Fair Value Measurements

3 Months Ended

Mar. 31, 2020

Fair Value Measurements

FAIR VALUE MEASUREMENTS

The disclosures in this note apply to all Registrants except AEPTCo unless indicated otherwise.

Fair Value Hierarchy and Valuation Techniques

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

For commercial activities, exchange-traded derivatives, namely futures contracts, are generally fair valued based on unadjusted quoted prices in active markets and are classified as Level 1.  Level 2 inputs primarily consist of OTC broker quotes in moderately active or less active markets, as well as exchange-traded derivatives where there is insufficient market liquidity to warrant inclusion in Level 1.  Management verifies price curves using these broker quotes and classifies these fair values within Level 2 when substantially all of the fair value can be corroborated.  Management typically obtains multiple broker quotes, which are nonbinding in nature but are based on recent trades in the marketplace.  When multiple broker quotes are obtained, the quoted bid and ask prices are averaged.  In certain circumstances, a broker quote may be discarded if it is a clear outlier.  Management uses a historical correlation analysis between the broker quoted location and the illiquid locations.  If the points are highly correlated, these locations are included within Level 2 as well.  Certain OTC and bilaterally executed derivative instruments are executed in less active markets with a lower availability of pricing information.  Illiquid transactions, complex structured transactions, FTRs and counterparty credit risk may require nonmarket-based inputs.  Some of these inputs may be internally developed or extrapolated and utilized to estimate fair value.  When such inputs have a significant impact on the measurement of fair value, the instrument is categorized as Level 3.  The main driver of contracts being classified as Level 3 is the inability to substantiate energy price curves in the market.  A portion of the Level 3 instruments have been economically hedged which limits potential earnings volatility.

AEP utilizes its trustee’s external pricing service to estimate the fair value of the underlying investments held in the nuclear trusts.  AEP’s investment managers review and validate the prices utilized by the trustee to determine fair value.  AEP’s management performs its own valuation testing to verify the fair values of the securities.  AEP receives audit reports of the trustee’s operating controls and valuation processes.

Assets in the nuclear trusts, cash and cash equivalents, other temporary investments and restricted cash for securitized funding are classified using the following methods. Equities are classified as Level 1 holdings if they are actively traded on exchanges. Items classified as Level 1 are investments in money market funds, fixed income and equity mutual funds and equity securities. They are valued based on observable inputs, primarily unadjusted quoted prices in active markets for identical assets. Items classified as Level 2 are primarily investments in individual fixed income securities. Fixed income securities generally do not trade on exchanges and do not have an official closing price but their valuation inputs are based on observable market data. Pricing vendors calculate bond valuations using financial models and matrices. The models use observable inputs including yields on benchmark securities, quotes by securities brokers, rating agency actions, discounts or premiums on securities compared to par prices, changes in yields for U.S. Treasury securities, corporate actions by bond issuers, prepayment schedules and histories, economic events and, for certain securities, adjustments to yields to reflect changes in the rate of inflation. Other securities with model-derived valuation inputs that are observable are also classified as Level 2 investments. Investments with unobservable valuation inputs are classified as Level 3 investments.

Fair Value Measurements of Long-term Debt (Applies to all Registrants)

The fair values of Long-term Debt are based on quoted market prices, without credit enhancements, for the same or similar issues and the current interest rates offered for instruments with similar maturities classified as Level 2 measurement inputs.  These instruments are not marked-to-market.  The estimates presented are not necessarily indicative of the amounts that could be realized in a current market exchange. The fair value of AEP’s Equity Units (Level 1) are valued based on publicly traded securities issued by AEP.

The book values and fair values of Long-term Debt are summarized in the following table:

	March 31, 2020				December 31, 2019
Company	Book Value		Fair Value		Book Value		Fair Value
	(in millions)
AEP (a)	$	27,892.7	$	29,776.6	$	26,725.5	$	30,172.0
AEP Texas	4,445.4		4,637.3		4,558.4		4,981.5
AEPTCo	3,427.8		3,680.7		3,427.3		3,868.0
APCo	4,352.4		4,959.0		4,363.8		5,253.1
I&M	3,028.0		3,318.2		3,050.2		3,453.8
OPCo	2,429.1		2,795.3		2,082.0		2,554.3
PSO	1,386.3		1,553.9		1,386.2		1,603.3
SWEPCo	2,654.4		2,776.5		2,655.6		2,927.9

(a) The fair value amount includes debt related to AEP’s Equity Units issued in March 2019 and has a fair value of $777 million and $871 million as of March 31, 2020 and December 31, 2019, respectively. See “Equity Units” section of Note 12 for additional information.

Fair Value Measurements of Other Temporary Investments (Applies to AEP)

Other Temporary Investments include marketable securities that management intends to hold for less than one year and investments by AEP’s protected cell of EIS.

The following is a summary of Other Temporary Investments:

	March 31, 2020
			Gross		Gross
			Unrealized		Unrealized		Fair
Other Temporary Investments	Cost		Gains		Losses		Value
	(in millions)
Restricted Cash and Other Cash Deposits (a)	$	151.9	$	—	$	—	$	151.9
Fixed Income Securities – Mutual Funds (b)	118.6		0.4		—		119.0
Equity Securities – Mutual Funds	19.3		11.2		—		30.5
Total Other Temporary Investments	$	289.8	$	11.6	$	—	$	301.4

	December 31, 2019
			Gross		Gross
			Unrealized		Unrealized		Fair
Other Temporary Investments	Cost		Gains		Losses		Value
	(in millions)
Restricted Cash and Other Cash Deposits (a)	$	214.7	$	—	$	—	$	214.7
Fixed Income Securities – Mutual Funds (b)	123.2		0.1		—		123.3
Equity Securities – Mutual Funds	29.2		21.3		—		50.5
Total Other Temporary Investments	$	367.1	$	21.4	$	—	$	388.5

(a) Primarily represents amounts held for the repayment of debt.

(b) Primarily short and intermediate maturities which may be sold and do not contain maturity dates.

The following table provides the activity for fixed income and equity securities within Other Temporary Investments:

	Three Months Ended March 31,
	2020		2019
	(in millions)
Proceeds from Investment Sales	$	23.2	$	—
Purchases of Investments	6.7		0.1
Gross Realized Gains on Investment Sales	2.0		—
Gross Realized Losses on Investment Sales	0.1		—

Fair Value Measurements of Trust Assets for Decommissioning and SNF Disposal (Applies to AEP and I&M)

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

• Acceptable investments (rated investment grade or above when purchased).

• Maximum percentage invested in a specific type of investment.

• Prohibition of investment in obligations of AEP, I&M or their affiliates.

• Withdrawals permitted only for payment of decommissioning costs and trust expenses.

I&M maintains trust funds for each regulatory jurisdiction.  Regulatory approval is required to withdraw decommissioning funds. These funds are managed by external investment managers who must comply with the guidelines and rules of the applicable regulatory authorities.  The trust assets are invested to optimize the net of tax earnings of the trust giving consideration to liquidity, risk, diversification and other prudent investment objectives.

I&M records securities held in these trust funds in Spent Nuclear Fuel and Decommissioning Trusts on its balance sheets. I&M records these securities at fair value. I&M classifies securities in the trust funds as available-for-sale due to their long-term purpose. Available-for-sale classification only applies to investment in debt securities in accordance with ASU 2016-01. Additionally, ASU 2016-01 requires changes in fair value of equity securities to be recognized in earnings. However, due to the regulatory treatment described below, this is not applicable for I&M’s trust fund securities.

Other-than-temporary impairments for investments in debt securities are considered realized losses as a result of securities being managed by an external investment management firm. The external investment management firm makes specific investment decisions regarding the debt and equity investments held in these trusts and generally intends to sell debt securities in an unrealized loss position as part of a tax optimization strategy. Impairments reduce the cost basis of the securities which will affect any future unrealized gain or realized gain or loss due to the adjusted cost of investment. I&M records unrealized gains, unrealized losses and other-than-temporary impairments from securities in these trust funds as adjustments to the regulatory liability account for the nuclear decommissioning trust funds and to regulatory assets or liabilities for the SNF disposal trust funds in accordance with their treatment in rates. Consequently, changes in fair value of trust assets do not affect earnings or AOCI.

The following is a summary of nuclear trust fund investments:

	March 31, 2020							December 31, 2019
			Gross		Other-Than-					Gross		Other-Than-
	Fair		Unrealized		Temporary			Fair		Unrealized		Temporary
	Value		Gains		Impairments			Value		Gains		Impairments
	(in millions)
Cash and Cash Equivalents	$	46.9	$	—	$	—		$	15.3	$	—	$	—
Fixed Income Securities:
United States Government	1,026.1		121.4		(5.6		)	1,112.5		55.5		(6.1		)
Corporate Debt	62.7		6.0		(1.6		)	72.4		5.3		(1.6		)
State and Local Government	149.7		1.5		(0.2		)	7.6		0.7		(0.2		)
Subtotal Fixed Income Securities	1,238.5		128.9		(7.4		)	1,192.5		61.5		(7.9		)
Equity Securities - Domestic (a)	1,393.8		777.6		—			1,767.9		1,144.4		—
Spent Nuclear Fuel and Decommissioning Trusts	$	2,679.2	$	906.5	$	(7.4	)	$	2,975.7	$	1,205.9	$	(7.9	)

(a) Amount reported as Gross Unrealized Gains includes unrealized gains of $801 million and $1.1 billion and unrealized losses of $23 million and $5 million as of March 31, 2020 and December 31, 2019, respectively.

The following table provides the securities activity within the decommissioning and SNF trusts:

	Three Months Ended March 31,
	2020		2019
	(in millions)
Proceeds from Investment Sales	$	612.4	$	111.9
Purchases of Investments	626.0		130.3
Gross Realized Gains on Investment Sales	10.9		12.3
Gross Realized Losses on Investment Sales	17.0		13.8

The base cost of fixed income securities was $1.1 billion and $1.1 billion as of March 31, 2020 and December 31, 2019, respectively.  The base cost of equity securities was $616 million and $623 million as of March 31, 2020 and December 31, 2019, respectively.

The fair value of fixed income securities held in the nuclear trust funds, summarized by contractual maturities, as of March 31, 2020 was as follows:

	Fair Value of Fixed
	Income Securities
	(in millions)
Within 1 year	$	238.9
After 1 year through 5 years	404.5
After 5 years through 10 years	282.5
After 10 years	312.6
Total	$	1,238.5

Fair Value Measurements of Financial Assets and Liabilities

The following tables set forth, by level within the fair value hierarchy, the Registrants’ financial assets and liabilities that were accounted for at fair value on a recurring basis.  As required by the accounting guidance for “Fair Value Measurements and Disclosures,” financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.  Management’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.  There have not been any significant changes in management’s valuation techniques.

AEP

Assets and Liabilities Measured at Fair Value on a Recurring Basis

March 31, 2020

	Level 1		Level 2		Level 3		Other			Total
Assets:	(in millions)
Other Temporary Investments
Restricted Cash and Other Cash Deposits (a)	$	128.1	$	—	$	—	$	23.8		$	151.9
Fixed Income Securities – Mutual Funds	119.0		—		—		—			119.0
Equity Securities – Mutual Funds (b)	30.5		—		—		—			30.5
Total Other Temporary Investments	277.6		—		—		23.8			301.4
Risk Management Assets
Risk Management Commodity Contracts (c) (d)	3.7		369.8		346.1		(340.5		)	379.1
Cash Flow Hedges:
Commodity Hedges (c)	—		18.7		4.2		(5.2		)	17.7
Interest Rate Hedges	—		0.3		—		—			0.3
Fair Value Hedges	—		57.0		—		—			57.0
Total Risk Management Assets	3.7		445.8		350.3		(345.7		)	454.1
Spent Nuclear Fuel and Decommissioning Trusts
Cash and Cash Equivalents (e)	37.0		—		—		9.9			46.9
Fixed Income Securities:
United States Government	—		1,026.1		—		—			1,026.1
Corporate Debt	—		62.7		—		—			62.7
State and Local Government	—		149.7		—		—			149.7
Subtotal Fixed Income Securities	—		1,238.5		—		—			1,238.5
Equity Securities – Domestic (b)	1,393.8		—		—		—			1,393.8
Total Spent Nuclear Fuel and Decommissioning Trusts	1,430.8		1,238.5		—		9.9			2,679.2
Total Assets	$	1,712.1	$	1,684.3	$	350.3	$	(312.0	)	$	3,434.7
Liabilities:
Risk Management Liabilities
Risk Management Commodity Contracts (c) (d)	$	4.9	$	410.1	$	267.9	$	(416.3	)	$	266.6
Cash Flow Hedges:
Commodity Hedges (c)	—		142.1		39.9		(5.2		)	176.8
Interest Rate Hedges	—		5.3		—		—			5.3
Total Risk Management Liabilities	$	4.9	$	557.5	$	307.8	$	(421.5	)	$	448.7

AEP

Assets and Liabilities Measured at Fair Value on a Recurring Basis

December 31, 2019

	Level 1		Level 2		Level 3		Other			Total
Assets:	(in millions)
Other Temporary Investments
Restricted Cash and Other Cash Deposits (a)	$	197.6	$	—	$	—	$	17.1		$	214.7
Fixed Income Securities – Mutual Funds	123.3		—		—		—			123.3
Equity Securities – Mutual Funds (b)	50.5		—		—		—			50.5
Total Other Temporary Investments	371.4		—		—		17.1			388.5
Risk Management Assets
Risk Management Commodity Contracts (c) (f)	4.0		440.1		369.2		(404.5		)	408.8
Cash Flow Hedges:
Commodity Hedges (c)	—		15.0		3.2		(6.7		)	11.5
Interest Rate Hedges	—		4.6		—		—			4.6
Fair Value Hedges	—		14.5		—		—			14.5
Total Risk Management Assets	4.0		474.2		372.4		(411.2		)	439.4
Spent Nuclear Fuel and Decommissioning Trusts
Cash and Cash Equivalents (e)	6.7		—		—		8.6			15.3
Fixed Income Securities:
United States Government	—		1,112.5		—		—			1,112.5
Corporate Debt	—		72.4		—		—			72.4
State and Local Government	—		7.6		—		—			7.6
Subtotal Fixed Income Securities	—		1,192.5		—		—			1,192.5
Equity Securities – Domestic (b)	1,767.9		—		—		—			1,767.9
Total Spent Nuclear Fuel and Decommissioning Trusts	1,774.6		1,192.5		—		8.6			2,975.7
Total Assets	$	2,150.0	$	1,666.7	$	372.4	$	(385.5	)	$	3,803.6
Liabilities:
Risk Management Liabilities
Risk Management Commodity Contracts (c) (f)	$	3.8	$	450.0	$	224.0	$	(438.8	)	$	239.0
Cash Flow Hedges:
Commodity Hedges (c)	—		105.3		38.5		(6.7		)	137.1
Total Risk Management Liabilities	$	3.8	$	555.3	$	262.5	$	(445.5	)	$	376.1

AEP Texas

Assets and Liabilities Measured at Fair Value on a Recurring Basis

March 31, 2020

	Level 1		Level 2		Level 3		Other			Total
Assets:	(in millions)
Restricted Cash for Securitized Funding	$	100.1	$	—	$	—	$	—		$	100.1
Liabilities:
Risk Management Liabilities
Risk Management Commodity Contracts (c)	$	—	$	1.2	$	—	$	(1.2	)	$	—

December 31, 2019

	Level 1		Level 2		Level 3		Other		Total
Assets:	(in millions)
Restricted Cash for Securitized Funding	$	154.7	$	—	$	—	$	—	$	154.7

APCo

Assets and Liabilities Measured at Fair Value on a Recurring Basis

March 31, 2020

	Level 1		Level 2		Level 3		Other			Total
Assets:	(in millions)
Restricted Cash for Securitized Funding	$	15.7	$	—	$	—	$	—		$	15.7
Risk Management Assets
Risk Management Commodity Contracts (c) (g)	—		55.0		17.1		(54.2		)	17.9
Cash Flow Hedges:
Interest Rate Hedges	—		0.3		—		—			0.3
Total Risk Management Assets	—		55.3		17.1		(54.2		)	18.2
Total Assets	$	15.7	$	55.3	$	17.1	$	(54.2	)	$	33.9
Liabilities:
Risk Management Liabilities
Risk Management Commodity Contracts (c) (g)	$	—	$	58.8	$	10.5	$	(59.5	)	$	9.8
Cash Flow Hedges:
Interest Rate Hedges	—		5.3		—		—			5.3
Total Risk Management Liabilities	$	—	$	64.1	$	10.5	$	(59.5	)	$	15.1

December 31, 2019

	Level 1		Level 2		Level 3		Other			Total
Assets:	(in millions)
Restricted Cash for Securitized Funding	$	23.5	$	—	$	—	$	—		$	23.5
Risk Management Assets
Risk Management Commodity Contracts (c) (g)	—		84.6		40.5		(85.6		)	39.5
Total Assets	$	23.5	$	84.6	$	40.5	$	(85.6	)	$	63.0
Liabilities:
Risk Management Liabilities
Risk Management Commodity Contracts (c) (g)	$	—	$	84.0	$	2.8	$	(84.9	)	$	1.9

I&M

Assets and Liabilities Measured at Fair Value on a Recurring Basis

March 31, 2020

	Level 1		Level 2		Level 3		Other			Total
Assets:	(in millions)
Risk Management Assets
Risk Management Commodity Contracts (c) (g)	$	—	$	38.1	$	4.9	$	(36.2	)	$	6.8
Spent Nuclear Fuel and Decommissioning Trusts
Cash and Cash Equivalents (e)	37.0		—		—		9.9			46.9
Fixed Income Securities:
United States Government	—		1,026.1		—		—			1,026.1
Corporate Debt	—		62.7		—		—			62.7
State and Local Government	—		149.7		—		—			149.7
Subtotal Fixed Income Securities	—		1,238.5		—		—			1,238.5
Equity Securities - Domestic (b)	1,393.8		—		—		—			1,393.8
Total Spent Nuclear Fuel and Decommissioning Trusts	1,430.8		1,238.5		—		9.9			2,679.2
Total Assets	$	1,430.8	$	1,276.6	$	4.9	$	(26.3	)	$	2,686.0
Liabilities:
Risk Management Liabilities
Risk Management Commodity Contracts (c) (g)	$	—	$	36.2	$	2.8	$	(37.2	)	$	1.8

December 31, 2019

	Level 1		Level 2		Level 3		Other			Total
Assets:	(in millions)
Risk Management Assets
Risk Management Commodity Contracts (c) (g)	$	—	$	59.5	$	8.0	$	(57.6	)	$	9.9
Spent Nuclear Fuel and Decommissioning Trusts
Cash and Cash Equivalents (e)	6.7		—		—		8.6			15.3
Fixed Income Securities:
United States Government	—		1,112.5		—		—			1,112.5
Corporate Debt	—		72.4		—		—			72.4
State and Local Government	—		7.6		—		—			7.6
Subtotal Fixed Income Securities	—		1,192.5		—		—			1,192.5
Equity Securities - Domestic (b)	1,767.9		—		—		—			1,767.9
Total Spent Nuclear Fuel and Decommissioning Trusts	1,774.6		1,192.5		—		8.6			2,975.7
Total Assets	$	1,774.6	$	1,252.0	$	8.0	$	(49.0	)	$	2,985.6
Liabilities:
Risk Management Liabilities
Risk Management Commodity Contracts (c) (g)	$	—	$	53.4	$	2.2	$	(55.1	)	$	0.5

OPCo

Assets and Liabilities Measured at Fair Value on a Recurring Basis

March 31, 2020

	Level 1		Level 2		Level 3		Other			Total
Liabilities:	(in millions)
Risk Management Liabilities
Risk Management Commodity Contracts (c) (g)	$	—	$	0.9	$	120.9	$	(0.9	)	$	120.9

December 31, 2019

	Level 1		Level 2		Level 3		Other		Total
Liabilities:	(in millions)
Risk Management Liabilities
Risk Management Commodity Contracts (c) (g)	$	—	$	—	$	103.6	$	—	$	103.6

PSO

Assets and Liabilities Measured at Fair Value on a Recurring Basis

March 31, 2020

	Level 1		Level 2		Level 3		Other			Total
Assets:	(in millions)
Risk Management Assets
Risk Management Commodity Contracts (c) (g)	$	—	$	—	$	6.7	$	(0.3	)	$	6.4
Liabilities:
Risk Management Liabilities
Risk Management Commodity Contracts (c) (g)	$	—	$	0.5	$	0.4	$	(0.8	)	$	0.1

December 31, 2019

	Level 1		Level 2		Level 3		Other			Total
Assets:	(in millions)
Risk Management Assets
Risk Management Commodity Contracts (c) (g)	$	—	$	—	$	16.3	$	(0.5	)	$	15.8
Liabilities:
Risk Management Liabilities
Risk Management Commodity Contracts (c) (g)	$	—	$	—	$	0.5	$	(0.5	)	$	—

SWEPCo

Assets and Liabilities Measured at Fair Value on a Recurring Basis

March 31, 2020

	Level 1		Level 2		Level 3		Other			Total
Assets:	(in millions)
Risk Management Assets
Risk Management Commodity Contracts (c) (g)	$	—	$	—	$	2.7	$	(0.1	)	$	2.6
Liabilities:
Risk Management Liabilities
Risk Management Commodity Contracts (c) (g)	$	—	$	0.6	$	5.2	$	(0.7	)	$	5.1

December 31, 2019

	Level 1		Level 2		Level 3		Other			Total
Assets:	(in millions)
Risk Management Assets
Risk Management Commodity Contracts (c) (g)	$	—	$	—	$	6.5	$	(0.1	)	$	6.4
Liabilities:
Risk Management Liabilities
Risk Management Commodity Contracts (c) (g)	$	—	$	—	$	5.1	$	(0.1	)	$	5.0

(a) Amounts in “Other’’ column primarily represent cash deposits in bank accounts with financial institutions or third-parties.  Level 1 and Level 2 amounts primarily represent investments in money market funds.

(b) Amounts represent publicly traded equity securities and equity-based mutual funds.

(c) Amounts in “Other’’ column primarily represent counterparty netting of risk management and hedging contracts and associated cash collateral under the accounting guidance for “Derivatives and Hedging.’’

(d) The March 31, 2020 maturity of the net fair value of risk management contracts prior to cash collateral, assets/(liabilities), is as follows: Level 1 matures $(1) million in periods 2021-2023; Level 2 matures $(30) million in 2020, $(9) million in periods 2021-2023 and $(1) million in periods 2024-2025; Level 3 matures $37 million in 2020, $36 million in periods 2021-2023, $25 million in periods 2024-2025 and $(20) million in periods 2026-2032.  Risk management commodity contracts are substantially comprised of power contracts.

(e) Amounts in “Other’’ column primarily represent accrued interest receivables from financial institutions.  Level 1 amounts primarily represent investments in money market funds.

(f) The December 31, 2019 maturity of the net fair value of risk management contracts prior to cash collateral, assets/(liabilities), is as follows: Level 2 matures $(7) million in 2020 and $(3) million in periods 2021-2023; Level 3 matures $96 million in 2020, $36 million in periods 2021-2023, $25 million in periods 2024-2025 and $(12) million in periods 2026-2032.  Risk management commodity contracts are substantially comprised of power contracts.

(g) Substantially comprised of power contracts for the Registrant Subsidiaries.

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

Three Months Ended March 31, 2020	AEP			APCo			I&M			OPCo			PSO			SWEPCo
	(in millions)
Balance as of December 31, 2019	$	109.9		$	37.7		$	5.8		$	(103.6	)	$	15.8		$	1.4
Realized Gain (Loss) Included in Net Income (or Changes in Net Assets) (a) (b)	0.9			(9.2		)	0.2			(0.3		)	8.0			1.9
Unrealized Gain (Loss) Included in Net Income (or Changes in Net Assets) Relating to Assets Still Held at the Reporting Date (a)	10.9			—			—			—			—			—
Realized and Unrealized Gains (Losses) Included in Other Comprehensive Income (c)	(4.1		)	—			—			—			—			—
Settlements	(59.2		)	(21.9		)	(4.0		)	2.5			(17.7		)	(5.3		)
Transfers into Level 3 (d) (e)	(0.5		)	—			—			—			—			—
Transfers out of Level 3 (e)	5.3			0.7			0.4			—			—			—
Changes in Fair Value Allocated to Regulated Jurisdictions (f)	(20.7		)	(0.7		)	(0.3		)	(19.5		)	0.2			(0.5		)
Balance as of March 31, 2020	$	42.5		$	6.6		$	2.1		$	(120.9	)	$	6.3		$	(2.5	)
Three Months Ended March 31, 2019	AEP			APCo			I&M			OPCo			PSO			SWEPCo
	(in millions)
Balance as of December 31, 2018	$	131.2		$	57.8		$	8.9		$	(99.4	)	$	9.5		$	2.3
Realized Gain (Loss) Included in Net Income (or Changes in Net Assets) (a) (b)	(23.0		)	(29.0		)	—			(0.4		)	6.8			3.3
Unrealized Gain (Loss) Included in Net Income (or Changes in Net Assets) Relating to Assets Still Held at the Reporting Date (a)	8.5			—			—			—			—			—
Realized and Unrealized Gains (Losses) Included in Other Comprehensive Income (c)	(15.8		)	—			—			—			—			—
Settlements	(54.5		)	(17.8		)	(5.1		)	1.8			(13.0		)	(7.3		)
Transfers into Level 3 (d) (e)	0.1			—			—			—			—			—
Transfers out of Level 3 (e)	(1.2		)	(0.7		)	(0.4		)	—			—			—
Changes in Fair Value Allocated to Regulated Jurisdictions (f)	(7.2		)	(2.9		)	1.0			(8.1		)	1.1			1.7
Balance as of March 31, 2019	$	38.1		$	7.4		$	4.4		$	(106.1	)	$	4.4		$	—

(a) Included in revenues on the statements of income.

(b) Represents the change in fair value between the beginning of the reporting period and the settlement of the risk management commodity contract.

(c) Included in cash flow hedges on the statements of comprehensive income.

(d) Represents existing assets or liabilities that were previously categorized as Level 2.

(e) Transfers are recognized based on their value at the beginning of the reporting period that the transfer occurred.

(f) Relates to the net gains (losses) of those contracts that are not reflected on the statements of income.  These net gains (losses) are recorded as regulatory assets/liabilities or accounts payable.

The following tables quantify the significant unobservable inputs used in developing the fair value of Level 3 positions:

AEP

Significant Unobservable Inputs

March 31, 2020

						Significant	Input/Range
	Fair Value				Valuation	Unobservable						Weighted
	Assets		Liabilities		Technique	Input	Low			High		Average (c)
	(in millions)
Energy Contracts	$	321.2	$	284.6	Discounted Cash Flow	Forward Market Price (a)	$	(0.05	)	$	135.24	$	29.17
Natural Gas Contracts	—		5.1		Discounted Cash Flow	Forward Market Price (b)	1.37			2.51		2.13
FTRs	29.1		18.1		Discounted Cash Flow	Forward Market Price (a)	(10.12		)	4.17		(0.31		)
Total	$	350.3	$	307.8

December 31, 2019

						Significant	Input/Range
	Fair Value				Valuation	Unobservable						Weighted
	Assets		Liabilities		Technique	Input	Low			High		Average (c)
	(in millions)
Energy Contracts	$	296.7	$	249.3	Discounted Cash Flow	Forward Market Price (a)	$	(0.05	)	$	177.30	$	31.31
Natural Gas Contracts	—		4.9		Discounted Cash Flow	Forward Market Price (b)	1.89			2.51		2.19
FTRs	75.7		8.3		Discounted Cash Flow	Forward Market Price (a)	(8.52		)	9.34		0.42
Total	$	372.4	$	262.5

APCo

Significant Unobservable Inputs

March 31, 2020

						Significant	Input/Range
	Fair Value				Valuation	Unobservable					Weighted
	Assets		Liabilities		Technique	Input (a)	Low		High		Average (c)
	(in millions)
Energy Contracts	$	5.3	$	2.2	Discounted Cash Flow	Forward Market Price	$	9.95	$	42.15	$	21.81
FTRs	11.8		8.3		Discounted Cash Flow	Forward Market Price	—		3.44		0.42
Total	$	17.1	$	10.5

December 31, 2019

						Significant	Input/Range
	Fair Value				Valuation	Unobservable						Weighted
	Assets		Liabilities		Technique	Input (a)	Low			High		Average (c)
	(in millions)
Energy Contracts	$	5.7	$	2.6	Discounted Cash Flow	Forward Market Price	$	12.70		$	41.20	$	25.92
FTRs	34.8		0.2		Discounted Cash Flow	Forward Market Price	(0.14		)	7.08		1.70
Total	$	40.5	$	2.8

I&M

Significant Unobservable Inputs

March 31, 2020

						Significant	Input/Range
	Fair Value				Valuation	Unobservable						Weighted
	Assets		Liabilities		Technique	Input (a)	Low			High		Average (c)
	(in millions)
Energy Contracts	$	3.2	$	1.3	Discounted Cash Flow	Forward Market Price	$	9.95		$	42.15	$	21.81
FTRs	1.7		1.5		Discounted Cash Flow	Forward Market Price	(0.51		)	2.77		0.12
Total	$	4.9	$	2.8

December 31, 2019

						Significant	Input/Range
	Fair Value				Valuation	Unobservable						Weighted
	Assets		Liabilities		Technique	Input (a)	Low			High		Average (c)
	(in millions)
Energy Contracts	$	3.4	$	1.5	Discounted Cash Flow	Forward Market Price	$	12.70		$	41.20	$	25.92
FTRs	4.6		0.7		Discounted Cash Flow	Forward Market Price	(0.75		)	4.07		0.74
Total	$	8.0	$	2.2

OPCo

Significant Unobservable Inputs

March 31, 2020

Significant

Input/Range

Fair Value

Valuation

Unobservable

Weighted

Assets

Liabilities

Technique

Input (a)

Low

High

Average (c)

(in millions)

Energy Contracts

$

—

$

120.9

Discounted Cash Flow

Forward Market Price

$

12.57

$

42.71

$

26.31

December 31, 2019

Significant

Input/Range

Fair Value

Valuation

Unobservable

Weighted

Assets

Liabilities

Technique

Input (a)

Low

High

Average (c)

(in millions)

Energy Contracts

$

—

$

103.6

Discounted Cash Flow

Forward Market Price

$

29.23

$

61.43

$

42.46

PSO

Significant Unobservable Inputs

March 31, 2020

						Significant	Input/Range
	Fair Value				Valuation	Unobservable						Weighted
	Assets		Liabilities		Technique	Input (a)	Low			High		Average (c)
	(in millions)
FTRs	$	6.7	$	0.4	Discounted Cash Flow	Forward Market Price	$	(7.07	)	$	0.95	$	(2.38	)

December 31, 2019

						Significant	Input/Range
	Fair Value				Valuation	Unobservable						Weighted
	Assets		Liabilities		Technique	Input (a)	Low			High		Average (c)
	(in millions)
FTRs	$	16.3	$	0.5	Discounted Cash Flow	Forward Market Price	$	(8.52	)	$	0.85	$	(2.31	)

SWEPCo

Significant Unobservable Inputs

March 31, 2020

						Significant	Input/Range
	Fair Value				Valuation	Unobservable						Weighted
	Assets		Liabilities		Technique	Input	Low			High		Average (c)
	(in millions)
Natural Gas Contracts	$	—	$	5.1	Discounted Cash Flow	Forward Market Price (b)	$	1.37		$	2.51	$	2.13
FTRs	2.7		0.1		Discounted Cash Flow	Forward Market Price (a)	(7.07		)	0.95		(2.38		)
Total	$	2.7	$	5.2

December 31, 2019

						Significant	Input/Range
	Fair Value				Valuation	Unobservable						Weighted
	Assets		Liabilities		Technique	Input	Low			High		Average (c)
	(in millions)
Natural Gas Contracts	$	—	$	4.9	Discounted Cash Flow	Forward Market Price (b)	$	1.89		$	2.51	$	2.18
FTRs	6.5		0.2		Discounted Cash Flow	Forward Market Price (a)	(8.52		)	0.85		(2.31		)
Total	$	6.5	$	5.1

(a) Represents market prices in dollars per MWh.

(b) Represents market prices in dollars per MMBtu.

(c) The weighted average is the product of the forward market price of the underlying commodity and volume weighted by term.

The following table provides the measurement uncertainty of fair value measurements to increases (decreases) in significant unobservable inputs related to Energy Contracts, Natural Gas Contracts and FTRs for the Registrants as of March 31, 2020 and December 31, 2019:

Uncertainty of Fair Value Measurements

Significant Unobservable Input	Position	Change in Input	Impact on Fair Value Measurement
Forward Market Price	Buy	Increase (Decrease)	Higher (Lower)
Forward Market Price	Sell	Increase (Decrease)	Lower (Higher)