan's
purposes. An Employer's Annual Program may be based solely on Corporate Target
Goals, Individual Goals, or a combination of both Corporate Target Goals and
Individual Goals. The determinations made by an Employer's Board of Directors
under this Article shall be subject to approval by Cinergy's Committee before
any Annual Performance Awards are made.

                                    ARTICLE 5

                          EFFECT OF PLAN ON OTHER PLANS

       At the Effective Time of the Mergers, the short-term incentive
compensation plans for PSI Energy, Inc. and PSI Resources, Inc. known
respectively as the "PSI Energy, Inc. Annual Incentive Plan" adopted effective
January 1, 1987, as amended from time to time, and the "PSI Resources, Inc.
Annual Incentive Plan" adopted effective as of January 1, 1991, were merged into
the Plan and entitlement to any awards shall be administered in accordance with
the Plan. In addition, employees of The Cincinnati Gas & Electric Company as of
the Effective Time of the Mergers were eligible to participate on a prorated
basis in the Performance Period in effect at the Effective Time of the Mergers;
provided, however, that any such employee satisfied the eligibility requirements
of Article 6 (Eligibility).

                                       -8-


                                    ARTICLE 6

                                   ELIGIBILITY

       (a) The group of Employees eligible to participate in the Plan shall
consist of Exempt Employees, Non-Exempt Employees, and Union Employees who have
the potential to contribute to an Employer's future success.

       (b) From time to time, the Chief Executive Officer of an Employer may
recommend to the Employer's Board of Directors that any eligible Employee (other
than a Covered Employee) participate in an Annual Program under the Plan. After
reviewing the recommendations, and after considering the duties of each
recommended Employee, his present and potential contribution to the Employer's
success, his other compensation provided by his Employer, and any other factors
as it deems relevant, the Employer's Board of Directors shall select those
Employees who will participate in its Annual Program under the Plan.
Notwithstanding the foregoing, the AIP Committee (as defined in Article 20
(Covered Employees)) shall select those Covered Employees who will participate
in the Plan. When an eligible Employee becomes a Participant in an Employer's
Annual Program under the Plan at other than the beginning of a Performance
Period, the amount of any Annual Performance Award to which he may become
entitled shall be adjusted to reflect his actual time of service as a
Participant during the Performance Period.

       (c) The determinations made by an Employer's Board of Directors under
this Article shall be subject to approval by Cinergy's Committee before any
Annual Performance Awards are made.

                                       -9-


                                    ARTICLE 7

                            ANNUAL PERFORMANCE AWARD

       The Annual Performance Award, with respect to each Participant, for each
Performance Period shall be calculated as follows:

       (a) The appropriate weight for achieving a particular Corporate Target
Goal shall be determined by multiplying the Incentive Factor attributable to the
extent to which the particular Corporate Target Goal has been met for the
Performance Period times the weight (expressed as a percentage) assigned to that
Corporate Target Goal. If there are two or more Corporate Target Goals for a
particular Performance Period, then the weight for achieving each Corporate
Target Goal shall be calculated in the manner set forth in the immediately
preceding sentence;

       (b) The appropriate weight for achieving a particular Individual Goal
shall be determined by multiplying the Incentive Factor attributable to the
extent to which the particular Individual Goal has been met for the Performance
Period times the weight (expressed as a percentage) assigned to that Individual
Goal. If there are two or more Individual Goals for a particular Performance
Period, then the weight for achieving each Individual Goal shall be calculated
in the manner set forth in the immediately preceding sentence;

       (c) After the weight for achieving each Corporate Target Goal and
Individual Goal for the particular Performance Period has been calculated in the
manner set forth in Paragraphs (a) and (b), the resulting percentages shall be
added and the total sum shall be multiplied by the Participant's Minimum
Incentive in order to determine the Participant's Actual Incentive; and

                                      -10-


       (d) The Participant's Actual Incentive shall then be multiplied by the
Participant's Earnings for the applicable Performance Period. The resulting
number, expressed in terms of the nearest whole dollar, is the Participant's
Annual Performance Award.

       (e) An Employer's Board of Directors may enhance a Participant's Annual
Performance Award above the maximum level otherwise compensable in recognition
of exemplary performance or achievement as to subjective Individual Goals.
Except where such action would result in the loss of the otherwise available
exemption of the award under Code Subsection 162(m), if the Committee determines
that a change in the business operation, corporate structure or capital
structure of an Employer, or the manner in which it conducts its business, or
other events or circumstances render the Corporate Target Goals or Individual
Goals to be unsuitable, the Committee may modify such goals, in whole or in
part, as the Committee deems appropriate or equitable.

                                    ARTICLE 8

                   CORPORATE TARGET GOALS AND INDIVIDUAL GOALS

       (a) The Corporate Target Goal for each Employer's Performance Period,
which Corporate Target Goal shall be applicable to all Participants, shall be
determined by the Employer's Board of Directors. When there is more than one
Corporate Target Goal for a particular Performance Period, the Employer's Board
of Directors may, but is not required to, assign each goal equal weight and the
Employer's Board of Directors may, but is not required to, condition the
entitlement to an Annual Performance Award upon the attainment of one or more
Corporate Target Goals.

       (b) The Employer's Board of Directors may, but is not required to,
establish one or more Individual Goals for a Participant for each Performance
Period. When there is more than

                                      -11-


one Individual Goal for a Participant for a particular Performance Period, the
Employer's Board of Directors may, but is not required to, assign each goal
equal weight.

       (c) The determinations made by an Employer's Board of Directors under
this Article shall be subject to approval by Cinergy's Committee before any
Annual Performance Awards are made.

                                    ARTICLE 9

                                  DISTRIBUTION

       After the determination and approval have been made under Article 7
(Annual Performance Award) as to the amount of Annual Performance Award to which
a Participant is entitled at the end of an Employer's Performance Period, the
resulting Annual Performance Award shall be paid to the Participant in cash in
one lump sum on or before the first business day of March following the end of
the Performance Period for which the Annual Performance Award was made unless
the Participant has previously elected in writing to defer the receipt of all or
a portion of the award in accordance with the provisions of the Cinergy
Nonqualified Deferred Compensation Plan.

                                   ARTICLE 10

                     CONDITIONS TO ANNUAL PERFORMANCE AWARDS

       10.1  GOVERNMENT REGULATIONS

             The Plan shall be subject to all applicable laws, rules, and
regulations and to all approvals by any governmental agencies as may be required
and is designed to comply with Code Subsection 162(m).

       10.2  CONTINUED EMPLOYMENT

             A Participant whose employment with his Employer terminates by
reason of a quit, resignation, or discharge prior to the end of the particular
Performance Period shall be

                                      -12-


automatically divested of any interest in or to any Annual Performance Award for
that Performance Period. If a Participant who has quit, resigned, or who has
been discharged is re-employed by his Employer prior to the end of the
Performance Period in which the quit, resignation, or discharge occurred, the
Employee shall be reinstated as a Participant for that Performance Period, but
any Annual Performance Award shall be adjusted to reflect the actual time of
service of the re-employed Participant during the Performance Period.

       (a) A Participant whose employment with his Employer terminates by reason
of retirement or death prior to the end of the particular Performance Period
shall not necessarily be totally divested of his interest in or to any Annual
Performance Award for that Performance Period. Instead, a determination shall be
made by the Employer's Board of Directors with respect to the retired or
deceased Participant as to the amount of the Annual Performance Award to which
he would have been entitled had he been a Participant on the last day of the
applicable Performance Period as though the retirement or death had not
occurred. However, any determination shall be adjusted to reflect the actual
time of service of the retired or deceased Participant during the Performance
Period prior to the effective date of his retirement or the date of his death.

       (b) A Participant who during an applicable Performance Period has
incurred Total Disability shall not be totally divested of his interest in or to
any Annual Performance Award for that Performance Period. Instead, a
determination shall be made by the Employer's Board of Directors with respect to
the totally disabled Participant as to the amount of the Annual Performance
Award to which he would have been entitled had he not been totally disabled
during the applicable Performance Period. However, any determination shall be
adjusted to reflect the actual time of service of the totally disabled
Participant during the Performance Period.

                                      -13-


       (c) If a Participant is demoted or his job responsibilities are changed
during a Performance Period, the Employer's Board of Directors may make
adjustments to any Annual Performance Award for that Performance Period that it,
in its sole discretion, deems appropriate.

       (d) The determinations made by an Employer's Board of Directors under
this Article shall be subject to approval by Cinergy's Committee before any
Annual Performance Award is made.

                                   ARTICLE 11

                                   BENEFICIARY

     If a Participant dies prior to the date on which an Annual Performance
Award, or any installment thereof, is distributed, the Annual Performance Award
shall be paid to the highest priority person or persons surviving at the time
distribution is actually paid or commences. Distribution priorities are as
follows:

     (a) The Participant's Beneficiary designated under the Participant's last
will and testament;

     (b) The Participant's Beneficiary designated under his Employer's group
term life insurance plan;

     (c) The Participant's surviving spouse;

     (d) The Participant's surviving children, including adopted children;

     (e) The Participant's surviving parents;

     (f) The Participant's surviving brothers and sisters; or

     (g) The Participant's estate.

Distribution of the Annual Performance Award to a Beneficiary shall be made on
the same date or dates as the Annual Performance Award would have been made to
the Participant as if then living.

                                      -14-


                                   ARTICLE 12

                           NON-ALIENATION OF BENEFITS

       The Plan shall not in any manner be liable for, or subject to, the debts
or liabilities of any Participant or Beneficiary. No payee may assign any
payment due him under the Plan. No benefits at any time payable under the Plan
shall be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, attachment, garnishment, levy, execution, or other legal or
equitable process, or encumbrance of any kind.

                                   ARTICLE 13

                            FUNDING POLICY AND METHOD

       The Plan shall be totally unfunded so that Cinergy or any Employer is
under merely a contractual duty to make payments when due under the Plan. No
benefit or promise to pay shall be secured in any way.

                                   ARTICLE 14

                                CHANGE IN CONTROL

       Notwithstanding anything in the Plan to the contrary, if a Change in
Control of Cinergy occurs, each Corporate Target Goal and Individual Goal of
each Employer's Annual Program shall be deemed to have been fully satisfied at
the Maximum Incentive level and each Participant who is employed by an Employer
at the time of the Change in Control shall be entitled to receive an Annual
Performance Award in the same manner as though the Maximum Incentive level had
been obtained for the full Performance Period. In the event that a Change in
Control occurs prior to the time that an Employer has adopted an Annual Program
for such year, then each Participant who is employed by that Employer at the
time of the Change in Control shall be entitled to receive an Annual Performance
Award in the same manner as though the prior year's Annual Program were in
effect and the Maximum Incentive level had been obtained for the full

                                      -15-


Performance Period. Any Annual Performance Award due to a Participant under this
Article shall be paid to the Participant in cash in one lump sum within thirty
(30) days following the Change in Control.

       A "Change in Control" of Cinergy shall be deemed to have occurred if any
of the following events occur:

          (1) Any Person is or becomes the beneficial owner (as defined in Rule
              13d-3 under the 1934 Act), directly or indirectly, of securities
              of Cinergy (not including in the securities beneficially owned by
              such Person any securities acquired directly from Cinergy or its
              affiliates) representing more than twenty percent (20%) of the
              combined voting power of Cinergy's then outstanding securities,
              excluding any Person who becomes such a beneficial owner in
              connection with a transaction described in clause (i) of paragraph
              (2) below; or

          (2) There is consummated a merger or consolidation of Cinergy or any
              direct or indirect subsidiary of Cinergy with any other
              corporation, partnership or other entity, other than (i) a merger
              or consolidation that would result in the voting securities of
              Cinergy outstanding immediately prior to that merger or
              consolidation continuing to represent (either by remaining
              outstanding or by being converted into voting securities of the
              surviving entity or its parent) at least sixty percent (60%) of
              the combined voting power of the securities of Cinergy or the
              surviving entity or its parent outstanding immediately after the
              merger or consolidation, or (ii) a merger or consolidation
              effected to implement a recapitalization of Cinergy (or similar
              transaction) in which no Person is or becomes the beneficial

                                      -16-


              owner, directly or indirectly, of securities of Cinergy (not
              including in the securities beneficially owned by such a Person
              any securities acquired directly from Cinergy or its affiliates
              other than in connection with the acquisition by Cinergy or its
              affiliates of a business) representing twenty percent (20%) or
              more of the combined voting power of Cinergy's then outstanding
              securities; or

          (3) During any period of two (2) consecutive years, individuals who at
              the beginning of that period constitute Cinergy's Board of
              Directors and any new director (other than a director whose
              initial assumption of office is in connection with an actual or
              threatened election contest, including but not limited to a
              consent solicitation, relating to the election of directors of
              Cinergy) whose appointment or election by Cinergy's stockholders
              was approved or recommended by a vote of at least two-thirds (2/3)
              of the directors then still in office who either were directors at
              the beginning of that period or whose appointment, election, or
              nomination for election was previously so approved or recommended
              cease for any reason to constitute a majority of Cinergy's Board
              of Directors; or

          (4) The stockholders of Cinergy approve a plan of complete liquidation
              or dissolution of Cinergy or there is consummated a sale or
              disposition by Cinergy of all or substantially all of Cinergy's
              assets, other than a sale or disposition by Cinergy of all or
              substantially all of Cinergy's assets to an entity, at least sixty
              percent (60%) of the combined voting power of the voting
              securities of which are owned by stockholders of Cinergy in

                                      -17-


              substantially the same proportions as their ownership of Cinergy
              immediately prior to the sale.

       For purposes of this Article, "Person" has the meaning set forth in
paragraph 3(a)(9) of the 1934 Act, as modified and used in subsections 13(d) and
14(d) of the 1934 Act; however, a Person will not include the following: (1)
Cinergy or any of its subsidiaries or affiliates; (2) a trustee or other
fiduciary holding securities under an employee benefit plan of Cinergy or any of
its subsidiaries or affiliates; (3) an underwriter temporarily holding
securities pursuant to an offering of those securities; or (4) a corporation
owned, directly or indirectly, by the stockholders of Cinergy in substantially
the same proportions as their ownership of stock of Cinergy.

       Notwithstanding the provisions of Article 18 (Amendment and Termination),
the provisions of this Article may not be amended by an amendment to the Plan
effected within three years following a Change in Control.

                                      -18-


                                   ARTICLE 15

                                 ADMINISTRATION

       (a) The Plan shall be administered by Cinergy's Committee which shall
consist of members of Cinergy's Board of Directors who are disinterested persons
under Rule 16b-3 promulgated under the 1934 Act and successor rules and, with
respect to Covered Employees, outside directors under Code Subsection 162(m).
Cinergy's Committee is authorized to establish all rules and regulations and to
appoint any agents as it deems appropriate for the Plan's proper administration
and to make any determinations under and to take any steps in connection with
the Plan for the benefits provided under the Plan as it deems necessary or
advisable. Cinergy's Committee may require an Employer to enter into agreements
with each Participant as it deems appropriate to reflect each Participant's
interests under the Plan.

       (b) Cinergy's Committee shall have exclusive discretionary authority and
right to approve eligibility for participation in the Plan and to interpret,
construe, and regulate the Plan. The decision of Cinergy's Committee with
respect to any questions arising as to the Employees selected to participate in
the Plan, the amount and time of payment of benefits under the Plan or any other
matters concerning the Plan, including its interpretation, construction, or
regulation, shall be final, conclusive and binding on the Employers, the
Employers' Boards of Directors, Employees, Participants, and Beneficiaries.

                                      -19-


                                   ARTICLE 16

                                  MISCELLANEOUS

       16.1   NO ENLARGEMENT OF EMPLOYEE BENEFITS

              This Plan is strictly a voluntary undertaking on the part of the
Employers and shall not be deemed to constitute a contract between the Employers
and any Employee or to be consideration for, or an inducement to, or a condition
of, the employment of any Employee. Nothing contained in the Plan shall be
deemed to give any Employee the right to be retained in the service of any
Employer or to interfere with the right of any Employer to discharge any
Employee at any time. No Employee shall have any right to benefits except to the
extent provided in the Plan. Nothing contained in the Plan shall be deemed to
give any Employee a continued entitlement to receive an Annual Performance Award
for any Performance Period. Any award under this Plan shall not be deemed
compensation for purposes of computing benefits or contributions under any
retirement plan of an Employer unless otherwise provided by that plan, and shall
not affect any benefits under any other Employer benefit plan of any kind
currently or subsequently in effect under which the availability or amount of
benefits is related to the level of compensation.

       16.2   NOTICE OF ADDRESS

              Each Participant and Beneficiary entitled to benefits under the
Plan must file with Cinergy's Committee, in writing, his post office address and
each change of post office address. Any communication, statement, or notice
addressed to a person at his latest post office address as filed with Cinergy's
Committee will, upon deposit in the United States mail with postage prepaid, be
binding upon that person for all purposes of the Plan.

                                      -20-


       16.3   NO INDIVIDUAL LIABILITY

              It is the Plan's express purpose and intention that, except as
otherwise required by law, no individual liability whatever shall attach to, or
be incurred by, any Employer, its shareholders, officers, employees, or members
of the board of directors of any Employer, under or by reason of any of the
Plan's terms or conditions. Each Participant shall be legally bound by the
Plan's provisions.

       16.4   DELEGATION OF ADMINISTRATIVE DUTIES

              Administrative duties imposed by this Plan may be delegated by
Cinergy's Committee to an Employee of any Employer charged with those duties to
the extent not inconsistent with the provisions of Code Subsection 162(m).

       16.5   GOVERNING LAWS

              The Plan shall be construed and administered according to the laws
of the State of Delaware to the extent that those laws are not preempted by the
laws of the United States of America.

       16.6   RISK OF PARTICIPATION

              Nothing contained in the Plan shall be construed as an agreement
by the Plan or any Employer, its shareholders, officers, employees, or members
of the board of directors of any Employer, to indemnify anyone for any losses,
damages, costs and/or expenses resulting from participation in the Plan.

       16.7   HEADINGS

              The headings of articles, sections, subsections, paragraphs or
other parts of the Plan are for convenience of reference only and do not define,
limit, construe or otherwise affect the contents of the Plan.

                                      -21-


                                   ARTICLE 17

                                  CONTRIBUTIONS

       No contributions to the Plan by Participants shall be required or
permitted under the Plan.

                                   ARTICLE 18

                            AMENDMENT AND TERMINATION

       Cinergy, by resolution duly adopted by Cinergy's Board of Directors,
shall have the right, authority, and power to alter, amend, modify, revoke, or
terminate the Plan at any time, and Cinergy, by resolution of Cinergy's Board of
Directors, shall also have the right, authority, and power to discontinue or
suspend the payment of benefits under the Plan.

                                   ARTICLE 19

                           CONTINUANCE BY A SUCCESSOR

       If Cinergy is reorganized by way of merger, consolidation, transfer of
assets or otherwise, so that another corporation, partnership or person shall
succeed to all or substantially all of Cinergy's business, the successor may be
substituted for Cinergy under the Plan by adopting the Plan.

                                   ARTICLE 20

                                COVERED EMPLOYEES

       Notwithstanding any provision of the Plan to the contrary, this Article
will govern the terms of the Annual Performance Awards granted to Covered
Employees. This Article is designed to comply with Code Subsection 162(m) to the
extent applicable. All provisions in this Article, and any other applicable
provision of the Plan shall be construed in a manner to so comply.

       (a) With respect to Covered Employees, the Plan shall be administered by
a committee (the "AIP Committee") consisting of two or more persons each of whom
is an

                                      -22-


"outside director" for purposes of Code Subsection 162(m). The AIP Committee and
Cinergy's Committee may be the same Committee provided that the membership to
Cinergy's Committee satisfies the conditions set forth in the preceding
sentence.

       (b) With respect to Participants who are Covered Employees, the AIP
Committee shall establish the Corporate Target Goals and Individual Goals for
each Performance Period within the time necessary to satisfy the requirements of
Code Subsection 162(m). Corporate Target Goals shall be based on objective
performance criteria pertaining to an Employer's performance, efficiency, or
profitability measured by specified levels or of growth in one or more of the
following business criteria as the AIP Committee may determine: stock price,
total shareholder return, market share, sales, earnings per share, costs,
operating income, net income, cash flow, fuel cost per million BTU, costs per
kilowatt hour, retained earnings, return on equity, return on assets, return on
capital employed, return on invested capital, return on sales, and completion of
acquisitions; provided, that all such Corporate Target Goals shall satisfy the
requirements for "performance-based compensation" within the meaning of
Paragraph 162(m)(4) of the Code. Individual Goals shall be based on the
objective business criteria underlying the Corporate Target Goals and shall
pertain to a Covered Employee's individual effort as to achievement or
attainment of the Corporate Target Goals or shall relate to one or more of the
following business criteria: litigation, human resources, information services,
production, inventory, support services, site development, plant development,
building development, facility development, government relations, product market
share, or management (or, with respect to separate awards under the Plan not
intended to satisfy the requirements for "performance-based compensation" within
the meaning of Paragraph 162(m)(4) of the Code, subjective performance criteria
pertaining to a Covered Employee's individual effort as to enhancement of either
individual performance or achievement or attainment of an Employer's
performance, efficiency

                                      -23-


or profitability). Except where such action would result in the loss of the
otherwise available exemption of the award under Code Subsection 162(m), when
establishing the Corporate Target Goals and Individual Goals, the AIP Committee
may include or exclude the impact of specified objective events, including, but
without limitation, weather conditions; effects of accounting changes; effects
of currency fluctuations; effects of financing activities (e.g., the effect on
earnings per share of issuing convertible debt securities); expenses for
restructuring or productivity initiatives; non-operating items; acquisition
expenses; effects of divestitures; and any other items of gain, loss or expense
that are determined to be extraordinary or unusual in nature or infrequent in
occurrence or related to the disposal of a segment of a business or related to a
change in accounting principle all as determined in accordance with generally
accepted accounting principles. No provision of this Article shall preclude the
AIP Committee from exercising negative discretion with respect to any Annual
Performance Award granted to a Covered Employee hereunder (i.e., to reduce or
eliminate the Annual Performance Award payable) within the meaning of Code
Subsection 162(m).

       (c) In the case of Participants who are Covered Employees as of the end
of the Performance Period, unless otherwise designated as separate awards based
on subjective performance criteria, payments shall be made only after
achievement of the applicable performance goals has been certified by the AIP
Committee. In no event shall payment in respect of Annual Performance Awards
based on Corporate Target Goals and objective Individual Goals granted for a
Performance Period be made to a Participant who is a Covered Employee as of the
end of a Performance Period in an amount that exceeds $5,000,000.

       (d) Notwithstanding any provision of this Plan to the contrary, payments
of any Annual Performance Awards under the Plan to Covered Employees for
Performance Periods commencing on or after January 1, 2002 shall be contingent
upon the affirmative vote of the

                                      -24-


shareholders of at least a majority of the votes cast (including abstentions to
the extent abstentions are counted as voting under applicable state law) at the
annual meeting of shareholders held in 2002. Unless and until such shareholder
approval is obtained, no Annual Performance Awards for Performance Periods
commencing on or after January 1, 2002 shall be paid to any Covered Employee
pursuant to this Plan.

       IN WITNESS WHEREOF, Cinergy Corp. has caused this master plan document to
be executed and approved by its duly authorized officers effective as of January
25, 2002.

                                     CINERGY CORP.

                                     BY:
                                        ------------------------------------
                                        JAMES E . ROGERS
                                        Chairman, President and Chief Executive
                                        Officer

                                     And

                                     BY:
                                        ------------------------------------

                                      -25-

EX-10.QQ

                                  CINERGY CORP.
                   1996 LONG-TERM INCENTIVE COMPENSATION PLAN
           (AS AMENDED AND RESTATED EFFECTIVE AS OF JANUARY 25, 2002)

                                  INTRODUCTION

       On January 25, 1996, Cinergy Corp. adopted, subject to shareholder
approval, a long-term incentive compensation plan known as the "Cinergy Corp.
1996 Long-Term Incentive Compensation Plan" (the "Plan") for the exclusive
benefit of eligible employees of Cinergy Corp. and its subsidiaries. The plan is
a stock and cash-based plan under which certain eligible employees of Cinergy
Corp. and its subsidiaries may be granted awards payable in either common stock
of Cinergy Corp. or cash. Awards may consist of grants of incentive stock
options within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended, stock options that do not constitute incentive stock options, cash
amounts in connection with certain options that do not constitute incentive
stock options, stock appreciation rights, restricted stock, performance awards
payable in cash or shares of common stock, dividend equivalents, or other
stock-based awards. The Plan, originally effective as of June 1, 1996, is hereby
amended and restated in its entirety effective as of January 25, 2002 as set
forth herein, subject to shareholder approval within 12 months after such date.

                                    ARTICLE 1
                                   DEFINITIONS

       Whenever used in this document, the following terms shall have the
respective meanings set forth below, unless a different meaning is plainly
required by the context:

       1.1  "Award" means an Option (which may be designated as an ISO or an
NSO), a Stock Appreciation Right (which may be designated as a Freestanding SAR
or a Tandem SAR),

                                       -1-


Restricted Stock, Performance Shares, Performance Awards, Dividend Equivalents,
Other Stock-Based Awards, or any other right or interest relating to Common
Stock or cash, granted to a Participant under the Plan. Each Award shall be
evidenced by an Award Agreement.

       1.2  "Award Agreement" means a written or electronic agreement, in a
form approved by the Committee, which sets forth the terms and conditions of an
Award. An Award Agreement shall be subject to the express terms and conditions
set forth in the Plan, and to other terms and conditions not inconsistent with
the Plan as the Committee shall deem appropriate.

       1.3  "Chief Executive Officer" means the Employee elected by Cinergy's
Board of Directors to serve as the chief executive officer of Cinergy.

       1.4  "Cinergy" means Cinergy Corp., a Delaware corporation, and any
corporation which shall succeed to its business as described in Article 22
(Continuance by a Successor).

       1.5  "Cinergy's Board of Directors" means the duly constituted board of
directors of Cinergy on the applicable date.

       1.6  "Code" means the Internal Revenue Code of 1986, as amended from
time to time, and interpretive rulings and regulations.

       1.7  "Committee" means the duly designated Compensation Committee of
Cinergy's Board of Directors.

       1.8  "Common Stock" means any authorized share of ownership of Cinergy
represented by a common stock certificate, with par value of $.01 per share, or
any other appropriate instrument evidencing the same.

       1.9  "Covered Employee" shall have the meaning set forth in Code
Paragraph 162(m)(3).

       1.10 "Date of Grant" means the date specified by the Committee
pursuant to Section 4.1 (Committee as Administrator) on which a grant of an
Award shall become effective,

                                       -2-


which shall not be earlier than the date on which the Committee takes action
with respect to that grant.

       1.11 "Dividend Equivalent" means an Award that confers upon the
Participant a right to receive cash, Common Stock, other Awards or other
property equal in value to dividends paid with respect to a specified number of
shares of Common Stock.

       1.12 "Employee" means any person in the employ of an Employer.

       1.13 "Employer" means Cinergy and all of its directly or indirectly
held majority or greater owned subsidiaries, except that for purposes of
determining whether any person may be a Participant for purposes of any grant of
ISOs, "subsidiary" means any corporation in which at the time Cinergy owns or
controls, directly or indirectly, more than 50 percent of the total combined
voting power represented by all classes of stock issued by such corporation.

       1.14 "Fair Market Value" means, as of any particular date with respect
to a share of Common Stock, the average of the high and low sales prices of a
share of Common Stock on such date, or on the preceding trading day if that date
was not a trading date, as reported by the "NYSE-Composite Transactions"
published in THE WALL STREET JOURNAL.

       1.15 "Freestanding SAR" means a right, granted pursuant to this Plan
without reference or relationship to any Option, of a Participant to receive
cash, shares of Common Stock, or a combination thereof, as the case may be,
having an aggregate value equal to the excess of the Fair Market Value of one
share of Common Stock on the date of exercise of the SAR over the Fair Market
Value of one share of Common Stock on the Date of Grant of the SAR.

       1.16 "ISO" means an incentive stock option within the meaning of Code
Section 422.

       1.17 "1934 Act" means the Securities Exchange Act of 1934, as amended
from time to time, and interpretive rulings and regulations.

                                      -3-


       1.18 "Non-Employee Director" means a member of Cinergy's Board of
Directors who is not an Employee. Notwithstanding the fact that a Non-Employee
Director is not an Employee, his or her service as a member of Cinergy's Board
of Directors shall be considered for purposes of this Plan as service for an
Employer.

       1.19 "NSO" means a stock option that does not constitute an incentive
stock option within the meaning of Code Section 422.

       1.20 "Option" means an ISO and/or an NSO as the context requires.

       1.21 "Optionee" means any Participant who has been granted an Option
or Stock Appreciation Right by the Committee pursuant to the Plan.

       1.22 "Option Price" means, with respect to each share of Common Stock
subject to an Option, the price fixed by the Committee at which the share may be
purchased pursuant to the exercise of the Option.

       1.23 "Other Stock-Based Award" means an Award other than an Option,
Performance Share, Performance Award, Dividend Equivalent, Restricted Stock or
SAR that is denominated or payable in, valued in whole or in part by reference
to, or otherwise based on or related to, shares of Common Stock.

       1.24 "Participant" means a person who is selected by the Committee to
receive benefits under this Plan in accordance with Section 5.1 (Group of
Eligible Participants).

       1.25 "Performance Awards" means an Award conferring the right,
contingent upon attainment of Performance Measures within a Performance Period,
to receive (a) a specified dollar amount or, in lieu of all or any portion of
such amount, (b) shares of Common Stock having the same Fair Market Value or (c)
a specified number of shares of Restricted Stock.

       1.26 "Performance Measures" means (1) in the case of Dividend
Equivalents, Performance Shares or Performance Awards, those criteria and
objectives determined by the

                                      -4-


Committee the attainment of which during the applicable Performance Period would
be a pre-condition to settlement of the Award, and (2) in the case of Restricted
Stock, those Committee-determined criteria and objectives (if any) which, if not
met during the applicable Restriction Period, would cause a forfeiture of the
Award and/or which, if met during the otherwise applicable Restriction Period,
would cause an early termination of the Restriction Period. The Performance
Measures applicable to any Award to a Participant who is, or is determined by
the Committee to be likely to become, a Covered Employee shall be established in
writing not later than 90 days after the commencement of the Performance Period,
or such other time as may be prescribed by Code Subsection 162(m), and shall be
limited to criteria and objectives related to (1) an Employer's performance,
efficiency, or profitability measured by specified levels or of growth in one or
more of the following business criteria as the Committee may determine: stock
price, total shareholder return, market share, sales, earnings per share, costs,
operating income, net income, cash flow, fuel cost per million BTU, costs per
kilowatt hour, retained earnings, return on equity, return on assets, return on
capital employed, return on invested capital, return on sales, and completion of
acquisitions; provided, that all such criteria and objectives shall satisfy the
requirements for "performance-based compensation" within the meaning of
Paragraph 162(m)(4) of the Code; and/or (2) individual goals which are based on
the objective business criteria underlying the goals listed in (1) above and
pertain to a Covered Employee's individual effort as to achievement or
attainment of the business criteria listed in (1) above or one or more of the
following business criteria: litigation, human resources, information services,
production, inventory, support services, site development, plant development,
building development, facility development, government relations, product market
share, or management (or, with respect to separate awards under the Plan not
intended to satisfy the requirements for "performance-based compensation" within
the meaning of Paragraph 162(m)(4) of the Code, subjective performance

                                      -5-


criteria pertaining to a Covered Employee's individual effort as to enhancement
of either individual performance or achievement or attainment of an Employer's
performance, efficiency or profitability). Except in the case of a Covered
Employee where such action would result in the loss of the otherwise available
exemption of the Award under Code Subsection 162(m), when establishing
Performance Measures, the Committee may include or exclude the impact of
specified objective events, including, but without limitation, weather
conditions; effects of accounting changes; effects of currency fluctuations;
effects of financing activities (e.g., the effect on earnings per share of
issuing convertible debt securities); expenses for restructuring or productivity
initiatives; non-operating items; acquisition expenses; effects of divestitures;
and any other items of gain, loss or expense that are determined to be
extraordinary or unusual in nature or infrequent in occurrence or related to the
disposal of a segment of a business or related to a change in accounting
principle all as determined in accordance with generally accepted accounting
principles. The Committee may impose any other subjective or objective criteria
it may approve from time to time for the purpose of reducing the amount
otherwise payable upon settlement of Dividend Equivalents, Performance Shares or
Performance Awards or for the purpose of increasing the number of shares of
Restricted Stock that would otherwise be forfeited during the applicable
Restriction Period. Except in the case of a Covered Employee where such action
would result in the loss of the otherwise available exemption of the Award under
Code Subsection 162(m), if the Committee determines that a change in the
business, operation, corporate structure or capital structure of Cinergy, or the
manner in which it conducts its business, or other events or circumstances
render the Performance Measures to be unsuitable, the Committee may modify the
Performance Measures, in whole or in part, as the Committee deems appropriate
and equitable.

                                      -6-


       1.27 "Performance Period" means the period designated by the Committee
during which the Performance Measures applicable to Performance Shares or
Performance Awards shall be measured. The Performance Period shall be
established on the Date of Grant of the Performance Shares or Performance
Awards. The duration of Performance Periods may vary, but shall not be less than
one year in duration.

       1.28 "Performance Shares" means the right, contingent upon attainment
of Performance Measures within a Performance Period, to receive a specified
number of shares of Common Stock, which may be in the form of Restricted Stock,
or, in lieu of all or any portion of those shares, their Fair Market Value in
cash.

       1.29 "Plan" means the long-term incentive compensation plan known as
the "Cinergy Corp. 1996 Long-Term Incentive Compensation Plan", as amended from
time to time. Effective as of January 25, 2002, and subject to shareholder
approval within 12 months after such date, this document sets forth the Plan.

       1.30 "Restriction Period" means the period designated by the Committee
during which Restricted Stock shall be subject to a substantial risk of
forfeiture and may not be sold, exchanged, assigned, transferred, pledged,
hypothecated or otherwise encumbered or disposed of, except as otherwise
provided in the Plan.

       1.31 "Restricted Stock" means any shares of Common Stock issued
pursuant to the Plan subject to a substantial risk of forfeiture pursuant to
Code Section 83 and to the restriction that they may not be sold, exchanged,
assigned, transferred, pledged, hypothecated or otherwise encumbered or disposed
of, except as otherwise provided in the Plan, prior to termination of a
Restriction Period. The restrictions may or may not be performance-based as
deemed appropriate by the Committee. Restricted Stock shall constitute issued
and outstanding shares of Common Stock for all corporate purposes.

                                      -7-


       1.32 "Stock Appreciation Right" or "SAR" means any Freestanding SAR or
Tandem SAR as the context requires.

       1.33 "Tandem SAR" means a right, granted under this Plan, pursuant to
which a holder may elect to surrender an Option, or any portion thereof, that is
then exercisable, and receive in exchange therefor shares of Common Stock, cash,
or a combination thereof, as the case may be, with an aggregate value equal to
the excess of the Fair Market Value of one share of Common Stock at the time of
exercise over the per share Exercise Price specified in the Option, multiplied
by the number of shares of Common Stock covered by the Option, or portion
thereof, that is so surrendered.

       The use of singular words is for practical purposes only and shall be
deemed to include the plural unless the context plainly indicates a distinction.
Certain other definitions, as required, appear in the following Articles of the
Plan.

                                    ARTICLE 2
                             EFFECTIVE DATE OF PLAN

       The Plan's provisions, as set forth in this document, are effective as of
January 25, 2002 subject to shareholder approval within 12 months after such
date. Awards granted on or after January 25, 2002 are subject to the terms of
the Plan as amended and restated herein and Awards granted prior to that date
are subject to the terms of the Plan effective immediately prior to January 25,
2002.

       With respect to Performance Awards and Performance Shares granted on or
after January 25, 2002 to Covered Employees, no payment in connection with such
award shall be made prior to the approval of the shareholders of at least a
majority of the votes cast (including abstentions to the extent abstentions are
counted as voting under applicable state law) at the annual meeting of
shareholders held in 2002.

                                      -8-


                                    ARTICLE 3
                                 PURPOSE OF PLAN

       The Plan's purposes are to benefit shareholders of Cinergy by encouraging
and enabling the acquisition of a proprietary interest, or to increase the
proprietary interest, in Cinergy by officers and other Participants, and to aid
in attracting and retaining qualified employees and directors, to provide
long-term incentives for sustained high levels of performance by those persons,
and to strengthen their desire to remain in the employ or service of their
Employer.

                                    ARTICLE 4
                                 ADMINISTRATION

      4.1  COMMITTEE AS ADMINISTRATOR.

           The Plan shall be administered by the Committee which shall be
comprised of not fewer than two members of Cinergy's Board of Directors. Members
of the Committee shall be members of Cinergy's Board of Directors who are
non-employee directors under Rule 16b-3 promulgated under the 1934 Act and
successor rules ("Rule 16b-3") and, with respect to Covered Employees, outside
directors under Code Subsection 162(m). Subject to the Plan's terms, the
Committee shall have the exclusive authority to grant Awards to Participants
under the Plan, to select the Participants to receive Awards, to determine the
type, size and terms of the Awards to be made to each Participant selected, to
determine the time when Awards to Participants will be granted, and to prescribe
the form of the Award Agreements embodying Awards made under the Plan. The
provisions and conditions of the grants of Awards, which shall be set forth in
Award Agreements, need not be the same with respect to each Participant selected
or with respect to each Award. Notwithstanding the foregoing, the Plan shall be
administered by Cinergy's Board of Directors with respect to any Award granted
to a Non-Employee Director.

                                      -9-


      4.2  COMMITTEE AUTHORITY.

           Unless otherwise determined by Cinergy's Board of Directors, the
Committee is authorized to establish any rules and regulations and appoint any
agent as it deems appropriate for the Plan's proper administration and to make
any determinations under and to take any steps in connection with the Plan as it
deems necessary or advisable. Each determination or other action made or taken
pursuant to the Plan, including interpretation of the Plan and the specific
conditions and provisions of the Awards granted under the Plan by the Committee
shall be final and conclusive for all purposes and upon all persons including,
without limitation, each Employer and each Employer's board of directors, and
the affected Participant, beneficiary, legal representative, and any other
interested parties.

                                   ARTICLE 5
                                  ELIGIBILITY

      5.1  GROUP OF ELIGIBLE PARTICIPANTS.

           The group of Participants eligible to receive Awards shall consist of
all Employees who are officers of an Employer, Employees who are employed in a
significant executive, supervisory, administrative, operational, or professional
capacity by an Employer, Employees who have the potential to contribute to the
future success of an Employer, including, without limitation, Employees
designated by Cinergy or an Employer as participants in an Employer's short-term
incentive compensation plan and Non-Employee Directors. Notwithstanding the
foregoing, no Employee owning (after application of the ownership rules in Code
Subsection 424(d)) shares of stock possessing more than ten percent of the total
combined voting power of all classes of stock of an Employer or of its parent or
subsidiary may be granted an ISO under the Plan unless at the time the ISO is
granted the Option Price is at least 110 percent of the Fair Market Value of the
stock subject to the ISO and the ISO by its terms is not exercisable after the
expiration of five years from the date the ISO is granted.

                                      -10-


      5.2  DESIGNATION BY COMMITTEE OR BOARD.

           From time to time, Cinergy's Chief Executive Officer may recommend to
the Committee the granting of Awards to any eligible Participant. After
reviewing the recommendations, and after considering the duties of each
recommended Participant, his or her present and potential contribution to the
success of his or her Employer, his or her other compensation provided by his or
her Employer and any other factors as it deems relevant, the Committee or
Cinergy's Board of Directors shall determine whether to grant Awards to the
recommended Participant.

                                   ARTICLE 6
                                     STOCK

      6.1  STOCK SUBJECT TO THE PLAN.

           The stock to be issued, transferred and/or sold under the Plan shall
be shares of Common Stock. Cinergy may use either authorized and unissued shares
of Common Stock or treasury shares of Common Stock acquired on the open market,
in private transactions or otherwise, or issued and outstanding shares acquired
by or on behalf of Cinergy in the name of an Award recipient (or permissible
successor thereof) for purposes of granting or settling an Award, or a
combination of the foregoing. Subject to adjustment as provided in Article 7
(Adjustment in the Number of Shares and in Option Price), the aggregate maximum
number of shares that may be (i) issued or transferred upon the exercise of
Options or SARs, (ii) awarded as Restricted Stock and released from substantial
risk of forfeiture thereof, (iii) issued or transferred as Dividend Equivalents,
and (iv) issued or transferred in payment of Performance Shares, Performance
Awards or Other Stock-Based Awards that have been earned is _________; provided,
however, that with respect to ISOs, any adjustment shall be made in accordance
with Code Section 424.

                                      -11-


      6.2  LIMITATION ON GRANTS.

           (a) Upon the full or partial payment of any Option Price by the
transfer to Cinergy of Common Stock or upon satisfaction of tax withholding
obligations in connection with any Option exercise or any other payment made or
benefit realized under the Plan by the transfer or relinquishment of Common
Stock, there shall be deemed to have been issued or transferred under the Plan
only the net number of shares of Common Stock actually issued or transferred by
Cinergy. However, the number of shares of Common Stock actually issued or
transferred by Cinergy upon the exercise of ISOs shall not exceed the number of
shares of Common Stock first specified above in Section 6.1 (Stock Subject to
Plan), subject to adjustment as provided in that Section and Article 7
(Adjustment in the Number of Shares and in Option Price).

           (b) Upon payment in cash of the benefit provided by any Award granted
under the Plan, any shares of Common Stock that were covered by that Award shall
again be available for issuance or transfer under the Plan.

           (c) Notwithstanding any other provision of the Plan to the contrary,
no Participant shall be granted Options or Stock Appreciation Rights for or
relating to more than 500,000 shares of Common Stock during any calendar year,
subject to adjustment as provided in Article 7 (Adjustment in the Number of
Shares and in Option Price).

           (d) Notwithstanding any other provision of the Plan to the contrary,
in no event shall any Participant receive awards of Restricted Stock, Dividend
Equivalents, Performance Shares and Performance Awards, and Other Stock-Based
Awards having an aggregate value as of their respective Dates of Grant in excess
of $3,000,000 in any calendar year.

                                      -12-


                                    ARTICLE 7
                           ADJUSTMENT IN THE NUMBER OF
                           SHARES AND IN OPTION PRICE

           If there is any change in the shares of Common Stock through the
declaration of stock dividends, stock splits, through recapitalization, merger,
consolidation, combination of shares, spin-off, other significant distribution
of assets, or otherwise, the Committee or Cinergy's Board of Directors shall
make an adjustment, if any, as it may deem appropriate in the number of shares
of Common Stock available for Awards or the number of shares of Common Stock
subject to any outstanding Award and the Option Price thereof, and the maximum
number of shares of Common Stock subject to Option or Stock Appreciation Rights
granted to any Participant during any calendar year. Any adjustment may provide
for the elimination of any fractional shares that might otherwise become subject
to any Award without payment therefor. Moreover, in the event of any such
transaction or event, the Committee or Cinergy's Board of Directors, in its
discretion, may provide in substitution for any or all outstanding Awards under
this Plan such alternative consideration as it, in good faith, may determine to
be equitable in the circumstances and may require in connection therewith the
surrender of all Awards so replaced.

                                      -13-


                                    ARTICLE 8
                                     OPTIONS

      8.1  TYPES OF OPTION.

           The Committee may make awards of ISOs to Employees and awards of NSOs
to either Employees or Non-Employee Directors. The Committee, with respect to
each grant of an Option to an Optionee, shall determine whether the Option shall
be an ISO, and, upon determining that an Option shall be an ISO, shall designate
it as an ISO in the Award Agreement evidencing the Option. If the Award
Agreement evidencing an Option does not contain a designation that it is an ISO,
it shall not be an ISO, but instead it shall be an NSO. In no event will the
exercise of an ISO affect the right to exercise an NSO, nor shall the exercise
of any NSO affect the right to exercise any ISO. No ISOs shall be granted under
the Plan after ten years from the effective date of the Plan.

           The aggregate fair market value (determined in each instance on the
Date of Grant of an ISO) of the Common Stock with respect to which ISOs are
first exercisable by any Optionee in any calendar year shall not exceed $100,000
or any other limit prescribed in the Code for the Optionee. If any Employer
shall adopt a stock option plan under which Options constituting incentive stock
options as defined in Code Subsection 422(b) may be granted, the fair market
value of the stock on which any incentive stock options were granted and the
times at which the incentive stock options shall first become exercisable shall
be taken into account in determining the maximum amount of ISOs that may be
granted to the Optionee in any calendar year.

      8.2  NUMBER OF SHARES COVERED.

           Each Award Agreement shall specify the number of shares of Common
Stock subject to the pertinent Option.

                                      -14-


      8.3  DURATION OF OPTIONS.

           The duration of Options shall be determined by the Committee. Each
Award Agreement shall specify the period not in excess of ten years during which
the pertinent Option may be exercised, and the Award Agreement shall provide
that the Option shall expire at the end of that period, and may be subject to
earlier termination in the event of a Change in Control of Cinergy as set forth
in Section 21.11 (Change in Control).

      8.4  OPTION PRICE.

           The Option Price shall be determined by the Committee at the time any
Option is granted, and shall be set forth in the Award Agreement. The Option
Price for NSOs and ISOs shall be no less than 100 percent of the Fair Market
Value of the Common Stock on the Date of Grant.

      8.5  MANNER OF EXERCISE.

           The specified number of shares with respect to which an Option is
exercised shall, subject to applicable tax withholding, be issued following
receipt by Cinergy of (i) notice of the exercise from the Optionee (in
accordance with procedures that the Committee shall have specified in the Award
Agreement or otherwise) of an Option delivered to Cinergy's Secretary or his or
her designee, and (ii) payment, as provided in this document, of the Option
Price.

      8.6  PAYMENT.

           (a) The Option Price shall be paid in full at the time of exercise.
No share shall be issued or transferred until full payment has been received
therefor. Payment may be (i) in cash, (ii) in nonforfeitable, unrestricted
shares of Common Stock that have already been owned by the Optionee or jointly
owned by the Optionee and the Optionee's spouse (provided that the spouse's
written consent is first obtained) for at least 6 months and have a value at the
time of exercise that is equal to the Option Price, (iii) by delivering a
properly executed exercise

                                      -15-


notice together with irrevocable instructions to a broker to promptly deliver to
Cinergy the total Option Price in cash and, if desired, the amount of any taxes
required to be withheld from the Optionee's compensation as a result of the
Employer's withholding tax obligation, as specified in the notice, (iv) in any
other legal consideration that the Committee may deem appropriate, including
without limitation any form of consideration authorized under Subsection 8.6
(b), on such basis as the Committee may determine in accordance with the Plan,
or (v) in any combination of the foregoing. Cash payment for the shares
purchased under an NSO may be offset by the amount of any Cash Award, as
provided in Article 12 (Cash Awards), approved by the Committee. If payment is
made by the delivery of shares of Common Stock, the value of the shares
delivered shall be computed upon the basis of the average of the high and low
sales prices at which shares of Common Stock shall have been sold on the date
the Optionee exercises an Option, or on the preceding trading day if that date
was not a trading day as reported on the "NYSE - Composite Transactions" as
reported in THE WALL STREET JOURNAL.

           (b) Any grant of an NSO shall provide that payment of the Option
Price may also be made in whole or in part in the form of shares of Restricted
Stock or other Common Stock that are subject to risk of forfeiture or
restrictions on transfer. Unless otherwise determined by the Committee on or
after the Date of Grant, whenever any Option Price is paid in whole or in part
by means of any of the forms of consideration specified in this subsection, the
Common Stock received by the Optionee upon the exercise of the NSO shall be
subject to the same risk of forfeiture or restrictions on transfer as those that
applied to the consideration surrendered by the Optionee. However, the risks of
forfeiture and restrictions on transfer shall apply only to the same number of
shares of Common Stock received by the Optionee as applied to the forfeitable or
restricted Common Stock surrendered by the Optionee.

                                      -16-


      8.7  OTHER TERMS AND CONDITIONS.

           Subject to the Plan's other provisions, an Option may be exercised at
any time or from time to time during the term of the Option as to any and all
whole shares that have become subject to purchase pursuant to the terms of the
Option or the Plan, but not at any time as to fewer than 100 shares unless the
remaining shares that have become subject to purchase are fewer than 100 shares.
Options may contain any other provisions, not inconsistent with the Plan's
provisions, as the Committee shall determine appropriate from time to time. The
Committee shall have the authority to grant Options exercisable in full at any
time during their term, or exercisable in installments at any time during their
term as the Committee shall determine. Installments not purchased in earlier
periods shall be cumulated and be available for purchase in later periods.

      8.8  EFFECT OF EXERCISE OF OPTION ON TANDEM SAR.

           Upon the exercise of an Option with respect to which a Tandem SAR has
been granted, the number of shares of Common Stock with respect to which the SAR
shall be exercisable shall be reduced by the number of shares with respect to
which the Option has been exercised.

                                    ARTICLE 9
                           STOCK APPRECIATION RIGHTS

      9.1  TYPE OF SAR.

           Each SAR Award shall specify whether it relates to a Tandem SAR or to
Freestanding SARs.

      9.2  NUMBER OF OPTIONED SHARES OR FREESTANDING SARS.

           In the case of any Tandem SAR, the SAR Award shall specify the Option
and the number of shares of Common Stock subject to the Option to which the SAR
relates. Any SAR Award relating to Freestanding SARs shall specify the number of
such SARs to which it relates.

                                      -17-


      9.3  EXERCISE PERIOD.

           Each SAR Award shall specify the period during which the pertinent
SAR(s) may be exercised and the Award Agreement shall provide that the SAR(s)
shall expire at the end of each period (or periods) and may be subject to
earlier termination in the event of a Change in Control of Cinergy, as described
in Section 21.11 (Change in Control) or other similar transaction or event, as
provided in the Award Agreement. For a Freestanding SAR, the expiration date
shall be no later than ten years from the Date of Grant. For Tandem SARs, the
expiration date(s) shall be no later than the date(s) of expiration of the
related Option, and a Tandem SAR shall be exercisable during its term only when
and to the extent the related Option is exercisable. A Freestanding SAR shall be
exercisable only during the period of the grantee's employment or service with
Cinergy or another Employer and for any post-termination exercise period as
would apply under the Award Agreement for the Option had the Freestanding SAR
Award to the grantee instead been an Award of NSOs.

      9.4  MANNER OF EXERCISE.

           A SAR granted under the Plan shall be exercised by the holder by
delivery to Cinergy's Secretary or his or her designee of notice of exercise in
accordance with procedures that shall have been specified by the Committee in
the Award Agreement or otherwise.

      9.5  PAYMENT TO HOLDER.

           If the form of consideration to be received upon exercise of the
Award is not specified in the Award Agreement, upon the exercise thereof, the
holder may request the form of consideration he or she wishes to receive in
satisfaction of the SAR, which may be in shares of Common Stock (valued at Fair
Market Value on the date of exercise of the SAR), or in cash, or partly in cash
and partly in shares of Common Stock, as the holder shall request. However, the
Committee, in its sole discretion, may consent to or disapprove any request of
the Participant to

                                      -18-


receive cash in full or partial settlement of any SAR. Payment shall be subject
to applicable tax withholding.

      9.6  EFFECT OF EXERCISE OF TANDEM SAR ON RELATED OPTION.

           Upon the exercise of a Tandem SAR, the number of shares covered by
the related Option shall be reduced by the number of shares of Common Stock with
respect to which the SAR is exercised.

                                   ARTICLE 10
                                RESTRICTED STOCK

      10.1 TERMS AND CONDITIONS.

           The Committee may make Awards of Restricted Stock to Participants
without additional consideration or may offer to sell Restricted Stock to
Participants at a price that is equal to or less than its Fair Market Value. The
terms and conditions of any Restricted Stock Award shall be as determined by the
Committee and shall be set forth in the Award Agreement. The Award Agreement
shall specify the number of shares of Common Stock subject to the Award and the
applicable Restriction Period or Periods. Any Award Agreement may provide for
forfeiture of shares covered thereby if specified Performance Measures are not
attained during a Restriction Period and/or for termination of any Restriction
Period upon attainment of Performance Measures, but in no event may any Award
Agreement permit termination of any Restriction Period earlier than three years
after the Date of Grant of the pertinent Award except in the case of Awards that
are subject to Performance Measures (in which case the Restriction Period shall
be at least one year) or in the case of death, disability, retirement or in the
event of a Change in Control of Cinergy as described in Subsection 21.11 (Change
in Control).

      10.2 CERTIFICATES EVIDENCING OWNERSHIP OF RESTRICTED STOCK.

           During the Restriction Period, a certificate representing the
Restricted Stock shall be registered in the recipient's name and bear a
restrictive legend to the effect that ownership of

                                      -19-


the Restricted Stock, and the enjoyment of all rights appurtenant to the
Restricted Stock, are subject to the restrictions, terms, and conditions
provided in the Plan and the applicable Award Agreement.

           Certificates representing Restricted Stock together with stock powers
or other instruments of assignment, each endorsed in blank, which will permit
transfer to Cinergy of all or any portion of the Restricted Stock evidenced by
the certificate in the event it is forfeited, shall be deposited by the
Participant with Cinergy. Upon the termination of an applicable Restriction
Period, and subject to remittance of applicable withholding tax, a certificate
or certificates evidencing ownership of the number of shares of Common Stock
previously evidenced by the certificate representing Restricted Stock, free of
restrictive legend (other than any relating to a right of first refusal of
Cinergy or required by any applicable securities laws), shall be issued to the
Participant, his or her beneficiary(ies), or legal representatives, promptly
after the expiration of the Restriction Period.

      10.3 RIGHTS WITH RESPECT TO SHARES DURING RESTRICTION PERIOD.

           Subject to the terms and conditions of the Award Agreement, the
Participant, as the owner of the Common Stock issued as Restricted Stock, shall
have all rights of a shareholder including, but not limited to, voting rights,
the right to receive cash or stock dividends on the shares, and the right to
participate in any capital adjustment of Cinergy. However, the Committee, in its
discretion, may determine to require that any dividends on Restricted Stock that
is subject to an Award be accumulated during the Restriction Period and may also
subject the payment of dividends to restrictions that may, but need not be, the
same as the restrictions applicable to the Restricted Stock. Any dividend
distributions with respect to shares of Restricted Stock other than in the form
of cash shall be held by Cinergy, and shall be subject to the same restrictions
as the shares with respect to which the distributions were made. Any grant

                                      -20-


or sale may require that any or all cash dividends or other distributions paid
on the shares of Restricted Stock during the Restriction Period shall be
automatically sequestered and may be reinvested on an immediate or deferred
basis in additional shares of Common Stock, which may be subject to the same
restrictions as the Committee may determine.

                                   ARTICLE 11
                   PERFORMANCE SHARES AND PERFORMANCE AWARDS

      11.1 TERMS AND CONDITIONS.

           The Committee may make Awards of Performance Shares and Performance
Awards. The terms and conditions of any Performance Share Award or Performance
Award shall be set forth in the applicable Award Agreement. Each Award Agreement
shall specify the number or amount of Performance Shares or Performance Awards
subject to the Award, the Performance Period(s), which may be subject to earlier
termination in the event of a Change in Control of Cinergy as described in
Section 21.11 (Change in Control) or other similar transaction or event, and the
Performance Measures applicable to the Award.

      11.2 PAYMENT.

           Following the end of a Performance Period applicable to a granted
Award, the Committee shall determine and certify the extent (if any) to which
Performance Measures established for the Award were attained and, accordingly,
the number, if any, of shares of Common Stock or the amount of cash that shall
then become payable to the holder of the Award. If the Performance Shares or
Performance Awards are to be paid to the Participant in the form of shares of
Restricted Stock, the recipient must execute an Award Agreement regarding the
Restricted Stock as a condition of the issuance of such shares in his or her
name.

                                      -21-


                                   ARTICLE 12
                                   CASH AWARDS

           The Committee may, at any time and in its discretion, grant to any
Optionee who is granted an NSO the right to receive, at the times and in the
amounts as determined by the Committee in its discretion, a cash amount ("Cash
Award") that is intended to reimburse the Optionee for all or a portion of the
federal, state, and local income taxes imposed upon the Optionee as a
consequence of the exercise of an NSO and the receipt of such a cash payment.

                                   ARTICLE 13
                              DIVIDEND EQUIVALENTS

           The Committee may make Awards of Dividend Equivalents. The terms and
conditions of any Dividend Equivalent Award shall be set forth in the applicable
Award Agreement. The Award Agreement shall set forth the number of shares of
Common Stock to which the Award relates and the circumstances (including any
applicable Performance Measures) under which, and the number, if any, of, shares
of Common Stock or the amount of cash that shall then become payable to the
holder of the Award. The Committee shall in its discretion determine the timing
of payment of the Award.

                                   ARTICLE 14
                            OTHER STOCK-BASED AWARDS

           The Committee may make Other Stock-Based Awards. The terms and
conditions of any Other Stock-Based Award shall be set forth in the applicable
Award Agreement or otherwise by the Committee. The circumstances (including any
applicable Performance Measures) under which, and the number, if any, of, shares
of Common Stock or the amount of cash that shall then become payable to the
holder of the Award shall be set forth in the applicable Award Agreement or
otherwise. The Committee shall in its discretion determine the timing of payment
of the Award.

                                      -22-


                                   ARTICLE 15
                     REPLACEMENT AND EXTENSION OF THE TERMS
                          OF OPTIONS AND RELATED STOCK
                               APPRECIATION RIGHTS

           The Committee from time to time may permit an Optionee under the Plan
or any other stock option plan previously or subsequently adopted by an Employer
to surrender for cancellation any unexercised outstanding stock option and
related SAR and receive from his or her Employer in exchange an Option for the
number of shares of Common Stock as may be designated by the Committee. However,
the Committee may not authorize an exchange if the stock options to be
surrendered have an Option Price that is above the Fair Market Value of the
Common Stock (as calculated as provided in Section 8.4 (Option Price)) on the
date of the exchange, and the options to be granted in exchange therefor would
have an Option Price that is less than that of the stock options to be
surrendered. Optionees also may be granted related SARs or Cash Awards as
provided in Articles 9 (Stock Appreciation Rights) and 12 (Cash Awards).

                                   ARTICLE 16
                           AMENDMENT, MODIFICATION AND
                             TERMINATION OF THE PLAN

           Cinergy, by resolution duly adopted by Cinergy's Board of Directors,
shall have the right, authority and power to alter, amend, modify, suspend,
revoke or terminate the Plan in whole or in part at any time, including the
adoption of amendments deemed necessary or desirable to qualify the Awards under
the laws of various states and under rules and regulations promulgated by the
Securities and Exchange Commission with respect to officers and directors who
are subject to the provisions of Section 16 of the 1934 Act, to comply with any
applicable provisions of the Code, including Code Subsection 162(m) or to
correct any defect or supply any omission or reconcile any inconsistency in the
Plan or in any Award granted under the Plan, without the approval of Cinergy's
shareholders. However, no action shall be taken without the approval of

                                      -23-


Cinergy's shareholders that would cause the Plan to no longer comply with Rule
16b-3, or any other regulatory requirements, or Code Subsection 162(m), or to
the extent such approval is required by other applicable law.

           No amendment or termination or modification of the Plan shall in any
manner adversely affect any Award previously granted without the consent of the
Participant, except that Cinergy's Board of Directors may amend or modify the
Plan in a manner that does adversely affect Awards previously granted upon a
finding by Cinergy's Board of Directors that the amendment or modification is in
the best interest of holders of outstanding Awards affected by the amendment or
modification.

                                   ARTICLE 17
                    EFFECT OF TERMINATION OF SERVICE OR DEATH

           In the event of termination of employment or service by reason of
death, disability, normal retirement, early retirement with the consent of the
Employer, termination of employment or service to enter military or other
government or eleemosynary service or leave of absence approved by the Employer,
or in the event of hardship or other special circumstances, of a Participant who
holds an Option or Stock Appreciation Right that is not immediately and fully
exercisable, any shares of Restricted Stock as to which the substantial risk of
forfeiture or the prohibition or restriction on transfer has not lapsed, any
Performance Shares or Performance Awards that had not been fully earned, any
Common Shares that are subject to any transfer restriction pursuant to Article
10 (Restricted Stock), any Dividend Equivalent Award or Other Stock-Based Award
that had not been fully earned or which is subject to any transfer restrictions,
the Committee may take any action that it deems to be equitable under the
circumstances or in the best interests of Cinergy or any other Employer,
including without limitation waiving or modifying any limitation or requirement
with respect to any Award under this Plan.

                                      -24-


                                   ARTICLE 18
                                 TRANSFERABILITY

           Except with the prior approval of and upon conditions established by
the Committee, no Option or other derivative security (as that term is defined
in Rule 16b-3) granted pursuant to the Plan shall be transferable otherwise than
by will or by the laws of descent and distribution. During the lifetime of an
Optionee, the Option and Stock Appreciation Rights shall be exercisable only by
the Optionee personally or, in the event of the Participant's legal incapacity,
by the Participant's guardian or legal representative acting in a fiduciary
capacity on behalf of the Participant under applicable state law and judicial
supervision. The Committee, in its sole discretion, may provide for the
transferability of particular Awards under the Plan so long as the provisions
will not disqualify the exemption for other Awards under Rule 16b-3. Any grant
made under the Plan may provide that all or any part of the shares of Common
Stock that are to be issued or transferred by Cinergy upon the exercise of
Options or Stock Appreciation Rights or in payment of Performance Shares on
Performance Awards, Dividend Equivalents or Other Stock-Based Awards, or that
are no longer subject to the substantial risk of forfeiture and restrictions on
transfer referred to in Article 10 (Restricted Stock), shall be subject to
further restrictions upon transfer.

                                   ARTICLE 19
                              SHAREHOLDER APPROVAL

           The Plan shall be subject to approval by a majority vote of the votes
cast at a duly held shareholders' meeting of Cinergy at which a quorum
representing the majority of all outstanding voting stock is, either in person
or by proxy, present and voting on the Plan.

                                   ARTICLE 20
                            FUNDING POLICY AND METHOD

         The Plan shall be totally unfunded. No Participant shall have any
  interest in any fund or specific asset of an Employer by reason of the Plan.

                                      -25-


                                   ARTICLE 21
                                  MISCELLANEOUS

      21.1 NO ENLARGEMENT OF EMPLOYEE BENEFITS.

           The Plan is strictly a voluntary undertaking on the part of the
Employers and shall not be deemed to constitute a contract between an Employer
and any Participant or to be consideration for, or inducement to, or a condition
of, the employment or service of any Participant. Nothing contained in the Plan
shall be deemed to give any Participant the right to be retained in the service
of his or her Employer or to interfere with the right of his or her Employer to
discharge any Participant at any time. No Participant shall have any right to
benefits under the Plan except to the extent provided in this document. Any
Award under this Plan shall not be deemed compensation for purposes of computing
benefits or contributions under any qualified pension plan of an Employer, and
shall not affect any benefits under any other benefit plan of any kind currently
or subsequently in effect under which the availability or amount of benefits is
related to the level of compensation.

      21.2 NOTICE OF ADDRESS.

           Each Award recipient must file with the Committee, in accordance with
procedures established by the Committee, his or her post office address and each
change of post office address. Any communication, statement or notice addressed
to a person at his latest post office address as filed with the Committee will,
upon deposit in the United States mail with postage prepaid, be binding upon
that person for all purposes of the Plan.

      21.3 NO INDIVIDUAL LIABILITY.

           It is declared to be the express purpose and intention of the Plan
that, except as otherwise required by law, no individual liability whatever
shall attach to, or be incurred by, Cinergy, its shareholders, officers,
employees, or members of Cinergy's Board of Directors, each other Employer's
shareholders, officers, employees, or members of its board of directors, or any

                                      -26-


representatives appointed by the Committee, under or by reason of any of the
Plan's terms or conditions. Each Award recipient shall be legally bound by the
provisions of the Plan.

      21.4 GOVERNING LAWS.

           The Plan shall be construed and administered according to the laws of
the State of Delaware (without giving effect to the conflict of law principles
of that State) to the extent that those laws are not preempted by the laws of
the United States of America.

      21.5 RISK OF PARTICIPATION.

           Nothing contained in the Plan shall be construed either as a
guarantee by the Plan or Cinergy, its shareholders, officers, employees, or
members of Cinergy's Board of Directors, each other Employer, its shareholders,
officers, employees or members of its board of directors of the value of any
assets of the Plan or as an agreement by the Plan or Cinergy, its shareholders,
officers, employees or members of Cinergy's Board of Directors, each other
Employer, its shareholders, officers, employees or members of its board of
directors, to indemnify anyone for any losses, damages, costs and/or expenses
resulting from participation in the Plan.

      21.6 HEADINGS.

           The headings of articles, sections, subsections, paragraphs or other
parts of the Plan are for convenience of reference only and do not define,
limit, construe or otherwise affect the contents thereof.

      21.7 EXPENSES.

           All expenses of administering the Plan shall be borne by the
Employers.

      21.8 WITHHOLDING TAXES.

           Cinergy shall, to the extent required by applicable law, withhold or
cause to be withheld, federal, state and/or local taxes in connection with the
exercise, vesting or settlement of an Award. Unless otherwise provided in the
applicable Award Agreement, each Participant

                                      -27-


may satisfy any tax withholding obligation by any of the following means, or by
a combination of these means: (i) a cash payment, (ii) subject to Committee
approval, by delivery to Cinergy of a number of shares of Common Stock having a
Fair Market Value, as of the Tax Withholding Date (the date the withholding tax
obligation first arises with respect to an Award), sufficient to satisfy the
amount of the required withholding tax obligation arising from an exercise,
vesting or settlement of an Award, (iii) subject to Committee approval, by
authorizing Cinergy to withhold from the shares of Common Stock otherwise
issuable to the Participant pursuant to the exercise or vesting of an Award, a
number of shares having a Fair Market Value, as of the Tax Withholding Date,
that will satisfy the amount of the required withholding tax obligation, or (iv)
by a combination of such methods of payment. If the amount requested is not
paid, an Employer may refuse to satisfy the Award.

      21.9 AWARD AGREEMENTS.

           After the Committee grants an Award to a Participant, it shall cause
the Employer to enter into a written or electronic agreement or agreements with
the Participant. Any certificates for Common Stock issued to Optionees may bear
a legend evidencing any representations or restrictions.

     21.10 RIGHTS AS A SHAREHOLDER.

           Grant of any Option, SAR, Dividend Equivalent, Other Stock-Based
Award or Performance Shares or Performance Award shall not confer upon the
grantee any rights of a shareholder with respect to any shares subject to the
Award. A recipient of an Award consisting of an Option, SAR, Dividend
Equivalent, Other Stock-Based Award or Performance Shares or Performance Award
or a transferee of any such Award shall have no right as a shareholder with
respect to any Common Stock covered by an Option (or receivable upon the
exercise of an Option), SAR, Dividend Equivalent Other Stock-Based Award or
Performance Shares or

                                      -28-


Performance Award, until the Participant or transferee shall have become the
holder of record of the Common Stock. No adjustments shall be made for dividends
in cash or other property or other distributions or rights in respect to Common
Stock for which the record date is prior to the date on which the Participant or
transferee shall have in fact become the holder of record of the shares of
Common Stock acquired pursuant to the Option, SAR, Dividend Equivalent, Other
Stock-Based Award or Performance Shares or Performance Award.

     21.11 CHANGE IN CONTROL.

           Notwithstanding anything in the Plan to the contrary, without
Participant consent, in the event of a Change in Control of Cinergy, unless
otherwise provided in the related Award Agreement: (i) each unexpired Option and
Stock Appreciation Right shall become exercisable in full, (ii) all restrictions
(other than restrictions imposed by law) and conditions of all Restricted Stock
(other than Restricted Stock subject to Performance Measures), Dividend
Equivalents and Other Stock-Based Awards then outstanding shall be deemed
satisfied subject to any holding period limitations, (iii) all Performance
Measures of all Performance Shares and Performance Awards, Restricted Stock,
Dividend Equivalents and Other Stock-Based Awards shall be deemed fully
satisfied at the maximum criteria levels, and (iv) all Performance Shares and
Performance Awards shall be paid in full within thirty (30) days following the
Change in Control.

           A "Change in Control" of Cinergy shall be deemed to have occurred if
any of the following events occur:

           (1)  Any Person is or becomes the beneficial owner (as defined in
                Rule 13d-3 under the 1934 Act), directly or indirectly, of
                securities of Cinergy (not including in the securities
                beneficially owned by such Person any securities acquired
                directly from Cinergy or its affiliates) representing more than
                twenty percent (20%) of the combined voting power of

                                      -29-


                Cinergy's then outstanding securities, excluding any Person who
                becomes such a beneficial owner in connection with a transaction
                described in clause (i) of paragraph (2) below; or

           (2)  There is consummated a merger or consolidation of Cinergy or
                any direct or indirect subsidiary of Cinergy with any other
                corporation, partnership or other entity, other than (i) a
                merger or consolidation that would result in the voting
                securities of Cinergy outstanding immediately prior to that
                merger or consolidation continuing to represent (either by
                remaining outstanding or by being converted into voting
                securities of the surviving entity or its parent) at least sixty
                percent (60%) of the combined voting power of the securities of
                Cinergy or the surviving entity or its parent outstanding
                immediately after the merger or consolidation, or (ii) a merger
                or consolidation effected to implement a recapitalization of
                Cinergy (or similar transaction) in which no Person is or
                becomes the beneficial owner, directly or indirectly, of
                securities of Cinergy (not including in the securities
                beneficially owned by such a Person any securities acquired
                directly from Cinergy or its affiliates other than in connection
                with the acquisition by Cinergy or its affiliates of a business)
                representing twenty percent (20%) or more of the combined voting
                power of Cinergy's then outstanding securities; or

           (3)  During any period of two (2) consecutive years, individuals
                who at the beginning of that period constitute Cinergy's Board
                of Directors and any new director (other than a director whose
                initial assumption of office is in connection with an actual or
                threatened election contest, including but not

                                      -30-


                limited to a consent solicitation, relating to the election of
                directors of Cinergy) whose appointment or election by Cinergy's
                stockholders was approved or recommended by a vote of at least
                two-thirds (2/3) of the directors then still in office who
                either were directors at the beginning of that period or whose
                appointment, election, or nomination for election was previously
                so approved or recommended cease for any reason to constitute a
                majority of Cinergy's Board of Directors; or

           (4)  The stockholders of Cinergy approve a plan of complete
                liquidation or dissolution of Cinergy or there is consummated a
                sale or disposition by Cinergy of all or substantially all of
                Cinergy's assets, other than a sale or disposition by Cinergy of
                all or substantially all of Cinergy's assets to an entity, at
                least sixty percent (60%) of the combined voting power of the
                voting securities of which are owned by stockholders of Cinergy
                in substantially the same proportions as their ownership of
                Cinergy immediately prior to the sale.

           For purposes of this Section, "Person" has the meaning set forth in
paragraph 3(a)(9) of the 1934 Act, as modified and used in subsections 13(d) and
14(d) of the 1934 Act; however, a Person will not include the following: (1)
Cinergy or any of its subsidiaries or affiliates; (2) a trustee or other
fiduciary holding securities under an employee benefit plan of Cinergy or any of
its subsidiaries or affiliates; (3) an underwriter temporarily holding
securities pursuant to an offering of those securities; or (4) a corporation
owned, directly or indirectly, by the stockholders of Cinergy in substantially
the same proportions as their ownership of stock of Cinergy.

                                      -31-


           Notwithstanding the provisions of Article 16 (Amendment, Modification
and Termination of the Plan), the foregoing provisions of this Section may not
be amended by an amendment to the Plan effected within three years following a
Change in Control.

                                   ARTICLE 22
                           CONTINUANCE BY A SUCCESSOR

           In the event that Cinergy or any other Employer shall be reorganized
by way of merger, consolidation, transfer of assets or otherwise, so that a
corporation, partnership or person other than an Employer shall succeed to all
or substantially all of that Employer's business, the successor may be
substituted for the Employer under the Plan by adopting the Plan.

           IN WITNESS WHEREOF, Cinergy Corp. has caused this Plan document to be
executed and approved by its duly authorized officers, effective as of January
25, 2002.

                               CINERGY CORP.


                               By:
                                  ----------------------------------------------
                                James E. Rogers
                                Chairman, President and Chief Executive Officer

                               Dated:
                                     -------------------------------------------

Approved:

By:
   ---------------------------------

Dated:
      ------------------------------

                                      -32-

EX-21

                               SUBSIDIARY LISTING

As of January 31, 2002, the following is a listing of the subsidiaries of each
registrant in which Cinergy Corp. has a greater than 10% ownership interest in
and their state or country of incorporation or organization indented to show
degree of remoteness from registrant.



                                                                                      STATE OR COUNTRY OF
                                                                                        ORGANIZATION OR
                                 NAME OF COMPANY                                         INCORPORATION
                                 ---------------                                         -------------
                 (Indentation indicates subsidiary relationship)

                                                                                   
CINERGY CORP. (1)                                                                        Delaware

   CINERGY SERVICES, INC.                                                                Delaware

   THE CINCINNATI GAS & ELECTRIC COMPANY (1)                                             Ohio
     Cinergy Power Investments, Inc.                                                     Ohio
     CPI Allowance Management, LLC                                                       Delaware
     CPI Investments, LLC                                                                Delaware
     The Union Light, Heat and Power Company (1)                                         Kentucky
     Tri-State Improvement Company                                                       Ohio
     Lawrenceburg Gas Company                                                            Indiana
     Miami Power Corporation                                                             Indiana
     KO Transmission Company                                                             Kentucky

   PSI ENERGY, INC. (1)                                                                  Indiana
     South Construction Company, Inc.                                                    Indiana

   CINERGY INVESTMENTS, INC.                                                             Delaware
     CINERGY-CADENCE, INC.                                                               Indiana
       Cadence Network, Inc.                                                             Delaware
     CINERGY CAPITAL & TRADING, INC.                                                     Indiana
       Brownsville Power I, LLC                                                          Delaware
       Caledonia Power I, LLC                                                            Delaware
       CinCap - Chippewa, LLC                                                            Delaware
       CinCap - Martinsville, LLC                                                        Delaware
       CinCap - Oraville, LLC                                                            Delaware
       CinFuel Resources, Inc.                                                           Delaware
       LH1, LLC                                                                          Delaware
       CINCAP PIC, LLC                                                                   Delaware
        CinPeak Resources, LLC                                                           Delaware
       CinCap IV, LLC                                                                    Delaware
       CinCap V, LLC                                                                     Delaware
       CINCAP VIII, LLC                                                                  Delaware
        CinCap VII, LLC                                                                  Delaware
        CinCap Madison, LLC                                                              Delaware
       CinCap IX, LLC                                                                    Delaware
       CinCap X, LLC                                                                     Delaware
       CinPower I, LLC                                                                   Delaware
       Cinergy Canada, Inc.                                                              Canada
       Cinergy Limited Holdings, LLC                                                     Delaware
       CINERGY GENERAL HOLDINGS, LLC                                                     Delaware
        Cinergy Marketing & Trading, LP                                                  Delaware
       Cinergy Propane, LLC                                                              Delaware
       Cinergy Retail Power Limited, Inc.                                                Delaware
       CINERGY RETAIL POWER GENERAL, INC.                                                Texas

(1) Companies indicated are registrants with the Securities and Exchange
Commission.



        Cinergy Retail Power, L.P.                                                       Delaware
       ENCOAL OPCO, LLC                                                                  Delaware
       Cinergy Transportation, LLC                                                       Delaware
       SynCap II, LLC                                                                    Delaware
     CINERGY TELECOMMUNICATIONS HOLDING COMPANY, INC.                                    Delaware
       Q-Comm Corporation                                                                Nevada
       Lattice Communications, LLC                                                       Delaware
     Cinergy Engineering, Inc.                                                           Ohio
     Cinergy-Centrus, Inc.                                                               Delaware
     Cinergy-Centrus Communications, Inc.                                                Delaware
     CINERGY SOLUTIONS HOLDING COMPANY, INC.                                             Delaware
       1388368 Ontario Inc.                                                              Canada
       3036243 NOVA SCOTIA COMPANY                                                       Nova Scotia
        Cinergy Solutions Limited Partnership                                            Canada
       VESTAR, INC.                                                                      Delaware
        VESTAR LIMITED                                                                   Canada
          Keen Rose Technology Group Limited                                             Canada
          Optimira Controls, Inc.                                                        Canada
       Cinergy EPCOM, LLC                                                                Delaware
       Cinergy EPCOM College Park, LLC                                                   Delaware
       CINERGY SOLUTIONS, INC.                                                           Delaware
        BSPE HOLDINGS, LLC                                                               Delaware
          BSPE Limited, LLC                                                              Delaware
          BSPE GENERAL, LLC                                                              Texas
            BSPE, L.P.                                                                   Delaware
        CINERGY ENERGY SOLUTIONS, INC.                                                   Delaware
          Zahren Alternative Power Corporation                                           Delaware
        CINERGY GASCO SOLUTIONS, LLC                                                     Delaware
          Countryside Landfill Gasco., L.L.C.                                            Delaware
          Morris Gasco, L.L.C.                                                           Delaware
          Brown County Landfill Gas Associates, L.P.                                     Delaware
        Cinergy Solutions of Boca Raton, LLC                                             Delaware
        Cinergy Solutions of Philadelphia, LLC                                           Delaware
        CINERGY SOLUTIONS PARTNERS, LLC                                                  Delaware
          CST Limited, LLC                                                               Delaware
          CST GENERAL, LLC                                                               Texas
            CST GREEN POWER, L.P.                                                        Delaware
              GREEN POWER HOLDINGS, LLC                                                  Delaware
               Green Power G.P., LLC                                                     Texas
               GREEN POWER LIMITED, LLC                                                  Delaware
                 South Houston Green Power, L.P.                                         Delaware
        CSGP of Southeast Texas, LLC                                                     Delaware
        CSGP Limited, LLC                                                                Delaware
        CSGP GENERAL, LLC                                                                Texas
          CSGP Services, L.P.                                                            Delaware
        Lansing Grand River Utilities, LLC                                               Delaware
        Oklahoma Arcadian Utilities, LLC                                                 Delaware
        Shreveport Red River Utilities, LLC                                              Delaware
       Cinergy Solutions of Tuscola, Inc.                                                Delaware
       Delta Township Utilities, LLC                                                     Delaware
       Energy Equipment Leasing LLC                                                      Delaware
       Trigen-Cinergy Solutions LLC                                                      Delaware
       Trigen-Cinergy Solutions of Ashtabula LLC                                         Delaware
       Trigen-Cinergy Solutions of Baltimore LLC                                         Delaware
       Trigen-Cinergy Solutions of Boca Raton, LLC                                       Delaware
       Trigen-Cinergy Solutions of Cincinnati LLC                                        Ohio
       Trigen-Cinergy Solutions of College Park, LLC                                     Delaware



       TRIGEN-CINERGY SOLUTIONS OF LANSING LLC                                           Delaware
        Trigen/Cinergy - USFOS of Lansing LLC                                            Delaware
       Trigen-Cinergy Solutions of Orlando LLC                                           Delaware
       Trigen-Cinergy Solutions of Owings Mills LLC                                      Delaware
       Trigen-Cinergy Solutions of Owings Mills Energy Equipment Leasing, LLC            Delaware
       Trigen-Cinergy Solutions of Rochester LLC                                         Delaware
       Trigen-Cinergy Solutions of Silver Grove LLC                                      Delaware
       Trigen-Cinergy Solutions of San Diego LLC                                         Delaware
       Trigen-Cinergy Solutions of the Southeast LLC                                     Delaware
       TRIGEN-CINERGY SOLUTIONS OF ST. PAUL LLC                                          Delaware
        Environmental Wood Supply, LLC                                                   Minnesota
        St. Paul Cogeneration LLC                                                        Minnesota
       Trigen-Cinergy Solutions of Tuscola, LLC                                          Delaware
     CINERGY SUPPLY NETWORK, INC.                                                        Delaware
       RELIANT SERVICES, LLC                                                             Indiana
        MP ACQUISITIONS CORP., INC.                                                      Indiana
          Miller Pipeline Corporation                                                    Indiana
     Cinergy Technology, Inc.                                                            Indiana

   CINERGY GLOBAL RESOURCES, INC.                                                        Delaware
     Cinergy UK, Inc.                                                                    Delaware
     CINERGY GLOBAL POWER, INC.                                                          Delaware
       CGP GLOBAL GREECE HOLDINGS, SA                                                    Greece
        ATTIKI DENMARK APS                                                               Denmark
          Attiki Gas Supply Company SA                                                   Greece
       CINERGY GLOBAL CHANDLER HOLDING, INC.                                             Delaware
        CINERGY GLOBAL CHANDLER I, INC.                                                  Delaware
          Chandler Wind Partners, LLC                                                    Delaware
       CINERGY GLOBAL ELY, INC.                                                          Delaware
        EPR ELY POWER LIMITED                                                            England
          EPR ELY LIMITED                                                                England
            Ely Power Limited                                                            England
            Anglian Straw Limited                                                        England
        Anglian Ash Limited                                                              England
        eVent Resources Overseas I, LLC                                                  Delaware
       CINERGY GLOBAL FOOTE CREEK, INC.                                                  Delaware
        Foote Creek III, LLC                                                             Delaware
       CINERGY GLOBAL FOOTE CREEK II, INC.                                               Delaware
        Foote Creek II, LLC                                                              Delaware
       CINERGY GLOBAL FOOTE CREEK IV, INC.                                               Delaware
        Foote Creek IV, LLC                                                              Delaware
       CINERGY GLOBAL PEETZ TABLE I, INC.                                                Delaware
        Ridge Crest Wind Partners, LLC                                                   Delaware
       CINERGY GLOBAL POWER SERVICES LIMITED                                             England
        Cinergy Global Power Limited                                                     England
        MPI International Limited                                                        England
       CINERGY GLOBAL POWER (UK) LIMITED                                                 England
        CINERGY GLOBAL TRADING LIMITED                                                   England
          Commercial Electricity Supplies Limited                                        England
          Cinergy Renewable Trading Limited                                              England
          UK Electric Power Limited                                                      England
          Cinergy Global Power 2 Limited                                                 England
       CINERGY GLOBAL SAN GORGONIO, INC.                                                 Delaware
        San Gorgonio Westwinds II, LLC                                                   California
       CINERGY GLOBAL HOLDINGS, INC.                                                     Delaware
        CINERGY HOLDINGS B.V.                                                            The Netherlands
          CINERGY ZAMBIA B.V.                                                            The Netherlands



            Copperbelt Energy Corporation PLC                                            Republic of Zambia
          CINERGY TURBINES B.V.                                                          The Netherlands
            EOS PAX I S.L.                                                               Spain
            EOS PAX IIa S.L.                                                             Spain
          CINERGY HYDRO B.V.                                                             The Netherlands
            CINERGY RENOVABLES IBERICAS, S.A.                                            Spain
              AGE INVERSIONES EN MEDIO AMBIENTE, S.L.                                    Spain
               Valoritzacions Agroramaderes les Garrigues, S.L.                          Spain
              CINERGY GLOBAL POWER IBERIA, S.A.                                          Spain
               Escambeo, S.L.                                                            Spain
              CINERGY RENOVABLES ARAGON, S.L.                                            Spain
               San Juan de Bargas Eolica, S.L.                                           Spain
               General Eolica Argonesa, S.A.                                             Spain
               Tratamiento y Generacion De Energia S.L.                                  Spain
               Generacion y Abastecimiento De Energia, S.L.                              Spain
               Intercambio De Derivados Porcinos, S.L.                                   Spain
               Aplicaciones Industriales De Energies Limpias, S.L.                       Spain
              Cinergy Services Iberia, S.L.                                              Spain
              Compania Productora De Energia para Consumo Interno, S.L.                  Spain
              Desarrollos Eolico El Aguila, S.A.                                         Spain
              Elecdey Ascoy, S.A.                                                        Spain
              Elecdey Carcelen, S.A.                                                     Spain
              Enrega, S.L.                                                               Spain
              EOLOCRISA, S.L.                                                            Spain
               CORPORACION EOLICA, S.L.                                                  Spain
                 Compania Eolica Aragonesa, S.A.                                         Spain
              Northeolic Pico Gallo, S.L.                                                Spain
              Procrisa Servicios, S.L.                                                   Spain
              Promociones y Servicios Hidraulicos, S.A.                                  Spain
              Sinergia Andaluza, S.L.                                                    Spain
              Tractaments de Juneda, SA                                                  Spain
              Ventoabrego, S.L.                                                          Spain
            CINERGY 1 B.V.                                                               The Netherlands
              CINERGY EESTI OU                                                           Estonia
               STARTEKOR INVESTEERINGUTE OU                                              Estonia
                 Aktsiaselts Narva Elektrivork                                           Estonia
            CINERGY GLOBAL RESOURCES 1 B.V.                                              The Netherlands
              Moravske Teplarny a.s.                                                     Czech Republic
              Plzenska Energetika a.s.                                                   Czech Republic
              Cinergy Global Polska Sp. Z.o.o.                                           Poland
              Cinergy Global Resources 1 Sp. Z o.o.                                      Poland
              Cinergy Global Resources a.s.                                              Czech Republic
              Cinergetika U/L a.s.                                                       Czech Republic
              Energetika Chropyne a.s.                                                   Czech Republic
              Teplarna Otrokovice a.s.                                                   Czech Republic
              Energy Customer Services, s.r.o.                                           Czech Republic
            CINERGY 2 B.V.                                                               The Netherlands
              Desarrollo Eolico del Ebro S.A.                                            Spain
              Sinergia Aragonesa, S.L.                                                   Spain
          BAGHABARI I B.V.                                                               The Netherlands
            Baghabari Power Company Limited                                              Bangladesh
          Baghabari II B.V.                                                              The Netherlands
          CINERGY SOUTH AFRICA INVESTMENTS 1 B.V.                                        The Netherlands
            Egoli Gas (Proprietary) Limited                                              South Africa
          Cinergy Global 4 B.V.                                                          The Netherlands
          Cinergy Global 5 B.V.                                                          The Netherlands
        CINERGY GLOBAL (CAYMAN) HOLDINGS, INC.                                           Cayman Islands



          Cinergy Global Hydrocarbons Pakistan                                           Cayman Islands
          CINERGY GLOBAL TSAVO POWER                                                     Cayman Islands
            IPS-CINERGY POWER LIMITED                                                    Kenya
              Tsavo Power Company Limited                                                Kenya
          Cinergy Global Maranhao                                                        Cayman Islands
          Cinergy MPI V, Inc.                                                            Cayman Islands
          Cinergy MPI VI, Inc.                                                           Cayman Islands
          Cinergy MPI VII, Inc.                                                          Cayman Islands
          Cinergy MPI VIII, Inc.                                                         Cayman Islands
          Cinergy MPI IX, Inc.                                                           Cayman Islands
          Cinergy MPI X, Inc.                                                            Cayman Islands
       CINERGY GLOBAL ONE, INC.                                                          Delaware
        CZECHPOL ENERGY SPOL, S.R.O.                                                     Delaware
          ZAT Dneproline                                                                 Ukraine
          E-line Czech s.r.o.                                                            Czech Republic
          S-line s.r.o.                                                                  Slovak
          U-line ZAT                                                                     Ukraine
          DP Czechpol Energy Invest                                                      Ukraine
          MEAS Brno, a.s.                                                                Czech Republic
          PEAS Praha, a.s.                                                               Czech Republic
          Moravia Energo                                                                 Czech Republic
          SK Invest a.s.                                                                 Slovak
       Midlands Hydrocarbons (Bangladesh) Limited                                        England
       Powermid No. 1                                                                    England
       Cinergy Global Power Africa (Proprietary) Limited                                 South Africa

   CINTEC LLC                                                                            Delaware
     CINTEC I LLC                                                                        Delaware
       EVENT RESOURCES I LLC                                                             Delaware
        eVent (Triple Point) LLC                                                         Delaware

   CINERGY TECHNOLOGIES, INC.                                                            Delaware
     CINERGY VENTURES, LLC                                                               Delaware
       emPowerNET, LLC                                                                   Delaware
     Cinergy Ventures II, LLC                                                            Delaware
     Cinergy e-Supply Network, LLC                                                       Delaware
     Cinergy One, Inc.                                                                   Delaware
     Cinergy Two, Inc.                                                                   Delaware

   CINERGY WHOLESALE ENERGY, INC.                                                        Ohio
     Cinergy Power Generation Services, LLC                                              Delaware
     Cinergy Origination & Trade, LLC                                                    Delaware

   CINERGY RECEIVABLES COMPANY LLC                                                       Delaware

EX-23

                    CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

         As independent public accountants, we hereby consent to the
incorporation of our report, dated January 24, 2002, included in this Form 10-K,
into (i) Cinergy Corp.'s previously filed Registration Statement Nos. 33-55267,
33-55713, 33-56089, 33-56091, 33-56093, 33-56095, 333-17531, 333-51484,
333-83461, 333-83467, 333-94281, 333-72898, 333-72900, 333-72902, 333-74086 and
333-81770; (ii) PSI Energy, Inc.'s previously filed Registration Statement Nos.
33-48612 and 33-57064; (iii) The Cincinnati Gas & Electric Company's previously
filed Registration Statement Nos. 33-45116, 33-52335 and 33-58967; and (iv) The
Union Light, Heat and Power Company's previously filed Registration Statement
No. 33-40245.



                                                     Arthur Andersen LLP

Cincinnati, Ohio
February 27, 2002

EX-24

                                POWER OF ATTORNEY

       KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints James E. Rogers and R. Foster Duncan, or either of them with full power
to act without the other, the undersigned's true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution, to execute for
and on behalf of the undersigned, in the undersigned's capacity as a director of
Cinergy Corp., the Form 10-K Annual Report of said corporation for the fiscal
year ended December 31, 2001, and to deliver said Form 10-K Annual Report so
signed for filing with the Securities and Exchange Commission.

       The undersigned does hereby ratify and confirm all that said
attorneys-in-fact and agents, and each of them, shall lawfully do by virtue
hereof.

       IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of
Attorney to be executed on this 27th day of February, 2002.

                                        /s/ Phillip R. Cox
                                        ------------------
                                        Phillip R. Cox



                                POWER OF ATTORNEY

       KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints James E. Rogers and R. Foster Duncan, or either of them with full power
to act without the other, the undersigned's true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution, to execute for
and on behalf of the undersigned, in the undersigned's capacity as a director of
Cinergy Corp., the Form 10-K Annual Report of said corporation for the fiscal
year ended December 31, 2001, and to deliver said Form 10-K Annual Report so
signed for filing with the Securities and Exchange Commission.

       The undersigned does hereby ratify and confirm all that said
attorneys-in-fact and agents, and each of them, shall lawfully do by virtue
hereof.

       IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of
Attorney to be executed on this 22nd day of February, 2002.

                                        /s/ George C. Juilfs
                                        --------------------
                                         George C. Juilfs



                                  POWER OF ATTORNEY

     KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints James E. Rogers and R. Foster Duncan, or either of them with full
power to act without the other, the undersigned's true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, to execute for and on behalf of the undersigned, in the
undersigned's capacity as a director of Cinergy Corp., the Form 10-K Annual
Report of said corporation for the fiscal year ended December 31, 2001, and
to deliver said Form 10-K Annual Report so signed for filing with the
Securities and Exchange Commission.

     The undersigned does hereby ratify and confirm all that said
attorneys-in-fact and agents, and each of them, shall lawfully do by virtue
hereof.

     IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of
Attorney to be executed on this 19th day of February, 2002.




                                       /s/ Thomas E. Petry
                                       -------------------
                                       Thomas E. Petry




                                   POWER OF ATTORNEY

     KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints James E. Rogers and R. Foster Duncan, or either of them with full
power to act without the other, the undersigned's true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, to execute for and on behalf of the undersigned, in the
undersigned's capacity as a director of Cinergy Corp., the Form 10-K Annual
Report of said corporation for the fiscal year ended December 31, 2001, and
to deliver said Form 10-K Annual Report so signed for filing with the
Securities and Exchange Commission.

     The undersigned does hereby ratify and confirm all that said
attorneys-in-fact and agents, and each of them, shall lawfully do by virtue
hereof.

     IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of
Attorney to be executed on this 19th day of February, 2002.




                                       /s/ Jackson H. Randolph
                                       -----------------------
                                       Jackson H. Randolph




                                POWER OF ATTORNEY

       KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints James E. Rogers and R. Foster Duncan, or either of them with full power
to act without the other, the undersigned's true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution, to execute for
and on behalf of the undersigned, in the undersigned's capacity as a director of
Cinergy Corp., the Form 10-K Annual Report of said corporation for the fiscal
year ended December 31, 2001, and to deliver said Form 10-K Annual Report so
signed for filing with the Securities and Exchange Commission.

       The undersigned does hereby ratify and confirm all that said
attorneys-in-fact and agents, and each of them, shall lawfully do by virtue
hereof.

       IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of
Attorney to be executed on this 26th day of February, 2002.

                                        /s/ Mary L. Schapiro
                                        --------------------
                                        Mary L. Schapiro


                                POWER OF ATTORNEY

       KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints James E. Rogers and R. Foster Duncan, or either of them with full power
to act without the other, the undersigned's true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution, to execute for
and on behalf of the undersigned, in the undersigned's capacity as a director of
Cinergy Corp., the Form 10-K Annual Report of said corporation for the fiscal
year ended December 31, 2001, and to deliver said Form 10-K Annual Report so
signed for filing with the Securities and Exchange Commission.

       The undersigned does hereby ratify and confirm all that said
attorneys-in-fact and agents, and each of them, shall lawfully do by virtue
hereof.

       IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of
Attorney to be executed on this 23rd day of February, 2002.

                                        /s/ John J. Schiff, Jr.
                                        -----------------------
                                        John J. Schiff, Jr.



                                POWER OF ATTORNEY


         KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints James E. Rogers and R. Foster Duncan, or either of them with full power
to act without the other, the undersigned's true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution, to execute for
and on behalf of the undersigned, in the undersigned's capacity as a director of
Cinergy Corp., the Form 10-K Annual Report of said corporation for the fiscal
year ended December 31, 2001, and to deliver said Form 10-K Annual Report so
signed for filing with the Securities and Exchange Commission.

         The undersigned does hereby ratify and confirm all that said
attorneys-in-fact and agents, and each of them, shall lawfully do by virtue
hereof.

         IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of
Attorney to be executed on this 24th day of February, 2002.





                                                     /s/ Philip R. Sharp
                                                     -------------------
                                                     Philip R. Sharp



                                POWER OF ATTORNEY

       KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints James E. Rogers and R. Foster Duncan, or either of them with full power
to act without the other, the undersigned's true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution, to execute for
and on behalf of the undersigned, in the undersigned's capacity as a director of
Cinergy Corp., the Form 10-K Annual Report of said corporation for the fiscal
year ended December 31, 2001, and to deliver said Form 10-K Annual Report so
signed for filing with the Securities and Exchange Commission.

       The undersigned does hereby ratify and confirm all that said
attorneys-in-fact and agents, and each of them, shall lawfully do by virtue
hereof.

       IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of
Attorney to be executed on this 19th day of February, 2002.

                                        /s/ Dudley S. Taft
                                        ------------------
                                        Dudley S. Taft



                                POWER OF ATTORNEY

       KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints James E. Rogers and R. Foster Duncan, or either of them with full power
to act without the other, the undersigned's true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution, to execute for
and on behalf of the undersigned, in the undersigned's capacity as a director of
Cinergy Corp., the Form 10-K Annual Report of said corporation for the fiscal
year ended December 31, 2001, and to deliver said Form 10-K Annual Report so
signed for filing with the Securities and Exchange Commission.

       The undersigned does hereby ratify and confirm all that said
attorneys-in-fact and agents, and each of them, shall lawfully do by virtue
hereof.

       IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of
Attorney to be executed on this 23rd day of February, 2002.

                                        /s/ James K. Baker
                                        ------------------
                                        James K. Baker



                               POWER OF ATTORNEY

     KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints James E. Rogers and R. Foster Duncan, or either of them with full
power to act without the other, the undersigned's true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, to execute for and on behalf of the undersigned, in the
undersigned's capacity as a director of each of Cinergy Corp. and PSI Energy,
Inc., the Form 10-K Annual Report of each corporation for the fiscal year
ended December 31, 2001, and to deliver said Form 10-K Annual Reports so
signed for filing with the Securities and Exchange Commission.

     The undersigned does hereby ratify and confirm all that said
attorneys-in-fact and agents, and each of them, shall lawfully do by virtue
hereof.

     IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of
Attorney to be executed on this 25th day of February, 2002.




                                       /s/ Michael G. Browning
                                       -----------------------
                                       Michael G. Browning




                               POWER OF ATTORNEY

     KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints James E. Rogers and R. Foster Duncan, or either of them with full
power to act without the other, the undersigned's true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, to execute for and on behalf of the undersigned, in the
undersigned's capacity as a director of Cinergy Corp., the Form 10-K Annual
Report of said corporation for the fiscal year ended December 31, 2001, and
to deliver said Form 10-K Annual Report so signed for filing with the
Securities and Exchange Commission.

     The undersigned does hereby ratify and confirm all that said
attorneys-in-fact and agents, and each of them, shall lawfully do by virtue
hereof.

     IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of
Attorney to be executed on this 20th day of February, 2002.




                                       /s/ John A. Hillenbrand II
                                       --------------------------
                                       John A. Hillenbrand II




                                POWER OF ATTORNEY

     KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints James E. Rogers and R. Foster Duncan, or either of them with full
power to act without the other, the undersigned's true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, to execute for and on behalf of the undersigned, in the
undersigned's capacity as a director of each of The Cincinnati Gas & Electric
Company and The Union Light, Heat and Power Company, the Form 10-K Annual
Report of each corporation for the fiscal year ended December 31, 2001, and
to deliver said Form 10-K Annual Reports so signed for filing with the
Securities and Exchange Commission.

     The undersigned does hereby ratify and confirm all that said
attorneys-in-fact and agents, and each of them, shall lawfully do by virtue
hereof.

     IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of
Attorney to be executed on this 19th day of February, 2002.




                                       /s/ James L. Turner
                                       -------------------
                                       James L. Turner




                            POWER OF ATTORNEY

     KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints James E. Rogers and R. Foster Duncan, or either of them with full
power to act without the other, the undersigned's true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, to execute for and on behalf of the undersigned, in the
undersigned's capacity as a director of  PSI Energy, Inc., the Form 10-K
Annual Report of said corporation for the fiscal year ended December 31,
2001, and to deliver said Form 10-K Annual Report so signed for filing with
the Securities and Exchange Commission.

     The undersigned does hereby ratify and confirm all that said
attorneys-in-fact and agents, and each of them, shall lawfully do by virtue
hereof.

     IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of
Attorney to be executed on this 25th day of February, 2002.




                                       /s/ Larry E. Thomas
                                       -------------------
                                       Larry E. Thomas