Related Party Transactions

12 Months Ended

Dec. 31, 2019

Related Party Transactions

RELATED PARTY TRANSACTIONS

The disclosures in this note apply to all Registrant Subsidiaries unless indicated otherwise.

For other related party transactions, also see “AEP System Tax Allocation Agreement” section of Note 12 in addition to “Corporate Borrowing Program – AEP System” and “Securitized Accounts Receivables – AEP Credit” sections of Note 14.

Power Coordination Agreement (Applies to all Registrant Subsidiaries except AEP Texas and AEPTCo)

Effective January 1, 2014, the FERC approved the PCA. Under the PCA, APCo, I&M, KPCo and WPCo are individually responsible for planning their respective capacity obligations. The PCA allows, but does not obligate, APCo, I&M, KPCo and WPCo to participate collectively under a common fixed resource requirement capacity plan in PJM and to participate in specified collective off-system sales and purchase activities.

AEPSC conducts power, capacity, coal, natural gas, interest rate and, to a lesser extent, heating oil, gasoline and other risk management activities on behalf of APCo, I&M, KPCo, PSO, SWEPCo and WPCo. Certain power and natural gas risk management activities for APCo, I&M, KPCo and WPCo are allocated based on the four member companies’ respective equity positions, while power and natural gas risk management activities for PSO and SWEPCo are allocated based on the Operating Agreement. With the transfer of OPCo’s generation assets to AGR in 2014, AEPSC conducts only gasoline, diesel fuel, energy procurement and risk management activities on OPCo’s behalf.

System Integration Agreement (Applies to APCo, I&M, PSO and SWEPCo)

Under the SIA, AEPSC allocates physical and financial revenues and expenses from transactions with neighboring utilities, power marketers and other power and natural gas risk management activities based upon the location of such activity. Margins resulting from trading and marketing activities originating in PJM generally accrue to the benefit of APCo, I&M, KPCo and WPCo, while trading and marketing activities originating in SPP generally accrue to the benefit of PSO and SWEPCo.  Margins resulting from other transactions are allocated among APCo, I&M, KPCo, PSO, SWEPCo and WPCo based upon the equity positions of these companies.

Affiliated Revenues and Purchases

The tables below represent revenues from affiliates, net of respective provisions for refund, by type of revenue for the Registrant Subsidiaries:

Related Party Revenues	AEP Texas		AEPTCo		APCo		I&M		OPCo		PSO		SWEPCo
	(in millions)
Year Ended December 31, 2019
Direct Sales to East Affiliates	$	—	$	—	$	128.6	$	—	$	—	$	—	$	—
Direct Sales to West Affiliates	—		—		—		—		—		—		—
Auction Sales to OPCo (a)	—		—		11.4		6.7		—		—		—
Direct Sales to AEPEP	157.2		—		—		—		—		—		(0.1		)
Transmission Revenues	—		795.5		58.5		0.7		7.7		1.3		3.6
Other Revenues	3.3		11.2		6.8		3.1		19.6		4.8		1.4
Total Affiliated Revenues	$	160.5	$	806.7	$	205.3	$	10.5	$	27.3	$	6.1	$	4.9

Related Party Revenues	AEP Texas		AEPTCo		APCo		I&M		OPCo		PSO		SWEPCo
	(in millions)
Year Ended December 31, 2018
Direct Sales to East Affiliates	$	—	$	—	$	133.2	$	0.1	$	—	$	—	$	—
Direct Sales to West Affiliates	—		—		—		—		—		—		—
Auction Sales to OPCo (a)	—		—		5.8		7.1		—		—		—
Direct Sales to AEPEP	103.6		—		—		—		—		—		—
Transmission Revenues	—		591.4		36.4		11.7		3.9		0.9		26.9
Other Revenues	1.6		7.5		6.0		3.2		17.1		4.5		1.5
Total Affiliated Revenues	$	105.2	$	598.9	$	181.4	$	22.1	$	21.0	$	5.4	$	28.4

Related Party Revenues	AEP Texas		AEPTCo		APCo		I&M			OPCo		PSO		SWEPCo
	(in millions)
Year Ended December 31, 2017
Direct Sales to East Affiliates	$	—	$	—	$	130.4	$	—		$	—	$	—	$	—
Direct Sales to West Affiliates	—		—		—		3.8			—		—		—
Auction Sales to OPCo (a)	—		—		1.0		—			—		—		—
Direct Sales to AEPEP	63.6		—		—		—			—		—		(0.2		)
Transmission Revenues	—		559.6		34.1		(4.4		)	6.2		—		24.2
Other Revenues	2.1		8.5		6.5		2.4			18.2		4.3		1.9
Total Affiliated Revenues	$	65.7	$	568.1	$	172.0	$	1.8		$	24.4	$	4.3	$	25.9

(a) Refer to the Ohio Auctions section below for further information regarding these amounts.

The tables below represent the purchased power expenses incurred for purchases from affiliates. AEP Texas, AEPTCo, APCo, PSO and SWEPCo did not purchase any power from affiliates for the years ended December 31, 2019, 2018 and 2017.

Related Party Purchases	I&M		OPCo
	(in millions)
Year Ended December 31, 2019
Auction Purchases from AEPEP (a)	$	—	$	64.6
Auction Purchases from AEP Energy (a)	—		69.9
Auction Purchases from AEPSC (a)	—		21.5
Direct Purchases from AEGCo	214.9		—
Total Affiliated Purchases	$	214.9	$	156.0

Related Party Purchases	I&M		OPCo
	(in millions)
Year Ended December 31, 2018
Auction Purchases from AEPEP (a)	$	—	$	79.7
Auction Purchases from AEP Energy (a)	—		41.0
Auction Purchases from AEPSC (a)	—		14.6
Direct Purchases from AEGCo	237.9		—
Total Affiliated Purchases	$	237.9	$	135.3

Related Party Purchases	I&M		OPCo
	(in millions)
Year Ended December 31, 2017
Auction Purchases from AEPEP (a)	$	—	$	96.5
Auction Purchases from AEP Energy (a)	—		5.5
Auction Purchases from AEPSC (a)	—		6.5
Direct Purchases from AEGCo	223.9		—
Total Affiliated Purchases	$	223.9	$	108.5

(a) Refer to the Ohio Auctions section below for further information regarding this amount.

The above summarized related party revenues and expenses are reported in Sales to AEP Affiliates and Purchased Electricity from AEP Affiliates, respectively, on the Registrant Subsidiaries’ statements of income.  Since the Registrant Subsidiaries are included in AEP’s consolidated results, the above summarized related party transactions are eliminated in total in AEP’s consolidated revenues and expenses.

PJM and SPP Transmission Service Charges (Applies to all Registrant Subsidiaries except AEP Texas)

APCo, I&M, KGPCo, KPCo, OPCo and WPCo (AEP East Companies) are parties to the Transmission Agreement (TA), which defines how transmission costs through the PJM OATT are allocated among the AEP East Companies on a 12-month average coincident peak basis. Additional costs for transmission services provided by AEPTCo and other transmission affiliates are billed to AEP East Companies through the PJM OATT.

The following table shows the net transmission service charges recorded by APCo, I&M and OPCo:

	Years Ended December 31,
Company	2019		2018		2017
	(in millions)
APCo	$	222.3	$	128.3	$	158.2
I&M	143.5		91.4		103.8
OPCo	373.4		210.1		248.6

The charges shown above are recorded in Other Operation expenses on the statements of income.

PSO, SWEPCo and AEPSC are parties to the Transmission Coordination Agreement (TCA) in connection with the operation of the transmission assets of PSO and SWEPCo.  The TCA has been approved by the FERC and establishes a coordinating committee, which is charged with overseeing the coordinated planning of the transmission facilities of the parties to the agreement.  This includes the performance of transmission planning studies, the interaction of such companies with independent system operators and other regional bodies interested in transmission planning and compliance with the terms of the OATT filed with the FERC and the rules of the FERC relating to such a tariff.

Under the TCA, the parties to the agreement delegated to AEPSC the responsibility of monitoring the reliability of their transmission systems and administering the OATT on their behalf.  The allocations have been governed by the FERC-approved OATT for the SPP. Additional costs for transmission services provided by AEPTCo and other transmission affiliates are billed to PSO and SWEPCo through the SPP OATT.

The following table shows the net transmission service charges recorded by PSO and SWEPCo:

	Years Ended December 31,
Company	2019		2018		2017
	(in millions)
PSO	$	46.9	$	65.9	$	56.0
SWEPCo	20.1		10.5		6.6

The charges shown above are recorded in Other Operation expenses on the statements of income.

AEPTCo provides transmission services to affiliates in accordance with the OATT, TA and TCA. AEPTCo recorded affiliated transmission revenues in Sales to AEP Affiliates on the statements of income. Refer to the Affiliated Revenues and Purchases section above for amounts related to these transactions.

ERCOT Transmission Service Charges (Applies to AEP and AEP Texas)

Pursuant to an order from the PUCT, ETT bills AEP Texas for its ERCOT wholesale transmission services. ETT billed AEP Texas $27 million, $27 million and $30 million for transmission services in 2019, 2018 and 2017, respectively. The billings are recorded in Other Operation expenses on AEP Texas’ statements of income.

Oklaunion PPA between AEP Texas and AEPEP (Applies to AEP Texas)

In 2007, AEP Texas entered into a PPA with an affiliate, AEPEP, whereby AEP Texas agrees to sell AEPEP 100% of AEP Texas’ capacity and associated energy from its undivided interest (54.69%) in the Oklaunion Power Station. AEPEP pays AEP Texas for the capacity and associated energy delivered to the delivery point, the sum of fuel, operation and maintenance, depreciation, capacity and all taxes other than federal income taxes applicable. A portion of the payment is fixed and is payable regardless of the level of output. There are no penalties if AEP Texas fails to maintain a minimum availability level or exceeds a maximum heat rate level. The PPA was approved by the FERC. AEP Texas recognizes revenues for the fuel, operations and maintenance and all other taxes as billed. Revenue is recognized for the capacity and depreciation billed to AEPEP, on a straight-line basis over the term of the PPA as these represent the minimum payments due. In September 2018, the co-owners of Oklaunion Power Station voted to close the plant in 2020. Effective October 2018, AEP Texas increased depreciation expense to ensure the plant balances are fully depreciated as of September 2020 and recovered through the PPA billings to AEPEP. Under the early termination provisions of the PPA, AEPEP expects to pay AEP Texas the full Property, Plant and Equipment balance through depreciation payments over the remaining period of operation of the plant, which is currently estimated to be September 2020.

AEP Texas recorded revenue of $157 million, $104 million and $64 million from AEPEP for the years ended December 31, 2019, 2018 and 2017, respectively. These amounts are included in Sales to AEP Affiliates on AEP Texas’ statements of income.

Joint License Agreement (Applies to AEPTCo, APCo, I&M, OPCo and PSO)

AEPTCo entered into a 50-year joint license agreement with APCo, I&M, KPCo, OPCo and PSO, respectively, allowing either party to occupy the granting party’s facilities or real property. In addition, AEPTCo entered into a 5-year joint license agreement with APCo and WPCo. After the expiration of these agreements, the term shall automatically renew for successive one-year terms unless either party provides notice. The joint license billing provides compensation to the granting party for the cost of carrying assets, including depreciation expense, property taxes, interest expense, return on equity and income taxes. AEPTCo recorded the following costs in Other Operation expense related to these agreements:

	Years Ended December 31,
Billing Company	2019		2018		2017
	(in millions)
APCo	$	0.2	$	—	$	—
I&M	1.5		2.2		1.4
KPCo	0.3		0.2		0.2
OPCo	2.2		2.9		2.4
PSO	0.3		0.3		0.3
WPCo	0.1		—		—

APCo, I&M, KPCo, OPCo, PSO and WPCo recorded income related to these agreements in Sales to AEP Affiliates on the statements of income.

Ohio Auctions (Applies to APCo, I&M and OPCo)

In connection with OPCo’s June 2012 - May 2015 ESP, the PUCO ordered OPCo to conduct energy and capacity auctions for its entire SSO load for delivery beginning in June 2015. AEP Energy, AEPEP, APCo, KPCo, I&M and WPCo participate in the auction process and have been awarded tranches of OPCo’s SSO load. Refer to the Affiliated Revenues and Purchases section above for amounts related to these transactions and see “Ohio ESP Filings” section of Note 4 for additional information.

Unit Power Agreements (Applies to I&M)

UPA between AEGCo and I&M

A UPA between AEGCo and I&M (the I&M Power Agreement) provides for the sale by AEGCo to I&M of all the power (and the energy associated therewith) available to AEGCo at the Rockport Plant unless it is sold to another utility.  Subsequently, I&M assigns 30% of the power to KPCo.  See the “UPA between AEGCo and KPCo” section below.  I&M is obligated, whether or not power is available from AEGCo, to pay as a demand charge for the right to receive such power (and as an energy charge for any associated energy taken by I&M) net of amounts received by AEGCo from any other sources, sufficient to enable AEGCo to pay all its operating and other expenses, including a rate of return on the common equity of AEGCo as approved by the FERC.  The I&M Power Agreement will continue in effect until the expiration of the lease term of Unit 2 of the Rockport Plant unless extended in specified circumstances.

UPA between AEGCo and KPCo

Pursuant to an assignment between I&M and KPCo and a UPA between AEGCo and KPCo, AEGCo sells KPCo 30% of the power (and the energy associated therewith) available to AEGCo from both units of the Rockport Plant.  KPCo pays to AEGCo in consideration for the right to receive such power the same amounts which I&M would have paid AEGCo under the terms of the I&M Power Agreement for such entitlement.  The KPCo UPA ends in December 2022.

Cook Coal Terminal (Applies to I&M, PSO and SWEPCo)

Cook Coal Terminal, which is owned by AEGCo, performs coal transloading and storage services at cost for I&M.  The coal transloading costs were $13 million, $12 million and $10 million in 2019, 2018 and 2017, respectively. I&M recorded the cost of transloading services in Fuel on the balance sheets.

Cook Coal Terminal also performs railcar maintenance services at cost for I&M, PSO and SWEPCo.  The railcar maintenance costs were as follows:

	Years Ended December 31,
Company	2019		2018		2017
	(in millions)
I&M	$	1.3	$	1.5	$	1.3
PSO	0.8		0.7		0.5
SWEPCo	4.0		3.4		3.5

I&M, PSO and SWEPCo recorded the cost of the railcar maintenance services in Fuel on the balance sheets.

I&M Barging, Urea Transloading and Other Services (Applies to APCo and I&M)

I&M provides barging, urea transloading and other transportation services to affiliates.  Urea is a chemical used to control NO_x emissions at certain generation plants in the AEP System.  I&M recorded revenues from barging, transloading and other services in Other Revenues – Affiliated on the statements of income.  The affiliated companies recorded these costs paid to I&M as fuel expenses or other operation expenses.  The amounts of affiliated expenses were:

	Years Ended December 31,
Company	2019		2018		2017
	(in millions)
AEGCo	$	14.9	$	19.9	$	15.3
AGR	—		—		0.1
APCo	38.9		35.1		37.2
KPCo	4.8		4.2		5.0
WPCo	4.8		4.2		5.0

Central Machine Shop (Applies to APCo, I&M, PSO and SWEPCo)

APCo operates a facility which repairs and rebuilds specialized components for the generation plants across the AEP System.  APCo defers the cost of performing these services on the balance sheet and then transfers the cost to the affiliate for reimbursement.  The AEP subsidiaries recorded these billings as capital or maintenance expenses depending on the nature of the services received.  These billings are recoverable from customers.  The following table provides the amounts billed by APCo to the following affiliates:

	Years Ended December 31,
Company	2019		2018		2017
	(in millions)
AGR	$	0.8	$	1.6	$	1.2
I&M	2.3		2.4		2.7
KPCo	1.4		1.7		1.8
PSO	1.1		0.5		1.1
SWEPCo	1.1		0.7		0.8

Sales and Purchases of Property

Certain AEP subsidiaries had affiliated sales and purchases of electric property individually amounting to $100 thousand or more, sales and purchases of meters and transformers, and sales and purchases of transmission property.  There were no gains or losses recorded on the transactions.  The following tables show the sales and purchases, recorded at net book value:

Sales

	Years Ended December 31,
Company	2019		2018		2017
	(in millions)
AEP Texas	$	0.9	$	0.3	$	0.2
APCo	5.5		5.4		3.5
I&M	7.5		8.2		5.0
OPCo	7.0		10.7		2.9
PSO	0.8		1.0		1.5
SWEPCo	0.2		0.8		0.5

Purchases

	Years Ended December 31,
Company	2019		2018		2017
	(in millions)
AEP Texas	$	0.3	$	0.1	$	0.4
AEPTCo	10.2		18.5		9.1
APCo	6.0		0.6		0.9
I&M	0.9		2.0		3.5
OPCo	3.0		2.8		1.6
PSO	0.5		1.3		0.2
SWEPCo	0.7		0.8		0.4

The amounts above are recorded in Property, Plant and Equipment on the balance sheets.

Sempra Renewables LLC PPAs (Applies to I&M, OPCo and SWEPCo)

In April 2019, AEP acquired Sempra Renewables LLC and its ownership interests in 724 MWs of wind generation. The operating wind generation portfolio includes seven wind farms. Prior to the acquisition, two wind farms had existing PPAs with I&M, OPCo and SWEPCo. See “Acquisitions” section of Note 7 for additional information.

Intercompany Billings

The Registrant Subsidiaries and other AEP subsidiaries perform certain utility services for each other when necessary or practical.  The costs of these services are billed on a direct-charge basis, whenever possible, or on reasonable basis of proration for services that benefit multiple companies.  The billings for services are made at cost and include no compensation for the use of equity capital.

Charitable Contributions to AEP Foundation

The American Electric Power Foundation is funded by American Electric Power and its utility operating units. The Foundation provides a permanent, ongoing resource for charitable initiatives and multi-year commitments in the communities served by AEP and initiatives outside of AEP’s 11-state service area. Charitable contributions to the AEP Foundation were recorded in Other Operation on the statements of income. The contributions recorded were as follows:

	Year Ended December 31,
Company	2019
	(in millions)
AEP	$	50.0
AEP Texas	6.2
AEPTCo	6.5
APCo	8.9
I&M	9.0
OPCo	5.4
PSO	3.4
SWEPCo	5.5