UNITED STATES OF AMERICA

BEFORE THE SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

PUBLIC UTILITY HOLDING COMPANY ACT OF 1935

File No 070-7218

REPORT FOR PERIOD

October 1, 2004 to December 31, 2004

PURSUANT TO RULE 24

In the matter of

AEP Utilities, Inc.

AEP Credit, Inc.

1.  AEP Credit, Inc. (AEP Credit) hereby files a balance sheet as of December 31, 2004, statements of income for the three and twelve-month periods ended December 31, 2004 and 2003, and notes to the financial statements as Exhibit 1 attached hereto.

2.  AEP Credit is currently providing low-cost financing for American Electric Power Company’s (AEP’s) electric utility operating companies through the factoring of receivables. The receivables arise primarily from the sale and delivery of electricity. On December 31, 2001, AEP Credit entered into a sale of receivables agreement with a group of banks and commercial paper conduits. Under the sale of receivables agreement, AEP Credit sells an interest in the receivables it acquires from its clients to the commercial paper conduits and banks and receives cash. The transaction constitutes a sale of receivables in accordance with Statement of Financial Accounting Standards No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities,” allowing the receivables to be removed from AEP Credit’s balance sheet. AEP Credit has no ownership interest in the commercial paper conduits and does not consolidate the entities, in accordance with accounting principles generally accepted in the United States of America. At December 31, 2004, AEP Credit had a $600 million commitment from the banks under the sale of receivables agreement to purchase undivided interests in the receivables from AEP Credit, of which $435 million was outstanding. The sale of recievables agreement was amended and restated on August 25, 2004 and expires on August 24, 2007. On December 31, 2004, the variable discount rate for the sale of accounts receivable to the conduits under the sale of receivables agreement was 2.32%. On December 31, 2004, AEP Credit had outstanding borrowings from AEP related to funding accounts receivable purchases of $57 million at a rate of 2.46%. On December 31, 2004, the overall composite rate of funding accounts receivable purchases was 2.33%.

Any receivables eligible for sale on AEP Credit’s books at the time of sale that are not sold are pledged as collateral for the collection of receivables sold.

3. AEP Credit hereby files, as Exhibit 2 attached hereto, the earnings coverage for AEP Credit’s indebtedness for the period from October 1, 2004 through December 31, 2004 and AEP Credit’s capital structure at December 31, 2004. AEP Credit hereby files as Exhibit 3 attached hereto the twelve-month average of outstanding accounts receivable during said period as of the end of each month.

4. With respect to affiliated companies, Appalachian Power (APCo), Columbus Southern Power Company (CSPCo), Indiana Michigan Power Company (I&M), Kentucky Power Company (KPCo), Kingsport Power Company (KGPCo), Ohio Power Company (OPCo), Public Service Company of Oklahoma (PSO), and Southwestern Electric Power Company (SWEPCo), AEP Credit hereby certifies that the allowed returns on common equity for the period from October 1, 2004 through December 31, 2004 were unchanged in all regulatory jurisdictions from the previous certificate of notification, with the following exception: The Kentucky Public Service Commission in Case No. 2002-01169, allowed a return on common equity of 11% for an environmental surcharge related to costs expended at KPCo's Big Sandy Facility. AEP Credit also hereby files the discount calculation for affiliated companies and the factoring expense savings for affiliated companies as shown in Exhibits 4 and 5, respectively, attached hereto.

5. AEP Credit hereby files as Exhibit 6 attached hereto a copy of any state regulatory commission decision or analysis addressing the effect of the factoring of AEP System accounts receivable rates which were issued during the period October 1, 2004 through December 31, 2004.

6. Copy of the audited annual financial statements for the years ended December 31, 2003 and 2002. These are the most recent audited financial statements available.  See previously filed at: CSW/AEP Credit File Number 70-7218, Exhibit 7, third quarter 2004.

7. Said transactions have been carried out in accordance with the terms and conditions of, and for the purpose represented in, the Form U-1 Application-Declaration of AEP Utilities, Inc. (AEP Utilities) and AEP Credit, in File No. 70-7218, and in accordance with the terms and conditions of the Commission’s orders dated July 31, 1986, May 8, 1988, December 27, 1989, August 30, 1990, December 21, 1990, December 24, 1991, December 9, 1992, December 21, 1993, December 16, 1994, March 11, 1997 and December 21, 2000, permitting said Application-Declaration to become effective, and the Form U-1 Application-Declaration of CSW, AEP Texas Central Company and AEP Credit, in File No. 70-8037, and in accordance with the terms and conditions of the Commission’s orders dated December 8, 1992 and December 29, 1992, permitting said Application-Declaration to become effective.

8. Chart of accounts and accounting system procedures of AEP Credit as maintained by American Electric Power Service Corporation (AEPSC). [Exhibit 7]

SIGNATURE

As required by order of this Commission pursuant to the Public Utility Holding Company Act of 1935, AEP Credit Inc. has duly caused this report to be signed on its behalf on this 14th day of February, 2005.

By : /s/ Rebecca J. Buonavolonte

Rebecca J. Buonavolonte

Managing Director - Financial Reporting

American Electric Power Service Corporation

EXHIBIT INDEX

Exhibit Number	Exhibit	Transmission Method
1	Unaudited balance sheet as of December 31, 2004, unaudited statements of income for the three and twelve-month periods ended December 31, 2004 and 2003 and unaudited notes to the financial statements.	Electronic
2	Earnings coverage for the period from October 1, 2004 through December 31, 2004 and capital structure at December 31, 2004.	Electronic
3	Twelve month "rolling average" as of the end of each month of outstanding accounts receivable of affiliated companies.	Electronic
4	Discount calculation for affiliated companies for the three months ended December 31, 2004.	Electronic
5	Factoring expense savings for the affiliated companies for the three months ended December 31, 2004.	Electronic
6	Any state regulatory commission decision or analysis addressing the effect of the factoring of AEP System accounts receivable rates which were issued during the period October 1, 2004 through December 31, 2004.	Electronic
7	Chart of accounts and accounting system procedures for AEP Credit.	Electronic

Exhibit 1

AEP CREDIT, INC.

STATEMENTS OF INCOME

FOR THE PERIODS ENDED DECEMBER 31, 2004 AND 2003

(in thousands)

(Unaudited)

	Three Months Ended December 31						Twelve Months Ended December 31
	2004			2003			2004			2003
REVENUES
Operating Revenues	$	11,084		$	10,429		$	46,383		$	41,647
OPERATING EXPENSES
Interest		299			407			1,547			1,280
Provision for Bad Debts		6,163			6,281			28,918			24,787
Loss on Sale of Accounts Receivable		2,223			1,416			7,480			6,665
Credit Line Fees		584			594			2,198			1,900
General and Administrative		177			123			789			582
TOTAL OPERATING EXPENSES		9,446			8,821			40,932			35,214
OPERATING INCOME		1,638			1,608			5,451			6,433
OTHER INCOME
Interest Income		-			-			-			1
INCOME TAX EXPENSE (CREDIT)
Current		2,690			(3,769	)		4,841			(3,042	)
Deferred		(2,132	)		4,144			(2,861	)		5,120
TOTAL INCOME TAX EXPENSE		558			375			1,980			2,078
NET INCOME	$	1,080		$	1,233		$	3,471		$	4,356

Exhibit 1

(Continued)

AEP CREDIT, INC.

BALANCE SHEET

AS OF DECEMBER 31, 2004

(in thousands)

(Unaudited)

	2004
ASSETS
CURRENT ASSETS
Retained Interest in Accounts Receivable Sold	$	102,383
Unsold Accounts Receivable - Affiliated		38,707
Allowance for Uncollectible Accounts Retained		(22,282	)
Total Receivables		118,808
TOTAL CURRENT ASSETS		118,808
OTHER ASSETS
Deferred Income Taxes		7,133
Other		1,012
TOTAL OTHER ASSETS		8,145
TOTAL ASSETS	$	126,953
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Short-term Debt - Affiliated	$	57,458
Accounts Payable - Affiliated		2,020
Accounts Payable - Nonaffiliated		21,254
Unearned Revenue		1,597
Accrued Tax Liability		4,965
Other Current Liabilities		442
TOTAL CURRENT LIABILITIES		87,736
DEFERRED CREDITS		11,523
TOTAL LIABILITIES		99,259
STOCKHOLDER’S EQUITY
Common Stock, No Par; 1,000 Shares Authorized
273 Shares Issued and Outstanding as of December 31, 2004		1
Additional Paid-in Capital		27,693
TOTAL STOCKHOLDER’S EQUITY		27,694
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY	$	126,953

Exhibit 1

(Continued)

AEP CREDIT, INC.

NOTES TO FINANCIAL STATEMENTS 

DECEMBER 31, 2004 AND 2003

(Unaudited)

1.     GENERAL:

The accompanying unaudited financial statements of AEP Credit, Inc. (the Company) should be read in conjunction with the 2003 audited annual financial statements. Certain prior-period amounts have been reclassified to conform to current-period presentation. In the opinion of management, these unaudited, interim financial statements reflect all adjustments (consisting of only normal and recurring accruals), which are necessary for a fair presentation of the results of operations for interim periods.

2.     SHORT-TERM DEBT:

The Company is currently providing low-cost financing for American Electric Power Company’s (AEP’s) electric utility operating companies through the factoring of receivables. The receivables arise primarily from the sale and delivery of electricity. On December 31, 2001, the Company entered into a sale of receivables agreement with a group of banks and commercial paper conduits. Under the sale of receivables agreement, the Company sells an interest in the receivables it acquired from its clients to the commercial paper conduits and banks and receives cash. The transaction constitutes a sale of receivables in accordance with Statement of Financial Accounting Standards No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities,” allowing the receivables to be removed from the Company’s balance sheet. The Company has no ownership interest in the commercial paper conduits and does not consolidate the entities in accordance with accounting principles generally accepted in the United States of America.

At December 31, 2004, the Company had a $600 million commitment from the banks under the sale of receivables agreement to purchase undivided interests in the receivables from the Company, of which $435 million was outstanding. The sale of receivables agreement was amended and restated on August 25, 2004 and expires on August 24, 2007. On December 31, 2004, the average variable discount rate for the sale of accounts receivable to the conduits under the sale of receivables agreement was 2.32%. On December 31, 2004, the Company had outstanding borrowings from AEP related to funding accounts receivable purchases of $57 million at a rate of 2.46%. On December 31, 2004, the overall composite rate of funding accounts receivable purchases was 2.33%.

Any receivables eligible for sale on the Company’s books at the time of sale that are not sold are pledged as collateral for the collection of receivables sold. Additional information related to the sale of receivables is as follows:

	$ in Millions
	(Unaudited)
Proceeds from Sale of Accounts Receivable during
the 3 months ended December 31, 2004	$	1,267
Proceeds from Sale of Accounts Receivable during
the 12 months ended December 31, 2004		5,163
Accounts Receivable Eligible for Sale and Pledged
as Collateral as of December 31, 2004		80
Deferred Revenue from Servicing Accounts Receivable
as of December 31, 2004		1
Loss on Sale of Accounts Receivable during the 3
months ended December 31, 2004		2
Loss on Sale of Accounts Receivable during the 12
months ended December 31, 2004		7
Average Variable Discount Rate to the Conduits
during the 3 months ended December 31, 2004		1.95	%
Average Variable Discount Rate to the Conduits
during the 12 months ended December 31, 2004		1.50	%

Exhibit 2

AEP CREDIT, INC.
EARNINGS COVERAGE
(in thousands, except ratios)
(Unaudited)
	2004
	October		November		December
Net Income	$	579	$	203	$	298
Income Taxes		322		402		(166	)
Interest Expense/Credit Line Fees		293		270		320
Earnings	$	1,194	$	875	$	452
Interest Expense/Credit Line Fees	$	293	$	270	$	320
Ratio of Earnings To Fixed Charges		4.07		3.24		1.41

CAPITAL STRUCTURE
DECEMBER 31, 2004
(in thousands)
(Unaudited)
Short-Term Debt (Nonaffiliated)	$	-	0	%
Intercompany Loan (Short-term Debt - Affiliated)		57,458	67	%
Common Equity		27,694	33	%
Total	$	85,152	100	%

CAPITAL STRUCTURE ADJUSTED FOR
ACCOUNTS RECEIVABLE SOLD TO BANKS
DECEMBER 31, 2004
(in thousands)
(Unaudited)
Accounts Receivable Sold to Banks	$	435,124	84	%
Intercompany Loan (Short-term Debt - Affiliated)		57,458	11	%
Common Equity		27,694	5	%
Total	$	520,276	100	%

Exhibit 3

AEP CREDIT, INC.
AVERAGE TWELVE-MONTH "ROLLING" ACCOUNTS RECEIVABLE BALANCES
(in thousands)
(Unaudited)
	Twelve Months Ended October 31, 2004		Twelve Months Ended November 30, 2004		Twelve Months Ended December 31, 2004
AFFILIATES
APCo	$	58,883	$	58,371	$	58,026
CSPCo		100,187		99,968		100,157
I&M		98,474		97,986		97,853
KPCo		28,800		28,716		28,918
KGPCo		7,608		7,583		7,638
OPCo		106,997		106,448		106,698
PSO		116,910		116,232		115,801
SWEPCo		75,614		75,094		75,091
Total Affiliates:	$	593,473	$	590,398	$	590,182

Exhibit 4

APPALACHIAN POWER COMPANY
DISCOUNT CALCULATION
THREE MONTHS ENDED DECEMBER 31, 2004
(Unaudited)
	Discount Calculation
Weighted Cost of Capital (Annualized)		0.02766
Average Days Outstanding		27.87
Weighted Cost of Capital (Average Days Outstanding)		0.002141
Collection Experience Factor		0.003457
Agency Fee Rate		0.020000
Total Discount Factor		0.025598

ASSUMPTIONS
INTEREST RATE AND PURCHASE DISCOUNT	1.9894	%
RETAIL ROCE (RETURN ON COMMON EQUITY)	10.8500	%
TAX RATE	38.0000	%
DEBT RATIO	95.0000	%
EQUITY RATIO	5.0000	%

Exhibit 4

(Continued)

COLUMBUS SOUTHERN POWER COMPANY
DISCOUNT CALCULATION
THREE MONTHS ENDED DECEMBER 31, 2004
(Unaudited)
	Discount Calculation
Weighted Cost of Capital (Annualized)		0.02895
Average Days Outstanding		34.94
Weighted Cost of Capital (Average Days Outstanding)		0.002810
Collection Experience Factor		0.005372
Agency Fee Rate		0.020000
Total Discount Factor		0.028182

ASSUMPTIONS
INTEREST RATE AND PURCHASE DISCOUNT	1.9894	%
RETAIL ROCE (RETURN ON COMMON EQUITY)	12.4600	%
TAX RATE	38.0000	%
DEBT RATIO	95.0000	%
EQUITY RATIO	5.0000	%

Exhibit 4

(Continued)

INDIANA MICHIGAN POWER COMPANY
DISCOUNT CALCULATION
THREE MONTHS ENDED DECEMBER 31, 2004
(Unaudited)
	Discount Calculation Indiana		Discount Calculation Michigan
Weighted Cost of Capital (Annualized)		0.028577		0.029383
Average Days Outstanding		30.72		35.02
Weighted Cost of Capital (Average Days Outstanding)		0.002439		0.002858
Collection Experience Factor		0.002863		0.002963
Agency Fee Rate		0.020000		0.020000
Total Discount Factor		0.025302		0.025821

ASSUMPTIONS
INTEREST RATE AND PURCHASE DISCOUNT	1.9894	%	1.9894	%
RETAIL ROCE (RETURN ON COMMON EQUITY)	12.0000	%	13.0000	%
TAX RATE	38.0000	%	38.0000	%
DEBT RATIO	95.0000	%	95.0000	%
EQUITY RATIO	5.0000	%	5.0000	%

  Exhibit 4

(Continued)

KENTUCKY POWER COMPANY
DISCOUNT CALCULATION
THREE MONTHS ENDED DECEMBER 31, 2004
(Unaudited)
	Discount Calculation
Weighted Cost of Capital (Annualized)		0.027982
Average Days Outstanding		32.08
Weighted Cost of Capital (Average Days Outstanding)		0.002494
Collection Experience Factor		0.004705
Agency Fee Rate		0.020000
Total Discount Factor		0.027199

ASSUMPTIONS
INTEREST RATE AND PURCHASE DISCOUNT	1.9894	%
RETAIL ROCE (RETURN ON COMMON EQUITY)	11.2500	%
TAX RATE	38.0000	%
DEBT RATIO	95.0000	%
EQUITY RATIO	5.0000	%

Exhibit 4

(Continued)

KINGSPORT POWER COMPANY
DISCOUNT CALCULATION
THREE MONTHS ENDED DECEMBER 31, 2004
(Unaudited)
	Discount Calculation
Weighted Cost of Capital (Annualized)		0.028577
Average Days Outstanding		31.33
Weighted Cost of Capital (Average Days Outstanding)		0.002487
Collection Experience Factor		0.007150
Agency Fee Rate		0.020000
Total Discount Factor		0.029637

ASSUMPTIONS
INTEREST RATE AND PURCHASE DISCOUNT	1.9894	%
RETAIL ROCE (RETURN ON COMMON EQUITY)	12.0000	%
TAX RATE	38.0000	%
DEBT RATIO	95.0000	%
EQUITY RATIO	5.0000	%

Exhibit 4

(Continued)

OHIO POWER COMPANY
DISCOUNT CALCULATION
THREE MONTHS ENDED DECEMBER 31, 2004
(Unaudited)
	Discount Calculation
Weighted Cost of Capital (Annualized)		0.029254
Average Days Outstanding		29.36
Weighted Cost of Capital (Average Days Outstanding)		0.002386
Collection Experience Factor		0.001916
Agency Fee Rate		0.020000
Total Discount Factor		0.024302

ASSUMPTIONS
INTEREST RATE AND PURCHASE DISCOUNT	1.9894	%
RETAIL ROCE (RETURN ON COMMON EQUITY)	12.8100	%
TAX RATE	38.0000	%
DEBT RATIO	95.0000	%
EQUITY RATIO	5.0000	%

Exhibit 4

(Continued)

PUBLIC SERVICE COMPANY OF OKLAHOMA
DISCOUNT CALCULATION
THREE MONTHS ENDED DECEMBER 31, 2004
(Unaudited)
	Discount Calculation
Weighted Cost of Capital (Annualized)		0.027787
Average Days Outstanding		43.02
Weighted Cost of Capital (Average Days Outstanding)		0.003320
Collection Experience Factor		0.005245
Agency Fee Rate		0.020000
Total Discount Factor		0.028565

ASSUMPTIONS
INTEREST RATE AND PURCHASE DISCOUNT	1.9894	%
RETAIL ROCE (RETURN ON COMMON EQUITY)	11.0000	%
TAX RATE	38.0000	%
DEBT RATIO	95.0000	%
EQUITY RATIO	5.0000	%

Exhibit 4

(Continued)

SOUTHWESTERN ELECTRIC POWER COMPANY
DISCOUNT CALCULATION
THREE MONTHS ENDED DECEMBER 31, 2004
(Unaudited)
	Discount Calculation Arkansas		Discount Calculation Louisiana		Discount Calculation Texas
Weighted Cost of Capital (Annualized)		0.027552		0.027845		0.031551
Average Days Outstanding		35.96		40.74		33.66
Weighted Cost of Capital (Average Days Outstanding)		0.002752		0.003151		0.002950
Collection Experience Factor		0.004131		0.004424		0.004587
Agency Fee Rate		0.020000		0.020000		0.020000
Total Discount Factor		0.026883		0.027575		0.027537

ASSUMPTIONS
INTEREST RATE AND PUCHASE DISCOUNT	1.9894	%	1.9894	%	1.9894	%
RETAIL ROCE (RETURN ON COMMON EQUITY)	10.7500	%	11.1000	%	15.7000	%
TAX RATE	38.0000	%	38.0000	%	38.0000	%
DEBT RATIO	95.0000	%	95.0000	%	95.0000	%
EQUITY RATIO	5.0000	%	5.0000	%	5.0000	%

Exhibit 5

AEP CREDIT, INC.
AFFILIATED COMPANIES
FACTORING EXPENSE SAVINGS
THREE MONTHS ENDED DECEMBER 31, 2004
(in thousands)
(Unaudited)
	20% EQUITY		5% EQUITY		SAVINGS
AFFILIATES
APCo	$	689	$	379	$	310
CSPCo		1,397		730		667
I&M		1,338		705		633
KPCo		378		206		172
KGPCo		95		50		45
OPCo		1,504		779		725
PSO		1,540		842		698
SWEPCo		1,100		568		532
Total Affiliates:	$	8,041	$	4,259	$	3,782

Exhibit 6

State regulatory commission decisions or analysis addressing the effect of the factoring of AEP System accounts receivable rates which were issued during the period October 1, 2004 through December 31, 2004:

None

Exhibit 7

AEP CREDIT, INC.
CHART OF ACCOUNTS
Standard Accounts - Quick Reference
BALANCE SHEET ACCOUNTS (1310-2831)
Description	Account Number
Assets
Cash		1310.XXX
Cash		1310.000
Temporary Cash Investments		1360.XXX
Temporary Investments		1360.000
Customer Accounts Receivable		1420.XXX
Residual A/R Affiliated		1420.036
Contra A/R Affiliated		1420.037
Other Accounts Receivable		1430.XXX
Residual A/R Non-Affiliated		1430.059
Contra A/R Non-Affiliated		1430.060
Accumulated Provision for Uncollectible Accounts - Cr		1440.XXX
Uncollectible Accounts-Other Receivables		1440.002
Accounts Receivable from Associated Companies		1460.XXX
A/R - Associated Co - InterUnit G/L		1460.001
A/R - Associated Co - InterUnit A/P		1460.009
Factored A/R - Billed		1460.022
Factored A/R - Unbilled		1460.023
Prepayments		1650.XXX
Prepaid Insurance		1650.001
Other Prepayments		1650.006
Liabilities
Common Stock Issued		2010.XXX
Common Stock Issued-Affiliated		2010.000
Donations Received from Stockholders		2080.XXX
Donations Received from Stockholders		2080.000
Unappropriated Retained Earnings		2160.XXX
Unappropriated Retained Earnings-Unrestricted		2160.001
Notes Payable		2310.XXX
Notes		2310.001
Accounts Payable		2320.XXX
AEP CREDIT Payable to Banks		2320.065
Notes Payable to Associated Companies		2330.XXX
Corp Borrow Program (NP-Assoc)		2330.000
Accounts Payable to Associated Companies		2340.XXX
A/P Associated Co - InterUnit G/L		2340.001
A/P Associated Co - Intercompany		2340.027
Factored-A/R Charge-Off Limit Fee		2340.028
A/P Associated Co - AEPSC Bills		2340.029
A/P Associated Co - InterUnit A/P		2340.030
Taxes Accrued		2360.XXX
Federal Income Tax		2360.001
State Income Taxes		2360.002
State Franchise Taxes		2360.012
Interest Accrued		2370.XXX
Interest Accrued-Lines of Credit		2370.008

Exhibit 7

(Continued)

AEP CREDIT, INC.
CHART OF ACCOUNTS
Standard Accounts - Quick Reference
INCOME STATEMENT ACCOUNTS (4082-9302)
Description	Account Number
Revenues
Interest and Dividend Income	4190.XXX
Interest Income	4190.002
Miscellaneous Service Revenues	4510.XXX
Misc Service Rev -Revenue Recognition-Assoc	4510.013
Misc Service Rev - Bad Debt - Assoc	4510.015
Misc Service Rev - Agency Fee - Assoc	4510.016
Misc Service Rev - Carrying Cost-Assoc	4510.017
Misc Service Rev-Credit Line Fee - Assoc	4510.018
Misc Service Rev-Rev Recognition-NonAssoc	4510.020
Misc Service Rev - Bad Debt - NonAssoc	4510.022
Misc Service Rev - Agency Fee - NonAssoc	4510.023
Misc Service Rev - Carrying Cost - NonAssoc	4510.024
Misc Service Rev - Credit Line Fee - NonAssoc	4510.025
Expenses
Taxes Other than Income Taxes - Other Income and Deductions	4082.XXX
State Franchise Taxes	4082.008
Income Taxes - Utility Operating Income	4091.XXX
Income Taxes, UOI - Federal	4091.001
Income Taxes - Other Income and Deductions	4092.XXX
Inc Tax, Other Inc and Ded - State	4092.002
Provision for Deferred Income Taxes - Utility Operating Income	4101.XXX
Prov Def I/T Util Op Inc-Fed	4101.001
Interest on Debt to Associated Companies	4300.XXX
Interest to Assoc Co - Money Pool	4300.003
Other Interest Expense	4310.XXX
Lines of Credit	4310.007
Uncollectible Accounts	9040.XXX
Uncollectible Accounts	9040.000
Office Supplies and Expenses	9210.XXX
Off Supplies and Expenses - NonAssoc	9210.001
Outside Services Employed	9230.XXX
Outside Services Employed - NonAssoc	9230.001
AEPSC Billed to Client Co	9230.003
Miscellaneous General Expenses	9302.XXX
Miscellaneous General Expense	9302.000
Corporate and Fiscal Expenses	9302.003
Loss on Sale of A/R	9302.015

Exhibit 7

(Continued)

AEP CREDIT, INC.

ACCOUNTING SYSTEM PROCEDURES

INTRODUCTION

AEP Credit, Inc. (AEP Credit), a wholly owned subsidiary of AEP Utilities, Inc. and an indirect subsidiary of AEP was formed for the purpose of providing a low-cost financing source for utilities through factoring utility accounts receivable (receivables). AEP Credit purchases receivables at a discount enabling its customers to collect their money the same day they deliver its utility service.

Each company selling (factoring) its receivables to AEP Credit has executed a “Purchase Agreement” and an “Agency Agreement” which outlines how the basic transactions take place. The Purchase Agreement and Agency Agreement may be terminated by either party upon 30 days written notice to the other party.

AEP Credit’s affiliated customers are Appalachian Power Company (APCo), Columbus Southern Power Company (CSPCo), Indiana Michigan Power Company (I&M), Ohio Power Company (OPCo), Kentucky Power Company (KPCo), Kingsport Power Company (KGPCo), Public Service Company of Oklahoma (PSO), and Southwestern Electric Power Company (SWEPCo). The customers are individually known as “Seller” and collectively known as “Sellers.”

AEP Credit is authorized to purchase, without recourse, certain receivables arising from the sale and delivery of electricity, gas and other related services in the Seller’s ordinary course of business. The price AEP Credit pays the Seller for the receivables is the dollar amount of receivables less a discount (purchase price). The determination of the discount is based upon AEP Credit’s cost of financing, the Seller’s collection experience and an agency fee.

The Seller has agreed through the Agency Agreement to service, administer and collect such receivables on behalf of AEP Credit. As long as the Seller acts as the agent, AEP Credit agrees to pay the Seller an agent collection fee. Payment of the agent collection fee shall be made simultaneously with collections, by deducting the fee from funds owed to AEP Credit for receivables collected.

The data received from the Seller must be accurate and timely received. Any delays or inaccurate information affects the cash exchanged between the Seller and AEP Credit; therefore, it is critical to AEP Credit’s operation that the Seller provide accurate and timely information. The Seller has also agreed to maintain individual customer records that support the factored receivables and the collection of those receivables. These records are available to AEP Credit for examination and analysis.

The following procedures outline the transactions that take place and the accounting for these transactions. The detailed sections describe procedures for AEP Credit as performed by American Electric Power Service Corporation (AEPSC), AEPSC Treasury-Cash Management (AEPSC Cash Management), Accounting, AEPSC Regulatory Reporting and the Sellers. As required by Securities Exchange Commission (SEC) Order, AEP Credit utilizes the excess capacity of AEPSC employees to handle its operations.

INITIAL TRANSACTION

The initial transaction between AEP Credit and the Seller is based on the receivables and allowance for bad debts recorded on the Seller’s books at an agreed upon date. The amount of receivables purchased by AEP Credit is determined by applying the carrying cost portion and agency fee portion of the discount rate factor to the balance of receivables less the balance of the allowance for bad debts. AEP Credit will remit the net transaction amount to the Seller on the initial transaction date by wire transfer. AEP Credit records on its books the amount of gross receivables and the allowance for bad debts.

DAILY TRANSACTIONS

Information Received From Sellers

Automated Billings

These are the amounts of gross receivables billed by the Seller each day. This information is provided by state jurisdiction and further broken down by retail and wholesale designation. The information is provided the morning after the actual billing date. The discounts and purchase price are calculated and verified with the Seller.

Automated Collections

These amounts include all collections of receivables and billing adjustments that change the amounts due from customers. This information is provided by state jurisdiction and further broken down by retail and wholesale designation. The information is provided the morning after the collections are processed. The collections are subtracted from the purchase price to determine the net cash transaction for the day and the balance of purchased receivables.

Unbilled Revenues & Estimated Billings Sold

Unbilled revenues represent receivables created by the delivery of electricity to customers which the customer is legally obligated to pay, and is recorded on the customer’s meter but has not yet been billed by the Seller. AEP Credit purchases both billed and unbilled receivables as stipulated in the Purchase Agreement.

AEP Credit’s approach to purchasing unbilled revenues is to purchase on a daily basis a portion of all billing cycles for an upcoming month. When the actual cycle billing occurs, an adjustment is made to that day’s transaction for the difference between the amount previously purchased for that cycle and the actual billing. Estimates of unbilled revenues are based upon the Seller’s projected billings and historical cycle billings adjusted for any known changes.

Manual Adjustments

Manual adjustments are periodically necessary to correct previous transactions. These adjustments are timely reported to AEP Credit. These amounts are included with the items discussed above in the determination of the purchase price and the net cash transaction for the current day’s transaction.

Daily Procedures Performed by AEPSC Cash Management

Determination of Face Amount Purchased

The dollar amount of receivables purchased by AEP Credit from the Seller is known as the “face amount purchased.” The face amount purchased consists of the Seller’s daily cycle billings plus daily unbilled revenues minus unbilled revenues previously purchased for the current day’s billing cycle.

Determination of Discount Rate

The purchase price AEP Credit pays to the Seller is the face amount purchased, reduced by the discount rate. The discount taken compensates AEP Credit for costs associated with financing and recovering receivables purchased without recourse. Three components determine the discount rate:

·   carrying cost component

·   collection experience component

·   agency fee component

Each of these components is described below.

Carrying Cost Component

The carrying cost component compensates AEP Credit for its cost of carrying the receivables it purchases. For purposes of calculating this portion of the discount, AEP Credit assumes certain debt and equity ratios for each Seller, currently as follows:

Seller	Debt		Equity
Affiliated Companies	95	%	5	%

The calculation of this component consists of three factors:

·   Debt factor — Compensates AEP Credit for its interest cost in obtaining funding from external sources. The calculation consists of multiplying the daily interest cost incurred by AEP Credit by the appropriate debt ratios.

·   Equity factor — Provides a return to AEP Credit for the equity that is provided by AEP Utilities, Inc. The calculation consists of multiplying the allowed return on equity by the appropriate equity ratios and then dividing by the tax effect (1 — tax rate) to allow for income taxes. The return on equity that the SEC allows for the purchase of retail receivables is based on the allowed equity returns of the Seller as approved by its respective state commission. For affiliated wholesale receivables, the SEC allows AEP Credit a return on equity equal to the weighted average retail returns on equity for the affiliate companies.

·   Average days outstanding factor — Average days outstanding are computed for each state jurisdiction and further broken down by retail and wholesale designation. The average days outstanding is calculated and reset monthly on the fifth business day by dividing the average daily balance of outstanding receivables by average receivables purchased per day, based on the previous month’s transactions.

The carrying cost component is determined by adding the debt factor and the equity factor to determine the overall annual carrying cost charge. This annual carrying cost charge is divided by 360 to get a daily rate which is then multiplied by the average days outstanding factor to determine the carrying cost component.

Collection Experience Component

The collection experience component compensates AEP Credit for uncollectible receivables and is calculated and reset monthly on the fifth business day. The component is calculated by dividing the net amount of receivables charged-off over the last 12 months by the amount of receivables purchased for the same time period. The net amount of receivables charged-off is the dollar amount charged-off as uncollectible less any recoveries previously charged-off plus an excess of 90-day past due receivables (90-day surcharge). The 90-day surcharge penalizes the Seller’s failure to charge-off a receivable by adding excessive aged accounts to the collection experience factoring rate.

Agency Fee Component

The agency fee component provides AEP Credit with additional protection from excessive charge-offs. At the time receivables are purchased, 2% of the face amount purchased is withheld from the Seller until collection. Upon collection of the receivables, AEP Credit returns the 2% held back to the Seller. If the Seller’s net charge-offs become excessive, the portion of the net monthly charge-off that exceeds the charge-off limit will be withheld for 12 months. The charge-off limit is 1% of the sum of the last 12 months’ collections divided by 12.

Daily Transactions Summary

The face amount purchased from the Seller is multiplied by the discount rate to get the discount amount. The total discount amount is subtracted from the total face amount purchased resulting in the price AEP Credit pays the Seller for the receivables. The amount collected from the customers is subtracted from the purchase price to get the net cash transaction for the day.

The amount billed, purchase price, amount collected and net cash transactions are confirmed with the Seller. The net cash transactions are then authorized to be wire transferred between the bank accounts of the Seller and AEP Credit. Cash transactions are netted to avoid multiple daily wires between AEP Credit and the Seller.

OTHER TRANSACTIONS

Determination of Carrying Cost Variance Payment

On the fifth business day of each month, the charges assessed the Seller are adjusted through the Carrying Cost Variance Payment. At month-end AEP Credit calculates the carrying cost revenue that is recognized for the current month and compares it to the incurred service fee. The service fee is calculated by multiplying the daily outstanding receivables balances by the daily financing rate incurred by AEP Credit.

If the carrying cost revenue recognized is greater than the service fee, AEP Credit owes the Seller the excess carrying cost revenue collected. If the carrying cost revenue recognized is less than the service fee, the Seller owes AEP Credit additional carrying cost revenue. This transaction takes place on the fifth business day of each month along with the change to the average days outstanding factor and the collection experience component.

MONTHLY ACCOUNTING

Monthly accounting for AEP Credit is done by AEPSC Accounting. Accounting is based on information received primarily from AEPSC Cash Management.

Information From AEPSC Cash Management

Monthly Summary of Daily Factoring Transactions

These summaries include daily gross receivables purchased, the purchase price, discounts, collections and the daily receivables balance for each Seller by state jurisdiction and further broken down by retail and wholesale designation. Also included are cash transactions.

Allocation Factors

AEPSC Cash Management also calculates allocation factors based on average receivables balances for each Seller during the month by state jurisdiction and further broken down by retail and wholesale designation as a percentage of the total of all balances held by AEP Credit. Allocation factors are used to allocate interest expense, interest income, legal fees and other transactions not allocable to a specific Seller.

Unearned Revenues

The discount factor applied to receivables includes a carrying cost for an assumed number of days until collection (average days outstanding). A part of the carrying cost associated with receivables factored toward month-end will not be actually incurred by AEP Credit until the following month. This creates a mismatch between current month carrying cost revenues and carrying cost expenses. Therefore, AEP Credit defers a portion of the carrying cost discount as unearned discount revenues.

The calculation of unearned discount revenues is done at the end of the month by AEPSC Cash Management for each Seller and provided to AEPSC Accounting. This information is also provided to the Seller, which recognizes the amount as prepaid factoring costs.

Bad Debt Write-offs and Collections

Pursuant to the Agency Agreement, the Seller uses its best efforts in processing and collecting factored receivables as an agent for AEP Credit. The Seller is empowered, as necessary, to employ collection agencies or other third parties to collect delinquent receivables.

Each month, the Seller recommends to AEP Credit the amount of retail and wholesale receivables by state jurisdiction to be written-off as uncollectible. Also, each month any amounts collected on accounts previously written-off are reported by the Seller. The amount recovered is netted against the gross write-offs for the month when determining the collection experience component and when booking bad debts.

Explanation of any Manual Adjustments

At the end of the month, AEPSC Cash Management provides AEPSC Accounting with copies of all pertinent information explaining any unusual manual adjustments made during the month.

Summary of Cash Transactions

These summaries include all daily cash receipts and disbursements along with daily balances that have been verified to the bank balances. These summaries provide additional information on actual cash receipts and disbursements for the preparation of any necessary journals.

Interest and Other Accruals

AEPSC Cash Management calculates and provides to AEPSC Accounting the amount of interest expense, credit line fees, prepaid interest, interest income and any other costs associated with short-term borrowings and investments to be recorded during the month.

Capitalization Balances

Daily balances of short-term borrowings and AEP Utilities, Inc. equity are maintained by AEPSC Cash Management. This information is used to ensure that stipulated equity requirements are being met and all related equity transactions are properly recorded on the accounting records.

Miscellaneous Cash Items

AEPSC Cash Management provides details on any change in cash procedures that affect transactions that should be reflected in the monthly financial statements.

Information From Other Sources

Although most of the information needed monthly by AEPSC Accounting is provided by AEPSC Cash Management, some information is obtained from other sources as necessary. Two primary examples are the service billings from AEPSC provided by AEPSC Accounting, and the franchise tax and income tax information, including accruals, estimates and payments provided by the AEPSC Tax Department.

Preparation of Monthly Summary and Journal Entries

Each month AEPSC Accounting prepares all journal entries from the information received and enters all journal entries into the general ledger system. Recurring journal entries are listed below.

Journal Entry	Journal Entry Description
2_PSO	Public Service Company of Oklahoma Monthly Activity
3_SEP	Southwestern Electric Power Company Monthly Activity
5_APCo	Appalachian Power Monthly Activity
7_CSPCo	Columbus Southern Power Monthly Activity
9_BDCO	Bad Debt Charge-Offs
10_EQUITY	Net Change in Equity
(system generated)	Short-Term Debt and Interest Expense/Payment
(system generated)	AEPSC Monthly Billing to Affiliates
15_REVREC	Accrue Revenue Recognition Adjustment
17_CLFEE	Credit Line Fees Expense
(system generated)	Record Tax Accrual
(system generated)	Record Tax Payment
(system generated)	Record Dividend Payment to AEP Utilities, Inc.
21_DIVACC	Record Dividend Accrual to AEP Utilities, Inc.
(system generated)	Record Federal Income Tax Expense
(system generated)	Record AEPSC Invoice Payment
(system generated)	Record Credit Line Fees Payment
29_CCVP	Accrue Carrying Cost Variance Payment
30_AGENCY	2% Bad Debt Charge-Offs
34_IMP	Indiana-Michigan Power Monthly Activity
35_KPCo	Kentucky Power Monthly Activity
36_OPCo	Ohio Power Monthly Activity
37_KGP	Kingsport Power Monthly Activity
40_FACFEE	Facility Fees Payment
46_ARSALE	Record Sale of A/R to Outside Conduits

Other non-recurring journal entries are prepared as necessary.

After journal entries have been entered into the general ledger system, a trial balance is generated and reviewed by AEPSC Accounting and AEPSC Cash Management. Discrepancies, if any, are generally resolved during the review and adjusting or correcting journal entries are prepared and entered by AEPSC Accounting.

QUARTERLY REPORTING

AEPSC Regulatory Reporting prepares all internal and external financial reports for AEP Credit based on final trial balance information received from AEPSC Accounting. Pursuant to the 1935 Act, Rule 24, a filing is made with the SEC on behalf of AEP Credit within 45 days after the close of the calendar quarter.

ANNUAL REPORTING

Each year the financial records of AEP Credit are reviewed by an independent accounting firm. An annual report for AEP Credit is then issued and distributed to certain Sellers, the SEC and certain financial institutions.