CINERGY CORP (Form: 10-Q, Received: 08/13/2003 17:24:22)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2003

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

For the transition period from to

Commission File Number	Registrant, State of Incorporation, Address and Telephone Number	I.R.S. Employer Identification No.

1-11377	CINERGY CORP. (A Delaware Corporation) 139 East Fourth Street Cincinnati, Ohio 45202 (513) 421-9500	31-1385023

1-1232	THE CINCINNATI GAS & ELECTRIC COMPANY (An Ohio Corporation) 139 East Fourth Street Cincinnati, Ohio 45202 (513) 421-9500	31-0240030

1-3543	PSI ENERGY, INC. (An Indiana Corporation) 1000 East Main Street Plainfield, Indiana 46168 (513) 421-9500	35-0594457

2-7793	THE UNION LIGHT, HEAT AND POWER COMPANY (A Kentucky Corporation) 139 East Fourth Street Cincinnati, Ohio 45202 (513) 421-9500	31-0473080

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.

Yes ý No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes ý No o

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

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

As of July 31, 2003, shares of common stock outstanding for each registrant were as listed:

Registrant	Description	Shares

Cinergy Corp.	Par value $.01 per share	177,496,253

The Cincinnati Gas & Electric Company	Par value $8.50 per share	89,663,086

PSI Energy, Inc.	Without par value, stated value $.01 per share	53,913,701

The Union Light, Heat and Power Company	Par value $15.00 per share	585,333

TABLE OF CONTENTS

Item Number
	PART I FINANCIAL INFORMATION

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

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

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

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

	Notes to Financial Statements

	Cautionary Statements Regarding Forward-Looking Information

2	Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Introduction
	Organization
	Liquidity and Capital Resources
	2003 Quarterly Results of Operations - Historical
	2003 Year to Date Results of Operations - Historical
	Results of Operations - Future

3	Quantitative and Qualitative Disclosures About Market Risk

4	Controls and Procedures

	PART II OTHER INFORMATION

1	Legal Proceedings

6	Exhibits and Reports on Form 8-K

	Signatures

CINERGY CORP.

AND SUBSIDIARY COMPANIES

CINERGY CORP.

CONSOLIDATED STATEMENTS OF INCOME

	Quarter Ended June 30					Year to Date June 30
	2003		2002			2003		2002
	(in thousands, except per share amounts)
	(unaudited)
Operating Revenues (Note 1(g)( i ))
Electric	$	769,258	$	804,463		$	1,592,316	$	1,565,848
Gas	114,932		80,208			513,845		270,272
Other	49,733		22,624			95,719		39,561
Total Operating Revenues	933,923		907,295			2,201,880		1,875,681

Operating Expenses
Fuel and purchased and exchanged power (Note 1(g)( i ))	240,470		241,686			510,335		459,492
Gas purchased (Note 1(g)( i ))	53,319		29,562			289,314		139,442
Operation and maintenance	330,006		338,306			655,168		598,918
Depreciation	105,228		97,979			208,863		194,295
Taxes other than income taxes	66,958		64,247			144,707		136,669
Total Operating Expenses	795,981		771,780			1,808,387		1,528,816

Operating Income	137,942		135,515			393,493		346,865

Equity in Earnings (Losses) of Unconsolidated Subsidiaries	6,104		(581		)	6,696		4,108
Miscellaneous – Net	7,767		(3,063		)	15,382		(4,448		)
Interest Expense	60,394		58,431			119,548		117,604
Preferred Dividend Requirement of Subsidiary Trust	5,970		5,968			11,940		11,881

Income Before Taxes	85,449		67,472			284,083		217,040

Income Taxes	8,983		21,298			66,966		75,842
Preferred Dividend Requirements of Subsidiaries	858		858			1,716		1,716

Income Before Discontinued Operations and Cumulative Effect of Changes in Accounting Principles	75,608		45,316			215,401		139,482

Discontinued operations, net of tax (Note 7)	9,045		(333		)	8,875		1,229
Cumulative effect of changes in accounting principles, net of tax (Note 1(g)( vii ))	—		—			26,462		(10,899		)
Net Income	$	84,653	$	44,983		$	250,738	$	129,812

Average Common Shares Outstanding	176,645		167,330			175,025		165,821

Earnings Per Common Share (Note 9)
Income Before Discontinued Operations and Cumulative Effect of Changes in Accounting Principles	$	0.42	$	0.27		$	1.23	$	0.84
Discontinued operations, net of tax	0.05		—			0.05		0.01
Cumulative effect of changes in accounting principles, net of tax	—		—			0.15		(0.06		)
Net Income	$	0.47	$	0.27		$	1.43	$	0.79

Earnings Per Common Share - Assuming Dilution (Note 9)
Income Before Discontinued Operations and Cumulative Effect of Changes in Accounting Principles	$	0.42	$	0.26		$	1.22	$	0.83
Discontinued operations, net of tax	0.05		—			0.05		0.01
Cumulative effect of changes in accounting principles, net of tax	—		—			0.15		(0.06		)
Net Income	$	0.47	$	0.26		$	1.42	$	0.78

Dividends Declared Per Common Share	$	0.46	$	0.45		$	0.92	$	0.90

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

CINERGY CORP.

CONSOLIDATED BALANCE SHEETS

ASSETS

	June 30 2003		December 31 2002
	(in thousands)
	(unaudited)

Current Assets
Cash and cash equivalents	$	249,016	$	200,112
Restricted deposits	3,609		3,092
Notes receivable	78,112		135,873
Accounts receivable less accumulated provision for doubtful accounts of $11,447 at June 30, 2003, and $16,368 at December 31, 2002	1,163,652		1,280,810
Materials, supplies, and fuel (Note 1(c))	321,247		319,454
Energy risk management current assets (Note 1(b)( i ))	401,054		464,028
Prepayments and other	121,168		107,086
Total Current Assets	2,337,858		2,510,455

Property, Plant, and Equipment - at Cost
Utility plant in service (Note 11)	9,374,785		8,641,351
Construction work in progress	349,212		469,300
Total Utility Plant	9,723,997		9,110,651
Non-regulated property, plant, and equipment (Note 11)	4,310,498		4,616,754
Accumulated depreciation (Note 1(g)( iii ))	5,246,376		5,157,040
Net Property, Plant, and Equipment	8,788,119		8,570,365

Other Assets
Regulatory assets	1,015,024		1,022,696
Investments in unconsolidated subsidiaries	453,906		417,188
Energy risk management non-current assets (Note 1(b)( i ))	151,159		162,773
Other investments	173,203		163,851
Goodwill	43,717		43,717
Other intangible assets	1,777		2,059
Other	316,408		266,659
Total Other Assets	2,155,194		2,078,943

Assets of Discontinued Operations (Note 7)	7,187		147,265

Total Assets	$	13,288,358	$	13,307,028

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

CINERGY CORP.

CONSOLIDATED BALANCE SHEETS

LIABILITIES AND SHAREHOLDERS’ EQUITY

	June 30 2003			December 31 2002
	(in thousands)
	(unaudited)

Current Liabilities
Accounts payable	$	1,102,251		$	1,318,379
Accrued taxes	191,864			258,613
Accrued interest	69,767			62,244
Notes payable and other short-term obligations (Note 4)	409,269			667,973
Long-term debt due within one year (Note 3)	387,038			176,000
Energy risk management current liabilities (Note 1(b)( i ))	384,885			407,710
Other	130,165			105,026
Total Current Liabilities	2,675,239			2,995,945

Non-Current Liabilities
Long-term debt (Note 3)	3,977,446			4,011,568
Deferred income taxes	1,508,123			1,458,171
Unamortized investment tax credits	113,489			118,095
Accrued pension and other postretirement benefit costs	660,922			626,167
Energy risk management non-current liabilities (Note 1(b)( i ))	156,946			143,991
Other	206,466			179,767
Total Non-Current Liabilities	6,623,392			6,537,759

Liabilities of Discontinued Operations (Note 7)	8,877			108,833

Total Liabilities	9,307,508			9,642,537

Preferred Trust Securities (Note 1(g)( vi ))
Company obligated, mandatorily redeemable, preferred trust securities of subsidiary, holding solely debt securities of the company	309,216			308,187

Cumulative Preferred Stock of Subsidiaries
Not subject to mandatory redemption	62,818			62,828

Common Stock Equity (Note 2)
Common stock -$.01 par value; authorized shares -600,000,000; outstanding shares -176,947,118 at June 30, 2003, and 168,663,115 at December 31, 2002	1,769			1,687
Paid-in capital	2,135,968			1,918,136
Retained earnings	1,495,502			1,403,453
Accumulated other comprehensive income (loss)	(24,423		)	(29,800		)
Total Common Stock Equity	3,608,816			3,293,476

Commitments and Contingencies (Note 6)

Total Liabilities and Shareholders’ Equity	$	13,288,358		$	13,307,028

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

CINERGY CORP.

CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY

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

Quarter Ended June 30, 2003

Balance at April 1, 2003 (175,876,919 shares)	$	1,759	$	2,116,222		$	1,491,861		$	(29,013	)	$	3,580,829
Comprehensive income:
Net income						84,653						84,653
Other comprehensive income (loss), net of tax effect of ($2,284)
Foreign currency translation adjustment, net of reclassification adjustments of $6,134 (net of tax) (Note 7)									3,963			3,963
Unrealized gain (loss) on investment trusts									3,370			3,370
Cash flow hedges (Note 1(b))									(2,743		)	(2,743		)
Total comprehensive income												89,243

Issuance of common stock - net (1,070,199 shares)	10		25,459									25,469
Dividends on common stock ($.46 per share)						(80,992		)				(80,992		)
Other (Note 2(b))			(5,713		)	(20		)				(5,733		)

Ending balance at June 30, 2003 (176,947,118 shares)	$	1,769	$	2,135,968		$	1,495,502		$	(24,423	)	$	3,608,816

Quarter Ended June 30, 2002

Balance at April 1, 2002 (166,826,096 shares)	$	1,669	$	1,839,338		$	1,350,090		$	(19,188	)	$	3,171,909
Comprehensive income:
Net income						44,983						44,983
Other comprehensive income (loss), net of tax effect of ($7,772)
Foreign currency translation adjustment									16,897			16,897
Unrealized gain (loss) on investment trusts									(583		)	(583		)
Cash flow hedges (Note 1(b))									(1,913		)	(1,913		)
Total comprehensive income												59,384

Issuance of common stock - net (660,033 shares)	6		19,518									19,524
Dividends on common stock ($.45 per share)						(75,200		)				(75,200		)
Other			2,833			8						2,841

Ending balance at June 30, 2002 (167,486,129 shares)	$	1,675	$	1,861,689		$	1,319,881		$	(4,787	)	$	3,178,458

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

CINERGY CORP.

CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY

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

Year to Date June 30, 2003

Balance at January 1, 2003 (168,663,115 shares)	$	1,687	$	1,918,136		$	1,403,453		$	(29,800	)	$	3,293,476
Comprehensive income:
Net income						250,738						250,738
Other comprehensive income (loss), net of tax effect of ($2,558)
Foreign currency translation adjustment, net of reclassification adjustments of $6,134 (net of tax) (Note 7)									6,054			6,054
Unrealized gain (loss) on investment trusts									2,518			2,518
Cash flow hedges (Note 1(b))									(3,195		)	(3,195		)
Total comprehensive income												256,115

Issuance of common stock - net (8,284,003 shares)	82		219,355									219,437
Dividends on common stock ($.92 per share)						(158,677		)				(158,677		)
Other (Note 2(b))			(1,523		)	(12		)				(1,535		)

Ending balance at June 30, 2003 (176,947,118 shares)	$	1,769	$	2,135,968		$	1,495,502		$	(24,423	)	$	3,608,816

Year to Date June 30, 2002

Balance at January 1, 2002 (159,402,839 shares)	$	1,594	$	1,619,659		$	1,337,135		$	(16,929	)	$	2,941,459
Comprehensive income:
Net income						129,812						129,812
Other comprehensive income (loss), net of tax effect of ($6,688)
Foreign currency translation adjustment									15,313			15,313
Unrealized gain (loss) on investment trusts									(1,634		)	(1,634		)
Minimum pension liability adjustment									136			136
Cash flow hedges (Note 1(b))									(1,673		)	(1,673		)
Total comprehensive income												141,954

Issuance of common stock - net (8,083,290 shares)	81		235,412									235,493
Dividends on common stock ($.90 per share)						(147,082		)				(147,082		)
Other			6,618			16						6,634

Ending balance at June 30, 2002 (167,486,129 shares)	$	1,675	$	1,861,689		$	1,319,881		$	(4,787	)	$	3,178,458

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

CINERGY CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year to Date June 30
	2003			2002
	(in thousands)
	(unaudited)

Operating Activities
Net income	$	250,738		$	129,812
Items providing or (using) cash currently:
Depreciation	208,863			194,295
Loss (Gain) on disposal of discontinued operations, net of tax	(8,878		)	—
Cumulative effect of changes in accounting principles, net of tax	(26,462		)	10,899
Change in net position of energy risk management activities	12,421			(54,030		)
Deferred income taxes and investment tax credits - net	24,315			20,779
Equity in (earnings) losses of unconsolidated subsidiaries	(6,696		)	(4,108		)
Allowance for equity funds used during construction	(6,191		)	(7,167		)
Regulatory assets deferrals	(40,084		)	(43,403		)
Regulatory assets amortization	52,273			53,288
Accrued pension and other postretirement benefit costs	34,755			41,223
Deferred costs under gas recovery mechanism	(36,422		)	(1,073		)
Changes in current assets and current liabilities:
Restricted deposits	(517		)	(765		)
Accounts and notes receivable	178,214			(296,104		)
Materials, supplies, and fuel	(1,793		)	(45,907		)
Prepayments	(7,074		)	(9,174		)
Accounts payable	(216,128		)	317,942
Accrued taxes and interest	(59,226		)	19,380
Other assets	(2,388		)	26,868
Other liabilities	54,061			17,105

Net cash provided by (used in) operating activities	403,781			369,860

Financing Activities
Change in short-term debt	(258,704		)	(35,337		)
Issuance of long-term debt	291,198			—
Redemption of long-term debt	(141,759		)	(20,292		)
Retirement of preferred stock of subsidiaries	(10		)	(2		)
Issuance of common stock	219,437			235,493
Dividends on common stock	(158,677		)	(147,082		)

Net cash provided by (used in) financing activities	(48,515		)	32,780

Investing Activities
Construction expenditures (less allowance for equity funds used during construction)	(334,522		)	(395,407		)
Acquisitions and other investments	(23,092		)	(17,186		)
Proceeds from disposal of subsidiaries	51,252			—

Net cash provided by (used in) investing activities	(306,362		)	(412,593		)

Net increase (decrease) in cash and cash equivalents	48,904			(9,953		)

Cash and cash equivalents at beginning of period	200,112			87,257

Cash and cash equivalents at end of period	$	249,016		$	77,304

Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Interest (net of amount capitalized)	$	117,496		$	119,766
Income taxes	$	96,696		$	32,083

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

THE CINCINNATI GAS & ELECTRIC COMPANY

AND SUBSIDIARY COMPANIES

THE CINCINNATI GAS & ELECTRIC COMPANY

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

	Quarter Ended June 30						Year to Date June 30
	2003			2002			2003			2002
	(in thousands)
	(unaudited)

Operating Revenues (Note 1(g)( i ))
Electric	$	397,455		$	409,709		$	826,019		$	806,807
Gas	85,311			56,008			360,587			235,617
Total Operating Revenues	482,766			465,717			1,186,606			1,042,424

Operating Expenses
Fuel and purchased and exchanged power (Note 1(g)( i ))	106,267			108,585			236,821			215,833
Gas purchased	48,086			24,471			219,851			132,439
Operation and maintenance	125,937			138,341			260,697			244,196
Depreciation	50,313			48,892			99,577			97,052
Taxes other than income taxes	49,739			45,719			110,257			99,205
Total Operating Expenses	380,342			366,008			927,203			788,725

Operating Income	102,424			99,709			259,403			253,699

Miscellaneous - Net	6,899			4,563			13,483			1,880
Interest Expense	29,419			21,774			55,260			44,629

Income Before Taxes	79,904			82,498			217,626			210,950

Income Taxes	28,985			29,828			80,409			80,695

Income Before Cumulative Effect of Changes in Accounting Principles	50,919			52,670			137,217			130,255

Cumulative effect of changes in accounting principles, net of tax (Note 1(g)( vii ))	—			—			30,938			—

Net Income	$	50,919		$	52,670		$	168,155		$	130,255

Preferred Dividend Requirement	212			212			423			423

Net Income Applicable to Common Stock	$	50,707		$	52,458		$	167,732		$	129,832

Net Income	$	50,919		$	52,670		$	168,155		$	130,255

Other Comprehensive Income (Loss), Net of Tax Effect	(2,721		)	(1,913		)	(3,027		)	(2,085		)

Comprehensive Income	$	48,198		$	50,757		$	165,128		$	128,170

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

THE CINCINNATI GAS & ELECTRIC COMPANY

CONSOLIDATED BALANCE SHEETS

ASSETS

	June 30 2003		December 31 2002
	(in thousands)
	(unaudited)

Current Assets
Cash and cash equivalents	$	63,192	$	45,336
Restricted deposits	3,037		3,071
Notes receivable from affiliated companies	201,634		148,823
Accounts receivable less accumulated provision for doubtful accounts of $3,714 at June 30, 2003, and $5,942 at December 31, 2002	97,460		117,269
Accounts receivable from affiliated companies	23,692		97,584
Materials, supplies, and fuel	118,277		121,881
Energy risk management current assets (Note 1(b)( i ))	67,755		57,912
Prepayments and other	27,840		8,560
Total Current Assets	602,887		600,436

Property, Plant, and Equipment - at Cost
Utility plant in service (Note 11)
Electric	2,120,288		2,073,133
Gas	1,028,589		1,003,870
Common	248,956		248,938
Total Utility Plant In Service	3,397,833		3,325,941
Construction work in progress	98,322		84,249
Total Utility Plant	3,496,155		3,410,190
Non-regulated property, plant, and equipment (Note 11)	3,488,169		3,445,056
Accumulated depreciation (Note 1(g)( iii ))	2,722,956		2,712,105
Net Property, Plant, and Equipment	4,261,368		4,143,141

Other Assets
Regulatory assets	602,092		604,776
Energy risk management non-current assets (Note 1(b)( i ))	63,452		64,762
Other investments	1,079		1,082
Other	186,848		127,550
Total Other Assets	853,471		798,170

Total Assets	$	5,717,726	$	5,541,747

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

THE CINCINNATI GAS & ELECTRIC COMPANY

CONSOLIDATED BALANCE SHEETS

LIABILITIES AND SHAREHOLDER’S EQUITY

	June 30 2003			December 31 2002
	(in thousands)
	(unaudited)

Current Liabilities
Accounts payable	$	165,721		$	195,812
Accounts payable to affiliated companies	37,738			146,558
Accrued taxes	162,940			159,199
Accrued interest	29,057			22,872
Notes payable and other short-term obligations (Note 4)	112,100			112,100
Notes payable to affiliated companies (Note 4)	8,258			8,947
Long-term debt due within one year (Note 3)	130,000			120,000
Energy risk management current liabilities (Note 1(b)( i ))	78,963			49,288
Other	37,451			37,160
Total Current Liabilities	762,228			851,936

Non-Current Liabilities
Long-term debt (Note 3)	1,721,865			1,569,713
Deferred income taxes	919,289			882,628
Unamortized investment tax credits	82,192			85,198
Accrued pension and other postretirement benefit costs	208,160			201,284
Energy risk management non-current liabilities (Note 1(b)( i ))	54,041			31,326
Other	84,609			88,843
Total Non-Current Liabilities	3,070,156			2,858,992

Total Liabilities	3,832,384			3,710,928

Cumulative Preferred Stock
Not subject to mandatory redemption	20,485			20,485

Common Stock Equity
Common stock - $8.50 par value; authorized shares - 120,000,000; outstanding shares - 89,663,086 at June 30, 2003, and December 31, 2002	762,136			762,136
Paid-in capital	586,292			586,292
Retained earnings	545,202			487,652
Accumulated other comprehensive income (loss)	(28,773		)	(25,746		)
Total Common Stock Equity	1,864,857			1,810,334

Commitments and Contingencies (Note 6)

Total Liabilities and Shareholder’s Equity	$	5,717,726		$	5,541,747

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

THE CINCINNATI GAS & ELECTRIC COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year to Date June 30
	2003			2002
	(in thousands)
	(unaudited)

Operating Activities
Net income	$	168,155		$	130,255
Items providing or (using) cash currently:
Depreciation	99,577			97,052
Deferred income taxes and investment tax credits - net	12,144			21,393
Cumulative effect of changes in accounting principles, net of tax	(30,938		)	—
Change in net position of energy risk management activities	1,161			(5,840		)
Allowance for equity funds used during construction	(1,841		)	480
Regulatory assets deferrals	(12,725		)	(28,195		)
Regulatory assets amortization	19,654			17,951
Accrued pension and other postretirement benefit costs	6,876			5,323
Deferred costs under gas cost recovery mechanism	(36,422		)	(1,073		)
Changes in current assets and current liabilities:
Restricted deposits	34			(764		)
Accounts and notes receivable	131,511			(219,100		)
Materials, supplies, and fuel	3,604			24,512
Prepayments	(7,962		)	(4,318		)
Accounts payable	(138,911		)	244,575
Accrued taxes and interest	9,926			23,804
Other assets	(4,388		)	9,326
Other liabilities	(5,635		)	4,032

Net cash provided by (used in) operating activities	213,820			319,413

Financing Activities
Change in short-term debt, including net affiliate notes	(91,310		)	(65,629		)
Issuance of long-term debt	256,198			—
Redemption of long-term debt	(100,000		)	—
Dividends on preferred stock	—			(349		)
Dividends on common stock	(110,182		)	(91,653		)

Net cash provided by (used in) financing activities	(45,294		)	(157,631		)

Investing Activities
Construction expenditures (less allowance for equity funds used during construction)	(150,672		)	(161,394		)
Other investments	2			(1		)

Net cash provided by (used in) investing activities	(150,670		)	(161,395		)

Net increase (decrease) in cash and cash equivalents	17,856			387

Cash and cash equivalents at beginning of period	45,336			9,074

Cash and cash equivalents at end of period	$	63,192		$	9,461

Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Interest (net of amount capitalized)	$	30,010		$	40,504
Income taxes	$	37,155		$	15,495

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

PSI ENERGY, INC.

AND SUBSIDIARY COMPANY

PSI ENERGY, INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

	Quarter Ended June 30					Year to Date June 30
	2003		2002			2003			2002
	(in thousands)
	(unaudited)

Operating Revenues (Note 1(g)( i ))
Electric	$	361,385	$	378,618		$	773,073		$	745,019

Operating Expenses
Fuel and purchased and exchanged power (Note 1(g)( i ))	121,998		128,546			288,870			251,595
Operation and maintenance	122,947		142,549			235,332			257,628
Depreciation	44,944		38,380			87,656			76,128
Taxes other than income taxes	16,150		17,149			32,032			33,546
Total Operating Expenses	306,039		326,624			643,890			618,897

Operating Income	55,346		51,994			129,183			126,122

Miscellaneous - Net	5,411		4,370			7,569			9,721
Interest Expense	22,038		17,789			42,153			37,080

Income Before Taxes	38,719		38,575			94,599			98,763

Income Taxes	15,640		8,861			37,299			30,966

Income Before Cumulative Effect of a Change in Accounting Principle	23,079		29,714			57,300			67,797

Cumulative effect of a change in accounting principle, net of tax (Note 1(g)( vii ))	—		—			(494		)	—

Net Income	$	23,079	$	29,714		$	56,806		$	67,797

Preferred Dividend Requirement	646		646			1,293			1,293

Net Income Applicable to Common Stock	$	22,433	$	29,068		$	55,513		$	66,504

Net Income	$	23,079	$	29,714		$	56,806		$	67,797

Other Comprehensive Income (Loss), Net of Tax Effect	2,954		(471		)	2,324			(968		)

Comprehensive Income	$	26,033	$	29,243		$	59,130		$	66,829

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

PSI ENERGY, INC.

CONSOLIDATED BALANCE SHEETS

ASSETS

	June 30 2003		December 31 2002
	(in thousands)
	(unaudited)

Current Assets
Cash and cash equivalents	$	906	$	2,007
Restricted deposits	571		20
Notes receivable from affiliated companies	34,365		53,755
Accounts receivable less accumulated provision for doubtful accounts of $1,935 at June 30, 2003, and $5,656 at December 31, 2002	74,828		84,819
Accounts receivable from affiliated companies	1,617		437
Materials, supplies, and fuel	143,287		137,292
Energy risk management current assets (Note 1(b)( i ))	7,325		8,701
Prepayments and other	36,433		44,725
Total Current Assets	299,332		331,756

Property, Plant, and Equipment - at Cost
Utility plant in service	5,976,952		5,315,410
Construction work in progress	250,890		385,051
Total Utility Plant	6,227,842		5,700,461
Accumulated depreciation	2,402,932		2,334,157
Net Property, Plant, and Equipment (Note 11)	3,824,910		3,366,304

Other Assets
Regulatory assets	412,932		417,920
Energy risk management non-current assets (Note 1(b)( i ))	10,789		16,590
Other investments	59,559		54,683
Other	43,144		35,703
Total Other Assets	526,424		524,896

Total Assets	$	4,650,666	$	4,222,956

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

PSI ENERGY, INC.

CONSOLIDATED BALANCE SHEETS

LIABILITIES AND SHAREHOLDER’S EQUITY

	June 30 2003			December 31 2002
	(in thousands)
	(unaudited)

Current Liabilities
Accounts payable	$	50,590		$	113,563
Accounts payable to affiliated companies	34,017			107,364
Accrued taxes	98,565			105,960
Accrued interest	30,964			23,078
Notes payable and other short-term obligations (Note 4)	—			35,000
Notes payable to affiliated companies (Note 4)	236,588			138,055
Long-term debt due within one year (Note 3)	257,038			56,000
Energy risk management current liabilities (Note 1(b)( i ))	7,048			8,000
Other	22,654			22,335
Total Current Liabilities	737,464			609,355

Non-Current Liabilities
Long-term debt (Note 3)	1,499,254			1,315,984
Deferred income taxes	540,580			538,745
Unamortized investment tax credits	31,297			32,897
Accrued pension and other postretirement benefit costs	191,779			184,299
Energy risk management non-current liabilities (Note 1(b)( i ))	15,354			17,157
Other	81,811			80,879
Total Non-Current Liabilities	2,360,075			2,169,961

Total Liabilities	3,097,539			2,779,316

Cumulative Preferred Stock
Not subject to mandatory redemption	42,333			42,343

Common Stock Equity
Common stock - without par value; $.01 stated value; authorized shares - 60,000,000; outstanding shares - 53,913,701 at June 30, 2003, and December 31, 2002	539			539
Paid-in capital (Note 2(c))	526,931			426,931
Retained earnings	989,119			981,946
Accumulated other comprehensive income (loss)	(5,795		)	(8,119		)
Total Common Stock Equity	1,510,794			1,401,297

Commitments and Contingencies (Note 6)

Total Liabilities and Shareholder’s Equity	$	4,650,666		$	4,222,956

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

PSI ENERGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year to Date June 30
	2003			2002
	(in thousands)
	(unaudited)

Operating Activities
Net income	$	56,806		$	67,797
Items providing or (using) cash currently:
Depreciation	87,656			76,128
Cumulative effect of a change in accounting principle, net of tax	494			—
Deferred income taxes and investment tax credits - net	(937		)	(8,881		)
Change in net position of energy risk management activities	635			603
Allowance for equity funds used during construction	(4,350		)	(7,647		)
Regulatory assets deferrals	(27,359		)	(15,208		)
Regulatory assets amortization	32,619			35,337
Accrued pension and other postretirement benefit costs	7,480			9,923
Changes in current assets and current liabilities:
Restricted deposits	(551		)	(2		)
Accounts and notes receivable	28,201			120,198
Materials, supplies, and fuel	(5,995		)	(36,653		)
Prepayments	(406		)	(4,589		)
Accounts payable	(136,320		)	(66,185		)
Accrued taxes and interest	491			36,566
Other assets	6,344			(7,655		)
Other liabilities	(1,755		)	5,862

Net cash provided by (used in) operating activities	43,053			205,594

Financing Activities
Change in short-term debt, including net affiliate notes	63,533			77,806
Issuance of long-term debt	35,000			—
Redemption of long-term debt	(27,896		)	(23,000		)
Contribution from parent	100,000			—
Retirement of preferred stock	(10		)	(2		)
Dividends on preferred stock	(1,293		)	(1,293		)
Dividends on common stock	(48,340		)	(55,138		)

Net cash provided by (used in) financing activities	120,994			(1,627		)

Investing Activities
Construction expenditures (less allowance for equity funds used during construction)	(164,082		)	(201,852		)
Other investments	(1,066		)	(2,337		)

Net cash provided by (used in) investing activities	(165,148		)	(204,189		)

Net increase (decrease) in cash and cash equivalents	(1,101		)	(222		)

Cash and cash equivalents at beginning of period	2,007			1,587

Cash and cash equivalents at end of period	$	906		$	1,365

Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Interest (net of amount capitalized)	$	20,465		$	43,131
Income taxes	$	55,919		$	13,590

Non-cash financing and investing activities:
Issuance of promissory notes to affiliated company for acquisition of assets	$	375,969		$	—

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

THE UNION LIGHT, HEAT AND POWER COMPANY

STATEMENTS OF INCOME

	Quarter Ended June 30					Year to Date June 30
	2003			2002		2003		2002
	(in thousands)
	(unaudited)

Operating Revenues
Electric	$	51,096		$	54,139	$	106,025	$	104,975
Gas	14,383			11,016		63,767		46,220
Total Operating Revenues	65,479			65,155		169,792		151,195

Operating Expenses
Electricity purchased from parent company for resale	37,136			37,808		76,259		74,646
Gas purchased	9,450			5,311		40,950		28,200
Operation and maintenance	13,794			13,928		26,379		23,380
Depreciation	4,583			4,512		9,028		8,732
Taxes other than income taxes	1,121			1,167		2,282		2,368
Total Operating Expenses	66,084			62,726		154,898		137,326

Operating Income (Loss)	(605		)	2,429		14,894		13,869

Miscellaneous - Net	901			1,959		2,380		(2,188		)
Interest Expense	1,470			1,452		2,972		2,957

Income (Loss) Before Taxes	(1,174		)	2,936		14,302		8,724

Income Taxes	(679		)	944		5,391		2,848

Net Income (Loss)	$	(495	)	$	1,992	$	8,911	$	5,876

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

THE UNION LIGHT, HEAT AND POWER COMPANY

BALANCE SHEETS

ASSETS

	June 30 2003		December 31 2002
	(in thousands)
	(unaudited)

Current Assets
Cash and cash equivalents	$	3,935	$	3,926
Notes receivable from affiliated companies	6,438		13,337
Accounts receivable less accumulated provision for doubtful accounts of $111 at June 30, 2003, and $84 at December 31, 2002	729		703
Accounts receivable from affiliated companies	170		1,671
Materials, supplies, and fuel	6,633		8,182
Prepayments and other	558		316
Total Current Assets	18,463		28,135

Property, Plant, and Equipment - at Cost
Utility plant in service (Note 11)
Electric	267,672		258,094
Gas	224,400		215,505
Common	31,898		31,679
Total Utility Plant In Service	523,970		505,278
Construction work in progress	11,615		14,745
Total Utility Plant	535,585		520,023
Accumulated depreciation	195,590		187,876
Net Property, Plant, and Equipment	339,995		332,147

Other Assets
Regulatory assets	9,561		5,134
Other	20,774		16,811
Total Other Assets	30,335		21,945

Total Assets	$	388,793	$	382,227

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

THE UNION LIGHT, HEAT AND POWER COMPANY

BALANCE SHEETS

LIABILITIES AND SHAREHOLDER’S EQUITY

	June 30 2003			December 31 2002
	(in thousands)
	(unaudited)

Current Liabilities
Accounts payable	$	4,048		$	8,816
Accounts payable to affiliated companies	19,420			22,297
Accrued taxes	810			1,487
Accrued interest	1,305			1,226
Long-term debt due within one year	20,000			20,000
Notes payable to affiliated companies (Note 4)	20,952			14,076
Other	5,810			6,368
Total Current Liabilities	72,345			74,270

Non-Current Liabilities
Long-term debt	54,669			54,653
Deferred income taxes	48,230			43,360
Unamortized investment tax credits	3,011			3,143
Accrued pension and other postretirement benefit costs	16,213			15,620
Other	14,556			14,017
Total Non-Current Liabilities	136,679			130,793

Total Liabilities	209,024			205,063

Common Stock Equity
Common stock - $15.00 par value; authorized shares - 1,000,000; outstanding shares - 585,333 at June 30, 2003, and December 31, 2002	8,780			8,780
Paid-in capital	23,644			23,644
Retained earnings	147,405			144,800
Accumulated other comprehensive income (loss)	(60		)	(60		)
Total Common Stock Equity	179,769			177,164

Commitments and Contingencies (Note 6)

Total Liabilities and Shareholder’s Equity	$	388,793		$	382,227

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

THE UNION LIGHT, HEAT AND POWER COMPANY

STATEMENTS OF CASH FLOWS

	Year to Date June 30
	2003			2002
	(in thousands)
	(unaudited)

Operating Activities
Net income	$	8,911		$	5,876
Items providing or (using) cash currently:
Depreciation	9,028			8,732
Deferred income taxes and investment tax credits - net	4,737			(132		)
Allowance for equity funds used during construction	(287		)	(259		)
Regulatory assets deferrals	(197		)	4,435
Regulatory assets amortization	209			(1,077		)
Accrued pension and other postretirement benefit costs	593			1,048
Deferred costs under gas cost recovery mechanism	(8,375		)	4,109
Changes in current assets and current liabilities:
Accounts and notes receivable	8,374			14,063
Materials, supplies, and fuel	1,549			3,760
Prepayments	(242		)	(332		)
Accounts payable	(7,645		)	3,799
Accrued taxes and interest	(598		)	2,784
Other assets	598			714
Other liabilities	(630		)	621

Net cash provided by (used in) operating activities	16,025			48,141

Financing Activities
Change in short-term debt, including net affiliate notes	6,876			(32,024		)
Dividends on common stock	(6,305		)	(2,675		)

Net cash provided by (used in) financing activities	571			(34,699		)

Investing Activities
Construction expenditures (less allowance for equity funds used during construction)	(16,587		)	(15,260		)
Other investments	—			(20		)

Net cash provided by (used in) investing activities	(16,587		)	(15,280		)

Net increase (decrease) in cash and cash equivalents	9			(1,838		)

Cash and cash equivalents at beginning of period	3,926			4,099

Cash and cash equivalents at end of period	$	3,935		$	2,261

Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Interest (net of amount capitalized)	$	1,437		$	2,170
Income taxes	$	3,001		$	2,386

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

NOTES TO FINANCIAL STATEMENTS

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

1. Summary of Significant Accounting Policies

(a) Presentation

Our Financial Statements reflect all adjustments (which include normal, recurring adjustments) necessary in the opinion of the registrants for a fair presentation of the interim results. These results are not necessarily indicative of results for a full year. These statements should be read in conjunction with the Financial Statements and the notes thereto included in the registrants’ combined Form 10-K for the year ended December 31, 2002 and Form 8-K filed on June 10, 2003 (together, the 2002 10-K). Certain amounts in the 2002 Financial Statements have been reclassified to conform to the 2003 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.

(b) Derivatives

We use derivatives to manage exposures to commodity price risk and fluctuations in interest rates.

We account for derivatives under Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (Statement 133), which requires all derivatives, subject to certain exemptions, to be accounted for at fair value. Changes in the derivative’s fair value must be recognized currently in earnings unless specific hedge accounting criteria are met. Gains and losses on derivatives that qualify as hedges can (a) offset related fair value changes on the hedged item in the income statement for fair value hedges; or (b) be recorded in other comprehensive income for cash flow hedges. To qualify for hedge accounting, derivatives must be designated as a hedge (for example, an offset of interest rate risks) 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.

(i) Energy Marketing and Trading

We market and trade electricity, natural gas, coal, and other energy-related products. We designate derivative transactions as trading or non-trading at the time they are originated in accordance with Emerging Issues Task Force (EITF) Issue 02-3, Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities (EITF 02-3). Derivatives are classified as non-trading only when we have the intent and projected ability to fulfill substantially all obligations from company-owned assets. Such classification is generally limited to the sale of 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 derivatives (excluding electric and gas purchase contracts for use in serving our native load requirements) are classified as trading. Gas trading is comprised of transactions for which gas is physically delivered to a customer (physical gas trading), as well as transactions that are financial in nature for which delivery rarely occurs (financial gas trading). Since our gas marketing and trading operations own no gas production and have limited transmission ownership, their gas transactions are considered trading whether physical or financial. Certain gas and coal contracts do not meet the definition of a derivative and, therefore, are not required to be classified as trading or non-trading.

In 2003, we began reflecting realized and unrealized gains and losses on trading derivatives on a net basis in Operating Revenues pursuant to the requirements of EITF 02-3, regardless of whether the transactions were settled physically. Prior to 2003, the realized results for trading contracts that were physical in nature were presented as either (a) Operating Revenues , if sales contracts or (b) Fuel and purchased and exchanged power expense or Gas purchased expense, if purchase contracts. The presentation for 2002 has been reclassified to conform to the new presentation. Non-trading derivatives, as well as energy marketing contracts that are not derivatives, are presented on a gross basis in Operating Revenues or Fuel and purchased and exchanged power expense. (For more information see (g)( i )).

We account for nearly all non-trading derivatives and non-derivative energy contracts on the accrual basis of accounting (accrual contracts). Non-trading derivatives are accounted for as accrual only if the contract qualifies for the normal purchases and sales scope exception in Statement 133. Trading derivatives are accounted for at fair value with changes in fair value, which represent unrealized gains and losses, included as revenues in our Statements of Income. These derivatives are shown in our Balance Sheets as Energy risk management assets and Energy risk management liabilities . In October 2002, the EITF reached a consensus in EITF 02-3 to rescind EITF Issue 98-10, Accounting for Contracts Involved in Energy Trading and Risk Management Activities (EITF 98-10). This decision required that non-derivative contracts and natural gas inventory previously accounted for at fair value be accounted for on an accrual basis, beginning January 1, 2003. In June 2003, we began applying fair value hedge accounting to certain quantities of natural gas inventory. See (c) for further discussion.

Although we intend to settle accrual contracts with company-owned assets, occasionally we settle these contracts with purchases 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 delivery occurs. Open market purchases may occur for the following reasons:

• generating station outages;

• least-cost alternative;

• native load requirements; and

• extreme weather.

We anticipate that some of the electricity obligations, even though considered trading derivatives, will ultimately be settled using company-owned generation. The variable cost

of this generation is typically 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.

We value trading derivatives using end-of-the-period fair values, 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).

(ii) Interest Rate Risk

We use interest rate swaps (an agreement by two parties to exchange fixed-interest rate cash flows for floating-interest rate cash flows) and treasury locks (an agreement that fixes the yield or price on a specific treasury security for a specific period, which we sometimes use in connection with the issuance of fixed rate debt). We account for such derivatives at fair value, and we assess the effectiveness of any interest rate swaps and/or treasury locks used in hedging activities.

At June 30, 2003, the 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 debt instruments from Accumulated other comprehensive income (loss) occurs as interest is accrued on the debt instrument. We currently estimate that on an after-tax basis, $5 million of unrealized losses will be reclassified as a charge to Interest Expense during the twelve-month period ending June 30, 2004.

(c) Inventory

Prior to January 1, 2003, natural gas inventory for our North American gas trading operation, was accounted for at fair value. All other inventory was accounted for at the lower of cost or market, cost being determined through the weighted average method. Effective January 1, 2003, accounting for the North American gas trading operation’s inventory was adjusted to the lower of cost or market method with a cumulative effect adjustment, as required by EITF 02-3. See (g)( i ) below for additional discussion of the impacts of adopting EITF 02-3.

In June 2003, in accordance with the provisions of Statement 133, Cinergy designated specific derivatives as fair value hedges for certain volumes of our natural gas inventory. Under this accounting election, changes in the fair value of both the derivative as well as the hedged item (the specified inventory) are included in income. We assess the effectiveness of the derivatives in offsetting the change in fair value of the inventory on a quarterly basis. For the three months ended, June 30, 2003, the hedges’ ineffectiveness was not material.

(d) Stock-Based Compensation

Effective January 1, 2003, Cinergy adopted prospectively the fair value recognition provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation , as amended by Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure , for all employee awards granted or modified after January 1, 2003. Prior to 2003, we accounted for our stock-based compensation plans using the intrinsic value method under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees . The following table illustrates the effect on our Net Income and Earnings Per Common Share (EPS) if the fair value based method had been applied to all outstanding and unvested awards in each period.

		Quarter Ended June 30				Year to Date June 30
		(in millions, except per share amounts)

		2003		2002		2003		2002

Net income, as reported		$	85	$	45	$	251	$	130

Add:	Stock-based employee compensation expense included in reported net income, net of related tax effects.	6		2		9		5

Deduct:	Stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects.	6		3		10		6

Pro-forma net income		$	85	$	44	$	250	$	129

EPS - as reported		$	0.47	$	0.27	$	1.43	$	0.79
EPS - pro-forma		$	0.47	$	0.27	$	1.42	$	0.78

EPS assuming dilution - as reported		$	0.47	$	0.26	$	1.42	$	0.78
EPS assuming dilution - pro-forma		$	0.47	$	0.26	$	1.41	$	0.77

The pro-forma amounts reflect certain assumptions used in estimating fair values. As a result of this and other factors which may effect the timing and amounts of stock-based compensation, the pro-forma effect on Net Income and EPS may not be representative of future periods.

(e) Asset Retirement Obligations

We recognize the fair value of legal obligations associated with the retirement or removal of long-lived assets at the time the obligations are incurred. The initial recognition of this liability is accompanied by a corresponding increase in property, plant, and equipment. Subsequent to the initial recognition, the liability is 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 Operation and maintenance expense). Additional depreciation expense is recorded prospectively for any property, plant, and equipment increases.

We do not recognize liabilities for asset retirement obligations for which the fair value cannot be reasonably estimated. The Cincinnati Gas & Electric Company ( CG&E ) and PSI Energy, Inc. ( PSI ) have asset retirement obligations associated with river structures at certain generating stations. However, the retirement date for these river structures cannot be reasonably estimated; therefore, the fair value of the associated liability currently cannot be estimated and no amounts are recognized in the financial statements herein.

Effective with our adoption of Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations (Statement 143), on January 1, 2003, we do not accrue the estimated cost of removal when no obligation exists for any of our non-regulated assets, even if removal of the asset is likely. For our rate-regulated assets where our tariff rate includes a cost of removal component, we recognize a charge for estimated cost of removal under Statement of Financial Accounting Standards No. 71, Accounting for the Effects of Certain Types of Regulation (Statement 71), as part of depreciation. This includes most assets for PSI , CG&E , except for its generating assets, and The Union Light, Heat and Power Company ( ULH&P ). See (g)( iii ) for additional information.

(f) Operating Revenues

Our operating companies record Operating Revenues for electric and gas service when delivered 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 use complex systems that consider various factors, including weather, in our calculation 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 subsequently billed.

The amount of unbilled revenues for Cinergy , CG&E , PSI , and ULH&P as of June 30, 2003 and 2002, were as follows:

	2003		2002
	(in millions)

Cinergy	$	123	$	132
CG&E and subsidiaries	64		68
PSI	59		64
ULH&P	10		11

(g) Accounting Changes

(i) Energy Trading

Income, whether or not settled physically. The consensus to rescind EITF 98-10 required most energy trading contracts that do not qualify as derivatives to be accounted for on an accrual basis, rather than at fair value. The consensus was immediately effective for all new contracts executed after October 25, 2002, and required a cumulative effect adjustment to income, net of tax, on January 1, 2003, for all contracts executed on or prior to October 25, 2002. The cumulative effect adjustment, on a net of tax basis, was a loss of $13 million for Cinergy and $8 million for CG&E , which includes primarily the impact of certain coal contracts, gas inventory, and certain gas contracts, which were all accounted for at fair value. We expect this rescission to have the largest ongoing impact on our gas trading business, which uses financial contracts, physical contracts, and gas inventory to take advantage of various arbitrage opportunities. Prior to the rescission of EITF 98-10, all of these activities were accounted for at fair value. Under the revised guidance, only certain items are accounted for at fair value, which could increase inter-period volatility in reported results of operations. As a result, we began applying fair value hedge accounting in June 2003 to certain quantities of gas inventory (more fully discussed in (c) above) and are further reviewing additional applications for hedge accounting.

The consensus to require all gains and losses on energy trading derivatives to be presented net in the Statements of Income was effective January 1, 2003, and required reclassification for all periods presented. This resulted in substantial reductions in reported Operating Revenues, Fuel and purchased and exchanged power expense, and Gas purchased expense. However, Operating Income and Net Income were not affected by this change.

The following table presents the effect of the change in revenue presentation in Operating Revenues, Fuel and purchased and exchanged power expense, and Gas purchased expense for the quarter ended and year to date June 30, 2002.

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

Quarter Ended June 30, 2002

Electric Operating Revenues as previously reported	$	1,340,370		$	866,450		$	467,428

Adjustment for effect of EITF 02-3 implementation	(511,124		)	(456,741		)	(88,810		)
Other(2)	(24,783		)	—			—

Electric Operating Revenues as adjusted	804,463			409,709			378,618

Gas Operating Revenues as previously reported	1,116,953			56,008			—

Adjustment for effect of EITF 02-3 implementation	(1,036,745		)	—			—

Gas Operating Revenues as adjusted	80,208			56,008			—

	Cinergy(1)			CG&E and subsidiaries			PSI
Quarter Ended June 30, 2002 (continued)	(in thousands)

Fuel and purchased and exchanged power expense as previously reported	758,673			564,329			217,356

Adjustment for effect of EITF 02-3 implementation	(501,116		)	(455,744		)	(88,810		)
Other(2)	(15,871		)	—			—

Fuel and purchased and exchanged power expense as adjusted	241,686			108,585			128,546

Gas purchased expense as previously reported	1,076,315			24,471			—

Adjustment for effect of EITF 02-3 implementation	(1,046,753		)	—			—

Gas purchased expense as adjusted	29,562			24,471			—

Year to Date June 30, 2002

Electric Operating Revenues as previously reported	$	2,623,794		$	1,502,336		$	1,097,272

Adjustment for effect of EITF 02-3 implementation	(1,004,045		)	(695,529		)	(352,253		)
Other(2)	(53,901		)	—			—

Electric Operating Revenues as adjusted	1,565,848			806,807			745,019

Gas Operating Revenues as previously reported	2,020,214			235,617			—

Adjustment for effect of EITF 02-3 implementation	(1,749,942		)	—			—

Gas Operating Revenues as adjusted	270,272			235,617			—

Fuel and purchased and exchanged power expense as previously reported	1,486,220			909,344			603,848

Adjustment for effect of EITF 02-3 implementation	(994,037		)	(693,511		)	(352,253		)
Other(2)	(32,691		)	—			—

Fuel and purchased and exchanged power expense as adjusted	459,492			215,833			251,595

Gas purchased expense as previously reported	1,899,392			132,439			—

Adjustment for effect of EITF 02-3 implementation	(1,759,950		)	—			—

Gas purchased expense as adjusted	139,442			132,439			—

(1) The results of Cinergy also include amounts related to non-registrants and include the elimination of certain intercompany amounts.

(2) Item represents amounts reclassified to Discontinued operations, net of tax .

(ii) Intangible Assets

In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (Statement 142). With the adoption of Statement 142, goodwill and other intangibles with indefinite lives are no longer subject to amortization. Statement 142 requires that goodwill be assessed for impairment upon

adoption (transition impairment test) and at least annually thereafter by applying a fair-value-based test, as opposed to the undiscounted cash flow test applied under prior accounting standards.

We began applying Statement 142 in the first quarter of 2002. The discontinuance of amortization of goodwill, which began in the first quarter of 2002, was not material to our financial position or results of operations. We finalized our transition impairment test in the fourth quarter of 2002 and recognized a non-cash impairment charge of approximately $11 million (net of tax) for goodwill related to certain of our international assets. This amount is reflected in Cinergy’s Statements of Income as a cumulative effect adjustment, net of tax. While Statement 142 did not require the initial transition impairment test to be completed until December 31, 2002, it required the cumulative effect adjustment to be reflected as of January 1, 2002.

Cinergy Corp.’s condensed financial results below revise previously reported results as filed in the Form 10-Q for the period ended June 30, 2002, to reflect the impairment charge as of January 1, 2002.

	Year to Date June 30, 2002
	Net Income			EPS			EPS- Assuming Dilution
	(in millions, except for EPS)

Reported results	$	141		$	0.85		$	0.84
Cumulative effect of a change in accounting principle, net of tax	(11		)	(0.06		)	(0.06		)
Revised results	$	130		$	0.79		$	0.78

(iii) Asset Retirement Obligations

In July 2001, the FASB issued Statement 143, which requires fair value recognition beginning January 1, 2003, of legal obligations associated with the retirement or removal of long-lived assets, at the time the obligations are incurred. Our accounting policy for such legal obligations is described in (e) above.

We adopted Statement 143 on January 1, 2003, and Cinergy and CG&E both recognized a gain of $39 million (net of tax) for the cumulative effect of this change in accounting principle. Substantially all of this adjustment reflects the reversal of previously accrued cost of removal for CG&E’s generating assets, which do not apply Statement 71. Accumulated depreciation at adoption includes $316 million, $25 million, and $146 million of accumulated cost of removal related to PSI’s , ULH&P’s , and CG&E’s utility plant in service assets, respectively, which represent regulatory liabilities and were not included as part of the cumulative effect adjustment. The increases in assets and liabilities from adopting Statement 143 were not material to our financial position.

Pro-forma results as if Statement 143 was applied retroactively for the years ended December 31, 2002, 2001, and 2000 and the quarter ended and year to date June 30, 2002 are not materially different from reported results.

(iv) Derivatives

In May 2003, the FASB issued Statement of Financial Accounting Standards No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities (Statement 149). Statement 149 primarily amends Statement 133 to incorporate implementation conclusions previously cleared by the FASB staff, to clarify the definition of a derivative and to require derivative instruments that include up-front cash payments to be classified as a financing activity in the statement of cash flows. Implementation issues that have been previously cleared by the FASB staff will continue to be applied in accordance with their respective effective dates at the time that they were cleared and new guidance has varying implementation provisions, none of which will apply until the third quarter of 2003. We are continuing to evaluate the impacts of adopting Statement 149 but currently do not believe the impacts will be material to our results of operations or financial position.

In June 2003, the FASB issued final guidance on the use of broad market indices (e.g., consumer price index) in power purchase and sales contracts. This guidance clarifies when the normal purchases and sales scope exception is precluded if a contract contains a broad market index. This guidance, which is effective in the fourth quarter of 2003, is not expected to have a material impact on our financial position or results of operations upon adoption.

(v) Consolidation of Special Purpose Entities (SPE)

The FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities in January 2003. This interpretation significantly changes the consolidation requirements for SPEs and certain other entities subject to its scope. We have determined that certain entities will be required to be consolidated effective July 1, 2003, in accordance with this interpretation. These entities consist of (a) two SPEs that are engaged in selling power and (b) certain joint ventures engaged in providing various energy services. The two SPEs have individual power sale agreements to an unrelated third party for approximately 45 megawatts (MW) of capacity, ending in 2009, and 35 MW of capacity, ending in 2016. In addition, these SPEs have individual power purchase agreements with Cinergy Capital & Trading, Inc. (Capital & Trading) to supply the power. Capital & Trading also provides various services, including certain credit support facilities. Upon the initial consolidation of these two SPE’s, approximately $225 million of non-recourse debt and a comparable amount of assets will be included on Cinergy’s Balance Sheet. However, the impact of consolidating these two SPEs on Cinergy’s results of operations will be immaterial. The impact of consolidating the joint ventures will be immaterial to our results of operations and financial position.

Cinergy’s quantifiable exposure to loss as a result of involvement with these two SPEs is $28 million, which includes investments in these entities of $3 million and exposure under the capped credit facilities of approximately $25 million. There is also a non-capped facility, but it

can only be called upon in the event the SPE breaches representations, violates covenants, or other unlikely events.

Cinergy has concluded that its accounts receivable sale facility, as discussed in the 2002 10-K, will remain unconsolidated since it involves transfers of financial assets to a qualifying SPE, which is exempted from consolidation by Statement of Financial Accounting Standards No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities and this interpretation.

(vi) Financial Instruments with Characteristics of both Liabilities and Equity

In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (Statement 150). Statement 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. This statement was effective for financial instruments entered into or modified after May 31, 2003, and was effective on July 1, 2003, for financial instruments held prior to issuance of this statement.

In 2001, Cinergy Corp . issued approximately $316 million notional amount of combined securities consisting of (a) 6.9 percent 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 in, and/or before, February 2005. These securities are more fully described in the 2002 10-K. Statement 150 will require the preferred trust securities (currently recorded as Company obligated, mandatorily redeemable, preferred trust securities of subsidiary, holding solely debt securities of the company with a carrying value of $309 million) to be classified as long-term debt, effective July 1, 2003. Dividends paid on the preferred trust securities will be recorded as Interest Expense after July 1, 2003. Prior period financial statements are not permitted to be restated for either of these changes.

(vii) Cumulative effect of changes in accounting principles, net of tax

The following table summarizes the various cumulative effect adjustments (net of tax) discussed above for the rescission of EITF 98-10 and the adoption of Statement 142 and Statement 143:

	Year to Date June 30

	2003			2002
	(in thousands)

Cinergy (1)
Goodwill impairment (Statement 142 adoption)	$	—		$	(10,899	)
Rescission of EITF 98-10 (EITF 02-3 adoption)	(12,512		)	—
Asset retirement obligation (Statement 143 adoption)	38,974			—
	$	26,462		$	(10,899	)
CG&E
Rescission of EITF 98-10 (EITF 02-3 adoption)	$	(8,239	)	$	—
Asset retirement obligation (Statement 143 adoption)	39,177			—
	$	30,938		$	—
PSI
Rescission of EITF 98-10 (EITF 02-3 adoption)	$	(494	)	$	—
	$	(494	)	$	—

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

2. Common Stock Equity

(a) Changes In Common Stock Outstanding

As discussed in the 2002 10-K, Cinergy issues new Cinergy Corp. common stock shares to satisfy obligations under its various employee stock plans and the Cinergy Corp. Direct Stock Purchase and Dividend Reinvestment Plan. During 2003, Cinergy has issued approximately 2.6 million shares under these plans.

On January 15, 2003, Cinergy Corp. filed a registration statement with the Securities and Exchange Commission (SEC) with respect to the issuance of common stock, preferred stock, and other securities in an aggregate offering amount of $750 million. On February 5, 2003, Cinergy sold 5.7 million shares of common stock of Cinergy Corp. with net proceeds of approximately $175 million under this registration statement. The net proceeds from the transaction were used to reduce short-term debt of Cinergy Corp. and for other general corporate purposes.

(b) Stock-Based Compensation Plan

The Compensation Committee of the Board of Directors grants certain performance share awards under the Cinergy Corp. 1996 Long-Term Incentive Compensation Plan (LTIP). Historically, the performance shares have been paid 100 percent in the form of common stock. In order to maintain market-competitiveness in respect to the form of LTIP awards and to ensure continued compliance with internal guidelines on common share dilution, the Compensation Committee approved the future payment of performance share awards 50 percent in common stock and 50 percent in cash. As a result, in the second quarter of 2003 we have reclassified the expected cash payout portion of the performance shares from Paid-in capital to other current liabilities and other non-current liabilities.

(c) Contributed Capital

In May 2003, Cinergy Corp. made a $100 million capital contribution to PSI in order to support PSI’s current credit ratings.

3. Long-term Debt

In October 2002, PSI filed a petition with the Indiana Utility Regulatory Commission (IURC) for the purpose of securing authorization and approval to issue two subordinated promissory notes to Cinergy Corp. for the acquisition of the Butler County, Ohio and Henry County, Indiana peaking plants. In January 2003, the IURC granted this request, and in February 2003, PSI issued the notes. One subordinated note was for the principal amount of $200 million with an annual interest rate of 6.30% and will mature on April 15, 2004. The second subordinated note was for $176 million with an annual interest rate of 6.40% and will mature on September 1, 2004.

On March 7, 2003, PSI borrowed the proceeds from the issuance by the Indiana Development Finance Authority of $35 million of its Environmental Refunding Revenue Bonds Series 2003, due April 1, 2022. Interest was initially set at 1.05% and resets every 35 days by auction. The

bonds are not putable by the holders; therefore, PSI’s debt obligation is classified as Long-term debt . On March 28, 2003, the proceeds from this borrowing plus the interest income earned were used to cause the refunding of the $35 million principal amount outstanding of the City of Princeton, Indiana Pollution Control Revenue Refunding Bonds, 1997 Series.

On April 25, 2003, PSI redeemed $26.8 million of the following Series A, Medium-term Notes:

Principal Amount		Interest Rate		Maturity Date
*(in millions)*

$	2.0	8.37	%	11/08/2006
5.0		8.81		05/16/2022
3.0		8.80		05/18/2022
16.8		8.67		06/01/2022

On June 16, 2003, CG&E issued $200 million principal amount of its 5 3/8% 2003 Series B Debentures due June 15, 2033 (effective interest rate of 5.66%). Proceeds from this issuance will be used for general corporate purposes, including the funding of capital expenditures related to construction projects and environmental compliance initiatives, and the repayment of outstanding indebtedness.

Also, on June 16, 2003, CG&E modified existing debt resulting in a $200 million principal amount 5.40% 2003 Series A Debenture with a 30 year maturity. The effective interest rate is 6.90%. The coupon rate differs from the effective rate due to the amortization of costs associated with modifying the existing debt.

On June 30, 2003, CG&E redeemed its $100 million 8.28% Junior Subordinated Debentures due July 1, 2025. The redeemed amount was slightly above carrying value resulting in an insignificant loss.

4. Notes Payable and Other Short-term Obligations

At June 30, 2003, Cinergy Corp. had $704 million remaining unused and available capacity relating to its $1 billion revolving credit facilities. These revolving credit facilities included the following:

Credit Facility	Expiration	Established Lines		Outstanding and Committed		Unused and Available
				(in millions)

364-day senior revolving	April 2004
Direct borrowing		$		$	—	$
Commercial paper support				281

Total 364-day facility		600		281		319

Three-year senior revolving	May 2004
Direct borrowing				—
Commercial paper support				—
Letter of Credit support				15

Total three-year facility		400		15		385

Total credit facilities		$	1,000	$	296	$	704

In April 2003, Cinergy Corp. successfully placed a $600 million, 364-day senior unsecured revolving credit facility. This facility replaced the $600 million, 364-day facility that expired April 30, 2003.

On August 1, 2003, CG&E caused the remarketing by the Ohio Air Quality Development Authority of $84 million of its State of Ohio Air Quality Development Revenue Refunding Bonds, due September 1, 2030. The issuance consists of a $42 million 1995 Series A and a $42 million 1995 Series B. The remarketing effected the conversion from a daily interest rate reset mode supported by a letter of credit to an unsecured weekly interest rate mode. The interest rate for both Series was initially set at 1.30% and will reset every seven days going forward. Because the holders of these notes have the right to have their notes redeemed on a weekly basis, they will be reflected in Notes payable and other short-term obligations on the Balance Sheets for Cinergy and CG&E .

Also on August 1, 2003, CG&E caused the remarketing by the Ohio Air Quality Development Authority of $12.1 million of its State of Ohio Air Quality Development Revenue Bonds 2001 Series A due August 1, 2033. The remarketing effected the conversion from an unsecured one-year interest rate reset mode to a daily interest rate reset mode supported by a letter of credit. The interest rate was initially set at 0.95% and will be reset daily going forward. Because the holders of these notes have the right to have their notes redeemed on a daily basis, they will be reflected in Notes payable and other short-term obligations on the Balance Sheets for Cinergy and CG&E .

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

	June 30, 2003				December 31, 2002
	Established Lines		Outstanding		Established Lines		Outstanding
	(in millions)
Cinergy
Cinergy Corp.
Revolving lines	$	1,000	$	—	$	1,000	$	25
Uncommitted lines (1)	65		—		65		—
Commercial paper (2)			281				473

Operating companies
Uncommitted lines (1)	75		—		75		—
Pollution control notes			112				147

Non-regulated subsidiaries
Revolving lines	17		9		7		1
Short-term debt			7				22

Cinergy Total			$	409			$	668

CG&E and subsidiaries
Uncommitted lines (1)	$	15	$	—	$	15	$	—
Pollution control notes			112				112
Money pool			8				9

CG&E Total			$	120			$	121

PSI
Uncommitted lines (1)	$	60	$	—	$	60	$	—
Pollution control notes			—				35
Money pool			237				138

PSI Total			$	237			$	173

ULH&P
Money pool			$	21			$	14

ULH&P Total			$	21			$	14

(1) Outstanding amounts may be greater than established lines as uncommitted lenders are, at times, willing to loan funds in excess of the established lines.

(2) The commercial paper program is limited to $800 million and is supported by Cinergy Corp.’s revolving lines.

In our credit facilities, Cinergy Corp. has covenanted to maintain:

• a consolidated net worth of $2 billion; and

• a ratio of consolidated indebtedness to consolidated total capitalization not in excess of 65 percent.

A breach of these covenants could result in the termination of the credit facilities and the acceleration of the related indebtedness. In addition to breaches of covenants, certain other events that could result in the termination of available credit and acceleration of the related indebtedness include:

• bankruptcy;

• defaults in the payment of other indebtedness; and

• judgments against the company that are not paid or insured.

The latter two events, however, are subject to dollar-based materiality thresholds.

5. Energy Trading Credit Risk

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 measured and monitored daily by our Corporate Credit Risk function, which is independent of all trading operations. As of June 30, 2003, approximately 98 percent of the credit exposure related to energy trading and marketing activity was with counterparties rated Investment Grade or the counterparties’ obligations were guaranteed or secured by a parent company or other Investment Grade entity. No single non-investment grade counterparty accounts for more than one percent of our total credit exposure. Energy commodity prices can be extremely volatile and the market can, at times, lack liquidity. Because of these issues, credit risk for energy commodities is generally greater than with other commodity trading.

We continually review and monitor our credit exposure to all counterparties and secondary counterparties. If appropriate, we may adjust our credit reserves to attempt to compensate for increased credit risk within the industry. Counterparty credit limits may be adjusted on a daily basis in response to changes in a counterparty’s creditworthiness, financial status, or public debt ratings.

6. Commitments and Contingencies

(a) Guarantees

In the ordinary course of business, Cinergy enters into various agreements providing financial or performance assurances to third parties on behalf of certain unconsolidated subsidiaries and joint ventures. These agreements are entered into primarily to support or enhance the creditworthiness otherwise attributed to these entities on a stand-alone basis, thereby facilitating the extension of sufficient credit to accomplish their intended commercial purposes. The guarantees have various termination dates, from short-term (less than one year) to open-ended.

In many cases, the maximum potential amount of an outstanding guarantee is an express term, set forth in the guarantee agreement, representing the maximum potential obligation of Cinergy under that guarantee (excluding, at times, certain legal fees to which a guaranty beneficiary may be entitled). In those cases where there is no maximum potential amount expressly set forth in

the guarantee agreement, we calculate the maximum potential amount by considering the terms of the guaranteed transactions, to the extent such amount is estimable.

Cinergy has guaranteed the payment of $33 million as of June 30, 2003, for unconsolidated subsidiaries’ debt and for borrowings by individuals under the Director, Officer, and Key Employee Stock Purchase Program. Cinergy may be obligated to pay the debt’s principal and any related interest in the event of an unexcused breach of a guaranteed payment obligation by the unconsolidated subsidiaries or an unexcused breach of guaranteed payment obligations by certain directors, officers, and key employees. Most of the guarantees do not have a set termination date; however, the borrowings associated with the majority of the guarantees are due in the first quarter of 2005.

Cinergy Corp. has also provided performance guarantees on behalf of certain unconsolidated subsidiaries and joint ventures. These guarantees support performance under various agreements and instruments (such as construction contracts, operation and maintenance agreements and energy service agreements). Cinergy Corp. may be liable in the event of an unexcused breach of a guaranteed performance obligation by an unconsolidated subsidiary. Cinergy Corp. has estimated its maximum potential amount to be $133 million under these guarantees as of June 30, 2003. Cinergy Corp. may also have recourse to third parties for claims required to be paid under certain of these guarantees. The majority of these guarantees expire at the completion of the underlying performance agreements, the majority of which expire from 2016 to 2019.

Cinergy has entered into contracts that include indemnification provisions as a routine part of its business activities. Examples of these contracts include purchase and sale agreements and operating agreements. In general, these provisions indemnify the counterparty for matters such as breaches of representations and warranties and covenants contained in the contract. In some cases, particularly with respect to purchase and sale agreements, the potential liability for certain indemnification obligations is capped, in whole or in part (generally at an aggregate amount not exceeding the sale price), and subject to a deductible amount before any payments would become due. In other cases (such as indemnifications for willful misconduct of employees in a joint venture), the maximum potential amount is not estimable given that the magnitude of any claims under those indemnifications would be a function of the extent of damages actually incurred, which is not practicable to estimate unless and until the event occurs. Cinergy has estimated the maximum potential amount, where estimable, to be $125 million under these indemnification provisions and considers the likelihood of making any material payments under these provisions to be remote. The termination period for the majority of matters provided by indemnification provisions in purchase and sale agreements generally ranges from 2003 to 2009.

We believe the likelihood that Cinergy would be required to perform or otherwise incur any significant losses associated with any or all of the guarantees described in the preceding paragraphs is remote.

(b) Ozone Transport Rulemakings

In June 1997, the Ozone Transport Assessment Group, which consisted of 37 states, made a wide range of recommendations to the Environmental Protection Agency (EPA) to address the impact of ozone transport on serious non-attainment areas (geographic areas defined by the EPA as non-

compliant with ozone standards) in the Northeast, Midwest, and South. Ozone transport refers to wind-blown movement of ozone and ozone-causing materials across city and state boundaries.

(i) Nitrogen Oxide (NO _X ) State Implementation Plan (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 United States (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 that states reduce NO _X emissions primarily from industrial and utility sources to a certain level by May 2003.

In August 2000, the U.S. Circuit Court of Appeals for the District of Columbia (Court of Appeals) extended the deadline for NO _X reductions to May 31, 2004. 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. On May 1, 2002, the EPA published, in the Federal Register, a final rule reaffirming its growth factors and state NO _X budgets, with additional explanation. The states of West Virginia and Illinois, along with various industry groups (some of which we are a member), have challenged the growth factors and state NO _X budgets in an action filed in the Court of Appeals. Oral argument is scheduled for September 15, 2003, and a decision is expected some time after December 2003. It is unclear whether the Court of Appeals’ decision in this matter will result in an increase or decrease in the size of the NO _X reduction requirement, or a deferral of the May 31, 2004 compliance deadline.

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 on December 10, 2001. On April 11, 2002, the EPA approved Kentucky’s SIP rules, which became effective on June 10, 2002. The state of Ohio completed its NO _X SIP rules in response to the NO _X SIP Call on July 8, 2002, with an effective date of July 18, 2002. On January 16, 2003, the EPA proposed a direct final rule to approve Ohio’s SIP. The EPA has since withdrawn that proposal, and on August 5, 2003 issued a conditional approval that takes effect on September 4, 2003. The conditional approval is based upon a written commitment from the Ohio EPA to make an additional change to its NO _X SIP (relating to the date flow control takes effect). Cinergy’s current plans for compliance with the EPA’s NO _X SIP Call would also satisfy compliance with Indiana’s, Kentucky’s, and Ohio’s SIP 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. This plan includes the following:

• install selective catalytic reduction units at several different generating stations;

• install other pollution control technologies, including new computerized combustion controls, at all generating stations;

• make combustion improvements; and

• utilize the NO _X allowance market to buy or sell NO _X allowances as appropriate.

The current estimate for additional expenditures for this plan is approximately $200 million and is in addition to the $642 million already incurred to comply with this program.

(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 required 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 May 1, 2002, the EPA issued a final rule extending the Section 126 rule compliance deadline to May 31, 2004, thus harmonizing the deadline with that for the NO _X SIP Call.

On April 4, 2003, the EPA issued a proposed rule withdrawing the Section 126 rule in states with approved SIPs under the NO _X SIP Call, which include the states of Indiana and Kentucky. The proposed rule states that the EPA will withdraw the Section 126 in Ohio once Ohio has a fully approved SIP. As a result of these actions, we anticipate that the Section 126 rule will not affect any of our facilities.

See (e) 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.

(c) New Source Review (NSR)

The CAA’s NSR provisions require that a company obtain a pre-construction permit if it plans to build a new stationary source of pollution or make a major modification to an existing facility, unless the changes are exempt.

On November 3, 1999, the United States sued a number of holding companies and electric utilities, including Cinergy , CG&E , and PSI , in various U.S. District Courts. The Cinergy , CG&E , and PSI suit alleged violations of the CAA at two of our generating stations relating to NSR and New Source Performance Standards requirements. The suit sought (1) injunctive relief to require installation of pollution control technology on each of the generating units at CG&E’s W.C. Beckjord Generating Station (Beckjord Station) and at PSI’s Cayuga Generating Station, and (2) civil penalties in amounts of up to $27,500 per day for each violation. Since that time, two amendments to the complaint have been filed by the United States, alleging additional violations of the CAA, including allegations involving different generating units. In addition, three northeast states and two environmental groups have intervened in the case.

On December 21, 2000, Cinergy , CG&E , and PSI reached an agreement in principle with the parties in the litigation for a negotiated resolution of the CAA claims in the litigation. See (e) below for a discussion of the tentative EPA Agreement, which relates to matters discussed within this note.

On October 9, 2002, consistent with a Revised Case Management Plan, the Indiana District Court set the case for trial by jury commencing on October 4, 2004. The parties have subsequently agreed to modify the Revised Case Management Plan, including continuing the trial date, by recent motion filed with the court.

At this time, it is not possible to predict whether a final agreement implementing the agreement in principle can be reached. The parties continue to negotiate on a number of significant issues. If the settlement is not completed, we intend to defend against the allegations vigorously in court. In such an event, it is not possible to determine the likelihood that the plaintiffs would prevail upon their claims or whether resolution of these matters would have a material effect on our financial position or results of operations.

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.

In addition, Cinergy and CG&E have been informed by DP&L, the operator of J.M. Stuart Generating Station (Stuart Station), that on June 30, 2000, the EPA issued a Notice of Violation (NOV) to DP&L for alleged violations of NSR, PSD, and SIP requirements at this station. CG&E owns approximately 40 percent of the Stuart Station. The NOVs indicated 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.

(d) 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. On June 22, 2000, the EPA issued an NOV and a finding of violation (FOV) alleging additional particulate emission violations at Beckjord Station. 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 (c) above for a discussion of the allegations.

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

(e) EPA Agreement

On December 21, 2000, Cinergy , CG&E , and PSI reached an agreement in principle with the United States, three northeast states, and two environmental groups 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 alleged NSR violations as well as the Beckjord Station NOVs/FOV discussed previously under (c) and (d).

In return for resolution of claims regarding past maintenance activities, as well as future operational certainty, we have tentatively committed in the agreement in principle 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 (SO ₂ ) 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;

• reduce our existing Title IV SO ₂ cap by 35 percent in 2013;

• pay a civil penalty of $8.5 million to the U.S. government; and

• implement $21.5 million in environmental mitigation projects, including retiring 50,000 tons of SO ₂ allowances by 2005.

The estimated cost for these capital expenditures is expected to be approximately $700 million through 2013. These capital expenditures are in addition to our previously announced commitment to install NO _X controls as discussed in (b) above, but does include capital costs that Cinergy would expect to spend regardless of the settlement due to new environmental requirements expected in the second half of this decade.

Cinergy , CG&E , and PSI have accrued costs related to certain aspects of the tentative agreement. 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.

At this time, it is not possible to predict whether a final agreement implementing the agreement in principle can be reached. The parties continue to negotiate and a final agreement may require control equipment, capital expenditures and other costs greater than estimated for the agreement in principle. If the settlement is not completed, we intend to defend against the allegations, discussed in (c) and (d) above, vigorously in court. In such an event, it is not possible to determine the likelihood that the plaintiffs would prevail upon their claims or whether resolution of these matters would have a material effect on our financial position or results of operations.

(f) Manufactured Gas Plant (MGP) Sites

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.

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 and NIPSCO made claims against PSI for the costs of investigating and remediating the sites. In 1998, NIPSCO, IGC, and PSI entered into Site Participation and Cost Sharing Agreements (Agreements). These Agreements allocated the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) liability for past and future costs at the MGP sites in Indiana among the three companies. 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 in the State of Indiana against its general liability insurance carriers. 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 trial court issued a variety of rulings with respect to the claims and defenses in the litigation. PSI has appealed certain adverse rulings to the Indiana Court of Appeals. At the present time, PSI cannot predict the outcome of this litigation, including the outcome of the appeals.

CG&E is 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 has begun preliminary site assessments to obtain information about some of these MGP sites.

PSI and CG&E , including its utility subsidiaries, have 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 and CG&E , including its utility subsidiaries, do not believe they can provide an estimate of the reasonably possible total remediation costs for any site before a remedial investigation/feasibility study is performed. To the extent remediation is necessary, the timing of the remediation activities impacts the cost of remediation. Therefore, PSI and CG&E , including its utility subsidiaries, currently cannot determine the total costs that may be incurred in connection with remediation of all sites, to the extent that remediation is required. 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.

(g) Asbestos Claims Litigation

CG&E and PSI have been named in lawsuits related to asbestos at their electric generating stations. In these lawsuits, plaintiffs claim to have been exposed to asbestos-containing products in the course of their work at the CG&E and PSI generating stations. The plaintiffs further claim that as the property owner of the generating stations, CG&E and PSI should be held liable for their injuries and illnesses based on an alleged duty to warn and protect them from any asbestos exposure. A majority of the lawsuits to date have been brought against PSI . The impact on CG&E’s and PSI’s financial position or results of operations of these cases to date has not been material.

One specific case filed against PSI has been tried to verdict. The jury returned a verdict against PSI in the amount of approximately $500,000 on a negligence claim and for PSI on punitive damages. PSI is appealing the judgment in this case.

At this time, CG&E and PSI are not able to predict the ultimate outcome of these lawsuits or the impact on CG&E’s and PSI’s financial position or results of operations.

(h) Gas Customer Choice

In January 2000, Cinergy Investments (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 brought by customers relating to Energy Cooperative’s removal from the Ohio Gas Customer Choice program and the failure to deliver gas to customers. This customer litigation is pending in the Hamilton County Common Pleas Court. A trial date has not been set.

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. This lawsuit is pending in the Licking County Common Pleas Court. Trial is anticipated to occur in November 2004. In October 2001, Cinergy , CG&E , and Investments initiated litigation against the Energy Cooperative requesting indemnification by the Energy Cooperative for the claims asserted by former customers in the class action litigation. We intend to vigorously defend these lawsuits. At the present time, we cannot predict the outcome of these suits.

(i) PSI Fuel Adjustment Charge

The sub-docket was opened to investigate the reasonableness of, and underlying reasons for, the under billed deferred fuel costs. A hearing was held in July 2002, and in March 2003 the IURC issued an order giving final approval to PSI’s recovery of the $16 million.

(j) PSI Retail Rate Case

In December 2002, PSI filed a petition with the IURC seeking approval of a base retail electric rate increase. PSI filed initial testimony in this case in March 2003 and initial hearings were held in June 2003. Based on updated testimony filed in July 2003, PSI proposes an increase in revenues of approximately $190 million, or an average increase of approximately 14 percent over PSI’s retail electric rates in effect at the end of 2002. An IURC decision is expected in the first quarter of 2004.

(k) PSI Construction Work in Progress (CWIP) Ratemaking Treatment for NO _X Equipment

In April 2003, PSI filed an application with the IURC requesting that its CWIP rate adjustment mechanism be updated for expenditures through December 2002 related to NO _X equipment currently being installed at certain PSI generation facilities. CWIP ratemaking treatment allows for the recovery of carrying costs on certain pollution control equipment while and after the equipment is under construction. Testimony and exhibits supporting PSI’s second CWIP rate adjustment mechanism update were filed in July 2003. Amounts proposed for potential recovery are presented below:

PSI CWIP Ratemaking for NO _X Equipment

	PSI
	*(in millions)*

Total retail CWIP expenditures as of December 31, 2002	$	305

Proposed total amount requested through CWIP mechanism (1)	35
Less: previously approved CWIP mechanism amounts	(28		)
Proposed incremental CWIP mechanism amounts	$	7

(1) Amounts include retail customers’ portion only and represent an annual return on qualified NO _X equipment expenditures.

PSI’s initial CWIP rate mechanism adjustment (authorized in July 2002) resulted in an approximately one percent increase in customer rates. Under the IURC’s CWIP rules, PSI may update its CWIP tracker at six-month intervals. The first such update to PSI’s CWIP rate mechanism occurred in the first quarter of 2003. The IURC’s July 2002 order also authorized PSI to defer, for subsequent recovery, post-in-service depreciation and to continue the accrual for allowance for funds used during construction (AFUDC). Pursuant to Statement of Financial Accounting Standards No. 92, Regulated Enterprises-Accounting for Phase-in Plans , the equity component of AFUDC will not be deferred for financial reporting after the related assets are placed in service.

(l) Environmental Compliance Cost Recover y

In 2002, the Indiana General Assembly passed legislation that, among other things, encourages the deployment of advanced technologies that reduce regulated air emissions, while allowing the continued use of high sulfur Midwestern coal in existing electric generating plants. The legislation authorizes the IURC to provide financial incentives to utilities that deploy such advanced technologies. PSI is currently seeking IURC approval under this new law of a cost tracking mechanism for PSI’s NO _X equipment-related depreciation and operation and maintenance costs, authority to use accelerated (18-year) depreciation for its NO _X compliance equipment, and approval of a NO _X emission allowance purchase and sales tracker. A hearing before the IURC is scheduled for October 2003.

(m) PSI Purchased Power Tracker (Tracker)

The Tracker 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.

PSI is authorized to seek recovery of 90 percent 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 portion), with the remaining 10 percent deferred for subsequent recovery in PSI’s general rate case. In March 2002, PSI filed a petition with the IURC seeking approval to extend the Tracker process beyond the summer of 2002. A hearing was held in January 2003, and in June 2003 the IURC approved the extension for up to an additional two years with the ultimate determination concerning PSI’s continued use of the Tracker process to be made in PSI’s pending retail electric rate case.

In June 2002, PSI also filed a petition with the IURC seeking approval of the recovery through the Tracker of its actual summer 2002 purchased power costs. In May 2003, the IURC approved PSI’s recovery of $18 million related to its summer 2002 purchased power costs, and also authorized $2 million of deferred costs sought for recovery in PSI’s general rate case.

(n) CG&E Gas Rate Case

In the third quarter of 2001, CG&E filed a retail gas rate case with the Public Utilities Commission of Ohio (PUCO) seeking to increase base rates for natural gas distribution service and requesting recovery through a tracking mechanism of the costs of an accelerated gas main replacement program with an estimated capital cost of $716 million over 10 years. CG&E entered into a settlement agreement with most of the parties and a hearing on this matter was held in April 2002. An order was issued in May 2002, in which the PUCO approved the settlement agreement and authorized a base rate increase of approximately $15 million, or 3.3 percent overall, effective May 30, 2002. In addition, the PUCO authorized CG&E to implement the tracking mechanism to recover the costs of the accelerated gas main replacement program, subject to certain rate caps that increase in amount annually through May 2007, through the effective date of new rates in CG&E’s next retail gas rate case. In the fourth quarter of 2002, CG&E filed an application to increase its rates under the tracking mechanism. In April 2003,

CG&E entered into a settlement agreement with the parties, providing for an increase of $6.5 million, which the PUCO subsequently approved. This increase was effective in May 2003.

(o) ULH&P Gas Rate Case

As discussed in the 2002 10-K, in the second quarter of 2001, ULH&P filed a retail gas rate case with the Kentucky Public Service Commission (KPSC) seeking to increase base rates for natural gas distribution services and requesting recovery through a tracking mechanism of the costs of an accelerated gas main replacement program with an estimated capital cost of $112 million over 10 years. ULH&P made its second annual filing for an increase under the tracking mechanism in March 2003. The application seeks an increase of $2 million. A hearing was held in July 2003 and the KPSC is expected to rule on the application during the third quarter of 2003. At the present time, ULH&P cannot predict the outcome of this proceeding. The Kentucky Attorney General has appealed the KPSC’s approval of the tracking mechanism to the Franklin Circuit Court and has also appealed the KPSC’s August 2002 order approving the new tracking mechanism rates. At the present time, ULH&P cannot predict the timing or outcome of this litigation.

(p) Gas Distribution Plant

In June 2003, the PUCO approved an amended settlement agreement between CG&E and PUCO Staff in a gas distribution safety case arising out of a gas leak at a service head-adapter (SHA) style riser on CG&E’s distribution system. The amended settlement agreement calls for CG&E to replace a specified minimum number of SHA risers by December 31, 2003, and to file a comprehensive plan addressing all SHA risers on its distribution system. Cinergy has an estimated 198,000 SHA risers on its distribution system, of which 155,000 are in CG&E’s service area. Further investigation as to whether any additional SHA risers will need maintenance or replacement is ongoing. If Cinergy determines that replacement of all SHA risers is appropriate, the replacement cost could be up to approximately $50 million and Cinergy would pursue recovery of this cost through rates. At this time, Cinergy and CG&E cannot predict the outcome of this matter.

(q) Contract Disputes

Cinergy , through a subsidiary of Investments, is currently involved in negotiations to resolve a customer billing dispute. The primary issue of contention between the parties relates to the determinants used in calculating the monthly charge billed for electricity. Cinergy has reserved for a portion of the amount billed based on our current estimate of net realizable value. Although we cannot predict the outcome of this matter, we believe the ultimate impact on Cinergy’s financial position and results of operations, beyond amounts reserved, will not be material.

Cinergy Marketing & Trading, LP (Marketing & Trading) was in arbitration with Apache Corporation (Apache) concerning disputes under an agreement whereby we marketed natural gas that Apache produced or acquired in North America. We had reserved for a portion of the amount billed based on estimates of the net realizable value.

Effective July 1, 2003, Marketing & Trading terminated its marketing relationship with Apache. The termination of the marketing relationship ended the arbitration and all outstanding monetary issues related to the arbitration were settled. The impact of the settlement was not material to our financial position or results of operations.

(r) Enron Corp. (Enron) Bankruptcy

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 and have filed a motion with the bankruptcy court overseeing the Enron bankruptcy seeking appropriate netting of the various payables and receivables between and among Enron and Cinergy entities. We intend to resolve any contract differences pursuant to the terms of those contracts, business practices, and the applicable provisions of the U.S. 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.

(s) Synthetic Fuel Production

In July 2002, Capital & Trading acquired an “Earthco” coal-based synthetic fuel production facility. The facility uses emulsified asphalt as a chemical change agent to convert coal feedstock into synthetic fuel for sale to a third party. As of June 30, 2003, Capital & Trading’s net book value in this facility was approximately $60 million. The synthetic fuel produced at this facility qualifies for tax credits in accordance with Section 29 of the Internal Revenue Code. Eligibility for these credits expires in 2007. Cinergy received a private letter ruling from the Internal Revenue Service (IRS) in connection with the acquisition of the facility. To date, Cinergy has produced and sold approximately three million tons of synthetic fuel at this facility, resulting in approximately $80 million in tax credits, including approximately $40 million in 2003.

The IRS recently announced, in connection with an audit of another taxpayer, that it has reason to question and is reviewing the scientific validity of that taxpayer’s test procedures and results that were presented as evidence that the fuel underwent a significant chemical change. The IRS has indicated that if it were to determine that the test procedures and results do not demonstrate the occurrence of significant chemical change, it would take appropriate action, including revoking private letter rulings relying on such results.

Cinergy believes that it is justified in its reliance on the private letter ruling it obtained from the IRS, the chemical change testing by an independent laboratory, and that its facility has been operated in a manner consistent with Section 29 of the Internal Revenue Code. It is not possible for Cinergy to predict the outcome of the IRS’s review of these matters or the implications this might have for its synthetic fuel production facility.

(t) Energy Market Investigations

In July 2003, Cinergy received a subpoena from the Commodity Futures Trading Commission (CFTC). As has been previously reported by the press, the CFTC has served subpoenas on numerous other energy companies. The CFTC request seeks certain information regarding our trading activities, including price reporting to energy industry publications. The CFTC seeks particular information concerning these matters for the period May 2000 through January 2001 as to one of Cinergy’s employees. Based on a limited review of these matters, we have placed that employee on administrative leave. Cinergy is continuing its review and intends to fully cooperate with the CFTC in connection with its investigation.

In the second quarter of 2003, Cinergy received initial and follow-up subpoenas from the SEC requesting information related to particular trading activity with one of its counterparties. Cinergy has, and intends to, fully cooperate with the SEC in connection with this matter.

At this time it is not possible to predict the outcome of these investigations or the impact on Cinergy’s financial position or results of operations.

7. Discontinued Operations

GAAP requires consolidated entities, which have been disposed of, to be presented as Discontinued operations, net of tax in the Statements of Income and as Assets/Liabilities of Discontinued Operations in the Balance Sheets. The accompanying financial statements have been reclassified to account for the disposals occurring during the second quarter of 2003, as well as disposals in prior periods, as discontinued operations.

As a result of the second quarter 2003 transactions, assets of discontinued operations of approximately $140 million have been sold or converted into cash and liabilities of discontinued operations of approximately $100 million have been assumed by buyers or liquidated. The net, after-tax, gain from these disposal and liquidation transactions was approximately $9 million (including a net after-tax cumulative currency translation gain of approximately $6 million).

The table below reflects the results of operations and the income (loss) on disposal related to investments accounted for as discontinued operations for the quarter ended and year to date June 30, 2003 and 2002:

	Quarter ended June 30					Year to Date June 30
	2003		2002			2003			2002
	*(in thousands)*

Revenues (1)	$	8,433	$	24,860		$	22,257		$	54,116

Income (Loss) Before Taxes	$	—	$	(444	)	$	(593	)	$	2,051

Income (Loss) from Discontinued Operations
Income (Loss) from operations	$	—	$	(333	)	$	(3	)	$	1,229
Gain on disposal, net of tax	9,045		—			8,878			—

Total Income (Loss) from Discontinued Operations	$	9,045	$	(333	)	$	8,875		$	1,229

(1) Presented for informational purposes only. All results of operations are reported net in our Statements of Income.

The table below reflects the assets and liabilities related to the investments accounted for as discontinued operations as of June 30, 2003 and December 31, 2002:

	June 30 2003		December 31 2002
	*(in thousands)*

Assets
Current assets	$	7,187	$	48,719
Property, plant, and equipment-net	—		78,309
Other assets	—		20,237

Total Assets	$	7,187	$	147,265

Liabilities
Current liabilities	$	8,877	$	6,632
Long-term debt	—		84,654
Other	—		17,547

Total Liabilities	$	8,877	$	108,833

8. Financial Information by Business Segment

As discussed in the 2002 10-K, 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 June 30, 2003.

Energy Merchant manages wholesale generation and 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. Energy Merchant is also responsible for all of our international operations and performs the following activities:

• energy risk management;

• proprietary arbitrage activities; and

• customized energy solutions.

Regulated Businesses consists of PSI’s regulated, integrated utility operations, and Cinergy’s other 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. 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. 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.

Following are the financial results by business unit. Certain amounts for the prior year have been restated to reflect implementation of EITF 02-3 and other prior year amounts have been reclassified to conform to the current presentation.

Financial results by business unit for the quarters ended June 30, 2003, and June 30, 2002, are as indicated below.

Business Units

	Cinergy Business Units
	Energy Merchant			Regulated Businesses			Power Technology			Total			Reconciling Eliminations(1)			Consolidated
	*(in thousands)*

Quarter ended June 30, 2003

Operating revenues-
External customers	$	350,198		$	583,723	(3)	$	2		$	933,923		$	—		$	933,923
Intersegment revenues	37,156			—			—			37,156			(37,156		)	—

Cost of sales -
Fuel and purchased and exchanged power	132,986			107,484			—			240,470			—			240,470
Gas purchased	5,233			48,086			—			53,319			—			53,319

Discontinued operations, net of tax	9,045			—			—			9,045			—			9,045

Segment profit (loss)(2)	64,332		(4)	26,105			(5,784		)	84,653			—			84,653

Quarter ended June 30, 2002

Operating revenues-
External customers	$	348,875		$	558,422		$	(2	)	$	907,295		$	—		$	907,295
Intersegment revenues	38,897			—			—			38,897			(38,897		)	—

Cost of sales -
Fuel and purchased and exchanged power	146,312			95,374			—			241,686			—			241,686
Gas purchased	5,091			24,471			—			29,562			—			29,562

Discontinued operations, net of tax	(333		)	—			—			(333		)	—			(333		)

Segment profit (loss)(2)	23,505			29,141			(7,663		)	44,983			—			44,983

(1) The Reconciling Eliminations category eliminates the intersegment revenues of Energy Merchant.

(2) Management utilizes segment profit (loss) to evaluate segment performance.

(3) The increase in 2003 is primarily due to the increase in price reflecting a substantial increase in the wholesale gas commodity costs which is passed directly to the retail customer dollar-for-dollar under the state mandated gas cost recovery mechanism.

(4) The increase in 2003 is primarily due to the gain on disposal of discontinued operations and synthetic fuel tax credits discussed in Note 7 and Note 6(s), respectively. This increase also reflects changes associated with employee severance programs and the write-offs of certain equipment and technology investments that were taken in the second quarter of 2002.

Financial results by business unit for year to date June 30, 2003 and June 30, 2002, are as indicated below.

Business Units

	Cinergy Business Units
	Energy Merchant			Regulated Businesses			Power Technology			Total			Reconciling Eliminations(1)			Consolidated
	*(in thousands)*

Year to Date June 30, 2003

Operating revenues-
External customers	$	783,839	(3)	$	1,418,038	(4)	$	3		$	2,201,880		$	—		$	2,201,880
Intersegment revenues	76,279			—			—			76,279			(76,279		)	—

Cost of sales -
Fuel and purchased and exchanged power	261,863			248,472			—			510,335			—			510,335
Gas purchased	69,463			219,851			—			289,314			—			289,314

Discontinued operations, net of tax	8,875			—			—			8,875			—			8,875
Cumulative effect of changes in accounting principles, net of tax	26,462			—			—			26,462			—			26,462

Segment profit (loss)(2)	161,437		(5)	100,174			(10,873		)	250,738			—			250,738

Year to Date June 30, 2002

Operating revenues-
External customers	$	602,497		$	1,273,184		$	—		$	1,875,681		$	—		$	1,875,681
Intersegment revenues	76,198			—			—			76,198			(76,198		)	—

Cost of sales -
Fuel and purchased and exchanged power	242,860			216,632			—			459,492			—			459,492
Gas purchased	7,003			132,439			—			139,442			—			139,442

Discontinued operations, net of tax	1,229			—			—			1,229			—			1,229
Cumulative effect of changes in accounting principle, net of tax	(10,899		)	—			—			(10,899		)	—			(10,899		)

Segment profit (loss)(2)	40,143			101,938			(12,269		)	129,812			—			129,812

(1) The Reconciling Eliminations category eliminates the intersegment revenues of Energy Merchant.

(2) Management utilizes segment profit (loss) to evaluate segment performance.

(3) The increase in 2003 is primarily due to the increase in volumes and gross margins realized on wholesale commodity transactions and the sale of synthetic fuel which began in July 2002.

(4) The increase in 2003 is primarily due to the increase in the average price received per thousand cubic feet (mcf) delivered reflecting a substantial increase in the wholesale gas commodity costs, which is passed directly to the retail customer dollar-for-dollar under the state mandated gas cost recovery mechanism. Also contributing to this increase was higher mcf volumes sold due to colder than normal weather.

(5) The increase in 2003 is primarily due to the gain on disposal of discontinued operations and synthetic fuel credits discussed in Note 7 and Note 6(s), respectively. This increase also reflects changes associated with employee severance programs and the write-offs of certain equipment and technology investments that were taken in the second quarter of 2002.

Total segment assets at June 30, 2003, and December 31, 2002, were as follows:

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

Segment assets from continuing operations	$	5,297,042	(2)	$	7,736,795	(2)	$	160,335	$	13,194,172	$	86,999	$	13,281,171
Segment assets from discontinued operations	7,187			—			—		7,187		—		7,187
Total segment assets at June 30, 2003	$	5,304,229		$	7,736,795		$	160,335	$	13,201,359	$	86,999	$	13,288,358

Segment assets from continuing operations	$	5,627,485		$	7,283,812		$	155,252	$	13,066,549	$	93,214	$	13,159,763
Segment assets from discontinued operations	147,265			—			—		147,265		—		147,265
Total segment assets at December 31, 2002	$	5,774,750		$	7,283,812		$	155,252	$	13,213,814	$	93,214	$	13,307,028

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

(2) June 30, 2003 balances reflect the transfer of generating assets as discussed in Note 11.

9. EPS

A reconciliation of EPS to EPS – assuming dilution is presented below for the quarters ended June 30, 2003 and June 30, 2002:

	Income			Shares	EPS
	*(in thousands, except per share amounts)*
Quarter ended June 30, 2003
EPS:
Income before discontinued operations	$	75,608			$	0.42
Discontinued operations, net of tax	9,045				0.05
Net Income	$	84,653		176,645	$	0.47

Effect of dilutive securities:
Common stock options				866
Employee stock purchase and savings plan				18
Directors’ compensation plans				145
Contingently issuable common stock				824
Stock purchase contracts				415

EPS - assuming dilution:
Net income plus assumed conversions	$	84,653		178,913	$	0.47

Quarter ended June 30, 2002
EPS:
Income before discontinued operations	$	45,316			$	0.27
Discontinued operations, net of tax	(333		)		—
Net Income	$	44,983		167,330	$	0.27

Effect of dilutive securities:
Common stock options				1,116
Employee stock purchase and savings plan				11
Directors’ compensation plans				155
Contingently issuable common stock				869
Stock purchase contracts				323

EPS - assuming dilution:
Net income plus assumed conversions	$	44,983		169,804	$	0.26

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. Approximately 1.5 million shares were excluded from the EPS - assuming dilution calculation for the quarters ended June 30, 2003 and 2002.

Also excluded from the EPS - assuming dilution calculation for the quarters ended June 30, 2003 and 2002, are up to 10.4 million and 10.5 million shares, respectively, issuable pursuant to the stock purchase contracts associated with the preferred trust securities issued by Cinergy Corp. in December 2001. The number of shares issuable pursuant to the stock purchase contracts is contingent upon the market price of Cinergy Corp. stock in February 2005 and could range between 9.2 and 10.8 million shares.

A reconciliation of EPS to EPS - assuming dilution is presented below for the year to date June 30, 2003 and June 30, 2002:

	Income			Shares	EPS
	*(in thousands, except per share amounts)*
Year to Date June 30, 2003
EPS:
Income before discontinued operations and cumulative effect of changes in accounting principles	$	215,401			$	1.23
Discontinued operations, net of tax	8,875				0.05
Cumulative effect of changes in accounting principles, net of tax	26,462				0.15
Net Income	$	250,738		175,025	$	1.43

Effect of dilutive securities:
Common stock options				791
Employee stock purchase and savings plan				9
Directors’ compensation plans				145
Contingently issuable common stock				770

EPS - assuming dilution:
Net income plus assumed conversions	$	250,738		176,740	$	1.42

Year to Date June 30, 2002
EPS:
Income before discontinued operations and cumulative effect of changes in accounting principles	$	139,482			$	0.84
Discontinued operations, net of tax	1,229				0.01
Cumulative effect of changes in accounting principles, net of tax	(10,899		)		(0.06		)
Net Income	$	129,812		165,821	$	0.79

Effect of dilutive securities:
Common stock options				1,028
Employee stock purchase and savings plan				6
Directors’ compensation plans				155
Contingently issuable common stock				836

EPS - assuming dilution:
Net income plus assumed conversions	$	129,812		167,846	$	0.78

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 year to date June 30, 2003 and 2002, approximately 2.1 million and 1.9 million shares, respectively, were excluded from the EPS - assuming dilution calculation.

Also excluded from the EPS - assuming dilution calculation for year to date June 30, 2003 and 2002, are up to 10.8 million shares issuable pursuant to the stock purchase contracts associated with the preferred trust securities issued by Cinergy Corp. in December 2001. The number of shares issuable pursuant to the stock purchase contracts is contingent upon the market price of Cinergy Corp. stock in February 2005 and could range between 9.2 and 10.8 million shares.

10. Ohio Deregulation

As discussed in the 2002 10-K, CG&E is in a market development period, beginning the transition to electric deregulation in the state of Ohio. The transition period is governed by Amended Substitute Senate Bill No. 3 (Electric Restructuring Bill) and a stipulated agreement adopted and approved by the PUCO. Under CG&E’s transition plan, retail customers continue to receive electric distribution services from CG&E , but may purchase electricity from another supplier. Retail customers that purchase electricity from another supplier receive shopping credits from CG&E . The shopping credits generally reflect the costs of electric generation included in CG&E’s frozen rates. However, shopping credits for the first 20 percent of electricity usage in each customer class to switch suppliers are higher than shopping credits for subsequent switchers in order to stimulate the development of the competitive retail electric service market, pursuant to CG&E’s stipulated agreement.

CG&E recovers its regulatory assets and other transition costs through a Regulatory Transition Charge (RTC) paid by all retail customers. As the RTC is collected from customers, CG&E amortizes the deferred balance of regulatory assets and other transition costs. A portion of the RTC collected from customers is recognized in earnings currently as a return on the deferred balance of regulatory assets and other transition costs and as reimbursement for the difference in the shopping credits provided to customers and the wholesale revenues from switched generation. The ability of CG&E to recover its regulatory assets and other transition costs is dependent on several factors, including, but not limited to, the level of CG&E’s electric sales, prices in the wholesale power markets, and the amount of customers switching to other electric suppliers.

On January 10, 2003, CG&E filed an application with the PUCO for approval of a methodology to establish how market-based rates for non-residential customers will be determined when the market development period ends. In the filing, CG&E seeks to establish a market-based standard service offer rate for non-residential customers that do not switch suppliers and a process for establishing the competitively bid generation service option required by the Electric Restructuring Bill. As of June 30, 2003, more than 20 percent of the load of CG&E’s commercial and industrial customer classes have switched to other electric suppliers. Under its transition plan, CG&E may end the market development period for those classes of customers once 20 percent switching has been achieved; however, PUCO approval of the standard service offer rate and competitive bidding process is required before the market development period can be ended. CG&E is not requesting to end the market development period for any customers at this time. CG&E is unable to predict the outcome of this proceeding.

11. Transfer of Generating Assets

In December 2002, the IURC approved a settlement agreement among PSI , the Indiana Office of the Utility Consumer Counselor, and the IURC Testimonial Staff authorizing PSI’s purchases of the Henry County, Indiana and Butler County, Ohio, gas-fired peaking plants from two non-regulated affiliates. In February 2003, the Federal Energy Regulatory Commission (FERC) issued an order under Section 203 of the Federal Power Act authorizing PSI’s acquisitions of the plants, which occurred on February 5, 2003. Subsequently, in April 2003, the FERC issued a

tolling order allowing additional time to consider a request for rehearing filed in response to the February 2003 FERC order. At this time, we cannot predict the outcome of this matter.

On July 21, 2003, ULH&P filed an application with the KPSC requesting approval of a long-term electric supply plan to acquire CG&E’s ownership interests in the East Bend Generation Station, located in Boone County, Kentucky, the Woodsdale Generating Station, located in Butler County, Ohio, and one generating unit at the four-unit Miami Fort Generating Station located in Hamilton County, Ohio. ULH&P also requested KPSC approval of a back-up power supply agreement under which CG&E would provide replacement power to ULH&P when the transferred generating facilities are out of service, and for approval of another agreement under which the transferred units would be jointly dispatched with CG&E’s remaining fleet of generating units. The transfer, which will be made at net book value, will not affect current electric rates for ULH&P’s customers, as power will be provided under the same terms as under the current wholesale power contract with CG&E through at least December 31, 2006. A procedural schedule has not yet been established by the KPSC. This transfer is also contingent upon receipt of approval from the FERC and the SEC. ULH&P is unable to predict the outcome of this matter.

CAUTIONARY STATEMENTS

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION

This document includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements 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 materially from those indicated in any forward-looking statement include, but are not limited to:

• Factors affecting operations, such as:

(1) unanticipated weather conditions;

(2) unscheduled generation outages;

(3) unusual maintenance or repairs;

(4) unanticipated changes in costs;

(5) environmental incidents, including costs of compliance with existing

and future environmental requirements; and

(6) electric transmission or gas pipeline system constraints.

• Legislative and regulatory initiatives.

• Additional competition in electric or gas markets and continued industry consolidation.

• Financial or regulatory accounting principles.

• Political, legal, and economic conditions and developments in the countries in which we have a presence.

• Changing market conditions and other factors related to physical energy and financial trading activities.

• The performance of projects undertaken by our non-regulated businesses and the success of efforts to invest in and develop new opportunities.

• Availability of, or cost of, capital.

• Employee workforce factors.

• 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 6 of the “Notes to Financial Statements” in “Part I. Financial Information”.

We undertake no obligation to update the information contained herein.

MD&A - INTRODUCTION

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

The following discussion should be read in conjunction with the accompanying financial statements and related notes included elsewhere in this report and the combined Form 10-K for the year ended December 31, 2002 and Form 8-K filed on June 10, 2003 (together, the 2002 10-K). The results discussed below are not necessarily indicative of the results that may occur 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 and capital resources and results of operations. Specifically, we discuss the following:

• factors affecting current and future operations;

• 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.

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 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); and

• Cinergy Investments, Inc. (Investments).

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

MD&A - LIQUIDITY AND CAPITAL RESOURCES

Public Utilities Commission of Ohio (PUCO) approved costs and retail electric rates are frozen during this market development period.

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

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, including gas marketing and trading operations.

Wholesale Energy, through a wholly-owned subsidiary, Cinergy Power Generation Services, LLC, provides electric production-related construction, operation, and maintenance services to certain affiliates and non-affiliated third parties.

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

LIQUIDITY AND CAPITAL RESOURCES

Environmental Issues

Ambient Air Standards

In 1997, the Environmental Protection Agency (EPA) revised the National Ambient Air Quality Standards (NAAQS) for ozone and fine particulate matter. State ozone non-attainment area designations were due to the EPA on July 15, 2003, and the EPA is under a court-ordered deadline to make final designations by April 15, 2004. The EPA has stated that it will require state fine particulate non-attainment designations on February 15, 2004, and will make final designations by December 15, 2004. Fine particulate matter refers to very small solid or liquid particles in the air. Following identification of non-attainment areas, each individual state will identify the sources of emissions and develop emission reduction plans. These plans may be state-specific or regional in scope. Under the Clean Air Act (CAA), individual states have up to 12 years from the date of designation to secure emissions reductions from sources contributing to the problem.

The EPA has announced that it will propose, within the next year or so, a regional or national regulation requiring significant reductions in sulfur dioxide and nitrogen oxide (NO _X ) emissions from power plants to implement the fine particulate matter NAAQS. This regulation would be expected to impact all of Cinergy’s coal-fired power plants. However, Cinergy cannot predict the exact amount and timing of these reductions at this time. Nonetheless, Cinergy expects that compliance costs with these new standards will be significant.

As discussed in Cinergy’s 2002 10-K, additional environmental issues that could affect our liquidity include:

• Regional Haze;

• Global Climate Change; and

• Air Toxics Regulation.

In addition, see Note 6 of the “Notes to Financial Statements” in “Part I. Financial Information” contained herein, for additional information regarding other environmental items and other matters that could effect our liquidity.

Pensions

Cinergy maintains qualified defined benefit pension plans covering substantially all United States (U.S.) employees meeting certain minimum age and service requirements. Plan assets consist of investments in equity and fixed income securities. Funding for the qualified defined benefit pension plans is based upon actuarially determined contributions that take into account the amount deductible for income tax purposes and the minimum contribution required under the Employee Retirement Income Security Act of 1974, as amended. Due to the decline in market value of the investment portfolio over the last few years, assets held in trust to satisfy plan obligations have decreased. Additionally, recent decreases in long-term interest rates have the effect of increasing the measured liability for funding purposes. As a result of these events, future funding obligations could increase substantially. Cinergy’s minimum required contributions for calendar year 2003 are $11 million, as compared to $4 million for the calendar year 2002. We will make additional contributions of $60 to $70 million for the calendar year 2003.

Other Investing Activities

Our ability to invest in growth initiatives is limited by certain legal and regulatory requirements, including 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:

• 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 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. A

FUCO may not derive any income, directly or indirectly, from the generation, transmission or distribution of electric energy for sale or the distribution of gas at retail within the U.S. An entity claiming status as a FUCO must provide notification thereof to the 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 June 30, 2003, we had invested or committed to invest $0.9 billion in EWGs and FUCOs, leaving available investment capacity under the May 2001 order of $2.5 billion.

• 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 percent 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 June 30, 2003, we had invested and/or guaranteed approximately $0.6 billion of the $1.3 billion available.

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 June 30, 2003, we had $662 million outstanding under the guarantees issued, of which approximately 86 percent represents guarantees of obligations reflected on Cinergy’s Balance Sheets. The amount outstanding represents Cinergy Corp.’s guarantees of liabilities and commitments of its consolidated subsidiaries, unconsolidated subsidiaries, and joint ventures. See Note 6(a) of the “Notes to Financial Statements” in “Part I. Financial Information” for a discussion of guarantees in accordance with Financial Accounting Standards Board (FASB) Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (Interpretation 45). Interpretation 45 requires disclosure of maximum potential liabilities for guarantees issued on behalf of unconsolidated subsidiaries and joint ventures and under indemnification clauses in various contracts. The Interpretation 45 disclosure differs from the PUHCA restrictions in that it requires a calculation of maximum potential liability, rather than actual amounts outstanding; it excludes guarantees issued on behalf of consolidated subsidiaries; and it includes potential liabilities under indemnification clauses.

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 June 30, 2003 trading portfolio, if such an event were to occur, Cinergy would

be required to issue up to approximately $83 million in collateral related to its gas and power trading operations.

Capital Resources

We meet our current and future capital requirement needs through a combination of internally and externally generated funds, including the issuance of debt and/or equity securities. Cinergy believes that it has adequate financial resources to meet its future needs.

Notes Payable and Other Short-term Obligations

We are required to secure authority to issue short-term debt from the SEC under the PUHCA and from the PUCO. The SEC under the PUHCA regulates the issuance of short-term debt by Cinergy Corp. , PSI , and ULH&P . The PUCO has regulatory jurisdiction over the issuance of short-term debt by CG&E .

	Short-term Regulatory Authority June 30, 2003
	*(millions)*
	Authority			Outstanding

Cinergy Corp.	$	5,000	(1)	$	281
CG&E and subsidiaries	671			8
PSI	600			237
ULH&P	65			21

(1) Cinergy Corp. , under the PUHCA, was granted approval to increase total capitalization (excluding retained earnings and accumulated other comprehensive income (loss)), which may be any combination of debt and equity securities, by $5 billion. Outside this requirement, Cinergy Corp. is not subject to specific regulatory debt authorizations.

For the purposes of quantifying regulatory authority, short-term debt includes revolving credit borrowings, uncommitted credit line borrowings, inter-company money pool obligations, and commercial paper.

Cinergy Corp.’s short-term borrowing consists primarily of unsecured revolving lines of credit and the sale of commercial paper. Cinergy Corp.’s $1 billion revolving credit facilities and $800 million commercial paper program also support the short-term borrowing needs of CG&E and PSI . In addition, Cinergy , CG&E , and PSI maintain uncommitted lines of credit. These facilities are not firm sources of capital but rather informal agreements to lend money, subject to availability, with pricing determined at the time of advance. The following is a summary of outstanding short-term borrowings for Cinergy , CG&E , PSI , and ULH&P , including variable rate pollution control notes:

	Short-term Borrowings June 30, 2003
	Established Lines		Outstanding		Unused		Standby Liquidity(3)		Available Revolving Lines of Credit
	*(in millions)*

Cinergy
Cinergy Corp.
Revolving lines	$	1,000	$	—	$	1,000	$	296	$	704
Uncommitted lines(1)	65		—		65
Commercial paper(2)			281		519

Operating companies
Uncommitted lines(1)	75		—		75
Pollution control notes			112

Non-regulated subsidiaries
Revolving lines	17		9		8				8
Short-term debt			7

Cinergy Total			$	409					$	712

CG&E and subsidiaries
Uncommitted lines(1)	$	15	$	—	$	15
Pollution control notes			112
Money pool			8

CG&E Total			$	120

PSI
Uncommitted lines(1)	$	60	$	—	$	60
Money pool			237

PSI Total			$	237

ULH&P
Money pool			$	21

ULH&P Total			$	21

(1) Outstanding amounts may be greater than established lines as uncommitted lenders are, at times, willing to loan funds in excess of the established lines.

(2) The commercial paper program is limited to $800 million and is supported by Cinergy Corp.’s revolving lines.

(3) Standby liquidity is reserved against the revolving lines to support the commercial paper program and outstanding letters of credit (currently $281 million and $15 million, respectively).

Credit Facility	Expiration	Established Lines		Outstanding and Committed		Unused and Available
				*(in millions)*

364-day senior revolving	April 2004
Direct borrowing		$		$	—	$
Commercial paper support				281

Total 364-day facility		600		281		319

Three-year senior revolving	May 2004
Direct borrowing				—
Commercial paper support				—
Letter of Credit support				15

Total three-year facility		400		15		385

Total credit facilities		$	1,000	$	296	$	704

In our credit facilities, Cinergy Corp. has covenanted to maintain:

• a consolidated net worth of $2 billion; and

• a ratio of consolidated indebtedness to consolidated total capitalization not in excess of 65 percent.

• bankruptcy;

• defaults in the payment of other indebtedness; and

• judgments against the company that are not paid or insured.

The latter two events, however, are subject to dollar-based materiality thresholds.

As discussed in Note 1(g)( vi ) and 1(g)( v ), respectively, of the “Notes to Financial Statements” in “Part I. Financial Information”, long-term debt will increase in the third quarter of 2003 resulting from the adoptions of Statement of Financial Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (Statement

150) and Interpretation No. 46, Consolidation of Variable Interest Entities (Interpretation 46). This adjustment in our debt will not cause Cinergy to be in breach of any covenants.

Variable Rate Pollution Control Notes

CG&E has issued certain variable rate pollution control notes (tax-exempt notes obtained to finance equipment or land development for pollution control purposes). Because the holders of these notes have the right to have their notes redeemed on a daily, monthly, or annual basis, they are reflected in Notes payable and other short-term obligations on the Balance Sheets for Cinergy and CG&E . At June 30, 2003, CG&E had $112 million outstanding in variable rate pollution control notes, classified as short-term debt. PSI and ULH&P had no outstanding short-term pollution control notes. Any short-term pollution control note borrowings outstanding do not reduce the unused and available short-term debt regulatory authority of CG&E , PSI , and ULH&P . See Note 4 of the “Notes to Financial Statements” in “Part I. Financial Information” for additional information regarding pollution control notes.

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 a component of Notes receivable from affiliated companies and/or Notes payable to affiliated companies on the Balance Sheets of CG&E , PSI , and ULH&P . Any money pool borrowings outstanding reduce the unused and available short-term debt regulatory authority of CG&E , PSI , and ULH&P .

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.

A summary of our long-term debt authorizations at June 30, 2003, is as follows:

	Authorized		Used		Available
	(in millions)

Cinergy Corp.
PUHCA total capitalization(1)	$	5,000	$	1,629	$	3,371

CG&E and subsidiaries(2)
State Public Utility Commissions	575		400		175

PSI
State Public Utility Commission	500		83		417

ULH&P
State Public Utility Commission	75		—		75

(1) Cinergy Corp. , under PUHCA, was granted approval to increase total capitalization (excluding retained earnings and accumulated other comprehensive income (loss)), which may be any combination of debt and equity securities, by $5 billion. Outside this requirement, Cinergy Corp. is not subject to specific regulatory debt authorizations.

(2) Includes amounts for ULH&P .

Cinergy Corp. has an effective shelf registration statement with the SEC relating to the issuance of up to $750 million in any combination of common stock, preferred stock, stock purchase contracts or unsecured debt securities, of which approximately $574 million remains available for issuance. CG&E has an effective shelf registration statement with the SEC relating to the issuance of up to $500 million in any combination of unsecured debt securities, first mortgage bonds, or preferred stock, of which $100 million remains available for issuance. PSI has an effective shelf registration statement with the SEC relating to the issuance of up to $700 million in any combination of unsecured debt securities, first mortgage bonds, or preferred stock, all of which remains available for issuance. ULH&P has effective shelf registration statements with the SEC relating to the issuance of up to $50 million in unsecured debt securities and up to $40 million in first mortgage bonds, of which $30 million in unsecured debt securities and $20 million in first mortgage bonds remain available for issuance.

Off-Balance Sheet Financing

As discussed in the 2002 10-K, Cinergy uses special-purpose entities (SPE) to finance various projects. The FASB issued Interpretation 46 in January 2003. This interpretation significantly changes the consolidation requirements for SPEs. For further discussions see “Consolidation of SPEs” under “Accounting Changes” in MD&A-Future.

Cinergy holds investments in various unconsolidated subsidiaries which are accounted for under the equity method and has guaranteed approximately $8 million of the debt of these entities.

Securities Ratings

As of June 30, 2003, the major credit ratings agencies rated our securities as follows:

	Fitch(1)	Moody’s(2)	S&P(3)

Cinergy Corp.
Corporate Credit	BBB+	Baa2	BBB+
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) Fitch IBCA (Fitch)

(2) Moody’s Investors Service (Moody’s)

(3) Standard & Poor’s Ratings Services (S&P)

The lowest investment grade credit rating for Fitch is BBB-, Moody’s is Baa3, and S&P is BBB-.

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

Equity

As discussed in the 2002 10-K, under the SEC’s June 2000 Order, Cinergy Corp. is permitted to increase its total capitalization by $5 billion. The proceeds from any new issuances will be used for general corporate purposes.

On January 15, 2003, Cinergy Corp. filed a registration statement with the SEC with respect to the issuance of common stock, preferred stock, and other securities in an aggregate offering amount of $750 million. On February 5, 2003, Cinergy sold 5.7 million shares of common stock of Cinergy Corp. with net proceeds of approximately $175 million under this registration statement.

See Note 2(a) of the “Notes to Financial Statements” in “Part I. Financial Information” for additional information regarding other common stock issuances.

In May 2003, Cinergy Corp. made a $100 million capital contribution to PSI in order to support PSI’s current credit ratings.

MD&A - QUARTERLY RESULTS OF OPERATIONS - HISTORICAL

2003 QUARTERLY RESULTS OF OPERATIONS - HISTORICAL

Summary of Results

Electric and gas gross margins and net income for Cinergy , CG&E , and PSI for the quarters ended June 30, 2003 and 2002 were as follows:

	Cinergy (1)				CG&E and subsidiaries				PSI
	2003		2002		2003		2002		2003		2002
	*(in thousands)*

Electric gross margin	$	528,788	$	562,777	$	291,188	$	301,124	$	239,387	$	250,072
Gas gross margin	61,613		50,646		37,225		31,537		—		—
Net income	84,653		44,983		50,919		52,670		23,079		29,714

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

Cinergy’s net income for the second quarter of 2003 was $85 million ($.47 per share on a diluted basis) as compared to $45 million ($.26 per share on a diluted basis) for the same period last year. Income before taxes for the period was $85 million compared to $67 million for the same period a year ago. The increase in 2003 net income was primarily the result of $66 million in charges related to employee severance programs and the write-offs of certain equipment and technology investments in the second quarter of 2002. Cinergy’s increased income also reflects increased gas gross margins from both gas trading and retail operations, gains realized in the second quarter of 2003 from the disposal of discontinued operations, and lower income taxes resulting primarily from tax credits associated with the production of synthetic fuel. Offsetting these increases was a decrease in electric gross margins attributable to milder than normal weather in the quarter and a sluggish economy.

Electric Operating Revenues

	Cinergy (1)						CG&E and subsidiaries						PSI
	2003		2002		% Change		2003		2002		% Change		2003		2002		% Change
	*(in millions)*

Retail	$	636	$	670	(5	)	$	319	$	345	(8	)	$	316	$	325	(3	)
Wholesale	111		98		13		59		35		69		39		45		(13	)
Other	22		36		(39	)	19		30		(37	)	6		9		(33	)
Total	$	769	$	804	(4	)	$	397	$	410	(3	)	$	361	$	379	(5	)

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

Electric operating revenues decreased for Cinergy , CG&E , and PSI for the quarter ended June 30, 2003, as compared to 2002. Retail revenues decreased for Cinergy , CG&E , and PSI primarily due to decreased megawatt hour (MWh) sales resulting from milder weather. The number of cooling degree days was approximately 47 percent lower than the second quarter of 2002. A sluggish regional economy also contributed to the decline in revenues. Partially

offsetting this decrease for PSI was a higher price received per MWh due to tariff adjustments associated with the fuel cost recovery mechanism and certain construction programs.

Wholesale revenues increased for Cinergy and CG&E ,and decreased for PSI for the quarter ended June 30, 2003, as compared to 2002. The increase in wholesale revenues for Cinergy and CG&E primarily reflects higher wholesale volumes. In addition, there was an increase in the average price received per wholesale MWh. Wholesale electric spot prices increased 21 percent in the second quarter of 2003. PSI’s decrease primarily reflects lower wholesale sales volumes due to the implementation of the new joint operating agreement as discussed in the 2002 10-K. With this agreement, the majority of new wholesale contracts entered into since April 2002 were originated on behalf of CG&E .

Other electric operating revenues decreased for Cinergy and CG&E for the quarter ended June 30, 2003, as compared to 2002. Cinergy’s and CG&E’s decrease was primarily the result of decreased third party coal sales and decreased transmission revenues.

Gas Operating Revenues

	Cinergy (1)							CG&E and subsidiaries
	2003			2002		% Change		2003		2002		% Change
	*(in millions)*

Retail	$	85		$	55	55		$	85	$	55	55
Wholesale	26			17		53		—		—		—
Storage and transportation	4			8		(50	)	—		—		—
Other	—			—		—		—		1		N/M
Total	$		115	$	80	44		$	85	$	56	52

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

N/M Not meaningful to an understanding of the change.

Gas operating revenues increased for Cinergy and CG&E for the quarter ended June 30, 2003, as compared to 2002, primarily due to an increase in price received per thousand cubic feet (mcf) delivered. The higher prices per mcf delivered reflects an increase in CG&E’s base rates, as approved by the PUCO in May 2002 and an increase in tariff adjustments associated with the gas main replacement program and gas cost recovery mechanism. CG&E’s wholesale gas commodity cost is passed directly to the retail customer dollar-for-dollar under the gas cost recovery mechanism mandated by state law. For further information see Note 6(n) in the “Notes to Financial Statements” in “Part I. Financial Information”.

Other Revenues

Other revenues for Cinergy increased for the quarter ended June 30, 2003, as compared to 2002, primarily due to the sale of synthetic fuel, which began in July 2002.

Operating Expenses

	Cinergy (1)						CG&E and subsidiaries						PSI
	2003		2002		% Change		2003		2002		% Change		2003		2002		% Change
	*(in millions)*

Fuel	$	219	$	205	7		$	88	$	96	(8	)	$	116	$	99	17
Purchased and exchanged power	22		37		(41	)	18		13		38		6		30		(80	)
Gas purchased	47		24		96		48		24		100		—		—		—
Gas storage and transportation	6		6		—		—		—		—		—		—		—
Operation and maintenance	330		338		(2	)	126		138		(9	)	123		143		(14	)
Depreciation	105		98		7		50		49		2		45		38		18
Taxes other than income taxes	67		64		5		50		46		9		16		17		(6	)
Total	$	796	$	772	3		$	380	$	366	4		$	306	$	327	(6	)

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

Fuel

Fuel primarily represents the cost of coal, natural gas, and oil that is used to generate electricity. The following table details the changes to fuel expense from the quarter ended June 30, 2002, to the quarter ended June 30, 2003:

	Cinergy (1)			CG&E			PSI
				*(in millions)*

Fuel expense - June 30, 2002	$	205		$	96		$	99

Increase (decrease) due to changes in:
Price of fuel	7			(1		)	8
Deferred fuel cost	11			—			11
Fuel consumption	(8		)	(6		)	(2		)
Other	4			(1		)	—

Fuel expense – June 30, 2003	$	219		$	88		$	116

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

Purchased and Exchanged Power

Purchased and exchanged power expense increased for CG&E and decreased for Cinergy and PSI for the quarter ended June 30, 2003, as compared to 2002. CG&E’s increase was primarily the result of an increase in price paid per MWh, an increase in purchases for CG&E retail customers, and a lower amount of deferred purchased power. PSI’s decrease was primarily attributable to fewer intercompany purchases under the new joint operating agreement.

Gas Purchased

Gas purchased expense increased for Cinergy and CG&E for the quarter ended June 30, 2003, as compared to 2002. This increase was primarily due to an increase in the average cost per mcf of gas purchased. Average wholesale gas cost per mcf increased 68 percent over the same period last year. CG&E’s wholesale commodity cost is passed directly to the retail customer dollar-for-dollar under the gas cost recovery mechanism mandated by state law.

Operation and Maintenance

Operation and maintenance expense decreased for Cinergy , CG&E , and PSI for the quarter ended June 30, 2003, as compared to 2002. This decrease primarily reflects costs associated with employee severance programs in 2002 (See “Summary of Results”). Also contributing to this decrease were lower transmission costs. These decreases were largely offset by an increase in the cost of employee compensation and benefit programs, costs associated with employee retirement and severance programs recorded in the second quarter of 2003, and higher maintenance costs. Partially offsetting Cinergy’s decrease were the costs associated with the production of synthetic fuel, which began in July 2002.

Depreciation

Depreciation expense increased for Cinergy , CG&E , and PSI for the quarter ended June 30, 2003, as compared to 2002. This increase was primarily attributable to the addition of depreciable plant. Cinergy’s increase also included the addition of depreciable equipment associated with the production of synthetic fuel, which began in July 2002.

Taxes Other Than Income Taxes

Taxes other than income taxes expense increased for Cinergy and CG&E and decreased for PSI for the quarter ended June 30, 2003, as compared to 2002. Cinergy’s and CG&E’s increase was primarily attributable to an increase in Ohio excise and property taxes. PSI’s decrease was primarily the result of a decrease in property taxes.

Miscellaneous - Net

Miscellaneous - net increased for Cinergy and CG&E for the quarter ended June 30, 2003, as compared to 2002. Cinergy’s increase primarily reflects the 2002 write-offs of certain equipment and technology investments. (See “Summary of Results”). CG&E’s as well as Cinergy’s increase also reflects a gain on the sale of non-utility property.

Interest Expense

Interest Expense increased for Cinergy , CG&E , and PSI for the quarter ended June 30, 2003, as compared to 2002. Cinergy’s and CG&E’s increase was mainly due to an increase in the amount of long-term debt outstanding. Cinergy’s increase was partially offset by a reduction in the amount of short-term debt outstanding and lower costs associated with this debt. In general, long-term fixed interest rates are higher than variable short-term interest rates. PSI’s increase

was primarily the result of the issuance of two subordinated promissory notes to Cinergy Corp. to acquire two peaking plants in the first quarter of 2003 as discussed in “Supply-Side Actions” in MD&A-Future.

Income Taxes

Income Taxes expense decreased for Cinergy and increased for PSI for the quarter ended June 30, 2003, as compared to 2002. Cinergy’s decrease was primarily a result of the tax credits associated with the production and sale of synthetic fuel, which began in July 2002. Based on its current estimates, Cinergy expects that its effective income tax rate for 2003 will approximate 25 percent. PSI’s increase was primarily due to the reversal in 2002 of tax reserves, which were determined to be no longer needed, and an increase in the Indiana state income tax rate in 2003.

Equity in Earnings (Losses) of Unconsolidated Subsidiaries

Equity in Earnings (Losses) of Unconsolidated Subsidiaries increased for the quarter ended June 30, 2003, as compared to 2002, primarily due to changes in the market valuation of certain investments accounted for at fair value and an increase in net income of certain unconsolidated subsidiaries in the second quarter of 2003.

Discontinued Operations

During the second quarter of 2003, Cinergy completed the disposal of its gas distribution operation in South Africa, sold its remaining wind assets in the United States, and substantially sold or liquidated the assets of its energy trading operation in the Czech Republic. Pursuant to Statement of Financial Accounting Standards No. 144, Accounting for the Impairment of Long-lived Assets (Statement 144), these investments have been classified as discontinued operations in our financial statements. See Note 7 of the “Notes to Financial Statements” in “Part I. Financial Information” for additional information.

2003 YEAR TO DATE RESULTS OF OPERATIONS - HISTORICAL

Summary of Results

Electric and gas gross margins and net income for Cinergy , CG&E , and PSI for the six months ended June 30, 2003 and 2002 were as follows:

	Cinergy (1)				CG&E and subsidiaries				PSI
	2003		2002		2003		2002		2003		2002
	*(in thousands)*

Electric gross margin	$	1,081,981	$	1,106,356	$	589,198	$	590,974	$	484,203	$	493,424
Gas gross margin	224,531		130,830		140,736		103,178		—		—
Net income	250,738		129,812		168,155		130,255		56,806		67,797

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

Cinergy’s net income for the six months ended June 30, 2003, was $251 million ($1.42 per share on a diluted basis) as compared to $130 million ($.78 per share on a diluted basis) for the same period last year. Income before taxes for the period was $284 million compared to $217 million for the same period a year ago. The increase in 2003 income primarily reflects higher gas margins from wholesale and retail operations and $66 million in charges associated with employee severance programs and the write-offs of certain equipment and technology investments that were taken in the second quarter of 2002. The increased gas margins primarily reflect the results of our domestic gas trading operation, Cinergy Marketing & Trading, LP (Marketing & Trading), as well as increased volume of retail gas sales due to colder than normal weather during the first quarter of 2003. Also contributing to the gas margin increase over 2002 was the impact of accounting changes that required certain gas contracts and inventory to be accounted for on the accrual basis beginning in 2003. Offsetting the increase in gas margins was a decrease in electric margins due to milder than normal weather in the second quarter of 2003. Cinergy’s increased net income also reflects a net gain resulting from the implementation of certain accounting changes, which have been reflected as a cumulative effect of changes in accounting principles (see Note 1(g)( vii ) of the “Notes to Financial Statements” in “Part I. Financial Information”), and gains realized in the second quarter of 2003 from the disposal of discontinued operations and lower income taxes resulting primarily from tax credits associated with the production of synthetic fuel which began in July 2002.

Electric Operating Revenues

	Cinergy (1)						CG&E and subsidiaries						PSI
	2003		2002		% Change		2003		2002		% Change		2003		2002		% Change
	*(in millions)*

Retail	$	1,319	$	1,324	—		$	653	$	681	(4	)	$	666	$	643	4
Wholesale	223		174		28		129		68		90		95		89		7
Other	50		68		(26	)	44		58		(24	)	12		13		(8	)
Total	$	1,592	$	1,566	2		$	826	$	807	2		$	773	$	745	4

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

Electric operating revenues for Cinergy , CG&E , and PSI increased for the six months ended June 30, 2003, as compared to 2002.

Wholesale revenues increased for Cinergy and CG&E for the six months ended June 30, 2003, as compared to 2002. Cinergy’s and CG&E’s increase was primarily attributable to the increased wholesale volumes due to the colder than normal weather in the first quarter of 2003. Also contributing to the increase was an increase in the wholesale gross margin realized per MWh. CG&E’s increase also reflects the implementation of the new joint operating agreement with PSI that became effective April 2002 as discussed in the 2002 10-K. With this agreement, the majority of new wholesale contracts entered into since April 2002 were originated on behalf of CG&E .

Retail revenues decreased for CG&E as a result of decreased revenue from commercial and industrial customers. This decrease reflects a sluggish economy and the migration of certain customers to a transportation-only tariff in connection with the Ohio electric customer choice program. PSI’s retail revenues increased due to an increase in average price realized per MWh. The increase in average price realized was due to the increase in rate adjustment riders associated with the fuel cost recovery mechanism and certain construction programs. The cost of fuel for PSI’s retail customers is passed on dollar-for-dollar under the state mandated fuel cost recovery mechanism.

Other electric operating revenues decreased for Cinergy and CG&E for the six months ended June 30, 2003, as compared to 2002 primarily reflecting a reduction in third party coal sales and lower transmission revenues.

Gas Operating Revenues

	Cinergy (1)					CG&E and subsidiaries
	2003		2002		% Change	2003		2002		% Change
	*(in millions)*

Retail	$	358	$	233	54	$	358	$	233	54
Wholesale	64		24		N/M	—		—		—
Storage and transportation	91		12		N/M	—		—		—
Other	1		1		—	3		3		—
Total	$	514	$	270	90	$	361	$	236	53

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

N/M Not meaningful to an understanding of the change.

Gas operating revenues increased for Cinergy and CG&E for the six months ended June 30, 2003, as compared to 2002. Cinergy’s and CG&E’s retail gas revenues increased due to an increase in retail sales volumes and higher prices received per mcf delivered. The increase in retail gas sales volumes was primarily the result of the colder than normal weather in the first quarter of 2003. The higher price per mcf delivered reflects an increase in CG&E’s base rates, as approved by the PUCO in May 2002, and tariff adjustments associated with the gas main replacement program and gas cost recovery mechanism. For further information see Note 6(n) in the “Notes to Financial Statements” in “Part I. Financial Information”. CG&E’s wholesale gas commodity cost is passed directly to the retail customer dollar-for-dollar under the gas cost recovery mechanism mandated by state law.

Cinergy began reporting revenues from energy trading derivative contracts on a net basis in 2003, in accordance with the required adoption of Emerging Issues Task Force (EITF) Issue 02-3, Issues Involved in Accounting for Derivatives Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities (EITF 02-3). See Note 1(g)( i ) in the “Notes to Financial Statements” in “Part I. Financial Information” for additional information.

Cinergy’s wholesale gas revenues (which represent net gains and losses on energy trading derivatives) increased for the six months ended June 30, 2003, as compared to 2002, primarily due to an increase in the volatility of natural gas prices in the first six months of 2003 as compared to the same period in 2002.

Cinergy’s gas storage and transportation revenues increased for the six months ended June 30, 2003, as compared to 2002. Marketing & Trading had no significant storage activities in the first six months of 2002. Sales of storage gas occurred primarily in the first quarter of 2003 resulting in increased revenues, which must be presented on a gross revenue basis. Storage activity involves acquiring and storing gas primarily during off-peak periods, primarily summer, for withdrawal and sale during periods of higher demand, primarily winter.

Operating Expenses

	Cinergy (1)					CG&E and subsidiaries					PSI
	2003		2002		% Change	2003		2002		% Change	2003		2002		% Change
	*(in millions)*

Fuel	$	459	$	409	12	$	193	$	189	2	$	251	$	209	20
Purchased and exchanged power	51		51		—	44		27		63	38		43		(12	)
Gas purchased	222		131		69	220		133		65	—		—		—
Gas storage and transportation	67		8		N/M	—		—		—	—		—		—
Operation and maintenance	655		599		9	261		244		7	235		258		(9	)
Depreciation	209		194		8	99		97		2	88		76		16
Taxes other than income taxes	145		137		6	110		99		11	32		33		(3	)
Total	$	1,808	$	1,529	18	$	927	$	789	17	$	644	$	619	4

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

N/M Not meaningful to an understanding of the change.

Fuel

Fuel primarily 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 six months ended June 30, 2002, to the six months ended June 30, 2003:

	Cinergy (1)		CG&E			PSI
	*(in millions)*

Fuel expense - June 30, 2002	$	409	$	189		$	209

Increase (decrease) due to changes in:
Price of fuel	12		(1		)	13
Deferred fuel cost	24		—			24
Fuel consumption	6		1			5
Other	8		4			—

Fuel expense - June 30, 2003	$	459	$	193		$	251

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

Purchased and Exchanged Power

Purchased and exchanged power expense increased for CG&E and decreased for PSI for the six months ended June 30, 2003, as compared to 2002. CG&E’s increase was due to an increase in the purchase price paid per MWh as a result of the colder than normal weather conditions in the first quarter of 2003, an increase in purchases for CG&E’s retail customers, and less deferred purchased power. As previously discussed, CG&E’s and PSI’s Purchased and exchanged

power expense also reflects the effects of the implementation of the new joint operating agreement beginning in April 2002 as discussed in the 2002 10-K.

Gas Purchased

Gas purchased expense increased for Cinergy and CG&E for the six months ended June 30, 2003, as compared to 2002, primarily due to an increased average cost per mcf of gas purchased. Wholesale gas commodity spot purchases were 102 percent higher on average than the six months ended 2002. CG&E’s wholesale commodity cost is passed directly to the retail customer dollar-for-dollar under the gas cost recovery mechanism mandated by state law.

Gas Storage and Transportation

Gas storage and transportation expense increased for Cinergy for the six months ended June 30, 2003, as compared to 2002 primarily due to an increase in storage activity in 2003. Marketing & Trading began engaging in significant storage activities at the end of the second quarter of 2002. Gas storage expense is recognized on our statements of income as natural gas is sold from inventory. As previously discussed, storage activity involves acquiring and storing gas primarily during off-peak periods for withdrawal and sale during periods of higher demand, as occurred in the first quarter of 2003.

Operation and Maintenance

Operation and maintenance expense increased for Cinergy and CG&E and decreased for PSI for the six months ended June 30, 2003, as compared to 2002. Cinergy’s increase was primarily due to the costs associated with the production of synthetic fuel, which began in July 2002. Cinergy’s and CG&E’s increase also reflects higher costs of employee compensation and benefit programs. Partially offsetting this increase for Cinergy and CG&E and the reduction for PSI is the recognition of costs associated with employee severance programs in 2002 and lower transmission costs.

Depreciation

Depreciation expense increased for Cinergy , CG&E , and PSI for the six months ended June 30, 2003, as compared to 2002, primarily because of the addition of depreciable plant. Also contributing to Cinergy’s increase was the addition of the depreciable equipment associated with the production of synthetic fuel, which began in July 2002.

Taxes Other Than Income Taxes

Taxes other than income taxes expense increased for Cinergy and CG&E and decreased for PSI for the six months ended June 30, 2003, as compared to 2002. The increase for Cinergy and CG&E was primarily attributable to an increase in Ohio excise taxes. Also contributing to CG&E’s increase was an increase in property taxes. PSI’s decrease was primarily the result of lower property taxes.

Interest Expense

Interest Expense increased for Cinergy , CG&E , and PSI for the six months ended June 30, 2003, as compared to 2002. Cinergy’s and CG&E’s increase was mainly due to an increase in the amount of long-term debt outstanding. Cinergy’s increase was partially offset by a reduction in the amount of short-term debt outstanding and lower costs associated with this debt. In general, long-term fixed interest rates are higher than variable short-term interest rates. PSI’s increase was primarily the result of the issuance of two subordinated promissory notes to Cinergy to acquire two peaking plants in the first quarter of 2003 as discussed in “Supply-Side Actions” in MD&A-Future.

Income Taxes

Income Taxes expense decreased for Cinergy and increased for PSI for the six months ended June 30, 2003, as compared to 2002. Cinergy’s decrease was primarily a result of the tax credits associated with the production and sale of synthetic fuel, which began in July 2002. Based on its current estimates, Cinergy expects that its effective income tax rate for 2003 will approximate 25 percent. PSI’s increase was primarily due to the reversal in 2002 of tax reserves, which were determined to be no longer needed, and an increase in the Indiana state income tax rate in 2003.

Miscellaneous - Net

Miscellaneous - Net increased for Cinergy and CG&E for the six months ended June 30, 2003, as compared to 2002. Cinergy’s increase primarily reflects the 2002 write-offs of certain equipment and technology investments (See “Summary of Results”). Cinergy’s and CG&E’s increase also reflects a gain on the sale of non-utility property and the recognition of expenses in 2002 for previously deferred costs that were denied recovery in the final order of ULH&P’s gas rate case.

Cumulative Effect of Changes in Accounting Principles, Net of Tax

In 2003, Cinergy , CG&E , and PSI recognized a Cumulative effect of changes in accounting principles, net of tax gain/(loss) of approximately $26 million, $31 million, and $(0.5) million, respectively. The cumulative effect of changes in accounting principles was a result of the adoption of Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations (Statement 143) and the rescission of EITF Issue 98-10, Accounting for Contracts Involved in Energy Trading and Risk Management Activities (EITF 98-10). See Note 1(g)( vii ) of the “Notes to Financial Statements” in “Part I. Financial Information” for further information.

In 2002, Cinergy recognized a Cumulative effect of changes in accounting principles, net of tax loss of approximately $11 million as a result of implementation of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (Statement 142). See Note 1(g)( vii ) of the “Notes to Financial Statements” in “Part I. Financial Information” for further information.

Discontinued Operations

During the second quarter of 2003, Cinergy completed the disposal of its gas distribution operation in South Africa, sold its remaining wind assets in the United States, and substantially sold or liquidated the assets of its energy trading operation in the Czech Republic. Pursuant to Statement 144, these investments have been classified as discontinued operations in our financial statements. See Note 7 of the “Notes to Financial Statements” in “Part I. Financial Information” for additional information.

ULH&P

The Results of Operations discussion for ULH&P is presented only for the six months ended June 30, 2003, in accordance with General Instruction H(2)(a) of Form 10-Q.

Electric and gas gross margins and net income for ULH&P for the six months ended June 30, 2003 and 2002, were as follows:

	ULH&P
	2003		2002
	*(in thousands)*

Electric gross margin	$	29,766	$	30,329
Gas gross margin	22,817		18,020
Net income	8,911		5,876

Electric Operating Revenues

Electric operating revenues increased for the six months ended June 30, 2003, as compared to 2002. This increase was primarily due to higher MWh sales resulting from colder than normal weather in the first quarter of 2003.

Electricity Purchased from Parent Company for Resale

Electricity purchased from parent company for resale increased for the six months ended June 30, 2003, as compared to 2002 due to an increase in consumption as a result of colder than normal weather in the first quarter of 2003.

Gas Operating Revenues

Gas operating revenues increased for the six months ended June 30, 2003, as compared to 2002. This increase was primarily due to an increase in mcf sold and higher prices received per mcf, as a result of colder than normal weather in the first quarter of 2003. New base rates for ULH&P , which were effective January 31, 2002, and tariff adjustments associated with the gas main replacement program and gas cost recovery mechanism also contributed to this increase. ULH&P’s wholesale gas commodity cost is passed directly to the retail customer dollar-for-dollar under the gas cost recovery mechanism mandated by state law. For further information see Note 6(o) in the “Notes to Financial Statements” in “Part I. Financial Information”.

Gas Purchased

Gas purchased expense increased for the six months ended June 30, 2003, as compared to 2002, due to increased purchases and higher prices paid per mcf, primarily the result of colder than normal weather experienced in the Midwest in the first three months of 2003, which drove up the demand and the price for natural gas. The wholesale gas commodity cost is passed directly to

the retail customer dollar-for-dollar under the gas cost recovery mechanism mandated under state law.

Operation and Maintenance

Operation and maintenance expense increased for the six months ended June 30, 2003, as compared to 2002, primarily due to increased amortization of demand side management program costs, higher employee benefit costs, and increased maintenance of overhead lines costs. This increase also reflects costs associated with employee severance programs in 2003.

Miscellaneous - Net

Miscellaneous - Net increased for the six months ended June 30, 2003, as compared to 2002, primarily due to the recognition of expenses in 2002 for previously deferred costs, that were denied recovery in the final order on ULH&P’s gas rate case.

Income Taxes

Income Taxes expense increased for the six months ended June 30, 2003, as compared to 2002, primarily due to an increase in taxable income and an increase in the Kentucky state income tax rate.

FUTURE EXPECTATIONS/TRENDS

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

ELECTRIC INDUSTRY

Wholesale Market Developments

Supply-side Actions

In December 2001, the Indiana Utility Regulatory Commission (IURC) approved PSI’s plan for converting its Noblesville generating station from coal to natural gas. The conversion increases the electric generating capacity at the plant from approximately 100 megawatts (MW) to 300 MW. The conversion was completed and the station became operational in June 2003. In addition to increasing capacity, overall emissions to the environment will be reduced.

In December 2002, the IURC approved a settlement agreement among PSI , the Indiana Office of the Utility Consumer Counselor, and the IURC Testimonial Staff authorizing PSI’s purchase of the Henry County, Indiana and Butler County, Ohio, gas-fired peaking plants from two non-regulated affiliates. In February 2003, the FERC issued an order under Section 203 of the Federal Power Act authorizing PSI’s acquisition of the plants, which occurred on February 5, 2003. Subsequently, in April 2003, the FERC issued a tolling order allowing additional time to consider a request for rehearing filed in response to the February 2003 FERC order. At this time, we cannot predict the outcome of this matter.

On July 21, 2003, ULH&P filed an application with the Kentucky Public Service Commission (KPSC) requesting approval of a long-term electric supply plan to acquire CG&E’s ownership interests in the East Bend Generating Station, located in Boone County, Kentucky, the Woodsdale Generating Station, located in Butler County, Ohio, and one generating unit at the four-unit Miami Fort Generating Station located in Hamilton County, Ohio. ULH&P also requested KPSC approval of a back-up power supply agreement under which CG&E would provide replacement power to ULH&P when the transferred generating facilities are out of service, and for approval of another agreement under which the transferred units would be jointly dispatched with CG&E’s remaining fleet of generating units. The transfer, which will be made at net book value, will not affect current electric rates for ULH&P’s customers, as power will be provided under the same terms as under the current wholesale power contract with CG&E through at least December 31, 2006. A procedural schedule has not yet been established by the KPSC. This transfer is also contingent upon receipt of approval from the FERC and the SEC. ULH&P is unable to predict the outcome of this matter.

Retail Market Developments

Ohio

On January 10, 2003, CG&E filed an application with the PUCO for approval of a methodology to establish how market-based rates for non-residential customers will be determined when the market development period ends. In the filing, CG&E seeks to establish a market-based standard service offer rate for non-residential customers that do not switch suppliers and a process for establishing the competitively bid generation service option required by the Electric Restructuring Bill. As of June 30, 2003, more than 20 percent of the load of CG&E’s commercial and industrial customer classes has switched to other electric suppliers. Under its transition plan, CG&E may end the market development period for those classes of customers once 20 percent switching has been achieved; however, PUCO approval of the standard service offer rate and competitive bidding process is required before the market development period can be ended. CG&E is not requesting to end the market development period for any customers at this time. CG&E is unable to predict the outcome of this proceeding.

Federal Update

Energy Bill

The U.S. House of Representatives (House) passed the Energy Policy Act in April of 2003. The legislation, as it passed the House, includes repeal of the PUHCA, as well as tax incentives for gas and electric distribution lines, and combined heat and power and renewable energy projects.

The U.S. Senate (Senate) Energy and Natural Resources Committee passed its version of comprehensive energy legislation in April of 2003. On July 31, 2003 the Senate passed comprehensive energy legislation by substituting last year’s energy bill as it passed the Senate for the committee draft. The legislation, as passed by the Senate, amongst other things, includes PUHCA repeal and creates a renewable energy portfolio standard for utilities. The House and Senate versions of the comprehensive energy legislation will be the subject of Conference Committee deliberations during the third quarter of 2003. At this time, Cinergy is unable to predict whether or not this legislation will pass.

Clear Skies Legislation

President Bush has proposed environmental legislation that would replace a series of CAA requirements for coal-fired power plants with a cap and trade program. The President’s “Clear Skies Initiative” would seek an overall 70 percent reduction in emissions from power plants over a phased-in reduction schedule beginning in 2010 and continuing to 2018. The Senate Environment and Public Works Committee has held several hearings on the “Clear Skies Initiative” proposal and is expected to vote on the legislation in the third quarter of 2003. The House Subcommittee on Energy and Air Quality of the House Energy and Commerce Committee has also held hearings on the “Clear Skies Initiative” but timing for consideration of the bill in subcommittee is less certain. At this time, Cinergy cannot predict whether or not “Clear Skies Initiative” legislation will pass.

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

In related activity, the FERC issued an order in December 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. A partial settlement was reached in the FERC proceeding, resolving the issues addressed by Cinergy’s protest in a manner favorable to Cinergy . The settlement agreement was approved by the FERC in a February 24, 2003 order with implementation initiated on March 1, 2003. The settlement results in approximately $25 million of administrative adder credits to be shared among the Midwest ISO transmission owners and customers responsible for Schedule 10 charges. Cinergy’s share is approximately $3 million.

In late 2001 and early 2002, the FERC issued its Opinion Nos. 453 and 453-A ordering, among other things, that transmission service for bundled retail customers (i.e., customers who cannot select an alternative energy provider) be provided under the Midwest ISO’s open access transmission tariff, and that the Midwest ISO’s charges for its administrative services apply to bundled retail customers. Cinergy and other parties appealed these orders to the U.S. Court of Appeals for the District of Columbia Circuit (the Court), challenging the application of the Midwest ISO’s tariff, and the Midwest ISO’s charges for its administrative services to bundled retail customers. At the request of the FERC, the Court remanded the matter back to the FERC for further proceedings. In its order on remand, the FERC upheld its prior determinations in Opinion Nos. 453 and 453-A. Cinergy and other Midwest ISO transmission owners requested rehearing of the FERC’s order on remand. In a July 2, 2003 order, the FERC denied Cinergy’s and other Midwest ISO transmission owners’ request for rehearing and/or clarification. Cinergy and other Midwest ISO transmission owners plan to appeal this order to the Court, challenging again the application of the Midwest ISO’s tariff, and the Midwest ISO’s charges for its administrative services to bundled retail customers. Cinergy is not in a position to predict the outcome of the appeal.

In response to prior FERC orders, on July 25, 2003, the Midwest ISO filed with the FERC proposed changes to its existing transmission tariff to add terms and conditions to implement Day-Ahead and Real-Time Energy Markets and Financial Transmission Rights. The Midwest ISO’s filing indicated that the Midwest ISO intends to make supplemental filings concerning such proposed tariff revisions by October 15, 2003, and in early 2004. The Midwest ISO has requested an effective date of March 31, 2004 for these proposed changes. Cinergy cannot predict the effect of the Midwest ISO’s proposals on its results of operations.

Significant Rate Developments

PSI Retail Rate Case

PSI Purchased Power Tracker (Tracker)

to extend the Tracker process beyond the summer of 2002. A hearing was held in January 2003 and in June 2003 the IURC approved the extension for up to an additional two years with the ultimate determination concerning PSI’s continued use of the Tracker process to be made in PSI’s pending retail electric rate case.

PSI Fuel Adjustment Charge

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 was held in July 2002, and in March 2003 the IURC issued an order giving final approval to PSI’s recovery of the $16 million.

PSI Construction Work in Progress (CWIP) Ratemaking Treatment for NO _X Equipment

PSI CWIP Ratemaking for NO _X Equipment

	PSI
	*(in millions)*

Total retail CWIP expenditures as of December 31, 2002	$	305

Proposed total amount requested through CWIP mechanism(1)	35
Less: previously approved CWIP mechanism amounts	(28		)
Proposed incremental CWIP mechanism amounts	$	7

(1) Amounts include retail customers’ portion only and represent an annual return on qualified NO _X equipment expenditures.

for allowance for funds used during construction (AFUDC). Pursuant to Statement of Financial Accounting Standards No. 92, Regulated Enterprises-Accounting for Phase-in Plans , the equity component of AFUDC will not be deferred for financial reporting after the related assets are placed in service.

Environmental Compliance Cost Recovery

GAS INDUSTRY

ULH&P Gas Rate Case

As discussed in the 2002 10-K, in the second quarter of 2001, ULH&P filed a retail gas rate case with the KPSC seeking to increase base rates for natural gas distribution services and requesting recovery through a tracking mechanism of the costs of an accelerated gas main replacement program with an estimated capital cost of $112 million over 10 years. ULH&P made its second annual filing for an increase under the tracking mechanism in March 2003. The application seeks an increase of $2 million. A hearing was held in July 2003 and the KPSC is expected to rule on the application during the third quarter of 2003. At the present time, ULH&P cannot predict the outcome of this proceeding. The Kentucky Attorney General has appealed the KPSC’s approval of the tracking mechanism to the Franklin Circuit Court and has also appealed the KPSC’s August 2002 order approving the new tracking mechanism rates. At the present time, ULH&P cannot predict the timing or outcome of this litigation.

CG&E Gas Rate Case

In the third quarter of 2001, CG&E filed a retail gas rate case with the PUCO seeking to increase base rates for natural gas distribution service and requesting recovery through a tracking mechanism of the costs of an accelerated gas main replacement program with an estimated capital cost of $716 million over 10 years. CG&E entered into a settlement agreement with most of the parties and a hearing on this matter was held in April 2002. An order was issued in May 2002, in which the PUCO approved the settlement agreement and authorized a base rate increase of approximately $15 million, or 3.3 percent overall, effective May 30, 2002. In addition, the PUCO authorized CG&E to implement the tracking mechanism to recover the costs of the accelerated gas main replacement program, subject to certain rate caps that increase in amount annually through May 2007, through the effective date of new rates in CG&E’s next retail gas rate case. In the fourth quarter of 2002, CG&E filed an application to increase its rates under the tracking mechanism. In April 2003, CG&E entered into a settlement agreement with

the parties, providing for an increase of $6.5 million, which the PUCO subsequently approved. This increase was effective in May 2003.

Gas Distribution Plant

Gas Prices

Natural gas prices began to escalate dramatically during the fourth quarter of 2002 and peaked midway through the first quarter of 2003. This significant increase in gas costs prompted CG&E and ULH&P to make additional interim filings with the PUCO and KPSC, respectively, to increase their gas cost adjustment rates for the remaining two months of the quarter which began in March 2003. These interim filings were subsequently approved by the PUCO and KPSC. In July 2003, CG&E filed an application with the PUCO for approval to begin adjusting its gas cost adjustment rates on a monthly basis commencing in September 2003. This application is currently pending. ULH&P expects to file a similar application with the KPSC for monthly gas cost adjustment rates beginning in December 2003. Gas prices are expected to remain above normal for the remainder of 2003. 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 May 2003, 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. In June 2003, the KPSC approved the hedging program through March 31, 2005. The program will allow the pre-arranging of between 20-65 percent of winter heating season base load gas requirements and between 0-50 percent of summer season base load gas requirements.

ULH&P uses primarily fixed price forward contracts and contracts with a ceiling and floor on the price. These contracts employ the normal purchases and sales exemption, and do not involve hedges under Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activity (Statement 133).

MARKET RISK SENSITIVE INSTRUMENTS AND POSITIONS

The transactions associated with the Energy Merchant Business Unit (Energy Merchant) energy marketing and trading activities give rise to various risks, including price risk. Price risk represents the potential risk of loss from adverse changes in the 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.

Changes in Fair Value

The changes in fair value of the energy risk management assets and liabilities, for the periods ended June 30, 2003 and 2002, are presented in the table below:

	Change in Fair Value Year to Date
	June 30, 2003									June 30, 2002
	Cinergy(1)			CG&E			PSI			Cinergy(1)			CG&E			PSI
	*(in millions)*

Fair value of contracts outstanding at beginning of year	$	75		$	42		$	—		$	18		$	28		$	(7	)

Inception value of new contracts when entered (2)	—			—			—			5			4			1

Changes in fair value attributable to changes in valuation techniques and assumptions (3)	1			1			—			—			—			—

Other changes in fair value (4)	82			19			2			35			13			1

Option premiums paid/(received)	(11		)	(2		)	—			24			—			—

Cumulative effect of changes in accounting principle (5)	(20		)	(13		)	(1		)	—			—			—

Contract reclassification (6)	—			—			—			14			7			16

Contracts settled	(117		)	(49		)	(5		)	(10		)	(11		)	(2		)

Fair value of contracts outstanding at end of period	$	10		$	(2	)	$	(4	)	$	86		$	41		$	9

(1)		The results of Cinergy also include amounts related to non-registrants.
(2)		Represents fair value, recognized in income, attributable to long-term, structured contracts, primarily in power, which is recorded on the date a deal is signed. These contracts are primarily with end-use customers or municipalities that seek to limit their risk to power price volatility. While caps and floors often exist in such contracts, the amount of power supplied can vary from hour to hour to mirror the customers load volatility. See Note 1(g)( i ) in the “Notes to Financial Statements” in “Part I. Financial Information” for additional information regarding inception gains.
(3)		Represents changes in fair value recognized in income, caused by changes in assumptions used in calculating fair value or changes in modeling techniques.
(4)		Represents changes in fair value, recognized in income, primarily attributable to fluctuations in price. This amount includes both realized and unrealized gains on energy trading contracts.
(5)		See Note 1(g)( i ) of the “Notes to Financial Statements” in “Part I. Financial Information” for further information.
(6)		Represents reclassifications of the settlement value of contracts that have been terminated as a result of counterparty non-performance to non-current other liabilities. These contracts no longer have price risk and are therefore not considered energy trading contracts.

The following table presents the expected maturity of the energy risk management assets and liabilities, as of June 30, 2003:

	Fair Value of Contracts as of June 30, 2003
	Maturing
Source of Fair Value(1)	Within 12 months			12-36 months			36-60 months		Thereafter			Total Fair Value
	(in millions)

Cinergy(2)
Prices actively quoted	$	19		$	(14	)	$	—	$	—		$	5

Prices based on models and other valuation methods	(3		)	13			3		(8		)	5

Total	$	16		$	(1	)	$	3	$	(8	)	$	10

CG&E
Prices actively quoted	$	(7	)	$	(6	)	$	—	$	—		$	(13	)

Prices based on models and other valuation methods	(4		)	12			3		—			11

Total	$	(11	)	$	6		$	3	$	—		$	(2	)

PSI
Prices actively quoted	$	(2	)	$	(10	)	$	—	$	—		$	(12	)

Prices based on models and other valuation methods	3			3			2		—			8

Total	$	1		$	(7	)	$	2	$	—		$	(4	)

(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. Long-term transactions can have portions in both categories depending on the tenor.

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

Energy Trading Credit Risk

ACCOUNTING MATTERS

Critical Accounting Policies

Preparation of financial statements and related disclosures in compliance with generally accepted accounting principles (GAAP) requires the use of assumptions and estimates. In certain instances, the application of GAAP requires judgments regarding future events, including the likelihood of success of particular initiatives, legal and regulatory challenges, and anticipated recovery of costs. Therefore, the possibility exists for materially different reported amounts under different conditions or assumptions.

Cinergy’s 2002 10-K includes a discussion of accounting policies that are significant to the presentation of Cinergy’s financial position and results of operations. These include:

• Fair Value Accounting for Energy Marketing and Trading;

• Retail Customer Revenue Recognition;

• Regulatory Accounting;

• Pension and Other Postretirement Benefits; and

• Impairment of Long-lived Assets.

Accounting Changes

Energy Trading

In October 2002, the EITF reached consensus in EITF 02-3, to (a) rescind EITF 98-10, (b) generally preclude the recognition of gains at the inception of derivatives, and (c) require all realized and unrealized gains and losses on energy trading derivatives to be presented net in the Statements of Income, whether or not settled physically. The consensus to rescind EITF 98-10 required most energy trading contracts that do not qualify as derivatives to be accounted for on an accrual basis, rather than at fair value. The consensus was immediately effective for all new contracts executed after October 25, 2002, and required a cumulative effect adjustment to income, net of tax, on January 1, 2003, for all contracts executed on or prior to October 25, 2002. The cumulative effect adjustment, on a net of tax basis, was a loss of $13 million for Cinergy and $8 million for CG&E , which includes primarily the impact of certain coal contracts, gas inventory, and certain gas contracts, which were all accounted for at fair value. We expect this rescission to have the largest ongoing impact on our gas trading business, which uses financial contracts, physical contracts, and gas inventory to take advantage of various arbitrage opportunities. Prior to the rescission of EITF 98-10, all of these activities were accounted for at fair value. Under the revised guidance, only certain items are accounted for at fair value, which could increase inter-period volatility in reported results of operations. As a result, we began applying fair value hedge accounting in June 2003 to certain quantities of gas inventory (more fully discussed in Note 1(c) of the “Notes to Financial

Statements” in “Part I. Financial Information”) and are further reviewing additional applications for hedge accounting.

Intangible Assets

In June 2001, the FASB issued Statement 142. With the adoption of Statement 142, goodwill and other intangibles with indefinite lives are no longer subject to amortization. Statement 142 requires that goodwill be assessed for impairment upon adoption (transition impairment test) and at least annually thereafter by applying a fair-value-based test, as opposed to the undiscounted cash flow test applied under prior accounting standards.

Asset Retirement Obligations

Derivatives

This guidance, which is effective in the fourth quarter of 2003, is not expected to have a material impact on our financial position or results of operations upon adoption.

Consolidation of SPEs

The FASB issued Interpretation 46 in January 2003. This interpretation significantly changes the consolidation requirements for SPEs and certain other entities subject to its scope. We have determined that certain entities will be required to be consolidated effective July 1, 2003, in accordance with this interpretation. These entities consist of (a) two SPEs that are engaged in selling power and (b) certain joint ventures engaged in providing various energy services. The two SPEs have individual power sale agreements to an unrelated third party for approximately 45 MW of capacity, ending in 2009, and 35 MW of capacity, ending in 2016. In addition, these SPEs have individual power purchase agreements with Cinergy Capital & Trading, Inc. (Capital & Trading) to supply the power. Capital & Trading also provides various services, including certain credit support facilities. Upon the initial consolidation of these two SPE’s, approximately $225 million of non-recourse debt and a comparable amount of assets will be included on Cinergy’s Balance Sheet. However, the impact of consolidating these two SPEs on Cinergy’s results of operations will be immaterial. The impact of consolidating the joint ventures will be immaterial to our results of operations and financial position.

Financial Instruments with Characteristics of both Liabilities and Equity

In May 2003, the FASB issued Statement 150. Statement 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. This statement was effective for financial instruments entered into or modified after May 31, 2003, and was effective on July 1, 2003, for financial instruments held prior to issuance of this statement.

In 2001, Cinergy Corp. issued approximately $316 million notional amount of combined securities consisting of (a) 6.9 percent 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 in, and/or before, February 2005. These securities are more fully described in the 2002 10-K. Statement 150 will require the preferred trust securities discussed in the 2002 10-K (currently recorded as Company obligated, mandatorily redeemable, preferred trust securities of subsidiary, holding solely debt securities of the company with a carrying value of $309 million) to be classified as long-term debt, effective July 1, 2003. Dividends paid on the preferred trust securities will be recorded as Interest Expense after July 1, 2003. Prior period financial statements are not permitted to be restated for either of these changes.

Other Matters

Employee Severance Programs

During the second quarter of 2003, Cinergy offered a Voluntary Early Retirement Program and other severance benefits (Severance Programs) to certain non-union employees. As a result of the non-union employees electing the Severance Programs, Cinergy recorded expenses of approximately $9 million during the quarter.

Cinergy estimates it will record $4 million in the third quarter of 2003 as a result of union employees electing Severance Programs that ended in July 2003 under a separate program than mentioned above.

Synthetic Fuel Production

Energy Market Investigations

100

At this time it is not possible to predict the outcome of these investigations or the impact on Cinergy’s financial position or results of operations.

101

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This information is provided in, and incorporated by reference from, the “Market Risk Sensitive Instruments and Positions” section in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in “Part I. Financial Information”.

102

ITEM 4. CONTROLS AND PROCEDURES

Disclosure controls and procedures are our controls and other procedures that are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 (Exchange Act) is recorded, processed, summarized, and reported, within the time periods specified in the Securities and Exchange Commission’s (SEC) rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we have evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2003, and, based upon this evaluation, our chief executive officer and chief financial officer have concluded that these controls and procedures are effective in providing reasonable assurance that information requiring disclosure is communicated to management in a timely manner and reported within the timeframe specified by the SEC’s rules and forms.

Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we have evaluated any change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended June 30, 2003 and found no change that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

103

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We currently, and from time to time, are involved in lawsuits, claims, and complaints incidental to the conduct of our business. In the opinion of management, no such proceeding is likely to have a material adverse effect on us.

See Note 6 of the “Notes to Financial Statements” in “Part I. Financial Information” for further information regarding our commitments and contingencies.

104

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) The documents listed below are being filed on behalf of Cinergy Corp. , The Cincinnati Gas & Electric Company ( CG&E ), PSI Energy, Inc. ( 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	Nature of Exhibit	Previously Filed as Exhibit to:

Additional Exhibits

3.1	Cinergy Corp.	By-laws of Cinergy Corp. , as amended on July 23, 2003.

3.2	CG&E	Regulations of CG&E as amended, July 23, 2003.

3.3	PSI	By-laws of PSI , as amended on July 23, 2003.

3.4	ULH&P	By-laws of ULH&P , as amended on July 23, 2003.

4.1	CG&E	Seventh Supplemental Indenture between CG&E and Fifth Third Bank dated as of June 15, 2003 to Indenture dated as of May 15, 1995.

31.1	Cinergy Corp. CG&E PSI ULH&P	Certification of James E. Rogers under Section 302 of Sarbanes-Oxley Act.

31.2	Cinergy Corp. CG&E PSI ULH&P	Certification of R. Foster Duncan under Section 302 of Sarbanes-Oxley Act.

32.1	Cinergy Corp. CG&E PSI ULH&P	Certification of James E. Rogers under Section 906 of Sarbanes-Oxley Act.

32.2	Cinergy Corp. CG&E PSI ULH&P	Certification of R. Foster Duncan under Section 906 of Sarbanes-Oxley Act.

(b) The following reports on Form 8-K were filed during the quarter ended June 30, 2003.

Date of Report	Registrant	Item Filed

April 28, 2003	Cinergy Corp.	Item 12. Results of Operations and Financial Condition

June 10, 2003	Cinergy Corp. CG&E PSI	Item 5. Other Events and Regulation FD Disclosure
	ULH&P	Item 7. Financial Statements and Exhibits

105

SIGNATURES

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

CINERGY CORP.

THE CINCINNATI GAS & ELECTRIC COMPANY

PSI ENERGY, INC.

THE UNION LIGHT, HEAT AND POWER COMPANY

Registrants

Date: August 13, 2003	/s/	David L. Wozny
		David L. Wozny
		(duly authorized officer
		and
	principal accounting officer)

106

EXHIBIT 3.1

BY-LAWS

CINERGY CORP.

Adopted:		October 24, 1994
Amended:		January 25, 1996
Amended:		December 18, 1997
Amended:		April 22, 1998
Amended:		October 15, 1998
Amended:		April 21, 1999
Amended:		April 27, 2000
Amended:		December 14, 2000
Amended:		May 2, 2002
Amended:		July 23, 2003

TABLE OF CONTENTS

ARTICLE I
Offices and Headquarters

Section	1.1	Offices
	1.2	Headquarters

ARTICLE II
Stockholders

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

ARTICLE III
Directors

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

ARTICLE IV
Committees of the Board of Directors

Section	4.1	Appointment and Powers

ARTICLE V
Officers, Agents and Employees

Section	5.1	Appointment and Term of Office
	5.2	The Chairman of the Board

Section	5.3	Vice-Chairman
	5.4	Chief Executive Officer
	5.5	The President
	5.6	The Vice-Presidents
	5.7	The Secretary
	5.8	The Treasurer
	5.9	The Controller
	5.10	Resignation, Compensation and Bond

ARTICLE VI
Indemnification

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

ARTICLE VII
Common Stock

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

ARTICLE VIII
Seal

Section	8.1	Seal

ARTICLE IX
Waiver of Notice

Section	9.1	Waiver of Notice

ARTICLE X
Fiscal Year

Section	10.1	Fiscal Year.

ARTICLE XI
Contracts, Checks, etc.

Section	11.1	Contracts, Checks, etc.

ARTICLE XII
Amendments

Section	12.1	Amendments

ARTICLE XIII
Dividends

Section	13.1	Dividends

iii

BY-LAWS

CINERGY CORP. (THE “CORPORATION”)

ARTICLE I

Offices and Headquarters

Section 1.1 Offices . The location of the Corporation’s principal office shall be in the City of Cincinnati, County of Hamilton, State of Ohio. The Corporation may, in addition to the aforesaid principal office, establish and maintain an office or offices elsewhere in Delaware, Ohio or Indiana or in such other states and places as the Board of Directors may from time to time find necessary or desirable, at which office or offices the books, documents, and papers of the Corporation may be kept.

Section 1.2 Headquarters . Subject to the sentence next following, the Corporation’s headquarters and executive offices, shall be located in the City of Cincinnati, County of Hamilton, State of Ohio. The location of the Corporation’s headquarters and executive offices may be changed from the City of Cincinnati, County of Hamilton, State of Ohio only by the affirmative vote of 80% of the full Board of Directors of the Corporation and not by the vote of any committee of the Board of Directors. As used in these By-Laws, the term “the full Board of Directors” shall mean all directors then in office together with any vacancies, however created. For the avoidance of doubt and as an example only, if the Board of Directors consists of 17 members and two vacancies exist, the affirmative vote of 14 of the 15 members of the Corporation’s Board of Directors then in office would be required to authorize a change in location of the Corporation’s headquarters and executive offices. The headquarters and executive offices of the Corporation’s

subsidiary, PSI Energy, Inc., shall be located in the City of Plainfield, Indiana and the headquarters and executive offices of the Corporation’s subsidiary, The Cincinnati Gas & Electric Company, shall be located in the City of Cincinnati, Ohio.

ARTICLE II

Stockholders

Section 2.1 Annual Meeting . An annual meeting of stockholders of the Corporation for the election of directors and for the transaction of any other proper business shall be held at such time and date in each year as the Board of Directors may from time to time determine. The annual meeting in each year shall be held at such hour on said day and at such place within or without the State of Delaware as may be fixed by the Board of Directors, or if not so fixed, at the principal business office of the Corporation in the City of Cincinnati, County of Hamilton, State of Ohio.

In lieu of the foregoing and at the sole discretion of the Board of Directors, an annual meeting of stockholders of the Corporation for the election of directors and for the transaction of any other proper business may be held by means of remote communication (e.g., via the Internet) to the fullest extent permitted by Section 211 of the Delaware General Corporation Law.

No business may be transacted at an annual meeting of stockholders, other than business that is either: (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof); (b) otherwise properly brought before the annual meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof); or (c) otherwise properly brought before the annual meeting by any stockholder of the Corporation: (i) who is a stockholder of record on the

date of the giving of the notice provided for in this Section 2.1 and on the record date for the determination of stockholders entitled to vote at such annual meeting; and (ii) who complies with the notice procedures set forth in this Section 2.1.

In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation.

To be timely, a stockholder’s notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than ninety (90) calendar days nor more than one hundred twenty (120) calendar days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within thirty (30) calendar days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10 ^th ) calendar day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs.

To be in proper written form, a stockholder’s notice to the Secretary must set forth as to each matter such stockholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting; (ii) the name and record address of such stockholder; (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder; (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names)

in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business; and (v) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting.

Notwithstanding anything to the contrary in the By-Laws, no business shall be conducted at the annual meeting of stockholders except business brought before the annual meeting in accordance with the procedures set forth in this Section 2.1; provided, however, that once business has been properly brought before the annual meeting in accordance with such procedures, nothing in this Section 2.1 shall be deemed to preclude discussion by any stockholder of any such business. If the presiding officer of an annual meeting determines that business was not properly brought before the annual meeting in accordance with the foregoing procedures, the presiding officer shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted.

Section 2.2 Special Meetings . A special meeting of the stockholders of the Corporation entitled to vote on any business to be considered at any such meeting may be called by the Chairman of the Board or the President or by a majority of the members of the Board of Directors then in office, acting with or without a meeting, or by the persons who hold 50% of all shares outstanding and entitled to vote thereat upon notice in writing, stating the time, place and purpose of the special meeting. The business transacted at the special meeting shall be confined to the purposes and objects stated in the call.

Section 2.3 Notice of Meetings . Whenever stockholders are required or permitted to take any action at a meeting, unless notice is waived in writing by all stockholders entitled to vote at the meeting, a written notice of the meeting shall be given which shall state the place, if

any, date and hour of the meeting, the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called.

In lieu of and/or in addition to the foregoing, notice of any meeting of the stockholders of the Corporation may be given via electronic transmission, to the fullest extent permitted by Section 232 of the Delaware General Corporation Law. To be valid, such electronic transmission notice must be in a form to which the stockholder has consented. Any stockholder can revoke consent to receive notice by a form of electronic transmission by written notice to the Corporation. Such consent shall be deemed revoked after two consecutive electronic transmissions by the Corporation are returned as undeliverable; provided, however, the inadvertent failure to treat any such undeliverable notices as a revocation shall not invalidate any meeting or other action. “Electronic transmission” shall mean any form of communication, not directly involving the physical transmission of paper, that creates a record and that may be retained, retrieved, and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process.

Unless otherwise provided by law, and except as to any stockholder duly waiving notice, the written notice of any meeting shall be given personally, by mail, or by a form of electronic transmission consented to by the stockholder to whom notice is given, not less than 10 days nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting. If mailed, notice shall be deemed given when deposited in the mail, postage prepaid, directed to the stockholder at his or her address as it appears on the records of the Corporation. If by a form of electronic transmission, notice shall be deemed given when

transmitted to the stockholder in accordance with the provisions set forth herein; provided, however, that if the electronic transmission notice is posted on an electronic network (e.g., a website or chatroom), notice shall be deemed given upon the later of (A) such posting and (B) the giving of separate notice of the posting to the stockholder.

When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time, place, if any, thereof, and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business which might have been transacted at the original meeting. If, however, the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

Section 2.4 Quorum . Except as otherwise provided by law or by the Certificate of Incorporation or by these By-Laws in respect of the vote required for a specified action, at any meeting of stockholders the holders of a majority of the outstanding stock entitled to vote thereat, either present, in person or represented by proxy, shall constitute a quorum for the transaction of any business, but the stockholders present, although less than a quorum, may adjourn the meeting to another time or place and, except as provided in the last paragraph of Section 2.3 of these By-Laws, notice need not be given of the adjourned meeting.

Section 2.5 Voting . Whenever directors are to be elected at a meeting, they shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote thereon. Whenever any corporate action, other than the election of

directors, is to be taken by vote of stockholders at a meeting, it shall, except as otherwise required by law or by the Certificate of Incorporation or by these By-Laws, be authorized by the affirmative vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote thereon.

Except as otherwise provided by law, or by the Certificate of Incorporation, each holder of record of stock of the Corporation entitled to vote on any matter at any meeting of stockholders shall be entitled to one (1) vote for each share of such stock standing in the name of such holder on the stock ledger of the Corporation on the record date for the determination of the stockholders entitled to vote at the meeting.

Upon the demand of any stockholder entitled to vote, the vote for directors or the vote on any other matter at a meeting shall be by written ballot, but otherwise the method of voting and the manner in which votes are counted shall be discretionary with the presiding officer at the meeting.

Section 2.6 Presiding Officer and Secretary . At every meeting of stockholders, and where the offices of the Chairman of the Board and the Chief Executive Officer are held by different individuals, the Chief Executive Officer, or, in his or her absence, the Chairman of the Board, or, in his or her absence, the appointee of the meeting, shall preside. The Secretary, or, in his or her absence, an Assistant Secretary, or if none be present, the appointee of the presiding officer of the meeting, shall act as secretary of the meeting. The presiding officer shall have the authority to make all rules regarding the conduct of any meeting including, but not limited to, setting the agenda and/or determining the proper order of business, making arrangements with respect to matters of safety and security, determining reserved seating arrangements for certain

stockholders and/or others in attendance, establishing guidelines or procedures for participation by stockholders and/or others in attendance, and making any determination with respect to possible adjournment and/or postponement.

Section 2.7 Proxies . Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him or her by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. Every proxy shall be signed by the stockholder or by his duly authorized attorney. A stockholder may authorize another person or persons to act for him as proxy by transmitting or authorizing the transmission of a telegram, cablegram, or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission if such transmission is submitted with information from which it may be determined that the transmission was authorized by the stockholder.

Section 2.8 List of Stockholders . The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, for a period of at least 10 days prior to the meeting: (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (ii) during ordinary business hours, at the principal

place of business of the Corporation. If the meeting is to be held at a place, the list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.

If any meeting of the Corporation’s stockholders is to be held solely by means of remote communications (e.g., the Internet), the list must be made available to the stockholders during the entire meeting on a reasonably accessible electronic network. The notice of meeting must provide information by which the stockholder can gain access to the electronic list.

The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by this Section or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders.

ARTICLE III

Directors

Section 3.1 Number of Directors . The Board of Directors shall consist of a number of directors not less than seven (7) and not more than twenty-three (23) as determined by a vote of not less than 75% of the full Board of Directors (“Supermajority Vote”). Any such determination made by the Board of Directors shall continue in effect unless and until changed by the Board of Directors by Supermajority Vote, but no such change shall affect the term of any director then in office.

Section 3.2 Election and Term of Directors . Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors. Except as may be required by applicable law, no person who is, at the time of nomination, 70 years of age or older

shall be eligible for election as a director. Nominations of persons as candidates for election as directors of the Corporation may be made at a meeting of stockholders (i) by or at the direction of the Board of Directors acting by Supermajority Vote (or by a unanimous vote of the remaining directors if a Supermajority Vote is not obtainable because the number of vacancies on the Board of Directors); or (ii) by any stockholder of the Corporation entitled to vote for the election of directors at such meeting who complies with the notice procedures set forth herein. Any nomination other than those governed by clause (i) of the preceding sentence shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder’s notice shall be delivered to or mailed and received at the principal office of the Corporation in the State of Ohio not less than 50 days prior to the meeting; provided, however, that if less than 60 days’ notice or prior public disclosure of the date of the meeting is given to stockholders or made public, to be timely notice by a stockholder must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such stockholder’s notice to the Secretary shall set forth: (a) as to each person whom the stockholder proposes to nominate for election as director: (i) the name, age, business address, and residence address of such person; (ii) the principal occupation or employment of such person; (iii) the class and number of any shares of capital stock of the Corporation that are beneficially owned by such person; and (iv) any other information relating to such person that is required to be disclosed in solicitations for proxies for the election of directors pursuant to any then existing rules or regulations promulgated under the Securities Exchange Act of 1934, as amended; and (b) as to the stockholder giving notice: (i) the name and record address of such stockholder; (ii) the class and number of shares of capital stock of

the Corporation that are beneficially owned by such stockholder, and (iii) the period of time such stockholder has held such shares. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as a director. No person otherwise eligible for election as a director shall be eligible for election as a director unless nominated as set forth herein.

Commencing on October 24, 1994 (the “Classification Date”) of the Board of Directors of the Corporation, the terms of office of the Board of Directors shall be divided into three (3) classes, Class I, Class II and Class III, as determined by the Board of Directors. All classes shall be as nearly equal in number as possible.

The terms of office of directors classified shall be as follows: (1) that of Class I shall expire at the annual meeting of stockholders that occurs within the first year after the Classification Date, (2) that of Class II shall expire at the annual meeting of stockholders that occurs within the second year after the Classification Date, and (3) that of Class III shall expire at the annual meeting of stockholders that occurs within the third year after the Classification Date. At each annual meeting of stockholders after the Classification Date, the successors to directors whose terms shall expire shall be elected to serve from the time of election and qualification until the third annual meeting following election and until a successor shall have been elected and qualified or until his earlier resignation, removal from office or death. As being under 70 years of age constitutes a continuing qualification for service on the Board of Directors, any director who reaches the age of 70 years while in office shall, except as limited by applicable law, promptly resign from the Corporation’s Board of Directors.

Section 3.3 Vacancies and Newly Created Directorships . Vacancies and newly

created directorships resulting from any increase in the authorized number of directors may be filled by election at a meeting of stockholders. Except as otherwise provided by law, and notwithstanding the provision of Section 3.6, the remaining directors, whether or not constituting a majority of the whole authorized number of directors, may, by not less than a Supermajority Vote (or by a unanimous vote of the remaining directors if a Supermajority Vote is not obtainable because of the number of vacancies on the Board of Directors) fill any vacancy in the Board, however arising, for the unexpired term thereof. Any person elected to fill a vacancy in the Board shall hold office until the expiration of the term of office for the class to which he or she is elected and until a successor is elected and qualified or until his or her earlier resignation, removal from office or death.

Section 3.4 Resignation . Any director may resign at any time upon notice given in writing or by electronic transmission to the Corporation. Any such resignation shall take effect at the time specified therein or, if the time be not specified, upon receipt thereof, and the acceptance of such resignation, unless required by the terms thereof, shall not be necessary to make such resignation effective.

Section 3.5 Meetings . Meetings of the Board of Directors, regular or special, may be held at any place within or without the State of Delaware. Members of the Board of Directors, or of any committee designated by the Board, may participate in a meeting of such Board or committee by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting. An annual meeting of the Board of Directors shall be held within 10 days after each annual election of directors. If such

election occurs at an annual meeting of stockholders, the annual meeting of the Board of Directors shall be held at such time and place as shall be specified by the Board, and no notice thereof need be given. The Board of Directors may fix times and places for regular meetings of the Board and no notice of such meetings need be given. A special meeting of the Board of Directors shall be held whenever called by the Chairman of the Board, the Chief Executive Officer, the President or by the written request of a majority of the members of the Board of Directors, at such time and place as shall be specified in the notice or waiver thereof. Notice of each special meeting shall be given by the Secretary or by a person calling the meeting to each director in writing, through the mail, or personally served or by telephone, telecopy, telegram, cablegram or radiogram, or via any form of electronic transmission, in each such case within such time frame as the person calling the meeting shall deem appropriate, and such notice shall be deemed to be given at the time when the same shall be transmitted.

Section 3.6 Quorum and Voting . A majority of the full Board of Directors shall constitute a quorum for the transaction of business, but, if there be less than a quorum at any meeting of the Board of Directors, a majority of the directors present may adjourn the meeting from time to time, and no further notice thereof need be given other than announcement at the meeting which shall be so adjourned. Except as otherwise provided by law, by the Certificate of Incorporation, or by these By-Laws (including, without limitation, where any Supermajority Vote or any other vote in excess of a majority is required), the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors.

Section 3.7 Written Consent of Directors in Lieu of a Meeting . Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee

thereof may be taken without a meeting if all members of the Board or of such committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmissions are filed with the minutes of proceedings of the Board or committee.

Section 3.8 Compensation . Each director of the Corporation (other than directors who are salaried officers of the Corporation or any of its subsidiaries) shall be entitled to receive as compensation for services such reasonable compensation, which may include pension, disability and death benefits, as may be determined from time to time by the Board of Directors. Reasonable compensation may also be paid to any person other than a director officially called to attend any such meeting.

Section 3.9 Contracts and Transactions Involving Directors . No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his, her or their votes are counted for such purpose, if: (1) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (2) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction

is specifically approved in good faith by vote of the stockholders; or (3) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof, or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction.

ARTICLE IV

Committees of the Board of Directors

Section 4.1 Appointment and Powers . The Board of Directors may, by resolution adopted by a majority of the Board, designate from time to time (subject to Article V hereof) no less than three (3) and no more than six (6) of their number to constitute an Executive Committee, and may delegate to such committee power to authorize the seal of the Corporation to be affixed to all papers which may require it and to exercise in the intervals between the meetings of the Board of Directors the powers of the Board in the management of the business and affairs of the Corporation to the fullest extent permitted by Section 141(c)(2) of the Delaware General Corporation Law; provided, however, that the Executive Committee shall not have the power or authority to take any action for which a Supermajority Vote or other vote in excess of a majority of the Board of Directors is required. Each member of the Executive Committee shall continue to be a member thereof only during the pleasure of a majority of the full Board of Directors.

The Executive Committee may act by a majority of its members at a meeting or by a writing signed by all of its members.

All action by the Executive Committee shall be reported to the Board of Directors at

its meeting next succeeding such action.

Non-employee members of such Executive Committee shall be entitled to receive such fees and compensation as the Board of Directors may determine.

The Board of Directors may also appoint a Finance Committee, a Corporate Governance Committee, an Audit Committee, a Public Policy Committee and a Compensation Committee and may also appoint such other standing or temporary committees from time to time as they may see fit, delegating to such committees all or any part of their own powers (subject to the provisions of these By-Laws); provided, however, that any compensation or benefits to be paid to an executive officer who is also a director must be approved by the Board of Directors. The members of such committees shall be entitled to receive such fees as the Board may determine.

The Board of Directors shall not amend, modify, vary or waive any of the terms of the Amended and Restated Agreement and Plan of Reorganization by and among The Cincinnati Gas & Electric Company, PSI Resources, Inc., PSI Energy, Inc., the Corporation, Cinergy Corp., an Ohio corporation, and Cinergy Sub, Inc. dated as of December 11, 1992, as amended and restated as of July 2, 1993 and as of September 10, 1993 and as further amended as of June 20, 1994, as of July 26, 1994 and as of September 30, 1994 (the “Merger Agreement”) other than by a Supermajority Vote of the Board of Directors.

ARTICLE V

Officers, Agents and Employees

Section 5.1 Appointment and Term of Office . The executive officers of the Corporation, shall consist of a Chairman of the Board, a Vice-Chairman, a Chief Executive

Officer, a President, one or more Vice-Presidents, a Secretary, a Treasurer and a Controller, all of whom shall be elected by the Board of Directors by a Supermajority Vote, and shall hold office for one (1) year and until their successors are chosen and qualified. Any number of such offices may be held by the same person, but no officer shall execute, acknowledge or verify any instrument in more than one capacity. Any vacancy occurring in the office of the Chairman, Chief Executive Officer or President shall be filed by Supermajority Vote of the Board of Directors. The Chairman, Chief Executive Officer or President shall be subject to removal without cause only by Supermajority Vote of the Board of Directors at a special meeting of the Board of Directors called for that purpose.

The Board of Directors may appoint, and may delegate power to appoint, such other non-executive officers, agents and employees as it may deem necessary or proper, who shall hold their offices or positions for such terms, have such authority and perform such duties as may from time to time be determined by or pursuant to authorization of the Board of Directors.

Section 5.2 The Chairman of the Board . The Chairman of the Board shall be a director and shall preside at all meetings of the Board of Directors and, in the absence or inability to act of the Chief Executive Officer, meetings of stockholders and shall, subject to the Board’s direction and control, be the Board’s representative and medium of communication, and shall perform such other duties as may from time-to-time be assigned to the Chairman of the Board by Supermajority Vote of the Board of Directors. The Chairman of the Board shall direct the long-term strategic planning process of the Corporation and shall also lend his or her expertise to the President, as may be requested from time-to-time by the President. The Chairman shall be a member of the Executive Committee.

Section 5.3 Vice-Chairman . The Vice-Chairman of the Board shall be a director and shall preside at meetings of the Board of Directors in the absence or inability to act of the Chairman of the Board or meetings of stockholders in the absence or inability to act of the Chief Executive Officer and the Chairman of the Board. The Vice-Chairman shall perform such other duties as may from time-to-time be assigned to him or her by Supermajority Vote of the Board of Directors. The Vice-Chairman shall be a member of the Executive Committee and may be a member of such other committees of the Board as it shall from time to time deem appropriate.

Section 5.4 Chief Executive Officer . The Chief Executive Officer shall be a director and shall preside at all meetings of the stockholders, and, in the absence or inability to act of the Chairman of the Board and the Vice-Chairman, meetings of the Board of Directors, and shall submit a report of the operations of the Corporation for the fiscal year to the stockholders at their annual meeting and from time-to-time shall report to the Board of Directors all matters within his or her knowledge which the interests of the Corporation may require be brought to their notice. The Chief Executive Officer shall be the chairman of the Executive Committee and ex officio a member of all standing committees. Where the offices of President and Chief Executive Officer are held by different individuals, the President will report directly to the Chief Executive Officer.

Section 5.5 The President . The President shall be the chief operating officer of the Corporation. The President shall have general and active management and direction of the affairs of the Corporation, shall have supervision of all departments and of all officers of the Corporation, shall see that the orders and resolutions of the Board of Directors and of the Executive Committee are carried into effect, and shall have the general powers and duties of supervision and management usually vested in the office of President of a corporation. All corporate officers and

functions except those reporting to the Chairman of the Board or the Chief Executive Officer shall report directly to the President.

Section 5.6 The Vice-Presidents . The Vice-Presidents shall perform such duties as the Board of Directors shall, from time to time, require. In the absence or incapacity of the President, the Vice President designated by the President or Board of Directors or Executive Committee shall exercise the powers and duties of the President.

Section 5.7 The Secretary . The Secretary shall attend all meetings of the Board of Directors, of the Executive Committee and any other committee of the Board of Directors and of the stockholders and act as clerk thereof and record all votes and the minutes of all proceedings in a book to be kept for that purpose, and shall perform like duties for the standing committees when required.

The Secretary shall keep in safe custody the seal of the Corporation and, whenever authorized by the Board of Directors or the Executive Committee, affix the seal to any instrument requiring the same.

The Secretary shall see that proper notice is given of all the meetings of the stockholders of the Corporation and of the Board of Directors and shall perform such other duties as may be prescribed from time to time by the Board of Directors, the Chairman, the Chief Executive Officer, or the President.

Assistant Secretaries. At the request of the Secretary, or in his or her absence or inability to act, the Assistant Secretary or, if there be more than one, the Assistant Secretary designated by the Secretary, shall perform the duties of the Secretary and when so acting shall have all the powers of and be subject to all the restrictions of the Secretary. The Assistant Secretaries

shall perform such other duties as may from time to time be assigned to them by the President, the Secretary, or the Board of Directors.

Section 5.8 The Treasurer . The Treasurer shall be the financial officer of the Corporation, shall keep full and accurate accounts of all collections, receipts and disbursements in books belonging to the Corporation, shall deposit all moneys and other valuables in the name and to the credit of the Corporation, in such depositories as may be directed by the Board of Directors, shall disburse the funds of the Corporation as may be ordered by the Board of Directors, the Chairman, the Chief Executive Officer, or the President, taking proper vouchers therefor, and shall render to the President, the Chief Executive Officer, the Chairman, and/or directors at all regular meetings of the Board, or whenever they may require it, and to the annual meeting of the stockholders, an account of all his or her transactions as Treasurer and of the financial condition of the Corporation.

The Treasurer shall also perform such other duties as the Board of Directors, the Chairman, the Chief Executive Officer, or the President may from time to time require.

If required by the Board of Directors the Treasurer shall give the Corporation a bond in a form and in a sum with surety satisfactory to the Board of Directors for the faithful performance of the duties of his or her office and the restoration to the Corporation in the case of his or her death, resignation or removal from office of all books, papers, vouchers, money and other property of whatever kind in his or her possession belonging to the Corporation.

Assistant Treasurers. At the request of the Treasurer, or in his or her absence or inability to act, the Assistant Treasurer or, if there be more than one, the Assistant Treasurer designated by the Treasurer, shall perform the duties of the Treasurer and when so acting shall

have all the powers of and be subject to all the restrictions of the Treasurer. The Assistant Treasurers shall perform such other duties as may from time to time be assigned to them by the President, the Treasurer, or the Board of Directors.

Section 5.9 The Controller . The Controller shall have control over all accounts and records of the Corporation pertaining to moneys, properties, materials and supplies. He or she shall have executive direction over the bookkeeping and accounting departments and shall have general supervision over the records in all other departments pertaining to moneys, properties, materials and supplies. He or she shall have such other powers and duties as are incident to the office of Controller of a corporation and shall be subject at all times to the direction and control of the Board of Directors, the Chairman, the Chief Executive Officer, the President, or a Vice President.

Assistant Controllers. At the request of the Controller, or in his or her absence or inability to act, the Assistant Controller or, if there be more than one, the Assistant Controller designated by the Controller, shall perform the duties of the Controller and when so acting shall have all the powers of and be subject to all the restrictions of the Controller. The Assistant Controllers shall perform such other duties as may from time to time be assigned to them by the President, the Controller, or the Board of Directors.

Section 5.10 Resignation, Compensation and Bond . Any resignation from office by any officer of the Corporation also shall be deemed, to the extent applicable, to be a resignation from any similar office held by such resigning officer at any affiliate or subsidiary of the Corporation, unless otherwise expressly provided for within the resigning officer’s letter of resignation. The compensation of the officers of the Corporation shall be fixed by the Compensation Committee of the Board of Directors or, in lieu of the Compensation Committee, by

the Board of Directors, but this power may be delegated to any officer in respect of other officers under his or her control. The Corporation may secure the fidelity of any or all of its officers, agents or employees by bond or otherwise.

ARTICLE VI

Indemnification

Section 6.1 Indemnification of Directors, Officers, Employees and Agents .

(A) Any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than any action or suit by or in the right of the Corporation) by reason of the fact that he or she is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise (specifically including employee benefit plans), shall be indemnified by the Corporation, if, as and to the extent authorized by applicable law, against expenses (specifically including attorney’s fees), judgments, fines (specifically including any excise taxes assessed on a person with respect to an employee benefit plan) and amounts paid in settlement actually and reasonably incurred by him or her in connection with the defense or settlement of such action, suit or proceeding, if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, or conviction, or upon a plea of nolo contendere or its equivalent,

shall not, of itself, create a presumption that the person did not act in good faith and in a manner he or she reasonably believed to be in and not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, he or she had no reasonable cause to believe his or her conduct was unlawful.

(B) The Corporation shall, to the extent not prohibited by applicable law, indemnify or agree to indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending, or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he or she is or was a director, officer, employee, or agent of the Corporation or is or was serving at the request of the Corporation as a director, trustee, officer, employee, or agent of another corporation, domestic or foreign, non-profit or for-profit, partnership, joint venture, trust or other enterprise (specifically including employee benefit plans), against expenses (including attorneys’ fees) actually and reasonably incurred by him or her in connection with the defense or settlement of such action or suit if he or she acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the Corporation; provided that, no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.

(C) To the extent that a director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit, or proceeding referred to in the paragraphs

(A) or (B) of this Section, or in defense of any claim, issue, or matter therein, he or she shall be indemnified against expenses, specifically including attorneys’ fees, actually and reasonably incurred by him or her in connection therewith.

(D) Any indemnification under Paragraphs (A) and (B) of this Section, unless ordered by a court, shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee, or agent is proper in the circumstances because he or she has met the applicable standard of conduct set forth in such Paragraphs (A) and (B). Such determination shall be made as follows: (1) by a majority vote of the Board of Directors, even if less than a quorum, consisting of directors who were not parties to such action, suit, or proceeding; (2) by a committee of such directors designated by a majority vote of such directors, even if less than a quorum; (3) if the quorum described in (D)(1) of this Section is not obtainable or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion; or (4) by the stockholders.

Section 6.2 Advances for Litigation Expenses . Expenses (including attorneys’ fees) incurred by a director, officer, employee, or agent of the Corporation in defending any civil, criminal, administrative or investigative action, suit or proceeding, shall be paid by the Corporation as they are incurred in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director, officer, employee, or agent: (1) to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article VI; and (2) to cooperate reasonably with the Corporation concerning the action, suit or proceeding.

Section 6.3 Indemnification Nonexclusive . The indemnification provided by this Article shall not be exclusive of and shall be in addition to any other rights granted to those seeking indemnification under the Certificate of Incorporation, these By-Laws, any agreement, any vote of stockholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office and shall continue as to a person who has ceased to be a director, trustee, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person.

Section 6.4 Indemnity Insurance . The Corporation may purchase and maintain insurance or furnish similar protection, including but not limited to trust funds, letters of credit, or self-insurance, on behalf of or for any person who is or was a director, officer, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a director, trustee, officer, employee or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise, against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under this Article. Insurance may be purchased from or maintained with a person in which the Corporation has a financial interest.

Section 6.5 Definitions . For purposes of this Article: (1) a person who acted in good faith and in a manner he or she reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall conclusively be deemed to have acted in a manner “not opposed to the best interests of the Corporation”; (2) a person shall be deemed to have acted in “good faith” and in a manner he reasonably believed to be in or not opposed to the best

interests of the Corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe his conduct was unlawful, if his action is based on the records or books of account of the Corporation or another enterprise, or on information supplied to him by the officers of the Corporation or another enterprise in the course of their duties, or on the advice of legal counsel for the Corporation or another enterprise or on information or records given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise; (3) the term “another enterprise” as used in this Article VI shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise of which such person is or was serving at the request of the Corporation as a director, officer, employee or agent; and (4) references to “the Corporation” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger, which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees, and agents.

ARTICLE VII

Common Stock

Section 7.1 Certificates . Certificates for stock of the Corporation shall be in such form as shall be approved by the Board of Directors and shall be signed in the name of the Corporation by the Chairman or the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary. Such certificates may be sealed with the seal of the Corporation or a facsimile thereof. Any of or all the signatures on a certificate

may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue.

Section 7.2 Transfers of Stock . Transfers of stock shall be made only upon the books of the Corporation by the holder, in person or by duly authorized attorney, and on the surrender of the certificate or certificates for such stock properly endorsed. The Board of Directors shall have the power to make all such rules and regulations, not inconsistent with the Certificate of Incorporation and these By-Laws and the law, as the Board of Directors may deem appropriate concerning the issue, transfer and registration of certificates for stock of the Corporation. The Board of Directors or the Finance Committee may appoint one (1) or more transfer agents or registrars of transfers, or both, and may require all stock certificates to bear the signature of either or both.

Section 7.3 Lost, Stolen or Destroyed Certificates . The Corporation may issue a new stock certificate in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate or his or her legal representative to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of any such new certificate. The Board of Directors may require such owner to satisfy other reasonable requirements.

Section 7.4 Stockholder Record Date . (A) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any

adjournment thereof, the Board of Directors may fix a record date, which record date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting.

If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held.

A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; providing, however, that the Board of Directors may fix a new record date for the adjourned meeting.

(B) In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in this State, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors

and prior action by the Board of Directors is required by law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolutions taking such prior action.

(C) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

Section 7.5 Beneficial Owners . The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law.

ARTICLE VIII

Seal

Section 8. 1 Seal . The seal of the Corporation shall be circular in form and shall bear, in addition to any other emblem or device approved by the Board of Directors, the name of the Corporation, the year of its incorporation and the words “Corporate Seal” and “Delaware”. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.

ARTICLE IX

Waiver of Notice

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

ARTICLE X

Fiscal Year

Section 10.1 Fiscal Year . The Fiscal Year of the Corporation shall begin on the first day of January and terminate on the thirty-first day of December each year.

ARTICLE XI

Contracts , Checks, etc.

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

ARTICLE XII

Amendments

Section 12.1 Amendments . Except as set forth below, these By-Laws may be amended or repealed by the Board of Directors or by the affirmative vote of the holders of a majority of the issued and outstanding common stock of the Corporation, or by the unanimous written consent of the holders of the issued and outstanding common stock of the Corporation.

Notwithstanding the foregoing paragraph, the affirmative vote of the holders of at least 80% of the issued and outstanding shares of common stock of the Corporation shall be required to amend, alter or repeal, or adopt any provision inconsistent with, the requirements of Section 2.2, Section 3.1, Section 3.2, Section 3.3 or this paragraph of Section 12.1 of these By-Laws, in addition to any requirements of law and any provisions of the Certificate of Incorporation, any By-law, or any resolution of the Board of Directors adopted pursuant to the Certificate of Incorporation (and notwithstanding that a lesser percentage may be specified by law, the Certificate of Incorporation, these By-Laws, such resolution, or otherwise).

Notwithstanding any of the foregoing, the affirmative vote of a majority of the holders of the issued and outstanding common stock of the Corporation shall be required to amend, alter or repeal, or adopt any provision inconsistent with (i) any provision of these By-Laws requiring a Supermajority Vote of the Board of Directors (including this provision of Section 12.1) or (ii) the responsibilities of the Chief Executive Officer or President as set forth in Section 5.4 or Section 5.5, and the Board of Directors shall not recommend any such amendment to such provisions to the stockholders unless the proposed amendment is approved by the Board of Directors acting by Supermajority Vote.

ARTICLE XIII

Dividends

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

EXHIBIT 3.2

THE CINCINNATI GAS & ELECTRIC COMPANY

REGULATIONS

ADOPTED BY SHAREHOLDERS, APRIL 28, 1948

AS AMENDED, APRIL 23, 1975

AS AMENDED, APRIL 23, 1980

AS AMENDED, APRIL 17, 1986

AS AMENDED, APRIL 16, 1987

AS AMENDED, OCTOBER 24, 1994

AS AMENDED, MARCH 3, 1995

AS AMENDED, JUNE 16, 1995

AS AMENDED, APRIL 25, 1996

AS AMENDED, JULY 23, 2003

TABLE OF CONTENTS

REGULATIONS

THE CINCINNATI GAS & ELECTRIC COMPANY

ARTICLE I
Offices

Section	1.	Offices

ARTICLE II
Shareholders’ Meetings

Section	1.	Annual Meeting
	2.	Notice of Annual Meeting
	3.	Special Meetings
	4.	Notice of Special Meeting
	5.	Waiver of Notice
	6.	Quorum
	7.	Voting
	8.	Written Consent of Shareholders in Lieu of Meeting

ARTICLE III
Board of Directors

Section	1.	Number of Directors, Tenure, Vacancies, Nomination
	2.	Annual Organization Meeting
	3.	Regular Meetings
	4.	Special Meetings
	5.	Notice of Meetings
	6.	Quorum
	7.	Compensation of Directors
	8.	Executive Committee
	9.	Other Committees
	10.	Actions of Board

ARTICLE IV
Officers

Section	1.	Officers
	2.	Subordinate Officers
	3.	Chairman of the Board
	4.	Vice Chairman
	5.	Chief Executive Officer
	6.	Chief Operating Officer

	7.		President
	8.		Vice Presidents
	9.	(a).	Secretary
		(b).	Assistant Secretaries
	10.	(a).	Treasurer
		(b).	Assistant Treasurers
	11.	(a).	Controller
		(b).	Assistant Controllers.

ARTICLE V
Indemnification of Directors, Officers, Employees, and Agents

Section	1.		Indemnification of Directors, Officers, Employees, and Agents
	2.		Advances for Litigation Expenses may be Made
	3.		Indemnification Nonexclusive
	4.		Indemnity Insurance
	5.		Payment of Expenses Not Limited
	6.		Survival of Indemnification

ARTICLE VI
Capital Stock

Section	1.		Form and Execution of Certificates
	2.		Transfer of Shares
	3.		Appointment of Transfer Agents and Registrars
	4.		Closing of Transfer Books or Taking Record of Shareholders
	5.		Lost Stock Certificates

ARTICLE VII
Dividends

Section	1.		Dividends

ARTICLE VIII
Fiscal Year

Section	1.		Fiscal Year

ARTICLE IX
Contracts, Checks, Notes, etc.

Section	1.		Contracts, Checks, Notes, etc.

ARTICLE X Notice and Waiver of Notice

Section	1 .	Notice and Waiver of Notice

ARTICLE XI
Corporate Seal

Section	1.	Corporate Seal

ARTICLE XII
Amendment

Section	1 .	Amendment

iii

REGULATIONS
OF
THE CINCINNATI GAS & ELECTRIC COMPANY

ARTICLE I

Offices

Section 1. Offices . The location of the Corporation’s principal office shall be in the City of Cincinnati, County of Hamilton, State of Ohio. The Corporation may, in addition to its principal office in the State of Ohio, establish and maintain an office or offices elsewhere in Ohio and in such other states and places as the Board of Directors may from time to time find necessary of desirable, at which the books, documents and papers of the Corporation may be kept.

ARTICLE II

Shareholders’ Meetings

Section 1. Annual Meeting. The annual meeting of the shareholders may be held either within or without the State of Ohio, at such place, time, and date designated by the Board of Directors, or if not so designated, and so long as Cinergy Corp. is the holder of a majority of the Corporation’s outstanding common stock, on the business day next preceding Cinergy Corp.’s annual meeting of shareholders, for the election of directors, the consideration of the reports to be laid before the meeting and the transaction of such other business as may be brought before the meeting.

Section 2. Notice of Annual Meeting. Notice of the annual meeting shall be given in writing to each shareholder entitled to vote thereat, at such address as appears on the records of the Corporation at least ten (10) days and not more than forty-five (45) days prior to the meeting.

Section 3. Special Meetings. Special meetings of the shareholders may be called at any time by the Chairman, Vice Chairman, Chief Executive Officer, Chief Operating Officer, or President, or by a majority of the members of the Board of Directors acting with or without a meeting, or by the persons who hold in the aggregate fifty (50) percent of all the shares outstanding and entitled to vote thereat, upon notice in writing, stating the time, place and purpose of the meeting. Business transacted at all special meetings shall be confined to the objects stated in the call.

Section 4. Notice of Special Meeting. Notice of a special meeting, in writing, stating the time, place and purpose thereof, shall be given to each shareholder entitled to vote thereat, at least twenty (20) days and not more than forty-five (45) days prior to the meeting.

Section 5. Waiver of Notice. Notice of the time, place and purpose of any meeting of shareholders may be waived by the written assent of every shareholder entitled to notice, filed with or entered upon the records of the meeting, either before or after the holding thereof.

Section 6. Quorum. The holders of shares entitling them to exercise a majority of the voting power, or, if the vote is to be taken by classes, the holders of shares of each class entitling them to exercise a majority of the voting power of that class, present in person or by proxy at any meeting of the shareholders, unless otherwise specified by law, shall constitute a quorum.

If, however, at any meeting of the shareholders, a quorum shall fail to attend in person or by proxy, a majority in interest of the shareholders attending in person or by proxy at the time and place of such meeting may adjourn the meeting from time to time without further notice, other than by announcement at the meeting at which such adjournment is taken, until a quorum is present. At any such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting originally called.

Section 7. Voting. At each meeting of the shareholders, except as otherwise provided by statute or the Articles of Incorporation, every holder of record of stock of the class or classes entitled to vote at such meeting shall be entitled to vote in person or by proxy appointed by an instrument in writing subscribed by such shareholder and bearing a date not more than eleven (11) months prior to said meeting unless some other definite period of validity shall be expressly provided therein.

Each shareholder shall have one (1) vote for each share of stock having voting power, registered in his or her name on the books of the Corporation, at the date fixed for determination of persons entitled to vote at the meeting or, if no date has been fixed, then at the date next preceding the day of the meeting. Cumulative voting shall be permitted only as expressly required by statute.

At any meeting of shareholders, a list of shareholders entitled to vote, alphabetically arranged, showing the number and classes of shares held by each on the date fixed for closing the books against transfers or the record date fixed as hereinbefore provided shall be produced on the request of any shareholder, and such list shall be prima facie evidence of the ownership of shares and of the right of shareholders to vote, when certified by the Secretary or by the agent of the Corporation having charge of the transfer of shares.

Section 8. Written Consent of Shareholders in Lieu of Meeting. Any action required or permitted by statute, the Amended Articles of Incorporation of the Corporation, or these Regulations, to be taken at any annual or special meeting of shareholders of the Corporation, may be taken without a meeting, without prior notice, and without a vote, if a written consent in lieu of a meeting, setting forth the actions so taken, shall be signed by all the shareholders entitled to vote thereon. Any such written consent may be given by one or any number of substantially concurrent written instruments of substantially similar tenor signed by such shareholders, in person or by attorney or proxy duly appointed in writing, and filed with the records of the Corporation. Any such written consent shall be effective as of the effective date thereof as specified therein.

ARTICLE III

Board of Directors

Section 1. Number of Directors, Tenure, Vacancies, Nomination. Except where the law, the Articles, or these Regulations require action to be authorized or taken by shareholders, all of the authority of the Corporation shall be exercised by or under the direction of a Board of Directors. Subject to any special right of the holders of any capital stock having a preference over Common Stock as to dividends or upon liquidation issued under the Articles of Incorporation, the Board of Directors shall consist of not less than three (3) directors and not more than seven (7) directors. If the number of directors is three (3) or four (4), at least one (1) director shall also be serving as an officer or director of Cinergy Corp. If the number of directors is five (5) or six (6), at least two (2) directors shall also be serving as an officer or director of Cinergy Corp. If the number of directors is seven (7), at least three (3) directors shall also be serving as an officer or director of Cinergy Corp. The number of directors may be determined by the affirmative vote of three-fourths of the directors in office. Any such determination made by the Board of Directors shall continue in effect unless and until changed by the Board of Directors, but no such change shall affect the term of any director then in office.

Subject to any special right of the holders of any capital stock having a preference over Common Stock as to dividends or upon liquidation issued under the Articles of Incorporation, only persons who are nominated in accordance with the following procedures shall be eligible for election as directors. Nominations of persons as candidates for election as directors of the Corporation may be made at a meeting of shareholders (i) by or at the direction of the Board of Directors or by any committee or person appointed by the Board of Directors or (ii) by any shareholder of the Corporation entitled to vote for the election of directors at such meeting who complies with the notice procedures set forth herein. Any nomination other than those governed by clause (i) of the preceding sentence shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a shareholder’s notice shall be delivered to or mailed and received at the principal office of the Corporation not less than 50 days prior to the meeting; provided, however, that if less than 60 day’s notice or prior public disclosure of the date of the meeting is given to shareholders or made public, notice by the shareholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such shareholder’s notice to the Secretary shall set forth (a) as to each person whom the shareholder proposes to nominate for election as director (i) the name, age, business address, and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of any shares of capital stock of the Corporation which are beneficially owned by such person, and (iv) any other information relating to such person that is required to be disclosed in solicitations for proxies for election of directors pursuant to any then existing rule or regulation promulgated under the Securities Exchange Act of 1934, as amended; and (b) as to the shareholder giving the notice (i) the name and record address of such shareholder, (ii) the class and number of shares of capital stock of the Corporation which are beneficially owned by such shareholder, and (iii) the period of time such shareholder held such shares. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as a director. No person shall be eligible for election as a director unless nominated as set forth herein.

Commencing at the annual meeting of shareholders held in 1995, the term of office of the Board of Directors shall be one year.

Subject to any special right of the holders of any capital stock having a preference over Common Stock as to dividends or upon liquidation issued under the Articles of Incorporation and notwithstanding the provisions of Article III, Section 6 of these Regulations, the remaining directors, whether or not constituting a majority of the whole authorized number of directors, may, by the vote of a majority of their number, fill any vacancy in the Board, however arising, for the unexpired term thereof. Subject to any special right of the holders of any capital stock having a preference over Common Stock as to dividends or upon liquidation issued under the Articles of Incorporation, any person elected to fill a vacancy in the Board shall hold office until the expiration of the term of office and until his successor is elected and qualified.

Notwithstanding the foregoing, whenever the holders of the Cumulative Preferred Stock of all series, voting separately as a class and regardless of series, shall have the right to elect a majority of the Board of Directors as provided in the Articles of Incorporation, the election, term of office, filling of vacancies and other features of all directorships shall be governed by the terms of the Articles of Incorporation, and whenever the holders of any other capital stock having a preference over Common Stock as to dividends or upon liquidation issued under the Articles of Incorporation shall have the right, voting separately by class or series, to elect certain directors at an annual or special meeting of shareholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of the Articles of Incorporation creating such capital stock.

Subject to any special right of the holders of any capital stock having a preference over Common Stock as to dividends or upon liquidation issued under the Articles of Incorporation and to applicable law, any director or directors of the Corporation may be removed without assigning any cause only by an affirmative vote of the holders of at least 80% of the outstanding shares of all classes of capital stock of the Corporation entitled to vote for directors at the annual meeting of shareholders or at any special meeting of shareholders called for this purpose.

Section 2. Annual Organization Meeting. Immediately after each annual election, the newly elected directors may meet forthwith (either within or without the State of Ohio) for the purpose of organization, the election of officers and the transaction of other business. If a majority of the directors be then present no prior notice of such meeting shall be required to be given. The place and time of such first meeting may, however, be fixed by written consent of all directors, or by three (3) days written notice given by the Secretary of the Corporation.

Section 3. Regular Meetings. Regular meetings of the Board of Directors may be held at any reasonable time and place (either within or without the State of Ohio), and upon such notice, as the Board of Directors may from time to time determine.

Section 4. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman, Vice Chairman, Chief Executive Officer, Chief Operating Officer, or President, or by the written request of three-fourths of the members of the Board of Directors.

Section 5. Notice of Meetings. Notice of meetings shall be given to each director in accordance with Article X, Section 1, of these Regulations.

Section 6. Qu orum. A majority of the Board of Directors shall constitute a quorum for the transaction of business, but a majority of those present at the time and place of any meeting, although less than a quorum, may adjourn the same from time to time, without notice, until a quorum be had. The act of a majority of the directors present at any such meeting at which a quorum is present shall be the act of the Board of Directors.

Section 7. Compensation of Directors. Each director of the Corporation (other than directors who are salaried officers of the Corporation or any of its affiliates) shall be entitled to receive as compensation for services such amounts as may be determined from time to time by the Board of Directors in form either in fees for attendance at the meeting of the Board of Directors, or by payment at the rate of a fixed sum per month, or both. The same payment may also be made to anyone other than a director officially called to attend any such meeting.

Section 8. Executive Committee . The Board of Directors shall, by resolution adopted by the affirmative vote of a majority of the whole Board, designate three (3) or more directors who are serving as officers of the Corporation or Cinergy Corp. at the time of their appointment to the Executive Committee, to constitute an Executive Committee. Once established, the Board of Directors may abolish the Executive Committee by the affirmative vote of three-fourths of the whole Board. The Board of Directors may, by the affirmative vote of a majority of the whole Board, to the extent not prohibited by law, delegate to such committee the power to authorize the seal of the Corporation to be affixed to all papers which may require it, to declare dividends or make distributions of profits, and to exercise in the intervals between the meetings of the Board of Directors the powers of the Board in the management of the business and affairs of the Corporation. Once delegated, the powers of the Executive Committee may be eliminated or restricted by the affirmative vote of three-fourths of the whole Board. Any member of the Executive Committee may be removed, with or without cause, upon the affirmative vote of three-fourths of the whole Board. Any vacancies on the Executive Committee shall be filled by the affirmative vote of three-fourths of the whole Board.

The Executive Committee may act by a majority of its members at a meeting or by a writing signed by all of its members.

Non-employee members of such Executive Committee shall be entitled to receive such fees and compensation as the Board of Directors may determine.

Section 9. Other Committees . By the affirmative vote of three-fourths of the whole Board, the Board of Directors may also appoint such other standing or temporary committees from time to time as they may see fit, delegating to such committees all or any part of their own powers. The members of such committees shall be entitled to receive such fees as the Board may determine.

Section 10. Actions of Board . Unless otherwise provided by the Amended Articles of Incorporation of the Corporation or these Regulations, any action required or permitted to be taken at any meeting of the Board of Directors of the Corporation, or of any committee(s) thereof, may be taken without a meeting, if all the members of the Board of Directors, or of such committee(s), as the case may be, consent thereto in writing, and such writing(s) is filed with the minutes of proceedings of the Board of Directors, or of such committee(s), of the Corporation.

Any such written consent to action of the Board of Directors, or of such committee(s), shall be effectuated by the signature of the member lastly consenting thereto in writing, unless the consent otherwise specifies a prior or subsequent effective date.

Article IV

Officers

Section 1. Officers. The officers of the Corporation shall consist of a Chairman of the Board, a Chief Executive Officer, a President, a Secretary, a Treasurer, a Controller, and may consist of a Vice Chairman, a Chief Operating Officer, one or more Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, or one or more Assistant Controllers, all of whom shall be elected by the Board of Directors, and shall hold office for one year and until their successors are chosen and qualified.

Any two of the offices of Vice President, Secretary and Treasurer may be combined in one person. All vacancies occurring among any of the above offices shall be filled by the Board of Directors. Any officer may be removed with or without cause by the affirmative vote of a majority of the number of Directors at any meeting of the Board of Directors.

Section 2. Subordinate Officers . The Board of Directors may appoint such other officers and agents with such powers and duties as they shall deem necessary.

Section 3. The Chairman of the Board. The Chairman of the Board shall be a director and shall preside at all meetings of the Board of Directors and, in the absence or inability to act of the Chief Executive Officer, meetings of shareholders and shall, subject to the Board’s direction and control, be the Board’s representative and medium of communication, and shall perform such other duties as may from time to time be assigned to the Chairman of the Board by the Board of Directors. The Chairman of the Board shall direct the long-term strategic planning process of the Corporation and shall also lend his or her expertise to such other officers as may be requested from time to time by such officers. The Chairman shall be a member of the Executive Committee.

Section 4. The Vice Chairman. The Vice Chairman of the Board, if there be one, shall be a director and shall preside at meetings of the Board of Directors in the absence or inability to act of the Chairman of the Board or meetings of shareholders in the absence or inability to act of the Chief Executive Officer and the Chairman of the Board. The Vice Chairman shall perform such other duties as may from time to time be assigned to him or her by the Board of Directors. The Vice Chairman shall be a member of the Executive Committee.

Section 5. The Chief Executive Officer. The Chief Executive Officer shall be a director and shall preside at all meetings of the shareholders, and, in the absence or inability to act of the Chairman of the Board and the Vice Chairman, at all meetings of the Board of Directors. The Chief Executive Officer shall from time to time report to the Board of Directors all matters within his or her knowledge which the interests of the Corporation may require be brought to their notice. The Chief Executive Officer shall be the chairman of the Executive Committee and ex officio a member of all standing committees.

Section 6. The Chief Operating Officer. The Chief Operating Officer of the Corporation, if there be one, shall have general and active management and direction of the affairs of the Corporation, shall have supervision of all departments and of all officers of the Corporation, shall see that the orders and resolutions of the Board of Directors and of the Executive Committee are carried into effect, and shall have the general powers and duties of supervision and management usually vested in the office of chief operating officer of a corporation. Unless otherwise provided, all corporate officers and functions shall report directly to the Chief Operating Officer, if there be one, or, if not, to the Chief Executive Officer.

Section 7. The President . The President shall have such duties as may be delegated by the Board of Directors, Chief Executive Officer or Chief Operating Officer.

Section 8. The Vice Pres idents. The Vice Presidents shall perform such duties as the Board of Directors shall, from time to time, require. In the absence or incapacity of the President, the Vice President designated by the Board of Directors or Executive Committee, Chief Executive Officer, Chief Operating Officer, or President shall exercise the powers and duties of the President.

Section 9(a). The Secret ary. The Secretary shall attend all meetings of the Board of Directors, of the Executive Committee and of the shareholders and act as clerk thereof and record all votes and the minutes of all proceedings in a book to be kept for that purpose, and shall perform like duties for the standing committees when required.

The Secretary shall keep in safe custody the seal of the Corporation, and, whenever authorized by the Board of Directors or the Executive Committee, affix the seal to any instrument requiring the same.

The Secretary shall see that proper notice is given of all meetings of the shareholders of the Corporation and of the Board of Directors and shall perform such other duties as may be prescribed from time to time by the Board of Directors, Chief Executive Officer, Chief Operating Officer or President.

(b) Assistant Secretarie s. At the request of the Secretary, or in his or her absence or inability to act, the Assistant Secretary or, if there be more than one, the Assistant Secretary designated by the Secretary, shall perform the duties of the Secretary and when so acting shall have all the powers of and be subject to all the restrictions of the Secretary. The Assistant Secretaries shall perform such other duties as may from time to time be assigned to them by the Board of Directors, Chief Executive Officer, Chief Operating Officer, President, or Secretary.

Section 10(a). The Tre asurer. The Treasurer shall be the financial officer of the Corporation, shall keep full and accurate accounts of all collections, receipts and disbursements in books belonging to the Corporation, shall deposit all moneys and other valuables in the name and to the credit of the Corporation, in such depositories as may be directed by the Board of Directors, shall disburse the funds of the Corporation as may be ordered by the Board of Directors, Chief Executive Officer, Chief Operating Officer, or President, taking proper vouchers therefor, and shall render to the Chief Executive Officer, Chief Operating Officer, or President, and directors at all regular meetings of the Board, or whenever they may require it, and to the annual meeting of the

shareholders, an account of all his or her transactions as Treasurer and of the financial condition of the Corporation.

The Treasurer shall also perform such other duties as the Board of Directors may from time to time require.

If required by the Board of Directors, the Treasurer shall give the Corporation a bond in a form and in a sum with surety satisfactory to the Board of Directors for the faithful performance of the duties of his or her office and the restoration to the Corporation in the case of his or her death, resignation or removal from office of all books, papers, vouchers, money and other property of whatever kind in his or her possession belonging to the Corporation.

(b) Assistant Treasure rs. At the request of the Treasurer, or in his or her absence or inability to act, the Assistant Treasurer or, if there be more than one, the Assistant Treasurer designated by the Treasurer, shall perform the duties of the Treasurer and when so acting shall have all the powers of and be subject to all the restrictions of the Treasurer. The Assistant Treasurers shall perform such other duties as may from time to time be assigned to them by the Board of Directors, Chief Executive Officer, Chief Operating Officer, President, or Treasurer.

Section 11(a). The C ontroller. The Controller shall have control over all accounts and records of the Corporation pertaining to moneys, properties, materials and supplies. He or she shall have executive direction over the bookkeeping and accounting departments and shall have general supervision over the records in all other departments pertaining to moneys, properties, materials and supplies. He or she shall have such other powers and duties as are incident to the office of Controller of a corporation and shall be subject at all times to the direction and control of the Board of Directors, Chief Executive Officer, Chief Operating Officer, President and a Vice President.

(b) Assistant Contro llers. At the request of the Controller, or in his or her absence or inability to act, the Assistant Controller or, if there be more than one, the Assistant Controller designated by the Controller, shall perform the duties of the Controller and when so acting shall have all the powers of and be subject to all the restrictions of the Controller. The Assistant Controllers shall perform such other duties as may from time to time be assigned to them by the Board of Directors, Chief Executive Officer, Chief Operating Officer, President, or Controller.

ARTICLE V

Indemnification of Directors, Officers, Employees, and Agents

Section 1. Indemnif ication of Directors, Officers, Employees, and Agents.

(A) The Corporation shall indemnify or agree to indemnify any person who was or is a party or is threatened to be made a party, to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative, other than an action by or in the right of the Corporation, by reason of the fact that he is or was a director, officer, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a director, trustee, officer, employee, or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise, against expenses, including attorney’s fees, judgments, fines, and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit, or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit, or proceeding by judgment, order, settlement, or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, he had reasonable cause to believe that his conduct was lawful.

(B) The Corporation shall indemnify or agree to indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending, or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a director, trustee, officer, employee, or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise, against expenses, including attorney’s fees, actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, except that no indemnification shall be made in respect of any of the following:

(1) Any claim, issue, or matter as to which such person is adjudged to be liable for negligence or misconduct in the performance of his duty to the Corporation unless, and only to the extent that the court of common pleas, or the court in which such action or suit was brought determines upon application that, despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the court of common pleas or such other court shall deem proper.

(2) Any action or suit in which the only liability asserted against a director is pursuant to Section 1701.95 of the Ohio Revised Code.

(C) To the extent that a director, trustee, officer, employee, or agent has been successful on the merits or otherwise in defense of any action, suit, or proceeding referred to in the foregoing paragraphs of this Article, or in defense of any claim, issue, or matter therein, he shall be indemnified against expenses, including attorney’s fees, actually and reasonably incurred by him in connection with the action, suit, or proceeding.

(D) Any indemnification under Paragraphs (A) and (B) of Section 1 of this Article, unless ordered by a court, shall be made by the Corporation only as authorized in the specific case upon a

determination that indemnification of the director, trustee, officer, employee, or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in such Paragraphs (A) and (B). Such determination shall be made as follows: (1) by a majority vote of a quorum consisting of directors of the indemnifying Corporation who were not and are not parties to or threatened with any such action, suit, or proceeding; (2) if the quorum described in (D)(1) of this Section is not obtainable or if a majority vote of a quorum of disinterested directors so directs, in a written opinion by independent legal counsel other than an attorney, or a firm having associated with it an attorney, who has been retained by or who has performed services for the Corporation or any person to be indemnified within the past five years; (3) by the shareholders; or (4) by the court of common pleas or the court in which such action, suit, or proceeding was brought.

Any determination made by the disinterested directors under (D)(1) of this Section or by independent legal counsel under (D)(2) of this Section shall be promptly communicated to the person who threatened or brought the action or suit by or in the right of the Corporation under (B) of this Section, and within 10 days after receipt of such notification, such person shall have the right to petition the court of common pleas or the court in which such action or suit was brought to review the reasonableness of such determination.

Section 2. Advances for Litigation Expenses may be Made. Expenses, including attorney’s fees, incurred by a director, trustee, officer, employee, or agent in defending any action, suit, or proceeding referred to in Section 1 of this Article, may be paid by the Corporation as they are incurred in advance of the final disposition of the action, suit, or proceeding as authorized by the directors in the specific case upon receipt of an undertaking by or on behalf of the director, trustee, officer, employee, or agent to repay such amount, if it ultimately is determined that he is not entitled to be indemnified by the Corporation.

Section 3. Indemnification Nonexclusive. The indemnification provided by this Article shall not be exclusive of and shall be in addition to any other rights granted to those seeking indemnification under these Regulations, any agreement, vote of shareholders or disinterested directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who had ceased to be a director, trustee, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person.

Section 4. Indemnity Insurance. The Corporation may purchase and maintain insurance or furnish similar protection, including but not limited to trust funds, letters of credit, or self-insurance, on behalf of or for any person who is or was a director, officer, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a director, trustee, officer, employee, or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under this Section. Insurance may be purchased from or maintained with a person in which the Corporation has a financial interest.

Section 5. Payment of Expenses Not Limited. The indemnification provided by Sections 1 (A) and (B) of this Article does not limit the payment of expenses as they are incurred, indemnification, insurance, or other protection that may be provided pursuant to Sections 2, 3, and

4 of this Article. Sections 1 (A) and (B) of this Article do not create any obligation to repay or return payments made by the Corporation pursuant to Sections 2, 3, or 4 of this Article.

Section 6. Survival of Indemnification. As used in this Article, references to “Corporation” include all constituent corporations in a consolidation or merger and the new or surviving corporation, so that any person who is or was a director, officer, employee, or agent of such a constituent corporation, or is or was serving at the request of such constituent corporation as a director, trustee, officer, employee, or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise, shall stand in the same position under this Article with respect to the new or surviving corporation as he would if he had served the new or surviving corporation in the same capacity.

ARTICLE VI

Capital Stock

Section 1. Form an d Execution of Certificates. The certificates for shares of the capital stock of the Corporation shall be of such form and content, not inconsistent with the law and the Articles of Incorporation, as shall be approved by the Board of Directors. The certificates shall be signed by (1) either the Chairman, Chief Executive Officer, President or a Vice President, and (2) any one of the following officers: Secretary or Assistant Secretary, Treasurer or Assistant Treasurer. All certificates shall be consecutively numbered in each class of shares. The name and address of the person owning the shares represented thereby, with the number of shares and the date of issue, shall be entered on the Corporation’s books.

Section 2. Transfer of Shares. Transfer of shares shall be made upon the books of the Corporation or respective Transfer Agents designated to transfer each class of stock, and before a new certificate is issued the old certificates shall be surrendered for cancellation.

Section 3. Appoint ment of Transfer Agents and Registrars. The Board of Directors may appoint one or more transfer agents or one or more registrars or both, and may require all stock certificates to bear the signature of either or both. When any such certificate is signed, by a transfer agent or registrar, the signatures of the corporate officers and the corporate seal, if any, upon such certificate may be facsimiles, engraved or printed.

In case any officer designated for the purpose, who has signed or whose facsimile signature has been used on any such certificate, shall, from any cause, cease to be such officer before the certificate has been delivered by the Corporation, the certificate may nevertheless be adopted by the Corporation and be issued and delivered as though the person had not ceased to be such officer.

Section 4. Closing of Transfer Books or Taking Record of Shareholders. The Board of Directors may fix a time not exceeding sixty (60) days preceding the date of any meeting of shareholders or forty-five (45) days preceding the date of any dividend payment date or any date for the allotment of rights as a record date for the determination of the shareholders entitled to notice of such meeting or to vote thereat or to receive such dividends or rights as the case may be; or the Board of Directors may close the books of the Corporation against transfer of shares during the whole or any part of such period.

Section 5. Lost Sto ck Certificates. In the case of a lost stock certificate, a new stock certificate may be issued in its place upon proof of such loss, destruction or mutilation and upon the giving of a satisfactory bond of indemnity to the Corporation and/or to the transfer agent and registrar of such stock, if any, in such sum and under such terms as the Board of Directors may provide.

ARTICLE VII

Dividends

Section 1. Dividends. Dividends may be declared by the Board of Directors (or the Executive Committee if authority to declare dividends is delegated to the Executive Committee by the Board of Directors) and paid in cash, shares, or other property out of the annual net income to the Corporation or out of its net assets in excess of its capital, computed in accordance with applicable statute and subject to the conditions and limitations imposed by the Articles of Incorporation.

No dividends shall be paid to the holders of any class of shares in violation of the rights of the holders of any other class of shares.

Before payment of any dividends or making distribution of any profits, there may be set apart out of the excess of assets available for dividends such sum or sums as the Board of Directors (or Executive Committee if the authority to declare dividends or make distributions is delegated to the Executive Committee) from time to time in its absolute discretion thinks proper as a reserve fund for any purpose.

ARTICLE VIII

Fiscal Year

Section 1. Fiscal Yea r. The fiscal year of the Corporation shall begin on the first day of January and terminate on the thirty-first day of December in each year.

ARTICLE IX

Contracts , Checks, Notes, etc.

Section 1. Contra cts, Checks, Notes, Etc. All contracts and agreements authorized by the Board of Directors and all bonds and notes shall, unless otherwise directed by the Board of Directors or unless otherwise required by law, be signed by (1) either the Chairman, Vice Chairman, Chief Executive Officer, Chief Operating Officer, President, or a Vice President, and (2) any one of the following officers: Secretary or Assistant Secretary, Treasurer or Assistant Treasurer. The Board of Directors may by resolution adopted at any meeting designate officers of the Corporation who may in the name of the Corporation execute checks, drafts and orders for the payment of money in its behalf and, in the discretion of the Board of Directors, such officers may be so authorized to sign such checks singly without necessity for counter-signature.

ARTICLE X

Notice and Waiver of Notice

Section 1. Notice and Waiver of Notice. Any notice required to be given by these Regulations to a director or officer may be given in writing, personally served or through the United States Mail, or by telephone, telegram, cablegram or radiogram, and such notice shall be deemed to be given at the time when the same shall be thus transmitted. Any notice required to be given by these Regulations may be waived by the person entitled to such notice.

ARTICLE XI

Corporate Seal

Section 1. Corpo rate Seal. The corporate seal of the Corporation shall consist of a metallic stamp, circular in form, bearing in its center the figures “1837” and the words “Seal” and “Ohio” and on the outer edge the name of the Corporation.

ARTICLE XII

Amendment

Section 1. Amendment. These Regulations may be amended or repealed at any meeting of the shareholders of the Corporation by the affirmative vote of the holders of record of shares entitling them to exercise a majority of the voting power on such proposal, or, without a meeting, by the written consent of the holders of record of shares entitling them to exercise a two-thirds majority of the voting power on such proposal.

Notwithstanding the foregoing paragraph, the affirmative vote of the holders of at least 80% of the outstanding shares of capital stock of the Corporation entitled to vote thereon shall be required to amend, alter or repeal, or adopt any provision inconsistent with, the requirements of Article II, Section 3, Article III, Section I, or this paragraph of Article XII, Section 1 of these Regulations, in addition to any requirements of law and any provisions of the Articles of Incorporation, any Regulations, or any resolution of the Board of Directors adopted pursuant to the Articles of Incorporation (and notwithstanding that a lesser percentage may be specified by law, the Articles of Incorporation, these Regulations, such resolution, or otherwise).

EXHIBIT 3.3

BY-LAWS

PSI ENERGY, INC.

AS ADOPTED SEPTEMBER 6, 1941
AND AMENDED TO JULY 23, 2003

BY-LAWS
OF
PSI ENERGY, INC.

ARTICLE I

OFFICES

SECTION 1. The principal office of PSI Energy, Inc. shall be at 1000 East Main Street, in the town of Plainfield, county of Hendricks and state of Indiana; and the corporation may have such other offices at such other places as the board of directors may from time to time designate, or as the business of the corporation may require.

ARTICLE II

SEAL

SECTION 1. The corporate seal shall be circular in form and shall have inscribed thereon the words “PSI ENERGY, INC.-CORPORATE SEAL-INDIANA.’’

ARTICLE III

SHAREHOLDERS’ MEETINGS

SECTION 1. Any meeting of the shareholders may be held at the office of the corporation in the town of Plainfield, Indiana, or at such other place within or outside the state of Indiana through the use of any means of communication by which all shareholders participating may simultaneously hear each other at the meeting. The place and manner of the meeting shall be specified in the notice of such meeting, or if such meeting is held upon waiver of notice, specified in the waiver of notice signed by all of the shareholders.

SECTION 2. Except as otherwise directed by the board of directors, all annual meetings of shareholders shall be held at 10:00 A.M. on the third Wednesday of April of each year if not a legal holiday, and if a legal holiday, then on the next succeeding day not a legal holiday, for the purpose of electing directors and for the transaction of such other business as may legally come before the meeting. The business to be transacted at any annual meeting may be transacted at any special meeting called for that purpose.

SECTION 3. Written or printed notice of the annual meeting, stating the place, manner, day and hour of the meeting, shall be delivered or mailed by the secretary or an assistant secretary to each shareholder of record entitled to vote at such meeting, at such address as appears on the

records of the corporation, at least ten days, but not more than sixty days, before the date of the meeting.

SECTION 4. Special meetings of the shareholders, for any purpose or purposes, unless otherwise prescribed by statute, shall be held if called by the chairman, the president, an executive vice president or a vice president, by the board of directors, or by the shareholders holding of record such number of the outstanding shares of the corporation as represents not less than one-fourth of the aggregate number of votes that would be voted at such meeting if there were voted thereat all the outstanding shares entitled to vote on the business proposed to be transacted thereat. All requests for special meetings of shareholders shall state the time, manner, place and purpose thereof. Only business within the purpose stated in such request shall be conducted at such meeting.

SECTION 5. Written or printed notice of all special meetings of shareholders, stating (i) the place, manner, day and hour of the meeting, and (ii) the purpose or purposes for which such meeting is called, shall be delivered or mailed by the secretary or by the officers or persons calling the meeting to each shareholder of record entitled to vote at such meeting at such address as appears on the records of the corporation, at least ten days before the date of such meeting.

SECTION 6. Notice of any meeting of shareholders may be waived in writing by any shareholder if the waiver sets forth in reasonable detail the purpose or purposes for which the meeting is called and the time and place thereof. Attendance at any meeting in person or by proxy shall constitute a waiver of notice of such meeting.

SECTION 7. At any meeting of the shareholders, the holders of record (present in person or represented by proxy) of such number of the outstanding shares of the corporation as represents a majority of the aggregate number of votes that would be voted at such meeting if there were voted thereat all the outstanding shares entitled to vote at such meeting, shall be requisite to constitute a quorum for the election of directors or for the transaction of other business, unless otherwise provided by law. If, however, the holders of such majority shall not be present or represented at any meeting of the shareholders of the corporation, the shareholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until the holders of such majority shall be present or represented. At such adjourned meeting at which the holders of such majority shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified.

SECTION 8. Every shareholder shall have the right at every shareholders’ meeting to one vote for each share of stock standing in his name on the books of the corporation, except as otherwise provided by law or by the amended articles of consolidation and except that no shares shall be voted at any meeting upon which any installment is due and unpaid, or which belongs to the corporation, or which shall have been transferred on the books of the corporation within such number of days, not exceeding seventy, next preceding the date of such meeting as the board of directors shall determine, or, in the absence of such determination, within ten days next preceding the date of such meeting. At any adjourned meeting of shareholders, the board of

directors shall fix a record date for shareholders entitled to vote at such adjourned meeting which must be a new date if the meeting is adjourned for more than one hundred twenty days.

Voting for directors and, upon the demand of any shareholder, voting upon any other question shall be by ballot. On any vote by ballot, each ballot voted shall be signed either by the shareholder voting the same, or, if the proxy of such shareholder is on file with the secretary and unrevoked, by the duly appointed agent or attorney of such shareholder. The ballot of each shareholder voting shall be deemed to be a vote of all the shares owned of record by such shareholder and entitled to be voted on the matter unless such shareholder or his duly appointed agent or attorney shall designate on such ballot that a lesser number of shares are voted. A plurality vote shall be sufficient to elect any director.

SECTION 9. The secretary shall make, or cause the agent having charge of the stock transfer books of the corporation to make, at least five days before each election of directors, a complete list of the shareholders entitled by the amended articles of consolidation to vote at such election, arranged in alphabetical order, with the address and number of shares so entitled to vote held by each, which list shall be on file at the principal office of the corporation and subject to inspection by any shareholder within the usual business hours during said five days. Such list shall be produced and kept open at the time and place of election and subject to the inspection of any shareholder or shareholder’s agent or attorney authorized in writing during the holding of such election. The original stock register or transfer book, or the duplicate thereof kept in the state of Indiana, shall be the only evidence as to who are the shareholders entitled to examine such list or the stock ledger or transfer book or to vote at any meeting of the shareholders.

SECTION 10. A shareholder may vote either in person or by proxy executed in writing by the shareholder or a duly authorized agent or attorney in fact. No proxy shall be valid after eleven months from the date of its execution, unless a longer time is expressly provided therein.

SECTION 11. The secretary, who may call on any officer or officers of the corporation for assistance, shall make all necessary and appropriate arrangements for the meetings of the shareholders, receive all proxies, and ascertain and report by certificate to each meeting of the shareholders the number of shares present in person or by proxy and entitled to vote at such meeting. In the absence of the secretary, an assistant secretary shall perform said duties. The certificate report of the secretary or an assistant secretary as to the regularity of such proxies and as to the number of shares present in person or by proxy and entitled to vote at such meeting shall be received as prima facie evidence of the number of shares, which are present in person and by proxy and entitled to vote, for the purpose of establishing the presence of a quorum at such meeting, for the purpose of organizing such meeting, and for all other purposes.

SECTION 12. The chief executive officer, when present and available, shall preside at or chair the meetings of the shareholders; however, the chief executive officer may designate any other person to serve as chair of such meetings. In the event of the absence of such designation and the absence or unavailability of the chief executive officer, the chairman of the board, if present and available, may so preside, or if the chairman is not present or available, the vice chairman of the board, if present and available, may so preside, or if the vice chairman is not

present or available, the president, if present and available, may so preside. In the event of the absence or unavailability of each such officer, and the absence of proper designation by the chief executive officer for a person to serve as presiding officer and, thus, chair any meeting of the shareholders, the meeting shall choose a presiding officer to chair such meeting.

SECTION 13. At each meeting of the shareholders, (i) the proxies shall be received and taken in charge by three inspectors, (ii) where voting is to be by ballot on any question, the polls shall be opened and closed and the ballots shall be taken in charge by such inspectors, and (iii) all questions touching the qualification of voters, the validity of proxies and the acceptance or rejection of votes shall be decided by such three inspectors or a majority thereof. Such inspectors may be appointed by the board of directors before such meeting, or, if no such appointment shall have been made, then by the presiding officer at such meeting. In the event for any reason any of the inspectors previously appointed shall fail to attend such meeting, or being present will not or cannot act in such capacity, then an inspector or inspectors in place of such inspector or inspectors failing to attend or not acting shall be appointed by the presiding officer.

SECTION 14. The order of business at each annual meeting of the shareholders, and, as far as applicable, at each special meeting of the shareholders, shall be established by the secretary or an assistant secretary, in consultation with the chief executive officer, and presented to the person serving as chair of the meeting at or prior to such meeting.

SECTION 15. The chairman shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts and things as are necessary or desirable for the proper conduct of meetings of the shareholders, including, without limitation, the establishment of procedures for the maintenance of order, safety, limitations on the time allotted to questions or comments on the affairs of the corporation, restrictions on entry to such meeting of the shareholders after the time prescribed for the commencement thereof, and the opening and closing of the voting polls.

SECTION 16. The annual meeting of shareholders shall be held at such time as is provided in Section 2 of this Article for the purpose of electing directors and for the transaction of only such other business as is properly brought before the meeting in accordance with these by-laws. To be properly brought before the annual meeting, business must be either (a) specified in the notice of the annual meeting (or any supplement thereto) given by or at the direction of the board, (b) otherwise properly brought before the annual meeting by or at the direction of the board, or (c) otherwise properly brought before the annual meeting by a shareholder. In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the secretary of the corporation. To be timely, a shareholder’s notice must be delivered to or mailed and received at the principal executive offices of the corporation, not less than fifty days nor more than seventy-five days prior to the annual meeting; provided, however, that in the event that less than sixty-five days’ notice or prior public disclosure of the date of the annual meeting is given or made to shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the fifteenth day following the date on which such notice of the date of the annual meeting was mailed or such public disclosure was made, whichever first

occurs. A shareholder’s notice to the secretary shall set forth as to each matter the shareholder proposes to bring before the annual meeting, (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of the shareholder proposing such business, (iii) the class and number of shares of the corporation which are beneficially owned by the shareholder, and (iv) any material interest of the shareholder in such business.

Notwithstanding anything in the by-laws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in this Article III, provided, however, that nothing in this Article III shall be deemed to preclude discussion by any shareholder of any business properly brought before the annual meeting.

The chairman of an annual meeting shall, if the facts warrant, determine and declare to the annual meeting that business was not properly brought before the annual meeting in accordance with the provisions of this Article III, and if he should so determine, he shall so declare to the annual meeting, and any such business not properly brought before the annual meeting shall not be transacted.

SECTION 17. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors. Nominations of persons for election to the board of the corporation at the annual meeting may be made at the annual meeting of shareholders by or at the direction of the board of directors, by any nominating committee or person appointed by the board, or by any shareholder of the corporation, entitled to vote for the election of directors at the annual meeting, who complies with the notice procedures set forth in this Article III. Such nominations, other than those made by or at the direction of the board, shall be made pursuant to timely notice in writing to the secretary of the corporation. To be timely, a shareholder’s notice shall be delivered to or mailed and received at the principal executive offices of the corporation not less than fifty days nor more than seventy-five days prior to the annual meeting; provided, however, that in the event that less than sixty-five days’ notice or prior public disclosure of the date of the annual meeting is given or made to shareholders, notice to the secretary shall set forth (a) as to each person whom the shareholder proposes to nominate for election or reelection as a director (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of capital stock of the corporation which are beneficially owned by the person, (iv) a written statement that the person is willing to serve as a director filed with the secretary at least five (5) days prior to the date of the annual meeting and (v) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to Rule 14a under the Securities Exchange Act of 1934, as amended; and (b) as to the shareholder giving the notice (i) the name and record address of the shareholder, and (ii) the class and number of shares of capital stock of the corporation which are beneficially owned by the shareholder. The corporation may require any proposed nominee to furnish such other information as may reasonably be required by the corporation to determine the eligibility of such proposed nominee to serve as director of the corporation. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth herein.

The chairman of the annual meeting shall, if the facts warrant, determine and declare to the annual meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the annual meeting, and the defective nomination shall be disregarded.

SECTION 18. An annual meeting of shareholders may be adjourned or postponed to a different time or place, and notice of the new date, time or place need not be given if such adjournment or postponement is announced at the annual meeting before adjournment.

ARTICLE IV

BOARD OF DIRECTORS

SECTION 1. All corporate powers shall be exercised by or under the authority of, and the business and affairs of this corporation managed under the direction of, a board of not less than one (1) nor more than seven (7) directors. The directors shall be elected by the shareholders at each annual meeting of the shareholders. Each director shall be elected for a term of one year and shall hold office until his successor is chosen and qualified. Any vacancy occurring in the board of directors caused by death, resignation, increase in number of directors or otherwise, may be filled by a majority vote of the remaining members of the board of directors until the next annual meeting of the shareholders. No person shall be eligible for election, reelection or appointment as a member of the board of directors if the time of such election, reelection or appointment is a date subsequent to the end of the calendar year in which such person attained the age of seventy (70) years. No person shall remain a director after reaching the age of seventy (70) years; provided, however, that such director shall continue as a director until January 1 of the year following the year in which the director reached the age of seventy (70) years. Subject to the provisions of the preceding paragraphs, any and all of the directors may only be removed for cause. The directors shall receive such reasonable compensation as shall from time to time be provided for by resolution of the board of directors or a committee thereof.

SECTION 2. In addition to the powers and authority by these by-laws expressly conferred upon it, the board of directors may do all such lawful acts and things as are not by the laws of the state of Indiana, by the amended articles of consolidation of the corporation, or by these by-laws directed or required to be exercised or done by the shareholders of the corporation.

SECTION 3. A meeting of the directors, to be known as the annual meeting of the board of directors, shall be held at the principal office of the corporation at such time and date as the board of directors may determine, or at such other place, within or without the state of Indiana, and at such other time as shall be fixed by the shareholders at their annual meeting, or as shall be fixed by the consent in writing of all of such newly elected directors, for the election of officers and for the transaction of such other business as may properly come before the meeting. No notice of such annual meeting shall be necessary or required in order legally to constitute the meeting if a majority of the newly elected directors shall be present. If a majority shall not be present at such meeting, those present shall adjourn the meeting to a specified time and place,

and the secretary or an assistant secretary shall at once notify each of the newly elected directors of the time and place of holding such adjourned annual meeting.

SECTION 4. Regular meetings of the board of directors or any committee thereof may be held at stated times, or from time to time, and at such place, either within or without the state of Indiana, as the board of directors or any committee may determine, without call and without notice. Any or all members of the board of directors or a committee thereof may participate in any meeting of the board or committee by any means of a communication by which all persons participating in the meeting can simultaneously communicate with each other, and participation in this manner constitutes presence in person at the meeting.

SECTION 5. Special meetings of the board of directors may be called at any time, or from time to time, by the chairman, the president, an executive vice president or a vice president by causing the secretary or an assistant secretary to give to each director, either personally or by telephone, mail or telegraph, at least two days’ notice of the time and place of such meeting. Special meetings of the board of directors shall be called by the chairman, the president, an executive vice president or a vice president in like manner and on like notice at the written request of at least two directors. Special meetings of the board of directors may be held at the principal office of the corporation or at such other place, within or without the state of Indiana, as shall be specified in the notice of the meeting, or, if held upon waiver of notice, as shall be specified in such waiver.

SECTION 6. Any meeting of the board of directors or any committee thereof, wheresoever held, at which all of the members are present, shall be as valid as if held pursuant to proper notice, and in case a meeting shall be held without notice when all are not present but the absent directors shall have signed a waiver of notice of such meeting, whether before or after the time stated in said waiver, or shall thereafter sign the minutes of the meeting, the same shall be as valid and binding as though called upon due notice.

SECTION 7. The board of directors may take any action pursuant to these by-laws without a meeting if the action is taken by all members of the board. The action shall be evidenced by one or more written consents describing the action taken, signed by each director and included in the minutes or filed with the corporate records reflecting the action taken. Action taken without a meeting shall be effective when the last director signs the consent, unless the consent specifies a different prior or subsequent effective date.

SECTION 8. At all meetings of the board of directors, a majority of the members of the board of directors shall be necessary to constitute a quorum for the transaction of any business except the filling of vacancies, but a less number may adjourn the meeting from time to time until a quorum is present. The act of a majority of the board of directors present at a meeting at which a quorum is present shall be the act of the board of directors, unless the act of a greater number is required by law or by the amended articles of consolidation or by the by-laws.

SECTION 9. The board of directors may, by resolution adopted by a majority of the members of the board of directors, designate two or more of their number to constitute a

committee of the board of directors. The board of directors shall form an executive committee, which committee shall have and exercise all of the authority of the board of directors in the management of the corporation to the fullest extent permitted by the laws of the state of Indiana, including the power to declare dividends and distributions from time to time within guidelines to be established by the board of directors. Neither such guidelines nor the powers granted to the executive committee hereby may be amended in any way by the board of directors, and the members of the executive committee appointed by the board of directors may not be changed by the board of directors, without the affirmative vote of 75% of the directors then in office, rounded upwards.

ARTICLE V

OFFICERS

SECTION 1. The officers of the corporation shall consist of a chairman of the board, a chief executive officer, a president, a secretary, a treasurer, a controller and may consist of a vice chairman, one or more vice presidents, one or more assistant secretaries, one or more assistant treasurers, or one or more assistant controllers. If deemed advisable by the board of directors, any two or more offices may be held by the same person, except that the duties of the chairman, the vice chairman, the chief executive officer, or the president shall not be performed by the same person who performs the duties of secretary.

SECTION 2. The officers of the corporation hereinabove provided for shall be elected by the board of directors at its annual meeting and shall hold office for one year and/or until their respective successors shall have been duly elected and shall have qualified.

SECTION 3. The board of directors may, from time to time, elect or appoint such other officers and agents as it shall deem necessary, who shall hold their respective offices for such terms and shall exercise such powers and perform such duties as may be prescribed from time to time by the by-laws, or as in absence of provision in the by-laws in respect thereto may be prescribed from time to time by the board of directors.

SECTION 4. Any vacancy among the officers or agents of the corporation, duly elected or appointed by the board of directors shall be filled for the unexpired term by the board of directors. Any officer or agent elected or appointed by the board of directors, may be removed at any time, with or without cause, by the affirmative vote of a majority of the whole board of directors.

SECTION 5. In the case of the absence, disability, death, resignation or removal from office of any officer of the corporation, or for any other reason that the board of directors shall deem sufficient, the board of directors may delegate, for the time being, the powers and/or duties, or any of them, of such officer to any other officer or to any director.

SECTION 6. The chairman of the board shall be a director and shall preside at all meetings of the board of directors and, in the absence or inability to act of the chief executive officer, meetings of shareholders and shall, subject to the board’s direction and control, be the

board’s representative and medium of communication, and shall perform such other duties as may from time to time be assigned to the chairman of the board by the board of directors. The chairman of the board shall direct the long-term strategic planning process of the corporation and shall also lend his or her expertise to such other officers as may be requested from time to time by such officers. The chairman shall be a member of the executive committee.

SECTION 7. The vice chairman of the board, if there be one, shall be a director and shall preside at meetings of the board of directors in the absence or inability to act of the chairman of the board or meetings of shareholders in the absence or inability to act of the chief executive officer and the chairman of the board. The vice chairman shall perform such other duties as may from time to time be assigned to him or her by the board of directors. The vice chairman shall be a member of the executive committee.

SECTION 8. The chief executive officer shall be a director and shall preside at all meetings of the shareholders, and, in the absence or inability to act of the chairman of the board and the vice chairman, at all meetings of the board of directors. The chief executive officer shall submit a report of the operations of the corporation for the fiscal year to the shareholders at their annual meeting and from time to time shall report to the board of directors all matters within his or her knowledge which the interests of the corporation may require be brought to their notice. The chief executive officer shall be the chairman of the executive committee and ex officio a member of all standing committees.

SECTION 9. The president shall, subject to the control of the board of directors, the executive committee, the chairman, the vice chairman, and the chief executive officer, have general supervision over the management and direction of the affairs of the corporation, and supervision of all departments and of all officers of the corporation. The president shall, subject to the other provisions of these by-laws, have such other powers and perform such other duties as usually devolve upon the president of a corporation, and such further duties as may be prescribed by the board of directors, the executive committee, the chairman, the vice chairman, or the chief executive officer. The president shall report to the chief executive officer. In the absence or incapacity of the chairman, vice chairman or chief executive officer, the president may preside at meetings of the board of directors and/or meetings of the shareholders. In case of the absence, disability, death, resignation or removal from office of the president, the powers and duties of the president shall, for the time being, devolve upon and be exercised by a vice president, unless otherwise ordered by the board of directors, the executive committee, the chairman, the vice chairman, or the chief executive officer.

SECTION 10. Each of the vice presidents shall have such powers and duties as may be prescribed by the board of directors or the executive committee, or be delegated by the chairman, the vice chairman, the chief executive officer, or the president. In the absence or incapacity of the president, the vice president designated by the board of directors or executive committee, chairman, vice chairman, chief executive officer, or president shall exercise the powers and duties of the president.

SECTION 11. The secretary shall have the custody and care of the corporate seal, records, minutes and stock books of the corporation and shall be responsible for authentication of such records. The secretary shall attend the meetings of the board of directors and of the shareholders and duly record, prepare and keep the minutes of their proceedings in a book or books to be kept for that purpose. The secretary shall give or cause to be given notice of all meetings of the shareholders and the board of directors when such notice shall be required. The secretary shall file and take charge of all papers and documents belonging to the corporation and shall have such other powers and duties as are incident to the office of secretary of a corporation, subject at all times to the direction and control of the board of directors, the executive committee, the chairman, the vice chairman, the chief executive officer, and the president. In case of the absence, disability, death, resignation or removal from office of the secretary, the powers and duties of the secretary shall, for the time being, devolve upon and be exercised by an assistant secretary, unless otherwise ordered by the board of directors, the executive committee, the chairman, the vice chairman, the chief executive officer, or the president.

SECTION 12. Each of the assistant secretaries (if assistant secretaries be elected or appointed by the board of directors) shall assist the secretary in his or her duties and shall have such other powers and duties as may be prescribed by the board of directors or the executive committee, or be delegated by the chairman, the vice chairman, the chief executive officer, or the president. In case of the absence, disability, death, resignation or removal from office of the secretary, the powers and duties shall, for the time being, devolve upon such one of the assistant secretaries as the board of directors, the executive committee, the chairman, the vice chairman, the chief executive officer, the president or the secretary may designate, or, if there be but one assistant secretary, then upon such assistant secretary; and he or she shall thereupon, during such period, exercise and perform all of the powers and duties of the secretary, except as may be otherwise provided by the board of directors, the executive committee, the chairman, the vice chairman, the chief executive officer, or the president.

SECTION 13. The treasurer shall have charge of, and be responsible for, the collection, receipt, custody and disbursement of the funds of the corporation, and shall have the custody also of all securities belonging to the corporation. The treasurer shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation. The treasurer shall disburse the funds of the corporation as may be ordered by the board of directors or the executive committee, taking proper receipts or making proper vouchers for such disbursements and shall preserve the same at all times during his or her term of office. When necessary or proper, the treasurer shall endorse on behalf of the corporation all checks, notes or other obligations payable to the corporation or coming into his or her possession for or on behalf of the corporation and shall deposit the funds arising therefrom together with all other funds and valuable effects of the corporation coming into his or her possession in the name and to the credit of the corporation in such depositories as the board of directors or the executive committee from time to time, by resolution, shall direct. The treasurer shall have such other powers and duties as are incident to the office of treasurer of a corporation, subject at all times to the direction and control of the board of directors, the executive committee, the chairman, the vice chairman, the chief executive officer, and the president.

The treasurer shall render to the chairman, the vice chairman, the chief executive officer, the president, the executive committee, and the board of directors, at meetings of the board of directors or the executive committee, or whenever the same shall be required, an account of all transactions as treasurer and of the financial condition of the corporation. The treasurer shall give the corporation a bond, if required by the board of directors or the executive committee, in such an amount and with such surety or sureties as may be ordered by the board of directors or the executive committee, for the faithful performance of the duties of the office and for the restoration to the corporation, in case of death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in the possession or under the control of the treasurer and belonging to the corporation.

In case of the absence, disability, death, resignation or removal from office of the treasurer, the powers and duties of the treasurer shall, for the time being, devolve upon and be exercised by an assistant treasurer, unless otherwise ordered by the board of directors, the executive committee, the chairman, the vice chairman, the chief executive officer, or the president.

SECTION 14. Each of the assistant treasurers (if assistant treasurers be elected or appointed by the board of directors) shall assist the treasurer in his or her duties, and shall have such other powers and duties as may be prescribed by the board of directors or the executive committee, or be delegated by the chairman, the vice chairman, the chief executive officer, or the president. In case of the absence, disability, death, resignation or removal from office of the treasurer, the powers and duties shall, for the time being, devolve upon such one of the assistant treasurers as the board of directors, the executive committee, the chairman, the vice chairman, the chief executive officer, the president or the treasurer may designate, or, if there be but one assistant treasurer, then upon such assistant treasurer; and he or she shall thereupon, during such period, exercise and perform all of the powers and duties of the treasurer, except as may be otherwise provided by the board of directors, the executive committee, the chairman, the vice chairman, the chief executive officer, or the president. Each or any assistant treasurer shall likewise give the corporation a bond, if required by the board of directors, in such amount and with such surety or sureties as may be ordered by the board of directors.

SECTION 15. The controller shall have control over all accounts and records of the corporation pertaining to moneys, properties, materials and supplies. The controller shall have executive direction of the bookkeeping and accounting departments and shall have general supervision over the records in all other departments pertaining to moneys, properties, materials and supplies. The controller shall have such other powers and duties as are incident to the office of controller of a corporation, subject at all times to the direction and control of the board of directors, the executive committee, the chairman, the vice chairman, the chief executive officer, and the president. In case of the absence, disability, death, resignation or removal from office of the controller, the powers and duties of the controller shall, if an assistant controller has been elected by the board of directors or the executive committee, for the time being, devolve upon and be exercised by an assistant controller, unless otherwise ordered by the board of directors, the executive committee, the chairman, the vice chairman, the chief executive officer, or the president.

SECTION 16. Each of the assistant controllers (if assistant controllers be elected or appointed by the board of directors) shall assist the controller in his or her duties, and shall have such other powers and duties as may be prescribed by the board of directors or the executive committee, or be delegated by the chairman, the vice chairman, the chief executive officer, or the president. In case of the absence, disability, death, resignation or removal from office of the controller, the powers and duties shall, for the time being, devolve upon such one of the assistant controllers as the board of directors, the executive committee, the chairman, the vice chairman, the chief executive officer, the president or the controller may designate, or, if there be but one assistant controller, then upon such assistant controller; and he or she shall thereupon, during such period, exercise and perform all of the powers and duties of the controller, except as may be otherwise provided by the board of directors, the executive committee, the chairman, the vice chairman, the chief executive officer, or the president.

ARTICLE VI

CERTIFICATES FOR SHARES

SECTION 1. Each certificate for shares of stock of the corporation shall be in such form, consistent with law, as shall be approved by the board of directors, shall be numbered consecutively as issued, shall state the name of the registered holder, the number of shares represented thereby, and such other matters and things as are required by law or by the amended articles of consolidation to be stated in such certificate. Each such certificate shall be signed by the chairman, the chief executive officer, the president, or a vice president, and the secretary or an assistant secretary; and may have affixed thereto the seal of the corporation. In any case where the seal of the corporation is affixed to such a certificate, such seal may be a facsimile, engraved or printed. In any case where such a certificate is also signed by a transfer agent and a registrar or either of them, the respective signatures of the chairman, the chief executive officer, the president, or a vice president, and of the secretary or an assistant secretary thereon may be facsimiles, engraved or printed.

The board of directors or the finance committee may, by resolution duly adopted, authorize the issue of some or all of the shares of any or all classes or series of stock of the corporation without certificates.

SECTION 2. Shares of stock of the corporation shall be entered in the books of the corporation as they are issued, and shall be transferable on the books of the corporation by the holder thereof in person, or by his, her or its attorney duly authorized thereto in writing, upon the surrender of the outstanding certificate therefor properly endorsed.

SECTION 3. The corporation and its officers shall be entitled to treat the holder of record of any share or shares of stock of the corporation as the holder in fact thereof, and accordingly shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person or persons, whether or not it shall have express or other notice thereof, save as expressly provided by the laws of Indiana, or except as in the amended articles of consolidation or in these by-laws provided to the contrary.

SECTION 4. Shares of the capital stock of the corporation may be issued and disposed of by the corporation from time to time for such consideration as may be fixed from time to time by resolution of the board of directors.

SECTION 5. The purchase price of all stock subscribed or purchased shall be paid as from time to time determined by resolution of the board of directors, either wholly or partly in money, labor or property. Said payments shall be made within such time and in such installments or upon such terms as the board of directors may from time to time determine and direct.

SECTION 6. Before the corporation shall issue, in place of any certificate of stock in the corporation claimed to have been mislaid, lost, stolen or destroyed (such a certificate being hereinafter referred to as a “Lost Certificate’’), a new certificate or certificates to replace the Lost Certificate, the person seeking the issue of such new certificate or certificates shall make affidavit or affirmation of the fact of such mislaying, loss, theft or destruction, shall furnish such, if any, other proof of ownership, interest, and disappearance of the Lost Certificate as the corporation or any transfer agent for it shall require, and shall at the option of the corporation in each such case either:

(i) give the corporation either a bond of indemnity with one or more sureties satisfactory to the board of directors of the corporation or a sole obligor indemnity bond executed by a corporation then authorized to transact the business of indemnity and suretyship in the state of Illinois or the state of New York and satisfactory to said board which surety or sole obligor bond shall be in form and substance satisfactory to said board and shall be (as said board may direct in any case) either (a) an “open penalty bond’’ or (b) a bond having a fixed maximum amount of liability specified therein which amount shall be such amount as said board may direct that is not in excess of twice the par value of the shares represented by the Lost Certificate if such shares have a par value, or of twice the market value of such shares at the date replacement of the Lost Certificate is requested if the shares represented by such Lost Certificate be shares without par value, or

(ii) if there is then in force and effect a Blanket Lost Original Instruments Bond which appertains to such Lost Certificate, protects the corporation from liability growing out of the issue of a new stock certificate or certificates in lieu of such Lost Certificate and has been executed and delivered by a corporation then authorized to transact the business of indemnity and suretyship in the state of Illinois or the state of New York, furnish the corporation or one of its transfer agents with such instruments or information as are required in order that the indemnity provisions of such bond will apply to the new stock certificate or certificates issued in lieu of such Lost Certificate.

When the aforesaid conditions shall have been satisfied, a new stock certificate or certificates of the same tenor and for the same total number of shares as the Lost Certificate shall be issued by the corporation in the name of the record owner of the Lost Certificate.

SECTION 7. Every shareholder shall furnish the secretary with an address to which notices of meetings and all other notices may be served upon him or mailed to him, and in default thereof notices may be addressed to him at his last known address or at the office of the corporation at Plainfield, Indiana.

ARTICLE VII

CORPORATE BOOKS

SECTION 1. Except as hereinafter or by the amended articles of consolidation or by law otherwise provided, the books and records of the corporation may be kept at such place or places, within or without the state of Indiana, as the board of directors may from time to time by resolution determine.

SECTION 2. The original or duplicate stock register or transfer book, or, in case a stock registrar or transfer agent shall be employed by the corporation either within or without the state of Indiana, a complete and accurate shareholders’ list, alphabetically arranged, giving the names and addresses of all shareholders, the number and classes of shares held by each and the time each became the record owner of his shares, shall be kept at the principal office of the corporation in the state of Indiana.

SECTION 3.

(a) A shareholder or his agent or attorney, if authorized in writing, may inspect and copy, during regular business hours at the principal office of the corporation, any of the following records of the corporation if the shareholder meets the requirements of subsection (b) and gives the corporation written notice of the shareholder’s demand at least five (5) business days before the date on which the shareholder wishes to inspect and copy:

(1) excerpts from minutes of any meeting of the board of directors, records of any action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders, and records of action taken by the shareholders or board of directors without a meeting;

(2) accounting records of the corporation; and

(3) the record of shareholders.

(b) A shareholder may inspect and copy the records identified in subsection (a) only if:

(1) the shareholder’s demand is made in good faith and for a proper purpose;

(2) the shareholder describes with reasonable particularity the shareholder’s purpose and the records the shareholder desires to inspect; and

(3) the records are directly connected with the shareholder’s purpose.

SECTION 4. The stock transfer books of the corporation may from time to time be closed by order of the board of directors for any lawful purpose, and for such periods consistent with law, but not exceeding seventy days at any one time, as the board of directors may deem

advisable. In lieu of closing the stock transfer books as aforesaid, the board of directors may, in its discretion, fix in advance a date not exceeding seventy days (or such lesser number of days as may in any case be the maximum number allowed under any applicable statute) next preceding the date of any meeting of shareholders or the date for the payment of any dividend or the date for the allotment of rights or the date when any change or conversion or exchange of capital stock shall go into effect, as the record date for the determination of the shareholders entitled to notice of and to vote at any such meeting or entitled to receive any such dividend or to any such allotment of rights or to exercise the rights in respect of any such change, conversion or exchange of capital stock; and, in such case, only such shareholders as shall be shareholders of record on the date so fixed shall be entitled to notice of and to vote at such meeting or to receive such payment of dividend or to receive such allotment of rights or to exercise such rights as the case may be, notwithstanding any transfer of stock on the books of the corporation after such record date fixed as aforesaid.

SECTION 5. All books and records of the corporation shall be kept and maintained in such manner and for such periods as required by statute.

ARTICLE VIII

CHECKS, DRAFTS AND WRITTEN INSTRUMENTS-

STOCK OWNED IN OTHER CORPORATIONS

SECTION 1. All mortgage bonds and all debentures of the corporation shall, unless otherwise directed by the board of directors or unless otherwise required by law, be signed by the chairman, the chief executive officer, the president, a vice president or the treasurer, and the secretary or an assistant secretary of the corporation, and may have affixed thereto the seal of the corporation or a facsimile thereof: provided, however, that in any case where there appears on such bond or debenture a Trustee’s Certificate, which states in substance that the bond or debenture is one of the bonds or debentures issued under the indenture or supplemental indenture described therein and which is manually signed by an authorized officer of such trustee, the signatures of the aforementioned authorized officers of the corporation on such bond or debenture may be a facsimile signature, engraved or printed; and provided, further, that in case of the issue by the corporation of a bond or debenture with an interest coupon or coupons attached thereto such interest coupon or coupons shall be signed by the treasurer or an assistant treasurer of the corporation and such signature may be a facsimile signature, engraved or printed.

SECTION 2. Except as provided in the immediately succeeding sentence of this Section 2, all checks, drafts, notes, demands or orders for the payment of money of the corporation shall be signed by one or more of such officers or other employees of this corporation and the signature of any such officer or other employee may be a facsimile signature, all as the board of directors shall at any time and from time to time by resolution or resolutions specify; provided, however, that in the cases of drafts not exceeding $3,000 for any one such draft, used by this corporation, the board of directors may empower the chairman, the chief executive officer, the president, and the vice presidents, or any of them, to designate in writing the one or more officers or other employees authorized to sign such drafts. To the extent that the board of directors may by resolution or resolutions authorize from time to time the signature of this corporation, on

checks of this corporation which are used solely for the purpose of transferring funds from the account of this corporation in any bank or trust company to the account of this corporation in any other bank or trust company, may be only the printed name of this corporation.

SECTION 3. Except as otherwise provided by these by-laws, (i) all deeds and mortgages made by this corporation shall be executed in its name by the chairman, the chief executive officer, the president, a vice president or the treasurer and shall be attested by the secretary or an assistant secretary, and such secretary or assistant secretary shall affix the corporate seal thereto, and (ii) all other written agreements to which this corporation shall be a party shall be executed in its name by the chairman, the chief executive officer, the president, a vice president or the treasurer, and may be (but need not be) attested by the secretary or an assistant secretary who may affix the corporate seal thereto. Notwithstanding the immediately preceding sentence of this Section 3, written agreements of this corporation (other than deeds and mortgages made by this corporation), which pertain to the routine operations of this corporation and are regularly being made in the ordinary course of carrying on such operations, may be executed for and on behalf of this corporation by any officer or officers of this corporation, or by any other agent or agents of this corporation, to the extent that such person or persons may, from time to time, be so authorized to act by either resolution of the board of directors or by written authorization of an officer of this corporation who has been authorized by resolution of the board of directors to execute such written authorization.

SECTION 4. Subject always to the further orders and directions of the board of directors, any share or shares of stock issued by any corporation and owned by this corporation (including reacquired shares of stock of this corporation) may, for sale or transfer, be endorsed in the name of this corporation by the chairman, the chief executive officer, the president, a vice president or the treasurer of this corporation, and said endorsement shall be duly attested by the secretary or an assistant secretary of this corporation either with or without affixing thereto the corporate seal.

SECTION 5. Subject always to the further orders and directions of the board of directors, any share or shares of stock issued by any other corporation and owned or controlled by this corporation may be voted at any shareholders’ meeting of such other corporation by the chairman of this corporation, or in his or her absence by the chief executive officer of this corporation, or in his or her absence by the president of this corporation, or in the absence of any of such officers by any vice president or by the treasurer of this corporation. Whenever, in the judgment of the chairman, the chief executive officer, the president, a vice president or the treasurer of this corporation, it is desirable for this corporation to execute a proxy or give a shareholder’s consent in respect of any share or shares of stock issued by any other corporation and owned by this corporation, such proxy or consent shall be executed in the name of this corporation by the chairman, the chief executive officer, the president, a vice president or the treasurer of this corporation, and shall be attested by the secretary or an assistant secretary of this corporation under the corporate seal. Any person or persons designated in the manner above stated as the proxy or proxies of this corporation shall have full right, power and authority to vote the share or shares of stock issued by such other corporation and owned by this corporation the same as such share or shares might be voted by this corporation.

ARTICLE IX

DIVIDENDS

SECTION 1. Dividends upon the capital stock of the corporation, when earned, may be declared by the board of directors at any annual, regular or special meeting or by any committee thereof. Such dividends may be paid in cash, in property or in shares of the capital stock of the corporation, in the case of shares with par value at par, and in the case of shares without par value at such price as may be fixed by the board of directors.

SECTION 2. Before payment of any dividend or before making any distribution of profits, there may be set aside out of the surplus or net profits of the corporation such sum or sums as the board of directors from time to time, in their absolute discretion, may deem proper, as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for working capital, or for such other purpose as the board of directors shall think conducive to the interests of the corporation.

ARTICLE X

FISCAL YEAR

SECTION 1. The fiscal year of the corporation shall cover a twelve-month period commencing on the first day of such month as the board of directors shall, by resolution, provide.

ARTICLE XI

AMENDMENTS

SECTION 1. These by-laws may be altered, amended or repealed, in whole or in part, and new by-laws may be adopted, at any annual, regular or special meeting of the shareholders of the corporation or at any annual, regular or special meeting of the board of directors of the corporation by the affirmative vote of a majority of the board of directors; provided, however, that the board of directors of the corporation may not unilaterally amend any by-laws which were amended by the affirmative vote of the shareholders of the corporation within the preceding twenty-four months.

EXHIBIT 3.4

THE UNION LIGHT, HEAT AND POWER COMPANY

BY-LAWS

ADOPTED BY SHAREHOLDERS, APRIL 27, 1948

AMENDED BY BOARD OF DIRECTORS, MAY 3, 1950

AMENDED BY SHAREHOLDERS, MAY 2, 1984

AMENDED BY SHAREHOLDERS, MAY 3, 1989

AMENDED BY SHAREHOLDERS, JUNE 16, 1995

AMENDED BY SHAREHOLDERS, MAY 8, 1996

AMENDED EFFECTIVE JULY 24, 1997

AMENDED BY SHAREHOLDERS, MAY 26, 1999

AMENDED BY SHAREHOLDERS, JULY 23, 2003

TABLE OF CONTENTS

BY-LAWS
THE UNION LIGHT, HEAT AND POWER COMPANY

ARTICLE I
Offices

Section	1.	Offices

ARTICLE II
Shareholders’ Meetings

Section	1.	Annual Meeting
	2.	Notice of Annual Meeting
	3.	Special Meetings
	4.	Notice of Special Meeting
	5.	Waiver of Notice
	6.	Quorum
	7.	Voting
	8.	Written Consent of Shareholders in Lieu of Meeting

ARTICLE III
Board of Directors

Section	1.	Number of Directors, Tenure, Vacancies
	2.	Annual Organization Meeting
	3.	Regular Meetings
	4.	Special Meetings
	5.	Notice of Meetings
	6.	Quorum
	7.	Compensation of Directors
	8.	Executive Committee
	9.	Other Committees
	10.	Actions of Board

ARTICLE IV
Officers
Section	1.	Officers
	2.	Subordinate Officers
	3.	Chairman of the Board
	4.	Vice Chairman
	5.	Chief Executive Officer
	6.	Chief Operating Officer
	7.	President

	8.	Vice Presidents
	9.(a).	Secretary
	9.(b).	Assistant Secretaries
	10.(a).	Treasurer
	10.(b).	Assistant Treasurers
	11.(a).	Controller
	11.(b).	Assistant Controllers

ARTICLE V
Indemnification of Directors, Officers, Employees, and Agents

Section	1.	Definitions
	2.	Indemnification
	3.	Mandatory Indemnification
	4.	Advance for Expenses
	5.	Determination and Authorization of Indemnification
	6.	Indemnification of Officers, Employees, and Agents
	7.	Insurance
	8.	Application of this Article

ARTICLE VI
Capital Stock

Section	1.	Form and Execution of Certificates
	2.	Transfer of Shares
	3.	Appointment of Transfer Agents and Registrars
	4.	Closing of Transfer Books or Taking Record of Shareholders
	5.	Lost Stock Certificates

ARTICLE VII
Dividends

Section	1.	Dividends

ARTICLE VIII
Fiscal Year

Section	1.	Fiscal Year

ARTICLE IX
Contracts, Checks, Notes, etc.

Section	1.	Contracts, Checks, Notes, etc.

ARTICLE X
Notice and Waiver of Notice

Section	1.	Notice and Waiver of Notice

ARTICLE XI
Corporate Seal

Section	1.	Corporate Seal

ARTICLE XII
Amendment

Section	1.	Amendment

iii

BY-LAWS
OF
THE UNION LIGHT, HEAT AND POWER COMPANY

ARTICLE I

Offices

Section 1 . Offices . The registered office of the Corporation shall be located in the City of Louisville, Jefferson County, Commonwealth of Kentucky. The Corporation may establish branch offices and conduct and carry on business at such other places within or without the Commonwealth of Kentucky as the Board of Directors may from time to time fix or designate, and any business conducted or carried on at such other place or places shall be as binding and effectual as if transacted at the registered office of the Corporation.

ARTICLE II

Shareholders’ Meetings

Section 1. Annual Meeting . The annual meeting of the shareholders may be held either within or without the Commonwealth of Kentucky, at such place, time, and date designated by the Board of Directors, for the election of directors, the consideration of the reports to be laid before the meeting and the transaction of such other business as may be brought before the meeting.

Section 2. Notice of Annual Meeting . Notice of the annual meeting shall be given in writing to each shareholder entitled to vote thereat, at such address as appears on the records of the Corporation at least ten (10) days, and not more than forty (40) days prior to the meeting.

Section 3. Special Meetings . Special meetings of the shareholders may be called at any time by the Chairman, Vice Chairman, Chief Executive Officer, Chief Operating Officer, or President, or by a majority of the members of the Board of Directors acting with or without a meeting, or by the persons who hold in the aggregate one-fifth of all the shares outstanding and entitled to vote thereat, upon notice in writing, stating the time, place and purpose of the meeting. Business transacted at all special meetings shall be confined to the objects stated in the call.

Section 4. Notice of Special Meeting . Notice of a special meeting, in writing, stating the time, place and purpose thereof, shall be given to each shareholder entitled to vote thereat, not less than ten (10) nor more than thirty-five (35) days after the receipt of said request.

Section 5. Waiver of Notice . Notice of any shareholders’ meeting may be waived in writing by any shareholder at any time before or after the meeting.

Section 6. Quorum . At any meeting of the shareholders, the holders of a majority of the shares of stock of the Corporation, issued and outstanding, and entitled to vote, present in person or by proxy, shall constitute a quorum for all purposes, unless otherwise specified by law or the Articles of Incorporation.

If, however, such majority shall not be present or represented at any meeting of the shareholders, the shareholders entitled to vote, present in person or by proxy, shall have power to adjourn the meeting from time to time without further notice, other than by announcement at the

meeting, until the requisite amount of voting stock shall be present. At any such adjourned meeting, at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally called.

Section 7. Voting . At any meeting of the shareholders, every shareholder having the right to vote shall be entitled to vote in person, or by proxy appointed by an instrument in writing subscribed by such shareholder and bearing a date not more than eleven (11) months prior to said meeting, unless some other definite period of validity shall be expressly provided therein.

Each shareholder shall have one (1) vote for each share of stock having voting power, registered in his or her name on the books of the Corporation, at the date fixed for determination of persons entitled to vote at the meeting or, if no date has been fixed, then at the date of the meeting. Cumulative voting shall be permitted only as expressly required by statute.

A complete list of shareholders entitled to vote at the shareholders’ meetings, arranged in alphabetical order, with the address and the number of voting shares held by each, shall be produced on the request of any shareholder, and such list shall be prima facie evidence of the ownership of shares and of the right of shareholders to vote, when certified by the Secretary or by the agent of the Corporation having charge of the transfer of shares.

Section 8. Written Consent of Shareholders in Lieu of Meeting . Any action required or permitted by statute, the Restated Articles of Incorporation of the Corporation, or these By-Laws, to be taken at any annual or special meeting of shareholders of the Corporation, may be taken without a meeting, without prior notice, and without a vote, if a written consent in lieu of a meeting, setting forth the actions so taken, shall be signed by all the shareholders entitled to vote thereon. Any such written consent may be given by one or any number of substantially concurrent written instruments of substantially similar tenor signed by such shareholders, in person or by attorney or proxy duly appointed in writing, and filed with the records of the Corporation. Any such written consent shall be effective as of the effective date thereof as specified therein.

ARTICLE III

Board of Directors

Section 1. Number of Directors, Tenure, Vacancies . The business and affairs of the Corporation shall be managed and controlled by a Board of Directors (who need not be shareholders) consisting of not less than three (3) persons and not more than seven (7), the exact number of which may be fixed or changed either by the affirmative vote of the majority of the shares represented and entitled to vote at any meeting of the shareholders called for the purpose of electing directors, or by the affirmative vote of the majority of the directors then in office at any stated or special meeting of the Board of Directors; provided, however, that the board may be subject to certain limitations as expressly provided for under and pursuant to Kentucky Revised Statutes §271B.8-030(2), or such similar successor governing statute. Directors shall be elected annually by the shareholders at the annual meeting, and each director shall hold office until his successor shall have been elected and qualified. Any director may resign at any time. Vacancies occurring in the Board of Directors shall be filled by the remaining members of the board. A director thus elected to fill any vacancy shall hold office for the unexpired term of his predecessor and until his successor is elected and qualifies. Any director may be removed at any time by the affirmative vote of a majority of the stock then issued and entitled to vote at a special meeting of shareholders called for the purpose.

Section 2. Annual Organization Meeting . Immediately after each annual election, the newly elected directors may meet forthwith (either within or without the State of Kentucky) for the purpose of organization, the election of officers and the transaction of other business. If a majority of the directors be then present no prior notice of such meeting shall be required to be given. The place and time of such first meeting may, however, be fixed by written consent of all the directors, or by three (3) days written notice given by the Secretary of the Corporation.

Section 3. Regular Meetings . Regular meetings of the Board of Directors may be held at such time and place (either within or without the State of Kentucky), and upon such notice, as the Board of Directors may from time to time determine.

Section 4. Special Meetings . Special meetings of the Board of Directors may be called by the Chairman, Vice Chairman, Chief Executive Officer, Chief Operating Officer, or President, or may be called by the written request of two (2) members of the Board of Directors.

Section 5. Notice of Meetings . Notice of meetings shall be given to each director in accordance with Article X, Section 1, of these By-Laws.

Section 6. Quor um . A majority of the Board of Directors shall constitute a quorum for the transaction of business, but a majority of those present at the time and place of any meeting, although less than a quorum, may adjourn the same from time to time, without notice, until a quorum be had. The act of a majority of the directors present at any such meeting at which a quorum is present shall be the act of the Board of Directors.

Section 7. Compensation of Directors . Each director of the Corporation (other than directors who are salaried officers of the Corporation or of The Cincinnati Gas & Electric Company or any of its affiliates) shall be entitled to receive as compensation for services such amounts as may be determined from time to time by the Board of Directors in form either in fees for attendance at the meeting of the Board of Directors, or by payment at the rate of a fixed sum per month, or both. The same payment may also be made to anyone other than a director officially called to attend any such meeting.

Section 8. Executive Committee . The Board of Directors may, by resolution passed by a majority of the whole Board, designate annually three (3) of their number to constitute an Executive Committee, who to the extent provided in the resolution, shall exercise in the intervals between the meetings of the Board of Directors the powers of the Board in the management of the business and affairs of the Corporation.

The Executive Committee may act by a majority of its members at a meeting or by a writing signed by all of its members.

All action by the Executive Committee shall be reported to the Board of Directors at its meeting next succeeding such action.

Non-employee members of such Executive Committee shall be entitled to receive such fees and compensation as the Board of Directors may determine.

Section 9. Other Committees . The Board of Directors may also appoint such other standing or temporary committees from time to time as they may see fit, delegating to such committees all or any part of their own powers. The members of such committees shall be entitled to receive such fees as the Board may determine.

Section 10. Actions of Board . Unless otherwise provided by the Restated Articles of Incorporation of the Corporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors of the Corporation, or of any committee(s) thereof, may be taken without a meeting, if all the members of the Board of Directors, or of such committee(s), as the case may be, consent thereto in writing, and such writing(s) is filed with the minutes of proceedings of the Board of Directors, or of such committee(s), of the Corporation. Any such written consent to action of the Board of Directors, or of such committee(s), shall be effectuated by the signature of the member lastly consenting thereto in writing, unless the consent otherwise specifies a prior or subsequent effective date.

ARTICLE IV

Officers

Section 1. Officers . The officers of the Corporation shall consist of a Chairman of the Board, a Chief Executive Officer, a President, a Secretary, a Treasurer, a Controller, and may consist of a Vice Chairman, a Chief Operating Officer, one or more Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, or one or more Assistant Controllers, all of whom shall be elected by the Board of Directors, and shall hold office for one year and until their successors are chosen and qualified.

Any two or more offices may be held by the same person, except that the duties of the President and Secretary shall not be performed by the same person. All vacancies occurring among any of the above offices shall be filled by the Board of Directors. Any officer may be removed with or without cause by the affirmative vote of a majority of the number of Directors at any meeting of the Board of Directors.

Section 2. Subordinate Officers . The Board of Directors may appoint such other officers and agents with such powers and duties as they shall deem necessary.

Section 3. The Chairman of the Board . The Chairman of the Board shall be a director and shall preside at all meetings of the Board of Directors and, in the absence or inability to act of the Chief Executive Officer, meetings of shareholders and shall, subject to the Board’s direction and control, be the Board’s representative and medium of communication, and shall perform such other duties as may from time to time be assigned to the Chairman of the Board by the Board of Directors. The Chairman of the Board shall direct the long-term strategic planning process of the Corporation and shall also lend his or her expertise to such other officers as may be requested from time to time by such officers. The Chairman shall be a member of the Executive Committee.

Section 4. The Vice Chairman . The Vice Chairman of the Board, if there be one, shall be a director and shall preside at meetings of the Board of Directors in the absence or inability to act of the Chairman of the Board or meetings of shareholders in the absence or inability to act of the Chief Executive Officer and the Chairman of the Board. The Vice Chairman shall perform such other duties as may from time to time be assigned to him or her by the Board of Directors. The Vice Chairman shall be a member of the Executive Committee.

Section 5. The Chief Executive Officer . The Chief Executive Officer shall be a director and shall preside at all meetings of the shareholders, and, in the absence or inability to act of the Chairman of the Board and the Vice Chairman, at all meetings of the Board of Directors. The Chief Executive Officer shall from time to time report to the Board of Directors all matters within

his or her knowledge which the interests of the Corporation may require be brought to their notice. The Chief Executive Officer shall be the chairman of the Executive Committee and ex officio a member of all standing committees.

Section 6. The Chief Operating Officer . The Chief Operating Officer of the Corporation, if there be one, shall have general and active management and direction of the affairs of the Corporation, shall have supervision of all departments and of all officers of the Corporation, shall see that the orders and resolutions of the Board of Directors and of the Executive Committee are carried into effect, and shall have the general powers and duties of supervision and management usually vested in the office of a Chief Operating Officer of a corporation. Unless otherwise provided, all corporate officers and functions shall report directly to the Chief Operating Officer, if there be one, or, if not, to the Chief Executive Officer.

Section 7. The President . The President shall have such duties as may be delegated by the Board of Directors, Chief Executive Officer or Chief Operating Officer.

Section 8. The Vice Presidents . The Vice Presidents shall perform such duties as the Board of Directors shall, from time to time, require. In the absence or incapacity of the President, the Vice President designated by the Board of Directors or Executive Committee, Chief Executive Officer, Chief Operating Officer, or President shall exercise the powers and duties of the President.

Section 9(a). The Secretary . The Secretary shall attend all meetings of the Board of Directors, of the Executive Committee and of the shareholders and act as clerk thereof and record all votes and the minutes of all proceedings in a book to be kept for that purpose, and shall perform like duties for the standing committees when required.

(b) Assistant Secretaries . At the request of the Secretary, or in his or her absence or inability to act, the Assistant Secretary or, if there be more than one, the Assistant Secretary designated by the Secretary, shall perform the duties of the Secretary and when so acting shall have all the powers of and be subject to all the restrictions of the Secretary. The Assistant Secretaries shall perform such other duties as may from time to time be assigned to them by the Board of Directors, Chief Executive Officer, Chief Operating Officer, President, or Secretary.

Section 10(a). The Treasurer . The Treasurer shall be the financial officer of the Corporation, shall keep full and accurate accounts of all collections, receipts and disbursements in books belonging to the Corporation, shall deposit all moneys and other valuables in the name and to the credit of the Corporation, in such depositories as may be directed by the Board of Directors, shall disburse the funds of the Corporation as may be ordered by the Board of Directors, Chief Executive Officer, Chief Operating Officer, or President, taking proper vouchers therefor, and shall render to the Chief Executive Officer, Chief Operating Officer, or President, and directors at all regular meetings of the Board, or whenever they may require it, and to the annual meeting of the shareholders, an account of all his or her transactions as Treasurer and of the financial condition of the Corporation.

The Treasurer shall also perform such other duties as the Board of Directors may from time to time require.

(b) Assistant Treasurers . At the request of the Treasurer, or in his or her absence or inability to act, the Assistant Treasurer or, if there be more than one, the Assistant Treasurer designated by the Treasurer, shall perform the duties of the Treasurer and when so acting shall have all the powers of and be subject to all the restrictions of the Treasurer. The Assistant Treasurers shall perform such other duties as may from time to time be assigned to them by the Board of Directors, Chief Executive Officer, Chief Operating Officer, President, or Treasurer.

Section 11(a). The Controller . The Controller shall have control over all accounts and records of the Corporation pertaining to moneys, properties, materials and supplies. He or she shall have executive direction over the bookkeeping and accounting departments and shall have general supervision over the records in all other departments pertaining to moneys, properties, materials and supplies. He or she shall have such other powers and duties as are incident to the office of Controller of a corporation and shall be subject at all times to the direction and control of the Board of Directors, Chief Executive Officer, Chief Operating Officer, President and a Vice President.

(b) Assistant Controllers . At the request of the Controller, or in his or her absence or inability to act, the Assistant Controller or, if there be more than one, the Assistant Controller designated by the Controller, shall perform the duties of the Controller and when so acting shall have all the powers of and be subject to all the restrictions of the Controller. The Assistant Controllers shall perform such other duties as may from time to time be assigned to them by the Board of Directors, Chief Executive Officer, Chief Operating Officer, President, or Controller.

ARTICLE V

Indemnification of Dire ctors, Officers, Employees, and Agents

Section 1. Definitions . As used in this Article :

A. “Corporation” includes any domestic or foreign predecessor entity of the Corporation in a merger or other transaction in which the predecessor’s existence ceased upon consummation of the transaction.

B. “Director” means an individual who is or was a Director of the Corporation or an individual who, while a Director of the Corporation, is or was serving at the Corporation’s request as a director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise. A Director shall be considered to be serving an employee benefit plan at the Corporation’s request if his or her duties to the Corporation also impose duties on, or otherwise involve services by, him or her to the plan or to participants in or beneficiaries of the plan. “Director” includes, unless the context requires otherwise, the estate or personal representative of a Director.

C. “Expenses” include counsel fees.

D. “Liability” means the obligation to pay a judgment, settlement, penalty, fine (including an excise tax assessed with respect to an employee benefit plan), or reasonable expenses incurred with respect to a proceeding.

E. “Official capacity” means:

(1) When used with respect to a Director, the office of Director in the Corporation, and

(2) When used with respect to an individual other than a Director, as contemplated in Section 6, the office in the Corporation held by the officer or the employment or agency relationship undertaken by the employee or agent on behalf of the Corporation. “Official capacity” shall not include service for any other foreign or domestic corporation or any partnership, joint venture, trust, employee benefit plan, or other enterprise.

F. “Party” includes an individual who was, is, or is threatened to be made a named defendant or respondent in a proceeding.

G. “Proceeding” means any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative and whether formal or informal.

Section 2. Indemnification.

A. Except as provided in subsection (D) of this Section, the Corporation shall indemnify an individual made a party to a proceeding because he or she is or was a Director against liability incurred in the proceeding if:

(1) He or she conducted himself or herself in good faith; and

(2) He or she reasonably believed:

(a) In the case of conduct in his or her official capacity with the Corporation, that his or her conduct was in its best interest; and

(b) In all other cases, that his or her conduct was at least not opposed to its best interests; and

(3) In the case of any criminal proceeding, he or she had no reasonable cause to believe his or her conduct was unlawful.

B. A Director’s conduct with respect to an employee benefit plan for a purpose he or she reasonably believed to be in the interests of the participants in and beneficiaries of the plan shall be conduct that satisfies the requirement of subsection A(2)(b) of this Section.

C. The termination of a proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent shall not be, of itself, determinative that the Director did not meet the standard of conduct described in this Section.

D. The Corporation may not indemnify a Director under this Section:

(1) In connection with a proceeding by or in the right of the Corporation in which the Director was adjudged liable to the Corporation; or

(2) In connection with any other proceeding charging improper personal benefit to him or her, whether or not involving action in his or her official capacity, in which he or she was adjudged liable on the basis that personal benefit was improperly received by him or her.

E. Indemnification permitted under this Section in connection with a proceeding by or in the right of the Corporation shall be limited to reasonable expenses incurred in connection with the proceeding.

Section 3. Mandatory Indemnification . Unless limited by the Articles of Incorporation, the Corporation shall indemnify a Director who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he or she was a party because he or she is or was a Director of the Corporation against reasonable expenses incurred by him or her in connection with the proceeding.

Section 4. Advance for Expenses .

A. The Corporation may pay for or reimburse the reasonable expenses incurred by a Director who is a party to a proceeding in advance of final disposition of the proceeding if:

(1) The Director furnishes the Corporation a written affirmation of his or her good faith belief that he or she has met the standard of conduct described in Section 2;

(2) The Director furnishes the Corporation a written undertaking, executed personally or on his or her behalf, to repay the advance if it is ultimately determined that he or she did not meet the standard of conduct; and

(3) A determination is made that the facts then known to those making the determination would not preclude indemnification under this article.

B. The undertaking required by subsection A(2) of this Section shall be an unlimited general obligation of the Director but shall not be required to be secured and may be accepted without reference to financial ability to make repayment.

C. Determinations and authorizations of payments under this Section shall be made in the manner specified in Section 5.

Section 5. Determination and Authorization of Indemnification.

A. The Corporation shall not indemnify a Director under Section 2 of this Article unless authorized in the specific case after a determination has been made that indemnification of the Director is permissible in the circumstances because he or she has met the standard of conduct set forth in Section 2.

B. The determination shall be made:

(1) By the Board of Directors by majority vote of a quorum consisting of Directors not at the time parties to the proceeding;

(2) If a quorum cannot be obtained under subsection B(1) of this Section, by majority vote of a committee duly designated by the Board of Directors (in which designation Directors who are parties may participate), consisting solely of two or more Directors not at the time parties to the proceeding;

(3) By special legal counsel:

(a) Selected by the Board of Directors or its committee in the manner prescribed in subsection B(1) and (2) of this Section; or

(b) If a quorum of the Board of Directors cannot be obtained under subsection B(1) of this Section and a committee cannot be designated under subsection B(2) of this Section, selected by majority vote of the full Board of Directors (in which selection Directors who are parties may participate); or

(4) By the shareholders, but shares owned by or voted under the control of Directors who are at the time parties to the proceeding shall not be voted on the determination.

C. Authorization of indemnification and evaluation as to reasonableness of expenses shall be made in the same manner as the determination that indemnification is permissible, except that if the determination is made by special legal counsel, authorization of indemnification and evaluation as to reasonableness of expenses shall be made by those entitled under subsection B(3) of this Section to select counsel.

Section 6. Indemnificat ion of Officers, Employees, and Agents . Unless the Corporation’s Articles of Incorporation provide otherwise:

A. An officer of the Corporation who is not a Director shall be entitled to mandatory indemnification under Section 3, and is entitled to apply for court-ordered indemnification under the Kentucky Business Corporation Act, in each case to the same extent as a Director;

B. The Corporation may indemnify and advance expenses under this Article to an officer, employee, or agent of the Corporation who is not a Director to the same extent as to a Director; and

C. The Corporation may also indemnify and advance expenses to an officer, employee, or agent who is not a Director to the extent, consistent with public policy, that may be provided by the Articles of Incorporation, By-Laws, general or specific action of the Board of Directors, or contract.

Section 7. Insurance . The Corporation may purchase and maintain insurance on behalf of an individual who is or was a Director, officer, employee, or agent of the Corporation, or who, while a Director, officer, employee, or agent of the Corporation, is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise, against liability asserted against or incurred by him or her in that capacity or arising from his or her status as a Director, officer, employee, or agent, whether or not the Corporation would have power to indemnify him or her against the same liability under either Section 2 or 3.

Section 8. Application of this Article.

A. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the By-Laws, any agreement, vote of shareholders or disinterested Directors, or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office.

B. This Article shall not limit the Corporation’s power to pay or reimburse expenses incurred by a Director in connection with his or her appearance as a witness at a proceeding at a time when he or she has not been made a named defendant or respondent to the proceeding.

ARTICLE VI

Capital Stock

Section 1. Form and Execution of Certificates . The certificates for shares of the capital stock of the Corporation shall be of such form and content, not inconsistent with the law and the Articles of Incorporation, as shall be approved by the Board of Directors. The certificates shall be signed by (1) either the Chairman, Chief Executive Officer, President or a Vice President, and (2) any one of the following officers: Secretary or Assistant Secretary, Treasurer or Assistant Treasurer. All certificates shall be consecutively numbered in each class of shares. The name and address of the person owning the shares represented thereby, with the number of shares and the date of issue, shall be entered on the Corporation’s books.

Section 2. Transfer of Shares . Transfer of shares shall be made upon the books of the Corporation or respective Transfer Agents designated to transfer each class of stock, and before a new certificate is issued the old certificates shall be surrendered for cancellation.

Section 3. Appointment of Transfer Agents and Registrars . The Board of Directors may appoint one or more transfer agents or one or more registrars or both, and may require all stock certificates to bear the signature of either or both. When any such certificate is signed, by a transfer agent or registrar, the signatures of the corporate officers and the corporate seal, if any, upon such certificate may be facsimiles, engraved or printed.

Section 4. Closing of Transfer Books or Taking Record of Shareholders . The Board of Directors may fix a time not exceeding forty (40) days preceding the date of any meeting of shareholders or any dividend payment date or any date for the allotment of rights as a record date for the determination of the shareholders entitled to notice of such meeting or to vote thereat or to receive such dividends or rights as the case may be; or the Board of Directors may close the books of the Corporation against transfer of shares during the whole or any part of such period.

Section 5. Lost Stock Certificates . In the case of a lost stock certificate, a new stock certificate may be issued in its place upon proof of such loss, destruction or mutilation and upon the giving of a satisfactory bond of indemnity to the Corporation and/or to the transfer agent and registrar of such stock, if any, in such sum and under such terms as the Board of Directors may provide.

ARTICLE VII

Dividends

Section 1. Dividends . Dividends may be declared by the Board of Directors (or the Executive Committee, if there be one and the authority to declare dividends is delegated to the Executive Committee by the Board of Directors) and paid in cash, shares, or other property out of the annual net income to the Corporation or out of its net assets in excess of its capital, computed in accordance with the state statute and subject to the conditions and limitations imposed by the Articles of Incorporation.

No dividends shall be paid to the holders of any class of shares in violation of the rights of the holders of any other class of shares.

Before payment of any dividends or making distribution of any profits, there may be set apart out of the excess of assets available for dividends such sum or sums as the Board of Directors (or Executive Committee, if there be one and the authority to declare dividends or make distributions is delegated to the Executive Committee) from time to time in its absolute discretion thinks proper as a reserve fund for any purpose.

ARTICLE VIII

Fiscal Year

Section 1. Fiscal Year . The fiscal year of the Corporation shall begin on the first day of January and terminate on the thirty-first day of December in each year.

ARTICLE IX

Contra cts, Checks, Notes, etc.

Section 1. Co ntracts, Checks, Notes, etc . All contracts and agreements authorized by the Board of Directors and all bonds and notes shall, unless otherwise directed by the Board of Directors or unless otherwise required by law, be signed by (1) either the Chairman, Vice Chairman, Chief Executive Officer, Chief Operating Officer, President, or a Vice President, and (2) any one of the following officers: Secretary or Assistant Secretary, Treasurer or Assistant

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

ARTICLE X

Notice and Waiver of Notice

Section 1. Notice and Waiver of Notice . Any notice required to be given by these By-Laws to a Director or officer may be given in writing, personally served or through the United States Mail, or by telephone, telegram, cablegram or radiogram, and such notice shall be deemed to be given at the time when the same shall be thus transmitted. Any notice required to be given by these By-Laws may be waived by the person entitled to such notice.

ARTICLE XI

Corporate Seal

Section 1. Corporate Seal . The corporate seal of the Corporation shall consist of a metallic stamp, circular in form, bearing in its center the word “Seal”, and on the outer edge the name of the Corporation.

ARTICLE XII

Amendment

Section 1. Amendment . These By-Laws may be amended or repealed at any meeting of the shareholders of the Corporation by the affirmative vote of the holders of record of shares entitling them to exercise a majority of the voting power on such proposal, or, without a meeting, by the written consent of the holders of record of shares entitling them to exercise a two-thirds majority of the voting power on such proposal.

Exhibit 4.1

Execution Copy

THE CINCINNATI GAS & ELECTRIC COMPANY

AND

FIFTH THIRD BANK,
Trustee

Seventh Supplemental Indenture

Dated as of June 15, 2003

Indenture

Dated as of May 15, 1995

2003 Series A 5.40% Debentures Due 2033
2003 Series B 5 3/8 % Debentures Due 2033

SEVENTH SUPPLEMENTAL INDENTURE, dated as of June 15, 2003, between The Cincinnati Gas & Electric Company, a corporation duly organized and existing under the laws of the State of Ohio (herein called the “Company”), having its principal office at 139 East Fourth Street, Cincinnati, Ohio 45202, and Fifth Third Bank, an Ohio banking corporation, as Trustee (herein called the “Trustee”), under the Indenture, dated as of May 15, 1995, between the Company and the Trustee (the “Indenture”).

Recitals of the Company

The Company has executed and delivered the Indenture to the Trustee to provide for the issuance from time to time of its unsecured debentures, notes or other evidences of indebtedness (the “Securities”), to be issued in one or more series as provided in the Indenture.

Pursuant to the terms of the Indenture, the Company desires to provide for the establishment of two new series of its Securities to be known as its 2003 Series A 5.40 % Debentures Due 2033 (the “Series A Debentures”) and its 2003 Series B 5 3/8% Debentures Due 2033 (the “Series B Debentures” and, together with the Series A Debenture, the “Debentures”) in this Seventh Supplemental Indenture.

All things necessary to make this Seventh Supplemental Indenture a valid agreement of the Company have been done.

Now, Therefore, This Seventh Supplemental Indenture Witnesseth:

For and in consideration of the premises and the purchase of the Debentures by the Holders thereof, it is mutually agreed, for the equal and proportionate benefit of all Holders of the Debentures, as follows:

ARTICLE ONE

Terms of the Debentures

Section 101. There is hereby authorized a series of Securities designated the “2003 Series A 5.40% Debentures Due 2033” (which shall be the Series A Debentures hereinbefore referred to) and a series of Securities designated the “2003 Series B 5 3/8% Debentures Due 2033” (which shall be the Series B Debentures hereinbefore referred to). The Debentures shall mature and the principal shall be due and payable together with all accrued and unpaid interest thereon on June 15, 2033. Each of the Series A Debentures and the Series B Debentures shall be issued in the form of a registered Global Security without coupons, registered in the name of Cede & Co., as nominee of The Depository Trust Company (the “Depository”).

The initial issue of the Series A Debentures and the Series B Debentures shall each be limited in aggregate principal amount to $200,000,000 (except as provided in Section 301(2) of the Indenture). However, the Company may, from time to time, without notice to or the consent of the registered holders of the Series A Debentures or the Series B Debentures then outstanding, issue additional Series A Debentures or Series B Debentures, as the case may be, without limitation as to the aggregate principal amount thereof.

Section 102. The provisions of Section 305 of the Indenture applicable to Global Securities shall apply to the Debentures.

Section 103. Interest on each of the Debentures shall be payable semiannually on June 15 and December 15 in each year (each an “Interest Payment Date”), commencing on December 15, 2003, at the rate per annum specified in the designation of the Debentures from June 16, 2003, or from the most recent Interest Payment Date to which interest has been paid or duly provided for. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will be paid to the Person in whose name such Debenture (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the Business Day immediately preceding such Interest Payment Date. The amount of interest payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. As used herein, “Business Day” means any day, other than a Saturday or Sunday, or a day on which banking institutions in New York, New York are authorized or obligated by law or executive order to be closed.

Section 104. Subject to agreements with or the rules of the Depository or any successor book-entry security system or similar system with respect to Global Securities, payments of interest will be made by check mailed to the Holder of each Debenture at the address shown in the Security Register, and payments of the principal amount of each Debenture will be made at maturity by check against presentation of the Debenture at the office or agency of the Trustee.

Section 105. The Debentures shall be issued in denominations of $1,000 or any integral multiple of $1,000.

Section 106. Principal and interest on the Debentures shall be payable in the coin or currency of the United States of America, which, at the time of payment, is legal tender for public and private debts.

Section 107. The Debentures shall be subject to defeasance and covenant defeasance, at the Company’s option, as provided for in Sections 1302 and 1303 of the Indenture.

Section 108. Subject to the terms of Article Eleven of the Indenture, the Company shall have the right to redeem the Series A Debentures and the Series B Debentures, at any time in whole or from time to time in part, as provided in the form of the applicable series of Debentures hereinbelow set forth.

ARTICLE TWO

Form of the Debentures

Section 201. The Series A Debentures and the Series B Debentures are to be substantially in the following forms and shall include substantially the legend shown in such form so long as such series of Debentures are Global Securities:

[The remainder of this page has been left blank intentionally.]

(FORM OF FACE OF SERIES A DEBENTURE)

No.

CUSIP No.: 172070 CP 7
ISIN No.: US172070CP76

THE CINCINNATI GAS & ELECTRIC COMPANY

2003 SERIES A 5.40% DEBENTURE DUE 2033

UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), TO ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT AND SUCH CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

THE CINCINNATI GAS & ELECTRIC COMPANY, a corporation duly organized and existing under the laws of the State of Ohio (herein called the “Company,” which term includes any successor Person under the Indenture hereafter referred to), for value received, hereby promises to pay to CEDE & CO., or registered assigns, the principal sum of and No/100 Dollars ($ ) on June 15, 2033, and to pay interest thereon from June 16, 2003 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semiannually on June 15 and December 15 in each year, commencing December 15, 2003, at the rate of 5.40% per annum, until the principal hereof is paid or made available for payment. The amount of interest payable on any Interest Payment Date shall be computed on the basis of a 360-day year of twelve 30-day months. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the Business Day immediately preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not

less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture.

Payment of the principal of and interest on this Security will be made at the corporate trust office of the Trustee maintained for that purpose in the City of Cincinnati, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register.

Any payment on this Security due on any day which is not a Business Day in the City of New York need not be made on such day, but may be made on the next succeeding Business Day with the same force and effect as if made on the due date and no interest shall accrue for the period from and after such date, unless such payment is a payment at maturity or upon redemption, in which case interest shall accrue thereon at the stated rate for such additional days.

As used herein, “Business Day” means any day, other than a Saturday or Sunday, or a day on which banking institutions in New York, New York are authorized or obligated by law or executive order to be closed.

Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place.

Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose.

In Witness Whereof, the Company has caused this instrument to be duly executed.

	THE CINCINNATI GAS & ELECTRIC COMPANY


	By

CERTIFICATE OF AUTHENTICATION

Dated:

This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.

	FIFTH THIRD BANK, as Trustee


	By
		Authorized Signatory

(FORM OF REVERSE OF SERIES A DEBENTURE)

This Security is one of a duly authorized issue of securities of the Company (herein called the “Securities”), issued and to be issued in one or more series under an Indenture, dated as of May 15, 1995 (herein called the “Indenture,” which term shall have the meaning assigned to it in such instrument), between the Company and Fifth Third Bank, as Trustee (herein called the “Trustee,” which term includes any successor trustee under the Indenture), and reference is hereby made to the Indenture for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof, which series is issuable without limitation as to the aggregate principal amount thereof.

The Securities of this series are subject to optional redemption at any time in whole or from time to time in part, until maturity (such redemption, a “Make-Whole Redemption”), at a Redemption Price equal to the sum of (i) the principal amount of the Securities being redeemed plus accrued and unpaid interest thereon to the Redemption Date, and (ii) the Make-Whole Amount (as defined below), if any, with respect to the Securities being redeemed.

“Make-Whole Amount” means, in connection with any Make-Whole Redemption of any Securities, the excess, if any, of (i) the sum, as determined by a Quotation Agent of the present value of the principal amount of such Securities to be redeemed, together with scheduled payments of interest thereon from the Redemption Date to June 15, 2033 (not including any portion of such payments of interest accrued as of the Redemption Date), in each case discounted to the Redemption Date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Adjusted Treasury Rate over (ii) 100% of the principal amount of the Securities to be redeemed.

“Adjusted Treasury Rate” means, with respect to any Redemption Date for a Make-Whole Redemption, the rate per annum equal to the semi-annual equivalent yield to maturity of the Comparable Treasury Issue, calculated using a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such Redemption Date, calculated on the third Business Day preceding the Redemption Date, plus in each case .20% (20 basis points).

“Comparable Treasury Issue” means the United States Treasury security selected by the Quotation Agent as having a maturity comparable to the remaining term from the Redemption Date to the Stated Maturity of the Securities that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Securities.

“Quotation Agent” means the Reference Treasury Dealer selected by the Trustee after consultation with the Company. “Reference Treasury Dealer” means a primary U.S. Government securities dealer.

“Comparable Treasury Price” means, with respect to any Redemption Date for a Make-Whole Redemption, (i) the average of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) on the third Business Day preceding such Redemption Date, as set forth in the daily statistical release designated “H.15” (or any successor release) published by the Board of Governors of the Federal Reserve System or (ii) if such release (or any successor release) is not published or does not contain such prices on such Business Day, (A) the average of the Reference Treasury Dealer Quotations for such Redemption Date, after excluding the highest and lowest of such Reference Treasury Dealer Quotations, or (B) if the Trustee obtains fewer than three such Reference Treasury Dealer Quotations, the average of such Quotations.

“Reference Treasury Dealer Quotations” means, with respect to each Reference Treasury Dealer and any Redemption Date for a Make-Whole Redemption, the average, as determined by the Trustee (after consultation with the Company), of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m., New York City time, on the third Business Day preceding such Redemption Date.

Notice of any redemption by the Company will be mailed at least 30 days but not more than 60 days before any Redemption Date to each Holder of Securities to be redeemed. If less than all the Securities are to be redeemed at the option of the Company, the Trustee shall select, in such manner as it shall deem fair and appropriate, the Securities to be redeemed.

Unless the Company defaults in payment of the Redemption Price, on and after any Redemption Date, interest will cease to accrue on the Securities or portions thereof called for redemption.

The Indenture contains provisions for defeasance at any time of the entire indebtedness of this Security or certain restrictive covenants and Events of Default with respect to this Security upon compliance with certain conditions set forth in the Indenture.

If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture.

The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of a majority in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security.

As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities of this series, the Holders of not less than 35% in principal amount of the Securities of this series at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonably satisfactory indemnity, and the Trustee shall not have received from the Holders of a majority in principal amount of Securities of this series at the time Outstanding a direction inconsistent with such request, and shall have failed to institute any such proceeding, for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any premium or interest hereon on or after the respective due dates expressed herein.

No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed.

As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series and of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees.

The Securities of this series are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series and of like tenor of a different authorized denomination, as requested by the Holder surrendering the same.

No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.

Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary.

All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture.

(FORM OF FACE OF SERIES B DEBENTURE)

No.

CUSIP No.: 172070 CQ 5
ISIN No.: US172070CQ59

THE CINCINNATI GAS & ELECTRIC COMPANY

2003 SERIES B 5 3/8% DEBENTURE DUE 2033

THE CINCINNATI GAS & ELECTRIC COMPANY, a corporation duly organized and existing under the laws of the State of Ohio (herein called the “Company,” which term includes any successor Person under the Indenture hereafter referred to), for value received, hereby promises to pay to CEDE & CO., or registered assigns, the principal sum of and No/100 Dollars ($ ) on June 15, 2033, and to pay interest thereon from June 16, 2003 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semiannually on June 15 and December 15 in each year, commencing December 15, 2003, at the rate of 5 3/8% per annum, until the principal hereof is paid or made available for payment. The amount of interest payable on any Interest Payment Date shall be computed on the basis of a 360-day year of twelve 30-day months. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the Business Day immediately preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not

In Witness Whereof, the Company has caused this instrument to be duly executed.

	THE CINCINNATI GAS & ELECTRIC COMPANY


	By

CERTIFICATE OF AUTHENTICATION

Dated:

This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.

	FIFTH THIRD BANK, as Trustee


	By
		Authorized Signatory

(FORM OF REVERSE OF SERIES B DEBENTURE)

Unless the Company defaults in payment of the Redemption Price, on and after any Redemption Date, interest will cease to accrue on the Securities or portions thereof called for redemption.

All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture.

ARTICLE THREE

Issuance of Debentures

Section 301. An initial issue of the Series A Debentures and the Series B Debentures each in the aggregate principal amount of $200,000,000 may, upon execution of this Seventh Supplemental Indenture, or from time to time hereafter, be executed by the Company and delivered to the Trustee for authentication, and the Trustee shall thereupon authenticate and deliver said Debentures upon a Company Order without any further action by the Company. Additional Series A Debentures and Series B Debentures may be issued by the Company pursuant to the terms of the Indenture and this Seventh Supplemental Indenture.

ARTICLE FOUR

Paying Agent and Security Registrar

Section 401. Fifth Third Bank will be the Paying Agent and Security Registrar for the Debentures.

ARTICLE FIVE

Sundry Provisions

Section 501. Except as otherwise expressly provided in this Seventh Supplemental Indenture or in the form of the Series A Debenture or Series B Debenture, as the case may be, or otherwise clearly required by the context hereof or thereof, all terms used herein or in said forms of Debenture that are defined in the Indenture shall have the several meanings respectively assigned to them thereby.

Section 502. The Indenture, as supplemented by this Seventh Supplemental Indenture, is in all respects ratified and confirmed, and this Seventh Supplemental Indenture shall be deemed part of the Indenture in the manner and to the extent herein and therein provided.

This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.

In Witness Whereof, the parties hereto have caused this Seventh Supplemental Indenture to be duly executed as of the date first above written.

	THE CINCINNATI GAS & ELECTRIC COMPANY


	By	/s/ Wendy L. Aumiller
		Wendy L. Aumiller Treasurer


	FIFTH THIRD BANK, as Trustee


	By	/s/ Christine M. Schaub
		Christine M. Schaub Vice President

Exhibit 31.1

I, James E. Rogers, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Cinergy Corp., The Cincinnati Gas & Electric Company, PSI Energy, Inc., and The Union Light, Heat and Power Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrants as of, and for, the periods presented in this report;

4. The registrants’ other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrants and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrants, including their consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrants’ disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrants’ internal control over financial reporting that occurred during the registrants’ most recent fiscal quarter (the registrants’ fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants’ internal control over financial reporting; and

5. The registrants’ other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants’ auditors and the audit committee of the registrants’ board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants’ ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants’ internal control over financial reporting.

Date: August 13, 2003


/s/	James E. Rogers
	James E. Rogers
Chief Executive Officer

Exhibit 31.2

I, R. Foster Duncan, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Cinergy Corp., The Cincinnati Gas & Electric Company, PSI Energy, Inc., and The Union Light, Heat and Power Company;

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants’ internal control over financial reporting.

Date: August 13, 2003


/s/	R. Foster Duncan
	R. Foster Duncan
Chief Financial Officer

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Cinergy Corp., The Cincinnati Gas & Electric Company, PSI Energy, Inc. and The Union Light, Heat and Power Company (the “Companies”) on Form 10-Q for the period ending June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James E. Rogers, Chief Executive Officer of the Companies, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Companies.

/s/ James E. Rogers
James E. Rogers
Chief Executive Officer
August 13, 2003

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Cinergy Corp., The Cincinnati Gas & Electric Company, PSI Energy, Inc. and The Union Light, Heat and Power Company (the “Companies”) on Form 10-Q for the period ending June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, R. Foster Duncan, Chief Financial Officer of the Companies, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Companies.

/s/ R. Foster Duncan
R. Foster Duncan
Chief Financial Officer
August 13, 2003

Environmental Issues

Ambient Air Standards

Pensions

Other Investing Activities

Guarantees

Collateral Requirements

Capital Resources

Notes Payable and Other Short-term Obligations

Long-term Debt

Off-Balance Sheet Financing

Equity

2003 QUARTERLY 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

Taxes Other Than Income Taxes

Miscellaneous - Net

Interest Expense

Income Taxes

Equity in Earnings (Losses) of Unconsolidated Subsidiaries

Discontinued Operations

2003 YEAR TO DATE RESULTS OF OPERATIONS - HISTORICAL

Summary of Results

Electric Operating Revenues

Gas Operating Revenues

Operating Expenses

Fuel

Purchased and Exchanged Power

Gas Purchased

Gas Storage and Transportation

Operation and Maintenance

Depreciation

Taxes Other Than Income Taxes

Interest Expense

Income Taxes

Miscellaneous - Net

Discontinued Operations

Electric Operating Revenues

Electricity Purchased from Parent Company for Resale

Gas Operating Revenues

Gas Purchased

Operation and Maintenance

Miscellaneous - Net

Income Taxes

FUTURE EXPECTATIONS/TRENDS

ELECTRIC INDUSTRY

Wholesale Market Developments

Supply-side Actions

Retail Market Developments

Ohio

Federal Update

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

Historical

FERC Orders

Significant Rate Developments

PSI Retail Rate Case

PSI Purchased Power Tracker (Tracker)

PSI Fuel Adjustment Charge

PSI Construction Work in Progress (CWIP) Ratemaking Treatment for NO X Equipment

Environmental Compliance Cost Recovery

GAS INDUSTRY

ULH&P Gas Rate Case

CG&E Gas Rate Case

Gas Distribution Plant

Gas Prices

MARKET RISK SENSITIVE INSTRUMENTS AND POSITIONS

ACCOUNTING MATTERS

Critical Accounting Policies

Accounting Changes

Energy Trading

Intangible Assets

Asset Retirement Obligations

Derivatives

PSI Construction Work in Progress (CWIP) Ratemaking Treatment for NO _X Equipment