•are Cinergy Services, Inc. (Services);
        • and Cinergy Investments, Inc. (Investments);
        •    Cinergy Global Resources, Inc. (Global Resources);
        •    Cinergy Technologies, Inc. (Technologies); and
        •    Cinergy Wholesale Energy, Inc. (CWE).

CG&E, an Ohio corporation organized in 1837, is a combination electric and gas public utility company that provides service in the southwestern portion of Ohio and, through its subsidiaries, in nearby areas of Kentucky and Indiana. It has three wholly-owned utility subsidiaries and two wholly-owned non-utility subsidiaries.CG&E's principal utility subsidiary, The Union Light, Heat and Power Company (ULH&P), in nearby areas of Kentucky.  CG&Eis responsible for the majority of our power marketing and trading activity.  CG&E’s principal subsidiary, ULH&P, a Kentucky corporation thatorganized in 1901, provides electric and gas service in northern Kentucky.

CG&E's&E is in a market development period for residential customers and in the competitive retail electric market for non-residential customers, transitioning to deregulation of electric generation and a competitive retail electric service market in the state of Ohio.  Applicable legislation governing the transition period provides for a market development (frozen rate) period that began January 1, 2001, ended December 31, 2004 for non-residential customers and is scheduled to end December 31, 2005 for residential customers.  At the end of these market development periods, CG&E will not implement market rates, but rather a rate stabilization plan (RSP) approved by the Public Utilities Commission of Ohio (PUCO) that covers the period after the market development period through 2008.  The RSP, among other subsidiaries are insignificantthings, increases rates for environmental costs and capacity reserves and provides for a fuel and emission allowance tracker through 2008.  See “Electric Industry” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A)” for the various filings that led to its resultsthe PUCO’s approval of operations.CG&E’s RSP, further details of the plan, and a discussion of key elements of Ohio deregulation.

PSI, an Indiana corporation organized in 1942, is ana vertically integrated and regulated electric utility that provides service in north central, central, and southern Indiana.

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The following table presents further information related to the operations of our domestic utility companies, CG&E, PSI, and ULH&P(our utility operating companies):

(1)See “Generation — Fuel Supply and Emission Allowances” under the “Regulated” section for further discussion of the possible transfer of generation assets.

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

November 2000, CWE was formed to act as a holding company forCinergy's energy commodity businesses, including production, as the generation assets eventually become unbundled from the utility subsidiaries. See Note 18 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" for a discussion on Ohio deregulation.

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

    The following table indicates the number of employees by classification at December 31, 2000:

(1)   IBEW #1347 contract will expire on April 1, 2006, and IBEW #1393 will expire on April 30, 2002.
(2)   Contract will expire May 15, 2002.
(3)   Contract will expire April 1, 2002.
(4)   CG&E and subsidiaries excludingULH&P.
(5)   Includes Services' employees who provide services to both regulated and non-regulated operations.
(6)   On January 1, 2001, 1,448 of our employees were transferred to a non-regulated domestic subsidiary of CWE. For
        more information on "Ohio deregulation" see Note 18 of the "Notes to Financial Statements" in "Item 8. Financial
        Statements and Supplementary Data".

CURRENT TRENDS

    The structure of the electric industry in our service territory and throughout the U.S. has been relatively stable for many years. In recent years, however, there have been both federal and state developments aimed at industry restructuring and increasing competition. This process is leading to an industry model whereby the generating assets become deregulated and the transmission and distribution systems remain under some type of regulation. The underlying belief, which we share, is that over the long-term, deregulation of wholesale generation markets will, through increased competition, result in lower commodity prices than would otherwise be achieved. However, in recent months, unprecedented high prices, extreme price volatility, a lack of market liquidity, and inadequate generation supply led to customer blackouts in California, demonstrating the necessity for a constructive approach to deregulation. Within our service territory, Ohio is the first state to implement electric deregulation legislation. See the "Retail Market Developments" section in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" for a discussion of key elements of Ohio deregulation, which became effective January 1, 2001. Ohio's situation is different than California's in many respects, including the following:

•

In California, demand for electricity has risen sharply over the last decade, with no new increased generating capacity; however, within Ohio, demand has risen more steadily, with increased capacity being added. For example, according to statistics reported by the Public Utilities Commission of Ohio (PUCO), 1,230 megawatts (MW, the basic unit of electric energy equal to one million watts) of generating capacity was added during this past year in Ohio;

another 1,330 MW is planned for service during 2001. By comparison, California, which is estimated at about three times Ohio's population, has added minimal capacity over the last several years.

•

California's restructuring plan required utilities to divest their generation assets and prohibited the utilities from entering into long term contracts for supply; this forced the utilities to rely on the spot market to meet demand. Ohio's restructuring plan does not require utilities to divest their generation assets and allows for utilities to negotiate long-term commodity supply contracts at fixed prices for commodity purchases.



•

Existing transmission constraints limit the amount of electricity California can access from outside its borders. Ohio, however, shares interconnections with such states as Indiana, Kentucky, Michigan, Pennsylvania, and West Virginia.



•

California's generation is largely dependent on natural gas the costmarketing and trading operations (which are primarily conducted through Cinergy Marketing and Trading, LP (Marketing & Trading), one of which has increased dramatically in recent months, and also on hydroelectric production, which has been reduced due to drought conditions. Generation in Ohio, however, is largely fueled by coal, which has been more stable in price.

    Twenty-four states and the District of Columbia have adopted deregulation plans. In response to the situation in California, some of these states, while not having similar experiences as California, are considering delaying or altering terms of implementation. A number of the remaining states are reconsidering their deregulation timetables. While we believe the situation in Ohio, as described above, and generally within the Midwest are different than California, we cannot predict the consequences, if any, on efforts to deregulate the remaining markets within our service territory. Indiana and Kentucky have not yet approved legislation.

BUSINESS UNITS
its subsidiaries).

BUSINESS SEGMENTS

We conduct operations through our subsidiaries and manage our businesses through the following four business units:three reportable segments:

•    Energy CommoditiesCommercial Business Unit (Commodities)(Commercial);

•    Energy DeliveryRegulated Business Unit (Delivery)(Regulated);
and

•    Cinergy InvestmentsPower Technology and Infrastructure Services Business Unit (Cinergy Investments);(Power Technology and
        •    International Business Unit (International) Infrastructure).

The following section describes the activities of our business unitssegments as of December 31, 2000. As the utility industry continues to evolve,Cinergy will continue to analyze its operating structure and make modifications as appropriate. In early 2001, we announced certain organizational changes, which further aligned the business units consistent withCinergy's strategic vision. The revised structure reflects three business units, as follows:2004.

•

Energy Merchant—will operate power plants, both domestically and abroad, and conduct all wholesale energy marketing, trading, origination, and risk management services;


•

Regulated Businesses—will operate all gas and electric transmission and distribution services, both domestically and abroad, and will be responsible for all regulatory planning for the regulated utility businesses ofCG&E,PSI, andULH&P; and


•

Power Technology and Infrastructure Services—will originate and manage a portfolio of emerging energy businesses.

See Note 1516 of the "Notes“Notes to Financial Statements"Statements” in "Item“Item 8. Financial Statements and Supplementary Data"Data” for financial information by business segment.

Commercial

CommoditiesCommercial manages our wholesale generation and energy marketing and trading activities.  Commercial’s wholesale generation consists of CG&E’s electric generation in Ohio due to Ohio’s transition to deregulation of electric generation and a competitive retail service market.  See “Electric Industry” in “Item 7. MD&A” for further detail of key elements of Ohio deregulation.  Commercial also performs energy risk management activities, provides

    Commodities operates

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As of December 31, 2000,2004, the total winter electric capabilitycapacity (including our portion of the total capacity for the jointly-owned plants) of theseCommercial’s domestic generating plants was 11,889 MW. These plants are mostly6,276 megawatts (MW).  Approximately 67 percent of this generation portfolio is coal-fired.  In December 2000,Cinergy announced its intent to acquire an additional 998 MW of natural-gas fired generation. See "Item“Item 2.  Properties"Properties” for a further discussion of the generating facilities. Commodities also conducts the following activities:

 •    wholesale energy marketing and trading;
        •    energy risk management;
        •    financial restructuring services; and
        •    proprietary arbitrage activities.

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

    Fuel SupplyEach year throughCG&E andPSI, we purchase approximately 27 purchases over 10 million tons of coal to generate electricity. The majority of this coal is obtained through long-term coal supply agreements. The remaining coal is purchased either on the spot market or through short-term supply agreements. We receive our coal supplyelectricity, primarily from mines located in Indiana, West Virginia, Ohio, Kentucky, Pennsylvania, Illinois, and Illinois.Colorado.  The price of coal has increased dramatically in 2004 as compared to 2003.  Contributing to the rise in the price of coal are (1) increases in demand for electricity, (2) environmental regulation, and (3) decreases in the number of suppliers of coal from prior years.  To help mitigate the price fluctuation of coal, Cinergy has a general practice to procure a substantial portion of coal through fixed-price contracts of varying length.  We hold fixed-price contracts that will source a substantial portion of our expected 2005 coal requirements.  We evaluate the appropriate amount of contract coal and length of contracts based on market conditions, including pricing trends, volatility and supplier reliability.  See “Contractual Cash Obligations” in “Item 7. MD&A” for further detail on CG&E’s total commitment under fixed-price coal contracts.

 Commodities

Commercial has natural gas-fired peaking plants that have a capacity of 1,766 MW.  The fuel for these units is primarily obtained through the natural gas spot market as it is difficult to forecast the natural gas requirements for these plants.  For further information on the risk of purchasing natural gas, see the “Market Risk Sensitive Instruments” section of “Item 7. MD&A”.

A joint operating agreement, effective in April 2002, allows Cinergy to jointly dispatch the regulated generating assets of PSI in conjunction with the deregulated generating assets of CG&E.  Under this agreement, transfers of power between PSI and CG&E are generally priced at market rates.

Commercial monitors alternative sources of coal and natural gas to assure a continuing availability of economical fuel supplies.  As such, it will maintain its practice of purchasing a portion of coal and natural gas requirements on the spotopen market and will continue to investigate least-cost coal options to comply with new and existing environmental requirements.

    BothCinergy and CG&E andPSI believe that they can continue to obtain enough coal and natural gas to meet future needs.  However, future environmental requirements may significantly impact the availability and price of coal.these fuels.

    Purchased Power

At times, we purchaseCommercial purchases power to meet the energy needs of our wholesale customers and to meet the requirements of our retail native load customers (end-use customers within our operating companies' franchise territory).its customers.  Factors that could causeCinergy Commercial to purchase power for retail native loadits customers include generating plant outages, extreme weather conditions, summer reliability, growth, and other factors associated with supplying full requirements electricity.price.  We believe we can obtain enough purchased power to meet future needs.  However, during periods of excessive demand, such as those which occurred in the summers of 1998 and 1999, the price and availability of these purchases may be significantly impacted. See the "Significant Rate Developments" section of "Item 7. Management's Discussion

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