The Registrants are exposed to certain market risks as major power producers and participants in the electricity, capacity, natural gas, coal and emission allowance markets. These risks include commodity price risks which may be subject to capacity risk, interest rate risk and credit risk. These risks represent the risk of loss that may impact the Registrants due to changes in the underlying market prices or rates. Management utilizes derivative instruments to manage these risks.

The strategy surrounding the use of derivative instruments primarily focuses on managing risk exposures, future cash flows and creating value utilizing both economic and formal hedging strategies. The risk management strategies also include the use of derivative instruments for trading purposes which focus on seizing market opportunities to create value driven by expected changes in the market prices of the commodities. To accomplish these objectives, the Registrants primarily employ risk management contracts including physical and financial forward purchase-and-sale contracts and, to a lesser extent, OTC swaps and options. 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.

The Registrants utilize power, capacity, coal, natural gas, interest rate and, to a lesser extent, heating oil, gasoline and other commodity contracts to manage the risk associated with the energy business. The Registrants utilize interest rate derivative contracts in order to manage the interest rate exposure associated with the commodity portfolio. For disclosure purposes, such risks are grouped as “Commodity,” as these risks are related to energy risk management activities. The Registrants also utilize derivative contracts to manage interest rate risk associated with debt financing. For disclosure purposes, these risks are grouped as “Interest Rate.” The amount of risk taken is determined by the Commercial Operations, Energy Supply and Finance groups in accordance with established risk management policies as approved by the Finance Committee of the Board of Directors.



Primary Risk Exposure	Unit of Measure	AEP		AEP Texas		APCo		I&M		OPCo		PSO		SWEPCo
		(in millions)
Commodity:
Power	MWhs	365.9		—		61.0		26.8		7.1		14.9		4.4
Natural Gas	MMBtus	40.7		—		—		—		—		—		11.6
Heating Oil and Gasoline	Gallons	6.9		1.8		1.1		0.6		1.4		0.7		0.9
Interest Rate	USD	$	140.1	$	—	$	—	$	—	$	—	$	—	$	—

Interest Rate on Long-term Debt	USD	$	625.0	$	—	$	—	$	—	$	—	$	—	$	—



Primary Risk Exposure	Unit of Measure	AEP		AEP Texas		APCo		I&M		OPCo		PSO		SWEPCo
		(in millions)
Commodity:
Power	MWhs	371.1		—		66.4		40.9		7.8		15.2		4.5
Natural Gas	MMBtus	87.9		—		4.0		2.3		—		—		15.2
Heating Oil and Gasoline	Gallons	7.4		1.5		1.4		0.7		1.8		0.7		0.8
Interest Rate	USD	$	37.7	$	—	$	—	$	—	$	—	$	—	$	—

Interest Rate on Long-term Debt	USD	$	500.0	$	—	$	—	$	—	$	—	$	—	$	—

Parent 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 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 may be designated as fair value hedges.

The Registrants utilize cash flow hedges on certain derivative transactions for the purchase and sale of power (“Commodity”) in order to manage the variable price risk related to forecasted purchases and sales. Management 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 purchases. The Registrants do not hedge all commodity price risk.

The Registrants utilize a variety of interest rate derivative transactions in order to manage interest rate risk exposure. The Registrants also utilize interest rate derivative contracts to manage interest rate exposure related to future borrowings of fixed-rate debt. The Registrants do not hedge all interest rate exposure.

The accounting guidance for “Derivatives and Hedging” requires recognition of all qualifying derivative instruments as either assets or liabilities on the balance sheets 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 Registrants 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.

According to the accounting guidance for “Derivatives and Hedging,” the Registrants 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 Registrants are required to post or receive cash collateral based on third-party contractual agreements and risk profiles. AEP netted cash collateral received from third-parties against short-term and long-term risk management assets in the amounts of $5 million and $18 million as of December 31, 2019 and 2018, respectively. AEP netted cash collateral paid to third-parties against short-term and long-term risk management liabilities in the amounts of $39 million and $4 million as of December 31, 2019 and 2018, respectively. The netted cash collateral from third-parties against short-term and long-term risk management assets and netted cash collateral paid to third-parties against short-term and long-term risk management liabilities were immaterial for the other Registrants as of December 31, 2019 and 2018.



	Risk Management Contracts		Hedging Contracts					Gross Amounts of Risk Management Assets/ Liabilities Recognized		Gross Amounts Offset in the Statement of Financial Position (b)			Net Amounts of Assets/Liabilities Presented in the Statement of Financial Position (c)
Balance Sheet Location	Commodity (a)		Commodity (a)			Interest Rate (a)
	(in millions)
Current Risk Management Assets	$	513.9	$	11.5		$	6.5	$	531.9	$	(359.1	)	$	172.8
Long-term Risk Management Assets	290.8		11.0			12.6		314.4		(47.8		)	266.6
Total Assets	804.7		22.5			19.1		846.3		(406.9		)	439.4

Current Risk Management Liabilities	424.5		72.3			—		496.8		(382.5		)	114.3
Long-term Risk Management Liabilities	244.5		75.7			—		320.2		(58.4		)	261.8
Total Liabilities	669.0		148.0			—		817.0		(440.9		)	376.1

Total MTM Derivative Contract Net Assets (Liabilities)	$	135.7	$	(125.5	)	$	19.1	$	29.3	$	34.0		$	63.3



	Risk Management Contracts		Hedging Contracts						Gross Amounts of Risk Management Assets/ Liabilities Recognized		Gross Amounts Offset in the Statement of Financial Position (b)			Net Amounts of Assets/Liabilities Presented in the Statement of Financial Position (c)
Balance Sheet Location	Commodity (a)		Commodity (a)			Interest Rate (a)
	(in millions)
Current Risk Management Assets	$	397.5	$	28.5		$	—		$	426.0	$	(263.2	)	$	162.8
Long-term Risk Management Assets	276.4		16.0			—			292.4		(38.4		)	254.0
Total Assets	673.9		44.5			—			718.4		(301.6		)	416.8

Current Risk Management Liabilities	293.8		13.2			2.0			309.0		(254.0		)	55.0
Long-term Risk Management Liabilities	225.7		56.1			15.4			297.2		(33.8		)	263.4
Total Liabilities	519.5		69.3			17.4			606.2		(287.8		)	318.4

Total MTM Derivative Contract Net Assets (Liabilities)	$	154.4	$	(24.8	)	$	(17.4	)	$	112.2	$	(13.8	)	$	98.4

Risk Management

Gross Amounts Offset

Net Amounts of Assets/Liabilities

Contracts -

in the Statement of

Presented in the Statement

Balance Sheet Location

Commodity (a)

Financial Position (b)

of Financial Position (c)

(in millions)

Current Risk Management Assets

—

Long-term Risk Management Assets

—

Total Assets

—

Current Risk Management Liabilities

—

Long-term Risk Management Liabilities

—

Total Liabilities

—

Total MTM Derivative Contract Net Assets

—



	Risk Management			Gross Amounts Offset			Net Amounts of Assets/Liabilities
	Contracts -			in the Statement of			Presented in the Statement
Balance Sheet Location	Commodity (a)			Financial Position (b)			of Financial Position (c)
	(in millions)
Current Risk Management Assets	$	—		$	—		$	—
Long-term Risk Management Assets	—			—			—
Total Assets	—			—			—

Current Risk Management Liabilities	0.7			(0.5		)	0.2
Long-term Risk Management Liabilities	—			—			—
Total Liabilities	0.7			(0.5		)	0.2

Total MTM Derivative Contract Net Assets (Liabilities)	$	(0.7	)	$	0.5		$	(0.2	)



	Risk Management		Gross Amounts Offset			Net Amounts of Assets/Liabilities
	Contracts -		in the Statement of			Presented in the Statement
Balance Sheet Location	Commodity (a)		Financial Position (b)			of Financial Position (c)
	(in millions)
Current Risk Management Assets	$	124.4	$	(85.0	)	$	39.4
Long-term Risk Management Assets	0.9		(0.8		)	0.1
Total Assets	125.3		(85.8		)	39.5

Current Risk Management Liabilities	86.2		(84.3		)	1.9
Long-term Risk Management Liabilities	0.7		(0.7		)	—
Total Liabilities	86.9		(85.0		)	1.9

Total MTM Derivative Contract Net Assets (Liabilities)	$	38.4	$	(0.8	)	$	37.6



	Risk Management		Gross Amounts Offset			Net Amounts of Assets/Liabilities
	Contracts -		in the Statement of			Presented in the Statement
Balance Sheet Location	Commodity (a)		Financial Position (b)			of Financial Position (c)
	(in millions)
Current Risk Management Assets	$	114.4	$	(57.2	)	$	57.2
Long-term Risk Management Assets	3.1		(2.2		)	0.9
Total Assets	117.5		(59.4		)	58.1

Current Risk Management Liabilities	56.7		(56.3		)	0.4
Long-term Risk Management Liabilities	2.4		(2.2		)	0.2
Total Liabilities	59.1		(58.5		)	0.6

Total MTM Derivative Contract Net Assets (Liabilities)	$	58.4	$	(0.9	)	$	57.5



	Risk Management		Gross Amounts Offset			Net Amounts of Assets/Liabilities
	Contracts -		in the Statement of			Presented in the Statement
Balance Sheet Location	Commodity (a)		Financial Position (b)			of Financial Position (c)
	(in millions)
Current Risk Management Assets	$	66.9	$	(57.1	)	$	9.8
Long-term Risk Management Assets	0.5		(0.4		)	0.1
Total Assets	67.4		(57.5		)	9.9

Current Risk Management Liabilities	55.2		(54.7		)	0.5
Long-term Risk Management Liabilities	0.4		(0.4		)	—
Total Liabilities	55.6		(55.1		)	0.5

Total MTM Derivative Contract Net Assets (Liabilities)	$	11.8	$	(2.4	)	$	9.4



	Risk Management		Gross Amounts Offset			Net Amounts of Assets/Liabilities
	Contracts -		in the Statement of			Presented in the Statement
Balance Sheet Location	Commodity (a)		Financial Position (b)			of Financial Position (c)
	(in millions)
Current Risk Management Assets	$	50.4	$	(41.8	)	$	8.6
Long-term Risk Management Assets	2.0		(1.4		)	0.6
Total Assets	52.4		(43.2		)	9.2

Current Risk Management Liabilities	41.1		(40.8		)	0.3
Long-term Risk Management Liabilities	1.6		(1.5		)	0.1
Total Liabilities	42.7		(42.3		)	0.4

Total MTM Derivative Contract Net Assets (Liabilities)	$	9.7	$	(0.9	)	$	8.8



	Risk Management			Gross Amounts Offset		Net Amounts of Assets/Liabilities
	Contracts -			in the Statement of		Presented in the Statement
Balance Sheet Location	Commodity (a)			Financial Position (b)		of Financial Position (c)
	(in millions)
Current Risk Management Assets	$	—		$	—	$	—
Long-term Risk Management Assets	—			—		—
Total Assets	—			—		—

Current Risk Management Liabilities	7.3			—		7.3
Long-term Risk Management Liabilities	96.3			—		96.3
Total Liabilities	103.6			—		103.6

Total MTM Derivative Contract Net Liabilities	$	(103.6	)	$	—	$	(103.6	)



	Risk Management			Gross Amounts Offset			Net Amounts of Assets/Liabilities
	Contracts -			in the Statement of			Presented in the Statement
Balance Sheet Location	Commodity (a)			Financial Position (b)			of Financial Position (c)
	(in millions)
Current Risk Management Assets	$	—		$	—		$	—
Long-term Risk Management Assets	—			—			—
Total Assets	—			—			—

Current Risk Management Liabilities	6.4			(0.6		)	5.8
Long-term Risk Management Liabilities	93.8			—			93.8
Total Liabilities	100.2			(0.6		)	99.6

Total MTM Derivative Contract Net Assets (Liabilities)	$	(100.2	)	$	0.6		$	(99.6	)



	Risk Management		Gross Amounts Offset			Net Amounts of Assets/Liabilities
	Contracts -		in the Statement of			Presented in the Statement
Balance Sheet Location	Commodity (a)		Financial Position (b)			of Financial Position (c)
	(in millions)
Current Risk Management Assets	$	16.3	$	(0.5	)	$	15.8
Long-term Risk Management Assets	—		—			—
Total Assets	16.3		(0.5		)	15.8

Current Risk Management Liabilities	0.5		(0.5		)	—
Long-term Risk Management Liabilities	—		—			—
Total Liabilities	0.5		(0.5		)	—

Total MTM Derivative Contract Net Assets	$	15.8	$	—		$	15.8



	Risk Management		Gross Amounts Offset			Net Amounts of Assets/Liabilities
	Contracts -		in the Statement of			Presented in the Statement
Balance Sheet Location	Commodity (a)		Financial Position (b)			of Financial Position (c)
	(in millions)
Current Risk Management Assets	$	10.9	$	(0.5	)	$	10.4
Long-term Risk Management Assets	—		—			—
Total Assets	10.9		(0.5		)	10.4

Current Risk Management Liabilities	1.7		(0.7		)	1.0
Long-term Risk Management Liabilities	—		—			—
Total Liabilities	1.7		(0.7		)	1.0

Total MTM Derivative Contract Net Assets	$	9.2	$	0.2		$	9.4



	Risk Management		Gross Amounts Offset			Net Amounts of Assets/Liabilities
	Contracts -		in the Statement of			Presented in the Statement
Balance Sheet Location	Commodity (a)		Financial Position (b)			of Financial Position (c)
	(in millions)
Current Risk Management Assets	$	6.5	$	(0.1	)	$	6.4
Long-term Risk Management Assets	—		—			—
Total Assets	6.5		(0.1		)	6.4

Current Risk Management Liabilities	2.0		(0.1		)	1.9
Long-term Risk Management Liabilities	3.1		—			3.1
Total Liabilities	5.1		(0.1		)	5.0

Total MTM Derivative Contract Net Assets	$	1.4	$	—		$	1.4



	Risk Management		Gross Amounts Offset			Net Amounts of Assets/Liabilities
	Contracts -		in the Statement of			Presented in the Statement
Balance Sheet Location	Commodity (a)		Financial Position (b)			of Financial Position (c)
	(in millions)
Current Risk Management Assets	$	5.6	$	(0.8	)	$	4.8
Long-term Risk Management Assets	—		—			—
Total Assets	5.6		(0.8		)	4.8

Current Risk Management Liabilities	1.5		(1.1		)	0.4
Long-term Risk Management Liabilities	2.2		—			2.2
Total Liabilities	3.7		(1.1		)	2.6

Total MTM Derivative Contract Net Assets	$	1.9	$	0.3		$	2.2



Location of Gain (Loss)	AEP			AEP Texas			APCo			I&M			OPCo			PSO			SWEPCo
	(in millions)
Vertically Integrated Utilities Revenues	$	0.7		$	—		$	—		$	—		$	—		$	—		$	—
Generation & Marketing Revenues	25.1			—			—			—			—			—			—
Electric Generation, Transmission and Distribution Revenues	—			—			0.1			0.5			—			—			0.1
Purchased Electricity for Resale	1.9			—			1.6			0.1			—			—			—
Other Operation	(0.8		)	(0.2		)	(0.1		)	(0.1		)	(0.2		)	(0.1		)	(0.1		)
Maintenance	(0.8		)	(0.2		)	(0.2		)	(0.1		)	(0.2		)	(0.1		)	(0.1		)
Regulatory Assets (a)	(3.7		)	0.7			0.3			0.3			(3.7		)	1.2			(1.5		)
Regulatory Liabilities (a)	102.6			—			2.4			24.5			10.1			34.6			26.6
Total Gain on Risk Management Contracts	$	125.0		$	0.3		$	4.1		$	25.2		$	6.0		$	35.6		$	25.0



Location of Gain (Loss)	AEP			AEP Texas			APCo			I&M			OPCo		PSO			SWEPCo
	(in millions)
Vertically Integrated Utilities Revenues	$	(10.4	)	$	—		$	—		$	—		$	—	$	—		$	—
Generation & Marketing Revenues	38.9			—			—			—			—		—			—
Electric Generation, Transmission and Distribution Revenues	—			—			(1.9		)	(8.2		)	—		—			0.1
Purchased Electricity for Resale	8.6			—			7.6			0.8			—		—			—
Other Operation	1.7			0.4			0.2			0.2			0.3		0.2			0.2
Maintenance	1.9			0.4			0.4			0.2			0.4		0.2			0.2
Regulatory Assets (a)	27.9			(0.7		)	(0.7		)	7.1			24.9		(1.1		)	(1.2		)
Regulatory Liabilities (a)	222.7			(0.5		)	135.5			11.6			—		37.3			11.9
Total Gain (Loss) on Risk Management Contracts	$	291.3		$	(0.4	)	$	141.1		$	11.7		$	25.6	$	36.6		$	11.2



Location of Gain (Loss)	AEP			AEP Texas		APCo		I&M			OPCo			PSO		SWEPCo
	(in millions)
Vertically Integrated Utilities Revenues	$	6.1		$	—	$	—	$	—		$	—		$	—	$	—
Generation & Marketing Revenues	42.8			—		—		—			—			—		—
Electric Generation, Transmission and Distribution Revenues	—			—		0.6		5.3			—			—		0.1
Purchased Electricity for Resale	5.6			—		2.0		0.6			—			—		—
Other Operation	0.8			0.1		0.1		0.1			0.1			0.1		0.1
Maintenance	0.7			0.2		0.1		0.1			0.1			0.1		0.1
Regulatory Assets (a)	(29.4		)	—		—		(7.4		)	(22.0		)	—		0.3
Regulatory Liabilities (a)	109.4			0.1		40.4		15.9			—			24.8		24.3
Total Gain (Loss) on Risk Management Contracts	$	136.0		$	0.4	$	43.2	$	14.6		$	(21.8	)	$	25.0	$	24.9

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 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 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 statements of income depending on the relevant facts and circumstances. Certain derivatives that economically hedge future commodity risk are recorded in the same expense line item on the statements of income as that of the associated risk. 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 gains) in accordance with the accounting guidance for “Regulated Operations.”

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.

AEP records realized and unrealized gains or losses on interest rate swaps that are designated and 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 statements of income.



	Carrying Amount of the Hedged Assets/(Liabilities)						Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets/(Liabilities)
	December 31, 2019			December 31, 2018			December 31, 2019			December 31, 2018
	(in millions)
Long-term Debt (a)	$	(510.8	)	$	(478.3	)	$	(14.5	)	$	17.4



	Twelve Months Ended December 31,
	2019			2018			2017
	(in millions)
Gain (Loss) on Interest Rate Contracts:
Gain (Loss) on Fair Value Hedging Instruments (a)	$	31.9		$	(11.3	)	$	(4.8	)
Gain (Loss) on Fair Value Portion of Long-term Debt (a)	(31.9		)	11.3			4.8

For cash flow hedges (i.e. hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the Registrants initially report the gain or loss on the derivative instrument as a component of Accumulated Other Comprehensive Income (Loss) on the balance sheets until the period the hedged item affects net income.

Realized gains and losses on derivative contracts for the purchase and sale of power designated as cash flow hedges are included in Total Revenues or Purchased Electricity for Resale on the statements of income or in Regulatory Assets or Regulatory Liabilities on the balance sheets, depending on the specific nature of the risk being hedged. During the years ended 2019, 2018 and 2017, AEP applied cash flow hedging to outstanding power derivatives. During the years ended 2019, 2018 and 2017, the Registrant Subsidiaries did not apply cash flow hedging to outstanding power derivatives.

The Registrants reclassify gains and losses on interest rate derivative hedges related to debt financings from Accumulated Other Comprehensive Income (Loss) on the balance sheets into Interest Expense on the statements of income in those periods in which hedged interest payments occur. During the years ended 2019, 2018 and 2017, AEP applied cash flow hedging to outstanding interest rate derivatives. During the years ended 2019 and 2017, the Registrant Subsidiaries did not apply cash flow hedging to outstanding interest rate derivatives. During the year ended 2018, SWEPCo applied cash flow hedging to outstanding interest rate derivatives and the other Registrant Subsidiaries did not.



	December 31, 2019							December 31, 2018
	Commodity			Interest Rate				Commodity			Interest Rate
	(in millions)
AOCI Gain (Loss) Net of Tax	$	(103.5	)	$	(11.5	)	(a)	$	(23.0	)	$	(12.6	)
Portion Expected to be Reclassed to Net Income During the Next Twelve Months	(51.7		)	(2.1		)		10.4			(1.1		)

As of December 31, 2019 the maximum length of time that AEP is hedging its exposure to variability in future cash flows related to forecasted transactions is 120 months and 132 months for commodity and interest rate hedges, respectively.



	December 31, 2019						December 31, 2018
	Interest Rate
				Expected to be						Expected to be
				Reclassified to						Reclassified to
				Net Income During						Net Income During
	AOCI Gain (Loss)			the Next			AOCI Gain (Loss)			the Next
Company	Net of Tax			Twelve Months			Net of Tax			Twelve Months
	(in millions)
AEP Texas	$	(3.4	)	$	(1.1	)	$	(4.4	)	$	(1.1	)
APCo	0.9			0.9			1.8			0.9
I&M	(9.9		)	(1.6		)	(11.5		)	(1.6		)
OPCo	—			—			1.0			1.0
PSO	1.1			1.0			2.1			1.0
SWEPCo	(1.8		)	(1.5		)	(3.3		)	(1.5		)

Management mitigates credit risk in 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. Management uses credit agency ratings and current market-based qualitative and quantitative data as well as financial statements to assess the financial health of counterparties on an ongoing basis.

Master agreements are typically used to facilitate the netting of cash flows associated with a single counterparty and may include collateral requirements. Collateral requirements in the form of cash, letters of credit and parental/affiliate guarantees may be obtained as security from counterparties in order to mitigate credit risk. Some master agreements include margining, which requires a counterparty to post cash or letters of credit in the event 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, master agreements allow for termination and liquidation of all positions in the event of a default including a failure or inability to post collateral when required.

A limited number of derivative contracts include collateral triggering events, which include a requirement to maintain certain credit ratings. On an ongoing basis, AEP’s risk management organization assesses the appropriateness of these collateral triggering events in contracts. The Registrants have not experienced a downgrade below a specified credit rating threshold that would require the posting of additional collateral. The Registrants had no derivative contracts with collateral triggering events in a net liability position as of December 31, 2019 and 2018.

In addition, a majority of 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 by Parent or the obligor under outstanding debt or a third-party obligation that is $50 million or greater. On an ongoing basis, AEP’s risk management organization assesses the appropriateness of these cross-default provisions in the contracts. The following tables represent: (a) the fair value of these derivative liabilities subject to cross-default provisions prior to consideration of contractual netting arrangements, (b) the amount that the exposure has been reduced by cash collateral posted and (c) if a cross-default provision would have been triggered, the settlement amount that would be required after considering contractual netting arrangements:



	December 31, 2019
	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 millions)
AEP	$	267.3	$	3.7	$	246.7
APCo	2.3		—		0.4
I&M	1.3		—		0.2
SWEPCo	5.1		—		5.1



	December 31, 2018
	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 millions)
AEP	$	225.5	$	1.8	$	181.0
APCo	0.9		—		—
I&M	0.5		—		—
SWEPCo	2.3		—		2.3