AMERICAN ELECTRIC POWER COMPANY, INC. • TCC stranded generation cost recovery, including the  generation securitization, wholesale capacity auction  true-up, fuel and clawback transition charge, and re- lated carrying costs.  • Fuel cost volatility and fuel cost recovery. • Financing and recovering the cost of capital expendi- tures, including environmental and new technology. assets, and lower provisions for penalties and other expenses  booked at the parent company. These increases were offset,  in part, by decreased margins due to the divestiture of Tex- as generation assets, the loss of the capacity auction true-up  revenues in Texas, and higher operation and maintenance  expense, all occurring in our Utility Operations segment. Our Net Income for 2004 of $1,089 million, or $2.75  per share, includes income, net of tax, on discontinued op- erations of $83 million, resulting primarily from a gain on  the sale of our UK Operations, and an extraordinary loss  of $121 million, net of tax, which represents a provision for  probable disallowance to the stranded cost net regulatory  assets of TCC based on Public Utility Commission of Texas  orders in nonaffiliated true-up proceedings. Our Net In- come for 2003 of $110 million, or $0.29 per share, includes  a $605 million loss, net of tax, on discontinued operations  and $193 million of income, net of tax, from the cumulative  effect of changing our accounting for asset retirement obli- gations and for certain trading activities.  In 2004, AEP’s principal operating business segments and  their major activities were: Average shares outstanding increased to 396 million  in 2004 from 385 million in 2003 due to a common stock  issuance in 2003 and common shares issued related to our  incentive compensation plans. The additional average  shares outstanding decreased our 2004 earnings per share  by $0.08. Income  Before  Discontinued  Operations,  Extraordi-  nary Item and Cumulative Effect of Accounting Changes  in 2004 increased $605 million compared to 2003 due to  increased retail margins and stranded generation carrying  cost deferrals at TCC in our Utility Operations, improved  margins and lower impairments in our Gas Operations and  Investments – Other segments, gains realized on the sale of  In our Utility Operations, Income Before Discontinued Op- erations, Extraordinary Item and Cumulative Effect of Ac- counting Changes decreased $48 million to $1,171 million in  2004 primarily due to the absence of the wholesale capacity  auction true-up revenues and higher purchased power costs  resulting from the partial divestiture of a portion of TCC’s  generation assets as part of the transition to retail compe- tition in Texas. In addition, operating expenses increased  due to higher planned plant maintenance and distribution  system reliability work, as well as storm damage repair due  to major ice storms in our Ohio service territory. These de- creases were partially offset by increased demand resulting  from higher usage and customer growth in our residential  and commercial classes, as well as higher demand across  most classes of customers reflecting the economic recovery  in our regions. In addition, we recognized Carrying Costs  on Texas Stranded Cost Recovery, which represents the  debt component of carrying costs accrued on TCC’s net  stranded generation costs and its capacity auction true-up  Utility Operations RESULTS OF OPERATIONS • Utility Operations: – Domestic generation of electricity for sale to retail and wholesale customers – Domestic electricity transmission and distribution • Investments – Gas Operations:  – Gas pipeline and storage services • Investments – UK Operations: – Generation of electricity in the UK for sale to  wholesale customers – Coal procurement and transportation to our plants • Investments – Other:  – Bulk commodity barging operations, wind farms,  independent power producers and other energy supply-related businesses. 18