-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TKu94LVlMC0HEPer7R37IZOc8NOSmLcIKUKLxnCWJWJ20/1/j4jyDTJtVIKy6kpC ovZpS4ZvcM+P9/nXGQpGAQ== 0000004904-10-000112.txt : 20100730 0000004904-10-000112.hdr.sgml : 20100730 20100730133145 ACCESSION NUMBER: 0000004904-10-000112 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 20100630 FILED AS OF DATE: 20100730 DATE AS OF CHANGE: 20100730 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN ELECTRIC POWER CO INC CENTRAL INDEX KEY: 0000004904 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 134922640 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03525 FILM NUMBER: 10980554 BUSINESS ADDRESS: STREET 1: 1 RIVERSIDE PLAZA CITY: COLUMBUS STATE: OH ZIP: 43215 BUSINESS PHONE: 614-716-1000 MAIL ADDRESS: STREET 1: 1 RIVERSIDE PLAZA CITY: COLUMBUS STATE: OH ZIP: 43215 FORMER COMPANY: FORMER CONFORMED NAME: KINGSPORT UTILITIES INC DATE OF NAME CHANGE: 19660906 10-Q 1 q210aep10q.htm AMERICAN ELECTRIC POWER 2Q2010 10-Q q210aep10q.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended June 30, 2010
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Transition Period from ____ to ____

Commission
 
Registrant, State of Incorporation,
 
I.R.S. Employer
File Number
 
Address of Principal Executive Offices, and Telephone Number
 
Identification No.
         
1-3525
 
AMERICAN ELECTRIC POWER COMPANY, INC. (A New York Corporation)
 
13-4922640
1-3457
 
APPALACHIAN POWER COMPANY (A Virginia Corporation)
 
54-0124790
1-2680
 
COLUMBUS SOUTHERN POWER COMPANY (An Ohio Corporation)
 
31-4154203
1-3570
 
INDIANA MICHIGAN POWER COMPANY (An Indiana Corporation)
 
35-0410455
1-6543
 
OHIO POWER COMPANY (An Ohio Corporation)
 
31-4271000
0-343
 
PUBLIC SERVICE COMPANY OF OKLAHOMA (An Oklahoma Corporation)
 
73-0410895
1-3146
 
SOUTHWESTERN ELECTRIC POWER COMPANY (A Delaware Corporation)
 
72-0323455
         
All Registrants
 
1 Riverside Plaza, Columbus, Ohio 43215-2373
   
   
Telephone (614) 716-1000
   

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
X
 
No
   

Indicate by check mark whether American Electric Power Company, Inc. has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes
X
 
No
   

Indicate by check mark whether Appalachian Power Company, Columbus Southern Power Company, Indiana Michigan Power Company, Ohio Power Company, Public Service Company of Oklahoma and Southwestern Electric Power Company have submitted electronically and posted on the AEP corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes
   
No
   

Indicate by check mark whether American Electric Power Company, Inc. is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of ‘large accelerated filer,’ ‘accelerated filer’ and ‘smaller reporting company’ in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
X
 
Accelerated filer
   
           
Non-accelerated filer
   
Smaller reporting company
   

Indicate by check mark whether Appalachian Power Company, Columbus Southern Power Company, Indiana Michigan Power Company, Ohio Power Company, Public Service Company of Oklahoma and Southwestern Electric Power Company are large accelerated filers, accelerated filers, non-accelerated filers or smaller reporting companies.  See the definitions of ‘large accelerated filer,’ ‘accelerated filer’ and ‘smaller reporting company’ in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
   
Accelerated filer
   
           
Non-accelerated filer
X
 
Smaller reporting company
   

Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act).
Yes
   
No
X
 

Columbus Southern Power Company and Indiana Michigan Power Company meet the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and are therefore filing this Form 10-Q with the reduced disclosure format specified in General Instruction H(2) to Form 10-Q.

 
 

 

     
 
 
Number of shares of common stock outstanding of the registrants at
July 29, 2010
       
American Electric Power Company, Inc.
   
479,437,027
     
($6.50 par value)
Appalachian Power Company
   
13,499,500
     
(no par value)
Columbus Southern Power Company
   
16,410,426
     
(no par value)
Indiana Michigan Power Company
   
1,400,000
     
(no par value)
Ohio Power Company
   
27,952,473
     
(no par value)
Public Service Company of Oklahoma
   
9,013,000
     
($15 par value)
Southwestern Electric Power Company
   
7,536,640
     
($18 par value)

 
 

 
AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
INDEX TO QUARTERLY REPORTS ON FORM 10-Q
June 30, 2010

   
Page
Glossary of Terms
 
i
     
Forward-Looking Information
 
iv
     
Part I. FINANCIAL INFORMATION
   
       
 
Items 1, 2 and 3 - Financial Statements, Management’s Financial Discussion and Analysis and Quantitative and Qualitative Disclosures About Risk Management Activities:
   
American Electric Power Company, Inc. and Subsidiary Companies:
   
 
Management’s Financial Discussion and Analysis of Results of Operations
 
1
 
Quantitative and Qualitative Disclosures About Risk Management Activities
 
19
 
Condensed Consolidated Financial Statements
 
23
 
Index to Condensed Notes to Condensed Consolidated Financial Statements
 
28
       
Appalachian Power Company and Subsidiaries:
   
 
Management’s Financial Discussion and Analysis
 
81
 
Quantitative and Qualitative Disclosures About Risk Management Activities
 
88
 
Condensed Consolidated Financial Statements
 
89
 
Index to Condensed Notes to Condensed Financial Statements of Registrant Subsidiaries
 
94
       
Columbus Southern Power Company and Subsidiaries:
   
 
Management’s Narrative Financial Discussion and Analysis
 
96
 
Quantitative and Qualitative Disclosures About Risk Management Activities
 
98
 
Condensed Consolidated Financial Statements
 
99
 
Index to Condensed Notes to Condensed Financial Statements of Registrant Subsidiaries
 
104
       
Indiana Michigan Power Company and Subsidiaries:
   
 
Management’s Narrative Financial Discussion and Analysis
 
106
 
Quantitative and Qualitative Disclosures About Risk Management Activities
 
109
 
Condensed Consolidated Financial Statements
 
110
 
Index to Condensed Notes to Condensed Financial Statements of Registrant Subsidiaries
 
115
       
Ohio Power Company Consolidated:
   
 
Management’s Financial Discussion and Analysis
 
117
 
Quantitative and Qualitative Disclosures About Risk Management Activities
 
123
 
Condensed Consolidated Financial Statements
 
124
 
Index to Condensed Notes to Condensed Financial Statements of Registrant Subsidiaries
 
129
       
Public Service Company of Oklahoma:
   
 
Management’s Financial Discussion and Analysis
 
131
 
Quantitative and Qualitative Disclosures About Risk Management Activities
 
135
 
Condensed Financial Statements
 
136
 
Index to Condensed Notes to Condensed Financial Statements of Registrant Subsidiaries
 
141
       
Southwestern Electric Power Company Consolidated:
   
 
Management’s Financial Discussion and Analysis
 
143
 
Quantitative and Qualitative Disclosures About Risk Management Activities
 
149
 
Condensed Consolidated Financial Statements
 
150
 
Index to Condensed Notes to Condensed Financial Statements of Registrant Subsidiaries
 
155

 
 

 

       
Condensed Notes to Condensed Financial Statements of Registrant Subsidiaries
 
156
       
Combined Management’s Discussion and Analysis of Registrant Subsidiaries
 
224
       
Controls and Procedures
 
232
         
Part II.  OTHER INFORMATION
   
     
 
Item 1.
Legal Proceedings
 
233
 
Item 1A.
Risk Factors
 
233
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
235
 
Item 5.
Other Information
 
236
 
Item 6.
Exhibits:
 
236
         
Exhibit 10
   
         
Exhibit 12
   
         
Exhibit 31(a)
   
         
Exhibit 31(b)
   
         
Exhibit 32(a)
   
         
Exhibit 32(b)
   
               
SIGNATURE
   
237

This combined Form 10-Q is separately filed by American Electric Power Company, Inc., Appalachian Power Company, Columbus Southern Power Company, Indiana Michigan Power Company, Ohio Power Company, Public Service Company of Oklahoma and Southwestern Electric 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.

 
 

 
GLOSSARY OF TERMS
 
When the following terms and abbreviations appear in the text of this report, they have the meanings indicated below.

Term
 
Meaning

AEGCo
 
AEP Generating Company, an AEP electric utility subsidiary.
AEP or Parent
 
American Electric Power Company, Inc.
AEP Consolidated
 
AEP and its majority owned consolidated subsidiaries and consolidated affiliates.
AEP Credit
 
AEP Credit, Inc., a subsidiary of AEP which factors accounts receivable and accrued utility revenues for affiliated electric utility companies.
AEP East companies
 
APCo, CSPCo, I&M, KPCo and OPCo.
AEP Power Pool
 
Members are APCo, CSPCo, I&M, KPCo and OPCo.  The Pool shares the generation, cost of generation and resultant wholesale off-system sales of the member companies.
AEP System or the System
 
American Electric Power System, an integrated electric utility system, owned and operated by AEP’s electric utility subsidiaries.
AEP West companies
 
PSO, SWEPCo, TCC and TNC.
AEPSC
 
American Electric Power Service Corporation, a service subsidiary providing management and professional services to AEP and its subsidiaries.
AFUDC
 
Allowance for Funds Used During Construction.
AOCI
 
Accumulated Other Comprehensive Income.
APCo
 
Appalachian Power Company, an AEP electric utility subsidiary.
APSC
 
Arkansas Public Service Commission.
ASU
 
Accounting Standard Update.
CAA
 
Clean Air Act.
CLECO
 
Central Louisiana Electric Company, a nonaffiliated utility company.
CO2
 
Carbon Dioxide and other greenhouse gases.
Cook Plant
 
Donald C. Cook Nuclear Plant, a two-unit, 2,191 MW nuclear plant owned by I&M.
CSPCo
 
Columbus Southern Power Company, an AEP electric utility subsidiary.
CTC
 
Competition Transition Charge.
CWIP
 
Construction Work in Progress.
DETM
 
Duke Energy Trading and Marketing L.L.C., a risk management counterparty.
DHLC
 
Dolet Hills Lignite Company, LLC, a wholly-owned lignite mining subsidiary of SWEPCo.
E&R
 
Environmental compliance and transmission and distribution system reliability.
EIS
 
Energy Insurance Services, Inc., a nonaffiliated captive insurance company.
ERCOT
 
Electric Reliability Council of Texas.
ESP
 
Electric Security Plans, filed with the PUCO, pursuant to the Ohio Amendments.
ETT
 
Electric Transmission Texas, LLC, an equity interest joint venture between AEP Utilities, Inc. and MidAmerican Energy Holdings Company Texas Transco, LLC formed to own and operate electric transmission facilities in ERCOT.
FAC
 
Fuel Adjustment Clause.
FASB
 
Financial Accounting Standards Board.
Federal EPA
 
United States Environmental Protection Agency.
FERC
 
Federal Energy Regulatory Commission.
FGD
 
Flue Gas Desulfurization or Scrubbers.
FTR
 
Financial Transmission Right, a financial instrument that entitles the holder to receive compensation for certain congestion-related transmission charges that arise when the power grid is congested resulting in differences in locational prices.
GAAP
 
Accounting Principles Generally Accepted in the United States of America.

 
i

 

Term
 
Meaning
     
I&M
 
Indiana Michigan Power Company, an AEP electric utility subsidiary.
IGCC
 
Integrated Gasification Combined Cycle, technology that turns coal into a cleaner-burning gas.
Interconnection Agreement
 
Agreement, dated July 6, 1951, as amended, by and among APCo, CSPCo, I&M, KPCo and OPCo, defining the sharing of costs and benefits associated with their respective generating plants.
IRS
 
Internal Revenue Service.
IURC
 
Indiana Utility Regulatory Commission.
KGPCo
 
Kingsport Power Company, an AEP electric utility subsidiary.
KPCo
 
Kentucky Power Company, an AEP electric utility subsidiary.
KPSC
 
Kentucky Public Service Commission.
kV
 
Kilovolt.
KWH
 
Kilowatthour.
LPSC
 
Louisiana Public Service Commission.
MISO
 
Midwest Independent Transmission System Operator.
MLR
 
Member load ratio, the method used to allocate AEP Power Pool transactions to its members.
MMBtu
 
Million British Thermal Units.
MPSC
 
Michigan Public Service Commission.
MTM
 
Mark-to-Market.
MW
 
Megawatt.
MWH
 
Megawatthour.
NEIL
 
Nuclear Electric Insurance Limited.
NOx
 
Nitrogen oxide.
Nonutility Money Pool
 
AEP’s Nonutility Money Pool.
NSR
 
New Source Review.
OCC
 
Corporation Commission of the State of Oklahoma.
OPCo
 
Ohio Power Company, an AEP electric utility subsidiary.
OPEB
 
Other Postretirement Benefit Plans.
OTC
 
Over the counter.
OVEC
 
Ohio Valley Electric Corporation, which is 43.47% owned by AEP.
PJM
 
Pennsylvania – New Jersey – Maryland regional transmission organization.
PM
 
Particulate Matter.
PSO
 
Public Service Company of Oklahoma, an AEP electric utility subsidiary.
PUCO
 
Public Utilities Commission of Ohio.
PUCT
 
Public Utility Commission of Texas.
Registrant Subsidiaries
 
AEP subsidiaries which are SEC registrants; APCo, CSPCo, I&M, OPCo, PSO and SWEPCo.
Risk Management Contracts
 
Trading and nontrading derivatives, including those derivatives designated as cash flow and fair value hedges.
Rockport Plant
 
A generating plant, consisting of two 1,300 MW coal-fired generating units near Rockport, Indiana, owned by AEGCo and I&M.
RTO
 
Regional Transmission Organization.
S&P
 
Standard and Poor’s.
Sabine
 
Sabine Mining Company, a lignite mining company that is a consolidated variable interest entity.

 
ii

 

Term
 
Meaning
     
SIA
 
System Integration Agreement.
SNF
 
Spent Nuclear Fuel.
SO2
 
Sulfur Dioxide.
SPP
 
Southwest Power Pool.
Stall Unit
 
J. Lamar Stall Unit at Arsenal Hill Plant.
SWEPCo
 
Southwestern Electric Power Company, an AEP electric utility subsidiary.
TCC
 
AEP Texas Central Company, an AEP electric utility subsidiary.
Texas Restructuring   Legislation
 
Legislation enacted in 1999 to restructure the electric utility industry in Texas.
TNC
 
AEP Texas North Company, an AEP electric utility subsidiary.
True-up Proceeding
 
A filing made under the Texas Restructuring Legislation to finalize the amount of stranded costs and other true-up items and the recovery of such amounts.
Turk Plant
 
John W. Turk, Jr. Plant.
Utility Money Pool
 
AEP System’s Utility Money Pool.
VIE
 
Variable Interest Entity.
Virginia SCC
 
Virginia State Corporation Commission.
WPCo
 
Wheeling Power Company, an AEP electric utility subsidiary.
WVPSC
 
Public Service Commission of West Virginia.

 
iii

 
FORWARD-LOOKING INFORMATION

This report made by AEP and its Registrant Subsidiaries contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934.  Although AEP and each of its Registrant Subsidiaries believe that their expectations are based on reasonable assumptions, any such statements may be influenced by factors that could cause actual outcomes and results to be materially different from those projected.  Among the factors that could cause actual results to differ materially from those in the forward-looking statements are:

·
The economic climate and growth in, or contraction within, our service territory and changes in market demand and demographic patterns.
·
Inflationary or deflationary interest rate trends.
·
Volatility in the financial markets, particularly developments affecting the availability of capital on reasonable terms and developments impairing our ability to finance new capital projects and refinance existing debt at attractive rates.
·
The availability and cost of funds to finance working capital and capital needs, particularly during periods when the time lag between incurring costs and recovery is long and the costs are material.
·
Electric load, customer growth and the impact of retail competition.
·
Weather conditions, including storms, and our ability to recover significant storm restoration costs through applicable rate mechanisms.
·
Available sources and costs of, and transportation for, fuels and the creditworthiness and performance of fuel suppliers and transporters.
·
Availability of necessary generating capacity and the performance of our generating plants.
·
Our ability to recover I&M’s Donald C. Cook Nuclear Plant Unit 1 restoration costs through warranty, insurance and the regulatory process.
·
Our ability to recover regulatory assets and stranded costs in connection with deregulation.
·
Our ability to recover increases in fuel and other energy costs through regulated or competitive electric rates.
·
Our ability to build or acquire generating capacity, including the Turk Plant, and transmission line facilities (including our ability to obtain any necessary regulatory approvals and permits) when needed at acceptable prices and terms and to recover those costs (including the costs of projects that are cancelled) through applicable rate cases or competitive rates.
·
New legislation, litigation and government regulation, including oversight of energy commodity trading and new or heightened requirements for reduced emissions of sulfur, nitrogen, mercury, carbon, soot or particulate matter and other substances or additional regulation of fly ash and similar combustion products that could impact the continued operation and cost recovery of our plants.
·
Timing and resolution of pending and future rate cases, negotiations and other regulatory decisions (including rate or other recovery of new investments in generation, distribution and transmission service and environmental compliance).
·
Resolution of litigation (including our dispute with Bank of America).
·
Our ability to constrain operation and maintenance costs.
·
Our ability to develop and execute a strategy based on a view regarding prices of electricity, natural gas and other energy-related commodities.
·
Changes in the creditworthiness of the counterparties with whom we have contractual arrangements, including participants in the energy trading market.
·
Actions of rating agencies, including changes in the ratings of debt.
·
Volatility and changes in markets for electricity, natural gas, coal, nuclear fuel and other energy-related commodities.
·
Changes in utility regulation, including the implementation of ESPs and related regulation in Ohio and the allocation of costs within regional transmission organizations, including PJM and SPP.
·
Accounting pronouncements periodically issued by accounting standard-setting bodies.
·
The impact of volatility in the capital markets on the value of the investments held by our pension, other postretirement benefit plans and nuclear decommissioning trust and the impact on future funding requirements.
·
Prices and demand for power that we generate and sell at wholesale.
·
Changes in technology, particularly with respect to new, developing or alternative sources of generation.
·
Other risks and unforeseen events, including wars, the effects of terrorism (including increased security costs), embargoes and other catastrophic events.
·
Our ability to recover through rates the remaining unrecovered investment, if any, in generating units that may be retired before the end of their previously projected useful lives.

AEP and its Registrant Subsidiaries expressly disclaim any obligation to update any forward-looking information.

 
iv

 
AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS

EXECUTIVE OVERVIEW

Economic Conditions

Retail margins increased during the first six months of 2010 due to successful rate proceedings in various jurisdictions and higher residential and commercial demand for electricity as a result of favorable weather throughout AEP’s service territory.  In comparison to the recessionary lows of 2009, industrial sales increased 9% in the second quarter and 4% during the first six months of 2010.

Due to the continued slow recovery in the U.S. economy and a corresponding negative impact on energy consumption, we implemented cost reduction initiatives in the second quarter of 2010 to reduce our workforce by 11.5% and reduce other operation and maintenance spending.  Achieving these goals involved identifying process improvements, streamlining organizational designs and developing other efficiencies that will deliver additional sustainable savings.  In the second quarter of 2010, we recorded $293 million of expense related to these cost reduction initiatives.
 
Regulatory Activity

Our significant 2010 rate proceedings include:

Kentucky – In June 2010, the KPSC approved a $64 million annual increase in base rates based on a 10.5% return on common equity.  New rates became effective with the first billing cycle of July 2010.
 
Michigan – In January 2010, I&M filed for a $63 million increase in annual base rates based on an 11.75% return on common equity.  In the August billing cycle, I&M, with MPSC authorization, will implement a $44 million interim rate increase, subject to refund with interest.
 
Oklahoma – In July 2010, PSO filed for an $82 million increase in annual base rates, including $30 million that is currently being recovered through a rider.  The requested increase is based on an 11.5% return on common equity.  PSO also requested that new rates become effective no later than July 2011.
 
Texas – In April 2010, a settlement was approved by the PUCT to increase SWEPCo’s base rates by approximately $15 million annually, effective May 2010, including a return on equity of 10.33%.  The settlement agreement also allows SWEPCo a $10 million one-year surcharge rider to recover additional vegetation management costs that SWEPCo must spend within two years.
 
Virginia – In July 2010, the Virginia SCC ordered an annual increase in revenues of $62 million based on a 10.53% return on equity.  The order disallowed future recovery of $54 million of costs related to the Mountaineer Carbon Capture and Storage Project and allowed the deferral of approximately $25 million of incremental storm expenses incurred in 2009.  As a result, APCo recorded a pretax loss of $29 million in the second quarter of 2010.  In July 2010, APCo filed a petition with the Virginia SCC for reconsideration of the order as it relates to the Mountaineer Carbon Capture and Storage Project.
 
West Virginia – In May 2010, APCo and WPCo filed a request with the WVPSC to increase annual base rates by $156 million based on an 11.75% return on common equity to be effective March 2011.  A decision from the WVPSC is expected no later than March 2011.

 
1

 
Turk Plant

SWEPCo is currently constructing the Turk Plant, a new base load 600 MW coal unit in Arkansas, which is expected to be in service in 2012.  SWEPCo owns 73% (440 MW) of the Turk Plant and will operate the completed facility.  SWEPCo’s share of construction costs is currently estimated to cost $1.3 billion, excluding AFUDC, plus an additional $131 million for transmission, excluding AFUDC.  The APSC, LPSC and PUCT approved SWEPCo’s original application to build the Turk Plant.  Various proceedings are pending that challenge the Turk Plant’s construction and its approved air and wetlands permits.  In July 2010, the Arkansas Court of Appeals issued a decision remanding all transmission line CECPN appeals to the APSC.  As a result, a stay was not ordered and construction co ntinues on the affected transmission lines.  
 
In June 2010, the Arkansas Supreme Court denied motions for rehearing filed by the APSC and SWEPCo related to the reversal of the APSC’s earlier grant of a CECPN for SWEPCo’s 88 MW Arkansas portion of the Turk Plant.  As a result, in June 2010, SWEPCo filed notice with the APSC of its intent to proceed with construction of the Turk Plant but that SWEPCo no longer intends to pursue a CECPN to seek recovery of its Arkansas portion of Turk Plant Costs in Arkansas retail rates.
 
In July 2010, the Hempstead County Hunting Club filed a complaint with the Federal District Court for the Western District of Arkansas against SWEPCo, the U.S. Army Corps of Engineers, the U.S. Department of Interior and the U.S. Fish and Wildlife Service seeking an injunction to stop construction of the Turk Plant asserting claims of violations of federal and state laws.
 
Management expects that SWEPCo will ultimately be able to complete construction of the Turk Plant and related transmission facilities and place those facilities in service.  However, if SWEPCo is unable to complete the Turk Plant construction and place the Turk Plant in service or if SWEPCo cannot recover all of its investment in and expenses related to the Turk Plant, it would materially reduce future net income and cash flows and materially impact financial condition.

RESULTS OF OPERATIONS

SEGMENTS

Our reportable segments and their related business activities are as follows:

Utility Operations
 
·
Generation of electricity for sale to U.S. retail and wholesale customers.
 
·
Electricity transmission and distribution in the U.S.

AEP River Operations
 
·
Commercial barging operations that transport coal and dry bulk commodities primarily on the Ohio, Illinois and lower Mississippi Rivers.

Generation and Marketing
 
·
Wind farms and marketing and risk management activities primarily in ERCOT.

 
2

 
The table below presents our consolidated Income Before Extraordinary Loss by segment for the three and six months ended June 30, 2010 and 2009.

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2010
 
2009
 
2010
 
2009
 
 
(in millions)
 
Utility Operations
  $ 132     $ 327     $ 476     $ 673  
AEP River Operations
    (1 )     1       2       12  
Generation and Marketing
    7       4       17       28  
All Other (a)
    (1 )     (10 )     (12 )     (28 )
Income Before Extraordinary Loss
  $ 137     $ 322     $ 483     $ 685  

(a)
While not considered a business segment, All Other includes:
 
·
Parent’s guarantee revenue received from affiliates, investment income, interest income and interest expense, and other nonallocated costs.
 
·
Forward natural gas contracts that were not sold with our natural gas pipeline and storage operations in 2004 and 2005.  These contracts are financial derivatives which gradually settle and completely expire in 2011.
 
·
Revenue sharing related to the Plaquemine Cogeneration Facility.

AEP CONSOLIDATED

Second Quarter of 2010 Compared to Second Quarter of 2009

Income Before Extraordinary Loss in 2010 decreased $185 million compared to 2009 due to $185 million of charges incurred (net of tax) in the second quarter of 2010 related to the cost reduction initiatives.

Average basic shares outstanding increased to 479 million in 2010 from 472 million in 2009.

Six Months Ended June 30, 2010 Compared to Six Months Ended June 30, 2009

Income Before Extraordinary Loss in 2010 decreased $202 million compared to 2009 primarily due to $185 million of charges incurred (net of tax) in the second quarter of 2010 related to the cost reduction initiatives.

Average basic shares outstanding increased to 479 million in 2010 from 440 million in 2009 primarily due to the April 2009 issuance of 69 million shares of AEP common stock.  Actual shares outstanding were 479 million as of June 30, 2010.

Our results of operations are discussed below by operating segment.
 
3

 
UTILITY OPERATIONS

We believe that a discussion of the results from our Utility Operations segment on a gross margin basis is most appropriate in order to further understand the key drivers of the segment.  Gross margin represents utility operating revenues less the related direct cost of fuel, including consumption of chemicals and emissions allowances and purchased power.

 
 
Three Months Ended
   
Six Months Ended
 
 
 
June 30,
   
June 30,
 
 
 
2010
   
2009
   
2010
   
2009
 
 
 
(in millions)
 
Revenues
  $ 3,211     $ 3,056     $ 6,637     $ 6,323  
Fuel and Purchased Power
    1,110       996       2,357       2,192  
Gross Margin
    2,101       2,060       4,280       4,131  
Depreciation and Amortization
    394       388       792       761  
Other Operating Expenses
    1,314       993       2,354       1,987  
Operating Income
    393       679       1,134       1,383  
Other Income, Net
    42       25       85       55  
Interest Expense
    237       227       472       447  
Income Tax Expense
    66       150       271       318  
Income Before Extraordinary Loss
  $ 132     $ 327     $ 476     $ 673  

Summary of KWH Energy Sales for Utility Operations
For the Three and Six Months Ended June 30, 2010 and 2009
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
Energy/Delivery Summary
2010 
 
2009
 
2010 
2009 
 
(in millions of KWH)
Retail:
 
 
 
 
 
 
 
Residential
 12,659 
 
 
 12,391 
 
 30,433 
 28,762 
Commercial
 13,002 
 
 
 12,595 
 
 24,476 
 24,205 
Industrial
 14,662 
 
 
 13,400 
 
 28,044 
 26,922 
Miscellaneous
 783 
 
 
 771 
 
 1,495 
 1,490 
Total Retail (a)
 41,106 
 
 
 39,157 
 
 84,448 
 81,379 
 
 
 
 
 
 
 
 
Wholesale
 7,019 
 
 
 7,166 
 
 15,156 
 13,943 
 
 
 
 
 
 
 
 
Total KWHs
 48,125 
 
 
 46,323 
 
 99,604 
 95,322 
 
 
 
 
 
 
 
 
(a) Includes energy delivered to customers served by AEP's Texas Wires Companies.

 
4

 
Cooling degree days and heating degree days are metrics commonly used in the utility industry as a measure of the impact of weather on net income.  In general, degree day changes in our eastern region have a larger effect on net income than changes in our western region due to the relative size of the two regions and the number of customers within each region.

 
Summary of Heating and Cooling Degree Days for Utility Operations
 
For the Three and Six Months Ended June 30, 2010 and 2009
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
 
 
June 30,
June 30,
 
 
 
2010 
 
2009 
 
2010 
 
2009 
 
 
 
(in degree days)
 
Eastern Region
 
 
 
 
 
 
 
 
 
 
 
 
Actual - Heating (a)
 
 75 
 
 
 156 
 
 
 1,975 
 
 
 1,977 
 
Normal - Heating (b)
 
 170 
 
 
 171 
 
 
 1,911 
 
 
 1,962 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Actual - Cooling (c)
 
 434 
 
 
 300 
 
 
 434 
 
 
 305 
 
Normal - Cooling (b)
 
 289 
 
 
 286 
 
 
 293 
 
 
 290 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Western Region
 
 
 
 
 
 
 
 
 
 
 
 
Actual - Heating (a)
 
 5 
 
 
 27 
 
 
 764 
 
 
 540 
 
Normal - Heating (b)
 
 21 
 
 
 21 
 
 
 595 
 
 
 600 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Actual - Cooling (d)
 
 866 
 
 
 861 
 
 
 886 
 
 
 960 
 
Normal - Cooling (b)
 
 757 
 
 
 756 
 
 
 815 
 
 
 812 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(a)
Eastern Region and Western Region heating degree days are calculated on a 55 degree temperature base.
 
(b)
Normal Heating/Cooling represents the thirty-year average of degree days.
 
(c)
Eastern Region cooling degree days are calculated on a 65 degree temperature base.
 
(d)
Western Region cooling degree days are calculated on a 65 degree temperature base for PSO/SWEPCo and a 70 degree temperature base for TCC/TNC.

 
5

 

Second Quarter of 2010 Compared to Second Quarter of 2009
 
 
 
 
 
Reconciliation of Second Quarter of 2009 to Second Quarter of 2010
 
Income from Utility Operations Before Extraordinary Loss
 
(in millions)
 
 
 
 
 
Second Quarter of 2009
  $ 327  
 
       
Changes in Gross Margin:
       
Retail Margins
    115  
Off-system Sales
    (12 )
Transmission Revenues
    (2 )
Other Revenues
    (60 )
Total Change in Gross Margin
    41  
 
       
Total Expenses and Other:
       
Other Operation and Maintenance
    (307 )
Depreciation and Amortization
    (6 )
Taxes Other Than Income Taxes
    (14 )
Interest and Investment Income
    11  
Carrying Costs Income
    7  
Allowance for Equity Funds Used During Construction
    (1 )
Interest Expense
    (10 )
Total Expenses and Other
    (320 )
 
       
Income Tax Expense
    84  
 
       
Second Quarter of 2010
  $ 132  

The major components of the increase in Gross Margin, defined as revenues less the related direct cost of fuel, including consumption of chemicals and emissions allowances, and purchased power were as follows:

·
Retail Margins increased $115 million primarily due to the following:
 
·
A $22 million increase in the recovery of E&R costs in Virginia, construction financing costs in West Virginia and costs related to the Transmission Rate Adjustment Clause in Virginia, a $13 million increase in the recovery of advanced metering costs in Texas and a $13 million net increase in rates in our other jurisdictions.  These increases in retail margins had corresponding offsets of $26 million related to cost recovery riders/trackers that were recognized in the other gross margin/other expense line items below.
 
·
A $34 million increase in weather-related usage primarily due to a 45% increase in cooling degree days in our eastern region.
 
·
A $20 million increase in fuel margins due to higher fuel and purchased power costs recorded in 2009 related to the Cook Plant Unit 1 (Unit 1) shutdown.  This increase in fuel margins was offset by a corresponding decrease in Other Revenues as discussed below.
 
These increases were partially offset by:
 
·
A $9 million decrease due to the termination of an I&M unit power agreement.
·
Margins from Off-system Sales decreased $12 million primarily due to lower trading and marketing margins, partially offset by higher physical sales volumes.
·
Other Revenues decreased $60 million primarily due to the Cook Plant accidental outage insurance proceeds of $46 million, which ended when Unit 1 returned to service in December 2009.  I&M reduced customer bills by approximately $20 million in the second quarter of 2009 for the cost of replacement power resulting from the Unit 1 outage.  This decrease in insurance proceeds was offset by a corresponding increase in Retail Margins as discussed above.

 
6

 
Total Expenses and Other and Income Taxes changed between years as follows:

·
Other Operation and Maintenance expenses increased $307 million primarily due to the following:
 
·
A $278 million increase due to expenses related to the cost reduction initiatives in the second quarter of 2010.
 
·
A $54 million increase due to the write-off of APCo’s Virginia share of the Mountaineer Carbon Capture and Storage Project as denied for recovery by the Virginia SCC.
 
·
A $27 million increase in demand side management, energy efficiency, vegetation management programs and other costs which have associated cost recovery riders/trackers that were recognized in retail revenues.
 
These increases were partially offset by:
 
·
A $25 million decrease due to the deferral of 2009 storm costs as allowed by the Virginia SCC.
 
·
A $14 million decrease in plant outage and other plant operating and maintenance expenses.
·
Depreciation and Amortization increased $6 million primarily due to new environmental improvements placed in service and other increases in depreciable property balances.
·
Taxes Other Than Income Taxes increased $14 million primarily due to the employer portion of payroll taxes incurred related to the cost reduction initiatives in the second quarter of 2010.
·
Interest and Investment Income increased $11 million primarily due to the second quarter 2009 write-off of other-than-temporary losses related to equity investments made by EIS.
·
Carrying Costs Income increased $7 million primarily due to increased environmental deferrals in Virginia and a higher under-recovered fuel balance for OPCo.
·
Interest Expense increased $10 million primarily due to an increase in long-term debt.
·
Income Tax Expense decreased $84 million primarily due to a decrease in pretax book income.

 
7

 

Six Months Ended June 30, 2010 Compared to Six Months Ended June 30, 2009
 
 
 
 
 
Reconciliation of Six Months Ended June 30, 2009 to Six Months Ended June 30, 2010
Income from Utility Operations Before Extraordinary Loss
(in millions)
 
 
 
 
 
Six Months Ended June 30, 2009
 
$
 673 
 
 
 
 
 
 
Changes in Gross Margin:
 
 
 
 
Retail Margins
 
 
 283 
 
Off-system Sales
 
 
 1 
 
Transmission Revenues
 
 
 8 
 
Other Revenues
 
 
 (143)
 
Total Change in Gross Margin
 
 
 149 
 
 
 
 
 
 
Total Expenses and Other:
 
 
 
 
Other Operation and Maintenance
 
 
 (344)
 
Depreciation and Amortization
 
 
 (31)
 
Taxes Other Than Income Taxes
 
 
 (23)
 
Interest and Investment Income
 
 
 8 
 
Carrying Costs Income
 
 
 12 
 
Allowance for Equity Funds Used During Construction
 
 
 7 
 
Interest Expense
 
 
 (25)
 
Equity Earnings of Unconsolidated Subsidiaries
 
 
 3 
 
Total Expenses and Other
 
 
 (393)
 
 
 
 
 
 
Income Tax Expense
 
 
 47 
 
 
 
 
 
 
Six Months Ended June 30, 2010
 
$
 476 
 

The major components of the increase in Gross Margin, defined as revenues less the related direct cost of fuel, including consumption of chemicals and emissions allowances, and purchased power were as follows:

·
Retail Margins increased $283 million primarily due to the following:
 
·
A $75 million increase in the recovery of E&R costs in Virginia, construction financing costs in West Virginia and costs related to the Transmission Rate Adjustment Clause in Virginia, a $25 million increase in the recovery of advanced metering costs in Texas, a $19 million rate increase in Oklahoma, a $17 million net rate increase for I&M, a $13 million net increase in rates for SWEPCo and a $27 million net increase in rates in our other jurisdictions.  These increases in retail margins had corresponding offsets of $64 million related to cost recovery riders/trackers that were recognized in the other gross margin/other expense line items below.
 
·
A $71 million increase in weather-related usage primarily due to a 43% increase in cooling degree days in our eastern region and a 41% increase in heating degree days in our western region.
 
·
A $42 million increase in fuel margins due to higher fuel and purchased power costs recorded in 2009 related to the Unit 1 shutdown.  This increase in fuel margins was offset by a corresponding decrease in Other Revenues as discussed below.
 
These increases were partially offset by:
 
·
A $17 million decrease due to the termination of an I&M unit power agreement.
·
Transmission Revenues increased $8 million primarily due to increased revenues in the ERCOT, PJM and SPP regions.
·
Other Revenues decreased $143 million primarily due to the Cook Plant accidental outage insurance proceeds of $99 million which ended when Unit 1 returned to service in December 2009.  I&M reduced customer bills by approximately $42 million in the first six months of 2009 for the cost of replacement power resulting from the Unit 1 outage.  This decrease in insurance proceeds was offset by a corresponding increase in Retail Margins as discussed above.  Other Revenues also decreased due to lower gains on sales of emission allowances of $23 million.

 
8

 
Total Expenses and Other and Income Taxes changed between years as follows:

·
Other Operation and Maintenance expenses increased $344 million primarily due to the following:
 
·
A $278 million increase due to expenses related to the cost reduction initiatives in the second quarter of 2010.
 
·
A $72 million increase in demand side management, energy efficiency, vegetation management programs and other costs which have associated cost recovery riders/trackers that were recognized in retail revenues.
 
·
 
A $54 million increase due to the write-off of APCo’s Virginia share of the Mountaineer Carbon Capture and Storage Project as denied for recovery by the Virginia SCC.
 
These increases were partially offset by:
 
·
A $59 million decrease in storm expenses including the deferral of $25 million of 2009 storm costs as allowed by the Virginia SCC.
·
Depreciation and Amortization increased $31 million primarily due to new environmental improvements placed in service and other increases in depreciable property balances.
·
Taxes Other Than Income Taxes increased $23 million primarily due to the employer portion of payroll taxes incurred related to the cost reduction initiatives in the second quarter of 2010 and higher franchise and property taxes.
·
Interest and Investment Income increased $8 million primarily due to the second quarter 2009 write-off of other-than-temporary losses related to equity investments made by EIS.
·
Carrying Costs Income increased $12 million primarily due to increased environmental deferrals in Virginia and a higher under-recovered fuel balance for OPCo.
·
Allowance for Equity Funds Used During Construction increased $7 million related to construction projects at SWEPCo’s Turk Plant and Stall Unit and the reapplication of “Regulated Operations” accounting guidance for the generation portion of SWEPCo’s Texas retail jurisdiction effective the second quarter of 2009.
·
Interest Expense increased $25 million primarily due to an increase in long-term debt and a decrease in the debt component of AFUDC due to lower CWIP balances at APCo, CSPCo and OPCo.
·
Income Tax Expense decreased $47 million primarily due to a decrease in pretax book income, partially offset by the regulatory accounting treatment of state income taxes, other book/tax differences which are accounted for on a flow-through basis and the tax treatment associated with the future reimbursement of Medicare Part D retiree prescription drug benefits.

AEP RIVER OPERATIONS

Second Quarter of 2010 Compared to Second Quarter of 2009

Income Before Extraordinary Loss from our AEP River Operations segment decreased from income of $1 million in 2009 to a loss of $1 million in 2010 primarily due to expenses related to the cost reduction initiatives, increased interest expense on new long-term debt and increased lease expense on new barge leases.

Six Months Ended June 30, 2010 Compared to Six Months Ended June 30, 2009

Income Before Extraordinary Loss from our AEP River Operations segment decreased from $12 million in 2009 to $2 million in 2010 primarily due to reduced grain loadings, higher fuel and other operating expenses, expenses related to the cost reduction initiatives, interest expense on increased long-term debt, increased lease expense on new barge leases and a gain on the sale of two older towboats in 2009.

GENERATION AND MARKETING

Second Quarter of 2010 Compared to Second Quarter of 2009

Income Before Extraordinary Loss from our Generation and Marketing segment increased from $4 million in 2009 to $7 million in 2010 primarily due to favorable marketing contracts in ERCOT and increased income from our wind farm operations.
 
9

 
Six Months Ended June 30, 2010 Compared to Six Months Ended June 30, 2009

Income Before Extraordinary Loss from our Generation and Marketing segment decreased from $28 million in 2009 to $17 million in 2010 primarily due to reduced inception gains from ERCOT marketing activities partially offset by improved plant performance, hedging activities on our generation assets and increased income from our wind farm operations.

ALL OTHER

Second Quarter of 2010 Compared to Second Quarter of 2009

Income Before Extraordinary Loss from All Other increased from a loss of $10 million in 2009 to a loss of $1 million in 2010 primarily due to $16 million in pretax gains ($10 million, net of tax) on the sale of our remaining 138,000 shares of Intercontinental Exchange, Inc. (ICE) in the second quarter of 2010.

Six Months Ended June 30, 2010 Compared to Six Months Ended June 30, 2009

Income Before Extraordinary Loss from All Other increased from a loss of $28 million in 2009 to a loss of $12 million in 2010 due to $16 million in pretax gains ($10 million, net of tax) on the sale of our remaining 138,000 shares of ICE in the second quarter of 2010.

AEP SYSTEM INCOME TAXES

Second Quarter of 2010 Compared to Second Quarter of 2009

Income Tax Expense decreased $83 million in comparison to 2009 primarily due to a decrease in pretax book income.

Six Months Ended June 30, 2010 Compared to Six Months Ended June 30, 2009

Income Tax Expense decreased $55 million in comparison to 2009 primarily due to a decrease in pretax book income, partially offset by the regulatory accounting treatment of state income taxes, other book/tax differences which are accounted for on a flow-through basis and the tax treatment associated with the future reimbursement of Medicare Part D retiree prescription drug benefits.

FINANCIAL CONDITION

We measure our financial condition by the strength of our balance sheet and the liquidity provided by our cash flows.

DEBT AND EQUITY CAPITALIZATION

 
 
June 30, 2010
   
December 31, 2009
 
 
 
($ in millions)
 
Long-term Debt, including amounts due within one year
  $ 17,348       53.9 %   $ 17,498       56.8 %
Short-term Debt
    1,473       4.6       126       0.4  
Total Debt
    18,821       58.5       17,624       57.2  
Preferred Stock of Subsidiaries
    60       0.2       61       0.2  
AEP Common Equity
    13,269       41.3       13,140       42.6  
Noncontrolling Interests
    1       -       -       -  
 
                               
Total Debt and Equity Capitalization
  $ 32,151       100.0 %   $ 30,825       100.0 %

Our ratio of debt-to-total capital increased from 57.2% in 2009 to 58.5% in 2010 primarily due to an increase in short-term debt of $677 million as a result of a change in an accounting standard applicable to our sale of receivables agreement and an increase of $668 million in commercial paper outstanding.
 
10

 
LIQUIDITY

Liquidity, or access to cash, is an important factor in determining our financial stability.  We believe we have adequate liquidity under our existing credit facilities.  At June 30, 2010, we had $3.4 billion in aggregate credit facility commitments to support our operations.  Additional liquidity is available from cash from operations and a sale of receivables agreement.  We are committed to maintaining adequate liquidity.  We generally use short-term borrowings to fund working capital needs, property acquisitions and construction until long-term funding is arranged.  Sources of long-term funding include issuance of long-term debt, sale-leaseback or leasing agreements or common stock.

Credit Facilities

We manage our liquidity by maintaining adequate external financing commitments.  At June 30, 2010, our available liquidity was approximately $2.9 billion as illustrated in the table below:

 
 
 
Amount
 
Maturity
 
 
 
(in millions)
 
 
Commercial Paper Backup:
 
 
 
 
 
 
Revolving Credit Facility
 
$
 1,454 
 
April 2012
 
Revolving Credit Facility
 
 
 1,500 
 
June 2013
Revolving Credit Facility
 
 
 478 
 
April 2011
Total
 
 
 3,432 
 
 
Cash and Cash Equivalents
 
 
 838 
 
 
Total Liquidity Sources
 
 
 4,270 
 
 
Less:
AEP Commercial Paper Outstanding
 
 
 787 
 
 
 
Letters of Credit Issued
 
 
 626 
 
 
 
 
 
 
 
 
 
Net Available Liquidity
 
$
 2,857 
 
 
 
 
 
 
 
 
 

We have credit facilities totaling $3.4 billion, of which two $1.5 billion credit facilities support our commercial paper program.  One of the $1.5 billion credit facilities allows for the issuance of up to $750 million as letters of credit.  In June 2010, we canceled a facility that was scheduled to mature in March 2011.  We also entered a new $1.5 billion credit facility in June 2010, which matures in 2013, that allows for the issuance of up to $600 million as letters of credit.  In June 2010, we reduced the credit facility that matures in April 2011 from $627 million to $478 million which can be utilized for letters of credit or draws.

We use our commercial paper program to meet the short-term borrowing needs of our subsidiaries.  The program is used to fund both a Utility Money Pool, which funds the utility subsidiaries, and a Nonutility Money Pool, which funds the majority of the nonutility subsidiaries.  In addition, the program also funds, as direct borrowers, the short-term debt requirements of other subsidiaries that are not participants in either money pool for regulatory or operational reasons.  The maximum amount of commercial paper outstanding during 2010 was $802 million.  The weighted-average interest rate for our commercial paper during 2010 was 0.42%.

Securitized Accounts Receivables

In July 2010, we renewed our receivables securitization agreement.  The agreement provides a commitment of $750 million from bank conduits to purchase receivables.  A commitment of $375 million expires in July 2011 and the remaining commitment of $375 million expires in July 2013.
 
11

 
Debt Covenants and Borrowing Limitations

Our revolving credit agreements contain certain covenants and require us to maintain our percentage of debt to total capitalization at a level that does not exceed 67.5%.  The method for calculating our outstanding debt and other capital is contractually defined in our revolving credit agreements. At June 30, 2010, this contractually-defined percentage was 54.8%.  Nonperformance under these covenants could result in an event of default under these credit agreements.  At June 30, 2010, we complied with all of the covenants contained in these credit agreements.  In addition, the acceleration of our payment obligations, or the obligations of certain of our major subsidiaries, prior to maturity under any other agreement or instrument relating to debt outstanding in excess of $50 million, would cause an event of default under these credit agreements and in a majority of our non-exchange traded commodity contracts which would permit the lenders and counterparties to declare the outstanding amounts payable.  However, a default under our non-exchange traded commodity contracts does not cause an event of default under our revolving credit agreements.

The revolving credit facilities do not permit the lenders to refuse a draw on either facility if a material adverse change occurs.

Utility Money Pool borrowings and external borrowings may not exceed amounts authorized by regulatory orders.  At June 30, 2010, we had not exceeded those authorized limits.

Dividend Policy and Restrictions

The Board of Directors declared a quarterly dividend of $0.42 per share in July 2010.  Future dividends may vary depending upon our profit levels, operating cash flow levels and capital requirements, as well as financial and other business conditions existing at the time.  Our income derives from our common stock equity in the earnings of our utility subsidiaries.  Various financing arrangements, charter provisions and regulatory requirements may impose certain restrictions on the ability of our utility subsidiaries to transfer funds to us in the form of dividends. We have the option to defer interest payments on the AEP Junior Subordinated Debentures for one or more periods of up to 10 consecutive years per period.  During any per iod in which we defer interest payments, we may not declare or pay any dividends or distributions on, or redeem, repurchase or acquire, our common stock.  We believe that these restrictions will not have a material effect on our cash flows or financial condition or limit any dividend payments in the foreseeable future.

Credit Ratings

Our access to the commercial paper market may depend on our credit ratings.  In addition, downgrades in our credit ratings by one of the rating agencies could increase our borrowing costs.
 
CASH FLOW

Managing our cash flows is a major factor in maintaining our liquidity strength.

 
Six Months Ended
 
 
June 30,
 
 
2010
 
2009
 
 
(in millions)
 
Cash and Cash Equivalents at Beginning of Period
  $ 490     $ 411  
Net Cash Flows from Operating Activities
    582       857  
Net Cash Flows Used for Investing Activities
    (992 )     (1,478 )
Net Cash Flows from Financing Activities
    758       568  
Net Increase (Decrease) in Cash and Cash Equivalents
    348       (53 )
Cash and Cash Equivalents at End of Period
  $ 838     $ 358  

 
12

 
Cash from operations and short-term borrowings provides working capital and allows us to meet other short-term cash needs.

Operating Activities
 
 
 
   
 
 
 
Six Months Ended
 
 
June 30,
 
 
2010
 
2009
 
 
(in millions)
 
Net Income
  $ 483     $ 680  
Depreciation and Amortization
    813       779  
Other
    (714 )     (602 )
Net Cash Flows from Operating Activities
  $ 582     $ 857  

Net Cash Flows from Operating Activities were $582 million in 2010 consisting primarily of Net Income of $483 million and $813 million of noncash Depreciation and Amortization.  Other includes a $656 million increase in securitized receivables under the application of new accounting guidance for “Transfers and Servicing” related to our sale of receivables agreement.  Other changes represent items that had a current period cash flow impact, such as changes in working capital, as well as items that represent future rights or obligations to receive or pay cash, such as regulatory assets and liabilities.  Significant changes in other items include an increase in under-recovered fuel primarily due to the deferral of fuel under the FAC in Ohio and higher fuel costs in Oklahoma, accrued tax benefits a nd the favorable impact of a decrease in fuel inventory.  Deferred Income Taxes increased primarily due to the American Recovery and Reinvestment Act of 2009 extending bonus depreciation provisions, a change in tax accounting method and an increase in tax versus book temporary differences from operations.

Net Cash Flows from Operating Activities were $857 million in 2009 consisting primarily of Net Income of $680 million and $779 million of noncash Depreciation and Amortization.  Other represents items that had a current period cash flow impact, such as changes in working capital, as well as items that represent future rights or obligations to receive or pay cash, such as regulatory assets and liabilities.  Significant changes in other items include the negative impact on cash of an increase in coal inventory reflecting decreased customer demand for electricity as the result of the economic slowdown and an increase in under-recovered fuel primarily due to the deferral of fuel costs in Ohio as a fuel clause was reactivated in 2009.
 
Investing Activities
 
 
 
   
 
 
 
Six Months Ended
 
 
June 30,
 
 
2010
 
2009
 
 
(in millions)
 
Construction Expenditures
  $ (1,104 )   $ (1,547 )
Acquisitions of Nuclear Fuel
    (41 )     (152 )
Proceeds from Sales of Assets
    147       240  
Other
    6       (19 )
Net Cash Flows Used for Investing Activities
  $ (992 )   $ (1,478 )

Net Cash Flows Used for Investing Activities were $992 million in 2010 primarily due to Construction Expenditures for new generation, environmental and distribution investments.  Proceeds from Sales of Assets in 2010 include $135 million for sales of Texas transmission assets to ETT.

Net Cash Flows Used for Investing Activities were $1.5 billion in 2009 primarily due to Construction Expenditures for our new generation, environmental and distribution investments.  Proceeds from Sales of Assets in 2009 include $104 million relating to the sale of a portion of Turk Plant to joint owners and $92 million for sales of transmission assets in Texas to ETT.
 
13

 
Financing Activities
 
 
 
   
 
 
 
Six Months Ended
 
 
June 30,
 
 
2010
 
2009
 
 
(in millions)
 
Issuance of Common Stock, Net
  $ 42     $ 1,688  
Issuance/Retirement of Debt, Net
    1,166       (711 )
Dividends Paid on Common Stock
    (399 )     (364 )
Other
    (51 )     (45 )
Net Cash Flows from Financing Activities
  $ 758     $ 568  

Net Cash Flows from Financing Activities were $758 million in 2010.  Our net debt issuances were $1.2 billion.  The net issuances included issuances of $884 million of notes and $287 million of pollution control bonds, a $668 million increase in commercial paper outstanding and retirements of $1 billion of senior unsecured notes, $86 million of securitization bonds and $183 million of pollution control bonds.  Our short-term debt securitized by receivables increased $656 million under the application of new accounting guidance for “Transfers and Servicing” related to our sale of receivables agreement.  We paid common stock dividends of $399 million.  See Note 11 – Financing Activities for a complete discussion of long-term debt issuances and retirements.

Net Cash Flows from Financing Activities in 2009 were $568 million.  Issuance of Common Stock, Net of $1.7 billion is comprised of our issuance of 69 million shares of common stock with net proceeds of $1.64 billion and additional shares through our dividend reinvestment, employee savings and incentive programs.  Our net debt retirements were $711 million. These retirements included a repayment of $1.75 billion outstanding under our credit facilities primarily from the proceeds of our common stock issuance and issuances of $955 million of senior unsecured notes and $135 million of pollution control bonds.
 
OFF-BALANCE SHEET ARRANGEMENTS

In prior periods, under a limited set of circumstances, we entered into off-balance sheet arrangements for various reasons including accelerating cash collections, reducing operational expenses and spreading risk of loss to third parties.  Our current guidelines restrict the use of off-balance sheet financing entities or structures to traditional operating lease arrangements and transfers of customer accounts receivable that we enter in the normal course of business.  The following identifies significant off-balance sheet arrangements:

 
June 30,
 
December 31,
 
 
2010
 
2009
 
 
(in millions)
 
AEP Credit Accounts Receivable Purchase Commitments
  $ -     $ 631  
Rockport Plant Unit 2 Future Minimum Lease Payments
    1,846       1,920  
Railcars Maximum Potential Loss From Lease Agreement
    25       25  

Effective January 1, 2010, we record the receivables and debt related to AEP Credit on our Condensed Consolidated Balance Sheet.  For complete information on each of these off-balance sheet arrangements see the “Off-balance Sheet Arrangements” section of “Management’s Financial Discussion and Analysis of Results of Operations” in the 2009 Annual Report.

SUMMARY OBLIGATION INFORMATION

A summary of our contractual obligations is included in our 2009 Annual Report and has not changed significantly from year-end other than the debt issuances and retirements discussed in “Cash Flow” above.
 
14

 
SIGNIFICANT FACTORS

We continue to be involved in various matters described in the “Significant Factors” section of “Management’s Financial Discussion and Analysis of Results of Operations” in our 2009 Annual Report.  The 2009 Annual Report should be read in conjunction with this report in order to understand significant factors which have not materially changed in status since the issuance of our 2009 Annual Report, but may have a material impact on our future net income, cash flows and financial condition.

REGULATORY ISSUES

Ohio Electric Security Plan Filings

During 2009, the PUCO issued an order that modified and approved CSPCo’s and OPCo’s ESPs which established rates through 2011.  The order also limits rate increases for CSPCo to 7% in 2009, 6% in 2010 and 6% in 2011 and for OPCo to 8% in 2009, 7% in 2010 and 8% in 2011.  The order provides a FAC for the three-year period of the ESP.  Several notices of appeal are outstanding at the Supreme Court of Ohio relating to significant issues in the determination of the approved ESP rates.  CSPCo and OPCo will file their significantly excessive earnings test with the PUCO by their September 2010 deadline.  CSPCo and OPCo are unable to determine whether they will be required to return any of their ESP revenues to customers.  See “Ohio Electric Security Plan FilingsR 21; section of Note 3.

Cook Plant Unit 1 Fire and Shutdown

In September 2008, I&M shut down Cook Plant Unit 1 (Unit 1) due to turbine vibrations, caused by blade failure, which resulted in a fire on the electric generator. Repair of the property damage and replacement of the turbine rotors and other equipment could cost up to approximately $395 million.  Management believes that I&M should recover a significant portion of repair and replacement costs through the turbine vendor’s warranty, insurance and the regulatory process.  I&M repaired Unit 1 and it resumed operations in December 2009 at slightly reduced power.  The Unit 1 rotors were repaired and reinstalled due to the extensive lead time required to manufacture and install new turbine rotors.  As a result, the replacement of the repaired turbine rotors and other equipment is sched uled for the Unit 1 planned outage in the fall of 2011.  If the ultimate costs of the incident are not covered by warranty, insurance or through the related regulatory process or if any future regulatory proceedings are adverse, it could have an adverse impact on net income, cash flows and financial condition.  See “Cook Plant Unit 1 Fire and Shutdown” section of Note 4.

Texas Restructuring Appeals

Pursuant to PUCT restructuring orders, TCC securitized net recoverable stranded generation costs of $2.5 billion and is recovering the principal and interest on the securitization bonds through the end of 2020.  TCC also refunded other net true-up regulatory liabilities of $375 million during the period October 2006 through June 2008 via a CTC credit rate rider under PUCT restructuring orders.  TCC and intervenors appealed the PUCT’s true-up related orders.  After rulings from the Texas District Court and the Texas Court of Appeals, TCC, the PUCT and intervenors filed petitions for review with the Texas Supreme Court.  Review is discretionary and the Texas Supreme Court has not yet determined if it will grant review.  See “Texas R estructuring Appeals” section of Note 3.

Mountaineer Carbon Capture and Storage Project

APCo and ALSTOM Power, Inc. (Alstom), an unrelated third party, jointly constructed a CO2 capture validation facility, which was placed into service in September 2009.  APCo also constructed and owns the necessary facilities to store the CO2.  In APCo’s July 2009 Virginia base rate filing and APCo’s May 2010 West Virginia base rate filing, APCo requested recovery of and a return on its estimated increased Virginia and West Virginia jurisdictional share of its project costs and recovery of the related asset retirement obligation regulatory asset amortization and accretion.  In July 2010, the Virginia SCC issued a base rate order that denied recovery of the Virginia share of the Mountaineer Carbon Capture and Storage Project costs, which resulted in a pretax write-off of approximately $54 million in the second quarter of 2010.  In response to the order, APCo filed with the Virginia SCC a petition for
 
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reconsideration of the order as it relates to the Mountaineer Carbon Capture and Storage Project.  Through June 30, 2010, APCo has recorded a noncurrent regulatory asset of $58 million consisting of $38 million in project costs and $20 million in asset retirement costs.  If APCo cannot recover its remaining investments in and expenses related to the Mountaineer Carbon Capture and Storage project, it would reduce future net income and cash flows and impact financial condition.  See “Mountaineer Carbon Capture and Storage Project” section of Note 3.

Turk Plant

SWEPCo is currently constructing the Turk Plant, a new base load 600 MW pulverized coal ultra-supercritical generating unit in Arkansas, which is expected to be in-service in 2012.  SWEPCo owns 73% of the Turk Plant and will operate the completed facility.  The Turk Plant is currently estimated to cost $1.7 billion, excluding AFUDC, plus an additional $131 million for transmission, excluding AFUDC.  SWEPCo’s share is currently estimated to cost $1.3 billion, excluding AFUDC, plus an additional $131 million for transmission, excluding AFUDC.  Notices of appeal are outstanding at the Arkansas Court of Appeals and the Circuit Court of Hempstead County, Arkansas.  Matters are also outstanding at the LPSC, the Texas Court of Appeals and the Federal District Court for the Western Distri ct of Arkansas.  See “Turk Plant” section of Note 3.

LITIGATION

In the ordinary course of business, we are involved in employment, commercial, environmental and regulatory litigation.  Since it is difficult to predict the outcome of these proceedings, we cannot state what the eventual resolution will be or the timing and amount of any loss, fine or penalty may be.  We assess the probability of loss for each contingency and accrue a liability for cases that have a probable likelihood of loss if the loss can be estimated.  For details on our regulatory proceedings and pending litigation see Note 4 – Rate Matters, Note 6 – Commitments, Guarantees and Contingencies and the “Litigation” section of “Management’s Financial Discussion and Analysis of Results of Operations” in the 2009 Annual Report.  Additionally, see Note 3 – Rate Matters and Note 4 – Commitments, Guarantees and Contingencies included herein.  Adverse results in these proceedings have the potential to materially affect our net income.

ENVIRONMENTAL ISSUES

We are implementing a substantial capital investment program and incurring additional operational costs to comply with new environmental control requirements.  We anticipate making additional investments and operational changes.  The most significant sources are the existing and anticipated CAA requirements to reduce emissions of SO2, NOx, PM and hazardous air pollutants from fossil fuel-fired power plants and new proposals governing the beneficial use and disposal of coal combustion products.
 
We are engaged in litigation about environmental issues, have been notified of potential responsibility for the clean-up of contaminated sites and incur costs for disposal of SNF and future decommissioning of our nuclear units.  We are also engaged in the development of possible future requirements to reduce CO2 emissions to address concerns about global climate change.  See a complete discussion of these matters in the “Environmental Matters” section of “Management’s Financial Discussion and Analysis of Results of Operations” in the 2009 Annual Report.

Clean Air Act Transport Rule (Transport Rule)

In July 2010, the Federal EPA issued a proposed rule to replace the Clean Air Interstate Rule (CAIR) that would impose new and more stringent requirements to control SO2 and NOx emissions from fossil fuel-fired electric generating units in 31 states and the District of Columbia.  Each state covered by the Transport Rule is assigned an allowance budget for SO2 and/or NOx.  Limited interstate trading is allowed on a sub-regional basis and intrastate trading is allowed among generating units.  Certain of our western st ates (Texas, Arkansas and Oklahoma) would be subject to only the seasonal NOx program, with new limits that are proposed to take effect in 2012.  The remainder of the states in which we operate would be subject to seasonal and annual NOx programs and an annual SO2 emissions reduction program that takes effect in two phases.  The first phase becomes effective in 2012 and requires approximately 1 million tons per year more SO2 emission reductions across the region than would have been required under CAIR.  The second phase takes effect in 2014 and reduces emissions by an additional 800,000 tons per year.  The SO2 and NOx programs rely on newly-created allowances rather than relying on the CAIR NOx allowances or the Title IV Acid Rain Program allowances used in the CAIR rule.  The time frames for and
 
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stringency of the additional emission reductions, coupled with the lack of robust interstate trading and the elimination of historic allowance banks, pose significant concerns for the AEP System and our electric utility customers, as these features could accelerate unit retirements, increase capital requirements, constrain operations and decrease reliability.  Comments on the proposed rule will be due within 60 days after publication in the Federal Register.

Coal Combustion Residual Rule

In June 2010, the Federal EPA published a proposed rule to regulate the disposal and beneficial re-use of coal combustion residuals, including fly ash and bottom ash generated at our coal-fired electric generating units.  The rule contains two alternative proposals, one that would impose federal hazardous waste disposal and management standards on these materials and one that would allow states to retain primary authority to regulate the beneficial re-use and disposal of these materials under state solid waste management standards, including minimum federal standards for disposal and management.  Both proposals would impose stringent requirements for the construction of new coal ash landfills and would require existing unlined surface impoundments to upgrade to the new standards or stop receiving coal ash and initia te closure within five years of the issuance of a final rule.

Currently, approximately 40% of the coal ash and other residual products from our generating facilities are re-used in the production of cement and wallboard, as structural fill or soil amendments, as abrasives or road treatment materials and for other beneficial uses.  Certain of these uses would no longer be available and others are likely to significantly decline if coal ash and related materials are classified as hazardous wastes.  In addition, we currently use surface impoundments and landfills to manage these materials at our generating facilities and will incur significant costs to upgrade or close and replace these existing facilities.  We are currently studying the potential costs associated with this proposal and expect that it will impose significant costs.  We will seek recovery of ex penditures for pollution control technologies and associated costs from customers through our regulated rates (in regulated jurisdictions).  We should be able to recover these expenditures through market prices in deregulated jurisdictions.  If not, these costs could adversely affect future net income, cash flows and possibly financial condition.

Global Warming

While comprehensive economy-wide regulation of CO2 emissions might be achieved through new legislation, Congress has yet to enact such legislation.  The Federal EPA continues to take action to regulate CO2 emissions under the existing requirements of the CAA.  The Federal EPA issued a final endangerment finding for CO2 emissions from new motor vehicles in December 2009 and final rules for new motor vehicles in May 2010.  The Federal EPA determined that CO2 emissions from stationary sources will be subject to regulation u nder the CAA beginning in January 2011 at the earliest and finalized its proposed scheme to streamline and phase-in regulation of stationary source CO2 emissions through the NSR prevention of significant deterioration and Title V operating permit programs.  The Federal EPA is reconsidering whether to include CO2 emissions in a number of stationary source standards, including standards that apply to new and modified electric utility units.

Our fossil fuel-fired generating units are very large sources of CO2 emissions.  If substantial CO2 emission reductions are required, there will be significant increases in capital expenditures and operating costs which would impact the ultimate retirement of older, less-efficient, coal-fired units.  To the extent we install additional controls on our generating plants to limit CO2 emissions and receive regulatory approvals to increase our rates, cost recovery could have a positive effect on future earnings.  Prudently incurred capital investments made by our subsidiaries in rate-regulate d jurisdictions to comply with legal requirements and benefit customers are generally included in rate base for recovery and earn a return on investment.  We would expect these principles to apply to investments made to address new environmental requirements.  However, requests for rate increases reflecting these costs can affect us adversely because our regulators could limit the amount or timing of increased costs that we would recover through higher rates.  In addition, to the extent our costs are relatively higher than our competitors’ costs, such as operators of nuclear generation, it could reduce our off-system sales or cause us to lose customers in jurisdictions that permit customers to choose their supplier of generation service.
 
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Several states have adopted programs that directly regulate CO2 emissions from power plants, but none of these programs are currently in effect in states where we have generating facilities.  Certain states, including Ohio, Michigan, Texas and Virginia, passed legislation establishing renewable energy, alternative energy and/or energy efficiency requirements.  We are taking steps to comply with these requirements.

Certain groups have filed lawsuits alleging that emissions of CO2 are a “public nuisance” and seeking injunctive relief and/or damages from small groups of coal-fired electricity generators, petroleum refiners and marketers, coal companies and others.  We have been named in pending lawsuits, which we are vigorously defending.  It is not possible to predict the outcome of these lawsuits or their impact on our operations or financial condition.  See “Carbon Dioxide Public Nuisance Claims” and “Alaskan Villages’ Claims” sections of Note 4.

Future federal and state legislation or regulations that mandate limits on the emission of CO2 would result in significant increases in capital expenditures and operating costs, which in turn, could lead to increased liquidity needs and higher financing costs.  Excessive costs to comply with future legislation or regulations might force our utility subsidiaries to close some coal-fired facilities and could lead to possible impairment of assets.  As a result, mandatory limits could have a material adverse impact on our net income, cash flows and financial condition.

For detailed information on global warming and the actions we are taking to address potential impacts, see Part I of the 2009 Form 10-K under the headings entitled “Business – General – Environmental and Other Matters – Global Warming” and “Management’s Financial Discussion and Analysis of Results of Operations.”

CRITICAL ACCOUNTING POLICIES AND ESTIMATES, NEW ACCOUNTING PRONOUNCEMENTS

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

See the “Critical Accounting Policies and Estimates” section of “Management’s Financial Discussion and Analysis of Results of Operations” in the 2009 Annual Report for a discussion of the estimates and judgments required for regulatory accounting, revenue recognition, the valuation of long-lived assets, the accounting for pension and other postretirement benefits and the impact of new accounting pronouncements.

NEW ACCOUNTING PRONOUNCEMENTS

New Accounting Pronouncements Adopted During 2010

We adopted ASU 2009-16 “Transfers and Servicing” effective January 1, 2010.  The adoption of this standard resulted in AEP Credit’s transfers of receivables being accounted for as financings with the receivables and short-term debt recorded on our balance sheet.

We adopted the prospective provisions of ASU 2009-17 “Consolidations” effective January 1, 2010.  We no longer consolidate DHLC effective with the adoption of this standard.

See Note 2 for further discussion of accounting pronouncements.

Future Accounting Changes

The FASB’s standard-setting process is ongoing and until new standards have been finalized and issued, we cannot determine the impact on the reporting of our operations and financial position that may result from any such future changes.  The FASB is currently working on several projects including revenue recognition, contingencies, financial instruments, emission allowances, fair value measurements, leases, insurance, hedge accounting, consolidation policy and discontinued operations.  We also expect to see more FASB projects as a result of its desire to converge International Accounting Standards with GAAP.  The ultimate pronouncements resulting from these and future projects could have an impact on our future net income and financial position.
 
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT RISK MANAGEMENT ACTIVITIES

Market Risks

Our Utility Operations segment is exposed to certain market risks as a major power producer and marketer of wholesale electricity, coal and emission allowances.  These risks include commodity price risk, interest rate risk and credit risk.  In addition, we are exposed to foreign currency exchange risk because occasionally we procure various services and materials used in our energy business from foreign suppliers.  These risks represent the risk of loss that may impact us due to changes in the underlying market prices or rates.

Our Generation and Marketing segment, operating primarily within ERCOT, transacts in wholesale energy trading and marketing contracts.  This segment is exposed to certain market risks as a marketer of wholesale electricity.  These risks include commodity price risk, interest rate risk and credit risk.  These risks represent the risk of loss that may impact us due to changes in the underlying market prices or rates.

All Other includes natural gas operations which holds forward natural gas contracts that were not sold with the natural gas pipeline and storage assets.  These contracts are financial derivatives, which gradually settle and completely expire in 2011.  Our risk objective is to keep these positions generally risk neutral through maturity.

We employ risk management contracts including physical forward purchase and sale contracts and financial forward purchase and sale contracts.  We engage in risk management of electricity, coal, natural gas and emission allowances and to a lesser degree other commodities associated with our energy business.  As a result, we are subject to price risk.  The amount of risk taken is determined by the commercial operations group in accordance with the market risk policy approved by the Finance Committee of our Board of Directors.  Our market risk oversight staff independently monitors our risk policies, procedures and risk levels and provides members of the Commercial Operations Risk Committee (CORC) various daily, weekly and/or monthly reports regarding compliance with policies, limits and procedures.   The CORC consists of our Executive Vice President - Generation, Chief Financial Officer, Senior Vice President of Commercial Operations and Chief Risk Officer.  When commercial activities exceed predetermined limits, we modify the positions to reduce the risk to be within the limits unless specifically approved by the CORC.
 
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The following table summarizes the reasons for changes in total mark-to-market (MTM) value as compared to December 31, 2009:

MTM Risk Management Contract Net Assets (Liabilities)
 
Six Months Ended June 30, 2010
 
(in millions)
 
 
 
 
   
Generation
   
 
   
 
 
 
 
Utility
   
and
   
 
   
 
 
 
 
Operations
   
Marketing
   
All Other
   
Total
 
Total MTM Risk Management Contract Net Assets (Liabilities)
 
 
   
 
   
 
   
 
 
at December 31, 2009
  $ 134     $ 147     $ (3 )   $ 278  
(Gain) Loss from Contracts Realized/Settled During the Period and
                               
Entered in a Prior Period
    (39 )     (9 )     3       (45 )
Fair Value of New Contracts at Inception When Entered During the
                               
Period (a)
    8       8       -       16  
Net Option Premiums Received for Unexercised or Unexpired
                               
Option Contracts Entered During the Period
    (1 )     -       -       (1 )
Changes in Fair Value Due to Valuation Methodology Changes on
                               
Forward Contracts (b)
    (2 )     (2 )     -       (4 )
Changes in Fair Value Due to Market Fluctuations During the
                               
Period (c)
    10       6       -       16  
Changes in Fair Value Allocated to Regulated Jurisdictions (d)
    22       -       -       22  
Total MTM Risk Management Contract Net Assets
                               
at June 30, 2010
  $ 132     $ 150     $ -       282  
 
                               
Cash Flow Hedge Contracts
                            (2 )
Fair Value Hedge Contracts
                            4  
Collateral Deposits
                            77  
Total MTM Derivative Contract Net Assets at June 30, 2010
                          $ 361  

(a)
Reflects fair value on long-term structured contracts which are typically with customers that seek fixed pricing to limit their risk against fluctuating energy prices.  The contract prices are valued against market curves associated with the delivery location and delivery term.  A significant portion of the total volumetric position has been economically hedged.
(b)
Reflects changes in methodology in calculating the credit and discounting liability fair value adjustments.
(c)
Market fluctuations are attributable to various factors such as supply/demand, weather, etc.
(d)
Relates to the net gains (losses) of those contracts that are not reflected on the Condensed Consolidated Statements of Income.  These net gains (losses) are recorded as regulatory liabilities/assets.

See Note 8 – Derivatives and Hedging and Note 9 – Fair Value Measurements for additional information related to our risk management contracts.  The following tables and discussion provide information on our credit risk and market volatility risk.
 
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Credit Risk

We limit credit risk in our wholesale marketing and trading activities by assessing the creditworthiness of potential counterparties before entering into transactions with them and continuing to evaluate their creditworthiness on an ongoing basis.  We use Moody’s Investors Service, Standard & Poor’s and current market-based qualitative and quantitative data to assess the financial health of counterparties on an ongoing basis.  If an external rating is not available, an internal rating is generated utilizing a quantitative tool developed by Moody’s to estimate probability of default that corresponds to an implied external agency credit rating.

We have risk management contracts with numerous counterparties.  Since open risk management contracts are valued based on changes in market prices of the related commodities, our exposures change daily.  As of June 30, 2010, our credit exposure net of collateral to sub investment grade counterparties was approximately 8.0%, expressed in terms of net MTM assets, net receivables and the net open positions for contracts not subject to MTM (representing economic risk even though there may not be risk of accounting loss).  As of June 30, 2010, the following table approximates our counterparty credit quality and exposure based on netting across commodities, instruments and legal entities where applicable:

 
 
 
Exposure
 
 
 
 
 
Number of
 
Net Exposure
 
 
Before
 
 
Counterparties
of
 
 
Credit
Credit
Net
>10% of
Counterparties
Counterparty Credit Quality
Collateral
Collateral
Exposure
Net Exposure
>10%
 
 
 
(in millions, except number of counterparties)
Investment Grade
 
$
 717 
 
$
 46 
 
$
 671 
 
 
 1 
 
$
 152 
Split Rating
 
 
 4 
 
 
 - 
 
 
 4 
 
 
 1 
 
 
 4 
Noninvestment Grade
 
 
 3 
 
 
 1 
 
 
 2 
 
 
 4 
 
 
 2 
No External Ratings:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Internal Investment Grade
 
 
 145 
 
 
 - 
 
 
 145 
 
 
 3 
 
 
 100 
 
Internal Noninvestment Grade
 
 
 82 
 
 
 11 
 
 
 71 
 
 
 3 
 
 
 63 
Total as of June 30, 2010
 
$
 951 
 
$
 58 
 
$
 893 
 
 
 12 
 
$
 321 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total as of December 31, 2009
 
$
 846 
 
$
 58 
 
$
 788 
 
 
 12 
 
$
 317 

Value at Risk (VaR) Associated with Risk Management Contracts

We use a risk measurement model, which calculates VaR, to measure our commodity price risk in the risk management portfolio.  The VaR is based on the variance-covariance method using historical prices to estimate volatilities and correlations and assumes a 95% confidence level and a one-day holding period.  Based on this VaR analysis, as of June 30, 2010, a near term typical change in commodity prices is not expected to have a material effect on our net income, cash flows or financial condition.

The following table shows the end, high, average and low market risk as measured by VaR for the periods indicated:

VaR Model

Six Months Ended
       
Twelve Months Ended
June 30, 2010
       
December 31, 2009
(in millions)
       
(in millions)
End
 
High
 
Average
 
Low
       
End
 
High
 
Average
 
Low
$1
 
$2
 
$1
 
$-
       
$1
 
$2
 
$1
 
$-

We back-test our VaR results against performance due to actual price movements.  Based on the assumed 95% confidence interval, the performance due to actual price movements would be expected to exceed the VaR at least once every 20 trading days.
 
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As our VaR calculation captures recent price movements, we also perform regular stress testing of the portfolio to understand our exposure to extreme price movements.  We employ a historical-based method whereby the current portfolio is subjected to actual, observed price movements from the last four years in order to ascertain which historical price movements translated into the largest potential MTM loss.  We then research the underlying positions, price moves and market events that created the most significant exposure and report the findings to the Risk Executive Committee or the CORC as appropriate.

Interest Rate Risk

We utilize an Earnings at Risk (EaR) model to measure interest rate market risk exposure. EaR statistically quantifies the extent to which AEP’s interest expense could vary over the next twelve months and gives a probabilistic estimate of different levels of interest expense.  The resulting EaR is interpreted as the dollar amount by which actual interest expense for the next twelve months could exceed expected interest expense with a one-in-twenty chance of occurrence.  The primary drivers of EaR are from the existing floating rate debt (including short-term debt) as well as long-term debt issuances in the next twelve months.  As calculated on debt outstanding as of June 30, 2010 and December 31, 2009, the estimated EaR on our debt portfolio for the following twelve months was $3 million and $4 milli on, respectively.
 
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AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 
For the Three and Six Months Ended June 30, 2010 and 2009
 
(in millions, except per-share and share amounts)
 
(Unaudited)
 
 
 
 
   
 
   
 
   
 
 
 
 
Three Months Ended
   
Six Months Ended
 
 
 
2010
   
2009
   
2010
   
2009
 
REVENUES
 
 
   
 
   
 
   
 
 
Utility Operations
  $ 3,186     $ 3,035     $ 6,592     $ 6,302  
Other Revenues
    174       167       337       358  
TOTAL REVENUES
    3,360       3,202       6,929       6,660  
EXPENSES
                               
Fuel and Other Consumables Used for Electric Generation
    895       764       1,909       1,693  
Purchased Electricity for Resale
    227       258       465       553  
Other Operation
    994       638       1,667       1,248  
Maintenance
    243       271       514       566  
Depreciation and Amortization
    405       397       813       779  
Taxes Other Than Income Taxes
    202       192       409       389  
TOTAL EXPENSES
    2,966       2,520       5,777       5,228  
 
                               
OPERATING INCOME
    394       682       1,152       1,432  
 
                               
Other Income (Expense):
                               
Interest and Investment Income (Loss)
    18       (5 )     21       -  
Carrying Costs Income
    19       12       33       21  
Allowance for Equity Funds Used During Construction
    19       20       43       36  
Interest Expense
    (249 )     (240 )     (499 )     (478 )
 
                               
INCOME BEFORE INCOME TAX EXPENSE AND EQUITY EARNINGS
    201       469       750       1,011  
 
                               
Income Tax Expense
    65       148       272       327  
Equity Earnings of Unconsolidated Subsidiaries
    1       1       5       1  
 
                               
INCOME BEFORE EXTRAORDINARY LOSS
    137       322       483       685  
 
                               
EXTRAORDINARY LOSS, NET OF TAX
    -       (5 )     -       (5 )
 
                               
NET INCOME
    137       317       483       680  
 
                               
Less:  Net Income Attributable to Noncontrolling Interests
    1       1       2       3  
 
                               
NET INCOME ATTRIBUTABLE TO AEP SHAREHOLDERS
    136       316       481       677  
 
                               
Less: Preferred Stock Dividend Requirements of Subsidiaries
    -       -       1       1  
 
                               
EARNINGS ATTRIBUTABLE TO AEP COMMON SHAREHOLDERS
  $ 136     $ 316     $ 480     $ 676  
 
                               
WEIGHTED AVERAGE NUMBER OF BASIC AEP COMMON SHARES OUTSTANDING
    479,050,774       472,220,041       478,741,871       439,703,968  
 
                               
BASIC EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO AEP COMMON SHAREHOLDERS
                               
Income Before Extraordinary Loss
  $ 0.28     $ 0.68     $ 1.00     $ 1.55  
Extraordinary Loss, Net of Tax
    -       (0.01 )     -       (0.01 )
 
                               
TOTAL BASIC EARNINGS PER SHARE ATTRIBUTABLE TO AEP COMMON SHAREHOLDERS
  $ 0.28     $ 0.67     $ 1.00     $ 1.54  
 
                               
 
                               
WEIGHTED AVERAGE NUMBER OF DILUTED AEP COMMON SHARES OUTSTANDING
    479,176,543       472,222,817       479,012,304       439,983,030  
 
                               
DILUTED EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO AEP COMMON SHAREHOLDERS
                               
Income Before Extraordinary Loss
  $ 0.28     $ 0.68     $ 1.00     $ 1.55  
Extraordinary Loss, Net of Tax
    -       (0.01 )     -       (0.01 )
 
                               
TOTAL DILUTED EARNINGS PER SHARE ATTRIBUTABLE TO AEP COMMON
                               
SHAREHOLDERS
  $ 0.28     $ 0.67     $ 1.00     $ 1.54  
 
                               
CASH DIVIDENDS PAID PER SHARE
  $ 0.42     $ 0.41     $ 0.83     $ 0.82  
 
                               
See Condensed Notes to Condensed Consolidated Financial Statements.
                               

 
23

 

AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
 
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY AND
 
COMPREHENSIVE INCOME (LOSS)
 
For the Six Months Ended June 30, 2010 and 2009
 
(in millions)
 
(Unaudited)
 
 
 
 
 
AEP Common Shareholders
   
 
   
 
 
 
 
Common Stock
   
 
   
 
   
Accumulated
   
 
   
 
 
 
 
 
   
 
   
 
   
 
   
Other
   
 
   
 
 
 
 
 
   
 
   
Paid-in
   
Retained
   
Comprehensive
   
Noncontrolling
   
 
 
 
 
Shares
   
Amount
   
Capital
   
Earnings
   
Income (Loss)
   
Interests
   
Total
 
TOTAL EQUITY – DECEMBER 31, 2008
    426     $ 2,771     $ 4,527     $ 3,847     $ (452 )   $ 17     $ 10,710  
 
                                                       
Issuance of Common Stock
    71       460       1,278                               1,738  
Common Stock Dividends
                            (363 )             (3 )     (366 )
Preferred Stock Dividend Requirements of
                                                       
Subsidiaries
                            (1 )                     (1 )
Other Changes in Equity
                    (50 )                     1       (49 )
SUBTOTAL – EQUITY
                                                    12,032  
 
                                                       
COMPREHENSIVE INCOME
                                                       
Other Comprehensive Income (Loss), Net of
                                                       
Taxes:
                                                       
Cash Flow Hedges, Net of Tax of $9
                                    17               17  
Securities Available for Sale, Net of Tax of $5
                                    9               9  
Amortization of Pension and OPEB Deferred
                                                       
Costs, Net of Tax of $14
                                    25               25  
NET INCOME
                            677               3       680  
TOTAL COMPREHENSIVE INCOME
                                                    731  
 
                                                       
TOTAL EQUITY – JUNE 30, 2009
    497     $ 3,231     $ 5,755     $ 4,160     $ (401 )   $ 18     $ 12,763  
 
                                                       
TOTAL EQUITY – DECEMBER 31, 2009
    498     $ 3,239     $ 5,824     $ 4,451     $ (374 )   $ -     $ 13,140  
 
                                                       
Issuance of Common Stock
    2       9       34                               43  
Common Stock Dividends
                            (398 )             (1 )     (399 )
Preferred Stock Dividend Requirements of
                                                       
Subsidiaries
                            (1 )                     (1 )
Other Changes in Equity
                    2                               2  
SUBTOTAL – EQUITY
                                                    12,785  
 
                                                       
COMPREHENSIVE INCOME
                                                       
Other Comprehensive Income (Loss), Net of
                                                       
Taxes:
                                                       
Cash Flow Hedges, Net of Tax of $1
                                    2               2  
Securities Available for Sale, Net of Tax of $6
                                    (11 )             (11 )
Amortization of Pension and OPEB Deferred
                                                       
Costs, Net of Tax of $6
                                    11               11  
NET INCOME
                            481               2       483  
TOTAL COMPREHENSIVE INCOME
                                                    485  
 
                                                       
TOTAL EQUITY – JUNE 30, 2010
    500     $ 3,248     $ 5,860     $ 4,533     $ (372 )   $ 1     $ 13,270  
 
                                                       
See Condensed Notes to Condensed Consolidated Financial Statements.
                                 

 
24

 

AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
ASSETS
 
June 30, 2010 and December 31, 2009
 
(in millions)
 
(Unaudited)
 
 
 
 
 
2010
   
2009
 
CURRENT ASSETS
 
 
   
 
 
Cash and Cash Equivalents
  $ 838     $ 490  
Other Temporary Investments
    298       363  
Accounts Receivable:
               
Customers
    651       492  
Accrued Unbilled Revenues
    115       503  
Pledged Accounts Receivable - AEP Credit
    1,011       -  
Miscellaneous
    114       92  
Allowance for Uncollectible Accounts
    (44 )     (37 )
Total Accounts Receivable
    1,847       1,050  
Fuel
    984       1,075  
Materials and Supplies
    593       586  
Risk Management Assets
    250       260  
Accrued Tax Benefits
    653       547  
Regulatory Asset for Under-Recovered Fuel Costs
    104       85  
Margin Deposits
    74       89  
Prepayments and Other Current Assets
    152       211  
TOTAL CURRENT ASSETS
    5,793       4,756  
 
               
PROPERTY, PLANT AND EQUIPMENT
               
Electric:
               
Production
    23,930       23,045  
Transmission
    8,420       8,315  
Distribution
    13,799       13,549  
Other Property, Plant and Equipment (including coal mining and nuclear fuel)
    3,820       3,744  
Construction Work in Progress
    2,431       3,031  
Total Property, Plant and Equipment
    52,400       51,684  
Accumulated Depreciation and Amortization
    17,682       17,340  
TOTAL PROPERTY, PLANT AND EQUIPMENT - NET
    34,718       34,344  
 
               
OTHER NONCURRENT ASSETS
               
Regulatory Assets
    4,732       4,595  
Securitized Transition Assets
    1,834       1,896  
Spent Nuclear Fuel and Decommissioning Trusts
    1,391       1,392  
Goodwill
    76       76  
Long-term Risk Management Assets
    408       343  
Deferred Charges and Other Noncurrent Assets
    985       946  
TOTAL OTHER NONCURRENT ASSETS
    9,426       9,248  
 
               
TOTAL ASSETS
  $ 49,937     $ 48,348  
 
               
See Condensed Notes to Condensed Consolidated Financial Statements.
               

 
25

 

AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
LIABILITIES AND EQUITY
 
June 30, 2010 and December 31, 2009
 
(Unaudited)
 
 
 
 
 
2010
   
2009
 
CURRENT LIABILITIES
 
(in millions)
 
Accounts Payable
  $ 863     $ 1,158  
Short-term Debt:
               
General
      796       126  
Securitized Debt for Receivables - AEP Credit
      677       -  
Total Short-term Debt
      1,473       126  
Long-term Debt Due Within One Year
    1,043       1,741  
Risk Management Liabilities
    120       120  
Customer Deposits
    266       256  
Accrued Taxes
    570       632  
Accrued Interest
    284       287  
Regulatory Liability for Over-Recovered Fuel Costs
    27       76  
Other Current Liabilities
    1,132       931  
TOTAL CURRENT LIABILITIES
    5,778       5,327  
 
               
NONCURRENT LIABILITIES
               
Long-term Debt
    16,305       15,757  
Long-term Risk Management Liabilities
    177       128  
Deferred Income Taxes
    6,671       6,420  
Regulatory Liabilities and Deferred Investment Tax Credits
    3,017       2,909  
Asset Retirement Obligations
    1,280       1,254  
Employee Benefits and Pension Obligations
    2,107       2,189  
Deferred Credits and Other Noncurrent Liabilities
    1,272       1,163  
TOTAL NONCURRENT LIABILITIES
    30,829       29,820  
 
               
TOTAL LIABILITIES
    36,607       35,147  
 
               
Cumulative Preferred Stock Not Subject to Mandatory Redemption
    60       61  
 
               
Rate Matters (Note 3)
               
Commitments and Contingencies (Note 4)
               
 
               
EQUITY
               
Common Stock – Par Value – $6.50 Per Share:
               
 
 
2010
   
2009
                 
  Shares Authorized
    600,000,000       600,000,000                  
   Shares Issued
    499,655,121       498,333,265                  
(20,278,858 shares were held in treasury at June 30, 2010 and December 31, 2009)
    3,248       3,239  
Paid-in Capital
    5,860       5,824  
Retained Earnings
    4,533       4,451  
Accumulated Other Comprehensive Income (Loss)
    (372 )     (374 )
TOTAL AEP COMMON SHAREHOLDERS’ EQUITY
    13,269       13,140  
 
               
Noncontrolling Interests
    1       -  
 
               
TOTAL EQUITY
    13,270       13,140  
 
               
TOTAL LIABILITIES AND EQUITY
  $ 49,937     $ 48,348  
 
               
See Condensed Notes to Condensed Consolidated Financial Statements.
               

 
26

 

AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
For the Six Months Ended June 30, 2010 and 2009
 
(in millions)
 
(Unaudited)
 
 
 
 
 
2010
   
2009
 
OPERATING ACTIVITIES
 
 
   
 
 
Net Income
  $ 483     $ 680  
Adjustments to Reconcile Net Income to Net Cash Flows from Operating Activities:
               
Depreciation and Amortization
    813       779  
Deferred Income Taxes
    212       360  
Extraordinary Loss, Net of Tax
    -       5  
Carrying Costs Income
    (33 )     (21 )
Allowance for Equity Funds Used During Construction
    (43 )     (36 )
Mark-to-Market of Risk Management Contracts
    4       (83 )
Amortization of Nuclear Fuel
    69       25  
Property Taxes
    54       38  
Fuel Over/Under-Recovery, Net
    (181 )     (246 )
Change in Other Noncurrent Assets
    (21 )     (11 )
Change in Other Noncurrent Liabilities
    65       84  
Changes in Certain Components of Working Capital:
               
Accounts Receivable, Net
    (802 )     29  
Fuel, Materials and Supplies
    71       (313 )
Margin Deposits
    15       (49 )
Accounts Payable
    (168 )     18  
Customer Deposits
    9       17  
Accrued Taxes, Net
    (164 )     (110 )
Accrued Interest
    (3 )     3  
Other Current Assets
    51       (25 )
Other Current Liabilities
    151       (287 )
Net Cash Flows from Operating Activities
    582       857  
 
               
INVESTING ACTIVITIES
               
Construction Expenditures
    (1,104 )     (1,547 )
Change in Other Temporary Investments, Net
    31       43  
Purchases of Investment Securities
    (838 )     (443 )
Sales of Investment Securities
    849       411  
Acquisitions of Nuclear Fuel
    (41 )     (152 )
Acquisitions of Assets
    (12 )     (11 )
Proceeds from Sales of Assets
    147       240  
Other Investing Activities
    (24 )     (19 )
Net Cash Flows Used for Investing Activities
    (992 )     (1,478 )
 
               
FINANCING ACTIVITIES
               
Issuance of Common Stock, Net
    42       1,688  
Issuance of Long-term Debt
    1,161       1,075  
Borrowings from Revolving Credit Facilities
    50       59  
Change in Short-term Debt, Net
    1,345       328  
Retirement of Long-term Debt
    (1,341 )     (372 )
Repayments to Revolving Credit Facilities
    (49 )     (1,801 )
Principal Payments for Capital Lease Obligations
    (49 )     (42 )
Dividends Paid on Common Stock
    (399 )     (364 )
Dividends Paid on Cumulative Preferred Stock
    (1 )     (1 )
Other Financing Activities
    (1 )     (2 )
Net Cash Flows from Financing Activities
    758       568  
 
               
Net Increase (Decrease) in Cash and Cash Equivalents
    348       (53 )
Cash and Cash Equivalents at Beginning of Period
    490       411  
Cash and Cash Equivalents at End of Period
  $ 838     $ 358  
 
               
SUPPLEMENTARY INFORMATION
               
Cash Paid for Interest, Net of Capitalized Amounts
  $ 487     $ 495  
Net Cash Paid for Income Taxes
    174       27  
Noncash Acquisitions Under Capital Leases
    176       17  
Construction Expenditures Included in Accounts Payable at June 30,
    205       270  
 
               
See Condensed Notes to Condensed Consolidated Financial Statements.
               

 
27

 
AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
INDEX TO CONDENSED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.
Significant Accounting Matters
2.
New Accounting Pronouncements and Extraordinary Item
3.
Rate Matters
4.
Commitments, Guarantees and Contingencies
5.
Acquisition and Dispositions
6.
Benefit Plans
7.
Business Segments
8.
Derivatives and Hedging
9.
Fair Value Measurements
10.
Income Taxes
11.
Financing Activities
12.
Cost Reduction Initiatives

 
28

 
AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
CONDENSED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.
SIGNIFICANT ACCOUNTING MATTERS

General

The unaudited condensed consolidated financial statements and footnotes were prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the SEC.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete annual financial statements.

In the opinion of management, the unaudited condensed consolidated interim financial statements reflect all normal and recurring accruals and adjustments necessary for a fair presentation of our net income, financial position and cash flows for the interim periods.  Net income for the three and six months ended June 30, 2010 is not necessarily indicative of results that may be expected for the year ending December 31, 2010.  The condensed consolidated financial statements are unaudited and should be read in conjunction with the audited 2009 consolidated financial statements and notes thereto, which are included in our Form 10-K as filed with the SEC on February 26, 2010.

Variable Interest Entities

The accounting guidance for “Variable Interest Entities” is a consolidation model that considers if a company has a controlling financial interest in a VIE.  A controlling financial interest will have both (a) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.  Entities are required to consolidate a VIE when it is determined that they have a controlling financial interest in a VIE and therefore, are the primary beneficiary of that VIE, as defined by the accounting guidance for “Variable Interest Entiti es.”  In determining whether we are the primary beneficiary of a VIE, we consider factors such as equity at risk, the amount of the VIE’s variability we absorb, guarantees of indebtedness, voting rights including kick-out rights, power to direct the VIE and other factors.  We believe that significant assumptions and judgments were applied consistently.  Also, see the “ASU 2009-17 ‘Consolidations’ ” section of Note 2 for a discussion of the impact of new accounting guidance effective January 1, 2010.

We are the primary beneficiary of Sabine, DCC Fuel LLC, DCC Fuel II LLC, AEP Credit, AEP Texas Central Transition Funding I LLC, AEP Texas Central Transition Funding II LLC and a protected cell of EIS.  As of January 1, 2010, we are no longer the primary beneficiary of DHLC as defined by the new accounting guidance for “Variable Interest Entities.”  In addition, we have not provided material financial or other support to Sabine, DCC Fuel, DCC Fuel II, AEP Texas Central Transition Funding I LLC, AEP Texas Central Transition Funding II LLC, our protected cell of EIS and AEP Credit that was not previously contractually required.  We hold a significant variable interest in Potomac-Appalachian Transmission Highline, LLC West Virginia Series (West Virginia Series) and DH LC.

Sabine is a mining operator providing mining services to SWEPCo.  SWEPCo has no equity investment in Sabine but is Sabine’s only customer.  SWEPCo guarantees the debt obligations and lease obligations of Sabine.  Under the terms of the note agreements, substantially all assets are pledged and all rights under the lignite mining agreement are assigned to SWEPCo.  The creditors of Sabine have no recourse to any AEP entity other than SWEPCo.  Under the provisions of the mining agreement, SWEPCo is required to pay, as a part of the cost of lignite delivered, an amount equal to mining costs plus a management fee.  In addition, SWEPCo determines how much coal will be mined for each year.  Based on these facts, management concluded that SWEPCo is the primary beneficia ry and is required to consolidate Sabine.  SWEPCo’s total billings from Sabine for the three months ended June 30, 2010 and 2009 were $30 million and $25 million, respectively, and for the six months ended June 30, 2010 and 2009 were $73 million and $61 million, respectively.  See the tables below for the classification of Sabine’s assets and liabilities on our Condensed Consolidated Balance Sheets.

EIS has multiple protected cells.  Our subsidiaries participate in one protected cell for approximately ten lines of insurance.  Neither AEP nor its subsidiaries have an equity investment in EIS.  The AEP System is essentially this EIS cell’s only participant, but allows certain third parties access to this insurance.  Our subsidiaries and any allowed third parties share in the insurance coverage, premiums and risk of loss from claims.  Based on our control
 
29

 
and the structure of the protected cell and EIS, management concluded that we are the primary beneficiary of the protected cell and are required to consolidate its assets and liabilities.  Our insurance premium payments to the protected cell for the three months ended June 30, 2010 and 2009 were $254 thousand and $132 thousand, respectively, and for the six months ended June 30, 2010 and 2009 were $18 million and $17 million, respectively.  See the tables below for the classification of the protected cell’s assets and liabilities on our Condensed Consolidated Balance Sheets.  The amount reported as equity is the protected cell’s policy holders’ surplus.

In September 2009, I&M entered into a nuclear fuel sale and leaseback transaction with DCC Fuel LLC.  In April 2010, I&M entered into a nuclear fuel sale and leaseback transaction with DCC Fuel II LLC.  DCC Fuel LLC and DCC Fuel II LLC (collectively DCC) were formed for the purpose of acquiring, owning and leasing nuclear fuel to I&M.  DCC purchased the nuclear fuel from I&M with funds received from the issuance of notes to financial institutions.  Each entity is a single-lessee leasing arrangement with only one asset and is capitalized with all debt.  Payments on the leases are made semi-annually and began in April 2010.  Payments on the leases for the three months ended June 30, 2010 were $22 million and for the six months ended June 30, 2010 were $22 million .  No payments were made to DCC in 2009.  The leases were recorded as capital leases on I&M’s balance sheet as title to the nuclear fuel transfers to I&M at the end of the 48 and 54 month lease term, respectively.  Based on our control of DCC, management concluded that I&M is the primary beneficiary and is required to consolidate DCC.  The capital leases are eliminated upon consolidation.  See the tables below for the classification of DCC’s assets and liabilities on our Condensed Consolidated Balance Sheets.

AEP Credit is a wholly-owned subsidiary of AEP.  AEP Credit purchases, without recourse, accounts receivable from certain utility subsidiaries of AEP to reduce working capital requirements.  AEP provides up to 20% of AEP Credit’s short-term borrowing needs in excess of third party financings.  Any third party financing of AEP Credit only has recourse to the receivables sold for such financing.  Based on our control of AEP Credit, management has concluded that we are the primary beneficiary and are required to consolidate its assets and liabilities.  See the tables below for the classification of AEP Credit’s assets and liabilities on our Condensed Consolidated Balance Sheets.  See the “ASU 2009-17 ‘Consolidation’ ” section of Note 2 for a di scussion of the impact of new accounting guidance effective January 1, 2010.  Also, see “Sale of Receivables – AEP Credit” section of Note 14 in the 2009 Annual Report for further information.

DHLC is a mining operator who sells 50% of the lignite produced to SWEPCo and 50% to CLECO.  SWEPCo and CLECO share the executive board seats and its voting rights equally.  Each entity guarantees a 50% share of DHLC’s debt.  SWEPCo and CLECO equally approve DHLC’s annual budget.  The creditors of DHLC have no recourse to any AEP entity other than SWEPCo.  As SWEPCo is the sole equity owner of DHLC, it receives 100% of the management fee.  Based on the shared control of DHLC’s operations, management concluded as of January 1, 2010 that SWEPCo is no longer the primary beneficiary and is no longer required to consolidate DHLC.  SWEPCo’s total billings from DHLC for the three months ended June 30, 2010 and 2009 were $13 million and $8 million, respectively, and for the six months ended June 30, 2010 and 2009 were $26 million and $18 million, respectively.  See the tables below for the classification of DHLC’s assets and liabilities on our Condensed Consolidated Balance Sheet at December 31, 2009 as well as our investment and maximum exposure as of June 30, 2010.  As of January 1, 2010, DHLC is reported as an equity investment in Deferred Charges and Other Noncurrent Assets on our Condensed Consolidated Balance Sheet.  Also, see the “ASU 2009-17 ‘Consolidations’ ” section of Note 2 for a discussion of the impact of new accounting guidance effective January 1, 2010.
 
AEP Texas Central Transition Funding I LLC and AEP Texas Central Transition Funding II LLC, wholly-owned subsidiaries of TCC, (collectively Transition Funding) were formed for the sole purpose of issuing and servicing securitization bonds related to Texas restructuring law.  Management has concluded that TCC is the primary beneficiary of Transition Funding because TCC has the power to direct the most significant activities of the VIE and TCC’s equity interest could potentially be significant.  Therefore, TCC is required to consolidate Transition Funding.  The securitized bonds totaled $1.9 billion at June 30, 2010 and are included in current and long-term debt on the Condensed Consolidated Balance Sheets. Transition Funding has securitized transition assets of $1.8 billion at June 30, 2010, which are presented separately on the face of the Condensed Consolidated Balance Sheets.  The securitized transition assets represent the right to impose and collect Texas true-up costs from customers receiving electric transmission or distribution service from TCC under recovery mechanisms approved by the PUCT.  The securitization bonds are payable only from and secured by the securitized transition assets.  The bondholders have no recourse to TCC or any other AEP entity.  TCC acts as the servicer for Transition Funding’s securitized transition asset and remits all related amounts collected from customers to Transition Funding for interest and principal payments on the securitization bonds and related costs.
 
30

 
The balances below represent the assets and liabilities of the VIEs that are consolidated.  These balances include intercompany transactions that are eliminated upon consolidation.

AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
 
VARIABLE INTEREST ENTITIES
 
June 30, 2010
 
(in millions)
 
 
SWEPCo
 
I&M
 
Protected Cell
 
 
 
 
Sabine
 
DCC
 
of EIS
 
AEP Credit
 
ASSETS
 
 
   
 
   
 
   
 
 
Current Assets
  $ 48     $ 76     $ 140     $ 984  
Net Property, Plant and Equipment
    144       141       -       -  
Other Noncurrent Assets
    34       93       2       10  
Total Assets
  $ 226     $ 310     $ 142     $ 994  
 
                               
LIABILITIES AND EQUITY
                               
Current Liabilities
  $ 31     $ 63     $ 34     $ 906  
Noncurrent Liabilities
    194       247       95       1  
Equity
    1       -       13       87  
Total Liabilities and Equity
  $ 226     $ 310     $ 142     $ 994  

AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
 
VARIABLE INTEREST ENTITIES
 
December 31, 2009
 
(in millions)
 
 
SWEPCo
 
SWEPCo
 
I&M
 
Protected Cell
 
 
Sabine
 
DHLC
 
DCC
 
of EIS
 
ASSETS
 
 
   
 
   
 
   
 
 
Current Assets
  $ 51     $ 8     $ 47     $ 130  
Net Property, Plant and Equipment
    149       44       89       -  
Other Noncurrent Assets
    35       11       57       2  
Total Assets
  $ 235     $ 63     $ 193     $ 132  
 
                               
LIABILITIES AND EQUITY
                               
Current Liabilities
  $ 36     $ 17     $ 39     $ 36  
Noncurrent Liabilities
    199       38       154       74  
Equity
    -       8       -       22  
Total Liabilities and Equity
  $ 235     $ 63     $ 193     $ 132  

Our investment in DHLC was:

 
June 30, 2010
 
 
As Reported on
   
 
 
 
the Consolidated
 
Maximum
 
 
Balance Sheet
 
Exposure
 
 
(in millions)
 
Capital Contribution from SWEPCo
  $ 7     $ 7  
Retained Earnings
    1       1  
SWEPCo's Guarantee of Debt
    -       48  
 
               
Total Investment in DHLC
  $ 8     $ 56  

 
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In September 2007, we and Allegheny Energy Inc. (AYE) formed a joint venture by creating Potomac-Appalachian Transmission Highline, LLC (PATH).  PATH is a series limited liability company and was created to construct a high-voltage transmission line project in the PJM region.  PATH consists of the “Ohio Series,” the “West Virginia Series (PATH-WV),” both owned equally by AYE and AEP, and the “Allegheny Series” which is 100% owned by AYE.  Provisions exist within the PATH-WV agreement that make it a VIE.  The “Ohio Series” does not include the same provisions that make PATH-WV a VIE.  Neither the “Ohio Series” nor “Allegheny Series” are considered VIEs.  We are not required to consolidate PATH-WV as we are not the p rimary beneficiary, although we hold a significant variable interest in PATH-WV.  Our equity investment in PATH-WV is included in Deferred Charges and Other Noncurrent Assets on our Condensed Consolidated Balance Sheets.  We and AYE share the returns and losses equally in PATH-WV.  Our subsidiaries and AYE’s subsidiaries provide services to the PATH companies through service agreements. At the current time, PATH-WV has no debt outstanding.  However, when debt is issued, the debt to equity ratio in each series should be consistent with other regulated utilities.  The entities recover costs through regulated rates.

Given the structure of the entity, we may be required to provide future financial support to PATH-WV in the form of a capital call.  This would be considered an increase to our investment in the entity.  Our maximum exposure to loss is to the extent of our investment.  The likelihood of such a loss is remote since the FERC approved PATH-WV’s request for regulatory recovery of cost and a return on the equity invested.

Our investment in PATH-WV was:

 
June 30, 2010
 
December 31, 2009
 
 
As Reported on
   
 
 
As Reported on
   
 
 
 
the Consolidated
 
Maximum
 
the Consolidated
 
Maximum
 
 
Balance Sheet
 
Exposure
 
Balance Sheet
 
Exposure
 
 
 
 
 
(in millions)
   
 
 
Capital Contribution from AEP
  $ 14     $ 14     $ 13     $ 13  
Retained Earnings
    4       4       3       3  
 
                               
Total Investment in PATH-WV
  $ 18     $ 18     $ 16     $ 16  

 
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Earnings Per Share (EPS)

Basic earnings per common share is calculated by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding during the period.  Diluted earnings per common share is calculated by adjusting the weighted average outstanding common shares, assuming conversion of all potentially dilutive stock options and awards.

The following table presents our basic and diluted EPS calculations included on our Condensed Consolidated Statements of Income:

 
Three Months Ended June 30,
 
 
2010
 
2009
 
 
(in millions, except per share data)
 
 
 
 
 
$/share
   
 
 
$/share
 
Earnings Applicable to AEP Common Shareholders
  $ 136    
 
    $ 316    
 
 
 
         
 
           
 
 
Weighted Average Number of Basic Shares Outstanding
    479.1     $ 0.28       472.2     $ 0.67  
Weighted Average Dilutive Effect of:
                               
Restricted Stock Units
    0.1       -       -       -  
Weighted Average Number of Diluted Shares Outstanding
    479.2     $ 0.28       472.2     $ 0.67  

 
 
Six Months Ended June 30,
 
 
 
2010
   
2009
 
 
 
(in millions, except per share data)
 
 
 
 
   
$/share
   
 
   
$/share
 
Earnings Applicable to AEP Common Shareholders
  $ 480    
 
    $ 676    
 
 
 
         
 
           
 
 
Weighted Average Number of Basic Shares Outstanding
    478.7     $ 1.00       439.7     $ 1.54  
Weighted Average Dilutive Effect of:
                               
Performance Share Units
    0.1       -       0.3       -  
Stock Options
    0.1       -       -       -  
Restricted Stock Units
    0.1       -       -       -  
Weighted Average Number of Diluted Shares Outstanding
    479.0     $ 1.00       440.0     $ 1.54  

The assumed conversion of stock options does not affect net earnings for purposes of calculating diluted earnings per share.

Options to purchase 432,366 and 1,123,869 shares of common stock were outstanding at June 30, 2010 and 2009, respectively, but were not included in the computation of diluted earnings per share attributable to AEP common shareholders.  Since the options’ exercise prices were greater than the average market price of the common shares, the effect would have been antidilutive.  AEP’s average stock price was $33.04 per share and its exercise prices for non-dilutive stock options outstanding ranged from $38.65 to $49.00 per share.
 
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Supplementary Information
   
 
   
 
   
 
   
 
 
 
   
 
   
 
   
 
   
 
 
 
 
Three Months Ended
 
Six Months Ended
 
 
 
June 30,
 
June 30,
 
Related Party Transactions
 
2010
 
2009
 
2010
 
2009
 
 
 
(in millions)
 
AEP Consolidated Revenues – Utility Operations:
   
 
   
 
   
 
   
 
 
Ohio Valley Electric Corporation (43.47% owned) (a)
    $ (11 )   $ -     $ (20 )   $ -  
AEP Consolidated Revenues – Other Revenues:
                                 
Ohio Valley Electric Corporation – Barging and Other
                                 
Transportation Services (43.47% Owned)
      8       7       16       16  
AEP Consolidated Expenses – Purchased Energy for Resale:
                                 
Ohio Valley Electric Corporation (43.47% Owned) (b)
      80       72       157       142  

 
(a)
In January 2010, the AEP Power Pool began purchasing power from OVEC to serve off-system sales through June 2010.
 
(b)
In January 2010, the AEP Power Pool began purchasing power from OVEC to serve retail sales through June 2010.  The total amount reported includes $4 million and $10 million related to the new agreement for the three and six months ended June 30, 2010, respectively.

Shown below are income statement amounts attributable to AEP common shareholders:

 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
Amounts Attributable to AEP Common Shareholders
 
2010 
 
2009 
 
2010 
 
2009 
 
 
 
 
(in millions)
Income Before Extraordinary Loss
 
$
 136 
 
$
 321 
 
$
 480 
 
$
 681 
 
Extraordinary Loss, Net of Tax
 
 
 - 
 
 
 (5)
 
 
 - 
 
 
 (5)
 
Net Income
 
$
 136 
 
$
 316 
 
$
 480 
 
$
 676 
 

Adjustments to Reported Cash Flows

In the Financing Activities section of our Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2009, we corrected the presentation of borrowings on our lines of credit of $59 million from Change in Short-term Debt, Net to Borrowings from Revolving Credit Facilities.  We also corrected the presentation of repayments on our lines of credit of $1.8 billion for the six months ended June 30, 2009 to Repayments to Revolving Credit Facilities from Change in Short-term Debt, Net.  The correction to present borrowings and repayments on our lines of credit on a gross basis was not material to our financial statements and had no impact on our previously reported net income, changes in shareholders' equity, financial position or net cash flows from financing activities.

Adjustments to Securitized Accounts Receivable Disclosure

In the “Securitized Accounts Receivable – AEP Credit” section of Note 11, we expanded our disclosure to reflect certain prior period amounts related to our securitization agreement that were not previously disclosed.  These omissions were not material to our financial statements and had no impact on our previously reported net income, changes in shareholders’ equity, financial position or cash flows.
 
34

 
2.
NEW ACCOUNTING PRONOUNCEMENTS AND EXTRAORDINARY ITEM

NEW ACCOUNTING PRONOUNCEMENTS

Upon issuance of final pronouncements, we review the new accounting literature to determine its relevance, if any, to our business.  The following represents a summary of final pronouncements that impact our financial statements.

Pronouncements Adopted During 2010

The following standards were effective during the first six months of 2010.  Consequently, their impact is reflected in the financial statements.  The following paragraphs discuss their impact.

ASU 2009-16 “Transfers and Servicing” (ASU 2009-16)

In 2009, the FASB issued ASU 2009-16 clarifying when a transfer of a financial asset should be recorded as a sale.  The standard defines participating interest to establish specific conditions for a sale of a portion of a financial asset.  This standard must be applied to all transfers after the effective date.

We adopted ASU 2009-16 effective January 1, 2010.  AEP Credit transfers an interest in receivables it acquires from certain of its affiliates to bank conduits and receives cash.  As of December 31, 2009, AEP Credit owed $656 million to bank conduits related to receivable sales outstanding.  Upon adoption of ASU 2009-16, future transactions do not constitute a sale of receivables and are accounted for as financings.  Effective January 2010, we record the receivables and related debt on our Condensed Consolidated Balance Sheet.

ASU 2009-17 “Consolidations” (ASU 2009-17)

In 2009, the FASB issued ASU 2009-17 amending the analysis an entity must perform to determine if it has a controlling financial interest in a VIE.  In addition to presentation and disclosure guidance, ASU 2009-17 provides that the primary beneficiary of a VIE must have both:

·  
The power to direct the activities of the VIE that most significantly impact the VIE’s economic performance.
·  
The obligation to absorb the losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE.

We adopted the prospective provisions of ASU 2009-17 effective January 1, 2010 and deconsolidated DHLC.  DHLC was deconsolidated due to the shared control between SWEPCo and CLECO.  After January 1, 2010, we report DHLC using the equity method of accounting.

This standard increased our disclosure requirements for AEP Credit, a wholly-owned consolidated subsidiary.  See “Variable Interest Entities” section of Note 1 for further discussion.

EXTRAORDINARY ITEM

SWEPCo Texas Restructuring

In August 2006, the PUCT adopted a rule extending the delay in implementation of customer choice in SWEPCo’s SPP area of Texas until no sooner than January 1, 2011.  In May 2009, the governor of Texas signed a bill related to SWEPCo’s SPP area of Texas that requires continued cost of service regulation until certain stages have been completed and approved by the PUCT such that fair competition is available to all Texas retail customer classes.  Based upon the signing of the bill, SWEPCo re-applied “Regulated Operations” accounting guidance for the generation portion of SWEPCo’s Texas retail jurisdiction effective second quarter of 2009.  Management believes that a return to competition in the SPP area of Texas will not occur.  The reapplication of “Regulated Op erations” accounting guidance resulted in an $8 million ($5 million, net of tax) extraordinary loss.
 
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3.
RATE MATTERS

As discussed in the 2009 Annual Report, our subsidiaries are involved in rate and regulatory proceedings at the FERC and their state commissions.  The Rate Matters note within our 2009 Annual Report should be read in conjunction with this report to gain a complete understanding of material rate matters still pending that could impact net income, cash flows and possibly financial condition.  The following discusses ratemaking developments in 2010 and updates the 2009 Annual Report.

Regulatory Assets Not Yet Being Recovered
 
 
 
 
 
 
 
 
 
 
June 30,
 
December 31,
 
 
 
 
2010 
 
2009 
 
 
 
 
(in millions)
 
Noncurrent Regulatory Assets (excluding fuel)
 
 
 
 
 
 
 
Regulatory assets not yet being recovered pending future proceedings
 
 
 
 
 
 
 
 
 to determine the recovery method and timing:
 
 
 
 
 
 
 
Regulatory Assets Currently Earning a Return
 
 
 
 
 
 
 
 
Customer Choice Deferrals - CSPCo, OPCo
 
$
 58 
 
$
 57 
 
 
Storm Related Costs - CSPCo, OPCo, TCC
 
 
 50 
 
 
 49 
 
 
Line Extension Carrying Costs - CSPCo, OPCo
 
 
 49 
 
 
 43 
 
 
Acquisition of Monongahela Power - CSPCo
 
 
 11 
 
 
 10 
 
Regulatory Assets Currently Not Earning a Return
 
 
 
 
 
 
 
 
Mountaineer Carbon Capture and Storage Project - APCo
 
 
 58 
 
 
 111 
 
 
Environmental Rate Adjustment Clause - APCo
 
 
 43 
 
 
 25 
 
 
Storm Related Costs - APCo, PSO
 
 
 41 
 
 
 - 
 
 
Transmission Rate Adjustment Clause - APCo
 
 
 21 
 
 
 26 
 
 
Special Rate Mechanism for Century Aluminum - APCo
 
 
 13 
 
 
 12 
 
 
Deferred Wind Power Costs - APCo
 
 
 12 
 
 
 5 
 
 
Storm Related Costs - KPCo
 
 
 - 
(a)
 
 24 
 
 
Peak Demand Reduction/Energy Efficiency - CSPCo, OPCo
 
 
 - 
(a)
 
 8 
 
Total Regulatory Assets Not Yet Being Recovered
 
$
 356 
 
$
 370 
 
 
 
 
 
 
 
 
 
 
(a)
Recovery of regulatory asset was granted during 2010.
 
 
 
 
 
 

CSPCo and OPCo Rate Matters
 
Ohio Electric Security Plan Filings

The PUCO issued an order in March 2009 that modified and approved CSPCo’s and OPCo’s ESPs which established rates at the start of the April 2009 billing cycle.  The ESPs are in effect through 2011.  The order also limits annual rate increases for CSPCo to 7% in 2009, 6% in 2010 and 6% in 2011 and for OPCo to 8% in 2009, 7% in 2010 and 8% in 2011.  Some rate components and increases are exempt from these limitations.  CSPCo and OPCo collected the 2009 annualized revenue increase over the last nine months of 2009.

The order provides a FAC for the three-year period of the ESP.  The FAC increase will be phased in to avoid having the resultant rate increases exceed the ordered annual caps described above.  The FAC increase is subject to quarterly true-ups, annual accounting audits and prudency reviews.  See the “2009 Fuel Adjustment Clause Audit” section below.  The order allows CSPCo and OPCo to defer any unrecovered FAC costs resulting from the annual caps and to accrue associated carrying charges at CSPCo’s and OPCo’s weighted average cost of capital.  Any deferred FAC regulatory asset balance at the end of the three-year ESP period will be recovered through a non-bypassable surcharge over the period 2012 through 2018.  Management expects to recover the CSPCo FAC deferral during 2010.  That recovery will include deferrals associated with the Ormet interim arrangement and is subject to the PUCO’s ultimate decision regarding the Ormet interim arrangement deferrals plus related carrying charges.  See the “Ormet Interim Arrangement” section below.  The FAC deferrals as of June 30, 2010 were $5 million and $388 million for CSPCo and OPCo, respectively, excluding $1 million and $18 million, respectively, of unrecognized equity carrying costs.
 
36

 
Discussed below are the outstanding uncertainties related to the ESP order:

The Ohio Consumers’ Counsel filed a notice of appeal with the Supreme Court of Ohio raising several issues including alleged retroactive ratemaking, recovery of carrying charges on certain environmental investments, Provider of Last Resort (POLR) charges and the decision not to offset rates by off-system sales margins.  A decision from the Supreme Court of Ohio is pending.
 
In November 2009, the Industrial Energy Users-Ohio group filed a notice of appeal with the Supreme Court of Ohio challenging components of the ESP order including the POLR charge, the distribution riders for gridSMARTSM and enhanced reliability, the PUCO’s conclusion and supporting evaluation that the modified ESPs are more favorable than the expected results of a market rate offer, the unbundling of the fuel and non-fuel generation rate components, the scope and design of the fuel adjustment clause and the approval of the plan after the 150-day statutory deadline.  A decision from the Supreme Court of Ohio is pending.

In April 2010, the Industrial Energy Users-Ohio group filed an additional notice of appeal with the Supreme Court of Ohio challenging alleged retroactive ratemaking, CSPCo's and OPCo's abilities to collect through the FAC amounts deferred under the Ormet interim arrangement and the approval of the plan after the 150-day statutory deadline.  A decision from the Supreme Court of Ohio is pending.
 
In 2009, the PUCO convened a workshop to determine the methodology for the Significantly Excessive Earnings Test (SEET).  Ohio law requires that the PUCO determine, following the end of each year of the ESP, if rate adjustments included in the ESP resulted in significantly excessive earnings.  If the rate adjustments, in the aggregate, result in significantly excessive earnings, the excess amount could be returned to customers.    The PUCO heard arguments related to various SEET issues including the treatment of the FAC deferrals.  Management believes that CSPCo and OPCo should not be required to refund unrecovered FAC regulatory assets until they are collected, even assuming there are significantly excessive earnings in that year.  In June 2010, the PUCO issued an order reso lving some of the SEET issues.  The PUCO determined that the earnings of CSPCo and OPCo shall be calculated on an individual company basis and not on a combined CSPCo/OPCo basis.  The PUCO ruled that many issues including the treatment of deferrals and off-system sales should be determined on a case-by-case basis.  The PUCO’s decision on the SEET methodology is not expected to be finalized until after the SEET filings are made by CSPCo and OPCo related to 2009 earnings and the PUCO issues an order thereon.  CSPCo and OPCo will file their significantly excessive earnings tests with the PUCO by their September 2010 deadlines.  CSPCo and OPCo are unable to determine whether they will be required to return any of their ESP revenues to customers.

Management is unable to predict the outcome of the various ongoing ESP proceedings and litigation discussed above.  If these proceedings result in adverse rulings, it could reduce future net income and cash flows and impact financial condition.
 
2009 Fuel Adjustment Clause Audit

As required under the ESP orders, the PUCO selected an outside consultant to conduct the audit of the FAC for the period of January 2009 through December 2009.  In May 2010, the outside consultant provided their confidential audit report of the FAC audit to the PUCO.  The audit report included a recommendation that the PUCO should review whether any proceeds from a 2008 coal contract settlement agreement which totaled $72 million should reduce OPCo’s FAC under-recovery balance.  Of the total proceeds, approximately $58 million was recognized as a reduction to fuel expense prior to 2009 and $14 million will reduce fuel expense in 2009 and 2010.  If the PUCO orders any portion of the $58 million previous ly recognized gains be used to reduce the current year FAC deferral, it would reduce future net income and cash flows and impact financial condition.

Ormet Interim Arrangement

CSPCo, OPCo and Ormet, a large aluminum company, filed an application with the PUCO for approval of an interim arrangement governing the provision of generation service to Ormet.  This interim arrangement was approved by the PUCO and was effective from January 2009 through September 2009.  In March 2009, the PUCO approved a FAC in the ESP filings.  The approval of the FAC, together with the PUCO approval of the interim
 
37

 
arrangement, provided the basis to record regulatory assets for the difference between the approved market price and the rate paid by Ormet.  Through September 2009, the last month of the interim arrangement, CSPCo and OPCo had $30 million and $34 million, respectively, of deferred FAC related to the interim arrangement including recognized carrying charges but excluding $1 million and $1 million, respectively, of unrecognized equity carrying costs.  In November 2009, CSPCo and OPCo requested that the PUCO approve recovery of the deferrals under the interim agreement plus a weighted average cost of capital carrying charge.  The interim arrangement deferrals are included in CSPCo’s and OPCo’s FAC phase-in deferral balances.  See “Ohio Electric Security Plan Filings” section above.  In the ESP proceeding, intervenors requested that CSPCo and OPCo be required to refund the Ormet-related regulatory assets and requested that the PUCO prevent CSPCo and OPCo from collecting the Ormet-related revenues in the future.  The PUCO did not take any action on this request in the ESP proceeding.  The intervenors raised the issue again in response to CSPCo’s and OPCo’s November 2009 filing to approve recovery of the deferrals under the interim agreement.  If CSPCo and OPCo are not ultimately permitted to fully recover their requested deferrals under the interim arrangement, it would reduce future net income and cash flows and impact financial condition.

Economic Development Rider

In April 2010, the Industrial Energy Users-Ohio filed a notice of appeal of the 2009 PUCO-approved Economic Development Rider (EDR) with the Supreme Court of Ohio.  The EDR collects from ratepayers the difference between the standard tariff and lower contract billings to qualifying industrial customers, subject to PUCO approval.  The Industrial Energy Users-Ohio raised several issues including claims that (a) the PUCO lost jurisdiction over CSPCo’s and OPCo’s ESP proceedings and related proceedings when the PUCO failed to issue ESP orders within the 150-day statutory deadline, (b) the EDR should not be exempt from the ESP annual rate limitations and (c) CSPCo and OPCo should not be allowed to apply a weighted average long-term debt carrying cost on deferred EDR regulatory assets.

In June 2010, Industrial Energy Users-Ohio filed a notice of appeal of the 2010 PUCO-approved Economic Development Rider (EDR) with the Supreme Court of Ohio.  The Industrial Energy Users-Ohio raised the same issues as noted in the 2009 EDR appeal plus a claim that CSPCo and OPCo should not be able to take the benefits of the higher ESP rates while simultaneously challenging the ESP Orders.

As of June 30, 2010, CSPCo and OPCo have incurred $32 million and $23 million, respectively, in EDR costs including carrying costs.  Of these costs, CSPCo and OPCo have collected $16 million and $12 million, respectively, through the EDR, which CSPCo and OPCo began collecting in January 2010.  The remaining $16 million and $11 million for CSPCo and OPCo, respectively, are recorded as EDR regulatory assets.  If CSPCo and OPCo are not ultimately permitted to recover their deferrals or are required to refund revenue collected, it would reduce future net income and cash flows and impact financial condition.
 
Environmental Investment Carrying Cost Rider

In February 2010, CSPCo and OPCo filed an application with the PUCO to establish an Environmental Investment Carrying Cost Rider to recover carrying costs for 2009 through 2011 related to environmental investments made in 2009.  CSPCo’s and OPCo’s proposed initial rider would recover 2009 carrying costs of $29 million and $37 million, respectively, through December 2011.  In July 2010, CSPCo and OPCo filed an updated position to its application which reduced its original rider application amount to recover $27 million and $35 million, respectively, through December 2011.  If approved, the implementation of the rider will likely not impact cash flows, but will increase the ESP phase-in plan deferrals associ ated with the FAC since this rider is subject to the rate increase caps authorized by the PUCO in the ESP proceedings.

Ohio IGCC Plant

In March 2005, CSPCo and OPCo filed a joint application with the PUCO seeking authority to recover costs of building and operating an IGCC power plant.  Through June 30, 2010, CSPCo and OPCo have each collected $12 million in pre-construction costs authorized in a June 2006 PUCO order and each incurred $11 million in pre-construction costs.  As a result, CSPCo and OPCo each established a net regulatory liability of approximately $1 million.  The order also provided that if CSPCo and OPCo have not commenced a continuous course of construction
 
38

 
of the proposed IGCC plant before June 2011, all pre-construction costs that may be utilized in projects at other sites must be refunded to Ohio ratepayers with interest.  Intervenors have filed motions with the PUCO requesting all pre-construction costs be refunded to Ohio ratepayers with interest.

CSPCo and OPCo will not start construction of an IGCC plant until existing statutory barriers are addressed and sufficient assurance of regulatory cost recovery exists. Management cannot predict the outcome of any cost recovery litigation concerning the Ohio IGCC plant or what effect, if any, such litigation would have on future net income and cash flows.  However, if CSPCo and OPCo were required to refund all or some of the pre-construction costs collected and the costs incurred were not recoverable in another jurisdiction, it would reduce future net income and cash flows and impact financial condition.

Ohio Energy Efficiency & Demand Response Program Rider

In November 2009, CSPCo and OPCo filed an application with the PUCO to implement energy efficiency and demand response programs as part of Senate Bill 221, which requires investor-owned utilities to create programs to help customers conserve and reduce demand for electricity.  Simultaneous with the filing, a stipulation agreement was filed with the PUCO agreeing to terms consistent with the filed application.  In May 2010, the PUCO issued an order adopting the stipulation, with minor modification, and authorized CSPCo and OPCo to implement a new rider rate effective with the first billing cycle in June 2010.  The rider rates are estimated to increase CSPCo's and OPCo's revenues by $81 million and $86 million, respectively, over the period from June 2010 through December 2011.  CSPCo's and OPCo's revenue increases include $79 million and $83 million, respectively, for program costs and $2 million and $3 million, respectively, for net lost distribution revenues and shared savings.

SWEPCo Rate Matters

Turk Plant

SWEPCo is currently constructing the Turk Plant, a new base load 600 MW pulverized coal ultra-supercritical generating unit in Arkansas, which is expected to be in service in 2012.  SWEPCo owns 73% (440 MW) of the Turk Plant and will operate the completed facility.  The Turk Plant is currently estimated to cost $1.7 billion, excluding AFUDC, plus an additional $131 million for transmission, excluding AFUDC.  SWEPCo’s share is currently estimated to cost $1.3 billion, excluding AFUDC, plus an additional $131 million for transmission, excluding AFUDC.  As of June 30, 2010, excluding costs attributable to its joint owners, SWEPCo has capitalized approximately $855 million of expenditures (including AFUDC and capitalized interest of $106 million and related transmission costs of $46 million).&# 160; As of June 30, 2010, the joint owners and SWEPCo have contractual construction commitments of approximately $425 million (including related transmission costs of $7 million).  SWEPCo’s share of the contractual construction commitments is $312 million.  If the plant is cancelled, the joint owners and SWEPCo would incur contractual construction cancellation fees, based on construction status as of June 30, 2010, of approximately $121 million (including related transmission cancellation fees of $1 million).  SWEPCo’s share of the contractual construction cancellation fees would be approximately $89 million.

Discussed below are the outstanding uncertainties related to the Turk Plant:

The APSC granted approval for SWEPCo to build the Turk Plant by issuing a Certificate of Environmental Compatibility and Public Need (CECPN) for the 88 MW SWEPCo Arkansas share of the Turk Plant.  Following an appeal by certain intervenors, the Arkansas Supreme Court issued a decision that reversed the APSC’s grant of the CECPN.  The Arkansas Supreme Court ultimately concluded that the APSC erred in determining the need for additional power supply resources in a proceeding separate from the proceeding in which the APSC granted the CECPN.  However, the Arkansas Supreme Court approved the APSC’s procedure of granting CECPNs for transmission facilities in dockets separate from the Turk Plant CECPN proceeding.  In June 2010, the Arkansas Supreme Court denied motions for rehearing filed b y the APSC and SWEPCo.  Therefore, SWEPCo filed a notice with the APSC of its intent to proceed with construction of the Turk Plant but that SWEPCo no longer intends to pursue a CECPN to seek recovery of the originally approved 88MW portion of Turk Plant costs in Arkansas retail rates.  In June 2010, the APSC issued an order which reversed and set aside the previously granted CECPN.
 
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In July 2010, the Hempstead County Hunting Club filed a complaint with the Federal District Court for the Western District of Arkansas against SWEPCo, the U.S. Army Corps of Engineers, the U.S. Department of Interior and the U.S. Fish and Wildlife Service seeking an injunction to stop construction of the Turk Plant asserting claims of violations of federal and state laws.

The PUCT issued an order approving a Certificate of Convenience and Necessity (CCN) for the Turk Plant with the following conditions: (a) a cap on the recovery of jurisdictional capital costs for the Turk Plant based on the previously estimated $1.522 billion projected construction cost, excluding AFUDC and related transmission costs, (b) a cap on recovery of annual CO2 emission costs at $28 per ton through the year 2030 and (c) a requirement to hold Texas ratepayers financially harmless from any adverse impact related to the Turk Plant not being fully subscribed to by other utilities or wholesale customers.  SWEPCo appealed the PUCT’s order contending the two cost cap restrictions are unlawful.  The Texas Industrial Energy Consumers fi led an appeal contending that the PUCT’s grant of a conditional CCN for the Turk Plant was unnecessary to serve retail customers.  In February 2010, the Texas District Court affirmed the PUCT’s order in all respects.  In March 2010, SWEPCo and the Texas Industrial Energy Consumers appealed this decision to the Texas Court of Appeals.

The LPSC approved SWEPCo’s application to construct the Turk Plant.  The Sierra Club petitioned the LPSC to begin an investigation into the construction of the Turk Plant which was rejected by the LPSC in November 2009.  In December 2009, the Sierra Club refiled its petition as a stand alone complaint proceeding.  In February 2010, SWEPCo filed a motion to dismiss and denied the allegations in the complaint.

In November 2008, SWEPCo received its required air permit approval from the Arkansas Department of Environmental Quality and commenced construction at the site.  The Arkansas Pollution Control and Ecology Commission (APCEC) upheld the air permit.  In February 2010, the parties who unsuccessfully appealed the air permit to the APCEC filed a notice of appeal with the Circuit Court of Hempstead County, Arkansas.

The wetlands permit was issued by the U.S. Army Corps of Engineers in December 2009.  In February 2010, the Sierra Club, the Audubon Society and others filed a complaint in the Federal District Court for the Western District of Arkansas against the U.S. Army Corps of Engineers challenging the process used and the terms of the permit issued to SWEPCo authorizing certain wetland and stream impacts.  In May 2010, parties filed with the Federal District Court for the Western District of Arkansas for a preliminary injunction to halt construction and for a temporary restraining order.

In January 2009, SWEPCO was granted CECPNs by the APSC to build three transmission lines and facilities authorized by the SPP and needed to transmit power from the Turk Plant.  Intervenors appealed the CECPN decisions in April 2009 to the Arkansas Court of Appeals.  In July 2010, the Hempstead County Hunting Club and other appellants filed with the Arkansas Court of Appeals emergency motions to stay the transmission CECPNs to prohibit SWEPCo from taking ownership of private property and undertaking construction of the transmission lines.  In July 2010, the Arkansas Court of Appeals issued a decision remanding all transmission line CECPN appeals to the APSC.  As a result, a stay was not ordered and construction continues on the affected transmission lines.

Management expects that SWEPCo will ultimately be able to complete construction of the Turk Plant and related transmission facilities and place those facilities in service.  However, if SWEPCo is unable to complete the Turk Plant construction, including the related transmission facilities, and place the Turk Plant in service or if SWEPCo cannot recover all of its investment in and expenses related to the Turk Plant, it would materially reduce future net income and cash flows and materially impact financial condition.

Stall Unit

SWEPCo constructed the Stall Unit, an intermediate load 500 MW natural gas-fired combustion turbine combined cycle generating unit, at its existing Arsenal Hill Plant located in Shreveport, Louisiana.  The LPSC and the APSC issued orders capping SWEPCo’s Stall Unit construction costs at $445 million including AFUDC and excluding related transmission costs.  The Stall Unit was placed in service in June 2010.  As of June 30, 2010, the Stall Unit cost $422 million, including $49 million of AFUDC.  Management does not expect the final costs of the Stall Unit to exceed the ordered cap.
 
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2009 Texas Base Rate Filing

In August 2009, SWEPCo filed a rate case with the PUCT to increase its base rates by approximately $75 million annually including a return on equity of 11.5%.  The filing included requests for financing cost riders of $32 million related to construction of the Stall Unit and Turk Plant, a vegetation management rider of $16 million and other requested increases of $27 million.  In April 2010, a settlement agreement was approved by the PUCT to increase SWEPCo’s base rates by approximately $15 million annually, effective May 2010, including a return on equity of 10.33%, which consists of $5 million related to construction of the Stall U nit and $10 million in other increases.  In addition, the settlement agreement will decrease annual depreciation expense by $17 million and allows SWEPCo a $10 million one-year surcharge rider to recover additional vegetation management costs that SWEPCo must spend within two years.

Texas Fuel Reconciliation

In May 2010, various intervenors, including the PUCT staff, filed testimony recommending disallowances ranging from $3 million to $30 million in SWEPCo’s $755 million fuel and purchase power costs reconciliation for the period January 2006 through March 2009.  In July 2010, Cities Advocating Reasonable Deregulation filed testimony regarding the 2007 transfer of ERCOT trading contracts to AEP Energy Partners.  Included in this testimony were unquantified refund recommendations relating to re-pricing of contract transactions.  Management is unable to predict the outcome of this reconciliation.  If the PUCT disallows any portion of SWEPCo’s fuel and purchase power costs, it could reduce future net i ncome and cash flows and possibly impact financial condition.
 
TCC and TNC Rate Matters

TEXAS RESTRUCTURING

Texas Restructuring Appeals

Pursuant to PUCT restructuring orders, TCC securitized net recoverable stranded generation costs of $2.5 billion and is recovering the principal and interest on the securitization bonds through the end of 2020.  TCC also refunded other net true-up regulatory liabilities of $375 million during the period October 2006 through June 2008 via a CTC credit rate rider under PUCT restructuring orders.  TCC and intervenors appealed the PUCT’s true-up related orders.  After rulings from the Texas District Court and the Texas Court of Appeals, TCC, the PUCT and intervenors filed petitions for review with the Texas Supreme Court.  Review is discretionary and the Texas Supreme Court has not yet determined if it will grant review.  The Texas Supreme Court requested a full briefing which has concluded.  The following represent issues where either the Texas District Court or the Texas Court of Appeals recommended the PUCT decision be modified:

·  
The Texas District Court judge determined that the PUCT erred by applying an invalid rule to determine the carrying cost rate for the true-up of stranded costs.  The Texas Court of Appeals reversed the District Court’s unfavorable decision.

·  
The Texas District Court judge determined that the PUCT improperly reduced TCC’s net stranded plant costs for commercial unreasonableness. This favorable decision was affirmed by the Texas Court of Appeals.

·  
The Texas Court of Appeals determined that the PUCT erred by not reducing stranded costs by the “excess earnings” that had already been refunded to affiliated REPs.  This decision could be unfavorable unless the PUCT allows TCC to recover the refunds previously made to the REPs.  See the “TCC Excess Earnings” section below.

Management cannot predict the outcome of the pending court proceedings and the PUCT remand decisions.  If TCC ultimately succeeds in its appeals, it could have a favorable effect on future net income, cash flows and possibly financial condition.  If intervenors succeed in their appeals, it could reduce future net income and cash flows and possibly impact financial condition.
 
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TCC Deferred Investment Tax Credits and Excess Deferred Federal Income Taxes

In 2006, the PUCT reduced recovery of the amount securitized by $103 million of tax benefits and associated carrying costs related to TCC’s generation assets.  In 2006, TCC obtained a private letter ruling from the IRS which confirmed that such reduction was an IRS normalization violation.  In order to avoid a normalization violation, the PUCT agreed to allow TCC to defer refunding the tax benefits of $103 million plus interest through the CTC refund period pending resolution of the normalization issue.  In 2008, the IRS issued final regulations, which supported the IRS’ private letter ruling which would make the refunding of or the reduction of the amount securitized by such tax benefits a normalization violation.  After the IRS issued its final regulations, at the request of the PUCT, the Texas Court of Appeals remanded the tax normalization issue to the PUCT for the consideration of additional evidence including the IRS regulations.  TCC is not accruing interest on the $103 million because it is not probable that the PUCT will order TCC to violate the normalization provision of the Internal Revenue Code.  If interest were accrued, management estimates interest expense would have been approximately $17 million higher for the period July 2008 through June 2010.

Management believes that the PUCT will ultimately allow TCC to retain the deferred amounts, which would have a favorable effect on future net income and cash flows.  Although unexpected, if the PUCT fails to issue a favorable order and orders TCC to return the tax benefits to customers, the resulting normalization violation could result in TCC’s repayment to the IRS of Accumulated Deferred Investment Tax Credits (ADITC) on all property, including transmission and distribution property.  This amount approximates $102 million as of June 30, 2010.  It could also lead to a loss of TCC’s right to claim accelerated tax depreciation in future tax returns.  If TCC is required to repay its ADITC to the IRS and is also required to refund ADITC plus unaccrued interest to customers, it would redu ce future net income and cash flows and impact financial condition.

TCC Excess Earnings

In 2005, a Texas appellate court issued a decision finding that a PUCT order requiring TCC to refund to the REPs excess earnings prior to and outside of the true-up process was unlawful under the Texas Restructuring Legislation.  From 2002 to 2005, TCC refunded $55 million of excess earnings, including interest, under the overturned PUCT order.  On remand, the PUCT must determine how to implement the Court of Appeals decision given that the unauthorized refunds were made to the REPs in lieu of reducing stranded costs in the true-up proceeding.

Certain parties have taken positions that, if adopted, could result in TCC being required to refund excess earnings and interest through the true-up process without receiving a refund from the REPs.  If this were to occur, it would reduce future net income and cash flows and impact financial condition.  Management cannot predict the outcome of the excess earnings remand.

OTHER TEXAS RATE MATTERS

Texas Base Rate Appeal

TCC filed a base rate case in 2006 seeking to increase base rates.  The PUCT issued an order in 2007 which increased TCC’s base rates by $20 million, eliminated a merger credit rider of $20 million and reduced depreciation rates by $7 million.  The PUCT decision was appealed by TCC and various intervenors.  On appeal, the Texas District Court affirmed the PUCT in most respects.  Various intervenors appealed that decision.  In June 2010, the Texas Court of Appeals affirmed the Texas District Court’s decision.

ETT 2007 Formation Appeal

ETT is a joint venture between AEP Utilities, Inc. and MidAmerican Energy Holdings Company Texas Transco, LLC.  TCC and TNC have sold transmission assets both in service and under construction to ETT.  The PUCT approved ETT's initial rates, a request for a transfer of in-service assets and CWIP and a certificate of convenience and necessity (CCN) to operate as a stand alone transmission utility in ERCOT.  ETT was allowed a 9.96% return on equity.  Intervenors appealed the PUCT’s decision.  In March 2010, the Texas Court of Appeals affirmed the PUCT's decision in all material respects.  In April 2010, intervenors filed for rehearing at the Texas Court of Appeals which was denied in May 2010.
 
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In a separate development, the Texas governor signed a new law that clarifies the PUCT’s authority to grant CCNs to transmission only utilities such as ETT.  ETT filed an application with the PUCT for a CCN under the new law.  In March 2010, the PUCT approved the application for a CCN under the new law.
 
APCo and WPCo Rate Matters

2009 Virginia Base Rate Case

In July 2009, APCo filed a generation and distribution base rate increase with the Virginia SCC of $154 million annually based on a 13.35% return on common equity.  Interim rates, subject to refund, became effective in December 2009 but were discontinued in February 2010 when newly enacted Virginia legislation suspended the collection of interim rates.  In July 2010, the Virginia SCC issued an order approving a $62 million increase based on a 10.53% return on equity.  The order denied recovery of the Virginia share of the Mountaineer Carbon Capture and Storage Project, which resulted in a pretax write-off of $54 million in the second quarter of 2010.  See “Mountaineer Carbon Capture and Storage Project” section below.  In addition, the order allowed the deferral in the secon d quarter of 2010 of approximately $25 million of incremental storm expense incurred in 2009.  In July 2010, APCo filed with the Virginia SCC a petition for reconsideration of the order as it relates to the Mountaineer Carbon Capture and Storage Project.

2010 West Virginia Base Rate Case

In May 2010, APCo and WPCo filed a request with the WVPSC to increase annual base rates by $156 million based on an 11.75% return on common equity to be effective March 2011.  Hearings are scheduled for December 2010.  A decision from the WVPSC is expected in March 2011.

Mountaineer Carbon Capture and Storage Project

APCo and ALSTOM Power, Inc., an unrelated third party, jointly constructed a CO2 capture validation facility, which was placed into service in September 2009.  APCo also constructed and owns the necessary facilities to store the CO2.  In October 2009, APCo started injecting CO2 into the underground storage facilities.  The injection of CO2 required the recording of an asset retirement obligation and an offsetting regulatory asset.  Through June 30, 2010, APCo has recorded a noncurrent regulatory asset of $ 58 million consisting of $38 million in project costs and $20 million in asset retirement costs.

In APCo’s July 2009 Virginia base rate filing, APCo requested recovery of and a return on its estimated increased Virginia jurisdictional share of its project costs and recovery of the related asset retirement obligation regulatory asset amortization and accretion.  In July 2010, the Virginia SCC issued a base rate order that denied recovery of the Virginia share of the Mountaineer Carbon Capture and Storage Project costs, which resulted in a write-off of approximately $54 million in the second quarter of 2010.  In response to the order, APCo filed with the Virginia SCC a petition for reconsideration of the order as it relates to the Mountaineer Carbon Capture and Storage Project.  See “2009 Virginia Base Rate Case” section above.

In APCo’s May 2010 West Virginia base rate filing, APCo requested recovery of and a return on its estimated increased West Virginia jurisdictional share of its project costs and recovery of the related asset retirement obligation regulatory asset amortization and accretion.  If APCo cannot recover its remaining investment in and expenses related to the Mountaineer Carbon Capture and Storage project, it would reduce future net income and cash flows and impact financial condition.

APCo’s Filings for an IGCC Plant

APCo filed a petition with the WVPSC requesting approval of a Certificate of Public Convenience and Necessity (CPCN) to construct a 629 MW IGCC power plant in Mason County, West Virginia.  APCo also requested the Virginia SCC and the WVPSC to approve a surcharge rate mechanism to provide for the timely recovery of pre-construction costs and the ongoing financing costs of the project during the construction period, as well as the capital costs, operating costs and a return on equity once the facility is placed into commercial operation.  The WVPSC granted APCo the CPCN and approved the requested cost recovery.  Various intervenors filed petitions with the WVPSC to reconsider the order.
 
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In 2008, the Virginia SCC issued an order denying APCo’s request for a surcharge rate mechanism based upon its finding that the estimated cost of the plant was uncertain and may escalate.  The Virginia SCC also expressed concerns that the estimated costs did not include a retrofitting of carbon capture and sequestration facilities.  During 2009, based on an unfavorable order received in Virginia, the WVPSC removed the IGCC case as an active case from its docket and indicated that the conditional CPCN granted in 2008 must be reconsidered if and when APCo proceeds forward with the IGCC plant.

Through June 30, 2010, APCo deferred for future recovery pre-construction IGCC costs of approximately $9 million applicable to its West Virginia jurisdiction, approximately $2 million applicable to its FERC jurisdiction and approximately $9 million applicable to its Virginia jurisdiction.

APCo will not start construction of the IGCC plant until sufficient assurance of full cost recovery exists in Virginia and in West Virginia.  If the plant is cancelled, APCo plans to seek recovery of its prudently incurred deferred pre-construction costs which, if not recoverable, would reduce future net income and cash flows and impact financial condition.

APCo’s and WPCo’s 2009 Expanded Net Energy Charge (ENEC) Filing

In September 2009, the WVPSC issued an order approving APCo’s and WPCo’s March 2009 ENEC request.  The approved order provided for recovery of an under-recovered balance plus a projected increase in ENEC costs over a four-year phase-in period with an overall increase of $355 million and a first-year increase of $124 million, effective October 2009.  The WVPSC also approved a fixed annual carrying cost rate of 4%, effective October 2009, to be applied to the incremental deferred regulatory asset balance that will result from the phase-in plan and lowered annual coal cost projections by $27 million.  As of June 30, 2010, APCo’s ENEC under-recovery balance was $< /a>358 million, including carrying costs, which is included in noncurrent regulatory assets.

In June 2010, a settlement agreement for $96 million, including $10 million of construction surcharges, was filed with the WVPSC related to APCo’s and WPCo’s second year ENEC increase.  The settlement agreement provided for recovery of the amounts related to the renegotiated coal contracts and allows APCo to accrue weighted average cost of capital carrying costs on the excess under-recovery balance due to the ENEC phase-in as adjusted for the impacts of Accumulated Deferred Income Taxes.  In June 2010, the WVPSC approved the settlement agreement which made rates effective in July 2010.

PSO Rate Matters

PSO Fuel and Purchased Power

2006 and Prior Fuel and Purchased Power

The OCC filed a complaint with the FERC related to the allocation of off-system sales margins (OSS) among the AEP operating companies in accordance with a FERC-approved allocation agreement.  The FERC issued an adverse ruling in 2008.  As a result, PSO recorded a regulatory liability in 2008 to return reallocated OSS to customers.  Starting in March 2009, PSO refunded the additional reallocated OSS to its customers through February 2010.

A reallocation of purchased power costs among AEP West companies for periods prior to 2002 resulted in an under-recovery of $42 million of PSO fuel costs.  PSO recovered the $42 million by offsetting it against an existing fuel over-recovery during the period June 2007 through May 2008.  The Oklahoma Industrial Energy Consumers (OIEC) has contended that PSO should not have collected the $42 million without specific OCC approval.  As such, the OIEC contends that the OCC should require PSO to refund the $42 million it collected through its fuel clause.  The OCC has heard the OIEC appeal and a decision is pending.  In March 2010, PSO filed motions to advance this proceeding since the FERC has ruled o n the allocation of off-system sales margins proceeding and PSO has refunded the additional margins to its retail customers.  If the OCC were to order PSO to refund all or a part of the $42 million, it would reduce future net income and cash flows and impact financial condition.
 
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2008 Fuel and Purchased Power

In July 2009, the OCC initiated a proceeding to review PSO’s fuel and purchased power adjustment clause for the calendar year 2008 and also initiated a prudence review of the related costs.  In March 2010, the Oklahoma Attorney General and the OIEC recommended the fuel clause adjustment rider be amended so that the shareholder’s portion of off-system sales margins decrease from 25% to 10%.  The OIEC also recommended that the OCC conduct a comprehensive review of all affiliate transactions during 2007 and 2008.  In July 2010, additional testimony regarding the 2007 transfer of ERCOT trading contracts to AEP Energy Partners was filed.  Included in this testimony were unquantified refund recommendations relating to re-pricing of contract tran sactions.  If the OCC were to issue an unfavorable decision, it could reduce future net income and cash flows and impact financial condition.
 
2008 Oklahoma Base Rate Appeal

In January 2009, the OCC issued a final order approving an $81 million increase in PSO’s non-fuel base revenues based on a 10.5% return on equity.  The new rates reflecting the final order were implemented with the first billing cycle of February 2009.  PSO and intervenors filed appeals with the Oklahoma Supreme Court raising various issues.  The Oklahoma Supreme Court assigned the case to the Court of Civil Appeals.  In June 2010, the Court of Civil Appeals affirmed the OCC's decision.  No parties sought rehearing or appeal.  As a result, this case has concluded.

2010 Oklahoma Base Rate Case

In July 2010, PSO filed a request with the OCC to increase annual base rates by $82 million, including $30 million that is currently being recovered through a rider.  The requested increase includes a $24 million increase in depreciation and an 11.5% return on common equity.  PSO requested that new rates become effective no later than July 2011.  A procedural schedule has not been established.

I&M Rate Matters

Indiana Fuel Clause Filing (Cook Plant Unit 1 Fire and Shutdown)

I&M filed applications with the IURC to increase its fuel adjustment charge by approximately $53 million for the period of April 2009 through September 2009.  The filings sought increases for previously under-recovered fuel clause expenses.

As fully discussed in the “Cook Plant Unit 1 Fire and Shutdown” section of Note 4, Cook Unit 1 was shut down in September 2008 due to significant turbine damage and a small fire on the electric generator.  Unit 1 was placed back into service in December 2009 at slightly reduced power.  The unit outage resulted in increased replacement power fuel costs.  The filing only requested the cost of replacement power through mid-December 2008, the date when I&M began receiving accidental outage insurance proceeds.  I&M committed to absorb the remaining costs of replacement power through the date the unit returned to service, which occurred in December 2009.

I&M reached an agreement with intervenors, which was approved by the IURC in March 2009, to collect its existing prior period under-recovery regulatory asset deferral balance over twelve months instead of over six months as initially proposed.  Under the agreement, the fuel factors were placed into effect, subject to refund, and a subdocket was established to consider issues relating to the Unit 1 shutdown including the treatment of the accidental outage insurance proceeds.  Hearings are scheduled to be held in December 2010.
 
Management believes that I&M is entitled to retain the accidental outage insurance proceeds since it made customers whole regarding the replacement power costs.  If any fuel clause revenues or accidental outage insurance proceeds have to be refunded, it would reduce future net income and cash flows and impact financial condition.
 
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Michigan 2009 Power Supply Cost Recovery (PSCR) Reconciliation (Cook Plant Unit 1 Fire and Shutdown)

In March 2010, I&M filed its 2009 PSCR reconciliation with the MPSC.  The filing included an adjustment to exclude from the PSCR the incremental fuel cost of replacement power due to the Cook Plant Unit 1 outage from mid-December 2008 through December 2009, the period during which I&M received and recognized the accidental outage insurance proceeds.  Management believes that I&M is entitled to retain the accidental outage insurance proceeds since it made customers whole regarding the replacement power costs.  If any fuel clause revenues or accidental outage insurance proceeds have to be refunded, it would reduce future net income and cash flows and impact financial condition.  See the “Cook Plant Unit 1 Fire and Shutdown” section of Note 4.
 
Michigan Base Rate Filing

In January 2010, I&M filed with the MPSC a request for a $63 million increase in annual base rates based on an 11.75% return on common equity.  In the August 2010 billing cycle, I&M, with the MPSC authorization, will implement a $44 million interim rate increase, subject to refund with interest.  The interim increase excluded new trackers and regulatory assets for which I&M was not currently incurring expenses.  In July 2010, the MPSC staff filed testimony which recommended a $34 million annual increase in base rates based on a 10.35% return on common equity plus separate recovery of approximately $7 million of customer choice implementation costs over a two year period.  The MPSC must issue a final order within one year of the original filing.

Kentucky Rate Matters

Kentucky Base Rate Filing

In December 2009, KPCo filed a base rate case with the KPSC to increase base revenues by $124 million annually based on an 11.75% return on common equity.  The base rate case also requested recovery of deferred storm restoration expenses over a three-year period which total $23 million as of June 30, 2010.

A settlement agreement was filed with the KPSC to increase base revenue by $64 million annually based on a 10.5% return on common equity.  The settlement agreement included recovery of $23 million of deferred storm restoration expenses over five years.  In June 2010, the KPSC approved the settlement agreement as filed.  New rates became effective the first billing cycle of July 2010.

FERC Rate Matters

Regional Transmission Rate Proceedings at the FERC

Seams Elimination Cost Allocation (SECA) Revenue Subject to Refund

In 2004, AEP eliminated transaction-based through-and-out transmission service (T&O) charges in accordance with FERC orders and collected, at the FERC’s direction, load-based charges, referred to as RTO SECA, to partially mitigate the loss of T&O revenues on a temporary basis through March 2006.  Intervenors objected to the temporary SECA rates.  The FERC set SECA rate issues for hearing and ordered that the SECA rate revenues be collected, subject to refund.  The AEP East companies recognized gross SECA revenues of $220 million from 2004 through 2006 when the SECA rates terminated leaving the AEP East companies and ultimately their internal load retail customers to make up the shortfall in revenues.

In 2006, a FERC Administrative Law Judge (ALJ) issued an initial decision finding that the rate design for the recovery of SECA charges was flawed and that a large portion of the “lost revenues” reflected in the SECA rates should not have been recoverable.  The ALJ found that the SECA rates charged were unfair, unjust and discriminatory and that new compliance filings and refunds should be made.  The ALJ also found that any unpaid SECA rates must be paid in the recommended reduced amount.
 
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AEP filed briefs jointly with other affected companies noting exceptions to the ALJ’s initial decision and asking the FERC to reverse the decision.  In May 2010, the FERC issued an order that generally supports AEP’s position and requires a compliance filing to be filed with the FERC by August 2010.  In June 2010, AEP and other affected companies filed a joint request for rehearing with the FERC regarding certain matters including a request to clarify the method for determining the amount of such revenues.  The rehearing also requested the FERC to clarify that interest may be added to SECA charges originally billed to but never paid by Green Mountain Energy (reassigned to British Petroleum Energy).  Eight other groups also filed requests for rehearing with the FERC.

The AEP East companies provided reserves for net refunds for SECA settlements applicable to the remaining $108 million of SECA revenues collected.  Based on the AEP East companies’ analysis of the May 2010 order, management believes that the reserve is adequate to pay the refunds, including interest, that will be required should the May 2010 order be made final as issued by the FERC.  Management cannot predict the ultimate outcome of this proceeding at the FERC which could impact future net income and cash flows.

Modification of the Transmission Agreement (TA)

APCo, CSPCo, I&M, KPCo and OPCo are parties to the TA that provides for a sharing of the cost of transmission lines operated at 138-kV and above and transmission stations containing extra-high voltage facilities.  In June 2009, AEPSC, on behalf of the parties to the TA, filed with the FERC a request to modify the TA.  Under the proposed amendments, KGPCo and WPCo will be added as parties to the TA.  In addition, the amendments would provide for the allocation of PJM transmission costs on the basis of the TA parties’ 12-month coincident peak and reimburse transmission revenues based on individual cost of service instead of the MLR method used in the present TA.  AEPSC requested the effective date to be the first day of the month following a final non-appealable FERC order.  The delayed effective date was approved by the FERC when the FERC accepted the new TA for filing.  Settlement discussions are in progress.  Management is unable to predict whether the parties to the TA will experience regulatory lag and its effect on future net income and cash flows due to timing of the implementation of the modified TA by various state regulators.

PJM/MISO Market Flow Calculation Settlement Adjustments

During 2009, an analysis conducted by MISO and PJM discovered several instances of unaccounted for power flows on numerous coordinated flowgates.  These flows affected the settlement data for congestion revenues and expenses and date back to the start of the MISO market in 2005.  PJM has provided MISO an initial analysis of amounts they believe they owe MISO.  MISO disputes PJM’s methodology.

Settlement discussions between MISO and PJM have been unsuccessful, and as a result, in March 2010, MISO filed two related complaints against PJM at the FERC related to the above claim.  MISO seeks to recover a total of approximately $145 million from PJM.  If PJM is held liable for these damages, PJM members, including the AEP East companies, may be billed for a share of the refunds or payments PJM is directed to make to MISO.  AEP has intervened and filed a protest to one complaint.  Management believes that MISO's claims are without merit and that PJM's right to recover any MISO damages from AEP and other members is limited.  If the FERC orders a settlement above the AEP East companies’ reserve related to their estimated portion of PJM additional costs, it could reduce future net income and cash flows and impact financial condition.

4.
COMMITMENTS, GUARANTEES AND CONTINGENCIES

We are subject to certain claims and legal actions arising in our ordinary course of business.  In addition, our business activities are subject to extensive governmental regulation related to public health and the environment.  The ultimate outcome of such pending or potential litigation against us cannot be predicted.  For current proceedings not specifically discussed below, management does not anticipate that the liabilities, if any, arising from such proceedings would have a material adverse effect on our financial statements.  The Commitments, Guarantees and Contingencies note within our 2009 Annual Report should be read in conjunction with this report.
 
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GUARANTEES

We record liabilities for guarantees in accordance with the accounting guidance for “Guarantees.”  There is no collateral held in relation to any guarantees in excess of our ownership percentages.  In the event any guarantee is drawn, there is no recourse to third parties unless specified below.

Letters Of Credit

We enter into standby letters of credit with third parties.  These letters of credit cover items such as gas and electricity risk management contracts, construction contracts, insurance programs, security deposits and debt service reserves.  As the Parent, we issued all of these letters of credit in our ordinary course of business on behalf of our subsidiaries.  We have two $1.5 billion credit facilities, of which $750 million may be issued under one credit facility as letters of credit.  In June 2010, we canceled a facility that was scheduled to mature in March 2011 and entered into a new $1.5 billion credit facility scheduled to mature in 2013 that allows for the issuance of up to $600 million as letters of credit.  As of June 30, 2010, the maximum future payments for letters of credi t issued under the two $1.5 billion credit facilities were $149 million with maturities ranging from July 2010 to October 2011.

In June 2010, we reduced the $627 million credit agreement to $478 million.  As of June 30, 2010, $477 million of letters of credit with maturities ranging from November 2010 to April 2011 were issued by subsidiaries under this credit agreement to support variable rate Pollution Control Bonds.

Guarantees Of Third-Party Obligations

SWEPCo

As part of the process to receive a renewal of a Texas Railroad Commission permit for lignite mining, SWEPCo provides guarantees of mine reclamation of approximately $65 million.  Since SWEPCo uses self-bonding, the guarantee provides for SWEPCo to commit to use its resources to complete the reclamation in the event the work is not completed by Sabine Mining Company (Sabine), a consolidated variable interest entity.  This guarantee ends upon depletion of reserves and completion of final reclamation.  Based on the latest study, we estimate the reserves will be depleted in 2036 with final reclamation completed by 2046 at an estimated cost of approximately $58 million.  As of June 30, 2010, SWEPCo has collected approximately $46 million through a rider for final mine closure and reclamation costs, o f which $2 million is recorded in Other Current Liabilities, $22 million is recorded in Deferred Credits and Other Noncurrent Liabilities and $22 million is recorded in Asset Retirement Obligations on our Condensed Consolidated Balance Sheets.

Sabine charges SWEPCo, its only customer, all of its costs.  SWEPCo passes these costs to customers through its fuel clause.

Indemnifications and Other Guarantees

Contracts

We enter into several types of contracts which require indemnifications.  Typically these contracts include, but are not limited to, sale agreements, lease agreements, purchase agreements and financing agreements.  Generally, these agreements may include, but are not limited to, indemnifications around certain tax, contractual and environmental matters.  With respect to sale agreements, our exposure generally does not exceed the sale price.  The status of certain sale agreements is discussed in the 2009 Annual Report “Dispositions” section of Note 7.  These sale agreements include indemnifications with a maximum exposure related to the collective purchase price.  This maximum exposure of approximately $1 billion relates to the Bank of America (BOA) litigation (see “Enron Bankruptcy” section of this note), of which the probable payment/performance risk is $445 million and is recorded in Deferred Credits and Other Noncurrent Liabilities on our Condensed Consolidated Balance Sheets as of June 30, 2010.  The remaining exposure is remote.  There are no material liabilities recorded for any indemnifications other than amounts recorded related to the BOA litigation.
 
48

 
Master Lease Agreements

We lease certain equipment under master lease agreements.  GE Capital Commercial Inc. (GE) notified us in November 2008 that they elected to terminate our Master Leasing Agreements in accordance with the termination rights specified within the contract.  In 2011, we will be required to purchase all equipment under the lease and pay GE an amount equal to the unamortized value of all equipment then leased.  In December 2008 and 2009, we signed new master lease agreements that include lease terms of up to 10 years.

For equipment under the GE master lease agreements that expire in 2011, the lessor is guaranteed receipt of up to 87% of the unamortized balance of the equipment at the end of the lease term.  If the fair value of the leased equipment is below the unamortized balance at the end of the lease term, we are committed to pay the difference between the fair value and the unamortized balance, with the total guarantee not to exceed 87% of the unamortized balance.  Under the new master lease agreements, the lessor is guaranteed a residual value up to a stated percentage of either the unamortized balance or the equipment cost at the end of the lease term.  If the actual fair value of the leased equipment is below the guaranteed residual value at the end of the lease term, we are committed to pay the difference betwe en the actual fair value and the residual value guarantee.  At June 30, 2010, the maximum potential loss for these lease agreements was approximately $3 million assuming the fair value of the equipment is zero at the end of the lease term.  Historically, at the end of the lease term the fair value has been in excess of the unamortized balance.

Railcar Lease

In June 2003, AEP Transportation LLC (AEP Transportation), a subsidiary of AEP, entered into an agreement with BTM Capital Corporation, as lessor, to lease 875 coal-transporting aluminum railcars.  The lease is accounted for as an operating lease.  In January 2008, AEP Transportation assigned the remaining 848 railcars under the original lease agreement to I&M (390 railcars) and SWEPCo (458 railcars).  The assignment is accounted for as operating leases for I&M and SWEPCo.  The initial lease term was five years with three consecutive five-year renewal periods for a maximum lease term of twenty years.  I&M and SWEPCo intend to renew these leases for the full lease term of twenty years via the renewal options.  The future minimum lease obligations are $18 million for I&M and $20 million for SWEPCo for the remaining railcars as of June 30, 2010.

Under the lease agreement, the lessor is guaranteed that the sale proceeds under a return-and-sale option will equal at least a lessee obligation amount specified in the lease, which declines from approximately 84% under the current five year lease term to 77% at the end of the 20-year term of the projected fair value of the equipment.  I&M and SWEPCo have assumed the guarantee under the return-and-sale option.  I&M’s maximum potential loss related to the guarantee is approximately $12 million ($8 million, net of tax) and SWEPCo’s is approximately $13 million ($9 million, net of tax) assuming the fair value of the equipment is zero at the end of the current five-year lease term.  However, we believe that the fair value would produce a sufficient sales price to avoid any loss.

We have other railcar lease arrangements that do not utilize this type of financing structure.

ENVIRONMENTAL CONTINGENCIES

Federal EPA Complaint and Notice of Violation

The Federal EPA, certain special interest groups and a number of states alleged that APCo, CSPCo, I&M and OPCo modified certain units at their coal-fired generating plants in violation of the NSR requirements of the CAA.  Cases with similar allegations against CSPCo, Dayton Power and Light Company and Duke Energy Ohio, Inc. were also filed related to their jointly-owned units.  The cases were settled with the exception of a case involving a jointly-owned Beckjord unit which had a liability trial.  Following the trial, the jury found no liability for claims made against the jointly-owned Beckjord unit.  Following a second liability trial in 2009, the jury again found no liability at the jointly-owned Beckjord unit.  The defendants and the plaintiffs appealed to the Seventh Circuit Co urt of Appeals.  Beckjord is operated by Duke Energy Ohio, Inc.  We are unable to determine a range of potential losses that are reasonably possible of occurring.
 
49

 
SWEPCo Notice of Enforcement and Notice of Citizen Suit

In 2005, two special interest groups, Sierra Club and Public Citizen, filed a complaint alleging violations of the CAA at SWEPCo’s Welsh Plant.  In 2008, a consent decree resolved all claims in the case and in the pending appeal of an altered permit for the Welsh Plant.  The consent decree required SWEPCo to install continuous particulate emission monitors at the Welsh Plant, secure 65 MW of renewable energy capacity, fund $2 million in emission reduction, energy efficiency or environmental mitigation projects and pay a portion of plaintiffs’ attorneys’ fees and costs.

The Federal EPA issued a Notice of Violation (NOV) based on alleged violations of a percent sulfur in fuel limitation and the heat input values listed in a previous state permit.  The NOV also alleges that a permit alteration issued by the Texas Commission on Environmental Quality in 2007 was improper.  In March 2008, SWEPCo met with the Federal EPA to discuss the alleged violations.  The Federal EPA did not object to the settlement of similar alleged violations in the federal citizen suit.  We are unable to predict the timing of any future action by the Federal EPA.  We are unable to determine a range of potential losses that are reasonably possible of occurring.

Carbon Dioxide Public Nuisance Claims

In 2004, eight states and the City of New York filed an action in Federal District Court for the Southern District of New York against AEP, AEPSC, Cinergy Corp, Xcel Energy, Southern Company and Tennessee Valley Authority.  The Natural Resources Defense Council, on behalf of three special interest groups, filed a similar complaint against the same defendants.  The actions allege that CO2 emissions from the defendants’ power plants constitute a public nuisance under federal common law due to impacts of global warming and sought injunctive relief in the form of specific emission reduction commitments from the defendants.  The trial court dismissed the lawsuits.

In September 2009, the Second Circuit Court of Appeals issued a ruling on appeal remanding the cases to the Federal District Court for the Southern District of New York.  The Second Circuit held that the issues of climate change and global warming do not raise political questions and that Congress’ refusal to regulate CO2 emissions does not mean that plaintiffs must wait for an initial policy determination by Congress or the President’s administration to secure the relief sought in their complaints.  The court stated that Congress could enact comprehensive legislation to regulate CO2 emissions or that the Federal EPA could regulate CO2 emissions under existing CAA authorities and that either of these actions could override any decision made by the district court under federal common law.  The Second Circuit did not rule on whether the plaintiffs could proceed with their state common law nuisance claims.  The defendants’ petition for rehearing was denied.  We believe the actions are without merit and intend to continue to defend against the claims.  The Solicitor General requested an extension of time to file a petition for review by the U.S. Supreme Court and the remaining defendants received a similar extension of time.  Petitions are currently due on or before August 2, 2010.

In October 2009, the Fifth Circuit Court of Appeals reversed a decision by the Federal District Court for the District of Mississippi dismissing state common law nuisance claims in a putative class action by Mississippi residents asserting that CO2 emissions exacerbated the effects of Hurricane Katrina.  The Fifth Circuit held that there was no exclusive commitment of the common law issues raised in plaintiffs’ complaint to a coordinate branch of government and that no initial policy determination was required to adjudicate these claims.  The court granted petitions for rehearing.  An additional recusal left the Fifth Circuit without a quorum to reconsider the decision and the appeal was dismissed, leaving the district court 217;s decision in place.  We were initially dismissed from this case without prejudice, but are named as a defendant in a pending fourth amended complaint.  Unless the plaintiffs elect to file a petition for review by the U.S. Supreme Court, there will be no further proceedings in this case.

We are unable to determine a range of potential losses that are reasonably possible of occurring.
 
50

 
Alaskan Villages’ Claims

In 2008, the Native Village of Kivalina and the City of Kivalina, Alaska filed a lawsuit in Federal Court in the Northern District of California against AEP, AEPSC and 22 other unrelated defendants including oil and gas companies, a coal company and other electric generating companies.  The complaint alleges that the defendants' emissions of CO2 contribute to global warming and constitute a public and private nuisance and that the defendants are acting together.  The complaint further alleges that some of the defendants, including AEP, conspired to create a false scientific debate about global warming in order to deceive the public and perpetuate the alleged nuisance.  The plaintiffs also allege that the effects of global warming wil l require the relocation of the village at an alleged cost of $95 million to $400 million.  In October 2009, the judge dismissed plaintiffs’ federal common law claim for nuisance, finding the claim barred by the political question doctrine and by plaintiffs’ lack of standing to bring the claim.  The judge also dismissed plaintiffs’ state law claims without prejudice to refiling in state court.  The plaintiffs appealed the decision.  We believe the action is without merit and intend to defend against the claims.  We are unable to determine a range of potential losses that are reasonably possible of occurring.
 
The Comprehensive Environmental Response Compensation and Liability Act (Superfund) and State Remediation
 
By-products from the generation of electricity include materials such as ash, slag, sludge, low-level radioactive waste and SNF.  Coal combustion by-products, which constitute the overwhelming percentage of these materials, are typically treated and deposited in captive disposal facilities or are beneficially utilized.  In addition, our generating plants and transmission and distribution facilities have used asbestos, polychlorinated biphenyls and other hazardous and nonhazardous materials.  We currently incur costs to dispose of these substances safely.

In March 2008, I&M received a letter from the Michigan Department of Environmental Quality (MDEQ) concerning conditions at a site under state law and requesting I&M take voluntary action necessary to prevent and/or mitigate public harm.  In May 2008, I&M started remediation work in accordance with a plan approved by MDEQ.  I&M recorded approximately $11 million of expense prior to January 1, 2010, $3 million of which I&M recorded in March 2009.  As the remediation work is completed, I&M’s cost may continue to increase as new information becomes available concerning either the level of contamination at the site or changes in the scope of remediation required by the MDEQ.  I&M cannot predict the amount of additional cost, if any.

Amos Plant – Request to Show Cause

In March 2010, we received a request to show cause from the Federal EPA alleging that certain reporting requirements under Superfund and the Emergency Planning and Community Right-to-Know Act had been violated and inviting us to engage in settlement negotiations.  The request includes a proposed civil penalty of approximately $300 thousand.  We indicated our willingness to engage in good faith negotiations and met with representatives of the Federal EPA.  We have not admitted that any violations occurred or that the amount of the proposed penalty is reasonable.  We are unable to determine a range of potential losses that are reasonably possible of occurring.
 
51

 
Defective Environmental Equipment

As part of our continuing environmental investment program, we chose to retrofit wet flue gas desulfurization systems on several units utilizing the jet bubbling reactor (JBR) technology.  The following plants have been scheduled for the installation of the JBR technology or are currently utilizing JBR retrofits:

 
 
 
 
 
 
JBRs
 
 
 
 
 
 
Installed/
 
 
 
 
 
 
Scheduled for
 
Plant Name
 
Plant Owners
 
Installation
 
Cardinal
 
OPCo/Buckeye Power, Inc.
 
 
Conesville
 
CSPCo/Dayton Power and Light Company/
 
 
 
 
Duke Energy Ohio, Inc.
 
 
 
Clifty Creek
 
Indiana-Kentucky Electric Corporation
 
 
Kyger Creek
 
Ohio Valley Electric Corporation
 
 
Muskingum River (a)
 
OPCo
 
 
Big Sandy (a)
 
KPCo
 
 
 
 
 
 
 
 
 
(a)
Contracts for the Muskingum River and Big Sandy Projects have been temporarily
 
 
suspended during the early development stages of the projects.

The retrofits on two of the Cardinal Plant units and the Conesville Plant unit are operational.  Due to unexpected operating results, we completed an extensive review of the design and manufacture of the JBR internal components.  Our review concluded that there are fundamental design deficiencies and that inferior and/or inappropriate materials were selected for the internal fiberglass components.  We initiated discussions with Black & Veatch, the original equipment manufacturer, to develop a repair or replacement corrective action plan.  We intend to pursue our contractual and other legal remedies if we are unable to resolve these issues with Black & Veatch.  If we are unsuccessful in obtaining reimbursement for the work required to remedy this situation, the cost of repair or replacement could have an adverse impact on construction costs, net income, cash flows and financial condition.  We are unable to determine a range of potential losses that are reasonably possible of occurring.

NUCLEAR CONTINGENCIES

I&M owns and operates the two-unit 2,191 MW Cook Plant under licenses granted by the Nuclear Regulatory Commission.  We have a significant future financial commitment to dispose of SNF and to safely decommission and decontaminate the plant.  The licenses to operate the two nuclear units at the Cook Plant expire in 2034 and 2037.  The operation of a nuclear facility also involves special risks, potential liabilities and specific regulatory and safety requirements.  By agreement, I&M is partially liable, together with all other electric utility companies that own nuclear generating units, for a nuclear power plant incident at any nuclear plant in the U.S.  Should a nuclear incident occur at any nuclear power plant in the U.S., the resultant liability could be substantial.

Cook Plant Unit 1 Fire and Shutdown

In September 2008, I&M shut down Cook Plant Unit 1 (Unit 1) due to turbine vibrations, caused by blade failure, which resulted in significant turbine damage and a small fire on the electric generator.  This equipment, located in the turbine building, is separate and isolated from the nuclear reactor.  The turbine rotors that caused the vibration were installed in 2006 and are within the vendor’s warranty period.  The warranty provides for the repair or replacement of the turbine rotors if the damage was caused by a defect in materials or workmanship.  Repair of the property damage and replacement of the turbine rotors and other equipment could cost up to approximately $395 million.  Management believes that I&M should recover a significant portion of these costs through th e turbine vendor’s warranty, insurance and the regulatory process.  I&M repaired Unit 1 and it resumed operations in December 2009 at slightly reduced power.  The Unit 1 rotors were repaired and reinstalled due to the extensive lead time required to manufacture and install new turbine rotors.  As a result, the replacement of the repaired turbine rotors and other equipment is scheduled for the Unit 1 planned outage in the fall of 2011.
 
52

 
I&M maintains property insurance through NEIL with a $1 million deductible.  As of June 30, 2010, we recorded $53 million in Prepayments and Other Current Assets on our Condensed Consolidated Balance Sheets representing recoverable amounts under the property insurance policy.  Through June 30, 2010, I&M received partial payments of $203 million from NEIL for the cost incurred to date to repair the property damage.

I&M also maintains a separate accidental outage policy with NEIL.  In 2009, I&M recorded $185 million in revenue under the policy and reduced the cost of replacement power in customers’ bills by $78 million.

NEIL is reviewing claims made under the insurance policies to ensure that claims associated with the outage are covered by the policies.  The treatment of property damage costs, replacement power costs and insurance proceeds will be the subject of future regulatory proceedings in Indiana and Michigan.  If the ultimate costs of the incident are not covered by warranty, insurance or through the regulatory process or if any future regulatory proceedings are adverse, it could have an adverse impact on net income, cash flows and financial condition.

OPERATIONAL CONTINGENCIES

Fort Wayne Lease

Since 1975, I&M has leased certain energy delivery assets from the City of Fort Wayne, Indiana under a long-term lease that expired on February 28, 2010.  I&M has been negotiating with Fort Wayne to purchase the assets at the end of the lease, but no agreement has been reached.  Fort Wayne issued a technical notice of default under the lease to I&M in August 2009.  I&M responded to Fort Wayne in October 2009 that it did not agree there was a default under the lease.  In October 2009, I&M filed for declaratory and injunctive relief in Indiana state court.  The parties agreed to submit this matter to mediation.  In February 2010, the court issued a stay to continue mediation.  I&M is making monthly payments to an escrow account in lieu of rent.& #160; I&M will seek recovery in rates for any amount it may pay related to this dispute.  We are unable to determine a range of potential losses that are reasonably possible of occurring.

Enron Bankruptcy

In 2001, we purchased Houston Pipeline Company (HPL) from Enron.  Various HPL-related contingencies and indemnities from Enron remained unsettled at the date of Enron’s bankruptcy.  In connection with our acquisition of HPL, we entered into an agreement with BAM Lease Company, which granted HPL the exclusive right to use approximately 55 billion cubic feet (BCF) of cushion gas required for the normal operation of the Bammel gas storage facility.  At the time of our acquisition of HPL, BOA and certain other banks (the BOA Syndicate) and Enron entered into an agreement granting HPL the exclusive use of the cushion gas.  Also at the time of our acquisition, Enron and the BOA Syndicate released HPL from all prior and future liabilities and obligations in connection with the financing arrangemen t.  After the Enron bankruptcy, the BOA Syndicate informed HPL of a purported default by Enron under the terms of the financing arrangement.  This dispute is being litigated in the Enron bankruptcy proceedings and in federal courts in Texas and New York.

In February 2004, Enron filed Notices of Rejection regarding the cushion gas exclusive right to use agreement and other incidental agreements.  We objected to Enron’s attempted rejection of these agreements and filed an adversary proceeding contesting Enron’s right to reject these agreements.

In 2003, AEP filed a lawsuit against BOA in the United States District Court for the Southern District of Texas.  BOA led the lending syndicate involving the monetization of the cushion gas to Enron and its subsidiaries.  The lawsuit asserts that BOA made misrepresentations and engaged in fraud to induce and promote the stock sale of HPL, that BOA directly benefited from the sale of HPL and that AEP undertook the stock purchase and entered into the cushion gas arrangement with Enron and BOA based on misrepresentations that BOA made about Enron’s financial condition that BOA knew or should have known were false.  In 2005, the Judge entered an order severing and transferring the declaratory judgment claims involving the right to use and cushion gas consent agreements to the Southern District of New Yor k and retaining in the Southern District of Texas the four counts alleging breach of contract, fraud and negligent misrepresentation.  Trial in federal court in Texas was continued pending a decision in the New York case.
 
53

 
In 2007, the judge in the New York action issued a decision on all claims, including those that were pending trial in Texas, granting BOA summary judgment and dismissing our claims.  In August 2008, the court entered a final judgment of $346 million.  We appealed and posted a bond covering the amount of the judgment entered against us.  In May 2009, the judge awarded $20 million of attorneys’ fees to BOA.  We appealed this award and posted bond covering that amount.  In September 2009, the United States Court of Appeals for the Second Circuit heard oral argument on our appeal.

The liability for the BOA litigation was $445 million and $441 million including interest at June 30, 2010 and December 31, 2009, respectively.  These liabilities are included in Deferred Credits and Other Noncurrent Liabilities on our Condensed Consolidated Balance Sheets.

Natural Gas Markets Lawsuits

In 2002, the Lieutenant Governor of California filed a lawsuit in Los Angeles County California Superior Court against numerous energy companies, including AEP, alleging violations of California law through alleged fraudulent reporting of false natural gas price and volume information with an intent to affect the market price of natural gas and electricity.  AEP was dismissed from the case.  A number of similar cases were also filed in California and in state and federal courts in several states making essentially the same allegations under federal or state laws against the same companies.  AEP (or a subsidiary) is among the companies named as defendants in some of these cases.  These cases are at various pre-trial stages.  In 2008, we settled all of the cases pending against us in Cali fornia.  The settlements did not impact 2008 earnings due to provisions made in prior periods.  We will continue to defend each remaining case where an AEP company is a defendant.  We believe the provision we have for the remaining cases is adequate.  We are unable to determine a range of potential losses that are reasonably possible of occurring.

5.       ACQUISITION AND DISPOSITIONS

ACQUISITION

2010

Valley Electric Membership Corporation (Utility Operations segment)

In November 2009, SWEPCo signed a letter of intent to purchase the transmission and distribution assets of Valley Electric Membership Corporation (VEMCO).  The current estimate of the purchase is approximately $100 million, plus the assumption of certain liabilities, subject to adjustments at closing.  Consummation of the transaction is subject to regulatory approval by the LPSC, the APSC, the Rural Utilities Service, the National Rural Utilities Cooperative Finance Corporation and the FERC.  In January 2010, the VEMCO members approved the transaction.  In the second quarter of 2010, a purchase and sales agreement was signed and a joint application between SWEPCo and VEMCO was filed with the LPSC.  SWEPCo will seek recovery from Louisiana customers for all costs related to this acquisit ion.  VEMCO services approximately 30,000 customers in Louisiana.  SWEPCo expects to complete the transaction in the third quarter of 2010 upon receipt of regulatory approvals.

2009

None
 
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DISPOSITIONS

2010

Electric Transmission Texas LLC (ETT) (Utility Operations segment)

TCC and TNC sold $64 million and $71 million, respectively, of transmission facilities to ETT for the six months ended June 30, 2010.  There were no gains or losses recorded on these transactions.

Intercontinental Exchange, Inc. (ICE) (All Other)

In April 2010, we sold our remaining 138,000 shares of ICE and recognized a $16 million gain ($10 million, net of tax).  We recorded the gain in Interest and Investment Income on our Condensed Consolidated Statements of Income for the three months ended June 30, 2010.

2009

Electric Transmission Texas LLC (ETT) (Utility Operations segment)

TCC and TNC sold $91 million and $1 million, respectively, of transmission facilities to ETT for the six months ended June 30, 2009.  There were no gains or losses recorded on these transactions.

6.       BENEFIT PLANS

Components of Net Periodic Benefit Cost

The following tables provide the components of our net periodic benefit cost for the plans for the three and six months ended June 30, 2010 and 2009:

 
 
 
Other Postretirement
 
Pension Plans
 
Benefit Plans
 
Three Months Ended June 30,
 
Three Months Ended June 30,
 
2010 
 
2009 
 
2010 
 
2009 
 
(in millions)
Service Cost
$
 27 
 
$
 26 
 
$
 11 
 
$
 11 
Interest Cost
 
 64 
 
 
 64 
 
 
 28 
 
 
 28 
Expected Return on Plan Assets
 
 (78)
 
 
 (81)
 
 
 (26)
 
 
 (20)
Amortization of Transition Obligation
 
 - 
 
 
-
 
 
 7 
 
 
 6 
Amortization of Net Actuarial Loss
 
 23 
 
 
 15 
 
 
 7 
 
 
 10 
Net Periodic Benefit Cost
$
 36 
 
$
 24 
 
$
 27 
 
$
 35 

 
 
 
Other Postretirement
 
Pension Plans
 
Benefit Plans
 
Six Months Ended June 30,
 
Six Months Ended June 30,
 
2010 
 
2009 
 
2010 
 
2009 
 
(in millions)
Service Cost
$
 55 
 
$
 52 
 
$
 23 
 
$
 21 
Interest Cost
 
 127 
 
 
 127 
 
 
 56 
 
 
 55 
Expected Return on Plan Assets
 
 (156)
 
 
 (161)
 
 
 (52)
 
 
 (40)
Amortization of Transition Obligation
 
 - 
 
 
 
 
 14 
 
 
 13 
Amortization of Net Actuarial Loss
 
 45 
 
 
 30 
 
 
 14 
 
 
 21 
Net Periodic Benefit Cost
$
 71 
 
$
 48 
 
$
 55 
 
$
 70 

7.       BUSINESS SEGMENTS

As outlined in our 2009 Annual Report, our primary business is our electric utility operations.  Within our Utility Operations segment, we centrally dispatch generation assets and manage our overall utility operations on an integrated basis because of the substantial impact of cost-based rates and regulatory oversight.  While our Utility Operations segment remains our primary business segment, other segments include our AEP River Operations
 
55

 
segment with significant barging activities and our Generation and Marketing segment, which includes our nonregulated generating, marketing and risk management activities primarily in the ERCOT market area.  Intersegment sales and transfers are generally based on underlying contractual arrangements and agreements.

Our reportable segments and their related business activities are as follows:

Utility Operations
 
·  
Generation of electricity for sale to U.S. retail and wholesale customers.
·  
Electricity transmission and distribution in the U.S.
 
AEP River Operations
·  
Commercial barging operations that transport coal and dry bulk commodities primarily on the Ohio, Illinois and lower Mississippi Rivers.

Generation and Marketing
 
·  
Wind farms and marketing and risk management activities primarily in ERCOT.
 
The remainder of our activities is presented as All Other.  While not considered a business segment, All Other includes:

·  
Parent’s guarantee revenue received from affiliates, investment income, interest income and interest expense, and other nonallocated costs.
·  
Forward natural gas contracts that were not sold with our natural gas pipeline and storage operations in 2004 and 2005.  These contracts are financial derivatives which gradually settle and completely expire in 2011.
·  
Revenue sharing related to the Plaquemine Cogeneration Facility.

The tables below present our reportable segment information for the three and six months ended June 30, 2010 and 2009 and balance sheet information as of June 30, 2010 and December 31, 2009.  These amounts include certain estimates and allocations where necessary.

 
 
 
 
 
 
 
 
Nonutility Operations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Generation
 
 
 
 
 
 
 
 
 
 
 
 
Utility
 
AEP River
and
All Other
Reconciling
 
 
 
 
 
Operations
 
Operations
Marketing
(a)
 Adjustments
Consolidated
 
 
 
 
(in millions)
Three Months Ended June 30, 2010
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues from:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
External Customers
 
$
 3,186 
 
 
$
 127 
 
$
 42 
 
$
 5 
 
$
 - 
 
$
 3,360 
 
 
Other Operating Segments
 
 
 25 
 
 
 
 5 
 
 
 - 
 
 
 (1)
 
 
 (29)
 
 
 - 
Total Revenues
 
$
 3,211 
 
 
$
 132 
 
$
 42 
 
$
 4 
 
$
 (29)
 
$
 3,360 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income (Loss)
 
$
 132 
 
 
$
 (1)
 
$
 7 
 
$
 (1)
 
$
 - 
 
$
 137 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nonutility Operations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Generation
 
 
 
 
 
 
 
 
 
 
 
 
Utility
 
AEP River
and
All Other
Reconciling
 
 
 
 
 
Operations
 
Operations
Marketing
(a)
 Adjustments
Consolidated
 
 
 
 
(in millions)
Three Months Ended June 30, 2009
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues from:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
External Customers
 
$
 3,035 
(d)
 
$
 105 
 
$
 58 
 
$
 4 
 
$
 - 
 
$
 3,202 
 
 
Other Operating Segments
 
 
 21 
(d)
 
 
 3 
 
 
 1 
 
 
 5 
 
 
 (30)
 
 
 - 
Total Revenues
 
$
 3,056 
 
 
$
 108 
 
$
 59 
 
$
 9 
 
$
 (30)
 
$
 3,202 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income (Loss) Before Extraordinary Loss
 
$
 327 
 
 
$
 1 
 
$
 4 
 
$
 (10)
 
$
 - 
 
$
 322 
Extraordinary Loss, Net of Tax
 
 
 (5)
 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 (5)
Net Income (Loss)
 
$
 322 
 
 
$
 1 
 
$
 4 
 
$
 (10)
 
$
 - 
 
$
 317 
 
 
56

 
 
 
 
 
 
 
 
Nonutility Operations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Generation
 
 
 
 
 
 
 
 
 
 
 
 
Utility
 
AEP River
and
All Other
Reconciling
 
 
 
 
 
Operations
 
Operations
Marketing
(a)
 Adjustments
Consolidated
 
 
 
(in millions)
Six Months Ended June 30, 2010
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues from:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
External Customers
$
 6,592 
 
 
$
 248 
 
$
 89 
 
$
 - 
 
$
 - 
 
$
 6,929 
 
 
Other Operating Segments
 
 45 
 
 
 
 10 
 
 
 - 
 
 
 7 
 
 
 (62)
 
 
 - 
Total Revenues
$
 6,637 
 
 
$
 258 
 
$
 89 
 
$
 7 
 
$
 (62)
 
$
 6,929 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income (Loss)
$
 476 
 
 
$
 2 
 
$
 17 
 
$
 (12)
 
$
 - 
 
$
 483 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nonutility Operations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Generation
 
 
 
 
 
 
 
 
 
 
 
 
Utility
 
AEP River
and
All Other
Reconciling
 
 
 
 
 
Operations
 
Operations
Marketing
(a)
 Adjustments
Consolidated
 
 
 
(in millions)
Six Months Ended June 30, 2009
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues from:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
External Customers
$
 6,302 
(d)
 
$
 228 
 
$
 145 
 
$
 (15)
 
$
 - 
 
$
 6,660 
 
 
Other Operating Segments
 
 21 
(d)
 
 
 9 
 
 
 6 
 
 
 27 
 
 
 (63)
 
 
 - 
Total Revenues
$
 6,323 
 
 
$
 237 
 
$
 151 
 
$
 12 
 
$
 (63)
 
$
 6,660 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income (Loss) Before Extraordinary Loss
$
 673 
 
 
$
 12 
 
$
 28 
 
$
 (28)
 
$
 - 
 
$
 685 
Extraordinary Loss, Net of Tax
 
 (5)
 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 (5)
Net Income (Loss)
$
 668 
 
 
$
 12 
 
$
 28 
 
$
 (28)
 
$
 - 
 
$
 680 
 
 
 
 
 
 
 
Nonutility Operations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Generation
 
 
 
 
Reconciling
 
 
 
 
 
 
 
Utility
 
AEP River
 
and
 
All Other
 
 Adjustments
 
 
 
 
 
 
 
Operations
 
Operations
 
Marketing
 
(a)
 
(b)
 
 
Consolidated
 
 
 
(in millions)
June 30, 2010
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Property, Plant and Equipment
$
 51,529 
 
$
 527 
 
$
 584 
 
$
 10 
 
$
 (250)
 
 
$
 52,400 
Accumulated Depreciation and Amortization
 
 17,431 
 
 
 99 
 
 
 183 
 
 
 9 
 
 
 (40)
 
 
 
 17,682 
Total Property, Plant and Equipment - Net
$
 34,098 
 
$
 428 
 
$
 401 
 
$
 1 
 
$
 (210)
 
 
$
 34,718 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Assets
$
 47,994 
 
$
 565 
 
$
 851 
 
$
 15,344 
 
$
 (14,817)
(c)
 
$
 49,937 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nonutility Operations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Generation
 
 
 
 
Reconciling
 
 
 
 
 
 
 
Utility
 
AEP River
 
and
 
All Other
 
 Adjustments
 
 
 
 
 
 
 
Operations
 
Operations
 
Marketing
 
(a)
 
(b)
 
 
Consolidated
 
 
 
(in millions)
December 31, 2009
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Property, Plant and Equipment
$
 50,905 
 
$
 436 
 
$
 571 
 
$
 10 
 
$
 (238)
 
 
$
 51,684 
Accumulated Depreciation and Amortization
 
 17,110 
 
 
 88 
 
 
 168 
 
 
 8 
 
 
 (34)
 
 
 
 17,340 
Total Property, Plant and Equipment - Net
$
 33,795 
 
$
 348 
 
$
 403 
 
$
 2 
 
$
 (204)
 
 
$
 34,344 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Assets
$
 46,930 
 
$
 495 
 
$
 779 
 
$
 15,094 
 
$
 (14,950)
(c)
 
$
 48,348 

(a)
All Other includes:
·  
Parent’s guarantee revenue received from affiliates, investment income, interest income and interest expense, and other nonallocated costs.
·  
Forward natural gas contracts that were not sold with our natural gas pipeline and storage operations in 2004 and 2005.  These contracts are financial derivatives which gradually settle and completely expire in 2011.
·  
Revenue sharing related to the Plaquemine Cogeneration Facility.
(b)
Includes eliminations due to an intercompany capital lease.
(c)
Reconciling Adjustments for Total Assets primarily include the elimination of intercompany advances to affiliates and intercompany accounts receivable along with the elimination of AEP’s investments in subsidiary companies.
 
 
57

 
(d) PSO and SWEPCo transferred certain existing ERCOT energy marketing contracts to AEP Energy Partners, Inc. (AEPEP) (Generation and Marketing segment) and entered into intercompany financial and physical purchase and sales agreements with AEPEP.  As a result, we reported third-party net purchases or sales activity for these energy marketing contracts as Revenues from External Customers for the Utility Operations segment.  This was offset by the Utility Operations segment’s related net sales (purchases) for these contracts with AEPEP in Revenues from Other Operating Segments of $(1) million and $(6) million for the three and six months ended, 2009, respectively.  The Generation and Marketin g segment also reported these purchase or sales contracts with Utility Operations as Revenues from Other Operating Segments.  These affiliated contracts between PSO and SWEPCo with AEPEP ended in December 2009.
 
8.       DERIVATIVES AND HEDGING

OBJECTIVES FOR UTILIZATION OF DERIVATIVE INSTRUMENTS

We are exposed to certain market risks as a major power producer and marketer of wholesale electricity, coal and emission allowances.  These risks include commodity price risk, interest rate risk, credit risk and to a lesser extent foreign currency exchange risk.  These risks represent the risk of loss that may impact us due to changes in the underlying market prices or rates.  We manage these risks using derivative instruments.

STRATEGIES FOR UTILIZATION OF DERIVATIVE INSTRUMENTS TO ACHIEVE OBJECTIVES

Our strategy surrounding the use of derivative instruments focuses on managing our risk exposures, future cash flows and creating value based on our open trading positions by utilizing both economic and formal hedging strategies. To accomplish our objectives, we primarily employ risk management contracts including physical forward purchase and sale contracts, financial forward purchase and sale contracts and financial swap instruments.  Not all risk management contracts meet the definition of a derivative under the accounting guidance for “Derivatives and Hedging.”  Derivative risk management contracts elected normal under the normal purchases and normal sales scope exception are not subject to the requirements of this accounting guidance.

We enter into electricity, coal, natural gas, interest rate and to a lesser degree heating oil, gasoline, emission allowance and other commodity contracts to manage the risk associated with our energy business.  We enter into interest rate derivative contracts in order to manage the interest rate exposure associated with our commodity portfolio.  For disclosure purposes, such risks are grouped as “Commodity,” as they are related to energy risk management activities.  We also engage in risk management of interest rate risk associated with debt financing and foreign currency risk associated with future purchase obligations denominated in foreign currencies.  For disclosure purposes, these risks are grouped as “Interest Rate and Foreign Currency.” The amount of risk taken is determined by the Commercial Operations and Finance groups in accordance with our established risk management policies as approved by the Finance Committee of AEP’s Board of Directors.

The following table represents the gross notional volume of our outstanding derivative contracts as of June 30, 2010 and December 31, 2009:

Notional Volume of Derivative Instruments
 
 
 
   
 
 
 
 
Volume
 
 
 
 
June 30,
   
December 31,
 
Unit of
 
 
2010
   
2009
 
Measure
 
(in millions)
 
 
Commodity:
 
 
   
 
 
 
Power
    935       589  
MWHs
Coal
    71       60  
Tons
Natural Gas
    144       127  
MMBtus
Heating Oil and Gasoline
    7       6  
Gallons
Interest Rate
  $ 191     $ 216  
USD
 
               
 
Interest Rate and Foreign Currency
  $ 423     $ 83  
USD

 
58

 
Fair Value Hedging Strategies

We enter into interest rate derivative transactions as part of an overall strategy to manage the mix of fixed-rate and floating-rate debt.  Certain interest rate derivative transactions effectively modify our exposure to interest rate risk by converting a portion of our fixed-rate debt to a floating rate.  Provided specific criteria are met, these interest rate derivatives are designated as fair value hedges.

Cash Flow Hedging Strategies

We enter into and designate as cash flow hedges certain derivative transactions for the purchase and sale of electricity, coal, heating oil and natural gas (“Commodity”) in order to manage the variable price risk related to the forecasted purchase and sale of these commodities.  We monitor the potential impacts of commodity price changes and, where appropriate, enter into derivative transactions to protect profit margins for a portion of future electricity sales and fuel or energy purchases.  We do not hedge all commodity price risk.

Our vehicle fleet and barge operations are exposed to gasoline and diesel fuel price volatility.  We enter into financial gasoline and heating oil derivative contracts in order to mitigate price risk of our future fuel purchases.  We do not hedge all fuel price risk.  For disclosure purposes, these contracts are included with other hedging activity as “Commodity.”

We enter into a variety of interest rate derivative transactions in order to manage interest rate risk exposure.  Some interest rate derivative transactions effectively modify our exposure to interest rate risk by converting a portion of our floating-rate debt to a fixed rate.  We also enter into interest rate derivative contracts to manage interest rate exposure related to anticipated borrowings of fixed-rate debt.  Our anticipated fixed-rate debt offerings have a high probability of occurrence as the proceeds will be used to fund existing debt maturities and projected capital expenditures.  We do not hedge all interest rate exposure.

At times, we are exposed to foreign currency exchange rate risks primarily when we purchase certain fixed assets from foreign suppliers.  In accordance with our risk management policy, we may enter into foreign currency derivative transactions to protect against the risk of increased cash outflows resulting from a foreign currency’s appreciation against the dollar.  We do not hedge all foreign currency exposure.
 
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND THE IMPACT ON OUR FINANCIAL STATEMENTS
 
The accounting guidance for “Derivatives and Hedging” requires recognition of all qualifying derivative instruments as either assets or liabilities in the balance sheet at fair value.  The fair values of derivative instruments accounted for using MTM accounting or hedge accounting are based on exchange prices and broker quotes.  If a quoted market price is not available, the estimate of fair value is based on the best information available including valuation models that estimate future energy prices based on existing market and broker quotes, supply and demand market data and assumptions.  In order to determine the relevant fair values of our derivative instruments, we also apply valuation adjustments for discounting, liquidity and credit quality.

Credit risk is the risk that a counterparty will fail to perform on the contract or fail to pay amounts due.  Liquidity risk represents the risk that imperfections in the market will cause the price to vary from estimated fair value based upon prevailing market supply and demand conditions.  Since energy markets are imperfect and volatile, there are inherent risks related to the underlying assumptions in models used to fair value risk management contracts.  Unforeseen events may cause reasonable price curves to differ from actual price curves throughout a contract’s term and at the time a contract settles.  Consequently, there could be significant adverse or favorable effects on future net income and cash flows if market prices are not consistent with our estimates of current market consens us for forward prices in the current period.  This is particularly true for longer term contracts.  Cash flows may vary based on market conditions, margin requirements and the timing of settlement of our risk management contracts.
 
59

 
According to the accounting guidance for “Derivatives and Hedging,” we reflect the fair values of our derivative instruments subject to netting agreements with the same counterparty net of related cash collateral.  For certain risk management contracts, we are required to post or receive cash collateral based on third party contractual agreements and risk profiles.  For the June 30, 2010 and December 31, 2009 balance sheets, we netted $19 million and $12 million, respectively, of cash collateral received from third parties against short-term and long-term risk management assets and $96 million and $98 million, respectively, of cash collateral paid to third parties against short-term and long-term risk management liabilities.

The following tables represent the gross fair value impact of our derivative activity on our Condensed Consolidated Balance Sheets as of June 30, 2010 and December 31, 2009:

Fair Value of Derivative Instruments
June 30, 2010
 
 
 
 
 
Risk Management
 
 
 
 
 
 
 
 
 
 
 
Contracts
 
Hedging Contracts
 
 
 
 
 
 
 
 
 
 
 
Interest Rate
 
 
 
 
 
 
 
 
 
 
 
and Foreign
 
Other
 
 
Balance Sheet Location
 
Commodity (a)
 
Commodity (a)
 
Currency (a)(c)
 
(a) (b)
 
Total
 
 
 
(in millions)
Current Risk Management Assets
 
$
 1,051 
 
$
 14 
 
$
 3 
 
$
 (818)
 
$
 250 
Long-term Risk Management Assets
 
 
 691 
 
 
 7 
 
 
 1 
 
 
 (291)
 
 
 408 
Total Assets
 
 
 1,742 
 
 
 21 
 
 
 4 
 
 
 (1,109)
 
 
 658 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Risk Management Liabilities
 
 
 978 
 
 
 15 
 
 
 3 
 
 
 (876)
 
 
 120 
Long-term Risk Management Liabilities
 
 
 540 
 
 
 3 
 
 
 2 
 
 
 (368)
 
 
 177 
Total Liabilities
 
 
 1,518 
 
 
 18 
 
 
 5 
 
 
 (1,244)
 
 
 297 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total MTM Derivative Contract Net Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Liabilities)
 
$
 224 
 
$
 3 
 
$
 (1)
 
$
 135 
 
$
 361 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair Value of Derivative Instruments
December 31, 2009
 
 
 
 
 
Risk Management
 
 
 
 
 
 
 
 
 
 
 
Contracts
 
Hedging Contracts
 
 
 
 
 
 
 
 
 
 
 
Interest Rate
 
 
 
 
 
 
 
 
 
 
 
and Foreign
 
Other
 
 
Balance Sheet Location
 
Commodity (a)
 
Commodity (a)
 
Currency (a)
 
(a) (b)
 
Total
 
 
 
(in millions)
Current Risk Management Assets
 
$
 1,078 
 
$
 13 
 
$
 - 
 
$
 (831)
 
$
 260 
Long-term Risk Management Assets
 
 
 614 
 
 
 - 
 
 
 - 
 
 
 (271)
 
 
 343 
Total Assets
 
 
 1,692 
 
 
 13 
 
 
 - 
 
 
 (1,102)
 
 
 603 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Risk Management Liabilities
 
 
 997 
 
 
 17 
 
 
 3 
 
 
 (897)
 
 
 120 
Long-term Risk Management Liabilities
 
 
 442 
 
 
 - 
 
 
 2 
 
 
 (316)
 
 
 128 
Total Liabilities
 
 
 1,439 
 
 
 17 
 
 
 5 
 
 
 (1,213)
 
 
 248 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total MTM Derivative Contract Net Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Liabilities)
 
$
 253 
 
$
 (4)
 
$
 (5)
 
$
 111 
 
$
 355 

 
(a)
Derivative instruments within these categories are reported gross.  These instruments are subject to master netting agreements and are presented on the Condensed Consolidated Balance Sheet on a net basis in accordance with the accounting guidance for “Derivatives and Hedging.”
 
(b)
Amounts represent counterparty netting of risk management and hedging contracts, associated cash collateral in accordance with the accounting guidance for “Derivatives and Hedging” and dedesignated risk management contracts.
 
(c)
At June 30, 2010, Risk Management Assets included $4 million related to fair value hedging strategies while the remainder related to cash flow hedging strategies.  At December 31, 2009, we only employed cash flow hedging strategies.

 
60

 
The table below presents our activity of derivative risk management contracts for the three and six months ended June 30, 2010 and 2009:

Amount of Gain (Loss) Recognized on
Risk Management Contracts
For the Three Months Ended June 30, 2010 and 2009
 
 
 
 
 
Location of Gain (Loss)
 
2010 
 
2009 
 
 
(in millions)
Utility Operations Revenue
 
$
 7 
 
$
 33 
Other Revenue
 
 
 8 
 
 
 5 
Regulatory Assets (a)
 
 
 (14)
 
 
 (18)
Regulatory Liabilities (a)
 
 
 (4)
 
 
 3 
Total Gain (Loss) on Risk Management Contracts
 
$
 (3)
 
$
 23 
 
 
 
 
 
 
 
Amount of Gain (Loss) Recognized on
Risk Management Contracts
For the Six Months Ended June 30, 2010 and 2009
 
 
 
 
 
Location of Gain (Loss)
 
2010 
 
2009 
 
 
(in millions)
Utility Operations Revenue
 
$
 45 
 
$
 99 
Other Revenue
 
 
 9 
 
 
 18 
Regulatory Assets (a)
 
 
 (3)
 
 
 (11)
Regulatory Liabilities (a)
 
 
 27 
 
 
 10 
Total Gain (Loss) on Risk Management Contracts
 
$
 78 
 
$
 116 

    (a)  Represents realized and unrealized gains and losses subject to regulatory accounting treatment recorded as either current or non-current
    on the balance sheet.

Certain qualifying derivative instruments have been designated as normal purchase or normal sale contracts, as provided in the accounting guidance for “Derivatives and Hedging.”  Derivative contracts that have been designated as normal purchases or normal sales under that accounting guidance are not subject to MTM accounting treatment and are recognized on the Condensed Consolidated Statements of Income on an accrual basis.

Our accounting for the changes in the fair value of a derivative instrument depends on whether it qualifies for and has been designated as part of a hedging relationship and further, on the type of hedging relationship.  Depending on the exposure, we designate a hedging instrument as a fair value hedge or a cash flow hedge.

For contracts that have not been designated as part of a hedging relationship, the accounting for changes in fair value depends on whether the derivative instrument is held for trading purposes. Unrealized and realized gains and losses on derivative instruments held for trading purposes are included in Revenues on a net basis on the Condensed Consolidated Statements of Income. Unrealized and realized gains and losses on derivative instruments not held for trading purposes are included in Revenues or Expenses on the Condensed Consolidated Statements of Income depending on the relevant facts and circumstances.  However, unrealized and some realized gains and losses in regulated jurisdictions for both trading and non-trading derivative instruments are recorded as regulatory assets (for losses) or regulatory liabilities (for gain s) in accordance with the accounting guidance for “Regulated Operations.”

Accounting for Fair Value Hedging Strategies

For fair value hedges (i.e. hedging the exposure to changes in the fair value of an asset, liability or an identified portion thereof attributable to a particular risk), the gain or loss on the derivative instrument as well as the offsetting gain or loss on the hedged item associated with the hedged risk impacts Net Income during the period of change.
 
61

 
We record realized and unrealized gains or losses on interest rate swaps that qualify for fair value hedge accounting treatment and any offsetting changes in the fair value of the debt being hedged in Interest Expense on our Condensed Consolidated Statements of Income.  During the three and six months ended June 30, 2010 and 2009, we recognized a gain of $4 million on our hedging instrument with an offsetting loss of $4 million on our long-term debt.  During the three and six months ended June 30, 2010, no hedge ineffectiveness was recognized.  During the three and six months ended June 30, 2010 and 2009, we did not employ any fair value hedging strategies.

Accounting for Cash Flow Hedging Strategies

For cash flow hedges (i.e. hedging the exposure to variability in expected future cash flows attributable to a particular risk), we initially report the effective portion of the gain or loss on the derivative instrument as a component of Accumulated Other Comprehensive Income (Loss) on our Condensed Consolidated Balance Sheets until the period the hedged item affects Net Income.  We recognize any hedge ineffectiveness in Net Income immediately during the period of change, except in regulated jurisdictions where hedge ineffectiveness is recorded as a regulatory asset (for losses) or a regulatory liability (for gains).

Realized gains and losses on derivative contracts for the purchase and sale of electricity, coal, heating oil and natural gas designated as cash flow hedges are included in Revenues, Fuel and Other Consumables Used for Electric Generation or Purchased Electricity for Resale on our Condensed Consolidated Statements of Income, or in Regulatory Assets or Regulatory Liabilities on our Condensed Consolidated Balance Sheets, depending on the specific nature of the risk being hedged.  During the three and six months ended June 30, 2010 and 2009, we designated commodity derivatives as cash flow hedges.

We reclassify gains and losses on financial fuel derivative contracts designated as cash flow hedges from Accumulated Other Comprehensive Income (Loss) on our Condensed Consolidated Balance Sheets into Other Operation expense, Maintenance expense or Depreciation and Amortization expense, as it relates to capital projects, on our Condensed Consolidated Statements of Income.  During the three and six months ended June 30, 2010 and 2009, we designated heating oil and gasoline derivatives as cash flow hedges.

We reclassify gains and losses on interest rate derivative hedges related to our debt financings from Accumulated Other Comprehensive Income (Loss) into Interest Expense in those periods in which hedged interest payments occur.  During the three and six months ended June 30, 2010 and 2009, we designated interest rate derivatives as cash flow hedges.

The accumulated gains or losses related to our foreign currency hedges are reclassified from Accumulated Other Comprehensive Income (Loss) on our Condensed Consolidated Balance Sheets into Depreciation and Amortization expense on our Condensed Consolidated Statements of Income over the depreciable lives of the fixed assets designated as the hedged items in qualifying foreign currency hedging relationships.  During the three and six months ended June 30, 2010 and 2009, we designated foreign currency derivatives as cash flow hedges.

During the three and six months ended June 30, 2010 and 2009, hedge ineffectiveness was immaterial or nonexistent for all of the hedge strategies disclosed above.
 
62

 
The following tables provide details on designated, effective cash flow hedges included in AOCI on our Condensed Consolidated Balance Sheets and the reasons for changes in cash flow hedges for the three and six months ended June 30, 2010 and 2009.  All amounts in the following table are presented net of related income taxes.

Total Accumulated Other Comprehensive Income (Loss) Activity for Cash Flow Hedges
For the Three Months Ended June 30, 2010
 
 
 
 
 
 
 
Interest Rate
 
 
 
 
 
 
 
 
 
 
and Foreign
 
 
 
 
 
 
 
Commodity
 
Currency
 
Total
 
 
 
 
(in millions)
Balance in AOCI as of March 31, 2010
 
$
 2 
 
$
 (13)
 
$
 (11)
Changes in Fair Value Recognized in AOCI
 
 
 1 
 
 
 (3)
 
 
 (2)
Amount of (Gain) or Loss Reclassified from AOCI
 
 
 
 
 
 
 
 
 
 
to Income Statement/within Balance Sheet:
 
 
 
 
 
 
 
 
 
 
 
Utility Operations Revenue
 
 
 - 
 
 
 - 
 
 
 - 
 
 
Other Revenue
 
 
 (2)
 
 
 - 
 
 
 (2)
 
 
Purchased Electricity for Resale
 
 
 1 
 
 
 - 
 
 
 1 
 
 
Interest Expense
 
 
 - 
 
 
 1 
 
 
 1 
 
 
Regulatory Assets (a)
 
 
 - 
 
 
 - 
 
 
 - 
 
 
Regulatory Liabilities (a)
 
 
 - 
 
 
 - 
 
 
 - 
Balance in AOCI as of June 30, 2010
 
$
 2 
 
$
 (15)
 
$
 (13)
 
 
 
 
 
 
 
 
 
 
 
 
Total Accumulated Other Comprehensive Income (Loss) Activity for Cash Flow Hedges
For the Three Months Ended June 30, 2009
 
 
 
 
 
 
 
Interest Rate
 
 
 
 
 
 
 
 
 
 
and Foreign
 
 
 
 
 
 
 
Commodity
 
Currency
 
Total
 
 
 
 
(in millions)
Balance in AOCI as of March 31, 2009
 
$
 9 
 
$
 (28)
 
$
 (19)
Changes in Fair Value Recognized in AOCI
 
 
 - 
 
 
 15 
 
 
 15 
Amount of (Gain) or Loss Reclassified from AOCI
 
 
 
 
 
 
 
 
 
 
to Income Statement/within Balance Sheet:
 
 
 
 
 
 
 
 
 
 
 
Utility Operations Revenue
 
 
 (4)
 
 
 - 
 
 
 (4)
 
 
Other Revenue
 
 
 (4)
 
 
 - 
 
 
 (4)
 
 
Purchased Electricity for Resale
 
 
 6 
 
 
 - 
 
 
 6 
 
 
Interest Expense
 
 
 - 
 
 
 2 
 
 
 2 
 
 
Regulatory Assets (a)
 
 
 1 
 
 
 - 
 
 
 1 
 
 
Regulatory Liabilities (a)
 
 
 (2)
 
 
 - 
 
 
 (2)
Balance in AOCI as of June 30, 2009
 
$
 6 
 
$
 (11)
 
$
 (5)

 
63

 
Total Accumulated Other Comprehensive Income (Loss) Activity for Cash Flow Hedges
For the Six Months Ended June 30, 2010
 
 
 
 
 
 
 
Interest Rate
 
 
 
 
 
 
 
 
 
 
and Foreign
 
 
 
 
 
 
 
Commodity
 
Currency
 
Total
 
 
 
 
(in millions)
Balance in AOCI as of December 31, 2009
 
$
 (2)
 
$
 (13)
 
$
 (15)
Changes in Fair Value Recognized in AOCI
 
 
 4 
 
 
 (4)
 
 
 - 
Amount of (Gain) or Loss Reclassified from AOCI
 
 
 
 
 
 
 
 
 
 
to Income Statement/within Balance Sheet:
 
 
 
 
 
 
 
 
 
 
 
Utility Operations Revenue
 
 
 - 
 
 
 - 
 
 
 - 
 
 
Other Revenue
 
 
 (3)
 
 
 - 
 
 
 (3)
 
 
Purchased Electricity for Resale
 
 
 2 
 
 
 - 
 
 
 2 
 
 
Interest Expense
 
 
 - 
 
 
 2 
 
 
 2 
 
 
Regulatory Assets (a)
 
 
 1 
 
 
 - 
 
 
 1 
 
 
Regulatory Liabilities (a)
 
 
 - 
 
 
 - 
 
 
 - 
Balance in AOCI as of June 30, 2010
 
$
 2 
 
$
 (15)
 
$
 (13)
 
 
 
 
 
 
 
 
 
 
 
 
Total Accumulated Other Comprehensive Income (Loss) Activity for Cash Flow Hedges
For the Six Months Ended June 30, 2009
 
 
 
 
 
 
 
Interest Rate
 
 
 
 
 
 
 
 
 
 
and Foreign
 
 
 
 
 
 
 
Commodity
 
Currency
 
Total
 
 
 
 
(in millions)
Balance in AOCI as of December 31, 2008
 
$
 7 
 
$
 (29)
 
$
 (22)
Changes in Fair Value Recognized in AOCI
 
 
 (3)
 
 
 15 
 
 
 12 
Amount of (Gain) or Loss Reclassified from AOCI
 
 
 
 
 
 
 
 
 
 
to Income Statement/within Balance Sheet:
 
 
 
 
 
 
 
 
 
 
 
Utility Operations Revenue
 
 
 (6)
 
 
 - 
 
 
 (6)
 
 
Other Revenue
 
 
 (6)
 
 
 - 
 
 
 (6)
 
 
Purchased Electricity for Resale
 
 
 14 
 
 
 - 
 
 
 14 
 
 
Interest Expense
 
 
 - 
 
 
 3 
 
 
 3 
 
 
Regulatory Assets (a)
 
 
 3 
 
 
 - 
 
 
 3 
 
 
Regulatory Liabilities (a)
 
 
 (3)
 
 
 - 
 
 
 (3)
Balance in AOCI as of June 30, 2009
 
$
 6 
 
$
 (11)
 
$
 (5)

   (a)  Represents realized and unrealized gains and losses subject to regulatory accounting treatment recorded as either current or non-current on the balance sheet.
 
64

 
Cash flow hedges included in Accumulated Other Comprehensive Income (Loss) on our Condensed Consolidated Balance Sheets at June 30, 2010 and December 31, 2009 were:

Impact of Cash Flow Hedges on our Condensed Consolidated Balance Sheet
June 30, 2010
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest Rate
 
 
 
 
 
 
 
 
 
 
and Foreign
 
 
 
 
 
 
 
Commodity
 
Currency
 
Total
 
 
 
 
(in millions)
Hedging Assets (a)
 
$
 11 
 
$
 - 
 
$
 11 
Hedging Liabilities (a)
 
 
 (8)
 
 
 (5)
 
 
 (13)
AOCI Gain (Loss) Net of Tax
 
 
 2 
 
 
 (15)
 
 
 (13)
 
 
 
 
 
 
 
 
 
 
 
 
Portion Expected to be Reclassified to Net
 
 
 
 
 
 
 
 
 
 
Income During the Next Twelve Months
 
 
 (1)
 
 
 (4)
 
 
 (5)
 
 
 
 
 
 
 
 
 
 
 
 
Impact of Cash Flow Hedges on our Condensed Consolidated Balance Sheet
December 31, 2009
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest Rate
 
 
 
 
 
 
 
 
 
 
and Foreign
 
 
 
 
 
 
 
Commodity
 
Currency
 
Total
 
 
 
 
(in millions)
Hedging Assets (a)
 
$
 8 
 
$
 - 
 
$
 8 
Hedging Liabilities (a)
 
 
 (12)
 
 
 (5)
 
 
 (17)
AOCI Gain (Loss) Net of Tax
 
 
 (2)
 
 
 (13)
 
 
 (15)
 
 
 
 
 
 
 
 
 
 
 
 
Portion Expected to be Reclassified to Net
 
 
 
 
 
 
 
 
 
 
Income During the Next Twelve Months
 
 
 (2)
 
 
 (4)
 
 
 (6)

 
(a)
Hedging Assets and Hedging Liabilities are included in Risk Management Assets and Liabilities on our Condensed Consolidated Balance Sheets.

The actual amounts that we reclassify from Accumulated Other Comprehensive Income (Loss) to Net Income can differ from the estimate above due to market price changes.  As of June 30, 2010, the maximum length of time that we are hedging (with contracts subject to the accounting guidance for “Derivatives and Hedging”) our exposure to variability in future cash flows related to forecasted transactions is 42 months.

Credit Risk

We limit credit risk in our wholesale marketing and trading activities by assessing the creditworthiness of potential counterparties before entering into transactions with them and continuing to evaluate their creditworthiness on an ongoing basis.  We use Moody’s, S&P and current market-based qualitative and quantitative data to assess the financial health of counterparties on an ongoing basis.  If an external rating is not available, an internal rating is generated utilizing a quantitative tool developed by Moody’s to estimate probability of default that corresponds to an implied external agency credit rating.

We use standardized master agreements which may include collateral requirements.  These master agreements facilitate the netting of cash flows associated with a single counterparty.  Cash, letters of credit and parental/affiliate guarantees may be obtained as security from counterparties in order to mitigate credit risk.  The collateral agreements require a counterparty to post cash or letters of credit in the event an exposure exceeds our established threshold.  The threshold represents an unsecured credit limit which may be supported by a parental/affiliate guaranty, as determined in accordance with our credit policy.  In addition, collateral agreements allow for termination and liquidation of all positions in the event of a failure or inability to post collateral.
 
65

 
Collateral Triggering Events

Under a limited number of derivative and non-derivative counterparty contracts primarily related to our pre-2002 risk management activities and under the tariffs of the RTOs and Independent System Operators (ISOs), we are obligated to post an amount of collateral if our credit ratings decline below investment grade.  The amount of collateral required fluctuates based on market prices and our total exposure.  On an ongoing basis, our risk management organization assesses the appropriateness of these collateral triggering items in contracts.  We do not anticipate a downgrade below investment grade.  The following table represents our aggregate fair value of such derivative contracts, the amount of collateral we would have been required to post for all derivative and non-derivative contracts if our credit ratings had declined below investment grade and how much was attributable to RTO and ISO activities as of June 30, 2010 and December 31, 2009:

 
 
June 30,
 
December 31,
 
 
2010 
 
2009 
 
 
(in millions)
Liabilities for Derivative Contracts with Credit Downgrade Triggers
 
$
 21 
 
$
 10 
Amount of Collateral AEP Subsidiaries Would Have Been
 
 
 25 
 
 
 34 
   Required to Post
 
 
 
 
 
 
Amount Attributable to RTO and ISO Activities
 
 
 24 
 
 
 29 

In addition, a majority of our non-exchange traded commodity contracts contain cross-default provisions that, if triggered, would permit the counterparty to declare a default and require settlement of the outstanding payable.  These cross-default provisions could be triggered if there was a non-performance event under outstanding debt in excess of $50 million.  On an ongoing basis, our risk management organization assesses the appropriateness of these cross-default provisions in our contracts.  We do not anticipate a non-performance event under these provisions.  The following table represents the fair value of these derivative liabilities subject to cross-default provisions prior to consideration of contractual netting arrangements, the amount this exposure has been reduced by cash collateral we have posted and if a cross-default provision would have been triggered, the settlement amount that would be required after considering our contractual netting arrangements as of June 30, 2010 and December 31, 2009:

 
 
June 30,
 
December 31,
 
 
2010 
 
2009 
 
 
(in millions)
Liabilities for Contracts with Cross Default Provisions Prior to Contractual
 
 
 
 
 
 
   Netting Arrangements
 
$
 557 
 
$
 567 
Amount of Cash Collateral Posted
 
 
 25 
 
 
 15 
Additional Settlement Liability if Cross Default Provision is Triggered
 
 
 251 
 
 
 199 

9.       FAIR VALUE MEASUREMENTS

Fair Value Hierarchy and Valuation Techniques

The accounting guidance for “Fair Value Measurements and Disclosures” establishes a fair value hierarchy that prioritizes the inputs used to measure fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).  Where observable inputs are available for substantially the full term of the asset or liability, the instrument is categorized in Level 2.  When quoted market prices are not available, pricing may be completed using comparable securities, dealer values, operating data and general market conditions to determine fair value.  Valuation models utilize various inputs such as commodity, interest rate and, to a lesser de gree, volatility and credit that include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, market corroborated inputs (i.e. inputs derived principally from, or correlated to, observable market data) and other observable inputs for the asset or liability.
 
66

 
For our commercial activities, exchange traded derivatives, namely futures contracts, are generally fair valued based on unadjusted quoted prices in active markets and are classified as Level 1.  Level 2 inputs primarily consist of OTC broker quotes in moderately active or less active markets, as well as exchange traded contracts where there is insufficient market liquidity to warrant inclusion in Level 1.  We verify our price curves using these broker quotes and classify these fair values within Level 2 when substantially all of the fair value can be corroborated.  We typically obtain multiple broker quotes, which are non-binding in nature, but are based on recent trades in the marketplace.  When multiple broker quotes are obtained, we average the quoted bid and ask prices.  In certain circumstances, we may discard a broker quote if it is a clear outlier.  We use a historical correlation analysis between the broker quoted location and the illiquid locations and if the points are highly correlated we include these locations within Level 2 as well.  Certain OTC and bilaterally executed derivative instruments are executed in less active markets with a lower availability of pricing information.  Long-dated and illiquid complex or structured transactions and FTRs can introduce the need for internally developed modeling inputs based upon extrapolations and assumptions of observable market data to estimate fair value.  When such inputs have a significant impact on the measurement of fair value, the instrument is categorized as Level 3.

We utilize our trustee’s external pricing service in our estimate of the fair value of the underlying investments held in the nuclear trusts.  Our investment managers review and validate the prices utilized by the trustee to determine fair value.  We perform our own valuation testing to verify the fair values of the securities.  We receive audit reports of our trustee’s operating controls and valuation processes.  The trustee uses multiple pricing vendors for the assets held in the trusts.  Equities are classified as Level 1 holdings if they are actively traded on exchanges.  Fixed income securities do not trade on an exchange and do not have an official closing price.  Pricing vendors calculate bond valuations using financial models and matrices. &# 160;Fixed income securities are typically classified as Level 2 holdings because their valuation inputs are based on observable market data.  Observable inputs used for valuing fixed income securities are benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, and economic events.  Other securities with model-derived valuation inputs that are observable are also classified as Level 2 investments.  Investments with unobservable valuation inputs are classified as Level 3 investments.

Items classified as Level 1 are investments in money market funds, fixed income and equity mutual funds and domestic equities.  They are valued based on observable inputs primarily unadjusted quoted prices in active markets for identical assets.

Items classified as Level 2 are primarily investments in individual fixed income securities.  These fixed income securities are valued using models with input data as follows:

 
 
Type of Fixed Income Security
 
 
United States
 
 
 
State and Local
Type of Input
 
Government
 
Corporate Debt
 
Government
 
 
 
 
 
 
 
Benchmark Yields
 
X
 
X
 
X
Broker Quotes
 
X
 
X
 
X
Discount Margins
 
X
 
X
 
 
Treasury Market Update
 
X
 
 
 
 
Base Spread
 
X
 
X
 
X
Corporate Actions
 
 
 
X
 
 
Ratings Agency Updates
 
 
 
 
 
X
Prepayment Schedule and
 
 
 
 
 
 
   History
 
 
 
 
 
X
Yield Adjustments
 
X
 
 
 
 

 
67

 
Fair Value Measurements of Long-term Debt

The fair values of Long-term Debt are based on quoted market prices, without credit enhancements, for the same or similar issues and the current interest rates offered for instruments with similar maturities.  These instruments are not marked-to-market.  The estimates presented are not necessarily indicative of the amounts that we could realize in a current market exchange.

The book values and fair values of Long-term Debt as of June 30, 2010 and December 31, 2009 are summarized in the following table:

 
 
June 30, 2010
 
December 31, 2009
 
 
Book Value
 
Fair Value
 
Book Value
 
Fair Value
 
 
(in millions)
Long-term Debt
 
$
 17,348 
 
$
 18,821 
 
$
 17,498 
 
$
 18,479 

Fair Value Measurements of Other Temporary Investments

Other Temporary Investments include marketable securities that we intend to hold for less than one year, investments by our protected cell of EIS and funds held by trustees primarily for the payment of debt.

The following is a summary of Other Temporary Investments:

 
 
 
 
June 30, 2010
 
 
 
 
 
 
 
Gross
 
Gross
 
Estimated
 
 
 
 
 
 
 
 Unrealized
 
Unrealized
 
 Fair
Other Temporary Investments
 
Cost
 
Gains
 
Losses
 
Value
 
 
 
 
(in millions)
 
Restricted Cash (a)
 
$
 195 
 
$
 - 
 
$
 - 
 
$
 195 
 
Fixed Income Securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mutual Funds
 
 
 68 
 
 
 1 
 
 
 - 
 
 
 69 
 
 
Variable Rate Demand Notes
 
 
 14 
 
 
 - 
 
 
 - 
 
 
 14 
 
Equity Securities - Mutual Funds
 
 
 18 
 
 
 2 
 
 
 - 
 
 
 20 
 
Total Other Temporary Investments
 
$
 295 
 
$
 3 
 
$
 - 
 
$
 298 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2009
 
 
 
 
 
 
 
Gross
 
Gross
 
Estimated
 
 
 
 
 
 
 
 Unrealized
 
Unrealized
 
 Fair
 
Other Temporary Investments
 
Cost
 
Gains
 
Losses
 
Value
 
 
 
 
 
(in millions)
 
Restricted Cash (a)
 
$
 223 
 
$
 - 
 
$
 - 
 
$
 223 
 
Fixed Income Securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mutual Funds
 
 
 57 
 
 
 - 
 
 
 - 
 
 
 57 
 
 
Variable Rate Demand Notes
 
 
 45 
 
 
 - 
 
 
 - 
 
 
 45 
 
Equity Securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Domestic
 
 
 1 
 
 
 15 
 
 
 - 
 
 
 16 
 
 
Mutual Funds
 
 
 18 
 
 
 4 
 
 
 - 
 
 
 22 
 
Total Other Temporary Investments
 
$
 344 
 
$
 19 
 
$
 - 
 
$
 363 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(a)
Primarily represents amounts held for the payment of debt.

 
68

 
The following table provides the activity for our debt and equity securities within Other Temporary Investments for the three and six months ended June 30, 2010 and 2009:

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2010 
 
2009 
 
2010 
 
2009 
 
(in millions)
Proceeds From Investment Sales
$
 16 
 
$
 - 
 
$
 257 
 
$
 - 
Purchases of Investments
 
 24 
 
 
 1 
 
 
 221 
 
 
 1 
Gross Realized Gains on Investment Sales
 
 16 
 
 
 - 
 
 
 16 
 
 
 - 
Gross Realized Losses on Investment Sales
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 

In June 2009, we recorded $9 million ($6 million, net of tax) of other-than-temporary impairments of Other Temporary Investments for equity investments of our protected cell captive insurance company.  At June 30, 2010, the fair value of fixed income securities are primarily debt based mutual funds with short and intermediate maturities and variable rate demand notes.  Mutual funds may be sold and do not contain maturity dates for an individual investment holder.

Fair Value Measurements of Trust Assets for Decommissioning and SNF Disposal

Nuclear decommissioning and spent nuclear fuel trust funds represent funds that regulatory commissions allow us to collect through rates to fund future decommissioning and spent nuclear fuel disposal liabilities.  By rules or orders, the IURC, the MPSC and the FERC established investment limitations and general risk management guidelines.  In general, limitations include:

·  
Acceptable investments (rated investment grade or above when purchased).
·  
Maximum percentage invested in a specific type of investment.
·  
Prohibition of investment in obligations of AEP or its affiliates.
·  
Withdrawals permitted only for payment of decommissioning costs and trust expenses.
·  
Target asset allocation is 50% fixed income and 50% equity securities.

We maintain trust records for each regulatory jurisdiction.  These funds are managed by external investment managers who must comply with the guidelines and rules of the applicable regulatory authorities.  The trust assets are invested to optimize the net of tax earnings of the trust giving consideration to liquidity, risk, diversification and other prudent investment objectives.

I&M records securities held in trust funds for decommissioning nuclear facilities and for the disposal of SNF at fair value.  I&M classifies securities in the trust funds as available-for-sale due to their long-term purpose.  The assessment of whether an investment in a debt security has suffered an other-than-temporary impairment is based on whether the investor has the intent to sell or more likely than not will be required to sell the debt security before recovery of its amortized costs.  The assessment of whether an investment in an equity security has suffered an other-than-temporary impairment, among other things, is based on whether the investor has the ability and intent to hold the investment to recover its value.  Other-than-temporary impairments for investments in both debt and equity securities are considered realized losses as a result of securities being managed by an external investment management firm.  The external investment management firm makes specific investment decisions regarding the equity and debt investments held in these trusts and generally intends to sell debt securities in an unrealized loss position as part of a tax optimization strategy.  I&M records unrealized gains and other-than-temporary impairments from securities in these trust funds as adjustments to the regulatory liability account for the nuclear decommissioning trust funds and to regulatory assets or liabilities for the SNF disposal trust funds in accordance with their treatment in rates.  The gains, losses or other-than-temporary impairments shown below did not affect earnings or AOCI.  The trust assets are recorded by jurisdiction and may not be used for another jurisdiction’s liabilities.  Regulatory approval is required to withdraw deco mmissioning funds.
 
69

 
The following is a summary of nuclear trust fund investments at June 30, 2010 and December 31, 2009:

 
 
 
June 30, 2010
 
December 31, 2009
 
 
 
Estimated
 
Gross
 
Other-Than-
 
Estimated
 
Gross
 
Other-Than-
 
 
Fair
Unrealized
Temporary
Fair
Unrealized
Temporary
 
 
Value
Gains
Impairments
Value
Gains
Impairments
 
 
 
(in millions)
Cash and Cash Equivalents
 
$
 26 
 
$
 - 
 
$
 - 
 
$
 14 
 
$
 - 
 
$
 - 
Fixed Income Securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
United States Government
 
 
 473 
 
 
 31 
 
 
 (1)
 
 
 401 
 
 
 13 
 
 
 (4)
 
Corporate Debt
 
 
 60 
 
 
 6 
 
 
 (6)
 
 
 57 
 
 
 5 
 
 
 (2)
 
State and Local Government
 
 
 316 
 
 
 3 
 
 
 - 
 
 
 369 
 
 
 8 
 
 
 1 
 
  Subtotal Fixed Income Securities
 
 849 
 
 
 40 
 
 
 (7)
 
 
 827 
 
 
 26 
 
 
 (5)
Equity Securities - Domestic
 
 
 516 
 
 
 194 
 
 
 (122)
 
 
 551 
 
 
 234 
 
 
 (119)
Spent Nuclear Fuel and
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Decommissioning Trusts
 
$
 1,391 
 
$
 234 
 
$
 (129)
 
$
 1,392 
 
$
 260 
 
$
 (124)

The following table provides the securities activity within the decommissioning and SNF trusts for the three and six months ended June 30, 2010 and 2009:

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2010 
 
2009 
 
2010 
 
2009 
 
(in millions)
Proceeds From Investment Sales
$
 360 
 
$
 253 
 
$
 592 
 
$
 411 
Purchases of Investments
 
 369 
 
 
 264 
 
 
 617 
 
 
 442 
Gross Realized Gains on Investment Sales
 
 1 
 
 
 6 
 
 
 6 
 
 
 9 
Gross Realized Losses on Investment Sales
 
 - 
 
 
 1 
 
 
 - 
 
 
 1 

The adjusted cost of debt securities was $809 million and $801 million as of June 30, 2010 and December 31, 2009, respectively.

The fair value of debt securities held in the nuclear trust funds, summarized by contractual maturities, at June 30, 2010 was as follows:

 
Fair Value
 
 
of Debt
 
 
Securities
 
 
(in millions)
 
Within 1 year
  $ 12  
1 year – 5 years
    262  
5 years – 10 years
    304  
After 10 years
    271  
Total
  $ 849  

 
70

 
Fair Value Measurements of Financial Assets and Liabilities
 
The following tables set forth, by level within the fair value hierarchy, our financial assets and liabilities that were accounted for at fair value on a recurring basis as of June 30, 2010 and December 31, 2009.  As required by the accounting guidance for “Fair Value Measurements and Disclosures,” financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.  Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.  There have not been any significant changes in AEP’s valuation techniques.
 
Assets and Liabilities Measured at Fair Value on a Recurring Basis
June 30, 2010
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Level 1
 
Level 2
 
Level 3
 
Other
 
Total
Assets:
(in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and Cash Equivalents (a)
$
 593 
 
$
 18 
 
$
 - 
 
$
 227 
 
$
 838 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other Temporary Investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Restricted Cash (a)
 
 161 
 
 
 - 
 
 
 - 
 
 
 34 
 
 
 195 
Fixed Income Securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mutual Funds
 
 69 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 69 
 
Variable Rate Demand Notes
 
 - 
 
 
 14 
 
 
 - 
 
 
 - 
 
 
 14 
Equity Securities - Mutual Funds (b)
 
 20 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 20 
Total Other Temporary Investments
 
 250 
 
 
 14 
 
 
 - 
 
 
 34 
 
 
 298 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Commodity Contracts (c) (f)
 
 17 
 
 
 1,573 
 
 
 152 
 
 
 (1,157)
 
 
 585 
Cash Flow Hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity Hedges (c)
 
 9 
 
 
 13 
 
 
 - 
 
 
 (11)
 
 
 11 
Fair Value Hedges
 
 - 
 
 
 4 
 
 
 - 
 
 
 - 
 
 
 4 
Dedesignated Risk Management Contracts (d)
 
 - 
 
 
 - 
 
 
 - 
 
 
 58 
 
 
 58 
Total Risk Management Assets
 
 26 
 
 
 1,590 
 
 
 152 
 
 
 (1,110)
 
 
 658 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Spent Nuclear Fuel and Decommissioning Trusts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and Cash Equivalents (e)
 
 - 
 
 
 14 
 
 
 - 
 
 
 12 
 
 
 26 
Fixed Income Securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
United States Government
 
 - 
 
 
 473 
 
 
 - 
 
 
 - 
 
 
 473 
 
Corporate Debt
 
 - 
 
 
 60 
 
 
 - 
 
 
 - 
 
 
 60 
 
State and Local Government
 
 - 
 
 
 316 
 
 
 - 
 
 
 - 
 
 
 316 
 
 
Subtotal Fixed Income Securities
 
 - 
 
 
 849 
 
 
 - 
 
 
 - 
 
 
 849 
Equity Securities - Domestic (b)
 
 516 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 516 
Total Spent Nuclear Fuel and Decommissioning Trusts
 
 516 
 
 
 863 
 
 
 - 
 
 
 12 
 
 
 1,391 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Assets
$
 1,385 
 
$
 2,485 
 
$
 152 
 
$
 (837)
 
$
 3,185 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Commodity Contracts (c) (f)
$
 22 
 
$
 1,444 
 
$
 52 
 
$
 (1,234)
 
$
 284 
Cash Flow Hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity Hedges (c)
 
 2 
 
 
 17 
 
 
 - 
 
 
 (11)
 
 
 8 
 
Interest Rate/Foreign Currency Hedges
 
 - 
 
 
 5 
 
 
 - 
 
 
 - 
 
 
 5 
Total Risk Management Liabilities
$
 24 
 
$
 1,466 
 
$
 52 
 
$
 (1,245)
 
$
 297 

 
71

 

Assets and Liabilities Measured at Fair Value on a Recurring Basis
December 31, 2009
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Level 1
 
Level 2
 
Level 3
 
Other
 
Total
Assets:
(in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and Cash Equivalents (a)
$
 427 
 
$
 - 
 
$
 - 
 
$
 63 
 
$
 490 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other Temporary Investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Restricted Cash (a)
 
 198 
 
 
 - 
 
 
 - 
 
 
 25 
 
 
 223 
Fixed Income Securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mutual Funds
 
 57 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 57 
 
Variable Rate Demand Notes
 
 - 
 
 
 45 
 
 
 - 
 
 
 - 
 
 
 45 
Equity Securities (b):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Domestic
 
 16 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 16 
 
Mutual Funds
 
 22 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 22 
Total Other Temporary Investments
 
 293 
 
 
 45 
 
 
 - 
 
 
 25 
 
 
 363 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Commodity Contracts (c) (g)
 
 8 
 
 
 1,609 
 
 
 72 
 
 
 (1,119)
 
 
 570 
Cash Flow Hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity Hedges (c)
 
 1 
 
 
 11 
 
 
 - 
 
 
 (4)
 
 
 8 
Dedesignated Risk Management Contracts (d)
 
 - 
 
 
 - 
 
 
 - 
 
 
 25 
 
 
 25 
Total Risk Management Assets
 
 9 
 
 
 1,620 
 
 
 72 
 
 
 (1,098)
 
 
 603 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Spent Nuclear Fuel and Decommissioning Trusts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and Cash Equivalents (e)
 
 - 
 
 
 3 
 
 
 - 
 
 
 11 
 
 
 14 
Fixed Income Securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
United States Government
 
 - 
 
 
 401 
 
 
 - 
 
 
 - 
 
 
 401 
 
Corporate Debt
 
 - 
 
 
 57 
 
 
 - 
 
 
 - 
 
 
 57 
 
State and Local Government
 
 - 
 
 
 369 
 
 
 - 
 
 
 - 
 
 
 369 
 
 
Subtotal Fixed Income Securities
 
 - 
 
 
 827 
 
 
 - 
 
 
 - 
 
 
 827 
Equity Securities - Domestic (b)
 
 551 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 551 
Total Spent Nuclear Fuel and Decommissioning Trusts
 
 551 
 
 
 830 
 
 
 - 
 
 
 11 
 
 
 1,392 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Assets
$
 1,280 
 
$
 2,495 
 
$
 72 
 
$
 (999)
 
$
 2,848 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Commodity Contracts (c) (g)
$
 11 
 
$
 1,415 
 
$
 10 
 
$
 (1,205)
 
$
 231 
Cash Flow Hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity Hedges (c)
 
 - 
 
 
 16 
 
 
 - 
 
 
 (4)
 
 
 12 
 
Interest Rate/Foreign Currency Hedges
 
 - 
 
 
 5 
 
 
 - 
 
 
 - 
 
 
 5 
Total Risk Management Liabilities
$
 11 
 
$
 1,436 
 
$
 10 
 
$
 (1,209)
 
$
 248 

 
(a)
Amounts in “Other” column primarily represent cash deposits in bank accounts with financial institutions or with third parties.  Level 1 amounts primarily represent investments in money market funds.  Level 2 amounts primarily represent investments in commercial paper.
 
(b)
Amounts represent publicly traded equity securities and equity-based mutual funds.
 
(c)
Amounts in “Other” column primarily represent counterparty netting of risk management and hedging contracts and associated cash collateral under the accounting guidance for “Derivatives and Hedging.”
 
(d)
Represents contracts that were originally MTM but were subsequently elected as normal under the accounting guidance for “Derivatives and Hedging.”  At the time of the normal election, the MTM value was frozen and no longer fair valued.  This MTM value will be amortized into revenues over the remaining life of the contracts.
 
(e)
Amounts in “Other” column primarily represent accrued interest receivables from financial institutions.  Level 2 amounts primarily represent investments in money market funds.
 
72

 
(f)  The June 30, 2010 maturity of the net fair value of risk management contracts prior to cash collateral, assets/(liabilities), is as follows:  Level 1 matures ($1) million in 2010, ($2) million in periods 2011-2013 and ($2) million in periods 2014-2018;  Level 2 matures $43 million in 2010, $69 million in periods 2011-2013, $9 million in periods 2014-2015 and $8 million in periods 2016-2028;  Level 3 matures $12 million in 2010, $24 million in periods 2011-2013, $22 million in periods 2014-2015 and $42 million in periods 2016-2028.  Risk management commodity contracts are substantially comprised of power contracts.
(g)  The December 31, 2009 maturity of the net fair value of risk management contracts prior to cash collateral, assets/(liabilities), is as follows:  Level 1 matures ($1) million in 2010, ($1) million in periods 2011-2013 and ($1) million in periods 2014-2015;  Level 2 matures $65 million in 2010, $84 million in periods 2011-2013, $22 million in periods 2014-2015 and $23 million in periods 2016-2028;  Level 3 matures $17 million in 2010, $16 million in periods 2011-2013, $8 million in periods 2014-2015 and $21 million in periods 2016-2028.
 
There have been no transfers between Level 1 and Level 2 during the six months ended June 30, 2010.

The following tables set forth a reconciliation of changes in the fair value of net trading derivatives and other investments classified as Level 3 in the fair value hierarchy:

 
 
Net Risk
 
 
 
Management
 
 
 
Assets
 
Three Months Ended June 30, 2010
 
(Liabilities)
 
 
 
(in millions)
 
Balance as of March 31, 2010
  $ 116  
Realized Gain (Loss) Included in Net Income (or Changes in Net Assets) (a) (b)
    (25 )
Unrealized Gain (Loss) Included in Net Income (or Changes in Net Assets)
       
Relating to Assets Still Held at the Reporting Date (a)
    10  
Realized and Unrealized Gains (Losses) Included in Other Comprehensive Income
    -  
Purchases, Issuances and Settlements (c)
    14  
Transfers into Level 3 (d) (h)
    1  
Transfers out of Level 3 (e) (h)
    (6 )
Changes in Fair Value Allocated to Regulated Jurisdictions (g)
    (10 )
Balance as of June 30, 2010
  $ 100  

 
 
Net Risk
 
 
 
Management
 
 
 
Assets
 
Six Months Ended June 30, 2010
 
(Liabilities)
 
 
 
(in millions)
 
Balance as of December 31, 2009
  $ 62  
Realized Gain (Loss) Included in Net Income (or Changes in Net Assets) (a) (b)
    4  
Unrealized Gain (Loss) Included in Net Income (or Changes in Net Assets)
       
Relating to Assets Still Held at the Reporting Date (a)
    33  
Realized and Unrealized Gains (Losses) Included in Other Comprehensive Income
    -  
Purchases, Issuances and Settlements (c)
    (13 )
Transfers into Level 3 (d) (h)
    12  
Transfers out of Level 3 (e) (h)
    (5 )
Changes in Fair Value Allocated to Regulated Jurisdictions (g)
    7  
Balance as of June 30, 2010
  $ 100  

 
73

 
 
 
 
Net Risk
 
 
 
Management
 
 
 
Assets
Three Months Ended June 30, 2009
 
(Liabilities)
 
 
 
(in millions)
Balance as of March 31, 2009
 
$
 86 
Realized (Gain) Loss Included in Net Income (or Changes in Net Assets) (a)
 
 
 (15)
Unrealized Gain (Loss) Included in Net Income (or Changes in Net Assets)
 
 
 
 
Relating to Assets Still Held at the Reporting Date (a)
 
 
 7 
Realized and Unrealized Gains (Losses) Included in Other Comprehensive Income
 
 
 - 
Purchases, Issuances and Settlements
 
 
 - 
Transfers in and/or out of Level 3 (f)
 
 
 (29)
Changes in Fair Value Allocated to Regulated Jurisdictions (g)
 
 
 18 
Balance as of June 30, 2009
 
$
 67 

 
 
 
Net Risk
 
 
 
Management
 
 
 
Assets
Six Months Ended June 30, 2009
 
(Liabilities)
 
 
 
(in millions)
Balance as of December 31, 2008
 
$
 49 
Realized (Gain) Loss Included in Net Income (or Changes in Net Assets) (a)
 
 
 (20)
Unrealized Gain (Loss) Included in Net Income (or Changes in Net Assets)
 
 
 
 
Relating to Assets Still Held at the Reporting Date (a)
 
 
 40 
Realized and Unrealized Gains (Losses) Included in Other Comprehensive Income
 
 
 - 
Purchases, Issuances and Settlements
 
 
 - 
Transfers in and/or out of Level 3 (f)
 
 
 (25)
Changes in Fair Value Allocated to Regulated Jurisdictions (g)
 
 
 23 
Balance as of June 30, 2009
 
$
 67 

 
(a)
Included in revenues on our Condensed Consolidated Statements of Income.
 
(b)
Represents the change in fair value between the beginning of the reporting period and the settlement of the risk management commodity contract.
 
(c)
Represents the settlement of risk management commodity contracts for the reporting period.
 
(d)
Represents existing assets or liabilities that were previously categorized as Level 2.
 
(e)
Represents existing assets or liabilities that were previously categorized as Level 3.
 
(f)
Represents existing assets or liabilities that were either previously categorized as a higher level for which the inputs to the model became unobservable or assets and liabilities that were previously classified as Level 3 for which the lowest significant input became observable during the period.
 
(g)
Relates to the net gains (losses) of those contracts that are not reflected on our Condensed Consolidated Statements of Income.  These net gains (losses) are recorded as regulatory liabilities/assets.
 
(h)
Transfers are recognized based on their value at the beginning of the reporting period that the transfer occurred.

10.   INCOME TAXES

We, along with our subsidiaries, file a consolidated federal income tax return.  The allocation of the AEP System’s current consolidated federal income tax to the AEP System companies allocates the benefit of current tax losses to the AEP System companies giving rise to such losses in determining their current tax expense.  The tax benefit of the Parent is allocated to our subsidiaries with taxable income.  With the exception of the loss of the Parent, the method of allocation reflects a separate return result for each company in the consolidated group.

We are no longer subject to U.S. federal examination for years before 2001.  We have completed the exam for the years 2001 through 2006 and have issues that we are pursuing at the appeals level.  The years 2007 and 2008 are currently under examination.  Although the outcome of tax audits is uncertain, in management’s opinion, adequate provisions for income taxes have been made for potential liabilities resulting from such matters.  In addition, we accrue interest on these uncertain tax positions.  We are not aware of any issues for open tax years that upon final resolution are expected to have a material adverse effect on net income.
 
74

 
We, along with our subsidiaries, file income tax returns in various state, local and foreign jurisdictions.  These taxing authorities routinely examine our tax returns and we are currently under examination in several state and local jurisdictions.  We believe that we have filed tax returns with positions that may be challenged by these tax authorities.  However, management believes that the ultimate resolution of these audits will not materially impact net income.  With few exceptions, we are no longer subject to state, local or non-U.S. income tax examinations by tax authorities for years before 2000.

Federal Legislation

The Patient Protection and Affordable Care Act and the related Health Care and Education Reconciliation Act (Health Care Acts) were enacted in March 2010.  The Health Care Acts amend tax rules so that the portion of employer health care costs that are reimbursed by the Medicare Part D prescription drug subsidy will no longer be deductible by the employer for federal income tax purposes effective for years beginning after December 31, 2012.  Because of the loss of the future tax deduction, a reduction in the deferred tax asset related to the nondeductible OPEB liabilities accrued to date was recorded in March 2010.  This reduction did not materially affect our cash flows or financial condition.  For the six months ended June 30, 2010, deferred tax assets decreased $56 million, partially offset by recording net tax regulatory assets of $35 million in our jurisdictions with regulated operations, resulting in a decrease in net income of $21 million.

11.   FINANCING ACTIVITIES

Long-term Debt
 
 
 
 
 
 
 
 
 
 
 
 
 
Type of Debt
 
June 30, 2010
 
December 31, 2009
 
 
(in millions)
Senior Unsecured Notes
 
$
 12,176 
 
$
 12,416 
Pollution Control Bonds
 
 
 2,263 
 
 
 2,159 
Notes Payable
 
 
 376 
 
 
 326 
Securitization Bonds
 
 
 1,909 
 
 
 1,995 
Junior Subordinated Debentures
 
 
 315 
 
 
 315 
Spent Nuclear Fuel Obligation (a)
 
 
 265 
 
 
 265 
Other Long-term Debt
 
 
 88 
 
 
 88 
Unamortized Discount (net)
 
 
 (44)
 
 
 (66)
Total Long-term Debt Outstanding
 
 
 17,348 
 
 
 17,498 
Less Portion Due Within One Year
 
 
 1,043 
 
 
 1,741 
Long-term Portion
 
$
 16,305 
 
$
 15,757 

(a)
Pursuant to the Nuclear Waste Policy Act of 1982, I&M (a nuclear licensee) has an obligation to the United States Department of Energy for spent nuclear fuel disposal.  The obligation includes a one-time fee for nuclear fuel consumed prior to April 7, 1983.  Trust fund assets related to this obligation of $307 million and $306 million at June 30, 2010 and December 31, 2009, respectively, are included in Spent Nuclear Fuel and Decommissioning Trusts on our Condensed Consolidated Balance Sheets.
 
75

 
Long-term debt and other securities issued, retired and principal payments made during the first six months of 2010 are shown in the tables below.

 
 
 
 
 
Principal
 
 
Interest
 
 
Company
 
Type of Debt
 
Amount
 
 
Rate
 
Due Date
 
 
 
 
 
(in millions)
 
 
(%)
 
 
Issuances:
 
 
 
 
 
 
 
 
 
 
APCo
 
Senior Unsecured Notes
 
$
 300 
 
 
3.40 
 
2015 
APCo
 
Pollution Control Bonds
 
 
 18 
 
 
4.625 
 
2021 
APCo
 
Pollution Control Bonds
 
 
 50 
 
 
5.375 
 
2038 
CSPCo
 
Floating Rate Notes
 
 
 150 
 
 
Variable
 
2012 
I&M
 
Notes Payable
 
 
 84 
 
 
4.00 
 
2014 
OPCo
 
Pollution Control Bonds
 
 
 86 
 
 
3.125 
 
2015 
OPCo
 
Pollution Control Bonds
 
 
 79 
 
 
3.25 
 
2014 
SWEPCo
 
Senior Unsecured Notes
 
 
 350 
 
 
6.20 
 
2040 
SWEPCo
 
Pollution Control Bonds
 
 
 54 
 
 
3.25 
 
2015 
Total Issuances
 
 
 
$
 1,171 
(a)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The above borrowing arrangements do not contain guarantees, collateral or dividend restrictions.
 
 
 
 
 
 
 
 
 
 
 
 
(a)
Amount indicated on the statement of cash flows of $1,161 million is net of issuance costs and premium or discount.

 
 
 
 
 
Principal
 
 
Interest
 
 
Company
 
Type of Debt
 
Amount Paid
 
 
Rate
 
Due Date
 
 
 
 
 
(in millions)
 
 
(%)
 
 
Retirements and
 
 
 
 
 
 
 
 
 
 
 
Principal Payments:
 
 
 
 
 
 
 
 
 
 
AEP
 
Senior Unsecured Notes
 
$
 490 
 
 
5.375 
 
2010 
APCo
 
Senior Unsecured Notes
 
 
 150 
 
 
4.40 
 
2010 
APCo
 
Pollution Control Bonds
 
 
 50 
 
 
7.125 
 
2010 
I&M
 
Notes Payable
 
 
 19 
 
 
5.44 
 
2013 
OPCo
 
Senior Unsecured Notes
 
 
 400 
 
 
Variable
 
2010 
OPCo
 
Pollution Control Bonds
 
 
 79 
 
 
7.125 
 
2010 
SWEPCo
 
Pollution Control Bonds
 
 
 54 
 
 
Variable
 
2019 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Registrant:
 
 
 
 
 
 
 
 
 
 
AEP Subsidiaries
 
Notes Payable
 
 
 4 
 
 
Variable
 
2017 
AEP Subsidiaries
 
Notes Payable
 
 
 5 
 
 
Variable
 
2011 
AEGCo
 
Senior Unsecured Notes
 
 
 4 
 
 
6.33 
 
2037 
TCC
 
Securitization Bonds
 
 
 32 
 
 
5.56 
 
2010 
TCC
 
Securitization Bonds
 
 
 54 
 
 
4.98 
 
2010 
Total Retirements and
 
 
 
 
 
 
 
 
 
 
 
Principal Payments
 
 
 
$
 1,341 
 
 
 
 
 

As of June 30, 2010, trustees held, on our behalf, $303 million of our reacquired auction-rate tax-exempt long-term debt.

Dividend Restrictions

The holders of our common stock are entitled to receive the dividends declared by our Board of Directors provided funds are legally available for such dividends.  Our income derives from our common stock equity in the earnings of our utility subsidiaries.  Various financing arrangements, charter provisions and regulatory requirements may impose certain restrictions on the ability of our utility subsidiaries to transfer funds to us in the form of dividends.
 
76

 
The Federal Power Act prohibits the utility subsidiaries from participating “in the making or paying of any dividends of such public utility from any funds properly included in capital account.”  The term “capital account” is not defined in the Federal Power Act or its regulations.  Management understands “capital account” to mean the par value of the common stock multiplied by the number of shares outstanding.  This restriction does not limit the ability of the utility subsidiaries to pay dividends out of retained earnings.

We have issued $315 million of Junior Subordinated Debentures.  The debentures will mature on March 1, 2063, subject to extensions to no later than March 1, 2068.  We have the option to defer interest payments on the debentures for one or more periods of up to 10 consecutive years per period.  During any period in which we defer interest payments, we may not declare or pay any dividends or distributions on, or redeem, repurchase or acquire our common stock.  We do not anticipate any deferral of those interest payments in the foreseeable future.

Pursuant to the leverage restrictions in our credit agreements, Parent and the Registrant Subsidiaries must maintain a percentage of debt to total capitalization at a level that does not exceed 67.5%.  The payment of cash dividends generally results in an increase in the percentage of debt to total capitalization of the company distributing the dividend.  The method for calculating outstanding debt and other capital is contractually defined in the credit agreements.  As of June 30, 2010, none of Parent’s retained earnings were restricted for the purpose of the payment of dividends.  As of June 30, 2010, approximately $204 million of the retained earnings of APCo, $149 million of the retained earnings of CSPCo, $33 million of the retained earnings of I&M, $50 million of the retained earnings of OPCo, $101 million of the retained earnings of SWEPCo and none of the retained earnings of PSO have restrictions related to the payment of dividends to Parent.

Short-term Debt
   
 
   
 
     
 
   
 
 
 
   
 
   
 
     
 
   
 
 
Our outstanding short-term debt was as follows:
   
 
   
 
     
 
   
 
 
     June 30, 2010  
December 31, 2009
 
 
Outstanding
   
Interest
 
Outstanding
   
Interest
Type of Debt
 
Amount
   
Rate (a)
 
Amount
   
Rate (a)
 
 
(in millions)
   
 
   
(in millions)
   
 
 
Securitized Debt for Receivables (b)
    $ 677       0.42 %     $ -       -  
Commercial Paper
      787       0.51 %       119       0.26 %
Line of Credit – Sabine Mining Company (c)
      9       2.11 %       7       2.06 %
Total Short-term Debt
    $ 1,473               $ 126          

(a)
Weighted average rate.
(b)
Amount of securitized debt for receivables as accounted for under the “Transfers and Servicing” accounting guidance.  See “ASU 2009-16 ‘Transfers and Servicing’ ” section of Note 2.
(c)
Sabine Mining Company is a consolidated variable interest entity.  This line of credit does not reduce available liquidity under AEP’s credit facilities.

Credit Facilities

We have credit facilities totaling $3 billion to support our commercial paper program.  The facilities are structured as two $1.5 billion credit facilities, of which $750 million may be issued under one credit facility as letters of credit.   In June 2010, we canceled a facility that was scheduled to mature in March 2011 and entered into a new $1.5 billion credit facility scheduled to mature in 2013 that allows for the issuance of up to $600 million as letters of credit.  As of June 30, 2010, the maximum future payments for letters of credit issued under the two $1.5 billion credit facilities were $149 million.

In June 2010, we reduced the $627 million credit agreement to $478 million.  Under the facility, we may issue letters of credit.  As of June 30, 2010, $477 million of letters of credit were issued by subsidiaries under this credit agreement to support variable rate Pollution Control Bonds.
 
77

 
Securitized Accounts Receivable – AEP Credit

AEP Credit has a receivables securitization agreement with bank conduits.  Under the securitization agreement, AEP Credit receives financing from the bank conduits for the interest in the receivables it acquires from affiliated utility subsidiaries.  Prior to January 1, 2010, this transaction constituted a sale of receivables in accordance with the accounting guidance for “Transfers and Servicing,” allowing the receivables to be removed from our Condensed Consolidated Balance Sheet.  See “ASU 2009-16 ‘Transfers and Servicing’ ” section of Note 2 for discussion of impact of new accounting guidance effective January 1, 2010 whereby such future transactions do not constitute a sale of receivables and will be accounted for as financing.  AEP Credit continues to ser vice the receivables.  We entered into these securitized transactions to allow AEP Credit to repay its outstanding debt obligations, continue to purchase our operating companies’ receivables and accelerate AEP Credit’s cash collections.

In July 2010, AEP Credit renewed its receivables securitization agreement.  The agreement provides a commitment of $750 million from bank conduits to finance receivables from AEP Credit.  A commitment of $375 million expires in July 2011 and the remaining commitment of $375 million expires in July 2013.
 
Accounts receivable information for AEP Credit is as follows:

 
 
 
 
 
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
 
2010 
 
2009 
 
2010 
 
2009 
 
 
($ in millions)
Proceeds from Sale of Accounts Receivable
 
$
N/A
 
$
 2,061 
 
$
N/A
 
$
 4,249 
Loss on Sale of Accounts Receivable
 
 
N/A
 
 
 1 
 
 
N/A
 
 
 2 
Average Variable Discount Rate on Sale of
 
 
 
 
 
 
 
 
 
 
 
 
 
Accounts Receivable
 
 
N/A
 
 
0.55%
 
 
N/A
 
 
0.83%
Effective Interest Rates on Securitization of
 
 
 
 
 
 
 
 
 
 
 
 
 
Accounts Receivable
 
 
0.31%
 
 
N/A
 
 
0.27%
 
 
N/A
Net Uncollectible Accounts Receivable
 
 
 
 
 
 
 
 
 
 
 
 
 
Written Off
 
 
 4 
 
 
 2 
 
 
 12 
 
 
 4 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
June 30,
 
December 31,
 
 
 
2010 
 
 
2009 
 
 
 
(in millions)
Accounts Receivable Retained Interest and Pledged as Collateral
 
 
 
 
 
 
 
Less Uncollectible Accounts
 
$
 983 
 
$
 160 
Deferred Revenue from Servicing Accounts Receivable
 
 
N/A
 
 
 1 
Retained Interest if 10% Adverse Change in Uncollectible Accounts
 
 
N/A
 
 
 158 
Retained Interest if 20% Adverse Change in Uncollectible Accounts
 
 
N/A
 
 
 156 
Total Principal Outstanding
 
 
 677 
 
 
 656 
Derecognized Accounts Receivable
 
 
N/A
 
 
 631 
Delinquent Securitized Accounts Receivable
 
 
 42 
 
 
 29 
Bad Debt Reserves Related to Securitization/Sale of Accounts Receivable
 
 
 27 
 
 
 20 
Unbilled Receivables Related to Securitization/Sale of Accounts Receivable
 
 
 391 
 
 
 376 
 
 
 
 
 
 
 
 
N/A = Not Applicable
 
 
 
 
 
 

Customer accounts receivable retained and securitized for our operating companies are managed by AEP Credit.  AEP Credit’s delinquent customer accounts receivable represents accounts greater than 30 days past due.
 
78

 
12.
COST REDUCTION INITIATIVES

In April 2010, we began initiatives to decrease both labor and non-labor expenses with a goal of achieving significant reductions in operation and maintenance expenses.  Approximately 2,450 positions were eliminated as a result of process improvements, streamlined organizational designs and other efficiencies.  Most of the affected employees terminated employment May 31, 2010.  The severance program provides two weeks of base pay for every year of service along with other severance benefits.

We recorded a charge to expense in the second quarter of 2010 primarily related to the headcount reduction initiatives.

 
 
Total
 
 
 
(in millions)
 
Incurred
 
$
 293 
 
Settled
 
 
 4 
 
Remaining Balance at June 30, 2010
 
$
 289 
 

These costs relate primarily to severance benefits.  They are included primarily in Other Operation on the income statement and Other Current Liabilities on the balance sheet.  Approximately 99% of the expense was within the Utility Operations segment.
 

 
79

 












APPALACHIAN POWER COMPANY
AND SUBSIDIARIES

 
80

 

APPALACHIAN POWER COMPANY AND SUBSIDIARIES
 
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS
 
 
 
 
 
RESULTS OF OPERATIONS
 
 
 
 
 
 
 
Second Quarter of 2010 Compared to Second Quarter of 2009
 
 
 
 
 
Reconciliation of Second Quarter of 2009 to Second Quarter of 2010
 
Net Income (Loss)
 
(in millions)
 
 
 
 
 
Second Quarter of 2009
  $ 29  
 
       
Changes in Gross Margin:
       
Retail Margins
    14  
Transmission Revenues
    (1 )
Other Revenues
    (2 )
Total Change in Gross Margin
    11  
 
       
Total Expenses and Other:
       
Other Operation and Maintenance
    (72 )
Depreciation and Amortization
    (9 )
Taxes Other Than Income Taxes
    (6 )
Carrying Costs Income
    5  
Other Income
    (2 )
Total Expenses and Other
    (84 )
 
       
Income Tax Expense
    24  
 
       
Second Quarter of 2010
  $ (20 )

The major components of the increase in Gross Margin, defined as revenues less the related direct cost of fuel, including consumption of chemicals and emissions allowances, and purchased power were as follows:

 
·
Retail Margins increased $14 million primarily due to the following:
   
·
A $22 million increase in rate relief primarily due to an increase in the recovery of E&R costs in Virginia, construction financing costs in West Virginia and costs related to the Transmission Rate Adjustment Clause in Virginia.  This increase in retail margins had corresponding offsets of $14 million related to cost recovery riders/trackers that were recognized in other expense line items below.
   
·
A $5 million increase in residential usage primarily due to a 47% increase in cooling degree days.
   
These increases were partially offset by:
   
·
An $8 million decrease in non-weather related residential usage due to economic conditions.
   
·
A $3 million decrease in industrial sales primarily due to suspended operations in the first half of 2009 by APCo’s largest customer, Century Aluminum.
 

 
 
81

 
Total Expenses and Other and Income Tax Expense changed between years as follows:

 
·
Other Operation and Maintenance expenses increased $72 million primarily due to the following:
   
·
A $55 million increase due to expenses related to the cost reduction initiatives in the second quarter of 2010. 
   
·
A $54 million increase due to the write-off of APCo’s Virginia share of the Mountaineer Carbon Capture and Storage Project as denied for recovery by the Virginia SCC.    
   
These increases were partially offset by:
   
 ·
A $25 million decrease due to the deferral of 2009 storm costs as allowed by the Virginia SCC.
    ·
A $7 million decrease in maintenance expenses related to a true-up between expense and capital for the December 2009 storm.
    ·
A $4 million decrease in employee-related expenses.
 
·
Depreciation and Amortization expenses increased $9 million primarily due to a greater depreciation base resulting from environmental upgrades at the Amos and Mountaineer Plants and the amortization of carrying charges and depreciation expenses being collected through the Virginia E&R surcharges.
 
·
Taxes Other Than Income Taxes expense increased $6 million primarily due to recording a West Virginia franchise tax audit settlement and additional employer payroll taxes incurred related to the cost reduction initiatives in the second quarter of 2010.
 
·
Carrying Costs Income increased $5 million primarily due to increased environmental deferrals in Virginia.
 
·
Income Tax Expense decreased $24 million primarily due to a decrease in pretax book income.
 
 
 
82

 
 
Six Months Ended June 30, 2010 Compared to Six Months Ended June 30, 2009
 
 
 
 
 
Reconciliation of Six Months Ended June 30, 2009 to Six Months Ended June 30, 2010
Net Income (Loss)
(in millions)
 
 
 
 
 
Six Months Ended June 30, 2009
 
$
 104 
 
 
 
 
 
 
Changes in Gross Margin:
 
 
 
 
Retail Margins
 
 
 56 
 
Off-system Sales
 
 
 2 
 
Other Revenues
 
 
 (2)
 
Total Change in Gross Margin
 
 
 56 
 
 
 
 
 
 
Total Expenses and Other:
 
 
 
 
Other Operation and Maintenance
 
 
 (104)
 
Depreciation and Amortization
 
 
 (16)
 
Taxes Other Than Income Taxes
 
 
 (8)
 
Carrying Costs Income
 
 
 6 
 
Other Income
 
 
 (3)
 
Interest Expense
 
 
 (2)
 
Total Expenses and Other
 
 
 (127)
 
 
 
 
 
 
Income Tax Expense
 
 
 18 
 
 
 
 
 
 
Six Months Ended June 30, 2010
 
$
 51 
 

The major components of the increase in Gross Margin, defined as revenues less the related direct cost of fuel, including consumption of chemicals and emissions allowances, and purchased power were as follows:

 
·
Retail Margins increased $56 million primarily due to the following:
   
·
A $75 million increase in rate relief primarily due to the impact of the Virginia interim rate increase implemented in December 2009, subject to refund, and increases in the recoveries of E&R costs in Virginia, costs related to the Transmission Rate Adjustment Clause in Virginia and construction financing costs in West Virginia.  This increase in retail margins had corresponding offsets of $32 million related to cost recovery riders/trackers that were recognized in other expense line items below.
   
·
A $17 million increase in residential usage primarily due to a 13% increase in heating degree days and a 42% increase in cooling degree days.
   
These increases were partially offset by:
   
·
A $17 million decrease due to higher capacity settlement expenses under the Interconnection Agreement net of recovery in West Virginia and environmental deferrals in Virginia.
   
·
A $14 million decrease in industrial sales primarily due to suspended operations in the first half of 2009 by APCo’s largest customer, Century Aluminum.
 

 
 
83

 
Total Expenses and Other and Income Tax Expense changed between years as follows:

 
·
Other Operation and Maintenance expenses increased $104 million primarily due to the following:
    · A $55 million increase due to expenses related to the cost reduction initiatives in the second quarter of 2010.
    · A $54 million increase due to the write-off of APCo’s Virginia share of the Mountaineer Carbon Capture and Storage Project as denied for recovery by the Virginia SCC.
    · A $10 million increase related to the reduction of a 2009 regulatory asset for the over-recovery of transmission costs.
   
 ·
A $6 million increase in employee-related expenses.
   
 ·
A $4 million increase related to generation plant maintenance.
    These increases were partially offset by:
     · A $25 million decrease due to the deferral of 2009 storm costs as allowed by the Virginia SCC.
     · A $7 million decrease in maintenance expenses related to a true-up between expense and capital related to the December 2009 storm.
 
·
Depreciation and Amortization expenses increased $16 million primarily due to a greater depreciation base resulting from environmental upgrades at the Amos and Mountaineer Plants and the amortization of carrying charges and depreciation expenses being collected through the Virginia E&R surcharges.
 
·
Taxes Other Than Income Taxes expense increased $8 million primarily due to recording a West Virginia franchise tax audit settlement and additional employer payroll taxes incurred related to the cost reduction initiatives in the second quarter of 2010.
 
·
Carrying Costs Income increased $6 million primarily due to increased environmental deferrals in Virginia.
 
·
Income Tax Expense decreased $18 million primarily due to a decrease in pretax book income, partially offset by the regulatory accounting treatment of state income taxes and other book/tax differences which are accounted for on a flow-through basis.

FINANCIAL CONDITION

LIQUIDITY

APCo participates in the Utility Money Pool, which provides access to AEP’s liquidity.  APCo relies upon ready access to capital markets, cash flows from operations and access to the Utility Money Pool to fund current operations and capital expenditures.  See the “Combined Management’s Discussion and Analysis of Registrant Subsidiaries” section beginning on page 224 for additional discussion of liquidity.

Credit Ratings

Downgrades in credit ratings by one of the rating agencies could increase APCo’s borrowing costs.

CASH FLOW

Cash flows for the six months ended June 30, 2010 and 2009 were as follows:

 
 
2010
   
2009
 
 
 
(in thousands)
 
Cash and Cash Equivalents at Beginning of Period
  $ 2,006     $ 1,996  
Net Cash Flows from (Used for) Operating Activities
    252,172       (90,383 )
Net Cash Flows Used for Investing Activities
    (252,171 )     (313,971 )
Net Cash Flows from (Used for) Financing Activities
    (181 )     404,159  
Net Decrease in Cash and Cash Equivalents
    (180 )     (195 )
Cash and Cash Equivalents at End of Period
  $ 1,826     $ 1,801  

 
84

 
Operating Activities

Net Cash Flows from Operating Activities were $252 million in 2010.  APCo produced Net Income of $51 million during the period and noncash expense items of $151 million for Depreciation and Amortization and $32 million for Deferred Income Taxes.  The other changes in assets and liabilities represent items that had a current period cash flow impact, such as changes in working capital, as well as items that represent future rights or obligations to receive or pay cash, such as regulatory assets and liabilities.  The activity in working capital relates to a number of items.  The $100 million outflow from Accounts Payable was primarily due to the placement of FGD equipment into service at the Amos Plant and decreased purchases of energy from the system pool.  The $76 million inflow from Accounts Receivable, Net was primarily due to a decrease in accrued unbilled revenues due to usual seasonal fluctuations and timing of settlements of receivables from affiliated companies.  The $69 million inflow from Fuel, Materials and Supplies was primarily due to a reduction in fuel inventory and a decrease in the average cost per ton.  The $39 million outflow from Accrued Taxes, Net was primarily due to increased accruals related to federal income taxes. The $32 million outflow from Fuel Over/Under-Recovery, Net was primarily due to a net under-recovery of fuel costs in West Virginia.

Net Cash Flows Used for Operating Activities were $90 million in 2009.  APCo produced Net Income of $104 million during the period and had noncash expense items of $135 million for Deferred Income Taxes and $134 million for Depreciation and Amortization.  The other changes in assets and liabilities represent items that had a current period cash flow impact, such as changes in working capital, as well as items that represent future rights or obligations to receive or pay cash, such as regulatory assets and liabilities.  The activity in working capital relates to a number of items.  The $136 million cash outflow from Accounts Payable was primarily due to APCo’s provision for revenue refund of $77 million which was paid in the first quarter of 2009 to the AEP West companies as part of a FER C order on the SIA.  The $93 million outflow from Fuel, Materials and Supplies was primarily due to an increase in coal inventory.  The $87 million inflow from Accounts Receivable, Net was primarily due to a decrease in accrued unbilled revenues due to usual seasonal fluctuations and timing of settlements of receivables from affiliated companies.  The $79 million outflow from Accrued Taxes, Net was primarily due to increased accruals related to federal income taxes.  The $138 million outflow from Fuel Over/Under-Recovery, Net was primarily due to a net under-recovery of fuel costs in both Virginia and West Virginia.

Investing Activities

Net Cash Flows Used for Investing Activities during 2010 and 2009 were $252 million and $314 million, respectively.  Construction Expenditures of $255 million and $328 million in 2010 and 2009, respectively, were primarily for projects to improve service reliability for transmission and distribution, as well as environmental upgrades.  Environmental upgrades primarily include the installation of FGD equipment at the Amos Plant.

Financing Activities

Net Cash Flows Used for Financing Activities were $181 thousand in 2010. APCo issued $300 million of Senior Unsecured Notes and $68 million of Pollution Control Bonds. APCo had a net increase of $17 million in borrowings from the Utility Money Pool.  These increases were partially offset by the retirement of $150 million of Senior Unsecured Notes, $100 million of Notes Payable – Affiliated and $50 million of Pollution Control Bonds.  In addition, APCo paid $78 million in dividends on common stock.

Net Cash Flows from Financing Activities were $404 million in 2009.  APCo received capital contributions from the Parent of $250 million in the second quarter of 2009.  APCo issued $350 million of Senior Unsecured Notes and retired $150 million of Senior Unsecured Notes.

 
85

 
Long-term debt issuances, retirements and principal payments made during the first six months of 2010 were:
 
Issuances
 
 
 
 
 
 
 
 
 
 
 
Principal
 
Interest
 
Due
 
Type of Debt
 
Amount
 
Rate
 
Date
 
 
 
(in thousands)
 
(%)
 
 
 
Pollution Control Bonds
 
$
 17,500 
 
4.625 
 
2021 
 
Pollution Control Bonds
 
 
 50,000 
 
5.375 
 
2038 
 
Senior Unsecured Notes
 
 
 300,000 
 
3.40 
 
2015 

Retirements and Principal Payments
 
 
 
 
 
 
 
 
 
 
Principal
 
Interest
 
Due
 
Type of Debt
 
Amount Paid
 
Rate
 
Date
 
 
 
(in thousands)
 
(%)
 
 
 
Notes Payable – Affiliated
 
$
 100,000 
 
4.708 
 
2010 
 
Senior Unsecured Notes
 
 
 150,000 
 
4.40 
 
2010 
 
Pollution Control Bonds
 
 
 50,000 
 
7.125 
 
2010 
 
Land Note
 
 
 9 
 
13.718 
 
2026 
 
SUMMARY OBLIGATION INFORMATION

A summary of contractual obligations is included in the 2009 Annual Report and has not changed significantly from year-end other than the debt issuances and retirements discussed in “Cash Flow” above.

REGULATORY ACTIVITY

Virginia Regulatory Activity

In July 2009, APCo filed a generation and distribution base rate increase with the Virginia SCC of $154 million annually based on a 13.35% return on common equity.  Interim rates, subject to refund, became effective in December 2009 but were discontinued in February 2010 when Virginia newly enacted legislation suspended the collection of interim rates.  In July 2010, the Virginia SCC issued an order approving a $62 million increase based on a 10.53% return on equity.  The order denied recovery of the Virginia share of the Mountaineer Carbon Capture and Storage Project, which resulted in a write-off of approximately $54 million in the second quarter of 2010.  In addition, the order allowed the deferral in the second quarter of 2010 of approximately $25 million of incremental storm expense incurred in 2009.  In July 2010, APCo filed with the Virginia SCC a petition for reconsideration of the order as it relates to the Mountaineer Carbon Capture and Storage Project. See “2009 Virginia Base Rate Case” section of Note 3.

In June 2010, the Virginia SCC denied APCo’s request to include certain wind purchased power agreements (Beech Ridge and Grand Ridge) with a 20-year term in its Virginia renewable energy portfolio standard program.  As a result, APCo recorded an expense of $4 million in June 2010 to reduce the regulatory asset related to the Virginia portion of wind power costs to reflect the difference between the actual Grand Ridge purchased power costs incurred from September 2009 through June 2010 and the cost of non-wind power.  No costs to date have been deferred for Beech Ridge, which is estimated to be in service in the third quarter of 2010.  Management is evaluating several options regarding the Beech Ridge and Grand Ridge contracts.  APCo’s future net income and cash flows will be reduced b y the unrecoverable Virginia portion of the Beech Ridge and Grand Ridge costs until such time as the contracts are reassigned, renegotiated or terminated.

 
86

 
West Virginia Regulatory Activity

In May 2010, APCo filed a request with the WVPSC to increase annual base rates by $140 million based on an 11.75% return on common equity to be effective March 2011.  Hearings are scheduled for December 2010.  A decision from the WVPSC is expected in March 2011.  See “2010 West Virginia Base Rate Case” section of Note 3.

In a proceeding established by the WVPSC to explore options to meet WPCo's future power supply requirements, the WVPSC, in November 2009, issued an order approving a joint stipulation among APCo, WPCo, the WVPSC staff and the Consumer Advocate Division.  The order approved the recommendation of the signatories to the stipulation that WPCo merge into APCo and be supplied from APCo's existing power resources.  Merger approvals from the WVPSC, Virginia SCC and the FERC are required.  No merger approval filings have been made.  See “WPCo Merger with APCo” section of Note 3.

SIGNIFICANT FACTORS

REGULATORY ISSUES

Mountaineer Carbon Capture and Storage Project

APCo and ALSTOM Power, Inc. (Alstom), an unrelated third party, jointly constructed a CO2 capture validation facility, which was placed into service in September 2009.  APCo also constructed and owns the necessary facilities to store the CO2.  In APCo’s July 2009 Virginia base rate filing and May 2010 West Virginia base rate filing, APCo requested recovery of and a return on its estimated increased Virginia and West Virginia jurisdictional share of its project costs and recovery of the related asset retirement obligation regulatory asset amortization and accretion.  In July 2010, the Virginia SCC issued a base rate order that denied recovery of the Virgin ia share of the Mountaineer Carbon Capture and Storage Project costs, which resulted in a pretax write-off of approximately $54 million in the second quarter of 2010.  In response to the order, APCo filed with the Virginia SCC a petition for reconsideration of the order as it relates to the Mountaineer Carbon Capture and Storage Project.  Through June 30, 2010, APCo has recorded a noncurrent regulatory asset of $58 million consisting of $38 million in project costs and $20 million in asset retirement costs.  If APCo cannot recover its remaining investments in and expenses related to the Mountaineer Carbon Capture and Storage project, it would reduce future net income and cash flows and impact financial condition.  See “Mountaineer Carbon Capture and Storage Project” section of Note 3.

LITIGATION AND ENVIRONMENTAL ISSUES

In the ordinary course of business, APCo is involved in employment, commercial, environmental and regulatory litigation.  Since it is difficult to predict the outcome of these proceedings, management cannot state what the eventual resolution will be or the timing and amount of any loss, fine or penalty may be.  Management assesses the probability of loss for each contingency and accrues a liability for cases which have a probable likelihood of loss if the loss can be estimated.  For details on regulatory proceedings and pending litigation, see Note 4 – Rate Matters and Note 6 – Commitments, Guarantees and Contingencies in the 2009 Annual Report.  Also, see Note 3 – Rate Matters and Note 4 – Commitments, Guarantees and Contingencies within the Condensed Notes to Condense d Financial Statements beginning on page 156.  Adverse results in these proceedings have the potential to materially affect net income, financial condition and cash flows.

See the “Significant Factors” section of “Combined Management’s Discussion and Analysis of Registrant Subsidiaries” section beginning on page 224 for additional discussion of relevant factors.

 
87

 
CRITICAL ACCOUNTING POLICIES AND ESTIMATES, NEW ACCOUNTING PRONOUNCEMENTS

See the “Critical Accounting Policies and Estimates” section of “Combined Management’s Discussion and Analysis of Registrant Subsidiaries” in the 2009 Annual Report for a discussion of the estimates and judgments required for regulatory accounting, revenue recognition, the valuation of long-lived assets and pension and other postretirement benefits.

See the “New Accounting Pronouncements” section of “Combined Management’s Discussion and Analysis of Registrant Subsidiaries” beginning on page 224 for a discussion of the adoption and impact of new accounting pronouncements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT RISK MANAGEMENT ACTIVITIES

See “Quantitative And Qualitative Disclosures About Risk Management Activities” section of “Combined Management’s Discussion and Analysis of Registrant Subsidiaries” beginning on page 224 for a discussion of risk management activities.

 
88

 

APPALACHIAN POWER COMPANY AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
For the Three and Six Months Ended June 30, 2010 and 2009
 
(in thousands)
 
(Unaudited)
 
 
 
 
 
 
 
Three Months Ended
   
Six Months Ended
 
 
 
2010
   
2009
   
2010
   
2009
 
REVENUES
 
 
   
 
   
 
   
 
 
Electric Generation, Transmission and Distribution
  $ 633,140     $ 572,027     $ 1,479,130     $ 1,299,986  
Sales to AEP Affiliates
    67,365       62,038       146,136       118,269  
Other Revenues
    2,769       2,047       4,631       3,886  
TOTAL REVENUES
    703,274       636,112       1,629,897       1,422,141  
 
                               
EXPENSES
                               
Fuel and Other Consumables Used for Electric Generation
    169,616       118,891       350,256       262,572  
Purchased Electricity for Resale
    56,936       59,631       120,619       135,447  
Purchased Electricity from AEP Affiliates
    179,607       171,064       447,109       368,188  
Other Operation
    170,907       63,537       260,947       129,039  
Maintenance
    14,060       49,478       77,170       105,388  
Depreciation and Amortization
    73,160       64,148       150,590       134,143  
Taxes Other Than Income Taxes
    29,955       23,796       56,235       47,899  
TOTAL EXPENSES
    694,241       550,545       1,462,926       1,182,676  
 
                               
OPERATING INCOME
    9,033       85,567       166,971       239,465  
 
                               
Other Income (Expense):
                               
Interest Income
    662       395       953       777  
Carrying Costs Income
    10,298       5,791       16,062       9,874  
Allowance for Equity Funds Used During Construction
    128       1,184       1,291       3,837  
Interest Expense
    (51,831 )     (51,457 )     (103,558 )     (101,162 )
 
                               
INCOME (LOSS) BEFORE INCOME TAX EXPENSE
    (31,710 )     41,480       81,719       152,791  
(CREDIT)
                               
 
                               
Income Tax Expense (Credit)
    (12,091 )     12,310       31,056       49,214  
 
                               
NET INCOME (LOSS)
    (19,619 )     29,170       50,663       103,577  
 
                               
Preferred Stock Dividend Requirements Including Capital
                               
Stock Expense
    225       225       450       450  
 
                               
EARNINGS (LOSS) ATTRIBUTABLE TO COMMON
                               
STOCK
  $ (19,844 )   $ 28,945     $ 50,213     $ 103,127  
 
 
The common stock of APCo is wholly-owned by AEP.
 
 
 
See Condensed Notes to Condensed Financial Statements of Registrant Subsidiaries beginning on page 156.
 

 
89

 

APPALACHIAN POWER COMPANY AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN COMMON SHAREHOLDER'S
 
EQUITY AND COMPREHENSIVE INCOME (LOSS)
 
For the Six Months Ended June 30, 2010 and 2009
 
(in thousands)
 
(Unaudited)
 
 
 
 
 
 
   
 
   
 
   
Accumulated
   
 
 
 
 
 
   
 
   
 
   
Other
   
 
 
 
 
Common
   
Paid-in
   
Retained
   
Comprehensive
   
 
 
 
 
Stock
   
Capital
   
Earnings
   
Income (Loss)
   
Total
 
TOTAL COMMON SHAREHOLDER'S
 
 
   
 
   
 
   
 
   
 
 
EQUITY – DECEMBER 31, 2008
  $ 260,458     $ 1,225,292     $ 951,066     $ (60,225 )   $ 2,376,591  
 
                                       
Capital Contribution from Parent
            250,000                       250,000  
Common Stock Dividends
                    (20,000 )             (20,000 )
Preferred Stock Dividends
                    (399 )             (399 )
Capital Stock Expense
            51       (51 )             -  
SUBTOTAL – COMMON
                                       
SHAREHOLDER'S EQUITY
                                    2,606,192  
 
                                       
COMPREHENSIVE INCOME
                                       
Other Comprehensive Income, Net of Taxes:
                                       
Cash Flow Hedges, Net of Tax of $217
                            403       403  
Amortization of Pension and OPEB Deferred
                                       
Costs, Net of Tax of $1,034
                            1,920       1,920  
NET INCOME
                    103,577               103,577  
TOTAL COMPREHENSIVE INCOME
                                    105,900  
 
                                       
TOTAL COMMON SHAREHOLDER'S
                                       
EQUITY – JUNE 30,  2009
  $ 260,458     $ 1,475,343     $ 1,034,193     $ (57,902 )   $ 2,712,092  
 
                                       
TOTAL COMMON SHAREHOLDER'S
                                       
EQUITY – DECEMBER 31, 2009
  $ 260,458     $ 1,475,393     $ 1,085,980     $ (50,254 )   $ 2,771,577  
 
                                       
Common Stock Dividends
                    (78,000 )             (78,000 )
Preferred Stock Dividends
                    (399 )             (399 )
Capital Stock Expense
            52       (51 )             1  
SUBTOTAL – COMMON
                                       
SHAREHOLDER'S EQUITY
                                    2,693,179  
 
                                       
COMPREHENSIVE INCOME
                                       
Other Comprehensive Income (Loss), Net of
                                       
Taxes:
                                       
Cash Flow Hedges, Net of Tax of $1,369
                            (2,542 )     (2,542 )
Amortization of Pension and OPEB Deferred
                                       
Costs, Net of Tax of $1,124
                            2,087       2,087  
NET INCOME
                    50,663               50,663  
TOTAL COMPREHENSIVE INCOME
                                    50,208  
 
                                       
TOTAL COMMON SHAREHOLDER'S
                                       
EQUITY – JUNE 30,  2010
  $ 260,458     $ 1,475,445     $ 1,058,193     $ (50,709 )   $ 2,743,387  
 
 
See Condensed Notes to Condensed Financial Statements of Registrant Subsidiaries beginning on page 156.
 

 
90

 

APPALACHIAN POWER COMPANY AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
ASSETS
 
June 30, 2010 and December 31, 2009
 
(in thousands)
 
(Unaudited)
 
 
 
 
 
2010
   
2009
 
CURRENT ASSETS
 
 
   
 
 
Cash and Cash Equivalents
  $ 1,826     $ 2,006  
Accounts Receivable:
               
Customers
    160,841       150,285  
Affiliated Companies
    66,933       135,686  
Accrued Unbilled Revenues
    54,265       68,971  
Miscellaneous
    4,052       6,690  
Allowance for Uncollectible Accounts
    (5,770 )     (5,408 )
Total Accounts Receivable
    280,321       356,224  
Fuel
    272,147       343,261  
Materials and Supplies
    90,220       88,575  
Risk Management Assets
    54,819       67,956  
Accrued Tax Benefits
    213,891       180,708  
Regulatory Asset for Under-Recovered Fuel Costs
    36,652       78,685  
Prepayments and Other Current Assets
    30,419       36,293  
TOTAL CURRENT ASSETS
    980,295       1,153,708  
 
               
PROPERTY, PLANT AND EQUIPMENT
               
Electric:
               
Production
    4,632,273       4,284,361  
Transmission
    1,830,336       1,813,777  
Distribution
    2,686,675       2,642,479  
Other Property, Plant and Equipment
    361,450       329,497  
Construction Work in Progress
    450,005       730,099  
Total Property, Plant and Equipment
    9,960,739       9,800,213  
Accumulated Depreciation and Amortization
    2,808,993       2,751,443  
TOTAL PROPERTY, PLANT AND EQUIPMENT – NET
    7,151,746       7,048,770  
 
               
OTHER NONCURRENT ASSETS
               
Regulatory Assets
    1,467,502       1,433,791  
Long-term Risk Management Assets
    48,088       47,141  
Deferred Charges and Other Noncurrent Assets
    121,172       113,003  
TOTAL OTHER NONCURRENT ASSETS
    1,636,762       1,593,935  
 
               
TOTAL ASSETS
  $ 9,768,803     $ 9,796,413  
 
               
See Condensed Notes to Condensed Financial Statements of Registrant Subsidiaries beginning on page 156.
 

 
91

 

APPALACHIAN POWER COMPANY AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
June 30, 2010 and December 31, 2009
 
(Unaudited)
 
 
 
 
 
2010
   
2009
 
 
 
(in thousands)
 
CURRENT LIABILITIES
 
 
   
 
 
Advances from Affiliates
  $ 246,873     $ 229,546  
Accounts Payable:
               
General
    156,418       291,240  
Affiliated Companies
    127,104       157,640  
Long-term Debt Due Within One Year – Nonaffiliated
    250,020       200,019  
Long-term Debt Due Within One Year – Affiliated
    -       100,000  
Risk Management Liabilities
    24,839       25,792  
Customer Deposits
    58,144       57,578  
Deferred Income Taxes
    56,364       68,706  
Accrued Taxes
    59,924       65,241  
Accrued Interest
    57,673       58,962  
Other Current Liabilities
    112,244       95,292  
TOTAL CURRENT LIABILITIES
    1,149,603       1,350,016  
 
               
NONCURRENT LIABILITIES
               
Long-term Debt – Nonaffiliated
    3,310,756       3,177,287  
Long-term Risk Management Liabilities
    19,744       20,364  
Deferred Income Taxes
    1,500,176       1,439,884  
Regulatory Liabilities and Deferred Investment Tax Credits
    544,263       526,546  
Employee Benefits and Pension Obligations
    303,680       312,873  
Deferred Credits and Other Noncurrent Liabilities
    179,447       180,114  
TOTAL NONCURRENT LIABILITIES
    5,858,066       5,657,068  
 
               
TOTAL LIABILITIES
    7,007,669       7,007,084  
 
               
Cumulative Preferred Stock Not Subject to Mandatory Redemption
    17,747       17,752  
 
               
Rate Matters (Note 3)
               
Commitments and Contingencies (Note 4)
               
 
               
COMMON SHAREHOLDER’S EQUITY
               
Common Stock – No Par Value:
               
Authorized – 30,000,000 Shares
               
Outstanding  – 13,499,500 Shares
    260,458       260,458  
Paid-in Capital
    1,475,445       1,475,393  
Retained Earnings
    1,058,193       1,085,980  
Accumulated Other Comprehensive Income (Loss)
    (50,709 )     (50,254 )
TOTAL COMMON SHAREHOLDER’S EQUITY
    2,743,387       2,771,577  
 
               
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
  $ 9,768,803     $ 9,796,413  
 
               
See Condensed Notes to Condensed Financial Statements of Registrant Subsidiaries beginning on page 156.
 

 
92

 

APPALACHIAN POWER COMPANY AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
For the Six Months Ended June 30, 2010 and 2009
 
(in thousands)
 
(Unaudited)
 
 
 
 
 
2010
   
2009
 
OPERATING ACTIVITIES
 
 
   
 
 
Net Income
  $ 50,663     $ 103,577  
Adjustments to Reconcile Net Income to Net Cash Flows from (Used for)
               
 Operating Activities:
               
Depreciation and Amortization
    150,590       134,143  
Deferred Income Taxes
    32,037       135,034  
Carrying Costs Income
    (16,062 )     (9,874 )
Allowance for Equity Funds Used During Construction
    (1,291 )     (3,837 )
Mark-to-Market of Risk Management Contracts
    9,975       (23,490 )
Fuel Over/Under-Recovery, Net
    (32,329 )     (137,717 )
Change in Other Noncurrent Assets
    42,141       (24,202 )
Change in Other Noncurrent Liabilities
    (5,225 )     13,786  
Changes in Certain Components of Working Capital:
               
Accounts Receivable, Net
    75,903       86,840  
Fuel, Materials and Supplies
    69,469       (93,304 )
Accounts Payable
    (100,171 )     (136,330 )
Accrued Taxes, Net
    (38,806 )     (78,773 )
Other Current Assets
    5,421       (29,341 )
Other Current Liabilities
    9,857       (26,895 )
Net Cash Flows from (Used for) Operating Activities
    252,172       (90,383 )
 
               
INVESTING ACTIVITIES
               
Construction Expenditures
    (254,663 )     (327,982 )
Other Investing Activities
    2,492       14,011  
Net Cash Flows Used for Investing Activities
    (252,171 )     (313,971 )
 
               
FINANCING ACTIVITIES
               
Capital Contribution from Parent
    -       250,000  
Issuance of Long-term Debt – Nonaffiliated
    363,913       345,666  
Change in Advances from Affiliates, Net
    17,327       (19,512 )
Retirement of Long-term Debt – Nonaffiliated
    (200,009 )     (150,008 )
Retirement of Long-term Debt – Affiliated
    (100,000 )     -  
Retirement of Cumulative Preferred Stock
    (4 )     -  
Principal Payments for Capital Lease Obligations
    (3,600 )     (1,669 )
Dividends Paid on Common Stock
    (78,000 )     (20,000 )
Dividends Paid on Cumulative Preferred Stock
    (399 )     (399 )
Other Financing Activities
    591       81  
Net Cash Flows from (Used for) Financing Activities
    (181 )     404,159  
 
               
Net Decrease in Cash and Cash Equivalents
    (180 )     (195 )
Cash and Cash Equivalents at Beginning of Period
    2,006       1,996  
Cash and Cash Equivalents at End of Period
  $ 1,826     $ 1,801  
 
               
SUPPLEMENTARY INFORMATION
               
Cash Paid for Interest, Net of Capitalized Amounts
  $ 103,271     $ 114,983  
Net Cash Paid (Received) for Income Taxes
    30,259       (2,644 )
Noncash Acquisitions Under Capital Leases
    22,344       526  
Construction Expenditures Included in Accounts Payable at June 30,
    42,890       69,300  
 
               
See Condensed Notes to Condensed Financial Statements of Registrant Subsidiaries beginning on page 156.
 

 
93

 

APPALACHIAN POWER COMPANY AND SUBSIDIARIES
INDEX TO CONDENSED NOTES TO CONDENSED FINANCIAL STATEMENTS OF
REGISTRANT SUBSIDIARIES

The condensed notes to APCo’s condensed consolidated financial statements are combined with the condensed notes to condensed financial statements for other registrant subsidiaries.  Listed below are the notes that apply to APCo.  The footnotes begin on page 156.

 
Footnote
Reference
   
Significant Accounting Matters
Note 1
   
New Accounting Pronouncements and Extraordinary Item
Note 2
   
Rate Matters
Note 3
   
Commitments, Guarantees and Contingencies
Note 4
   
Benefit Plans
Note 6
   
Business Segments
Note 7
   
Derivatives and Hedging
Note 8
   
Fair Value Measurements
Note 9
   
Income Taxes
Note 10
   
Financing Activities
Note 11
   
Cost Reduction Initiatives
Note 12

 
94

 










COLUMBUS SOUTHERN POWER COMPANY
AND SUBSIDIARIES


 
95

 

COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES
 
MANAGEMENT’S NARRATIVE FINANCIAL DISCUSSION AND ANALYSIS
 
 
 
 
 
RESULTS OF OPERATIONS
 
 
 
 
 
 
 
Second Quarter of 2010 Compared to Second Quarter of 2009
 
 
 
 
 
Reconciliation of Second Quarter of 2009 to Second Quarter of 2010
 
Net Income
 
(in millions)
 
 
 
 
 
Second Quarter of 2009
  $ 84  
 
       
Changes in Gross Margin:
       
Retail Margins
    (15 )
Off-system Sales
    (3 )
Total Change in Gross Margin
    (18 )
 
       
Total Expenses and Other:
       
Other Operation and Maintenance
    (32 )
Depreciation and Amortization
    (3 )
Taxes Other Than Income Taxes
    (1 )
Total Expenses and Other
    (36 )
 
       
Income Tax Expense
    22  
 
       
Second Quarter of 2010
  $ 52  

The major components of the decrease in Gross Margin, defined as revenues less the related direct cost of fuel, including consumption of chemicals and emissions allowances, and purchased power were as follows:

·
Retail Margins decreased $15 million due to:
 
·
A $14 million decrease as a result of the timing of the approval and implementation of new rates set by the Ohio ESP from April through December 2009.
 
·
An $8 million decrease in fuel margins.
 
·
An $8 million decrease in capacity settlements under the Interconnection Agreement.
 
·
A $4 million decrease as a result of the loss of the City of Westerville as a dedicated customer to Off-system Sales.  These sales are shared by the members of the AEP Power Pool.
 
These decreases were partially offset by:
 
·
A $13 million increase in residential and commercial revenue, $8 million of which was due to weather-related usage and a 33% increase in cooling degree days.
·
Margins from Off-system Sales decreased $3 million primarily due to lower trading and marketing margins, partially offset by higher physical sales volumes.

Total Expenses and Other and Income Tax Expense changed between years as follows:
 
·
Other Operation and Maintenance expenses increased $32 million primarily due to:
 
·
A $31 million increase due to expenses incurred related to the cost reduction initiatives in the second quarter of 2010.
 
·
A $3 million increase in recoverable customer account expenses due to increased Universal Service Fund surcharge rates for customers who qualify for payment assistance.
 
These increases were partially offset by:
 
·
A $6 million decrease in boiler plant maintenance expenses primarily related to work performed at the Conesville and Zimmer plants in 2009.
·
Depreciation and Amortization increased $3 million primarily due to projects at the Conesville Plant that were completed and placed in service in November 2009.
·
Income Tax Expense decreased $22 million primarily due to a decrease in pretax book income.

 
96

 

Six Months Ended June 30, 2010 Compared to Six Months Ended June 30, 2009
 
 
 
 
 
Reconciliation of Six Months Ended June 30, 2009 to Six Months Ended June 30, 2010
Net Income
(in millions)
 
 
 
 
 
Six Months Ended June 30, 2009
 
$
 133 
 
 
 
 
 
 
Changes in Gross Margin:
 
 
 
 
Retail Margins
 
 
 (12)
 
Off-system Sales
 
 
 1 
 
Other
 
 
 (1)
 
Total Change in Gross Margin
 
 
 (12)
 
 
 
 
 
 
Total Expenses and Other:
 
 
 
 
Other Operation and Maintenance
 
 
 (26)
 
Depreciation and Amortization
 
 
 (5)
 
Taxes Other Than Income Taxes
 
 
 (3)
 
Interest Expense
 
 
 (1)
 
Total Expenses and Other
 
 
 (35)
 
 
 
 
 
 
Income Tax Expense
 
 
 18 
 
 
 
 
 
 
Six Months Ended June 30, 2010
 
$
 104 
 

The major component of the decrease in Gross Margin, defined as revenues less the related direct cost of fuel, including consumption of chemicals and emissions allowances, and purchased power was as follows:

·
Retail Margins decreased $12 million due to:
 
·
A $14 million decrease as a result of the elimination of Restructuring Transition Charge (RTC) revenues with the implementation of CSPCo’s ESP.
 
·
An $11 million decrease in capacity settlements under the Interconnection Agreement.
 
·
An $8 million decrease as a result of the loss of the City of Westerville as a dedicated customer to Off-system Sales.  These sales are shared by the members of the AEP Power Pool.
 
These decreases were partially offset by:
 
·
A $9 million increase in retail sales attributable to residential and commercial classes due to weather-related usage and a 32% increase in cooling degree days.
 
·
An $8 million increase related to the implementation of higher rates set by the Ohio ESP.

Total Expenses and Other and Income Tax Expense changed between years as follows:

·
Other Operation and Maintenance expenses increased $26 million primarily due to:
 
·
A $31 million increase due to expenses incurred related to the cost reduction initiatives in the second quarter of 2010.
 
 
·
A $6 million increase in recoverable customer account expenses due to increased Universal Service Fund surcharge rates for customers who qualify for payment assistance.
 
 
These increases were partially offset by:
 
 
·
A $7 million decrease related to a 2009 obligation to contribute to the “Partnership with Ohio” fund for low income, at-risk customers ordered by the PUCO’s March 2009 approval of CSPCo’s ESP.
 
 
·
A $7 million decrease in boiler plant maintenance expenses primarily related to work performed at the Conesville and Zimmer plants.
 
·
Depreciation and Amortization increased $5 million primarily due to projects at the Conesville Plant that were completed and placed in service in November 2009.
·
Income Tax Expense decreased $18 million primarily due to a decrease in pretax book income.
 

 
 
97

 
SIGNIFICANT FACTORS

REGULATORY ISSUES

Ohio Electric Security Plan Filing

During 2009, the PUCO issued an order that modified and approved CSPCo’s ESP which established rates through 2011.  The order also limits rate increases for CSPCo to 7% in 2009, 6% in 2010 and 6% in 2011.  The order provides a FAC for the three-year period of the ESP.  Several notices of appeal are outstanding at the Supreme Court of Ohio relating to significant issues in the determination of the approved ESP rates.  CSPCo will file its significantly excessive earnings test with the PUCO by the September 2010 deadline.  CSPCo is unable to determine whether it will be required to return any of the ESP revenues to customers.  See “Ohio Electric Security Plan Filings” section of Note 3.

LITIGATION AND ENVIRONMENTAL ISSUES

In the ordinary course of business, CSPCo is involved in employment, commercial, environmental and regulatory litigation.  Since it is difficult to predict the outcome of these proceedings, management cannot state what the eventual resolution will be or the timing and amount of any loss, fine or penalty may be.  Management assesses the probability of loss for each contingency and accrues a liability for cases which have a probable likelihood of loss if the loss can be estimated.  For details on regulatory proceedings and pending litigation, see Note 4 – Rate Matters and Note 6 – Commitments, Guarantees and Contingencies in the 2009 Annual Report.  Also, see Note 3 – Rate Matters and Note 4 – Commitments, Guarantees and Contingencies within the Condensed Notes to Condens ed Financial Statements beginning on page 156.  Adverse results in these proceedings have the potential to materially affect net income, financial condition and cash flows.

See the “Significant Factors” section of “Combined Management’s Discussion and Analysis of Registrant Subsidiaries” section beginning on page 224 for additional discussion of relevant factors.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES, NEW ACCOUNTING PRONOUNCEMENTS

See the “Critical Accounting Policies and Estimates” section of “Combined Management’s Discussion and Analysis of Registrant Subsidiaries” in the 2009 Annual Report for a discussion of the estimates and judgments required for regulatory accounting, revenue recognition, the valuation of long-lived assets and pension and other postretirement benefits.

See the “New Accounting Pronouncements” section of “Combined Management’s Discussion and Analysis of Registrant Subsidiaries” beginning on page 224 for a discussion of the adoption and impact of new accounting pronouncements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT RISK MANAGEMENT ACTIVITIES

See “Quantitative And Qualitative Disclosures About Risk Management Activities” section of “Combined Management’s Discussion and Analysis of Registrant Subsidiaries” beginning on page 224 for a discussion of risk management activities.

 
98

 

COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 
For the Three and Six Months Ended June 30, 2010 and 2009
 
(in thousands)
 
(Unaudited)
 
 
 
 
 
Three Months Ended
   
Six Months Ended
 
 
 
2010
   
2009
   
2010
   
2009
 
REVENUES
 
 
   
 
   
 
   
 
 
Electric Generation, Transmission and Distribution
  $ 503,270     $ 488,193     $ 1,004,289     $ 949,115  
Sales to AEP Affiliates
    20,090       19,165       35,922       29,371  
Other Revenues
    744       518       1,332       1,126  
TOTAL REVENUES
    524,104       507,876       1,041,543       979,612  
 
                               
EXPENSES
                               
Fuel and Other Consumables Used for Electric Generation
    105,290       63,476       219,731       134,420  
Purchased Electricity for Resale
    20,138       22,422       39,783       52,260  
Purchased Electricity from AEP Affiliates
    91,287       96,068       190,086       189,160  
Other Operation
    103,229       65,555       180,555       141,643  
Maintenance
    25,114       31,618       49,397       62,632  
Depreciation and Amortization
    37,602       34,626       75,089       69,571  
Taxes Other Than Income Taxes
    44,294       43,145       91,351       88,427  
TOTAL EXPENSES
    426,954       356,910       845,992       738,113  
 
                               
OPERATING INCOME
    97,150       150,966       195,551       241,499  
 
                               
Other Income (Expense):
                               
Interest Income
    167       234       309       474  
Carrying Costs Income
    1,963       1,721       4,184       3,410  
Allowance for Equity Funds Used During Construction
    314       585       1,235       1,885  
Interest Expense
    (21,091 )     (21,076 )     (42,875 )     (41,869 )
 
                               
INCOME BEFORE INCOME TAX EXPENSE
    78,503       132,430       158,404       205,399  
 
                               
Income Tax Expense
    26,387       48,252       54,638       72,363  
 
                               
NET INCOME
    52,116       84,178       103,766       133,036  
 
                               
Capital Stock Expense
    40       40       79       79  
 
                               
EARNINGS ATTRIBUTABLE TO COMMON STOCK
  $ 52,076     $ 84,138     $ 103,687     $ 132,957  
 
                               
The common stock of CSPCo is wholly-owned by AEP.
                               
 
                               
See Condensed Notes to Condensed Financial Statements of Registrant Subsidiaries beginning on page 156.
 

 
99

 

COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN COMMON SHAREHOLDER'S
 
EQUITY AND COMPREHENSIVE INCOME (LOSS)
 
For the Six Months Ended June 30, 2010 and 2009
 
(in thousands)
 
(Unaudited)
 
 
 
 
 
 
   
 
   
 
   
Accumulated
   
 
 
 
 
 
   
 
   
 
   
Other
   
 
 
 
 
Common
   
Paid-in
   
Retained
   
Comprehensive
   
 
 
 
 
Stock
   
Capital
   
Earnings
   
Income (Loss)
   
Total
 
TOTAL COMMON SHAREHOLDER'S
 
 
   
 
   
 
   
 
   
 
 
EQUITY – DECEMBER 31, 2008
  $ 41,026     $ 580,506     $ 674,758     $ (51,025 )   $ 1,245,265  
 
                                       
Common Stock Dividends
                    (100,000 )             (100,000 )
Capital Stock Expense
            79       (79 )             -  
Noncash Dividend of Property to Parent
                    (8,123 )             (8,123 )
SUBTOTAL – COMMON
                                       
SHAREHOLDER'S EQUITY
                                    1,137,142  
 
                                       
COMPREHENSIVE INCOME
                                       
Other Comprehensive Income (Loss), Net of
                                       
Taxes:
                                       
Cash Flow Hedges, Net of Tax of $184
                            (342 )     (342 )
Amortization of Pension and OPEB Deferred
                                       
Costs, Net of Tax of $514
                            954       954  
NET INCOME
                    133,036               133,036  
TOTAL COMPREHENSIVE INCOME
                                    133,648  
 
                                       
TOTAL COMMON SHAREHOLDER'S
                                       
EQUITY – JUNE 30, 2009
  $ 41,026     $ 580,585     $ 699,592     $ (50,413 )   $ 1,270,790  
 
                                       
TOTAL COMMON SHAREHOLDER'S
                                       
EQUITY – DECEMBER 31, 2009
  $ 41,026     $ 580,663     $ 788,139     $ (49,993 )   $ 1,359,835  
 
                                       
Common Stock Dividends
                    (52,500 )             (52,500 )
Capital Stock Expense
            79       (79 )             -  
SUBTOTAL – COMMON
                                       
SHAREHOLDER'S EQUITY
                                    1,307,335  
 
                                       
COMPREHENSIVE INCOME
                                       
Other Comprehensive Income (Loss), Net of
                                       
Taxes:
                                       
Cash Flow Hedges, Net of Tax of $232
                            (431 )     (431 )
Amortization of Pension and OPEB Deferred
                                       
Costs, Net of Tax of $667
                            1,238       1,238  
NET INCOME
                    103,766               103,766  
TOTAL COMPREHENSIVE INCOME
                                    104,573  
 
                                       
TOTAL COMMON SHAREHOLDER'S
                                       
EQUITY – JUNE 30, 2010
  $ 41,026     $ 580,742     $ 839,326     $ (49,186 )   $ 1,411,908  
 
                                       
See Condensed Notes to Condensed Financial Statements of Registrant Subsidiaries beginning on page 156.
 

 
100

 
 
COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
ASSETS
 
June 30, 2010 and December 31, 2009
 
(in thousands)
 
(Unaudited)
 
 
 
 
 
2010
   
2009
 
CURRENT ASSETS
 
 
   
 
 
Cash and Cash Equivalents
  $ 1,193     $ 1,096  
Other Cash Deposits
    5,861       16,150  
Advance to Affiliates
    57,069       -  
Accounts Receivable:
               
Customers
    50,518       37,158  
Affiliated Companies
    21,444       28,555  
Accrued Unbilled Revenues
    23,152       11,845  
Miscellaneous
    2,558       4,164  
Allowance for Uncollectible Accounts
    (1,973 )     (3,481 )
Total Accounts Receivable
    95,699       78,241  
Fuel
    77,268       74,158  
Materials and Supplies
    40,054       39,652  
Emission Allowances
    23,190       26,587  
Risk Management Assets
    30,962       34,343  
Accrued Tax Benefits
    47,966       29,273  
Margin Deposits
    13,281       14,874  
Prepayments and Other Current Assets
    13,851       6,349  
TOTAL CURRENT ASSETS
    406,394       320,723  
 
               
PROPERTY, PLANT AND EQUIPMENT
               
Electric:
               
Production
    2,648,583       2,641,860  
Transmission
    639,205       623,680  
Distribution
    1,762,600       1,745,559  
Other Property, Plant and Equipment
    202,368       189,315  
Construction Work in Progress
    157,297       155,081  
Total Property, Plant and Equipment
    5,410,053       5,355,495  
Accumulated Depreciation and Amortization
    1,892,328       1,838,840  
TOTAL PROPERTY, PLANT AND EQUIPMENT – NET
    3,517,725       3,516,655  
 
               
OTHER NONCURRENT ASSETS
               
Regulatory Assets
    317,426       341,029  
Long-term Risk Management Assets
    27,204       23,882  
Deferred Charges and Other Noncurrent Assets
    98,544       147,217  
TOTAL OTHER NONCURRENT ASSETS
    443,174       512,128  
 
               
TOTAL ASSETS
  $ 4,367,293     $ 4,349,506  
 
               
See Condensed Notes to Condensed Financial Statements of Registrant Subsidiaries beginning on page 156.
 

 
101

 
 
COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
LIABILITIES AND SHAREHOLDER'S EQUITY
 
June 30, 2010 and December 31, 2009
 
(Unaudited)
 
 
 
 
 
2010
   
2009
 
 
 
(in thousands)
 
CURRENT LIABILITIES
 
 
   
 
 
Advances from Affiliates
  $ -     $ 24,202  
Accounts Payable:
               
General
    83,021       95,872  
Affiliated Companies
    64,933       81,338  
Long-term Debt Due Within One Year – Nonaffiliated
    150,000       150,000  
Long-term Debt Due Within One Year – Affiliated
    -       100,000  
Risk Management Liabilities
    14,021       13,052  
Customer Deposits
    28,964       27,911  
Accrued Taxes
    127,589       199,001  
Accrued Interest
    23,046       24,669  
Other Current Liabilities
    89,625       67,053  
TOTAL CURRENT LIABILITIES
    581,199       783,098  
 
               
NONCURRENT LIABILITIES
               
Long-term Debt – Nonaffiliated
    1,438,673       1,286,393  
Long-term Risk Management Liabilities
    11,165       10,313  
Deferred Income Taxes
    549,059       535,265  
Regulatory Liabilities and Deferred Investment Tax Credits
    174,600       174,671  
Employee Benefits and Pension Obligations
    129,368       133,968  
Deferred Credits and Other Noncurrent Liabilities
    71,321       65,963  
TOTAL NONCURRENT LIABILITIES
    2,374,186       2,206,573  
 
               
TOTAL LIABILITIES
    2,955,385       2,989,671  
 
               
Rate Matters (Note 3)
               
Commitments and Contingencies (Note 4)
               
 
               
COMMON SHAREHOLDER’S EQUITY
               
Common Stock – No Par Value:
               
Authorized – 24,000,000 Shares
               
Outstanding  – 16,410,426 Shares
    41,026       41,026  
Paid-in Capital
    580,742       580,663  
Retained Earnings
    839,326       788,139  
Accumulated Other Comprehensive Income (Loss)
    (49,186 )     (49,993 )
TOTAL COMMON SHAREHOLDER’S EQUITY
    1,411,908       1,359,835  
 
               
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY
  $ 4,367,293     $ 4,349,506  
 
               
See Condensed Notes to Condensed Financial Statements of Registrant Subsidiaries beginning on page 156.
 

 
102

 
COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2010 and 2009
(in thousands)
(Unaudited)
 
 
 
2010 
 
2009 
OPERATING ACTIVITIES
 
 
 
 
 
 
Net Income
 
$
 103,766 
 
$
 133,036 
Adjustments to Reconcile Net Income to Net Cash Flows from Operating Activities:
 
 
 
 
 
 
 
 
Depreciation and Amortization
 
 
 75,089 
 
 
 69,571 
 
 
Deferred Income Taxes
 
 
 19,833 
 
 
 60,104 
 
 
Carrying Costs Income
 
 
 (4,184)
 
 
 (3,410)
 
 
Allowance for Equity Funds Used During Construction
 
 
 (1,235)
 
 
 (1,885)
 
 
Mark-to-Market of Risk Management Contracts
 
 
 1,466 
 
 
 (10,671)
 
 
Property Taxes
 
 
 48,526 
 
 
 44,075 
 
 
Fuel Over/Under-Recovery, Net
 
 
 32,120 
 
 
 (33,963)
 
 
Change in Other Noncurrent Assets
 
 
 (12,867)
 
 
 (10,738)
 
 
Change in Other Noncurrent Liabilities
 
 
 (2,458)
 
 
 20,003 
 
 
Changes in Certain Components of Working Capital:
 
 
 
 
 
 
 
 
 
Accounts Receivable, Net
 
 
 (17,458)
 
 
 46,738 
 
 
 
Fuel, Materials and Supplies
 
 
 (3,512)
 
 
 (29,021)
 
 
 
Accounts Payable
 
 
 (12,744)
 
 
 (84,284)
 
 
 
Customer Deposits
 
 
 1,053 
 
 
 1,390 
 
 
 
Accrued Taxes, Net
 
 
 (89,647)
 
 
 (60,756)
 
 
 
Other Current Assets
 
 
 8,582 
 
 
 3,600 
 
 
 
Other Current Liabilities
 
 
 11,209 
 
 
 5,772 
Net Cash Flows from Operating Activities
 
 
 157,539 
 
 
 149,561 
 
 
 
 
 
 
 
INVESTING ACTIVITIES
 
 
 
 
 
 
Construction Expenditures
 
 
 (84,208)
 
 
 (147,128)
Change in Other Cash Deposits
 
 
 10,289 
 
 
 11,075 
Change in Advances to Affiliates, Net
 
 
 (57,069)
 
 
 - 
Acquisitions of Assets
 
 
 (463)
 
 
 (184)
Proceeds from Sales of Assets
 
 
 3,410 
 
 
 465 
Net Cash Flows Used for Investing Activities
 
 
 (128,041)
 
 
 (135,772)
 
 
 
 
 
 
 
FINANCING ACTIVITIES
 
 
 
 
 
 
Issuance of Long-term Debt - Nonaffiliated
 
 
 149,443 
 
 
 - 
Change in Advances from Affiliates, Net
 
 
 (24,202)
 
 
 87,794 
Retirement of Long-term Debt - Affiliated
 
 
 (100,000)
 
 
 - 
Principal Payments for Capital Lease Obligations
 
 
 (2,237)
 
 
 (1,333)
Dividends Paid on Common Stock
 
 
 (52,500)
 
 
 (100,000)
Other Financing Activities
 
 
 95 
 
 
 - 
Net Cash Flows Used for Financing Activities
 
 
 (29,401)
 
 
 (13,539)
 
 
 
 
 
 
 
Net Increase in Cash and Cash Equivalents
 
 
 97 
 
 
 250 
Cash and Cash Equivalents at Beginning of Period
 
 
 1,096 
 
 
 1,063 
Cash and Cash Equivalents at End of Period
 
$
 1,193 
 
$
 1,313 
 
 
 
 
 
 
 
SUPPLEMENTARY INFORMATION
 
 
 
 
 
 
Cash Paid for Interest, Net of Capitalized Amounts
 
$
 43,615 
 
$
 53,045 
Net Cash Paid for Income Taxes
 
 
 54,032 
 
 
 1,239 
Noncash Acquisitions Under Capital Leases
 
 
 9,196 
 
 
 565 
Construction Expenditures Included in Accounts Payable at June 30,
 
 
 14,594 
 
 
 42,894 
Noncash Dividend of Property to Parent
 
 
 - 
 
 
 8,123 
 
 
 
 
 
 
 
See Condensed Notes to Condensed Financial Statements of Registrant Subsidiaries beginning on page 156.

 
103

 

COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES
INDEX TO CONDENSED NOTES TO CONDENSED FINANCIAL STATEMENTS OF
REGISTRANT SUBSIDIARIES

The condensed notes to CSPCo’s condensed consolidated financial statements are combined with the condensed notes to condensed financial statements for other registrant subsidiaries.  Listed below are the notes that apply to CSPCo.  The footnotes begin on page 156.

 
Footnote
Reference
   
Significant Accounting Matters
Note 1
   
New Accounting Pronouncements
Note 2
   
Rate Matters
Note 3
   
Commitments, Guarantees and Contingencies
Note 4
   
Benefit Plans
Note 6
   
Business Segments
Note 7
   
Derivatives and Hedging
Note 8
   
Fair Value Measurements
Note 9
   
Income Taxes
Note 10
   
Financing Activities
Note 11
   
Cost Reduction Initiatives
Note 12

 
104

 









INDIANA MICHIGAN POWER COMPANY
AND SUBSIDIARIES


 
105

 

INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES
 
MANAGEMENT’S NARRATIVE FINANCIAL DISCUSSION AND ANALYSIS
 
 
 
 
 
RESULTS OF OPERATIONS
 
 
 
 
 
 
 
Second Quarter of 2010 Compared to Second Quarter of 2009
 
 
 
 
 
Reconciliation of Second Quarter of 2009 to Second Quarter of 2010
 
Net Income
 
(in millions)
 
 
 
 
 
Second Quarter of 2009
  $ 49  
 
       
Changes in Gross Margin:
       
Retail Margins
    47  
FERC Municipals and Cooperatives
    (8 )
Other Revenues
    (42 )
Total Change in Gross Margin
    (3 )
 
       
Total Expenses and Other:
       
Other Operation and Maintenance
    (46 )
Taxes Other Than Income Taxes
    (1 )
Other Income
    2  
Total Expenses and Other
    (45 )
 
       
Income Tax Expense
    14  
 
       
Second Quarter of 2010
  $ 15  

The major components of the decrease in Gross Margin, defined as revenues less the related direct cost of fuel, including consumption of chemicals and emissions allowances, and purchased power were as follows:

 
·
Retail Margins increased $47 million primarily due to the following:
   
·
A $20 million increase in fuel margins primarily due to higher fuel and purchased power costs recorded in 2009 related to the Cook Plant Unit 1 (Unit 1) shutdown.  This increase in fuel margins was offset by a corresponding decrease in Other Revenues as discussed below.
   
·
A $15 million increase in usage for residential and commercial customers primarily due to an increase in cooling degree days and demand.
   
·
An $11 million increase in industrial sales margins due to higher usage reflecting an improvement in demand.
 
·
FERC Municipals and Cooperatives margins decreased $8 million primarily due to a unit power sales agreement ending in December 2009.
 
·
Other Revenues decreased $42 million primarily due to the Cook Plant accidental outage insurance proceeds of $46 million which ended when Unit 1 returned to service in December 2009.  I&M reduced customer bills by approximately $20 million in the second quarter of 2009 for the cost of replacement power resulting from the Unit 1 outage.  This decrease in insurance proceeds was offset by a corresponding increase in Retail Margins as discussed above.

Total Expenses and Other and Income Tax Expense changed between years as follows:
 
 
·
Other Operation and Maintenance expenses increased $46 million primarily due to the following:
 
   
·
A $40 million increase in expenses related to the cost reduction initiatives in the second quarter of 2010.
 
   
·
A $4 million increase in distribution expenses associated with storm restoration expenses from June 2010 storms.
 
   
·
A $3 million increase in transmission expense due to lower credits under the Transmission Agreement.
 
 
·
Income Tax Expense decreased $14 million primarily due to a decrease in pretax book income.
 


 
106

 
 
Six Months Ended June 30, 2010 Compared to Six Months Ended June 30, 2009
 
 
 
 
 
Reconciliation of Six Months Ended June 30, 2009 to Six Months Ended June 30, 2010
Net Income
(in millions)
 
 
 
 
 
Six Months Ended June 30, 2009
 
$
 129 
 
 
 
 
 
 
Changes in Gross Margin:
 
 
 
 
Retail Margins
 
 
 82 
 
FERC Municipals And Cooperatives
 
 
 (16)
 
Off-system Sales
 
 
 3 
 
Transmission Revenues
 
 
 1 
 
Other Revenues
 
 
 (97)
 
Total Change in Gross Margin
 
 
 (27)
 
 
 
 
 
 
Total Expenses and Other:
 
 
 
 
Other Operation and Maintenance
 
 
 (69)
 
Depreciation and Amortization
 
 
 (1)
 
Taxes Other Than Income Taxes
 
 
 (1)
 
Other Income
 
 
 3 
 
Interest Expense
 
 
 (3)
 
Total Expenses and Other
 
 
 (71)
 
 
 
 
 
 
Income Tax Expense
 
 
 29 
 
 
 
 
 
 
Six Months Ended June 30, 2010
 
$
 60 
 

The major components of the decrease in Gross Margin, defined as revenues less the related direct cost of fuel, including consumption of chemicals and emissions allowances, and purchased power were as follows:

 
·
Retail Margins increased $82 million primarily due to the following:
   
·
A $42 million increase in fuel margins due to higher fuel and purchased power costs recorded in 2009 related to the Unit 1 shutdown.  This increase in fuel margins was offset by a corresponding decrease in Other Revenues as discussed below.
   
·
A $19 million increase in industrial sale margins due to higher usage reflecting an improvement in demand.
   
·
A $17 million increase in usage and price for residential and commercial customers primarily due to an increase in cooling degree days and demand.
   
·
A $5 million increase in capacity settlements under the Interconnection Agreement.
 
·
FERC Municipals and Cooperatives margins decreased $16 million primarily due to a unit power sales agreement ending in December 2009.
 
·
Other Revenues decreased $97 million primarily due to the Cook Plant accidental outage insurance proceeds of $99 million which ended when Unit 1 returned to service in December 2009.  I&M reduced customer bills by approximately $42 million in the first six months of 2009 for the cost of replacement power resulting from the Unit 1 outage.  This decrease in insurance proceeds was offset by a corresponding increase in Retail Margins as discussed above.
 

 
 
107

 
Total Expenses and Other and Income Tax Expense changed between years as follows:

 
·
Other Operation and Maintenance expenses increased $69 million primarily due to the following:
   
·
A $40 million increase due to expenses related to the cost reduction initiatives in the second quarter of 2010.
   
·
A $10 million increase in administrative and general expenses primarily due to a $7 million increase in benefit and insurance costs and a $2 million increase in property insurance.
   
·
A $6 million increase in transmission expense primarily due to lower credits under the Transmission Agreement.
   
·
A $4 million increase in distribution expenses associated with storm restoration expenses from June 2010 storms.
 
·
Income Tax Expense decreased $29 million primarily due to a decrease in pretax book income.

REGULATORY ACTIVITY

Michigan Regulatory Activity

In January 2010, I&M filed with the MPSC a request for a $63 million increase in annual base rates based on an 11.75% return on common equity.  In the August 2010 billing cycle, I&M, with the MPSC authorization, will implement a $44 million interim rate increase, subject to refund with interest.  In July 2010, the MPSC staff filed testimony which recommended a $34 million annual increase in base rates based on a 10.35% return on common equity plus separate recovery of approximately $7 million of customer choice implementation costs over a two year period.  The MPSC must issue a final order within one year of the original filing.  See “Michigan Base Rate Filing” section of Note 3.

SIGNIFICANT FACTORS

REGULATORY ISSUES

Cook Plant Unit 1 Fire and Shutdown

In September 2008, I&M shut down Cook Plant Unit 1 (Unit 1) due to turbine vibrations, caused by blade failure, which resulted in a fire on the electric generator.  Repair of the property damage and replacement of the turbine rotors and other equipment could cost up to approximately $395 million.  Management believes that I&M should recover a significant portion of repair and replacement costs through the turbine vendor’s warranty, insurance and the regulatory process.  I&M repaired Unit 1 and it resumed operations in December 2009 at slightly reduced power.  The Unit 1 rotors were repaired and reinstalled due to the extensive lead time required to manufacture and install new turbine rotors.  As a result, the replacement of the repaired turbine rotors and other equipme nt is scheduled for the Unit 1 planned outage in the fall of 2011.  If the ultimate costs of the incident are not covered by warranty, insurance or through the related regulatory process or if any future regulatory proceedings are adverse, it could have an adverse impact on net income, cash flows and financial condition.  See “Cook Plant Unit 1 Fire and Shutdown” section of Note 4.

LITIGATION AND ENVIRONMENTAL ISSUES

In the ordinary course of business, I&M is involved in employment, commercial, environmental and regulatory litigation.  Since it is difficult to predict the outcome of these proceedings, management cannot state what the eventual resolution will be or the timing and amount of any loss, fine or penalty may be.  Management assesses the probability of loss for each contingency and accrues a liability for cases which have a probable likelihood of loss if the loss can be estimated.  For details on regulatory proceedings and pending litigation, see Note 4 – Rate Matters and Note 6 – Commitments, Guarantees and Contingencies in the 2009 Annual Report.  Also, see Note 3 – Rate Matters and Note 4 – Commitments, Guarantees and Contingencies within the Condensed Notes to Conde nsed Financial Statements beginning on page 156.  Adverse results in these proceedings have the potential to materially affect net income, financial condition and cash flows.

See the “Significant Factors” section of “Combined Management’s Discussion and Analysis of Registrant Subsidiaries” section beginning on page 224 for additional discussion of relevant factors.

 
108

 
CRITICAL ACCOUNTING POLICIES AND ESTIMATES, NEW ACCOUNTING PRONOUNCEMENTS

See the “Critical Accounting Policies and Estimates” section of “Combined Management’s Discussion and Analysis of Registrant Subsidiaries” in the 2009 Annual Report for a discussion of the estimates and judgments required for regulatory accounting, revenue recognition, the valuation of long-lived assets and pension and other postretirement benefits.

See the “New Accounting Pronouncements” section of “Combined Management’s Discussion and Analysis of Registrant Subsidiaries” beginning on page 224 for a discussion of the adoption and impact of new accounting pronouncements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT RISK MANAGEMENT ACTIVITIES

See “Quantitative And Qualitative Disclosures About Risk Management Activities” section of “Combined Management’s Discussion and Analysis of Registrant Subsidiaries” beginning on page 224 for a discussion of risk management activities.

 
109

 

INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 
For the Three and Six Months Ended June 30, 2010 and 2009
 
(in thousands)
 
(Unaudited)
 
 
 
 
 
Three Months Ended
   
Six Months Ended
 
 
 
2010
   
2009
   
2010
   
2009
 
REVENUES
 
 
   
 
   
 
   
 
 
Electric Generation, Transmission and Distribution
  $ 408,702     $ 400,347     $ 846,726     $ 822,274  
Sales to AEP Affiliates
    67,473       57,385       151,690       117,371  
Other Revenues - Affiliated
    30,685       25,192       58,651       55,932  
Other Revenues - Nonaffiliated
    3,055       47,492       5,904       101,883  
TOTAL REVENUES
    509,915       530,416       1,062,971       1,097,460  
 
                               
EXPENSES
                               
Fuel and Other Consumables Used for Electric Generation
    102,258       108,202       221,439       211,162  
Purchased Electricity for Resale
    31,444       30,853       61,211       69,214  
Purchased Electricity from AEP Affiliates
    68,496       80,893       150,746       160,871  
Other Operation
    162,978       115,224       293,659       224,684  
Maintenance
    49,633       51,488       98,077       97,762  
Depreciation and Amortization
    33,971       33,629       67,802       66,374  
Taxes Other Than Income Taxes
    18,995       18,253       40,027       38,949  
TOTAL EXPENSES
    467,775       438,542       932,961       869,016  
 
                               
OPERATING INCOME
    42,140       91,874       130,010       228,444  
 
                               
Other Income (Expense):
                               
Interest Income
    1,034       974       1,519       3,517  
Allowance for Equity Funds Used During Construction
    4,567       2,783       9,002       4,338  
Interest Expense
    (26,410 )     (26,173 )     (52,511 )     (49,704 )
 
                               
INCOME BEFORE INCOME TAX EXPENSE
    21,331       69,458       88,020       186,595  
 
                               
Income Tax Expense
    6,729       20,949       28,360       57,134  
 
                               
NET INCOME
    14,602       48,509       59,660       129,461  
 
                               
Preferred Stock Dividend Requirements
    85       85       170       170  
 
                               
EARNINGS ATTRIBUTABLE TO COMMON STOCK
  $ 14,517     $ 48,424     $ 59,490     $ 129,291  
 
                               
The common stock of I&M is wholly-owned by AEP.
                               
 
                               
See Condensed Notes to Condensed Financial Statements of Registrant Subsidiaries beginning on page 156.
 

 
110

 

INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN COMMON SHAREHOLDER'S
 
EQUITY AND COMPREHENSIVE INCOME (LOSS)
 
For the Six Months Ended June 30, 2010 and 2009
 
(in thousands)
 
(Unaudited)
 
 
 
 
 
 
   
 
   
 
   
Accumulated
   
 
 
 
 
 
   
 
   
 
   
Other
   
 
 
 
 
Common
   
Paid-in
   
Retained
   
Comprehensive
   
 
 
 
 
Stock
   
Capital
   
Earnings
   
Income (Loss)
   
Total
 
TOTAL COMMON SHAREHOLDER'S
 
 
   
 
   
 
   
 
   
 
 
EQUITY – DECEMBER 31, 2008
  $ 56,584     $ 861,291     $ 538,637     $ (21,694 )   $ 1,434,818  
 
                                       
Capital Contribution from Parent
            120,000                       120,000  
Common Stock Dividends
                    (49,000 )             (49,000 )
Preferred Stock Dividends
                    (170 )             (170 )
Gain on Reacquired Preferred Stock
            1                       1  
SUBTOTAL – COMMON
                                       
SHAREHOLDER'S EQUITY
                                    1,505,649  
 
                                       
COMPREHENSIVE INCOME
                                       
Other Comprehensive Income, Net of Taxes:
                                       
Cash Flow Hedges, Net of Tax of $103
                            192       192  
Amortization of Pension and OPEB Deferred
                                       
Costs, Net of Tax of $184
                            341       341  
NET INCOME
                    129,461               129,461  
TOTAL COMPREHENSIVE INCOME
                                    129,994  
 
                                       
TOTAL COMMON SHAREHOLDER'S
                                       
EQUITY – JUNE 30,  2009
  $ 56,584     $ 981,292     $ 618,928     $ (21,161 )   $ 1,635,643  
 
                                       
TOTAL COMMON SHAREHOLDER'S
                                       
EQUITY – DECEMBER 31, 2009
  $ 56,584     $ 981,292     $ 656,608     $ (21,701 )   $ 1,672,783  
 
                                       
Common Stock Dividends
                    (51,500 )             (51,500 )
Preferred Stock Dividends
                    (170 )             (170 )
SUBTOTAL – COMMON
                                       
SHAREHOLDER'S EQUITY
                                    1,621,113  
 
                                       
COMPREHENSIVE INCOME
                                       
Other Comprehensive Income, Net of Taxes:
                                       
Cash Flow Hedges, Net of Tax of $39
                            72       72  
Amortization of Pension and OPEB Deferred
                                       
Costs, Net of Tax of $235
                            436       436  
NET INCOME
                    59,660               59,660  
TOTAL COMPREHENSIVE INCOME
                                    60,168  
 
                                       
TOTAL COMMON SHAREHOLDER'S
                                       
EQUITY – JUNE 30,  2010
  $ 56,584     $ 981,292     $ 664,598     $ (21,193 )   $ 1,681,281  
 
                                       
See Condensed Notes to Condensed Financial Statements of Registrant Subsidiaries beginning on page 156.
 

 
111

 
 
INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
ASSETS
 
June 30, 2010 and December 31, 2009
 
(in thousands)
 
(Unaudited)
 
 
 
 
 
2010
   
2009
 
CURRENT ASSETS
 
 
   
 
 
Cash and Cash Equivalents
  $ 732     $ 779  
Advances to Affiliates
    126,515       114,012  
Accounts Receivable:
               
Customers
    86,002       71,120  
Affiliated Companies
    68,632       83,248  
Accrued Unbilled Revenues
    4,243       8,762  
Miscellaneous
    15,702       8,638  
Allowance for Uncollectible Accounts
    (2,111 )     (2,265 )
Total Accounts Receivable
    172,468       169,503  
Fuel
    107,293       79,554  
Materials and Supplies
    163,532       164,439  
Risk Management Assets
    32,803       34,438  
Accrued Tax Benefits
    147,959       144,473  
Deferred Cook Plant Fire Costs
    53,218       134,322  
Prepayments and Other Current Assets
    25,833       29,395  
TOTAL CURRENT ASSETS
    830,353       870,915  
 
               
PROPERTY, PLANT AND EQUIPMENT
               
Electric:
               
Production
    3,652,725       3,634,215  
Transmission
    1,168,195       1,154,026  
Distribution
    1,382,429       1,360,553  
Other Property, Plant and Equipment (including nuclear fuel and coal mining)
    748,725       755,132  
Construction Work in Progress
    329,245       278,278  
Total Property, Plant and Equipment
    7,281,319       7,182,204  
Accumulated Depreciation, Depletion and Amortization
    3,105,441       3,073,695  
TOTAL PROPERTY, PLANT AND EQUIPMENT – NET
    4,175,878       4,108,509  
 
               
OTHER NONCURRENT ASSETS
               
Regulatory Assets
    517,700       496,464  
Spent Nuclear Fuel and Decommissioning Trusts
    1,391,428       1,391,919  
Long-term Risk Management Assets
    36,177       29,134  
Deferred Charges and Other Noncurrent Assets
    76,365       82,047  
TOTAL OTHER NONCURRENT ASSETS
    2,021,670       1,999,564  
 
               
TOTAL ASSETS
  $ 7,027,901     $ 6,978,988  
 
               
See Condensed Notes to Condensed Financial Statements of Registrant Subsidiaries beginning on page 156.
 

 
112

 

INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
June 30, 2010 and December 31, 2009
 
(Unaudited)
 
 
 
 
 
2010
   
2009
 
CURRENT LIABILITIES
 
(in thousands)
 
Accounts Payable:
 
 
   
 
 
General
  $ 91,297     $ 171,192  
Affiliated Companies
    55,208       61,315  
Long-term Debt Due Within One Year – Nonaffiliated DCC Fuel Bonds
    61,435       37,544  
Long-term Debt Due Within One Year – Affiliated
    -       25,000  
Risk Management Liabilities
    14,108       13,436  
Customer Deposits
    28,748       27,711  
Accrued Taxes
    63,131       56,814  
Accrued Interest
    27,588       27,633  
Obligations Under Capital Leases
    20,981       25,065  
Other Current Liabilities
    156,678       126,800  
TOTAL CURRENT LIABILITIES
    519,174       572,510  
 
               
NONCURRENT LIABILITIES
               
Long-term Debt – Nonaffiliated
    2,057,239       2,015,362  
Long-term Risk Management Liabilities
    11,249       10,386  
Deferred Income Taxes
    728,741       696,163  
Regulatory Liabilities and Deferred Investment Tax Credits
    753,515       756,845  
Asset Retirement Obligations
    923,666       894,746  
Deferred Credits and Other Noncurrent Liabilities
    344,959       352,116  
TOTAL NONCURRENT LIABILITIES
    4,819,369       4,725,618  
 
               
TOTAL LIABILITIES
    5,338,543       5,298,128  
 
               
Cumulative Preferred Stock Not Subject to Mandatory Redemption
    8,077       8,077  
 
               
Rate Matters (Note 3)
               
Commitments and Contingencies (Note 4)
               
 
               
COMMON SHAREHOLDER’S EQUITY
               
Common Stock – No Par Value:
               
Authorized – 2,500,000 Shares
               
Outstanding  – 1,400,000 Shares
    56,584       56,584  
Paid-in Capital
    981,292       981,292  
Retained Earnings
    664,598       656,608  
Accumulated Other Comprehensive Income (Loss)
    (21,193 )     (21,701 )
TOTAL COMMON SHAREHOLDER’S EQUITY
    1,681,281       1,672,783  
 
               
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
  $ 7,027,901     $ 6,978,988  
 
               
See Condensed Notes to Condensed Financial Statements of Registrant Subsidiaries beginning on page 156.
 

 
113

 

INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2010 and 2009
(in thousands)
(Unaudited)
 
 
 
2010 
 
2009 
OPERATING ACTIVITIES
 
 
 
 
 
 
Net Income
 
$
 59,660 
 
$
 129,461 
Adjustments to Reconcile Net Income to Net Cash Flows from Operating Activities:
 
 
 
 
 
 
 
 
Depreciation and Amortization
 
 
 67,802 
 
 
 66,374 
 
 
Deferred Income Taxes
 
 
 23,213 
 
 
 92,892 
 
 
Deferral of Incremental Nuclear Refueling Outage Expenses, Net
 
 
 (16,103)
 
 
 (13,928)
 
 
Allowance for Equity Funds Used During Construction
 
 
 (9,002)
 
 
 (4,338)
 
 
Mark-to-Market of Risk Management Contracts
 
 
 (4,314)
 
 
 (10,602)
 
 
Amortization of Nuclear Fuel
 
 
 69,478 
 
 
 24,718 
 
 
Fuel Over/Under Recovery, Net
 
 
 11,389 
 
 
 2,410 
 
 
Change in Other Noncurrent Assets
 
 
 7,224 
 
 
 (8,727)
 
 
Change in Other Noncurrent Liabilities
 
 
 33,814 
 
 
 26,606 
 
 
Changes in Certain Components of Working Capital:
 
 
 
 
 
 
 
 
 
Accounts Receivable, Net
 
 
 (2,965)
 
 
 9,383 
 
 
 
Fuel, Materials and Supplies
 
 
 (26,832)
 
 
 (8,668)
 
 
 
Accounts Payable
 
 
 (31,079)
 
 
 (62,884)
 
 
 
Accrued Taxes, Net
 
 
 4,470 
 
 
 (21,736)
 
 
 
Received (Deferred) Cook Plant Fire Costs
 
 
 61,906 
 
 
 (24,209)
 
 
 
Other Current Assets
 
 
 (284)
 
 
 (13,840)
 
 
 
Other Current Liabilities
 
 
 20,087 
 
 
 (26,990)
Net Cash Flows from Operating Activities
 
 
 268,464 
 
 
 155,922 
 
 
 
 
 
 
 
INVESTING ACTIVITIES
 
 
 
 
 
 
Construction Expenditures
 
 
 (160,797)
 
 
 (162,153)
Change in Advances to Affiliates, Net
 
 
 (12,503)
 
 
 - 
Purchases of Investment Securities
 
 
 (617,059)
 
 
 (441,928)
Sales of Investment Securities
 
 
 592,263 
 
 
 411,027 
Acquisitions of Nuclear Fuel
 
 
 (41,357)
 
 
 (152,150)
Other Investing Activities
 
 
 (345)
 
 
 15,473 
Net Cash Flows Used for Investing Activities
 
 
 (239,798)
 
 
 (329,731)
 
 
 
 
 
 
 
FINANCING ACTIVITIES
 
 
 
 
 
 
Capital Contribution from Parent
 
 
 - 
 
 
 120,000 
Issuance of Long-term Debt - Nonaffiliated
 
 
 84,564 
 
 
 567,797 
Issuance of Long-term Debt - Affiliated
 
 
 - 
 
 
 25,000 
Change in Advances from Affiliates, Net
 
 
 - 
 
 
 (473,686)
Retirement of Long-term Debt - Nonaffiliated
 
 
 (19,208)
 
 
 - 
Retirement of Long-term Debt - Affiliated
 
 
 (25,000)
 
 
 - 
Retirement of Cumulative Preferred Stock
 
 
 - 
 
 
 (2)
Principal Payments for Capital Lease Obligations
 
 
 (17,669)
 
 
 (16,235)
Dividends Paid on Common Stock
 
 
 (51,500)
 
 
 (49,000)
Dividends Paid on Cumulative Preferred Stock
 
 
 (170)
 
 
 (170)
Other Financing Activities
 
 
 270 
 
 
 189 
Net Cash Flows from (Used for) Financing Activities
 
 
 (28,713)
 
 
 173,893 
 
 
 
 
 
 
 
Net Increase (Decrease) in Cash and Cash Equivalents
 
 
 (47)
 
 
 84 
Cash and Cash Equivalents at Beginning of Period
 
 
 779 
 
 
 728 
Cash and Cash Equivalents at End of Period
 
$
 732 
 
$
 812 
 
 
 
 
 
 
 
SUPPLEMENTARY INFORMATION
 
 
 
 
 
 
Cash Paid for Interest, Net of Capitalized Amounts
 
$
 50,759 
 
$
 51,199 
Net Cash Paid (Received) for Income Taxes
 
 
 8,092 
 
 
 (23)
Noncash Acquisitions Under Capital Leases
 
 
 8,844 
 
 
 1,380 
Construction Expenditures Included in Accounts Payable at June 30,
 
 
 19,220 
 
 
 26,763 
Acquisition of Nuclear Fuel Included in Accounts Payable at June 30,
 
 
 123 
 
 
 9 
 
 
 
 
 
 
 
See Condensed Notes to Condensed Financial Statements of Registrant Subsidiaries beginning on page 156.

 
114

 

INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES
INDEX TO CONDENSED NOTES TO CONDENSED FINANCIAL STATEMENTS OF
REGISTRANT SUBSIDIARIES

The condensed notes to I&M’s condensed consolidated financial statements are combined with the condensed notes to condensed financial statements for other registrant subsidiaries.  Listed below are the notes that apply to I&M.  The footnotes begin on page 156.

 
Footnote
Reference
   
Significant Accounting Matters
Note 1
   
New Accounting Pronouncements and Extraordinary Item
Note 2
   
Rate Matters
Note 3
   
Commitments, Guarantees and Contingencies
Note 4
   
Benefit Plans
Note 6
   
Business Segments
Note 7
   
Derivatives and Hedging
Note 8
   
Fair Value Measurements
Note 9
   
Income Taxes
Note 10
   
Financing Activities
Note 11
   
Cost Reduction Initiatives
Note 12

 
115

 












OHIO POWER COMPANY CONSOLIDATED


 
116

 

OHIO POWER COMPANY CONSOLIDATED
 
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS
 
 
 
 
 
RESULTS OF OPERATIONS
 
 
 
 
 
 
 
Second Quarter of 2010 Compared to Second Quarter of 2009
 
 
 
 
 
Reconciliation of Second Quarter of 2009 to Second Quarter of 2010
 
Net Income
 
(in millions)
 
 
 
 
 
Second Quarter of 2009
  $ 64  
 
       
Changes in Gross Margin:
       
Retail Margins
    26  
Off-system Sales
    (7 )
Other Revenues
    (2 )
Total Change in Gross Margin
    17  
 
       
Total Expenses and Other:
       
Other Operation and Maintenance
    (55 )
Taxes Other Than Income Taxes
    (6 )
Carrying Costs Income
    3  
Other Income
    1  
Interest Expense
    (4 )
Total Expenses and Other
    (61 )
 
       
Income Tax Expense
    18  
 
       
Second Quarter of 2010
  $ 38  

The major components of the increase in Gross Margin, defined as revenues less the related direct cost of fuel, including consumption of chemicals and emissions allowances, and purchased power were as follows:

 
·
Retail Margins increased $26 million primarily due to the following:
   
·
A $13 million increase in retail sales as a result of an increase in weather-related usage of residential and commercial customers and an increase in usage of industrial customers resulting from an improvement in demand.
   
·
A $13 million increase in capacity settlements under the Interconnection Agreement.
   
·
An $8 million increase in fuel margins.
   
·
A $6 million increase associated with increased demand charges from WPCo effective January 2010.
   
These increases were partially offset by:
   
·
An $8 million decrease as a result of the timing of the approval and implementation of rates set by the Ohio ESP from April through December 2009.
   
·
A $3 million decrease related to increased consumable and allowance expenses.
 
·
Margins from Off-system Sales decreased $7 million primarily due to lower trading and marketing margins, partially offset by higher physical sales volumes.
 

 
 
117

 
Total Expenses and Other and Income Tax Expense changed between years as follows:

 
·
Other Operation and Maintenance expenses increased $55 million primarily due to a $49 million increase in expenses related to the cost reduction initiatives in the second quarter of 2010.
 
·
Taxes Other Than Income Taxes increased $6 million primarily due to a $2 million increase in real and property tax and a $2 million increase due to the employer portion of payroll taxes incurred related to the cost reduction initiatives in the second quarter of 2010.
 
·
Carrying Costs Income increased $3 million primarily due to higher Ohio ESP FAC carrying charges in 2010 related to an increase in the deferred fuel regulatory asset balance.
 
·
Interest Expense increased $4 million primarily due to:
   
·
A $7 million increase due to a prior year gain on an interest rate hedge of a forecasted debt issuance.
   
·
A $5 million increase primarily due to an issuance of long-term debt in September 2009 partly offset by a retirement of long-term debt in April 2010.
   
These increases were partially offset by:
   
·
An $8 million decrease related to the reacquisition of JMG Funding LP’s (JMG) bonds during the third quarter of 2009.
 
·
Income Tax Expense decreased $18 million primarily due to a decrease in pretax book income.
 
 
 
118

 
 
Six Months Ended June 30, 2010 Compared to Six Months Ended June 30, 2009
 
 
 
 
 
Reconciliation of Six Months Ended June 30, 2009 to Six Months Ended June 30, 2010
Net Income
(in millions)
 
 
 
 
 
Six Months Ended June 30, 2009
 
$
 137 
 
 
 
 
 
 
Changes in Gross Margin:
 
 
 
 
Retail Margins
 
 
 68 
 
Off-system Sales
 
 
 (1)
 
Transmission Revenues
 
 
 (2)
 
Other Revenues
 
 
 (19)
 
Total Change in Gross Margin
 
 
 46 
 
 
 
 
 
 
Total Expenses and Other:
 
 
 
 
Other Operation and Maintenance
 
 
 (41)
 
Depreciation and Amortization
 
 
 (6)
 
Taxes Other Than Income Taxes
 
 
 (7)
 
Carrying Costs Income
 
 
 6 
 
Other Income
 
 
 1 
 
Interest Expense
 
 
 (5)
 
Total Expenses and Other
 
 
 (52)
 
 
 
 
 
 
Income Tax Expense
 
 
 (2)
 
 
 
 
 
 
Six Months Ended June 30, 2010
 
$
 129 
 

The major components of the increase in Gross Margin, defined as revenues less the related direct cost of fuel, including consumption of chemicals and emissions allowances, and purchased power were as follows:

 
·
Retail Margins increased $68 million primarily due to the following:
   
·
A $37 million increase in capacity settlements under the Interconnection Agreement.
   
·
A $26 million increase in rate relief due to a $14 million increase related to the implementation of higher rates set by the Ohio ESP and $12 million of increased demand charges from WPCo effective January 2010.
   
·
A $20 million increase in fuel margins.
   
These increases were partially offset by:
   
·
A $10 million net decrease as a result of revenue collected from the Economic Development Rider more than offset by a reduction in revenue from the 2010 Special Arrangement Discount for Ormet.
   
·
A $6 million decrease related to increased consumable and allowance expenses.
 
·
Other Revenues decreased $19 million primarily due to reduced gains on sales of emission allowances.
 
 
 
119

 
Total Expenses and Other and Income Tax Expense changed between years as follows:

 
·
Other Operation and Maintenance expenses increased $41 million primarily due to:
   
·
A $49 million increase due to expenses related to the cost reduction initiatives in the second quarter of 2010.
   
·
A $5 million increase in recoverable customer account expenses due to increased Universal Service Fund surcharge rates for customers who qualify for payment assistance.
   
These increases were partially offset by:
   
·
A $7 million decrease related to a 2009 obligation to contribute to the “Partnership with Ohio” fund for low income, at-risk customers ordered by the PUCO’s March 2009 approval of OPCo’s ESP.
   
·
A $7 million decrease in rent expense as a result of the purchase of JMG in July 2009.
 
·
Depreciation and Amortization increased $6 million primarily due to:
   
·
A $9 million increase from higher depreciable property balances as a result of environmental improvements placed in service and various other property additions.
   
This increase was partially offset by:
   
·
A $3 million decrease due to the completion of the amortization of software and leasehold improvements in the fourth quarter of 2009.
 
·
Taxes Other Than Income Taxes increased $7 million primarily due to a $4 million increase in real and property tax and a $2 million increase due to the employer portion of payroll taxes incurred related to the cost reduction initiatives in the second quarter of 2010.
 
·
Carrying Costs Income increased $6 million primarily due to higher Ohio ESP FAC carrying charges in 2010 related to an increase in the deferred fuel regulatory asset balance.
 
·
Interest Expense increased $5 million primarily due to:
   
·
An $11 million increase primarily due to an issuance of long-term debt in September 2009 partly offset by a retirement of long-term debt in April 2010.
   
·
A $7 million increase due to a prior year gain on an interest rate hedge of a forecasted debt issuance.
   
·
A $6 million decrease in the debt component of AFUDC primarily due to the Amos Plant Unit 3 FGD and precipitator upgrade going into service in March 2009.
   
These increases were partially offset by:
   
·
A $16 million decrease related to the reacquisition of JMG’s bonds during the third quarter of 2009.
 
·
Income Tax Expense increased $2 million primarily due to the tax treatment associated with the future reimbursement of Medicare Part D retiree prescription drug benefits offset in part by a decrease in pretax book income.

FINANCIAL CONDITION

LIQUIDITY

OPCo participates in the Utility Money Pool, which provides access to AEP’s liquidity.  OPCo has $200 million of Senior Unsecured Notes that will mature in the remainder of 2010.  OPCo relies upon ready access to capital markets, cash flows from operations and access to the Utility Money Pool to fund its maturities, current operations and capital expenditures.  See the “Combined Management’s Discussion and Analysis of Registrant Subsidiaries” section beginning on page 224 for additional discussion of liquidity.

Credit Ratings

Downgrades in credit ratings by one of the rating agencies could increase OPCo’s borrowing costs.

 
120

 
CASH FLOW

Cash flows for the six months ended June 30, 2010 and 2009 were as follows:

 
 
2010
   
2009
 
 
 
(in thousands)
 
Cash and Cash Equivalents at Beginning of Period
  $ 1,984     $ 12,679  
Net Cash Flows from (Used for) Operating Activities
    352,278       (19,453 )
Net Cash Flows from (Used for) Investing Activities
    119,588       (296,508 )
Net Cash Flows from (Used for) Financing Activities
    (472,912 )     320,054  
Net Increase (Decrease) in Cash and Cash Equivalents
    (1,046 )     4,093  
Cash and Cash Equivalents at End of Period
  $ 938     $ 16,772  

Operating Activities

Net Cash Flows from Operating Activities were $352 million in 2010.  OPCo produced Net Income of $129 million during the period and noncash expense items of $179 million for Depreciation and Amortization and $73 million for Deferred Income Taxes.  The other changes in assets and liabilities represent items that had a current period cash flow impact, such as changes in working capital, as well as items that represent future rights or obligations to receive or pay cash, such as regulatory assets and liabilities.  The current period activity in working capital relates to a number of items.  Accrued Taxes, Net had a $71 million outflow due to temporary timing differences of payments for property taxes and an increase of federal income tax related accruals.  Accounts Receivable, Net had a $4 4 million inflow primarily due to decreased sales to affiliates and settlement of allowance sales to affiliated companies.  Fuel, Materials and Supplies had a $26 million inflow primarily due to price decreases.  The $76 million increase in Fuel Over/Under-Recovery, Net reflects the deferral of fuel costs as a fuel clause was reactivated in 2009 under OPCo’s ESP.

Net Cash Flows Used for Operating Activities were $19 million in 2009.  OPCo produced Net Income of $137 million during the period and noncash expense items of $173 million for Depreciation and Amortization, $117 million for Deferred Income Taxes and $44 million for Property Taxes offset by a $142 million increase in Fuel Over/Under-Recovery, Net due to an under-recovery of fuel costs in Ohio.  The other changes in assets and liabilities represent items that had a current period cash flow impact, such as changes in working capital, as well as items that represent future rights or obligations to receive or pay cash, such as regulatory assets and liabilities.  The activity in working capital primarily relates to a number of items.  Fuel, Materials and Supplies had a $166 million outflow primarily d ue to an increase in coal inventory.  Accounts Payable had a $101 million outflow primarily due to OPCo’s provision for revenue refund of $62 million which was paid in the first quarter of 2009 to the AEP West companies as part of the FERC’s order on the SIA.  Accrued Taxes, Net had a $93 million outflow due to a decrease of federal income tax related accruals and temporary timing differences of payments for property taxes.

Investing Activities

Net Cash Flows from Investing Activities were $120 million in 2010.  Net Cash Flows Used for Investing Activities were $297 million in 2009.  OPCo had a net decrease of $266 million and a net increase of $40 million in loans to the Utility Money Pool during 2010 and 2009, respectively.  Construction Expenditures of $148 million and $276 million in 2010 and 2009, respectively, primarily related to environmental upgrades, as well as projects to improve service reliability for transmission and distribution.  Environmental upgrades include the installation of selective catalytic reduction equipment and FGD projects at the Amos Plant.

Financing Activities

Net Cash Flows Used for Financing Activities were $473 million in 2010.  OPCo issued Pollution Control Bonds of $86 million in March 2010 and $79 million in May 2010.  OPCo retired $400 million of Senior Unsecured Notes in April 2010 and $79 million of Pollution Control Bonds in June 2010.  In addition, OPCo paid $151 million of dividends on common stock.

 
121

 
Net Cash Flows from Financing Activities were $320 million in 2009 primarily due to a $550 million Capital Contribution from Parent partially offset by a net decrease of $134 million in borrowings from the Utility Money Pool and a $78 million retirement of Notes Payable.

Long-term debt issuances and retirements during the first six months of 2010 were:

Issuances
 
 
 
 
 
 
 
 
 
 
 
Principal
 
Interest
 
Due
 
Type of Debt
 
Amount
 
Rate
 
Date
 
 
 
(in thousands)
 
(%)
 
 
 
Pollution Control Bonds
 
$
 86,000 
 
3.125 
 
2015 
 
Pollution Control Bonds
 
 
 79,450 
 
3.25 
 
2014 

Retirements
 
 
 
 
 
 
 
 
 
 
Principal
 
Interest
 
Due
 
Type of Debt
 
Amount Paid
 
Rate
 
Date
 
 
 
(in thousands)
 
(%)
 
 
 
Senior Unsecured Notes
 
$
 400,000 
 
Variable
 
2010 
 
Pollution Control Bonds
 
 
 79,450 
 
7.125 
 
2010 

SUMMARY OBLIGATION INFORMATION

A summary of contractual obligations is included in the 2009 Annual Report and has not changed significantly from year-end other than debt issuances and retirements discussed in “Cash Flow” above.

SIGNIFICANT FACTORS

REGULATORY ISSUES

Ohio Electric Security Plan Filing

During 2009, the PUCO issued an order that modified and approved OPCo’s ESP which established rates through 2011.  The order also limits rate increases for OPCo to 8% in 2009, 7% in 2010 and 8% in 2011.  The order provides a FAC for the three-year period of the ESP.  Several notices of appeal are outstanding at the Supreme Court of Ohio relating to significant issues in the determination of the approved ESP rates.  OPCo will file its significantly excessive earnings test with the PUCO by the September 2010 deadline.  OPCo is unable to determine whether it will be required to return any of the ESP revenues to customers.  See “Ohio Electric Security Plan Filings” section of Note 3.

LITIGATION AND ENVIRONMENTAL ISSUES

In the ordinary course of business, OPCo is involved in employment, commercial, environmental and regulatory litigation.  Since it is difficult to predict the outcome of these proceedings, management cannot state what the eventual resolution will be or the timing and amount of any loss, fine or penalty may be.  Management assesses the probability of loss for each contingency and accrues a liability for cases which have a probable likelihood of loss if the loss can be estimated.  For details on regulatory proceedings and pending litigation, see Note 4 – Rate Matters and Note 6 – Commitments, Guarantees and Contingencies in the 2009 Annual Report.  Also, see Note 3 – Rate Matters and Note 4 – Commitments, Guarantees and Contingencies within the Condensed Notes to Condense d Financial Statements beginning on page 156.  Adverse results in these proceedings have the potential to materially affect net income, financial condition and cash flows.

See the “Significant Factors” section of “Combined Management’s Discussion and Analysis of Registrant Subsidiaries” section beginning on page 224 for additional discussion of relevant factors.

 
122

 
CRITICAL ACCOUNTING POLICIES AND ESTIMATES, NEW ACCOUNTING PRONOUNCEMENTS

See the “Critical Accounting Policies and Estimates” section of “Combined Management’s Discussion and Analysis of Registrant Subsidiaries” in the 2009 Annual Report for a discussion of the estimates and judgments required for regulatory accounting, revenue recognition, the valuation of long-lived assets and pension and other postretirement benefits.

See the “New Accounting Pronouncements” section of “Combined Management’s Discussion and Analysis of Registrant Subsidiaries” beginning on page 224 for a discussion of the adoption and impact of new accounting pronouncements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT RISK MANAGEMENT ACTIVITIES

See “Quantitative And Qualitative Disclosures About Risk Management Activities” section of “Combined Management’s Discussion and Analysis of Registrant Subsidiaries” beginning on page 224 for a discussion of risk management activities.

 
123

 

OHIO POWER COMPANY CONSOLIDATED
 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 
For the Three and Six Months Ended June 30, 2010 and 2009
 
(in thousands)
 
(Unaudited)
 
 
 
 
 
Three Months Ended
   
Six Months Ended
 
 
 
2010
   
2009
   
2010
   
2009
 
REVENUES
 
 
   
 
   
 
   
 
 
Electric Generation, Transmission and Distribution
  $ 490,422     $ 457,465     $ 1,034,122     $ 982,151  
Sales to AEP Affiliates
    222,561       210,998       529,329       437,692  
Other Revenues - Affiliated
    5,155       6,281       11,729       13,769  
Other Revenues - Nonaffiliated
    3,826       3,269       8,057       7,116  
TOTAL REVENUES
    721,964       678,013       1,583,237       1,440,728  
 
                               
EXPENSES
                               
Fuel and Other Consumables Used for Electric Generation
    220,174       189,475       551,191       442,949  
Purchased Electricity for Resale
    38,746       43,969       77,636       96,238  
Purchased Electricity from AEP Affiliates
    21,583       20,465       43,774       37,207  
Other Operation
    146,417       96,249       235,573       195,847  
Maintenance
    63,472       58,150       119,703       118,190  
Depreciation and Amortization
    89,861       89,384       179,222       173,407  
Taxes Other Than Income Taxes
    52,088       46,482       105,172       97,974  
TOTAL EXPENSES
    632,341       544,174       1,312,271       1,161,812  
 
                               
OPERATING INCOME
    89,623       133,839       270,966       278,916  
 
                               
Other Income (Expense):
                               
Carrying Costs Income
    5,681       2,425       10,555       4,009  
Other Income
    1,320       417       2,756       1,528  
Interest Expense
    (39,077 )     (35,241 )     (79,052 )     (73,922 )
 
                               
INCOME BEFORE INCOME TAX EXPENSE
    57,547       101,440       205,225       210,531  
 
                               
Income Tax Expense
    19,999       37,528       75,774       74,010  
 
                               
NET INCOME
    37,548       63,912       129,451       136,521  
 
                               
Less: Net Income Attributable to Noncontrolling Interest
    -       553       -       1,016  
 
                               
NET INCOME ATTRIBUTABLE TO OPCo
                               
SHAREHOLDERS
    37,548       63,359       129,451       135,505  
 
                               
Less: Preferred Stock Dividend Requirements
    183       183       366       366  
 
                               
EARNINGS ATTRIBUTABLE TO OPCo COMMON
                               
SHAREHOLDER
  $ 37,365     $ 63,176     $ 129,085     $ 135,139  
 
                               
The common stock of OPCo is wholly-owned by AEP.
                               
 
                               
See Condensed Notes to Condensed Financial Statements of Registrant Subsidiaries beginning on page 156.
 

 
124

 

OHIO POWER COMPANY CONSOLIDATED
 
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
 
EQUITY AND COMPREHENSIVE INCOME (LOSS)
 
For the Six Months Ended June 30, 2010 and 2009
 
(in thousands)
 
(Unaudited)
 
 
 
 
 
OPCo Common Shareholder
   
 
   
 
 
 
 
 
   
 
   
 
   
Accumulated
   
 
   
 
 
 
 
 
   
 
   
 
   
Other
   
 
   
 
 
 
 
Common
   
Paid-in
   
Retained
   
Comprehensive
   
Noncontrolling
   
 
 
 
 
Stock
   
Capital
   
Earnings
   
Income (Loss)
   
Interest
   
Total
 
 
 
 
   
 
   
 
   
 
   
 
   
 
 
TOTAL EQUITY – DECEMBER 31, 2008
  $ 321,201     $ 536,640     $ 1,697,962     $ (133,858 )   $ 16,799     $ 2,438,744  
 
                                               
Capital Contribution from Parent
            550,000                               550,000  
Common Stock Dividends - Affiliated
                    (25,000 )                     (25,000 )
Common Stock Dividends - Nonaffiliated
                                    (1,016 )     (1,016 )
Preferred Stock Dividends
                    (366 )                     (366 )
Other Changes in Equity
                                    1,111       1,111  
SUBTOTAL – EQUITY
                                            2,963,473  
 
                                               
COMPREHENSIVE INCOME
                                               
Other Comprehensive Income, Net of Taxes:
                                               
Cash Flow Hedges, Net of Tax of $7,828
                            14,538               14,538  
Amortization of Pension and OPEB
                                               
Deferred Costs, Net of Tax of $1,459
                            2,709               2,709  
NET INCOME
                    135,505               1,016       136,521  
TOTAL COMPREHENSIVE INCOME
                                            153,768  
 
                                               
TOTAL EQUITY – JUNE 30, 2009
  $ 321,201     $ 1,086,640     $ 1,808,101     $ (116,611 )   $ 17,910     $ 3,117,241  
 
                                               
TOTAL COMMON SHAREHOLDER'S
                                               
EQUITY – DECEMBER 31, 2009
  $ 321,201     $ 1,123,149     $ 1,908,803     $ (118,458 )   $ -     $ 3,234,695  
 
                                               
Common Stock Dividends
                    (150,575 )                     (150,575 )
Preferred Stock Dividends
                    (366 )                     (366 )
SUBTOTAL – COMMON SHAREHOLDER'S
                                               
EQUITY
                                            3,083,754  
 
                                               
COMPREHENSIVE INCOME
                                               
Other Comprehensive Income (Loss), Net of
                                               
Taxes:
                                               
Cash Flow Hedges, Net of Tax of $676
                            (1,255 )             (1,255 )
Amortization of Pension and OPEB Deferred
                                               
Costs, Net of Tax of $1,897
                            3,523               3,523  
NET INCOME
                    129,451                       129,451  
TOTAL COMPREHENSIVE INCOME
                                            131,719  
 
                                               
TOTAL COMMON SHAREHOLDER'S
                                               
EQUITY –  JUNE 30, 2010
  $ 321,201     $ 1,123,149     $ 1,887,313     $ (116,190 )   $ -     $ 3,215,473  
 
                                               
See Condensed Notes to Condensed Financial Statements of Registrant Subsidiaries beginning on page 156.
 

 
125

 

OHIO POWER COMPANY CONSOLIDATED
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
ASSETS
 
June 30, 2010 and December 31, 2009
 
(in thousands)
 
(Unaudited)
 
 
 
 
 
2010
   
2009
 
CURRENT ASSETS
 
 
   
 
 
Cash and Cash Equivalents
  $ 938     $ 1,984  
Advances to Affiliates
    172,751       438,352  
Accounts Receivable:
               
Customers
    71,608       60,711  
Affiliated Companies
    139,427       200,579  
Accrued Unbilled Revenues
    21,630       15,021  
Miscellaneous
    2,320       2,701  
Allowance for Uncollectible Accounts
    (2,665 )     (2,665 )
Total Accounts Receivable
    232,320       276,347  
Fuel
    304,977       336,866  
Materials and Supplies
    121,867       115,486  
Risk Management Assets
    40,071       50,048  
Accrued Tax Benefits
    166,875       143,473  
Prepayments and Other Current Assets
    24,769       26,301  
TOTAL CURRENT ASSETS
    1,064,568       1,388,857  
 
               
PROPERTY, PLANT AND EQUIPMENT
               
Electric:
               
Production
    6,788,912       6,731,469  
Transmission
    1,202,373       1,166,557  
Distribution
    1,595,110       1,567,871  
Other Property, Plant and Equipment
    373,811       348,718  
Construction Work in Progress
    187,230       198,843  
Total Property, Plant and Equipment
    10,147,436       10,013,458  
Accumulated Depreciation and Amortization
    3,470,968       3,318,896  
TOTAL PROPERTY, PLANT AND EQUIPMENT – NET
    6,676,468       6,694,562  
 
               
OTHER NONCURRENT ASSETS
               
Regulatory Assets
    845,503       742,905  
Long-term Risk Management Assets
    31,506       28,003  
Deferred Charges and Other Noncurrent Assets
    139,122       184,812  
TOTAL OTHER NONCURRENT ASSETS
    1,016,131       955,720  
 
               
TOTAL ASSETS
  $ 8,757,167     $ 9,039,139  
 
               
See Condensed Notes to Condensed Financial Statements of Registrant Subsidiaries beginning on page 156.
 

 
126

 

 
 
 
   
 
 
OHIO POWER COMPANY CONSOLIDATED
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
June 30, 2010 and December 31, 2009
 
(Unaudited)
 
 
 
 
 
2010
   
2009
 
 
 
(in thousands)
 
CURRENT LIABILITIES
 
 
   
 
 
Accounts Payable:
 
 
   
 
 
General
  $ 140,269     $ 182,848  
Affiliated Companies
    91,992       92,766  
Long-term Debt Due Within One Year – Nonaffiliated
    200,000       679,450  
Risk Management Liabilities
    19,972       24,391  
Customer Deposits
    26,723       22,409  
Accrued Taxes
    155,946       203,335  
Accrued Interest
    45,623       46,431  
Other Current Liabilities
    149,314       104,889  
TOTAL CURRENT LIABILITIES
    829,839       1,356,519  
 
               
NONCURRENT LIABILITIES
               
Long-term Debt – Nonaffiliated
    2,529,248       2,363,055  
Long-term Debt – Affiliated
    200,000       200,000  
Long-term Risk Management Liabilities
    13,401       12,510  
Deferred Income Taxes
    1,379,968       1,302,939  
Regulatory Liabilities and Deferred Investment Tax Credits
    137,944       128,187  
Employee Benefits and Pension Obligations
    252,832       269,485  
Deferred Credits and Other Noncurrent Liabilities
    181,835       155,122  
TOTAL NONCURRENT LIABILITIES
    4,695,228       4,431,298  
 
               
TOTAL LIABILITIES
    5,525,067       5,787,817  
 
               
Cumulative Preferred Stock Not Subject to Mandatory Redemption
    16,627       16,627  
 
               
Rate Matters (Note 3)
               
Commitments and Contingencies (Note 4)
               
 
               
COMMON SHAREHOLDER’S EQUITY
               
Common Stock – No Par Value:
               
Authorized – 40,000,000 Shares
               
Outstanding  – 27,952,473 Shares
    321,201       321,201  
Paid-in Capital
    1,123,149       1,123,149  
Retained Earnings
    1,887,313       1,908,803  
Accumulated Other Comprehensive Income (Loss)
    (116,190 )     (118,458 )
TOTAL COMMON SHAREHOLDER’S EQUITY
    3,215,473       3,234,695  
 
               
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
  $ 8,757,167     $ 9,039,139  
 
               
See Condensed Notes to Condensed Financial Statements of Registrant Subsidiaries beginning on page 156.
 

 
127

 

OHIO POWER COMPANY CONSOLIDATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2010 and 2009
(in thousands)
(Unaudited)
 
 
 
2010 
 
2009 
OPERATING ACTIVITIES
 
 
 
 
 
 
Net Income
 
$
 129,451 
 
$
 136,521 
Adjustments to Reconcile Net Income to Net Cash Flows from (Used for)
 
 
 
 
 
 
 
Operating Activities:
 
 
 
 
 
 
 
 
Depreciation and Amortization
 
 
 179,222 
 
 
 173,407 
 
 
Deferred Income Taxes
 
 
 72,638 
 
 
 117,372 
 
 
Carrying Costs Income
 
 
 (10,555)
 
 
 (4,009)
 
 
Allowance for Equity Funds Used During Construction
 
 
 (2,017)
 
 
 (768)
 
 
Mark-to-Market of Risk Management Contracts
 
 
 2,359 
 
 
 (16,123)
 
 
Property Taxes
 
 
 48,578 
 
 
 44,125 
 
 
Fuel Over/Under-Recovery, Net
 
 
 (75,987)
 
 
 (141,874)
 
 
Change in Other Noncurrent Assets
 
 
 (7,571)
 
 
 6,483 
 
 
Change in Other Noncurrent Liabilities
 
 
 (2,326)
 
 
 15,173 
 
 
Changes in Certain Components of Working Capital:
 
 
 
 
 
 
 
 
 
Accounts Receivable, Net
 
 
 44,027 
 
 
 20,986 
 
 
 
Fuel, Materials and Supplies
 
 
 25,508 
 
 
 (165,648)
 
 
 
Accounts Payable
 
 
 (23,991)
 
 
 (100,613)
 
 
 
Accrued Taxes, Net
 
 
 (71,199)
 
 
 (93,152)
 
 
 
Other Current Assets
 
 
 2,680 
 
 
 (14,965)
 
 
 
Other Current Liabilities
 
 
 41,461 
 
 
 3,632 
Net Cash Flows from (Used for) Operating Activities
 
 
 352,278 
 
 
 (19,453)
 
 
 
 
 
 
 
INVESTING ACTIVITIES
 
 
 
 
 
 
Construction Expenditures
 
 
 (147,831)
 
 
 (276,255)
Change in Advances to Affiliates, Net
 
 
 265,601 
 
 
 (40,319)
Acquisitions of Assets
 
 
 (2,113)
 
 
 (1,075)
Proceeds from Sales of Assets
 
 
 4,245 
 
 
 17,261 
Other Investing Activities
 
 
 (314)
 
 
 3,880 
Net Cash Flows from (Used for) Investing Activities
 
 
 119,588 
 
 
 (296,508)
 
 
 
 
 
 
 
FINANCING ACTIVITIES
 
 
 
 
 
 
Capital Contribution from Parent
 
 
 - 
 
 
 550,000 
Issuance of Long-term Debt – Nonaffiliated
 
 
 163,944 
 
 
 (445)
Change in Short-term Debt, Net – Nonaffiliated
 
 
 - 
 
 
 11,500 
Change in Advances from Affiliates, Net
 
 
 - 
 
 
 (133,887)
Retirement of Long-term Debt – Nonaffiliated
 
 
 (479,450)
 
 
 (77,500)
Retirement of Cumulative Preferred Stock
 
 
 - 
 
 
 (1)
Principal Payments for Capital Lease Obligations
 
 
 (3,903)
 
 
 (2,224)
Dividends Paid on Common Stock – Nonaffiliated
 
 
 - 
 
 
 (463)
Dividends Paid on Common Stock – Affiliated
 
 
 (150,575)
 
 
 (25,000)
Dividends Paid on Cumulative Preferred Stock
 
 
 (366)
 
 
 (366)
Other Financing Activities
 
 
 (2,562)
 
 
 (1,560)
Net Cash Flows from (Used for) Financing Activities
 
 
 (472,912)
 
 
 320,054 
 
 
 
 
 
 
 
Net Increase (Decrease) in Cash and Cash Equivalents
 
 
 (1,046)
 
 
 4,093 
Cash and Cash Equivalents at Beginning of Period
 
 
 1,984 
 
 
 12,679 
Cash and Cash Equivalents at End of Period
 
$
 938 
 
$
 16,772 
 
 
 
 
 
 
 
SUPPLEMENTARY INFORMATION
 
 
 
 
 
 
Cash Paid for Interest, Net of Capitalized Amounts
 
$
 78,747 
 
$
 100,522 
Net Cash Paid for Income Taxes
 
 
 27,206 
 
 
 2,566 
Noncash Acquisitions Under Capital Leases
 
 
 23,489 
 
 
 468 
Construction Expenditures Included in Accounts Payable at June 30,
 
 
 10,567 
 
 
 16,391 
 
 
 
 
 
 
 
See Condensed Notes to Condensed Financial Statements of Registrant Subsidiaries beginning on page 156.

 
128

 

OHIO POWER COMPANY CONSOLIDATED
INDEX TO CONDENSED NOTES TO CONDENSED FINANCIAL STATEMENTS OF
REGISTRANT SUBSIDIARIES

The condensed notes to OPCo’s condensed consolidated financial statements are combined with the condensed notes to condensed financial statements for other registrant subsidiaries.  Listed below are the notes that apply to OPCo.  The footnotes begin on page 156.

 
Footnote
Reference
   
Significant Accounting Matters
Note 1
   
New Accounting Pronouncements and Extraordinary Item
Note 2
   
Rate Matters
Note 3
   
Commitments, Guarantees and Contingencies
Note 4
   
Benefit Plans
Note 6
   
Business Segments
Note 7
   
Derivatives and Hedging
Note 8
   
Fair Value Measurements
Note 9
   
Income Taxes
Note 10
   
Financing Activities
Note 11
   
Cost Reduction Initiatives
Note 12

 
129

 







PUBLIC SERVICE COMPANY OF OKLAHOMA


 
130

 

PUBLIC SERVICE COMPANY OF OKLAHOMA
 
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS
 
 
 
 
 
RESULTS OF OPERATIONS
 
 
 
 
 
 
 
Second Quarter of 2010 Compared to Second Quarter of 2009
 
 
 
 
 
Reconciliation of Second Quarter of 2009 to Second Quarter of 2010
 
Net Income
 
(in millions)
 
 
 
 
 
Second Quarter of 2009
  $ 24  
 
       
Changes in Gross Margin:
       
Retail Margins (a)
    12  
Other Revenues
    (2 )
Total Change in Gross Margin
    10  
 
       
Total Expenses and Other:
       
Other Operation and Maintenance
    (23 )
Depreciation and Amortization
    2  
Other Income
    (2 )
Interest Expense
    (1 )
Total Expenses and Other
    (24 )
 
       
Income Tax Expense
    5  
 
       
Second Quarter of 2010
  $ 15  
 
       
(a)  Includes firm wholesale sales to municipals and cooperatives.  

The major components of the increase in Gross Margin, defined as revenues less the related direct cost of fuel, including consumption of chemicals and emissions allowances, and purchased power were as follows:

 
·
Retail Margins increased $12 million primarily due to the following:
   
·
An $8 million increase primarily resulting from rate increases during the year, including revenue increases from rate riders of $5 million.  This increase in retail margins had corresponding offsets of $2 million related to cost recovery riders/trackers that were recognized in other expense line items below.
   
·
A $4 million increase in weather-related usage primarily due to a 17% increase in cooling degree days.

Total Expenses and Other and Income Tax Expense changed between years as follows:

 
·
Other Operation and Maintenance expenses increased $23 million primarily due to expenses related to the cost reduction initiatives in the second quarter of 2010.
 
·
Income Tax Expense decreased $5 million primarily due to a decrease in pretax book income.

 
131

 

Six Months Ended June 30, 2010 Compared to Six Months Ended June 30, 2009
 
 
 
 
 
Reconciliation of Six Months Ended June 30, 2009 to Six Months Ended June 30, 2010
Net Income
(in millions)
 
 
 
 
 
Six Months Ended June 30, 2009
 
$
 30 
 
 
 
 
 
 
Changes in Gross Margin:
 
 
 
 
Retail Margins (a)
 
 
 23 
 
Transmission Revenues
 
 
 3 
 
Other Revenues
 
 
 (1)
 
Total Change in Gross Margin
 
 
 25 
 
 
 
 
 
 
Total Expenses and Other:
 
 
 
 
Other Operation and Maintenance
 
 
 (39)
 
Depreciation and Amortization
 
 
 2 
 
Taxes Other Than Income Taxes
 
 
 1 
 
Other Income
 
 
 (2)
 
Interest Expense
 
 
 (3)
 
Total Expenses and Other
 
 
 (41)
 
 
 
 
 
 
Income Tax Expense
 
 
 6 
 
 
 
 
 
 
Six Months Ended June 30, 2010
 
$
 20 
 
 
 
 
 
 
(a)  Includes firm wholesale sales to municipals and cooperatives.

The major components of the increase in Gross Margin, defined as revenues less the related direct cost of fuel, including consumption of chemicals and emissions allowances, and purchased power were as follows:

 
·
Retail Margins increased $23 million primarily due to the following:
   
·
A $19 million increase primarily resulting from rate increases during the year, including revenue increases from rate riders of $12 million.  This increase in retail margins had corresponding offsets of $4 million related to cost recovery riders/trackers that were recognized in other expense line items below.
   
·
A $10 million increase in weather-related usage primarily due to a 27% increase in heating degree days and a 14% increase in cooling degree days.
 
·
Transmission Revenues increased $3 million primarily due to higher rates in the SPP region.

Total Expenses and Other and Income Tax Expense changed between years as follows:

 
·
Other Operation and Maintenance expenses increased $39 million primarily due to the following:
   
·
A $23 million increase primarily due to expenses related to the cost reduction initiatives in the second quarter of 2010.
   
·
A $6 million increase in employee-related expenses.
   
·
A $5 million increase in plant maintenance expense resulting from the 2009 deferral of generation maintenance expenses as a result of PSO’s base rate case.
 
·
Interest Expense increased $3 million primarily due to an increase in long-term borrowings in the last half of 2009.
 
·
Income Tax Expense decreased $6 million primarily due to a decrease in pretax book income.

 
 
132

 
FINANCIAL CONDITION

LIQUIDITY

PSO participates in the Utility Money Pool, which provides access to AEP’s liquidity.  PSO relies upon ready access to capital markets, cash flows from operations and access to the Utility Money Pool to fund current operations and capital expenditures.  See the “Combined Management’s Discussion and Analysis of Registrant Subsidiaries” section beginning on page 224 for additional discussion of liquidity.

Credit Ratings

Downgrades in credit ratings by one of the rating agencies could increase PSO’s borrowing costs.

CASH FLOW

Cash flows for the six months ended June 30, 2010 and 2009 were as follows:

 
 
2010
   
2009
 
 
 
(in thousands)
 
Cash and Cash Equivalents at Beginning of Period
  $ 796     $ 1,345  
Net Cash Flows from Operating Activities
    8,473       199,675  
Net Cash Flows Used for Investing Activities
    (46,697 )     (118,301 )
Net Cash Flows from (Used For) Financing Activities
    38,517       (81,659 )
Net Increase (Decrease) in Cash and Cash Equivalents
    293       (285 )
Cash and Cash Equivalents at End of Period
  $ 1,089     $ 1,060  

Operating Activities

Net Cash Flows from Operating Activities were $8 million in 2010.  PSO produced Net Income of $20 million during the period and had noncash expense items of $54 million for Depreciation and Amortization and $33 million for Deferred Income Taxes, partially offset by a $19 million increase in the deferral of Property Taxes.  The other changes in assets and liabilities represent items that had a current period cash flow impact, such as changes in working capital, as well as items that represent future rights or obligations to receive or pay cash, such as regulatory assets and liabilities.  The activity in working capital relates to a $38 million inflow from Accounts Payable primarily due to timing differences for payments to affiliates and purchased power.  The $100 million outflow from Fuel Over/Un der-Recovery, Net was the result of higher fuel costs in relation to commission-approved fuel recovery rates.

Net Cash Flows from Operating Activities were $200 million in 2009.  PSO produced Net Income of $30 million during the period and had a noncash expense item of $56 million for Depreciation and Amortization, partially offset by a $19 million increase in the deferral of Property Taxes.  The other changes in assets and liabilities represent items that had a current period cash flow impact, such as changes in working capital, as well as items that represent future rights or obligations to receive or pay cash, such as regulatory assets and liabilities.  The activity in working capital relates to a number of items.  The $88 million inflow from Accounts Receivable, Net was primarily due to receiving the SIA refund from the AEP East companies and lower customer receivables.  The $40 million inf low from Accrued Taxes, Net was the result of increased accruals related to property and income taxes.  The $15 million inflow from Fuel Over/Under-Recovery, Net was primarily due to lower fuel costs, partially offset by SIA refunds to customers.

 
133

 
Investing Activities

Net Cash Flows Used for Investing Activities during 2010 and 2009 were $47 million and $118 million, respectively.  Construction Expenditures of $107 million and $99 million in 2010 and 2009, respectively, were primarily related to project improvements made during the restoration of damage from a 2010 ice storm and for improved generation, transmission and distribution service reliability.  During 2010, PSO had a net decrease of $63 million in loans to the Utility Money Pool.  During 2009, PSO had a net increase of $19 million in loans to the Utility Money Pool.

Financing Activities

Net Cash Flows from Financing Activities were $39 million during 2010.  PSO had a net increase of $66 million in borrowings from the Utility Money Pool.  This inflow was partially offset by $25 million paid in dividends on common stock.

Net Cash Flows Used for Financing Activities were $82 million during 2009.  PSO had a net decrease of $70 million in borrowings from the Utility Money Pool.  PSO retired $50 million of Senior Unsecured Notes in June 2009 and issued $34 million of Pollution Control Bonds in February 2009.  PSO received capital contributions from the Parent of $20 million.  In addition, PSO paid $15 million in dividends on common stock.

PSO did not have any long-term debt issuances or retirements during the first six months of 2010.

SUMMARY OBLIGATION INFORMATION

A summary of contractual obligations is included in the 2009 Annual Report and has not changed significantly from year-end.

REGULATORY ACTIVITY

Oklahoma Regulatory Activity

In July 2010, PSO filed a request with the OCC to increase annual base rates by $82 million, including $30 million that is currently being recovered through a rider.  The requested increase is based on an 11.5% return on common equity.  PSO requested that new rates become effective no later than July 2011.  A procedural schedule has not been established.  See “2010 Oklahoma Base Rate Case” section of Note 3.

SIGNIFICANT FACTORS

LITIGATION AND ENVIRONMENTAL ISSUES

In the ordinary course of business, PSO is involved in employment, commercial, environmental and regulatory litigation.  Since it is difficult to predict the outcome of these proceedings, management cannot state what the eventual resolution will be or the timing and amount of any loss, fine or penalty may be.  Management assesses the probability of loss for each contingency and accrues a liability for cases which have a probable likelihood of loss if the loss can be estimated.  For details on regulatory proceedings and pending litigation, see Note 4 – Rate Matters and Note 6 – Commitments, Guarantees and Contingencies in the 2009 Annual Report.  Also, see Note 3 – Rate Matters and Note 4 – Commitments, Guarantees and Contingencies within the Condensed Notes to Condensed Financial Statements beginning on page 156.  Adverse results in these proceedings have the potential to materially affect net income, financial condition and cash flows.

See the “Significant Factors” section of “Combined Management’s Discussion and Analysis of Registrant Subsidiaries” section beginning on page 224 for additional discussion of relevant factors.

 
134

 
CRITICAL ACCOUNTING POLICIES AND ESTIMATES, NEW ACCOUNTING PRONOUNCEMENTS

See the “Critical Accounting Policies and Estimates” section of “Combined Management’s Discussion and Analysis of Registrant Subsidiaries” in the 2009 Annual Report for a discussion of the estimates and judgments required for regulatory accounting, revenue recognition, the valuation of long-lived assets and pension and other postretirement benefits.

See the “New Accounting Pronouncements” section of “Combined Management’s Discussion and Analysis of Registrant Subsidiaries” beginning on page 224 for a discussion of the adoption and impact of new accounting pronouncements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT RISK MANAGEMENT ACTIVITIES

See “Quantitative And Qualitative Disclosures About Risk Management Activities” section of “Combined Management’s Discussion and Analysis of Registrant Subsidiaries” beginning on page 224 for a discussion of risk management activities.

 
135

 

PUBLIC SERVICE COMPANY OF OKLAHOMA
 
CONDENSED STATEMENTS OF INCOME
 
For the Three and Six Months Ended June 30, 2010 and 2009
 
(in thousands)
 
(Unaudited)
 
 
 
 
   
 
   
 
   
 
 
 
 
Three Months Ended
   
Six Months Ended
 
 
 
2010
   
2009
   
2010
   
2009
 
REVENUES
 
 
   
 
   
 
   
 
 
Electric Generation, Transmission and Distribution
  $ 322,394     $ 263,763     $ 550,945     $ 542,534  
Sales to AEP Affiliates
    4,481       11,690       13,151       27,513  
Other Revenues
    811       1,688       1,345       2,381  
TOTAL REVENUES
    327,686       277,141       565,441       572,428  
 
                               
EXPENSES
                               
Fuel and Other Consumables Used for Electric Generation
    88,615       62,753       129,587       182,152  
Purchased Electricity for Resale
    53,555       46,108       98,535       90,533  
Purchased Electricity from AEP Affiliates
    10,471       3,416       21,463       9,331  
Other Operation
    70,837       46,521       120,499       86,066  
Maintenance
    27,038       27,965       57,977       53,395  
Depreciation and Amortization
    26,920       28,529       54,208       56,479  
Taxes Other Than Income Taxes
    10,985       10,958       21,285       21,709  
TOTAL EXPENSES
    288,421       226,250       503,554       499,665  
 
                               
OPERATING INCOME
    39,265       50,891       61,887       72,763  
 
                               
Other Income (Expense):
                               
Interest Income
    93       580       275       1,228  
Carrying Costs Income
    819       1,019       1,686       2,730  
Allowance for Equity Funds Used During Construction
    119       571       366       741  
Interest Expense
    (15,765 )     (15,163 )     (33,128 )     (29,968 )
 
                               
INCOME BEFORE INCOME TAX EXPENSE
    24,531       37,898       31,086       47,494  
 
                               
Income Tax Expense
    9,042       13,776       11,458       17,334  
 
                               
NET INCOME
    15,489       24,122       19,628       30,160  
 
                               
Preferred Stock Dividend Requirements
    49       53       103       106  
 
                               
EARNINGS ATTRIBUTABLE TO COMMON STOCK
  $ 15,440     $ 24,069     $ 19,525     $ 30,054  
 
                               
The common stock of PSO is wholly-owned by AEP.
                               
 
                               
See Condensed Notes to Condensed Financial Statements of Registrant Subsidiaries beginning on page 156.
 

 
136

 

PUBLIC SERVICE COMPANY OF OKLAHOMA
 
CONDENSED STATEMENTS OF CHANGES IN COMMON SHAREHOLDER'S
 
EQUITY AND COMPREHENSIVE INCOME (LOSS)
 
For the Six Months Ended June 30, 2010 and 2009
 
(in thousands)
 
(Unaudited)
 
 
 
 
 
 
   
 
   
 
   
Accumulated
   
 
 
 
 
 
   
 
   
 
   
Other
   
 
 
 
 
Common
   
Paid-in
   
Retained
   
Comprehensive
   
 
 
 
 
Stock
   
Capital
   
Earnings
   
Income (Loss)
   
Total
 
TOTAL COMMON SHAREHOLDER'S
 
 
   
 
   
 
   
 
   
 
 
EQUITY – DECEMBER 31, 2008
  $ 157,230     $ 340,016     $ 251,704     $ (704 )   $ 748,246  
 
                                       
Capital Contribution from Parent
            20,000                       20,000  
Common Stock Dividends
                    (14,500 )             (14,500 )
Preferred Stock Dividends
                    (106 )             (106 )
Gain on Reacquired Preferred Stock
            1                       1  
Other Change in Common Shareholder's Equity              4,214       (4,214             -  
SUBTOTAL – COMMON SHAREHOLDER'S EQUITY
                                    753,641  
 
                                       
COMPREHENSIVE INCOME
                                       
Other Comprehensive Income, Net of Taxes:
                                       
Cash Flow Hedges, Net of Tax of $117
                            218       218  
NET INCOME
                    30,160               30,160  
TOTAL COMPREHENSIVE INCOME
                                    30,378  
 
                                       
TOTAL COMMON SHAREHOLDER'S
                                       
EQUITY – JUNE 30, 2009
  $ 157,230     $ 364,231     $ 263,044     $ (486 )   $ 784,019  
 
                                       
TOTAL COMMON SHAREHOLDER'S
                                       
EQUITY – DECEMBER 31, 2009
  $ 157,230     $ 364,231     $ 290,880     $ (599 )   $ 811,742  
 
                                       
Common Stock Dividends
                    (25,375 )             (25,375 )
Preferred Stock Dividends
                    (103 )             (103 )
Gain on Reacquired Preferred Stock
            76                       76  
SUBTOTAL – COMMON SHAREHOLDER'S EQUITY
                                    786,340  
 
                                       
COMPREHENSIVE INCOME
                                       
Other Comprehensive Income, Net of Taxes:
                                       
Cash Flow Hedges, Net of Tax of $39
                            72       72  
NET INCOME
                    19,628               19,628  
TOTAL COMPREHENSIVE INCOME
                                    19,700  
 
                                       
TOTAL COMMON SHAREHOLDER'S
                                       
EQUITY – JUNE 30, 2010
  $ 157,230     $ 364,307     $ 285,030     $ (527 )   $ 806,040  
 
                                       
See Condensed Notes to Condensed Financial Statements of Registrant Subsidiaries beginning on page 156.
 

 
137

 

PUBLIC SERVICE COMPANY OF OKLAHOMA
 
CONDENSED BALANCE SHEETS
 
ASSETS
 
June 30, 2010 and December 31, 2009
 
(in thousands)
 
(Unaudited)
 
 
 
 
 
2010
   
2009
 
CURRENT ASSETS
 
 
   
 
 
Cash and Cash Equivalents
  $ 1,089     $ 796  
Advances to Affiliates
    -       62,695  
Accounts Receivable:
               
Customers
    40,145       38,239  
Affiliated Companies
    58,673       59,096  
Miscellaneous
    7,388       7,242  
Allowance for Uncollectible Accounts
    (144 )     (304 )
Total Accounts Receivable
    106,062       104,273  
Fuel
    22,270       20,892  
Materials and Supplies
    46,816       44,914  
Risk Management Assets
    2,608       2,376  
Deferred Income Tax Benefits
    8,771       26,335  
Accrued Tax Benefits
    29,754       15,291  
Regulatory Asset for Under-Recovered Fuel Costs
    48,689       -  
Prepayments and Other Current Assets
    6,329       9,139  
TOTAL CURRENT ASSETS
    272,388       286,711  
 
               
PROPERTY, PLANT AND EQUIPMENT
               
Electric:
               
Production
    1,319,083       1,300,069  
Transmission
    658,014       617,291  
Distribution
    1,652,722       1,596,355  
Other Property, Plant and Equipment
    244,748       228,705  
Construction Work in Progress
    36,359       67,138  
Total Property, Plant and Equipment
    3,910,926       3,809,558  
Accumulated Depreciation and Amortization
    1,237,130       1,220,177  
TOTAL PROPERTY, PLANT AND EQUIPMENT – NET
    2,673,796       2,589,381  
 
               
OTHER NONCURRENT ASSETS
               
Regulatory Assets
    272,732       279,185  
Long-term Risk Management Assets
    33       50  
Deferred Charges and Other Noncurrent Assets
    31,268       13,880  
TOTAL OTHER NONCURRENT ASSETS
    304,033       293,115  
 
               
TOTAL ASSETS
  $ 3,250,217     $ 3,169,207  
 
               
See Condensed Notes to Condensed Financial Statements of Registrant Subsidiaries beginning on page 156.
 

 
138

 


PUBLIC SERVICE COMPANY OF OKLAHOMA
 
CONDENSED BALANCE SHEETS
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
June 30, 2010 and December 31, 2009
 
(Unaudited)
 
 
 
 
   
 
 
 
 
2010
   
2009
 
 
 
(in thousands)
 
CURRENT LIABILITIES
 
 
   
 
 
Advances from Affiliates
  $ 66,229     $ -  
Accounts Payable:
               
General
    89,124       76,895  
Affiliated Companies
    98,320       71,099  
Long-term Debt Due Within One Year – Nonaffiliated
    75,000       -  
Risk Management Liabilities
    387       2,579  
Customer Deposits
    41,015       42,002  
Accrued Taxes
    38,171       19,471  
Regulatory Liability for Over-Recovered Fuel Costs
    -       51,087  
Other Current Liabilities
    59,620       60,905  
TOTAL CURRENT LIABILITIES
    467,866       324,038  
 
               
NONCURRENT LIABILITIES
               
Long-term Debt – Nonaffiliated
    893,851       968,121  
Long-term Risk Management Liabilities
    112       144  
Deferred Income Taxes
    610,292       588,768  
Regulatory Liabilities and Deferred Investment Tax Credits
    317,960       326,931  
Employee Benefits and Pension Obligations
    105,939       107,748  
Deferred Credits and Other Noncurrent Liabilities
    43,275       36,457  
TOTAL NONCURRENT LIABILITIES
    1,971,429       2,028,169  
 
               
TOTAL LIABILITIES
    2,439,295       2,352,207  
 
               
Cumulative Preferred Stock Not Subject to Mandatory Redemption
    4,882       5,258  
 
               
Rate Matters (Note 3)
               
Commitments and Contingencies (Note 4)
               
 
               
COMMON SHAREHOLDER’S EQUITY
               
Common Stock – Par Value – $15 Per Share:
               
Authorized – 11,000,000 Shares
               
Issued – 10,482,000 Shares
               
Outstanding – 9,013,000 Shares
    157,230       157,230  
Paid-in Capital
    364,307       364,231  
Retained Earnings
    285,030       290,880  
Accumulated Other Comprehensive Income (Loss)
    (527 )     (599 )
TOTAL COMMON SHAREHOLDER’S EQUITY
    806,040       811,742  
 
               
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
  $ 3,250,217     $ 3,169,207  
 
               
See Condensed Notes to Condensed Financial Statements of Registrant Subsidiaries beginning on page 156.
 

 
139

 

PUBLIC SERVICE COMPANY OF OKLAHOMA
CONDENSED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2010 and 2009
(in thousands)
(Unaudited)
 
 
 
2010 
 
2009 
OPERATING ACTIVITIES
 
 
 
 
 
 
Net Income
 
$
 19,628 
 
$
 30,160 
Adjustments to Reconcile Net Income to Net Cash Flows from Operating Activities:
 
 
 
 
 
 
 
 
Depreciation and Amortization
 
 
 54,208 
 
 
 56,479 
 
 
Deferred Income Taxes
 
 
 33,402 
 
 
 (6,130)
 
 
Carrying Costs Income
 
 
 (1,686)
 
 
 (2,730)
 
 
Allowance for Equity Funds Used During Construction
 
 
 (366)
 
 
 (741)
 
 
Mark-to-Market of Risk Management Contracts
 
 
 (2,448)
 
 
 1,053 
 
 
Property Taxes
 
 
 (18,532)
 
 
 (18,700)
 
 
Fuel Over/Under-Recovery, Net
 
 
 (99,776)
 
 
 15,268 
 
 
Change in Other Noncurrent Assets
 
 
 (13,891)
 
 
 1,885 
 
 
Change in Other Noncurrent Liabilities
 
 
 2,900 
 
 
 (3,290)
 
 
Changes in Certain Components of Working Capital:
 
 
 
 
 
 
 
 
 
Accounts Receivable, Net
 
 
 (1,789)
 
 
 87,923 
 
 
 
Fuel, Materials and Supplies
 
 
 (3,280)
 
 
 4,322 
 
 
 
Accounts Payable
 
 
 37,817 
 
 
 7,980 
 
 
 
Accrued Taxes, Net
 
 
 4,838 
 
 
 39,800 
 
 
 
Other Current Assets
 
 
 2,760 
 
 
 115 
 
 
 
Other Current Liabilities
 
 
 (5,312)
 
 
 (13,719)
Net Cash Flows from Operating Activities
 
 
 8,473 
 
 
 199,675 
 
 
 
 
 
 
 
INVESTING ACTIVITIES
 
 
 
 
 
 
Construction Expenditures
 
 
 (107,213)
 
 
 (98,559)
Change in Advances to Affiliates, Net
 
 
 62,695 
 
 
 (19,438)
Other Investing Activities
 
 
 (2,179)
 
 
 (304)
Net Cash Flows Used for Investing Activities
 
 
 (46,697)
 
 
 (118,301)
 
 
 
 
 
 
 
FINANCING ACTIVITIES
 
 
 
 
 
 
Capital Contribution from Parent
 
 
 - 
 
 
 20,000 
Issuance of Long-term Debt – Nonaffiliated
 
 
 - 
 
 
 33,283 
Change in Advances from Affiliates, Net
 
 
 66,229 
 
 
 (70,308)
Retirement of Long-term Debt – Nonaffiliated
 
 
 - 
 
 
 (50,000)
Retirement of Cumulative Preferred Stock
 
 
 (301)
 
 
 (2)
Principal Payments for Capital Lease Obligations
 
 
 (2,040)
 
 
 (772)
Dividends Paid on Common Stock
 
 
 (25,375)
 
 
 (14,500)
Dividends Paid on Cumulative Preferred Stock
 
 
 (103)
 
 
 (106)
Other Financing Activities
 
 
 107 
 
 
 746 
Net Cash Flows from (Used For) Financing Activities
 
 
 38,517 
 
 
 (81,659)
 
 
 
 
 
 
 
Net Increase (Decrease) in Cash and Cash Equivalents
 
 
 293 
 
 
 (285)
Cash and Cash Equivalents at Beginning of Period
 
 
 796 
 
 
 1,345 
Cash and Cash Equivalents at End of Period
 
$
 1,089 
 
$
 1,060 
 
 
 
 
 
 
 
SUPPLEMENTARY INFORMATION
 
 
 
 
 
 
Cash Paid for Interest, Net of Capitalized Amounts
 
$
 30,152 
 
$
 44,038 
Net Cash Paid (Received) for Income Taxes
 
 
 (8,073)
 
 
 3,584 
Noncash Acquisitions Under Capital Leases
 
 
 13,434 
 
 
 522 
Construction Expenditures Included in Accounts Payable at June 30,
 
 
 13,534 
 
 
 5,932 
 
 
 
 
 
 
 
See Condensed Notes to Condensed Financial Statements of Registrant Subsidiaries beginning on page 156.

 
140

 

PUBLIC SERVICE COMPANY OF OKLAHOMA
INDEX TO CONDENSED NOTES TO CONDENSED FINANCIAL STATEMENTS OF
REGISTRANT SUBSIDIARIES

The condensed notes to PSO’s condensed consolidated financial statements are combined with the condensed notes to condensed financial statements for other registrant subsidiaries.  Listed below are the notes that apply to PSO.  The footnotes begin on page 156.

 
Footnote
Reference
   
Significant Accounting Matters
Note 1
   
New Accounting Pronouncements and Extraordinary Item
Note 2
   
Rate Matters
Note 3
   
Commitments, Guarantees and Contingencies
Note 4
   
Benefit Plans
Note 6
   
Business Segments
Note 7
   
Derivatives and Hedging
Note 8
   
Fair Value Measurements
Note 9
   
Income Taxes
Note 10
   
Financing Activities
Note 11
   
Cost Reduction Initiatives
Note 12

 
141

 







SOUTHWESTERN ELECTRIC POWER COMPANY CONSOLIDATED

 
142

 

SOUTHWESTERN ELECTRIC POWER COMPANY CONSOLIDATED
 
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS
 
 
 
 
 
RESULTS OF OPERATIONS
 
 
 
 
 
 
 
Second Quarter of 2010 Compared to Second Quarter of 2009
 
 
 
 
 
Reconciliation of Second Quarter of 2009 to Second Quarter of 2010
 
Income Before Extraordinary Loss
 
(in millions)
 
 
 
 
 
Second Quarter of 2009
  $ 36  
 
       
Changes in Gross Margin:
       
Retail Margins (a)
    25  
Transmission Revenues
    (1 )
Other Revenues
    (7 )
Total Change in Gross Margin
    17  
 
       
Total Expenses and Other:
       
Other Operation and Maintenance
    (28 )
Depreciation and Amortization
    6  
Interest Expense
    (3 )
Equity Earnings of Unconsolidated Subsidiaries
    1  
Total Expenses and Other
    (24 )
 
       
Income Tax Expense
    (2 )
 
       
Second Quarter of 2010
  $ 27  
 
       
 
(a)
 Includes firm wholesale sales to municipals and cooperatives.  

The major components of the increase in Gross Margin, defined as revenues less the related direct cost of fuel, including consumption of chemicals and emissions allowances, and purchased power were as follows:

 
·
Retail Margins increased $25 million primarily due to:
   
·
A $9 million increase in base rates in Arkansas and Texas.
   
·
A $6 million increase in weather-related usage primarily due to a 30% increase in cooling degree days.
   
·
A $4 million increase in industrial sales due to higher usage reflecting an improvement in demand.
   
·
A $4 million increase in fuel recovery primary due to lower capacity costs.
 
·
Other Revenues decreased $7 million resulting from the deconsolidation of SWEPCo’s mining subsidiary, DHLC.  Prior to the deconsolidation, SWEPCo recorded revenues from coal deliveries from DHLC to CLECO.  SWEPCo prospectively adopted the “Consolidation” accounting guidance effective January 1, 2010 and began accounting for DHLC under the equity method of accounting.  The decreased revenue from coal deliveries was partially offset by a corresponding decrease in Other Operation and Maintenance expenses from mining operations as discussed below.
 

 
 
143

 
Total Expenses and Other and Income Tax Expense changed between years as follows:

 
·
Other Operation and Maintenance expenses increased $28 million primarily due to:
   
·
A $29 million increase due to expenses related to the cost reduction initiatives in the second quarter of 2010.
   
·
A $5 million increase in other generation operation expenses primarily related to Stall Unit testing for commercial operation.  The Stall Unit was placed in service in June 2010.
   
These increases were partially offset by:
   
·
A $5 million decrease in expenses for coal deliveries from SWEPCo’s mining subsidiary, DHLC.  The decreased expenses for coal deliveries were partially offset by a corresponding decrease in revenues from mining operations as discussed above.
 
·
Depreciation and Amortization expenses decreased $6 million primarily due to lower Arkansas and Texas depreciation resulting from the Arkansas and Texas base rate orders.
 
·
Interest Expense increased $3 million primarily due to increased long-term debt outstanding and capital leases, partially offset by an increase in the debt component of AFUDC due to the Turk Plant and Stall Unit generation projects.
 
·
Income Tax Expense increased $2 million primarily due to changes in certain book/tax differences accounted for on a flow-through basis, partially offset by a decrease in pretax book income.


 
144

 

Six Months Ended June 30, 2010 Compared to Six Months Ended June 30, 2009
 
 
 
 
 
Reconciliation of Six Months Ended June 30, 2009 to Six Months Ended June 30, 2010
Income Before Extraordinary Loss
(in millions)
 
 
 
 
 
Six Months Ended June 30, 2009
 
$
 47 
 
 
 
 
 
 
Changes in Gross Margin:
 
 
 
 
Retail Margins (a)
 
 
 43 
 
Off-system Sales
 
 
 1 
 
Transmission Revenues
 
 
 1 
 
Other Revenues
 
 
 (18)
 
Total Change in Gross Margin
 
 
 27 
 
 
 
 
 
 
Total Expenses and Other:
 
 
 
 
Other Operation and Maintenance
 
 
 (22)
 
Depreciation and Amortization
 
 
 9 
 
Taxes Other Than Income Taxes
 
 
 (1)
 
Other Income
 
 
 10 
 
Interest Expense
 
 
 (5)
 
Equity Earnings of Unconsolidated Subsidiaries
 
 
 1 
 
Total Expenses and Other
 
 
 (8)
 
 
 
 
 
 
Income Tax Expense
 
 
 (8)
 
 
 
 
 
 
Six Months Ended June 30, 2010
 
$
 58 
 
 
 
 
 
 
  (a)  Includes firm wholesale sales to municipals and cooperatives.

The major components of the increase in Gross Margin, defined as revenues less the related direct cost of fuel, including consumption of chemicals and emissions allowances, and purchased power were as follows:

 
·
Retail Margins increased $43 million primarily due to:
   
·
A $13 million increase in base rates in Arkansas and Texas.
   
·
A $13 million increase in weather-related usage primarily due to a 42% increase in heating degree days.
   
·
A $6 million increase in industrial sales due to higher usage reflecting an improvement in demand.
   
·
A $5 million increase in fuel recovery primarily due to lower capacity costs.
 
·
Other Revenues decreased $18 million resulting from the deconsolidation of SWEPCo’s mining subsidiary, DHLC.  Prior to the deconsolidation, SWEPCo recorded revenues from coal deliveries from DHLC to CLECO.  SWEPCo prospectively adopted the “Consolidation” accounting guidance effective January 1, 2010 and began accounting for DHLC under the equity method of accounting.  The decreased revenue from coal deliveries was partially offset by a corresponding decrease in Other Operation and Maintenance expenses from mining operations as discussed below.
 

 
 
145

 
Total Expenses and Other and Income Tax Expense changed between years as follows:

 
·
Other Operation and Maintenance expenses increased $22 million primarily due to:
   
·
A $29 million increase due to expenses related to the cost reduction initiatives in the second quarter of 2010.
   
·
A $3 million increase in employee-related expenses.
   
·
A $2 million gain on sale of property during the first quarter of 2009 related to the sale of percentage ownership of Turk Plant to nonaffiliated companies who exercised their participation options.
   
These increases were partially offset by:
   
·
A $13 million decrease in expenses for coal deliveries from SWEPCo’s mining subsidiary, DHLC.  The decreased expenses for coal deliveries were partially offset by a corresponding decrease in revenues from mining operations as discussed above.
 
·
Depreciation and Amortization expenses decreased $9 million primarily due to lower Arkansas and Texas depreciation resulting from the Arkansas and Texas base rate orders and the deconsolidation of DHLC.
 
·
Other Income increased $10 million primarily due to an increase in the equity component of AFUDC as a result of construction at the Turk Plant and Stall Unit and the reapplication of “Regulated Operations” accounting guidance for the generation portion of Texas’ retail jurisdiction effective the second quarter of 2009.
 
·
Interest Expense increased $5 million primarily due to increased long-term debt outstanding and capital leases, partially offset by an increase in the debt component of AFUDC due to the Turk Plant and Stall Unit generation projects.
 
·
Income Tax Expense increased $8 million primarily due to an increase in pretax book income.

FINANCIAL CONDITION

LIQUIDITY

SWEPCo participates in the Utility Money Pool, which provides access to AEP’s liquidity.  SWEPCo relies upon ready access to capital markets, cash flows from operations and access to the Utility Money Pool to fund current operations and capital expenditures.  See the “Combined Management’s Discussion and Analysis of Registrant Subsidiaries” section beginning on page 224 for additional discussion of liquidity.

Credit Ratings

In June 2010, Fitch downgraded SWEPCo's senior unsecured rating to BBB.  Further downgrades in SWEPCo's ratings by one of the rating agencies could increase SWEPCo's borrowing costs and affect SWEPCo's ability to finance construction costs.

CASH FLOW

Cash flows for the six months ended June 30, 2010 and 2009 were as follows:

 
 
2010
   
2009
 
 
 
(in thousands)
 
Cash and Cash Equivalents at Beginning of Period
  $ 1,661     $ 1,910  
Net Cash Flows from Operating Activities
    80,809       222,403  
Net Cash Flows Used for Investing Activities
    (371,560 )     (236,343 )
Net Cash Flows from Financing Activities
    290,652       13,541  
Net Decrease in Cash and Cash Equivalents
    (99 )     (399 )
Cash and Cash Equivalents at End of Period
  $ 1,562     $ 1,511  

 
146

 
Operating Activities

Net Cash Flows from Operating Activities were $81 million in 2010.  SWEPCo produced Net Income of $58 million during the period and had a noncash item of $63 million for Depreciation and Amortization, partially offset by $28 million for Allowance for Equity Funds Used During Construction and an $18 million increase in the deferral of Property Taxes.  The other changes in assets and liabilities represent items that had a current period cash flow impact, such as changes in working capital, as well as items that represent future rights or obligations to receive or pay cash, such as regulatory assets and liabilities.  The activity in working capital relates to a number of items.  The $32 million inflow from Accrued Taxes, Net was the result of an increase in accruals related to property taxes. & #160;The $25 million outflow from Accounts Receivable, Net was primarily due to increased affiliated and jointly owned receivables partially offset by lower construction related receivables.  The $20 million inflow from Fuel, Materials and Supplies was primarily due to a decrease in coal and lignite inventories.  The $16 million outflow from Fuel Over/Under-Recovery, Net was the result of higher fuel costs in relation to commission-approved fuel recovery rates in Texas.

Net Cash Flows from Operating Activities were $222 million in 2009.  SWEPCo produced Net Income of $42 million during the period and had a noncash item of $72 million for Depreciation and Amortization, partially offset by $30 million for Deferred Income Taxes, a $20 million increase in the deferral of Property Taxes and $19 million for Allowance for Equity Funds Used During Construction.  The other changes in assets and liabilities represent items that had a current period cash flow impact, such as changes in working capital, as well as items that represent future rights or obligations to receive or pay cash, such as regulatory assets and liabilities.  The activity in working capital relates to a number of items.  The $88 million inflow from Accounts Receivable, Net was primarily due to the recei pt of payment for SIA from the AEP East companies.  The $64 million inflow from Accrued Taxes, Net was the result of an increase in accruals related to federal and property taxes.  The $54 million outflow from Other Current Liabilities was due to a decrease in checks outstanding, a refund to wholesale customers for the SIA and payments of employee-related expenses.  The $23 million inflow from Accounts Payable was primarily due to increases related to customer accounts factored, net.  The $44 million inflow from Fuel Over/Under-Recovery, Net was the result of a decrease in fuel costs in relation to the recovery of these costs from customers.

Investing Activities

Net Cash Flows Used for Investing Activities during 2010 and 2009 were $372 million and $236 million, respectively.  Construction Expenditures of $176 million and $306 million in 2010 and 2009, respectively, were primarily related to new generation projects at the Turk Plant and Stall Unit.  Proceeds from Sales of Assets in 2009 primarily included $104 million relating to the sale of a portion of Turk Plant to joint owners.  SWEPCo’s net increase in loans to the Utility Money Pool during 2010 and 2009 were $193 million and $32 million, respectively.

Financing Activities

Net Cash Flows from Financing Activities were $291 million during 2010 related to a $350 million issuance of Senior Unsecured Notes and a $54 million issuance of Pollution Control Bonds.  These increases were partially offset by a $54 million retirement of Pollution Control Bonds and a $50 million retirement of Notes Payable – Affiliated.

Net Cash Flows from Financing Activities were $14 million during 2009.  SWEPCo received capital contributions from the Parent of $18 million and paid $5 million in principal payments for capital lease obligations.

 
147

 
Long-term debt issuances and retirements during the first six months of 2010 were:

Issuances
 
 
 
 
 
 
 
 
 
 
 
Principal
 
Interest
 
Due
 
Type of Debt
 
Amount
 
Rate
 
Date
 
 
 
(in thousands)
 
(%)
 
 
 
Senior Unsecured Notes
 
$
 350,000 
 
6.20 
 
2040 
 
Pollution Control Bonds
 
 
 53,500 
 
3.25 
 
2015 

Retirements
 
 
 
 
 
 
 
 
 
 
Principal
 
Interest
 
Due
 
Type of Debt
 
Amount Paid
 
Rate
 
Date
 
 
 
(in thousands)
 
(%)
 
 
 
Notes Payable – Affiliated
 
$
 50,000 
 
4.45 
 
2010 
 
Pollution Control Bonds
 
 
 53,500 
 
Variable
 
2019 

SUMMARY OBLIGATION INFORMATION

A summary of contractual obligations is included in the 2009 Annual Report and has not changed significantly from year-end other than debt issuances and retirements discussed in “Cash Flow” above.

REGULATORY ACTIVITY

Texas Regulatory Activity

In April 2010, a settlement agreement was approved by the PUCT to increase SWEPCo’s base rates by approximately $15 million annually, effective May 2010, including a return on equity of 10.33%.  In addition, the settlement agreement allows SWEPCo a $10 million one-year surcharge rider to recover additional vegetation management costs that SWEPCo must spend within two years.  See “2009 Texas Base Rate Filing” section of Note 3.

SIGNIFICANT FACTORS

REGULATORY ISSUES

SWEPCo is currently constructing the Turk Plant, a new base load 600 MW pulverized coal ultra-supercritical generating unit in Arkansas, which is expected to be in-service in 2012.  SWEPCo owns 73% of the Turk Plant and will operate the completed facility.  The Turk Plant is currently estimated to cost $1.7 billion, excluding AFUDC, plus an additional $131 million for transmission, excluding AFUDC.  SWEPCo’s share is currently estimated to cost $1.3 billion, excluding AFUDC, plus an additional $131 million for transmission, excluding AFUDC.  Notices of appeal are outstanding at the Arkansas Court of Appeals and the Circuit Court of Hempstead County, Arkansas.  Matters are also outstanding at the LPSC, the Texas Court of Appeals and the Federal District Court for the Western Distri ct of Arkansas.  See “Turk Plant” section of Note 3.

LITIGATION AND ENVIRONMENTAL ISSUES

In the ordinary course of business SWEPCo is involved in employment, commercial, environmental and regulatory litigation.  Since it is difficult to predict the outcome of these proceedings, management cannot state what the eventual resolution will be or the timing and amount of any loss, fine or penalty may be.  Management assesses the probability of loss for each contingency and accrues a liability for cases which have a probable likelihood of loss if the loss can be estimated.  For details on regulatory proceedings and pending litigation, see Note 4 – Rate Matters and Note 6 – Commitments, Guarantees and Contingencies in the 2009 Annual Report.  Also, see Note 3 – Rate Matters and Note 4 – Commitments, Guarantees and Contingencies within the Condensed Notes to Condens ed Financial Statements beginning on page 156.  Adverse results in these proceedings have the potential to materially affect net income, financial condition and cash flows.

See the “Significant Factors” section of “Combined Management’s Discussion and Analysis of Registrant Subsidiaries” section beginning on page 224 for additional discussion of relevant factors.
 
148

 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES, NEW ACCOUNTING PRONOUNCEMENTS

See the “Critical Accounting Policies and Estimates” section of “Combined Management’s Discussion and Analysis of Registrant Subsidiaries” in the 2009 Annual Report for a discussion of the estimates and judgments required for regulatory accounting, revenue recognition, the valuation of long-lived assets and pension and other postretirement benefits.

See the “New Accounting Pronouncements” section of “Combined Management’s Discussion and Analysis of Registrant Subsidiaries” beginning on page 224 for a discussion of the adoption and impact of new accounting pronouncements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT RISK MANAGEMENT ACTIVITIES

See “Quantitative And Qualitative Disclosures About Risk Management Activities” section of “Combined Management’s Discussion and Analysis of Registrant Subsidiaries” beginning on page 224 for a discussion of risk management activities.

 
149

 

SOUTHWESTERN ELECTRIC POWER COMPANY CONSOLIDATED
 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 
For the Three and Six Months Ended June 30, 2010 and 2009
 
(in thousands)
 
(Unaudited)
 
 
 
 
 
Three Months Ended
   
Six Months Ended
 
 
 
2010
   
2009
   
2010
   
2009
 
REVENUES
 
 
   
 
   
 
   
 
 
Electric Generation, Transmission and Distribution
  $ 347,657     $ 326,992     $ 680,735     $ 629,375  
Sales to AEP Affiliates
    13,231       5,706       22,564       14,050  
Lignite Revenues – Nonaffiliated
    -       7,518       -       18,238  
Other Revenues
    579       566       972       921  
TOTAL REVENUES
    361,467       340,782       704,271       662,584  
 
                               
EXPENSES
                               
Fuel and Other Consumables Used for Electric Generation
    135,051       117,135       257,939       243,450  
Purchased Electricity for Resale
    22,841       30,339       64,727       54,736  
Purchased Electricity from AEP Affiliates
    4,211       10,520       13,963       23,530  
Other Operation
    82,265       59,566       140,518       113,770  
Maintenance
    28,133       23,314       45,552       50,016  
Depreciation and Amortization
    29,868       35,559       63,111       72,351  
Taxes Other Than Income Taxes
    15,580       15,479       31,475       30,868  
TOTAL EXPENSES
    317,949       291,912       617,285       588,721  
 
                               
OPERATING INCOME
    43,518       48,870       86,986       73,863  
 
                               
Other Income (Expense):
                               
Interest Income
    169       363       248       817  
Allowance for Equity Funds Used During Construction
    12,462       12,369       27,979       18,774  
Interest Expense
    (21,475 )     (18,990 )     (40,019 )     (35,289 )
 
                               
INCOME BEFORE INCOME TAX EXPENSE AND
                               
EQUITY EARNINGS
    34,674       42,612       75,194       58,165  
 
                               
Income Tax Expense
    8,707       6,834       18,863       10,687  
Equity Earnings of Unconsolidated Subsidiaries
    738       -       1,457       -  
 
                               
INCOME BEFORE EXTRAORDINARY LOSS
    26,705       35,778       57,788       47,478  
 
                               
EXTRAORDINARY LOSS, NET OF TAX
    -       (5,325 )     -       (5,325 )
 
                               
NET INCOME
    26,705       30,453       57,788       42,153  
 
                               
Less: Net Income Attributable to Noncontrolling Interest
    1,273       812       2,424       1,949  
 
                               
NET INCOME ATTRIBUTABLE TO SWEPCo
                               
SHAREHOLDERS
    25,432       29,641       55,364       40,204  
 
                               
Less: Preferred Stock Dividend Requirements
    57       57       114       114  
 
                               
EARNINGS ATTRIBUTABLE TO SWEPCo COMMON
                               
SHAREHOLDER
  $ 25,375     $ 29,584     $ 55,250     $ 40,090  
 
                               
The common stock of SWEPCo is wholly-owned by AEP.
                               
 
                               
See Condensed Notes to Condensed Financial Statements of Registrant Subsidiaries beginning on page 156.
 

 
150

 

SOUTHWESTERN ELECTRIC POWER COMPANY CONSOLIDATED
 
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
 
EQUITY AND COMPREHENSIVE INCOME (LOSS)
 
For the Six Months Ended June 30, 2010 and 2009
 
(in thousands)
 
(Unaudited)
 
 
 
 
 
SWEPCo Common Shareholder
   
 
   
 
 
 
 
 
   
 
   
 
   
Accumulated
   
 
   
 
 
 
 
 
   
 
   
 
   
Other
   
 
   
 
 
 
 
Common
   
Paid-in
   
Retained
   
Comprehensive
   
Noncontrolling
   
 
 
 
 
Stock
   
Capital
   
Earnings
   
Income (Loss)
   
Interest
   
Total
 
 
 
 
   
 
   
 
   
 
   
 
   
 
 
TOTAL EQUITY – DECEMBER 31, 2008
  $ 135,660     $ 530,003     $ 615,110     $ (32,120 )   $ 276     $ 1,248,929  
 
                                               
Capital Contribution from Parent
            17,500                               17,500  
Common Stock Dividends – Nonaffiliated
                                    (1,920 )     (1,920 )
Preferred Stock Dividends
                    (114 )                     (114 )
Other Changes in Equity
            2,476       (2,476 )                     -  
SUBTOTAL – EQUITY
                                            1,264,395  
 
                                               
COMPREHENSIVE INCOME
                                               
Other Comprehensive Income, Net of Taxes:
                                               
Cash Flow Hedges, Net of Tax of $306
                            568               568  
Amortization of Pension and OPEB Deferred
                                               
Costs, Net of Tax of $8,583
                            15,939               15,939  
NET INCOME
                    40,204               1,949       42,153  
TOTAL COMPREHENSIVE INCOME
                                            58,660  
 
                                               
TOTAL EQUITY – JUNE 30,  2009
  $ 135,660     $ 549,979     $ 652,724     $ (15,613 )   $ 305     $ 1,323,055  
 
                                               
TOTAL EQUITY – DECEMBER 31, 2009
  $ 135,660     $ 674,979     $ 726,478     $ (12,991 )   $ 31     $ 1,524,157  
 
                                               
Common Stock Dividends – Nonaffiliated
                                    (1,892 )     (1,892 )
Preferred Stock Dividends
                    (114 )                     (114 )
SUBTOTAL – EQUITY
                                            1,522,151  
 
                                               
COMPREHENSIVE INCOME
                                               
Other Comprehensive Income, Net of Taxes:
                                               
Cash Flow Hedges, Net of Tax of $48
                            90               90  
Amortization of Pension and OPEB Deferred
                                               
Costs, Net of Tax of $253
                            469               469  
NET INCOME
                    55,364               2,424       57,788  
TOTAL COMPREHENSIVE INCOME
                                            58,347  
 
                                               
TOTAL EQUITY – JUNE 30,  2010
  $ 135,660     $ 674,979     $ 781,728     $ (12,432 )   $ 563     $ 1,580,498  
 
                                               
See Condensed Notes to Condensed Financial Statements of Registrant Subsidiaries beginning on page 156.
 

 
151

 

SOUTHWESTERN ELECTRIC POWER COMPANY CONSOLIDATED
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
ASSETS
 
June 30, 2010 and December 31, 2009
 
(in thousands)
 
(Unaudited)
 
 
 
 
 
2010
   
2009
 
CURRENT ASSETS
 
 
   
 
 
Cash and Cash Equivalents
  $ 1,562     $ 1,661  
Advances to Affiliates
    245,253       34,883  
Accounts Receivable:
               
Customers
    26,322       46,657  
Affiliated Companies
    38,491       19,542  
Miscellaneous
    26,261       9,952  
Allowance for Uncollectible Accounts
    (378 )     (64 )
Total Accounts Receivable
    90,696       76,087  
Fuel
               
(June 30, 2010 amount includes $32,452 related to Sabine)
    96,434       121,453  
Materials and Supplies
    46,205       54,484  
Risk Management Assets
    2,197       3,049  
Deferred Income Tax Benefits
    12,707       13,820  
Accrued Tax Benefits
    15,141       16,164  
Regulatory Asset for Under-Recovered Fuel Costs
    13,380       1,639  
Prepayments and Other Current Assets
    21,904       20,503  
TOTAL CURRENT ASSETS
    545,479       343,743  
 
               
PROPERTY, PLANT AND EQUIPMENT
               
Electric:
               
Production
    2,263,438       1,837,318  
Transmission
    904,424       870,069  
Distribution
    1,465,137       1,447,559  
Other Property, Plant and Equipment
               
(June 30, 2010 amount includes $226,011 related to Sabine)
    637,520       733,310  
Construction Work in Progress
    895,663       1,176,639  
Total Property, Plant and Equipment
    6,166,182       6,064,895  
Accumulated Depreciation and Amortization
               
(June 30, 2010 amount includes $88,113 related to Sabine)
    2,054,693       2,086,333  
TOTAL PROPERTY, PLANT AND EQUIPMENT – NET
    4,111,489       3,978,562  
 
               
OTHER NONCURRENT ASSETS
               
Regulatory Assets
    288,004       268,165  
Long-term Risk Management Assets
    49       84  
Deferred Charges and Other Noncurrent Assets
    93,881       49,479  
TOTAL OTHER NONCURRENT ASSETS
    381,934       317,728  
 
               
TOTAL ASSETS
  $ 5,038,902     $ 4,640,033  
 
               
See Condensed Notes to Condensed Financial Statements of Registrant Subsidiaries beginning on page 156.
 

 
152

 


SOUTHWESTERN ELECTRIC POWER COMPANY CONSOLIDATED
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
LIABILITIES AND EQUITY
 
June 30, 2010 and December 31, 2009
 
(Unaudited)
 
 
 
 
 
2010
   
2009
 
 
 
(in thousands)
 
CURRENT LIABILITIES
 
 
   
 
 
Accounts Payable:
 
 
   
 
 
General
  $ 149,872     $ 160,870  
Affiliated Companies
    74,433       59,818  
Short-term Debt – Nonaffiliated
    8,717       6,890  
Long-term Debt Due Within One Year – Nonaffiliated
    -       4,406  
Long-term Debt Due Within One Year – Affiliated
    -       50,000  
Risk Management Liabilities
    1,011       844  
Customer Deposits
    43,238       41,269  
Accrued Taxes
    53,692       24,720  
Accrued Interest
    39,958       33,179  
Obligations Under Capital Leases
    12,557       14,617  
Regulatory Liability for Over-Recovered Fuel Costs
    9,887       13,762  
Provision for SIA Refund
    22,358       19,307  
Other Current Liabilities
    56,476       71,781  
TOTAL CURRENT LIABILITIES
    472,199       501,463  
 
               
NONCURRENT LIABILITIES
               
Long-term Debt – Nonaffiliated
    1,769,394       1,419,747  
Long-term Risk Management Liabilities
    296       221  
Deferred Income Taxes
    499,528       485,936  
Regulatory Liabilities and Deferred Investment Tax Credits
    371,511       333,935  
Asset Retirement Obligations
    49,161       60,562  
Employee Benefits and Pension Obligations
    121,001       125,956  
Obligations Under Capital Leases
    116,887       134,044  
Deferred Credits and Other Noncurrent Liabilities
    53,730       49,315  
TOTAL NONCURRENT LIABILITIES
    2,981,508       2,609,716  
 
               
TOTAL LIABILITIES
    3,453,707       3,111,179  
 
               
Cumulative Preferred Stock Not Subject to Mandatory Redemption
    4,697       4,697  
 
               
Rate Matters (Note 3)
               
Commitments and Contingencies (Note 4)
               
 
               
EQUITY
               
Common Stock – Par Value – $18 Per Share:
               
Authorized –  7,600,000 Shares
               
Outstanding  – 7,536,640 Shares
    135,660       135,660  
Paid-in Capital
    674,979       674,979  
Retained Earnings
    781,728       726,478  
Accumulated Other Comprehensive Income (Loss)
    (12,432 )     (12,991 )
TOTAL COMMON SHAREHOLDER’S EQUITY
    1,579,935       1,524,126  
 
               
Noncontrolling Interest
    563       31  
 
               
TOTAL EQUITY
    1,580,498       1,524,157  
 
               
TOTAL LIABILITIES AND EQUITY
  $ 5,038,902     $ 4,640,033  
 
               
See Condensed Notes to Condensed Financial Statements of Registrant Subsidiaries beginning on page 156.
 

 
153

 

SOUTHWESTERN ELECTRIC POWER COMPANY CONSOLIDATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2010 and 2009
(in thousands)
(Unaudited)
 
 
 
2010 
 
2009 
OPERATING ACTIVITIES
 
 
 
 
 
 
Net Income
 
$
 57,788 
 
$
 42,153 
Adjustments to Reconcile Net Income to Net Cash Flows from Operating Activities:
 
 
 
 
 
 
 
 
Depreciation and Amortization
 
 
 63,111 
 
 
 72,351 
 
 
Deferred Income Taxes
 
 
 (5,742)
 
 
 (29,774)
 
 
Extraordinary Loss, Net of Tax
 
 
 - 
 
 
 5,325 
 
 
Allowance for Equity Funds Used During Construction
 
 
 (27,979)
 
 
 (18,774)
 
 
Mark-to-Market of Risk Management Contracts
 
 
 715 
 
 
 279 
 
 
Property Taxes
 
 
 (18,105)
 
 
 (19,862)
 
 
Fuel Over/Under-Recovery, Net
 
 
 (15,619)
 
 
 44,125 
 
 
Change in Other Noncurrent Assets
 
 
 (11,364)
 
 
 5,731 
 
 
Change in Other Noncurrent Liabilities
 
 
 17,928 
 
 
 2,222 
 
 
Changes in Certain Components of Working Capital:
 
 
 
 
 
 
 
 
 
Accounts Receivable, Net
 
 
 (24,733)
 
 
 88,457 
 
 
 
Fuel, Materials and Supplies
 
 
 20,096 
 
 
 (4,293)
 
 
 
Accounts Payable
 
 
 (10,505)
 
 
 22,698 
 
 
 
Accrued Taxes, Net
 
 
 32,339 
 
 
 64,066 
 
 
 
Other Current Assets
 
 
 (825)
 
 
 1,902 
 
 
 
Other Current Liabilities
 
 
 3,704 
 
 
 (54,203)
Net Cash Flows from Operating Activities
 
 
 80,809 
 
 
 222,403 
 
 
 
 
 
 
 
INVESTING ACTIVITIES
 
 
 
 
 
 
Construction Expenditures
 
 
 (176,107)
 
 
 (305,886)
Change in Advances to Affiliates, Net
 
 
 (193,437)
 
 
 (31,999)
Proceeds from Sales of Assets
 
 
 962 
 
 
 105,453 
Other Investing Activities
 
 
 (2,978)
 
 
 (3,911)
Net Cash Flows Used for Investing Activities
 
 
 (371,560)
 
 
 (236,343)
 
 
 
 
 
 
 
FINANCING ACTIVITIES
 
 
 
 
 
 
Capital Contribution from Parent
 
 
 - 
 
 
 17,500 
Issuance of Long-term Debt – Nonaffiliated
 
 
 399,411 
 
 
 (15)
Borrowings from Revolving Credit Facilities
 
 
 50,339 
 
 
 58,440 
Change in Advances from Affiliates, Net
 
 
 - 
 
 
 (2,526)
Retirement of Long-term Debt – Nonaffiliated
 
 
 (53,500)
 
 
 (2,203)
Retirement of Long-term Debt – Affiliated
 
 
 (50,000)
 
 
 - 
Repayments to Revolving Credit Facilities
 
 
 (48,512)
 
 
 (50,740)
Principal Payments for Capital Lease Obligations
 
 
 (5,944)
 
 
 (5,266)
Dividends Paid on Common Stock – Nonaffiliated
 
 
 (1,892)
 
 
 (1,645)
Dividends Paid on Cumulative Preferred Stock
 
 
 (114)
 
 
 (114)
Other Financing Activities
 
 
 864 
 
 
 110 
Net Cash Flows from Financing Activities
 
 
 290,652 
 
 
 13,541 
 
 
 
 
 
 
 
Net Decrease in Cash and Cash Equivalents
 
 
 (99)
 
 
 (399)
Cash and Cash Equivalents at Beginning of Period
 
 
 1,661 
 
 
 1,910 
Cash and Cash Equivalents at End of Period
 
$
 1,562 
 
$
 1,511 
 
 
 
 
 
 
 
SUPPLEMENTARY INFORMATION
 
 
 
 
 
 
Cash Paid for Interest, Net of Capitalized Amounts
 
$
 29,649 
 
$
 50,711 
Net Cash Paid for Income Taxes
 
 
 19,663 
 
 
 3,816 
Noncash Acquisitions Under Capital Leases
 
 
 380 
 
 
 1,751 
Construction Expenditures Included in Accounts Payable at June 30,
 
 
 85,870 
 
 
 86,920 
 
 
 
 
 
 
 
See Condensed Notes to Condensed Financial Statements of Registrant Subsidiaries beginning on page 156.

 
154

 

SOUTHWESTERN ELECTRIC POWER COMPANY CONSOLIDATED
INDEX TO CONDENSED NOTES TO CONDENSED FINANCIAL STATEMENTS OF
REGISTRANT SUBSIDIARIES

The condensed notes to SWEPCo’s condensed consolidated financial statements are combined with the condensed notes to condensed financial statements for other registrant subsidiaries.  Listed below are the notes that apply to SWEPCo.  The footnotes begin on page 156.

 
Footnote
Reference
   
Significant Accounting Matters
Note 1
   
New Accounting Pronouncements and Extraordinary Item
Note 2
   
Rate Matters
Note 3
   
Commitments, Guarantees and Contingencies
Note 4
   
Acquisition
Note 5
   
Benefit Plans
Note 6
   
Business Segments
Note 7
   
Derivatives and Hedging
Note 8
   
Fair Value Measurements
Note 9
   
Income Taxes
Note 10
   
Financing Activities
Note 11
   
Cost Reduction Initiatives
Note 12



 
155

 

INDEX TO CONDENSED NOTES TO CONDENSED FINANCIAL STATEMENTS OF
REGISTRANT SUBSIDIARIES

The condensed notes to condensed financial statements that follow are a combined presentation for the Registrant Subsidiaries.  The following list indicates the registrants to which the footnotes apply:
     
1.
Significant Accounting Matters
APCo, CSPCo, I&M, OPCo, PSO, SWEPCo
     
2.
New Accounting Pronouncements and Extraordinary Item
APCo, CSPCo, I&M, OPCo, PSO, SWEPCo
     
3.
Rate Matters
APCo, CSPCo, I&M, OPCo, PSO, SWEPCo
     
4.
Commitments, Guarantees and Contingencies
APCo, CSPCo, I&M, OPCo, PSO, SWEPCo
     
5.
Acquisition
SWEPCo
     
6.
Benefit Plans
APCo, CSPCo, I&M, OPCo, PSO, SWEPCo
     
7.
Business Segments
APCo, CSPCo, I&M, OPCo, PSO, SWEPCo
     
8.
Derivatives and Hedging
APCo, CSPCo, I&M, OPCo, PSO, SWEPCo
     
9.
Fair Value Measurements
APCo, CSPCo, I&M, OPCo, PSO, SWEPCo
     
10.
Income Taxes
APCo, CSPCo, I&M, OPCo, PSO, SWEPCo
     
11.
Financing Activities
APCo, CSPCo, I&M, OPCo, PSO, SWEPCo

12.
Cost Reduction Initiatives
APCo, CSPCo, I&M, OPCo, PSO, SWEPCo

 
156

 

1.
SIGNIFICANT ACCOUNTING MATTERS

General

The unaudited condensed financial statements and footnotes were prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the SEC.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete annual financial statements.

In the opinion of management, the unaudited condensed interim financial statements reflect all normal and recurring accruals and adjustments necessary for a fair presentation of the net income, financial position and cash flows for the interim periods for each Registrant Subsidiary.  Net income for the three and six months ended June 30, 2010 is not necessarily indicative of results that may be expected for the year ending December 31, 2010.  The condensed financial statements are unaudited and should be read in conjunction with the audited 2009 financial statements and notes thereto, which are included in the Registrant Subsidiaries’ Annual Reports on Form 10-K for the year ended December 31, 2009 as filed with the SEC on February 26, 2010.

Variable Interest Entities

The accounting guidance for “Variable Interest Entities” is a consolidation model that considers if a company has a controlling financial interest in a VIE.  A controlling financial interest will have both (a) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.  Entities are required to consolidate a VIE when it is determined that they have a controlling financial interest in a VIE and therefore, are the primary beneficiary of that VIE as defined by the accounting guidance for “Variable Interest Entities.”  In determining whether t hey are the primary beneficiary of a VIE, management considers for each Registrant Subsidiary factors such as equity at risk, the amount of the VIE’s variability the Registrant Subsidiary absorbs, guarantees of indebtedness, voting rights including kick-out rights, power to direct the VIE and other factors.  Management believes that significant assumptions and judgments were applied consistently.  In addition, the Registrant Subsidiaries have not provided financial or other support to any VIE that was not previously contractually required.  Also, see the “ASU 2009-17 ‘Consolidations’ ” section of Note 2 for a discussion of the impact of new accounting guidance effective January 1, 2010.

SWEPCo is the primary beneficiary of Sabine.  As of January 1, 2010, SWEPCo is no longer the primary beneficiary of DHLC as defined by new accounting guidance for “Variable Interest Entities.”  I&M is the primary beneficiary of DCC Fuel LLC (DCC Fuel) and DCC Fuel II LLC (DCC Fuel II).  APCo, CSPCo, I&M, OPCo, PSO and SWEPCo each hold a significant variable interest in AEPSC.  I&M and CSPCo each hold a significant variable interest in AEGCo.  SWEPCo holds a significant variable interest in DHLC.
 
Sabine is a mining operator providing mining services to SWEPCo.  SWEPCo has no equity investment in Sabine but is Sabine’s only customer.  SWEPCo guarantees the debt obligations and lease obligations of Sabine.  Under the terms of the note agreements, substantially all assets are pledged and all rights under the lignite mining agreement are assigned to SWEPCo.  The creditors of Sabine have no recourse to any AEP entity other than SWEPCo.  Under the provisions of the mining agreement, SWEPCo is required to pay, as a part of the cost of lignite delivered, an amount equal to mining costs plus a management fee.  In addition, SWEPCo determines how much coal will be mined for each year.  Based on these facts, management concluded that SWEPCo is the primary beneficia ry and is required to consolidate Sabine.  SWEPCo’s total billings from Sabine for the three months ended June 30, 2010 and 2009 were $30 million and $25 million, respectively, and for the six months ended June 30, 2010 and 2009 were $73 million and $61 million, respectively.  See the tables below for the classification of Sabine’s assets and liabilities on SWEPCo’s Condensed Consolidated Balance Sheets.

DHLC is a mining operator who sells 50% of the lignite produced to SWEPCo and 50% to CLECO.  SWEPCo and CLECO share the executive board seats and its voting rights equally.  Each entity guarantees a 50% share of DHLC’s debt.  SWEPCo and CLECO equally approve DHLC’s annual budget.  The creditors of DHLC have no recourse to any AEP entity other than SWEPCo.  As SWEPCo is the sole equity owner of DHLC, it receives 100% of the management fee.  Based on the shared control of DHLC’s operations, management concluded as of January 1 2010 that SWEPCo is no longer the primary beneficiary and is no longer required to consolidate DHLC.  
 
 
157

 
SWEPCo’s total billings from DHLC for the three months ended June 30, 2010 and 2009 were $13 million and $8 million, respectively, and for the six months ended June 30, 2010 and 2009 were $26 million and $18 million, respectively.  See the tables below for the classification of DHLC’s assets and liabilities on SWEPCo’s Condensed Consolidated Balance Sheet at December 31, 2009 as well as SWEPCo’s investment and maximum exposure as of June 30, 2010.  As of June 30, 2010, DHLC is reported as an equity investment in Deferred Charges and Other Noncurrent Assets on SWEPCo’s Condensed Consolidated Balance Sheet.  Also, see the “ASU 2009-17 ‘Consolidations’ ” section of Note 2 for a discussion of the impact of new accounting guidance effective January 1, 2010.< /font>

The balances below represent the assets and liabilities of the VIEs that are consolidated.  These balances include intercompany transactions that are eliminated upon consolidation.

SOUTHWESTERN ELECTRIC POWER COMPANY CONSOLIDATED
 
VARIABLE INTEREST ENTITIES
 
June 30, 2010
 
(in millions)
 
 
 
Sabine
 
ASSETS
 
 
 
Current Assets
  $ 48  
Net Property, Plant and Equipment
    144  
Other Noncurrent Assets
    34  
Total Assets
  $ 226  
 
       
LIABILITIES AND EQUITY
       
Current Liabilities
  $ 31  
Noncurrent Liabilities
    194  
Equity
    1  
Total Liabilities and Equity
  $ 226  

SOUTHWESTERN ELECTRIC POWER COMPANY CONSOLIDATED
 
VARIABLE INTEREST ENTITIES
 
December 31, 2009
 
(in millions)
 
 
 
Sabine
   
DHLC
 
ASSETS
 
 
   
 
 
Current Assets
  $ 51     $ 8  
Net Property, Plant and Equipment
    149       44  
Other Noncurrent Assets
    35       11  
Total Assets
  $ 235     $ 63  
 
               
LIABILITIES AND EQUITY
               
Current Liabilities
  $ 36     $ 17  
Noncurrent Liabilities
    199       38  
Equity
    -       8  
Total Liabilities and Equity
  $ 235     $ 63  

SWEPCo’s investment in DHLC was:

 
June 30, 2010
 
 
As Reported on
   
 
 
 
the Consolidated
 
Maximum
 
 
Balance Sheet
 
Exposure
 
 
(in millions)
 
Capital Contribution from SWEPCo
  $ 7     $ 7  
Retained Earnings
    1       1  
SWEPCo's Guarantee of Debt
    -       48  
 
               
Total Investment in DHLC
  $ 8     $ 56  
 

 
 
158

 
In September 2009, I&M entered into a nuclear fuel sale and leaseback transaction with DCC Fuel LLC.  In April 2010, I&M entered into a nuclear fuel sale and leaseback transaction with DCC Fuel II LLC.  DCC Fuel LLC and DCC Fuel II LLC (collectively DCC) were formed for the purpose of acquiring, owning and leasing nuclear fuel to I&M.  DCC purchased the nuclear fuel from I&M with funds received from the issuance of notes to financial institutions.  Each entity is a single-lessee leasing arrangement with only one asset and is capitalized with all debt.  Payments on the leases are made semi-annually and began in April 2010.  Payment on the leases for the three months ended June 30, 2010 and for the six months ended June 30, 2010 was $22 million.  No pay ments were made to DCC in 2009.  The leases were recorded as capital leases on I&M’s balance sheet as title to the nuclear fuel transfers to I&M at the end of the 48 and 54 month lease term, respectively.  Based on I&M’s control of DCC, management concluded that I&M is the primary beneficiary and is required to consolidate DCC.  The capital leases are eliminated upon consolidation.  See the tables below for the classification of DCC’s assets and liabilities on I&M’s Condensed Consolidated Balance Sheets.

The balances below represent the assets and liabilities of the VIE that are consolidated.  These balances include intercompany transactions that would be eliminated upon consolidation.

INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES
 
VARIABLE INTEREST ENTITIES
 
June 30, 2010
 
(in millions)
 
 
 
DCC
 
ASSETS
 
 
 
Current Assets
  $ 76  
Net Property, Plant and Equipment
    141  
Other Noncurrent Assets
    93  
Total Assets
  $ 310  
 
       
LIABILITIES AND EQUITY
       
Current Liabilities
  $ 63  
Noncurrent Liabilities
    247  
Equity
    -  
Total Liabilities and Equity
  $ 310  

INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES
 
VARIABLE INTEREST ENTITIES
 
December 31, 2009
 
(in millions)
 
 
 
DCC
 
ASSETS
 
 
 
Current Assets
  $ 47  
Net Property, Plant and Equipment
    89  
Other Noncurrent Assets
    57  
Total Assets
  $ 193  
 
       
LIABILITIES AND EQUITY
       
Current Liabilities
  $ 39  
Noncurrent Liabilities
    154  
Equity
    -  
Total Liabilities and Equity
  $ 193  

AEPSC provides certain managerial and professional services to AEP’s subsidiaries.  AEP is the sole equity owner of AEPSC.  AEP management controls the activities of AEPSC.  The costs of the services are based on a direct charge or on a prorated basis and billed to the AEP subsidiary companies at AEPSC’s cost.  No AEP subsidiary has provided financial or other support outside of the reimbursement of costs for services rendered.  AEPSC finances its operations through cost reimbursement from other AEP subsidiaries.  There are no other terms or arrangements between AEPSC and any of the AEP subsidiaries that could require additional financial support from an AEP subsidiary or expose them to losses outside of the normal course of business.  AEPSC and its billi ngs are subject to regulation by the FERC.  AEP’s subsidiaries are exposed to losses to the extent they cannot recover the costs of
 
 
159

 
AEPSC through their normal business operations.  All Registrant Subsidiaries are considered to have a significant interest in AEPSC due to their activity in AEPSC’s cost reimbursement structure.  However, no Registrant Subsidiary has control over AEPSC.  AEPSC is consolidated by AEP.  In the event AEPSC would require financing or other support outside the cost reimbursement billings, this financing would be provided by AEP.
 
Total AEPSC billings to the Registrant Subsidiaries were as follows:
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
Company
 
2010
 
2009
 
2010
 
2009
 
 
 
(in millions)
 
APCo
    $ 67     $ 46     $ 126     $ 97  
CSPCo
      39       31       74       60  
I&M
      41       32       75       61  
OPCo
      63       46       112       87  
PSO
      31       21       55       43  
SWEPCo
      44       31       79       60  
 
The carrying amount and classification of variable interest in AEPSC's accounts payable are as follows:
 
 
June 30, 2010
 
December 31, 2009
 
 
As Reported in the
 
Maximum
 
As Reported in the
 
Maximum
 
Company
Balance Sheet
 
Exposure
 
Balance Sheet
 
Exposure
 
 
(in millions)
 
APCo
  $ 36     $ 36     $ 23     $ 23  
CSPCo
    21       21       13       13  
I&M
    21       21       13       13  
OPCo
    32       32       18       18  
PSO
    17       17       9       9  
SWEPCo
    23       23       14       14  

AEGCo, a wholly-owned subsidiary of AEP, is consolidated by AEP.  AEGCo owns a 50% ownership interest in Rockport Plant Unit 1, leases a 50% interest in Rockport Plant Unit 2 and owns 100% of the Lawrenceburg Generating Station.  AEGCo sells all the output from the Rockport Plant to I&M and KPCo.   AEGCo leases the Lawrenceburg Generating Station to CSPCo.  AEP guarantees all the debt obligations of AEGCo.  I&M and CSPCo are considered to have a significant interest in AEGCo due to these transactions.  I&M and CSPCo are exposed to losses to the extent they cannot recover the costs of AEGCo through their normal business operations.  In the event AEGCo would require financing or other support outside the billings to I&M, CSPCo and KPCo, this financ ing would be provided by AEP.  For additional information regarding AEGCo’s lease, see the “Rockport Lease” section of Note 13 in the 2009 Annual Report.
 
Total billings from AEGCo were as follows:

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
Company
 
2010
 
2009
 
2010
 
2009
 
 
 
(in millions)
 
CSPCo
    $ 22     $ 15     $ 37     $ 32  
I&M
      49       60       105       123  
 
The carrying amount and classification of variable interest in AEGCo’s accounts payable are as follows:
 
 
 
June 30, 2010
 
December 31, 2009
 
 
 
As Reported in
   
 
 
As Reported in
   
 
 
 
 
the Consolidated
 
Maximum
 
the Consolidated
 
Maximum
 
Company
 
Balance Sheet
 
Exposure
 
Balance Sheet
 
Exposure
 
 
 
(in millions)
 
CSPCo
    $ 10     $ 10     $ 6     $ 6  
I&M
      21       21       23       23  
 

 
 
160

 
Related Party Transactions

SWEPCo Lignite Purchases from DHLC

Effective January 1, 2010, SWEPCo deconsolidated DHLC due to the adoption of new accounting guidance.  See “ASU 2009-17 ‘Consolidations’ ” section of Note 2.  DHLC sells 50% of its lignite mining output to SWEPCo and the other 50% to CLECO.  SWEPCo purchased $26 million of lignite from DHLC and recorded these costs in Fuel on its Condensed Consolidated Balance Sheet at June 30, 2010.

AEP Power Pool Purchases from OVEC

In January 2010, the AEP Power Pool began purchasing power from OVEC to serve off-system sales and retail sales through June 2010.  Purchases serving off-system sales are reported net as a reduction in Electric Generation, Transmission and Distribution revenues and purchases serving retail sales are reported in Purchased Electricity for Resale expenses on the respective income statements.  The following table shows the amounts recorded for the three and six months ended June 30, 2010:

 
 
Three Months Ended June 30, 2010
 
Six Months Ended June 30, 2010
 
 
 
Reported in
 
Reported in
 
Reported in
 
Reported in
 
Company
 
Revenues
 
Expenses
 
Revenues
 
Expenses
 
 
 
(in thousands)
 
APCo
    $ 3,736     $ 1,441     $ 6,631     $ 3,635  
CSPCo
      2,113       815       3,689       1,963  
I&M
      2,131       822       3,721       1,980  
OPCo
      2,432       938       4,248       2,268  

SWEPCo Revised Depreciation Rates

Effective December 2009 and May 2010, SWEPCo revised book depreciation rates for its Arkansas and Texas jurisdictions, respectively, as a result of base rate orders.  In comparing 2010 and 2009, the change in depreciation rates resulted in a net decrease in depreciation expense of:

Total Depreciation Expense Variance
Three Months Ended
   
Six Months Ended
June 30, 2010/2009
   
June 30, 2010/2009
(in thousands)
$ 7,132     $ 10,433

Adjustments to Reported Cash Flows

In the Financing Activities section of SWEPCo’s Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2009, SWEPCo corrected the presentation of borrowings on lines of credit of $58 million from Change in Short-term Debt, Net – Nonaffiliated to Borrowings from Revolving Credit Facilities.  SWEPCo also corrected the presentation of repayments on lines of credit of $51 million for the six months ended June 30, 2009 to Repayments to Revolving Credit Facilities from Change in Short-term Debt, Net – Nonaffiliated.  The correction to present borrowings and repayments on lines of credit on a gross basis was not material to SWEPCo’s financial statements and had no impact on SWEPCo’s previously reported net income, change s in shareholder’s equity, financial position or net cash flows from financing activities.
 

 
 
161

 
Adjustments to Sale of Receivables Disclosure

In the “Sale of Receivables – AEP Credit” section of Note 11, the disclosure was expanded for the Registrant Subsidiaries to reflect certain prior period amounts related to the sale of receivables that were not previously disclosed.  These omissions were not material to the financial statements and had no impact on the Registrant Subsidiaries’ previously reported net income, changes in shareholder’s equity, financial position or cash flows.

Adjustments to Benefit Plans Footnote

In Note 6 – Benefit Plans, the disclosure was expanded for the Registrant Subsidiaries to reflect certain prior period amounts related to the Net Periodic Benefit Cost and the Estimated Future Benefit Payments and Contributions that were not previously disclosed.  These omissions were not material to the financial statements and had no impact on the Registrant Subsidiaries’ previously reported net income, changes in shareholder’s equity, financial position or cash flows.

2.
NEW ACCOUNTING PRONOUNCEMENTS AND EXTRAORDINARY ITEM

NEW ACCOUNTING PRONOUNCEMENTS

Upon issuance of final pronouncements, management reviews the new accounting literature to determine its relevance, if any, to the Registrant Subsidiaries’ business.  The following represents a summary of final pronouncements that impact the financial statements.

Pronouncements Adopted During 2010

The following standard was effective during the first six months of 2010.  Consequently, its impact is reflected in the financial statements.  The following paragraphs discuss its impact.

ASU 2009-17 “Consolidations” (ASU 2009-17)

In 2009, the FASB issued ASU 2009-17 amending the analysis an entity must perform to determine if it has a controlling financial interest in a VIE.  In addition to presentation and disclosure guidance, ASU 2009-17 provides that the primary beneficiary of a VIE must have both:
 
·  
The power to direct the activities of the VIE that most significantly impact the VIE’s economic performance.
·  
The obligation to absorb the losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE.
 
The Registrant Subsidiaries adopted the prospective provisions of ASU 2009-17 effective January 1, 2010.  This standard required separate presentation of material consolidated VIEs’ assets and liabilities on the balance sheets.  Upon adoption, SWEPCo deconsolidated DHLC.  DHLC was deconsolidated due to the shared control between SWEPCo and CLECO.  After January 1, 2010, SWEPCo reports DHLC using the equity method of accounting.

EXTRAORDINARY ITEM

SWEPCo Texas Restructuring

In August 2006, the PUCT adopted a rule extending the delay in implementation of customer choice in SWEPCo’s SPP area of Texas until no sooner than January 1, 2011.  In May 2009, the governor of Texas signed a bill related to SWEPCo’s SPP area of Texas that requires continued cost of service regulation until certain stages have been completed and approved by the PUCT such that fair competition is available to all Texas retail customer classes.  Based upon the signing of the bill, SWEPCo re-applied “Regulated Operations” accounting guidance for the generation portion of SWEPCo’s Texas retail jurisdiction effective second quarter of 2009.  Management believes that a switch to competition in the SPP area of Texas will not occur.  The reapplication of “Regulated Op erations” accounting guidance resulted in an $8 million ($5 million, net of tax) extraordinary loss.
 
 
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3.
RATE MATTERS

As discussed in the 2009 Annual Report, the Registrant Subsidiaries are involved in rate and regulatory proceedings at the FERC and their state commissions.  The Rate Matters note within the 2009 Annual Report should be read in conjunction with this report to gain a complete understanding of material rate matters still pending that could impact net income, cash flows and possibly financial condition.  The following discusses ratemaking developments in 2010 and updates the 2009 Annual Report.

Regulatory Assets Not Yet Being Recovered
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
APCo
 
I&M
 
 
 
 
June 30,
 
December 31,
 
June 30,
 
December 31,
 
 
 
 
2010 
 
2009 
 
2010 
 
2009 
 
Noncurrent Regulatory Assets (excluding fuel)
 
(in thousands)
 
(in thousands)
 
Regulatory assets not yet being recovered pending
 
 
 
 
 
 
 
 
 
 
 
 
 
 
future proceedings to determine the recovery
 
 
 
 
 
 
 
 
 
 
 
 
 
 
method and timing:
 
 
 
 
 
 
 
 
 
 
 
 
 
Regulatory Assets Currently Not Earning a Return
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mountaineer Carbon Capture and Storage Project
 
$
 58,085 
 
$
 110,665 
 
$
 - 
 
$
 - 
 
 
Virginia Environmental Rate Adjustment Clause
 
 
 43,273 
 
 
 25,311 
 
 
 - 
 
 
 - 
 
 
Virginia Transmission Rate Adjustment Clause
 
 
 21,088 
 
 
 26,184 
 
 
 - 
 
 
 - 
 
 
Special Rate Mechanism for Century Aluminum
 
 
 12,524 
 
 
 12,422 
 
 
 - 
 
 
 - 
 
 
Deferred Wind Power Costs
 
 
 11,523 
 
 
 5,372 
 
 
 - 
 
 
 - 
 
 
Storm Related Costs
 
 
 25,437 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
Deferred PJM Fees
 
 
 - 
 
 
 - 
 
 
 6,880 
 
 
 6,254 
 
Total Regulatory Assets Not Yet Being Recovered
 
$
 171,930 
 
$
 179,954 
 
$
 6,880 
 
$
 6,254 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CSPCo
 
OPCo
 
 
 
 
June 30,
 
December 31,
 
June 30,
 
December 31,
 
 
 
 
2010 
 
2009 
 
2010 
 
2009 
 
Noncurrent Regulatory Assets (excluding fuel)
 
(in thousands)
 
(in thousands)
 
Regulatory assets not yet being recovered pending
 
 
 
 
 
 
 
 
 
 
 
 
 
 
future proceedings to determine the recovery
 
 
 
 
 
 
 
 
 
 
 
 
 
 
method and timing:
 
 
 
 
 
 
 
 
 
 
 
 
 
Regulatory Assets Currently Earning a Return
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Customer Choice Deferrals
 
$
 29,197 
 
$
 28,781 
 
$
 28,666 
 
$
 28,330 
 
 
Line Extension Carrying Costs
 
 
 30,121 
 
 
 26,590 
 
 
 18,741 
 
 
 16,278 
 
 
Storm Related Costs
 
 
 18,634 
 
 
 17,014 
 
 
 10,742 
 
 
 9,794 
 
 
Acquisition of Monongahela Power
 
 
 11,108 
 
 
 10,282 
 
 
 - 
 
 
 - 
 
Regulatory Assets Currently Not Earning a Return
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Peak Demand Reduction/Energy Efficiency
 
 
 - 
(a)
 
 4,071 
 
 
 - 
(a)
 
 4,007 
 
Total Regulatory Assets Not Yet Being Recovered
 
$
 89,060 
 
$
 86,738 
 
$
 58,149 
 
$
 58,409 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PSO
 
SWEPCo
 
 
 
 
June 30,
 
December 31,
 
June 30,
 
December 31,
 
 
 
 
2010 
 
2009 
 
2010 
 
2009 
 
Noncurrent Regulatory Assets (excluding fuel)
 
(in thousands)
 
(in thousands)
 
Regulatory assets not yet being recovered pending
 
 
 
 
 
 
 
 
 
 
 
 
 
 
future proceedings to determine the recovery
 
 
 
 
 
 
 
 
 
 
 
 
 
 
method and timing:
 
 
 
 
 
 
 
 
 
 
 
 
 
Regulatory Assets Currently Not Earning a Return
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Storm Related Costs
 
$
 15,755 
 
$
 - 
 
$
 - 
 
$
 - 
 
 
Asset Retirement Obligation
 
 
 - 
 
 
 - 
 
 
 558 
 
 
 471 
 
Total Regulatory Assets Not Yet Being Recovered
 
$
 15,755 
 
$
 - 
 
$
 558 
 
$
 471 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(a)  Recovery of regulatory asset was granted during 2010.
 

 
 
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CSPCo and OPCo Rate Matters
 

Ohio Electric Security Plan Filings

The PUCO issued an order in March 2009 that modified and approved CSPCo’s and OPCo’s ESPs which established rates at the start of the April 2009 billing cycle.  The ESPs are in effect through 2011.  The order also limits annual rate increases for CSPCo to 7% in 2009, 6% in 2010 and 6% in 2011 and for OPCo to 8% in 2009, 7% in 2010 and 8% in 2011.  Some rate components and increases are exempt from these limitations.  CSPCo and OPCo collected the 2009 annualized revenue increase over the last nine months of 2009.

The order provides a FAC for the three-year period of the ESP.  The FAC increase will be phased in to avoid having the resultant rate increases exceed the ordered annual caps described above.  The FAC increase is subject to quarterly true-ups, annual accounting audits and prudency reviews.  See the “2009 Fuel Adjustment Clause Audit” section below.  The order allows CSPCo and OPCo to defer any unrecovered FAC costs resulting from the annual caps and to accrue associated carrying charges at CSPCo’s and OPCo’s weighted average cost of capital.  Any deferred FAC regulatory asset balance at the end of the three-year ESP period will be recovered through a non-bypassable surcharge over the period 2012 through 2018.  Management expects to recover the CSPCo FAC deferral during 2010.  That recovery will include deferrals associated with the Ormet interim arrangement and is subject to the PUCO’s ultimate decision regarding the Ormet interim arrangement deferrals plus related carrying charges.  See the “Ormet Interim Arrangement” section below.  The FAC deferrals as of June 30, 2010 were $5 million and $388 million for CSPCo and OPCo, respectively, excluding $1 million and $18 million, respectively, of unrecognized equity carrying costs.

Discussed below are the outstanding uncertainties related to the ESP order:

The Ohio Consumers’ Counsel filed a notice of appeal with the Supreme Court of Ohio raising several issues including alleged retroactive ratemaking, recovery of carrying charges on certain environmental investments, Provider of Last Resort (POLR) charges and the decision not to offset rates by off-system sales margins.  A decision from the Supreme Court of Ohio is pending.

In November 2009, the Industrial Energy Users-Ohio group filed a notice of appeal with the Supreme Court of Ohio challenging components of the ESP order including the POLR charge, the distribution riders for gridSMARTSM and enhanced reliability, the PUCO’s conclusion and supporting evaluation that the modified ESPs are more favorable than the expected results of a market rate offer, the unbundling of the fuel and non-fuel generation rate components, the scope and design of the fuel adjustment clause and the approval of the plan after the 150-day statutory deadline.  A decision from the Supreme Court of Ohio is pending.

In April 2010, the Industrial Energy Users-Ohio group filed an additional notice of appeal with the Supreme Court of Ohio challenging alleged retroactive ratemaking, CSPCo's and OPCo's abilities to collect through the FAC amounts deferred under the Ormet interim arrangement and the approval of the plan after the 150-day statutory deadline.  A decision from the Supreme Court of Ohio is pending.

In 2009, the PUCO convened a workshop to determine the methodology for the Significantly Excessive Earnings Test (SEET).  Ohio law requires that the PUCO determine, following the end of each year of the ESP, if rate adjustments included in the ESP resulted in significantly excessive earnings.  If the rate adjustments, in the aggregate, result in significantly excessive earnings, the excess amount could be returned to customers.    The PUCO heard arguments related to various SEET issues including the treatment of the FAC deferrals.  Management believes that CSPCo and OPCo should not be required to refund unrecovered FAC regulatory assets until they are collected, even assuming there are significantly excessive earnings in that year.  In June 2010, the PUCO issued an order resolving some of the SEET issues.  The PUCO determined that the earnings of CSPCo and OPCo sh all be calculated on an individual company basis and not on a combined CSPCo/OPCo basis.  The PUCO ruled that many issues including the treatment of deferrals and off-system sales should be determined on a case-by-case basis.  The PUCO’s decision on the SEET methodology is not expected to be finalized until after the SEET filings are made by CSPCo and OPCo related to 2009 earnings and the PUCO issues an order thereon.  CSPCo and OPCo will file their significantly excessive earnings tests with the PUCO by their September 2010 deadlines.  CSPCo and OPCo are unable to determine whether they will be required to return any of their ESP revenues to customers.
 

 
 
164

 
Management is unable to predict the outcome of the various ongoing ESP proceedings and litigation discussed above.  If these proceedings result in adverse rulings, it could reduce future net income and cash flows and impact financial condition.

2009 Fuel Adjustment Clause Audit

As required under the ESP orders, the PUCO selected an outside consultant to conduct the audit of the FAC for the period of January 2009 through December 2009.  In May 2010, the outside consultant provided their confidential audit report of the FAC audit to the PUCO.  The audit report included a recommendation that the PUCO should review whether any proceeds from a 2008 coal contract settlement agreement which totaled $72 million should reduce OPCo’s FAC under-recovery balance.  Of the total proceeds, approximately $58 million was recognized as a reduction to fuel expense prior to 2009 and $14 million will reduce fuel expense in 2009 and 2010.  If the PUCO orders any portion of the $58 million previously recognized gains be used to reduce the current year FAC deferral, it would reduce futur e net income and cash flows and impact financial condition.

Ormet Interim Arrangement

CSPCo, OPCo and Ormet, a large aluminum company, filed an application with the PUCO for approval of an interim arrangement governing the provision of generation service to Ormet.  This interim arrangement was approved by the PUCO and was effective from January 2009 through September 2009.  In March 2009, the PUCO approved a FAC in the ESP filings.  The approval of the FAC, together with the PUCO approval of the interim arrangement, provided the basis to record regulatory assets for the difference between the approved market price and the rate paid by Ormet.  Through September 2009, the last month of the interim arrangement, CSPCo and OPCo had $30 million and $34 million, respectively, of deferred FAC related to the interim arrangement including recognized carrying charges but excluding $1 million and $1 million, respectively, of unrecognized equity carrying costs.  In November 2009, CSPCo and OPCo requested that the PUCO approve recovery of the deferrals under the interim agreement plus a weighted average cost of capital carrying charge.  The interim arrangement deferrals are included in CSPCo’s and OPCo’s FAC phase-in deferral balances.  See “Ohio Electric Security Plan Filings” section above.  In the ESP proceeding, intervenors requested that CSPCo and OPCo be required to refund the Ormet-related regulatory assets and requested that the PUCO prevent CSPCo and OPCo from collecting the Ormet-related revenues in the future.  The PUCO did not take any action on this request in the ESP proceeding.  The intervenors raised the issue again in response to CSPCo’s and OPCo’s November 2009 filing to approve recovery of the deferrals under the interim agreement.  If CSPCo and OPCo are not ultimately permi tted to fully recover their requested deferrals under the interim arrangement, it would reduce future net income and cash flows and impact financial condition.

Economic Development Rider

In April 2010, the Industrial Energy Users-Ohio filed a notice of appeal of the 2009 PUCO-approved Economic Development Rider (EDR) with the Supreme Court of Ohio.  The EDR collects from ratepayers the difference between the standard tariff and lower contract billings to qualifying industrial customers, subject to PUCO approval.  The Industrial Energy Users-Ohio raised several issues including claims that (a) the PUCO lost jurisdiction over CSPCo’s and OPCo’s ESP proceedings and related proceedings when the PUCO failed to issue ESP orders within the 150-day statutory deadline, (b) the EDR should not be exempt from the ESP annual rate limitations and (c) CSPCo and OPCo should not be allowed to apply a weighted average long-term debt carrying cost on deferred EDR regulatory assets.

In June 2010, Industrial Energy Users-Ohio filed a notice of appeal of the 2010 PUCO-approved Economic Development Rider (EDR) with the Supreme Court of Ohio.  The Industrial Energy Users-Ohio raised the same issues as noted in the 2009 EDR appeal plus a claim that CSPCo and OPCo should not be able to take the benefits of the higher ESP rates while simultaneously challenging the ESP Orders.
 

 
 
165

 
As of June 30, 2010, CSPCo and OPCo have incurred $32 million and $23 million, respectively, in EDR costs including carrying costs.  Of these costs, CSPCo and OPCo have collected $16 million and $12 million, respectively, through the EDR, which CSPCo and OPCo began collecting in January 2010.  The remaining $16 million and $11 million for CSPCo and OPCo, respectively, are recorded as EDR regulatory assets.  If CSPCo and OPCo are not ultimately permitted to recover their deferrals or are required to refund revenue collected, it would reduce future net income and cash flows and impact financial condition.

Environmental Investment Carrying Cost Rider

In February 2010, CSPCo and OPCo filed an application with the PUCO to establish an Environmental Investment Carrying Cost Rider to recover carrying costs for 2009 through 2011 related to environmental investments made in 2009.  CSPCo’s and OPCo’s proposed initial rider would recover 2009 carrying costs of $29 million and $37 million, respectively, through December 2011.  In July 2010, CSPCo and OPCo filed an updated position to its application which reduced its original rider application amount to recover $27 million and $35 million, respectively, through December 2011.  If approved, the implementation of the rider will likely not impact cash flows, but will increase the ESP phase-in plan deferrals associated with the FAC since this rider is subject to the rate increase caps authorized by the PUCO in the ESP proceedings.

Ohio IGCC Plant

In March 2005, CSPCo and OPCo filed a joint application with the PUCO seeking authority to recover costs of building and operating an IGCC power plant.  Through June 30, 2010, CSPCo and OPCo have each collected $12 million in pre-construction costs authorized in a June 2006 PUCO order and each incurred $11 million in pre-construction costs.  As a result, CSPCo and OPCo each established a net regulatory liability of approximately $1 million.  The order also provided that if CSPCo and OPCo have not commenced a continuous course of construction of the proposed IGCC plant before June 2011, all pre-construction costs that may be utilized in projects at other sites must be refunded to Ohio ratepayers with interest.  Intervenors have filed motions with the PUCO requesting all pre-construction costs be r efunded to Ohio ratepayers with interest.

CSPCo and OPCo will not start construction of an IGCC plant until existing statutory barriers are addressed and sufficient assurance of regulatory cost recovery exists. Management cannot predict the outcome of any cost recovery litigation concerning the Ohio IGCC plant or what effect, if any, such litigation would have on future net income and cash flows.  However, if CSPCo and OPCo were required to refund all or some of the pre-construction costs collected and the costs incurred were not recoverable in another jurisdiction, it would reduce future net income and cash flows and impact financial condition.

Ohio Energy Efficiency & Demand Response Program Rider

In November 2009, CSPCo and OPCo filed an application with the PUCO to implement energy efficiency and demand response programs as part of Senate Bill 221, which requires investor-owned utilities to create programs to help customers conserve and reduce demand for electricity.  Simultaneous with the filing, a stipulation agreement was filed with the PUCO agreeing to terms consistent with the filed application.  In May 2010, the PUCO issued an order adopting the stipulation, with minor modification, and authorized CSPCo and OPCo to implement a new rider rate effective with the first billing cycle in June 2010.  The rider rates are estimated to increase CSPCo's and OPCo's revenues by $81 million and $86 million, respectively, over the period from June 2010 through December 2011.  CSPCo's and OPCo's revenue increases include $79 million and $83 million, respectively, for program costs and $2 million and $3 million, respectively, for net lost distribution revenues and shared savings.

 
166

 
SWEPCo Rate Matters

Turk Plant

SWEPCo is currently constructing the Turk Plant, a new base load 600 MW pulverized coal ultra-supercritical generating unit in Arkansas, which is expected to be in service in 2012.  SWEPCo owns 73% (440 MW) of the Turk Plant and will operate the completed facility.  The Turk Plant is currently estimated to cost $1.7 billion, excluding AFUDC, plus an additional $131 million for transmission, excluding AFUDC.  SWEPCo’s share is currently estimated to cost $1.3 billion, excluding AFUDC, plus an additional $131 million for transmission, excluding AFUDC.  As of June 30, 2010, excluding costs attributable to its joint owners, SWEPCo has capitalized approximately $855 million of expenditures (including AFUDC and capitalized interest of $106 million and related transmission costs of $46 million).&# 160; As of June 30, 2010, the joint owners and SWEPCo have contractual construction commitments of approximately $425 million (including related transmission costs of $7 million).  SWEPCo’s share of the contractual construction commitments is $312 million.  If the plant is cancelled, the joint owners and SWEPCo would incur contractual construction cancellation fees, based on construction status as of June 30, 2010, of approximately $121 million (including related transmission cancellation fees of $1 million).  SWEPCo’s share of the contractual construction cancellation fees would be approximately $89 million.

Discussed below are the outstanding uncertainties related to the Turk Plant:

The APSC granted approval for SWEPCo to build the Turk Plant by issuing a Certificate of Environmental Compatibility and Public Need (CECPN) for the 88 MW SWEPCo Arkansas share of the Turk Plant.  Following an appeal by certain intervenors, the Arkansas Supreme Court issued a decision that reversed the APSC’s grant of the CECPN.  The Arkansas Supreme Court ultimately concluded that the APSC erred in determining the need for additional power supply resources in a proceeding separate from the proceeding in which the APSC granted the CECPN.  However, the Arkansas Supreme Court approved the APSC’s procedure of granting CECPNs for transmission facilities in dockets separate from the Turk Plant CECPN proceeding.  In June 2010, the Arkansas Supreme Court denied motions for rehearing filed b y the APSC and SWEPCo.  Therefore, SWEPCo filed a notice with the APSC of its intent to proceed with construction of the Turk Plant but that SWEPCo no longer intends to pursue a CECPN to seek recovery of the originally approved 88MW portion of Turk Plant costs in Arkansas retail rates.  In June 2010, the APSC issued an order which reversed and set aside the previously granted CECPN.

In July 2010, the Hempstead County Hunting Club filed a complaint with the Federal District Court for the Western District of Arkansas against SWEPCo, the U.S. Army Corps of Engineers, the U.S. Department of Interior and the U.S. Fish and Wildlife Service seeking an injunction to stop construction of the Turk Plant asserting claims of violations of federal and state laws.

The PUCT issued an order approving a Certificate of Convenience and Necessity (CCN) for the Turk Plant with the following conditions: (a) a cap on the recovery of jurisdictional capital costs for the Turk Plant based on the previously estimated $1.522 billion projected construction cost, excluding AFUDC and related transmission costs, (b) a cap on recovery of annual CO2 emission costs at $28 per ton through the year 2030 and (c) a requirement to hold Texas ratepayers financially harmless from any adverse impact related to the Turk Plant not being fully subscribed to by other utilities or wholesale customers.  SWEPCo appealed the PUCT’s order contending the two cost cap restrictions are unlawful.  The Texas Industrial Energy Consumers fi led an appeal contending that the PUCT’s grant of a conditional CCN for the Turk Plant was unnecessary to serve retail customers.  In February 2010, the Texas District Court affirmed the PUCT’s order in all respects.  In March 2010, SWEPCo and the Texas Industrial Energy Consumers appealed this decision to the Texas Court of Appeals.

The LPSC approved SWEPCo’s application to construct the Turk Plant.  The Sierra Club petitioned the LPSC to begin an investigation into the construction of the Turk Plant which was rejected by the LPSC in November 2009.  In December 2009, the Sierra Club refiled its petition as a stand alone complaint proceeding.  In February 2010, SWEPCo filed a motion to dismiss and denied the allegations in the complaint.
 

 
 
167

 
In November 2008, SWEPCo received its required air permit approval from the Arkansas Department of Environmental Quality and commenced construction at the site.  The Arkansas Pollution Control and Ecology Commission (APCEC) upheld the air permit.  In February 2010, the parties who unsuccessfully appealed the air permit to the APCEC filed a notice of appeal with the Circuit Court of Hempstead County, Arkansas.

The wetlands permit was issued by the U.S. Army Corps of Engineers in December 2009.  In February 2010, the Sierra Club, the Audubon Society and others filed a complaint in the Federal District Court for the Western District of Arkansas against the U.S. Army Corps of Engineers challenging the process used and the terms of the permit issued to SWEPCo authorizing certain wetland and stream impacts.  In May 2010, parties filed with the Federal District Court for the Western District of Arkansas for a preliminary injunction to halt construction and for a temporary restraining order.

In January 2009, SWEPCO was granted CECPNs by the APSC to build three transmission lines and facilities authorized by the SPP and needed to transmit power from the Turk Plant.  Intervenors appealed the CECPN decisions in April 2009 to the Arkansas Court of Appeals.  In July 2010, the Hempstead County Hunting Club and other appellants filed with the Arkansas Court of Appeals emergency motions to stay the transmission CECPNs to prohibit SWEPCo from taking ownership of private property and undertaking construction of the transmission lines.  In July 2010, the Arkansas Court of Appeals issued a decision remanding all transmission line CECPN appeals to the APSC.  As a result, a stay was not ordered and construction continues on the affected transmission lines.

Management expects that SWEPCo will ultimately be able to complete construction of the Turk Plant and related transmission facilities and place those facilities in service.  However, if SWEPCo is unable to complete the Turk Plant construction, including the related transmission facilities, and place the Turk Plant in service or if SWEPCo cannot recover all of its investment in and expenses related to the Turk Plant, it would materially reduce future net income and cash flows and materially impact financial condition.

Stall Unit

SWEPCo constructed the Stall Unit, an intermediate load 500 MW natural gas-fired combustion turbine combined cycle generating unit, at its existing Arsenal Hill Plant located in Shreveport, Louisiana.  The LPSC and the APSC issued orders capping SWEPCo’s Stall Unit construction costs at $445 million including AFUDC and excluding related transmission costs.  The Stall Unit was placed in service in June 2010.  As of June 30, 2010, the Stall Unit cost $422 million, including $49 million of AFUDC.  Management does not expect the final costs of the Stall Unit to exceed the ordered cap.

Louisiana Fuel Adjustment Clause Audit

Consultants for the LPSC issued their audit report of SWEPCo’s Louisiana retail FAC.  The audit report included a significant recommendation that might result in a financial impact that could be material for SWEPCo.  The audit report recommended that the LPSC discontinue SWEPCo’s tiered sharing mechanism related to off-system sales margins on a prospective basis.  In addition, the audit report contained a recommendation that SWEPCo should reflect the SIA refunds as reductions in the Louisiana FAC rates as soon as possible, including interest through the date the refunds are reflected in the FAC.  See “Allocation of Off-system Sales Margins” section within “FERC Rate Matters.”  Management is unable to predict how the LPSC will rule on the recommendatio ns in the audit report and its financial statement impact on net income, cash flows and financial condition.

2009 Texas Base Rate Filing

In August 2009, SWEPCo filed a rate case with the PUCT to increase its base rates by approximately $75 million annually including a return on equity of 11.5%.  The filing included requests for financing cost riders of $32 million related to construction of the Stall Unit and Turk Plant, a vegetation management rider of $16 million and other requested increases of $27 million.  In April 2010, a settlement agreement was approved by the PUCT to increase SWEPCo’s base rates by approximately $15 million annually, effective May 2010, including a return on equity of 10.33%, which consists of $5 million related to construction of the Stall Unit and $10 million in other increases.  In addition, the settlement agreement will decrease annual depreciation expense by $17 million and allows SWEPCo a $10 million on e-year surcharge rider to recover additional vegetation management costs that SWEPCo must spend within two years.

 
168

 
Texas Fuel Reconciliation

In May 2010, various intervenors, including the PUCT staff, filed testimony recommending disallowances ranging from $3 million to $30 million in SWEPCo’s $755 million fuel and purchase power costs reconciliation for the period January 2006 through March 2009.  In July 2010, Cities Advocating Reasonable Deregulation filed testimony regarding the 2007 transfer of ERCOT trading contracts to AEP Energy Partners.  Included in this testimony were unquantified refund recommendations relating to re-pricing of contract transactions.  Management is unable to predict the outcome of this reconciliation.  If the PUCT disallows any portion of SWEPCo’s fuel and purchase power costs, it could reduce future net income and cash flows and possibly impact financial condition.

Louisiana 2008 Formula Rate Filing

In April 2008, SWEPCo filed its first formula rate filing under an approved three-year formula rate plan (FRP).  SWEPCo requested an increase in its annual Louisiana retail rates of $11 million to be effective in August 2008 in order to earn the approved formula return on common equity of 10.565%.  In August 2008, as provided by the FRP, SWEPCo implemented the FRP rates, subject to refund.  During 2009, SWEPCo recorded a provision for refund of approximately $1 million after reaching a settlement in principle with intervenors.  A settlement stipulation was reached by the parties and is pending LPSC approval.

Louisiana 2009 Formula Rate Filing

In April 2009, SWEPCo filed the second FRP which would increase its annual Louisiana retail rates by an additional $4 million effective in August 2009.  SWEPCo implemented the FRP rate increase as filed in August 2009, subject to refund.  In October 2009, consultants for the LPSC objected to certain components of SWEPCo’s FRP calculation.  The consultants also recommended reflecting the SIA refunds through SWEPCo’s FRP.  See “Allocation of Off-system Sales Margins” section within “FERC Rate Matters.”  SWEPCo is currently in settlement discussions.  If a refund is required, it could reduce future net income and cash flows and impact financial condition.

Louisiana 2010 Formula Rate Filing

In April 2010, SWEPCo filed the third FRP which would decrease its annual Louisiana retail rates by $3 million effective in August 2010 pursuant to the approved FRP, subject to refund.  SWEPCo believes the rates as filed are in compliance with the FRP methodology previously approved by the LPSC.  If the LPSC disagrees with SWEPCo, it could result in refunds which could reduce future net income and cash flows and impact financial condition.

APCo Rate Matters

2009 Virginia Base Rate Case

In July 2009, APCo filed a generation and distribution base rate increase with the Virginia SCC of $154 million annually based on a 13.35% return on common equity.  Interim rates, subject to refund, became effective in December 2009 but were discontinued in February 2010 when newly enacted Virginia legislation suspended the collection of interim rates.  In July 2010, the Virginia SCC issued an order approving a $62 million increase based on a 10.53% return on equity.  The order denied recovery of the Virginia share of the Mountaineer Carbon Capture and Storage Project, which resulted in a pretax write-off of $54 million in the second quarter of 2010.  See “Mountaineer Carbon Capture and Storage Project” section below.  In addition, the order allowed the deferral in the secon d quarter of 2010 of approximately $25 million of incremental storm expense incurred in 2009.  In July 2010, APCo filed with the Virginia SCC a petition for reconsideration of the order as it relates to the Mountaineer Carbon Capture and Storage Project.

2010 West Virginia Base Rate Case

In May 2010, APCo filed a request with the WVPSC to increase annual base rates by $140 million based on an 11.75% return on common equity to be effective March 2011.  Hearings are scheduled for December 2010.  A decision from the WVPSC is expected in March 2011.
 

 
 
169

 
Mountaineer Carbon Capture and Storage Project

APCo and ALSTOM Power, Inc., an unrelated third party, jointly constructed a CO2 capture validation facility, which was placed into service in September 2009.  APCo also constructed and owns the necessary facilities to store the CO2.  In October 2009, APCo started injecting CO2 into the underground storage facilities.  The injection of CO2 required the recording of an asset retirement obligation and an offsetting regulatory asset.  Through June 30, 2010, APCo has recorded a noncurrent regulatory asset of $ 58 million consisting of $38 million in project costs and $20 million in asset retirement costs.

In APCo’s July 2009 Virginia base rate filing, APCo requested recovery of and a return on its estimated increased Virginia jurisdictional share of its project costs and recovery of the related asset retirement obligation regulatory asset amortization and accretion.  In July 2010, the Virginia SCC issued a base rate order that denied recovery of the Virginia share of the Mountaineer Carbon Capture and Storage Project costs, which resulted in a write-off of approximately $54 million in the second quarter of 2010.  In response to the order, APCo filed with the Virginia SCC a petition for reconsideration of the order as it relates to the Mountaineer Carbon Capture and Storage Project.  See “2009 Virginia Base Rate Case” section above.

In APCo’s May 2010 West Virginia base rate filing, APCo requested recovery of and a return on its estimated increased West Virginia jurisdictional share of its project costs and recovery of the related asset retirement obligation regulatory asset amortization and accretion.  If APCo cannot recover its remaining investment in and expenses related to the Mountaineer Carbon Capture and Storage project, it would reduce future net income and cash flows and impact financial condition.

APCo’s Filings for an IGCC Plant

APCo filed a petition with the WVPSC requesting approval of a Certificate of Public Convenience and Necessity (CPCN) to construct a 629 MW IGCC power plant in Mason County, West Virginia.  APCo also requested the Virginia SCC and the WVPSC to approve a surcharge rate mechanism to provide for the timely recovery of pre-construction costs and the ongoing financing costs of the project during the construction period, as well as the capital costs, operating costs and a return on equity once the facility is placed into commercial operation.  The WVPSC granted APCo the CPCN and approved the requested cost recovery.  Various intervenors filed petitions with the WVPSC to reconsider the order.

In 2008, the Virginia SCC issued an order denying APCo’s request for a surcharge rate mechanism based upon its finding that the estimated cost of the plant was uncertain and may escalate.  The Virginia SCC also expressed concerns that the estimated costs did not include a retrofitting of carbon capture and sequestration facilities.  During 2009, based on an unfavorable order received in Virginia, the WVPSC removed the IGCC case as an active case from its docket and indicated that the conditional CPCN granted in 2008 must be reconsidered if and when APCo proceeds forward with the IGCC plant.

Through June 30, 2010, APCo deferred for future recovery pre-construction IGCC costs of approximately $9 million applicable to its West Virginia jurisdiction, approximately $2 million applicable to its FERC jurisdiction and approximately $9 million applicable to its Virginia jurisdiction.

APCo will not start construction of the IGCC plant until sufficient assurance of full cost recovery exists in Virginia and in West Virginia.  If the plant is cancelled, APCo plans to seek recovery of its prudently incurred deferred pre-construction costs which, if not recoverable, would reduce future net income and cash flows and impact financial condition.

APCo’s 2009 Expanded Net Energy Charge (ENEC) Filing

In September 2009, the WVPSC issued an order approving APCo’s March 2009 ENEC request.  The approved order provided for recovery of an under-recovered balance plus a projected increase in ENEC costs over a four-year phase-in period with an overall increase of $320 million and a first-year increase of $112 million, effective October 2009.  The WVPSC also approved a fixed annual carrying cost rate of 4%, effective October 2009, to be applied to the incremental deferred regulatory asset balance that will result from the phase-in plan and lowered annual coal cost projections by $27 million.  As of June 30, 2010, APCo’s ENEC under-recovery balance was $358 million, including carrying costs, which is included in noncurrent regulatory assets.
 

 
 
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In June 2010, a settlement agreement for $86 million, including $9 million of construction surcharges, was filed with the WVPSC related to APCo’s second year ENEC increase.  The settlement agreement provided for recovery of the amounts related to the renegotiated coal contracts and allows APCo to accrue weighted average cost of capital carrying costs on the excess under-recovery balance due to the ENEC phase-in as adjusted for the impacts of Accumulated Deferred Income Taxes.  In June 2010, the WVPSC approved the settlement agreement which made rates effective in July 2010.

WPCo Merger with APCo

In a proceeding established by the WVPSC to explore options to meet WPCo's future power supply requirements, the WVPSC, in November 2009, issued an order approving a joint stipulation among APCo, WPCo, the WVPSC staff and the Consumer Advocate Division.  The order approved the recommendation of the signatories to the stipulation that WPCo merge into APCo and be supplied from APCo's existing power resources.  Merger approvals from the WVPSC, Virginia SCC and the FERC are required.  No merger approval filings have been made.

PSO Rate Matters

PSO Fuel and Purchased Power

2006 and Prior Fuel and Purchased Power

The OCC filed a complaint with the FERC related to the allocation of off-system sales margins (OSS) among the AEP operating companies in accordance with a FERC-approved allocation agreement.  The FERC issued an adverse ruling in 2008.  As a result, PSO recorded a regulatory liability in 2008 to return reallocated OSS to customers.  Starting in March 2009, PSO refunded the additional reallocated OSS to its customers through February 2010.

A reallocation of purchased power costs among AEP West companies for periods prior to 2002 resulted in an under-recovery of $42 million of PSO fuel costs.  PSO recovered the $42 million by offsetting it against an existing fuel over-recovery during the period June 2007 through May 2008.  The Oklahoma Industrial Energy Consumers (OIEC) has contended that PSO should not have collected the $42 million without specific OCC approval.  As such, the OIEC contends that the OCC should require PSO to refund the $42 million it collected through its fuel clause.  The OCC has heard the OIEC appeal and a decision is pending.  In March 2010, PSO filed motions to advance this proceeding since the FERC has ruled on the allocation of off-system sales margins proceeding and PSO has refunded the additional margins to its retail customers.  If the OCC were to order PSO to refund all or a part of the $42 million, it would reduce future net income and cash flows and impact financial condition.

2008 Fuel and Purchased Power

In July 2009, the OCC initiated a proceeding to review PSO’s fuel and purchased power adjustment clause for the calendar year 2008 and also initiated a prudence review of the related costs.  In March 2010, the Oklahoma Attorney General and the OIEC recommended the fuel clause adjustment rider be amended so that the shareholder’s portion of off-system sales margins decrease from 25% to 10%.  The OIEC also recommended that the OCC conduct a comprehensive review of all affiliate transactions during 2007 and 2008.  In July 2010, additional testimony regarding the 2007 transfer of ERCOT trading contracts to AEP Energy Partners was filed.  Included in this testimony were unquantified refund recommendations relating to re-pricing of contract transactions.  If the OCC were to issue an unfavorable decision, it could reduce future net income and cash flows and impact financial condition.

2008 Oklahoma Base Rate Appeal

In January 2009, the OCC issued a final order approving an $81 million increase in PSO’s non-fuel base revenues based on a 10.5% return on equity.  The new rates reflecting the final order were implemented with the first billing cycle of February 2009.  PSO and intervenors filed appeals with the Oklahoma Supreme Court raising various issues.  The Oklahoma Supreme Court assigned the case to the Court of Civil Appeals.  In June 2010, the Court of Civil Appeals affirmed the OCC's decision.  No parties sought rehearing or appeal.  As a result, this case has concluded.
 

 
 
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2010 Oklahoma Base Rate Case

In July 2010, PSO filed a request with the OCC to increase annual base rates by $82 million, including $30 million that is currently being recovered through a rider.  The requested increase includes a $24 million increase in depreciation and an 11.5% return on common equity.  PSO requested that new rates become effective no later than July 2011.  A procedural schedule has not been established.

I&M Rate Matters

Indiana Fuel Clause Filing (Cook Plant Unit 1 Fire and Shutdown)

I&M filed applications with the IURC to increase its fuel adjustment charge by approximately $53 million for the period of April 2009 through September 2009.  The filings sought increases for previously under-recovered fuel clause expenses.

As fully discussed in the “Cook Plant Unit 1 Fire and Shutdown” section of Note 4, Cook Unit 1 was shut down in September 2008 due to significant turbine damage and a small fire on the electric generator.  Unit 1 was placed back into service in December 2009 at slightly reduced power.  The unit outage resulted in increased replacement power fuel costs.  The filing only requested the cost of replacement power through mid-December 2008, the date when I&M began receiving accidental outage insurance proceeds.  I&M committed to absorb the remaining costs of replacement power through the date the unit returned to service, which occurred in December 2009.

I&M reached an agreement with intervenors, which was approved by the IURC in March 2009, to collect its existing prior period under-recovery regulatory asset deferral balance over twelve months instead of over six months as initially proposed.  Under the agreement, the fuel factors were placed into effect, subject to refund, and a subdocket was established to consider issues relating to the Unit 1 shutdown including the treatment of the accidental outage insurance proceeds.  Hearings are scheduled to be held in December 2010.
 
Management believes that I&M is entitled to retain the accidental outage insurance proceeds since it made customers whole regarding the replacement power costs.  If any fuel clause revenues or accidental outage insurance proceeds have to be refunded, it would reduce future net income and cash flows and impact financial condition.

Michigan 2009 Power Supply Cost Recovery (PSCR) Reconciliation (Cook Plant Unit 1 Fire and Shutdown)

In March 2010, I&M filed its 2009 PSCR reconciliation with the MPSC.  The filing included an adjustment to exclude from the PSCR the incremental fuel cost of replacement power due to the Cook Plant Unit 1 outage from mid-December 2008 through December 2009, the period during which I&M received and recognized the accidental outage insurance proceeds.  Management believes that I&M is entitled to retain the accidental outage insurance proceeds since it made customers whole regarding the replacement power costs.  If any fuel clause revenues or accidental outage insurance proceeds have to be refunded, it would reduce future net income and cash flows and impact financial condition.  See the “Cook Plant Unit 1 Fire and Shutdown” section of Note 4.

Michigan Base Rate Filing

In January 2010, I&M filed with the MPSC a request for a $63 million increase in annual base rates based on an 11.75% return on common equity.  In the August 2010 billing cycle, I&M, with the MPSC authorization, will implement a $44 million interim rate increase, subject to refund with interest.  The interim increase excluded new trackers and regulatory assets for which I&M was not currently incurring expenses.  In July 2010, the MPSC staff filed testimony which recommended a $34 million annual increase in base rates based on a 10.35% return on common equity plus separate recovery of approximately $7 million of customer choice implementation costs over a two year period.  The MPSC must issue a final order within one year of the original filing.

 
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FERC Rate Matters

Regional Transmission Rate Proceedings at the FERC – Affecting APCo, CSPCo, I&M and OPCo

Seams Elimination Cost Allocation (SECA) Revenue Subject to Refund

In 2004, AEP eliminated transaction-based through-and-out transmission service (T&O) charges in accordance with FERC orders and collected, at the FERC’s direction, load-based charges, referred to as RTO SECA, to partially mitigate the loss of T&O revenues on a temporary basis through March 2006.  Intervenors objected to the temporary SECA rates.  The FERC set SECA rate issues for hearing and ordered that the SECA rate revenues be collected, subject to refund.  The AEP East companies recognized gross SECA revenues of $220 million from 2004 through 2006 when the SECA rates terminated leaving the AEP East companies and ultimately their internal load retail customers to make up the shortfall in revenues.  APCo’s, CSPCo’s, I&M’s and OPCo’s portions of recogniz ed gross SECA revenues are as follows:

Company
 
(in millions)
 
APCo
  $ 70.2  
CSPCo
    38.8  
I&M
    41.3  
OPCo
    53.3  

In 2006, a FERC Administrative Law Judge (ALJ) issued an initial decision finding that the rate design for the recovery of SECA charges was flawed and that a large portion of the “lost revenues” reflected in the SECA rates should not have been recoverable.  The ALJ found that the SECA rates charged were unfair, unjust and discriminatory and that new compliance filings and refunds should be made.  The ALJ also found that any unpaid SECA rates must be paid in the recommended reduced amount.

AEP filed briefs jointly with other affected companies noting exceptions to the ALJ’s initial decision and asking the FERC to reverse the decision.  In May 2010, the FERC issued an order that generally supports AEP’s position and requires a compliance filing to be filed with the FERC by August 2010.  In June 2010, AEP and other affected companies filed a joint request for rehearing with the FERC regarding certain matters including a request to clarify the method for determining the amount of such revenues.  The rehearing also requested the FERC to clarify that interest may be added to SECA charges originally billed to but never paid by Green Mountain Energy (reassigned to British Petroleum Energy).  Eight other groups also filed requests for rehearing with the FERC.

The AEP East companies provided reserves for net refunds for SECA settlements totaling $44 million applicable to the $220 million of SECA revenues collected.  APCo’s, CSPCo’s, I&M’s and OPCo’s portions of the provision are as follows:

Company
 
(in millions)
 
APCo
  $ 14.1  
CSPCo
    7.8  
I&M
    8.3  
OPCo
    10.7  

Settlements approved by the FERC consumed $10 million of the reserve for refunds applicable to $112 million of SECA revenue.  The balance in the reserve for future settlements as of June 30, 2010 was $34 million.  APCo’s, CSPCo’s, I&M’s and OPCo’s reserve balances at June 30, 2010 were:

Company
 
June 30, 2010
 
   
(in millions)
 
APCo
  $ 10.7  
CSPCo
    5.9  
I&M
    6.3  
OPCo
    8.2  

 
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Based on the AEP East companies’ analysis of the May 2010 order, management believes that the reserve is adequate to pay the refunds, including interest, that will be required should the May 2010 order be made final as issued by the FERC.  Management cannot predict the ultimate outcome of this proceeding at the FERC which could impact future net income and cash flows.

Allocation of Off-system Sales Margins – Affecting SWEPCo

The OCC filed a complaint at the FERC alleging that AEP inappropriately allocated off-system sales margins between the AEP East companies and the AEP West companies and did not properly allocate off-system sales margins within the AEP West companies.

In 2009, AEP made a compliance filing with the FERC and the AEP East companies refunded approximately $250 million to the AEP West companies.  Following authorized regulatory treatment, the AEP West companies shared a portion of SIA margins with their customers during the period June 2000 to March 2006.  In 2008, the AEP West companies recorded a provision for refund reflecting the sharing.  Refunds have been or are currently being returned to PSO’s and SWEPCo’s Texas, Arkansas and FERC customers.  SWEPCo is working with the LPSC to determine how the FERC ordered refund will be made to its Louisiana retail customers.  Consultants for the LPSC issued an audit report of SWEPCo’s Louisiana retail fuel adjustment clause, in which they recommended that SWEPCo refund the amo unts, including interest, through the fuel adjustment clause.  See “Louisiana Fuel Adjustment Clause Audit” section within “SWEPCo Rate Matters.”  Other consultants for the LPSC recommended refunding the amounts through SWEPCo’s formula rate plan.  Management believes the AEP West companies’ provision for refund is adequate.

Modification of the Transmission Agreement (TA) – Affecting APCo, CSPCo, I&M and OPCo

APCo, CSPCo, I&M, KPCo and OPCo are parties to the TA that provides for a sharing of the cost of transmission lines operated at 138-kV and above and transmission stations containing extra-high voltage facilities.  In June 2009, AEPSC, on behalf of the parties to the TA, filed with the FERC a request to modify the TA.  Under the proposed amendments, KGPCo and WPCo will be added as parties to the TA.  In addition, the amendments would provide for the allocation of PJM transmission costs on the basis of the TA parties’ 12-month coincident peak and reimburse transmission revenues based on individual cost of service instead of the MLR method used in the present TA.  AEPSC requested the effective date to be the first day of the month following a final non-appealable FERC order.  The delayed effective date was approved by the FERC when the FERC accepted the new TA for filing.  Settlement discussions are in progress.  Management is unable to predict whether the parties to the TA will experience regulatory lag and its effect on future net income and cash flows due to timing of the implementation of the modified TA by various state regulators.

PJM Transmission Formula Rate Filing – Affecting APCo, CSPCo, I&M and OPCo

AEP filed an application with the FERC in July 2008 to increase its open access transmission tariff (OATT) rates for wholesale transmission service within PJM.  The filing sought to implement a formula rate allowing annual adjustments reflecting future changes in the AEP East companies' cost of service.  The FERC issued an order conditionally accepting AEP’s proposed formula rate and delayed the requested October 2008 effective date for five months.  AEP began settlement discussions with the intervenors and the FERC staff which resulted in a settlement that was filed with the FERC in April 2010.

The pending settlement results in a $51 million annual increase beginning in April 2009 for service as of March 2009, of which approximately $7 million is being collected from nonaffiliated customers within PJM.  The remaining $44 million is being billed to the AEP East companies and is generally offset by compensation from PJM for use of the AEP East companies’ transmission facilities so that net income is not directly affected.

The pending settlement also results in an additional $30 million increase for the first annual update of the formula rate, beginning in August 2009 for service as of July 2009.  Approximately $4 million of the increase will be collected from nonaffiliated customers within PJM with the remaining $26 million being billed to the AEP East companies.

 
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Under the formula, an annual update will be filed to be effective July 2010 and each year thereafter.  Also, beginning with the July 2010 update, the rates each year will include an adjustment to true-up the prior year's collections to the actual costs for the prior year.  In May 2010, the second annual update was filed with the FERC to decrease the revenue requirement by $58 million for service as of July 2010.  Approximately $8 million of the decrease will be refunded to nonaffiliated customers within PJM.  Management expects the settlement will be approved by the FERC.

Transmission Agreement (TA) – Affecting APCo, CSPCo, I&M and OPCo

Certain transmission facilities placed in service in 1998 were inadvertently excluded from the AEP East companies’ TA calculation prior to January 2009.  The excluded equipment was KPCo’s Inez Station which had been determined as eligible equipment for inclusion in the TA in 1995 by the AEP TA transmission committee.  The amount involved was $7 million annually.  In June 2010, the KPSC approved a settlement agreement in KPCo’s base rate filing which set new base rates effective July 2010 and excluded consideration of this issue.

PJM/MISO Market Flow Calculation Settlement Adjustments - Affecting APCo, CSPCo, I&M and OPCo

During 2009, an analysis conducted by MISO and PJM discovered several instances of unaccounted for power flows on numerous coordinated flowgates.  These flows affected the settlement data for congestion revenues and expenses and date back to the start of the MISO market in 2005.  PJM has provided MISO an initial analysis of amounts they believe they owe MISO.  MISO disputes PJM’s methodology.

Settlement discussions between MISO and PJM have been unsuccessful, and as a result, in March 2010, MISO filed two related complaints against PJM at the FERC related to the above claim.  MISO seeks to recover a total of approximately $145 million from PJM.  If PJM is held liable for these damages, PJM members, including the AEP East companies, may be billed for a share of the refunds or payments PJM is directed to make to MISO.  AEP has intervened and filed a protest to one complaint.  Management believes that MISO's claims are without merit and that PJM's right to recover any MISO damages from AEP and other members is limited.  If the FERC orders a settlement above the AEP East companies’ reserve related to their estimated portion of PJM additional costs, it could reduce future n et income and cash flows and impact financial condition.

4.
COMMITMENTS, GUARANTEES AND CONTINGENCIES

The Registrant Subsidiaries are subject to certain claims and legal actions arising in their ordinary course of business.  In addition, their business activities are subject to extensive governmental regulation related to public health and the environment.  The ultimate outcome of such pending or potential litigation cannot be predicted.  For current proceedings not specifically discussed below, management does not anticipate that the liabilities, if any, arising from such proceedings would have a material adverse effect on the financial statements.  The Commitments, Guarantees and Contingencies note within the 2009 Annual Report should be read in conjunction with this report.

GUARANTEES

Liabilities for guarantees are recorded in accordance with the accounting guidance for “Guarantees.”  There is no collateral held in relation to any guarantees.  In the event any guarantee is drawn, there is no recourse to third parties unless specified below.

Letters of Credit – Affecting APCo, I&M, OPCo and SWEPCo

Certain Registrant Subsidiaries enter into standby letters of credit with third parties.  These letters of credit cover items such as insurance programs, security deposits and debt service reserves.  These letters of credit were issued in the ordinary course of business under the two $1.5 billion credit facilities, of which $750 million may be issued under one credit facility as letters of credit.  In June 2010, AEP canceled a facility that was scheduled to mature in March 2011 and entered into a new $1.5 billion credit facility scheduled to mature in 2013 that allows for the issuance of up to $600 million as letters of credit.

 
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In June 2010, the Registrant Subsidiaries and certain other companies in the AEP System reduced the $627 million credit agreement to $478 million.  As of June 30, 2010, $477 million of letters of credit were issued by Registrant Subsidiaries under the agreement to support variable rate Pollution Control Bonds.

At June 30, 2010, the maximum future payments of the letters of credit were as follows:

 
 
 
 
 
 
 
Borrower
Company
 
Amount
 
Maturity
 
Sublimit
 
 
(in thousands)
 
 
 
(in thousands)
$1.5 billion letters of credit:
 
 
 
 
 
 
 
 
I&M
 
$
 300 
 
March 2011
 
 
N/A
SWEPCo
 
 
 4,448 
 
December 2010
 
 
N/A
 
 
 
 
 
 
 
 
 
$478 million letter of credit:
 
 
 
 
 
 
 
 
APCo
 
$
 232,292 
 
November 2010 to April 2011
 
$
 300,000 
I&M
 
 
 77,886 
 
April 2011
 
 
 230,000 
OPCo
 
 
 166,899 
 
April 2011
 
 
 400,000 

Guarantees of Third-Party Obligations – Affecting SWEPCo

As part of the process to receive a renewal of a Texas Railroad Commission permit for lignite mining, SWEPCo provides guarantees of mine reclamation of approximately $65 million.  Since SWEPCo uses self-bonding, the guarantee provides for SWEPCo to commit to use its resources to complete the reclamation in the event the work is not completed by Sabine Mining Company (Sabine), a consolidated variable interest entity.  This guarantee ends upon depletion of reserves and completion of final reclamation.  Based on the latest study, it is estimated the reserves will be depleted in 2036 with final reclamation completed by 2046 at an estimated cost of approximately $58 million.  As of June 30, 2010, SWEPCo has collected approximately $46 million through a rider for final mine closure and reclamation cost s, of which $2 million is recorded in Other Current Liabilities, $22 million is recorded in Deferred Credits and Other Noncurrent Liabilities and $22 million is recorded in Asset Retirement Obligations on SWEPCo’s Condensed Consolidated Balance Sheets.

Sabine charges SWEPCo, its only customer, all of its costs.  SWEPCo passes these costs to customers through its fuel clause.

Indemnifications and Other Guarantees – Affecting APCo, CSPCo, I&M, OPCo, PSO and SWEPCo

Contracts

The Registrant Subsidiaries enter into certain types of contracts which require indemnifications.  Typically these contracts include, but are not limited to, sale agreements, lease agreements, purchase agreements and financing agreements.  Generally, these agreements may include, but are not limited to, indemnifications around certain tax, contractual and environmental matters.  With respect to sale agreements, exposure generally does not exceed the sale price.  Prior to June 30, 2010, the Registrant Subsidiaries entered into sale agreements including indemnifications with a maximum exposure that was not significant for any individual Registrant Subsidiary.  There are no material liabilities recorded for any indemnifications.

The AEP East companies, PSO and SWEPCo are jointly and severally liable for activity conducted by AEPSC on behalf of the AEP East companies, PSO and SWEPCo related to power purchase and sale activity conducted pursuant to the SIA.

 
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Master Lease Agreements

The Registrant Subsidiaries lease certain equipment under master lease agreements.  GE Capital Commercial Inc. (GE) notified management in November 2008 that they elected to terminate the Master Leasing Agreements in accordance with the termination rights specified within the contract.  In 2011, the Registrant Subsidiaries will be required to purchase all equipment under the lease and pay GE an amount equal to the unamortized value of all equipment then leased.  In December 2008 and 2009, management signed new master lease agreements that include lease terms of up to 10 years.

For equipment under the GE master lease agreements that expire in 2011, the lessor is guaranteed receipt of up to 87% of the unamortized balance of the equipment at the end of the lease term.  If the fair value of the leased equipment is below the unamortized balance at the end of the lease term, the Registrant Subsidiaries are committed to pay the difference between the fair value and the unamortized balance, with the total guarantee not to exceed 87% of the unamortized balance.  Under the new master lease agreements, the lessor is guaranteed a residual value up to a stated percentage of either the unamortized balance or the equipment cost at the end of the lease term.  If the actual fair value of the leased equipment is below the guaranteed residual value at the end of the lease term, the Registrant Subs idiaries are committed to pay the difference between the actual fair value and the residual value guarantee.  At June 30, 2010, the maximum potential loss by Registrant Subsidiary for these lease agreements assuming the fair value of the equipment is zero at the end of the lease term is as follows:

   
Maximum
 
   
Potential
 
Company
 
Loss
 
   
(in thousands)
 
APCo
    $ 236  
CSPCo
      57  
I&M
      153  
OPCo
      306  
PSO
      329  
SWEPCo
      272  

Historically, at the end of the lease term the fair value has been in excess of the unamortized balance.

Railcar Lease

In June 2003, AEP Transportation LLC (AEP Transportation), a subsidiary of AEP, entered into an agreement with BTM Capital Corporation, as lessor, to lease 875 coal-transporting aluminum railcars.  The lease is accounted for as an operating lease.  In January 2008, AEP Transportation assigned the remaining 848 railcars under the original lease agreement to I&M (390 railcars) and SWEPCo (458 railcars).  The assignment is accounted for as operating leases for I&M and SWEPCo.  The initial lease term was five years with three consecutive five-year renewal periods for a maximum lease term of twenty years.  I&M and SWEPCo intend to renew these leases for the full lease term of twenty years via the renewal options.  The future minimum lease obligations are $18 million for I&M and $20 million for SWEPCo for the remaining railcars as of June 30, 2010.

Under the lease agreement, the lessor is guaranteed that the sale proceeds under a return-and-sale option will equal at least a lessee obligation amount specified in the lease, which declines from approximately 84% under the current five year lease term to 77% at the end of the 20 year term of the projected fair value of the equipment.  I&M and SWEPCo have assumed the guarantee under the return-and-sale option.  I&M’s maximum potential loss related to the guarantee is approximately $12 million ($8 million, net of tax) and SWEPCo’s is approximately $13 million ($9 million, net of tax) assuming the fair value of the equipment is zero at the end of the current five-year lease term.  However, management believes that the fair value would produce a sufficient sales price to avoid any loss.

The Registrant Subsidiaries have other railcar lease arrangements that do not utilize this type of financing structure.

 
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ENVIRONMENTAL CONTINGENCIES

Federal EPA Complaint and Notice of Violation – Affecting CSPCo

The Federal EPA, certain special interest groups and a number of states alleged that APCo, CSPCo, I&M and OPCo modified certain units at their coal-fired generating plants in violation of the NSR requirements of the CAA.  Cases with similar allegations against CSPCo, Dayton Power and Light Company and Duke Energy Ohio, Inc. were also filed related to their jointly-owned units.  The cases were settled with the exception of a case involving a jointly-owned Beckjord unit which had a liability trial.  Following the trial, the jury found no liability for claims made against the jointly-owned Beckjord unit.  Following a second liability trial in 2009, the jury again found no liability at the jointly-owned Beckjord unit.  The defendants and the plaintiffs appealed to the Seventh Circuit Co urt of Appeals.  Beckjord is operated by Duke Energy Ohio, Inc.  Management is unable to determine a range of potential losses that are reasonably possible of occurring.

Notice of Enforcement and Notice of Citizen Suit – Affecting SWEPCo

In 2005, two special interest groups, Sierra Club and Public Citizen, filed a complaint alleging violations of the CAA at SWEPCo’s Welsh Plant.  In 2008, a consent decree resolved all claims in the case and in the pending appeal of an altered permit for the Welsh Plant.  The consent decree required SWEPCo to install continuous particulate emission monitors at the Welsh Plant, secure 65 MW of renewable energy capacity, fund $2 million in emission reduction, energy efficiency or environmental mitigation projects and pay a portion of plaintiffs’ attorneys’ fees and costs.

The Federal EPA issued a Notice of Violation (NOV) based on alleged violations of a percent sulfur in fuel limitation and the heat input values listed in a previous state permit.  The NOV also alleges that a permit alteration issued by the Texas Commission on Environmental Quality in 2007 was improper.  In March 2008, SWEPCo met with the Federal EPA to discuss the alleged violations.  The Federal EPA did not object to the settlement of similar alleged violations in the federal citizen suit.  Management is unable to predict the timing of any future action by the Federal EPA.  Management is unable to determine a range of potential losses that are reasonably possible of occurring.

Carbon Dioxide Public Nuisance Claims – Affecting APCo, CSPCo, I&M, OPCo, PSO and SWEPCo

In 2004, eight states and the City of New York filed an action in Federal District Court for the Southern District of New York against AEP, AEPSC, Cinergy Corp, Xcel Energy, Southern Company and Tennessee Valley Authority.  The Natural Resources Defense Council, on behalf of three special interest groups, filed a similar complaint against the same defendants.  The actions allege that CO2 emissions from the defendants’ power plants constitute a public nuisance under federal common law due to impacts of global warming and sought injunctive relief in the form of specific emission reduction commitments from the defendants.  The trial court dismissed the lawsuits.

In September 2009, the Second Circuit Court of Appeals issued a ruling on appeal remanding the cases to the Federal District Court for the Southern District of New York.  The Second Circuit held that the issues of climate change and global warming do not raise political questions and that Congress’ refusal to regulate CO2 emissions does not mean that plaintiffs must wait for an initial policy determination by Congress or the President’s administration to secure the relief sought in their complaints.  The court stated that Congress could enact comprehensive legislation to regulate CO2 emissions or that the Federal EPA could regulate CO2 emissions under existing CAA authorities and that either of these actions could override any decision made by the district court under federal common law.  The Second Circuit did not rule on whether the plaintiffs could proceed with their state common law nuisance claims.  The defendants’ petition for rehearing was denied.  Management believes the actions are without merit and intends to continue to defend against the claims.  The Solicitor General requested an extension of time to file a petition for review by the U.S. Supreme Court and the remaining defendants received a similar extension of time.  Petitions are currently due on or before August 2, 2010.

 
178

 
In October 2009, the Fifth Circuit Court of Appeals reversed a decision by the Federal District Court for the District of Mississippi dismissing state common law nuisance claims in a putative class action by Mississippi residents asserting that CO2 emissions exacerbated the effects of Hurricane Katrina.  The Fifth Circuit held that there was no exclusive commitment of the common law issues raised in plaintiffs’ complaint to a coordinate branch of government and that no initial policy determination was required to adjudicate these claims.  The court granted petitions for rehearing.  An additional recusal left the Fifth Circuit without a quorum to reconsider the decision and the appeal was dismissed, leaving the district court 217;s decision in place.  The Registrant Subsidiaries were initially dismissed from this case without prejudice, but are named as defendants in a pending fourth amended complaint.  Unless the plaintiffs elect to file a petition for review by the U.S. Supreme Court, there will be no further proceedings in this case.

Management is unable to determine a range of potential losses that are reasonably possible of occurring.

Alaskan Villages’ Claims – Affecting APCo, CSPCo, I&M, OPCo, PSO and SWEPCo

In February 2008, the Native Village of Kivalina and the City of Kivalina, Alaska  filed a lawsuit in Federal Court in the Northern District of California against AEP, AEPSC and 22 other unrelated defendants including oil and gas companies, a coal company and other electric generating companies.  The complaint alleges that the defendants' emissions of CO2 contribute to global warming and constitute a public and private nuisance and that the defendants are acting together.  The complaint further alleges that some of the defendants, including AEP, conspired to create a false scientific debate about global warming in order to deceive the public and perpetuate the alleged nuisance.  The plaintiffs also allege that the effects o f global warming will require the relocation of the village at an alleged cost of $95 million to $400 million.  In October 2009, the judge dismissed plaintiffs’ federal common law claim for nuisance, finding the claim barred by the political question doctrine and by plaintiffs’ lack of standing to bring the claim.  The judge also dismissed plaintiffs’ state law claims without prejudice to refiling in state court.  The plaintiffs appealed the decision.  Management believes the action is without merit and intends to defend against the claims.  Management is unable to determine a range of potential losses that are reasonably possible of occurring.

The Comprehensive Environmental Response Compensation and Liability Act (Superfund) and State Remediation – Affecting I&M

By-products from the generation of electricity include materials such as ash, slag, sludge, low-level radioactive waste and SNF.  Coal combustion by-products, which constitute the overwhelming percentage of these materials, are typically treated and deposited in captive disposal facilities or are beneficially utilized.  In addition, the generating plants and transmission and distribution facilities have used asbestos, polychlorinated biphenyls and other hazardous and nonhazardous materials.  The Registrant Subsidiaries currently incur costs to dispose of these substances safely.

In March 2008, I&M received a letter from the Michigan Department of Environmental Quality (MDEQ) concerning conditions at a site under state law and requesting I&M take voluntary action necessary to prevent and/or mitigate public harm.  In May 2008, I&M started remediation work in accordance with a plan approved by MDEQ.  I&M recorded approximately $11 million of expense prior to January 1, 2010, $3 million of which I&M recorded in March 2009.  As the remediation work is completed, I&M’s cost may continue to increase as new information becomes available concerning either the level of contamination at the site or changes in the scope of remediation required by the MDEQ.  Management cannot predict the amount of additional cost, if any.

Amos Plant – Request to Show Cause – Affecting APCo and OPCo

In March 2010, APCo and OPCo received a request to show cause from the Federal EPA alleging that certain reporting requirements under Superfund and the Emergency Planning and Community Right-to-Know Act had been violated and inviting APCo and OPCo to engage in settlement negotiations.  The request includes a proposed civil penalty of approximately $300 thousand.  Management indicated a willingness to engage in good faith negotiations and met with representatives of the Federal EPA.  APCo and OPCo have not admitted that any violations occurred or that the amount of the proposed penalty is reasonable.  Management is unable to determine a range of potential losses that are reasonably possible of occurring.

 
179

 
Defective Environmental Equipment – Affecting CSPCo and OPCo

As part of the AEP System’s continuing environmental investment program, management chose to retrofit wet flue gas desulfurization systems on units utilizing the jet bubbling reactor (JBR) technology.  The following plants have been scheduled for the installation of the JBR technology or are currently utilizing JBR retrofits:

     
JBRs
 
     
Scheduled for
 
Plant Name
Plant Owners
 
Installation
 
Cardinal
OPCo/Buckeye Power, Inc.
    3  
Conesville
CSPCo/Dayton Power and Light Company/
Duke Energy Ohio, Inc.
    1  
Muskingum River (a)
OPCo
    1  

(a)
Contracts for the Muskingum River project have been temporarily suspended during the early development stage of the project.

The retrofits on two of the Cardinal Plant units and the Conesville Plant unit are operational.  Due to unexpected operating results, management completed an extensive review of the design and manufacture of the JBR internal components.  The review concluded that there are fundamental design deficiencies and that inferior and/or inappropriate materials were selected for the internal fiberglass components.  Management initiated discussions with Black & Veatch, the original equipment manufacturer, to develop a repair or replacement corrective action plan.  Management intends to pursue contractual and other legal remedies if these issues with Black & Veatch are not resolved.  If the AEP System is unsuccessful in obtaining reimbursement for the work required to remedy this situation , the cost of repair or replacement could have an adverse impact on construction costs, net income, cash flows and financial condition.  Management is unable to determine a range of potential losses that are reasonably possible of occurring.

NUCLEAR CONTINGENCIES – AFFECTING I&M

I&M owns and operates the two-unit 2,191 MW Cook Plant under licenses granted by the Nuclear Regulatory Commission.  I&M has a significant future financial commitment to dispose of SNF and to safely decommission and decontaminate the plant.  The licenses to operate the two nuclear units at the Cook Plant expire in 2034 and 2037.  The operation of a nuclear facility also involves special risks, potential liabilities and specific regulatory and safety requirements.  By agreement, I&M is partially liable, together with all other electric utility companies that own nuclear generating units, for a nuclear power plant incident at any nuclear plant in the U.S.  Should a nuclear incident occur at any nuclear power plant in the U.S., the resultant liability could be substantial.

Cook Plant Unit 1 Fire and Shutdown

In September 2008, I&M shut down Cook Plant Unit 1 (Unit 1) due to turbine vibrations, caused by blade failure, which resulted in significant turbine damage and a small fire on the electric generator.  This equipment, located in the turbine building, is separate and isolated from the nuclear reactor.  The turbine rotors that caused the vibration were installed in 2006 and are within the vendor’s warranty period.  The warranty provides for the repair or replacement of the turbine rotors if the damage was caused by a defect in materials or workmanship.  Repair of the property damage and replacement of the turbine rotors and other equipment could cost up to approximately $395 million.  Management believes that I&M should recover a significant portion of these costs through th e turbine vendor’s warranty, insurance and the regulatory process.  I&M repaired Unit 1 and it resumed operations in December 2009 at slightly reduced power.  The Unit 1 rotors were repaired and reinstalled due to the extensive lead time required to manufacture and install new turbine rotors.  As a result, the replacement of the repaired turbine rotors and other equipment is scheduled for the Unit 1 planned outage in the fall of 2011.

I&M maintains property insurance through NEIL with a $1 million deductible.  As of June 30, 2010, I&M recorded $53 million on its Condensed Consolidated Balance Sheet representing recoverable amounts under the property insurance policy.  Through June 30, 2010, I&M received partial payments of $203 million from NEIL for the cost incurred to date to repair the property damage.

 
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I&M also maintains a separate accidental outage policy with NEIL.  In 2009, I&M recorded $185 million in revenue under the policy and reduced the cost of replacement power in customers’ bills by $78 million.

NEIL is reviewing claims made under the insurance policies to ensure that claims associated with the outage are covered by the policies.  The treatment of property damage costs, replacement power costs and insurance proceeds will be the subject of future regulatory proceedings in Indiana and Michigan.  If the ultimate costs of the incident are not covered by warranty, insurance or through the regulatory process or if any future regulatory proceedings are adverse, it could have an adverse impact on net income, cash flows and financial condition.

OPERATIONAL CONTINGENCIES

Fort Wayne Lease – Affecting I&M

Since 1975 I&M has leased certain energy delivery assets from the City of Fort Wayne, Indiana under a long-term lease that expires on February 28, 2010.  I&M has been negotiating with Fort Wayne to purchase the assets at the end of the lease, but no agreement has been reached.  Fort Wayne issued a technical notice of default under the lease to I&M in August 2009.  I&M responded to Fort Wayne in October 2009 that it did not agree there was a default under the lease.  In October 2009, I&M filed for declaratory and injunctive relief in Indiana state court.  The parties agreed to submit this matter to mediation.  In February 2010, the court issued a stay to continue mediation.  I&M is making monthly payments to an escrow account in lieu of rent.&# 160; I&M will seek recovery in rates for any amount it may pay related to this dispute.  Management is unable to determine a range of potential losses that are reasonably possible of occurring.

Coal Transportation Rate Dispute - Affecting PSO

In 1985, the Burlington Northern Railroad Co. (now BNSF) entered into a coal transportation agreement with PSO.  The agreement contained a base rate subject to adjustment, a rate floor, a reopener provision and an arbitration provision.  In 1992, PSO reopened the pricing provision.  The parties failed to reach an agreement and the matter was arbitrated, with the arbitration panel establishing a lowered rate as of July 1, 1992 (the 1992 Rate) and modifying the rate adjustment formula.  The decision did not mention the rate floor.  From April 1996 through the contract termination in December 2001, the 1992 Rate exceeded the adjusted rate determined according to the decision.  PSO paid the adjusted rate and contended that the panel eliminated the rate floor.  BNSF invoi ced at the 1992 Rate and contended that the 1992 Rate was the new rate floor.  PSO terminated the contract by paying a termination fee, as required by the agreement.  BNSF contends that the termination fee should have been calculated on the 1992 Rate, not the adjusted rate, resulting in an underpayment of approximately $9.5 million, including interest.

This matter was submitted to an arbitration board.  In April 2006, the arbitration board filed its decision, denying BNSF’s underpayments claim.  PSO filed a request for an order confirming the arbitration award and a request for entry of judgment on the award with the U.S. District Court for the Northern District of Oklahoma.  On July 14, 2006, the U.S. District Court issued an order confirming the arbitration award.  On July 24, 2006, BNSF filed a Motion to Reconsider the July 14, 2006 Arbitration Confirmation Order and Final Judgment and its Motion to Vacate and Correct the Arbitration Award with the U.S. District Court.  In February 2007, the U.S. District Court granted BNSF’s Motion to Reconsider.  In August 2009, the U.S. District Court upheld the arbitration board’s decision.  BNSF appealed the U.S. District Court’s decision.

 
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5.
ACQUISITION

2010

Valley Electric Membership Corporation – Affecting SWEPCo

In November 2009, SWEPCo signed a letter of intent to purchase the transmission and distribution assets of Valley Electric Membership Corporation (VEMCO).  The current estimate of the purchase is approximately $100 million, plus the assumption of certain liabilities, subject to adjustments at closing.  Consummation of the transaction is subject to regulatory approval by the LPSC, the APSC, the Rural Utilities Service, the National Rural Utilities Cooperative Finance Corporation and the FERC.  In January 2010, the VEMCO members approved the transaction.  In the second quarter of 2010, a purchase and sales agreement was signed and a joint application between SWEPCo and VEMCO was filed with the LPSC.  SWEPCo will seek recovery from Louisiana customers for all costs related to this acquisit ion.  VEMCO services approximately 30,000 customers in Louisiana.  SWEPCo expects to complete the transaction in the third quarter of 2010 upon receipt of regulatory approvals.

2009

None

6.
BENEFIT PLANS

APCo, CSPCo, I&M, OPCo, PSO and SWEPCo participate in AEP sponsored qualified pension plans and nonqualified pension plans.  A substantial majority of employees are covered by either one qualified plan or both a qualified and a nonqualified pension plan.  In addition, APCo, CSPCo, I&M, OPCo, PSO and SWEPCo participate in other postretirement benefit plans sponsored by AEP to provide medical and death benefits for retired employees.

Components of Net Periodic Benefit Cost

The following tables provide the components of the Registrant Subsidiaries’ net periodic benefit cost for the plans for the three and six months ended June 30, 2010 and 2009:

APCo
 
 
Other Postretirement
 
 
Pension Plans
 
Benefit Plans
 
 
Three Months Ended June 30,
 
Three Months Ended June 30,
 
 
2010
 
2009
 
2010
 
2009
 
 
(in thousands)
 
Service Cost
  $ 3,227     $ 3,172     $ 1,430     $ 1,286  
Interest Cost
    8,489       8,513       5,075       4,927  
Expected Return on Plan Assets
    (10,951 )     (11,221 )     (4,407 )     (3,383 )
Amortization of Transition Obligation
    -       -       1,311       1,311  
Amortization of Prior Service Cost
    229       229       -       -  
Amortization of Net Actuarial Loss
    2,961       1,922       1,353       1,916  
Net Periodic Benefit Cost
  $ 3,955     $ 2,615     $ 4,762     $ 6,057  

 
 
 
Other Postretirement
 
 
Pension Plans
 
Benefit Plans
 
 
Six Months Ended June 30,
 
Six Months Ended June 30,
 
 
2010
 
2009
 
2010
 
2009
 
 
(in thousands)
 
Service Cost
  $ 6,454     $ 6,345     $ 2,860     $ 2,572  
Interest Cost
    16,978       17,025       10,150       9,855  
Expected Return on Plan Assets
    (21,902 )     (22,442 )     (8,813 )     (6,766 )
Amortization of Transition Obligation
    -       -       2,622       2,622  
Amortization of Prior Service Cost
    458       458       -       -  
Amortization of Net Actuarial Loss
    5,921       3,844       2,705       3,832  
Net Periodic Benefit Cost
  $ 7,909     $ 5,230     $ 9,524     $ 12,115  
 
 
 
182

 
 
CSPCo
 
 
Other Postretirement
 
 
Pension Plans
 
Benefit Plans
 
 
Three Months Ended June 30,
 
Three Months Ended June 30,
 
 
2010
 
2009
 
2010
 
2009
 
 
(in thousands)
 
Service Cost
  $ 1,468     $ 1,376     $ 690     $ 618  
Interest Cost
    4,789       4,882       2,179       2,123  
Expected Return on Plan Assets
    (6,589 )     (6,819 )     (1,979 )     (1,531 )
Amortization of Transition Obligation
    -       -       608       608  
Amortization of Prior Service Cost
    141       141       -       -  
Amortization of Net Actuarial Loss
    1,677       1,108       565       821  
Net Periodic Benefit Cost
  $ 1,486     $ 688     $ 2,063     $ 2,639  

 
 
 
Other Postretirement
 
 
Pension Plans
 
Benefit Plans
 
 
Six Months Ended June 30,
 
Six Months Ended June 30,
 
 
2010
 
2009
 
2010
 
2009
 
 
(in thousands)
 
Service Cost
  $ 2,936     $ 2,752     $ 1,380     $ 1,235  
Interest Cost
    9,578       9,765       4,357       4,246  
Expected Return on Plan Assets
    (13,178 )     (13,638 )     (3,958 )     (3,063 )
Amortization of Transition Obligation
    -       -       1,216       1,216  
Amortization of Prior Service Cost
    282       282       -       -  
Amortization of Net Actuarial Loss
    3,354       2,215       1,130       1,643  
Net Periodic Benefit Cost
  $ 2,972     $ 1,376     $ 4,125     $ 5,277  

I&M
 
 
Other Postretirement
 
 
Pension Plans
 
Benefit Plans
 
 
Three Months Ended June 30,
 
Three Months Ended June 30,
 
 
2010
 
2009
 
2010
 
2009
 
 
(in thousands)
 
Service Cost
  $ 3,821     $ 3,501     $ 1,688     $ 1,497  
Interest Cost
    7,271       7,130       3,541       3,419  
Expected Return on Plan Assets
    (8,760 )     (8,933 )     (3,349 )     (2,565 )
Amortization of Transition Obligation
    -       -       704       704  
Amortization of Prior Service Cost
    186       186       -       -  
Amortization of Net Actuarial Loss
    2,516       1,601       881       1,303  
Net Periodic Benefit Cost
  $ 5,034     $ 3,485     $ 3,465     $ 4,358  

 
 
 
Other Postretirement
 
 
Pension Plans
 
Benefit Plans
 
 
Six Months Ended June 30,
 
Six Months Ended June 30,
 
 
2010
 
2009
 
2010
 
2009
 
 
(in thousands)
 
Service Cost
  $ 7,642     $ 7,001     $ 3,375     $ 2,995  
Interest Cost
    14,543       14,260       7,082       6,837  
Expected Return on Plan Assets
    (17,520 )     (17,866 )     (6,698 )     (5,129 )
Amortization of Transition Obligation
    -       -       1,407       1,407  
Amortization of Prior Service Cost
    372       372       -       -  
Amortization of Net Actuarial Loss
    5,032       3,203       1,763       2,606  
Net Periodic Benefit Cost
  $ 10,069     $ 6,970     $ 6,929     $ 8,716  

 
 
183

 
 
OPCo
 
 
Other Postretirement
 
 
Pension Plans
 
Benefit Plans
 
 
Three Months Ended June 30,
 
Three Months Ended June 30,
 
 
2010
 
2009
 
2010
 
2009
 
 
(in thousands)
 
Service Cost
  $ 2,845     $ 2,759     $ 1,357     $ 1,219  
Interest Cost
    8,186       8,275       4,446       4,331  
Expected Return on Plan Assets
    (10,680 )     (11,069 )     (4,044 )     (3,139 )
Amortization of Transition Obligation
    -       -       1,053       1,053  
Amortization of Prior Service Cost
    227       227       -       -  
Amortization of Net Actuarial Loss
    2,861       1,875       1,154       1,676  
Net Periodic Benefit Cost
  $ 3,439     $ 2,067     $ 3,966     $ 5,140  

 
 
 
Other Postretirement
 
 
Pension Plans
 
Benefit Plans
 
 
Six Months Ended June 30,
 
Six Months Ended June 30,
 
 
2010
 
2009
 
2010
 
2009
 
 
(in thousands)
 
Service Cost
  $ 5,691     $ 5,517     $ 2,713     $ 2,439  
Interest Cost
    16,372       16,550       8,893       8,663  
Expected Return on Plan Assets
    (21,360 )     (22,138 )     (8,089 )     (6,280 )
Amortization of Transition Obligation
    -       -       2,106       2,105  
Amortization of Prior Service Cost
    454       455       -       -  
Amortization of Net Actuarial Loss
    5,721       3,750       2,308       3,352  
Net Periodic Benefit Cost
  $ 6,878     $ 4,134     $ 7,931     $ 10,279  

PSO
 
 
Other Postretirement
 
 
Pension Plans
 
Benefit Plans
 
 
Three Months Ended June 30,
 
Three Months Ended June 30,
 
 
2010
 
2009
 
2010
 
2009
 
 
(in thousands)
 
Service Cost
  $ 1,513     $ 1,436     $ 704     $ 631  
Interest Cost
    3,722       3,842       1,590       1,539  
Expected Return on Plan Assets
    (4,935 )     (5,110 )     (1,528 )     (1,174 )
Amortization of Transition Obligation
    -       -       701       701  
Amortization of Prior Service Credit
    (238 )     (270 )     -       -  
Amortization of Net Actuarial Loss
    1,297       872       393       587  
Net Periodic Benefit Cost
  $ 1,359     $ 770     $ 1,860     $ 2,284  

 
 
 
Other Postretirement
 
 
Pension Plans
 
Benefit Plans
 
 
Six Months Ended June 30,
 
Six Months Ended June 30,
 
 
2010
 
2009
 
2010
 
2009
 
 
(in thousands)
 
Service Cost
  $ 3,026     $ 2,872     $ 1,407     $ 1,261  
Interest Cost
    7,444       7,684       3,180       3,077  
Expected Return on Plan Assets
    (9,870 )     (10,219 )     (3,055 )     (2,348 )
Amortization of Transition Obligation
    -       -       1,403       1,403  
Amortization of Prior Service Credit
    (475 )     (541 )     -       -  
Amortization of Net Actuarial Loss
    2,594       1,744       786       1,174  
Net Periodic Benefit Cost
  $ 2,719     $ 1,540     $ 3,721     $ 4,567  

 
 
184

 
 
SWEPCo
 
 
Other Postretirement
 
 
Pension Plans
 
Benefit Plans
 
 
Three Months Ended June 30,
 
Three Months Ended June 30,
 
 
2010
 
2009
 
2010
 
2009
 
 
(in thousands)
 
Service Cost
  $ 1,761     $ 1,689     $ 777     $ 705  
Interest Cost
    3,773       3,889       1,735       1,684  
Expected Return on Plan Assets
    (4,872 )     (5,021 )     (1,661 )     (1,280 )
Amortization of Transition Obligation
    -       -       615       615  
Amortization of Prior Service Credit
    (199 )     (229 )     -       -  
Amortization of Net Actuarial Loss
    1,311       879       428       640  
Net Periodic Benefit Cost
  $ 1,774     $ 1,207     $ 1,894     $ 2,364  

 
 
 
Other Postretirement
 
 
Pension Plans
 
Benefit Plans
 
 
Six Months Ended June 30,
 
Six Months Ended June 30,
 
 
2010
 
2009
 
2010
 
2009
 
 
(in thousands)
 
Service Cost
  $ 3,523     $ 3,378     $ 1,554     $ 1,409  
Interest Cost
    7,547       7,779       3,470       3,368  
Expected Return on Plan Assets
    (9,745 )     (10,042 )     (3,323 )     (2,560 )
Amortization of Transition Obligation
    -       -       1,230       1,230  
Amortization of Prior Service Credit
    (398 )     (458 )     -       -  
Amortization of Net Actuarial Loss
    2,621       1,758       856       1,280  
Net Periodic Benefit Cost
  $ 3,548     $ 2,415     $ 3,787     $ 4,727  

The following table provides the Registrant Subsidiaries’ actual contributions and payments for the pension and OPEB plans during the first half of 2010 and the expected contributions and payments for the remainder of 2010:
 
   
 
   
 
   
 
   
 
 
 
 
Paid as of June 30, 2010
 
Remainder Expected to be Paid in 2010
 
 
   
 
 
Other Postretirement
   
 
 
Other Postretirement
 
Company
 
Pension Plans
 
Benefit Plans
 
Pension Plans
 
Benefit Plans
 
 
 
(in thousands)
 
APCo
    $ 9,682     $ 10,888     $ 9,254     $ 6,133  
CSPCo
      3,274       4,690       3,129       3,574  
I&M
      9,947       8,100       9,507       7,098  
OPCo
      8,966       9,560       8,571       6,136  
PSO
      3,478       4,272       3,325       4,026  
SWEPCo
      4,799       4,374       4,587       4,097  
 
7.
BUSINESS SEGMENTS

The Registrant Subsidiaries each have one reportable segment, an integrated electricity generation, transmission and distribution business.  The Registrant Subsidiaries’ other activities are insignificant.  The Registrant Subsidiaries’ operations are managed on an integrated basis because of the substantial impact of cost-based rates and regulatory oversight on the business process, cost structures and operating results.

 8.
DERIVATIVES AND HEDGING

OBJECTIVES FOR UTILIZATION OF DERIVATIVE INSTRUMENTS

The Registrant Subsidiaries are exposed to certain market risks as major power producers and marketers of wholesale electricity, coal and emission allowances.  These risks include commodity price risk, interest rate risk, credit risk and to a lesser extent foreign currency exchange risk.  These risks represent the risk of loss that may impact the Registrant Subsidiaries due to changes in the underlying market prices or rates.  These risks are managed using derivative instruments.
 

 
 
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STRATEGIES FOR UTILIZATION OF DERIVATIVE INSTRUMENTS TO ACHIEVE OBJECTIVES

The strategy surrounding the use of derivative instruments focuses on managing risk exposures, future cash flows and creating value based on open trading positions by utilizing both economic and formal hedging strategies. To accomplish these objectives, AEPSC, on behalf of the Registrant Subsidiaries, primarily employs risk management contracts including physical forward purchase and sale contracts, financial forward purchase and sale contracts and financial swap instruments.  Not all risk management contracts meet the definition of a derivative under the accounting guidance for “Derivatives and Hedging.” Derivative risk management contracts elected normal under the normal purchases and normal sales scope exception are not subject to the requirements of this accounting guidance.

AEPSC, on behalf of the Registrant Subsidiaries, enters into electricity, coal, natural gas, interest rate and to a lesser degree heating oil, gasoline, emission allowance and other commodity contracts to manage the risk associated with the energy business.  AEPSC, on behalf of the Registrant Subsidiaries, enters into interest rate derivative contracts in order to manage the interest rate exposure associated with long-term commodity derivative positions.   For disclosure purposes, such risks are grouped as “Commodity,” as these risks are related to energy risk management activities.  From time to time, AEPSC, on behalf of the Registrant Subsidiaries, also engages in risk management of interest rate risk associated with debt financing and foreign currency risk associated with future purchas e obligations denominated in foreign currencies.  For disclosure purposes, these risks are grouped as “Interest Rate and Foreign Currency.” The amount of risk taken is determined by the Commercial Operations and Finance groups in accordance with established risk management policies as approved by the Finance Committee of AEP’s Board of Directors.

The following tables represent the gross notional volume of the Registrant Subsidiaries’ outstanding derivative contracts as of June 30, 2010 and December 31, 2009:

Notional Volume of Derivative Instruments
 
June 30, 2010
 
(in thousands)
 
 
 
 
 
 
   
 
   
 
   
 
   
 
   
 
 
Primary Risk
 
Unit of
 
 
   
 
   
 
   
 
   
 
   
 
 
Exposure
 
Measure
APCo
 
CSPCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
Commodity:
 
 
 
 
   
 
   
 
   
 
   
 
   
 
 
Power
 
MWHs
    293,757       166,188       168,869       191,251       39       72  
Coal
 
Tons
    12,408       6,854       6,443       29,978       4,581       7,357  
Natural Gas
 
MMBtus
    9,595       5,428       5,474       6,247       153       181  
Heating Oil and
 
 
                                               
Gasoline
 
Gallons
    1,289       563       634       952       757       696  
Interest Rate
 
USD
  $ 12,710     $ 7,185     $ 7,230     $ 9,038     $ 745     $ 957  
 
 
 
                                               
Interest Rate and
 
 
                                               
Foreign Currency
 
USD
  $ -     $ -     $ -     $ -     $ -     $ 2,386  
 
 
 
                                               
Notional Volume of Derivative Instruments
 
December 31, 2009
 
(in thousands)
 
 
 
 
                                               
Primary Risk
 
Unit of
                                               
Exposure
 
Measure
APCo
 
CSPCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
Commodity:
 
 
                                               
Power
 
MWHs
    191,121       96,828       99,265       112,745       10       12  
Coal
 
Tons
    11,347       5,615       5,150       23,631       5,936       6,790  
Natural Gas
 
MMBtus
    17,867       9,051       9,129       10,539       -       -  
Heating Oil and
 
 
                                               
Gasoline
 
Gallons
    1,164       474       552       838       668       628  
Interest Rate
 
USD
  $ 21,054     $ 10,658     $ 10,716     $ 13,487     $ 1,137     $ 1,457  
 
 
 
                                               
Interest Rate and
 
 
                                               
Foreign Currency
 
USD
  $ -     $ -     $ -     $ -     $ -     $ 3,798  
 

 
 
186

 
Fair Value Hedging Strategies

AEPSC, on behalf of the Registrant Subsidiaries, enters into interest rate derivative transactions as part of an overall strategy to manage the mix of fixed-rate and floating-rate debt.  Certain interest rate derivative transactions effectively modify an exposure to interest rate risk by converting a portion of fixed-rate debt to a floating rate.  Provided specific criteria are met, these interest rate derivatives are designated as fair value hedges.

Cash Flow Hedging Strategies

AEPSC, on behalf of the Registrant Subsidiaries, enters into and designates as cash flow hedges certain derivative transactions for the purchase and sale of electricity, coal, heating oil and natural gas (“Commodity”) in order to manage the variable price risk related to the forecasted purchase and sale of these commodities.  Management closely monitors the potential impacts of commodity price changes and, where appropriate, enters into derivative transactions to protect profit margins for a portion of future electricity sales and fuel or energy purchases.  The Registrant Subsidiaries do not hedge all commodity price risk.

The Registrant Subsidiaries’ vehicle fleet is exposed to gasoline and diesel fuel price volatility.  AEPSC, on behalf of the Registrant Subsidiaries, enters into financial gasoline and heating oil derivative contracts in order to mitigate price risk of future fuel purchases.  For disclosure purposes, these contracts are included with other hedging activity as “Commodity.” The Registrant Subsidiaries do not hedge all fuel price risk.

AEPSC, on behalf of the Registrant Subsidiaries, enters into a variety of interest rate derivative transactions in order to manage interest rate risk exposure.  Some interest rate derivative transactions effectively modify exposure to interest rate risk by converting a portion of floating-rate debt to a fixed rate.  AEPSC, on behalf of the Registrant Subsidiaries, also enters into interest rate derivative contracts to manage interest rate exposure related to anticipated borrowings of fixed-rate debt.  The anticipated fixed-rate debt offerings have a high probability of occurrence as the proceeds will be used to fund existing debt maturities and projected capital expenditures.  The Registrant Subsidiaries do not hedge all interest rate exposure.

At times, the Registrant Subsidiaries are exposed to foreign currency exchange rate risks primarily because some fixed assets are purchased from foreign suppliers.  In accordance with AEP’s risk management policy, AEPSC, on behalf of the Registrant Subsidiaries, may enter into foreign currency derivative transactions to protect against the risk of increased cash outflows resulting from a foreign currency’s appreciation against the dollar.  The Registrant Subsidiaries do not hedge all foreign currency exposure.

ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND THE IMPACT ON THE FINANCIAL STATEMENTS

The accounting guidance for “Derivatives and Hedging” requires recognition of all qualifying derivative instruments as either assets or liabilities on the balance sheet at fair value.  The fair values of derivative instruments accounted for using MTM accounting or hedge accounting are based on exchange prices and broker quotes.  If a quoted market price is not available, the estimate of fair value is based on the best information available including valuation models that estimate future energy prices based on existing market and broker quotes, supply and demand market data and assumptions.  In order to determine the relevant fair values of the derivative instruments, the Registrant Subsidiaries also apply valuation adjustments for discounting, liquidity and credit quality.

Credit risk is the risk that a counterparty will fail to perform on the contract or fail to pay amounts due.  Liquidity risk represents the risk that imperfections in the market will cause the price to vary from estimated fair value based upon prevailing market supply and demand conditions.  Since energy markets are imperfect and volatile, there are inherent risks related to the underlying assumptions in models used to fair value risk management contracts.  Unforeseen events may cause reasonable price curves to differ from actual price curves throughout a contract’s term and at the time a contract settles.  Consequently, there could be significant adverse or favorable effects on future net income and cash flows if market prices are not consistent with management’s estimates of current market consensus for forward prices in the current period.  This is particularly true for longer term contracts.  Cash flows may vary based on market conditions, margin requirements and the timing of settlement of risk management contracts.

 
187

 
According to the accounting guidance for “Derivatives and Hedging,” the Registrant Subsidiaries reflect the fair values of derivative instruments subject to netting agreements with the same counterparty net of related cash collateral.  For certain risk management contracts, the Registrant Subsidiaries are required to post or receive cash collateral based on third party contractual agreements and risk profiles.  For the June 30, 2010 and December 31, 2009 balance sheets, the Registrant Subsidiaries netted cash collateral received from third parties against short-term and long-term risk management assets and cash collateral paid to third parties against short-term and long-term risk management liabilities as follows:

 
June 30, 2010
 
December 31, 2009
 
 
 
 
   
 
   
 
   
 
 
 
Cash Collateral
 
Cash Collateral
 
Cash Collateral
 
Cash Collateral
 
 
Received
 
Paid
 
Received
 
Paid
 
 
Netted Against
 
Netted Against
 
Netted Against
 
Netted Against
 
 
Risk Management
 
Risk Management
 
Risk Management
 
Risk Management
 
Company
Assets
 
Liabilities
 
Assets
 
Liabilities
 
 
(in thousands)
 
APCo
  $ 6,359     $ 28,476     $ 3,789     $ 31,806  
CSPCo
    3,598       16,097       1,920       16,108  
I&M
    3,628       16,230       1,936       16,222  
OPCo
    4,140       18,903       2,235       19,512  
PSO
    1       120       -       194  
SWEPCo
    1       159       -       305  

 
188

 
The following tables represent the gross fair value of the Registrant Subsidiaries’ derivative activity on the Condensed Balance Sheets as of June 30, 2010 and December 31, 2009:

Fair Value of Derivative Instruments
 
June 30, 2010
 
 
   
 
   
 
   
 
   
 
   
 
 
APCo
   
 
   
 
   
 
   
 
   
 
 
 
 
Risk
 
 
 
 
 
 
 
 
 
 
 
Management
 
 
 
 
 
 
 
 
 
 
 
Contracts
 
Hedging Contracts
 
 
 
 
 
 
   
 
 
 
 
Interest Rate
 
 
 
 
 
 
 
Commodity
 
Commodity
 
and Foreign
 
 
 
 
 
Balance Sheet Location
 
(a)
 
(a)
 
Currency (a)
 
Other (a) (b)
 
Total
 
 
 
(in thousands)
 
Current Risk Management Assets
    $ 303,711     $ 2,573     $ -     $ (251,465 )   $ 54,819  
Long-term Risk Management Assets
      141,135       218       -       (93,265 )     48,088  
Total Assets
      444,846       2,791       -       (344,730 )     102,907  
 
                                         
Current Risk Management Liabilities
      285,003       4,547       -       (264,711 )     24,839  
Long-term Risk Management Liabilities
      126,190       429       -       (106,875 )     19,744  
Total Liabilities
      411,193       4,976       -       (371,586 )     44,583  
 
                                         
Total MTM Derivative Contract Net
                                         
Assets (Liabilities)
    $ 33,653     $ (2,185 )   $ -     $ 26,856     $ 58,324  
 
                                         
Fair Value of Derivative Instruments
 
December 31, 2009
 
 
                                         
APCo
                                         
 
 
Risk
                                 
 
 
Management
                                 
 
 
Contracts
 
Hedging Contracts
                 
 
                 
Interest Rate
                 
 
 
Commodity
 
Commodity
 
and Foreign
                 
Balance Sheet Location
 
(a)
 
(a)
 
Currency (a)
 
Other (a) (b)
 
Total
 
 
 
(in thousands)
 
Current Risk Management Assets
    $ 332,764     $ 3,621     $ -     $ (268,429 )   $ 67,956  
Long-term Risk Management Assets
      132,044       -       -       (84,903 )     47,141  
Total Assets
      464,808       3,621       -       (353,332 )     115,097  
 
                                         
Current Risk Management Liabilities
      309,639       5,084       -       (288,931 )     25,792  
Long-term Risk Management Liabilities
      118,702       80       -       (98,418 )     20,364  
Total Liabilities
      428,341       5,164       -       (387,349 )     46,156  
 
                                         
Total MTM Derivative Contract Net
                                         
Assets (Liabilities)
    $ 36,467     $ (1,543 )   $ -     $ 34,017     $ 68,941  

 
189

 

Fair Value of Derivative Instruments
 
June 30, 2010
 
 
   
 
   
 
   
 
   
 
   
 
 
CSPCo
   
 
   
 
   
 
   
 
   
 
 
 
 
Risk
 
 
 
 
 
 
 
 
 
 
 
Management
 
 
 
 
 
 
 
 
 
 
 
Contracts
 
Hedging Contracts
 
 
 
 
 
 
   
 
 
 
 
Interest Rate
 
 
 
 
 
 
 
Commodity
 
Commodity
 
and Foreign
 
 
 
 
 
Balance Sheet Location
 
(a)
 
(a)
 
Currency (a)
 
Other (a) (b)
 
Total
 
 
 
(in thousands)
 
Current Risk Management Assets
    $ 171,457     $ 1,444     $ -     $ (141,939 )   $ 30,962  
Long-term Risk Management Assets
      79,750       123       -       (52,669 )     27,204  
Total Assets
      251,207       1,567       -       (194,608 )     58,166  
 
                                         
Current Risk Management Liabilities
      160,892       2,558       -       (149,429 )     14,021  
Long-term Risk Management Liabilities
      71,291       234       -       (60,360 )     11,165  
Total Liabilities
      232,183       2,792       -       (209,789 )     25,186  
 
                                         
Total MTM Derivative Contract Net
                                         
Assets (Liabilities)
    $ 19,024     $ (1,225 )   $ -     $ 15,181     $ 32,980  
 
                                         
Fair Value of Derivative Instruments
 
December 31, 2009
 
 
                                         
CSPCo
                                         
 
 
Risk
                                 
 
 
Management
                                 
 
 
Contracts
 
Hedging Contracts
                 
 
                 
Interest Rate
                 
 
 
Commodity
 
Commodity
 
and Foreign
                 
Balance Sheet Location
 
(a)
 
(a)
 
Currency (a)
 
Other (a) (b)
 
Total
 
 
 
(in thousands)
 
Current Risk Management Assets
    $ 168,137     $ 1,805     $ -     $ (135,599 )   $ 34,343  
Long-term Risk Management Assets
      66,816       -       -       (42,934 )     23,882  
Total Assets
      234,953       1,805       -       (178,533 )     58,225  
 
                                         
Current Risk Management Liabilities
      156,463       2,574       -       (145,985 )     13,052  
Long-term Risk Management Liabilities
      60,048       41       -       (49,776 )     10,313  
Total Liabilities
      216,511       2,615       -       (195,761 )     23,365  
 
                                         
Total MTM Derivative Contract Net
                                         
Assets (Liabilities)
    $ 18,442     $ (810 )   $ -     $ 17,228     $ 34,860  

 
190

 

Fair Value of Derivative Instruments
 
June 30, 2010
 
 
   
 
   
 
   
 
   
 
   
 
 
I&M
   
 
   
 
   
 
   
 
   
 
 
 
 
Risk
 
 
 
 
 
 
 
 
 
 
 
Management
 
 
 
 
 
 
 
 
 
 
 
Contracts
 
Hedging Contracts
 
 
 
 
 
 
   
 
 
 
 
Interest Rate
 
 
 
 
 
 
 
Commodity
 
Commodity
 
and Foreign
 
 
 
 
 
Balance Sheet Location
 
(a)
 
(a)
 
Currency (a)
 
Other (a) (b)
 
Total
 
 
 
(in thousands)
 
Current Risk Management Assets
    $ 173,559     $ 1,461     $ -     $ (142,217 )   $ 32,803  
Long-term Risk Management Assets
      88,905       124       -       (52,852 )     36,177  
Total Assets
      262,464       1,585       -       (195,069 )     68,980  
 
                                         
Current Risk Management Liabilities
      161,289       2,586       -       (149,767 )     14,108  
Long-term Risk Management Liabilities
      71,618       239       -       (60,608 )     11,249  
Total Liabilities
      232,907       2,825       -       (210,375 )     25,357  
 
                                         
Total MTM Derivative Contract Net
                                         
Assets (Liabilities)
    $ 29,557     $ (1,240 )   $ -     $ 15,306     $ 43,623  
 
                                         
Fair Value of Derivative Instruments
 
December 31, 2009
 
 
                                         
I&M
                                         
 
 
Risk
                                 
 
 
Management
                                 
 
 
Contracts
 
Hedging Contracts
                 
 
                 
Interest Rate
                 
 
 
Commodity
 
Commodity
 
and Foreign
                 
Balance Sheet Location
 
(a)
 
(a)
 
Currency (a)
 
Other (a) (b)
 
Total
 
 
 
(in thousands)
 
Current Risk Management Assets
    $ 167,847     $ 1,839     $ -     $ (135,248 )   $ 34,438  
Long-term Risk Management Assets
      72,127       -       -       (42,993 )     29,134  
Total Assets
      239,974       1,839       -       (178,241 )     63,572  
 
                                         
Current Risk Management Liabilities
      156,561       2,596       -       (145,721 )     13,436  
Long-term Risk Management Liabilities
      60,217       41       -       (49,872 )     10,386  
Total Liabilities
      216,778       2,637       -       (195,593 )     23,822  
 
                                         
Total MTM Derivative Contract Net
                                         
Assets (Liabilities)
    $ 23,196     $ (798 )   $ -     $ 17,352     $ 39,750  

 
191

 

Fair Value of Derivative Instruments
 
June 30, 2010
 
 
   
 
   
 
   
 
   
 
   
 
 
OPCo
   
 
   
 
   
 
   
 
   
 
 
 
 
Risk
 
 
 
 
 
 
 
 
 
 
 
Management
 
 
 
 
 
 
 
 
 
 
 
Contracts
 
Hedging Contracts
 
 
 
 
 
 
   
 
 
 
 
Interest Rate
 
 
 
 
 
 
 
Commodity
 
Commodity
 
and Foreign
 
 
 
 
 
Balance Sheet Location
 
(a)
 
(a)
 
Currency (a)
 
Other (a) (b)
 
Total
 
 
 
(in thousands)
 
Current Risk Management Assets
    $ 245,522     $ 1,683     $ -     $ (207,134 )   $ 40,071  
Long-term Risk Management Assets
      104,381       142       -       (73,017 )     31,506  
Total Assets
      349,903       1,825       -       (280,151 )     71,577  
 
                                         
Current Risk Management Liabilities
      232,950       2,973       -       (215,951 )     19,972  
Long-term Risk Management Liabilities
      95,164       285       -       (82,048 )     13,401  
Total Liabilities
      328,114       3,258       -       (297,999 )     33,373  
 
                                         
Total MTM Derivative Contract Net
                                         
Assets (Liabilities)
    $ 21,789     $ (1,433 )   $ -     $ 17,848     $ 38,204  
 
                                         
Fair Value of Derivative Instruments
 
December 31, 2009
 
 
                                         
OPCo
                                         
 
 
Risk
                                 
 
 
Management
                                 
 
 
Contracts
 
Hedging Contracts
                 
 
                 
Interest Rate
                 
 
 
Commodity
 
Commodity
 
and Foreign
                 
Balance Sheet Location
 
(a)
 
(a)
 
Currency (a)
 
Other (a) (b)
 
Total
 
 
 
(in thousands)
 
Current Risk Management Assets
    $ 255,179     $ 2,199     $ -     $ (207,330 )   $ 50,048  
Long-term Risk Management Assets
      88,064       -       -       (60,061 )     28,003  
Total Assets
      343,243       2,199       -       (267,391 )     78,051  
 
                                         
Current Risk Management Liabilities
      240,877       2,998       -       (219,484 )     24,391  
Long-term Risk Management Liabilities
      81,186       47       -       (68,723 )     12,510  
Total Liabilities
      322,063       3,045       -       (288,207 )     36,901  
 
                                         
Total MTM Derivative Contract Net
                                         
Assets (Liabilities)
    $ 21,180     $ (846 )   $ -     $ 20,816     $ 41,150  

 
192

 

Fair Value of Derivative Instruments
June 30, 2010
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PSO
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk
 
 
 
 
 
 
 
 
 
 
 
Management
 
 
 
 
 
 
 
 
 
 
 
Contracts
 
Hedging Contracts
 
 
 
 
 
 
 
 
 
 
 
 
Interest Rate
 
 
 
 
 
 
 
Commodity
 
Commodity
 
and Foreign
 
 
 
 
Balance Sheet Location
 
(a)
 
(a)
 
Currency (a)
 
Other (a) (b)
 
Total
 
 
 
(in thousands)
Current Risk Management Assets
 
$
10,056 
 
$
59 
 
$
 
$
(7,507)
 
$
2,608 
Long-term Risk Management Assets
 
 
2,105 
 
 
 
 
 
 
(2,072)
 
 
33 
Total Assets
 
 
12,161 
 
 
59 
 
 
 
 
(9,579)
 
 
2,641 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Risk Management Liabilities
 
 
7,769 
 
 
151 
 
 
 
 
(7,533)
 
 
387 
Long-term Risk Management Liabilities
 
 
2,210 
 
 
40 
 
 
 
 
(2,138)
 
 
112 
Total Liabilities
 
 
9,979 
 
 
191 
 
 
 
 
(9,671)
 
 
499 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total MTM Derivative Contract Net
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets (Liabilities)
 
$
2,182 
 
$
(132)
 
$
 
$
92 
 
$
2,142 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair Value of Derivative Instruments
December 31, 2009
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PSO
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk
 
 
 
 
 
 
 
 
 
 
 
Management
 
 
 
 
 
 
 
 
 
 
 
Contracts
 
Hedging Contracts
 
 
 
 
 
 
 
 
 
 
 
 
Interest Rate
 
 
 
 
 
 
 
Commodity
 
Commodity
 
and Foreign
 
 
 
 
Balance Sheet Location
 
(a)
 
(a)
 
Currency (a)
 
Other (a) (b)
 
Total
 
 
 
(in thousands)
Current Risk Management Assets
 
$
14,885 
 
$
179 
 
$
 
$
(12,688)
 
$
2,376 
Long-term Risk Management Assets
 
 
2,640 
 
 
 
 
 
 
(2,590)
 
 
50 
Total Assets
 
 
17,525 
 
 
179 
 
 
 
 
(15,278)
 
 
2,426 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Risk Management Liabilities
 
 
14,981 
 
 
301 
 
 
 
 
(12,703)
 
 
2,579 
Long-term Risk Management Liabilities
 
 
2,913 
 
 
 
 
 
 
(2,769)
 
 
144 
Total Liabilities
 
 
17,894 
 
 
301 
 
 
 
 
(15,472)
 
 
2,723 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total MTM Derivative Contract Net
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets (Liabilities)
 
$
(369)
 
$
(122)
 
$
 
$
194 
 
$
(297)

 
193

 

Fair Value of Derivative Instruments
June 30, 2010
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SWEPCo
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk
 
 
 
 
 
 
 
 
 
 
 
Management
 
 
 
 
 
 
 
 
 
 
 
Contracts
 
Hedging Contracts
 
 
 
 
 
 
 
 
 
 
 
 
Interest Rate
 
 
 
 
 
 
 
Commodity
 
Commodity
 
and Foreign
 
 
 
 
Balance Sheet Location
 
(a)
 
(a)
 
Currency (a)
 
Other (a) (b)
 
Total
 
 
 
(in thousands)
Current Risk Management Assets
 
$
14,989 
 
$
47 
 
$
 
$
(12,841)
 
$
2,197 
Long-term Risk Management Assets
 
 
3,655 
 
 
 
 
 
 
(3,606)
 
 
49 
Total Assets
 
 
18,644 
 
 
47 
 
 
 
 
(16,447)
 
 
2,246 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Risk Management Liabilities
 
 
13,596 
 
 
66 
 
 
232 
 
 
(12,883)
 
 
1,011 
Long-term Risk Management Liabilities
 
 
3,948 
 
 
37 
 
 
 
 
(3,690)
 
 
296 
Total Liabilities
 
 
17,544 
 
 
103 
 
 
233 
 
 
(16,573)
 
 
1,307 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total MTM Derivative Contract Net
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets (Liabilities)
 
$
1,100 
 
$
(56)
 
$
(231)
 
$
126 
 
$
939 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair Value of Derivative Instruments
December 31, 2009
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SWEPCo
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk
 
 
 
 
 
 
 
 
 
 
 
Management
 
 
 
 
 
 
 
 
 
 
 
Contracts
 
Hedging Contracts
 
 
 
 
 
 
 
 
 
 
 
 
Interest Rate
 
 
 
 
 
 
 
Commodity
 
Commodity
 
and Foreign
 
 
 
 
Balance Sheet Location
 
(a)
 
(a)
 
Currency (a)
 
Other (a) (b)
 
Total
 
 
 
(in thousands)
Current Risk Management Assets
 
$
22,847 
 
$
169 
 
$
42 
 
$
(20,009)
 
$
3,049 
Long-term Risk Management Assets
 
 
4,145 
 
 
 
 
 
 
(4,066)
 
 
84 
Total Assets
 
 
26,992 
 
 
169 
 
 
47 
 
 
(24,075)
 
 
3,133 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Risk Management Liabilities
 
 
20,788 
 
 
 
 
89 
 
 
(20,033)
 
 
844 
Long-term Risk Management Liabilities
 
 
4,568 
 
 
 
 
 
 
(4,347)
 
 
221 
Total Liabilities
 
 
25,356 
 
 
 
 
89 
 
 
(24,380)
 
 
1,065 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total MTM Derivative Contract Net
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets (Liabilities)
 
$
1,636 
 
$
169 
 
$
(42)
 
$
305 
 
$
2,068 

(a)
Derivative instruments within these categories are reported gross.  These instruments are subject to master netting agreements and are presented on the Condensed Balance Sheets on a net basis in accordance with the accounting guidance for “Derivatives and Hedging.”
(b)
Amounts represent counterparty netting of risk management and hedging contracts, associated cash collateral in accordance with the accounting guidance for “Derivatives and Hedging” and dedesignated risk management contracts.

 
194

 
The tables below presents the Registrant Subsidiaries’ activity of derivative risk management contracts for the three and six months ended June 30, 2010 and 2009:

Amount of Gain (Loss) Recognized on
 
Risk Management Contracts
 
For the Three Months Ended June 30, 2010
 
 
 
Location of Gain (Loss)
 
APCo
 
CSPCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
 
(in thousands)
 
Electric Generation, Transmission and
   
 
   
 
   
 
   
 
   
 
   
 
 
Distribution Revenues
    $ (1,693 )   $ 3,469     $ 2,503     $ 2,010     $ 347     $ 613  
Sales to AEP Affiliates
      786       113       102       2,156       (121 )     (229 )
Regulatory Assets (a)
      (1,046 )     (5,225 )     (2,238 )     (5,754 )     (25 )     120  
Regulatory Liabilities (a)
      (834 )     -       (4,393 )     -       126       1,524  
Total Gain (Loss) on Risk Management
                                                 
Contracts
    $ (2,787 )   $ (1,643 )   $ (4,026 )   $ (1,588 )   $ 327     $ 2,028  
 
                                                 
Amount of Gain (Loss) Recognized on
 
Risk Management Contracts
 
For the Three Months Ended June 30, 2009
 
 
 
Location of Gain (Loss)
 
APCo
 
CSPCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
 
(in thousands)
 
Electric Generation, Transmission and
                                                 
Distribution Revenues
    $ 1,184     $ 9,261     $ 6,028     $ 10,804     $ (407 )   $ (305 )
Sales to AEP Affiliates
      (306 )     (393 )     (447 )     1,721       837       806  
Regulatory Assets (a)
      (3,267 )     (5,100 )     (3,327 )     (6,060 )     -       (62 )
Regulatory Liabilities (a)
      5,010       (1,162 )     1,617       (1,439 )     (1,339 )     (324 )
Total Gain (Loss) on Risk Management
                                                 
Contracts
    $ 2,621     $ 2,606     $ 3,871     $ 5,026     $ (909 )   $ 115  

Amount of Gain (Loss) Recognized
 
on Risk Management Contracts
 
For the Six Months Ended June 30, 2010
 
 
 
Location of Gain (Loss)
 
APCo
 
CSPCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
 
(in thousands)
 
Electric Generation, Transmission and
   
 
   
 
   
 
   
 
   
 
   
 
 
Distribution Revenues
    $ 2,480     $ 13,076     $ 9,388     $ 12,231     $ 1,030     $ 1,402  
Sales to AEP Affiliates
      (1,575 )     (1,449 )     (1,341 )     2,409       (297 )     (538 )
Regulatory Assets (a)
      -       (1,544 )     -       (1,690 )     306       73  
Regulatory Liabilities (a)
      15,147       -       8,461       29       2,764       513  
Total Gain (Loss) on Risk Management
                                                 
Contracts
    $ 16,052     $ 10,083     $ 16,508     $ 12,979     $ 3,803     $ 1,450  
 
                                                 
Amount of Gain (Loss) Recognized
 
on Risk Management Contracts
 
For the Six Months Ended June 30, 2009
 
 
 
Location of Gain (Loss)
 
APCo
 
CSPCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
 
(in thousands)
 
Electric Generation, Transmission and
                                                 
Distribution Revenues
    $ 10,971     $ 20,006     $ 24,206     $ 24,298     $ 848     $ 1,218  
Sales to AEP Affiliates
      (7,326 )     (4,469 )     (4,418 )     (1,493 )     (625 )     (975 )
Regulatory Assets (a)
      -       (3,627 )     (2,449 )     (4,309 )     -       (103 )
Regulatory Liabilities (a)
      14,280       (2,490 )     978       (3,084 )     (882 )     249  
Total Gain (Loss) on Risk Management
                                                 
Contracts
    $ 17,925     $ 9,420     $ 18,317     $ 15,412     $ (659 )   $ 389  

(a)  Represents realized and unrealized gains and losses subject to regulatory accounting treatment recorded as either current or non-current on the balance sheet.
 

 
 
195

 
Certain qualifying derivative instruments have been designated as normal purchase or normal sale contracts, as provided in the accounting guidance for “Derivatives and Hedging.”  Derivative contracts that have been designated as normal purchases or normal sales under that accounting guidance are not subject to MTM accounting treatment and are recognized on the Condensed Statements of Income on an accrual basis.

The accounting for the changes in the fair value of a derivative instrument depends on whether it qualifies for and has been designated as part of a hedging relationship and further, on the type of hedging relationship.  Depending on the exposure, management designates a hedging instrument as a fair value hedge or a cash flow hedge.

For contracts that have not been designated as part of a hedging relationship, the accounting for changes in fair value depends on whether the derivative instrument is held for trading purposes. Unrealized and realized gains and losses on derivative instruments held for trading purposes are included in revenues on a net basis on the Condensed Statements of Income. Unrealized and realized gains and losses on derivative instruments not held for trading purposes are included in revenues or expenses on the Condensed Statements of Income depending on the relevant facts and circumstances.  However, unrealized and some realized gains and losses in regulated jurisdictions (APCo, I&M, PSO, the non-Texas portion of SWEPCo generation and beginning in the second quarter of 2009 the Texas portion of SWEPCo generation) for both trading and non-trading derivative instruments are recorded as regulatory assets (for losses) or regulatory liabilities (for gains) in accordance with the accounting guidance for “Regulated Operations.”  SWEPCo re-applied the accounting guidance for “Regulated Operations” for the generation portion of SWEPCo’s Texas retail jurisdiction effective the second quarter of 2009.

Accounting for Fair Value Hedging Strategies

For fair value hedges (i.e. hedging the exposure to changes in the fair value of an asset, liability or an identified portion thereof attributable to a particular risk), the Registrant Subsidiaries recognize the gain or loss on the derivative instrument as well as the offsetting gain or loss on the hedged item associated with the hedged risk in Net Income during the period of change.

The Registrant Subsidiaries record realized and unrealized gains or losses on interest rate swaps that qualify for fair value hedge accounting treatment and any offsetting changes in the fair value of the debt being hedged in Interest Expense on the Condensed Statements of Income.  During the three and six months ended June 30, 2010 and 2009, the Registrant Subsidiaries did not employ any fair value hedging strategies.

Accounting for Cash Flow Hedging Strategies

For cash flow hedges (i.e. hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the Registrant Subsidiaries initially report the effective portion of the gain or loss on the derivative instrument as a component of Accumulated Other Comprehensive Income (Loss) on the Condensed Balance Sheets until the period the hedged item affects Net Income.  The Registrant Subsidiaries recognize any hedge ineffectiveness in Net Income immediately during the period of change, except in regulated jurisdictions where hedge ineffectiveness is recorded as a regulatory asset (for losses) or a regulatory liability (for gains).

Realized gains and losses on derivative contracts for the purchase and sale of electricity, coal, heating oil and natural gas designated as cash flow hedges are included in Revenues, Fuel and Other Consumables Used for Electric Generation or Purchased Electricity for Resale on the Condensed Statements of Income, or in Regulatory Assets or Regulatory Liabilities on the Condensed Balance Sheets, depending on the specific nature of the risk being hedged.  During the three and six months ended June 30, 2010 and 2009, APCo, CSPCo, I&M and OPCo designated commodity derivatives as cash flow hedges.

The Registrant Subsidiaries reclassify gains and losses on financial fuel derivative contracts designated as cash flow hedges from Accumulated Other Comprehensive Income (Loss) on the Condensed Balance Sheets into Other Operation expense, Maintenance expense or Depreciation and Amortization expense, as it relates to capital projects, on the Condensed Statements of Income.  During the three and six months ended June 30, 2010, the Registrant Subsidiaries designated cash flow hedging strategies of forecasted fuel purchases.

 
196

 
The Registrant Subsidiaries reclassify gains and losses on interest rate derivative hedges related to debt financing from Accumulated Other Comprehensive Income (Loss) into Interest Expense in those periods in which hedged interest payments occur.  During the three and six months ended June 30, 2010, APCo designated interest rate derivatives as cash flow hedges.  During the three and six months ended June 30, 2009, OPCo designated interest rate derivatives as cash flow hedges.

The accumulated gains or losses related to foreign currency hedges are reclassified from Accumulated Other Comprehensive Income (Loss) on the Condensed Balance Sheets into Depreciation and Amortization expense on the Condensed Statements of Income over the depreciable lives of the fixed assets that were designated as the hedged items in qualifying foreign currency hedging relationships.  During the three and six months ended June 30, 2010 and 2009, SWEPCo designated foreign currency derivatives as cash flow hedges.

During the three and six months ended June 30, 2010 and 2009, hedge ineffectiveness was immaterial or nonexistent for all of the hedge strategies disclosed above.

The following tables provides details on designated, effective cash flow hedges included in AOCI on the Condensed Balance Sheets and the reasons for changes in cash flow hedges for the three and six months ended June 30, 2010 and 2009.  All amounts in the following tables are presented net of related income taxes.

 
197

 

 
Total Accumulated Other Comprehensive Income (Loss) Activity for Cash Flow Hedges
 
For the Three Months Ended June 30, 2010
 
 
 
Commodity Contracts
 
APCo
 
CSPCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
 
(in thousands)
 
Balance in AOCI as of March 31, 2010
 
$
 (2,451)
 
$
 (1,407)
 
$
 (1,418)
 
$
 (1,543)
 
$
 (8)
 
$
 100 
 
Changes in Fair Value Recognized in AOCI
 
 
 642 
 
 
 380 
 
 
 388 
 
 
 370 
 
 
 (191)
 
 
 (99)
 
Amount of (Gain) or Loss Reclassified
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
from AOCI to Income Statements/within
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance Sheet:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Electric Generation, Transmission, and
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distribution Revenues
 
 
 31 
 
 
 79 
 
 
 66 
 
 
 91 
 
 
 - 
 
 
 - 
 
 
 
Fuel and Other Consumables Used for
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Electric Generation
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 (4)
 
 
 150 
 
 
 - 
 
 
 
Purchased Electricity for Resale
 
 
 65 
 
 
 168 
 
 
 139 
 
 
 193 
 
 
 - 
 
 
 - 
 
 
 
Other Operation Expense
 
 
 (18)
 
 
 (11)
 
 
 (11)
 
 
 (15)
 
 
 (13)
 
 
 (16)
 
 
 
Maintenance Expense
 
 
 (22)
 
 
 (6)
 
 
 (9)
 
 
 (11)
 
 
 (8)
 
 
 (8)
 
 
 
Property, Plant and Equipment
 
 
 (24)
 
 
 (10)
 
 
 (12)
 
 
 (17)
 
 
 (14)
 
 
 (10)
 
 
 
Regulatory Assets (a)
 
 
 340 
 
 
 - 
 
 
 44 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 
Regulatory Liabilities (a)
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 (5)
 
 
 - 
 
 
 - 
 
Balance in AOCI as of June 30, 2010
 
$
 (1,437)
 
$
 (807)
 
$
 (813)
 
$
 (941)
 
$
 (84)
 
$
 (33)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest Rate and Foreign Currency
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Contracts
 
APCo
 
CSPCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
 
 
 
 
(in thousands)
 
Balance in AOCI as of March 31, 2010
 
$
 (6,488)
 
$
 - 
 
$
 (9,262)
 
$
 11,832 
 
$
 (475)
 
$
 (4,947)
 
Changes in Fair Value Recognized in AOCI
 
 
 (2,229)
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 (96)
 
Amount of (Gain) or Loss Reclassified
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
from AOCI to Income Statements/within
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance Sheet:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Depreciation and Amortization
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Expense
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 1 
 
 
 - 
 
 
 - 
 
 
 
Other Operation Expense
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 24 
 
 
 
Interest Expense
 
 
 419 
 
 
 - 
 
 
 251 
 
 
 (341)
 
 
 32 
 
 
 207 
 
Balance in AOCI as of June 30, 2010
 
$
 (8,298)
 
$
 - 
 
$
 (9,011)
 
$
 11,492 
 
$
 (443)
 
$
 (4,812)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Contracts
 
APCo
 
CSPCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
 
 
 
 
(in thousands)
 
Balance in AOCI as of March 31, 2010
 
$
 (8,939)
 
$
 (1,407)
 
$
 (10,680)
 
$
 10,289 
 
$
 (483)
 
$
 (4,847)
 
Changes in Fair Value Recognized in AOCI
 
 
 (1,587)
 
 
 380 
 
 
 388 
 
 
 370 
 
 
 (191)
 
 
 (195)
 
Amount of (Gain) or Loss Reclassified
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
from AOCI to Income Statements/within
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance Sheet:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Electric Generation, Transmission, and
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distribution Revenues
 
 
 31 
 
 
 79 
 
 
 66 
 
 
 91 
 
 
 - 
 
 
 - 
 
 
 
Fuel and Other Consumables Used for
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Electric Generation
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 (4)
 
 
 150 
 
 
 - 
 
 
 
Purchased Electricity for Resale
 
 
 65 
 
 
 168 
 
 
 139 
 
 
 193 
 
 
 - 
 
 
 - 
 
 
 
Other Operation Expense
 
 
 401 
 
 
 (11)
 
 
 240 
 
 
 (356)
 
 
 19 
 
 
 191 
 
 
 
Maintenance Expense
 
 
 (22)
 
 
 (6)
 
 
 (9)
 
 
 (11)
 
 
 (8)
 
 
 (8)
 
 
 
Depreciation and Amortization
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Expense
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 1 
 
 
 - 
 
 
 - 
 
 
 
Interest Expense
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 24 
 
 
 
Property, Plant and Equipment
 
 
 (24)
 
 
 (10)
 
 
 (12)
 
 
 (17)
 
 
 (14)
 
 
 (10)
 
 
 
Regulatory Assets (a)
 
 
 340 
 
 
 - 
 
 
 44 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 
Regulatory Liabilities (a)
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 (5)
 
 
 - 
 
 
 - 
 
Balance in AOCI as of June 30, 2010
 
$
 (9,735)
 
$
 (807)
 
$
 (9,824)
 
$
 10,551 
 
$
 (527)
 
$
 (4,845)

 
198

 

 
Total Accumulated Other Comprehensive Income (Loss) Activity for Cash Flow Hedges
 
For the Three Months Ended June 30, 2009
 
 
 
Commodity Contracts
 
APCo
 
CSPCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
 
(in thousands)
 
Balance in AOCI as of March 31, 2009
 
$
 4,066 
 
$
 2,162 
 
$
 2,091 
 
$
 2,669 
 
$
 (24)
 
$
 (21)
 
Changes in Fair Value Recognized in AOCI
 
 
 (207)
 
 
 (143)
 
 
 (119)
 
 
 (115)
 
 
 155 
 
 
 166 
 
Amount of (Gain) or Loss Reclassified
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
from AOCI to Income Statements/within
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance Sheet:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Electric Generation, Transmission, and
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distribution Revenues
 
 
 (458)
 
 
 (1,158)
 
 
 (885)
 
 
 (1,434)
 
 
 - 
 
 
 - 
 
 
 
Fuel and Other Consumables Used for
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Electric Generation
 
 
 (6)
 
 
 (4)
 
 
 (4)
 
 
 (5)
 
 
 (3)
 
 
 (3)
 
 
 
Purchased Electricity for Resale
 
 
 132 
 
 
 334 
 
 
 255 
 
 
 413 
 
 
 - 
 
 
 - 
 
 
 
Other Operation Expense
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 
Maintenance Expense
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 
Property, Plant and Equipment
 
 
 (3)
 
 
 (2)
 
 
 (1)
 
 
 (2)
 
 
 (1)
 
 
 (1)
 
 
 
Regulatory Assets (a)
 
 
 497 
 
 
 - 
 
 
 68 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 
Regulatory Liabilities (a)
 
 
 (1,725)
 
 
 - 
 
 
 (235)
 
 
 - 
 
 
 - 
 
 
 - 
 
Balance in AOCI as of June 30, 2009
 
$
 2,296 
 
$
 1,189 
 
$
 1,170 
 
$
 1,526 
 
$
 127 
 
$
 141 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest Rate and Foreign Currency
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Contracts
 
APCo
 
CSPCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
 
 
 
 
(in thousands)
 
Balance in AOCI as of March 31, 2009
 
$
 (7,702)
 
$
 - 
 
$
 (10,271)
 
$
 2,039 
 
$
 (658)
 
$
 (5,808)
 
Changes in Fair Value Recognized in AOCI
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 14,690 
 
 
 - 
 
 
 104 
 
Amount of (Gain) or Loss Reclassified
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
from AOCI to Income Statements/within
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance Sheet:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Depreciation and Amortization
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Expense
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 1 
 
 
 - 
 
 
 - 
 
 
 
Interest Expense
 
 
 417 
 
 
 - 
 
 
 254 
 
 
 (68)
 
 
 45 
 
 
 207 
 
Balance in AOCI as of June 30, 2009
 
$
 (7,285)
 
$
 - 
 
$
 (10,017)
 
$
 16,662 
 
$
 (613)
 
$
 (5,497)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Contracts
 
APCo
 
CSPCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
 
 
 
 
(in thousands)
 
Balance in AOCI as of March 31, 2009
 
$
 (3,636)
 
$
 2,162 
 
$
 (8,180)
 
$
 4,708 
 
$
 (682)
 
$
 (5,829)
 
Changes in Fair Value Recognized in AOCI
 
 
 (207)
 
 
 (143)
 
 
 (119)
 
 
 14,575 
 
 
 155 
 
 
 270 
 
Amount of (Gain) or Loss Reclassified
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
from AOCI to Income Statements/within
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance Sheet:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Electric Generation, Transmission, and
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distribution Revenues
 
 
 (458)
 
 
 (1,158)
 
 
 (885)
 
 
 (1,434)
 
 
 - 
 
 
 - 
 
 
 
Fuel and Other Consumables Used for
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Electric Generation
 
 
 (6)
 
 
 (4)
 
 
 (4)
 
 
 (5)
 
 
 (3)
 
 
 (3)
 
 
 
Purchased Electricity for Resale
 
 
 132 
 
 
 334 
 
 
 255 
 
 
 413 
 
 
 - 
 
 
 - 
 
 
 
Other Operation Expense
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 
Maintenance Expense
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 
Depreciation and Amortization
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Expense
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 1 
 
 
 - 
 
 
 - 
 
 
 
Interest Expense
 
 
 417 
 
 
 - 
 
 
 254 
 
 
 (68)
 
 
 45 
 
 
 207 
 
 
 
Property, Plant and Equipment
 
 
 (3)
 
 
 (2)
 
 
 (1)
 
 
 (2)
 
 
 (1)
 
 
 (1)
 
 
 
Regulatory Assets (a)
 
 
 497 
 
 
 - 
 
 
 68 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 
Regulatory Liabilities (a)
 
 
 (1,725)
 
 
 - 
 
 
 (235)
 
 
 - 
 
 
 - 
 
 
 - 
 
Balance in AOCI as of June 30, 2009
 
$
 (4,989)
 
$
 1,189 
 
$
 (8,847)
 
$
 18,188 
 
$
 (486)
 
$
 (5,356)

 
199

 

 
Total Accumulated Other Comprehensive Income (Loss) Activity for Cash Flow Hedges
 
For the Six Months Ended June 30, 2010
 
 
 
Commodity Contracts
 
APCo
 
CSPCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
 
(in thousands)
 
Balance in AOCI as of December 31, 2009
 
$
 (743)
 
$
 (376)
 
$
 (382)
 
$
 (366)
 
$
 (78)
 
$
 112 
 
Changes in Fair Value Recognized in AOCI
 
 
 (1,857)
 
 
 (1,077)
 
 
 (1,083)
 
 
 (1,300)
 
 
 (105)
 
 
 (96)
 
Amount of (Gain) or Loss Reclassified
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
from AOCI to Income Statements/within
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance Sheet:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Electric Generation, Transmission, and
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distribution Revenues
 
 
 57 
 
 
 144 
 
 
 120 
 
 
 167 
 
 
 - 
 
 
 - 
 
 
 
Fuel and Other Consumables Used for
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Electric Generation
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 (13)
 
 
 150 
 
 
 - 
 
 
 
Purchased Electricity for Resale
 
 
 211 
 
 
 550 
 
 
 455 
 
 
 633 
 
 
 - 
 
 
 - 
 
 
 
Other Operation Expense
 
 
 (24)
 
 
 (19)
 
 
 (17)
 
 
 (20)
 
 
 (19)
 
 
 (23)
 
 
 
Maintenance Expense
 
 
 (36)
 
 
 (12)
 
 
 (14)
 
 
 (15)
 
 
 (12)
 
 
 (12)
 
 
 
Property, Plant and Equipment
 
 
 (33)
 
 
 (17)
 
 
 (17)
 
 
 (22)
 
 
 (20)
 
 
 (14)
 
 
 
Regulatory Assets (a)
 
 
 988 
 
 
 - 
 
 
 125 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 
Regulatory Liabilities (a)
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 (5)
 
 
 - 
 
 
 - 
 
Balance in AOCI as of June 30, 2010
 
$
 (1,437)
 
$
 (807)
 
$
 (813)
 
$
 (941)
 
$
 (84)
 
$
 (33)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest Rate and Foreign Currency
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Contracts
 
APCo
 
CSPCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
 
 
 
 
(in thousands)
 
Balance in AOCI as of December 31, 2009
 
$
 (6,450)
 
$
 - 
 
$
 (9,514)
 
$
 12,172 
 
$
 (521)
 
$
 (5,047)
 
Changes in Fair Value Recognized in AOCI
 
 
 (2,685)
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 (203)
 
Amount of (Gain) or Loss Reclassified
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
from AOCI to Income Statements/within
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance Sheet:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Depreciation and Amortization
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Expense
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 2 
 
 
 - 
 
 
 - 
 
 
 
Other Operation Expense
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 24 
 
 
 
Interest Expense
 
 
 837 
 
 
 - 
 
 
 503 
 
 
 (682)
 
 
 78 
 
 
 414 
 
Balance in AOCI as of June 30, 2010
 
$
 (8,298)
 
$
 - 
 
$
 (9,011)
 
$
 11,492 
 
$
 (443)
 
$
 (4,812)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Contracts
 
APCo
 
CSPCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
 
 
 
 
(in thousands)
 
Balance in AOCI as of December 31, 2009
 
$
 (7,193)
 
$
 (376)
 
$
 (9,896)
 
$
 11,806 
 
$
 (599)
 
$
 (4,935)
 
Changes in Fair Value Recognized in AOCI
 
 
 (4,542)
 
 
 (1,077)
 
 
 (1,083)
 
 
 (1,300)
 
 
 (105)
 
 
 (299)
 
Amount of (Gain) or Loss Reclassified
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
from AOCI to Income Statements/within
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance Sheet:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Electric Generation, Transmission, and
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distribution Revenues
 
 
 57 
 
 
 144 
 
 
 120 
 
 
 167 
 
 
 - 
 
 
 - 
 
 
 
Fuel and Other Consumables Used for
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Electric Generation
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 (13)
 
 
 150 
 
 
 - 
 
 
 
Purchased Electricity for Resale
 
 
 211 
 
 
 550 
 
 
 455 
 
 
 633 
 
 
 - 
 
 
 - 
 
 
 
Other Operation Expense
 
 
 (24)
 
 
 (19)
 
 
 (17)
 
 
 (20)
 
 
 (19)
 
 
 1 
 
 
 
Maintenance Expense
 
 
 (36)
 
 
 (12)
 
 
 (14)
 
 
 (15)
 
 
 (12)
 
 
 (12)
 
 
 
Depreciation and Amortization
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Expense
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 2 
 
 
 - 
 
 
 - 
 
 
 
Interest Expense
 
 
 837 
 
 
 - 
 
 
 503 
 
 
 (682)
 
 
 78 
 
 
 414 
 
 
 
Property, Plant and Equipment
 
 
 (33)
 
 
 (17)
 
 
 (17)
 
 
 (22)
 
 
 (20)
 
 
 (14)
 
 
 
Regulatory Assets (a)
 
 
 988 
 
 
 - 
 
 
 125 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 
Regulatory Liabilities (a)
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 (5)
 
 
 - 
 
 
 - 
 
Balance in AOCI as of June 30, 2010
 
$
 (9,735)
 
$
 (807)
 
$
 (9,824)
 
$
 10,551 
 
$
 (527)
 
$
 (4,845)

 
200

 

 
Total Accumulated Other Comprehensive Income (Loss) Activity for Cash Flow Hedges
 
For the Six Months Ended June 30, 2009
 
 
 
Commodity Contracts
 
APCo
 
CSPCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
 
(in thousands)
 
Balance in AOCI as of December 31, 2008
 
$
 2,726 
 
$
 1,531 
 
$
 1,482 
 
$
 1,898 
 
$
 - 
 
$
 - 
 
Changes in Fair Value Recognized in AOCI
 
 
 173 
 
 
 (25)
 
 
 (6)
 
 
 21 
 
 
 131 
 
 
 145 
 
Amount of (Gain) or Loss Reclassified
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
from AOCI to Income Statements/within
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance Sheet:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Electric Generation, Transmission, and
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distribution Revenues
 
 
 (709)
 
 
 (1,771)
 
 
 (1,389)
 
 
 (2,193)
 
 
 - 
 
 
 - 
 
 
 
Fuel and Other Consumables Used for
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Electric Generation
 
 
 (6)
 
 
 (4)
 
 
 (4)
 
 
 (5)
 
 
 (3)
 
 
 (3)
 
 
 
Purchased Electricity for Resale
 
 
 594 
 
 
 1,460 
 
 
 1,181 
 
 
 1,807 
 
 
 - 
 
 
 - 
 
 
 
Other Operation Expense
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 
Maintenance Expense
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 
Property, Plant and Equipment
 
 
 (3)
 
 
 (2)
 
 
 (1)
 
 
 (2)
 
 
 (1)
 
 
 (1)
 
 
 
Regulatory Assets (a)
 
 
 2,136 
 
 
 - 
 
 
 231 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 
Regulatory Liabilities (a)
 
 
 (2,615)
 
 
 - 
 
 
 (324)
 
 
 - 
 
 
 - 
 
 
 - 
 
Balance in AOCI as of June 30, 2009
 
$
 2,296 
 
$
 1,189 
 
$
 1,170 
 
$
 1,526 
 
$
 127 
 
$
 141 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest Rate and Foreign Currency
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Contracts
 
APCo
 
CSPCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
 
 
 
 
(in thousands)
 
Balance in AOCI as of December 31, 2008
 
$
 (8,118)
 
$
 - 
 
$
 (10,521)
 
$
 1,752 
 
$
 (704)
 
$
 (5,924)
 
Changes in Fair Value Recognized in AOCI
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 14,953 
 
 
 - 
 
 
 13 
 
Amount of (Gain) or Loss Reclassified
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
from AOCI to Income Statements/within
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance Sheet:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Depreciation and Amortization
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Expense
 
 
 - 
 
 
 - 
 
 
 (2)
 
 
 2 
 
 
 - 
 
 
 - 
 
 
 
Interest Expense
 
 
 833 
 
 
 - 
 
 
 506 
 
 
 (45)
 
 
 91 
 
 
 414 
 
Balance in AOCI as of June 30, 2009
 
$
 (7,285)
 
$
 - 
 
$
 (10,017)
 
$
 16,662 
 
$
 (613)
 
$
 (5,497)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Contracts
 
APCo
 
CSPCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
 
 
 
 
(in thousands)
 
Balance in AOCI as of December 31, 2008
 
$
 (5,392)
 
$
 1,531 
 
$
 (9,039)
 
$
 3,650 
 
$
 (704)
 
$
 (5,924)
 
Changes in Fair Value Recognized in AOCI
 
 
 173 
 
 
 (25)
 
 
 (6)
 
 
 14,974 
 
 
 131 
 
 
 158 
 
Amount of (Gain) or Loss Reclassified
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
from AOCI to Income Statements/within
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance Sheet:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Electric Generation, Transmission, and
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distribution Revenues
 
 
 (709)
 
 
 (1,771)
 
 
 (1,389)
 
 
 (2,193)
 
 
 - 
 
 
 - 
 
 
 
Fuel and Other Consumables Used for
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Electric Generation
 
 
 (6)
 
 
 (4)
 
 
 (4)
 
 
 (5)
 
 
 (3)
 
 
 (3)
 
 
 
Purchased Electricity for Resale
 
 
 594 
 
 
 1,460 
 
 
 1,181 
 
 
 1,807 
 
 
 - 
 
 
 - 
 
 
 
Other Operation Expense
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 
Maintenance Expense
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 
Depreciation and Amortization
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Expense
 
 
 - 
 
 
 - 
 
 
 (2)
 
 
 2 
 
 
 - 
 
 
 - 
 
 
 
Interest Expense
 
 
 833 
 
 
 - 
 
 
 506 
 
 
 (45)
 
 
 91 
 
 
 414 
 
 
 
Property, Plant and Equipment
 
 
 (3)
 
 
 (2)
 
 
 (1)
 
 
 (2)
 
 
 (1)
 
 
 (1)
 
 
 
Regulatory Assets (a)
 
 
 2,136 
 
 
 - 
 
 
 231 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 
Regulatory Liabilities (a)
 
 
 (2,615)
 
 
 - 
 
 
 (324)
 
 
 - 
 
 
 - 
 
 
 - 
 
Balance in AOCI as of June 30, 2009
 
$
 (4,989)
 
$
 1,189 
 
$
 (8,847)
 
$
 18,188 
 
$
 (486)
 
$
 (5,356)

   (a)  Represents realized and unrealized gains and losses subject to regulatory accounting treatment recorded as either current or non-current on the balance sheets.

 
201

 
Cash flow hedges included in Accumulated Other Comprehensive Income (Loss) on the Condensed Balance Sheets at June 30, 2010 and December 31, 2009 were:

Impact of Cash Flow Hedges on the Registrant Subsidiaries’
 
Condensed Balance Sheets
 
June 30, 2010
 
 
 
 
 
Hedging Assets (a)
 
Hedging Liabilities (a)
 
AOCI Gain (Loss) Net of Tax
 
 
 
 
 
Interest Rate
 
 
 
Interest Rate
 
 
 
Interest Rate
 
 
 
 
 
and Foreign
 
 
 
and Foreign
 
 
 
and Foreign
 
Company
 
Commodity
 
Currency
 
Commodity
 
Currency
 
Commodity
 
Currency
 
 
 
(in thousands)
 
APCo
    $ 332     $ -     $ (2,517 )   $ -     $ (1,437 )   $ (8,298 )
CSPCo
      188       -       (1,413 )     -       (807 )     -  
I&M
      189       -       (1,429 )     -       (813 )     (9,011 )
OPCo
      216       -       (1,649 )     -       (941 )     11,492  
PSO
      8       -       (140 )     -       (84 )     (443 )
SWEPCo
      -       -       (56 )     (231 )     (33 )     (4,812 )

 
 
Expected to be Reclassified to
   
 
 
 
 
Net Income During the Next
   
 
 
 
 
Twelve Months
   
 
 
 
 
 
 
 
 
Maximum Term for
 
 
 
 
 
Interest Rate
 
Exposure to
 
 
 
 
 
and Foreign
 
Variability of Future
 
Company
 
Commodity
 
Currency
 
Cash Flows
 
 
 
(in thousands)
 
(in months)
 
APCo
    $ (1,300 )   $ (1,634 )     18  
CSPCo
      (733 )     -       18  
I&M
      (740 )     (1,007 )     18  
OPCo
      (849 )     1,359       18  
PSO
      (58 )     (73 )     18  
SWEPCo
      (10 )     (829 )     29  
 
 
 
202

 
 
Impact of Cash Flow Hedges on the Registrant Subsidiaries’
 
Condensed Balance Sheets
 
December 31, 2009
 
 
 
 
 
Hedging Assets (a)
 
Hedging Liabilities (a)
 
AOCI Gain (Loss) Net of Tax
 
 
 
 
 
Interest Rate
 
 
 
Interest Rate
 
 
 
Interest Rate
 
 
 
 
 
and Foreign
 
 
 
and Foreign
 
 
 
and Foreign
 
Company
 
Commodity
 
Currency
 
Commodity
 
Currency
 
Commodity
 
Currency
 
 
 
(in thousands)
 
APCo
    $ 1,999     $ -     $ (3,542 )   $ -     $ (743 )   $ (6,450 )
CSPCo
      984       -       (1,794 )     -       (376 )     -  
I&M
      1,011       -       (1,809 )     -       (382 )     (9,514 )
OPCo
      1,242       -       (2,088 )     -       (366 )     12,172  
PSO
      178       -       (300 )     -       (78 )     (521 )
SWEPCo
      168       5       -       (46 )     112       (5,047 )

 
 
Expected to be Reclassified to
 
 
 
Net Income During the Next
 
 
 
Twelve Months
 
 
 
 
 
 
 
 
 
 
 
Interest Rate
 
 
 
 
 
and Foreign
 
Company
 
Commodity
 
Currency
 
 
 
(in thousands)
 
APCo
    $ (691 )   $ (1,301 )
CSPCo
      (349 )     -  
I&M
      (358 )     (1,007 )
OPCo
      (335 )     1,359  
PSO
      (79 )     (114 )
SWEPCo
      111       (829 )

(a)
Hedging Assets and Hedging Liabilities are included in Risk Management Assets and Liabilities on the Condensed Balance Sheets.

The actual amounts reclassified from Accumulated Other Comprehensive Income (Loss) to Net Income can differ from the estimate above due to market price changes.

Credit Risk

AEPSC, on behalf of the Registrant Subsidiaries, limits credit risk in their wholesale marketing and trading activities by assessing the creditworthiness of potential counterparties before entering into transactions with them and continuing to evaluate their creditworthiness on an ongoing basis.  AEPSC, on behalf of the Registrant Subsidiaries, uses Moody’s, S&P and current market-based qualitative and quantitative data to assess the financial health of counterparties on an ongoing basis.  If an external rating is not available, an internal rating is generated utilizing a quantitative tool developed by Moody’s to estimate probability of default that corresponds to an implied external agency credit rating.

AEPSC, on behalf of the Registrant Subsidiaries, uses standardized master agreements which may include collateral requirements.  These master agreements facilitate the netting of cash flows associated with a single counterparty.  Cash, letters of credit and parental/affiliate guarantees may be obtained as security from counterparties in order to mitigate credit risk.  The collateral agreements require a counterparty to post cash or letters of credit in the event an exposure exceeds the established threshold.  The threshold represents an unsecured credit limit which may be supported by a parental/affiliate guaranty, as determined in accordance with AEP’s credit policy.  In addition, collateral agreements allow for termination and liquidation of all positions in the event of a failu re or inability to post collateral.

 
203

 
Collateral Triggering Events

Under a limited number of derivative and non-derivative counterparty contracts primarily related to pre-2002 risk management activities and under the tariffs of the RTOs and Independent System Operators (ISOs), the Registrant Subsidiaries are obligated to post an amount of collateral if certain credit ratings decline below investment grade.  The amount of collateral required fluctuates based on market prices and total exposure.  On an ongoing basis, AEP’s risk management organization assesses the appropriateness of these collateral triggering items in contracts.  Management does not anticipate a downgrade below investment grade.  The following tables represent the Registrant Subsidiaries’ aggregate fair value of such derivative contracts, the amount of collateral the Registrant Subsid iaries would have been required to post for all derivative and non-derivative contracts if the credit ratings had declined below investment grade and how much was attributable to RTO and ISO activities as of June 30, 2010 and December 31, 2009:

 
 
June 30, 2010
 
 
   
 
   
 
   
 
 
 
 
Liabilities for
 
Amount of Collateral the
 
Amount
 
 
 
Derivative Contracts
 
Registrant Subsidiaries
 
Attributable to
 
 
 
with Credit
 
Would Have Been
 
RTO and ISO
 
Company
 
Downgrade Triggers
 
Required to Post
 
Activities
 
 
 
(in thousands)
 
APCo
    $ 6,654     $ 4,279     $ 4,279  
CSPCo
      3,764       2,421       2,421  
I&M
      3,797       2,442       2,442  
OPCo
      4,332       2,786       2,786  
PSO
      291       2,837       2,546  
SWEPCo
      346       3,374       3,028  

As of June 30, 2010, the Registrant Subsidiaries were not required to post any cash collateral.

 
 
December 31, 2009
 
 
   
 
   
 
   
 
 
 
 
Liabilities for
 
Amount of Collateral the
 
Amount
 
 
 
Derivative Contracts
 
Registrant Subsidiaries
 
Attributable to
 
 
 
with Credit
 
Would Have Been
 
RTO and ISO
 
Company
 
Downgrade Triggers
 
Required to Post
 
Activities
 
 
 
(in thousands)
 
APCo
    $ 2,229     $ 8,433     $ 7,947  
CSPCo
      1,129       4,272       4,026  
I&M
      1,139       4,309       4,060  
OPCo
      1,315       4,975       4,688  
PSO
      689       2,772       2,083  
SWEPCo
      819       3,297       2,477  

As of December 31, 2009, the Registrant Subsidiaries were not required to post any collateral.

 
204

 
In addition, a majority of the Registrant Subsidiaries’ non-exchange traded commodity contracts contain cross-default provisions that, if triggered, would permit the counterparty to declare a default and require settlement of the outstanding payable.  These cross-default provisions could be triggered if there was a non-performance event under outstanding debt in excess of $50 million.  On an ongoing basis, AEP’s risk management organization assesses the appropriateness of these cross-default provisions in the contracts.  Management believes that a non-performance event under these provisions is unlikely.  The following tables represent the fair value of these derivative liabilities subject to cross-default provisions prior to consideration of contractual netting arrangements, the amou nt this exposure has been reduced by cash collateral posted by the Registrant Subsidiaries and if a cross-default provision would have been triggered, the settlement amount that would be required after considering the Registrant Subsidiaries’ contractual netting arrangements as of June 30, 2010 and December 31, 2009:

 
 
June 30, 2010
 
 
   
 
   
 
   
 
 
 
 
Liabilities for
 
 
 
Additional
 
 
 
Contracts with Cross
 
 
 
Settlement
 
 
 
Default Provisions
 
 
 
Liability if Cross
 
 
 
Prior to Contractual
 
Amount of Cash
 
Default Provision
 
Company
 
Netting Arrangements
 
Collateral Posted
 
is Triggered
 
 
 
(in thousands)
 
APCo
    $ 126,334     $ 4,808     $ 31,707  
CSPCo
      71,471       2,720       17,937  
I&M
      72,079       2,744       18,089  
OPCo
      82,290       3,131       20,682  
PSO
      109       -       66  
SWEPCo
      366       -       313  
 
                         
 
 
December 31, 2009
 
 
                         
 
 
Liabilities for
         
Additional
 
 
 
Contracts with Cross
         
Settlement
 
 
 
Default Provisions
         
Liability if Cross
 
 
 
Prior to Contractual
 
Amount of Cash
 
Default Provision
 
Company
 
Netting Arrangements
 
Collateral Posted
 
is Triggered
 
 
 
(in thousands)
 
APCo
    $ 154,924     $ 3,115     $ 33,186  
CSPCo
      78,489       1,578       16,813  
I&M
      79,158       1,592       16,955  
OPCo
      91,430       1,838       19,615  
PSO
      40       -       40  
SWEPCo
      139       -       93  

9.       FAIR VALUE MEASUREMENTS

Fair Value Hierarchy and Valuation Techniques

The accounting guidance for “Fair Value Measurements and Disclosures” establishes a fair value hierarchy that prioritizes the inputs used to measure fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).  Where observable inputs are available for substantially the full term of the asset or liability, the instrument is categorized in Level 2.  When quoted market prices are not available, pricing may be completed using comparable securities, dealer values, operating data and general market conditions to determine fair value.  Valuation models utilize various inputs such as commodity, interest rate and, to a lesser de gree, volatility and credit that include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, market corroborated inputs (i.e. inputs derived principally from, or correlated to, observable market data) and other observable inputs for the asset or liability.

 
205

 
For commercial activities, exchange traded derivatives, namely futures contracts, are generally fair valued based on unadjusted quoted prices in active markets and are classified as Level 1.  Level 2 inputs primarily consist of OTC broker quotes in moderately active or less active markets, as well as exchange traded contracts where there is insufficient market liquidity to warrant inclusion in Level 1.  Management verifies price curves using these broker quotes and classifies these fair values within Level 2 when substantially all of the fair value can be corroborated.  Management typically obtains multiple broker quotes, which are non-binding in nature but are based on recent trades in the marketplace.  When multiple broker quotes are obtained, the quoted bid and ask prices are averaged. &# 160;In certain circumstances, a broker quote may be discarded if it is a clear outlier.  Management uses a historical correlation analysis between the broker quoted location and the illiquid locations and if the points are highly correlated, these locations are included within Level 2 as well.  Certain OTC and bilaterally executed derivative instruments are executed in less active markets with a lower availability of pricing information.  Long-dated and illiquid complex or structured transactions and FTRs can introduce the need for internally developed modeling inputs based upon extrapolations and assumptions of observable market data to estimate fair value.  When such inputs have a significant impact on the measurement of fair value, the instrument is categorized as Level 3.

AEP utilizes its trustee’s external pricing service in its estimate of the fair value of the underlying investments held in the nuclear trusts.  AEP’s investment managers review and validate the prices utilized by the trustee to determine fair value.  AEP’s investment managers perform their own valuation testing to verify the fair values of the securities.  AEP receives audit reports of the trustee’s operating controls and valuation processes.  The trustee uses multiple pricing vendors for the assets held in the trusts.  Equities are classified as Level 1 holdings if they are actively traded on exchanges.  Fixed income securities do not trade on an exchange and do not have an official closing price.  Pricing vendors calculate bond valuations u sing financial models and matrices.  Fixed income securities are typically classified as Level 2 holdings because their valuation inputs are based on observable market data.  Observable inputs used for valuing fixed income securities are benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data and economic events.  Other securities with model-derived valuation inputs that are observable are also classified as Level 2 investments.  Investments with unobservable valuation inputs are classified as Level 3 investments.

Items classified as Level 1 are investments in money market funds, fixed income and equity mutual funds and domestic equities.  They are valued based on observable inputs primarily unadjusted quoted prices in active markets for identical assets.

Items classified as Level 2 are primarily investments in individual fixed income securities.  These fixed income securities are valued using models with input data as follows:

   
Type of Fixed Income Security
   
United States
     
State and Local
Type of Input
 
Government
 
Corporate Debt
 
Government
             
Benchmark Yields
 
X
 
X
 
X
Broker Quotes
 
X
 
X
 
X
Discount Margins
 
X
 
X
   
Treasury Market Update
 
X
       
Base Spread
 
X
 
X
 
X
Corporate Actions
     
X
   
Ratings Agency Updates
     
X
 
X
Prepayment Schedule and History
         
X
Yield Adjustments
 
X
       
 
 
 
206

 
Fair Value Measurements of Long-term Debt

The fair values of Long-term Debt are based on quoted market prices, without credit enhancements, for the same or similar issues and the current interest rates offered for instruments with similar maturities.  These instruments are not marked-to-market.  The estimates presented are not necessarily indicative of the amounts that could be realized in a current market exchange.

The book values and fair values of Long-term Debt for the Registrant Subsidiaries as of June 30, 2010 and December 31, 2009 are summarized in the following table:

 
 
June 30, 2010
 
December 31, 2009
 
Company
 
Book Value
 
Fair Value
 
Book Value
 
Fair Value
 
 
 
(in thousands)
 
APCo
    $ 3,560,776     $ 3,853,884     $ 3,477,306     $ 3,699,373  
CSPCo
      1,588,673       1,726,413       1,536,393       1,616,857  
I&M
      2,118,674       2,291,479       2,077,906       2,192,854  
OPCo
      2,929,248       3,145,855       3,242,505       3,380,084  
PSO
      968,851       1,051,083       968,121       1,007,183  
SWEPCo
      1,769,394       1,879,630       1,474,153       1,554,165  

Fair Value Measurements of Trust Assets for Decommissioning and SNF Disposal

Nuclear decommissioning and spent nuclear fuel trust funds represent funds that regulatory commissions allow I&M to collect through rates to fund future decommissioning and spent nuclear fuel disposal liabilities.  By rules or orders, the IURC, the MPSC and the FERC established investment limitations and general risk management guidelines.  In general, limitations include:

·
Acceptable investments (rated investment grade or above when purchased).
·
Maximum percentage invested in a specific type of investment.
·
Prohibition of investment in obligations of AEP or its affiliates.
·
Withdrawals permitted only for payment of decommissioning costs and trust expenses.
·
Target asset allocation is 50% fixed income and 50% equity securities.

I&M maintains trust records for each regulatory jurisdiction.  These funds are managed by external investment managers who must comply with the guidelines and rules of the applicable regulatory authorities.  The trust assets are invested to optimize the net of tax earnings of the trust giving consideration to liquidity, risk, diversification and other prudent investment objectives.

I&M records securities held in trust funds for decommissioning nuclear facilities and for the disposal of SNF at fair value.  I&M classifies securities in the trust funds as available-for-sale due to their long-term purpose.  The assessment of whether an investment in a debt security has suffered an other-than-temporary impairment is based on whether the investor has the intent to sell or more likely than not will be required to sell the debt security before recovery of its amortized costs.  The assessment of whether an investment in an equity security has suffered an other-than-temporary impairment, among other things, is based on whether the investor has the ability and intent to hold the investment to recover its value.  Other-than-temporary impairments for investments in both debt and equity securities are considered realized losses as a result of securities being managed by an external investment management firm.  The external investment management firm makes specific investment decisions regarding the equity and debt investments held in these trusts and generally intends to sell debt securities in an unrealized loss position as part of a tax optimization strategy.  I&M records unrealized gains and other-than-temporary impairments from securities in these trust funds as adjustments to the regulatory liability account for the nuclear decommissioning trust funds and to regulatory assets or liabilities for the SNF disposal trust funds in accordance with their treatment in rates.  The gains, losses or other-than-temporary impairments shown below did not affect earnings or AOCI.  The trust assets are recorded by jurisdiction and may not be used for another jurisdiction’s liabilities.  Regulatory approval is required to withdraw deco mmissioning funds.

 
207

 
The following is a summary of nuclear trust fund investments at June 30, 2010 and December 31, 2009:

 
June 30, 2010
 
December 31, 2009
 
 
Estimated
 
Gross
 
Other-Than-
 
Estimated
 
Gross
 
Other-Than-
 
 
Fair
 
Unrealized
 
Temporary
 
Fair
 
Unrealized
 
Temporary
 
 
Value
 
Gains
 
Impairments
 
Value
 
Gains
 
Impairments
 
 
(in thousands)
 
Cash and Cash Equivalents
  $ 26,512     $ -     $ -     $ 14,412     $ -     $ -  
Fixed Income Securities:
                                               
United States Government
    472,709       31,298       (1,043 )     400,565       12,708       (3,472 )
Corporate Debt
    60,607       6,113       (6,113 )     57,291       4,636       (2,177 )
State and Local Government
    316,046       2,976       (258 )     368,930       7,924       991  
  Subtotal Fixed Income Securities
    849,362       40,387       (7,414 )     826,786       25,268       (4,658 )
Equity Securities - Domestic
    515,554       193,710       (121,599 )     550,721       234,437       (119,379 )
Spent Nuclear Fuel and
                                               
Decommissioning Trusts
  $ 1,391,428     $ 234,097     $ (129,013 )   $ 1,391,919     $ 259,705     $ (124,037 )

The following table provides the securities activity within the decommissioning and SNF trusts for the three and six months ended June 30, 2010 and 2009:

 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2010
 
2009
 
2010
 
2009
 
 
(in thousands)
 
Proceeds From Investment Sales
  $ 360,185     $ 252,941     $ 592,263     $ 411,027  
Purchases of Investments
    369,427       263,521       617,059       441,928  
Gross Realized Gains on Investment Sales
    1,022       6,471       6,350       9,353  
Gross Realized Losses on Investment Sales
    236       460       417       808  

The adjusted cost of debt securities was $809 million and $801 million as of June 30, 2010 and December 31, 2009, respectively.

The fair value of debt securities held in the nuclear trust funds, summarized by contractual maturities, at June 30, 2010 was as follows:

 
Fair Value
 
 
of Debt
 
 
Securities
 
 
(in thousands)
 
Within 1 year
  $ 11,956  
1 year – 5 years
    262,167  
5 years – 10 years
    303,759  
After 10 years
    271,480  
Total
  $ 849,362  

Fair Value Measurements of Financial Assets and Liabilities

The following tables set forth, by level within the fair value hierarchy, the Registrant Subsidiaries’ financial assets and liabilities that were accounted for at fair value on a recurring basis as of June 30, 2010 and December 31, 2009.  As required by the accounting guidance for “Fair Value Measurements and Disclosures,” financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.  Management’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.  There have not been any significant changes in management’s valuatio n techniques.
 
 
208

 
 
Assets and Liabilities Measured at Fair Value on a Recurring Basis
June 30, 2010
APCo
 
 
 
 
 
 
 
 
 
 
 
Level 1
 
Level 2
 
Level 3
 
Other
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Commodity Contracts (a) (g)
$
 2,432 
 
$
 418,877 
 
$
 21,425 
 
$
 (346,131)
 
$
 96,603 
Cash Flow Hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity Hedges (a)
 
 - 
 
 
 2,775 
 
 
 - 
 
 
 (2,443)
 
 
 332 
Dedesignated Risk Management Contracts (b)
 
 - 
 
 
 - 
 
 
 - 
 
 
 5,972 
 
 
 5,972 
Total Risk Management Assets
$
 2,432 
 
$
 421,652 
 
$
 21,425 
 
$
 (342,602)
 
$
 102,907 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Commodity Contracts (a) (g)
$
 2,565 
 
$
 395,965 
 
$
 10,551 
 
$
 (368,248)
 
$
 40,833 
Cash Flow Hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity Hedges (a)
 
 - 
 
 
 4,960 
 
 
 - 
 
 
 (2,443)
 
 
 2,517 
DETM Assignment (c)
 
 - 
 
 
 - 
 
 
 - 
 
 
 1,233 
 
 
 1,233 
Total Risk Management Liabilities
$
 2,565 
 
$
 400,925 
 
$
 10,551 
 
$
 (369,458)
 
$
 44,583 

Assets and Liabilities Measured at Fair Value on a Recurring Basis
December 31, 2009
APCo
 
 
 
 
 
 
 
 
 
 
 
Level 1
 
Level 2
 
Level 3
 
Other
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other Cash Deposits (d)
$
 421 
 
$
 - 
 
$
 - 
 
$
 51 
 
$
 472 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Commodity Contracts (a)
 
 2,344 
 
 
 449,406 
 
 
 12,866 
 
 
 (360,248)
 
 
 104,368 
Cash Flow Hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity Hedges (a)
 
 - 
 
 
 3,620 
 
 
 - 
 
 
 (1,621)
 
 
 1,999 
Dedesignated Risk Management Contracts (b)
 
 - 
 
 
 - 
 
 
 - 
 
 
 8,730 
 
 
 8,730 
Total Risk Management Assets
 
 2,344 
 
 
 453,026 
 
 
 12,866 
 
 
 (353,139)
 
 
 115,097 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Assets
$
 2,765 
 
$
 453,026 
 
$
 12,866 
 
$
 (353,088)
 
$
 115,569 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Commodity Contracts (a)
$
 2,648 
 
$
 422,063 
 
$
 3,438 
 
$
 (388,265)
 
$
 39,884 
Cash Flow Hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity Hedges (a)
 
 - 
 
 
 5,163 
 
 
 - 
 
 
 (1,621)
 
 
 3,542 
DETM Assignment (c)
 
 - 
 
 
 - 
 
 
 - 
 
 
 2,730 
 
 
 2,730 
Total Risk Management Liabilities
$
 2,648 
 
$
 427,226 
 
$
 3,438 
 
$
 (387,156)
 
$
 46,156 

 
209

 

Assets and Liabilities Measured at Fair Value on a Recurring Basis
June 30, 2010
CSPCo
 
 
 
 
 
 
 
 
 
 
 
Level 1
 
Level 2
 
Level 3
 
Other
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Commodity Contracts (a) (g)
$
 1,376 
 
$
 236,523 
 
$
 12,120 
 
$
 (195,420)
 
$
 54,599 
Cash Flow Hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity Hedges (a)
 
 - 
 
 
 1,559 
 
 
 - 
 
 
 (1,371)
 
 
 188 
Dedesignated Risk Management Contracts (b)
 
 - 
 
 
 - 
 
 
 - 
 
 
 3,379 
 
 
 3,379 
Total Risk Management Assets
$
 1,376 
 
$
 238,082 
 
$
 12,120 
 
$
 (193,412)
 
$
 58,166 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Commodity Contracts (a) (g)
$
 1,451 
 
$
 223,577 
 
$
 5,968 
 
$
 (207,920)
 
$
 23,076 
Cash Flow Hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity Hedges (a)
 
 - 
 
 
 2,784 
 
 
 - 
 
 
 (1,371)
 
 
 1,413 
DETM Assignment (c)
 
 - 
 
 
 - 
 
 
 - 
 
 
 697 
 
 
 697 
Total Risk Management Liabilities
$
 1,451 
 
$
 226,361 
 
$
 5,968 
 
$
 (208,594)
 
$
 25,186 

 
Assets and Liabilities Measured at Fair Value on a Recurring Basis
 
December 31, 2009
CSPCo
 
 
 
 
 
 
 
 
 
 
 
Level 1
 
Level 2
 
Level 3
 
Other
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other Cash Deposits (d)
$
 16,129 
 
$
 - 
 
$
 - 
 
$
 21 
 
$
 16,150 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Commodity Contracts (a)
 
 1,188 
 
 
 227,150 
 
 
 6,518 
 
 
 (182,038)
 
 
 52,818 
Cash Flow Hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity Hedges (a)
 
 - 
 
 
 1,805 
 
 
 - 
 
 
 (821)
 
 
 984 
Dedesignated Risk Management Contracts (b)
 
 - 
 
 
 - 
 
 
 - 
 
 
 4,423 
 
 
 4,423 
Total Risk Management Assets
 
 1,188 
 
 
 228,955 
 
 
 6,518 
 
 
 (178,436)
 
 
 58,225 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Assets
$
 17,317 
 
$
 228,955 
 
$
 6,518 
 
$
 (178,415)
 
$
 74,375 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Commodity Contracts (a)
$
 1,342 
 
$
 213,330 
 
$
 1,742 
 
$
 (196,226)
 
$
 20,188 
Cash Flow Hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity Hedges (a)
 
 - 
 
 
 2,615 
 
 
 - 
 
 
 (821)
 
 
 1,794 
DETM Assignment (c)
 
 - 
 
 
 - 
 
 
 - 
 
 
 1,383 
 
 
 1,383 
Total Risk Management Liabilities
$
 1,342 
 
$
 215,945 
 
$
 1,742 
 
$
 (195,664)
 
$
 23,365 

 
210

 

Assets and Liabilities Measured at Fair Value on a Recurring Basis
June 30, 2010
I&M
 
 
 
 
 
 
 
 
 
 
 
 
Level 1
 
Level 2
 
Level 3
 
Other
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Commodity Contracts (a) (g)
$
 1,388 
 
$
 247,678 
 
$
 12,225 
 
$
 (195,907)
 
$
 65,384 
Cash Flow Hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity Hedges (a)
 
 - 
 
 
 1,576 
 
 
 - 
 
 
 (1,387)
 
 
 189 
Dedesignated Risk Management Contracts (b)
 
 - 
 
 
 - 
 
 
 - 
 
 
 3,407 
 
 
 3,407 
Total Risk Management Assets
 
 1,388 
 
 
 249,254 
 
 
 12,225 
 
 
 (193,887)
 
 
 68,980 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Spent Nuclear Fuel and Decommissioning Trusts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and Cash Equivalents (e)
 
 - 
 
 
 14,009 
 
 
 - 
 
 
 12,503 
 
 
 26,512 
Fixed Income Securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
United States Government
 
 - 
 
 
 472,709 
 
 
 - 
 
 
 - 
 
 
 472,709 
 
Corporate Debt
 
 - 
 
 
 60,607 
 
 
 - 
 
 
 - 
 
 
 60,607 
 
State and Local Government
 
 - 
 
 
 316,046 
 
 
 - 
 
 
 - 
 
 
 316,046 
 
 
Subtotal Fixed Income Securities
 
 - 
 
 
 849,362 
 
 
 - 
 
 
 - 
 
 
 849,362 
Equity Securities - Domestic (f)
 
 515,554 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 515,554 
Total Spent Nuclear Fuel and Decommissioning Trusts
 
 515,554 
 
 
 863,371 
 
 
 - 
 
 
 12,503 
 
 
 1,391,428 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Assets
$
 516,942 
 
$
 1,112,625 
 
$
 12,225 
 
$
 (181,384)
 
$
 1,460,408 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Commodity Contracts (a) (g)
$
 1,464 
 
$
 224,254 
 
$
 6,016 
 
$
 (208,509)
 
$
 23,225 
Cash Flow Hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity Hedges (a)
 
 - 
 
 
 2,816 
 
 
 - 
 
 
 (1,387)
 
 
 1,429 
DETM Assignment (c)
 
 - 
 
 
 - 
 
 
 - 
 
 
 703 
 
 
 703 
Total Risk Management Liabilities
$
 1,464 
 
$
 227,070 
 
$
 6,016 
 
$
 (209,193)
 
$
 25,357 
 
 
 
211

 
 
 
 
Assets and Liabilities Measured at Fair Value on a Recurring Basis
 
 
December 31, 2009
I&M
 
 
 
 
 
 
 
 
 
 
 
 
Level 1
 
Level 2
 
Level 3
 
Other
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Commodity Contracts (a)
$
 1,198 
 
$
 231,777 
 
$
 6,571 
 
$
 (181,446)
 
$
 58,100 
Cash Flow Hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity Hedges (a)
 
 - 
 
 
 1,839 
 
 
 - 
 
 
 (828)
 
 
 1,011 
Dedesignated Risk Management Contracts (b)
 
 - 
 
 
 - 
 
 
 - 
 
 
 4,461 
 
 
 4,461 
Total Risk Management Assets
 
 1,198 
 
 
 233,616 
 
 
 6,571 
 
 
 (177,813)
 
 
 63,572 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Spent Nuclear Fuel and Decommissioning Trusts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and Cash Equivalents (e)
 
 - 
 
 
 3,562 
 
 
 - 
 
 
 10,850 
 
 
 14,412 
Fixed Income Securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
United States Government
 
 - 
 
 
 400,565 
 
 
 - 
 
 
 - 
 
 
 400,565 
 
Corporate Debt
 
 - 
 
 
 57,291 
 
 
 - 
 
 
 - 
 
 
 57,291 
 
State and Local Government
 
 - 
 
 
 368,930 
 
 
 - 
 
 
 - 
 
 
 368,930 
 
 
Subtotal Fixed Income Securities
 
 - 
 
 
 826,786 
 
 
 - 
 
 
 - 
 
 
 826,786 
Equity Securities - Domestic (f)
 
 550,721 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 550,721 
Total Spent Nuclear Fuel and Decommissioning Trusts
 
 550,721 
 
 
 830,348 
 
 
 - 
 
 
 10,850 
 
 
 1,391,919 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Assets
$
 551,919 
 
$
 1,063,964 
 
$
 6,571 
 
$
 (166,963)
 
$
 1,455,491 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Commodity Contracts (a)
$
 1,353 
 
$
 213,242 
 
$
 1,755 
 
$
 (195,732)
 
$
 20,618 
Cash Flow Hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity Hedges (a)
 
 - 
 
 
 2,637 
 
 
 - 
 
 
 (828)
 
 
 1,809 
DETM Assignment (c)
 
 - 
 
 
 - 
 
 
 - 
 
 
 1,395 
 
 
 1,395 
Total Risk Management Liabilities
$
 1,353 
 
$
 215,879 
 
$
 1,755 
 
$
 (195,165)
 
$
 23,822 

 
212

 

 
Assets and Liabilities Measured at Fair Value on a Recurring Basis
 
June 30, 2010
OPCo
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Level 1
 
Level 2
 
Level 3
 
Other
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Commodity Contracts (a) (g)
$
 1,583 
 
$
 332,024 
 
$
 14,006 
 
$
 (280,140)
 
$
 67,473 
Cash Flow Hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity Hedges (a)
 
 - 
 
 
 1,814 
 
 
 - 
 
 
 (1,598)
 
 
 216 
Dedesignated Risk Management Contracts (b)
 
 - 
 
 
 - 
 
 
 - 
 
 
 3,888 
 
 
 3,888 
Total Risk Management Assets
$
 1,583 
 
$
 333,838 
 
$
 14,006 
 
$
 (277,850)
 
$
 71,577 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Commodity Contracts (a) (g)
$
 1,670 
 
$
 317,217 
 
$
 6,937 
 
$
 (294,903)
 
$
 30,921 
Cash Flow Hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity Hedges (a)
 
 - 
 
 
 3,247 
 
 
 - 
 
 
 (1,598)
 
 
 1,649 
DETM Assignment (c)
 
 - 
 
 
 - 
 
 
 - 
 
 
 803 
 
 
 803 
Total Risk Management Liabilities
$
 1,670 
 
$
 320,464 
 
$
 6,937 
 
$
 (295,698)
 
$
 33,373 

 
Assets and Liabilities Measured at Fair Value on a Recurring Basis
 
December 31, 2009
OPCo
 
 
 
 
 
 
 
 
 
 
 
Level 1
 
Level 2
 
Level 3
 
Other
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other Cash Deposits (d)
$
 1,075 
 
$
 - 
 
$
 - 
 
$
 24 
 
$
 1,099 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Commodity Contracts (a)
 
 1,383 
 
 
 332,904 
 
 
 7,644 
 
 
 (270,272)
 
 
 71,659 
Cash Flow Hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity Hedges (a)
 
 - 
 
 
 2,199 
 
 
 - 
 
 
 (957)
 
 
 1,242 
Dedesignated Risk Management Contracts (b)
 
 - 
 
 
 - 
 
 
 - 
 
 
 5,150 
 
 
 5,150 
Total Risk Management Assets
 
 1,383 
 
 
 335,103 
 
 
 7,644 
 
 
 (266,079)
 
 
 78,051 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Assets
$
 2,458 
 
$
 335,103 
 
$
 7,644 
 
$
 (266,055)
 
$
 79,150 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Commodity Contracts (a)
$
 1,562 
 
$
 317,114 
 
$
 2,075 
 
$
 (287,549)
 
$
 33,202 
Cash Flow Hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity Hedges (a)
 
 - 
 
 
 3,045 
 
 
 - 
 
 
 (957)
 
 
 2,088 
DETM Assignment (c)
 
 - 
 
 
 - 
 
 
 - 
 
 
 1,611 
 
 
 1,611 
Total Risk Management Liabilities
$
 1,562 
 
$
 320,159 
 
$
 2,075 
 
$
 (286,895)
 
$
 36,901 

 
213

 

 
Assets and Liabilities Measured at Fair Value on a Recurring Basis
 
June 30, 2010
PSO
 
 
 
 
 
 
 
 
 
 
 
Level 1
 
Level 2
 
Level 3
 
Other
 
Total
Assets:
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Commodity Contracts (a) (g)
$
 7 
 
$
 11,959 
 
$
 26 
 
$
 (9,359)
 
$
 2,633 
Cash Flow Hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity Hedges (a)
 
 - 
 
 
 59 
 
 
 - 
 
 
 (51)
 
 
 8 
Total Risk Management Assets
$
 7 
 
$
 12,018 
 
$
 26 
 
$
 (9,410)
 
$
 2,641 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Commodity Contracts (a) (g)
$
 11 
 
$
 9,771 
 
$
 28 
 
$
 (9,478)
 
$
 332 
Cash Flow Hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity Hedges (a)
 
 - 
 
 
 191 
 
 
 - 
 
 
 (51)
 
 
 140 
DETM Assignment (c)
 
 - 
 
 
 - 
 
 
 - 
 
 
 27 
 
 
 27 
Total Risk Management Liabilities
$
 11 
 
$
 9,962 
 
$
 28 
 
$
 (9,502)
 
$
 499 

 
Assets and Liabilities Measured at Fair Value on a Recurring Basis
 
December 31, 2009
PSO
 
 
 
 
 
 
 
 
 
 
 
Level 1
 
Level 2
 
Level 3
 
Other
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Commodity Contracts (a)
$
 - 
 
$
 17,494 
 
$
 14 
 
$
 (15,260)
 
$
 2,248 
Cash Flow Hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity Hedges (a)
 
 - 
 
 
 179 
 
 
 - 
 
 
 (1)
 
 
 178 
Total Risk Management Assets
$
 - 
 
$
 17,673 
 
$
 14 
 
$
 (15,261)
 
$
 2,426 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Commodity Contracts (a)
$
 - 
 
$
 17,865 
 
$
 12 
 
$
 (15,454)
 
$
 2,423 
Cash Flow Hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity Hedges (a)
 
 - 
 
 
 301 
 
 
 - 
 
 
 (1)
 
 
 300 
Total Risk Management Liabilities
$
 - 
 
$
 18,166 
 
$
 12 
 
$
 (15,455)
 
$
 2,723 

 
214

 

Assets and Liabilities Measured at Fair Value on a Recurring Basis
June 30, 2010
SWEPCo
 
 
 
 
 
 
 
 
 
 
 
Level 1
 
Level 2
 
Level 3
 
Other
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Commodity Contracts (a) (g)
$
 8 
 
$
 18,303 
 
$
 36 
 
$
 (16,101)
 
$
 2,246 
Cash Flow Hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity Hedges (a)
 
 - 
 
 
 47 
 
 
 - 
 
 
 (47)
 
 
 - 
 
Interest Rate/Foreign Currency Hedges (a)
 
 - 
 
 
 2 
 
 
 - 
 
 
 (2)
 
 
 - 
Total Risk Management Assets
$
 8 
 
$
 18,352 
 
$
 36 
 
$
 (16,150)
 
$
 2,246 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Commodity Contracts (a) (g)
$
 12 
 
$
 17,197 
 
$
 38 
 
$
 (16,259)
 
$
 988 
Cash Flow Hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity Hedges (a)
 
 - 
 
 
 103 
 
 
 - 
 
 
 (47)
 
 
 56 
 
Interest Rate/Foreign Currency Hedges (a)
 
 - 
 
 
 233 
 
 
 - 
 
 
 (2)
 
 
 231 
DETM Assignment (c)
 
 - 
 
 
 - 
 
 
 - 
 
 
 32 
 
 
 32 
Total Risk Management Liabilities
$
 12 
 
$
 17,533 
 
$
 38 
 
$
 (16,276)
 
$
 1,307 

 
Assets and Liabilities Measured at Fair Value on a Recurring Basis
 
December 31, 2009
SWEPCo
 
 
 
 
 
 
 
 
 
 
 
Level 1
 
Level 2
 
Level 3
 
Other
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Commodity Contracts (a)
$
 - 
 
$
 26,945 
 
$
 22 
 
$
 (24,007)
 
$
 2,960 
Cash Flow Hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity Hedges (a)
 
 - 
 
 
 216 
 
 
 - 
 
 
 (43)
 
 
 173 
Total Risk Management Assets
$
 - 
 
$
 27,161 
 
$
 22 
 
$
 (24,050)
 
$
 3,133 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Management Commodity Contracts (a)
$
 - 
 
$
 25,312 
 
$
 19 
 
$
 (24,312)
 
$
 1,019 
Cash Flow Hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity Hedges (a)
 
 - 
 
 
 89 
 
 
 - 
 
 
 (43)
 
 
 46 
Total Risk Management Liabilities
$
 - 
 
$
 25,401 
 
$
 19 
 
$
 (24,355)
 
$
 1,065 

(a)
Amounts in “Other” column primarily represent counterparty netting of risk management and hedging contracts and associated cash collateral under the accounting guidance for “Derivatives and Hedging.”
(b)
Represents contracts that were originally MTM but were subsequently elected as normal under the accounting guidance for “Derivatives and Hedging.”  At the time of the normal election, the MTM value was frozen and no longer fair valued.  This MTM value will be amortized into revenues over the remaining life of the contracts.
(c)
See “Natural Gas Contracts with DETM” section of Note 15 in the 2009 Annual Report.
(d)
Amounts in “Other” column primarily represent cash deposits with third parties.  Level 1 amounts primarily represent investments in money market funds.
(e)
Amounts in “Other” column primarily represent accrued interest receivables from financial institutions.  Level 2 amounts primarily represent investments in money market funds.
(f)
Amounts represent publicly traded equity securities and equity-based mutual funds.
(g)
Substantially comprised of power contracts for APCo, CSPCo, I&M and OPCo and coal contracts for PSO and SWEPCo.

There have been no transfers between Level 1 and Level 2 during the six months ended June 30, 2010.

 
215

 
The following tables set forth a reconciliation of changes in the fair value of net trading derivatives classified as Level 3 in the fair value hierarchy:

Three Months Ended June 30, 2010
 
APCo
 
CSPCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
(in thousands)
Balance as of March 31, 2010
 
$
 18,687 
 
$
 10,570 
 
$
 10,662 
 
$
 12,180 
 
$
 2 
 
$
 4 
Realized Gain (Loss) Included in Net Income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(or Changes in Net Assets) (a) (b)
 
 
 (8,409)
 
 
 (4,753)
 
 
 (4,794)
 
 
 (5,471)
 
 
 (1)
 
 
 (1)
Unrealized Gain (Loss) Included in Net
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income (or Changes in Net Assets) Relating
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
to Assets Still Held at the Reporting Date (a)
 
 
 - 
 
 
 (556)
 
 
 - 
 
 
 (667)
 
 
 - 
 
 
 - 
Realized and Unrealized Gains (Losses)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Included in Other Comprehensive Income
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
Purchases, Issuances and Settlements (c)
 
 
 4,845 
 
 
 2,741 
 
 
 2,764 
 
 
 3,154 
 
 
 (4)
 
 
 (5)
Transfers into Level 3 (d) (h)
 
 
 1,332 
 
 
 753 
 
 
 760 
 
 
 867 
 
 
 - 
 
 
 - 
Transfers out of Level 3 (e) (h)
 
 
 (2,006)
 
 
 (1,135)
 
 
 (1,145)
 
 
 (1,306)
 
 
 - 
 
 
 - 
Changes in Fair Value Allocated to Regulated
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Jurisdictions (g)
 
 
 (3,575)
 
 
 (1,467)
 
 
 (2,038)
 
 
 (1,688)
 
 
 1 
 
 
 - 
Balance as of June 30, 2010
 
$
 10,874 
 
$
 6,153 
 
$
 6,209 
 
$
 7,069 
 
$
 (2)
 
$
 (2)

Six Months Ended June 30, 2010
 
APCo
 
CSPCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
(in thousands)
Balance as of December 31, 2009
 
$
 9,428 
 
$
 4,776 
 
$
 4,816 
 
$
 5,569 
 
$
 2 
 
$
 3 
Realized Gain (Loss) Included in Net Income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(or Changes in Net Assets) (a) (b)
 
 
 1,232 
 
 
 693 
 
 
 698 
 
 
 797 
 
 
 7 
 
 
 9 
Unrealized Gain (Loss) Included in Net
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income (or Changes in Net Assets) Relating
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
to Assets Still Held at the Reporting Date (a)
 
 
 - 
 
 
 5,157 
 
 
 - 
 
 
 5,849 
 
 
 - 
 
 
 - 
Realized and Unrealized Gains (Losses)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Included in Other Comprehensive Income
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
Purchases, Issuances and Settlements (c)
 
 
 (4,173)
 
 
 (2,321)
 
 
 (2,341)
 
 
 (2,675)
 
 
 (6)
 
 
 (7)
Transfers into Level 3 (d) (h)
 
 
 603 
 
 
 315 
 
 
 318 
 
 
 366 
 
 
 - 
 
 
 - 
Transfers out of Level 3 (e) (h)
 
 
 (1,738)
 
 
 (999)
 
 
 (1,008)
 
 
 (1,148)
 
 
 - 
 
 
 - 
Changes in Fair Value Allocated to Regulated
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Jurisdictions (g)
 
 
 5,522 
 
 
 (1,468)
 
 
 3,726 
 
 
 (1,689)
 
 
 (5)
 
 
 (7)
Balance as of June 30, 2010
 
$
 10,874 
 
$
 6,153 
 
$
 6,209 
 
$
 7,069 
 
$
 (2)
 
$
 (2)

 
216

 

Three Months Ended June 30, 2009
 
APCo
 
CSPCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
(in thousands)
Balance as of March 31, 2009
 
$
 11,847 
 
$
 6,294 
 
$
 6,092 
 
$
 7,802 
 
$
 1 
 
$
 2 
Realized (Gain) Loss Included in Net Income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(or Changes in Net Assets) (a)
 
 
 (4,739)
 
 
 (2,514)
 
 
 (2,432)
 
 
 (3,103)
 
 
 3 
 
 
 5 
Unrealized Gain (Loss) Included in Net
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income (or Changes in Net Assets) Relating
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
to Assets Still Held at the Reporting Date (a)
 
 
 - 
 
 
 3,878 
 
 
 - 
 
 
 5,065 
 
 
 - 
 
 
 - 
Realized and Unrealized Gains (Losses)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Included in Other Comprehensive Income
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
Purchases, Issuances and Settlements
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
Transfers in and/or out of Level 3 (f)
 
 
 (2,419)
 
 
 (1,283)
 
 
 (1,241)
 
 
 (1,589)
 
 
 - 
 
 
 - 
Changes in Fair Value Allocated to Regulated
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Jurisdictions (g)
 
 
 9,211 
 
 
 997 
 
 
 4,716 
 
 
 1,235 
 
 
 8 
 
 
 8 
Balance as of June 30, 2009
 
$
 13,900 
 
$
 7,372 
 
$
 7,135 
 
$
 9,410 
 
$
 12 
 
$
 15 

Six Months Ended June 30, 2009
 
APCo
 
CSPCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
(in thousands)
Balance as of December 31, 2008
 
$
 8,009 
 
$
 4,497 
 
$
 4,352 
 
$
 5,563 
 
$
 (2)
 
$
 (3)
Realized (Gain) Loss Included in Net Income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(or Changes in Net Assets) (a)
 
 
 (6,200)
 
 
 (3,482)
 
 
 (3,369)
 
 
 (4,301)
 
 
 3 
 
 
 5 
Unrealized Gain (Loss) Included in Net
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income (or Changes in Net Assets) Relating
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
to Assets Still Held at the Reporting Date (a)
 
 
 - 
 
 
 5,466 
 
 
 - 
 
 
 6,907 
 
 
 - 
 
 
 - 
Realized and Unrealized Gains (Losses)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Included in Other Comprehensive Income
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
Purchases, Issuances and Settlements
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 - 
Transfers in and/or out of Level 3 (f)
 
 
 (176)
 
 
 (106)
 
 
 (97)
 
 
 6 
 
 
 36 
 
 
 58 
Changes in Fair Value Allocated to Regulated
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Jurisdictions (g)
 
 
 12,267 
 
 
 997 
 
 
 6,249 
 
 
 1,235 
 
 
 (25)
 
 
 (45)
Balance as of June 30, 2009
 
$
 13,900 
 
$
 7,372 
 
$
 7,135 
 
$
 9,410 
 
$
 12 
 
$
 15 

(a)
Included in revenues on the Condensed Statements of Income.
(b)
Represents the change in fair value between the beginning of the reporting period and the settlement of the risk management commodity contract.
(c)
Represents the settlement of risk management commodity contracts for the reporting period.
(d)
Represents existing assets or liabilities that were previously categorized as Level 2.
(e)
Represents existing assets or liabilities that were previously categorized as Level 3.
(f)
Represents existing assets or liabilities that were either previously categorized as a higher level for which the inputs to the model became unobservable or assets and liabilities that were previously classified as Level 3 for which the lowest significant input became observable during the period.
(g)
Relates to the net gains (losses) of those contracts that are not reflected on the Condensed Statements of Income.  These net gains (losses) are recorded as regulatory assets/liabilities.
(h)
Transfers are recognized based on their value at the beginning of the reporting period that the transfer occurred.

10.
INCOME TAXES

The Registrant Subsidiaries join in the filing of a consolidated federal income tax return with their affiliates in the AEP System.  The allocation of the AEP System’s current consolidated federal income tax to the AEP System companies allocates the benefit of current tax losses to the AEP System companies giving rise to such losses in determining their current tax expense.  The tax benefit of the Parent is allocated to its subsidiaries with taxable income.  With the exception of the loss of the Parent, the method of allocation reflects a separate return result for each company in the consolidated group.

The Registrant Subsidiaries are no longer subject to U.S. federal examination for years before 2001.  The Registrant Subsidiaries have completed the exam for the years 2001 through 2006 and have issues that are being pursued at the appeals level.  The years 2007 and 2008 are currently under examination.  Although the outcome of tax audits is uncertain, in management’s opinion, adequate provisions for income taxes have been made for potential liabilities resulting from such matters.  In addition, the Registrant Subsidiaries accrue interest on these uncertain tax positions.  
 
 
217

 
Management is not aware of any issues for open tax years that upon final resolution are expected to have a material adverse effect on net income.

The Registrant Subsidiaries file income tax returns in various state and local jurisdictions.  These taxing authorities routinely examine their tax returns and the Registrant Subsidiaries are currently under examination in several state and local jurisdictions.  Management believes that previously filed tax returns have positions that may be challenged by these tax authorities.  However, management believes that the ultimate resolution of these audits will not materially impact net income.  With few exceptions, the Registrant Subsidiaries are no longer subject to state or local income tax examinations by tax authorities for years before 2000.

Federal Legislation – Affecting APCo, CSPCo, I&M, OPCo, PSO and SWEPCo

The Patient Protection and Affordable Care Act and the related Health Care and Education Reconciliation Act (Health Care Acts) were enacted in March 2010.  The Health Care Acts amend tax rules so that the portion of employer health care costs that are reimbursed by the Medicare Part D prescription drug subsidy will no longer be deductible by the employer for federal income tax purposes effective for years beginning after December 31, 2012.  Because of the loss of the future tax deduction, a reduction in the deferred tax asset related to the nondeductible OPEB liabilities accrued to date was recorded by the Registrant Subsidiaries in March 2010.  This reduction did not materially affect the Registrant Subsidiaries' cash flows or financial condition.  For the six months ended June 30, 2010, the Reg istrant Subsidiaries reflected a decrease in deferred tax assets, which was partially offset by recording net tax regulatory assets in jurisdictions with regulated operations, resulting in a decrease in net income as follows:

 
 
Net Reduction
 
Tax
 
 
 
 
 
to Deferred
 
Regulatory
 
Decrease in
 
Company
 
Tax Assets
 
Assets, Net
 
Net Income
 
 
 
(in thousands)
 
APCo
    $ 9,397     $ 8,831     $ 566  
CSPCo
      4,386       2,970       1,416  
I&M
      7,212       6,528       684  
OPCo
      8,385       4,020       4,365  
PSO
      3,172       3,172       -  
SWEPCo
      3,412       3,412       -  

11.   FINANCING ACTIVITIES

Long-term Debt

Long-term debt and other securities issued, retired and principal payments made during the first six months of 2010 were:

 
 
 
Principal
 
Interest
Due
Company
Type of Debt
 
Amount
 
Rate
Date
 
 
 
(in thousands)
 
(%)
 
Issuances:
 
 
 
 
 
 
 
APCo
Senior Unsecured Notes
 
$
 300,000 
 
3.40 
2015 
APCo
Pollution Control Bonds
 
 
 17,500 
 
4.625 
2021 
APCo
Pollution Control Bonds
 
 
 50,000 
 
5.375 
2038 
CSPCo
Floating Rate Notes
 
 
 150,000 
 
Variable
2012 
I&M
Notes Payable
 
 
 84,500 
 
4.00 
2014 
OPCo
Pollution Control Bonds
 
 
 79,450 
 
3.25 
2014 
OPCo
Pollution Control Bonds
 
 
 86,000 
 
3.125 
2015 
SWEPCo
Senior Unsecured Notes
 
 
 350,000 
 
6.20 
2040 
SWEPCo
Pollution Control Bonds
 
 
 53,500 
 
3.25 
2015 
 
 
 
218

 
 
 
 
 
Principal
 
Interest
Due
Company
Type of Debt
 
Amount Paid
 
Rate
Date
 
 
 
(in thousands)
 
(%)
 
Retirements and
 
 
 
 
 
 
 
Principal Payments:
 
 
 
 
 
 
 
APCo
Land Note
 
$
 9 
 
13.718 
2026 
APCo
Notes Payable - Affiliated
 
 
 100,000 
 
4.708 
2010 
APCo
Senior Unsecured Notes
 
 
 150,000 
 
4.40 
2010 
APCo
Pollution Control Bonds
 
 
 50,000 
 
7.125 
2010 
CSPCo
Notes Payable - Affiliated
 
 
 100,000 
 
4.64 
2010 
I&M
Notes Payable - Affiliated
 
 
 25,000 
 
5.375 
2010 
I&M
Notes Payable
 
 
 19,200 
 
5.44 
2013 
OPCo
Senior Unsecured Notes
 
 
 400,000 
 
Variable
2010 
OPCo
Pollution Control Bonds
 
 
 79,450 
 
7.125 
2010 
SWEPCo
Notes Payable - Affiliated
 
 
 50,000 
 
4.45 
2010 
SWEPCo
Pollution Control Bonds
 
 
 53,500 
 
Variable
2019 

On behalf of OPCo, trustees held $303 million of reacquired auction-rate tax-exempt long-term debt as of June 30, 2010.

Dividend Restrictions

The Registrant Subsidiaries pay dividends to the Parent provided funds are legally available.  Various financing arrangements, charter provisions and regulatory requirements may impose certain restrictions on the ability of the Registrant Subsidiaries to transfer funds to the Parent in the form of dividends.

Federal Power Act

The Federal Power Act prohibits each of the Registrant Subsidiaries from participating “in the making or paying of any dividends of such public utility from any funds properly included in capital account.”  The term “capital account” is not defined in the Federal Power Act or its regulations.  As applicable, the Registrant Subsidiaries understand “capital account” to mean the par value of the common stock multiplied by the number of shares outstanding.

Additionally, the Federal Power Act creates a reserve on earnings attributable to hydroelectric generating plants.  Because of their respective ownership of such plants, this reserve applies to APCo, I&M and OPCo.

None of these restrictions limit the ability of the Registrant Subsidiaries to pay dividends out of retained earnings.

Charter and Leverage Restrictions

Provisions within the articles or certificates of incorporation of the Registrant Subsidiaries relating to preferred stock or shares restrict the payment of cash dividends on common and preferred stock or shares.  Pursuant to the credit agreement leverage restrictions, the Registrant Subsidiaries must maintain a percentage of debt to total capitalization at a level that does not exceed 67.5%.  The payment of cash dividends generally results in an increase in the percentage of debt to total capitalization of the company distributing the dividend.  The method for calculating outstanding debt and other capital is contractually defined in the credit agreements.  As of June 30, 2010, approximately $204 million of the retained earnings of APCo, $149 million of the retained earnings of CSPCo, $33 millio n of the retained earnings of I&M, $50 million of the retained earnings of OPCo, $101 million of the retained earnings of SWEPCo and none of the retained earnings of PSO have restrictions related to the payment of dividends to Parent.

 
219

 
Utility Money Pool – AEP System

The AEP System uses a corporate borrowing program to meet the short-term borrowing needs of its subsidiaries.  The corporate borrowing program includes a Utility Money Pool, which funds the utility subsidiaries.  The AEP System Utility Money Pool operates in accordance with the terms and conditions approved in a regulatory order.  The amount of outstanding loans (borrowings) to/from the Utility Money Pool as of June 30, 2010 and December 31, 2009 is included in Advances to/from Affiliates on each of the Registrant Subsidiaries’ balance sheets.  The Utility Money Pool participants’ money pool activity and their corresponding authorized borrowing limits for the six months ended June 30, 2010 are described in the following table:

 
 
 
 
 
 
 
 
 
 
Loans to
 
 
 
 
Maximum
 
Maximum
 
Average
 
Average
 
(Borrowings)
 
Authorized
 
 
Borrowings
 
Loans
 
Borrowings
 
Loans
 
to/from Utility
 
Short-term
 
 
from Utility
 
to Utility
 
from Utility
 
to Utility
 
Money Pool as of
 
Borrowing
 
Company
Money Pool
 
Money Pool
 
Money Pool
 
Money Pool
 
June 30, 2010
 
Limit
 
 
(in thousands)
 
APCo
  $ 438,039     $ -     $ 290,958     $ -     $ (246,873 )   $ 600,000  
CSPCo
    134,592       70,826       32,368       29,474       57,069       350,000  
I&M
    -       165,687       -       96,954       126,515       500,000  
OPCo
    -       618,559       -       320,872       172,751       600,000  
PSO
    107,320       74,751       56,695       51,041       (66,229 )     300,000  
SWEPCo
    78,616       274,958       39,458       208,666       245,253       350,000  

The maximum and minimum interest rates for funds either borrowed from or loaned to the Utility Money Pool were as follows:
 
   
Six Months Ended June 30,
   
2010
 
2009
Maximum Interest Rate
    0.51 %     2.28 %
Minimum Interest Rate
    0.09 %     0.65 %

The average interest rates for funds borrowed from and loaned to the Utility Money Pool for the six months ended June 30, 2010 and 2009 are summarized for all Registrant Subsidiaries in the following table:

 
 
Average Interest Rate for Funds
 
Average Interest Rate for Funds
 
 
Borrowed from
 
Loaned to
 
 
the Utility Money Pool for the
 
the Utility Money Pool for the
 
 
Six Months Ended June 30,
 
Six Months Ended June 30,
Company
 
2010
 
2009
 
2010
 
2009
 
 
 
   
 
   
 
   
 
 
APCo
    0.23 %     1.45 %     - %     - %
CSPCo
    0.18 %     1.27 %     0.26 %     - %
I&M
    - %     1.47 %     0.21 %     1.71 %
OPCo
    - %     1.35 %     0.18 %     0.72 %
PSO
    0.28 %     2.01 %     0.16 %     1.31 %
SWEPCo
    0.19 %     1.67 %     0.25 %     1.38 %

To meet its short-term borrowing needs, DHLC is also a member of the Utility Money Pool.  Effective January 1, 2010, SWEPCo no longer consolidates DHLC.  DHLC’s money pool activity for the six months ended June 30, 2010 is described in the following table:
 
Maximum
   Maximum    Average    Average    Borrowings
Borrowings
 
Loans
 
Borrowings
 
Loans
 
from Utility
from Utility
 
to Utility
 
from Utility
 
to Utility
 
Money Pool as of
Money Pool     Money Pool     Money Pool     Money Pool     June 30, 2010
(in thousands)
$
    23,145
 
$
            -
 
$
    14,791
 
$
            -
 
$
    19,962
 
 
220

 
DHLC’s maximum, minimum and average interest rates for funds borrowed from and loaned to the Utility Money Pool for the six months ended June 30, 2010 were as follows:

 
 
Maximum
 
Minimum
 
Maximum
 
Minimum
 
Average
 
Average
 
 
Interest Rates
 
Interest Rates
 
Interest Rates
 
Interest Rates
 
Interest Rates
 
Interest Rates
 
 
for Funds
 
for Funds
 
for Funds
 
for Funds
 
for Funds
 
for Funds
Six Months
 
Borrowed from
 
Borrowed from
 
Loaned to
 
Loaned to
 
Borrowed from
 
Loaned to
Ended
 
the Utility
 
the Utility
 
the Utility
 
the Utility
 
the Utility
 
the Utility
June 30,
 
Money Pool
 
Money Pool
 
Money Pool
 
Money Pool
 
Money Pool
 
Money Pool
2010 
 
 0.51 
%
 
 0.09 
%
 
 - 
%
 
 - 
%
 
 0.24 
%
 
 - 
%
 
Short-term Debt
 
The Registrant Subsidiaries’ outstanding short-term debt was as follows:
 
 
 
 
 
June 30, 2010
December 31, 2009
 
 
 
 
Outstanding
Interest
Outstanding
Interest
 
Company
Type of Debt
Amount
Rate (b)
Amount
Rate (b)
 
 
 
 
(in thousands)
 
 
(in thousands)
 
 
 
SWEPCo
Line of Credit – Sabine (a)
$
 8,717 
 2.11 
%
$
 6,890 
 2.06 
%
 
 
 
 
 
 
 
 
 
 
 
 
 
(a)
Sabine Mining Company is a consolidated variable interest entity.
 
(b)
Weighted average rate.

Credit Facilities

AEP has credit facilities totaling $3 billion to support the commercial paper program.  The facilities are structured as two $1.5 billion credit facilities, of which $750 million may be issued under one credit facility as letters of credit.  In June 2010, AEP canceled a facility that was scheduled to mature in March 2011 and entered into a new $1.5 billion credit facility scheduled to mature in 2013 that allows for the issuance of up to $600 million as letters of credit.  As of June 30, 2010, the maximum future payments for letters of credit issued under the two $1.5 billion credit facilities were $300 thousand for I&M and $4 million for SWEPCo.

In June 2010, the Registrant Subsidiaries and certain other companies in the AEP System reduced the $627 million credit agreement to $478 million.  Under the facility, letters of credit may be issued.  As of June 30, 2010, $477 million of letters of credit were issued to support variable rate Pollution Control Bonds as follows:

Company
Amount
 
 
(in thousands)
 
APCo
  $ 232,292  
I&M
    77,886  
OPCo
    166,899  

Sale of Receivables – AEP Credit

Under a sale of receivables arrangement, the Registrant Subsidiaries sell, without recourse, certain of their customer accounts receivable and accrued unbilled revenue balances to AEP Credit and are charged a fee based on AEP Credit’s financing costs, administrative costs and uncollectible accounts experience for each Registrant Subsidiaries’ receivables.  APCo does not have regulatory authority to sell its West Virginia accounts receivable.  The costs of customer accounts receivable sold are reported in Other Operation on the Registrant Subsidiaries’ income statements.  The Registrant Subsidiaries manage and service their customer accounts receivable sold.

In July 2010, AEP Credit renewed its receivables securitization agreement.  The agreement provides a commitment of $750 million from bank conduits to purchase receivables.  A commitment of $375 million expires in July 2011 and the remaining commitment of $375 million expires in July 2013.

 
221

 
The amount of accounts receivable and accrued unbilled revenues under the sale of receivables agreement for each Registrant Subsidiary as of June 30, 2010 and December 31, 2009 was as follows:

 
 
June 30,
   
December 31,
 
Company
 
2010
   
2009
 
 
 
(in thousands)
 
APCo
  $ 170,388     $ 143,938  
CSPCo
    192,997       169,095  
I&M
    131,292       130,193  
OPCo
    169,898       160,977  
PSO
    138,138       73,518  
SWEPCo
    154,745       117,297  

The fees paid by the Registrant Subsidiaries to AEP Credit for customer accounts receivable sold were:

 
 
   
 
   
 
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
Company
2010
 
2009
 
2010
 
2009
 
 
(in thousands)
 
APCo
  $ 1,895     $ 1,074     $ 3,776     $ 2,525  
CSPCo
    2,782       2,613       5,690       5,525  
I&M
    1,657       1,333       3,444       2,890  
OPCo
    2,449       1,903       5,149       4,011  
PSO
    1,367       1,711       2,750       3,659  
SWEPCo
    1,462       1,366       3,133       2,822  
 
                               

The Registrant Subsidiaries’ proceeds on the sale of receivables to AEP Credit were:

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
Company
 
2010 
 
2009 
 
2010 
 
2009 
 
 
 
 
(in thousands)
 
APCo
 
$
 317,120 
 
$
 276,070 
 
$
 758,830 
 
$
 624,411 
 
CSPCo
 
 
 422,628 
 
 
 404,071 
 
 
 847,313 
 
 
 801,246 
 
I&M
 
 
 297,384 
 
 
 286,176 
 
 
 636,593 
 
 
 588,075 
 
OPCo
 
 
 410,331 
 
 
 376,810 
 
 
 851,840 
 
 
 790,409 
 
PSO
 
 
 311,883 
 
 
 275,221 
 
 
 526,530 
 
 
 546,642 
 
SWEPCo
 
 
 338,286 
 
 
 325,562 
 
 
 657,245 
 
 
 635,319 

 
222

 
12.       COST REDUCTION INITIATIVES

In April 2010, management began initiatives to decrease both labor and non-labor expenses with a goal of achieving significant reductions in operation and maintenance expenses.  A total of 2,461 positions were eliminated as a result of process improvements, streamlined organizational designs and other efficiencies.  Most of the affected employees terminated employment May 31, 2010.  The severance program provides two weeks of base pay for every year of service along with other severance benefits.

Management recorded a charge to expense in the second quarter of 2010 primarily related to the headcount reduction initiatives.

 
 
 
 
Expense
 
Incurred for
 
 
 
 
Remaining
 
 
 
 
Allocation from
 
Registrant
 
 
 
 
Balance at
 
 
 
AEPSC
 
Subsidiaries
 
Settled
 
  June 30, 2010
 
 
 
(in thousands)
 
APCo
 
$
 20,526 
 
$
 36,399 
 
$
 753 
 
$
 56,172 
 
CSPCo
 
 
 11,048 
 
 
 21,244 
 
 
 387 
 
 
 31,905 
 
I&M
 
 
 12,051 
 
 
 32,985 
 
 
 885 
 
 
 44,151 
 
OPCo
 
 
 19,427 
 
 
 33,681 
 
 
 979 
 
 
 52,129 
 
PSO
 
 
 10,681 
 
 
 13,324 
 
 
 231 
 
 
 23,774 
 
SWEPCo
 
 
 12,588 
 
 
 17,074 
 
 
 421 
 
 
 29,241 

These costs relate primarily to severance benefits.  They are included primarily in Other Operation on the income statement and Other Current Liabilities on the balance sheet.

 
223

 
COMBINED MANAGEMENT’S DISCUSSION AND ANALYSIS OF REGISTRANT SUBSIDIARIES

The following is a combined presentation of certain components of the Registrant Subsidiaries’ management’s discussion and analysis.  The information in this section completes the information necessary for management’s discussion and analysis of financial condition and net income and is meant to be read with (i) Management’s Financial Discussion and Analysis, (ii) financial statements, (iii) footnotes and (iv) the schedules of each individual registrant.  The combined Management’s Discussion and Analysis of Registrant Subsidiaries section of the 2009 Annual Report should also be read in conjunction with this report.

EXECUTIVE OVERVIEW

Economic Conditions

The Registrant Subsidiaries’ retail margins increased primarily due to successful rate proceedings in Indiana, Ohio, Oklahoma and Virginia and higher residential and commercial demand for electricity as a result of favorable weather.

In comparison to the recessionary lows of 2009, industrial sales increased 9% in the second quarter and 4% during the first six months of 2010 for the AEP System.  During 2009, the Registrant Subsidiaries’ operations were impacted by difficult economic conditions especially their industrial sales reflecting customers’ curtailments or closures of facilities.  In 2009, CSPCo’s and OPCo’s largest customer, Ormet, a major industrial customer, currently operating at a reduced load of approximately 330 MW, (Ormet operated at an approximate 500 MW load in 2008), announced that it will continue operations at this reduced level.  In February 2009, Century Aluminum, a major industrial customer (325 MW load) of APCo, announced the curtailment of operations at its Ravenswood, WV facility.

Cost Reduction Initiatives

Due to the continued slow recovery in the U.S. economy and a corresponding negative impact on energy consumption, the AEP System implemented cost reduction initiatives in the second quarter of 2010 to reduce its workforce by 11.5% and reduce other operation and maintenance spending.  Achieving these goals involved identifying process improvements, streamlining organizational designs and developing other efficiencies that will deliver additional sustainable savings.  In the second quarter of 2010, $293 million of expense were recorded related to these cost reduction initiatives.
 
FINANCIAL CONDITION

LIQUIDITY

Sources of Funding

Short-term funding for the Registrant Subsidiaries comes from AEP’s commercial paper program and revolving credit facilities through the Utility Money Pool.  AEP and its Registrant Subsidiaries operate a money pool to minimize the AEP System’s external short-term funding requirements and sell accounts receivable to provide liquidity.  Under credit facilities, $1.35 billion may be issued as letters of credit (LOC).  The Registrant Subsidiaries generally use short-term funding sources (the Utility Money Pool or receivables sales) to provide for interim financing of capital expenditures that exceed internally generated funds and periodically reduce their outstanding short-term debt through issuances of long-term debt, sale-leasebacks, leasing arrangements and additional capital contributions from Parent.

 
224

 
The Registrant Subsidiaries and certain other companies in the AEP System entered into a 3-year credit agreement which matures in April 2011.  In June 2010, the credit facility was reduced from $627 million to $478 million.  The Registrant Subsidiaries may issue LOCs under the credit facility.  Each subsidiary has a borrowing/LOC limit under the credit facility.  As of June 30, 2010, a total of $477 million of LOCs were issued under the credit agreement to support variable rate demand notes.  The following table shows each Registrant Subsidiaries’ borrowing/LOC limit under the credit facility and the outstanding amount of LOCs.

         
LOC Amount
         
Outstanding
     
Credit Facility
 
Against the
     
Borrowing/LOC
 
Agreement at
Company
   
Limit
 
June 30, 2010
     
(in millions)
APCo
 
$
300 
 
$
232 
CSPCo
   
230 
   
I&M
   
230 
   
78 
OPCo
   
400 
   
167 
PSO
   
65 
   
SWEPCo
   
230 
   

Dividend Restrictions

Under the Federal Power Act, the Registrant Subsidiaries are restricted from paying dividends out of stated capital.  Various financing arrangements, charter provisions and regulatory requirements may impose certain restrictions on the ability of the Registrant Subsidiaries to transfer funds to Parent in the form of dividends.

Sales of Receivables

In July 2010, AEP Credit renewed its receivables securitization agreement.  The agreement provides a commitment of $750 million from bank conduits to purchase receivables.  A commitment of $375 million expires in July 2011 and the remaining commitment of $375 million expires in July 2013. AEP Credit purchases accounts receivable from the Registrant Subsidiaries.

SIGNIFICANT FACTORS

ENVIRONMENTAL ISSUES

The Registrant Subsidiaries are implementing a substantial capital investment program and incurring additional operational costs to comply with new environmental control requirements.  Management anticipates making additional investments and operational changes.  The most significant sources are the existing and anticipated CAA requirements to reduce emissions of SO2, NOx, PM and hazardous air pollutants from fossil fuel-fired power plants and new proposals governing the beneficial use and disposal of coal combustion products.

The Registrant Subsidiaries are engaged in litigation about environmental issues, have been notified of potential responsibility for the clean-up of contaminated sites and incur costs for disposal of spent nuclear fuel and future decommissioning of I&M’s nuclear units.  Management is also involved in development of possible future requirements to reduce CO2 emissions to address concerns about global climate change.  See a complete discussion of these matters in the “Environmental Matters” section of “Combined Management’s Discussion and Analysis of Registrant Subsidiaries” in the 2009 Annual Report.

Clean Air Act Transport Rule (Transport Rule)

In July 2010, the Federal EPA issued a proposed rule to replace the Clean Air Interstate Rule (CAIR) that would impose new and more stringent requirements to control SO2 and NOx emissions from fossil fuel-fired electric generating units in 31 states and the District of Columbia.  Each state covered by the Transport Rule is assigned an allowance budget for SO2 and/or NOx.  Limited interstate trading is allowed on a sub-regional basis and intrastate trading is allowed among generating units.  PSO’s and SWEPCo 217;s western states (Texas, Arkansas and Oklahoma) would be subject to only the seasonal NOx program, with new limits that are proposed to take effect in 2012.  The
 
 
225

 
remainder of the states in which the AEP System operates would be subject to seasonal and annual NOx programs and an annual SO2 emissions reduction program that takes effect in two phases.  The first phase becomes effective in 2012 and requires approximately 1 million tons per year more SO2 emission reductions across the region than would have been required under CAIR.  The second phase takes effect in 2014 and reduces emissions by an additional 800,000 tons per year.  The SO2 and NOx programs rely on newly-created allowances rather than relying on the CAIR NOx allowances or the Title IV Acid Rain Program allowances used in the CAIR rule.  The time frames for and stringency of the additional emission reductions, coupled with the lack of robust interstate trading and the elimination of historic allowance banks, pose significant concerns for the AEP System and its electric utility customers, as these features could accelerate unit retirements, increase capital requirements, constrain operations and decrease reliability.  Comments on the proposed rule will be due within 60 days after publication in the Federal Register.

Coal Combustion Residual Rule

In June 2010, the Federal EPA published a proposed rule to regulate the disposal and beneficial re-use of coal combustion residuals, including fly ash and bottom ash generated at the coal-fired electric generating units.  The rule contains two alternative proposals, one that would impose federal hazardous waste disposal and management standards on these materials and one that would allow states to retain primary authority to regulate the beneficial re-use and disposal of these materials under state solid waste management standards, including minimum federal standards for disposal and management.  Both proposals would impose stringent requirements for the construction of new coal ash landfills and would require existing unlined surface impoundments to upgrade to the new standards or stop receiving coal ash and initia te closure within five years of the issuance of a final rule.

Currently, approximately 40% of the coal ash and other residual products from the AEP System’s generating facilities are re-used in the production of cement and wallboard, as structural fill or soil amendments, as abrasives or road treatment materials and for other beneficial uses.  Certain of these uses would no longer be available and others are likely to significantly decline if coal ash and related materials are classified as hazardous wastes.  In addition,   surface impoundments and landfills to manage these materials are currently used at the generating facilities. The Registrant Subsidiaries will incur significant costs to upgrade or close and replace their existing facilities.  Management is currently studying the potential costs associated with this proposal, but expects that it will impose significant costs that, if not recovered through regulated rates or market prices for electricity, will have a material adverse impact on net income, cash flows and financial condition.

Global Warming

While comprehensive economy-wide regulation of CO2 emissions might be achieved through new legislation, Congress has yet to enact such legislation.  The Federal EPA continues to take action to regulate CO2 emissions under the existing requirements of the CAA.  The Federal EPA issued a final endangerment finding for CO2 emissions from new motor vehicles in December 2009 and final rules for new motor vehicles in May 2010.  The Federal EPA determined that CO2 emissions from stationary sources will be subject to regulation u nder the CAA beginning in January 2011 at the earliest and finalized its proposed scheme to streamline and phase-in regulation of stationary source CO2 emissions through the NSR prevention of significant deterioration and Title V operating permit programs.  The Federal EPA is reconsidering whether to include CO2 emissions in a number of stationary source standards, including standards that apply to new and modified electric utility units.

The Registrant Subsidiaries’ fossil fuel-fired generating units are very large sources of CO2 emissions.  If substantial CO2 emission reductions are required, there will be significant increases in capital expenditures and operating costs which would impact the ultimate retirement of older, less-efficient, coal-fired units.  To the extent the Registrant Subsidiaries install additional controls on their generating plants to limit CO2 emissions and receive regulatory approvals to increase rates, cost recovery could have a positive effect on future earnings.  Prudently incurred capital investments made by the Registrant Subsidiaries in rate-regulated jurisdictions to comply with legal requirements and benefit customers are generally included in rate base for recovery and earn a return on investment.  Management would expect these principles to apply to investments made to address new environmental requirements.  However, requests for rate increases reflecting these costs can affect the Registrant Subsidiaries adversely because the regulators could limit the amount or timing of increased costs that would be recoverable through higher rates.  In addition, to the extent the Registrant Subsidiaries’ costs are relatively higher than their competitors’ costs, such as operators of nuclear generation, it could reduce off-system sales or cause the Registrant Subsidiaries to lose customers in jurisdictions that permit customers to choose their supplier of generation service.

 
226

 
Several states have adopted programs that directly regulate CO2 emissions from power plants, but none of these programs are currently in effect in states where the Registrant Subsidiaries have generating facilities.  Certain states, including Ohio, Michigan, Texas and Virginia, passed legislation establishing renewable energy, alternative energy and/or energy efficiency requirements.  The Registrant Subsidiaries are taking steps to comply with these requirements.

Certain groups have filed lawsuits alleging that emissions of CO2 are a “public nuisance” and seeking injunctive relief and/or damages from small groups of coal-fired electricity generators, petroleum refiners and marketers, coal companies and others.  The Registrant Subsidiaries have been named in pending lawsuits, which management is vigorously defending.  It is not possible to predict the outcome of these lawsuits or their impact on operations or financial condition.  See “Carbon Dioxide Public Nuisance Claims” and “Alaskan Villages’ Claims” sections of Note 4.

Future federal and state legislation or regulations that mandate limits on the emission of CO2 would result in significant increases in capital expenditures and operating costs, which, in turn, could lead to increased liquidity needs and higher financing costs.  Excessive costs to comply with future legislation or regulations might force the Registrant Subsidiaries to close some coal-fired facilities and could lead to possible impairment of assets.  As a result, mandatory limits could have a material adverse impact on net income, cash flows and financial condition.

For detailed information on global warming and the actions the AEP System is taking address potential impacts, see Part I of the 2009 Form 10-K under the headings entitled “Business – General – Environmental and Other Matters – Global Warming and “Combined Management Discussion and Analysis of Registrant Subsidiaries.”

NEW ACCOUNTING PRONOUNCEMENTS

New Accounting Pronouncement Adopted During  2010

The Registrant Subsidiaries prospectively adopted ASU 2009-17 “Consolidation” effective January 1, 2010.  SWEPCo no longer consolidates DHLC effective with the adoption of this standard.

See Note 2 for further discussion of accounting pronouncements.

Future Accounting Changes

The FASB’s standard-setting process is ongoing and until new standards have been finalized and issued, management cannot determine the impact on the reporting of the Registrant Subsidiaries’ operations and financial position that may result from any such future changes.  The FASB is currently working on several projects including revenue recognition, contingencies, financial instruments, emission allowances, fair value measurements, leases, insurance, hedge accounting, consolidation policy and discontinued operations.  Management also expects to see more FASB projects as a result of its desire to converge International Accounting Standards with GAAP.  The ultimate pronouncements resulting from these and future projects could have an impact on future net income and financial position.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT RISK MANAGEMENT ACTIVITIES

Market Risks

The Registrant Subsidiaries’ risk management assets and liabilities are managed by AEPSC as agent.  The related risk management policies and procedures are instituted and administered by AEPSC.  See complete discussion within AEP’s “Quantitative and Qualitative Disclosures About Risk Management Activities” section.  Also, see Note 8 – Derivatives and Hedging and Note 9 – Fair Value Measurements for additional information related to the Registrant Subsidiaries’ risk management contracts.

 
227

 
The following tables summarize the reasons for changes in total mark-to-market (MTM) value as compared to December 31, 2009:
 
 
MTM Risk Management Contract Net Assets (Liabilities)
 
Six Months Ended June 30, 2010
 
(in thousands)
 
 
 
 
 
 
APCo
 
Total MTM Risk Management Contract Net Assets at December 31, 2009
$
 45,197 
(Gain) Loss from Contracts Realized/Settled During the Period and Entered in a Prior Period
 
 (13,316)
Fair Value of New Contracts at Inception When Entered During the Period (a)
 
 - 
Net Option Premiums Paid/(Received) for Unexercised or Unexpired Option Contracts Entered
 
 
 
During the Period
 
 (214)
Changes in Fair Value Due to Market Fluctuations During the Period (c)
 
 (23)
Changes in Fair Value Allocated to Regulated Jurisdictions (d)
 
 7,981 
Total MTM Risk Management Contract Net Assets
 
 39,625 
Cash Flow Hedge Contracts
 
 (2,185)
DETM Assignment (e)
 
 (1,233)
Collateral Deposits
 
 22,117 
Total MTM Derivative Contract Net Assets at June 30, 2010
$
 58,324 
 
 
 
 
OPCo
 
Total MTM Risk Management Contract Net Assets at December 31, 2009
$
 26,330 
(Gain) Loss from Contracts Realized/Settled During the Period and Entered in a Prior Period
 
 (8,420)
Fair Value of New Contracts at Inception When Entered During the Period (a)
 
 4,722 
Changes in Fair Value Due to Valuation Methodology Changes on Forward Contracts (b)
 
 (715)
Net Option Premiums Paid/(Received) for Unexercised or Unexpired Option Contracts Entered
 
 
 
During the Period
 
 (418)
Changes in Fair Value Due to Market Fluctuations During the Period (c)
 
 5,843 
Changes in Fair Value Allocated to Regulated Jurisdictions (d)
 
 (1,665)
Total MTM Risk Management Contract Net Assets
 
 25,677 
Cash Flow Hedge Contracts
 
 (1,433)
DETM Assignment (e)
 
 (803)
Collateral Deposits
 
 14,763 
Total MTM Derivative Contract Net Assets at June 30, 2010
$
 38,204 
 
 
 
 
 
 
 
 

 
228

 

PSO
 
Total MTM Risk Management Contract Net Assets (Liabilities) at December 31, 2009
$
 (369)
(Gain) Loss from Contracts Realized/Settled During the Period and Entered in a Prior Period
 
 100 
Fair Value of New Contracts at Inception When Entered During the Period (a)
 
 - 
Net Option Premiums Paid/(Received) for Unexercised or Unexpired Option Contracts Entered
 
 
 
During the Period
 
 (48)
Changes in Fair Value Due to Market Fluctuations During the Period (c)
 
 (1)
Changes in Fair Value Allocated to Regulated Jurisdictions (d)
 
 2,500 
Total MTM Risk Management Contract Net Assets
 
 2,182 
Cash Flow Hedge Contracts
 
 (132)
DETM Assignment (e)
 
 (27)
Collateral Deposits
 
 119 
Total MTM Derivative Contract Net Assets at June 30, 2010
$
 2,142 
 
 
 
 
SWEPCo
 
Total MTM Risk Management Contract Net Assets at December 31, 2009
$
 1,636 
(Gain) Loss from Contracts Realized/Settled During the Period and Entered in a Prior Period
 
 (1,115)
Fair Value of New Contracts at Inception When Entered During the Period (a)
 
 - 
Net Option Premiums Paid/(Received) for Unexercised or Unexpired Option Contracts Entered
 
 
 
During the Period
 
 (84)
Changes in Fair Value Due to Market Fluctuations During the Period (c)
 
 (2)
Changes in Fair Value Allocated to Regulated Jurisdictions (d)
 
 665 
Total MTM Risk Management Contract Net Assets
 
 1,100 
Cash Flow Hedge Contracts
 
 (287)
DETM Assignment (e)
 
 (32)
Collateral Deposits
 
 158 
Total MTM Derivative Contract Net Assets at June 30, 2010
$
 939 

(a)
Reflects fair value on long-term contracts which are typically with customers that seek fixed pricing to limit their risk against fluctuating energy prices.  The contract prices are valued against market curves associated with the delivery location and delivery term.  A significant portion of the total volumetric position has been economically hedged.
(b)
Reflects changes in methodology in calculating the credit and discounting liability fair value adjustments.
(c)
Market fluctuations are attributable to various factors such as supply/demand, weather, etc.
(d)
Relates to the net gains (losses) of those contracts that are not reflected on the Condensed Statements of Income.  These net gains (losses) are recorded as regulatory liabilities/assets.
(e)
See “Natural Gas Contracts with DETM” section of Note 15 of the 2009 Annual Report.


 
229

 
The following tables present the maturity, by year, of net assets/liabilities to give an indication of when these MTM amounts will settle and generate or (require) cash:

Maturity and Source of Fair Value of MTM
Risk Management Contract Net Assets (Liabilities)
June 30, 2010
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Remainder
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
APCo
 
2010 
 
2011-2013
 
2014+ 
 
Total
Level 1 (a)
 
$
 (170)
 
$
 37 
 
$
 - 
 
$
 (133)
Level 2 (b)
 
 
 10,304 
 
 
 11,565 
 
 
 1,043 
 
 
 22,912 
Level 3 (c)
 
 
 3,851 
 
 
 4,986 
 
 
 2,037 
 
 
 10,874 
Total
 
 
 13,985 
 
 
 16,588 
 
 
 3,080 
 
 
 33,653 
Dedesignated Risk Management
 
 
 
 
 
 
 
 
 
 
 
 
 
Contracts (d)
 
 
 2,495 
 
 
 3,477 
 
 
 - 
 
 
 5,972 
Total MTM Risk Management
 
 
 
 
 
 
 
 
 
 
 
 
 
Contract Net Assets
 
$
 16,480 
 
$
 20,065 
 
$
 3,080 
 
$
 39,625 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Remainder
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OPCo
 
2010 
 
2011-2013
 
2014+ 
 
Total
Level 1 (a)
 
$
 (111)
 
$
 24 
 
$
 - 
 
$
 (87)
Level 2 (b)
 
 
 7,682 
 
 
 6,446 
 
 
 679 
 
 
 14,807 
Level 3 (c)
 
 
 2,496 
 
 
 3,247 
 
 
 1,326 
 
 
 7,069 
Total
 
 
 10,067 
 
 
 9,717 
 
 
 2,005 
 
 
 21,789 
Dedesignated Risk Management
 
 
 
 
 
 
 
 
 
 
 
 
 
Contracts (d)
 
 
 1,624 
 
 
 2,264 
 
 
 - 
 
 
 3,888 
Total MTM Risk Management
 
 
 
 
 
 
 
 
 
 
 
 
 
Contract Net Assets
 
$
 11,691 
 
$
 11,981 
 
$
 2,005 
 
$
 25,677 
 
           
Remainder
                           
PSO
     
2010 
 
2011-2013
 
Total
Level 1 (a)
     
$
 (4)
 
$
 - 
 
$
 (4)
Level 2 (b)
       
 2,410 
   
 (222)
   
 2,188 
Level 3 (c)
       
 (2)
   
 - 
   
 (2)
Total MTM Risk Management
               
 
Contract Net Assets (Liabilities)
$
 2,404 
 
$
 (222)
 
$
 2,182 
                           
         Remainder        
SWEPCo
     
2010 
 
2011-2013
 
Total
Level 1 (a)
     
$
 (4)
 
$
 - 
 
$
 (4)
Level 2 (b)
       
 1,570 
   
 (464)
   
 1,106 
Level 3 (c)
       
 (2)
   
 - 
   
 (2)
Total MTM Risk Management
               
 
Contract Net Assets (Liabilities)
$
 1,564 
 
$
 (464)
 
$
 1,100 
 
(a)
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.  Level 1 inputs primarily consist of exchange traded contracts that exhibit sufficient frequency and volume to provide pricing information on an ongoing basis.
(b)
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.  If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability.  Level 2 inputs primarily consist of OTC broker quotes in moderately active or less active markets, exchange traded contracts where there was not sufficient market activity to warrant inclusion in Level 1 and OTC broker quotes that are corroborated by the same or similar transactions that have occurred in the market.
(c)
Level 3 inputs are unobservable inputs for the asset or liability.  Unobservable inputs shall be used to measure fair value to the extent that the observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.  Level 3 inputs primarily consist of unobservable market data or are valued based on models and/or assumptions.
(d)
Dedesignated Risk Management Contracts are contracts that were originally MTM but were subsequently elected as normal under the accounting guidance for “Derivatives and Hedging.”  At the time of the normal election, the MTM value was frozen and no longer fair valued.  This will be amortized into Revenues over the remaining life of the contracts.
 

 
 
230

 
Credit Risk

Counterparty credit quality and exposure is generally consistent with that of AEP.

Value at Risk (VaR) Associated with Risk Management Contracts

Management uses a risk measurement model, which calculates VaR to measure commodity price risk in the risk management portfolio. The VaR is based on the variance-covariance method using historical prices to estimate volatilities and correlations and assumes a 95% confidence level and a one-day holding period.  Based on this VaR analysis, at June 30, 2010, a near term typical change in commodity prices is not expected to have a material effect on net income, cash flows or financial condition.

The following table shows the end, high, average and low market risk as measured by VaR for the periods indicated:

 
Six Months Ended
 
Twelve Months Ended
 
June 30, 2010
 
December 31, 2009
Company
 
End
 
High
 
Average
 
Low
 
End
 
High
 
Average
 
Low
 
(in thousands)
 
(in thousands)
APCo
 
$
191
 
$
659
 
$
259
 
$
133
 
$
275
 
$
699
 
$
333
 
$
151
OPCo
   
142
   
545
   
219
   
103
   
201
   
530
   
244
   
113
PSO
   
6
   
70
   
16
   
3
   
10
   
34
   
12
   
4
SWEPCo
   
8
   
93
   
24
   
5
   
16
   
49
   
18
   
6

Management back-tests its VaR results against performance due to actual price movements.  Based on the assumed 95% confidence interval, the performance due to actual price movements would be expected to exceed the VaR at least once every 20 trading days.

As the VaR calculations capture recent price movements, management also performs regular stress testing of the portfolio to understand the exposure to extreme price movements.  Management employs a historical-based method whereby the current portfolio is subjected to actual, observed price movements from the last four years in order to ascertain which historical price movements translated into the largest potential MTM loss.  Management then researches the underlying positions, price movements and market events that created the most significant exposure and report the findings to the Risk Executive Committee or the Commercial Operations Risk Committee as appropriate.

Interest Rate Risk

Management utilizes an Earnings at Risk (EaR) model to measure interest rate market risk exposure. EaR statistically quantifies the extent to which interest expense could vary over the next twelve months and gives a probabilistic estimate of different levels of interest expense.  The resulting EaR is interpreted as the dollar amount by which actual interest expense for the next twelve months could exceed expected interest expense with a one-in-twenty chance of occurrence.  The primary drivers of EaR are from the existing floating rate debt (including short-term debt) as well as long-term debt issuances in the next twelve months.  As calculated on the Registrant Subsidiaries’ outstanding debt as of June 30, 2010 and December 31, 2009, the estimated EaR on the Registrant Subsidiaries’ debt portfo lio was as follows:

   
June 30,
   
December 31,
 
Company
 
2010
   
2009
 
   
(in thousands)
 
APCo
  $ 770     $ 1,837  
CSPCo
    178       216  
I&M
    203       227  
OPCo
    1,222       1,373  
PSO
    77       119  
SWEPCo
    41       305  

 
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CONTROLS AND PROCEDURES

During the second quarter of 2010, management, including the principal executive officer and principal financial officer of each of AEP, APCo, CSPCo, I&M, OPCo, PSO and SWEPCo (collectively, the Registrants), evaluated the Registrants’ disclosure controls and procedures.  Disclosure controls and procedures are defined as controls and other procedures of the Registrants that are designed to ensure that information required to be disclosed by the Registrants in the reports that they file or submit under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Registrants in th e reports that they file or submit under the Exchange Act is accumulated and communicated to the Registrants’ management, including the principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

As of June 30, 2010, these officers concluded that the disclosure controls and procedures in place are effective and provide reasonable assurance that the disclosure controls and procedures accomplished their objectives.  The Registrants continually strive to improve their disclosure controls and procedures to enhance the quality of their financial reporting and to maintain dynamic systems that change as events warrant.

There was no change in the Registrants’ internal control over financial reporting (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the second quarter of 2010 that materially affected, or is reasonably likely to materially affect, the Registrants’ internal control over financial reporting.

 
232

 

PART II.  OTHER INFORMATION

Item 1.     Legal Proceedings

For a discussion of material legal proceedings, see “Commitments, Guarantees and Contingencies,” of Note 4 incorporated herein by reference.

Item 1A.  Risk Factors

Our Annual Report on Form 10-K for the year ended December 31, 2009 includes a detailed discussion of our risk factors.  The information presented below amends and restates in their entirety certain of those risk factors that have been updated and should be read in conjunction with the risk factors and information disclosed in our 2009 Annual Report on Form 10-K.

General Risks of Our Regulated Operations
 
We may not fully recover all of the investment in and expenses related to the Turk Plant.  (Applies to AEP and SWEPCo)
 
In June 2010, the APSC issued an order which reversed and set aside the previously granted CECPN.  SWEPCo filed a notice with the APSC of its intent to proceed with construction of the Turk Plant but that SWEPCo no longer intends to pursue a CECPN to seek recovery of the originally approved 88 MW portion of Turk Plant costs in Arkansas retail rates.  The parties that successfully challenged the granting of the CECPN filed a complaint with the Federal District Court for the Western District of Arkansas seeking an injunction to stop construction of the Turk Plant asserting claims of violations of federal and state laws.

In November 2008, SWEPCo received its required air permit approval from the Arkansas Department of Environmental Quality and commenced construction at the site.  The Arkansas Pollution Control and Ecology Commission (APCEC) upheld the air permit.  In February 2010, the parties who unsuccessfully appealed the air permit to the APCEC filed a notice of appeal with the Circuit Court of Hempstead County, Arkansas.

The wetlands permit was issued by the U.S. Army Corps of Engineers in December 2009.  In February 2010, the Sierra Club, the Audubon Society and others filed a complaint in the Federal District Court for the Western District of Arkansas against the U.S. Army Corps of Engineers challenging the process used and the terms of the permit issued to SWEPCo authorizing certain wetland and stream impacts.

In January 2009, SWEPCO was granted CECPNs by the APSC to build three transmission lines and facilities authorized by the SPP and needed to transmit power from the Turk Plant.  Intervenors appealed the CECPN decisions in April 2009 to the Arkansas Court of Appeals.  In July 2010, the Hempsted County Hunting Club and other appellants filed with the Arkansas Court of Appeals emergency motions to stay the transmission CECPNs to prohibit SWEPCo from taking ownership of private property and undertaking construction of the transmission lines.

If SWEPCo is unable to complete the Turk Plant construction and place the Turk Plant in service or if SWEPCo cannot recover all of its investment in and expenses related to the Turk Plant, it would reduce future net income and cash flows and impact financial condition.

Ohio may require us to refund fuel costs that we have collected. (Applies to OPCo)

As required under the ESP orders, the PUCO selected an outside consultant to conduct the audit of the FAC for the period of January 2009 through December 2009.  In May 2010, the outside consultant provided their confidential audit report of the FAC audit to the PUCO.  The audit report included a recommendation that the PUCO should review whether any proceeds from a 2008 coal contract settlement agreement which totaled $72 million should reduce OPCo’s FAC under-recovery balance.  Of the total proceeds, approximately $58 million was recognized as a reduction to fuel expense prior to 2009 and $14 million will reduce fuel expense in 2009 and 2010.  If the PUCO orders any portion of the $58 million previously recognized gains be used to reduce the current year FAC deferral, it would reduce futur e net income and cash flows and impact financial condition.

 
233

 
Ohio may require us to refund rider revenue that we have collected. (Applies to CSPCo and OPCo)

The Industrial Energy Users-Ohio filed a notice of appeal of the 2009 and 2010 PUCO-approved Economic Development Rider (EDR) with the Supreme Court of Ohio.  As of June 30, 2010, CSPCo and OPCo have incurred $32 million and $23 million, respectively, in EDR costs including carrying costs.  Of these costs, CSPCo and OPCo have collected $16 million and $12 million, respectively, through the EDR, which CSPCo and OPCo began collecting in January 2010.  The remaining $16 million and $11 million for CSPCo and OPCo, respectively, are recorded as EDR regulatory assets.  If CSPCo and OPCo are not ultimately permitted to recover their deferrals or are required to refund revenue collected, it would reduce future net income and cash flows and impact financial condition.

Texas may require us to refund fuel costs that we have collected. (Applies to SWEPCo)

In May 2010, various intervenors, including the PUCT staff, filed testimony recommending disallowances ranging from $3 million to $30 million in SWEPCo’s $755 million fuel and purchase power costs reconciliation for the period January 2006 through March 2009.  If the PUCT disallows any portion of SWEPCo’s fuel and purchase power costs, it could reduce future net income and cash flows and possibly impact financial condition.
 
Our request for rate recovery in West Virginia may not be approved in its entirety.  (Applies to AEP and APCo)
 
In May 2010, APCo and WPCo filed a request with the WVPSC to increase annual base rates by $156 million based on an 11.75% return on common equity to be effective March 2011.  If the WVPSC denies all or part of the requested rate recovery, it could reduce future net income and cash flows.

Oklahoma may require us to refund fuel costs that we have collected. (Applies to PSO)

In July 2009, the OCC initiated a proceeding to review PSO’s fuel and purchased power adjustment clause for the calendar year 2008 and also initiated a prudence review of the related costs.  In March 2010, the Oklahoma Attorney General and the OIEC recommended the fuel clause adjustment rider be amended so that the shareholder’s portion of off-system sales margins sharing decrease from 25% to 10%.  The OIEC also recommended that the OCC conduct a comprehensive review of all affiliate transactions during 2007 and 2008.  In July 2010, additional testimony regarding the 2007 transfer of ERCOT trading contracts to AEP Energy Partners was filed.  Included in this testimony were unquantified refund recommendations relating to re-pricing of contract transactions.  If the OCC were t o issue an unfavorable decision, it would reduce future net income and cash flows and impact financial condition.
 
Our request for rate recovery in Oklahoma may not be approved in its entirety.  (Applies to AEP and PSO)
 
In July 2010, PSO filed a request with the OCC to increase annual rates by $82 million, including $30 million that is currently being recovered through a rider.  The requested increase includes a $24 million increase in depreciation and an 11.5% return on common equity.  If the OCC denies all or part of the requested rate recovery, it could reduce future net income and cash flows.

Risks Related to Owning and Operating Generation Assets and Selling Power
 
We may not fully recover the costs of repairing or replacing damaged equipment in Cook Plant Unit 1 and may be required to pay additional
 
accidental outage insurance proceeds to ratepayers.  (Applies to AEP and I&M)

Cook Plant Unit 1 is a 1,084 MW nuclear generating unit located in Bridgman, Michigan.  In September 2008, I&M shut down Unit 1 due to turbine vibrations, caused by blade failure, which resulted in significant turbine damage and a small fire on the electric generator.  Unit 1 resumed operations in December 2009 at slightly reduced power, but repair of the property damage and replacement of the turbine rotors and other equipment are estimated to cost approximately $395 million.  Management believes that I&M should recover a significant portion of these costs through the turbine vendor’s warranty, insurance and the regulatory process.

 
234

 
In March 2009, the IURC approved a settlement agreement with intervenors to collect a prior under-recovered fuel balance. Under the settlement agreement, a subdocket was established to consider issues relating to the Unit 1 shutdown including the treatment of the accidental outage insurance proceeds.  Separately, in March 2010, I&M filed its 2009 PSCR reconciliation with the MPSC.  The filing included an adjustment related to the incremental fuel cost of replacement power due to the Cook Plant Unit 1 outage.  If any fuel clause revenues or accidental outage insurance proceeds have to be refunded, it would reduce future net income and cash flows and impact financial condition.

Financial derivatives reforms could increase the liquidity needs and costs of our commercial trading operations.  (Applies to each registrant.)

In July 2010, federal legislation was enacted to reform financial markets that significantly alter how over-the-counter (OTC) derivatives are regulated.  The law increased regulatory oversight of OTC energy derivatives, including (1) requiring standardized OTC derivatives to be traded on registered exchanges regulated by the Commodity Futures Trading Commission (CFTC), (2) imposing new and potentially higher capital and margin requirements and (3) authorizing the establishment of overall volume and position limits.  The law gives the CFTC authority to exempt end users of energy commodities which could reduce, but not eliminate, the applicability of these measures to us and other end users.  These requirements could cause our OTC transactions to be more costly and have an adverse effect on our liquidity due to additional capital requirements.  In addition, as these reforms aim to standardize OTC products it could limit the effectiveness of our hedging programs because we would have less ability to tailor OTC derivatives to match the precise risk we are seeking to protect.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information about purchases by AEP or its publicly-traded subsidiaries during the quarter ended June 30, 2010 of equity securities that are registered by AEP or its publicly-traded subsidiaries pursuant to Section 12 of the Exchange Act:

ISSUER PURCHASES OF EQUITY SECURITIES
Period
 
Total Number
of Shares
Purchased
 
Average Price
Paid per Share
   
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
 
04/01/10 – 04/30/10
   
3,759
(a)
$
80.00
     
-
 
$
-
 
05/01/10 – 05/31/10
   
2
(b)
 
66.75
     
-
   
-
 
06/01/10 – 06/30/10
   
-
   
-
     
-
   
-
 

(a)
PSO purchased 3,759 shares of its 4.24% cumulative preferred stock in a privately-negotiated transaction outside of an announced program.
(b)
I&M purchased 1 share of its 4.125% cumulative preferred stock and OPCo purchased 1 share of its 4.50% cumulative preferred stock in privately-negotiated transactions outside of an announced program.
 

 
 
235

 
Item 5.  Other Information

NONE

Item 6.  Exhibits

AEP, APCo, OPCo, PSO and SWEPCo

10 – Amended and Restated AEP System Long-term Incentive Plan.

AEP, APCo, CSPCo, I&M, OPCo, PSO and SWEPCo

12 – Computation of Consolidated Ratio of Earnings to Fixed Charges.

AEP, APCo, CSPCo, I&M, OPCo, PSO and SWEPCo

31(a) – Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31(b) – Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

AEP, APCo, CSPCo, I&M, OPCo, PSO and SWEPCo

32(a) – Certification of Chief Executive Officer Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.
32(b) – Certification of Chief Financial Officer Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.

 
236

 

SIGNATURE




Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.  The signature for each undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof.


AMERICAN ELECTRIC POWER COMPANY, INC.



                                         By: /s/Joseph M. Buonaiuto
                                                               Joseph M. Buonaiuto
                                               Controller and Chief Accounting Officer




APPALACHIAN POWER COMPANY
COLUMBUS SOUTHERN POWER COMPANY
INDIANA MICHIGAN POWER COMPANY
OHIO POWER COMPANY
PUBLIC SERVICE COMPANY OF OKLAHOMA
SOUTHWESTERN ELECTRIC POWER COMPANY




                                         By: /s/Joseph M. Buonaiuto
                                               Joseph M. Buonaiuto
                                               Controller and Chief Accounting Officer



Date:  July 30, 2010

 
237

 
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AMERICAN ELECTRIC POWER SYSTEM LONG-TERM INCENTIVE PLAN
Approved by Shareholders April 17, 2010
(as amended through May 18, 2010)
 
Table of Contents
 
   
Section
 
 
 
1.Purpose of the Plan
 
2.Definitions
 
3.Shares of Common Stock Subject to the Plan
 
4.Administration of the Plan
 
5.Eligibility and Awards
 
6.Stock Options
 
7.Stock Appreciation Rights
 
8.Restricted Stock
 
9.Performance Awards 
 
10.Phantom Stock
 
11.Dividend Equivalents 
 
12.Change in Control 
 
13.Award Agreements 
 
14.General Provisions 
 
15.Effective Date, Termination and Amendment
 
 
Amended and Restated American Electric Power System Long-Term Incentive Plan
 
1. Purpose of the Plan
 
The purpose of the Amended and Restated American Electric Power System Long-Term Incentive Plan, dated April 26, 2005, is to promote the interests of AEP and its shareholders by strengthening AEP’s ability to attract, motivate and retain employees and directors of AEP and its Subsidiaries upon whose judgment, initiative and efforts the financial success and growth of the business of AEP largely depend, to align further the interests of AEP’s management with the shareholders, and to provide an additional incentive for employees and directors through stock ownership and other rights that promote and recognize the financial success and growth of AEP.
 
2. Definitions
 
Wherever the following capitalized terms are used in this Plan they shall have the meanings specified below:
 
 
(a)
“AEP” means American Electric Power Company, Inc., a New York corporation, and any successor thereto.
 
 
(b)
“Award” means an award of an Option, Restricted Stock, Stock Appreciation Right, Performance Award, Phantom Stock or Dividend Equivalent granted under the Plan.
 
 
(c)
“Award Agreement” means an agreement entered into between AEP and a Participant setting forth the terms and conditions of an Award granted to a Participant.
 
 
(d)
“Board” means the Board of Directors of AEP.
 
 
(e)
“Change in Control” shall have the meaning specified in Section 12 hereof.

 
(f)
“Code” means the Internal Revenue Code of 1986, as amended.
 
 
(g)
“Committee” means the Human Resources Committee of the Board consisting of not less than a sufficient number of Non-Employee Directors so as to qualify the Committee to administer the Plan under Rule 16b-3 and each of whom is an “independent” director as defined in the rules of the New York Stock Exchange. If any member of the Committee does not qualify as an “outside director” for purposes of Section 162(m) of the Code or a Non-Employee Director under Rule 16b-3, the Committee with respect to Awards under the Plan for the chief executive officer and the four most highly compensated officers of AEP (other than the chief executive officer), as such “covered persons” may change from time to time for purposes of Section 162(m), shall consist solely of those Committee members who qualify as “outside directors” and Non-Employee Director s. If fewer than two Committee members qualify as both an “outside director” and a Non-Employee Director, the Board shall appoint one or more other members who do qualify as both “outside directors” and Non-Employee Directors.
 
 
 
(h)
“Commission” means the Securities and Exchange Commission.
 
 
 
(i)
“Common Stock” means the common stock of AEP, $6.50 par value.
 
 
 
(j)
“Date of Grant” means the date on which the Committee makes an Award under the Plan, or such later date as the Committee may specify that the Award becomes effective.
 
 
         (k)  
“Effective Date” means the Effective Date of this Plan, as defined in Section 15.1 hereof.
 
 
 
(l)
“Dividend Equivalent” means an Award under Section 11 hereof entitling the Participant to receive payments with respect to dividends declared on the Common Stock.
 
 
 
(m)
“Eligible Person” means any person who is an Employee or a Non-Employee Director.
 
 
 
(n)
“Employee” means any person who is an employee of AEP or any Subsidiary; provided, however, that with respect to Incentive Stock Options, “Employee” means any person who is considered an employee of AEP or any Subsidiary for purposes of Section 421 of the Code and the applicable regulations issued thereunder.
 
 
 
(o)
“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, or any successor statute.
 
 
 
(p)
“Fair Market Value” means, as of any applicable date, the closing price per share of the Common Stock as quoted in the New York Stock Exchange—Composite Transactions listing in The Wall Street Journal (or such other reliable publication as the Committee, in its discretion, may determine to rely upon) for the date as of which Fair Market Value is to be determined. If there are no sales on such date, then Fair Market Value shall be the closing price per share of the Common Stock as so quoted on the nearest date before the date as of which Fair Market Value is to be determined on which there are sales. If the Common Stock is not listed on the New York Stock Exchange on the date as of which Fair Market Value is to be determined, the Committee shall determine in good faith the Fair Market Value in whatever manner it considers appro priate. Fair Market Value shall be determined without regard to any restriction other than a restriction that, by its terms, will never lapse.
 
 
 
(q)
“Full Value Share Award” means an award of Restricted Stock, a Performance Award denominated in shares or units of Common Stock, Phantom Stock, Dividend Equivalents, or Stock Appreciation Rights settled or paid in shares of Common Stock. The vesting restriction imposed on full value shares awarded under the Plan shall be (i) a period of at least one (1) year if performance-based or (ii) a period of at least three (3) years if non-performance-based, which may include pro-rata lapsing of restrictions thereon, such that awards that vest on a pro-rata basis over three (3) years will be deemed to have met this requirement.  Notwithstanding the above, up to 5% of the total number of shares authorized under the Plan may be awarded without regard to this vesting restriction.
 
 
 
(r)
“Incentive Stock Option” means an option to purchase Common Stock that is intended to qualify as an incentive stock option under Section 422 of the Code, or any successor provision thereto.
 
 
 
(s)
“Non-Employee Director” means a member of the Board who is a “non-employee director” as defined in Rule 16b-3 promulgated by the Commission pursuant to the Exchange Act.
 
 
 
(t)
“Nonqualified Stock Option” means an option to purchase Common Stock that is not an Incentive Stock Option.

 
(u)
“Option” means an Incentive Stock Option or a Nonqualified Stock Option granted under Section 6 hereof.
 
 
 
(v)
“Participant” means any Eligible Person who holds an outstanding Award under the Plan.
 
 
 
(w)
“Performance Award” means an Award made under Section 9 hereof entitling a Participant to a payment based on the Fair Market Value of Common Stock (a “Performance Unit”) at the end of a performance period if certain conditions established by the Committee are satisfied.
 
 
(x)
“Phantom Stock” means an Award under Section 10 hereof entitling a Participant to a payment based on a measure of value expressed as a share of Common Stock (“Phantom Stock Unit”). No stock certificates shall be issued with respect to such Phantom Stock Units, but AEP shall maintain a bookkeeping account in the name of the Participant to which the Phantom Stock Units shall relate.
 
 
 
(y)
“Plan” means the Amended and Restated American Electric Power System Long-Term Incentive Plan as set forth herein, as it may be amended from time to time.
 
 
 
(z)
“Plan Year” means AEP’s fiscal year, which at the date hereof is the calendar year.
 
 
 
(aa)
“Restricted Stock” means an Award under Section 8 hereof entitling a Participant to shares of Common Stock that are nontransferable and subject to forfeiture until specific conditions established by the Committee are satisfied.
 
 
 
(bb)
“Rule 16b-3” means Rule 16b-3 promulgated by the Commission pursuant to the Exchange Act, or any successor or replacement rule adopted by the Commission.
 
 
 
(cc)
“Section 162(m)” means Section 162(m) of the Code and the Treasury Regulations thereunder.
 
 
 
(dd)
“Section 162(m) Participant” means any Participant who, in the sole judgment of the Committee, could be treated as a “covered employee” under Section 162(m) at the time income may be recognized by such Participant in connection with an Award that is intended to qualify for exemption under Section 162(m).
 
 
 
(ee)
“Stock Appreciation Right” or “SAR” means an Award under Section 7 hereof entitling a Participant to receive an amount, representing the difference between the base price per share of the right and the Fair Market Value of a share of Common Stock on the date of exercise.
 
 
 
(ff)
“Subsidiary” means any corporation (other than AEP) in an unbroken chain of corporations beginning with AEP if, at the time of granting an Award, each of the corporations, other than the last corporation in the unbroken chain, owns stock possessing 50 percent or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
 
3. Shares of Common Stock Subject to the Plan
 
3.1.   Calculation of Number of Shares Available.    Subject to the following provisions of this Section 3, the aggregate number of shares of Common Stock that may be issued pursuant to all Awards under the Plan is 20,000,000 shares of Common Stock; provided, however, that the maximum number of shares of Common Stock issued in connection with Full Value Share Awards which may be issued under the Plan shall be limited to 10,000,000.
 
If any share of Common Stock that is the subject of an Award is not issued and ceases to be issuable for any reason, or is forfeited, cancelled or returned to AEP for failure to satisfy vesting requirements or upon the occurrence of other forfeiture events, such share of Common Stock will no longer be charged against the foregoing maximum share limitations and may again be made subject to Awards under the Plan pursuant to such limitations.
 
3.2.   Accounting for Awards.    For purposes of this Section 3, if an Award is denominated in shares of Common Stock, the number of shares covered by such Award, or to which such Award relates, shall be counted on the Date of Grant of such Award against the aggregate number of shares available for granting Awards under the Plan; provided, however, that Awards that operate in tandem with (whether granted simultaneously with or at a different time from) other Awards may be counted or not counted under procedures adopted by the Committee in order to avoid double counting.
 
3.3.   Source of Shares of Common Stock Deliverable Under Awards.    The shares of Common Stock to be delivered under the Plan may be authorized but unissued shares, reacquired shares, shares acquired on the open market specifically for distribution under the Plan, or any combination thereof.
 
3.4.   Adjustments.    If there shall occur any recapitalization, reclassification, stock dividend, stock split, reverse stock split or other distribution with respect to the shares of Common Stock, or any similar corporate transaction or event in respect of the Common Stock, then the Committee shall, in the manner and to the extent that it deems appropriate and equitable to the Participants and consistent with the terms of this Plan, cause a proportionate adjustment to be made in (a) the maximum numbers and kind of shares provided in Section 3.1 hereof, (b) the maximum numbers and kind of shares set forth in Sections 6.1, 7.1, 8.2 and 9.4 hereof, (c) the number and kind of shares of Common Stock, share units, or other right s subject to the then-outstanding Awards, (d) the price for each share or unit or other right subject to then outstanding Awards without change in the aggregate purchase price or value as to which such Awards remain exercisable or subject to restrictions, (e) the performance targets or goals appropriate to any outstanding Performance Awards (subject to such limitations as appropriate for Awards intended to qualify for exemption under Section 162(m)) or (f) any other terms of an Award that are affected by the event. Notwithstanding the foregoing, in the case of Incentive Stock Options, any such adjustments shall be made in a manner consistent with the requirements of Section 424(a) of the Code.
 
4. Administration of the Plan
 
4.1.   Committee Members.    Except as provided in Section 4.4 hereof, the Committee will administer the Plan. The Committee may exercise such powers and authority as may be necessary or appropriate for the Committee to carry out its functions as described in the Plan. No member of the Committee will be liable for any action or determination made in good faith by the Committee with respect to the Plan or any Award under it.
 
4.2.   Discretionary Authority.    Subject to the express limitations of the Plan, the Committee has authority in its discretion to determine the Eligible Persons to whom, and the time or times at which, Awards may be granted, the number of shares, units or other rights subject to each Award, the exercise, base or purchase price of an Award (if any), the time or times at which an Award will become vested, exercisable or payable, the performance criteria, performance goals and other conditions of an Award, and the duration of the Award. The Committee also has discretionary authority to interpret the Plan, to make all factual determinations under the Plan, and to determine the terms and provisions of the respective Award Agreements and to make al l other determinations necessary or advisable for Plan administration. The Committee has authority to prescribe, amend, and rescind rules and regulations relating to the Plan. All interpretations, determinations, and actions by the Committee will be final, conclusive, and binding upon all parties.
 
4.3.   Changes to Awards.    The Committee shall have the authority to effect, at any time and from time to time, with the consent of the affected Participants, (a) the cancellation of any or all outstanding Awards and the grant in substitution therefor of new Awards covering the same or different numbers of shares of Common Stock and having an exercise or base price which may be the same as or different than the exercise or base price of the cancelled Awards or (b) the amendment of the terms of any and all outstanding Awards; provided, however, that the Committee shall not have the authority to reduce the exercise or base price of an Award by amendment or cancellation and substitution of an existing Award without the approval of AEP& #8217;s shareholders, and provided further that the exercise or base price of an Option or Stock Appreciation Right shall not be reduced to an amount that is less than the 100 percent of Fair Market Value per share of the Common Stock on the Date of Grant. The Committee may in its discretion accelerate the vesting or exercisability of an Award at any time or on the basis of any specified event.
 
4.4.   Delegation of Authority.    As permitted by law, the Committee may delegate its authority as identified hereunder; provided, however, that the Committee may not delegate certain of its responsibilities hereunder if such delegation may jeopardize compliance with the “outside directors” provision of Section 162(m).
 
4.5.   Awards to Non-Employee Directors.    The Board shall approve an Award to a Non-Employee Director under the Plan. With respect to Awards to Non-Employee Directors, all rights, powers and authorities vested in the Committee under the Plan shall instead be exercised by the Board, and all provisions of the Plan relating to the Committee shall be interpreted in a manner consistent with the foregoing by treating any such reference as a reference to the Board for such purpose.

 5. Eligibility and Awards
 
All Eligible Persons are eligible to be designated by the Committee to receive an Award under the Plan. The Committee has authority, in its sole discretion, to determine and designate from time to time those Eligible Persons who are to be granted Awards, the types of Awards to be granted and the number of shares or units subject to the Awards that are granted under the Plan. Each Award will be evidenced by an Award Agreement as described in Section 13 hereof between AEP and the Participant that shall include the terms and conditions consistent with the Plan as the Committee may determine.
 
6. Stock Options
 
6.1.   Grant of Option.    An Option may be granted to any Eligible Person selected by the Committee; provided, however, that only Employees shall be eligible for Awards of Incentive Stock Options. Each Option shall be designated, at the discretion of the Committee, as an Incentive Stock Option (if applicable) or a Nonqualified Stock Option. The maximum number of shares of Common Stock that may be granted under Options to any one Participant during any three calendar year period shall be limited to 2,000,000 shares (subject to adjustment as provided in Section 3.4 hereof).
 
6.2.   Exercise Price.    The exercise price of the Option shall be determined by the Committee; provided, however, that the exercise price per share of an Option shall not be less than 100 percent of the Fair Market Value per share of the Common Stock on the Date of Grant.
 
6.3.   Vesting; Term of Option.    The Committee, in its sole discretion, shall prescribe in the Award Agreement the time or times at which, or the conditions upon which, an Option or portion thereof shall become vested and exercisable, and may accelerate the exercisability of any Option at any time.

6.4.   Option Exercise; Withholding.    Subject to such terms and conditions as shall be specified in an Award Agreement and to all applicable legal requirements, an Option may be exercised in whole or in part at any time during the term thereof by written notice to AEP together with payment of the aggregate exercise price therefor. Payment of the exercise price shall be made (a) in cash or by cash equivalent, (b) at the discretion of the Committee, in shares of Common Stock acceptable to the Committee, valued at the Fair Market Value of such shares on the date of exercise or such lower price as the Committee may determine, (c) at the discretion of the Committee, by a delivery of a notice that the Participant has placed a market sell order (or similar instruction) with a third party with respect to shares of Common Stock then issuable upon exercise of the Option, and that the third party has been directed to pay a sufficient portion of the net proceeds of the sale to AEP in satisfaction of the Option exercise price or (d) at the discretion of the Committee, by a combination of the methods described above or such other method as may be approved by the Committee. In addition to and at the time of payment of the exercise price, the Participant shall pay to AEP the full amount of any and all applicable income tax and employment tax amounts required to be withheld in connection with such exercise.
 
6.5.   Additional Rules for Incentive Stock Options.    The terms of any Incentive Stock Option granted under the Plan shall comply in all respects with the provisions of Section 422 of the Code, or any successor provision thereto, and any regulations promulgated thereunder.
 
7. Stock Appreciation Rights
 
7.1.   Grant of SARs.    A Stock Appreciation Right granted to a Participant is an Award in the form of a right to receive, upon surrender of the right, but without other payment, an amount based on appreciation in the Fair Market Value of the Common Stock over a base price established for the Award, exercisable at such time or times and upon conditions as may be approved by the Committee. The maximum number of shares of Common Stock that may be subject to SARs granted to any one Participant during any three calendar year period shall be limited to 2,000,000 shares (subject to adjustment as provided in Section 3.4 hereof).
 
7.2.   Tandem SARs.    A Stock Appreciation Right may be granted in connection with an Option, either at the time of grant or at any time thereafter during the term of the Option. A SAR granted in connection with an Option will entitle the holder, upon exercise, to surrender such Option or any portion thereof to the extent unexercised, with respect to the number of shares as to which such SAR is exercised, and to receive payment of an amount computed as described in Section 7.4 hereof. Such Option will, to the extent and when surrendered, cease to be exercisable. A SAR granted in connection with an Option hereunder will have a base price per share equal to the per share exercise price of the Option, will be exercisable at such time or time s, and only to the extent, that a related Option is exercisable, and will expire no later than the related Option expires.
 
7.3.   Freestanding SARs.    A Stock Appreciation Right may be granted without relationship to an Option and, in such case, will be exercisable as determined by the Committee. The base price of a SAR granted without relationship to an Option shall be determined by the Committee in its sole discretion; provided, however, that the base price per share of a freestanding SAR shall not be less than 100 percent of the Fair Market Value of the Common Stock on the Date of Grant.
 
7.4.   Payment of SARs.    A SAR will entitle the holder, upon exercise of the SAR, to receive payment of an amount determined by multiplying: (i) the excess of the Fair Market Value of a share of Common Stock on the date of exercise of the SAR over the base price of such SAR, by (ii) the number of shares as to which such SAR will have been exercised. Payment of the amount determined under the foregoing may be made, in the discretion of the Committee, in cash, in Restricted Stock or shares of unrestricted Common Stock (both valued at their Fair Market Value on the date of exercise or such lower price as the Committee may determine), or a combination thereof; provided, however, that any shares of Common Stock used to settle or pay SARs will be counted as Full Value Share Awards.
 
8. Restricted Stock
 
8.1.   Grants of Restricted Stock.    An Award of Restricted Stock to a Participant represents shares of Common Stock that are issued subject to such restrictions on transfer and other incidents of ownership and such forfeiture conditions as the Committee may determine. The Committee may grant and designate Awards of Restricted Stock that are intended to qualify for exemption under Section 162(m), as well as Awards of Restricted Stock that are not intended to so qualify.
 
8.2.   Vesting Requirements.    The restrictions imposed on an Award of Restricted Stock shall lapse in accordance with the vesting requirements specified by the Committee in the Award Agreement. Such vesting requirements may be based on the continued employment of the Participant with AEP or its Subsidiaries for a specified time period or periods. Such vesting requirements may also be based on the attainment of specified business goals or measures established by the Committee in its sole discretion. In the case of any Award of Restricted Stock that is intended to qualify for exemption under Section 162(m), the vesting requirements shall be limited to the performance criteria identified in Section 9.3 below, and the terms of the Award shall otherwise comply with the Section 162(m) requirements described in Section 9.4 hereof; provided, however, that the maximum number of shares of Common Stock that may be subject to an Award of Restricted Stock granted to a Section 162(m) Participant during any one calendar year shall be separately limited to 400,000 shares (subject to adjustment as provided in Section 3.4 hereof).
 
8.3.   Restrictions.    Shares of Restricted Stock may not be transferred, assigned or subject to any encumbrance, pledge or charge until all applicable restrictions are removed or expire or unless otherwise allowed by the Committee. The Committee may require the Participant to enter into an escrow agreement providing that the certificates representing Restricted Stock granted pursuant to the Plan will remain in the physical custody of an escrow holder until all restrictions are removed or expire. Failure to satisfy any applicable restrictions shall result in the subject shares of Restricted Stock being forfeited and returned to AEP, unless otherwise provided by the Committee. The Committee may require that certificates representing Restricted Stock granted under the Plan bear a legend making appropriate reference to the restrictions imposed.
 
8.4.   Rights as Shareholder.    Subject to the foregoing provisions of this Section 8 and the applicable Award Agreement, the Participant will have all rights of a shareholder with respect to shares of Restricted Stock granted to the Participant, including the right to vote the shares and receive all dividends and other distributions paid or made with respect thereto, unless the Committee determines otherwise at the time the Restricted Stock is granted, as set forth in the Award Agreement.
 
8.5.   Section 83(b) Election.    The Committee may provide in an Award Agreement that the Award of Restricted Stock is conditioned upon the Participant refraining from making an election with respect to the Award under Section 83(b) of the Code. Irrespective of whether an Award is so conditioned, if a Participant makes an election pursuant to Section 83(b) of the Code with respect to an Award of Restricted Stock, the Participant shall be required to promptly provide a copy of such election to AEP as directed by the Award Agreement or the Committee.
 
9. Performance Awards
 
9.1.   Grant of Performance Awards.    The Committee may grant Performance Awards under the Plan, which shall be represented by units denominated on the Date of Grant either in shares of Common Stock (Performance Shares) or in specified dollar amounts (Performance Units). The Committee may grant and designate Performance Awards that are intended to qualify for exemption under Section 162(m), as well as Performance Awards that are not intended to so qualify. At the time a Performance Award is granted, the Committee shall determine, in its sole discretion, one or more performance periods and performance goals to be achieved during the applicable performance periods, as well as such other restrictions and conditions as the Committee deems app ropriate. In the case of Performance Units, the Committee shall also determine a target unit value or a range of unit values for each Award. The performance goals applicable to a Performance Award grant may be subject to such later revisions as the Committee shall deem appropriate to reflect significant unforeseen events such as changes in law, accounting practices or unusual or nonrecurring items or occurrences. Any such adjustments shall be subject to such limitations as the Committee deems appropriate in the case of a Performance Award granted to a Section 162(m) Participant that is intended to qualify for exemption under Section 162(m).
 
9.2.   Payment of Performance Awards.    At the end of the performance period, the Committee shall determine the extent to which performance goals have been attained or a degree of achievement between minimum and maximum levels in order to establish the level of payment to be made, if any. The Committee shall determine if payment is to be made in cash, Restricted Stock, shares of unrestricted Common Stock, Options or Phantom Stock, or a combination thereof. For any cash conversion to or from Performance Shares or Units, Phantom Stock units or shares of Common Stock, payment shall be calculated on the basis of the average of the Fair Market Value of the Common Stock for the last 20 trading days prior to the date such award becomes payable. Unles s deferred in a manner that meets the requirements of Code Section 409A, payment of Performance Awards shall be made within such period as would not constitute a “deferral of compensation” for purposes of Code Section 409A.
 
9.3.   Performance Criteria.    The performance criteria upon which the payment or vesting of a Performance Award intended to qualify for exemption under Section 162(m) may be based shall be limited to the following business measures, which may be applied with respect to AEP, any Subsidiary or any business unit, and which may be measured on an absolute or relative-to-peer-group basis: earnings measures (including, for example, primary earnings per share, fully diluted earnings per share, net income, pre-tax income, operating income, earnings before interest, taxes, depreciation and amortization or any combination thereof, and net operating profits after taxes); expense control (including, for example, operations & maintenance expe nse, total expenditures, expense ratios, and expense reduction); customer measures (including, for example, customer satisfaction, service cost, service levels, responsiveness, bad debt collections or losses, and reliability—such as outage frequency, outage duration, and frequency of momentary outages); safety measures (including, for example, recordable case rate, severity rate, and vehicle accident rate); diversity measures (including, for example, minority placement rate and utilization); environmental measures (including, for example, emissions, project completion milestones, regulatory/legislative/cost recovery goals, and notices of violation), revenue measures (including, for example, revenue and direct margin); stakeholder return measures (including, for example, total shareholder return, economic value added, cumulative shareholder value added, return on equity, return on capital, return on assets, dividend payout ratio and cash flow(s) – such as operating cash flows, free cash flow, disc ounted cash flow return on investment and cash flow in excess of cost of capital or any combination thereof); valuation measures (including, for example, stock price increase, price to book value ratio, and price to earnings ratio); capital and risk measures (including, for example, debt to equity ratio, dividend payout as percentage of net income and diversification of business opportunities); employee satisfaction; project measures (including, for example, completion of key milestones); production measures (including, for example, generating capacity factor, performance against the INPO index, generating equivalent availability, heat rates and production cost); and such other individual performance objective that is measured solely in terms of quantitative targets related to the Company, any Subsidiary or the Company’s or Subsidiary’s business. In any event, the Committee may, at its discretion and at any time prior to payment, reduce the number of Performance Awards earned by any Participant f or a performance period. In the case of Performance Awards that are not intended to qualify for exemption under Section 162(m), the Committee shall designate performance criteria from among the foregoing or such other business criteria as it shall determine in its sole discretion.
 
9.4.   Section 162(m) Requirements.    In the case of a Performance Award granted to a Section 162(m) Participant that is intended to comply with the requirements for exemption under Section 162(m), the Committee shall make all determinations necessary to establish a Performance Award within 90 days of the beginning of the performance period (or such other time period required under Section 162(m)), including, without limitation, the designation of the Section 162(m) Participants to whom Performance Awards are made, the performance criteria or criterion applicable to the Award and the performance goals that relate to such criteria, and the dollar amounts or number of shares of Common Stock, Restricted Stock or Phantom S tock units payable upon achieving the applicable performance goals. As and to the extent required by Section 162(m), the terms of a Performance Award granted to a Section 162(m) Participant must include objective formula(s) or standard(s) for computing the amount of compensation payable to the Section 162(m) Participant, and must preclude discretion to increase the amount of compensation payable that would otherwise be due under the terms of the Award. The maximum amount of compensation that may be payable to a Section 162(m) Participant during any one calendar year under a Performance Unit Award shall be $15,000,000. The maximum number of Performance Share units that may be earned by a Section 162(m) Participant during any one calendar year shall be 400,000 (subject to adjustment as provided in Section 3.4 hereof).
 
10. Phantom Stock
 
10.1.   Grant of Phantom Stock.    Phantom Stock is an Award to a Participant of a number of hypothetical share units with respect to shares of Common Stock. Phantom Stock shall be subject to such restrictions and conditions as the Committee shall determine. Sections 8.1 and 8.2 shall apply to Awards of Phantom Stock units in similar manner as they apply to shares of Restricted Stock, as interpreted by the Committee, with the limitation in Section 8.2 on the number of shares of Restricted Stock that may be granted applicable separately to Phantom Stock units. An Award of Phantom Stock may be granted, at the discretion of the Committee, together with an Award of Dividend Equivalent rights for the same number of shares covered thereby.
 
10.2.   Payment of Phantom Stock.    Upon the vesting date applicable to Phantom Stock granted to a Participant, an amount equal to one share of Common Stock upon such date shall be paid with respect to such Phantom Stock unit granted to the Participant. Payment may be made, at the discretion of the Committee, in cash, Restricted Stock, shares of unrestricted Common Stock, Options, or a combination thereof. Cash payments of Phantom Stock units shall be calculated on the basis of the average of the Fair Market Value of the Common Stock for the last 20 trading days prior to the date such award becomes payable.
 
11. Dividend Equivalents
 
A Dividend Equivalent granted to a Participant is an Award in the form of a right to receive cash, shares of Common Stock, or other property equal in value to dividends paid with respect to a specific number of shares of Common Stock. Dividend Equivalents may be awarded on a free-standing basis or in connection with another Award (other than an Option or a Stock Appreciation Right), and may be paid currently or on a deferred basis. The Committee may provide at the Date of Grant or thereafter that the Dividend Equivalent shall be paid or distributed when accrued or shall be deemed to have been reinvested in additional shares of Common Stock or such other investment vehicles as the Committee may specify; provided, however, that Dividend Equivalents (other than free-standing Dividend Equivalents) shall be subject to all conditions a nd restrictions of the underlying Awards to which they relate.
 
12. Change in Control
 
12.1.   Effect of Change in Control.    The Committee may, in an Award Agreement, provide for the effect of a Change in Control on an Award. Such provisions may include any one or more of the following: (a) the acceleration or extension of time periods for purposes of exercising, vesting in, or realizing gain from any Award, (b) the waiver or modification of performance or other conditions related to the payment or other rights under an Award; (c) provision for the cash settlement of an Award for an equivalent cash value, as determined by the Committee, or (d) such other modification or adjustment to an Award as the Committee deems appropriate to maintain and protect the rights and interests of Participants upon or following a Change in Control.
 
12.2.   Definition of Change in Control.    For purposes hereof, a “Change in Control” shall be deemed to have occurred if:
 
 
(a)
any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (“Exchange Act”)), other than any company owned, directly or indirectly, by the shareholders of AEP in substantially the same proportions as their ownership of shares of Common Stock or a trustee or other fiduciary holding securities under an employee benefit plan of AEP, becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of more than 33-1/3 percent of the then outstanding voting stock of AEP;
 
 
(b)
AEP consummates a merger or consolidation with any other entity, other than a merger or consolidation which would result in the voting securities of AEP outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 66-2/3% percent of the total voting power represented by the voting securities of AEP or such surviving entity outstanding immediately after such merger or consolidation; or
 
 
(c)
the shareholders of AEP approve a plan of complete liquidation of AEP, or an agreement for the sale or disposition by AEP (in one transaction or a series of transactions) of all or substantially all of AEP’s assets.
 
13. Award Agreements
 
13.1.   Form of Agreement.    Each Award under this Plan shall be evidenced by an Award Agreement in a form approved by the Committee setting forth the number of shares of Common Stock, units or other rights (as applicable) subject to the Award, the exercise, base or purchase price (if any) of the Award, the time or times at which an Award will become vested, exercisable or payable, the duration of the Award and, in the case of Performance Awards, the applicable performance criteria and goals. The Award Agreement shall also set forth other material terms and conditions applicable to the Award as determined by the Committee consistent with the limitations of this Plan. Award Agreements evidencing Awards intended to qualify for exemption under Se ction 162(m) may be designated as such and shall contain such terms and conditions as may be necessary to meet the applicable requirements of Section 162(m). Award Agreements evidencing Incentive Stock Options shall contain such terms and conditions as may be necessary to meet the applicable provisions of Section 422 of the Code.
 
13.2.   Contract Rights; Amendment.    Any obligation of AEP to any Participant with respect to an Award shall be based solely upon contractual obligations created by an Award Agreement. No Award shall be enforceable until the Award Agreement has been signed on behalf of AEP by its authorized representative and signed by the Participant and returned to AEP as directed by the Award Agreement or the Committee. By executing the Award Agreement, a Participant shall be deemed to have accepted and consented to the terms of this Plan and any action taken in good faith under this Plan by and within the discretion of the Committee, the Board or their delegates. Award Agreements covering outstanding Awards may be amended or modified by the Committee in a ny manner that may be permitted for the grant of Awards under the Plan, subject to the consent of the Participant to the extent provided in the Award Agreement. However, the offer of an Award Agreement to a particular Eligible Person shall not infer any obligation to offer any other Award Agreements at that or any other time.
 
14. General Provisions
 
14.1.   Limits on Transfer of Awards; Beneficiaries.    Except to the extent specifically provided by the terms of an Award Agreement, Awards shall be nontransferable. During the lifetime of a Participant, Awards shall be exercised only by such Participant or by his guardian or legal representative. Notwithstanding the foregoing, the Committee may provide in the terms of an Award Agreement that the Participant shall have the right to designate a beneficiary or beneficiaries who shall be entitled to any rights, payments or other benefits specified under an Award Agreement following the Participant’s death.
 
14.2.   Deferrals of Payment.    In an Award Agreement or under a separate policy or program adopted by the Committee, a Participant may be permitted or required to defer the receipt of payment of cash or delivery of shares of Common Stock that would otherwise be due to the Participant by virtue of the exercise of a right or the satisfaction of vesting or other conditions with respect to an Award other than an Option or a Stock Appreciation Right. Any such policy or program shall establish the rules and procedures relating to such deferral, including, without limitation, the period of time in advance of payment when an election to defer may be made, the time period of the deferral and the events that would result in payment of the deferred amou nt, the interest or other earnings attributable to the deferral and the method of funding, if any, attributable to the deferred amount.
 
14.3.   Rights as Shareholder.    A Participant shall have no rights as a holder of Common Stock with respect to any unissued securities covered by an Award until the date the Participant becomes the holder of record of these securities. Except as provided in Section 3.4 hereof, no adjustment or other provision shall be made for dividends or other shareholder rights, except to the extent that the Award Agreement provides for Dividend Equivalents, dividend payments or similar economic benefits.
 
14.4.   Employment or Service.    Nothing in the Plan, in the grant of any Award or in any Award Agreement shall confer upon any Eligible Person the right to continue in the capacity in which he is employed by or otherwise serves AEP or any Subsidiary.
 
14.5.   Securities Laws.    No shares of Common Stock will be issued or transferred pursuant to an Award unless and until all then applicable requirements imposed by federal and state securities and other laws, rules and regulations and by any regulatory agencies having jurisdiction, and by any stock exchanges upon which the Common Stock may be listed, have been fully met. As a condition precedent to the issuance of shares pursuant to the grant or exercise of an Award, AEP may require the Participant to take any reasonable action to meet such requirements. The Committee may impose such conditions on any shares of Common Stock issuable under the Plan as it may deem advisable, including, without limitation, restrictions under the Securities Act o f 1933, as amended, under the requirements of any stock exchange upon which such shares of the same class are then listed, and under any blue sky or other securities laws applicable to such shares.
 
14.6.   Taxes and Withholding.    The Participant shall be responsible for payment of any taxes or similar charges required by law with respect to each Award or an amount paid in satisfaction of an Award. AEP and its Subsidiaries, as applicable, shall comply with the terms of a deduction election made by a Participant with any payment made under the terms of an Award Agreement, but only if and to the extent applicable thereto. AEP and its Subsidiaries, as applicable, may withhold and disburse such amount or amounts it determines to be required for purposes of complying with obligations for tax withholding or such other obligations under applicable federal, state and local law. The Committee in its sole discretion may direct AEP to satisfy all o r part of applicable tax withholding obligations incident to a Participant’s exercise of a Stock Option or to the vesting of Stock Appreciation Rights, Restricted Stock, Performance Shares, Performance Units or Phantom Stock by AEP’s withholding of a portion of the Common Stock that otherwise would have been issued to such Participant.
 
14.7.   Unfunded Plan.    The adoption of this Plan and any setting aside of cash amounts or shares of Common Stock by AEP with which to discharge its obligations hereunder shall not be deemed to create a trust or other funded arrangement. The benefits provided under this Plan shall be a general, unsecured obligation of AEP payable solely from the general assets of AEP, and neither a Participant nor the Participant’s permitted transferees or estate shall have any interest in any assets of AEP by virtue of this Plan, except as a general unsecured creditor of AEP. Notwithstanding the foregoing, AEP shall have the right to implement or set aside funds in a grantor trust subject to the claims of AEP’s creditors to discharge its obligati ons under the Plan.
 
14.8.   Other Compensation and Benefit Plans.    The adoption of the Plan shall not affect any other stock incentive or other compensation plans in effect for AEP or any Subsidiary, nor shall the Plan preclude AEP from establishing any other forms of stock incentive or other compensation for employees of AEP or any Subsidiary. The amount of any compensation deemed to be received by the Participant pursuant to an Award shall not constitute compensation with respect to which any other employee benefits of such Participant are determined, including, without limitation, benefits under any bonus, pension, profit sharing, life insurance or salary continuation plan, except as otherwise specifically provided by the terms of such plan.
 
14.9.   Plan Binding on Successors.    The Plan shall be binding upon AEP, its successors and assigns, and the Participant, his executor, administrator and permitted transferees and beneficiaries.
 
14.10.   Construction and Interpretation.    Whenever used herein, nouns in the singular shall include the plural, and the masculine pronoun shall include the feminine gender. Headings of Sections hereof are inserted for convenience and reference and constitute no part of the Plan.
 
14.11.   Severability.    If any provision of the Plan or any Award Agreement shall be determined to be illegal or unenforceable by any court of law in any jurisdiction, the remaining provisions hereof and thereof shall be severable and enforceable in accordance with their terms, and all provisions shall remain enforceable in any other jurisdiction.
 
14.12.   Governing Law.    The laws of the State of Ohio shall govern the validity and construction of this Plan and of the Award Agreements, without giving effect to principles relating to conflict of laws, except to the extent that such laws may be preempted by Federal law.
 
14.13.   Compliance with Rule 16b-3.    It is the intent of AEP that this Plan comply in all respects with Rule 16b-3 in connection with any Award granted to a person who is subject to Section 16 of the Exchange Act. Accordingly, if any provision of this Plan or any Award Agreement does not comply with the requirements of Rule 6b-3 as then applicable to any such person, such provision shall be construed or deemed amended to the extent necessary to conform to such requirements with respect to such person.
 
15. Effective Date, Termination and Amendment
 
15.1.   Effective Date; Shareholder Approval.    Subject to approval by the Securities and Exchange Commission, the Effective Date of the Plan shall be the date following adoption of the Plan by the Board on which the Plan is approved by the shareholders of AEP. Grants of Awards under the Plan may be made prior to the Effective Date (but after adoption of the Plan by the Board), subject to approval of the Plan by the Securities and Exchange Commission and the shareholders. At the sole discretion of the Board, in order to comply with the requirements of Section 162(m) for certain types of Awards under the Plan, the performance criteria set forth in Section 9.3 shall be reapproved by the shareholders no later than the first shareholder meeting that occurs in the fifth calendar year following the calendar year of the initial shareholder approval of such performance criteria.
 
15.2.   Termination.    The Plan shall remain in effect until terminated by action of the Board; provided, however, that no Award may be granted hereunder after April 26, 2020.
 
Notwithstanding the foregoing, no termination of the Plan shall in any manner affect any Award theretofore granted without the consent of the Participant or the permitted transferee of the Award.
 
15.3.   Amendment.    The Board may at any time and from time to time and in any respect, amend or modify the Plan; provided, however, that no amendment or modification of the Plan shall be effective without the consent of AEP’s shareholders that would (a) increase the number of shares of Common Stock reserved for issuance or (b) allow the grant of Options at an exercise price below Fair Market Value, or allow the repricing of Options without AEP shareholder approval. In addition, the Board may seek the approval of any amendment or modification by AEP’s shareholders to the extent it deems necessary or advisable in its sole discretion for purposes of compliance with Section 162(m) or Section 422 of the Code, the l isting requirements of the New York Stock Exchange or for any other purpose. No amendment or modification of the Plan shall in any manner affect any Award theretofore granted without the consent of the Participant or the permitted transferee of the Award.

 
EX-12 4 ex12aep2q.htm COMPUTATION OF RATIOS Unassociated Document
EXHIBIT 12
 
 
AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIAIRIES
Computation of Consolidated Ratios of Earnings to Fixed Charges
(in millions except ratio data)
 
         Twelve     Six  
          Months     Months  
   
Year Ended December 31,
    Ended     Ended  
   
2005
 
2006
 
2007
 
2008
 
2009
  6/30/2010    6/30/2010   
EARNINGS
                                       
Income Before Income Tax Expense and Equity Earnings
 
$
1,463  
$
1,483
 
$
1,663
 
$
2,015
 
$
1,938
 
$
1,677
 
$
750  
Fixed Charges (as below)
   
913
   
999
   
1,146
   
1,240
   
1,237
   
1,249
   
626
 
Preferred Security Dividend Requirements of
   Consolidated Subsidiaries
     (10    (4    (4    (4    (4    (4   (2)  
Total Earnings
 
$
2,366
 
$
2,478
 
$
2,805
 
$
3,251
  $
3,171
  $
2,922
 
$
1,374
 
                                             
FIXED CHARGES
                                           
Interest Expense
 
$
694
 
$
729
 
$
838
 
$
957
  $ 973  
$
994  
$
499  
Credit for Allowance for Borrowed Funds Used
   During Construction
   
36
   
82
   
79
   
75
    67     58     29  
Estimated Interest Element in Lease Rentals     173     184     225     204     193     193     96  
Preferred Security Dividend Requirements of
   Consolidated Subsidiaries
     10      4      4      4      4     4     2  
Total Fixed Charges
 
$
913
 
$
999
 
$
1,146
 
$
1,240
  $
1,237
 
$
1,249
 
$
626
 
                                             
Ratio of Earnings to Fixed Charges
   
2.59
   
2.48
   
2.44
   
2.62
   
2.56
   
2.33
   
2.19
 


EX-31.A 5 ex31aaep.htm 302 CERTIFICATION OF CEO Unassociated Document
CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002

I, Michael G. Morris, certify that:

1.  
I have reviewed this report on Form 10-Q of American Electric Power Company, Inc.;

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 registrant as of, and for, the periods presented in this report;

4.  
The registrant’s other certifying officer 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we 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 registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.  
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.  
Evaluated the effectiveness of the registrant’s 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

d.  
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.  
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting.


 
Date:   July 30, 2010    
By:           
 
/s/ Michael G. Morris
Michael G. Morris
Chief Executive Officer

EX-31.B 6 ex31baep.htm 302 CERTIFICATION OF CFO Unassociated Document
EXHIBIT 31(b)
CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002

I, Brian X. Tierney, certify that:

1.  
I have reviewed this report on Form 10-Q of American Electric Power Company, Inc.;

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 registrant as of, and for, the periods presented in this report;

4.  
The registrant’s other certifying officer 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), and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant 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 registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.  
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.  
Evaluated the effectiveness of the registrant’s 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

d.  
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.  
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting.


 
Date:   July 30, 2010    
By:           
 
/s/ Brian X. Tierney
Brian X. Tierney
Chief Financial Officer

                          
                           

EX-32.A 7 ex32aaep.htm 1350 CERTIFICATION OF CEO Unassociated Document
Exhibit 32(a)


This Certification is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section.  This Certification shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, except as otherwise stated in such filing.


Certification Pursuant to Section 1350 of Chapter 63
of Title 18 of the United States Code


In connection with the Quarterly Report of American Electric Power Company, Inc. (the “Company”) on Form 10-Q (the “Report”) for the quarter ended June 30, 2010 as filed with the Securities and Exchange Commission on the date hereof, I, Michael G. Morris, the chief executive officer of the Company certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that, based on my knowledge (i) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


/s/ Michael G. Morris
Michael G. Morris
Chief Executive Officer


July 30, 2010

A signed original of this written statement required by Section 906 has been provided to American Electric Power Company, Inc. and will be retained by American Electric Power Company, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
 
 
EX-32.B 8 ex32baep.htm 1350 CERTIFICATION OF CFO Unassociated Document
Exhibit 32(b)


This Certification is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section.  This Certification shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, except as otherwise stated in such filing.


Certification Pursuant to Section 1350 of Chapter 63
of Title 18 of the United States Code


In connection with the Quarterly Report of American Electric Power Company, Inc. (the “Company”) on Form 10-Q (the “Report”) for the quarter ended June 30, 2010 as filed with the Securities and Exchange Commission on the date hereof, I, Brian X. Tierney, the chief financial officer of the Company certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that, based on my knowledge (i) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


/s/ Brian X. Tierney
Brian X. Tierney
Chief Financial Officer


July 30, 2010


A signed original of this written statement required by Section 906 has been provided to American Electric Power Company, Inc. and will be retained by American Electric Power Company, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.




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Accordingly, they do not include all of the information and footnotes required by GAAP for complete annual financial statements.</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top :0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">In the opinion of management, the unaudited condensed consolidated interim financial statements reflect all normal and recurring accruals and adjustments necessary for a fair presentation of our net income, financial position and cash flows for the interim periods. Net income for the </font><font style="font-family:Times New Roman;font-size:11pt;">three and six months ended</font><font style="font-family:Times New Roman;font-size:11pt;"> June 30, 2010 is not necessarily indicative of results that may be expected for the year ending December 31, 2010. 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DCC purchased the nuclear fuel from I&amp;M with funds received from the issuance of notes to financial institutions. </font><font style="font-family:Times New Roman;font-size:11pt;">Each entity </font><font style="font-family:Times New Roman;font-size:11pt;">is a single-lessee leasing arrangement with only one asset and is capitalized with all debt. Payments on the lease</font><font style="font-family:Times New Roman;font-size:11pt;">s </font><font style="font-family:Times New Roman;font-size:11pt;">ar</font><font style="font-family:Times New Roman;font-size:11pt;">e made semi-annually</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">and </font><font style="font-family:Times New Roman;font-size:11pt;">beg</font><font style="font-family:Times New Roman;font-size:11pt;">a</font><font style="font-family:Times New Roman;font-size:11pt;">n in April 2010. </font><font style="font-family:Times New Roman;font-size:11pt;">Payment</font><font style="font-family:Times New Roman;font-size:11pt;">s</font><font style="font-family:Times New Roman;font-size:11pt;"> on the lease</font><font style="font-family:Times New Roman;font-size:11pt;">s </font><font style="font-family:Times New Roman;font-size:11pt;">for the three </font><font style="font-family:Times New Roman;font-size:11pt;">months ended June 30, 2010</font><font style="font-family:Times New Roman;font-size:11pt; "> </font><font style="font-family:Times New Roman;font-size:11pt;">w</font><font style="font-family:Times New Roman;font-size:11pt;">ere</font><font style="font-family:Times New Roman;font-size:11pt;"> $</font><font style="font-family:Times New Roman;font-size:11pt;">22</font><font style="font-family:Times New Roman;font-size:11pt;"> million </font><font style="font-family:Times New Roman;font-size:11pt;">and for the six months ended June 30, 2010</font><font style="font-family:Times New Roman;font-size:11pt;"> w</font><font style="font-family:Times New Roman;font-size:11pt;">ere</font><font style="font-family:Times New Roman;font-size:11pt;"> $</font><font style="font-family:Times New Roman;font-size:11pt;">22</font><font style="font-family:Times New Roman;font-size:11pt;"> million.</font><font style="font-family:Times New Roman;font-size:11pt;"> </font>&l t;font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">N</font><font style="font-family:Times New Roman;font-size:11pt;">o payments </font><font style="font-family:Times New Roman;font-size:11pt;">were </font><font style="font-family:Times New Roman;font-size:11pt;">made to DCC</font><font style="font-family:Times New Roman;font-size:11pt;"> in 2009</font><font style="font-family:Times New Roman;font-size:11pt;">. The </font><font style="font-family:Times New Roman;font-size:11pt;">lease</font><font style="font-family:Times New Roman;font-size:11pt;">s</font><font style="font-family:Times New Roman;font-size:11pt;"> w</font><font style="font-family:Times New Roman;font-size:11pt;">ere</font><font style="font-family:Times New Roman;font-size:11pt;"> recorded as capital lease</font><font style="font - -family:Times New Roman;font-size:11pt;">s</font><font style="font-family:Times New Roman;font-size:11pt;"> on I&amp;M's balance sheet as title to the nuclear fuel transfers to I&amp;M at the end of the 48 </font><font style="font-family:Times New Roman;font-size:11pt;">and 54 </font><font style="font-family:Times New Roman;font-size:11pt;">month lease term</font><font style="font-family:Times New Roman;font-size:11pt;">, respectively</font><font style="font-family:Times New Roman;font-size:11pt;">. </font><font style="font-family:Times New Roman;font-size:11pt;">Based on </font><font style="font-family:Times New Roman;font-size:11pt;">our control of DCC, </font><font style="font-family:Times New Roman;font-size:11pt;">management concluded that I&amp;M is the primary beneficiary and is required to consolidate DCC. The capital lease</font><font style="font-family:Times New Roman;font-size: 11pt;">s</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">are</font><font style="font-family:Times New Roman;font-size:11pt;"> eliminated upon consolidation. See the tables below for the classification of</font><font style="font-family:Times New Roman;font-size:11pt;"> DCC</font><font style="font-family:Times New Roman;font-size:11pt;">'s assets and liabilities on our Condensed Consolidated Balance Sheets.</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">AEP</font><font style="font-family:Times New Roman;font-size:11pt;"> Credit is a wholly-owned subsidiary of </font><font style="font-family:Times New Roman;font-size:11pt;">AEP</font><font style="font-family:Tim es New Roman;font-size:11pt;">. </font><font style="font-family:Times New Roman;font-size:11pt;">AEP</font><font style="font-family:Times New Roman;font-size:11pt;"> Credit purchases, without recourse, accounts receivable from certain utility subsidiaries of </font><font style="font-family:Times New Roman;font-size:11pt;">AEP</font><font style="font-family:Times New Roman;font-size:11pt;"> to reduce working capital requirements. </font><font style="font-family:Times New Roman;font-size:11pt;">AEP</font><font style="font-family:Times New Roman;font-size:11pt;"> provides up to </font><font style="font-family:Times New Roman;font-size:11pt;">20</font><font style="font-family:Times New Roman;font-size:11pt;">% of </font><font style="font-family:Times New Roman;font-size:11pt;">AEP</font><font style="font-family:Times New Roman;font-size:11pt;"> Credit</font><font style="font-famil y:Times New Roman;font-size:11pt;">'s</font><font style="font-family:Times New Roman;font-size:11pt;"> short-term borrowing needs in excess of third party financings. Any third party financing of </font><font style="font-family:Times New Roman;font-size:11pt;">AEP</font><font style="font-family:Times New Roman;font-size:11pt;"> Credit only has recourse to the receivables sold for such financing. Based on our control of </font><font style="font-family:Times New Roman;font-size:11pt;">AEP</font><font style="font-family:Times New Roman;font-size:11pt;"> Credit, management has concluded that we are the primary beneficiary and are required to consolidate its assets and liabilities. See the tables below for the classification of </font><font style="font-family:Times New Roman;font-size:11pt;">AEP</font><font style="font-family:Times New Roman;font-size:11pt;"> Credit's assets and liabilities on our Condensed Co</font>&l t;font style="font-family:Times New Roman;font-size:11pt;">nsolidated Balance Sheets. See the </font><font style="font-family:Times New Roman;font-size:11pt;">"ASU 2009-17 'Consoli</font><font style="font-family:Times New Roman;font-size:11pt;">dation' " section of Note 2 for a </font><font style="font-family:Times New Roman;font-size:11pt;">discussion of </font><font style="font-family:Times New Roman;font-size:11pt;">the </font><font style="font-family:Times New Roman;font-size:11pt;">impact of new accounting guidance effective </font><font style="font-family:Times New Roman;font-size:11pt;">January 1, 2010</font><font style="font-family:Times New Roman;font-size:11pt;">. Also</font><font style="font-family:Times New Roman;font-size:11pt;">,</font><font style="font-family:Times New Roman;font-size:11pt;"> see "</font><font style="font-family:Times New Roman;font-size:11pt;">Sale</ font><font style="font-family:Times New Roman;font-size:11pt;"> of Receivables &#8211; </font><font style="font-family:Times New Roman;font-size:11pt;">AEP</font><font style="font-family:Times New Roman;font-size:11pt;"> Credit" section of Note 14 in the </font><font style="font-family:Times New Roman;font-size:11pt;">2009</font><font style="font-family:Times New Roman;font-size:11pt;"> Annual Report for further information.</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">DHLC is a mining operator who sells </font><font style="font-family:Times New Roman;font-size:11pt;">50</font><font style="font-family:Times New Roman;font-size:11pt;">% of the lignite produced to SWEPCo and </font><font style="font-family:Times New Roman;font-size:11pt;"> 50</font><font style="font-family:Times New Roman;font-size:11pt;">% to C</font><font style="font-family:Times New Roman;font-size:11pt;">LECO. </font><font style="font-family:Times New Roman;font-size:11pt;">SWEPCo and C</font><font style="font-family:Times New Roman;font-size:11pt;">LECO</font><font style="font-family:Times New Roman;font-size:11pt;"> share the executive board seats</font><font style="font-family:Times New Roman;font-size:11pt;"> and its </font><font style="font-family:Times New Roman;font-size:11pt;">voting rights </font><font style="font-family:Times New Roman;font-size:11pt;">equally. 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Based on the </font><font style="font-family:Times New Roman;font-size:11pt;">shared control</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-f amily:Times New Roman;font-size:11pt;">of DHLC's operations, </font><font style="font-family:Times New Roman;font-size:11pt;">management concluded</font><font style="font-family:Times New Roman;font-size:11pt;"> as of </font><font style="font-family:Times New Roman;font-size:11pt;">January 1, 2010</font><font style="font-family:Times New Roman;font-size:11pt;"> that SWEPCo is no longer </font><font style="font-family:Times New Roman;font-size:11pt;">the primary beneficiary and is </font><font style="font-family:Times New Roman;font-size:11pt;">no longer </font><font style="font-family:Times New Roman;font-size:11pt;">required to consolidate DHLC. </font><font style="font-family:Times New Roman;font-size:11pt;">SWEPCo's total billings from DHLC for the three months ended June 30, 2010</font><font style="font-family:Times New Roman;font-size:11pt;"> and 2009 were $</font><font style="font-fa mily:Times New Roman;font-size:11pt;">13</font><font style="font-family:Times New Roman;font-size:11pt;"> million</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">and $</font><font style="font-family:Times New Roman;font-size:11pt;">8</font><font style="font-family:Times New Roman;font-size:11pt;"> million, respectively, and for the six months ended June 30, 2010</font><font style="font-family:Times New Roman;font-size:11pt;"> and 2009 were $</font><font style="font-family:Times New Roman;font-size:11pt;">26</font><font style="font-family:Times New Roman;font-size:11pt;"> million</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">and $</font><font style="font-family:Times New Roman;font-size:11pt;">18</font><f ont style="font-family:Times New Roman;font-size:11pt;"> million, respectively. See the tables below for the classification of DHLC</font><font style="font-family:Times New Roman;font-size:11pt;">'s</font><font style="font-family:Times New Roman;font-size:11pt;"> assets and liabilities on our Conde</font><font style="font-family:Times New Roman;font-size:11pt;">nsed Consolidated Balance Sheet at December 31, 2009 as well as our investment and maximum exposure as of June 30, 2010</font><font style="font-family:Times New Roman;font-size:11pt;">. As of </font><font style="font-family:Times New Roman;font-size:11pt;">January 1, 2010</font><font style="font-family:Times New Roman;font-size:11pt;">, DHLC is reported as an equity investment in Deferred Charges and Other Noncurrent Assets on our Condensed Consolidated Balance Sheet. 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The securitization bonds are payable only from and secured by the securitized transition assets. The bondholders have no recourse to TCC or any other AEP entity. </font><font style="font-family:Times New Roman;font-size:11pt;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;"> acts as the servicer for Transition Funding's securitized transition asset and remits all related amounts collected from customers to Transition Funding for interest and principal payments on the securitization bonds and related costs.</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">T</font><font style="font-family:Times New Roman;font-size:11pt;">he balan ces below represent the assets and liabilities of the VIEs that are consolidated. 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CSPCo and OPCo are unable to determine whether they will be required to return any of their </ font><font style="font-family:Times New Roman;font-size:11pt;">ESP</font><font style="font-family:Times New Roman;font-size:11pt;"> revenues to customers.</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">Management is unable to predict the outcome of the various ongoing </font><font style="font-family:Times New Roman;font-size:11pt;">ESP</font><font style="font-family:Times New Roman;font-size:11pt;"> proceedings and litigation discussed above. If these proceedings result in adverse rulings, it could reduce future net income and cash flows and impact financial condition.</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top: 0pt; margin-bottom: 0pt;'></p><p style='margin-top:12pt; margin-bottom:0pt'><font style= "font-family:Times New Roman;font-size:11pt;font-weight:bold;font-style:italic;margin-left:0px;">2009 Fuel Adjustment Clause Audit</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">As required under the </font><font style="font-family:Times New Roman;font-size:11pt;">ESP</font><font style="font-family:Times New Roman;font-size:11pt;"> orders, the PUCO selected an outside consultant to conduct the audit of the FAC for the period of January 2009 through December 2009. In May 2010, the outside consultant provided their confidential audit report of the FAC audit to the PUCO. 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This interim arrangement was</font><font style="font-family:Times New Roman;font-size:11pt;"> approved by the PUCO and was</font><font style="font-family:Times New Roman;font-size:11pt;"> effective from January 2009 through September 2009. In March 2009, the PUCO approved a FAC in the </font><font style="font-family:Times New Roman;font-size:11pt;">ESP</font><font style="font-family:Times New Roman;font-size:11pt;"> filings. The approval of the FAC, together with the PUCO approval of the interim arrangement, provided the basis to record regulatory assets for the difference between the approved market price and the rate paid by Ormet. 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In November 2009, CSPCo and OPCo requested that the PUCO approve recovery of </font><font style="font-family:Times New Roman;font-size:11pt;">the deferrals under the interim agreement</font><font style="fon t-family:Times New Roman;font-size:11pt;"> plus a weighted average cost of capital carrying charge. The interim arrangement deferrals are included in CSPCo's and OPCo's FAC phase-in deferral balance</font><font style="font-family:Times New Roman;font-size:11pt;">s</font><font style="font-family:Times New Roman;font-size:11pt;">. See "Ohio Electric Security Plan Filings" section above. In the </font><font style="font-family:Times New Roman;font-size:11pt;">ESP</font><font style="font-family:Times New Roman;font-size:11pt;"> proceeding, intervenors requested that CSPCo and OPCo be required to refund the Ormet-related regulatory assets and requested that the PUCO prevent CSPCo and OPCo from collecting the Ormet-related revenues in the future. The PUCO did not take any action on this request in the </font><font style="font-family:Times New Roman;font-size:11pt;">ESP</font><font style="font-family:Times New Roman;font-size:11pt;"> proc eeding. The intervenors raised the issue again in response to CSPCo's and OPCo's November 2009 filing to approve recovery of the deferrals under the interim agreement. 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Intervenors have filed motions with the PUCO requesting all pre-construction costs be refunded to </font><font style="font-family:Times New Roman;font-size:11pt;">Ohio</font><font style="font-family:Times New Roman;font-size:11pt;"> ratepayers with interest.</font></p><p style='margin-top:0pt; margin-bo ttom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">CSPCo and OPCo will not start construction of an IGCC plant until existing statutory barriers are addressed and sufficient assurance of regulatory cost recovery exists.</font><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;"> </font><font style="font-family:Times New Roman;font-size:11pt;">Management cannot predict the outcome of any cost recovery litigation concerning the Ohio IGCC plant or what effect, if any, such litigation would have on future net income and cash flows. 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CSPCo's and OPCo's revenue increases include $</font><font style="font-family:Times New Roman;font-size:11pt;">79</font><font style="font-family:Times New Roman;font-size:11pt;"> million and $</font><font style="font-family:Times New Roman;font-size:11pt;">83</font><font style="font-family:Times New Roman;font-size:11pt;"> million, respectively</font><font style="font-family:Times New Roman;font-size:11pt;">,</font><font style="font-family:Times New Roman;font-size:11pt;"> for program costs and $</font><font style="font-family:Times New Roman;font-size:11pt;">2</font><font style="font-family:Times New Roman;font-size:11pt;"> million and $</font><font style="font-family:Times New Roman;font-size:11pt;">3</font><font style="font-family:Times New Roman;font-size:11pt;"> million, respectively</font><font style="font-family:Times New Roman;font-size:11pt;">,</font><font style="font-family:Times New Roman;font-size:11pt;"> for net lost distribution revenues and sh ared savings.</font></p><p style='margin-top: 0pt; margin-bottom: 0pt;'></p><p style='margin-top:12pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;text-decoration:underline;margin-left:0px;">SWEPCo Rate </font><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;text-decoration:underline;">Matters</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;font-style:italic;margin-left:0px;">Turk Plant</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">SWEPCo is currently constructing the Turk Plant, a new base load 600 MW pulverized coal ultra-supercritical genera ting unit in </font><font style="font-family:Times New Roman;font-size:11pt;">Arkansas</font><font style="font-family:Times New Roman;font-size:11pt;">, which is expected to be in service in 2012. SWEPCo owns </font><font style="font-family:Times New Roman;font-size:11pt;">73</font><font style="font-family:Times New Roman;font-size:11pt;">% </font><font style="font-family:Times New Roman;font-size:11pt;">(440 MW) </font><font style="font-family:Times New Roman;font-size:11pt;">of the Turk Plant and will operate the completed facility. The Turk Plant is </font><font style="font-family:Times New Roman;font-size:11pt;">currently estimated to cost $</font><font style="font-family:Times New Roman;font-size:11pt;">1.</font><font style="font-family:Times New Roman;font-size:11pt;">7</font><font style="font-family:Times New Roman;font-size:11pt;"> billion</font><font style="font-family:T imes New Roman;font-size:11pt;">, excluding AFUDC,</font><font style="font-family:Times New Roman;font-size:11pt;"> plus an additional </font><font style="font-family:Times New Roman;font-size:11pt;">$</font><font style="font-family:Times New Roman;font-size:11pt;">131</font><font style="font-family:Times New Roman;font-size:11pt;"> million for transmission, excluding AFUDC</font><font style="font-family:Times New Roman;font-size:11pt;">.</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">SWEPC</font><font style="font-family:Times New Roman;font-size:11pt;">o's share </font><font style="font-family:Times New Roman;font-size:11pt;">is currently </font><font style="font-family:Times New Roman;font-size:11pt;">estimated to cost $</fo nt><font style="font-family:Times New Roman;font-size:11pt;">1.</font><font style="font-family:Times New Roman;font-size:11pt;">3</font><font style="font-family:Times New Roman;font-size:11pt;"> billion</font><font style="font-family:Times New Roman;font-size:11pt;">, excluding AFUDC,</font><font style="font-family:Times New Roman;font-size:11pt;"> plus an additional </font><font style="font-family:Times New Roman;font-size:11pt;">$</font><font style="font-family:Times New Roman;font-size:11pt;">131</font><font style="font-family:Times New Roman;font-size:11pt;"> million for transmission, excluding AFUDC</font><font style="font-family:Times New Roman;font-size:11pt;">.</font><font style="font-family:Times New Roman;font-size:11pt;"> As of </font><font style="font-family:Times New Roman;font-size:11pt;">June 30, 2010</font><font style="font-family:Times New Roman;font-size :11pt;">, excluding costs attributable to its joint owners, SWEPCo ha</font><font style="font-family:Times New Roman;font-size:11pt;">s capitalized approximately $</font><font style="font-family:Times New Roman;font-size:11pt;">855</font><font style="font-family:Times New Roman;font-size:11pt;"> million of expenditures (including AFUDC and capitalized interest</font><font style="font-family:Times New Roman;font-size:11pt;"> of $</font><font style="font-family:Times New Roman;font-size:11pt;">106</font><font style="font-family:Times New Roman;font-size:11pt;"> million</font><font style="font-family:Times New Roman;font-size:11pt;"> and r</font><font style="font-family:Times New Roman;font-size:11pt;">elated transmission costs of $</font><font style="font-family:Times New Roman;font-size:11pt;">46</font><font style="font-family:Times New Roman;font-size:11pt;"> million). As of </font&g t;<font style="font-family:Times New Roman;font-size:11pt;">June 30, 2010</font><font style="font-family:Times New Roman;font-size:11pt;">, the joint owners and SWEPCo have contractual construction commitments of appro</font><font style="font-family:Times New Roman;font-size:11pt;">ximately $</font><font style="font-family:Times New Roman;font-size:11pt;">425</font><font style="font-family:Times New Roman;font-size:11pt;"> million (including </font><font style="font-family:Times New Roman;font-size:11pt;">related transmission costs of $</font><font style="font-family:Times New Roman;font-size:11pt;">7</font><font style="font-family:Times New Roman;font-size:11pt;"> million). SWEPCo's share of the contractual </font><font style="font-family:Times New Roman;font-size:11pt;">construction commitments is $</font><font style="font-family:Times New Roman;font-size:11pt;">312</font><font style= "font-family:Times New Roman;font-size:11pt;"> million. If the plant is cancelled, the joint owners and SWEPCo would incur contractual construction cancellation fees, based on construction status as of </font><font style="font-family:Times New Roman;font-size:11pt;">June 30, 2010</font><font style="font-family:Times New Roman;font-size:11pt;">, of approximately $</font><font style="font-family:Times New Roman;font-size:11pt;">121</font><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;"> </font><font style="font-family:Times New Roman;font-size:11pt;">million (including related tran</font><font style="font-family:Times New Roman;font-size:11pt;">smission cancellation fees of $</font><font style="font-family:Times New Roman;font-size:11pt;">1</font><font style="font-family:Times New Roman;font-size:11pt;"> million). SWEPCo's share of the contractual construction cancellation</font> <font style="font-family:Times New Roman;font-size:11pt;"> fees would be approximately $</font><font style="font-family:Times New Roman;font-size:11pt;">89</font><font style="font-family:Times New Roman;font-size:11pt;"> million.</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">Discussed below are the outstanding uncertainties related to the Turk Plant:</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:18px;">The APSC granted approval for SWEPCo to build the Turk Plant by issuing a Certificate of Environmental Compatibility and Public Need (CECPN)</font><font style="font-family:Times New Roman;font-size:11pt;"> for the 88 MW SWEPC o </font><font style="font-family:Times New Roman;font-size:11pt;">Arkansas</font><font style="font-family:Times New Roman;font-size:11pt;"> share of the Turk Plant</font><font style="font-family:Times New Roman;font-size:11pt;">. Following an appeal by certain intervenors</font><font style="font-family:Times New Roman;font-size:11pt;">,</font><font style="font-family:Times New Roman;font-size:11pt;"> the Arkansas Supreme Court issued a decision that reversed the APSC's grant of the CECPN. The Arkansas Supreme Court </font><font style="font-family:Times New Roman;font-size:11pt;">ultimately </font><font style="font-family:Times New Roman;font-size:11pt;">concluded that the APSC erred in determining the need for additional power supply </font><font style="font-family:Times New Roman;font-size:11pt;">re</font><font style="font-family:Times New Roman;font-size:11pt;">sources in a proceeding separate fro m </font><font style="font-family:Times New Roman;font-size:11pt;">the proceeding in which the APSC</font><font style="font-family:Times New Roman;font-size:11pt;"> grant</font><font style="font-family:Times New Roman;font-size:11pt;">ed</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">the</font><font style="font-family:Times New Roman;font-size:11pt;"> CECPN. </font><font style="font-family:Times New Roman;font-size:11pt;">However, t</font><font style="font-family:Times New Roman;font-size:11pt;">he Arkansas Supreme Court approved the APSC's </font><font style="font-family:Times New Roman;font-size:11pt;">procedure of </font><font style="font-family:Times New Roman;font-size:11pt;">grant</font><font style="font-family:Times New Roman;font-size:11pt;">ing</font><font style="font-family:Tim es New Roman;font-size:11pt;"> CECPN</font><font style="font-family:Times New Roman;font-size:11pt;">s</font><font style="font-family:Times New Roman;font-size:11pt;"> for transmission facilities</font><font style="font-family:Times New Roman;font-size:11pt;"> in dockets separate from the Turk Plant CECPN proceeding</font><font style="font-family:Times New Roman;font-size:11pt;">. In June 2010, the Arkansas Supreme Court denied motions for rehearing filed by the APSC and SWEPCo</font><font style="font-family:Times New Roman;font-size:11pt;">. Therefore,</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">SWEPCo filed a notice with the APSC of its intent to proceed with construction of the Turk Plant </font><font style="font-family:Times New Roman;font-size:11pt;">but that SWEPCo no longer intends to pursue a CECPN to</font>< ;font style="font-family:Times New Roman;font-size:11pt;"> seek recover</font><font style="font-family:Times New Roman;font-size:11pt;">y</font><font style="font-family:Times New Roman;font-size:11pt;"> of the </font><font style="font-family:Times New Roman;font-size:11pt;">originally approved </font><font style="font-family:Times New Roman;font-size:11pt;">88</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">MW portion of</font><font style="font-family:Times New Roman;font-size:11pt;"> Turk Plant</font><font style="font-family:Times New Roman;font-size:11pt;"> costs</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">in </font><font style="font-family:Times New Roman;font-size:11pt;">Arkansas</font><font style= "font-family:Times New Roman;font-size:11pt;"> retail rates</font><font style="font-family:Times New Roman;font-size:11pt;">.</font><font style="font-family:Times New Roman;font-size:11pt;"> In June 2010, the APSC issued an order which reversed and set aside the previous</font><font style="font-family:Times New Roman;font-size:11pt;">ly</font><font style="font-family:Times New Roman;font-size:11pt;"> granted CECPN.</font><font style="font-family:Times New Roman;font-size:11pt;"> </font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:18px;">In July 2010, the Hempstead County Hunting Club filed a complaint with the </font><font style="font-family:Times New Roman;font-size:11pt;">Federal District Court for the Western District of Arkansas</font><font style="font-fam ily:Times New Roman;font-size:11pt;"> against SWEPCo, the </font><font style="font-family:Times New Roman;font-size:11pt;">U.S. </font><font style="font-family:Times New Roman;font-size:11pt;">Army Corp</font><font style="font-family:Times New Roman;font-size:11pt;">s</font><font style="font-family:Times New Roman;font-size:11pt;"> of Engineers, the U.S. Department of Interior and the U.S. Fish and Wildlife Service seeking </font><font style="font-family:Times New Roman;font-size:11pt;">an injunction to stop construction of the Turk Plant </font><font style="font-family:Times New Roman;font-size:11pt;">asserting</font><font style="font-family:Times New Roman;font-size:11pt;"> claims of vi</font><font style="font-family:Times New Roman;font-size:11pt;">olations of federal and state</font><font style="font-family:Times New Roman;font-size:11pt;"> laws.</font></p><p style='margin-top:0pt ; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:18px;">The PUCT issued an order approving a Certificate of Convenience and Necessity (</font><font style="font-family:Times New Roman;font-size:11pt;">CCN</font><font style="font-family:Times New Roman;font-size:11pt;">) for the Turk Plant with the following conditions: (a) a cap on the recovery of jurisdictional capital costs for the Turk Plant based on the previously estimated $</font><font style="font-family:Times New Roman;font-size:11pt;">1.522</font><font style="font-family:Times New Roman;font-size:11pt;"> billion projected construction cost, excluding AFUDC and related transmission costs, (b) a cap on recovery of annual CO</font><font style="font-family:Times New Roman;font-size:11pt;">2</font><font style="font-family:Times New Roman;font-size:11pt;"> emission cos ts at $</font><font style="font-family:Times New Roman;font-size:11pt;">28</font><font style="font-family:Times New Roman;font-size:11pt;"> per ton through the year 2030 and (c) a requirement to hold Texas ratepayers financially harmless from any adverse impact related to the Turk Plant not being fully subscribed to by other utilities or wholesale customers. SWEPCo appealed the PUCT's order contending the two cost cap restrictions are unlawful. The Texas Industrial Energy Consumers filed an appeal contending that the PUCT's grant of a conditional </font><font style="font-family:Times New Roman;font-size:11pt;">CCN</font><font style="font-family:Times New Roman;font-size:11pt;"> for the Turk Plant was unnecessary to serve retail customers. In February 2010, the Texas District Court affirmed the PUCT</font><font style="font-family:Times New Roman;font-size:11pt;">'s order</font><font style="font-family:Times New Roman;font-size:11pt;"> in all respects. In March 2010, SWEPCo and the Texas Industrial Energy Consumers appealed </font><font style="font-family:Times New Roman;font-size:11pt;">this</font><font style="font-family:Times New Roman;font-size:11pt;"> decision</font><font style="font-family:Times New Roman;font-size:11pt;"> to the Texas Court of Appeals</font><font style="font-family:Times New Roman;font-size:11pt;">.</font><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;"> </font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:18px;">The LPSC approved SWEPCo's application to construct the Turk Plant. The Sierra Club petitioned the LPSC to begin an investigation into the construction of the Turk Plant which was rejected by the LPSC in November 2009. In December 2009, the Sierra Club refi led its petition as a stand alone complaint proceeding. In February 2010, SWEPCo filed a motion to dismiss and denied the allegations in the complaint.</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:18px;">In November 2008, SWEPCo received its required air permit approval from the Arkansas Department of Environmental Quality and commenced construction at the site. </font><font style="font-family:Times New Roman;font-size:11pt;">T</font><font style="font-family:Times New Roman;font-size:11pt;">he Arkansas Pollution Control and Ecology Commission (APCEC) upheld the air permit. In February 2010, the parties who unsuccessfully appealed the air permit to the APCEC filed a notice of appeal with the Circuit Court of Hempstead County, Arkansas. </font><font style="font-family:Times New Roman;font-size:11pt;font-w eight:bold;"> </font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:18px;">The wetlands permit was issued by the U.S. Army Corps of Engineers in December 2009. In February 2010, the Sierra Club, the Audubon Society and others filed a complaint in the </font><font style="font-family:Times New Roman;font-size:11pt;">Federal District Court</font><font style="font-family:Times New Roman;font-size:11pt;"> for the Western District of Arkansas against the U.S. Army Corps of Engineers challenging the process used and the terms of the permit issued to SWEPCo authorizing certain wetland and stream impacts.</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">In May 2010, </font><font style="font-family:Times New Roman;f ont-size:11pt;">parties</font><font style="font-family:Times New Roman;font-size:11pt;"> filed with the </font><font style="font-family:Times New Roman;font-size:11pt;">Federal District Court</font><font style="font-family:Times New Roman;font-size:11pt;"> for the Western District of Arkansas for a preliminary injunction to halt construction</font><font style="font-family:Times New Roman;font-size:11pt;"> and for a temporary restraining order</font><font style="font-family:Times New Roman;font-size:11pt;">. </font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:18px;">In January 2009, SWEPCO was granted CECPNs </font><font style="font-family:Times New Roman;font-size:11pt;">by the APSC </font><font style="font-family:Times New Roman;font-size:11pt;">to build th ree transmission lines and facilities </font><font style="font-family:Times New Roman;font-size:11pt;">authorized by the </font><font style="font-family:Times New Roman;font-size:11pt;">SPP</font><font style="font-family:Times New Roman;font-size:11pt;"> and </font><font style="font-family:Times New Roman;font-size:11pt;">needed to </font><font style="font-family:Times New Roman;font-size:11pt;">transmit power from</font><font style="font-family:Times New Roman;font-size:11pt;"> the Turk Plant. Intervenors appealed the CECPN </font><font style="font-family:Times New Roman;font-size:11pt;">decisions</font><font style="font-family:Times New Roman;font-size:11pt;"> in April 2009</font><font style="font-family:Times New Roman;font-size:11pt;"> to</font><font style="font-family:Times New Roman;font-size:11pt;"> the Arkansas Court of Appeals.</font><font style="font-family:Times New Rom an;font-size:11pt;"> In July 2010, the </font><font style="font-family:Times New Roman;font-size:11pt;">Hempstead</font><font style="font-family:Times New Roman;font-size:11pt;"> County Hunting Club</font><font style="font-family:Times New Roman;font-size:11pt;"> and other appellants filed with the Arkansas Court of Appeals emergency motions to stay the transmission CECPNs to prohibit SWEPCo from taking ownership of private property and undertaking construction of the transmission lines. </font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">In July 2010, the Arkansas Court of Appeals issued a decision remanding all transmission line CECPN appeals to the APSC. As a result, a stay was not ordered and construction continues on the affected transmission lines.</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-t op:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">M</font><font style="font-family:Times New Roman;font-size:11pt;">anagement expects that SWEPCo will ultimately be able to complete construction of the Turk Plant and related transmission facilities and place those facilities in service. However, if SWEPCo is unable to complete the Turk Plant construction</font><font style="font-family:Times New Roman;font-size:11pt;">, including the related transmission facilities,</font><font style="font-family:Times New Roman;font-size:11pt;"> and place the Turk Plant in service or if SWEPCo cannot recover all of its investment in and expenses related to the Turk Plant, it would </font><font style="font-family:Times New Roman;font-size:11pt;">materially </font><font style="font-family:Times New Roman;font-size:11pt;">reduce future net income and cash flows and </font><font style="font-family:Tim es New Roman;font-size:11pt;">materially </font><font style="font-family:Times New Roman;font-size:11pt;">impact financial condition</font><font style="font-family:Times New Roman;font-size:11pt;">.</font></p><p style='margin-top: 0pt; margin-bottom: 0pt;'></p><p style='margin-top:12pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;font-style:italic;margin-left:0px;">Stall Unit</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">SWEPCo construct</font><font style="font-family:Times New Roman;font-size:11pt;">ed</font><font style="font-family:Times New Roman;font-size:11pt;"> the Stall Unit, an intermediate load 500 MW natural gas-fired combustion turbine combined cycle generating unit, at its existing Arsenal Hill Plant located in </font><font style="font-family:Times New Roman;font-size:11pt;">Shreveport</font><font style="font-family:Times New Roman;font-size:11pt;">, </font><font style="font-family:Times New Roman;font-size:11pt;">Louisiana</font><font style="font-family:Times New Roman;font-size:11pt;">. </font><font style="font-family:Times New Roman;font-size:11pt;">The LPSC and the APSC issued orders capping SWEPCo's Stall Unit construction costs at $</font><font style="font-family:Times New Roman;font-size:11pt;">445</font><font style="font-family:Times New Roman;font-size:11pt;"> million including AFUDC and excluding related transmission costs. </font><font style="font-family:Times New Roman;font-size:11pt;">The Stall Unit was placed in service in June 2010. As of </font><font style="font-family:Times New Roman;font-size:11pt;">June 30, 2010</font><font style="font-family:Times New Rom an;font-size:11pt;">, the Stall Unit cost $</font><font style="font-family:Times New Roman;font-size:11pt;">4</font><font style="font-family:Times New Roman;font-size:11pt;">22</font><font style="font-family:Times New Roman;font-size:11pt;"> million, including $</font><font style="font-family:Times New Roman;font-size:11pt;">49</font><font style="font-family:Times New Roman;font-size:11pt;"> million of AFUDC</font><font style="font-family:Times New Roman;font-size:11pt;">. Management does not expect the final costs of the Stall Unit to exceed the ordered cap.</font></p><p style='margin-top: 0pt; margin-bottom: 0pt;'></p><p style='margin-top:12pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;font-style:italic;margin-left:0px;">2009 </font><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;font-style:italic;">Texas</f ont><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;font-style:italic;"> Base Rate Filing</font><font style="font-family:Times New Roman;font-size:11pt;"> </font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">In August 2009, SWEPCo filed a rate case with the PUCT to increase its base rates by approximately $</font><font style="font-family:Times New Roman;font-size:11pt;">75</font><font style="font-family:Times New Roman;font-size:11pt;"> million annually including a return on equity of </font><font style="font-family:Times New Roman;font-size:11pt;">11.5</font><font style="font-family:Times New Roman;font-size:11pt;">%. The filing included requests for financing cost riders of $</font><font style="font-family:Times New Roman;font-size:11p t;">32</font><font style="font-family:Times New Roman;font-size:11pt;"> million related to construction of the Stall Unit and Turk Plant, a vegetation management rider of $</font><font style="font-family:Times New Roman;font-size:11pt;">16</font><font style="font-family:Times New Roman;font-size:11pt;"> million and other requested increases of $</font><font style="font-family:Times New Roman;font-size:11pt;">27</font><font style="font-family:Times New Roman;font-size:11pt;"> million. 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In addition, the settlement agreement will decrease annual depreciation expense by $</font><font style="font-family:Times New Roman;font-size:11pt;">17</font><font style="font-family:Times New Roman;font-size:11pt;"> million and allows SWEPCo a $</font><font style="font-family:Times New Roman;font-size:11pt;">10</font><font style="font-family:Times New Roman;font-size:11pt;"> million one-year surcharge rider to recover additional vegetation management costs that SWEPCo must spend within two years.</font></p>&l t;p style='margin-top: 0pt; margin-bottom: 0pt;'></p><p style='margin-top:12pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;font-style:italic;margin-left:0px;">Texas</font><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;font-style:italic;"> Fuel Reconciliation</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">In May 2010, various intervenors</font><font style="font-family:Times New Roman;font-size:11pt;">, including </font><font style="font-family:Times New Roman;font-size:11pt;">the PUCT staff</font><font style="font-family:Times New Roman;font-size:11pt;">,</font><font style="font-family:Times New Roman;font-size:11pt;"> filed testimony recommending disallowances</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">ranging from $</font><font style="font-family:Times New Roman;font-size:11pt;">3</font><font style="font-family:Times New Roman;font-size:11pt;"> million to</font><font style="font-family:Times New Roman;font-size:11pt;"> $</font><font style="font-family:Times New Roman;font-size:11pt;">3</font><font style="font-family:Times New Roman;font-size:11pt;">0</font><font style="font-family:Times New Roman;font-size:11pt;"> million</font><font style="font-family:Times New Roman;font-size:11pt;"> in SWEPCo's $</font><font style="font-family:Times New Roman;font-size:11pt;">755</font><font style="font-family:Times New Roman;font-size:11pt;"> million fuel and purchase power costs reconciliation for the period January 2006 through March 2009. </font><font style="font-famil y:Times New Roman;font-size:11pt;">In July 2010, </font><font style="font-family:Times New Roman;font-size:11pt;">Cities Advocating Reasonable Deregulation</font><font style="font-family:Times New Roman;font-size:11pt;"> filed testimony regarding the 2007 transfer of ERCOT trading contracts to </font><font style="font-family:Times New Roman;font-size:11pt;">AEP</font><font style="font-family:Times New Roman;font-size:11pt;"> Energy </font><font style="font-family:Times New Roman;font-size:11pt;">P</font><font style="font-family:Times New Roman;font-size:11pt;">artners</font><font style="font-family:Times New Roman;font-size:11pt;">. </font><font style="font-family:Times New Roman;font-size:11pt;">Included in this testimony were unquantified refund recommendations relating to re-pricing of contract transactions. </font><font style="font-family:Times New Roman;font-size:11pt;">Management is unable t o predict the outcome of this reconciliation. If the PUCT disallows </font><font style="font-family:Times New Roman;font-size:11pt;">any portion of </font><font style="font-family:Times New Roman;font-size:11pt;">SWEPCo's fuel and purchase power costs, </font><font style="font-family:Times New Roman;font-size:11pt;">it could reduce future net income and cash flows and possibly impact financial condition.</font></p><p style='margin-top: 0pt; margin-bottom: 0pt;'></p><p style='margin-top:12pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;text-decoration:underline;margin-left:0px;">TCC and TNC Rate Matters</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;margin-left:0px;">TEXAS</font><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;"> RESTRUCTURING</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;font-style:italic;margin-left:0px;">Texas</font><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;font-style:italic;"> Restructuring Appeals</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">Pursuant to PUCT restructuring orders, </font><font style="font-family:Times New Roman;font-size:11pt;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;"> securitized net recoverable stranded generation costs of $</font><font style="font-family:Times New Roman;font-size:11pt;">2.5&l t;/font><font style="font-family:Times New Roman;font-size:11pt;"> billion and is recovering the principal and interest on the securitization bonds through the end of 2020. </font><font style="font-family:Times New Roman;font-size:11pt;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;"> also refunded other net true-up regulatory liabilities of $</font><font style="font-family:Times New Roman;font-size:11pt;">375</font><font style="font-family:Times New Roman;font-size:11pt;"> million during the period October 2006 through June 2008 via a </font><font style="font-family:Times New Roman;font-size:11pt;">CTC</font><font style="font-family:Times New Roman;font-size:11pt;"> credit rate rider under PUCT restructuring orders. </font><font style="font-family:Times New Roman;font-size:11pt;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;"> and intervenors appealed the PUCT' s true-up related orders. After ruling</font><font style="font-family:Times New Roman;font-size:11pt;">s</font><font style="font-family:Times New Roman;font-size:11pt;"> from the Texas District Court and the Texas Court of Appeals, </font><font style="font-family:Times New Roman;font-size:11pt;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;">, the PUCT and intervenors filed petitions for review with the Texas Supreme Court. Review is discretionary and the Texas Supreme Court has not yet determined if it will grant review. The Texas Supreme Court requested a full briefing which has concluded. The following represent issues where either the Texas District Court or the Texas Court of Appeals recommended the PUCT decision be modified:</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'></p><ul><li style="margin-left:36px;list-style:dis c;"><font style="font-family:Times New Roman;font-size:11pt;">The Texas District Court judge determined that the PUCT erred by applying an invalid rule to determine the carrying cost rate for the true-up of stranded costs. The Texas Court of Appeals</font><font style="font-family:Times New Roman;font-size:11pt;"> reversed the District Court's unfavorable decision.</font></li></ul><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'></p><ul><li style="margin-left:36px;list-style:disc;"><font style="font-family:Times New Roman;font-size:11pt;">The Texas District Court judge determined that the PUCT improperly reduced </font><font style="font-family:Times New Roman;font-size:11pt;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;">'s net stranded plant costs for commercial unreasonableness. This favorable decision was affirmed by the Texas Court of Appeals.</font></li></ul><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'></p><ul><li style="margin-left:36px;list-style:disc;"><font style="font-family:Times New Roman;font-size:11pt;">The Texas Court of Appeals determined that the PUCT erred by not reducing stranded costs by the "excess earnings" that had already been refunded to affiliated REPs. This decision could be unfavorable unless the PUCT allows </font><font style="font-family:Times New Roman;font-size:11pt;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;"> to recover the refunds previously made to the REPs. See the "</font><font style="font-family:Times New Roman;font-size:11pt;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;"> Excess Earnings" section below. </font></li></ul><p style='margin-top:0pt; margin-bottom :0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">Management cannot predict the outcome of the pending court proceedings and the PUCT remand decisions. If </font><font style="font-family:Times New Roman;font-size:11pt;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;"> ultimately succeeds in its appeals, it could have a favorable effect on future net income, cash flows and possibly financial condition. If intervenors succeed in their appeals, it could reduce future net income and cash flows and possibly impact financial condition.</font></p><p style='margin-top: 0pt; margin-bottom: 0pt;'></p><p style='margin-top:12pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;font-style:italic;margin-left:0px;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;fon t-weight:bold;font-style:italic;"> Deferred Investment Tax Credits and Excess Deferred Federal Income Taxes</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">In 2006, the PUCT reduced recovery of the amount securitized by $</font><font style="font-family:Times New Roman;font-size:11pt;">103</font><font style="font-family:Times New Roman;font-size:11pt;"> million of tax benefits and associated carrying costs related to </font><font style="font-family:Times New Roman;font-size:11pt;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;">'s generation assets. In 2006, </font><font style="font-family:Times New Roman;font-size:11pt;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;"> obtained a private letter ruling from the </font&g t;<font style="font-family:Times New Roman;font-size:11pt;">IRS</font><font style="font-family:Times New Roman;font-size:11pt;"> which confirmed that such reduction was an </font><font style="font-family:Times New Roman;font-size:11pt;">IRS</font><font style="font-family:Times New Roman;font-size:11pt;"> normalization violation. In order to avoid a normalization violation, the PUCT agreed to allow </font><font style="font-family:Times New Roman;font-size:11pt;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;"> to defer refunding the tax benefits of $</font><font style="font-family:Times New Roman;font-size:11pt;">103</font><font style="font-family:Times New Roman;font-size:11pt;"> million plus interest through the </font><font style="font-family:Times New Roman;font-size:11pt;">CTC</font><font style="font-family:Times New Roman;font-size:11pt;"> refund period pending resolutio n of the normalization issue. In 2008, the </font><font style="font-family:Times New Roman;font-size:11pt;">IRS</font><font style="font-family:Times New Roman;font-size:11pt;"> issued final regulations, which supported the </font><font style="font-family:Times New Roman;font-size:11pt;">IRS</font><font style="font-family:Times New Roman;font-size:11pt;">' private letter ruling which would make the refunding of or the reduction of the amount securitized by such tax benefits a normalization violation. After the </font><font style="font-family:Times New Roman;font-size:11pt;">IRS</font><font style="font-family:Times New Roman;font-size:11pt;"> issued its final regulations, at the request of the PUCT, the Texas Court of Appeals remanded the tax normalization issue to the PUCT for the consideration of additional evidence including the </font><font style="font-family:Times New Roman;font-size:11pt;">IRS</font><font style ="font-family:Times New Roman;font-size:11pt;"> regulations. </font><font style="font-family:Times New Roman;font-size:11pt;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;"> is not accruing interest on the $103 million because it is not probable that the PUCT will order </font><font style="font-family:Times New Roman;font-size:11pt;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;"> to violate the normalization provision of the Internal Revenue Code. If interest were accrued, management estimates interest expense would have b</font><font style="font-family:Times New Roman;font-size:11pt;">een approximately $</font><font style="font-family:Times New Roman;font-size:11pt;">17</font><font style="font-family:Times New Roman;font-size:11pt;"> million higher for the period July 2008 through </font><font style="font-family:Times New Roman;font-size:11pt;">June</font>< font style="font-family:Times New Roman;font-size:11pt;"> 2010.</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">Management believes that the PUCT will ultimately allow </font><font style="font-family:Times New Roman;font-size:11pt;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;"> to retain the deferred amounts, which would have a favorable effect on future net income and cash flows. </font><font style="font-family:Times New Roman;font-size:11pt;">Although unexpected, if the PUCT fails to issue a favorable order and orders </font><font style="font-family:Times New Roman;font-size:11pt;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;"> to return the tax benefits to customers, the resulting normalization violation could result in </ font><font style="font-family:Times New Roman;font-size:11pt;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;">'s repayment to the </font><font style="font-family:Times New Roman;font-size:11pt;">IRS</font><font style="font-family:Times New Roman;font-size:11pt;"> of Accumulated Deferred Investment Tax Credits (ADITC) on all property, including transmission and distribution property</font><font style="font-family:Times New Roman;font-size:11pt;">. This amount approximates $</font><font style="font-family:Times New Roman;font-size:11pt;">102</font><font style="font-family:Times New Roman;font-size:11pt;"> million as of </font><font style="font-family:Times New Roman;font-size:11pt;">June 30, 2010</font><font style="font-family:Times New Roman;font-size:11pt;">. It could also lead to a loss of </font><font style="font-family:Times New Roman;font-size:11pt;">TCC</font> <font style="font-family:Times New Roman;font-size:11pt;">'s right to claim accelerated tax depreciation in future tax returns. If </font><font style="font-family:Times New Roman;font-size:11pt;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;"> is required to repay its ADITC to the </font><font style="font-family:Times New Roman;font-size:11pt;">IRS</font><font style="font-family:Times New Roman;font-size:11pt;"> and is also required to refund ADITC plus unaccrued interest to customers, it would reduce future net income and cash flows and impact financial condition.</font></p><p style='margin-top: 0pt; margin-bottom: 0pt;'></p><p style='margin-top:12pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;font-style:italic;margin-left:0px;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;font-style:italic;"> Excess Earnings</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">In 2005, a </font><font style="font-family:Times New Roman;font-size:11pt;">Texas</font><font style="font-family:Times New Roman;font-size:11pt;"> appellate court issued a decision finding that a PUCT order requiring </font><font style="font-family:Times New Roman;font-size:11pt;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;"> to refund to the REPs excess earnings prior to and outside of the true-up process was unlawful under the Texas Restructuring Legislation. From 2002 to 2005, </font><font style="font-family:Times New Roman;font-size:11pt;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;"> refunded $</font><font style="font-family:Times New Roman;font-si ze:11pt;">55</font><font style="font-family:Times New Roman;font-size:11pt;"> million of excess earnings, including interest, under the overturned PUCT order. On remand, the PUCT must determine how to implement the Court of Appeals decision given that the unauthorized refunds were made to the REPs in lieu of reducing stranded costs in the true-up proceeding.</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">C</font><font style="font-family:Times New Roman;font-size:11pt;">ertain parties have taken positions that, if adopted, could result in </font><font style="font-family:Times New Roman;font-size:11pt;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;"> being required to refund excess earnings and interest through the true-up process without receiving a refund from th e REPs. If this were to occur, it would reduce future net income and cash flows </font><font style="font-family:Times New Roman;font-size:11pt;">and impact financial condition</font><font style="font-family:Times New Roman;font-size:11pt;">. Management cannot predict the outcome of the excess earnings remand.</font></p><p style='margin-top: 0pt; margin-bottom: 0pt;'></p><p style='margin-top:12pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;margin-left:0px;">OTHER </font><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;">TEXAS</font><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;"> </font><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;">RATE</font><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;"> MATTERS</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;font-style:italic;margin-left:0px;">Texas</font><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;font-style:italic;"> Base Rate Appeal</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;"> filed a base rate case in 2006 seeking to increase base rates. The PUCT issued an order in 2007 which increased </font><font style="font-family:Times New Roman;font-size:11pt;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;">'s base rates by $</font><font style="font-family:Times New Roman;font-size:11pt;">20</fo nt><font style="font-family:Times New Roman;font-size:11pt;"> million, eliminated a merger credit rider of $</font><font style="font-family:Times New Roman;font-size:11pt;">20</font><font style="font-family:Times New Roman;font-size:11pt;"> million and reduced depreciation rates by $</font><font style="font-family:Times New Roman;font-size:11pt;">7</font><font style="font-family:Times New Roman;font-size:11pt;"> million. </font><font style="font-family:Times New Roman;font-size:11pt;">The PUCT decision was appealed by </font><font style="font-family:Times New Roman;font-size:11pt;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;"> and various intervenors. On appeal, the Texas District Court affirmed the PUCT in most respects. 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The PUCT approved </font><font style="font-family:Times New Roman;font-size:11pt;">ETT</font><font style="font-family:Times New Roman;font-size:11pt;">'s initial rates, a request for a transfer of in-service assets and CWIP and a certificate of convenience and necessity (</font><font style="font-family:Times New Roman;font-size:11pt;">CCN</font><font style="font-family:Times New Roman;font-size:11pt;">) to operate as a stand alone transmi ssion utility in ERCOT. </font><font style="font-family:Times New Roman;font-size:11pt;">ETT</font><font style="font-family:Times New Roman;font-size:11pt;"> was allowed a </font><font style="font-family:Times New Roman;font-size:11pt;">9.96</font><font style="font-family:Times New Roman;font-size:11pt;">% return on equity. Intervenors appealed the PUCT's decision. </font><font style="font-family:Times New Roman;font-size:11pt;">In March 2010, the Texas Court of Appeals affirmed the PUCT's decision in all material respects.</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;"> In April 2010, intervenors filed for rehearing at the Texas Court of Appeals which was denied in May 2010. </font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-f amily:Times New Roman;font-size:11pt;margin-left:0px;">In a separate development, the </font><font style="font-family:Times New Roman;font-size:11pt;">Texas</font><font style="font-family:Times New Roman;font-size:11pt;"> governor signed a new law that clarifies the PUCT's authority to grant CCNs to transmission only utilities such as </font><font style="font-family:Times New Roman;font-size:11pt;">ETT</font><font style="font-family:Times New Roman;font-size:11pt;">. </font><font style="font-family:Times New Roman;font-size:11pt;">ETT</font><font style="font-family:Times New Roman;font-size:11pt;"> filed an application with the PUCT for a </font><font style="font-family:Times New Roman;font-size:11pt;">CCN</font><font style="font-family:Times New Roman;font-size:11pt;"> under the new law. 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The order denied recovery of the </font><font style="font-family:Times New Roman;font-size:11pt;">Virginia</font><font style="font-family:Times New Roman;font-size:11pt;"> share of the </font><font style="font-family:Times New Roman;font-size:11pt;">Mountaineer Carbon C apture and Storage Project, which resulted in a </font><font style="font-family:Times New Roman;font-size:11pt;">pretax </font><font style="font-family:Times New Roman;font-size:11pt;">write-off of $</font><font style="font-family:Times New Roman;font-size:11pt;">54</font><font style="font-family:Times New Roman;font-size:11pt;"> million in the second quarter of 2010.</font><font style="font-family:Times New Roman;font-size:11pt;"> See "Mountaineer Carbon Capture and Storage Project" section below.</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">In addition</font><font style="font-family:Times New Roman;font-size:11pt;">, the order allowed the deferral </font><font style="font-family:Times New Roman;font-size:11pt;">in the second quarter of 2010 </font><font style="font-family:Times New Roman;font-size:11pt;"&g t;of </font><font style="font-family:Times New Roman;font-size:11pt;">approximately $</font><font style="font-family:Times New Roman;font-size:11pt;">25</font><font style="font-family:Times New Roman;font-size:11pt;"> million of incremental storm expense incurred in 2009.</font><font style="font-family:Times New Roman;font-size:11pt;"> In July 2010, APCo filed with the Virginia </font><font style="font-family:Times New Roman;font-size:11pt;">SCC</font><font style="font-family:Times New Roman;font-size:11pt;"> a petition for reconsideration of the order as it relates to the Mountaineer Carbon Capture and Storage Project.</font></p><p style='margin-top: 0pt; margin-bottom: 0pt;'></p><p style='margin-top:12pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;font-style:italic;margin-left:0px;">2010 </font><font style="font-family:Times New Roman;font-si ze:11pt;font-weight:bold;font-style:italic;">West Virginia</font><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;font-style:italic;"> Base Rate Case</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">In May 2010, APCo and WPCo filed a request with the WVPSC to increase annual base rates by $</font><font style="font-family:Times New Roman;font-size:11pt;">156</font><font style="font-family:Times New Roman;font-size:11pt;"> million based on a</font><font style="font-family:Times New Roman;font-size:11pt;">n</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">11.75</font><font style="font-family:Times New Roman;font-size:11pt;">% return on common equity&l t;/font><font style="font-family:Times New Roman;font-size:11pt;"> to be effective March 2011</font><font style="font-family:Times New Roman;font-size:11pt;">. </font><font style="font-family:Times New Roman;font-size:11pt;">Hearings are scheduled for December 2010. </font><font style="font-family:Times New Roman;font-size:11pt;">A</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">decision from the WVPSC </font><font style="font-family:Times New Roman;font-size:11pt;">is expected </font><font style="font-family:Times New Roman;font-size:11pt;">i</font><font style="font-family:Times New Roman;font-size:11pt;">n </font><font style="font-family:Times New Roman;font-size:11pt;">March </font><font style="font-family:Times New Roman;font-size:11pt;">2011</font><font style="font-family:Times New Rom an;font-size:11pt;">.</font></p><p style='margin-top: 0pt; margin-bottom: 0pt;'></p><p style='margin-top:12pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;font-style:italic;margin-left:0px;">Mountaineer Carbon Capture and Storage Project</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">APCo and ALSTOM Power, Inc., an unrelated third party, jointly constructed a CO</font><font style="font-family:Times New Roman;font-size:11pt;">2</font><font style="font-family:Times New Roman;font-size:11pt;"> capture validation facility, which was placed into service in September 2009. 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In March 2010, the Oklahoma Attorney General and the OIEC recommended the fuel clause adjustment rider be amended so that the shareholder's portion of </font><font style="font-family:Times New Roman;font-size:11pt;">off-system sales margins</font><font style="font-family:Times New Roman;font-size:11pt;"> decrease from </font><font style="font-family:Times New Roman;font-size:11pt;">25</font><font style="font-family:Times New Roman;font-size:11pt;">% to </font><font style="font-family:Times New Roman;font-size:11pt;">10</font><font style="font-family:Times New Roman;font-size:11pt;">%. The OIEC also recommended that the OCC conduct a comprehensive review of all affiliate transactions during 2007 and 2008. </font><font style="font-family:Times New Roman;font-size:11pt;">In July 2010, additional testimony regarding the 2007 transfer of ERCOT trading contracts to </font><font style="font-family:Times New Roman;font-size:11pt;">AEP</font><font style="font-family:Times New Roman;font-size:11pt;"> Energy Partners was filed. Incl uded in this testimony were unquantified refund recommendations relating to re-pricing of contract transactions.</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">If the OCC were to iss</font><font style="font-family:Times New Roman;font-size:11pt;">ue an unfavorable decision, it c</font><font style="font-family:Times New Roman;font-size:11pt;">ould reduce future net income and cash flows and impact financial condition.</font></p><p style='margin-top: 0pt; margin-bottom: 0pt;'></p><p style='margin-top:12pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;font-style:italic;margin-left:0px;">2008 </font><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;font-style:italic;">Oklahoma</font><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;fon t-style:italic;"> Base Rate Appeal</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">In January 2009, the OCC issued a final order approving an $</font><font style="font-family:Times New Roman;font-size:11pt;">81</font><font style="font-family:Times New Roman;font-size:11pt;"> million increase in </font><font style="font-family:Times New Roman;font-size:11pt;">PSO</font><font style="font-family:Times New Roman;font-size:11pt;">'s non-fuel base revenues based on a </font><font style="font-family:Times New Roman;font-size:11pt;">10.5</font><font style="font-family:Times New Roman;font-size:11pt;">% return on equity. 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Typically these contracts include, but are not limited to, sale agreements, lease agreements, purchase agreements and financing agreements. Generally, these agreements may include, but are not limited to, indemnifications around certain tax, contractual and environmental matters. With respect to sale agreements, our exposure generally does not exceed the sale price. The status of certain sale agreements is discussed in the 2009 Annual Report</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">"Dispositions" section of Note 7. These sale agreements include indemnifications with a maximum exposure related to the collective purchase price. </font><font style="font-family:Times New Roman;font-size:11pt;">This maximum exposure of a</font><font style="font-family:Times New Roman;font-size:11pt;">pproximately $</font><font style="font- family:Times New Roman;font-size:11pt;">1</font><font style="font-family:Times New Roman;font-size:11pt;"> billion relates to the Bank of America (</font><font style="font-family:Times New Roman;font-size:11pt;">BOA</font><font style="font-family:Times New Roman;font-size:11pt;">) litigation (see "Enron Bankruptcy" section of this note), of which the probable payment/performance risk is $</font><font style="font-family:Times New Roman;font-size:11pt;">445</font><font style="font-family:Times New Roman;font-size:11pt;"> million and is recorded in Deferred Credits and Other Noncurrent Liabilities on our Condensed Consolidated Balance Sheets as of June 30, 2010</font><font style="font-family:Times New Roman;font-size:11pt;">. The remaining exposure is remote. There are no material liabilities recorded for any indemnifications other than amounts recorded related to the </font><font style="font-family:Times New Roman;font-size:1 1pt;">BOA</font><font style="font-family:Times New Roman;font-size:11pt;"> litigation.</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;font-style:italic;margin-left:0px;">Master Lease Agreements</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">We lease certain equipment under master lease agreements. </font><font style="font-family:Times New Roman;font-size:11pt;">GE Capital Commercial Inc. (GE) notified us in November 2008 that they elected to terminate our Master Leasing Agreements in accordance with the termination rights specified within the contract. In 2011, we will be required to purchase all equipment under the lease and pay GE an amount equal t o the unamortized value of all equipment then leased. 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Hist orically, at the end of the lease term the fair value has been in excess of the unamortized balance.</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;font-style:italic;margin-left:0px;">Railcar Lease</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">In June 2003, </font><font style="font-family:Times New Roman;font-size:11pt;">AEP</font><font style="font-family:Times New Roman;font-size:11pt;"> Transportation LLC (</font><font style="font-family:Times New Roman;font-size:11pt;">AEP</font><font style="font-family:Times New Roman;font-size:11pt;"> Transportation), a subsidiary of </font><font style="font-family:Times New Roman;fo nt-size:11pt;">AEP</font><font style="font-family:Times New Roman;font-size:11pt;">, entered into an agreement with BTM Capital Corporation, as lessor, to lease 875 coal-transporting aluminum railcars. 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Cases with similar allegations against </font><font style="font-family:Times New Roman;font-size:11pt;">CSPCo, Dayton Power and Light Company and Duke Energy Ohio, Inc. </font><font style="font-family:Times New Roman;font-size:11pt;">were also filed related to their jointly-owned units. 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This equipment, located in the turbine building, is separate and isolated from the nuclear reactor. The turbine rotors that caused the vibration were installed in 2006 and are within the vendor's warranty period. The warranty provides for the repair or replacement of the turbine rotors if the damage was caused by a defect in materials or workmanship. </font><font style="font-family:Times New Roman;font-size:11pt;">Repair of the property damage and replacement of the turbine rotors and other equipment could cost up to approximately $</font><font style="font-fam ily:Times New Roman;font-size:11pt;">395</font><font style="font-family:Times New Roman;font-size:11pt;"> million. </font><font style="font-family:Times New Roman;font-size:11pt;">Management believes that I&amp;M should recover a significant portion of these costs through the turbine vendor's warranty, insurance and the regulatory process. 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I</font><font sty le="font-family:Times New Roman;font-size:11pt;">&amp;M will seek recovery in rates for any amount it </font><font style="font-family:Times New Roman;font-size:11pt;">may pay related to this dispute</font><font style="font-family:Times New Roman;font-size:11pt;">. </font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">We are unable to determine a range of potential losses that are reasonably possible of occurring</font><font style="font-family:Times New Roman;font-size:11pt;">.</font></p><p style='margin-top: 0pt; margin-bottom: 0pt;'></p><p style='margin-top: 0pt; margin-bottom: 0pt;'></p><p style='margin-top:12pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;font-style:italic;margin-left:0px;">Enron Bankruptcy</font></p><p style='margin-top:0pt; margin-botto m:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">In 2001, we purchased </font><font style="font-family:Times New Roman;font-size:11pt;">Houston Pipeline Company</font><font style="font-family:Times New Roman;font-size:11pt;"> (HPL) from Enron. 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(AEPEP) ( Generation and Marketing segment) and entered into intercompany financial and physical purchase and sales agreements with AEPEP. As a result, we reported third-party net purchases or sales activity for these energy marketing contracts as Revenues from External Customers for the Utility Operations segment. This was offset by</font><font style="font-family:Times New Roman;font-size:9pt;"> the Utility Operations segment'</font><font style="font-family:Times New Roman;font-size:9pt;">s related net sales (purchases) for these contracts with AEPEP in Revenues from Other Operating Segments of $</font><font style="font-family:Times New Roman;font-size:9pt;">(1)</font><font style="font-family:Times New Roman;font-size:9pt;"> million and $</font><font style="font-family:Times New Roman;font-size:9pt;">(6)</font><font style="font-family:Times New Roman;font-size:9pt;"> million for the three and six months ended, 2009, respectively. 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margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">We are exposed to certain market risks as a major power producer and marketer of wholesale electricity, coal and emission allowances. 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text-align:left;border-color:#000000;min-width:230px;">&#160;</td><td style="width: 7px; text-align:left;border-color:#000000;min-width:7px;">&#160;</td><td style="width: 12px; text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 95px; text-align:right;border-color:#000000;min-width:95px;">&#160;</td><td style="width: 7px; text-align:left;border-color:#000000;min-width:7px;">&#160;</td><td style="width: 12px; text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 75px; text-align:right;border-color:#000000;min-width:75px;">&#160;</td><td style="width: 7px; text-align:left;border-color:#000000;min-width:7px;">&#160;</td><td style="widt h: 12px; text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 70px; text-align:right;border-color:#000000;min-width:70px;">&#160;</td><td style="width: 7px; text-align:left;border-color:#000000;min-width:7px;">&#160;</td><td style="width: 12px; text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 55px; 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The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). Where observable inputs are available for substantially the full term of the asset or liability, the instrument is categorized in Level 2. When quoted market prices are not available, pricing may be completed using comparable securities, dealer values, operating data and general market conditions to determine fair value. </font><font style="font-family:Times New Roman;font-size:11pt;">Valuation models utilize various inputs</font><font style="font-family:Times New Roman;font-size:11pt;"> such as commodity, interest rate and, to a lesser degree, v olatility and credit</font><font style="font-family:Times New Roman;font-size:11pt;"> that include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in</font><font style="font-family:Times New Roman;font-size:11pt;"> inactive</font><font style="font-family:Times New Roman;font-size:11pt;"> markets, market corroborated inputs (i.e. inputs derived principally from, or correlated to, observable market data) and other observable inputs for the asset or liability.</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">For our commercial activities, exchange traded derivatives, namely futures contracts, are generally fair valued based</font><font style="font-family:Times New Roman;font-size:11pt;"> on unadjusted quoted price s in active markets and are classified </font><font style="font-family:Times New Roman;font-size:11pt;">as</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">L</font><font style="font-family:Times New Roman;font-size:11pt;">evel 1.</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;"> Level 2 inputs primarily consist of OTC broker quotes in moderately active or less active markets, as well as exchange traded contracts where there is </font><font style="font-family:Times New Roman;font-size:11pt;">in</font><font style="font-family:Times New Roman;font-size:11pt;">sufficient market liquidity to warrant inclusion in </font><font style="font-family:Times New Roman;font-size:11pt;">L</font><font style="font-family:Times New Roman;font-size:11pt; ">evel 1. </font><font style="font-family:Times New Roman;font-size:11pt;">We verify our price curves using these broker quotes and classify these fair values within Level 2 when substantially all of the fair value can be corroborated. We typically obtain multiple broker quotes, which are non-binding in nature, but are based on recent trades in the marketplace. When multiple broker quotes are obtained, we average the quoted bid and ask prices. In certain circumstances, we may discard a broker quote if it is a clear outlier. We use a historical correlation analysis between the broker quoted location and the illiquid locations and if the points are highly correlated we include these locations within Level 2 as well. </font><font style="font-family:Times New Roman;font-size:11pt;">Certain OTC and bilaterally executed derivative instruments are executed in less active markets with a lower availability of pricing information. </font><font style="font-family:Times New Rom an;font-size:11pt;">L</font><font style="font-family:Times New Roman;font-size:11pt;">ong-dated and illiquid complex or structured transactions and FTRs can introduce the need for internally developed modeling inputs based upon extrapolations and assumptions of observable market data to estimate fair value. When such inputs have a significant impact on the measurement of fair value, the instrument is categorized </font><font style="font-family:Times New Roman;font-size:11pt;">as</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">L</font><font style="font-family:Times New Roman;font-size:11pt;">evel 3.</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">We utilize our trustee's external pricing servi ce in our estimate of the fair value of the underlying investments held in the nuclear trusts. Our investment managers review and validate the prices utilized by the trustee to determine fair value. We perform our own valuation testing to verify the fair values of the securities. We receive audit reports of our trustee's operating controls and valuation processes. </font><font style="font-family:Times New Roman;font-size:11pt;">The trustee </font><font style="font-family:Times New Roman;font-size:11pt;">use</font><font style="font-family:Times New Roman;font-size:11pt;">s</font><font style="font-family:Times New Roman;font-size:11pt;"> multiple pricing vendors </font><font style="font-family:Times New Roman;font-size:11pt;">for</font><font style="font-family:Times New Roman;font-size:11pt;"> the assets held in </font><font style="font-family:Times New Roman;font-size:11pt;">the</font><font style="font-family:Time s New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">trusts</font><font style="font-family:Times New Roman;font-size:11pt;">.</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">Equities are classified as Level 1 holdings </font><font style="font-family:Times New Roman;font-size:11pt;">if</font><font style="font-family:Times New Roman;font-size:11pt;"> they are actively traded on exchanges. </font><font style="font-family:Times New Roman;font-size:11pt;">F</font><font style="font-family:Times New Roman;font-size:11pt;">ixed income securities do not trade on an exchange and do not have an official closing price. 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Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value a ssets and liabilities and their placement within the fair value hierarchy levels. 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When quoted market prices are not available, pricing may be completed using comparable securities, dealer values, operating data and general market conditions to determine fair value. </font><font style="font-family:Times New Roman;font-size:11pt;">Valuation models utilize various inputs</font><font style="font-family:Times New Roman;font-size:11pt;"> such as commodity, interest rate and, to a lesser degree, volatility and credit</font><font style="font-family:Times New Roman;font-size:11pt;"> that include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in</font><font style="font-family:Times New Roman;font-size:11pt;"> inactive</font><font style="font-family:Times New Roman;font-size:11pt;"> markets, market corroborated inputs (i.e. inputs derived principally from, or correlated to, observable market data) and other observable in puts for the asset or liability.</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">For our commercial activities, exchange traded derivatives, namely futures contracts, are generally fair valued based</font><font style="font-family:Times New Roman;font-size:11pt;"> on unadjusted quoted prices in active markets and are classified </font><font style="font-family:Times New Roman;font-size:11pt;">as</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">L</font><font style="font-family:Times New Roman;font-size:11pt;">evel 1.</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;"> Level 2 inputs primarily consis t of OTC broker quotes in moderately active or less active markets, as well as exchange traded contracts where there is </font><font style="font-family:Times New Roman;font-size:11pt;">in</font><font style="font-family:Times New Roman;font-size:11pt;">sufficient market liquidity to warrant inclusion in </font><font style="font-family:Times New Roman;font-size:11pt;">L</font><font style="font-family:Times New Roman;font-size:11pt;">evel 1. </font><font style="font-family:Times New Roman;font-size:11pt;">We verify our price curves using these broker quotes and classify these fair values within Level 2 when substantially all of the fair value can be corroborated. We typically obtain multiple broker quotes, which are non-binding in nature, but are based on recent trades in the marketplace. When multiple broker quotes are obtained, we average the quoted bid and ask prices. In certain circumstances, we may discard a broker quote if it is a clear outli er. We use a historical correlation analysis between the broker quoted location and the illiquid locations and if the points are highly correlated we include these locations within Level 2 as well. </font><font style="font-family:Times New Roman;font-size:11pt;">Certain OTC and bilaterally executed derivative instruments are executed in less active markets with a lower availability of pricing information. </font><font style="font-family:Times New Roman;font-size:11pt;">L</font><font style="font-family:Times New Roman;font-size:11pt;">ong-dated and illiquid complex or structured transactions and FTRs can introduce the need for internally developed modeling inputs based upon extrapolations and assumptions of observable market data to estimate fair value. When such inputs have a significant impact on the measurement of fair value, the instrument is categorized </font><font style="font-family:Times New Roman;font-size:11pt;">as</font><font style="font- family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">L</font><font style="font-family:Times New Roman;font-size:11pt;">evel 3.</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">We utilize our trustee's external pricing service in our estimate of the fair value of the underlying investments held in the nuclear trusts. Our investment managers review and validate the prices utilized by the trustee to determine fair value. We perform our own valuation testing to verify the fair values of the securities. We receive audit reports of our trustee's operating controls and valuation processes. </font><font style="font-family:Times New Roman;font-size:11pt;">The trustee </font><font style="font-family:Times New Roman;font-size:11pt;">use</ font><font style="font-family:Times New Roman;font-size:11pt;">s</font><font style="font-family:Times New Roman;font-size:11pt;"> multiple pricing vendors </font><font style="font-family:Times New Roman;font-size:11pt;">for</font><font style="font-family:Times New Roman;font-size:11pt;"> the assets held in </font><font style="font-family:Times New Roman;font-size:11pt;">the</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">trusts</font><font style="font-family:Times New Roman;font-size:11pt;">.</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">Equities are classified as Level 1 holdings </font><font style="font-family:Times New Roman;font-size:11pt;">if</font><font style="font-family:Times New Roman;font-size:11pt; "> they are actively traded on exchanges. </font><font style="font-family:Times New Roman;font-size:11pt;">F</font><font style="font-family:Times New Roman;font-size:11pt;">ixed income securities do not trade on an exchange and do not have an official closing price. 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text-align:left;border-color:#000000;min-width:284px;">&#160;</td><td style="width: 12px; text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 54px; text-align:right;border-color:#000000;min-width:54px;">&#160;</td><td style="width: 10px; text-align:right;border-color:#000000;min-width:10px;">&#160;</td><td style="width: 12px; text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 54px; text-align:right;border-color:#000000;min-width:54px;">&#160;</td><td style="width: 10px; text-align:right;border-color:#000000;min-width:10px;">&#160;</td><td style="width: 12px; text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 54px; text-align:right;border-color:#000000;min-width:54px;">&#160;&l t;/td><td style="width: 10px; text-align:right;border-color:#000000;min-width:10px;">&#160;</td><td style="width: 12px; text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 54px; text-align:right;border-color:#000000;min-width:54px;">&#160;</td><td style="width: 10px; text-align:left;border-color:#000000;min-width:10px;">&#160;</td><td style="width: 12px; text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 54px; text-align:right;border-color:#000000;min-width:54px;">&#160;</td></tr><tr style="height: 16px"><td colspan="3" style="width: 316px; border-bottom-style:solid;border-bottom-width:1px;text-align:center;border-color:#000000;min-width:316px;"><font style="FONT-WEIGHT: bold;FONT-FAMILY: Times New Roman;FONT-SIZE: 9pt;COLOR: #000000;TEXT-ALIGN: center;">Risk Management Assets</font></td><td styl e="width: 12px; text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 54px; text-align:right;border-color:#000000;min-width:54px;">&#160;</td><td style="width: 10px; text-align:right;border-color:#000000;min-width:10px;">&#160;</td><td style="width: 12px; text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 54px; text-align:right;border-color:#000000;min-width:54px;">&#160;</td><td style="width: 10px; text-align:right;border-color:#000000;min-width:10px;">&#160;</td><td style="width: 12px; text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 54px; text-align:right;border-color:#000000;min-width:54px;">&#160;</td><td style="width: 10px; text-align:right;border-color:#000000;min-width:10px;">&#160;</td><td style="width: 12px; text-align:left;border-color:#000000;m in-width:12px;">&#160;</td><td style="width: 54px; text-align:right;border-color:#000000;min-width:54px;">&#160;</td><td style="width: 10px; text-align:left;border-color:#000000;min-width:10px;">&#160;</td><td style="width: 12px; text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 54px; text-align:right;border-color:#000000;min-width:54px;">&#160;</td></tr><tr style="height: 16px"><td colspan="3" style="width: 316px; border-top-style:solid;border-top-width:1px;text-align:left;border-color:#000000;min-width:316px;"><font style="FONT-FAMILY: Times New Roman;FONT-SIZE: 9pt;COLOR: #000000;">Risk Management Commodity Contracts (c) (f)</font></td><td style="width: 12px; 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text-align:right;border-color:#000000;min-width:10px;">&#160;</td><td style="width: 12px; text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 54px; text-align:right;border-color:#000000;min-width:54px;">&#160;</td><td style="width: 10px; text-align:right;border-color:#000000;min-width:10px;">&#160;</td><td style="width: 12px; text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 54px; text-align:right;border-color:#000000;min-width:54px;">&#160;</td><td style="width: 10px; text-align:right;border-color:#000000;min-width:10px;">&#160;</td><td style="width: 12px; text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 54px; text-align:right;border-color:#000000;min-width:54px;">&#160;</td><td style="width: 10px; text-align:left;border-color:#0000 00;min-width:10px;">&#160;</td><td style="width: 12px; text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 54px; text-align:right;border-color:#000000;min-width:54px;">&#160;</td></tr><tr style="height: 16px"><td colspan="3" style="width: 316px; 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Represents existing assets or liabilities that were previously categorized as Level 2. Represents existing assets or liabilities that were previously categorized as Level 3. Represents existing assets or liabilities that were either previously categorized as a higher level for which the inputs to the model became unobservable or assets and liabilities that were previously classified as Level 3 for which the lowest significant input became observable during the period. Relates to the net gains (losses) of those contracts that are not reflected on our Condensed Consolidated Statements of Income. These net gains (losses) are recorded as regulatory liabilities/assets. Transfers are recognized based on their value at the beginning of the reporting period that the transfer occurred. Amounts in "Other" column primarily represent cash deposits in bank accounts with financial institutions or with third parties. Level 1 amounts primarily represent investments in money market funds. Level 2 amounts primarily represent investments in commercial paper. Amounts represent publicly traded equity securities and equity-based mutual funds. Amounts in "Other" column primarily represent counterparty netting of risk management and hedging contracts and associated cash collateral under the accounting guidance for "Derivatives and Hedging." Represents contracts that were originally MTM but were subsequently elected as normal under the accounting guidance for "Derivatives and Hedging." At the time of the normal election, the MTM value was frozen and no longer fair valued. This MTM value will be amortized into revenues over the remaining life of the contracts. Amounts in "Other" column primarily represent accrued interest receivables from financial institutions. Level 2 amounts primarily represent investments in money market funds. The June 30, 2010 maturity of the net fair value of risk management contracts prior to cash collateral, assets/(liabilities), is as follows: Level 1 matures ($1) million in 2010, ($2) million in periods 2011-2013 and ($2) million in periods 2014-2018; Level 2 matures $43 million in 2010, $69 million in periods 2011-2013, $9 million in periods 2014-2015 and $8 million in periods 2016-2028; Level 3 matures $12 million in 2010, $24 million in periods 2011-2013, $22 million in periods 2014-2015 and $42 million in periods 2016-2028. Risk management commodity contracts are substantially comprised of power contracts. The December 31, 2009 maturity of the net fair value of risk management contracts prior to cash collateral, assets/(liabilities), is as follows: Level 1 matures ($1) million in 2010, ($1) million in periods 2011-2013 and ($1) million in periods 2014-2015; Level 2 matures $65 million in 2010, $84 million in periods 2011-2013, $22 million in periods 2014-2015 and $23 million in periods 2016-2028; Level 3 matures $17 million in 2010, $16 million in periods 2011-2013, $8 million in periods 2014-2015 and $21 million in periods 2016-2028. Represents realized and unrealized gains and losses subject to regulatory accounting treatment recorded as either current or non-current on the balance sheet. Hedging Assets and Hedging Liabilities are included in Risk Management Assets and Liabilities on our Condensed Consolidated Balance Sheets. Primarily represents amounts held for the payment of debt. Pursuant to the Nuclear Waste Policy Act of 1982, IandM (a nuclear licensee) has an obligation to the United States Department of Energy for spent nuclear fuel disposal. The obligation includes a one-time fee for nuclear fuel consumed prior to April 7, 1983. Trust fund assets related to this obligation of $307 million and $306 million at June 30, 2010 and December 31, 2009, respectively, are included in Spent Nuclear Fuel and Decommissioning Trusts on our Condensed Consolidated Balance Sheets. All Other includes: Parent's guarantee revenue received from affiliates, investment income, interest income and interest expense, and other nonallocated costs. Forward natural gas contracts that were not sold with our natural gas pipeline and storage operations in 2004 and 2005. These contracts are financial derivatives which gradually settle and completely expire in 2011. Revenue sharing related to the Plaquemine Cogeneration Facility. Includes eliminations due to an intercompany capital lease. Reconciling Adjustments for Total Assets primarily include the elimination of intercompany advances to affiliates and intercompany accounts receivable along with the elimination of AEP's investments in subsidiary companies. PSO and SWEPCo transferred certain existing ERCOT energy marketing contracts to AEP Energy Partners, Inc. (AEPEP) (Generation and Marketing segment) and entered into intercompany financial and physical purchase and sales agreements with AEPEP. As a result, we reported third-party net purchases or sales activity for these energy marketing contracts as Revenues from External Customers for the Utility Operations segment. This was offset by the Utility Operations segment's related net sales (purchases) for these contracts with AEPEP in Revenues from Other Operating Segments of $(1) million and $(6) million for the three and six months ended, 2009, respectively. 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No authoritative reference available. false 1 Pursuant to the Nuclear Waste Policy Act of 1982, IandM (a nuclear licensee) has an obligation to the United States Department of Energy for spent nuclear fuel disposal. The obligation includes a one-time fee for nuclear fuel consumed prior to April 7, 1983. Trust fund assets related to this obligation of $307 million and $306 million at June 30, 2010 and December 31, 2009, respectively, are included in Spent Nuclear Fuel and Decommissioning Trusts on our Condensed Consolidated Balance Sheets. 2 Amount of securitized debt for receivables as accounted for under the "Transfers and Servicing" accounting guidance. See "ASU 2009-16 'Transfers and Servicing' " section of Note 2. 3 Sabine Mining Company is a consolidated variable interest entity. 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If the a ctual fair value of the leased equipment is below the </font><font style="font-family:Times New Roman;font-size:11pt;">guaranteed residual value</font><font style="font-family:Times New Roman;font-size:11pt;"> at the end of the lease term, we are committed to pay the difference between the actual fair value and </font><font style="font-family:Times New Roman;font-size:11pt;">the residual value guarantee</font><font style="font-family:Times New Roman;font-size:11pt;">. At June 30, 2010</font><font style="font-family:Times New Roman;font-size:11pt;">, the maximum potential loss for these lease agreements was approximately $</font><font style="font-family:Times New Roman;font-size:11pt;">3</font><font style="font-family:Times New Roman;font-size:11pt;"> million assuming the fair value of the equipment is zero at the end of the lease term. Historically, at the end of the lease term the fair value has been in excess of the unamo rtized balance.</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;font-style:italic;margin-left:0px;">Railcar Lease</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">In June 2003, </font><font style="font-family:Times New Roman;font-size:11pt;">AEP</font><font style="font-family:Times New Roman;font-size:11pt;"> Transportation LLC (</font><font style="font-family:Times New Roman;font-size:11pt;">AEP</font><font style="font-family:Times New Roman;font-size:11pt;"> Transportation), a subsidiary of </font><font style="font-family:Times New Roman;font-size:11pt;">AEP</font><font style="font-family:Times New Roman;font-si ze:11pt;">, entered into an agreement with BTM Capital Corporation, as lessor, to lease 875 coal-transporting aluminum railcars. The lease is accounted for as an operating lease. In January 2008, </font><font style="font-family:Times New Roman;font-size:11pt;">AEP</font><font style="font-family:Times New Roman;font-size:11pt;"> Transportation assigned the remaining 848 railcars under the original lease agreement to I&amp;M (390 railcars) and SWEPCo (4</font><font style="font-family:Times New Roman;font-size:11pt;">58</font><font style="font-family:Times New Roman;font-size:11pt;"> railcars). The assignment is accounted for as operating leases for I&amp;M and SWEPCo. The initial lease term was five years with three consecutive five-year renewal periods for a maximum lease term of twenty years. I&amp;M and SWEPCo intend to renew these leases for the full lease term of twenty years</font><font style="font-family:Times New Roman;font-si ze:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">via the renewal options. The future minimum lease obligations are $</font><font style="font-family:Times New Roman;font-size:11pt;">18</font><font style="font-family:Times New Roman;font-size:11pt;"> million for I&amp;M and $</font><font style="font-family:Times New Roman;font-size:11pt;">20</font><font style="font-family:Times New Roman;font-size:11pt;"> million for SWEPCo for the remaining railcars as of June 30, 2010</font><font style="font-family:Times New Roman;font-size:11pt;">.</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">Under the lease agreement, the lessor is guaranteed that the sale proceeds under a return-and-sale option will equal at least a lessee obligation amount specified in the lease, which declines from approximately </font><font style="font-family:Times New Roman;font-size:11pt;">84</font><font style="font-family:Times New Roman;font-size:11pt;">% under the current five</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">year lease term to </font><font style="font-family:Times New Roman;font-size:11pt;">77</font><font style="font-family:Times New Roman;font-size:11pt;">% at the end of the 20-year term of the projected fair value of the equipment. I&amp;M and SWEPCo have assumed the guarantee under the return-and-sale option. I&amp;M's maximum potential loss related to the guarantee is approximately $</font><font style="font-family:Times New Roman;font-size:11pt;">12</font><font style="font-family:Times New Roman;font-size:11pt;"> million ($</font><font style="font-family:Ti mes New Roman;font-size:11pt;">8</font><font style="font-family:Times New Roman;font-size:11pt;"> million, net of tax) and SWEPCo's is approximately $</font><font style="font-family:Times New Roman;font-size:11pt;">13</font><font style="font-family:Times New Roman;font-size:11pt;"> million ($</font><font style="font-family:Times New Roman;font-size:11pt;">9</font><font style="font-family:Times New Roman;font-size:11pt;"> million, net of tax) assuming the fair value of the equipment is zero at the end of the current five-year lease term. However, we believe that the fair value would produce a sufficient sales price to avoid any loss.</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">We have other railcar lease arrangements that do not utilize this type of financing structure. </font></p><p style='margin-top: 0pt; margin-bottom: 0pt;'></p><p style='margin-top:12pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;margin-left:0px;">ENVIRONMENTAL </font><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;">CONTINGENCIES</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;font-style:italic;margin-left:0px;">Federal EPA Complaint and Notice of Violation</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">The Federal EPA, certain special interest groups and a number of states alleged that</font><font style="font-family:Times New R oman;font-size:11pt;"> APCo, CSPCo, I&amp;M and OPCo modified certain units at their coal-fired generating plants in violation of the NSR requirements of the CAA. Cases with similar allegations against </font><font style="font-family:Times New Roman;font-size:11pt;">CSPCo, Dayton Power and Light Company and Duke Energy Ohio, Inc. </font><font style="font-family:Times New Roman;font-size:11pt;">were also filed related to their jointly-owned units. The cases were settled with the exception of a case involving a jointly-owned </font><font style="font-family:Times New Roman;font-size:11pt;">Beckjord </font><font style="font-family:Times New Roman;font-size:11pt;">u</font><font style="font-family:Times New Roman;font-size:11pt;">n</font><font style="font-family:Times New Roman;font-size:11pt;">it which had a li</font><font style="font-family:Times New Roman;font-size:11pt;">ability trial</font><font style="font-f amily:Times New Roman;font-size:11pt;">.</font><font style="font-family:Times New Roman;font-size:11pt;"> Following the trial, the jury found no liability for claims made against th</font><font style="font-family:Times New Roman;font-size:11pt;">e jointly-owned Beckjord unit. </font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">Following a second liability trial</font><font style="font-family:Times New Roman;font-size:11pt;"> in 2009</font><font style="font-family:Times New Roman;font-size:11pt;">, the jury again found no liability at the jointly-owned Beckjord unit.</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">The defendants and the plaintiffs appealed to the Seventh Circuit Court of Appeals. 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The NOV also alleges that a permit alteration issued by the Texas Commission on Environmental Quality </font><font style="font-family:Times New Roman;font-size:11pt;">in 2007 </font><font style="font-family:Times New Roman;font-size:11pt;">was improper. </font><font st yle="font-family:Times New Roman;font-size:11pt;">In March 2008, </font><font style="font-family:Times New Roman;font-size:11pt;">SWEPCo met with the Federal EPA to discuss the alleged violations. The Federal EPA did not object to the settlement of similar alleged violations in the federal citizen suit. 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The trial court dismissed the lawsuits.</font></p>&l t;p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">In September</font><font style="font-family:Times New Roman;font-size:11pt;"> 2009, the Second Circuit Court of Appeals issued a ruling on appeal remanding the cases to the </font><font style="font-family:Times New Roman;font-size:11pt;">Federal District Court</font><font style="font-family:Times New Roman;font-size:11pt;"> for the Southern District of New York. </font><font style="font-family:Times New Roman;font-size:11pt;">The Second Circuit held that the issues of climate change and global warming do not raise political questions and that Congress' refusal to regulate</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">CO</font><font style="font-famil y:Times New Roman;font-size:11pt;">2</font><font style="font-family:Times New Roman;font-size:11pt;"> emissions does not mean that plaintiffs must wait for an initial policy determination by Congress or the </font><font style="font-family:Times New Roman;font-size:11pt;">President's administration</font><font style="font-family:Times New Roman;font-size:11pt;"> to secure the relief sought in their complaints. The </font><font style="font-family:Times New Roman;font-size:11pt;">c</font><font style="font-family:Times New Roman;font-size:11pt;">ourt stated that Congress could enact comprehensive legislation to regulate CO</font><font style="font-family:Times New Roman;font-size:11pt;">2</font><font style="font-family:Times New Roman;font-size:11pt;"> emissions or that</font><font style="font-family:Times New Roman;font-size:11pt;"> the Federal</font><font style="font-family:Times New Roman;font-size:11pt ;"> EPA could regulate CO</font><font style="font-family:Times New Roman;font-size:11pt;">2</font><font style="font-family:Times New Roman;font-size:11pt;"> emissions under existing CAA authorities</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">and that either of these actions could override any decision made by the </font><font style="font-family:Times New Roman;font-size:11pt;">d</font><font style="font-family:Times New Roman;font-size:11pt;">istrict </font><font style="font-family:Times New Roman;font-size:11pt;">c</font><font style="font-family:Times New Roman;font-size:11pt;">ourt under federal common law. The Second Circuit did not rule on whether the plaintiffs could proceed with their state common law nuisance claims.</font><font style="font-family:Times New Roman;font-size:11pt;"> The defendants' petition f or rehearing was denied.</font><font style="font-family:Times New Roman;font-size:11pt;"> We believe the actions are without merit and intend to continue to defend against the claims.</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">The Solicitor General requested an extension of time to file a petition for review by the U.S. Supreme Court and the remaining defendants received a similar extension of time. Petitions are currently due on or before </font><font style="font-family:Times New Roman;font-size:11pt;">August 2, 2010</font><font style="font-family:Times New Roman;font-size:11pt;">.</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">In October 2009, the Fifth Circuit Court of Appeals reverse d a decision by the </font><font style="font-family:Times New Roman;font-size:11pt;">Federal District Court</font><font style="font-family:Times New Roman;font-size:11pt;"> for the District of Mississippi dismissing state common law nuisance claims in a putative class action by </font><font style="font-family:Times New Roman;font-size:11pt;">Mississippi</font><font style="font-family:Times New Roman;font-size:11pt;"> residents asserting that </font><font style="font-family:Times New Roman;font-size:11pt;">CO</font><font style="font-family:Times New Roman;font-size:11pt;">2</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">emissions exacerbated the effects of Hurricane Katrina. The Fifth Circuit held that there was no exclusive commitment of the common law issues raised in plaintiffs' complaint to a coordinate branch of government and that no initial policy determination was required to adjudicate these claims. The court granted petitions for rehearing. </font><font style="font-family:Times New Roman;font-size:11pt;">An additional recusal left the Fifth Circuit without a quorum to reconsider the decision and the appeal was dismissed, leaving the district court's decision in place. </font><font style="font-family:Times New Roman;font-size:11pt;">We were initially dismissed from this case without prejudice, but are named as a defendant in a pending fourth amended complaint. </font><font style="font-family:Times New Roman;font-size:11pt;">Unless the plaintiffs elect to file a petition for review by the U.S. Supreme Court, there will be no further proceedings in this case.</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">We are una ble to de</font><font style="font-family:Times New Roman;font-size:11pt;">termine a range of potential losses that are reasonably possible of occurring</font><font style="font-family:Times New Roman;font-size:11pt;">.</font></p><p style='margin-top: 0pt; margin-bottom: 0pt;'></p><p style='margin-top:12pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;font-style:italic;margin-left:0px;">Alaskan Villages' Claims</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">In 2008, the Native Village of Kivalina and the City of Kivalina, Alaska filed a lawsuit in Federal Court in the Northern District of California against AEP, AEPSC and 22 other unrelated defendants including oil and gas companies</font><font style="font-family:Times New Roman;font-size:11pt;">, a coal company and other electric generating companies. The complaint alleges that the defendants' emissions of CO</font><font style="font-family:Times New Roman;font-size:11pt;">2</font><font style="font-family:Times New Roman;font-size:11pt;"> contribute to global warming and constitute a public and private nuisance and that the defendants are acting together. The complaint further alleges that some of the defendants, including AEP, conspired to create a false scientific debate about global warming in order to deceive the public and perpetuate the alleged nuisance. The plaintiffs also allege that the effects of global warming will require the relocation of the village at an alleged cost of $</font><font style="font-family:Times New Roman;font-size:11pt;">95</font><font style="font-family:Times New Roman;font-size:11pt;"> million to $</font><font style="font-family:Times New Roman;font-size:11pt;">400</font>< ;font style="font-family:Times New Roman;font-size:11pt;"> million. In October 2009, the judge dismissed plaintiffs' federal common law claim for nuisance, finding the claim barred by the political question doctrine and by plaintiffs' lack of standing to bring the claim. The judge also dismissed plaintiffs' state law claims without prejudice to refiling in state court.</font><font style="font-family:Times New Roman;font-size:11pt;"> The plaintiffs appealed the decision. We believe the action is without merit and intend to defend against the claims</font><font style="font-family:Times New Roman;font-size:11pt;">. </font><font style="font-family:Times New Roman;font-size:11pt;">We are unable to de</font><font style="font-family:Times New Roman;font-size:11pt;">termine a range of potential losses that are reasonably possible of occurring</font><font style="font-family:Times New Roman;font-size:11pt;">.</font></p><p style='margin- top: 0pt; margin-bottom: 0pt;'></p><p style='margin-top:12pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;font-style:italic;margin-left:0px;">The Comprehensive Environmental Response Compensation and Liability Act (Superfund) and State Remediation</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">By-products from the generation of electricity include materials such as ash, slag, sludge, low-level radioactive waste and SNF. Coal combustion by-products, which constitute the overwhelming percentage of these materials, are typically treated and deposited in captive disposal facilities or are beneficially utilized. In addition, our generating plants and transmission and distribution facilities have used asbestos, polychlorinated biphenyls and other hazardous and nonhazardo us materials. 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Due to unexpected operating results, we completed an extensive review of the design and manufacture of the JBR internal components. Our review concluded that there are fundamental design deficiencies and that inferior and/or inappropriate materials were selected for the internal fiberglass components. We initiated discussions with Black &amp; Veatch, the original equipment manufacturer, to develop a repair or replacement corrective action plan. We intend to pursue our contractual and other legal remedies if we are unable to resolve these issues with Black &a mp; Veatch. 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This equipment, located in the turbine building, is separate and isolated from the nuclear reactor. The turbine rotors that caused the vibration were installed in 2006 and are within the vendor's warranty period. The warranty provides for the repair or replacement of the turbine rotors if the damage was caused by a defect in materials or workmanship. </font><font style="font-family:Times New Roman;font-size:11pt;">Repair of the property damage and replacement of the turbine rotors and other equipment could cost up to approximately $</font><font style="font-family:Times New Roman;font-size:11pt;">395</font><font style="font-family:T imes New Roman;font-size:11pt;"> million. </font><font style="font-family:Times New Roman;font-size:11pt;">Management believes that I&amp;M should recover a significant portion of these costs through the turbine vendor's warranty, insurance and the regulatory process. 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margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font sty le="font-family:Times New Roman;font-size:11pt;margin-left:0px;">The PUCO issued an order in March 2009 that modified and approved CSPCo's and OPCo's ESPs which established rates at the start of the April 2009 billing cycle. The ESPs are in effect through 2011. The order also limits annual rate increases for CSPCo to </font><font style="font-family:Times New Roman;font-size:11pt;">7</font><font style="font-family:Times New Roman;font-size:11pt;">% in 2009, </font><font style="font-family:Times New Roman;font-size:11pt;">6</font><font style="font-family:Times New Roman;font-size:11pt;">% in 2010 and </font><font style="font-family:Times New Roman;font-size:11pt;">6</font><font style="font-family:Times New Roman;font-size:11pt;">% in 2011 and for OPCo to </font><font style="font-family:Times New Roman;font-size:11pt;">8</font><font style="font-family:Times New Roman;font-size:11pt;">% in 2009, </font>< font style="font-family:Times New Roman;font-size:11pt;">7</font><font style="font-family:Times New Roman;font-size:11pt;">% in 2010 and </font><font style="font-family:Times New Roman;font-size:11pt;">8</font><font style="font-family:Times New Roman;font-size:11pt;">% in 2011. Some rate components and increases are exempt from these limitations. CSPCo and OPCo collected the 2009 annualized revenue increase over the last nine months of 2009.</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">The order provides a FAC for the three-year period of the </font><font style="font-family:Times New Roman;font-size:11pt;">ESP</font><font style="font-family:Times New Roman;font-size:11pt;">. The FAC increase will be phased in to avoid having the resultant rate increases exceed the ord ered annual caps described above. The FAC increase is subject to quarterly true-ups, annual accounting audits and prudency reviews. </font><font style="font-family:Times New Roman;font-size:11pt;">See the "2009 Fuel Adjustment Clause Audit" section below. </font><font style="font-family:Times New Roman;font-size:11pt;">The order allows CSPCo and OPCo to defer any unrecovered FAC costs resulting from the annual caps and to accrue associated carrying charges at CSPCo's and OPCo's weighted average cost of capital. Any deferred FAC regulatory asset balance at the end of the three-year </font><font style="font-family:Times New Roman;font-size:11pt;">ESP</font><font style="font-family:Times New Roman;font-size:11pt;"> period will be recovered through a non-bypassable surcharge over the period 2012 through 2018. Management expects to recover the CSPCo FAC deferral during 2010. That recovery will include deferrals associated with the Ormet interim arrangement and is subject to the PUCO's ultimate decision regarding the Ormet interim arrangement deferrals plus related carrying charges. See the "Ormet Interim Arrangement" section below. The FAC deferrals as of </font><font style="font-family:Times New Roman;font-size:11pt;">June 30, 2010</font><font style="font-family:Times New Roman;font-size:11pt;"> were $</font><font style="font-family:Times New Roman;font-size:11pt;">5</font><font style="font-family:Times New Roman;font-size:11pt;"> million and $</font><font style="font-family:Times New Roman;font-size:11pt;">388</font><font style="font-family:Times New Roman;font-size:11pt;"> million for CSPCo and </font><font style="font-family:Times New Roman;font-size:11pt;">O</font><font style="font-family:Times New Roman;font-size:11pt;">PCo, respectively, excluding $</font><font style="font-family:Times New Roman;font-size:11pt;">1</font><font style="font-f amily:Times New Roman;font-size:11pt;"> million and $</font><font style="font-family:Times New Roman;font-size:11pt;">18</font><font style="font-family:Times New Roman;font-size:11pt;"> million, respectively, of unrecognized equity carrying costs. </font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">Discussed below are the outstanding uncertainties related to the </font><font style="font-family:Times New Roman;font-size:11pt;">ESP</font><font style="font-family:Times New Roman;font-size:11pt;"> order:</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:18px;">The Ohio Consumers' Counsel filed a notice of appeal with the Supre me Court of Ohio raising several issues including alleged retroactive ratemaking, recovery of carrying charges on certain environmental investments, Provider of Last Resort (POLR) charges and the decision not to offset rates by off-system sales margins. A decision from the Supreme Court of Ohio is pending. </font></p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:18px;"> </font></p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:18px;">In November 2009, the Industrial Energy Users-Ohio group filed a notice of appeal with the Supreme Court of Ohio challenging components of the </font><font style="font-family:Times New Roman;font-size:11pt;">ESP</font><font style="font-family:Times New Roman;font-size:11pt;"> order including the POLR charge, the distribution riders for gridSMART</font><font style="fon t-family:Times New Roman;font-size:11pt;">SM</font><font style="font-family:Times New Roman;font-size:11pt;"> and enhanced reliability, the PUCO's conclusion and supporting evaluation that the modified ESPs are more favorable than the expected results of a market rate offer, the unbundling of the fuel and non-fuel generation rate components, the scope and design of the fuel adjustment clause and the approval of the plan after the 150-day statutory deadline. A decision from the Supreme Court of Ohio is pending. </font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:18px;">In April 2010, the Industrial Energ</font><font style="font-family:Times New Roman;font-size:11pt;">y Users-Ohio group filed an additional</font><font style="font-family:Times New Roman;font-size:11pt;"> notice of appeal with the Supreme Cou rt of Ohio challenging alleged retroactive ratemaking, CSPCo's and OPCo's abilities to collect through the FAC amounts deferred under the Ormet interim arrangement and the approval of the plan after the 150-day statutory deadline. A decision from the Supreme Court of Ohio is pending.</font></p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:18px;"> </font></p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:18px;">In 2009, the PUCO convened a workshop to determine the methodology for the Significantly Excessive Earnings Test (SEET). </font><font style="font-family:Times New Roman;font-size:11pt;">Ohio</font><font style="font-family:Times New Roman;font-size:11pt;"> law</font><font style="font-family:Times New Roman;font-size:11pt;"> requires that the PUCO determine, following the end of each year of the </font><font style="font-family:Times New Roman;font-size:11pt;">ESP</font><font style="font-family:Times New Roman;font-size:11pt;">, if rate adjustments included in the </font><font style="font-family:Times New Roman;font-size:11pt;">ESP</font><font style="font-family:Times New Roman;font-size:11pt;"> resulted in significantly excessive earnings. 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The PUCO ruled that many issues including the treatment of deferrals and off-system sales should be determined on a case- by-case basis. </font><font style="font-family:Times New Roman;font-size:11pt;">The PUCO's decision on the SEET methodology is not expected to be finalized until a</font><font style="font-family:Times New Roman;font-size:11pt;">fter</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">the</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">SEET filing</font><font style="font-family:Times New Roman;font-size:11pt;">s</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">are</font><font style="font-family:Times New Roman;font-size:11pt;"> made by CSPCo and OPCo related to 2009 earnings and the PUCO issues an order thereon. </font><font style="font-family: Times New Roman;font-size:11pt;">CSPCo and OPCo will file</font><font style="font-family:Times New Roman;font-size:11pt;"> their significantly excessiv</font><font style="font-family:Times New Roman;font-size:11pt;">e earnings test</font><font style="font-family:Times New Roman;font-size:11pt;">s</font><font style="font-family:Times New Roman;font-size:11pt;"> with the PUCO by</font><font style="font-family:Times New Roman;font-size:11pt;"> their</font><font style="font-family:Times New Roman;font-size:11pt;"> September 2010</font><font style="font-family:Times New Roman;font-size:11pt;"> deadline</font><font style="font-family:Times New Roman;font-size:11pt;">s</font><font style="font-family:Times New Roman;font-size:11pt;">. 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In May 2010, the outside consultant provided their confidential audit report of the FAC audit to the PUCO. 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This interim arrangement was</font><font style="font-family:Times New Roman;font-size:11pt;"> approved by the PUCO and was</font><font style="font-family:Times New Roman;font-size:11pt;"> effective from January 2009 through September 2009. In March 2009, the PUCO approved a FAC in the </font><font style="font-family:Times New Roman;font-size:11pt;">ESP</font><font style="font-family:Times New Roman;font-size:11pt;"> filings. The approval of the FAC, together with the PUCO approval of the interim arrangement, provided the basis to record regulatory assets for the difference between the approved market price and the rate paid by Ormet. 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In November 2009, CSPCo and OPCo requested that the PUCO approve recovery of </font><font style="font-family:Times New Roman;font-size:11pt;">the deferrals under the interim agreement</font><font style="font-family:Times New Roman;font-size:11pt;"> plus a weighted average cost of capital carrying charge. The interim arrangement deferrals are included in CSPCo's and OPCo's FAC phase-in deferral balance</font><font style="font-family:Times New Roman;font-size:11pt;">s</font><font style="font-family:Times New Roman;font-size:11pt;">. See "Ohio Electric Security Plan Filings" section above. In the </font><font style="font-family:Times New Roman;font-size:11pt;">ESP</font><font style="font-family:Times New Roman;font-size:11pt;"> proceeding, intervenors requested that CSPCo and OPCo be required to refund the Ormet-related regulatory assets and requested that the PUCO prevent CSPCo and OPCo from collecting the Ormet-related revenues in the future. The PUCO did not take any action on this request in the </font><font style="font-family:Times New Roman;font-size:11pt;">ESP</font><font style="font-family:Times New Roman;font-size:11pt;"> proceeding. The intervenors raised the issue again in response to CSPCo's and OP Co's November 2009 filing to approve recovery of the deferrals under the interim agreement. 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As a result, CSPCo and OPCo each established a net regulato</font><font style="font-family:Times New Roman;font-size:11pt;">ry liability of approximately $</font><font style="font-family:Times New Roman;font-size:11pt;">1</font><font style="font-family:Times New Roman;font-size:11pt;"> million. The order also provided that if CSPCo and OPCo have not commenced a continuous course of construction of the proposed IGCC plant before June 2011, all pre-construction costs that may be utilized in projects at other sites must be refunded to Ohio ratepayers with interest. Intervenors have filed motions with the PUCO requesting all pre-construction costs be refunded to </font><font style="font-family:Times New Roman;font-size:11pt;">Ohio</font><font style="font-family:Times New Roman;font-size:11pt;"> ratepayers with interest.</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0 pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">CSPCo and OPCo will not start construction of an IGCC plant until existing statutory barriers are addressed and sufficient assurance of regulatory cost recovery exists.</font><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;"> </font><font style="font-family:Times New Roman;font-size:11pt;">Management cannot predict the outcome of any cost recovery litigation concerning the Ohio IGCC plant or what effect, if any, such litigation would have on future net income and cash flows. 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Simultaneous with the filing, </font><font style="font-family:Times New Roman;font-size:11pt;">a </font><font style="font-family:Times New Roman;font-size:11pt;">stipulation</font><font style="font-family:Times New Roman;font-size:11pt;"> agreement was filed with the PUCO agreeing to terms </font><font style="font-family:Times New Roman;font-size:11pt;">consistent with the filed application. </font><font style="font-family:Times New Roman;font-size:11pt;">In</font><font style="font-family:Times New Roman;font-size:11pt;"> May 2010, the PUCO issued an order adopting the stipulati on, with minor modification, and authorized CSPCo and OPCo to implement a new rider rate effective with the first billing cycle in June 2010. </font><font style="font-family:Times New Roman;font-size:11pt;">The rider rates are estimated to increase CSPCo's and OPCo's revenues by $</font><font style="font-family:Times New Roman;font-size:11pt;">81</font><font style="font-family:Times New Roman;font-size:11pt;"> million and $</font><font style="font-family:Times New Roman;font-size:11pt;">86</font><font style="font-family:Times New Roman;font-size:11pt;"> million, respectively</font><font style="font-family:Times New Roman;font-size:11pt;">,</font><font style="font-family:Times New Roman;font-size:11pt;"> over the period from June 2010 through December 2011. CSPCo's and OPCo's revenue increases include $</font><font style="font-family:Times New Roman;font-size:11pt;">79</font><font style="font-family:Time s New Roman;font-size:11pt;"> million and $</font><font style="font-family:Times New Roman;font-size:11pt;">83</font><font style="font-family:Times New Roman;font-size:11pt;"> million, respectively</font><font style="font-family:Times New Roman;font-size:11pt;">,</font><font style="font-family:Times New Roman;font-size:11pt;"> for program costs and $</font><font style="font-family:Times New Roman;font-size:11pt;">2</font><font style="font-family:Times New Roman;font-size:11pt;"> million and $</font><font style="font-family:Times New Roman;font-size:11pt;">3</font><font style="font-family:Times New Roman;font-size:11pt;"> million, respectively</font><font style="font-family:Times New Roman;font-size:11pt;">,</font><font style="font-family:Times New Roman;font-size:11pt;"> for net lost distribution revenues and shared savings.</font></p><p style='margin-top: 0pt; margin-bott om: 0pt;'></p><p style='margin-top:12pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;text-decoration:underline;margin-left:0px;">SWEPCo Rate </font><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;text-decoration:underline;">Matters</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;font-style:italic;margin-left:0px;">Turk Plant</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">SWEPCo is currently constructing the Turk Plant, a new base load 600 MW pulverized coal ultra-supercritical generating unit in </font><font style="font-family:Times New Roman;font-si ze:11pt;">Arkansas</font><font style="font-family:Times New Roman;font-size:11pt;">, which is expected to be in service in 2012. SWEPCo owns </font><font style="font-family:Times New Roman;font-size:11pt;">73</font><font style="font-family:Times New Roman;font-size:11pt;">% </font><font style="font-family:Times New Roman;font-size:11pt;">(440 MW) </font><font style="font-family:Times New Roman;font-size:11pt;">of the Turk Plant and will operate the completed facility. 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As of </font><font style="font-family:Times New Roman;font-size:11pt;">June 30, 20 10</font><font style="font-family:Times New Roman;font-size:11pt;">, the joint owners and SWEPCo have contractual construction commitments of appro</font><font style="font-family:Times New Roman;font-size:11pt;">ximately $</font><font style="font-family:Times New Roman;font-size:11pt;">425</font><font style="font-family:Times New Roman;font-size:11pt;"> million (including </font><font style="font-family:Times New Roman;font-size:11pt;">related transmission costs of $</font><font style="font-family:Times New Roman;font-size:11pt;">7</font><font style="font-family:Times New Roman;font-size:11pt;"> million). SWEPCo's share of the contractual </font><font style="font-family:Times New Roman;font-size:11pt;">construction commitments is $</font><font style="font-family:Times New Roman;font-size:11pt;">312</font><font style="font-family:Times New Roman;font-size:11pt;"> million. If the plant is c ancelled, the joint owners and SWEPCo would incur contractual construction cancellation fees, based on construction status as of </font><font style="font-family:Times New Roman;font-size:11pt;">June 30, 2010</font><font style="font-family:Times New Roman;font-size:11pt;">, of approximately $</font><font style="font-family:Times New Roman;font-size:11pt;">121</font><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;"> </font><font style="font-family:Times New Roman;font-size:11pt;">million (including related tran</font><font style="font-family:Times New Roman;font-size:11pt;">smission cancellation fees of $</font><font style="font-family:Times New Roman;font-size:11pt;">1</font><font style="font-family:Times New Roman;font-size:11pt;"> million). SWEPCo's share of the contractual construction cancellation</font><font style="font-family:Times New Roman;font-size:11pt;"> fees would b e approximately $</font><font style="font-family:Times New Roman;font-size:11pt;">89</font><font style="font-family:Times New Roman;font-size:11pt;"> million.</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">Discussed below are the outstanding uncertainties related to the Turk Plant:</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:18px;">The APSC granted approval for SWEPCo to build the Turk Plant by issuing a Certificate of Environmental Compatibility and Public Need (CECPN)</font><font style="font-family:Times New Roman;font-size:11pt;"> for the 88 MW SWEPCo </font><font style="font-family:Times New Roman;font-size:11pt;"&g t;Arkansas</font><font style="font-family:Times New Roman;font-size:11pt;"> share of the Turk Plant</font><font style="font-family:Times New Roman;font-size:11pt;">. Following an appeal by certain intervenors</font><font style="font-family:Times New Roman;font-size:11pt;">,</font><font style="font-family:Times New Roman;font-size:11pt;"> the Arkansas Supreme Court issued a decision that reversed the APSC's grant of the CECPN. The Arkansas Supreme Court </font><font style="font-family:Times New Roman;font-size:11pt;">ultimately </font><font style="font-family:Times New Roman;font-size:11pt;">concluded that the APSC erred in determining the need for additional power supply </font><font style="font-family:Times New Roman;font-size:11pt;">re</font><font style="font-family:Times New Roman;font-size:11pt;">sources in a proceeding separate from </font><font style="font-family:Times New Roman;font-size:11pt;"&g t;the proceeding in which the APSC</font><font style="font-family:Times New Roman;font-size:11pt;"> grant</font><font style="font-family:Times New Roman;font-size:11pt;">ed</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">the</font><font style="font-family:Times New Roman;font-size:11pt;"> CECPN. </font><font style="font-family:Times New Roman;font-size:11pt;">However, t</font><font style="font-family:Times New Roman;font-size:11pt;">he Arkansas Supreme Court approved the APSC's </font><font style="font-family:Times New Roman;font-size:11pt;">procedure of </font><font style="font-family:Times New Roman;font-size:11pt;">grant</font><font style="font-family:Times New Roman;font-size:11pt;">ing</font><font style="font-family:Times New Roman;font-size:11pt;"> CECPN</font><font style="font-fami ly:Times New Roman;font-size:11pt;">s</font><font style="font-family:Times New Roman;font-size:11pt;"> for transmission facilities</font><font style="font-family:Times New Roman;font-size:11pt;"> in dockets separate from the Turk Plant CECPN proceeding</font><font style="font-family:Times New Roman;font-size:11pt;">. 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SWEPCo appealed the PUCT's order contending the two cost cap restrictions are unlawful. The Texas Industrial Energy Consumers filed an appeal contending that the PUCT's grant of a conditional </font><font style="font-family:Times New Roman;font-size:11pt;">CCN</font><font style="font-family:Times New Roman;font-size:11pt;"> for the Turk Plant was unnecessary to serve retail customers. In February 2010, the Texas District Court affirmed the PUCT</font><font style="font-family:Times New Roman;font-size:11pt;">'s order</font><font style="font-family:Times New Roman;font-size:11pt;"> in all respects. 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Intervenors appealed the CECPN </font><font style="font-family:Times New Roman;font-size:11pt;">decisions</font><font style="font-family:Times New Roman;font-size:11pt;"> in April 2009</font><font style="font-family:Times New Roman;font-size:11pt;"> to</font><font style="font-family:Times New Roman;font-size:11pt;"> the Arkansas Court of Appeals.</font><font style="font-family:Times New Roman;font-size:11pt;"> In July 2010, the </font><font style="font- family:Times New Roman;font-size:11pt;">Hempstead</font><font style="font-family:Times New Roman;font-size:11pt;"> County Hunting Club</font><font style="font-family:Times New Roman;font-size:11pt;"> and other appellants filed with the Arkansas Court of Appeals emergency motions to stay the transmission CECPNs to prohibit SWEPCo from taking ownership of private property and undertaking construction of the transmission lines. </font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">In July 2010, the Arkansas Court of Appeals issued a decision remanding all transmission line CECPN appeals to the APSC. 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This favorable decision was affirmed by the Texas Court of Appeals.</font></li></ul><p style='margin-top: 0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'></p><ul><li style="margin-left:36px;list-style:disc;"><font style="font-family:Times New Roman;font-size:11pt;">The Texas Court of Appeals determined that the PUCT erred by not reducing stranded costs by the "excess earnings" that had already been refunded to affiliated REPs. This decision could be unfavorable unless the PUCT allows </font><font style="font-family:Times New Roman;font-size:11pt;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;"> to recover the refunds previously made to the REPs. See the "</font><font style="font-family:Times New Roman;font-size:11pt;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;"> Excess Earnings" section below. </font></li></ul><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'& gt;<font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">Management cannot predict the outcome of the pending court proceedings and the PUCT remand decisions. If </font><font style="font-family:Times New Roman;font-size:11pt;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;"> ultimately succeeds in its appeals, it could have a favorable effect on future net income, cash flows and possibly financial condition. If intervenors succeed in their appeals, it could reduce future net income and cash flows and possibly impact financial condition.</font></p><p style='margin-top: 0pt; margin-bottom: 0pt;'></p><p style='margin-top:12pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;font-style:italic;margin-left:0px;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;font-style:italic;"> Deferred Investment Tax Credits and Exc ess Deferred Federal Income Taxes</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">In 2006, the PUCT reduced recovery of the amount securitized by $</font><font style="font-family:Times New Roman;font-size:11pt;">103</font><font style="font-family:Times New Roman;font-size:11pt;"> million of tax benefits and associated carrying costs related to </font><font style="font-family:Times New Roman;font-size:11pt;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;">'s generation assets. In 2006, </font><font style="font-family:Times New Roman;font-size:11pt;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;"> obtained a private letter ruling from the </font><font style="font-family:Times New Roman;font-size:11pt;">IRS</fon t><font style="font-family:Times New Roman;font-size:11pt;"> which confirmed that such reduction was an </font><font style="font-family:Times New Roman;font-size:11pt;">IRS</font><font style="font-family:Times New Roman;font-size:11pt;"> normalization violation. In order to avoid a normalization violation, the PUCT agreed to allow </font><font style="font-family:Times New Roman;font-size:11pt;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;"> to defer refunding the tax benefits of $</font><font style="font-family:Times New Roman;font-size:11pt;">103</font><font style="font-family:Times New Roman;font-size:11pt;"> million plus interest through the </font><font style="font-family:Times New Roman;font-size:11pt;">CTC</font><font style="font-family:Times New Roman;font-size:11pt;"> refund period pending resolution of the normalization issue. In 2008, the </font><font style="font - -family:Times New Roman;font-size:11pt;">IRS</font><font style="font-family:Times New Roman;font-size:11pt;"> issued final regulations, which supported the </font><font style="font-family:Times New Roman;font-size:11pt;">IRS</font><font style="font-family:Times New Roman;font-size:11pt;">' private letter ruling which would make the refunding of or the reduction of the amount securitized by such tax benefits a normalization violation. After the </font><font style="font-family:Times New Roman;font-size:11pt;">IRS</font><font style="font-family:Times New Roman;font-size:11pt;"> issued its final regulations, at the request of the PUCT, the Texas Court of Appeals remanded the tax normalization issue to the PUCT for the consideration of additional evidence including the </font><font style="font-family:Times New Roman;font-size:11pt;">IRS</font><font style="font-family:Times New Roman;font-size:11pt;"> regulations. </font> ;<font style="font-family:Times New Roman;font-size:11pt;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;"> is not accruing interest on the $103 million because it is not probable that the PUCT will order </font><font style="font-family:Times New Roman;font-size:11pt;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;"> to violate the normalization provision of the Internal Revenue Code. If interest were accrued, management estimates interest expense would have b</font><font style="font-family:Times New Roman;font-size:11pt;">een approximately $</font><font style="font-family:Times New Roman;font-size:11pt;">17</font><font style="font-family:Times New Roman;font-size:11pt;"> million higher for the period July 2008 through </font><font style="font-family:Times New Roman;font-size:11pt;">June</font><font style="font-family:Times New Roman;font-size:11pt;"> 2010.</font&g t;</p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">Management believes that the PUCT will ultimately allow </font><font style="font-family:Times New Roman;font-size:11pt;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;"> to retain the deferred amounts, which would have a favorable effect on future net income and cash flows. </font><font style="font-family:Times New Roman;font-size:11pt;">Although unexpected, if the PUCT fails to issue a favorable order and orders </font><font style="font-family:Times New Roman;font-size:11pt;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;"> to return the tax benefits to customers, the resulting normalization violation could result in </font><font style="font-family:Times New Roman;font-size:11pt;">TCC&l t;/font><font style="font-family:Times New Roman;font-size:11pt;">'s repayment to the </font><font style="font-family:Times New Roman;font-size:11pt;">IRS</font><font style="font-family:Times New Roman;font-size:11pt;"> of Accumulated Deferred Investment Tax Credits (ADITC) on all property, including transmission and distribution property</font><font style="font-family:Times New Roman;font-size:11pt;">. This amount approximates $</font><font style="font-family:Times New Roman;font-size:11pt;">102</font><font style="font-family:Times New Roman;font-size:11pt;"> million as of </font><font style="font-family:Times New Roman;font-size:11pt;">June 30, 2010</font><font style="font-family:Times New Roman;font-size:11pt;">. It could also lead to a loss of </font><font style="font-family:Times New Roman;font-size:11pt;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;">'s right to c laim accelerated tax depreciation in future tax returns. If </font><font style="font-family:Times New Roman;font-size:11pt;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;"> is required to repay its ADITC to the </font><font style="font-family:Times New Roman;font-size:11pt;">IRS</font><font style="font-family:Times New Roman;font-size:11pt;"> and is also required to refund ADITC plus unaccrued interest to customers, it would reduce future net income and cash flows and impact financial condition.</font></p><p style='margin-top: 0pt; margin-bottom: 0pt;'></p><p style='margin-top:12pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;font-style:italic;margin-left:0px;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;font-style:italic;"> Excess Earnings</font></p><p style='margin-top:0pt; margin-bottom:0p t'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">In 2005, a </font><font style="font-family:Times New Roman;font-size:11pt;">Texas</font><font style="font-family:Times New Roman;font-size:11pt;"> appellate court issued a decision finding that a PUCT order requiring </font><font style="font-family:Times New Roman;font-size:11pt;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;"> to refund to the REPs excess earnings prior to and outside of the true-up process was unlawful under the Texas Restructuring Legislation. From 2002 to 2005, </font><font style="font-family:Times New Roman;font-size:11pt;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;"> refunded $</font><font style="font-family:Times New Roman;font-size:11pt;">55</font><font style="font-family:Times New Roman;font- size:11pt;"> million of excess earnings, including interest, under the overturned PUCT order. On remand, the PUCT must determine how to implement the Court of Appeals decision given that the unauthorized refunds were made to the REPs in lieu of reducing stranded costs in the true-up proceeding.</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">C</font><font style="font-family:Times New Roman;font-size:11pt;">ertain parties have taken positions that, if adopted, could result in </font><font style="font-family:Times New Roman;font-size:11pt;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;"> being required to refund excess earnings and interest through the true-up process without receiving a refund from the REPs. If this were to occur, it would reduce future net income and cash fl ows </font><font style="font-family:Times New Roman;font-size:11pt;">and impact financial condition</font><font style="font-family:Times New Roman;font-size:11pt;">. Management cannot predict the outcome of the excess earnings remand.</font></p><p style='margin-top: 0pt; margin-bottom: 0pt;'></p><p style='margin-top:12pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;margin-left:0px;">OTHER </font><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;">TEXAS</font><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;"> </font><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;">RATE</font><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;"> MATTERS</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margi n-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;font-style:italic;margin-left:0px;">Texas</font><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;font-style:italic;"> Base Rate Appeal</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;"> filed a base rate case in 2006 seeking to increase base rates. The PUCT issued an order in 2007 which increased </font><font style="font-family:Times New Roman;font-size:11pt;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;">'s base rates by $</font><font style="font-family:Times New Roman;font-size:11pt;">20</font><font style="font-family:Times New Roman;font-size:11pt;"> millio n, eliminated a merger credit rider of $</font><font style="font-family:Times New Roman;font-size:11pt;">20</font><font style="font-family:Times New Roman;font-size:11pt;"> million and reduced depreciation rates by $</font><font style="font-family:Times New Roman;font-size:11pt;">7</font><font style="font-family:Times New Roman;font-size:11pt;"> million. </font><font style="font-family:Times New Roman;font-size:11pt;">The PUCT decision was appealed by </font><font style="font-family:Times New Roman;font-size:11pt;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;"> and various intervenors. On appeal, the Texas District Court affirmed the PUCT in most respects. Various intervenors appealed </font><font style="font-family:Times New Roman;font-size:11pt;">that decision</font><font style="font-family:Times New Roman;font-size:11pt;">. </font><font style="font-family:Times New Roman;font-size:11pt;">In June 2010, the Texas Court of Appeals affirmed the Texas District Court's decision.</font></p><p style='margin-top: 0pt; margin-bottom: 0pt;'></p><p style='margin-top:12pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;font-style:italic;margin-left:0px;">ETT</font><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;font-style:italic;"> 2007 Formation Appeal</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">ETT</font><font style="font-family:Times New Roman;font-size:11pt;"> is a joint venture between </font><font style="font-family:Times New Roman;font-size:11pt;">AEP</font><font style="font-family:Times New Roman;font-size:11pt;"> Utilities, Inc. and MidAmeri can Energy Holdings Company Texas Transco, LLC. &#160;</font><font style="font-family:Times New Roman;font-size:11pt;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;"> and TNC have sold transmission assets both in service and under construction to </font><font style="font-family:Times New Roman;font-size:11pt;">ETT</font><font style="font-family:Times New Roman;font-size:11pt;">. 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Intervenors appealed the PUCT's decision. </font><font style="font-family:Times New Roman;font-size:11pt;">In March 2010, the Texas Court of Appeals affirmed the PUCT's decision in all material respects.</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;"> In April 2010, intervenors filed for rehearing at the Texas Court of Appeals which was denied in May 2010. </font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">In a separate devel opment, the </font><font style="font-family:Times New Roman;font-size:11pt;">Texas</font><font style="font-family:Times New Roman;font-size:11pt;"> governor signed a new law that clarifies the PUCT's authority to grant CCNs to transmission only utilities such as </font><font style="font-family:Times New Roman;font-size:11pt;">ETT</font><font style="font-family:Times New Roman;font-size:11pt;">. </font><font style="font-family:Times New Roman;font-size:11pt;">ETT</font><font style="font-family:Times New Roman;font-size:11pt;"> filed an application with the PUCT for a </font><font style="font-family:Times New Roman;font-size:11pt;">CCN</font><font style="font-family:Times New Roman;font-size:11pt;"> under the new law. In March 2010, the PUCT approved the application for a </font><font style="font-family:Times New Roman;font-size:11pt;">CCN</font><font style="font-family:Times New Roman;font-si ze:11pt;"> under the new law.</font></p><p style='margin-top: 0pt; margin-bottom: 0pt;'></p><p style='margin-top:12pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;text-decoration:underline;margin-left:0px;">APCo and WPCo Rate Matters</font></p><p style='margin-top: 0pt; margin-bottom: 0pt;'></p><p style='margin-top:12pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;font-style:italic;margin-left:0px;">2009 Virginia Base Rate Case</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">In July 2009, APCo filed a generation and distribution base rate increase with the Virginia </font><font style="font-family:Times New Roman;font-size:11pt;">SCC</font><font st yle="font-family:Times New Roman;font-size:11pt;"> of $</font><font style="font-family:Times New Roman;font-size:11pt;">154</font><font style="font-family:Times New Roman;font-size:11pt;"> million annually based on a </font><font style="font-family:Times New Roman;font-size:11pt;">13.35</font><font style="font-family:Times New Roman;font-size:11pt;">% return on common equity. Interim rates, subject to refund, became effective in December 2009 but were discontinued in February 2010 when newly enacted </font><font style="font-family:Times New Roman;font-size:11pt;">Virginia</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">legislation suspended the collection of interim rates. </font><font style="font-family:Times New Roman;font-size:11pt;">In July 2010, the Virginia </font><font style="font-family:Times New Roman;font-size :11pt;">SCC</font><font style="font-family:Times New Roman;font-size:11pt;"> issued an order </font><font style="font-family:Times New Roman;font-size:11pt;">approving a</font><font style="font-family:Times New Roman;font-size:11pt;"> $</font><font style="font-family:Times New Roman;font-size:11pt;">62</font><font style="font-family:Times New Roman;font-size:11pt;"> million increase based on a </font><font style="font-family:Times New Roman;font-size:11pt;">10.53</font><font style="font-family:Times New Roman;font-size:11pt;">% return on equity. The order denied recovery of the </font><font style="font-family:Times New Roman;font-size:11pt;">Virginia</font><font style="font-family:Times New Roman;font-size:11pt;"> share of the </font><font style="font-family:Times New Roman;font-size:11pt;">Mountaineer Carbon Capture and Storage Project, which resulted in a </font><font style=" font-family:Times New Roman;font-size:11pt;">pretax </font><font style="font-family:Times New Roman;font-size:11pt;">write-off of $</font><font style="font-family:Times New Roman;font-size:11pt;">54</font><font style="font-family:Times New Roman;font-size:11pt;"> million in the second quarter of 2010.</font><font style="font-family:Times New Roman;font-size:11pt;"> See "Mountaineer Carbon Capture and Storage Project" section below.</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">In addition</font><font style="font-family:Times New Roman;font-size:11pt;">, the order allowed the deferral </font><font style="font-family:Times New Roman;font-size:11pt;">in the second quarter of 2010 </font><font style="font-family:Times New Roman;font-size:11pt;">of </font><font style="font-family:Times New Roman;font-size:11pt; ">approximately $</font><font style="font-family:Times New Roman;font-size:11pt;">25</font><font style="font-family:Times New Roman;font-size:11pt;"> million of incremental storm expense incurred in 2009.</font><font style="font-family:Times New Roman;font-size:11pt;"> In July 2010, APCo filed with the Virginia </font><font style="font-family:Times New Roman;font-size:11pt;">SCC</font><font style="font-family:Times New Roman;font-size:11pt;"> a petition for reconsideration of the order as it relates to the Mountaineer Carbon Capture and Storage Project.</font></p><p style='margin-top: 0pt; margin-bottom: 0pt;'></p><p style='margin-top:12pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;font-style:italic;margin-left:0px;">2010 </font><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;font-style:italic;">West Virginia</font>< ;font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;font-style:italic;"> Base Rate Case</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">In May 2010, APCo and WPCo filed a request with the WVPSC to increase annual base rates by $</font><font style="font-family:Times New Roman;font-size:11pt;">156</font><font style="font-family:Times New Roman;font-size:11pt;"> million based on a</font><font style="font-family:Times New Roman;font-size:11pt;">n</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">11.75</font><font style="font-family:Times New Roman;font-size:11pt;">% return on common equity</font><font style="font-family:Times New Roman;font-size:11pt;"> t o be effective March 2011</font><font style="font-family:Times New Roman;font-size:11pt;">. </font><font style="font-family:Times New Roman;font-size:11pt;">Hearings are scheduled for December 2010. </font><font style="font-family:Times New Roman;font-size:11pt;">A</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">decision from the WVPSC </font><font style="font-family:Times New Roman;font-size:11pt;">is expected </font><font style="font-family:Times New Roman;font-size:11pt;">i</font><font style="font-family:Times New Roman;font-size:11pt;">n </font><font style="font-family:Times New Roman;font-size:11pt;">March </font><font style="font-family:Times New Roman;font-size:11pt;">2011</font><font style="font-family:Times New Roman;font-size:11pt;">.</font></p><p style='margin-top: 0pt; margin-bottom: 0pt;'></p><p style='margin-top:12pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;font-style:italic;margin-left:0px;">Mountaineer Carbon Capture and Storage Project</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">APCo and ALSTOM Power, Inc., an unrelated third party, jointly constructed a CO</font><font style="font-family:Times New Roman;font-size:11pt;">2</font><font style="font-family:Times New Roman;font-size:11pt;"> capture validation facility, which was placed into service in September 2009. 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text-align:left;border-color:#000000;min-width:10px;">&#160;</td><td style="width: 12px; border-top-style:solid;border-top-width:1px;border-bottom-style:solid;border-bottom-width:1px;text-align:left;border-color:#000000;mi n-width:12px;">&#160;</td><td style="width: 54px; border-top-style:solid;border-top-width:1px;border-bottom-style:solid;border-bottom-width:1px;text-align:right;border-color:#000000;min-width:54px;"><font style="FONT-FAMILY: Times New Roman;FONT-SIZE: 9pt;COLOR: #000000;TEXT-ALIGN: right;"> 1,392</font></td></tr><tr style="height: 16px"><td style="width: 16px; text-align:left;border-color:#000000;min-width:16px;">&#160;</td><td style="width: 16px; text-align:left;border-color:#000000;min-width:16px;">&#160;</td><td style="width: 284px; text-align:left;border-color:#000000;min-width:284px;">&#160;</td><td style="width: 12px; text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 54px; text-align:right;border-color:#000000;min-width:54px;">&#160;</td><td style="width: 10px; text-align:right;border-color:#000000;min-width:10px;">&#16 0;</td><td style="width: 12px; text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 54px; text-align:right;border-color:#000000;min-width:54px;">&#160;</td><td style="width: 10px; text-align:right;border-color:#000000;min-width:10px;">&#160;</td><td style="width: 12px; text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 54px; text-align:right;border-color:#000000;min-width:54px;">&#160;</td><td style="width: 10px; text-align:right;border-color:#000000;min-width:10px;">&#160;</td><td style="width: 12px; text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 54px; text-align:right;border-color:#000000;min-width:54px;">&#160;</td><td style="width: 10px; text-align:left;border-color:#000000;min-width:10px;">&#160;</td><td style="width: 12px; text-align:le ft;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 54px; text-align:right;border-color:#000000;min-width:54px;">&#160;</td></tr><tr style="height: 16px"><td colspan="3" style="width: 316px; 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text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 54px; text-align:right;border-color:#000000;min-width:54px;">&#160;</td><td style="width: 10px; text-align:left;border-color:#000000;min-width:10px;">&#160;</td><td style="width: 12px; text-align:right;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 54px; text-align:right;border-color:#000000;min-width:54px;">&#160;</td></tr><tr style="height: 16px"><td style="width: 16px; text-align:left; border-color:#000000;min-width:16px;">&#160;</td><td style="width: 16px; text-align:left;border-color:#000000;min-width:16px;">&#160;</td><td style="width: 284px; text-align:left;border-color:#000000;min-width:284px;">&#160;</td><td style="width: 12px; text-align:center;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 54px; text-align:right;border-color:#000000;min-width:54px;">&#160;</td><td style="width: 10px; text-align:right;border-color:#000000;min-width:10px;">&#160;</td><td style="width: 12px; text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 54px; text-align:right;border-color:#000000;min-width:54px;">&#160;</td><td style="width: 10px; text-align:right;border-color:#000000;min-width:10px;">&#160;</td><td style="width: 12px; text-align:left;border-color:#000000;min-width:12px;">&#160;& lt;/td><td style="width: 54px; text-align:right;border-color:#000000;min-width:54px;">&#160;</td><td style="width: 10px; text-align:right;border-color:#000000;min-width:10px;">&#160;</td><td style="width: 12px; text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 54px; text-align:right;border-color:#000000;min-width:54px;">&#160;</td><td style="width: 10px; text-align:left;border-color:#000000;min-width:10px;">&#160;</td><td style="width: 12px; text-align:right;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 54px; text-align:right;border-color:#000000;min-width:54px;">&#160;</td></tr><tr style="height: 16px"><td colspan="3" style="width: 316px; 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text-align:right;border-color :#000000;min-width:10px;">&#160;</td><td style="width: 12px; text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 54px; text-align:right;border-color:#000000;min-width:54px;">&#160;</td><td style="width: 10px; text-align:left;border-color:#000000;min-width:10px;">&#160;</td><td style="width: 12px; text-align:right;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 54px; text-align:right;border-color:#000000;min-width:54px;">&#160;</td></tr><tr style="height: 16px"><td colspan="3" style="width: 316px; border-top-style:solid;border-top-width:1px;text-align:left;border-color:#000000;min-width:316px;"><font style="FONT-FAMILY: Times New Roman;FONT-SIZE: 9pt;COLOR: #000000;">Risk Management Commodity Contracts (c) (g)</font></td><td style="width: 12px; text-align:left;border-color:#000000;min-width:12px;"><font style="F ONT-FAMILY: Times New Roman;FONT-SIZE: 9pt;COLOR: #000000;">$</font></td><td style="width: 54px; 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text-align:right;border-color:#000000;min-width:10px;">&#160;</td><td style="width: 12px; border-bottom-style:solid;border-bottom-width:1px;text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 54px; border-bottom-style:solid;border-bottom-widt h:1px;text-align:right;border-color:#000000;min-width:54px;"><font style="FONT-FAMILY: Times New Roman;FONT-SIZE: 9pt;COLOR: #000000;TEXT-ALIGN: right;"> -</font></td><td style="width: 10px; text-align:right;border-color:#000000;min-width:10px;">&#160;</td><td style="width: 12px; border-bottom-style:solid;border-bottom-width:1px;text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 54px; border-bottom-style:solid;border-bottom-width:1px;text-align:right;border-color:#000000;min-width:54px;"><font style="FONT-FAMILY: Times New Roman;FONT-SIZE: 9pt;COLOR: #000000;TEXT-ALIGN: right;"> -</font></td><td style="width: 10px; text-align:left;border-color:#000000;min-width:10px;">&#160;</td><td style="width: 12px; 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No authoritative reference available. false 1 10 false UnKnown UnKnown UnKnown false true XML 22 R8.xml IDEA: Significant Accounting Matters  2.2.0.7 false Significant Accounting Matters 00300 - Disclosure - Significant Accounting Matters true false false false 1 USD false false USD Standard http://www.xbrl.org/2003/iso4217 USD iso4217 0 Percent Standard http://www.xbrl.org/2003/instance pure xbrli 0 Shares Standard http://www.xbrl.org/2003/instance shares xbrli 0 EPS Divide http://www.xbrl.org/2003/iso4217 USD iso4217 http://www.xbrl.org/2003/instance shares xbrli 0 $ 2 0 us-gaap_GeneralPoliciesAbstract us-gaap true na duration No definition available. false false false false false true false false false false false false 1 false false false false 0 0 false false false xbrli:stringItemType string No definition available. false 3 1 us-gaap_SignificantAccountingPoliciesTextBlock us-gaap true na duration No definition available. false false false false false false false false false false false false 1 false false false false 0 0 <div style="text-align:center;"><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;margin-left:0px;">AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES</font></div><div style="text-align:center;"><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;margin-left:0px;">CONDENSED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</font></div><div style="text-align:center;">&#160;</div><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;margin-left:-22.5px;">1</font><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;">.&#160;&#160;&#160;&#160;&#160;&#160;&#160;</font><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;text-decoration:underline;">SIGNIFICANT ACCOUNTING MATTERS</font></p>& lt;p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;font-style:italic;margin-left:0px;">General</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">The unaudited condensed consolidated financial statements and footnotes were prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the SEC. Accordingly, they do not include all of the information and footnotes required by GAAP for complete annual financial statements.</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size :11pt;margin-left:0px;">In the opinion of management, the unaudited condensed consolidated interim financial statements reflect all normal and recurring accruals and adjustments necessary for a fair presentation of our net income, financial position and cash flows for the interim periods. Net income for the </font><font style="font-family:Times New Roman;font-size:11pt;">three and six months ended</font><font style="font-family:Times New Roman;font-size:11pt;"> June 30, 2010 is not necessarily indicative of results that may be expected for the year ending December 31, 2010. 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Under the terms of the note agreements, substantially all assets are pledged and all rights under the lignite mining agreement are assigned to SWEPCo. </font><font style="font-family:Times New Roman;font-size:11pt;">The creditors of Sabine have no recourse to any </font><font style="font-family:Times New Roman;font-size:11pt;">AEP</font><font style="font-family:Times New Roman;font-size:11pt;"> entity other than SWEPCo. </font><font style="font-family:Times New Roman;font-size:11pt;">Under the provisions of the mining agreement, SWEPCo is required to pay, as a part of the cost of lignite delivered, an amount equal to mining costs plus a management fee. </font><font style="font-family:Times New Roman;font-size:11pt;">In addition, SWEPCo determines how much coal will be mined for each year. </font><font style="font-family :Times New Roman;font-size:11pt;">Based on these facts, management concluded that SWEPCo is the primary beneficiary and is required to consolidate Sabine. </font><font style="font-family:Times New Roman;font-size:11pt;">SWEPCo's total billings from Sabine for the three months ended June 30, 2010</font><font style="font-family:Times New Roman;font-size:11pt;"> and 2009 were $</font><font style="font-family:Times New Roman;font-size:11pt;">3</font><font style="font-family:Times New Roman;font-size:11pt;">0</font><font style="font-family:Times New Roman;font-size:11pt;"> million</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">and $</font><font style="font-family:Times New Roman;font-size:11pt;">25</font><font style="font-family:Times New Roman;font-size:11pt;"> million, respectively, and for the six months ended June 30, 2010</font><font style="font-family:Times New Roman;font-size:11pt;"> and 2009 were $</font><font style="font-family:Times New Roman;font-size:11pt;">73</font><font style="font-family:Times New Roman;font-size:11pt;"> million and $</font><font style="font-family:Times New Roman;font-size:11pt;">61</font><font style="font-family:Times New Roman;font-size:11pt;"> million, respectively. 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Our subsidiaries participate in one protected cell for approximately ten lines of insurance. </font><font style="font-family:Times New Roman;font-size:11pt;">Neither </font><font style="font-family:Times New Roman;font-size:11pt;">AEP</font><font style="font-family:Times New Roman;font-size:11pt;"> nor its subsidia</font><font style="font-family:Times New Roman;font-size:11pt;">r</font><font style="font-family:Times New Roman;font-size:11pt;">ies have an equity investment in</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">EIS. The </font><font style="font-family:Times New Roman;font-size:11pt;">AEP</font><font style="font-family:Times New Roman;font-size:11pt;"> S</font><font style="font-family:Times New Roman;font-size:11pt;">ystem is essentially this EIS cell's only participant, but allows certain third parties access to this insurance. 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Based on </font><font style="font-family:Times New Roman;font-size:11pt;">our control and </font><font style="font-family:Times New Roman;font-size:11pt;">the structure of the protected cell</font><font style="font-family:Times New Roman;font-size:11pt;"> and EIS</font><font style="font-family:Times New Roman;font-size:11pt;">, management concluded that we are the primary beneficiary </font><font style="font-family:Times New Roman;font-size:11pt;">of the protected cell and are required to consolidate its assets and liabilities. </font><font style="font-family:Times New Roman;font-size:11pt;">Our insurance premium payments </font><font style="font-family:Times New Roman;font-size:11pt;">to </font><font style="font-family:Times New Roman;font-size:11pt;">the protected cell for the </font><fo nt style="font-family:Times New Roman;font-size:11pt;">three months ended June 30, 2010</font><font style="font-family:Times New Roman;font-size:11pt;"> and 2009 were $</font><font style="font-family:Times New Roman;font-size:11pt;">254</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">thousand</font><font style="font-family:Times New Roman;font-size:11pt;"> and $</font><font style="font-family:Times New Roman;font-size:11pt;">1</font><font style="font-family:Times New Roman;font-size:11pt;">32</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">thousand</font><font style="font-family:Times New Roman;font-size:11pt;">, respectively, and for the six months ended June 30, 2010</font><font style="font-family:Times New Roman;fo nt-size:11pt;"> and 2009 were $</font><font style="font-family:Times New Roman;font-size:11pt;">18</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">million</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">and $</font><font style="font-family:Times New Roman;font-size:11pt;">17</font><font style="font-family:Times New Roman;font-size:11pt;"> million, respectively.</font><font style="font-family:Times New Roman;font-size:11pt;"> See the tables below for the classification of </font><font style="font-family:Times New Roman;font-size:11pt;">the protected cell's </font><font style="font-family:Times New Roman;font-size:11pt;">assets and liabilities on our Condensed Consolidated Balance Sheets.</font><font style="font-family :Times New Roman;font-size:11pt;"> The amount reported as equity is the protected cell's policy holders' surplus.</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">In September 2009, I&amp;M entered into a nuclear fuel sale and leaseback transaction with DCC Fuel</font><font style="font-family:Times New Roman;font-size:11pt;"> LLC</font><font style="font-family:Times New Roman;font-size:11pt;">. </font><font style="font-family:Times New Roman;font-size:11pt;">In April 2010, I&amp;M entered into a nuclear fuel sale and leaseback transaction with DCC Fuel II LLC. </font><font style="font-family:Times New Roman;font-size:11pt;">DCC Fuel</font><font style="font-family:Times New Roman;font-size:11pt;"> LLC and DCC Fuel II LLC (collectively DCC)</font><font styl e="font-family:Times New Roman;font-size:11pt;"> w</font><font style="font-family:Times New Roman;font-size:11pt;">ere</font><font style="font-family:Times New Roman;font-size:11pt;"> formed for the purpose of acquiring, owning and leasing nuclear fuel to I&amp;M. DCC purchased the nuclear fuel from I&amp;M with funds received from the issuance of notes to financial institutions. </font><font style="font-family:Times New Roman;font-size:11pt;">Each entity </font><font style="font-family:Times New Roman;font-size:11pt;">is a single-lessee leasing arrangement with only one asset and is capitalized with all debt. Payments on the lease</font><font style="font-family:Times New Roman;font-size:11pt;">s </font><font style="font-family:Times New Roman;font-size:11pt;">ar</font><font style="font-family:Times New Roman;font-size:11pt;">e made semi-annually</font><font style="font-family:Times New Roman;font-size: 11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">and </font><font style="font-family:Times New Roman;font-size:11pt;">beg</font><font style="font-family:Times New Roman;font-size:11pt;">a</font><font style="font-family:Times New Roman;font-size:11pt;">n in April 2010. </font><font style="font-family:Times New Roman;font-size:11pt;">Payment</font><font style="font-family:Times New Roman;font-size:11pt;">s</font><font style="font-family:Times New Roman;font-size:11pt;"> on the lease</font><font style="font-family:Times New Roman;font-size:11pt;">s </font><font style="font-family:Times New Roman;font-size:11pt;">for the three </font><font style="font-family:Times New Roman;font-size:11pt;">months ended June 30, 2010</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;"&g t;w</font><font style="font-family:Times New Roman;font-size:11pt;">ere</font><font style="font-family:Times New Roman;font-size:11pt;"> $</font><font style="font-family:Times New Roman;font-size:11pt;">22</font><font style="font-family:Times New Roman;font-size:11pt;"> million </font><font style="font-family:Times New Roman;font-size:11pt;">and for the six months ended June 30, 2010</font><font style="font-family:Times New Roman;font-size:11pt;"> w</font><font style="font-family:Times New Roman;font-size:11pt;">ere</font><font style="font-family:Times New Roman;font-size:11pt;"> $</font><font style="font-family:Times New Roman;font-size:11pt;">22</font><font style="font-family:Times New Roman;font-size:11pt;"> million.</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;"> </font><f ont style="font-family:Times New Roman;font-size:11pt;">N</font><font style="font-family:Times New Roman;font-size:11pt;">o payments </font><font style="font-family:Times New Roman;font-size:11pt;">were </font><font style="font-family:Times New Roman;font-size:11pt;">made to DCC</font><font style="font-family:Times New Roman;font-size:11pt;"> in 2009</font><font style="font-family:Times New Roman;font-size:11pt;">. The </font><font style="font-family:Times New Roman;font-size:11pt;">lease</font><font style="font-family:Times New Roman;font-size:11pt;">s</font><font style="font-family:Times New Roman;font-size:11pt;"> w</font><font style="font-family:Times New Roman;font-size:11pt;">ere</font><font style="font-family:Times New Roman;font-size:11pt;"> recorded as capital lease</font><font style="font-family:Times New Roman;font-size:11pt;">s</font><font style="font-fa mily:Times New Roman;font-size:11pt;"> on I&amp;M's balance sheet as title to the nuclear fuel transfers to I&amp;M at the end of the 48 </font><font style="font-family:Times New Roman;font-size:11pt;">and 54 </font><font style="font-family:Times New Roman;font-size:11pt;">month lease term</font><font style="font-family:Times New Roman;font-size:11pt;">, respectively</font><font style="font-family:Times New Roman;font-size:11pt;">. </font><font style="font-family:Times New Roman;font-size:11pt;">Based on </font><font style="font-family:Times New Roman;font-size:11pt;">our control of DCC, </font><font style="font-family:Times New Roman;font-size:11pt;">management concluded that I&amp;M is the primary beneficiary and is required to consolidate DCC. The capital lease</font><font style="font-family:Times New Roman;font-size:11pt;">s</font><font style="font-family:Times New Roman;font-size:11p t;"> </font><font style="font-family:Times New Roman;font-size:11pt;">are</font><font style="font-family:Times New Roman;font-size:11pt;"> eliminated upon consolidation. See the tables below for the classification of</font><font style="font-family:Times New Roman;font-size:11pt;"> DCC</font><font style="font-family:Times New Roman;font-size:11pt;">'s assets and liabilities on our Condensed Consolidated Balance Sheets.</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">AEP</font><font style="font-family:Times New Roman;font-size:11pt;"> Credit is a wholly-owned subsidiary of </font><font style="font-family:Times New Roman;font-size:11pt;">AEP</font><font style="font-family:Times New Roman;font-size:11pt;">. </font><font style="font-family:Time s New Roman;font-size:11pt;">AEP</font><font style="font-family:Times New Roman;font-size:11pt;"> Credit purchases, without recourse, accounts receivable from certain utility subsidiaries of </font><font style="font-family:Times New Roman;font-size:11pt;">AEP</font><font style="font-family:Times New Roman;font-size:11pt;"> to reduce working capital requirements. </font><font style="font-family:Times New Roman;font-size:11pt;">AEP</font><font style="font-family:Times New Roman;font-size:11pt;"> provides up to </font><font style="font-family:Times New Roman;font-size:11pt;">20</font><font style="font-family:Times New Roman;font-size:11pt;">% of </font><font style="font-family:Times New Roman;font-size:11pt;">AEP</font><font style="font-family:Times New Roman;font-size:11pt;"> Credit</font><font style="font-family:Times New Roman;font-size:11pt;">'s</font><font style="font-family: Times New Roman;font-size:11pt;"> short-term borrowing needs in excess of third party financings. Any third party financing of </font><font style="font-family:Times New Roman;font-size:11pt;">AEP</font><font style="font-family:Times New Roman;font-size:11pt;"> Credit only has recourse to the receivables sold for such financing. Based on our control of </font><font style="font-family:Times New Roman;font-size:11pt;">AEP</font><font style="font-family:Times New Roman;font-size:11pt;"> Credit, management has concluded that we are the primary beneficiary and are required to consolidate its assets and liabilities. See the tables below for the classification of </font><font style="font-family:Times New Roman;font-size:11pt;">AEP</font><font style="font-family:Times New Roman;font-size:11pt;"> Credit's assets and liabilities on our Condensed Co</font><font style="font-family:Times New Roman;font-size:11pt;">nsolidated Balance Sheets. See the </font><font style="font-family:Times New Roman;font-size:11pt;">"ASU 2009-17 'Consoli</font><font style="font-family:Times New Roman;font-size:11pt;">dation' " section of Note 2 for a </font><font style="font-family:Times New Roman;font-size:11pt;">discussion of </font><font style="font-family:Times New Roman;font-size:11pt;">the </font><font style="font-family:Times New Roman;font-size:11pt;">impact of new accounting guidance effective </font><font style="font-family:Times New Roman;font-size:11pt;">January 1, 2010</font><font style="font-family:Times New Roman;font-size:11pt;">. Also</font><font style="font-family:Times New Roman;font-size:11pt;">,</font><font style="font-family:Times New Roman;font-size:11pt;"> see "</font><font style="font-family:Times New Roman;font-size:11pt;">Sale</font><font style="font-family:Times New Roman;font-size:11pt;"> of Recei vables &#8211; </font><font style="font-family:Times New Roman;font-size:11pt;">AEP</font><font style="font-family:Times New Roman;font-size:11pt;"> Credit" section of Note 14 in the </font><font style="font-family:Times New Roman;font-size:11pt;">2009</font><font style="font-family:Times New Roman;font-size:11pt;"> Annual Report for further information.</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">DHLC is a mining operator who sells </font><font style="font-family:Times New Roman;font-size:11pt;">50</font><font style="font-family:Times New Roman;font-size:11pt;">% of the lignite produced to SWEPCo and </font><font style="font-family:Times New Roman;font-size:11pt;">50</font><font style="font-family:Times New Roman;font-size:11pt;">% to C</font><font style="font-family:Times New Roman;font-size:11pt;">LECO. </font><font style="font-family:Times New Roman;font-size:11pt;">SWEPCo and C</font><font style="font-family:Times New Roman;font-size:11pt;">LECO</font><font style="font-family:Times New Roman;font-size:11pt;"> share the executive board seats</font><font style="font-family:Times New Roman;font-size:11pt;"> and its </font><font style="font-family:Times New Roman;font-size:11pt;">voting rights </font><font style="font-family:Times New Roman;font-size:11pt;">equally. E</font><font style="font-family:Times New Roman;font-size:11pt;">ach entity guarantees a </font><font style="font-family:Times New Roman;font-size:11pt;">50</font><font style="font-family:Times New Roman;font-size:11pt;">% share of DHLC's debt. SWEPCo and C</font><font style="font-family:Times New Roman;font-size:11pt;">LECO</font>< ;font style="font-family:Times New Roman;font-size:11pt;"> equally approve DHLC's annual budget. The creditors of DHLC have no recourse to any </font><font style="font-family:Times New Roman;font-size:11pt;">AEP</font><font style="font-family:Times New Roman;font-size:11pt;"> entity other than SWEPCo. As SWEPCo is the sole equity owner of DHLC</font><font style="font-family:Times New Roman;font-size:11pt;">,</font><font style="font-family:Times New Roman;font-size:11pt;"> it receives </font><font style="font-family:Times New Roman;font-size:11pt;">100</font><font style="font-family:Times New Roman;font-size:11pt;">% of the management fee. Based on the </font><font style="font-family:Times New Roman;font-size:11pt;">shared control</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">of DHLC's operations, </font>< font style="font-family:Times New Roman;font-size:11pt;">management concluded</font><font style="font-family:Times New Roman;font-size:11pt;"> as of </font><font style="font-family:Times New Roman;font-size:11pt;">January 1, 2010</font><font style="font-family:Times New Roman;font-size:11pt;"> that SWEPCo is no longer </font><font style="font-family:Times New Roman;font-size:11pt;">the primary beneficiary and is </font><font style="font-family:Times New Roman;font-size:11pt;">no longer </font><font style="font-family:Times New Roman;font-size:11pt;">required to consolidate DHLC. </font><font style="font-family:Times New Roman;font-size:11pt;">SWEPCo's total billings from DHLC for the three months ended June 30, 2010</font><font style="font-family:Times New Roman;font-size:11pt;"> and 2009 were $</font><font style="font-family:Times New Roman;font-size:11pt;">13</font><font style="font-fami ly:Times New Roman;font-size:11pt;"> million</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">and $</font><font style="font-family:Times New Roman;font-size:11pt;">8</font><font style="font-family:Times New Roman;font-size:11pt;"> million, respectively, and for the six months ended June 30, 2010</font><font style="font-family:Times New Roman;font-size:11pt;"> and 2009 were $</font><font style="font-family:Times New Roman;font-size:11pt;">26</font><font style="font-family:Times New Roman;font-size:11pt;"> million</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">and $</font><font style="font-family:Times New Roman;font-size:11pt;">18</font><font style="font-family:Times New Roman;font-size:11pt;"> million, respectively . See the tables below for the classification of DHLC</font><font style="font-family:Times New Roman;font-size:11pt;">'s</font><font style="font-family:Times New Roman;font-size:11pt;"> assets and liabilities on our Conde</font><font style="font-family:Times New Roman;font-size:11pt;">nsed Consolidated Balance Sheet at December 31, 2009 as well as our investment and maximum exposure as of June 30, 2010</font><font style="font-family:Times New Roman;font-size:11pt;">. As of </font><font style="font-family:Times New Roman;font-size:11pt;">January 1, 2010</font><font style="font-family:Times New Roman;font-size:11pt;">, DHLC is reported as an equity investment in Deferred Charges and Other Noncurrent Assets on our Condensed Consolidated Balance Sheet. Also, see</font><font style="font-family:Times New Roman;font-size:11pt;"> the</font><font style="font-family:Times New Roman;font-size:11pt;"> "ASU 2009-17 'Consoli dations' " section of Note 2 for</font><font style="font-family:Times New Roman;font-size:11pt;"> a</font><font style="font-family:Times New Roman;font-size:11pt;"> discussion of </font><font style="font-family:Times New Roman;font-size:11pt;">the </font><font style="font-family:Times New Roman;font-size:11pt;">impact of new accounting guidance effective </font><font style="font-family:Times New Roman;font-size:11pt;">January 1, 2010</font><font style="font-family:Times New Roman;font-size:11pt;">.</font></p><p style='margin-top: 0pt; margin-bottom: 0pt;'></p><p style='margin-top:12pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">AEP Texas Central Transition Funding I LLC and AEP Texas Central Transition Funding II LLC, wholly-owned subsidiaries of TCC, (collectively Transition Funding) were formed for the sole purpose of issuing and servicing securitizat ion bonds related to Texas restructuring law. Management has concluded that TCC is the primary beneficiary of Transition Funding because </font><font style="font-family:Times New Roman;font-size:11pt;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;"> has the power to direct the most significant activities of the VIE and </font><font style="font-family:Times New Roman;font-size:11pt;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;">'s equity interest could potentially be significant. Therefore, TCC is required to consolidate Transition Funding. The securitized bonds totaled $</font><font style="font-family:Times New Roman;font-size:11pt;">1.9</font><font style="font-family:Times New Roman;font-size:11pt;"> billion at </font><font style="font-family:Times New Roman;font-size:11pt;">June 30, 2010</font><font style="font-family:Times New Roman;font-size:11pt;"> and are includ ed in current and long-term debt on the Condensed Consolidated Balance Sheets. Transition Funding has securitized transition assets of $</font><font style="font-family:Times New Roman;font-size:11pt;">1.8</font><font style="font-family:Times New Roman;font-size:11pt;"> billion at </font><font style="font-family:Times New Roman;font-size:11pt;">June 30, 2010</font><font style="font-family:Times New Roman;font-size:11pt;">, which are presented separately on the face of the Condensed Consolidated Balance Sheets. The securitized transition assets represent the right to impose and collect </font><font style="font-family:Times New Roman;font-size:11pt;">Texas</font><font style="font-family:Times New Roman;font-size:11pt;"> true-up costs from customers receiving electric transmission or distribution service from </font><font style="font-family:Times New Roman;font-size:11pt;">TCC</font><font style="font-family:Times New Ro man;font-size:11pt;"> under recovery mechanisms approved by the PUCT. The securitization bonds are payable only from and secured by the securitized transition assets. The bondholders have no recourse to TCC or any other AEP entity. </font><font style="font-family:Times New Roman;font-size:11pt;">TCC</font><font style="font-family:Times New Roman;font-size:11pt;"> acts as the servicer for Transition Funding's securitized transition asset and remits all related amounts collected from customers to Transition Funding for interest and principal payments on the securitization bonds and related costs.</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">T</font><font style="font-family:Times New Roman;font-size:11pt;">he balances below represent the assets and liabilities of the VIEs that are consolidated. 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AND SUBSIDIARY COMPANIES</font></td></tr><tr style="height: 17px"><td style="width: 44px; text-align:left;border-color:#000000;min-width:44px;">&#160;</td><td style="width: 15px; text-align:left;border-color:#000000;min-width:15px;">&#160;</t d><td colspan="13" style="width: 567px; text-align:center;border-color:#000000;min-width:567px;"><font style="FONT-WEIGHT: bold;FONT-FAMILY: Times New Roman;FONT-SIZE: 11pt;COLOR: #000000;TEXT-ALIGN: center;">VARIABLE INTEREST ENTITIES</font></td><td style="width: 15px; text-align:center;border-color:#000000;min-width:15px;">&#160;</td></tr><tr style="height: 17px"><td style="width: 44px; text-align:left;border-color:#000000;min-width:44px;">&#160;</td><td style="width: 15px; text-align:left;border-color:#000000;min-width:15px;">&#160;</td><td colspan="13" style="width: 567px; text-align:center;border-color:#000000;min-width:567px;"><font style="FONT-WEIGHT: bold;FONT-FAMILY: Times New Roman;FONT-SIZE: 11pt;COLOR: #000000;TEXT-ALIGN: center;">June 30, 2010</font></td><td style="width: 15px; 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Our subsidiaries and </font><font style="font-family:Times New Roman;font-size:11pt;">AYE</font><font style="font-family:Times New Roman;font-size:11pt;">'s subsidiaries provide services to the </font><font style="font-family:Times New Roman;font-size:11pt;">PATH</font><font style="font-family:Times New Roman;font-size:11pt;"> companies through service agreements. At the current time, </font><font style="font-family:Times New Roman;font-size:11pt;">PATH</font><font style="font-family:Times New Roman;font-size:11pt;">-WV has no debt outstanding. However, when debt is issued, the debt to equity ratio in each series should be consistent with other regulated utilities. 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The after tax effect change includes an entity's share of an equity investee's increase (decrease) in deferred hedging gains or losses. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 130 -Paragraph 17, 20 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 130 -Paragraph 121 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Accounting Research Bulletin (ARB) -Number 51 -Paragraph 38 -Subparagraph c(3) Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 130 -Paragraph 24 -Subparagraph b Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 46 false 22 2 aep_AmountOfGainOrLossReclassifiedFromAccumulatedOtherComprehensiveIncomeToIncomeStatementWithinBalanceSheetAbstract aep false na duration Amount Of Gain Or Loss Reclassified From Accumulated Other Comprehensive Income To Income Statement Within Balance Sheet... false false false false false true false false false false false verboselabel false 1 false false false false 0 0 false false false 2 false false false false 0 0 false false false 3 false false false false 0 0 false false false 4 false false false false 0 0 false false false 5 false false false false 0 0 false false false xbrli:stringItemType string Amount Of Gain Or Loss Reclassified From Accumulated Other Comprehensive Income To Income Statement Within Balance Sheet Abstract. false 24 2 us-gaap_AccumulatedOtherComprehensiveIncomeLossCumulativeChangesInNetGainLossFromCashFlowHedgesEffectNetOfTax us-gaap true credit instant No definition available. false false false false false false false false false true false periodendlabel false 1 false true false false -13000000 -13 false false false 2 false true false false -5000000 -5 false false false 3 false true false false -13000000 -13 false false false 4 false true false false -5000000 -5 false false false 5 false false false false 0 0 false false false xbrli:monetaryItemType monetary Accumulated change, net of tax, in accumulated gains and losses from derivative instruments designated and qualifying as the effective portion of cash flow hedges. Includes an entity's share of an equity investee's increase (decrease) in deferred hedging gains or losses. 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Borrowers of securities generally are required to provide collateral to the lenders of securities, commonly cash but sometimes other securities or standby letters of credit, with a value slightly higher than that of the securities borrowed. In instances where the entity is permitted to sell or re-pledge these securities, the entity reports the fair value of the collateral received and the related obligation to return the collateral as a liability Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Audit and Accounting Guide (AAG) -Number AAG-BRD -Chapter 4 -Paragraph 49 -IssueDate 2006-05-01 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 140 -Paragraph 17 -Subparagraph a(3) Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 140 -Paragraph 15 -Subparagraph a, b, c, d Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 140 -Paragraph 91 false 32 2 aep_CashCollateralPaidToThirdParties aep false credit instant Cash collateral paid to third parties. false false false false false false false false false false false verboselabel false 1 false true false false 96000000 96 false false false 2 false false false false 0 0 false false false 3 false true false false 96000000 96 false false false 4 false false false false 0 0 false false false 5 false true false false 98000000 98 false false false xbrli:monetaryItemType monetary Cash collateral paid to third parties. 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For nonderivative instruments that are designated and qualify as hedging instruments, the fair value amounts are the carrying value of the nonderivative hedging instrument, including the adjustment for the foreign currency transaction gain or loss on that instrument. 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To accomplish our objectives, we primarily employ risk management contracts including physical forward purchase and sale contracts, financial forward purchase and sale contracts and financial swap instruments. Not all risk management contracts meet the definition of a derivative under the accounting guidance for "Derivatives and Hedging." Derivative risk management contracts elected normal under the normal purchases and normal sales scope exception are not subject to the requirements of this accounting guidance. </font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">We enter into electricity, coal, natural gas, interest rate and to a lesser degree heating oil, gasoline, emission allowance and other commodity contracts to manage the risk associated with our energy busi ness. We enter into interest rate derivative contracts in order to manage the interest rate exposure associated with our commodity portfolio. For disclosure purposes, such risks are grouped as "Commodity," as they are related to energy risk management activities. We also engage in risk management of interest rate risk associated with debt financing and foreign currency risk associated with future purchase obligations denominated in foreign currencies. For disclosure purposes, these risks are grouped as "Interest Rate and Foreign Currency." 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The fair values of derivative instruments accounted for using MTM accounting or hedge accounting are based on e xchange prices and broker quotes. If a quoted market price is not available, the estimate of fair value is based on the best information available including valuation models that estimate future energy prices based on existing market and broker quotes, supply and demand market data and assumptions. In order to determine the relevant fair values of our derivative instruments, we also apply valuation adjustments for discounting, liquidity and credit quality.</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">Credit risk is the risk that a counterparty will fail to perform on the contract or fail to pay amounts due. Liquidity risk represents the risk that imperfections in the market will cause the price to vary from estimated fair value based upon prevailing market supply and demand conditions. Since energy markets are imperfect and vola tile, there are inherent risks related to the underlying assumptions in models used to fair value risk management contracts. Unforeseen events may cause reasonable price curves to differ from actual price curves throughout a contract's term and at the time a contract settles. Consequently, there could be significant adverse or favorable effects on future net income and cash flows if market prices are not consistent with our estimates of current market consensus for forward prices in the current period. This is particularly true for longer term contracts. 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Disclosure may include: (1) Each method used to account for derivative financial instruments and derivative commodity instruments ("derivatives"); (2) the types of derivatives accounted for under each method; (3) the criteria required to be met for each accounting method used, including a discussion of the criteria required to be met for hedge or deferral accounting and accrual or settlement accounting (for example: whether and how risk reduction, correlation, designation, and effectiveness tests are applied); (4) the accounting method used if the criteria specified for hedge accounting are not met; (5) the method used to account for termination of derivatives designated as hedges or derivatives used to affect directly or indirectly the terms, fair values, or cash flows of a designated item; (6) the method used to account for derivatives when the designated item matures, is sold, is extin guished, or is terminated. In addition, the method used to account for derivatives designated to an anticipated transaction, when the anticipated transaction is no longer likely to occur; and (7) where and when derivatives, and their related gains (losses) are reported in the statement of financial position, cash flows, and results of operations and (8) an accounting policy decision to offset fair value amounts with counterparties. An entity should also consider describing its embedded derivatives, and the method(s) used to determine the fair values of derivatives and any significant assumptions used in such valuations. 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(AEPEP) (Generation and Marketing segment) and entered into intercompany financial and physical purchase and sales agreements with AEPEP. As a result, we reported third-party net purchases or sales activity for these energy marketing contracts as Revenues from External Customers for the Utility Operations segment. Th is was offset by</font><font style="font-family:Times New Roman;font-size:9pt;"> the Utility Operations segment'</font><font style="font-family:Times New Roman;font-size:9pt;">s related net sales (purchases) for these contracts with AEPEP in Revenues from Other Operating Segments of $</font><font style="font-family:Times New Roman;font-size:9pt;">(1)</font><font style="font-family:Times New Roman;font-size:9pt;"> million and $</font><font style="font-family:Times New Roman;font-size:9pt;">(6)</font><font style="font-family:Times New Roman;font-size:9pt;"> million for the three and six months ended, 2009, respectively. 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border-bottom-style:solid;border - -bottom-width:1px;text-align:right;border-color:#000000;min-width:55px;"><font style="FONT-FAMILY: Times New Roman;FONT-SIZE: 9pt;COLOR: #000000;TEXT-ALIGN: right;"> (291)</font></td><td style="width: 7px; text-align:left;border-color:#000000;min-width:7px;">&#160;</td><td style="width: 12px; border-bottom-style:solid;border-bottom-width:1px;text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 50px; text-align:right;border-color:#000000;min-width:50px;"><font style="FONT-FAMILY: Times New Roman;FONT-SIZE: 9pt;COLOR: #000000;TEXT-ALIGN: right;"> 408</font></td></tr><tr style="height: 15px"><td style="width: 8px; text-align:left;border-color:#000000;min-width:8px;">&#160;</td><td colspan="2" style="width: 238px; text-align:left;border-color:#000000;min-width:238px;"><font style="FONT-WEIGHT: bold;FONT-FAMILY: Times New Roman;FONT-SIZE: 9pt;COLOR: #000000;TEXT- ALIGN: left;">Total Assets</font></td><td style="width: 7px; text-align:left;border-color:#000000;min-width:7px;">&#160;</td><td style="width: 12px; 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text-align:left;border-color:#000000;min-width:7px;">&#160;</td><td style="width: 12px; border-top-style:solid;border-top-width:1px;border-bottom-style:solid;border-bottom-width:1px;text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 50px; border-top-style:solid;border-top-width:1px;border-bottom-style:solid;border-bottom-width:1px;text-align:right;border-color:#000000;min-width:50px;"><font style="FONT-FAMILY: Times New Roman;FONT-SIZE: 9pt;COLOR: #000000 ;TEXT-ALIGN: right;"> 658</font></td></tr><tr style="height: 11px"><td style="width: 8px; text-align:left;border-color:#000000;min-width:8px;">&#160;</td><td style="width: 8px; text-align:left;border-color:#000000;min-width:8px;">&#160;</td><td style="width: 230px; text-align:left;border-color:#000000;min-width:230px;">&#160;</td><td style="width: 7px; text-align:left;border-color:#000000;min-width:7px;">&#160;</td><td style="width: 12px; text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 95px; text-align:right;border-color:#000000;min-width:95px;">&#160;</td><td style="width: 7px; text-align:left;border-color:#000000;min-width:7px;">&#160;</td><td style="width: 12px; text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 75px; text-align:right;border-color:#000000;min-width:7 5px;">&#160;</td><td style="width: 7px; text-align:left;border-color:#000000;min-width:7px;">&#160;</td><td style="width: 12px; text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 70px; text-align:right;border-color:#000000;min-width:70px;">&#160;</td><td style="width: 7px; text-align:left;border-color:#000000;min-width:7px;">&#160;</td><td style="width: 12px; text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 55px; text-align:right;border-color:#000000;min-width:55px;">&#160;</td><td style="width: 7px; text-align:left;border-color:#000000;min-width:7px;">&#160;</td><td style="width: 12px; text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 50px; text-align:right;border-color:#000000;min-width:50px;">&#160;</td></tr><tr style="height: 14px"><td style="width: 8px; text-align:left;border-color:#000000;min-width:8px;">&#160;</td><td colspan="2" style="width: 238px; text-align:left;border-color:#000000;min-width:238px;"><font style="FONT-FAMILY: Times New Roman;FONT-SIZE: 9pt;COLOR: #000000;TEXT-ALIGN: left;">Current Risk Management Liabilities</font></td><td style="width: 7px; text-align:left;border-color:#000000;min-width:7px;">&#160;</td><td style="width: 12px; text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 95px; text-align:right;border-color:#000000;min-width:95px;"><font style="FONT-FAMILY: Times New Roman;FONT-SIZE: 9pt;COLOR: #000000;TEXT-ALIGN: right;"> 978</font></td><td style="width: 7px; text-align:left;border-color:#000000;min-width:7px;">&#160;</td><td style="width: 12px; text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="w idth: 75px; text-align:right;border-color:#000000;min-width:75px;"><font style="FONT-FAMILY: Times New Roman;FONT-SIZE: 9pt;COLOR: #000000;TEXT-ALIGN: right;"> 15</font></td><td style="width: 7px; text-align:left;border-color:#000000;min-width:7px;">&#160;</td><td style="width: 12px; text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 70px; text-align:right;border-color:#000000;min-width:70px;"><font style="FONT-FAMILY: Times New Roman;FONT-SIZE: 9pt;COLOR: #000000;TEXT-ALIGN: right;"> 3</font></td><td style="width: 7px; text-align:left;border-color:#000000;min-width:7px;">&#160;</td><td style="width: 12px; text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 55px; text-align:right;border-color:#000000;min-width:55px;"><font style="FONT-FAMILY: Times New Roman;FONT-SIZE: 9pt;COLOR: #000000;TEXT-ALIGN: right;"> (876)&l t;/font></td><td style="width: 7px; text-align:left;border-color:#000000;min-width:7px;">&#160;</td><td style="width: 12px; text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 50px; text-align:right;border-color:#000000;min-width:50px;"><font style="FONT-FAMILY: Times New Roman;FONT-SIZE: 9pt;COLOR: #000000;TEXT-ALIGN: right;"> 120</font></td></tr><tr style="height: 14px"><td style="width: 8px; text-align:left;border-color:#000000;min-width:8px;">&#160;</td><td colspan="2" style="width: 238px; text-align:left;border-color:#000000;min-width:238px;"><font style="FONT-FAMILY: Times New Roman;FONT-SIZE: 9pt;COLOR: #000000;TEXT-ALIGN: left;">Long-term Risk Management Liabilities </font></td><td style="width: 7px; text-align:left;border-color:#000000;min-width:7px;">&#160;</td><td style="width: 12px; border-bottom-style:solid;border-bott om-width:1px;text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 95px; border-bottom-style:solid;border-bottom-width:1px;text-align:right;border-color:#000000;min-width:95px;"><font style="FONT-FAMILY: Times New Roman;FONT-SIZE: 9pt;COLOR: #000000;TEXT-ALIGN: right;"> 540</font></td><td style="width: 7px; text-align:left;border-color:#000000;min-width:7px;">&#160;</td><td style="width: 12px; border-bottom-style:solid;border-bottom-width:1px;text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 75px; border-bottom-style:solid;border-bottom-width:1px;text-align:right;border-color:#000000;min-width:75px;"><font style="FONT-FAMILY: Times New Roman;FONT-SIZE: 9pt;COLOR: #000000;TEXT-ALIGN: right;"> 3</font></td><td style="width: 7px; text-align:left;border-color:#000000;min-width:7px;">&#160;</td><td style="width: 12px; border-botto m-style:solid;border-bottom-width:1px;text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 70px; border-bottom-style:solid;border-bottom-width:1px;text-align:right;border-color:#000000;min-width:70px;"><font style="FONT-FAMILY: Times New Roman;FONT-SIZE: 9pt;COLOR: #000000;TEXT-ALIGN: right;"> 2</font></td><td style="width: 7px; text-align:left;border-color:#000000;min-width:7px;">&#160;</td><td style="width: 12px; border-bottom-style:solid;border-bottom-width:1px;text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 55px; border-bottom-style:solid;border-bottom-width:1px;text-align:right;border-color:#000000;min-width:55px;"><font style="FONT-FAMILY: Times New Roman;FONT-SIZE: 9pt;COLOR: #000000;TEXT-ALIGN: right;"> (368)</font></td><td style="width: 7px; text-align:left;border-color:#000000;min-width:7px;">&#160;</td><td style ="width: 12px; border-bottom-style:solid;border-bottom-width:1px;text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 50px; border-bottom-style:solid;border-bottom-width:1px;text-align:right;border-color:#000000;min-width:50px;"><font style="FONT-FAMILY: Times New Roman;FONT-SIZE: 9pt;COLOR: #000000;TEXT-ALIGN: right;"> 177</font></td></tr><tr style="height: 14px"><td style="width: 8px; text-align:left;border-color:#000000;min-width:8px;">&#160;</td><td colspan="2" style="width: 238px; text-align:left;border-color:#000000;min-width:238px;"><font style="FONT-WEIGHT: bold;FONT-FAMILY: Times New Roman;FONT-SIZE: 9pt;COLOR: #000000;TEXT-ALIGN: left;">Total Liabilities</font></td><td style="width: 7px; text-align:left;border-color:#000000;min-width:7px;">&#160;</td><td style="width: 12px; border-bottom-style:solid;border-bottom-width:1px;text-align:left;border-color:#0 00000;min-width:12px;">&#160;</td><td style="width: 95px; border-bottom-style:solid;border-bottom-width:1px;text-align:right;border-color:#000000;min-width:95px;"><font style="FONT-FAMILY: Times New Roman;FONT-SIZE: 9pt;COLOR: #000000;TEXT-ALIGN: right;"> 1,518</font></td><td style="width: 7px; text-align:left;border-color:#000000;min-width:7px;">&#160;</td><td style="width: 12px; border-bottom-style:solid;border-bottom-width:1px;text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 75px; border-bottom-style:solid;border-bottom-width:1px;text-align:right;border-color:#000000;min-width:75px;"><font style="FONT-FAMILY: Times New Roman;FONT-SIZE: 9pt;COLOR: #000000;TEXT-ALIGN: right;"> 18</font></td><td style="width: 7px; text-align:left;border-color:#000000;min-width:7px;">&#160;</td><td style="width: 12px; border-bottom-style:solid;border-bottom-width:1px;tex t-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 70px; border-bottom-style:solid;border-bottom-width:1px;text-align:right;border-color:#000000;min-width:70px;"><font style="FONT-FAMILY: Times New Roman;FONT-SIZE: 9pt;COLOR: #000000;TEXT-ALIGN: right;"> 5</font></td><td style="width: 7px; text-align:left;border-color:#000000;min-width:7px;">&#160;</td><td style="width: 12px; border-bottom-style:solid;border-bottom-width:1px;text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 55px; border-bottom-style:solid;border-bottom-width:1px;text-align:right;border-color:#000000;min-width:55px;"><font style="FONT-FAMILY: Times New Roman;FONT-SIZE: 9pt;COLOR: #000000;TEXT-ALIGN: right;"> (1,244)</font></td><td style="width: 7px; text-align:left;border-color:#000000;min-width:7px;">&#160;</td><td style="width: 12px; border-bottom-style:soli d;border-bottom-width:1px;text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 50px; border-bottom-style:solid;border-bottom-width:1px;text-align:right;border-color:#000000;min-width:50px;"><font style="FONT-FAMILY: Times New Roman;FONT-SIZE: 9pt;COLOR: #000000;TEXT-ALIGN: right;"> 297</font></td></tr><tr style="height: 11px"><td style="width: 8px; text-align:left;border-color:#000000;min-width:8px;">&#160;</td><td style="width: 8px; text-align:left;border-color:#000000;min-width:8px;">&#160;</td><td style="width: 230px; text-align:left;border-color:#000000;min-width:230px;">&#160;</td><td style="width: 7px; text-align:left;border-color:#000000;min-width:7px;">&#160;</td><td style="width: 12px; text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 95px; text-align:right;border-color:#000000;min-width:95px;" >&#160;</td><td style="width: 7px; text-align:left;border-color:#000000;min-width:7px;">&#160;</td><td style="width: 12px; text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 75px; text-align:right;border-color:#000000;min-width:75px;">&#160;</td><td style="width: 7px; text-align:left;border-color:#000000;min-width:7px;">&#160;</td><td style="width: 12px; text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 70px; text-align:right;border-color:#000000;min-width:70px;">&#160;</td><td style="width: 7px; text-align:left;border-color:#000000;min-width:7px;">&#160;</td><td style="width: 12px; text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 55px; text-align:right;border-color:#000000;min-width:55px;">&#160;</td><td style="width: 7px; text-align :left;border-color:#000000;min-width:7px;">&#160;</td><td style="width: 12px; text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 50px; text-align:right;border-color:#000000;min-width:50px;">&#160;</td></tr><tr style="height: 15px"><td style="width: 8px; text-align:left;border-color:#000000;min-width:8px;">&#160;</td><td colspan="2" style="width: 238px; text-align:left;border-color:#000000;min-width:238px;"><font style="FONT-WEIGHT: bold;FONT-FAMILY: Times New Roman;FONT-SIZE: 9pt;COLOR: #000000;TEXT-ALIGN: left;">Total MTM Derivative Contract Net Assets</font></td><td style="width: 7px; text-align:left;border-color:#000000;min-width:7px;">&#160;</td><td style="width: 12px; text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 95px; text-align:right;border-color:#000000;min-width:95px;">&#160;</td ><td style="width: 7px; text-align:left;border-color:#000000;min-width:7px;">&#160;</td><td style="width: 12px; text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 75px; text-align:left;border-color:#000000;min-width:75px;">&#160;</td><td style="width: 7px; text-align:left;border-color:#000000;min-width:7px;">&#160;</td><td style="width: 12px; text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 70px; text-align:right;border-color:#000000;min-width:70px;">&#160;</td><td style="width: 7px; text-align:left;border-color:#000000;min-width:7px;">&#160;</td><td style="width: 12px; text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 55px; text-align:right;border-color:#000000;min-width:55px;">&#160;</td><td style="width: 7px; text-align:left;border-color:#00 0000;min-width:7px;">&#160;</td><td style="width: 12px; text-align:left;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 50px; text-align:left;border-color:#000000;min-width:50px;">&#160;</td></tr><tr style="height: 15px"><td style="width: 8px; text-align:left;border-color:#000000;min-width:8px;">&#160;</td><td style="width: 8px; text-align:left;border-color:#000000;min-width:8px;">&#160;</td><td style="width: 230px; text-align:left;border-color:#000000;min-width:230px;"><font style="FONT-WEIGHT: bold;FONT-FAMILY: Times New Roman;FONT-SIZE: 9pt;COLOR: #000000;">(Liabilities)</font></td><td style="width: 7px; text-align:left;border-color:#000000;min-width:7px;">&#160;</td><td style="width: 12px; border-bottom-style:double;border-bottom-width:3px;text-align:left;border-color:#000000;min-width:12px;"><font style="FONT-FAMILY: Times New Roman;FO NT-SIZE: 9pt;COLOR: #000000;">$</font></td><td style="width: 95px; border-bottom-style:double;border-bottom-width:3px;text-align:right;border-color:#000000;min-width:95px;"><font style="FONT-FAMILY: Times New Roman;FONT-SIZE: 9pt;COLOR: #000000;TEXT-ALIGN: right;"> 224</font></td><td style="width: 7px; text-align:left;border-color:#000000;min-width:7px;">&#160;</td><td style="width: 12px; 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text-align:center;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 85px; text-align:center;border-color:#000000;min-width:85px;">&#160;</td></tr><tr style="height: 16px"><td style="width: 20px; text-align:left;border-color:#000000;min-width:20px;">&#160;</td><td style="width: 8px; text - -align:left;border-color:#000000;min-width:8px;">&#160;</td><td style="width: 30px; text-align:center;border-color:#000000;min-width:30px;">&#160;</td><td style="width: 281px; text-align:center;border-color:#000000;min-width:281px;">&#160;</td><td style="width: 12px; text-align:center;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 12px; text-align:center;border-color:#000000;min-width:12px;">&#160;</td><td style="width: 85px; text-align:center;border-color:#000000;min-width:85px;">&#160;</td><td style="width: 12px; text-align:center;border-color:#000000;min-width:12px;">&#160;</td><td colspan="2" style="width: 97px; text-align:center;border-color:#000000;min-width:97px;"><font style="FONT-WEIGHT: bold;FONT-FAMILY: Times New Roman;FONT-SIZE: 11pt;COLOR: #000000;TEXT-ALIGN: center;">Interest Rate</font></td><td style="width: 12px; 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The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). Where observable inputs are available for substantially the full term of the asset or liability, the instrument is categorized in Level 2. 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We receive audit reports of our trustee's operating controls and valuation processes. </font><font style="font-family:Times New Roman;font-size:11pt;">The trustee </font><font style="font-family:Times New Roman;font-size:11pt;">use</font><font style="font-family:Times New Roman;font-size:11pt;">s</font><font style="font-family:Times New Roman;font-size:11pt;"> multiple pricing vendors </font><font style="font-family:Times New Roman;font-size:11pt;">for</font><font style="font-family:Times New Roman;font-size:11pt;"> the assets held in </font><font style="font-family:Times New Roman;font-size:11pt;">the</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-famil y:Times New Roman;font-size:11pt;">trusts</font><font style="font-family:Times New Roman;font-size:11pt;">.</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">Equities are classified as Level 1 holdings </font><font style="font-family:Times New Roman;font-size:11pt;">if</font><font style="font-family:Times New Roman;font-size:11pt;"> they are actively traded on exchanges. </font><font style="font-family:Times New Roman;font-size:11pt;">F</font><font style="font-family:Times New Roman;font-size:11pt;">ixed income securities do not trade on an exchange and do not have an official closing price. 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(AEPEP) (Generation and Marketing segment) and entered into intercompany financial and physical purchase an d sales agreements with AEPEP. As a result, we reported third-party net purchases or sales activity for these energy marketing contracts as Revenues from External Customers for the Utility Operations segment. This was offset by</font><font style="font-family:Times New Roman;font-size:9pt;"> the Utility Operations segment'</font><font style="font-family:Times New Roman;font-size:9pt;">s related net sales (purchases) for these contracts with AEPEP in Revenues from Other Operating Segments of $</font><font style="font-family:Times New Roman;font-size:9pt;">(1)</font><font style="font-family:Times New Roman;font-size:9pt;"> million and $</font><font style="font-family:Times New Roman;font-size:9pt;">(6)</font><font style="font-family:Times New Roman;font-size:9pt;"> million for the three and six months ended, 2009, respectively. The Generation and Marketing segment also reported these purchase or sales contracts with Utility Operations as Revenues from Other Operating Segments. These affiliated contracts between </font><font style="font-family:Times New Roman;font-size:9pt;">PSO</font><font style="font-family:Times New Roman;font-size:9pt;"> and SWEPCo with AEPEP ended in December 2009.</font></p> &#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;Nonutility false false false us-types:textBlockItemType textblock This element may be used to capture the complete disclosure about the profit or loss and total assets for each reportable segment, as a single block of text. An entity discloses certain information on each reportable segment if the amounts (a) are included in the measure of segment profit or loss reviewed by the chief operating decision maker or (b) are otherwise regularly provided to the chief operating decision maker, even if not included in that measure of segment profit or loss. 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In May 200 9, the governor of </font><font style="font-family:Times New Roman;font-size:11pt;">Texas</font><font style="font-family:Times New Roman;font-size:11pt;"> signed a bill related to SWEPCo's </font><font style="font-family:Times New Roman;font-size:11pt;">SPP</font><font style="font-family:Times New Roman;font-size:11pt;"> area of </font><font style="font-family:Times New Roman;font-size:11pt;">Texas</font><font style="font-family:Times New Roman;font-size:11pt;"> that requires continued cost of service regulation until certain stages have been completed and approved by the PUCT such that fair competition is available to all </font><font style="font-family:Times New Roman;font-size:11pt;">Texas</font><font style="font-family:Times New Roman;font-size:11pt;"> retail customer classes. Based upon the signing of the bill, SWEPCo re-applied </font><font style="font-family:Times New Roman;font-size:11pt;">"R& lt;/font><font style="font-family:Times New Roman;font-size:11pt;">egulat</font><font style="font-family:Times New Roman;font-size:11pt;">ed Ope</font><font style="font-family:Times New Roman;font-size:11pt;">r</font><font style="font-family:Times New Roman;font-size:11pt;">ations"</font><font style="font-family:Times New Roman;font-size:11pt;"> accounting</font><font style="font-family:Times New Roman;font-size:11pt;"> guidance</font><font style="font-family:Times New Roman;font-size:11pt;"> for the generation portion of SWEPCo's Texas retail jurisdiction effective second quarter of 2009. Management believes that a return to competition in the SPP area of </font><font style="font-family:Times New Roman;font-size:11pt;">Texas</font><font style="font-family:Times New Roman;font-size:11pt;"> will not occur. The reapplication of </font><font style="font-family:Times New Roman;font-size:11pt;">" R</font><font style="font-family:Times New Roman;font-size:11pt;">egulat</font><font style="font-family:Times New Roman;font-size:11pt;">ed Ope</font><font style="font-family:Times New Roman;font-size:11pt;">r</font><font style="font-family:Times New Roman;font-size:11pt;">ations"</font><font style="font-family:Times New Roman;font-size:11pt;"> accounting</font><font style="font-family:Times New Roman;font-size:11pt;"> guidance</font><font style="font-family:Times New Roman;font-size:11pt;"> resulted in an $</font><font style="font-family:Times New Roman;font-size:11pt;">8</font><font style="font-family:Times New Roman;font-size:11pt;"> million ($5 million, net of tax) extraordinary loss.</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p> 2.&#160;&#160;&#160;&#160;&#160;&#160;&#160;NEW ACCOUNTING PRONOUNCEMENTS AND EXTRAORDINARY ITEM&#160;NEW ACCOUNTING PRONOUNCEMENTS&#160;Upon issuance of final false false false us-types:textBlockItemType textblock Represents disclosure of any changes in an accounting principle, including a change from one generally accepted accounting principle to another generally accepted accounting principle when there are two or more generally accepted accounting principles that apply or when the accounting principle formerly used is no longer generally accepted. 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Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 142 -Paragraph 43 false 35 2 us-gaap_DerivativeInstrumentsAndHedgesNoncurrent us-gaap true debit instant No definition available. false false false false false false false false false false false verboselabel false 1 false true false false 408000000 408 false false false 2 false true false false 343000000 343 false false false xbrli:monetaryItemType monetary Carrying amount as of the balance sheet date of the assets arising from derivative contracts and hedging activities, which are expected to be converted into cash or otherwise disposed of after a year or beyond the normal operating cycle, if longer. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 4 false 36 2 us-gaap_OtherAssetsNoncurrent us-gaap true debit instant No definition available. false false false false false false false false false false false false 1 false true false false 985000000 985 false false false 2 false true false false 946000000 946 false false false xbrli:monetaryItemType monetary Aggregate carrying amount, as of the balance sheet date, of noncurrent assets not separately disclosed in the balance sheet due to materiality considerations. Noncurrent assets are expected to be realized or consumed after one year (or the normal operating cycle, if longer). 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Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 18 -Article 5 true 38 1 us-gaap_Assets us-gaap true debit instant No definition available. false false false false false false false false false false false totallabel false 1 false true false false 49937000000 49937 false false false 2 false true false false 48348000000 48348 false false false xbrli:monetaryItemType monetary Sum of the carrying amounts as of the balance sheet date of all assets that are recognized. Assets are probable future economic benefits obtained or controlled by an entity as a result of past transactions or events. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Concepts (CON) -Number 6 -Paragraph 25 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 18 -Article 5 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 03 -Paragraph 12 -Article 7 true 39 1 us-gaap_LiabilitiesCurrentAbstract us-gaap true na duration No definition available. false false false false false true false false false false false verboselabel false 1 false false false false 0 0 false false false 2 false false false false 0 0 false false false xbrli:stringItemType string No definition available. false 40 2 us-gaap_AccountsPayableCurrent us-gaap true credit instant No definition available. false false false false false false false false false false false verboselabel false 1 false true false false 863000000 863 false false false 2 false true false false 1158000000 1158 false false false xbrli:monetaryItemType monetary Carrying value as of the balance sheet date of liabilities incurred (and for which invoices have typically been received) and payable to vendors for goods and services received that are used in an entity's business. Used to reflect the current portion of the liabilities (due within one year or within the normal operating cycle if longer). 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Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 19 -Subparagraph a -Article 5 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 03 -Paragraph 16 -Article 7 false 43 3 us-gaap_TransfersAccountedForAsSecuredBorrowingsAssociatedLiabilitiesCarryingAmount us-gaap true credit instant No definition available. false false false false false false false false false false false verboselabel false 1 false true false false 677000000 677 [1] false false false 2 false true false false 0 0 false false false xbrli:monetaryItemType monetary Carrying amount of liabilities associated with assets recognized in the transferor's statement of financial position at the end of each period presented. 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Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 19 -Subparagraph a -Article 5 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 03 -Paragraph 13 -Subparagraph 2, 3 -Article 9 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 03 -Paragraph 16 -Subparagraph a(1) -Article 7 true 45 2 us-gaap_LongTermDebtCurrent us-gaap true credit instant No definition available. false false false false false false false false false false false verboselabel false 1 false true false false 1043000000 1043 false false false 2 false true false false 1741000000 1741 false false false xbrli:monetaryItemType monetary Total of the portions of the carrying amounts as of the balance sheet date of long-term debt, which may include notes payable, bonds payable, debentures, mortgage loans, and commercial paper, which are scheduled to be repaid within one year or the normal operating cycle, if longer, and after deducting unamortized discount or premiums, if any. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 20 -Article 5 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 19 -Article 5 false 46 2 us-gaap_DerivativeLiabilitiesCurrent us-gaap true credit instant No definition available. false false false false false false false false false false false terselabel false 1 false true false false 120000000 120 false false false 2 false true false false 120000000 120 false false false xbrli:monetaryItemType monetary Fair values as of the balance sheet date of all liabilities resulting from contracts that meet the criteria of being accounted for as derivative instruments, and which are expected to be extinguished or otherwise disposed of within a year or the normal operating cycle, if longer, net of the effects of master netting arrangements. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Accounting Research Bulletin (ARB) -Number 43 -Chapter 3 -Section A -Paragraph 7 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name FASB Staff Position (FSP) -Number FIN39-1 -Paragraph 10A, 10B Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 4, 17 false 47 2 us-gaap_CustomerDepositsCurrent us-gaap true credit instant No definition available. false false false false false false false false false false false verboselabel false 1 false true false false 266000000 266 false false false 2 false true false false 256000000 256 false false false xbrli:monetaryItemType monetary The current portion, due within one year or the normal operating cycle, if longer, of money or property received from customers which is either to be returned upon satisfactory contract completion or applied to customer receivables in accordance with the terms of the contract or the understandings. No authoritative reference available. false 48 2 us-gaap_TaxesPayableCurrent us-gaap true credit instant No definition available. false false false false false false false false false false false verboselabel false 1 false true false false 570000000 570 false false false 2 false true false false 632000000 632 false false false xbrli:monetaryItemType monetary Carrying value as of the balance sheet date of obligations incurred and payable for statutory income, sales, use, payroll, excise, real, property and other taxes. Used to reflect the current portion of the liabilities (due within one year or within the normal operating cycle if longer). Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 19, 20 -Article 5 false 49 2 us-gaap_InterestPayableCurrent us-gaap true credit instant No definition available. false false false false false false false false false false false verboselabel false 1 false true false false 284000000 284 false false false 2 false true false false 287000000 287 false false false xbrli:monetaryItemType monetary Carrying value as of the balance sheet date of [accrued] interest payable on all forms of debt, including trade payables, that has been incurred and is unpaid. Used to reflect the current portion of the liabilities (due within one year or within the normal operating cycle if longer). Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Accounting Research Bulletin (ARB) -Number 43 -Chapter 3 -Section A -Paragraph 7 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 20 -Article 5 false 50 2 us-gaap_RegulatoryLiabilityCurrent us-gaap true credit instant No definition available. false false false false false false false false false false false false 1 false true false false 27000000 27 false false false 2 false true false false 76000000 76 false false false xbrli:monetaryItemType monetary The amount for the individual regulatory current liability as itemized in a table of regulatory current liabilities as of the end of the period Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 71 -Paragraph 11 false 51 2 us-gaap_OtherLiabilitiesCurrent us-gaap true credit instant No definition available. false false false false false false false false false false false terselabel false 1 false true false false 1132000000 1132 false false false 2 false true false false 931000000 931 false false false xbrli:monetaryItemType monetary Aggregate carrying amount, as of the balance sheet date, of current obligations not separately disclosed in the balance sheet due to materiality considerations. Current liabilities are expected to be paid within one year (or the normal operating cycle, if longer). Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 20 -Article 5 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Accounting Research Bulletin (ARB) -Number 43 -Chapter 3 -Section A -Paragraph 8 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 6 -Paragraph 15 false 52 2 us-gaap_LiabilitiesCurrent us-gaap true credit instant No definition available. false false false false false false false false false false false totallabel false 1 false true false false 5778000000 5778 false false false 2 false true false false 5327000000 5327 false false false xbrli:monetaryItemType monetary Total obligations incurred as part of normal operations that are expected to be paid during the following twelve months or within one business cycle, if longer. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 21 -Article 5 true 53 1 us-gaap_LiabilitiesNoncurrentAbstract us-gaap true na duration No definition available. false false false false false true false false false false false verboselabel false 1 false false false false 0 0 false false false 2 false false false false 0 0 false false false xbrli:stringItemType string No definition available. false 54 2 us-gaap_LongTermDebtNoncurrent us-gaap true credit instant No definition available. false false false false false false false false false false false verboselabel false 1 false true false false 16305000000 16305 false false false 2 false true false false 15757000000 15757 false false false xbrli:monetaryItemType monetary Sum of the carrying values as of the balance sheet date of all long-term debt, which is debt initially having maturities due after one year from the balance sheet date or beyond the operating cycle, if longer, but excluding the portions thereof scheduled to be repaid within one year (current maturities) or the normal operating cycle, if longer, and after deducting unamortized discount or premiums, if any. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 22 -Article 5 false 55 2 us-gaap_DerivativeLiabilitiesNoncurrent us-gaap true credit instant No definition available. false false false false false false false false false false false terselabel false 1 false true false false 177000000 177 false false false 2 false true false false 128000000 128 false false false xbrli:monetaryItemType monetary Fair values as of the balance sheet date of all liabilities resulting from contracts that meet the criteria of being accounted for as derivative instruments, and which are expected to be extinguished or otherwise disposed of after one year or beyond the normal operating cycle, if longer, net of the effects of master netting arrangements. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 4, 17 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Accounting Research Bulletin (ARB) -Number 43 -Chapter 3 -Section A -Paragraph 7 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 10 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name FASB Staff Position (FSP) -Number FIN39-1 -Paragraph 10A, 10B false 56 2 us-gaap_DeferredTaxLiabilitiesNoncurrent us-gaap true credit instant No definition available. false false false false false false false false false false false verboselabel false 1 false true false false 6671000000 6671 false false false 2 false true false false 6420000000 6420 false false false xbrli:monetaryItemType monetary Represents the noncurrent portion of deferred tax liabilities, which result from applying the applicable tax rate to net taxable temporary differences pertaining to each jurisdiction to which the entity is obligated to pay income tax. A noncurrent taxable temporary difference is a difference between the tax basis and the carrying amount of a noncurrent asset or liability in the financial statements prepared in accordance with generally accepted accounting principles. In a classified statement of financial position, an enterprise shall separate deferred tax liabilities and assets into a current amount and a noncurrent amount. Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, shall be classified according to the expected reversal date of the temporary difference. 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No authoritative reference available. false 58 2 us-gaap_AssetRetirementObligationsNoncurrent us-gaap true credit instant No definition available. false false false false false false false false false false false terselabel false 1 false true false false 1280000000 1280 false false false 2 false true false false 1254000000 1254 false false false xbrli:monetaryItemType monetary Noncurrent portion of the carrying amount of a liability for an asset retirement obligation. An asset retirement obligation is a legal obligation associated with the disposal or retirement of a tangible long-lived asset that results from the acquisition, construction or development, or the normal operations of a long-lived asset, except for certain obligations of lessees. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 143 -Paragraph 3, 10, 22 false 59 2 aep_EmployeeBenefitsAndPensionObligations aep false credit instant Employee Benefits And Pension Obligations. false false false false false false false false false false false verboselabel false 1 false true false false 2107000000 2107 false false false 2 false true false false 2189000000 2189 false false false xbrli:monetaryItemType monetary Employee Benefits And Pension Obligations. No authoritative reference available. false 60 2 us-gaap_OtherLiabilitiesNoncurrent us-gaap true credit instant No definition available. false false false false false false false false false false false terselabel false 1 false true false false 1272000000 1272 false false false 2 false true false false 1163000000 1163 false false false xbrli:monetaryItemType monetary Aggregate carrying amount, as of the balance sheet date, of noncurrent obligations not separately disclosed in the balance sheet due to materiality considerations. Noncurrent liabilities are expected to be paid after one year (or the normal operating cycle, if longer). Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 24 -Article 5 false 61 2 us-gaap_LiabilitiesNoncurrent us-gaap true credit instant No definition available. false false false false false false false false false false false totallabel false 1 false true false false 30829000000 30829 false false false 2 false true false false 29820000000 29820 false false false xbrli:monetaryItemType monetary Total obligations incurred as part of normal operations that is expected to be repaid beyond the following twelve months or one business cycle. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 22, 23, 24, 25, 26, 27 -Article 5 true 62 1 us-gaap_Liabilities us-gaap true credit instant No definition available. false false false false false false false false false false false totallabel false 1 false true false false 36607000000 36607 false false false 2 false true false false 35147000000 35147 false false false xbrli:monetaryItemType monetary Sum of the carrying amounts as of the balance sheet date of all liabilities that are recognized. Liabilities are probable future sacrifices of economic benefits arising from present obligations of an entity to transfer assets or provide services to other entities in the future. No authoritative reference available. true 63 1 us-gaap_TemporaryEquityCarryingAmount us-gaap true credit instant No definition available. false false false false false false false false false false false terselabel false 1 false true false false 60000000 60 false false false 2 false true false false 61000000 61 false false false xbrli:monetaryItemType monetary The carrying value (book value) of an entity's issued and outstanding stock which is not included within permanent equity in Stockholders Equity. Temporary equity is a security with redemption features that are outside the control of the issuer, is not classified as an asset or liability in conformity with GAAP, and is not mandatorily redeemable. Includes any type of security that is redeemable at a fixed or determinable price or on a fixed or determinable date or dates, is redeemable at the option of the holder, or has conditions for redemption which are not solely within the control of the issuer. If convertible, the issuer does not control the actions or events necessary to issue the maximum number of shares that could be required to be delivered under the conversion option if the holder exercises the option to convert the stock to another class of equity. If the security is a warrant or a rights issue, the warrant or rights issue is considered to be temporary equity if the issuer cannot demonstrate that it would be able to deliver upon the exercise of the option by the holder in all cases. Includes stock with a put option held by an ESOP and stock redeemable by a holder only in the event of a change in control of the issuer. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph i -Article 4 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Emerging Issues Task Force (EITF) -Number D-98 -Paragraph 2 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 28 -Subparagraph a -Article 5 false 64 1 us-gaap_StockholdersEquityAbstract us-gaap true na duration No definition available. false false false false false true false false false false false verboselabel false 1 false false false false 0 0 false false false 2 false false false false 0 0 false false false xbrli:stringItemType string No definition available. false 65 2 us-gaap_CommonStockValue us-gaap true credit instant No definition available. false false false false false false false false false false false terselabel false 1 false true false false 3248000000 3248 false false false 2 false true false false 3239000000 3239 false false false xbrli:monetaryItemType monetary Dollar value of issued common stock whether issued at par value, no par or stated value. This item includes treasury stock repurchased by the entity. Note: elements for number of common shares, par value and other disclosure concepts are in another section within stockholders' equity. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 30 -Article 5 false 66 2 us-gaap_AdditionalPaidInCapital us-gaap true credit instant No definition available. false false false false false false false false false false false verboselabel false 1 false true false false 5860000000 5860 false false false 2 false true false false 5824000000 5824 false false false xbrli:monetaryItemType monetary Excess of issue price over par or stated value of the entity's capital stock and amounts received from other transactions involving the entity's stock or stockholders. Includes adjustments to additional paid in capital. Some examples of such adjustments include recording the issuance of debt with a beneficial conversion feature and certain tax consequences of equity instruments awarded to employees. Use this element for the aggregate amount of APIC associated with common AND preferred stock. For APIC associated with only common stock, use the element Additional Paid In Capital, Common Stock. For APIC associated with only preferred stock, use the element Additional Paid In Capital, Preferred Stock. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 31 -Article 5 false 67 2 us-gaap_RetainedEarningsAccumulatedDeficit us-gaap true credit instant No definition available. false false false false false false false false false false false verboselabel false 1 false true false false 4533000000 4533 false false false 2 false true false false 4451000000 4451 false false false xbrli:monetaryItemType monetary The cumulative amount of the reporting entity's undistributed earnings or deficit. 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Excludes Net Income (Loss), and accumulated changes in equity from transactions resulting from investments by owners and distributions to owners. Includes foreign currency translation items, certain pension adjustments, and unrealized gains and losses on certain investments in debt and equity securities as well as changes in the fair value of derivatives related to the effective portion of a designated cash flow hedge. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 04 -Article 3 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Accounting Principles Board Opinion (APB) -Number 12 -Paragraph 10 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 130 -Paragraph 14, 17, 26 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 31 -Article 5 false 69 2 us-gaap_StockholdersEquity us-gaap true credit instant No definition available. false false false false false false false false false false false totallabel false 1 false true false false 13269000000 13269 false false false 2 false true false false 13140000000 13140 false false false xbrli:monetaryItemType monetary Total of all Stockholders' Equity (deficit) items, net of receivables from officers, directors owners, and affiliates of the entity which are attributable to the parent. The amount of the economic entity's stockholders' equity attributable to the parent excludes the amount of stockholders' equity which is allocable to that ownership interest in subsidiary equity which is not attributable to the parent (noncontrolling interest, minority interest). This excludes temporary equity and is sometimes called permanent equity. 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No authoritative reference available. false 4 1 aep_BookValuesAndFairValuesOfLongTermDebtPolicyTextBlock aep false na duration Policy for determining fair value of long-term debt. false false false false false false false false false false false terselabel false 1 false false false false 0 0 <p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">The fair values of Long-term Debt are based on quoted market prices, without credit enhancements, for the same or similar issues and the current interest rates offered for instruments with similar maturities. These instruments are not marked-to-market. The estimates presented are not necessarily indicative of the amounts that we could realize in a current market exchange.</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p> The fair values of Long-term Debt are based on quoted market prices, without credit enhancements, for the same or similar issues and the current interest rates false false false us-types:textBlockItemType textblock Policy for determining fair value of long-term debt. No authoritative reference available. false 5 1 aep_TrustAssetsForDecommissioningAndSpentNuclearFuelDisposalPolicyTextBlock aep false na duration Element used to describe policy for trust assets for decommissioning and spent nuclear fuel disposal. false false false false false false false false false false false terselabel false 1 false false false false 0 0 <p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;font-style:italic;margin-left:0px;">Fair Value Measurements of Trust Assets for Decommissioning and SNF Disposal</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">Nuclear decommissioning and spent nuclear fuel trust funds represent funds that regulatory commissions allow us to collect through rates to fund future decommissioning and spent nuclear fuel disposal liabilities. By rules or orders, the IURC, the MPSC and the FERC established investment limitations and general risk management guidelines. In general, limitations include:</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'></p> <ul><li style="margin-left:36px;list-style:disc;"><font style="font-family:Times New Roman;font-size:11pt;">Acceptable investments (rated investment grade or above when purchased).</font></li><li style="margin-left:36px;list-style:disc;"><font style="font-family:Times New Roman;font-size:11pt;">Maximum percentage invested in a specific type of investment.</font></li><li style="margin-left:36px;list-style:disc;"><font style="font-family:Times New Roman;font-size:11pt;">Prohibition of investment in obligations of AEP or its affiliates.</font></li><li style="margin-left:36px;list-style:disc;"><font style="font-family:Times New Roman;font-size:11pt;">Withdrawals permitted only for payment of decommissioning costs and trust expenses.</font></li><li style="margin-left:36px;list-style:disc;"><font style="font-family:Times New Roman;font-size:11pt;">Target asset allocation is 50% fixed income and 50% equ ity securities.</font></li></ul><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">We maintain trust records for each regulatory jurisdiction. These funds are managed by external investment managers who must comply with the guidelines and rules of the applicable regulatory authorities. The trust assets are invested to optimize the net of tax earnings of the trust giving consideration to liquidity, risk, diversification and other prudent investment objectives.</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">I&amp;M records securities held in trust funds for decommissioning nuclear facilities and for the disposal of SNF at fair value. I&amp;M classifies securit ies in the trust funds as available-for-sale due to their long-term purpose. The assessment of whether an investment in a debt security has suffered an other-than-temporary impairment is based on whether the investor has the intent to sell or more likely than not will be required to sell the debt security before recovery of its amortized costs. The assessment of whether an investment in an equity security has suffered an other-than-temporary impairment, among other things, is based on whether the investor has the ability and intent to hold the investment to recover its value. </font><font style="font-family:Times New Roman;font-size:11pt;">Other-than-temporary impairments for </font><font style="font-family:Times New Roman;font-size:11pt;">investments in both debt and equity securities are considered realized losses as a result of securities being managed by an external investment management firm. The external investment management firm makes specific investment decisions regardin g the equity and debt investments held in these trusts and </font><font style="font-family:Times New Roman;font-size:11pt;">generally intends to sell debt securities in an unrealized loss position as part of a tax optimization strategy. </font><font style="font-family:Times New Roman;font-size:11pt;">I&amp;M records unrealized gains and other-than-temporary impairments from securities in these trust funds as adjustments to the regulatory liability account for the nuclear decommissioning trust funds and to regulatory assets or liabilities for the SNF disposal trust funds in accordance with their treatment in rates. The gains, losses or other-than-temporary impairments shown below did not affect earnings or AOCI. The trust assets are recorded by jurisdiction and may not be used for another jurisdiction</font><font style="font-family:Times New Roman;font-size:11pt;">'</font><font style="font-family:Times New Roman;font-size:11pt;">s liabilities. Regulatory approval is required to withdraw decommissioning funds.</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p> Fair Value Measurements of Trust Assets for Decommissioning and SNF Disposal&#160;Nuclear decommissioning and spent nuclear fuel trust funds represent funds false false false us-types:textBlockItemType textblock Element used to describe policy for trust assets for decommissioning and spent nuclear fuel disposal. No authoritative reference available. false 6 1 aep_FairValueAssetsAndLiabilitiesMeasuredOnRecurringBasisPolicyTextBlock aep false na duration Element describes policy for fair value assets and liabilities measured on recurring basis. false false false false false false false false false false false terselabel false 1 false false false false 0 0 <p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">As required by the accounting guidance for "Fair Value Measurements and Disclosures," financial assets and liabilities are classified in their entirety based</font><font style="font-family:Times New Roman;font-size:11pt;"> on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. There have not been any significant changes in AEP's valuation techniques.</font></p> As required by the accounting guidance for "Fair Value Measurements and Disclosures," financial assets and liabilities are classified in their entirety based false false false us-types:textBlockItemType textblock Element describes policy for fair value assets and liabilities measured on recurring basis. No authoritative reference available. false 1 5 false UnKnown UnKnown UnKnown false true XML 48 defnref.xml IDEA: XBRL DOCUMENT No authoritative reference available. No authoritative reference available. Volume of power derivatives contract. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Other Temporary Investments. No authoritative reference available. No authoritative reference available. No authoritative reference available. Changes in the fair value of net trading derivatives and other investments. No authoritative reference available. Amount of retained earnings restricted for the purpose of paying dividends. No authoritative reference available. Notional Volume of Derivative Instruments Text Block. No authoritative reference available. Performance Share Units earnings per share. No authoritative reference available. Gross Unrealized Gains. No authoritative reference available. Bad debt reserves related to securitization/sale of accounts receivable. No authoritative reference available. No authoritative reference available. No authoritative reference available. Attorneys' fees to BOA. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Long Term Debt Fair Value. No authoritative reference available. Policy for determining fair value of long-term debt. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Requested Base Rate Increase No authoritative reference available. No authoritative reference available. No authoritative reference available. Unrealized Gain (Loss) Included in Net Income Relating to Assets Still Held at the Reporting Date. No authoritative reference available. The PUCT required cap on CO2 emission costs (per ton) for the Turk Plant. No authoritative reference available. No authoritative reference available. No authoritative reference available. Gross Realized Gains on Investment Sales On Short Term Investment. No authoritative reference available. No authoritative reference available. No authoritative reference available. Contractual Maturities Fair Value of Debt Securities Text Block. No authoritative reference available. No authoritative reference available. No authoritative reference available. Application with IURC to increase fuel adjustment charge. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Plants Scheduled For Installation Of Jet Bubbling Reactor Technology Text Block No authoritative reference available. Possible Issuance Of Letter Of Credit Under Each Credit Facilities. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. PUCT Approved Other Increases in the 2009 Texas Base Rate Filing No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Maximum level of debt to capitalization persuant to credit agreement leverage restrictions. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Amount MISO Seeks to Recover from PJM No authoritative reference available. Amount attributable to RTO and ISO activities. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Requested financing cost riders in the 2009 Texas Base Rate filing related to the construction of the Stall Unit and Turk Plant. No authoritative reference available. Estimated Final Cost Mine Reclamation No authoritative reference available. Employee Benefits And Pension Obligations. No authoritative reference available. Economic Development Rider Costs Incurred. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Cash collateral paid to third parties. No authoritative reference available. No authoritative reference available. No authoritative reference available. Limit to increase in rates issued in the ESP order. No authoritative reference available. Percentage of Ownership in subsidiary. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Total amount SWEPCo collected through a rider for final mine closure and reclamation costs. No authoritative reference available. Element used to describe policy for trust assets for decommissioning and spent nuclear fuel disposal. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Amounts due from customers for billed utility services. No authoritative reference available. Change in Other Noncurrent Liabilities. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Approved Return on Equity. No authoritative reference available. No authoritative reference available. No authoritative reference available. Two credit facilities structured, each No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Depreciation increase included in total annual base rate request. No authoritative reference available. The Remaining Amount of Contested SECA Revenues No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Sales proceeds guaranteed to lessor as a percentage of projected fair value at end of max railcar lease term No authoritative reference available. Amount CSPCo and OPCo each incurred in pre-construction costs related to the IGCC Plant. No authoritative reference available. No authoritative reference available. No authoritative reference available. Valuation techniques for Fair Value Measurements. No authoritative reference available. Amount in risk management assets related to fair value hedging strategies No authoritative reference available. Total amount agreed to in the settlement agreement related to APCo's and WPCo's second year ENEC increase. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. SWEPCo's Transmission Capitalized Costs Excluding Costs Attributable To Its Joint Owners No authoritative reference available. Total billings from VIE. No authoritative reference available. Contended against collection of offsetting amount without specific approval. No authoritative reference available. Subsidiaries Capitalized AFUDC and Interest Excluding Costs Attributable to its Joint Owners Related to the Turk Plant No authoritative reference available. Percent limit of unamortized balance No authoritative reference available. No authoritative reference available. No authoritative reference available. Components of Net Periodic Benefit Cost. No authoritative reference available. Sales proceeds guaranteed to lessor as a percentage of projected fair value under current railcar lease term No authoritative reference available. Gross Realized Gains on Investment Sales. No authoritative reference available. No authoritative reference available. No authoritative reference available. Percentage of management fee received by SWEPCo from DHLC. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Amount of construction surcharges agreed to in the settlement agreement related to APCo's and WPCo's second year ENEC increase. No authoritative reference available. Proposed Initial Environmental Investment Carrying Cost Rider for Costs Related to environmental Investments in 2009. No authoritative reference available. No authoritative reference available. No authoritative reference available. Total increase in earnings in the period representing the cost of equity (rate of return) used to finance construction of regulated assets, which is expected to be recovered through rate adjustments. No authoritative reference available. Exclusive right to use cushion gas, in billion cubic feet. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Supplementary Information. No authoritative reference available. No authoritative reference available. No authoritative reference available. Net recoverable Texas stranded generation costs by TCC. No authoritative reference available. Funds to pay for the disposal of spent nuclear fuel and the decontaminating and decommissioning of nuclear facilities through the collection of revenues from rate payers. No authoritative reference available. Accrued Taxes, Net. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Retained interest if 10% adverse change in uncollectible accounts No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Gross Realized Losses On Investment Sales On Short Term Investment. No authoritative reference available. The amount management estimates interest expense would have been had they accrued interest on the tax benefit. No authoritative reference available. Of the Requested Base Rate Increase, Amount that is currently being recovered through a Rider No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Loss On Hedging Instrument On Long Term Debt No authoritative reference available. No authoritative reference available. No authoritative reference available. Net change in Net Income resulting from Health Care Acts enactment. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Adjusted cost of debt securities. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Debt Instrument Interest Variable Rate. No authoritative reference available. Gross Realized Losses on Investment Sales. No authoritative reference available. Auction Rate Tax Exempt Long Term Debt Outstanding. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Accounts receivable retained interest and pledged as collateral less uncollectible accounts No authoritative reference available. Unrecognized equity carrying costs related to the Ormet interim arrangement as of September 2009 No authoritative reference available. Repair Of Property Damage And Replacement Expected Cost. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Maximum future payments for Letters of Credit issued under the two credit facilities. No authoritative reference available. Insurance amount recorded in revenues during the outage period. No authoritative reference available. No authoritative reference available. No authoritative reference available. Risk Management Liabilities. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Income Taxes Before Discontinued Operations And Extraordinary Loss. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Proceeds From Investment Sales. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Recognized gross seams elimination cost allocation revenue. No authoritative reference available. Securitization Bonds. No authoritative reference available. No authoritative reference available. No authoritative reference available. Total Accumulated Other Comprehensive Income (Loss) Activity for Cash Flow Hedges. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Amount the Settlement Agreement was filed for in the Environmental Investment Carrying Costs Rider No authoritative reference available. Impact of cash flow hedges on balance sheet hedging assets. No authoritative reference available. No authoritative reference available. No authoritative reference available. Percentage of DHLCs debt guaranteed by each SWEPCo and CLECO. No authoritative reference available. Element represents transfers into assets measured at fair value on a recurring basis using unobservable inputs (Level 3) which have taken place during the period. No authoritative reference available. Partial offset to decrease in deferred tax assets resulting from Health Care Acts. No authoritative reference available. Interim Rate Increase Effective July 2010. No authoritative reference available. Insurance premium payments to protected cell. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Total commitment from bank conduits to finance receivables. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Effective interest rates on securitization of accounts receivable No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Book Values and Fair Values of Long-term Debt. No authoritative reference available. Percentage of short-term borrowing needs in excess of third party financings provided by AEP to AEP Credit. No authoritative reference available. Fair Value, Assets Measured on Recurring Basis, Total. No authoritative reference available. Volume of Natural Gas derivatives contract. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Retained interest if 20% adverse change in uncollectible accounts. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Return on Equity approved by the PUCT for ETT. No authoritative reference available. Amount Requested for Deferred Storm Restoration Expenses. No authoritative reference available. Percentage of VIE sales of lignite produced. No authoritative reference available. Max percent of unamortized balance guaranteed to lessor No authoritative reference available. Other requested increases in the 2009 Texas Base Rate Filing. No authoritative reference available. No authoritative reference available. No authoritative reference available. The PUCT required cap on the Turk Plant, excluding AFUDC and related transmission costs. No authoritative reference available. Total principal outstanding related to sale of receivables arrangement. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Requested Return on Equity. No authoritative reference available. Recognized Gain on shares sold, Net of Tax. No authoritative reference available. Amount the OIEC contends that the OCC should require PSO to refund through their fuel clause. No authoritative reference available. No authoritative reference available. No authoritative reference available. Deductions in property insurance. No authoritative reference available. SWEPCo's share of cancellation fees which shall be incurred if the Turk Plant is cancelled. No authoritative reference available. Companys Investment in joint venture No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Secure renewable energy capacity. No authoritative reference available. Long-term debt and other securities issued, retired and principal payments made. No authoritative reference available. Estimated cancellation fee which shall be incurred by joint owners and SWEPCo if the Turk Plant is cancelled. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Fair value of derivative liabilities subject to cross-default provisions. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Proceeds from issuances of debt. No authoritative reference available. Fuel Over/Under-Recovery, Net. No authoritative reference available. No authoritative reference available. No authoritative reference available. Commitment from bank conduits that expire in one year. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Capital lease Payments made. No authoritative reference available. Impact of Cash Flow Hedges on our Consolidated Balance Sheet. No authoritative reference available. Amount recovered by offsetting under recovery of prior periods fuel costs against existing fuel over-recovery during the period June 2007 through May 2008. No authoritative reference available. Delinquent securitized accounts receivable. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Derecognized accounts receivable. No authoritative reference available. Received partial payments for the cost incurred to repair property damage. No authoritative reference available. No authoritative reference available. No authoritative reference available. Deferred revenue from servicing accounts receivable. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Decrease in annual coal cost projections as ordered by the WVPSC in the 2009 ENEC filing. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Amount in the deferred fuel adjustment clause related to the Ormet interim arrangement including recognized carrying charges as of September 2009. No authoritative reference available. No authoritative reference available. No authoritative reference available. Average variable discount rate on sale of account receivable. No authoritative reference available. Amounts due from customers based upon an estimate of sales of power to customers since the last customer billing. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Reduced customer bills for cost of replacement power. No authoritative reference available. Amount SWEPCo collected through a rider for final mine closure and reclamation costs recorded in other current liabilities No authoritative reference available. No authoritative reference available. No authoritative reference available. Credit agreement, 3 year No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. PUCT approved Financing Cost Riders in the 2009 Texas Base Rate Filing Related to the Construction of the Stall Unit No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Requested vegetation management rider in the 2009 Texas base rate filing. No authoritative reference available. Refund of other Texas net true-up regulatory liabilities by TCC. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Return on Equity Per Settlement Agreement. No authoritative reference available. No authoritative reference available. No authoritative reference available. volume of Heating Oil and Gasoline derivatives contract. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Under recovery of fuel costs prior to 2002 as a result of a reallocation of purchased power costs among AEP West Companies. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Element represents transfers into assets measured at fair value on a recurring basis using unobservable inputs (Level 3) which have taken place during the period. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Refund of excess earnings including interest by TCC. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Nuclear trust fund investments. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Amount of base Rate Increase Per Settlement Agreement. No authoritative reference available. Tax benefits and associated carrying costs related to TCC's generation assets. No authoritative reference available. The MPSC staff recommended return on equity increase. No authoritative reference available. First-year increase in ENEC rates. No authoritative reference available. The intervenors' proposed new shareholder portion of off-sytem sales margins sharing in Oklahoma. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Utility Operations segment's related net sales (purchases) classified in Revenues from Other. No authoritative reference available. No authoritative reference available. No authoritative reference available. Maximum potential loss (net of tax) on railcar lease guarantee of return-and-sale option No authoritative reference available. Future minimum lease obligation for remaining railcars No authoritative reference available. The Current Shareholder Percentage of Off-System Sales Margins Sharing in Oklahoma. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Amount SWEPCo collected through a rider for final mine closure and reclamation costs recorded in asset retirement obligations No authoritative reference available. No authoritative reference available. No authoritative reference available. Economic Development Rider Costs Collected No authoritative reference available. Subtotal - Common Shareholders' Equity. No authoritative reference available. No authoritative reference available. No authoritative reference available. Amount Included in the Settlement Agreement for Deferred Storm Restoration Expenses to be Recovered Over a Five Year Period. No authoritative reference available. No authoritative reference available. No authoritative reference available. Securities Activity Within the decommissioning and SNF trusts. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Unbilled receivables related to securitization/sale of accounts receivable No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Changes in Fair Value Allocated to Regulated Jurisdiction. No authoritative reference available. Risk Management Assets. No authoritative reference available. PUCT Approved One-Year Vegetation Management Rider In the 2009 Texas Base Rate Filing. No authoritative reference available. Estimated cost to purchase transmission and distribution assets of VEMCO No authoritative reference available. Contingency to pay accumulated deferred investment tax credits by TCC. No authoritative reference available. Amount SWEPCo collected through a rider for final mine closure and reclamation costs recorded in deferred credits and other noncurrent liabilities No authoritative reference available. Comparative accounts receivable information. No authoritative reference available. No authoritative reference available. No authoritative reference available. Purchases of Investments. No authoritative reference available. No authoritative reference available. No authoritative reference available. Description of the basis of accounting used to prepare the financial statements (for example, U.S. Generally Accepted Accounting Principles, Other Comprehensive Basis of Accounting, IFRS). No authoritative reference available. Funds paid for emission reduction, energy efficiency and environmental mitigation projects. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Cash Flow Hedges, Portion Expected to be Reclassified to Net Income, Current. No authoritative reference available. Variable Interest Carrying Amount Liabilities and Equity. No authoritative reference available. Other Temporary Investments No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Transmission Contractual construction commitments of SWEPCo related to the Turk Plant. No authoritative reference available. Probable performance risk related to Bank of America litigation. No authoritative reference available. Guarantees of mine reclamation, amount. No authoritative reference available. No authoritative reference available. No authoritative reference available. Transmission Cancellation Fees Which Shall Be Incurred By SWEPCo if the Turk Plant is cancelled. No authoritative reference available. Amount of Gain Loss Recognized on Risk Management Contracts. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Amount required for relocation of the village. No authoritative reference available. Net uncollectible accounts receivable written off. No authoritative reference available. Decrease in annual depreciation rates which was approved in the Texas Base Rate Appeal No authoritative reference available. No authoritative reference available. No authoritative reference available. Decrease in deferred tax assets as a result of Patient Protection and Affordable Care Act (Health Care Acts) enacted in March 2010. No authoritative reference available. Change in Other Temporary Investments, Net. No authoritative reference available. Amount of Asset for Recovery under Property insurance policy. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Volume of coal derivatives contract. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Other-than-temporary impairments of Other Temporary Investments net of tax. No authoritative reference available. Gain On Fair Value Hedging Instrument No authoritative reference available. Amount of recovery the MPSC staff recommended for customer choice implementation costs over a two year period. No authoritative reference available. Customer accounts receivable managed portfolio. No authoritative reference available. No authoritative reference available. No authoritative reference available. Temporary Impairments. No authoritative reference available. Exercise Price for non-dilutive stock options outstanding. No authoritative reference available. Element describes policy for fair value assets and liabilities measured on recurring basis. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Change in Other Noncurrent Assets. No authoritative reference available. Approved Base Rate Increase. No authoritative reference available. No authoritative reference available. No authoritative reference available. Stall Unit cost caps per the APSC and the LPSC orders. No authoritative reference available. No authoritative reference available. No authoritative reference available. Notional Amount of Interest Rate and Foreign Currency Derivatives Contract. No authoritative reference available. No authoritative reference available. No authoritative reference available. Proposed civil penalty for Amos Plant show cause request No authoritative reference available. Number of employees that accepted voluntary severances. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Miscellaneous receivables not included in A/R - Customers, A/R - Affiliated Companies or A/R - Accrued Unbilled Revenues. No authoritative reference available. No authoritative reference available. No authoritative reference available. Amount Written Off Relating to the Mountaineer Carbon Capture and Storage Project No authoritative reference available. SWEPCo's Share Of the Contractual Construction Commitments related to the Turk Plant. No authoritative reference available. Capitalized construction costs including allowance for funds used during construction for the Stall Unit. No authoritative reference available. Contractual Construction Commitments Of Joint Owners and SWEPCo related to the Turk Plant. No authoritative reference available. Debt and equity securities within Other Temporary Investments. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Maturity Of Net Fair Value Of Risk Management Contracts Prior To Cash Collateral Assets Or Liabilities. No authoritative reference available. The MPSC staff recommended increase in annual base rates. No authoritative reference available. Tax benefit which the PUCT agreed to allow TCC to defer refunding to ratepayers. No authoritative reference available. Level 2 fixed income securities valuation model inputs. No authoritative reference available. Number of shares sold. No authoritative reference available. The overall increase in ENEC rates as granted by an order to be phased-in over four years. No authoritative reference available. Estimated share of the cost of the Turk Plant. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Amount of Deferred Pre-Construction IGCC Costs for Future Recovery. No authoritative reference available. Impact of cash flow hedges on balance sheet hedging liabilities. No authoritative reference available. No authoritative reference available. No authoritative reference available. Commercial Paper Interest Rate. No authoritative reference available. Variable Interest Carrying Amount Equity. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Amount Intervenors Recommended As A Disallowance In SWEPCo's Texas Fuel And Purchase Poer Costs Reconciliation For The Period January 2006 Through March 2009. No authoritative reference available. No authoritative reference available. No authoritative reference available. Payment to BOA after court judgement. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Regulatory Liabilities and Deferred Investment Tax Credits. No authoritative reference available. No authoritative reference available. No authoritative reference available. Commitment from bank conduits that expire in three years. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. PUCT Approved Decrease In Annual Depreciation Expense in the 2009 Texas Base Rate Filing No authoritative reference available. Carrying Costs Income. No authoritative reference available. No authoritative reference available. No authoritative reference available. Trust fund assets one time fee obligation for nuclear fuel disposition. No authoritative reference available. Amount CSPCo and OPCo each collected in pre-construction costs related to the IGCC Plant. No authoritative reference available. No authoritative reference available. No authoritative reference available. SWEPCo's Estimated Share of the Transmission Costs of the Turk Plant. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Capitalized Allowance for Funds Used During Construction (AFUDC) for the Stall Unit No authoritative reference available. Maximum exposure related to Bank of America litigation. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Receivable sales outstanding. No authoritative reference available. No authoritative reference available. No authoritative reference available. Maximum potential loss on master lease agreements No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Elimination of merger credit rider which was approved in the Texas Base Rate Appeal. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Maximum potential loss on railcar lease guarantee of return-and-sale option No authoritative reference available. Fixed Annual Carrying Cost Rate Approved by the WVPSC in the 2009 ENEC filing. No authoritative reference available. Amount in Unrecognized Equity Carrying Costs related to the Ohio Fuel Adjustment Clause Deferrals. No authoritative reference available. Total current estimated generation costs of the Turk Plant No authoritative reference available. 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No authoritative reference available. false 21 2 us-gaap_ShareBasedCompensationArrangementByShareBasedPaymentAwardOptionsVestedAndExpectedToVestOutstandingWeightedAverageExercisePrice us-gaap true na instant No definition available. false false false false false false false false false false false terselabel true 1 true true false false 33.04 33.04 false false false 2 false false false false 0 0 false false false 3 true true false false 33.04 33.04 false false false 4 false false false false 0 0 false false false 5 false false false false 0 0 false false false us-types:perShareItemType decimal As of the balance sheet date, the weighted-average exercise price for outstanding stock options that are fully vested or expected to vest. 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This amount should be the same as the amount disclosed on the income statement before any deductions or allocation for any amounts attributable to noncontrolling interests, if any. 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A transition charge is a charge approved by a regulator that allows deregulated utilities to recover investments in certain assets, such as power plants, over a transition period leading into a deregulated market. 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No authoritative reference available. false 1508 2 aep_VariableInterestCarryingAmountLiabilitiesAndEquityAbstract aep false na duration Variable Interest Carrying Amount Liabilities And Equity. false false false false false true false false false false false verboselabel false 1 false false false false 0 0 false false false 2 false false false false 0 0 false false false 3 false false false false 0 0 false false false 4 false false false false 0 0 false false false 5 false false false false 0 0 false false false xbrli:stringItemType string Variable Interest Carrying Amount Liabilities And Equity. false 1509 2 us-gaap_VariableInterestCarryingAmountLiabilities us-gaap true credit instant No definition available. false false false false false false false false false false false verboselabel false 1 false false false false 0 0 false false false 2 false false false false 0 0 false false false 3 false false false false 0 0 false false false 4 false false false false 0 0 false false false 5 false true false false 17000000 17000000 false false false xbrli:monetaryItemType monetary Quantifies the net carrying amount of the entity's liabilities. 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No authoritative reference available. false 1602 2 aep_VariableInterestCarryingAmountLiabilitiesAndEquityAbstract aep false na duration Variable Interest Carrying Amount Liabilities And Equity. false false false false false true false false false false false verboselabel false 1 false false false false 0 0 false false false 2 false false false false 0 0 false false false 3 false false false false 0 0 false false false 4 false false false false 0 0 false false false 5 false false false false 0 0 false false false xbrli:stringItemType string Variable Interest Carrying Amount Liabilities And Equity. false 1603 2 us-gaap_VariableInterestCarryingAmountLiabilities us-gaap true credit instant No definition available. false false false false false false false false false false false verboselabel false 1 false false false false 0 0 false false false 2 false false false false 0 0 false false false 3 false false false false 0 0 false false false 4 false false false false 0 0 false false false 5 false true false false 36000000 36000000 false false false xbrli:monetaryItemType monetary Quantifies the net carrying amount of the entity's liabilities. 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No authoritative reference available. false 1790 2 aep_VariableInterestCarryingAmountLiabilitiesAndEquityAbstract aep false na duration Variable Interest Carrying Amount Liabilities And Equity. false false false false false true false false false false false verboselabel false 1 false false false false 0 0 false false false 2 false false false false 0 0 false false false 3 false false false false 0 0 false false false 4 false false false false 0 0 false false false 5 false false false false 0 0 false false false xbrli:stringItemType string Variable Interest Carrying Amount Liabilities And Equity. false 1791 2 us-gaap_VariableInterestCarryingAmountLiabilities us-gaap true credit instant No definition available. false false false false false false false false false false false verboselabel false 1 false false false false 0 0 false false false 2 false false false false 0 0 false false false 3 false false false false 0 0 false false false 4 false false false false 0 0 false false false 5 false true false false 154000000 154000000 false false false xbrli:monetaryItemType monetary Quantifies the net carrying amount of the entity's liabilities. 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No authoritative reference available. false 1837 2 aep_VariableInterestCarryingAmountLiabilitiesAndEquityAbstract aep false na duration Variable Interest Carrying Amount Liabilities And Equity. false false false false false true false false false false false verboselabel false 1 false false false false 0 0 false false false 2 false false false false 0 0 false false false 3 false false false false 0 0 false false false 4 false false false false 0 0 false false false 5 false false false false 0 0 false false false xbrli:stringItemType string Variable Interest Carrying Amount Liabilities And Equity. false 1838 2 us-gaap_VariableInterestCarryingAmountLiabilities us-gaap true credit instant No definition available. false false false false false false false false false false false verboselabel false 1 false false false false 0 0 false false false 2 false false false false 0 0 false false false 3 false false false false 0 0 false false false 4 false false false false 0 0 false false false 5 false true false false 74000000 74000000 false false false xbrli:monetaryItemType monetary Quantifies the net carrying amount of the entity's liabilities. 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Standard http://www.xbrl.org/2003/instance pure xbrli 0 Shares Standard http://www.xbrl.org/2003/instance shares xbrli 0 EPS Divide http://www.xbrl.org/2003/iso4217 USD iso4217 http://www.xbrl.org/2003/instance shares xbrli 0 $ false 2 USD true false false false Utility Operations [Member] us-gaap_SegmentReportingInformationBySegmentAxis xbrldi http://xbrl.org/2006/xbrldi aep_UtilityOperationsMember us-gaap_SegmentReportingInformationBySegmentAxis explicitMember false false TNC [Member] dei_LegalEntityAxis xbrldi http://xbrl.org/2006/xbrldi aep_SubsidiarySevenMember dei_LegalEntityAxis explicitMember USD Standard http://www.xbrl.org/2003/iso4217 USD iso4217 0 $ false 3 USD true false false false Utility Operations [Member] us-gaap_SegmentReportingInformationBySegmentAxis xbrldi http://xbrl.org/2006/xbrldi aep_UtilityOperationsMember us-gaap_SegmentReportingInformationBySegmentAxis explicitMember false false TNC [Member] dei_LegalEntityAxis xbrldi http://xbrl.org/2006/xbrldi aep_SubsidiarySevenMember dei_LegalEntityAxis explicitMember USD Standard http://www.xbrl.org/2003/iso4217 USD iso4217 0 $ false 4 USD true false false false Utility Operations [Member] us-gaap_SegmentReportingInformationBySegmentAxis xbrldi http://xbrl.org/2006/xbrldi aep_UtilityOperationsMember us-gaap_SegmentReportingInformationBySegmentAxis explicitMember false false TCC [Member] dei_LegalEntityAxis xbrldi http://xbrl.org/2006/xbrldi aep_SubsidiarySixMember dei_LegalEntityAxis explicitMember USD Standard http://www.xbrl.org/2003/iso4217 USD iso4217 0 $ false 5 USD true false false false Utility Operations [Member] us-gaap_SegmentReportingInformationBySegmentAxis xbrldi http://xbrl.org/2006/xbrldi aep_UtilityOperationsMember us-gaap_SegmentReportingInformationBySegmentAxis explicitMember false false TCC [Member] dei_LegalEntityAxis xbrldi http://xbrl.org/2006/xbrldi aep_SubsidiarySixMember dei_LegalEntityAxis explicitMember USD Standard http://www.xbrl.org/2003/iso4217 USD iso4217 0 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Cash equivalents, excluding items classified as marketable securities, include short-term, highly liquid investments that are both readily convertible to known amounts of cash, and so near their maturity that they present minimal risk of changes in value because of changes in interest rates. Generally, only investments with original maturities of three months or less qualify under that definition. Original maturity means original maturity to the entity holding the investment. For example, both a three-month US Treasury bill and a three-year Treasury note purchased three months from maturity qualify as cash equivalents. However, a Treasury note purchased th ree years ago does not become a cash equivalent when its remaining maturity is three months. 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Revenue sharing related to the Plaquemine Cogeneration Facility. 2 Includes eliminations due to an intercompany capital lease. 3 Reconciling Adjustments for Total Assets primarily include the elimination of intercompany advances to affiliates and intercompany accounts receivable along with the elimination of AEP's investments in subsidiary companies. 4 PSO and SWEPCo transferred certain existing ERCOT energy marketing contracts to AEP Energy Partners, Inc. (AEPEP) (Generation and Marketing segment) and entered into intercompany financial and physical purchase and sales agreements with AEPEP. As a result, we reported third-party net purchases or sales activity for these energy marketing contracts as Revenues from External Customers for the Utility Operations segment. 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false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false false false false 0 0 true false false 57 false false false false 0 0 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false false false false 0 0 true false false 66 false false false false 0 0 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false false false false 0 0 true false false 72 false false false false 0 0 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false false false false 0 0 true false false 78 false false false false 0 0 true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false false false false 0 0 true false false 82 false false false false 0 0 true false false 83 false false false false 0 0 true false false 84 false false false false 0 0 true false false 85 false false false false 0 0 true false false 86 false false false false 0 0 true false false 87 false false false false 0 0 true false false 88 false false false false 0 0 true false false 89 false false false false 0 0 true false false 90 false false false false 0 0 true false false 91 false false false false 0 0 true false false 92 false false false false 0 0 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false false false false 0 0 true false false 99 false false false false 0 0 true false false 100 false false false false 0 0 true false false 101 false false false false 0 0 true false false xbrli:stringItemType string Book Values and Fair Values of Long term Debt Abstract. false 6 4 us-gaap_LongTermDebt us-gaap true credit instant No definition available. false false false false false false false false false false false verboselabel false 1 true true false false 17348000000 17348 false false false 2 false false false false 0 0 false false false 3 true true false false 17348000000 17348 false false false 4 false false false false 0 0 false false false 5 true true false false 17498000000 17498 false false false 6 false false false false 0 0 true false false 7 false false false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false false false false 0 0 true false false 57 false false false false 0 0 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false false false false 0 0 true false false 66 false false false false 0 0 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false false false false 0 0 true false false 72 false false false false 0 0 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false false false false 0 0 true false false 78 false false false false 0 0 true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false false false false 0 0 true false false 82 false false false false 0 0 true false false 83 false false false false 0 0 true false false 84 false false false false 0 0 true false false 85 false false false false 0 0 true false false 86 false false false false 0 0 true false false 87 false false false false 0 0 true false false 88 false false false false 0 0 true false false 89 false false false false 0 0 true false false 90 false false false false 0 0 true false false 91 false false false false 0 0 true false false 92 false false false false 0 0 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false false false false 0 0 true false false 99 false false false false 0 0 true false false 100 false false false false 0 0 true false false 101 false false false false 0 0 true false false xbrli:monetaryItemType monetary Including current and noncurrent portions, aggregate carrying amount of long-term borrowings as of the balance sheet date. May include notes payable, bonds payable, commercial loans, mortgage loans, convertible debt, subordinated debt and other types of debt, which had initial maturities beyond one year or beyond the normal operating cycle, if longer, and after deducting unamortized discount or premiums, if any. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 03 -Paragraph 16 -Article 7 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 03 -Paragraph 16 -Article 9 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 20, 22 -Article 5 false 7 4 aep_LongTermDebtFairValue aep false credit instant Long Term Debt Fair Value. false false false false false false false false false false false verboselabel false 1 false true false false 18821000000 18821 false false false 2 false false false false 0 0 false false false 3 false true false false 18821000000 18821 false false false 4 false false false false 0 0 false false false 5 false true false false 18479000000 18479 false false false 6 false false false false 0 0 true false false 7 false false false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false false false false 0 0 true false false 57 false false false false 0 0 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false false false false 0 0 true false false 66 false false false false 0 0 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false false false false 0 0 true false false 72 false false false false 0 0 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false false false false 0 0 true false false 78 false false false false 0 0 true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false false false false 0 0 true false false 82 false false false false 0 0 true false false 83 false false false false 0 0 true false false 84 false false false false 0 0 true false false 85 false false false false 0 0 true false false 86 false false false false 0 0 true false false 87 false false false false 0 0 true false false 88 false false false false 0 0 true false false 89 false false false false 0 0 true false false 90 false false false false 0 0 true false false 91 false false false false 0 0 true false false 92 false false false false 0 0 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false false false false 0 0 true false false 99 false false false false 0 0 true false false 100 false false false false 0 0 true false false 101 false false false false 0 0 true false false xbrli:monetaryItemType monetary Long Term Debt Fair Value. 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false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false false false false 0 0 true false false 57 false false false false 0 0 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false false false false 0 0 true false false 66 false false false false 0 0 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false false false false 0 0 true false false 72 false false false false 0 0 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false false false false 0 0 true false false 78 false false false false 0 0 true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false false false false 0 0 true false false 82 false false false false 0 0 true false false 83 false false false false 0 0 true false false 84 false false false false 0 0 true false false 85 false false false false 0 0 true false false 86 false false false false 0 0 true false false 87 false false false false 0 0 true false false 88 false false false false 0 0 true false false 89 false false false false 0 0 true false false 90 false false false false 0 0 true false false 91 false false false false 0 0 true false false 92 false false false false 0 0 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false false false false 0 0 true false false 99 false false false false 0 0 true false false 100 false false false false 0 0 true false false 101 false false false false 0 0 true false false xbrli:stringItemType string No definition available. false 9 4 us-gaap_InvestmentOwnedAtCost us-gaap true debit instant No definition available. false false false false false false false false false false false verboselabel false 1 false false false false 0 0 false false false 2 false false false false 0 0 false false false 3 false false false false 0 0 false false false 4 false false false false 0 0 false false false 5 false false false false 0 0 false false false 6 false false false false 0 0 true false false 7 false false false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false false false false 0 0 true false false 57 false false false false 0 0 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false false false false 0 0 true false false 66 false false false false 0 0 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false false false false 0 0 true false false 72 false false false false 0 0 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false true false false 195000000 195 [1] true false false 78 false true false false 223000000 223 [1] true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false true false false 68000000 68 true false false 82 false true false false 57000000 57 true false false 83 false true false false 14000000 14 true false false 84 false true false false 45000000 45 true false false 85 false true false false 1000000 1 true false false 86 false false false false 0 0 true false false 87 false true false false 18000000 18 true false false 88 false true false false 18000000 18 true false false 89 false false false false 0 0 true false false 90 false false false false 0 0 true false false 91 false false false false 0 0 true false false 92 false false false false 0 0 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false true false false 295000000 295 true false false 97 false true false false 344000000 344 true false false 98 false false false false 0 0 true false false 99 false false false false 0 0 true false false 100 false false false false 0 0 true false false 101 false false false false 0 0 true false false xbrli:monetaryItemType monetary Cost of the investment. No authoritative reference available. false 10 4 us-gaap_InvestmentOwnedUnrealizedAppreciation us-gaap true debit duration No definition available. false false false false false false false false false false false verboselabel false 1 false false false false 0 0 false false false 2 false false false false 0 0 false false false 3 false false false false 0 0 false false false 4 false false false false 0 0 false false false 5 false false false false 0 0 false false false 6 false false false false 0 0 true false false 7 false false false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false false false false 0 0 true false false 57 false false false false 0 0 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false false false false 0 0 true false false 66 false false false false 0 0 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false false false false 0 0 true false false 72 false false false false 0 0 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false true false false 0 0 [1] true false false 78 false true false false 0 0 [1] true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false true false false 1000000 1 true false false 82 false true false false 0 0 true false false 83 false true false false 0 0 true false false 84 false true false false 0 0 true false false 85 false true false false 15000000 15 true false false 86 false false false false 0 0 true false false 87 false true false false 2000000 2 true false false 88 false true false false 4000000 4 true false false 89 false false false false 0 0 true false false 90 false false false false 0 0 true false false 91 false false false false 0 0 true false false 92 false false false false 0 0 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false true false false 3000000 3 true false false 97 false true false false 19000000 19 true false false 98 false false false false 0 0 true false false 99 false false false false 0 0 true false false 100 false false false false 0 0 true false false 101 false false false false 0 0 true false false xbrli:monetaryItemType monetary This element represents the excess of the fair value of an investment (security, contract) over its cost (face amount, notional amount) which excess value has not been recognized in earnings of the entity. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Audit and Accounting Guide (AAG) -Number AAG-INV -Section Glossary -IssueDate 2008-05-01 false 11 4 us-gaap_InvestmentOwnedUnrealizedDepreciation us-gaap true credit duration No definition available. false false false false false false false false false false false verboselabel false 1 false false false false 0 0 false false false 2 false false false false 0 0 false false false 3 false false false false 0 0 false false false 4 false false false false 0 0 false false false 5 false false false false 0 0 false false false 6 false false false false 0 0 true false false 7 false false false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false false false false 0 0 true false false 57 false false false false 0 0 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false false false false 0 0 true false false 66 false false false false 0 0 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false false false false 0 0 true false false 72 false false false false 0 0 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false true false false 0 0 [1] true false false 78 false true false false 0 0 [1] true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false true false false 0 0 true false false 82 false true false false 0 0 true false false 83 false true false false 0 0 true false false 84 false true false false 0 0 true false false 85 false true false false 0 0 true false false 86 false false false false 0 0 true false false 87 false true false false 0 0 true false false 88 false true false false 0 0 true false false 89 false false false false 0 0 true false false 90 false false false false 0 0 true false false 91 false false false false 0 0 true false false 92 false false false false 0 0 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false true false false 0 0 true false false 97 false true false false 0 0 true false false 98 false false false false 0 0 true false false 99 false false false false 0 0 true false false 100 false false false false 0 0 true false false 101 false false false false 0 0 true false false xbrli:monetaryItemType monetary This element represents the excess of the cost (face amount, notional amount) of an investment (security, contract) over its fair value which deficiency has not been recognized in earnings of the entity. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Audit and Accounting Guide (AAG) -Number AAG-INV -Section Glossary -IssueDate 2008-05-01 false 12 4 us-gaap_ShortTermInvestments us-gaap true debit instant No definition available. false false false false false false false false false false false terselabel false 1 false true false false 298000000 298 false false false 2 false false false false 0 0 false false false 3 false true false false 298000000 298 false false false 4 false false false false 0 0 false false false 5 false true false false 363000000 363 false false false 6 false false false false 0 0 true false false 7 false false false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false false false false 0 0 true false false 57 false false false false 0 0 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false false false false 0 0 true false false 66 false false false false 0 0 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false false false false 0 0 true false false 72 false false false false 0 0 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false false false false 0 0 true false false 78 false false false false 0 0 true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false false false false 0 0 true false false 82 false false false false 0 0 true false false 83 false false false false 0 0 true false false 84 false false false false 0 0 true false false 85 false false false false 0 0 true false false 86 false false false false 0 0 true false false 87 false false false false 0 0 true false false 88 false false false false 0 0 true false false 89 false false false false 0 0 true false false 90 false false false false 0 0 true false false 91 false false false false 0 0 true false false 92 false false false false 0 0 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false false false false 0 0 true false false 99 false false false false 0 0 true false false 100 false false false false 0 0 true false false 101 false false false false 0 0 true false false xbrli:monetaryItemType monetary Investments which are intended to be sold in the short term (usually less than one year or the normal operating cycle, whichever is longer) including trading securities, available-for-sale securities, held-to-maturity securities, and other short-term investments not otherwise listed in the existing taxonomy. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 03 -Paragraph 1 -Subparagraph g -Article 7 false 13 3 aep_DebtAndEquitySecuritiesWithinOtherTemporaryInvestmentsAbstract aep false na duration Activity for our debt and equity securities within Other Temporary Investments. false false false false false true false false false false false false 1 false false false false 0 0 false false false 2 false false false false 0 0 false false false 3 false false false false 0 0 false false false 4 false false false false 0 0 false false false 5 false false false false 0 0 false false false 6 false false false false 0 0 true false false 7 false false false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false false false false 0 0 true false false 57 false false false false 0 0 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false false false false 0 0 true false false 66 false false false false 0 0 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false false false false 0 0 true false false 72 false false false false 0 0 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false false false false 0 0 true false false 78 false false false false 0 0 true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false false false false 0 0 true false false 82 false false false false 0 0 true false false 83 false false false false 0 0 true false false 84 false false false false 0 0 true false false 85 false false false false 0 0 true false false 86 false false false false 0 0 true false false 87 false false false false 0 0 true false false 88 false false false false 0 0 true false false 89 false false false false 0 0 true false false 90 false false false false 0 0 true false false 91 false false false false 0 0 true false false 92 false false false false 0 0 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false false false false 0 0 true false false 99 false false false false 0 0 true false false 100 false false false false 0 0 true false false 101 false false false false 0 0 true false false xbrli:stringItemType string Activity for our debt and equity securities within Other Temporary Investments. false 14 4 us-gaap_ProceedsFromSaleOfShortTermInvestments us-gaap true debit duration No definition available. false false false false false false false false false false false verboselabel false 1 false true false false 16000000 16 false false false 2 false true false false 0 0 false false false 3 false true false false 257000000 257 false false false 4 false true false false 0 0 false false false 5 false false false false 0 0 false false false 6 false false false false 0 0 true false false 7 false false false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false false false false 0 0 true false false 57 false false false false 0 0 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false false false false 0 0 true false false 66 false false false false 0 0 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false false false false 0 0 true false false 72 false false false false 0 0 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false false false false 0 0 true false false 78 false false false false 0 0 true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false false false false 0 0 true false false 82 false false false false 0 0 true false false 83 false false false false 0 0 true false false 84 false false false false 0 0 true false false 85 false false false false 0 0 true false false 86 false false false false 0 0 true false false 87 false false false false 0 0 true false false 88 false false false false 0 0 true false false 89 false false false false 0 0 true false false 90 false false false false 0 0 true false false 91 false false false false 0 0 true false false 92 false false false false 0 0 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false false false false 0 0 true false false 99 false false false false 0 0 true false false 100 false false false false 0 0 true false false 101 false false false false 0 0 true false false xbrli:monetaryItemType monetary The cash inflow from securities or other assets sold, having ready marketability and intended by management to be liquidated, if necessary, within the current operating cycle. Includes cash flows from securities classified as trading securities that were acquired for reasons other than sale in the short-term. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 159 -Section Appendix C -Paragraph 5 -Subparagraph c Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 95 -Paragraph 15, 16 false 15 4 us-gaap_PaymentsToAcquireShortTermInvestments us-gaap true credit duration No definition available. false false false false false false false false false false false verboselabel false 1 false true false false 24000000 24 false false false 2 false true false false 1000000 1 false false false 3 false true false false 221000000 221 false false false 4 false true false false 1000000 1 false false false 5 false false false false 0 0 false false false 6 false false false false 0 0 true false false 7 false false false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false false false false 0 0 true false false 57 false false false false 0 0 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false false false false 0 0 true false false 66 false false false false 0 0 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false false false false 0 0 true false false 72 false false false false 0 0 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false false false false 0 0 true false false 78 false false false false 0 0 true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false false false false 0 0 true false false 82 false false false false 0 0 true false false 83 false false false false 0 0 true false false 84 false false false false 0 0 true false false 85 false false false false 0 0 true false false 86 false false false false 0 0 true false false 87 false false false false 0 0 true false false 88 false false false false 0 0 true false false 89 false false false false 0 0 true false false 90 false false false false 0 0 true false false 91 false false false false 0 0 true false false 92 false false false false 0 0 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false false false false 0 0 true false false 99 false false false false 0 0 true false false 100 false false false false 0 0 true false false 101 false false false false 0 0 true false false xbrli:monetaryItemType monetary The cash outflow for securities or other assets acquired with excess cash, having ready marketability, which qualify for treatment as an investing activity based on management's intention and intended by management to be liquidated, if necessary, within the current operating cycle. Includes cash flows from securities classified as trading securities that were acquired for reasons other than sale in the short-term. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 95 -Paragraph 15, 17 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 159 -Section Appendix C -Paragraph 5 -Subparagraph c false 16 4 aep_GrossRealizedGainsOnInvestmentSalesOnShortTermInvestment aep false credit duration Gross Realized Gains on Investment Sales On Short Term Investment. false false false false false false false false false false false verboselabel false 1 false true false false 16000000 16 false false false 2 false true false false 0 0 false false false 3 false true false false 16000000 16 false false false 4 false true false false 0 0 false false false 5 false false false false 0 0 false false false 6 false false false false 0 0 true false false 7 false false false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false false false false 0 0 true false false 57 false false false false 0 0 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false false false false 0 0 true false false 66 false false false false 0 0 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false false false false 0 0 true false false 72 false false false false 0 0 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false false false false 0 0 true false false 78 false false false false 0 0 true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false false false false 0 0 true false false 82 false false false false 0 0 true false false 83 false false false false 0 0 true false false 84 false false false false 0 0 true false false 85 false false false false 0 0 true false false 86 false false false false 0 0 true false false 87 false false false false 0 0 true false false 88 false false false false 0 0 true false false 89 false false false false 0 0 true false false 90 false false false false 0 0 true false false 91 false false false false 0 0 true false false 92 false false false false 0 0 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false false false false 0 0 true false false 99 false false false false 0 0 true false false 100 false false false false 0 0 true false false 101 false false false false 0 0 true false false xbrli:monetaryItemType monetary Gross Realized Gains on Investment Sales On Short Term Investment. No authoritative reference available. false 17 4 aep_GrossRealizedLossesOnInvestmentSalesOnShortTermInvestment aep false debit duration Gross Realized Losses On Investment Sales On Short Term Investment. false false false false false false false false false false false verboselabel false 1 false true false false 0 0 false false false 2 false true false false 0 0 false false false 3 false true false false 0 0 false false false 4 false true false false 0 0 false false false 5 false false false false 0 0 false false false 6 false false false false 0 0 true false false 7 false false false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false false false false 0 0 true false false 57 false false false false 0 0 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false false false false 0 0 true false false 66 false false false false 0 0 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false false false false 0 0 true false false 72 false false false false 0 0 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false false false false 0 0 true false false 78 false false false false 0 0 true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false false false false 0 0 true false false 82 false false false false 0 0 true false false 83 false false false false 0 0 true false false 84 false false false false 0 0 true false false 85 false false false false 0 0 true false false 86 false false false false 0 0 true false false 87 false false false false 0 0 true false false 88 false false false false 0 0 true false false 89 false false false false 0 0 true false false 90 false false false false 0 0 true false false 91 false false false false 0 0 true false false 92 false false false false 0 0 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false false false false 0 0 true false false 99 false false false false 0 0 true false false 100 false false false false 0 0 true false false 101 false false false false 0 0 true false false xbrli:monetaryItemType monetary Gross Realized Losses On Investment Sales On Short Term Investment. No authoritative reference available. false 18 3 aep_NuclearTrustFundInvestmentsAbstract aep false na duration Nuclear trust fund investments. false false false false false true false false false false false verboselabel false 1 false false false false 0 0 false false false 2 false false false false 0 0 false false false 3 false false false false 0 0 false false false 4 false false false false 0 0 false false false 5 false false false false 0 0 false false false 6 false false false false 0 0 true false false 7 false false false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false false false false 0 0 true false false 57 false false false false 0 0 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false false false false 0 0 true false false 66 false false false false 0 0 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false false false false 0 0 true false false 72 false false false false 0 0 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false false false false 0 0 true false false 78 false false false false 0 0 true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false false false false 0 0 true false false 82 false false false false 0 0 true false false 83 false false false false 0 0 true false false 84 false false false false 0 0 true false false 85 false false false false 0 0 true false false 86 false false false false 0 0 true false false 87 false false false false 0 0 true false false 88 false false false false 0 0 true false false 89 false false false false 0 0 true false false 90 false false false false 0 0 true false false 91 false false false false 0 0 true false false 92 false false false false 0 0 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false false false false 0 0 true false false 99 false false false false 0 0 true false false 100 false false false false 0 0 true false false 101 false false false false 0 0 true false false xbrli:stringItemType string Nuclear trust fund investments. false 19 4 aep_SpentNuclearFuelAndDecommissioningTrusts aep false debit instant Funds to pay for the disposal of spent nuclear fuel and the decontaminating and decommissioning of nuclear facilities through... false false false false false false false false false false false terselabel false 1 false true false false 1391000000 1391 false false false 2 false false false false 0 0 false false false 3 false true false false 1391000000 1391 false false false 4 false false false false 0 0 false false false 5 false true false false 1392000000 1392 false false false 6 false false false false 0 0 true false false 7 false false false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false true false false 12000000 12 true false false 41 false true false false 262000000 262 true false false 42 false true false false 304000000 304 true false false 43 false true false false 271000000 271 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false true false false 516000000 516 true false false 57 false true false false 551000000 551 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false true false false 863000000 863 true false false 66 false true false false 830000000 830 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false true false false 12000000 12 true false false 72 false true false false 11000000 11 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false false false false 0 0 true false false 78 false false false false 0 0 true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false false false false 0 0 true false false 82 false false false false 0 0 true false false 83 false false false false 0 0 true false false 84 false false false false 0 0 true false false 85 false false false false 0 0 true false false 86 false false false false 0 0 true false false 87 false false false false 0 0 true false false 88 false false false false 0 0 true false false 89 false true false false 473000000 473 true false false 90 false true false false 401000000 401 true false false 91 false true false false 316000000 316 true false false 92 false true false false 369000000 369 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false true false false 26000000 26 [2] true false false 99 false true false false 14000000 14 [2] true false false 100 false true false false 60000000 60 true false false 101 false true false false 57000000 57 true false false xbrli:monetaryItemType monetary Funds to pay for the disposal of spent nuclear fuel and the decontaminating and decommissioning of nuclear facilities through the collection of revenues from rate payers. No authoritative reference available. false 20 4 aep_GrossUnrealizedGains aep false credit instant Gross Unrealized Gains. false false false false false false false false false false false false 1 false true false false 234000000 234 false false false 2 false false false false 0 0 false false false 3 false true false false 234000000 234 false false false 4 false false false false 0 0 false false false 5 false true false false 260000000 260 false false false 6 false false false false 0 0 true false false 7 false false false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false false false false 0 0 true false false 57 false false false false 0 0 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false false false false 0 0 true false false 66 false false false false 0 0 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false false false false 0 0 true false false 72 false false false false 0 0 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false false false false 0 0 true false false 78 false false false false 0 0 true false false 79 false true false false 40000000 40 true false false 80 false true false false 26000000 26 true false false 81 false false false false 0 0 true false false 82 false false false false 0 0 true false false 83 false false false false 0 0 true false false 84 false false false false 0 0 true false false 85 false true false false 234000000 234 true false false 86 false true false false 194000000 194 true false false 87 false false false false 0 0 true false false 88 false false false false 0 0 true false false 89 false true false false 31000000 31 true false false 90 false true false false 13000000 13 true false false 91 false true false false 3000000 3 true false false 92 false true false false 8000000 8 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false true false false 0 0 true false false 99 false true false false 0 0 true false false 100 false true false false 6000000 6 true false false 101 false true false false 5000000 5 true false false xbrli:monetaryItemType monetary Gross Unrealized Gains. No authoritative reference available. false 21 4 aep_TemporaryImpairments aep false debit instant Temporary Impairments. false false false false false false false false false false false terselabel false 1 false true false false -129000000 -129 false false false 2 false false false false 0 0 false false false 3 false true false false -129000000 -129 false false false 4 false false false false 0 0 false false false 5 false true false false -124000000 -124 false false false 6 false false false false 0 0 true false false 7 false false false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false false false false 0 0 true false false 57 false false false false 0 0 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false false false false 0 0 true false false 66 false false false false 0 0 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false false false false 0 0 true false false 72 false false false false 0 0 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false false false false 0 0 true false false 78 false false false false 0 0 true false false 79 false true false false -7000000 -7 true false false 80 false true false false -5000000 -5 true false false 81 false false false false 0 0 true false false 82 false false false false 0 0 true false false 83 false false false false 0 0 true false false 84 false false false false 0 0 true false false 85 false true false false -119000000 -119 true false false 86 false true false false -122000000 -122 true false false 87 false false false false 0 0 true false false 88 false false false false 0 0 true false false 89 false true false false -1000000 -1 true false false 90 false true false false -4000000 -4 true false false 91 false true false false 0 0 true false false 92 false true false false 1000000 1 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false true false false 0 0 true false false 99 false true false false 0 0 true false false 100 false true false false -6000000 -6 true false false 101 false true false false -2000000 -2 true false false xbrli:monetaryItemType monetary Temporary Impairments. No authoritative reference available. false 22 3 aep_SecuritiesActivityWithinDecommissioningAndSnfTrustsAbstract aep false na duration Securities Activity Within Decommissioning And Snf Trusts. false false false false false true false false false false false verboselabel false 1 false false false false 0 0 false false false 2 false false false false 0 0 false false false 3 false false false false 0 0 false false false 4 false false false false 0 0 false false false 5 false false false false 0 0 false false false 6 false false false false 0 0 true false false 7 false false false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false false false false 0 0 true false false 57 false false false false 0 0 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false false false false 0 0 true false false 66 false false false false 0 0 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false false false false 0 0 true false false 72 false false false false 0 0 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false false false false 0 0 true false false 78 false false false false 0 0 true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false false false false 0 0 true false false 82 false false false false 0 0 true false false 83 false false false false 0 0 true false false 84 false false false false 0 0 true false false 85 false false false false 0 0 true false false 86 false false false false 0 0 true false false 87 false false false false 0 0 true false false 88 false false false false 0 0 true false false 89 false false false false 0 0 true false false 90 false false false false 0 0 true false false 91 false false false false 0 0 true false false 92 false false false false 0 0 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false false false false 0 0 true false false 99 false false false false 0 0 true false false 100 false false false false 0 0 true false false 101 false false false false 0 0 true false false xbrli:stringItemType string Securities Activity Within Decommissioning And Snf Trusts. false 23 4 aep_ProceedsFromInvestmentSales aep false debit duration Proceeds From Investment Sales. false false false false false false false false false false false verboselabel false 1 false true false false 360000000 360 false false false 2 false true false false 253000000 253 false false false 3 false true false false 592000000 592 false false false 4 false true false false 411000000 411 false false false 5 false false false false 0 0 false false false 6 false false false false 0 0 true false false 7 false false false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false false false false 0 0 true false false 57 false false false false 0 0 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false false false false 0 0 true false false 66 false false false false 0 0 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false false false false 0 0 true false false 72 false false false false 0 0 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false false false false 0 0 true false false 78 false false false false 0 0 true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false false false false 0 0 true false false 82 false false false false 0 0 true false false 83 false false false false 0 0 true false false 84 false false false false 0 0 true false false 85 false false false false 0 0 true false false 86 false false false false 0 0 true false false 87 false false false false 0 0 true false false 88 false false false false 0 0 true false false 89 false false false false 0 0 true false false 90 false false false false 0 0 true false false 91 false false false false 0 0 true false false 92 false false false false 0 0 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false false false false 0 0 true false false 99 false false false false 0 0 true false false 100 false false false false 0 0 true false false 101 false false false false 0 0 true false false xbrli:monetaryItemType monetary Proceeds From Investment Sales. No authoritative reference available. false 24 4 aep_PurchasesOfInvestments aep false debit duration Purchases of Investments. false false false false false false false false false false false verboselabel false 1 false true false false 369000000 369 false false false 2 false true false false 264000000 264 false false false 3 false true false false 617000000 617 false false false 4 false true false false 442000000 442 false false false 5 false false false false 0 0 false false false 6 false false false false 0 0 true false false 7 false false false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false false false false 0 0 true false false 57 false false false false 0 0 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false false false false 0 0 true false false 66 false false false false 0 0 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false false false false 0 0 true false false 72 false false false false 0 0 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false false false false 0 0 true false false 78 false false false false 0 0 true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false false false false 0 0 true false false 82 false false false false 0 0 true false false 83 false false false false 0 0 true false false 84 false false false false 0 0 true false false 85 false false false false 0 0 true false false 86 false false false false 0 0 true false false 87 false false false false 0 0 true false false 88 false false false false 0 0 true false false 89 false false false false 0 0 true false false 90 false false false false 0 0 true false false 91 false false false false 0 0 true false false 92 false false false false 0 0 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false false false false 0 0 true false false 99 false false false false 0 0 true false false 100 false false false false 0 0 true false false 101 false false false false 0 0 true false false xbrli:monetaryItemType monetary Purchases of Investments. No authoritative reference available. false 25 4 aep_GrossRealizedGainsOnInvestmentSales aep false credit duration Gross Realized Gains on Investment Sales. false false false false false false false false false false false false 1 false true false false 1000000 1 false false false 2 false true false false 6000000 6 false false false 3 false true false false 6000000 6 false false false 4 false true false false 9000000 9 false false false 5 false false false false 0 0 false false false 6 false false false false 0 0 true false false 7 false false false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false false false false 0 0 true false false 57 false false false false 0 0 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false false false false 0 0 true false false 66 false false false false 0 0 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false false false false 0 0 true false false 72 false false false false 0 0 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false false false false 0 0 true false false 78 false false false false 0 0 true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false false false false 0 0 true false false 82 false false false false 0 0 true false false 83 false false false false 0 0 true false false 84 false false false false 0 0 true false false 85 false false false false 0 0 true false false 86 false false false false 0 0 true false false 87 false false false false 0 0 true false false 88 false false false false 0 0 true false false 89 false false false false 0 0 true false false 90 false false false false 0 0 true false false 91 false false false false 0 0 true false false 92 false false false false 0 0 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false false false false 0 0 true false false 99 false false false false 0 0 true false false 100 false false false false 0 0 true false false 101 false false false false 0 0 true false false xbrli:monetaryItemType monetary Gross Realized Gains on Investment Sales. No authoritative reference available. false 26 4 aep_GrossRealizedLossesOnInvestmentSales aep false debit duration Gross Realized Losses on Investment Sales. false false false false false false false false false false false verboselabel false 1 false true false false 0 0 false false false 2 false true false false 1000000 1 false false false 3 false true false false 0 0 false false false 4 false true false false 1000000 1 false false false 5 false false false false 0 0 false false false 6 false false false false 0 0 true false false 7 false false false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false false false false 0 0 true false false 57 false false false false 0 0 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false false false false 0 0 true false false 66 false false false false 0 0 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false false false false 0 0 true false false 72 false false false false 0 0 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false false false false 0 0 true false false 78 false false false false 0 0 true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false false false false 0 0 true false false 82 false false false false 0 0 true false false 83 false false false false 0 0 true false false 84 false false false false 0 0 true false false 85 false false false false 0 0 true false false 86 false false false false 0 0 true false false 87 false false false false 0 0 true false false 88 false false false false 0 0 true false false 89 false false false false 0 0 true false false 90 false false false false 0 0 true false false 91 false false false false 0 0 true false false 92 false false false false 0 0 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false false false false 0 0 true false false 99 false false false false 0 0 true false false 100 false false false false 0 0 true false false 101 false false false false 0 0 true false false xbrli:monetaryItemType monetary Gross Realized Losses on Investment Sales. No authoritative reference available. false 27 3 us-gaap_HeldToMaturitySecuritiesDebtMaturitiesFairValueAbstract us-gaap true na duration No definition available. false false false false false true false false false false false verboselabel false 1 false false false false 0 0 false false false 2 false false false false 0 0 false false false 3 false false false false 0 0 false false false 4 false false false false 0 0 false false false 5 false false false false 0 0 false false false 6 false false false false 0 0 true false false 7 false false false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false false false false 0 0 true false false 57 false false false false 0 0 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false false false false 0 0 true false false 66 false false false false 0 0 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false false false false 0 0 true false false 72 false false false false 0 0 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false false false false 0 0 true false false 78 false false false false 0 0 true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false false false false 0 0 true false false 82 false false false false 0 0 true false false 83 false false false false 0 0 true false false 84 false false false false 0 0 true false false 85 false false false false 0 0 true false false 86 false false false false 0 0 true false false 87 false false false false 0 0 true false false 88 false false false false 0 0 true false false 89 false false false false 0 0 true false false 90 false false false false 0 0 true false false 91 false false false false 0 0 true false false 92 false false false false 0 0 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false false false false 0 0 true false false 99 false false false false 0 0 true false false 100 false false false false 0 0 true false false 101 false false false false 0 0 true false false xbrli:stringItemType string No definition available. false 28 4 aep_SpentNuclearFuelAndDecommissioningTrusts aep false debit instant Funds to pay for the disposal of spent nuclear fuel and the decontaminating and decommissioning of nuclear facilities through... false false false false false false false false false false false totallabel false 1 false true false false 1391000000 1391 false false false 2 false false false false 0 0 false false false 3 false true false false 1391000000 1391 false false false 4 false false false false 0 0 false false false 5 false true false false 1392000000 1392 false false false 6 false false false false 0 0 true false false 7 false false false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false true false false 12000000 12 true false false 41 false true false false 262000000 262 true false false 42 false true false false 304000000 304 true false false 43 false true false false 271000000 271 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false true false false 516000000 516 true false false 57 false true false false 551000000 551 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false true false false 863000000 863 true false false 66 false true false false 830000000 830 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false true false false 12000000 12 true false false 72 false true false false 11000000 11 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false false false false 0 0 true false false 78 false false false false 0 0 true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false false false false 0 0 true false false 82 false false false false 0 0 true false false 83 false false false false 0 0 true false false 84 false false false false 0 0 true false false 85 false false false false 0 0 true false false 86 false false false false 0 0 true false false 87 false false false false 0 0 true false false 88 false false false false 0 0 true false false 89 false true false false 473000000 473 true false false 90 false true false false 401000000 401 true false false 91 false true false false 316000000 316 true false false 92 false true false false 369000000 369 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false true false false 26000000 26 [2] true false false 99 false true false false 14000000 14 [2] true false false 100 false true false false 60000000 60 true false false 101 false true false false 57000000 57 true false false xbrli:monetaryItemType monetary Funds to pay for the disposal of spent nuclear fuel and the decontaminating and decommissioning of nuclear facilities through the collection of revenues from rate payers. No authoritative reference available. true 30 4 us-gaap_FairValueAssetsMeasuredOnRecurringBasisFinancialStatementCaptionsLineItems us-gaap true na duration No definition available. false false false false false true false false false false false verboselabel false 1 false false false false 0 0 false false false 2 false false false false 0 0 false false false 3 false false false false 0 0 false false false 4 false false false false 0 0 false false false 5 false false false false 0 0 false false false 6 false false false false 0 0 true false false 7 false false false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false false false false 0 0 true false false 57 false false false false 0 0 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false false false false 0 0 true false false 66 false false false false 0 0 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false false false false 0 0 true false false 72 false false false false 0 0 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false false false false 0 0 true false false 78 false false false false 0 0 true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false false false false 0 0 true false false 82 false false false false 0 0 true false false 83 false false false false 0 0 true false false 84 false false false false 0 0 true false false 85 false false false false 0 0 true false false 86 false false false false 0 0 true false false 87 false false false false 0 0 true false false 88 false false false false 0 0 true false false 89 false false false false 0 0 true false false 90 false false false false 0 0 true false false 91 false false false false 0 0 true false false 92 false false false false 0 0 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false false false false 0 0 true false false 99 false false false false 0 0 true false false 100 false false false false 0 0 true false false 101 false false false false 0 0 true false false xbrli:stringItemType string Line items represent financial concepts included in a table. These concepts are used to disclose reportable information associated with domain members defined in one or many axes to the table. false 31 5 us-gaap_FairValueAssetsMeasuredOnRecurringBasisCashAndCashEquivalents us-gaap true debit instant No definition available. false false false false false false false false false false false totallabel false 1 false true false false 838000000 838 [3] false false false 2 false false false false 0 0 false false false 3 false true false false 838000000 838 [3] false false false 4 false false false false 0 0 false false false 5 false true false false 490000000 490 [3] false false false 6 false false false false 0 0 true false false 7 false false false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false true false false 593000000 593 [3] true false false 57 false false false false 0 0 true false false 58 false false false false 0 0 true false false 59 false true false false 427000000 427 [3] true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false true false false 18000000 18 [3] true false false 66 false false false false 0 0 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false true false false 227000000 227 [3] true false false 72 false false false false 0 0 true false false 73 false false false false 0 0 true false false 74 false true false false 63000000 63 [3] true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false false false false 0 0 true false false 78 false false false false 0 0 true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false false false false 0 0 true false false 82 false false false false 0 0 true false false 83 false false false false 0 0 true false false 84 false false false false 0 0 true false false 85 false false false false 0 0 true false false 86 false false false false 0 0 true false false 87 false false false false 0 0 true false false 88 false false false false 0 0 true false false 89 false false false false 0 0 true false false 90 false false false false 0 0 true false false 91 false false false false 0 0 true false false 92 false false false false 0 0 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false false false false 0 0 true false false 99 false false false false 0 0 true false false 100 false false false false 0 0 true false false 101 false false false false 0 0 true false false xbrli:monetaryItemType monetary This element represents a certain statement of financial position asset caption which represents a class of assets, or which may include an individual asset, measured at fair value on a recurring basis. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 157 -Paragraph 32 -Subparagraph a true 32 5 aep_OtherTemporaryInvestments aep false debit instant Other Temporary Investments. false false false false false false false false false false false verboselabel false 1 false true false false 298000000 298 false false false 2 false false false false 0 0 false false false 3 false true false false 298000000 298 false false false 4 false false false false 0 0 false false false 5 false true false false 363000000 363 false false false 6 false false false false 0 0 true false false 7 false false false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false true false false 250000000 250 true false false 57 false true false false 293000000 293 true false false 58 false true false false 161000000 161 [3] true false false 59 false true false false 198000000 198 [3] true false false 60 false true false false 69000000 69 true false false 61 false true false false 57000000 57 true false false 62 false true false false 16000000 16 [4] true false false 63 false true false false 20000000 20 [4] true false false 64 false true false false 22000000 22 [4] true false false 65 false true false false 14000000 14 true false false 66 false true false false 45000000 45 true false false 67 false true false false 14000000 14 true false false 68 false true false false 45000000 45 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false true false false 34000000 34 true false false 72 false true false false 25000000 25 true false false 73 false true false false 34000000 34 [3] true false false 74 false true false false 25000000 25 [3] true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false true false false 195000000 195 [1],[3] true false false 78 false true false false 223000000 223 [1],[3] true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false true false false 69000000 69 true false false 82 false true false false 57000000 57 true false false 83 false true false false 14000000 14 true false false 84 false true false false 45000000 45 true false false 85 false true false false 16000000 16 [4] true false false 86 false false false false 0 0 true false false 87 false true false false 20000000 20 [4] true false false 88 false true false false 22000000 22 [4] true false false 89 false false false false 0 0 true false false 90 false false false false 0 0 true false false 91 false false false false 0 0 true false false 92 false false false false 0 0 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false false false false 0 0 true false false 99 false false false false 0 0 true false false 100 false false false false 0 0 true false false 101 false false false false 0 0 true false false xbrli:monetaryItemType monetary Other Temporary Investments. No authoritative reference available. false 33 5 aep_RiskManagementAssetsAbstract aep false na duration Risk Management Assets. false false false false false true false false false false false verboselabel false 1 false false false false 0 0 false false false 2 false false false false 0 0 false false false 3 false false false false 0 0 false false false 4 false false false false 0 0 false false false 5 false false false false 0 0 false false false 6 false false false false 0 0 true false false 7 false false false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false false false false 0 0 true false false 57 false false false false 0 0 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false false false false 0 0 true false false 66 false false false false 0 0 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false false false false 0 0 true false false 72 false false false false 0 0 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false false false false 0 0 true false false 78 false false false false 0 0 true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false false false false 0 0 true false false 82 false false false false 0 0 true false false 83 false false false false 0 0 true false false 84 false false false false 0 0 true false false 85 false false false false 0 0 true false false 86 false false false false 0 0 true false false 87 false false false false 0 0 true false false 88 false false false false 0 0 true false false 89 false false false false 0 0 true false false 90 false false false false 0 0 true false false 91 false false false false 0 0 true false false 92 false false false false 0 0 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false false false false 0 0 true false false 99 false false false false 0 0 true false false 100 false false false false 0 0 true false false 101 false false false false 0 0 true false false xbrli:stringItemType string Risk Management Assets. false 34 6 aep_RiskManagementAssets aep false debit instant Risk Management Assets. false false false false false false false false false false false false 1 false true false false 58000000 58 [5] false false false 2 false false false false 0 0 false false false 3 false true false false 58000000 58 [5] false false false 4 false false false false 0 0 false false false 5 false true false false 603000000 603 false false false 6 false true false false 11000000 11 [6] true false false 7 false true false false 8000000 8 [6] true false false 8 false true false false 9000000 9 [6] true false false 9 false true false false 1000000 1 [6] true false false 10 false true false false 13000000 13 [6] true false false 11 false true false false 11000000 11 [6] true false false 12 false true false false -11000000 -11 [6] true false false 13 false true false false -4000000 -4 [6] true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false true false false 585000000 585 [6],[7] true false false 45 false true false false 570000000 570 [6],[8] true false false 46 false true false false 17000000 17 [6],[7] true false false 47 false true false false 8000000 8 [6],[8] true false false 48 false true false false 1573000000 1573 [6],[7] true false false 49 false true false false 1609000000 1609 [6],[8] true false false 50 false true false false 152000000 152 [6],[7] true false false 51 false true false false 72000000 72 [6],[8] true false false 52 false true false false -1157000000 -1157 [6],[7] true false false 53 false true false false -1119000000 -1119 [6],[8] true false false 54 false true false false 4000000 4 true false false 55 false true false false 4000000 4 true false false 56 false true false false 26000000 26 true false false 57 false true false false 9000000 9 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false true false false 1590000000 1590 true false false 66 false true false false 1620000000 1620 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false true false false 152000000 152 true false false 70 false true false false 72000000 72 true false false 71 false true false false -1110000000 -1110 true false false 72 false true false false -1098000000 -1098 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false true false false 58000000 58 [5] true false false 76 false true false false 25000000 25 [5] true false false 77 false false false false 0 0 true false false 78 false false false false 0 0 true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false false false false 0 0 true false false 82 false false false false 0 0 true false false 83 false false false false 0 0 true false false 84 false false false false 0 0 true false false 85 false false false false 0 0 true false false 86 false false false false 0 0 true false false 87 false false false false 0 0 true false false 88 false false false false 0 0 true false false 89 false false false false 0 0 true false false 90 false false false false 0 0 true false false 91 false false false false 0 0 true false false 92 false false false false 0 0 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false true false false 25000000 25 [5] true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false false false false 0 0 true false false 99 false false false false 0 0 true false false 100 false false false false 0 0 true false false 101 false false false false 0 0 true false false xbrli:monetaryItemType monetary Risk Management Assets. No authoritative reference available. false 35 5 aep_NuclearFuelAndDecommissioningTrustsAbstract aep false na duration Nuclear Fuel and Decommissioning Trusts Abstract. false false false false false true false false false false false verboselabel false 1 false false false false 0 0 false false false 2 false false false false 0 0 false false false 3 false false false false 0 0 false false false 4 false false false false 0 0 false false false 5 false false false false 0 0 false false false 6 false false false false 0 0 true false false 7 false false false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false false false false 0 0 true false false 57 false false false false 0 0 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false false false false 0 0 true false false 66 false false false false 0 0 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false false false false 0 0 true false false 72 false false false false 0 0 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false false false false 0 0 true false false 78 false false false false 0 0 true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false false false false 0 0 true false false 82 false false false false 0 0 true false false 83 false false false false 0 0 true false false 84 false false false false 0 0 true false false 85 false false false false 0 0 true false false 86 false false false false 0 0 true false false 87 false false false false 0 0 true false false 88 false false false false 0 0 true false false 89 false false false false 0 0 true false false 90 false false false false 0 0 true false false 91 false false false false 0 0 true false false 92 false false false false 0 0 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false false false false 0 0 true false false 99 false false false false 0 0 true false false 100 false false false false 0 0 true false false 101 false false false false 0 0 true false false xbrli:stringItemType string Nuclear Fuel and Decommissioning Trusts Abstract. false 36 6 aep_SpentNuclearFuelAndDecommissioningTrusts aep false debit instant Funds to pay for the disposal of spent nuclear fuel and the decontaminating and decommissioning of nuclear facilities through... false false false false false false false false false false false verboselabel false 1 false true false false 1391000000 1391 false false false 2 false false false false 0 0 false false false 3 false true false false 1391000000 1391 false false false 4 false false false false 0 0 false false false 5 false true false false 1392000000 1392 false false false 6 false false false false 0 0 true false false 7 false false false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false true false false 12000000 12 true false false 41 false true false false 262000000 262 true false false 42 false true false false 304000000 304 true false false 43 false true false false 271000000 271 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false true false false 516000000 516 true false false 57 false true false false 551000000 551 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false true false false 863000000 863 true false false 66 false true false false 830000000 830 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false true false false 12000000 12 true false false 72 false true false false 11000000 11 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false false false false 0 0 true false false 78 false false false false 0 0 true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false false false false 0 0 true false false 82 false false false false 0 0 true false false 83 false false false false 0 0 true false false 84 false false false false 0 0 true false false 85 false false false false 0 0 true false false 86 false false false false 0 0 true false false 87 false false false false 0 0 true false false 88 false false false false 0 0 true false false 89 false true false false 473000000 473 true false false 90 false true false false 401000000 401 true false false 91 false true false false 316000000 316 true false false 92 false true false false 369000000 369 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false true false false 26000000 26 [2] true false false 99 false true false false 14000000 14 [2] true false false 100 false true false false 60000000 60 true false false 101 false true false false 57000000 57 true false false xbrli:monetaryItemType monetary Funds to pay for the disposal of spent nuclear fuel and the decontaminating and decommissioning of nuclear facilities through the collection of revenues from rate payers. No authoritative reference available. false 37 5 aep_FairValueAssetsMeasuredOnRecurringBasisTotal aep false debit instant Fair Value, Assets Measured on Recurring Basis, Total. false false false false false false false false false false false totallabel false 1 false true false false 3185000000 3185 false false false 2 false false false false 0 0 false false false 3 false true false false 3185000000 3185 false false false 4 false false false false 0 0 false false false 5 false true false false 2848000000 2848 false false false 6 false false false false 0 0 true false false 7 false false false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false true false false 1385000000 1385 true false false 57 false true false false 1280000000 1280 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false true false false 2485000000 2485 true false false 66 false true false false 2495000000 2495 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false true false false 152000000 152 true false false 70 false true false false 72000000 72 true false false 71 false true false false -837000000 -837 true false false 72 false true false false -999000000 -999 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false false false false 0 0 true false false 78 false false false false 0 0 true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false false false false 0 0 true false false 82 false false false false 0 0 true false false 83 false false false false 0 0 true false false 84 false false false false 0 0 true false false 85 false false false false 0 0 true false false 86 false false false false 0 0 true false false 87 false false false false 0 0 true false false 88 false false false false 0 0 true false false 89 false false false false 0 0 true false false 90 false false false false 0 0 true false false 91 false false false false 0 0 true false false 92 false false false false 0 0 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false false false false 0 0 true false false 99 false false false false 0 0 true false false 100 false false false false 0 0 true false false 101 false false false false 0 0 true false false xbrli:monetaryItemType monetary Fair Value, Assets Measured on Recurring Basis, Total. No authoritative reference available. true 38 4 us-gaap_FairValueLiabilitiesMeasuredOnRecurringBasisFinancialStatementCaptionsLineItems us-gaap true na duration No definition available. false false false false false true false false false false false verboselabel false 1 false false false false 0 0 false false false 2 false false false false 0 0 false false false 3 false false false false 0 0 false false false 4 false false false false 0 0 false false false 5 false false false false 0 0 false false false 6 false false false false 0 0 true false false 7 false false false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false false false false 0 0 true false false 57 false false false false 0 0 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false false false false 0 0 true false false 66 false false false false 0 0 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false false false false 0 0 true false false 72 false false false false 0 0 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false false false false 0 0 true false false 78 false false false false 0 0 true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false false false false 0 0 true false false 82 false false false false 0 0 true false false 83 false false false false 0 0 true false false 84 false false false false 0 0 true false false 85 false false false false 0 0 true false false 86 false false false false 0 0 true false false 87 false false false false 0 0 true false false 88 false false false false 0 0 true false false 89 false false false false 0 0 true false false 90 false false false false 0 0 true false false 91 false false false false 0 0 true false false 92 false false false false 0 0 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false false false false 0 0 true false false 99 false false false false 0 0 true false false 100 false false false false 0 0 true false false 101 false false false false 0 0 true false false xbrli:stringItemType string Line items represent financial concepts included in a table. These concepts are used to disclose reportable information associated with domain members defined in one or many axes to the table. false 39 5 aep_RiskManagementLiabilities aep false credit instant Risk Management Liabilities. false false false false false false false false false false false false 1 false true false false 297000000 297 false false false 2 false false false false 0 0 false false false 3 false true false false 297000000 297 false false false 4 false false false false 0 0 false false false 5 false true false false 248000000 248 false false false 6 false true false false 8000000 8 [6] true false false 7 false true false false 12000000 12 [6] true false false 8 false true false false 2000000 2 [6] true false false 9 false false false false 0 0 true false false 10 false true false false 17000000 17 [6] true false false 11 false true false false 16000000 16 [6] true false false 12 false true false false -11000000 -11 [6] true false false 13 false true false false -4000000 -4 [6] true false false 14 false true false false 5000000 5 true false false 15 false true false false 5000000 5 true false false 16 false true false false 5000000 5 true false false 17 false true false false 5000000 5 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false true false false 284000000 284 [6],[7] true false false 45 false true false false 231000000 231 [6],[8] true false false 46 false true false false 22000000 22 [6],[7] true false false 47 false true false false 11000000 11 [6],[8] true false false 48 false true false false 1444000000 1444 [6],[7] true false false 49 false true false false 1415000000 1415 [6],[8] true false false 50 false true false false 52000000 52 [6],[7] true false false 51 false true false false 10000000 10 [6],[8] true false false 52 false true false false -1234000000 -1234 [6],[7] true false false 53 false true false false -1205000000 -1205 [6],[8] true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false true false false 24000000 24 true false false 57 false true false false 11000000 11 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false true false false 1466000000 1466 true false false 66 false true false false 1436000000 1436 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false true false false 52000000 52 true false false 70 false true false false 10000000 10 true false false 71 false true false false -1245000000 -1245 true false false 72 false true false false -1209000000 -1209 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false false false false 0 0 true false false 78 false false false false 0 0 true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false false false false 0 0 true false false 82 false false false false 0 0 true false false 83 false false false false 0 0 true false false 84 false false false false 0 0 true false false 85 false false false false 0 0 true false false 86 false false false false 0 0 true false false 87 false false false false 0 0 true false false 88 false false false false 0 0 true false false 89 false false false false 0 0 true false false 90 false false false false 0 0 true false false 91 false false false false 0 0 true false false 92 false false false false 0 0 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false false false false 0 0 true false false 99 false false false false 0 0 true false false 100 false false false false 0 0 true false false 101 false false false false 0 0 true false false xbrli:monetaryItemType monetary Risk Management Liabilities. No authoritative reference available. false 40 3 us-gaap_FairValueAssetsMeasuredOnRecurringBasisUnobservableInputReconciliationCalculationRollForward us-gaap true na duration No definition available. false false false false false true false false false false false verboselabel false 1 false false false false 0 0 false false false 2 false false false false 0 0 false false false 3 false false false false 0 0 false false false 4 false false false false 0 0 false false false 5 false false false false 0 0 false false false 6 false false false false 0 0 true false false 7 false false false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false false false false 0 0 true false false 57 false false false false 0 0 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false false false false 0 0 true false false 66 false false false false 0 0 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false false false false 0 0 true false false 72 false false false false 0 0 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false false false false 0 0 true false false 78 false false false false 0 0 true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false false false false 0 0 true false false 82 false false false false 0 0 true false false 83 false false false false 0 0 true false false 84 false false false false 0 0 true false false 85 false false false false 0 0 true false false 86 false false false false 0 0 true false false 87 false false false false 0 0 true false false 88 false false false false 0 0 true false false 89 false false false false 0 0 true false false 90 false false false false 0 0 true false false 91 false false false false 0 0 true false false 92 false false false false 0 0 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false false false false 0 0 true false false 99 false false false false 0 0 true false false 100 false false false false 0 0 true false false 101 false false false false 0 0 true false false xbrli:stringItemType string A roll forward is a reconciliation of a concept from the beginning of a period to the end of a period. false 41 4 us-gaap_FairValueMeasurementWithUnobservableInputsReconciliationRecurringBasisAssetValue us-gaap true debit instant No definition available. false false false false false false false false true false false periodstartlabel false 1 false true false false 116000000 116 false false false 2 false false false false 0 0 false false false 3 false true false false 62000000 62 false false false 4 false true false false 49000000 49 false false false 5 false false false false 0 0 false false false 6 false false false false 0 0 true false false 7 false false false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false false false false 0 0 true false false 57 false false false false 0 0 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false false false false 0 0 true false false 66 false false false false 0 0 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false false false false 0 0 true false false 72 false false false false 0 0 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false false false false 0 0 true false false 78 false false false false 0 0 true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false false false false 0 0 true false false 82 false false false false 0 0 true false false 83 false false false false 0 0 true false false 84 false false false false 0 0 true false false 85 false false false false 0 0 true false false 86 false false false false 0 0 true false false 87 false false false false 0 0 true false false 88 false false false false 0 0 true false false 89 false false false false 0 0 true false false 90 false false false false 0 0 true false false 91 false false false false 0 0 true false false 92 false false false false 0 0 true false false 93 false true false false 67000000 67 true false false 94 false true false false 86000000 86 true false false 95 false false false false 0 0 true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false false false false 0 0 true false false 99 false false false false 0 0 true false false 100 false false false false 0 0 true false false 101 false false false false 0 0 true false false xbrli:monetaryItemType monetary This element represents an asset measured at fair value using significant unobservable inputs (Level 3) which is required for reconciliation purposes of beginning and ending balances. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 157 -Paragraph 32 -Subparagraph c false 42 4 us-gaap_FairValueMeasurementWithUnobservableInputsReconciliationRecurringBasisAssetGainLossIncludedInEarnings us-gaap true debit duration No definition available. false false false false false false false false false false false verboselabel false 1 false true false false -25000000 -25 [10],[9] false false false 2 false true false false -15000000 -15 [10] false false false 3 false true false false 4000000 4 [10],[9] false false false 4 false true false false -20000000 -20 [10] false false false 5 false false false false 0 0 false false false 6 false false false false 0 0 true false false 7 false false false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false false false false 0 0 true false false 57 false false false false 0 0 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false false false false 0 0 true false false 66 false false false false 0 0 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false false false false 0 0 true false false 72 false false false false 0 0 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false false false false 0 0 true false false 78 false false false false 0 0 true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false false false false 0 0 true false false 82 false false false false 0 0 true false false 83 false false false false 0 0 true false false 84 false false false false 0 0 true false false 85 false false false false 0 0 true false false 86 false false false false 0 0 true false false 87 false false false false 0 0 true false false 88 false false false false 0 0 true false false 89 false false false false 0 0 true false false 90 false false false false 0 0 true false false 91 false false false false 0 0 true false false 92 false false false false 0 0 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false false false false 0 0 true false false 99 false false false false 0 0 true false false 100 false false false false 0 0 true false false 101 false false false false 0 0 true false false xbrli:monetaryItemType monetary This element represents total gains or losses for the period (realized and unrealized), arising from assets measured at fair value on a recurring basis using unobservable inputs (Level 3), which are included in earnings or resulted in a change in net asset value. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 157 -Paragraph 32 -Subparagraph c(1) false 43 4 aep_UnrealizedGainLossIncludedInNetIncomeRelatingToAssetsStillHeldAtReportingDate aep false credit duration Unrealized Gain (Loss) Included in Net Income Relating to Assets Still Held at the Reporting Date. false false false false false false false false false false false verboselabel false 1 false true false false 10000000 10 [10] false false false 2 false true false false 7000000 7 [10] false false false 3 false true false false 33000000 33 [10] false false false 4 false true false false 40000000 40 [10] false false false 5 false false false false 0 0 false false false 6 false false false false 0 0 true false false 7 false false false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false false false false 0 0 true false false 57 false false false false 0 0 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false false false false 0 0 true false false 66 false false false false 0 0 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false false false false 0 0 true false false 72 false false false false 0 0 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false false false false 0 0 true false false 78 false false false false 0 0 true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false false false false 0 0 true false false 82 false false false false 0 0 true false false 83 false false false false 0 0 true false false 84 false false false false 0 0 true false false 85 false false false false 0 0 true false false 86 false false false false 0 0 true false false 87 false false false false 0 0 true false false 88 false false false false 0 0 true false false 89 false false false false 0 0 true false false 90 false false false false 0 0 true false false 91 false false false false 0 0 true false false 92 false false false false 0 0 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false false false false 0 0 true false false 99 false false false false 0 0 true false false 100 false false false false 0 0 true false false 101 false false false false 0 0 true false false xbrli:monetaryItemType monetary Unrealized Gain (Loss) Included in Net Income Relating to Assets Still Held at the Reporting Date. No authoritative reference available. false 44 4 us-gaap_FairValueMeasurementWithUnobservableInputsReconciliationRecurringBasisAssetGainLossIncludedInOtherComprehensiveIncome us-gaap true debit duration No definition available. false false false false false false false false false false false verboselabel false 1 false true false false 0 0 false false false 2 false true false false 0 0 false false false 3 false true false false 0 0 false false false 4 false true false false 0 0 false false false 5 false false false false 0 0 false false false 6 false false false false 0 0 true false false 7 false false false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false false false false 0 0 true false false 57 false false false false 0 0 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false false false false 0 0 true false false 66 false false false false 0 0 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false false false false 0 0 true false false 72 false false false false 0 0 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false false false false 0 0 true false false 78 false false false false 0 0 true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false false false false 0 0 true false false 82 false false false false 0 0 true false false 83 false false false false 0 0 true false false 84 false false false false 0 0 true false false 85 false false false false 0 0 true false false 86 false false false false 0 0 true false false 87 false false false false 0 0 true false false 88 false false false false 0 0 true false false 89 false false false false 0 0 true false false 90 false false false false 0 0 true false false 91 false false false false 0 0 true false false 92 false false false false 0 0 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false false false false 0 0 true false false 99 false false false false 0 0 true false false 100 false false false false 0 0 true false false 101 false false false false 0 0 true false false xbrli:monetaryItemType monetary This element represents total gains or losses for the period (realized and unrealized), arising from assets measured at fair value on a recurring basis using unobservable inputs (Level 3), which are included in other comprehensive income (a separate component of shareholders' equity. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 157 -Paragraph 32 -Subparagraph c(1) false 45 4 us-gaap_FairValueMeasurementWithUnobservableInputsReconciliationRecurringBasisAssetPurchasesSalesIssuancesSettlements us-gaap true debit duration No definition available. false false false false false false false false false false false verboselabel false 1 false true false false 14000000 14 [11] false false false 2 false true false false 0 0 false false false 3 false true false false -13000000 -13 [11] false false false 4 false true false false 0 0 false false false 5 false false false false 0 0 false false false 6 false false false false 0 0 true false false 7 false false false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false false false false 0 0 true false false 57 false false false false 0 0 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false false false false 0 0 true false false 66 false false false false 0 0 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false false false false 0 0 true false false 72 false false false false 0 0 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false false false false 0 0 true false false 78 false false false false 0 0 true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false false false false 0 0 true false false 82 false false false false 0 0 true false false 83 false false false false 0 0 true false false 84 false false false false 0 0 true false false 85 false false false false 0 0 true false false 86 false false false false 0 0 true false false 87 false false false false 0 0 true false false 88 false false false false 0 0 true false false 89 false false false false 0 0 true false false 90 false false false false 0 0 true false false 91 false false false false 0 0 true false false 92 false false false false 0 0 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false false false false 0 0 true false false 99 false false false false 0 0 true false false 100 false false false false 0 0 true false false 101 false false false false 0 0 true false false xbrli:monetaryItemType monetary This element represents purchases, sales, issuances, and settlements (net) which have taken place during the period in relation to assets measured at fair value on a recurring basis using unobservable inputs (Level 3). Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 157 -Paragraph 32 -Subparagraph c(2) false 46 4 aep_FairValueMeasurementWithUnobservableInputsReconIntoLevelThree aep false debit duration Element represents transfers into assets measured at fair value on a recurring basis using unobservable inputs (Level 3)... false false false false false false false false false false false terselabel false 1 false true false false 1000000 1 [12],[13] false false false 2 false false false false 0 0 false false false 3 false true false false 12000000 12 [12],[13] false false false 4 false false false false 0 0 false false false 5 false false false false 0 0 false false false 6 false false false false 0 0 true false false 7 false false false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false false false false 0 0 true false false 57 false false false false 0 0 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false false false false 0 0 true false false 66 false false false false 0 0 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false false false false 0 0 true false false 72 false false false false 0 0 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false false false false 0 0 true false false 78 false false false false 0 0 true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false false false false 0 0 true false false 82 false false false false 0 0 true false false 83 false false false false 0 0 true false false 84 false false false false 0 0 true false false 85 false false false false 0 0 true false false 86 false false false false 0 0 true false false 87 false false false false 0 0 true false false 88 false false false false 0 0 true false false 89 false false false false 0 0 true false false 90 false false false false 0 0 true false false 91 false false false false 0 0 true false false 92 false false false false 0 0 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false false false false 0 0 true false false 99 false false false false 0 0 true false false 100 false false false false 0 0 true false false 101 false false false false 0 0 true false false xbrli:monetaryItemType monetary Element represents transfers into assets measured at fair value on a recurring basis using unobservable inputs (Level 3) which have taken place during the period. No authoritative reference available. false 47 4 aep_FairValueMeasurementWithUnobservableInputsReconOutOfLevelThree aep false credit duration Element represents transfers into assets measured at fair value on a recurring basis using unobservable inputs (Level 3)... false false false false false false false false false false false terselabel false 1 false true false false -6000000 -6 [13],[14] false false false 2 false false false false 0 0 false false false 3 false true false false -5000000 -5 [13],[14] false false false 4 false false false false 0 0 false false false 5 false false false false 0 0 false false false 6 false false false false 0 0 true false false 7 false false false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false false false false 0 0 true false false 57 false false false false 0 0 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false false false false 0 0 true false false 66 false false false false 0 0 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false false false false 0 0 true false false 72 false false false false 0 0 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false false false false 0 0 true false false 78 false false false false 0 0 true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false false false false 0 0 true false false 82 false false false false 0 0 true false false 83 false false false false 0 0 true false false 84 false false false false 0 0 true false false 85 false false false false 0 0 true false false 86 false false false false 0 0 true false false 87 false false false false 0 0 true false false 88 false false false false 0 0 true false false 89 false false false false 0 0 true false false 90 false false false false 0 0 true false false 91 false false false false 0 0 true false false 92 false false false false 0 0 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false false false false 0 0 true false false 99 false false false false 0 0 true false false 100 false false false false 0 0 true false false 101 false false false false 0 0 true false false xbrli:monetaryItemType monetary Element represents transfers into assets measured at fair value on a recurring basis using unobservable inputs (Level 3) which have taken place during the period. No authoritative reference available. false 48 4 us-gaap_FairValueMeasurementWithUnobservableInputsReconciliationRecurringBasisAssetTransfersNet us-gaap true debit duration No definition available. false false false false false false false false false false false verboselabel false 1 false false false false 0 0 false false false 2 false true false false -29000000 -29 [15] false false false 3 false false false false 0 0 false false false 4 false true false false -25000000 -25 [15] false false false 5 false false false false 0 0 false false false 6 false false false false 0 0 true false false 7 false false false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false false false false 0 0 true false false 57 false false false false 0 0 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false false false false 0 0 true false false 66 false false false false 0 0 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false false false false 0 0 true false false 72 false false false false 0 0 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false false false false 0 0 true false false 78 false false false false 0 0 true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false false false false 0 0 true false false 82 false false false false 0 0 true false false 83 false false false false 0 0 true false false 84 false false false false 0 0 true false false 85 false false false false 0 0 true false false 86 false false false false 0 0 true false false 87 false false false false 0 0 true false false 88 false false false false 0 0 true false false 89 false false false false 0 0 true false false 90 false false false false 0 0 true false false 91 false false false false 0 0 true false false 92 false false false false 0 0 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false false false false 0 0 true false false 99 false false false false 0 0 true false false 100 false false false false 0 0 true false false 101 false false false false 0 0 true false false xbrli:monetaryItemType monetary This element represents [net] transfers in to and out of assets measured at fair value on a recurring basis using unobservable inputs (Level 3) which have taken place during the period. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 157 -Paragraph 32 -Subparagraph c(3) false 49 4 aep_ChangesInFairValueAllocatedToRegulatedJurisdiction aep false debit duration Changes in Fair Value Allocated to Regulated Jurisdiction. false false false false false false false false false false false totallabel false 1 false true false false -10000000 -10 [16] false false false 2 false true false false 18000000 18 [16] false false false 3 false true false false 7000000 7 [16] false false false 4 false true false false 23000000 23 [16] false false false 5 false false false false 0 0 false false false 6 false false false false 0 0 true false false 7 false false false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false false false false 0 0 true false false 57 false false false false 0 0 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false false false false 0 0 true false false 66 false false false false 0 0 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false false false false 0 0 true false false 72 false false false false 0 0 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false false false false 0 0 true false false 78 false false false false 0 0 true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false false false false 0 0 true false false 82 false false false false 0 0 true false false 83 false false false false 0 0 true false false 84 false false false false 0 0 true false false 85 false false false false 0 0 true false false 86 false false false false 0 0 true false false 87 false false false false 0 0 true false false 88 false false false false 0 0 true false false 89 false false false false 0 0 true false false 90 false false false false 0 0 true false false 91 false false false false 0 0 true false false 92 false false false false 0 0 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false false false false 0 0 true false false 99 false false false false 0 0 true false false 100 false false false false 0 0 true false false 101 false false false false 0 0 true false false xbrli:monetaryItemType monetary Changes in Fair Value Allocated to Regulated Jurisdiction. No authoritative reference available. true 50 4 us-gaap_FairValueMeasurementWithUnobservableInputsReconciliationRecurringBasisAssetValue us-gaap true debit instant No definition available. false false false false false false false false false true false periodendlabel false 1 false true false false 100000000 100 false false false 2 false true false false 67000000 67 false false false 3 false true false false 100000000 100 false false false 4 false true false false 67000000 67 false false false 5 false false false false 0 0 false false false 6 false false false false 0 0 true false false 7 false false false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false false false false 0 0 true false false 57 false false false false 0 0 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false false false false 0 0 true false false 66 false false false false 0 0 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false false false false 0 0 true false false 72 false false false false 0 0 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false false false false 0 0 true false false 78 false false false false 0 0 true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false false false false 0 0 true false false 82 false false false false 0 0 true false false 83 false false false false 0 0 true false false 84 false false false false 0 0 true false false 85 false false false false 0 0 true false false 86 false false false false 0 0 true false false 87 false false false false 0 0 true false false 88 false false false false 0 0 true false false 89 false false false false 0 0 true false false 90 false false false false 0 0 true false false 91 false false false false 0 0 true false false 92 false false false false 0 0 true false false 93 false true false false 67000000 67 true false false 94 false true false false 86000000 86 true false false 95 false false false false 0 0 true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false false false false 0 0 true false false 99 false false false false 0 0 true false false 100 false false false false 0 0 true false false 101 false false false false 0 0 true false false xbrli:monetaryItemType monetary This element represents an asset measured at fair value using significant unobservable inputs (Level 3) which is required for reconciliation purposes of beginning and ending balances. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 157 -Paragraph 32 -Subparagraph c false 51 3 aep_FairValueMeasurementsTextualsAbstract aep false na duration Fair Value Measurements Textuals Abstract false false false false false true false false false false false verboselabel false 1 false false false false 0 0 false false false 2 false false false false 0 0 false false false 3 false false false false 0 0 false false false 4 false false false false 0 0 false false false 5 false false false false 0 0 false false false 6 false false false false 0 0 true false false 7 false false false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false false false false 0 0 true false false 57 false false false false 0 0 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false false false false 0 0 true false false 66 false false false false 0 0 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false false false false 0 0 true false false 72 false false false false 0 0 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false false false false 0 0 true false false 78 false false false false 0 0 true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false false false false 0 0 true false false 82 false false false false 0 0 true false false 83 false false false false 0 0 true false false 84 false false false false 0 0 true false false 85 false false false false 0 0 true false false 86 false false false false 0 0 true false false 87 false false false false 0 0 true false false 88 false false false false 0 0 true false false 89 false false false false 0 0 true false false 90 false false false false 0 0 true false false 91 false false false false 0 0 true false false 92 false false false false 0 0 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false false false false 0 0 true false false 99 false false false false 0 0 true false false 100 false false false false 0 0 true false false 101 false false false false 0 0 true false false xbrli:stringItemType string Fair Value Measurements Textuals Abstract false 52 4 us-gaap_MarketableSecuritiesRealizedGainLossOtherThanTemporaryImpairmentsAmount us-gaap true debit duration No definition available. false false false false false false false false false false false verboselabel false 1 false false false false 0 0 false false false 2 false false false false 0 0 false false false 3 false false false false 0 0 false false false 4 false true false false 9000000 9 false false false 5 false false false false 0 0 false false false 6 false false false false 0 0 true false false 7 false false false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false false false false 0 0 true false false 57 false false false false 0 0 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false false false false 0 0 true false false 66 false false false false 0 0 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false false false false 0 0 true false false 72 false false false false 0 0 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false false false false 0 0 true false false 78 false false false false 0 0 true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false false false false 0 0 true false false 82 false false false false 0 0 true false false 83 false false false false 0 0 true false false 84 false false false false 0 0 true false false 85 false false false false 0 0 true false false 86 false false false false 0 0 true false false 87 false false false false 0 0 true false false 88 false false false false 0 0 true false false 89 false false false false 0 0 true false false 90 false false false false 0 0 true false false 91 false false false false 0 0 true false false 92 false false false false 0 0 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false false false false 0 0 true false false 99 false false false false 0 0 true false false 100 false false false false 0 0 true false false 101 false false false false 0 0 true false false xbrli:monetaryItemType monetary This element represents the amount of loss recognized for other than temporary impairments of investments in debt and equity securities. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 115 -Paragraph 16 false 53 4 aep_OtherThanTemporaryImpairmentsOfOtherTemporaryInvestmentsNetOfTax aep false debit duration Other-than-temporary impairments of Other Temporary Investments net of tax. false false false false false false false false false false false verboselabel false 1 false false false false 0 0 false false false 2 false false false false 0 0 false false false 3 false false false false 0 0 false false false 4 false true false false 6000000 6 false false false 5 false false false false 0 0 false false false 6 false false false false 0 0 true false false 7 false false false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false false false false 0 0 true false false 57 false false false false 0 0 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false false false false 0 0 true false false 66 false false false false 0 0 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false false false false 0 0 true false false 72 false false false false 0 0 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false false false false 0 0 true false false 78 false false false false 0 0 true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false false false false 0 0 true false false 82 false false false false 0 0 true false false 83 false false false false 0 0 true false false 84 false false false false 0 0 true false false 85 false false false false 0 0 true false false 86 false false false false 0 0 true false false 87 false false false false 0 0 true false false 88 false false false false 0 0 true false false 89 false false false false 0 0 true false false 90 false false false false 0 0 true false false 91 false false false false 0 0 true false false 92 false false false false 0 0 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false false false false 0 0 true false false 99 false false false false 0 0 true false false 100 false false false false 0 0 true false false 101 false false false false 0 0 true false false xbrli:monetaryItemType monetary Other-than-temporary impairments of Other Temporary Investments net of tax. No authoritative reference available. false 54 4 aep_AdjustedCostOfDebtSecurities aep false debit instant Adjusted cost of debt securities. false false false false false false false false false false false verboselabel false 1 false true false false 809000000 809 false false false 2 false false false false 0 0 false false false 3 false true false false 809000000 809 false false false 4 false false false false 0 0 false false false 5 false true false false 801000000 801 false false false 6 false false false false 0 0 true false false 7 false false false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 false false false false 0 0 true false false 19 false false false false 0 0 true false false 20 false false false false 0 0 true false false 21 false false false false 0 0 true false false 22 false false false false 0 0 true false false 23 false false false false 0 0 true false false 24 false false false false 0 0 true false false 25 false false false false 0 0 true false false 26 false false false false 0 0 true false false 27 false false false false 0 0 true false false 28 false false false false 0 0 true false false 29 false false false false 0 0 true false false 30 false false false false 0 0 true false false 31 false false false false 0 0 true false false 32 false false false false 0 0 true false false 33 false false false false 0 0 true false false 34 false false false false 0 0 true false false 35 false false false false 0 0 true false false 36 false false false false 0 0 true false false 37 false false false false 0 0 true false false 38 false false false false 0 0 true false false 39 false false false false 0 0 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false false false false 0 0 true false false 57 false false false false 0 0 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false false false false 0 0 true false false 66 false false false false 0 0 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false false false false 0 0 true false false 72 false false false false 0 0 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false false false false 0 0 true false false 78 false false false false 0 0 true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false false false false 0 0 true false false 82 false false false false 0 0 true false false 83 false false false false 0 0 true false false 84 false false false false 0 0 true false false 85 false false false false 0 0 true false false 86 false false false false 0 0 true false false 87 false false false false 0 0 true false false 88 false false false false 0 0 true false false 89 false false false false 0 0 true false false 90 false false false false 0 0 true false false 91 false false false false 0 0 true false false 92 false false false false 0 0 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false false false false 0 0 true false false 99 false false false false 0 0 true false false 100 false false false false 0 0 true false false 101 false false false false 0 0 true false false xbrli:monetaryItemType monetary Adjusted cost of debt securities. No authoritative reference available. false 55 4 aep_MaturityOfNetFairValueOfRiskManagementContractsPriorToCashCollateralAssetsOrLiabilities aep false debit instant Maturity Of Net Fair Value Of Risk Management Contracts Prior To Cash Collateral Assets Or Liabilities. false false false false false false false false false false false verboselabel false 1 false false false false 0 0 false false false 2 false false false false 0 0 false false false 3 false false false false 0 0 false false false 4 false false false false 0 0 false false false 5 false false false false 0 0 false false false 6 false false false false 0 0 true false false 7 false false false false 0 0 true false false 8 false false false false 0 0 true false false 9 false false false false 0 0 true false false 10 false false false false 0 0 true false false 11 false false false false 0 0 true false false 12 false false false false 0 0 true false false 13 false false false false 0 0 true false false 14 false false false false 0 0 true false false 15 false false false false 0 0 true false false 16 false false false false 0 0 true false false 17 false false false false 0 0 true false false 18 true true false false -1000000 -1 true false false 19 true true false false -1000000 -1 true false false 20 true true false false 43000000 43 true false false 21 true true false false 65000000 65 true false false 22 true true false false 12000000 12 true false false 23 true true false false 17000000 17 true false false 24 true true false false -2000000 -2 true false false 25 true true false false -1000000 -1 true false false 26 true true false false 69000000 69 true false false 27 true true false false 84000000 84 true false false 28 true true false false 24000000 24 true false false 29 true true false false 16000000 16 true false false 30 true true false false -1000000 -1 true false false 31 true true false false 9000000 9 true false false 32 true true false false 22000000 22 true false false 33 true true false false 22000000 22 true false false 34 true true false false 8000000 8 true false false 35 true true false false -2000000 -2 true false false 36 true true false false 8000000 8 true false false 37 true true false false 23000000 23 true false false 38 true true false false 42000000 42 true false false 39 true true false false 21000000 21 true false false 40 false false false false 0 0 true false false 41 false false false false 0 0 true false false 42 false false false false 0 0 true false false 43 false false false false 0 0 true false false 44 false false false false 0 0 true false false 45 false false false false 0 0 true false false 46 false false false false 0 0 true false false 47 false false false false 0 0 true false false 48 false false false false 0 0 true false false 49 false false false false 0 0 true false false 50 false false false false 0 0 true false false 51 false false false false 0 0 true false false 52 false false false false 0 0 true false false 53 false false false false 0 0 true false false 54 false false false false 0 0 true false false 55 false false false false 0 0 true false false 56 false false false false 0 0 true false false 57 false false false false 0 0 true false false 58 false false false false 0 0 true false false 59 false false false false 0 0 true false false 60 false false false false 0 0 true false false 61 false false false false 0 0 true false false 62 false false false false 0 0 true false false 63 false false false false 0 0 true false false 64 false false false false 0 0 true false false 65 false false false false 0 0 true false false 66 false false false false 0 0 true false false 67 false false false false 0 0 true false false 68 false false false false 0 0 true false false 69 false false false false 0 0 true false false 70 false false false false 0 0 true false false 71 false false false false 0 0 true false false 72 false false false false 0 0 true false false 73 false false false false 0 0 true false false 74 false false false false 0 0 true false false 75 false false false false 0 0 true false false 76 false false false false 0 0 true false false 77 false false false false 0 0 true false false 78 false false false false 0 0 true false false 79 false false false false 0 0 true false false 80 false false false false 0 0 true false false 81 false false false false 0 0 true false false 82 false false false false 0 0 true false false 83 false false false false 0 0 true false false 84 false false false false 0 0 true false false 85 false false false false 0 0 true false false 86 false false false false 0 0 true false false 87 false false false false 0 0 true false false 88 false false false false 0 0 true false false 89 false false false false 0 0 true false false 90 false false false false 0 0 true false false 91 false false false false 0 0 true false false 92 false false false false 0 0 true false false 93 false false false false 0 0 true false false 94 false false false false 0 0 true false false 95 false false false false 0 0 true false false 96 false false false false 0 0 true false false 97 false false false false 0 0 true false false 98 false false false false 0 0 true false false 99 false false false false 0 0 true false false 100 false false false false 0 0 true false false 101 false false false false 0 0 true false false xbrli:monetaryItemType monetary Maturity Of Net Fair Value Of Risk Management Contracts Prior To Cash Collateral Assets Or Liabilities. No authoritative reference available. false 1 Primarily represents amounts held for the payment of debt. 2 Amounts in "Other" column primarily represent accrued interest receivables from financial institutions. Level 2 amounts primarily represent investments in money market funds. 3 Amounts in "Other" column primarily represent cash deposits in bank accounts with financial institutions or with third parties. Level 1 amounts primarily represent investments in money market funds. Level 2 amounts primarily represent investments in commercial paper. 4 Amounts represent publicly traded equity securities and equity-based mutual funds. 5 Represents contracts that were originally MTM but were subsequently elected as normal under the accounting guidance for "Derivatives and Hedging." At the time of the normal election, the MTM value was frozen and no longer fair valued. This MTM value will be amortized into revenues over the remaining life of the contracts. 6 Amounts in "Other" column primarily represent counterparty netting of risk management and hedging contracts and associated cash collateral under the accounting guidance for "Derivatives and Hedging." 7 The June 30, 2010 maturity of the net fair value of risk management contracts prior to cash collateral, assets/(liabilities), is as follows: Level 1 matures ($1) million in 2010, ($2) million in periods 2011-2013 and ($2) million in periods 2014-2018; Level 2 matures $43 million in 2010, $69 million in periods 2011-2013, $9 million in periods 2014-2015 and $8 million in periods 2016-2028; Level 3 matures $12 million in 2010, $24 million in periods 2011-2013, $22 million in periods 2014-2015 and $42 million in periods 2016-2028. Risk management commodity contracts are substantially comprised of power contracts. 8 The December 31, 2009 maturity of the net fair value of risk management contracts prior to cash collateral, assets/(liabilities), is as follows: Level 1 matures ($1) million in 2010, ($1) million in periods 2011-2013 and ($1) million in periods 2014-2015; Level 2 matures $65 million in 2010, $84 million in periods 2011-2013, $22 million in periods 2014-2015 and $23 million in periods 2016-2028; Level 3 matures $17 million in 2010, $16 million in periods 2011-2013, $8 million in periods 2014-2015 and $21 million in periods 2016-2028. 9 Represents the change in fair value between the beginning of the reporting period and the settlement of the risk management commodity contract. 10 Included in revenues on our Condensed Consolidated Statements of Income. 11 Represents the settlement of risk management commodity contracts for the reporting period. 12 Represents existing assets or liabilities that were previously categorized as Level 2. 13 Transfers are recognized based on their value at the beginning of the reporting period that the transfer occurred. 14 Represents existing assets or liabilities that were previously categorized as Level 3. 15 Represents existing assets or liabilities that were either previously categorized as a higher level for which the inputs to the model became unobservable or assets and liabilities that were previously classified as Level 3 for which the lowest significant input became observable during the period. 16 Relates to the net gains (losses) of those contracts that are not reflected on our Condensed Consolidated Statements of Income. These net gains (losses) are recorded as regulatory liabilities/assets. 101 50 false Millions UnKnown UnKnown false true XML 63 R17.xml IDEA: Income Taxes  2.2.0.7 false Income Taxes 00350 - Disclosure - Income Taxes true false false false 1 USD false false USD Standard http://www.xbrl.org/2003/iso4217 USD iso4217 0 Percent Standard http://www.xbrl.org/2003/instance pure xbrli 0 Shares Standard http://www.xbrl.org/2003/instance shares xbrli 0 EPS Divide http://www.xbrl.org/2003/iso4217 USD iso4217 http://www.xbrl.org/2003/instance shares xbrli 0 $ 2 0 aep_Incometaxesabstract aep false na duration No definition available. false false false false false true false false false false false false 1 false false false false 0 0 false false false xbrli:stringItemType string No definition available. false 3 1 us-gaap_IncomeTaxDisclosureTextBlock us-gaap true na duration No definition available. false false false false false false false false false false false false 1 false false false false 0 0 <p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;margin-left:-22.5px;">10</font><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;">.&#160;&#160;&#160;</font><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;text-decoration:underline;">INCOME TAXES</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">We, along with</font><font style="font-family:Times New Roman;font-size:11pt;"> our subsidiaries, file a consolidated federal income tax return. The allocation of the AEP System's current consolidated federal income tax to the AEP System companies allocates the benefit of current tax losses to the AEP System companies giving rise to such losses in determining their current tax expense. The tax benefit of the Parent is allocated to our subsidiaries with taxable income. With the exception of the loss of the Parent, the method of allocation reflects a separate return result for each company in the consolidated group.</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">We are no longer subject to U.S. federal examination for years before 2001. We have completed the exam for the years 2001 through 2006 and have issues that we are pursuing at the appeals level. The years 2007 and 2008 are currently under examination. Although the outcome of tax audits is uncertain, in management's opinion, adequate provisions for income taxes have been made for potential liabilities resulting from such matters. In addition, we accrue interest on these uncertain tax positions. We are not aware of any issues for open tax years that upon final resolution are expected to have a material adverse effect on net income.</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">We, along with our subsidiaries, file income tax returns in various state, local and foreign jurisdictions. These taxing authorities routinely examine our tax returns and we are currently under examination in several state and local jurisdictions. We believe that we have filed tax returns with positions that may be challenged by these tax authorities. However, management believes</font><font style="font-family:Times New Roman;font-size:11pt;"> </font><font style="font-family:Times New Roman;font-size:11pt;">that the ultimate resolution of these audits will not materially impact net income. With few exceptions, we are no longer subject to state , local or non-U.S. income tax examinations by tax authorities for years before 2000.</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;font-weight:bold;font-style:italic;margin-left:0px;">Federal Legislation</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p><p style='margin-top:0pt; margin-bottom:0pt'><font style="font-family:Times New Roman;font-size:11pt;margin-left:0px;">The Patient Protection and Affordable Care Act and the related Health Care and Education Reconciliation Act (Health Care Acts) were enacted in March 2010. The Health Care Acts amend tax rules so that the portion of employer health care costs that are reimbursed by the Medicare Part D prescription drug subsidy will no longer be deductible by the employer for federal income tax purposes effective for years beginning after December 31, 2012. Because of the loss of the future tax deduction, a reduction in the deferred tax asset related to the nondeductible OPEB liabilities accrued to date was recorded in March 2010. This reduction did not materially affect our cash flows or financial condition. </font><font style="font-family:Times New Roman;font-size:11pt;">For the six months ended June 30</font><font style="font-family:Times New Roman;font-size:11pt;">, 2010, deferred tax assets decreased $</font><font style="font-family:Times New Roman;font-size:11pt;">56</font><font style="font-family:Times New Roman;font-size:11pt;"> million, partially offset by recording net tax regulatory assets of $</font><font style="font-family:Times New Roman;font-size:11pt;">35</font><font style="font-family:Times New Roman;font-size:11pt;"> million in our jurisdictions with regulated operations, resulting in a decrease in net income of $</font><font style="font-family:Times New Roman;font-size:11pt;">21</font><font style="font-family:Times New Roman;font-size:11pt;"> million.</font></p><p style='margin-top:0pt; margin-bottom:0pt'>&#160;</p> 10.&#160;&#160;&#160;INCOME TAXES&#160;We, along with our subsidiaries, file a consolidated federal income tax return. The allocation of the AEP System's false false false us-types:textBlockItemType textblock Description containing the entire income tax disclosure. Examples include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. This element may be used as a single block of text to encapsulate the entire disclosure including data and tables. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 false 1 2 false UnKnown UnKnown UnKnown false true -----END PRIVACY-ENHANCED MESSAGE-----

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