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Leases
12 Months Ended
Dec. 31, 2014
Leases
LEASES

Leases of property, plant and equipment are for remaining periods up to 35 years and require payments of related property taxes, maintenance and operating costs.  The majority of the leases have purchase or renewal options and will be renewed or replaced by other leases.

Lease rentals for both operating and capital leases are generally charged to Other Operation and Maintenance expense in accordance with rate-making treatment for regulated operations.  Additionally, for regulated operations with capital leases, a capital lease asset and offsetting liability are recorded at the present value of the remaining lease payments for each reporting period.  Capital leases for nonregulated property are accounted for as if the assets were owned and financed.  The components of rental costs are as follows:
 
 
Years Ended December 31,
Lease Rental Costs
 
2014
 
2013
 
2012
 
 
(in millions)
Net Lease Expense on Operating Leases
 
$
304

 
$
327

 
$
346

Amortization of Capital Leases
 
109

 
74

 
73

Interest on Capital Leases
 
26

 
28

 
29

Total Lease Rental Costs
 
$
439

 
$
429

 
$
448



The following table shows the property, plant and equipment under capital leases and related obligations recorded on the balance sheets.  Capital lease obligations are included in Other Current Liabilities and Deferred Credits and Other Noncurrent Liabilities on the balance sheets.
 
 
December 31,
Property, Plant and Equipment Under Capital Leases
 
2014
 
2013
 
 
(in millions)
Generation
 
$
104

 
$
103

Other Property, Plant and Equipment
 
683

 
627

Total Property, Plant and Equipment Under Capital Leases
 
787

 
730

Accumulated Amortization
 
240

 
197

Net Property, Plant and Equipment Under Capital Leases
 
$
547

 
$
533

 
 
 
 
 
Obligations Under Capital Leases
 
 
 
 
Noncurrent Liability
 
$
441

 
$
428

Liability Due Within One Year
 
111

 
110

Total Obligations Under Capital Leases
 
$
552

 
$
538



Future minimum lease payments consisted of the following as of December 31, 2014:
Future Minimum Lease Payments
 
Capital Leases
 
Noncancelable
Operating Leases
 
 
(in millions)
2015
 
$
134

 
$
293

2016
 
120

 
267

2017
 
98

 
253

2018
 
63

 
239

2019
 
46

 
223

Later Years
 
239

 
693

Total Future Minimum Lease Payments
 
700

 
$
1,968

Less Estimated Interest Element
 
148

 
 
Estimated Present Value of Future Minimum Lease Payments
 
$
552

 
 


Master Lease Agreements

We lease certain equipment under master lease agreements.  Under the 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 between the actual fair value and the residual value guarantee.  Historically, at the end of the lease term, the fair value has been in excess of the unamortized balance.  As of December 31, 2014, the maximum potential loss for these lease agreements was approximately $26 million assuming the fair value of the equipment is zero at the end of the lease term.

Rockport Lease

AEGCo and I&M entered into a sale-and-leaseback transaction in 1989 with Wilmington Trust Company (Owner Trustee), an unrelated, unconsolidated trustee for Rockport Plant, Unit 2 (the Plant).  The Owner Trustee was capitalized with equity from six owner participants with no relationship to AEP or any of its subsidiaries and debt from a syndicate of banks and securities in a private placement to certain institutional investors.

The gain from the sale was deferred and is being amortized over the term of the lease, which expires in 2022.  The Owner Trustee owns the Plant and leases it equally to AEGCo and I&M.  The lease is accounted for as an operating lease with the payment obligations included in the future minimum lease payments schedule earlier in this note.  The lease term is for 33 years with potential renewal options.  At the end of the lease term, AEGCo and I&M have the option to renew the lease or the Owner Trustee can sell the Plant.  AEP, AEGCo and I&M have no ownership interest in the Owner Trustee and do not guarantee its debt.  The future minimum lease payments for this sale-and-leaseback transaction as of December 31, 2014 are as follows:
Future Minimum Lease Payments
 
AEGCo
 
I&M
 
 
(in millions)
2015
 
$
74

 
$
74

2016
 
74

 
74

2017
 
74

 
74

2018
 
74

 
74

2019
 
74

 
74

Later Years
 
222

 
222

Total Future Minimum Lease Payments
 
$
592

 
$
592



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 $11 million and $13 million for I&M and SWEPCo, respectively, for the remaining railcars as of December 31, 2014.  These obligations are included in the future minimum lease payments schedule earlier in this note.

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 83% of the projected fair value of the equipment under the current five-year lease term to 77% at the end of the 20-year term.  I&M and SWEPCo have assumed the guarantee under the return-and-sale option.  The maximum potential losses related to the guarantee are approximately $9 million and $10 million for I&M and SWEPCo, respectively, 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.

Sabine Dragline Lease

During 2009, Sabine entered into capital lease arrangements with a nonaffiliated company to finance the purchase of two electric draglines to be used for Sabine’s mining operations totaling $47 million.  The amounts included in the lease represented the aggregate fair value of the existing equipment and a sale-and-leaseback transaction for additional dragline rebuild costs required to keep the dragline operational.  These capital lease assets are included in Other Property, Plant and Equipment on our December 31, 2014 and 2013 balance sheets.  The short-term and long-term capital lease obligations are included in Other Current Liabilities and Deferred Credits and Other Noncurrent Liabilities on our December 31, 2014 and 2013 balance sheets.  The future payment obligations are included in our future minimum lease payments schedule earlier in this note.

I&M Nuclear Fuel Lease

In November 2013, I&M entered into a sale-and-leaseback transaction with IMP 11-2013, a nonaffiliated Ohio Trust, to lease nuclear fuel for I&M’s Cook Plant.  In November 2013, I&M sold a portion of its unamortized nuclear fuel inventory to the trust for $110 million.  The lease has a variable rate based on one month LIBOR and is accounted for as a capital lease with lease terms up to 54 months. The future payment obligations of $67 million are included in our future minimum lease payments schedule earlier in this note.  The net capital lease asset is included in Other Property, Plant and Equipment and the short-term and long-term capital lease obligations are included in Other Current Liabilities and Deferred Credits and Other Noncurrent Liabilities, respectively, on our December 31, 2014 balance sheet.  The future minimum lease payments for the sale-and-leaseback transaction as of December 31, 2014 are as follows, based on estimated fuel burn:
Future Minimum Lease Payments
 
I&M
 
 
(in millions)
2015
 
$
32

2016
 
27

2017
 
6

2018
 
2

Total Future Minimum Lease Payments
 
$
67

Appalachian Power Co [Member]  
Leases
LEASES

Leases of property, plant and equipment are for remaining periods up to 35 years and require payments of related property taxes, maintenance and operating costs.  The majority of the leases have purchase or renewal options and will be renewed or replaced by other leases.

Lease rentals for both operating and capital leases are generally charged to Other Operation and Maintenance expense in accordance with rate-making treatment for regulated operations.  Additionally, for regulated operations with capital leases, a capital lease asset and offsetting liability are recorded at the present value of the remaining lease payments for each reporting period.  Capital leases for nonregulated property are accounted for as if the assets were owned and financed.  The components of rental costs are as follows:
Year Ended December 31, 2014
 
APCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
(in thousands)
Net Lease Expense on Operating Leases
 
$
18,348

 
$
93,440

 
$
6,610

 
$
3,171

 
$
5,465

Amortization of Capital Leases
 
5,525

 
44,369

 
5,714

 
4,227

 
14,960

Interest on Capital Leases
 
1,012

 
2,834

 
1,189

 
747

 
7,369

Total Lease Rental Costs
 
$
24,885

 
$
140,643

 
$
13,513

 
$
8,145

 
$
27,794

Year Ended December 31, 2013
 
APCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
(in thousands)
Net Lease Expense on Operating Leases
 
$
17,500

 
$
95,606

 
$
57,814

 
$
4,131

 
$
6,328

Amortization of Capital Leases
 
6,293

 
11,307

 
7,800

 
4,099

 
15,456

Interest on Capital Leases
 
1,410

 
1,870

 
4,125

 
782

 
8,153

Total Lease Rental Costs
 
$
25,203

 
$
108,783

 
$
69,739

 
$
9,012

 
$
29,937

Year Ended December 31, 2012
 
APCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
(in thousands)
Net Lease Expense on Operating Leases
 
$
15,633

 
$
95,509

 
$
59,836

 
$
5,283

 
$
5,797

Amortization of Capital Leases
 
7,429

 
8,429

 
10,906

 
3,839

 
14,793

Interest on Capital Leases
 
1,782

 
1,738

 
3,307

 
815

 
9,041

Total Lease Rental Costs
 
$
24,844

 
$
105,676

 
$
74,049

 
$
9,937

 
$
29,631



The following table shows the property, plant and equipment under capital leases and related obligations recorded on the Registrant Subsidiaries’ balance sheets.  Unless shown as a separate line on the balance sheet due to materiality, current capital lease obligations are included in Other Current Liabilities and long-term capital lease obligations are included in Deferred Credits and Other Noncurrent Liabilities on the Registrant Subsidiaries’ balance sheets.
December 31, 2014
 
APCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
(in thousands)
Property, Plant and Equipment Under Capital Leases:
 
 
 
 
 
 
 
 
 
 
Generation
 
$
14,166

 
$
18,681

 
$

 
$
9,625

 
$
35,442

Other Property, Plant and Equipment
 
19,414

 
100,419

 
22,569

 
16,472

 
159,472

Total Property, Plant and Equipment
 
33,580

 
119,100

 
22,569

 
26,097

 
194,914

Accumulated Amortization
 
14,040

 
15,956

 
8,003

 
11,796

 
80,155

Net Property, Plant and Equipment Under Capital Leases
 
$
19,540

 
$
103,144

 
$
14,566

 
$
14,301

 
$
114,759

 
 
 
 
 
 
 
 
 
 
 
Obligations Under Capital Leases:
 
 
 
 
 
 
 
 
 
 
Noncurrent Liability
 
$
14,435

 
$
61,094

 
$
10,996

 
$
10,929

 
$
91,044

Liability Due Within One Year
 
5,105

 
42,050

 
3,570

 
3,372

 
17,557

 
 
 
 
 
 
 
 
 
 
 
Total Obligations Under Capital Leases
 
$
19,540

 
$
103,144

 
$
14,566

 
$
14,301

 
$
108,601

December 31, 2013
 
APCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
(in thousands)
Property, Plant and Equipment Under Capital Leases:
 
 
 
 
 
 
 
 
 
 
Generation
 
$
13,531

 
$
18,324

 
$

 
$
9,675

 
$
34,476

Other Property, Plant and Equipment
 
18,720

 
130,249

 
26,532

 
15,413

 
157,853

Total Property, Plant and Equipment
 
32,251

 
148,573

 
26,532

 
25,088

 
192,329

Accumulated Amortization
 
11,379

 
15,356

 
9,800

 
10,957

 
66,637

Net Property, Plant and Equipment Under Capital Leases
 
$
20,872

 
$
133,217

 
$
16,732

 
$
14,131

 
$
125,692

 
 
 
 
 
 
 
 
 
 
 
Obligations Under Capital Leases:
 
 
 
 
 
 
 
 
 
 
Noncurrent Liability
 
$
15,718

 
$
87,000

 
$
11,212

 
$
10,222

 
$
105,086

Liability Due Within One Year
 
5,154

 
46,210

 
5,520

 
3,909

 
17,899

 
 
 
 
 
 
 
 
 
 
 
Total Obligations Under Capital Leases
 
$
20,872

 
$
133,210

 
$
16,732

 
$
14,131

 
$
122,985



Future minimum lease payments consisted of the following as of December 31, 2014:
Capital Leases
 
APCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
(in thousands)
2015
 
$
5,668

 
$
42,724

 
$
4,140

 
$
4,001

 
$
23,721

2016
 
5,063

 
35,817

 
3,634

 
3,575

 
20,700

2017
 
4,171

 
11,419

 
3,381

 
3,425

 
21,863

2018
 
3,166

 
6,025

 
2,854

 
2,391

 
11,751

2019
 
1,146

 
2,718

 
747

 
1,173

 
10,463

Later Years
 
1,815

 
22,467

 
1,489

 
1,925

 
46,016

Total Future Minimum Lease Payments
 
21,029

 
121,170

 
16,245

 
16,490

 
134,514

Less Estimated Interest Element
 
1,489

 
18,026

 
1,679

 
2,189

 
25,913

Estimated Present Value of Future Minimum Lease Payments
 
$
19,540

 
$
103,144

 
$
14,566

 
$
14,301

 
$
108,601

 
 
 
 
 
 
 
 
 
 
 
Noncancelable Operating Leases
 
APCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
(in thousands)
2015
 
$
15,817

 
$
95,357

 
$
13,471

 
$
3,031

 
$
5,392

2016
 
15,101

 
89,448

 
9,575

 
2,922

 
4,679

2017
 
14,669

 
87,031

 
9,036

 
2,760

 
4,225

2018
 
13,886

 
85,858

 
7,906

 
2,391

 
3,754

2019
 
11,818

 
85,130

 
6,765

 
1,800

 
3,457

Later Years
 
42,866

 
262,263

 
24,743

 
5,094

 
14,819

Total Future Minimum Lease Payments
 
$
114,157

 
$
705,087

 
$
71,496

 
$
17,998

 
$
36,326



Master Lease Agreements

The Registrant Subsidiaries lease certain equipment under master lease agreements.  Under the 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 Subsidiaries are committed to pay the difference between the actual fair value and the residual value guarantee.  Historically, at the end of the lease term the fair value has been in excess of the unamortized balance.  As of December 31, 2014, 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:
Company
 
Maximum
Potential Loss
 
 
(in thousands)
APCo
 
$
4,026

I&M
 
2,861

OPCo
 
4,829

PSO
 
2,214

SWEPCo
 
2,774



Rockport Lease

AEGCo and I&M entered into a sale-and-leaseback transaction in 1989 with Wilmington Trust Company (Owner Trustee), an unrelated, unconsolidated trustee for Rockport Plant, Unit 2 (the Plant).  The Owner Trustee was capitalized with equity from six owner participants with no relationship to AEP or any of its subsidiaries and debt from a syndicate of banks and securities in a private placement to certain institutional investors.

The gain from the sale was deferred and is being amortized over the term of the lease, which expires in 2022.  The Owner Trustee owns the Plant and leases it equally to AEGCo and I&M.  The lease is accounted for as an operating lease with the payment obligations included in the future minimum lease payments schedule earlier in this note.  The lease term is for 33 years with potential renewal options.  At the end of the lease term, AEGCo and I&M have the option to renew the lease or the Owner Trustee can sell the Plant.  AEP, AEGCo and I&M have no ownership interest in the Owner Trustee and do not guarantee its debt.  I&M’s future minimum lease payments for this sale-and-leaseback transaction as of December 31, 2014 are as follows:
Future Minimum Lease Payments
 
I&M
 
 
(in thousands)
2015
 
$
73,854

2016
 
73,854

2017
 
73,854

2018
 
73,854

2019
 
73,854

Later Years
 
221,562

Total Future Minimum Lease Payments
 
$
590,832



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 $11 million and $13 million for I&M and SWEPCo, respectively, for the remaining railcars as of December 31, 2014.  These obligations are included in the future minimum lease payments schedule earlier in this note.

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 83% of the projected fair value of the equipment under the current five-year lease term to 77% at the end of the 20-year term.  I&M and SWEPCo have assumed the guarantee under the return-and-sale option.  The maximum potential losses related to the guarantee are approximately $9 million and $10 million for I&M and SWEPCo, respectively, 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.

Sabine Dragline Lease

During 2009, Sabine entered into capital lease arrangements with a nonaffiliated company to finance the purchase of two electric draglines to be used for Sabine’s mining operations totaling $47 million.  The amounts included in the lease represented the aggregate fair value of the existing equipment and a sale-and-leaseback transaction for additional dragline rebuild costs required to keep the dragline operational.  These capital lease assets are included in Other Property, Plant and Equipment on SWEPCo’s December 31, 2014 and 2013 balance sheets.  The short-term and long-term capital lease obligations are included in Obligations Under Capital Leases on SWEPCo’s December 31, 2014 and 2013 balance sheets.  The future payment obligations are included in SWEPCo’s future minimum lease payments schedule earlier in this note.

I&M Nuclear Fuel Lease

In November 2013, I&M entered into a sale-and-leaseback transaction with IMP 11-2013, a nonaffiliated Ohio trust, to lease nuclear fuel for I&M’s Cook Plant.  In November 2013, I&M sold a portion of its unamortized nuclear fuel inventory to the trust for $110 million.  The lease has a variable rate based on one month LIBOR and is accounted for as a capital lease with lease terms up to 54 months.  The future payment obligations of $67 million are included in I&M’s future minimum lease payments schedule earlier in this note.  The net capital lease asset is included in Other Property, Plant and Equipment and the short-term and long-term capital lease obligations are included in Other Current Liabilities and Deferred Credits and Other Noncurrent Liabilities, respectively, on I&M’s December 31, 2014 balance sheet.  The future minimum lease payments for the sale-and-leaseback transaction as of December 31, 2014 are as follows, based on estimated fuel burn:
Future Minimum Lease Payments
 
I&M
 
 
(in thousands)
2015
 
$
32,173

2016
 
26,879

2017
 
5,760

2018
 
2,397

Total Future Minimum Lease Payments
 
$
67,209

Indiana Michigan Power Co [Member]  
Leases
LEASES

Leases of property, plant and equipment are for remaining periods up to 35 years and require payments of related property taxes, maintenance and operating costs.  The majority of the leases have purchase or renewal options and will be renewed or replaced by other leases.

Lease rentals for both operating and capital leases are generally charged to Other Operation and Maintenance expense in accordance with rate-making treatment for regulated operations.  Additionally, for regulated operations with capital leases, a capital lease asset and offsetting liability are recorded at the present value of the remaining lease payments for each reporting period.  Capital leases for nonregulated property are accounted for as if the assets were owned and financed.  The components of rental costs are as follows:
Year Ended December 31, 2014
 
APCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
(in thousands)
Net Lease Expense on Operating Leases
 
$
18,348

 
$
93,440

 
$
6,610

 
$
3,171

 
$
5,465

Amortization of Capital Leases
 
5,525

 
44,369

 
5,714

 
4,227

 
14,960

Interest on Capital Leases
 
1,012

 
2,834

 
1,189

 
747

 
7,369

Total Lease Rental Costs
 
$
24,885

 
$
140,643

 
$
13,513

 
$
8,145

 
$
27,794

Year Ended December 31, 2013
 
APCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
(in thousands)
Net Lease Expense on Operating Leases
 
$
17,500

 
$
95,606

 
$
57,814

 
$
4,131

 
$
6,328

Amortization of Capital Leases
 
6,293

 
11,307

 
7,800

 
4,099

 
15,456

Interest on Capital Leases
 
1,410

 
1,870

 
4,125

 
782

 
8,153

Total Lease Rental Costs
 
$
25,203

 
$
108,783

 
$
69,739

 
$
9,012

 
$
29,937

Year Ended December 31, 2012
 
APCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
(in thousands)
Net Lease Expense on Operating Leases
 
$
15,633

 
$
95,509

 
$
59,836

 
$
5,283

 
$
5,797

Amortization of Capital Leases
 
7,429

 
8,429

 
10,906

 
3,839

 
14,793

Interest on Capital Leases
 
1,782

 
1,738

 
3,307

 
815

 
9,041

Total Lease Rental Costs
 
$
24,844

 
$
105,676

 
$
74,049

 
$
9,937

 
$
29,631



The following table shows the property, plant and equipment under capital leases and related obligations recorded on the Registrant Subsidiaries’ balance sheets.  Unless shown as a separate line on the balance sheet due to materiality, current capital lease obligations are included in Other Current Liabilities and long-term capital lease obligations are included in Deferred Credits and Other Noncurrent Liabilities on the Registrant Subsidiaries’ balance sheets.
December 31, 2014
 
APCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
(in thousands)
Property, Plant and Equipment Under Capital Leases:
 
 
 
 
 
 
 
 
 
 
Generation
 
$
14,166

 
$
18,681

 
$

 
$
9,625

 
$
35,442

Other Property, Plant and Equipment
 
19,414

 
100,419

 
22,569

 
16,472

 
159,472

Total Property, Plant and Equipment
 
33,580

 
119,100

 
22,569

 
26,097

 
194,914

Accumulated Amortization
 
14,040

 
15,956

 
8,003

 
11,796

 
80,155

Net Property, Plant and Equipment Under Capital Leases
 
$
19,540

 
$
103,144

 
$
14,566

 
$
14,301

 
$
114,759

 
 
 
 
 
 
 
 
 
 
 
Obligations Under Capital Leases:
 
 
 
 
 
 
 
 
 
 
Noncurrent Liability
 
$
14,435

 
$
61,094

 
$
10,996

 
$
10,929

 
$
91,044

Liability Due Within One Year
 
5,105

 
42,050

 
3,570

 
3,372

 
17,557

 
 
 
 
 
 
 
 
 
 
 
Total Obligations Under Capital Leases
 
$
19,540

 
$
103,144

 
$
14,566

 
$
14,301

 
$
108,601

December 31, 2013
 
APCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
(in thousands)
Property, Plant and Equipment Under Capital Leases:
 
 
 
 
 
 
 
 
 
 
Generation
 
$
13,531

 
$
18,324

 
$

 
$
9,675

 
$
34,476

Other Property, Plant and Equipment
 
18,720

 
130,249

 
26,532

 
15,413

 
157,853

Total Property, Plant and Equipment
 
32,251

 
148,573

 
26,532

 
25,088

 
192,329

Accumulated Amortization
 
11,379

 
15,356

 
9,800

 
10,957

 
66,637

Net Property, Plant and Equipment Under Capital Leases
 
$
20,872

 
$
133,217

 
$
16,732

 
$
14,131

 
$
125,692

 
 
 
 
 
 
 
 
 
 
 
Obligations Under Capital Leases:
 
 
 
 
 
 
 
 
 
 
Noncurrent Liability
 
$
15,718

 
$
87,000

 
$
11,212

 
$
10,222

 
$
105,086

Liability Due Within One Year
 
5,154

 
46,210

 
5,520

 
3,909

 
17,899

 
 
 
 
 
 
 
 
 
 
 
Total Obligations Under Capital Leases
 
$
20,872

 
$
133,210

 
$
16,732

 
$
14,131

 
$
122,985



Future minimum lease payments consisted of the following as of December 31, 2014:
Capital Leases
 
APCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
(in thousands)
2015
 
$
5,668

 
$
42,724

 
$
4,140

 
$
4,001

 
$
23,721

2016
 
5,063

 
35,817

 
3,634

 
3,575

 
20,700

2017
 
4,171

 
11,419

 
3,381

 
3,425

 
21,863

2018
 
3,166

 
6,025

 
2,854

 
2,391

 
11,751

2019
 
1,146

 
2,718

 
747

 
1,173

 
10,463

Later Years
 
1,815

 
22,467

 
1,489

 
1,925

 
46,016

Total Future Minimum Lease Payments
 
21,029

 
121,170

 
16,245

 
16,490

 
134,514

Less Estimated Interest Element
 
1,489

 
18,026

 
1,679

 
2,189

 
25,913

Estimated Present Value of Future Minimum Lease Payments
 
$
19,540

 
$
103,144

 
$
14,566

 
$
14,301

 
$
108,601

 
 
 
 
 
 
 
 
 
 
 
Noncancelable Operating Leases
 
APCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
(in thousands)
2015
 
$
15,817

 
$
95,357

 
$
13,471

 
$
3,031

 
$
5,392

2016
 
15,101

 
89,448

 
9,575

 
2,922

 
4,679

2017
 
14,669

 
87,031

 
9,036

 
2,760

 
4,225

2018
 
13,886

 
85,858

 
7,906

 
2,391

 
3,754

2019
 
11,818

 
85,130

 
6,765

 
1,800

 
3,457

Later Years
 
42,866

 
262,263

 
24,743

 
5,094

 
14,819

Total Future Minimum Lease Payments
 
$
114,157

 
$
705,087

 
$
71,496

 
$
17,998

 
$
36,326



Master Lease Agreements

The Registrant Subsidiaries lease certain equipment under master lease agreements.  Under the 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 Subsidiaries are committed to pay the difference between the actual fair value and the residual value guarantee.  Historically, at the end of the lease term the fair value has been in excess of the unamortized balance.  As of December 31, 2014, 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:
Company
 
Maximum
Potential Loss
 
 
(in thousands)
APCo
 
$
4,026

I&M
 
2,861

OPCo
 
4,829

PSO
 
2,214

SWEPCo
 
2,774



Rockport Lease

AEGCo and I&M entered into a sale-and-leaseback transaction in 1989 with Wilmington Trust Company (Owner Trustee), an unrelated, unconsolidated trustee for Rockport Plant, Unit 2 (the Plant).  The Owner Trustee was capitalized with equity from six owner participants with no relationship to AEP or any of its subsidiaries and debt from a syndicate of banks and securities in a private placement to certain institutional investors.

The gain from the sale was deferred and is being amortized over the term of the lease, which expires in 2022.  The Owner Trustee owns the Plant and leases it equally to AEGCo and I&M.  The lease is accounted for as an operating lease with the payment obligations included in the future minimum lease payments schedule earlier in this note.  The lease term is for 33 years with potential renewal options.  At the end of the lease term, AEGCo and I&M have the option to renew the lease or the Owner Trustee can sell the Plant.  AEP, AEGCo and I&M have no ownership interest in the Owner Trustee and do not guarantee its debt.  I&M’s future minimum lease payments for this sale-and-leaseback transaction as of December 31, 2014 are as follows:
Future Minimum Lease Payments
 
I&M
 
 
(in thousands)
2015
 
$
73,854

2016
 
73,854

2017
 
73,854

2018
 
73,854

2019
 
73,854

Later Years
 
221,562

Total Future Minimum Lease Payments
 
$
590,832



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 $11 million and $13 million for I&M and SWEPCo, respectively, for the remaining railcars as of December 31, 2014.  These obligations are included in the future minimum lease payments schedule earlier in this note.

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 83% of the projected fair value of the equipment under the current five-year lease term to 77% at the end of the 20-year term.  I&M and SWEPCo have assumed the guarantee under the return-and-sale option.  The maximum potential losses related to the guarantee are approximately $9 million and $10 million for I&M and SWEPCo, respectively, 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.

Sabine Dragline Lease

During 2009, Sabine entered into capital lease arrangements with a nonaffiliated company to finance the purchase of two electric draglines to be used for Sabine’s mining operations totaling $47 million.  The amounts included in the lease represented the aggregate fair value of the existing equipment and a sale-and-leaseback transaction for additional dragline rebuild costs required to keep the dragline operational.  These capital lease assets are included in Other Property, Plant and Equipment on SWEPCo’s December 31, 2014 and 2013 balance sheets.  The short-term and long-term capital lease obligations are included in Obligations Under Capital Leases on SWEPCo’s December 31, 2014 and 2013 balance sheets.  The future payment obligations are included in SWEPCo’s future minimum lease payments schedule earlier in this note.

I&M Nuclear Fuel Lease

In November 2013, I&M entered into a sale-and-leaseback transaction with IMP 11-2013, a nonaffiliated Ohio trust, to lease nuclear fuel for I&M’s Cook Plant.  In November 2013, I&M sold a portion of its unamortized nuclear fuel inventory to the trust for $110 million.  The lease has a variable rate based on one month LIBOR and is accounted for as a capital lease with lease terms up to 54 months.  The future payment obligations of $67 million are included in I&M’s future minimum lease payments schedule earlier in this note.  The net capital lease asset is included in Other Property, Plant and Equipment and the short-term and long-term capital lease obligations are included in Other Current Liabilities and Deferred Credits and Other Noncurrent Liabilities, respectively, on I&M’s December 31, 2014 balance sheet.  The future minimum lease payments for the sale-and-leaseback transaction as of December 31, 2014 are as follows, based on estimated fuel burn:
Future Minimum Lease Payments
 
I&M
 
 
(in thousands)
2015
 
$
32,173

2016
 
26,879

2017
 
5,760

2018
 
2,397

Total Future Minimum Lease Payments
 
$
67,209

Ohio Power Co [Member]  
Leases
LEASES

Leases of property, plant and equipment are for remaining periods up to 35 years and require payments of related property taxes, maintenance and operating costs.  The majority of the leases have purchase or renewal options and will be renewed or replaced by other leases.

Lease rentals for both operating and capital leases are generally charged to Other Operation and Maintenance expense in accordance with rate-making treatment for regulated operations.  Additionally, for regulated operations with capital leases, a capital lease asset and offsetting liability are recorded at the present value of the remaining lease payments for each reporting period.  Capital leases for nonregulated property are accounted for as if the assets were owned and financed.  The components of rental costs are as follows:
Year Ended December 31, 2014
 
APCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
(in thousands)
Net Lease Expense on Operating Leases
 
$
18,348

 
$
93,440

 
$
6,610

 
$
3,171

 
$
5,465

Amortization of Capital Leases
 
5,525

 
44,369

 
5,714

 
4,227

 
14,960

Interest on Capital Leases
 
1,012

 
2,834

 
1,189

 
747

 
7,369

Total Lease Rental Costs
 
$
24,885

 
$
140,643

 
$
13,513

 
$
8,145

 
$
27,794

Year Ended December 31, 2013
 
APCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
(in thousands)
Net Lease Expense on Operating Leases
 
$
17,500

 
$
95,606

 
$
57,814

 
$
4,131

 
$
6,328

Amortization of Capital Leases
 
6,293

 
11,307

 
7,800

 
4,099

 
15,456

Interest on Capital Leases
 
1,410

 
1,870

 
4,125

 
782

 
8,153

Total Lease Rental Costs
 
$
25,203

 
$
108,783

 
$
69,739

 
$
9,012

 
$
29,937

Year Ended December 31, 2012
 
APCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
(in thousands)
Net Lease Expense on Operating Leases
 
$
15,633

 
$
95,509

 
$
59,836

 
$
5,283

 
$
5,797

Amortization of Capital Leases
 
7,429

 
8,429

 
10,906

 
3,839

 
14,793

Interest on Capital Leases
 
1,782

 
1,738

 
3,307

 
815

 
9,041

Total Lease Rental Costs
 
$
24,844

 
$
105,676

 
$
74,049

 
$
9,937

 
$
29,631



The following table shows the property, plant and equipment under capital leases and related obligations recorded on the Registrant Subsidiaries’ balance sheets.  Unless shown as a separate line on the balance sheet due to materiality, current capital lease obligations are included in Other Current Liabilities and long-term capital lease obligations are included in Deferred Credits and Other Noncurrent Liabilities on the Registrant Subsidiaries’ balance sheets.
December 31, 2014
 
APCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
(in thousands)
Property, Plant and Equipment Under Capital Leases:
 
 
 
 
 
 
 
 
 
 
Generation
 
$
14,166

 
$
18,681

 
$

 
$
9,625

 
$
35,442

Other Property, Plant and Equipment
 
19,414

 
100,419

 
22,569

 
16,472

 
159,472

Total Property, Plant and Equipment
 
33,580

 
119,100

 
22,569

 
26,097

 
194,914

Accumulated Amortization
 
14,040

 
15,956

 
8,003

 
11,796

 
80,155

Net Property, Plant and Equipment Under Capital Leases
 
$
19,540

 
$
103,144

 
$
14,566

 
$
14,301

 
$
114,759

 
 
 
 
 
 
 
 
 
 
 
Obligations Under Capital Leases:
 
 
 
 
 
 
 
 
 
 
Noncurrent Liability
 
$
14,435

 
$
61,094

 
$
10,996

 
$
10,929

 
$
91,044

Liability Due Within One Year
 
5,105

 
42,050

 
3,570

 
3,372

 
17,557

 
 
 
 
 
 
 
 
 
 
 
Total Obligations Under Capital Leases
 
$
19,540

 
$
103,144

 
$
14,566

 
$
14,301

 
$
108,601

December 31, 2013
 
APCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
(in thousands)
Property, Plant and Equipment Under Capital Leases:
 
 
 
 
 
 
 
 
 
 
Generation
 
$
13,531

 
$
18,324

 
$

 
$
9,675

 
$
34,476

Other Property, Plant and Equipment
 
18,720

 
130,249

 
26,532

 
15,413

 
157,853

Total Property, Plant and Equipment
 
32,251

 
148,573

 
26,532

 
25,088

 
192,329

Accumulated Amortization
 
11,379

 
15,356

 
9,800

 
10,957

 
66,637

Net Property, Plant and Equipment Under Capital Leases
 
$
20,872

 
$
133,217

 
$
16,732

 
$
14,131

 
$
125,692

 
 
 
 
 
 
 
 
 
 
 
Obligations Under Capital Leases:
 
 
 
 
 
 
 
 
 
 
Noncurrent Liability
 
$
15,718

 
$
87,000

 
$
11,212

 
$
10,222

 
$
105,086

Liability Due Within One Year
 
5,154

 
46,210

 
5,520

 
3,909

 
17,899

 
 
 
 
 
 
 
 
 
 
 
Total Obligations Under Capital Leases
 
$
20,872

 
$
133,210

 
$
16,732

 
$
14,131

 
$
122,985



Future minimum lease payments consisted of the following as of December 31, 2014:
Capital Leases
 
APCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
(in thousands)
2015
 
$
5,668

 
$
42,724

 
$
4,140

 
$
4,001

 
$
23,721

2016
 
5,063

 
35,817

 
3,634

 
3,575

 
20,700

2017
 
4,171

 
11,419

 
3,381

 
3,425

 
21,863

2018
 
3,166

 
6,025

 
2,854

 
2,391

 
11,751

2019
 
1,146

 
2,718

 
747

 
1,173

 
10,463

Later Years
 
1,815

 
22,467

 
1,489

 
1,925

 
46,016

Total Future Minimum Lease Payments
 
21,029

 
121,170

 
16,245

 
16,490

 
134,514

Less Estimated Interest Element
 
1,489

 
18,026

 
1,679

 
2,189

 
25,913

Estimated Present Value of Future Minimum Lease Payments
 
$
19,540

 
$
103,144

 
$
14,566

 
$
14,301

 
$
108,601

 
 
 
 
 
 
 
 
 
 
 
Noncancelable Operating Leases
 
APCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
(in thousands)
2015
 
$
15,817

 
$
95,357

 
$
13,471

 
$
3,031

 
$
5,392

2016
 
15,101

 
89,448

 
9,575

 
2,922

 
4,679

2017
 
14,669

 
87,031

 
9,036

 
2,760

 
4,225

2018
 
13,886

 
85,858

 
7,906

 
2,391

 
3,754

2019
 
11,818

 
85,130

 
6,765

 
1,800

 
3,457

Later Years
 
42,866

 
262,263

 
24,743

 
5,094

 
14,819

Total Future Minimum Lease Payments
 
$
114,157

 
$
705,087

 
$
71,496

 
$
17,998

 
$
36,326



Master Lease Agreements

The Registrant Subsidiaries lease certain equipment under master lease agreements.  Under the 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 Subsidiaries are committed to pay the difference between the actual fair value and the residual value guarantee.  Historically, at the end of the lease term the fair value has been in excess of the unamortized balance.  As of December 31, 2014, 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:
Company
 
Maximum
Potential Loss
 
 
(in thousands)
APCo
 
$
4,026

I&M
 
2,861

OPCo
 
4,829

PSO
 
2,214

SWEPCo
 
2,774



Rockport Lease

AEGCo and I&M entered into a sale-and-leaseback transaction in 1989 with Wilmington Trust Company (Owner Trustee), an unrelated, unconsolidated trustee for Rockport Plant, Unit 2 (the Plant).  The Owner Trustee was capitalized with equity from six owner participants with no relationship to AEP or any of its subsidiaries and debt from a syndicate of banks and securities in a private placement to certain institutional investors.

The gain from the sale was deferred and is being amortized over the term of the lease, which expires in 2022.  The Owner Trustee owns the Plant and leases it equally to AEGCo and I&M.  The lease is accounted for as an operating lease with the payment obligations included in the future minimum lease payments schedule earlier in this note.  The lease term is for 33 years with potential renewal options.  At the end of the lease term, AEGCo and I&M have the option to renew the lease or the Owner Trustee can sell the Plant.  AEP, AEGCo and I&M have no ownership interest in the Owner Trustee and do not guarantee its debt.  I&M’s future minimum lease payments for this sale-and-leaseback transaction as of December 31, 2014 are as follows:
Future Minimum Lease Payments
 
I&M
 
 
(in thousands)
2015
 
$
73,854

2016
 
73,854

2017
 
73,854

2018
 
73,854

2019
 
73,854

Later Years
 
221,562

Total Future Minimum Lease Payments
 
$
590,832



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 $11 million and $13 million for I&M and SWEPCo, respectively, for the remaining railcars as of December 31, 2014.  These obligations are included in the future minimum lease payments schedule earlier in this note.

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 83% of the projected fair value of the equipment under the current five-year lease term to 77% at the end of the 20-year term.  I&M and SWEPCo have assumed the guarantee under the return-and-sale option.  The maximum potential losses related to the guarantee are approximately $9 million and $10 million for I&M and SWEPCo, respectively, 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.

Sabine Dragline Lease

During 2009, Sabine entered into capital lease arrangements with a nonaffiliated company to finance the purchase of two electric draglines to be used for Sabine’s mining operations totaling $47 million.  The amounts included in the lease represented the aggregate fair value of the existing equipment and a sale-and-leaseback transaction for additional dragline rebuild costs required to keep the dragline operational.  These capital lease assets are included in Other Property, Plant and Equipment on SWEPCo’s December 31, 2014 and 2013 balance sheets.  The short-term and long-term capital lease obligations are included in Obligations Under Capital Leases on SWEPCo’s December 31, 2014 and 2013 balance sheets.  The future payment obligations are included in SWEPCo’s future minimum lease payments schedule earlier in this note.

I&M Nuclear Fuel Lease

In November 2013, I&M entered into a sale-and-leaseback transaction with IMP 11-2013, a nonaffiliated Ohio trust, to lease nuclear fuel for I&M’s Cook Plant.  In November 2013, I&M sold a portion of its unamortized nuclear fuel inventory to the trust for $110 million.  The lease has a variable rate based on one month LIBOR and is accounted for as a capital lease with lease terms up to 54 months.  The future payment obligations of $67 million are included in I&M’s future minimum lease payments schedule earlier in this note.  The net capital lease asset is included in Other Property, Plant and Equipment and the short-term and long-term capital lease obligations are included in Other Current Liabilities and Deferred Credits and Other Noncurrent Liabilities, respectively, on I&M’s December 31, 2014 balance sheet.  The future minimum lease payments for the sale-and-leaseback transaction as of December 31, 2014 are as follows, based on estimated fuel burn:
Future Minimum Lease Payments
 
I&M
 
 
(in thousands)
2015
 
$
32,173

2016
 
26,879

2017
 
5,760

2018
 
2,397

Total Future Minimum Lease Payments
 
$
67,209

Public Service Co Of Oklahoma [Member]  
Leases
LEASES

Leases of property, plant and equipment are for remaining periods up to 35 years and require payments of related property taxes, maintenance and operating costs.  The majority of the leases have purchase or renewal options and will be renewed or replaced by other leases.

Lease rentals for both operating and capital leases are generally charged to Other Operation and Maintenance expense in accordance with rate-making treatment for regulated operations.  Additionally, for regulated operations with capital leases, a capital lease asset and offsetting liability are recorded at the present value of the remaining lease payments for each reporting period.  Capital leases for nonregulated property are accounted for as if the assets were owned and financed.  The components of rental costs are as follows:
Year Ended December 31, 2014
 
APCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
(in thousands)
Net Lease Expense on Operating Leases
 
$
18,348

 
$
93,440

 
$
6,610

 
$
3,171

 
$
5,465

Amortization of Capital Leases
 
5,525

 
44,369

 
5,714

 
4,227

 
14,960

Interest on Capital Leases
 
1,012

 
2,834

 
1,189

 
747

 
7,369

Total Lease Rental Costs
 
$
24,885

 
$
140,643

 
$
13,513

 
$
8,145

 
$
27,794

Year Ended December 31, 2013
 
APCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
(in thousands)
Net Lease Expense on Operating Leases
 
$
17,500

 
$
95,606

 
$
57,814

 
$
4,131

 
$
6,328

Amortization of Capital Leases
 
6,293

 
11,307

 
7,800

 
4,099

 
15,456

Interest on Capital Leases
 
1,410

 
1,870

 
4,125

 
782

 
8,153

Total Lease Rental Costs
 
$
25,203

 
$
108,783

 
$
69,739

 
$
9,012

 
$
29,937

Year Ended December 31, 2012
 
APCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
(in thousands)
Net Lease Expense on Operating Leases
 
$
15,633

 
$
95,509

 
$
59,836

 
$
5,283

 
$
5,797

Amortization of Capital Leases
 
7,429

 
8,429

 
10,906

 
3,839

 
14,793

Interest on Capital Leases
 
1,782

 
1,738

 
3,307

 
815

 
9,041

Total Lease Rental Costs
 
$
24,844

 
$
105,676

 
$
74,049

 
$
9,937

 
$
29,631



The following table shows the property, plant and equipment under capital leases and related obligations recorded on the Registrant Subsidiaries’ balance sheets.  Unless shown as a separate line on the balance sheet due to materiality, current capital lease obligations are included in Other Current Liabilities and long-term capital lease obligations are included in Deferred Credits and Other Noncurrent Liabilities on the Registrant Subsidiaries’ balance sheets.
December 31, 2014
 
APCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
(in thousands)
Property, Plant and Equipment Under Capital Leases:
 
 
 
 
 
 
 
 
 
 
Generation
 
$
14,166

 
$
18,681

 
$

 
$
9,625

 
$
35,442

Other Property, Plant and Equipment
 
19,414

 
100,419

 
22,569

 
16,472

 
159,472

Total Property, Plant and Equipment
 
33,580

 
119,100

 
22,569

 
26,097

 
194,914

Accumulated Amortization
 
14,040

 
15,956

 
8,003

 
11,796

 
80,155

Net Property, Plant and Equipment Under Capital Leases
 
$
19,540

 
$
103,144

 
$
14,566

 
$
14,301

 
$
114,759

 
 
 
 
 
 
 
 
 
 
 
Obligations Under Capital Leases:
 
 
 
 
 
 
 
 
 
 
Noncurrent Liability
 
$
14,435

 
$
61,094

 
$
10,996

 
$
10,929

 
$
91,044

Liability Due Within One Year
 
5,105

 
42,050

 
3,570

 
3,372

 
17,557

 
 
 
 
 
 
 
 
 
 
 
Total Obligations Under Capital Leases
 
$
19,540

 
$
103,144

 
$
14,566

 
$
14,301

 
$
108,601

December 31, 2013
 
APCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
(in thousands)
Property, Plant and Equipment Under Capital Leases:
 
 
 
 
 
 
 
 
 
 
Generation
 
$
13,531

 
$
18,324

 
$

 
$
9,675

 
$
34,476

Other Property, Plant and Equipment
 
18,720

 
130,249

 
26,532

 
15,413

 
157,853

Total Property, Plant and Equipment
 
32,251

 
148,573

 
26,532

 
25,088

 
192,329

Accumulated Amortization
 
11,379

 
15,356

 
9,800

 
10,957

 
66,637

Net Property, Plant and Equipment Under Capital Leases
 
$
20,872

 
$
133,217

 
$
16,732

 
$
14,131

 
$
125,692

 
 
 
 
 
 
 
 
 
 
 
Obligations Under Capital Leases:
 
 
 
 
 
 
 
 
 
 
Noncurrent Liability
 
$
15,718

 
$
87,000

 
$
11,212

 
$
10,222

 
$
105,086

Liability Due Within One Year
 
5,154

 
46,210

 
5,520

 
3,909

 
17,899

 
 
 
 
 
 
 
 
 
 
 
Total Obligations Under Capital Leases
 
$
20,872

 
$
133,210

 
$
16,732

 
$
14,131

 
$
122,985



Future minimum lease payments consisted of the following as of December 31, 2014:
Capital Leases
 
APCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
(in thousands)
2015
 
$
5,668

 
$
42,724

 
$
4,140

 
$
4,001

 
$
23,721

2016
 
5,063

 
35,817

 
3,634

 
3,575

 
20,700

2017
 
4,171

 
11,419

 
3,381

 
3,425

 
21,863

2018
 
3,166

 
6,025

 
2,854

 
2,391

 
11,751

2019
 
1,146

 
2,718

 
747

 
1,173

 
10,463

Later Years
 
1,815

 
22,467

 
1,489

 
1,925

 
46,016

Total Future Minimum Lease Payments
 
21,029

 
121,170

 
16,245

 
16,490

 
134,514

Less Estimated Interest Element
 
1,489

 
18,026

 
1,679

 
2,189

 
25,913

Estimated Present Value of Future Minimum Lease Payments
 
$
19,540

 
$
103,144

 
$
14,566

 
$
14,301

 
$
108,601

 
 
 
 
 
 
 
 
 
 
 
Noncancelable Operating Leases
 
APCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
(in thousands)
2015
 
$
15,817

 
$
95,357

 
$
13,471

 
$
3,031

 
$
5,392

2016
 
15,101

 
89,448

 
9,575

 
2,922

 
4,679

2017
 
14,669

 
87,031

 
9,036

 
2,760

 
4,225

2018
 
13,886

 
85,858

 
7,906

 
2,391

 
3,754

2019
 
11,818

 
85,130

 
6,765

 
1,800

 
3,457

Later Years
 
42,866

 
262,263

 
24,743

 
5,094

 
14,819

Total Future Minimum Lease Payments
 
$
114,157

 
$
705,087

 
$
71,496

 
$
17,998

 
$
36,326



Master Lease Agreements

The Registrant Subsidiaries lease certain equipment under master lease agreements.  Under the 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 Subsidiaries are committed to pay the difference between the actual fair value and the residual value guarantee.  Historically, at the end of the lease term the fair value has been in excess of the unamortized balance.  As of December 31, 2014, 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:
Company
 
Maximum
Potential Loss
 
 
(in thousands)
APCo
 
$
4,026

I&M
 
2,861

OPCo
 
4,829

PSO
 
2,214

SWEPCo
 
2,774



Rockport Lease

AEGCo and I&M entered into a sale-and-leaseback transaction in 1989 with Wilmington Trust Company (Owner Trustee), an unrelated, unconsolidated trustee for Rockport Plant, Unit 2 (the Plant).  The Owner Trustee was capitalized with equity from six owner participants with no relationship to AEP or any of its subsidiaries and debt from a syndicate of banks and securities in a private placement to certain institutional investors.

The gain from the sale was deferred and is being amortized over the term of the lease, which expires in 2022.  The Owner Trustee owns the Plant and leases it equally to AEGCo and I&M.  The lease is accounted for as an operating lease with the payment obligations included in the future minimum lease payments schedule earlier in this note.  The lease term is for 33 years with potential renewal options.  At the end of the lease term, AEGCo and I&M have the option to renew the lease or the Owner Trustee can sell the Plant.  AEP, AEGCo and I&M have no ownership interest in the Owner Trustee and do not guarantee its debt.  I&M’s future minimum lease payments for this sale-and-leaseback transaction as of December 31, 2014 are as follows:
Future Minimum Lease Payments
 
I&M
 
 
(in thousands)
2015
 
$
73,854

2016
 
73,854

2017
 
73,854

2018
 
73,854

2019
 
73,854

Later Years
 
221,562

Total Future Minimum Lease Payments
 
$
590,832



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 $11 million and $13 million for I&M and SWEPCo, respectively, for the remaining railcars as of December 31, 2014.  These obligations are included in the future minimum lease payments schedule earlier in this note.

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 83% of the projected fair value of the equipment under the current five-year lease term to 77% at the end of the 20-year term.  I&M and SWEPCo have assumed the guarantee under the return-and-sale option.  The maximum potential losses related to the guarantee are approximately $9 million and $10 million for I&M and SWEPCo, respectively, 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.

Sabine Dragline Lease

During 2009, Sabine entered into capital lease arrangements with a nonaffiliated company to finance the purchase of two electric draglines to be used for Sabine’s mining operations totaling $47 million.  The amounts included in the lease represented the aggregate fair value of the existing equipment and a sale-and-leaseback transaction for additional dragline rebuild costs required to keep the dragline operational.  These capital lease assets are included in Other Property, Plant and Equipment on SWEPCo’s December 31, 2014 and 2013 balance sheets.  The short-term and long-term capital lease obligations are included in Obligations Under Capital Leases on SWEPCo’s December 31, 2014 and 2013 balance sheets.  The future payment obligations are included in SWEPCo’s future minimum lease payments schedule earlier in this note.

I&M Nuclear Fuel Lease

In November 2013, I&M entered into a sale-and-leaseback transaction with IMP 11-2013, a nonaffiliated Ohio trust, to lease nuclear fuel for I&M’s Cook Plant.  In November 2013, I&M sold a portion of its unamortized nuclear fuel inventory to the trust for $110 million.  The lease has a variable rate based on one month LIBOR and is accounted for as a capital lease with lease terms up to 54 months.  The future payment obligations of $67 million are included in I&M’s future minimum lease payments schedule earlier in this note.  The net capital lease asset is included in Other Property, Plant and Equipment and the short-term and long-term capital lease obligations are included in Other Current Liabilities and Deferred Credits and Other Noncurrent Liabilities, respectively, on I&M’s December 31, 2014 balance sheet.  The future minimum lease payments for the sale-and-leaseback transaction as of December 31, 2014 are as follows, based on estimated fuel burn:
Future Minimum Lease Payments
 
I&M
 
 
(in thousands)
2015
 
$
32,173

2016
 
26,879

2017
 
5,760

2018
 
2,397

Total Future Minimum Lease Payments
 
$
67,209

Southwestern Electric Power Co [Member]  
Leases
LEASES

Leases of property, plant and equipment are for remaining periods up to 35 years and require payments of related property taxes, maintenance and operating costs.  The majority of the leases have purchase or renewal options and will be renewed or replaced by other leases.

Lease rentals for both operating and capital leases are generally charged to Other Operation and Maintenance expense in accordance with rate-making treatment for regulated operations.  Additionally, for regulated operations with capital leases, a capital lease asset and offsetting liability are recorded at the present value of the remaining lease payments for each reporting period.  Capital leases for nonregulated property are accounted for as if the assets were owned and financed.  The components of rental costs are as follows:
Year Ended December 31, 2014
 
APCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
(in thousands)
Net Lease Expense on Operating Leases
 
$
18,348

 
$
93,440

 
$
6,610

 
$
3,171

 
$
5,465

Amortization of Capital Leases
 
5,525

 
44,369

 
5,714

 
4,227

 
14,960

Interest on Capital Leases
 
1,012

 
2,834

 
1,189

 
747

 
7,369

Total Lease Rental Costs
 
$
24,885

 
$
140,643

 
$
13,513

 
$
8,145

 
$
27,794

Year Ended December 31, 2013
 
APCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
(in thousands)
Net Lease Expense on Operating Leases
 
$
17,500

 
$
95,606

 
$
57,814

 
$
4,131

 
$
6,328

Amortization of Capital Leases
 
6,293

 
11,307

 
7,800

 
4,099

 
15,456

Interest on Capital Leases
 
1,410

 
1,870

 
4,125

 
782

 
8,153

Total Lease Rental Costs
 
$
25,203

 
$
108,783

 
$
69,739

 
$
9,012

 
$
29,937

Year Ended December 31, 2012
 
APCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
(in thousands)
Net Lease Expense on Operating Leases
 
$
15,633

 
$
95,509

 
$
59,836

 
$
5,283

 
$
5,797

Amortization of Capital Leases
 
7,429

 
8,429

 
10,906

 
3,839

 
14,793

Interest on Capital Leases
 
1,782

 
1,738

 
3,307

 
815

 
9,041

Total Lease Rental Costs
 
$
24,844

 
$
105,676

 
$
74,049

 
$
9,937

 
$
29,631



The following table shows the property, plant and equipment under capital leases and related obligations recorded on the Registrant Subsidiaries’ balance sheets.  Unless shown as a separate line on the balance sheet due to materiality, current capital lease obligations are included in Other Current Liabilities and long-term capital lease obligations are included in Deferred Credits and Other Noncurrent Liabilities on the Registrant Subsidiaries’ balance sheets.
December 31, 2014
 
APCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
(in thousands)
Property, Plant and Equipment Under Capital Leases:
 
 
 
 
 
 
 
 
 
 
Generation
 
$
14,166

 
$
18,681

 
$

 
$
9,625

 
$
35,442

Other Property, Plant and Equipment
 
19,414

 
100,419

 
22,569

 
16,472

 
159,472

Total Property, Plant and Equipment
 
33,580

 
119,100

 
22,569

 
26,097

 
194,914

Accumulated Amortization
 
14,040

 
15,956

 
8,003

 
11,796

 
80,155

Net Property, Plant and Equipment Under Capital Leases
 
$
19,540

 
$
103,144

 
$
14,566

 
$
14,301

 
$
114,759

 
 
 
 
 
 
 
 
 
 
 
Obligations Under Capital Leases:
 
 
 
 
 
 
 
 
 
 
Noncurrent Liability
 
$
14,435

 
$
61,094

 
$
10,996

 
$
10,929

 
$
91,044

Liability Due Within One Year
 
5,105

 
42,050

 
3,570

 
3,372

 
17,557

 
 
 
 
 
 
 
 
 
 
 
Total Obligations Under Capital Leases
 
$
19,540

 
$
103,144

 
$
14,566

 
$
14,301

 
$
108,601

December 31, 2013
 
APCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
(in thousands)
Property, Plant and Equipment Under Capital Leases:
 
 
 
 
 
 
 
 
 
 
Generation
 
$
13,531

 
$
18,324

 
$

 
$
9,675

 
$
34,476

Other Property, Plant and Equipment
 
18,720

 
130,249

 
26,532

 
15,413

 
157,853

Total Property, Plant and Equipment
 
32,251

 
148,573

 
26,532

 
25,088

 
192,329

Accumulated Amortization
 
11,379

 
15,356

 
9,800

 
10,957

 
66,637

Net Property, Plant and Equipment Under Capital Leases
 
$
20,872

 
$
133,217

 
$
16,732

 
$
14,131

 
$
125,692

 
 
 
 
 
 
 
 
 
 
 
Obligations Under Capital Leases:
 
 
 
 
 
 
 
 
 
 
Noncurrent Liability
 
$
15,718

 
$
87,000

 
$
11,212

 
$
10,222

 
$
105,086

Liability Due Within One Year
 
5,154

 
46,210

 
5,520

 
3,909

 
17,899

 
 
 
 
 
 
 
 
 
 
 
Total Obligations Under Capital Leases
 
$
20,872

 
$
133,210

 
$
16,732

 
$
14,131

 
$
122,985



Future minimum lease payments consisted of the following as of December 31, 2014:
Capital Leases
 
APCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
(in thousands)
2015
 
$
5,668

 
$
42,724

 
$
4,140

 
$
4,001

 
$
23,721

2016
 
5,063

 
35,817

 
3,634

 
3,575

 
20,700

2017
 
4,171

 
11,419

 
3,381

 
3,425

 
21,863

2018
 
3,166

 
6,025

 
2,854

 
2,391

 
11,751

2019
 
1,146

 
2,718

 
747

 
1,173

 
10,463

Later Years
 
1,815

 
22,467

 
1,489

 
1,925

 
46,016

Total Future Minimum Lease Payments
 
21,029

 
121,170

 
16,245

 
16,490

 
134,514

Less Estimated Interest Element
 
1,489

 
18,026

 
1,679

 
2,189

 
25,913

Estimated Present Value of Future Minimum Lease Payments
 
$
19,540

 
$
103,144

 
$
14,566

 
$
14,301

 
$
108,601

 
 
 
 
 
 
 
 
 
 
 
Noncancelable Operating Leases
 
APCo
 
I&M
 
OPCo
 
PSO
 
SWEPCo
 
 
(in thousands)
2015
 
$
15,817

 
$
95,357

 
$
13,471

 
$
3,031

 
$
5,392

2016
 
15,101

 
89,448

 
9,575

 
2,922

 
4,679

2017
 
14,669

 
87,031

 
9,036

 
2,760

 
4,225

2018
 
13,886

 
85,858

 
7,906

 
2,391

 
3,754

2019
 
11,818

 
85,130

 
6,765

 
1,800

 
3,457

Later Years
 
42,866

 
262,263

 
24,743

 
5,094

 
14,819

Total Future Minimum Lease Payments
 
$
114,157

 
$
705,087

 
$
71,496

 
$
17,998

 
$
36,326



Master Lease Agreements

The Registrant Subsidiaries lease certain equipment under master lease agreements.  Under the 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 Subsidiaries are committed to pay the difference between the actual fair value and the residual value guarantee.  Historically, at the end of the lease term the fair value has been in excess of the unamortized balance.  As of December 31, 2014, 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:
Company
 
Maximum
Potential Loss
 
 
(in thousands)
APCo
 
$
4,026

I&M
 
2,861

OPCo
 
4,829

PSO
 
2,214

SWEPCo
 
2,774



Rockport Lease

AEGCo and I&M entered into a sale-and-leaseback transaction in 1989 with Wilmington Trust Company (Owner Trustee), an unrelated, unconsolidated trustee for Rockport Plant, Unit 2 (the Plant).  The Owner Trustee was capitalized with equity from six owner participants with no relationship to AEP or any of its subsidiaries and debt from a syndicate of banks and securities in a private placement to certain institutional investors.

The gain from the sale was deferred and is being amortized over the term of the lease, which expires in 2022.  The Owner Trustee owns the Plant and leases it equally to AEGCo and I&M.  The lease is accounted for as an operating lease with the payment obligations included in the future minimum lease payments schedule earlier in this note.  The lease term is for 33 years with potential renewal options.  At the end of the lease term, AEGCo and I&M have the option to renew the lease or the Owner Trustee can sell the Plant.  AEP, AEGCo and I&M have no ownership interest in the Owner Trustee and do not guarantee its debt.  I&M’s future minimum lease payments for this sale-and-leaseback transaction as of December 31, 2014 are as follows:
Future Minimum Lease Payments
 
I&M
 
 
(in thousands)
2015
 
$
73,854

2016
 
73,854

2017
 
73,854

2018
 
73,854

2019
 
73,854

Later Years
 
221,562

Total Future Minimum Lease Payments
 
$
590,832



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 $11 million and $13 million for I&M and SWEPCo, respectively, for the remaining railcars as of December 31, 2014.  These obligations are included in the future minimum lease payments schedule earlier in this note.

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 83% of the projected fair value of the equipment under the current five-year lease term to 77% at the end of the 20-year term.  I&M and SWEPCo have assumed the guarantee under the return-and-sale option.  The maximum potential losses related to the guarantee are approximately $9 million and $10 million for I&M and SWEPCo, respectively, 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.

Sabine Dragline Lease

During 2009, Sabine entered into capital lease arrangements with a nonaffiliated company to finance the purchase of two electric draglines to be used for Sabine’s mining operations totaling $47 million.  The amounts included in the lease represented the aggregate fair value of the existing equipment and a sale-and-leaseback transaction for additional dragline rebuild costs required to keep the dragline operational.  These capital lease assets are included in Other Property, Plant and Equipment on SWEPCo’s December 31, 2014 and 2013 balance sheets.  The short-term and long-term capital lease obligations are included in Obligations Under Capital Leases on SWEPCo’s December 31, 2014 and 2013 balance sheets.  The future payment obligations are included in SWEPCo’s future minimum lease payments schedule earlier in this note.

I&M Nuclear Fuel Lease

In November 2013, I&M entered into a sale-and-leaseback transaction with IMP 11-2013, a nonaffiliated Ohio trust, to lease nuclear fuel for I&M’s Cook Plant.  In November 2013, I&M sold a portion of its unamortized nuclear fuel inventory to the trust for $110 million.  The lease has a variable rate based on one month LIBOR and is accounted for as a capital lease with lease terms up to 54 months.  The future payment obligations of $67 million are included in I&M’s future minimum lease payments schedule earlier in this note.  The net capital lease asset is included in Other Property, Plant and Equipment and the short-term and long-term capital lease obligations are included in Other Current Liabilities and Deferred Credits and Other Noncurrent Liabilities, respectively, on I&M’s December 31, 2014 balance sheet.  The future minimum lease payments for the sale-and-leaseback transaction as of December 31, 2014 are as follows, based on estimated fuel burn:
Future Minimum Lease Payments
 
I&M
 
 
(in thousands)
2015
 
$
32,173

2016
 
26,879

2017
 
5,760

2018
 
2,397

Total Future Minimum Lease Payments
 
$
67,209