TRANSITION PROPERTY PURCHASE AND SALE AGREEMENT

E XHIBIT 99.2

Execution Copy

TRANSITION PROPERTY PURCHASE AND SALE AGREEMENT

by and between

AEP TEXAS CENTRAL TRANSITION FUNDING II LLC,

Issuer

and

AEP TEXAS CENTRAL COMPANY,

Seller

Dated as of October 11, 2006

TABLE OF CONTENTS

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This TRANSITION PROPERTY PURCHASE AND SALE AGREEMENT (this “ Agreement ”), dated as of October 11, 2006, is between AEP Texas Central Transition Funding II LLC, a Delaware limited liability company (the “ Issuer ”), and AEP Texas Central Company, a Texas corporation (together with its successors in interest to the extent permitted hereunder, the “ Seller ”).

RECITALS

WHEREAS, the Issuer desires to purchase from time to time the Transition Property created pursuant to the Securitization Law;

WHEREAS, the Seller is willing to sell from time to time the Transition Property to the Issuer;

WHEREAS, the Issuer, in order to finance the purchase of the Transferred Transition Property, will from time to time issue one or more Series of Transition Bonds under the Indenture; and

WHEREAS, the Issuer, to secure its obligations under the Transition Bonds of each Series and the Indenture, will pledge, among other things, all right, title and interest of the Issuer in and to the Transferred Transition Property and this Agreement to the Indenture Trustee for the benefit of the Secured Parties.

NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS

SECTION 1.01. Definitions . (a) Unless otherwise defined herein, capitalized terms used herein shall have the meanings assigned to them in that certain Indenture (including Appendix A thereto) dated as of the date hereof between the Issuer and The Bank of New York, a New York banking corporation, in its capacity as indenture trustee (the “ Indenture Trustee ”) and in its separate capacity as a securities intermediary (the “ Securities Intermediary ”), as the same may be amended, restated, supplemented or otherwise modified from time to time.

(b) Whenever used in this Agreement, the following words and phrases shall have the following meanings:

“ Bill of Sale ” means a bill of sale substantially in the form of Exhibit A hereto delivered pursuant to Section 2.03(i) .

“ Losses ” means (i) any and all amounts of principal and interest on the Transition Bonds not paid when due or when scheduled to be paid in accordance with their terms and the amounts of any deposits by or to the Issuer required to have been made in accordance with the terms of the Basic Documents or any Financing Order which are not made when so required and (ii) any and all other liabilities, obligations, losses, claims, damages, payments, costs or expenses of any kind whatsoever.

“ Original Transition Property ” means the Initial Transition Property sold, transferred, assigned, set over and conveyed by the Seller to the Issuer as of the Closing Date pursuant to this Agreement.

“ Transfer Date ” means, with respect to the Original Transition Property, the Closing Date and, with respect to any Subsequent Transition Property, the Subsequent Transfer Date related thereto.

“ Transferred Transition Property ” means, collectively, the Original Transition Property and any Subsequent Transition Property.

SECTION 1.02. Other Definitional Provisions .

(a) All terms defined in this Agreement shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto unless otherwise defined therein.

(b) The words “hereof,” “herein,” “hereunder” and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement; Section, Schedule and Exhibit references contained in this Agreement are references to Sections, Schedules and Exhibits in or to this Agreement unless otherwise specified; and the term “including” shall mean “including without limitation”.

(c) The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms.

ARTICLE II

CONVEYANCE OF TRANSITION PROPERTY

SECTION 2.01. Conveyance of Original Transition Property . (a) In consideration of the Issuer’s delivery to or upon the order of the Seller of $1,732,760,141, subject to the conditions specified in Section 2.03 , the Seller does hereby irrevocably sell, transfer, assign, set over and otherwise convey to the Issuer, without recourse or warranty, except as set forth herein, all right, title and interest of the Seller in and to the Original Transition Property (such sale, transfer, assignment, setting over and conveyance of the Original Transition Property includes, to the fullest extent permitted by the Securitization Law, the right to impose, collect and receive Transition Charges and the assignment of all revenues, collections, claims, rights, payments, money or proceeds of or arising from the Transition Charges related to the Original Transition Property, as the same may be adjusted from time to time). Such sale, transfer, assignment, setting over and conveyance is hereby expressly stated to be a sale and, pursuant to Section 39.308 of the Securitization Law, shall be treated as an absolute transfer of all of the Seller’s right, title and interest in and to (as in a true sale), and not as a pledge or other financing of, the Original Transition Property. The Seller and the Issuer agree that after giving effect to the sale, transfer, assignment, setting over and conveyance contemplated hereby the Seller has no right, title or interest in or to the Original Transition Property to which a security interest could attach because (i) it has sold, transferred, assigned, set over and conveyed all right, title and interest in and to the Original Transition Property to the Issuer, (ii) as provided in Section 39.304 of the Securitization Law, such rights are only contract rights until the time of such sale, transfer, assignment, setting

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over and conveyance and (iii) as provided in Section 39.309(c) of the Securitization Law, appropriate notice has been filed and such transfer is perfected against all third parties, including subsequent judicial or other lien creditors. If such sale, transfer, assignment, setting over and conveyance is held by any court of competent jurisdiction not to be a true sale as provided in Section 39.308 of the Securitization Law, then such sale, transfer, assignment, setting over and conveyance shall be treated as a pledge of such Original Transition Property and as the creation of a security interest (within the meaning of the Securitization Law and the UCC) in the Original Transition Property and, without prejudice to its position that it has absolutely transferred all of its rights in the Original Transition Property to the Issuer, the Seller hereby grants a security interest in the Original Transition Property to the Issuer (and, to the extent necessary to qualify the grant as a security interest under the Securitization Law and the UCC, to the Indenture Trustee for the benefit of the Secured Parties to secure the right of the Issuer under the Basic Documents to receive the Transition Charges and all other Transition Property).

(b) Subject to Section 2.03 , the Issuer does hereby purchase the Original Transition Property from the Seller for the consideration set forth in Section 2.01(a) .

SECTION 2.02. Conveyance of Subsequent Transition Property . The Seller may from time to time offer to sell, transfer, assign, set over and convey Subsequent Transition Property to the Issuer, subject to the conditions specified in Section 2.03 . If any such offer is accepted by the Issuer, such Subsequent Transition Property shall be, subject to the satisfaction or waiver of the conditions specified in Section 2.03 , sold, transferred, assigned, set over and conveyed to the Issuer effective on the Subsequent Transfer Date specified in the related Addition Notice. The terms of the Bill of Sale with respect to such Subsequent Transition Property shall be binding as if set forth herein.

SECTION 2.03. Conditions to Conveyance of Transition Property . The obligation of the Issuer to purchase Transition Property on any Transfer Date shall be subject to the satisfaction or waiver by the Issuer of each of the following conditions:

(i) on or prior to such Transfer Date, the Seller shall have delivered to the Issuer a duly executed Bill of Sale identifying the Transition Property to be conveyed on that Transfer Date;

(ii) on or prior to such Transfer Date, the Seller shall have received a Financing Order creating the Transferred Transition Property;

(iii) as of such Transfer Date, the Seller is not insolvent and will not have been made insolvent by such sale and the Seller is not aware of any pending insolvency with respect to itself;

(iv) as of such Transfer Date, the representations and warranties of the Seller set forth in this Agreement shall be true and correct with the same force and effect as if made on such Transfer Date (except to the extent that they relate to an earlier date); on and as of such Transfer Date no breach of any covenant or agreement of the Seller contained in this Agreement has occurred and is continuing; and no Servicer Default shall have occurred and be continuing;

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(v) as of such Transfer Date, (A) the Issuer shall have sufficient funds available to pay the purchase price for the Transferred Transition Property to be conveyed on such date and (B) all conditions to the issuance of one or more Series of Transition Bonds intended to provide such funds set forth in the Indenture shall have been satisfied or waived;

(vi) on or prior to such Transfer Date, the Seller shall have taken all action required to transfer to the Issuer ownership of the Transition Property to be conveyed on such date, free and clear of all Liens other than Liens created by the Issuer pursuant to the Basic Documents and to perfect such transfer, including, without limitation, filing any statements or filings under the Securitization Law or the UCC; and the Issuer or the Servicer, on behalf of the Issuer, shall have taken any action required for the Issuer to grant the Indenture Trustee a first priority perfected security interest in the Transition Bond Collateral and maintain such security interest as of such date;

(vii) in the case of a sale of Subsequent Transition Property only, on or prior to the Subsequent Transfer Date, the Seller shall have provided the Issuer and the Rating Agencies with a timely Addition Notice;

(viii) the Seller shall have delivered to the Rating Agencies and the Issuer any Opinions of Counsel required by the Rating Agencies;

(ix) the Seller shall have received and delivered to the Issuer and the Indenture Trustee: (i) an opinion of outside tax counsel (as selected by the Seller, and in form and substance reasonably satisfactory to the Issuer and the Indenture Trustee) to the effect that the Issuer will not be subject to United States federal income tax as an entity separate from its sole owner and that the Transition Bonds will be treated as debt of the Issuer’s sole owner for United States federal income tax purposes, (ii) an opinion of outside tax counsel (as selected by the Seller, and in form and substance reasonably satisfactory to the Issuer and the Indenture Trustee) or, if the Seller so chooses, a ruling from the Internal Revenue Service (unless the Internal Revenue Service has announced that it will not rule on the issues described in this paragraph), in either case to the effect that, for United States federal income tax purposes, the issuance of the Transition Bonds will not result in gross income to the Seller and (iii) in the case of a subsequent issuance of Transition Bonds only, an opinion of outside tax counsel (as selected by the Seller, and in form and substance reasonably satisfactory to the Issuer and the Indenture Trustee) to the effect that such issuance will not adversely affect the characterization of any then outstanding Transition Bonds as obligations of the Issuer’s sole owner. The opinion of outside tax counsel described above may, if the Seller so chooses, be conditioned on the receipt by the Seller of one or more letter rulings from the Internal Revenue Service (unless the Internal Revenue Service has announced that it will not rule on the issues described in this paragraph) and in rendering such opinion outside tax counsel shall be entitled to rely on the rulings contained in such ruling letters and to rely on the representations made, and information supplied, to the Internal Revenue Service in connection with such letter rulings;

(x) on and as of such Transfer Date, each of the LLC Agreement, the Servicing Agreement, this Agreement, the Indenture, any issued Financing Order, any issued Tariff and the Securitization Law shall be in full force and effect;

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(xi) the Rating Agency Condition shall have been satisfied with respect to such purchase; and

(xii) the Seller shall have delivered to the Indenture Trustee and the Issuer an Officers’ Certificate confirming the satisfaction of each condition precedent specified in this Section 2.03 .

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF SELLER

Subject to Sections 3.09 , the Seller makes the following representations and warranties, as of each Transfer Date, and the Seller acknowledges that the Issuer has relied thereon in acquiring the Transferred Transition Property. The representations and warranties shall survive the sale and transfer of Transferred Transition Property to the Issuer and the pledge thereof to the Indenture Trustee pursuant to the Indenture. The Seller agrees that (i) the Issuer may assign the right to enforce the following representations and warranties to the Indenture Trustee and (ii) the representations and warranties inure to the benefit of the Issuer and the Indenture Trustee.

SECTION 3.01. Organization and Good Standing . The Seller is duly organized and validly existing and is in good standing under the laws of the state of its organization, with the requisite corporate or other power and authority to own its properties as such properties are currently owned and to conduct its business as such business is now conducted by it, and has the requisite corporate or other power and authority to obtain Financing Orders and own, sell and transfer the Transition Property.

SECTION 3.02. Due Qualification . The Seller is duly qualified to do business and is in good standing, and has obtained all necessary licenses and approvals, in all jurisdictions in which the ownership or lease of property or the conduct of its business shall require such qualifications, licenses or approvals (except where the failure to so qualify or obtain such licenses and approvals would not be reasonably likely to have a material adverse effect on the Seller’s business, operations, assets, revenues or properties).

SECTION 3.03. Power and Authority . The Seller has the requisite corporate or other power and authority to execute and deliver this Agreement and to carry out its terms; and the execution, delivery and performance of this Agreement have been duly authorized by all necessary action on the part of the Seller under its organizational or governing documents and laws.

SECTION 3.04. Binding Obligation . This Agreement constitutes a legal, valid and binding obligation of the Seller enforceable against it in accordance with its terms, subject to applicable insolvency, reorganization, moratorium, fraudulent transfer and other laws relating to or affecting creditors’ or secured parties’ rights generally from time to time in effect and to general principles of equity (including concepts of materiality, reasonableness, good faith and fair dealing), regardless of whether considered in a proceeding in equity or at law.

SECTION 3.05. No Violation . The consummation of the transactions contemplated by this Agreement and the fulfillment of the terms hereof do not and will not: (i) conflict with or result in any breach of any of the terms and provisions of, nor constitute (with or without notice

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or lapse of time) a default under, the Seller’s organizational documents, or any indenture or other agreement or instrument to which the Seller is a party or by which it or any of its property is bound; (ii) result in the creation or imposition of any Lien upon any of the Seller’s properties pursuant to the terms of any such indenture, agreement or other instrument (other than any Lien that may be granted in the Issuer’s favor or any Lien created pursuant to Section 39.309 of the Securitization Law); or (iii) violate any existing law or any existing order, rule or regulation applicable to the Seller of any Governmental Authority having jurisdiction over the Seller or its properties.

SECTION 3.06. No Proceedings . There are no proceedings pending and, to the Seller’s knowledge, there are no proceedings threatened and, to the Seller’s knowledge, there are no investigations pending or threatened, before any Governmental Authority having jurisdiction over the Seller or its properties involving or relating to the Seller or the Issuer or, to the Seller’s knowledge, any other Person: (i) asserting the invalidity of the Securitization Law, any Financing Order, this Agreement, any of the other Basic Documents or the Transition Bonds of any Series, (ii) seeking to prevent the issuance of the Transition Bonds of such Series or the consummation of any of the transactions contemplated by this Agreement or any of the other Basic Documents, (iii) seeking any determination or ruling that could reasonably be expected to materially and adversely affect the performance by the Seller of its obligations under, or the validity or enforceability of the Securitization Law, any Financing Order, this Agreement, any of the other Basic Documents or the Transition Bonds of any Series or (iv) seeking to adversely affect the federal income tax or state income or franchise tax classification of the Transition Bonds of any Series as debt.

SECTION 3.07. Approvals . Except for UCC financing statement filings and other filings under the Securitization Law, no approval, authorization, consent, order or other action of, or filing with, any Governmental Authority is required in connection with the execution and delivery by the Seller of this Agreement, the performance by the Seller of the transactions contemplated hereby or the fulfillment by the Seller of the terms hereof, except those that have been obtained or made and those that the Seller, in its capacity as Servicer under the Servicing Agreement, is required to make in the future pursuant to the Servicing Agreement.

SECTION 3.08. The Transferred Transition Property .

(a) Information . Subject to subsection (f)  below, at each Transfer Date, all written information, as amended or supplemented from time to time, provided by the Seller to the Issuer with respect to the Transferred Transition Property (including the Expected Amortization Schedule, the Financing Order and the Issuance Advice Letter relating thereto) is true and correct in all material respects.

(b) Title . It is the intention of the parties hereto that (other than for federal income tax purposes and, to the extent consistent with applicable state tax law, state income and franchise tax purposes) the transfers and assignments herein contemplated each constitute a sale and absolute transfer of the Transferred Transition Property from the Seller to the Issuer and that no interest in, or right or title to, the Transferred Transition Property shall be part of the Seller’s estate in the event of the filing of a bankruptcy petition by or against the Seller under any bankruptcy law. No portion of the Transferred Transition Property has been sold, transferred,

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assigned or pledged or otherwise conveyed by the Seller to any Person other than the Issuer, and no security agreement, financing statement or equivalent security or lien instrument listing the Seller as debtor covering all or any part of the Transferred Transition Property is on file or of record in any jurisdiction, except such as may have been filed, recorded or made in favor of the Issuer or the Indenture Trustee in connection with the Basic Documents. The Seller has not authorized the filing of and is not aware (after due inquiry) of any financing statement against it that includes a description of collateral including the Transferred Transition Property other than any financing statement filed, recorded or made in favor of the Issuer or the Indenture Trustee in connection with the Basic Documents. The Seller is not aware (after due inquiry) of any judgment or tax lien filings against either the Seller or the Issuer. At each applicable Transfer Date, immediately prior to the sale of such Transferred Transition Property hereunder, the Seller is the original and the sole owner of such Transferred Transition Property free and clear of all Liens and rights of any other Person, and no offsets, defenses or counterclaims exist or have been asserted with respect thereto.

(c) Transfer Filings . On such Transfer Date, immediately upon the sale hereunder, the Transferred Transition Property shall be validly transferred and sold to the Issuer, the Issuer shall own all such Transferred Transition Property free and clear of all Liens (except for any Lien created in favor of the Holders pursuant to Section 39.309 of the Securitization Law or any Lien that may be granted under the Basic Documents) and all filings and action to be made or taken by the Seller (including, without limitation, filings with the Secretary of State of the State of Texas under the Securitization Law) necessary in any jurisdiction to give the Issuer a perfected ownership interest (subject to any Lien created in favor of the Holders pursuant to Section 39.309 of the Securitization Law and any Lien that may be granted under the Basic Documents) in the Transferred Transition Property have been made or taken. No further action is required to maintain such ownership interest (subject to any Lien created in favor of the Holders pursuant to Section 39.309 of the Securitization Law and any Lien that may be granted under the Basic Documents) and to give the Indenture Trustee a first priority perfected security interest in the Transferred Transition Property. All filings and action have also been made or taken to perfect the security interest in the Transferred Transition Property granted by the Seller to the Issuer (subject to any Lien created in favor of the Holders pursuant to Section 39.309 of the Securitization Law and any Lien that may be granted under the Basic Documents) and, to the extent necessary, the Indenture Trustee pursuant to Section 2.01 , in the case of the Original Transition Property, or Section 2.02 , in the case of Subsequent Transition Property.

(d) Financing Order, Issuance Advice Letter and Tariff; Other Approvals . On each Transfer Date, under the laws of the State of Texas and the United States in effect on such Transfer Date, (i) the Financing Order pursuant to which the rights and interests of the Seller, including the right to impose, collect and receive the Transition Charge and, in and to the Transition Property transferred on such date have been created, is Final and non-appealable and is in full force and effect; (ii) as of the issuance of the Transition Bonds, the Transition Bonds are entitled to the protection of the Securitization Law and, accordingly, the Financing Order, the Transition Charges and the Issuance Advice Letter are not revocable by the PUCT; (iii) as of the issuance of the Transition Bonds, the Tariff is in full force and effect and is not subject to modification by the PUCT except as provided under Section 39.307 of the Securitization Law; (iv) the process by which the Financing Order creating the Transition Property transferred on such date was adopted and approved, and such Financing Order, Issuance Advice Letter and

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Tariff themselves, comply with all applicable laws, rules and regulations; (v) the Issuance Advice Letter and the Tariff relating to the Transition Property transferred on such date have been filed in accordance with the Financing Order creating the Transition Property transferred on such date and an officer of the Seller has provided the certification to the PUCT required by the Issuance Advice Letter; and (vi) no other approval, authorization, consent, order or other action of, or filing with any Governmental Authority is required in connection with the creation of the Transition Property transferred on such date, except those that have been obtained or made.

(e) State Action . Under the Securitization Law, the State of Texas has pledged that it will not take or permit any action that would impair the value of the Transition Property transferred on such date, or, except as permitted by Section 39.307 of the Securitization Law, reduce, alter or impair the Transition Charges relating to such Transition Property until the principal, interest and premium and any other charges incurred and contracts to be performed in connection with the Transition Bonds of such Series relating to such Transition Property have been paid and performed in full. Under the laws of the State of Texas and the United States, the State of Texas could not constitutionally take any action of a legislative character including the repeal or amendment of the Securitization Law, which would substantially limit, alter or impair the Transition Property or other rights vested in the Holders pursuant to the Financing Order or substantially limit, alter or reduce the value or amount of the Transition Property, unless such action is a reasonable exercise of the sovereign powers of the State of Texas and of a character reasonable and appropriate to further a legitimate public purpose, and, under the takings clauses of the United States and Texas Constitutions, the State of Texas could not repeal or amend the Securitization Law or take any other action in contravention of its pledge quoted above without paying just compensation to the Holders, as determined by a court of competent jurisdiction if doing so would constitute a permanent appropriation of a substantial property interest of the Holders in the Transition Property and deprive the Holders of their reasonable expectations arising from their investments in the Transition Bonds. There is no assurance, however, that, even if a court were to award just compensation it would be sufficient to pay the full amount of principal and interest on the Transition Bonds.

(f) Assumptions . On each Transfer Date, based upon the information available to the Seller on such date, the assumptions used in calculating the Transition Charges are reasonable and are made in good faith. Notwithstanding the foregoing, the Seller makes no representation or warranty, express or implied, that amounts actually collected arising from those Transition Charges will in fact be sufficient to meet the payment obligations on the related Transition Bonds or that the assumptions used in calculating such Transition Charges will in fact be realized.

(g) Creation of Transition Property . Upon the effectiveness of the Financing Order, the Issuance Advice Letter and the Tariff with respect to the Transferred Transition Property and the transfer of such Transition Property pursuant to this Agreement: (i) the rights and interests of the Seller under the Financing Order, including the right to impose, collect and receive the Transition Charges authorized in the Financing Order, become Transition Property; (ii) the Transferred Transition Property constitutes a present property right vested in the Issuer; (iii) the Transferred Transition Property includes (A) the right, title and interest of the Seller in the Financing Order and the Transition Charges and (B) the right to impose, collect and obtain periodic adjustments (with respect to adjustments, in the manner and with the effect provided in

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Section 4.01(b) of the Servicing Agreement) of such Transition Charges, and the rates and other charges authorized by the Financing Order and all revenues, collections, claims, payments, money or proceeds of or arising from the Transition Charges; (iv) the owner of the Transferred Transition Property is legally entitled to bill Transition Charges and collect payments in respect of the Transition Charges in the aggregate sufficient to pay the interest on and principal of the Transition Bonds of such Series in accordance with the Indenture, to pay the fees and expenses of servicing the Transition Bonds of such Series, to replenish the Capital Subaccount to the Required Capital Level until the Transition Bonds of such Series are paid in full or until the last date permitted for the collection of payments in respect of the Transition Charge under the Financing Order, whichever is earlier, and the Customer class allocation percentage