12. VARIABLE INTEREST ENTITIES

The accounting guidance for “Variable Interest Entities” is a consolidation model that considers if a company has a controlling financial interest in a VIE. A controlling financial interest will have both (a) the power to direct the activities of a VIE that most significantly impact the VIE's economic performance and (b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. Entities are required to consolidate a VIE when it is determined that they have a controlling financial interest in a VIE and therefore, are the primary beneficiary of that VIE, as defined by the accounting guidance for “Variable Interest Entities.” In determining whether we are the primary beneficiary of a VIE, we consider factors such as equity at risk, the amount of the VIE's variability we absorb, guarantees of indebtedness, voting rights including kick-out rights, the power to direct the VIE, variable interests held by related parties and other factors. We believe that significant assumptions and judgments were applied consistently.

We are the primary beneficiary of Sabine, DCC Fuel, AEP Credit, Transition Funding, Ohio Phase-in-Recovery Funding, Appalachian Consumer Rate Relief Funding, a protected cell of EIS and Transource Energy. In addition, we have not provided material financial or other support to Sabine, DCC Fuel, AEP Credit, Transition Funding, Ohio Phase-in-Recovery Funding, Appalachian Consumer Rate Relief Funding, our protected cell of EIS and Transource Energy that was not previously contractually required. We hold a significant variable interest in DHLC and Potomac-Appalachian Transmission Highline, LLC West Virginia Series (West Virginia Series).

Sabine is a mining operator providing mining services to SWEPCo. SWEPCo has no equity investment in Sabine but is Sabine's only customer. SWEPCo guarantees the debt obligations and lease obligations of Sabine. Under the terms of the note agreements, substantially all assets are pledged and all rights under the lignite mining agreement are assigned to SWEPCo. The creditors of Sabine have no recourse to any AEP entity other than SWEPCo. Under the provisions of the mining agreement, SWEPCo is required to pay, as a part of the cost of lignite delivered, an amount equal to mining costs plus a management fee. In addition, SWEPCo determines how much coal will be mined each year. Based on these facts, management concluded that SWEPCo is the primary beneficiary and is required to consolidate Sabine. SWEPCo's total billings from Sabine for the three months ended March 31, 2014 and 2013 were $39 million and $44 million, respectively. See the tables below for the classification of Sabine's assets and liabilities on the condensed balance sheets.

I&M has nuclear fuel lease agreements with DCC Fuel II LLC, DCC Fuel IV LLC, DCC Fuel V LLC and DCC Fuel VI LLC (collectively DCC Fuel). DCC Fuel was formed for the purpose of acquiring, owning and leasing nuclear fuel to I&M. DCC Fuel purchased the nuclear fuel from I&M with funds received from the issuance of notes to financial institutions. Each entity is a single-lessee leasing arrangement with only one asset and is capitalized with all debt. Each is a separate legal entity from I&M, the assets of which are not available to satisfy the debts of I&M. Payments on the leases for the three months ended March 31, 2014 and 2013 were $25 million and $26 million, respectively. The leases were recorded as capital leases on I&M's balance sheet as title to the nuclear fuel transfers to I&M at the end of the respective lease terms, which do not exceed 54 months. Based on our control of DCC Fuel, management concluded that I&M is the primary beneficiary and is required to consolidate DCC Fuel. The capital leases are eliminated upon consolidation. In October 2013, the lease agreements ended for DCC Fuel LLC and DCC Fuel III LLC. See the tables below for the classification of DCC Fuel's assets and liabilities on the condensed balance sheets.

AEP Credit is a wholly-owned subsidiary of AEP. AEP Credit purchases, without recourse, accounts receivable from certain utility subsidiaries of AEP to reduce working capital requirements. AEP provides a minimum of 5% equity and up to 20% of AEP Credit's short-term borrowing needs in excess of third party financings. Any third party financing of AEP Credit only has recourse to the receivables securitized for such financing. Based on our control of AEP Credit, management concluded that we are the primary beneficiary and are required to consolidate AEP Credit. See the tables below for the classification of AEP Credit's assets and liabilities on the condensed balance sheets. See “Securitized Accounts Receivables – AEP Credit” section of Note 11.

Transition Funding was formed for the sole purpose of issuing and servicing securitization bonds related to Texas Restructuring Legislation. Management has concluded that TCC is the primary beneficiary of Transition Funding because TCC has the power to direct the most significant activities of the VIE and TCC's equity interest could potentially be significant. Therefore, TCC is required to consolidate Transition Funding. The securitized bonds totaled $2 billion and $2 billion as of March 31, 2014 and December 31, 2013, respectively. Transition Funding has securitized transition assets of $1.8 billion and $1.9 billion as of March 31, 2014 and December 31, 2013, respectively. The securitized transition assets represent the right to impose and collect Texas true-up costs from customers receiving electric transmission or distribution service from TCC under recovery mechanisms approved by the PUCT. The securitization bonds are payable only from and secured by the securitized transition assets. The bondholders have no recourse to TCC or any other AEP entity. TCC acts as the servicer for Transition Funding's securitized transition assets and remits all related amounts collected from customers to Transition Funding for interest and principal payments on the securitization bonds and related costs. See the tables below for the classification of Transition Funding's assets and liabilities on the condensed balance sheets.

Ohio Phase-in-Recovery Funding was formed for the sole purpose of issuing and servicing securitization bonds related to Phase-in recovery property. Management has concluded that OPCo is the primary beneficiary of Ohio Phase-in-Recovery Funding because OPCo has the power to direct the most significant activities of the VIE and OPCo's equity interest could potentially be significant. Therefore, OPCo is required to consolidate Ohio Phase-in-Recovery Funding. The securitized bonds totaled $267 million and $267 million as of March 31, 2014 and December 31, 2013, respectively. Ohio Phase-in-Recovery Funding has securitized assets of $127 million and $132 million as of March 31, 2014 and December 31, 2013, respectively. The phase-in recovery property represents the right to impose and collect Ohio deferred distribution charges from customers receiving electric transmission and distribution service from OPCo under a recovery mechanism approved by the PUCO. In August 2013, securitization bonds were issued. The securitization bonds are payable only from and secured by the securitized assets. The bondholders have no recourse to OPCo or any other AEP entity. OPCo acts as the servicer for Ohio Phase-in-Recovery Funding's securitized assets and remits all related amounts collected from customers to Ohio Phase-in-Recovery Funding for interest and principal payments on the securitization bonds and related costs. See the table below for the classification of Ohio Phase-in-Recovery Funding's assets and liabilities on the condensed balance sheets.

Appalachian Consumer Rate Relief Funding was formed for the sole purpose of issuing and servicing securitization bonds related to APCo's under-recovered ENEC deferral balance. Management has concluded that APCo is the primary beneficiary of Appalachian Consumer Rate Relief Funding because APCo has the power to direct the most significant activities of the VIE and APCo's equity interest could potentially be significant. Therefore, APCo is required to consolidate Appalachian Consumer Rate Relief Funding. The securitized bonds totaled $380 million and $380 million as of March 31, 2014 and December 31, 2013, respectively. Appalachian Consumer Rate Relief Funding has securitized assets of $365 million and $369 million as of March 31, 2014 and December 31, 2013, respectively. The phase-in recovery property represents the right to impose and collect West Virginia deferred generation charges from customers receiving electric transmission, distribution and generation service from APCo under a recovery mechanism approved by the WVPSC. In November 2013, securitization bonds were issued. The securitization bonds are payable only from and secured by the securitized assets. The bondholders have no recourse to APCo or any other AEP entity. APCo acts as the servicer for Appalachian Consumer Rate Relief Funding's securitized assets and remits all related amounts collected from customers to Appalachian Consumer Rate Relief Funding for interest and principal payments on the securitization bonds and related costs. See the table below for the classification of Appalachian Consumer Rate Relief Funding's assets and liabilities on the condensed balance sheets.

The securitized bonds of Transition Funding, Ohio Phase-in-Recovery Funding and Appalachian Consumer Rate Relief Funding are included in current and long-term debt on the condensed balance sheets. The securitized assets of Transition Funding, Ohio Phase-in-Recovery Funding and Appalachian Consumer Rate Relief Funding are included in securitized assets on the condensed balance sheets.

Our subsidiaries participate in one protected cell of EIS for approximately ten lines of insurance. EIS has multiple protected cells. Neither AEP nor its subsidiaries have an equity investment in EIS. The AEP System is essentially this EIS cell's only participant, but allows certain third parties access to this insurance. Our subsidiaries and any allowed third parties share in the insurance coverage, premiums and risk of loss from claims. Based on our control and the structure of the protected cell and EIS, management concluded that we are the primary beneficiary of the protected cell and are required to consolidate EIS. Our insurance premium expense to the protected cell for the three months ended March 31, 2014 and 2013 was $16 million and $15 million, respectively. See the tables below for the classification of the protected cell's assets and liabilities on the condensed balance sheets. The amount reported as equity is the protected cell's policy holders' surplus.

Transource Energy was formed for the purpose of investing in utilities which develop, acquire, construct, own and operate transmission facilities in accordance with FERC-approved rates. AEP has equity and voting ownership of 86.5% with the other owner having 13.5% interest. Management has concluded that Transource Energy is a VIE and that AEP is the primary beneficiary because AEP has the power to direct the most significant activities of the entity. AEP's equity interest could potentially be significant. Therefore, AEP is required to consolidate Transource Energy. In January 2014, Transource Missouri acquired transmission assets from the non-controlling owner and issued debt and received capital contributions to fund the acquisition. The majority of Transource Energy's activity resulted from the asset acquisition, debt issuance and capital contribution. See the table below for the classification of Transource Energy's assets and liabilities on the condensed balance sheets.

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

AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
VARIABLE INTEREST ENTITIES
March 31, 2014
(in millions)

														APCo
											OPCo			Appalachian
											Ohio			Consumer
								TCC			Phase-in-			Rate			Protected
		SWEPCo		I&M		AEP		Transition			Recovery			Relief			Cell		Transource
		Sabine		DCC Fuel		Credit		Funding			Funding			Funding			of EIS		Energy
ASSETS
Current Assets		$	62	$	109	$	1,004	$	166		$	36		$	16		$	152	$	4
Net Property, Plant and
	Equipment		154		129		-		-			-			-			-		57
Other Noncurrent Assets			50		45		-		1,861	(a)		242	(b)		374	(c)		3		5
Total Assets		$	266	$	283	$	1,004	$	2,027		$	278		$	390		$	155	$	66

LIABILITIES AND EQUITY
Current Liabilities		$	29	$	100	$	894	$	304		$	60		$	28		$	48	$	18
Noncurrent Liabilities			236		183		1		1,705			217			360			67		28
Equity			1		-		109		18			1			2			40		20
Total Liabilities and Equity		$	266	$	283	$	1,004	$	2,027		$	278		$	390		$	155	$	66

(a) Includes an intercompany item eliminated in consolidation of $81 million.

(b) Includes an intercompany item eliminated in consolidation of $112 million.

(c) Includes an intercompany item eliminated in consolidation of $4 million.

AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
VARIABLE INTEREST ENTITIES
December 31, 2013
(in millions)

													APCo
										OPCo			Appalachian
										Ohio			Consumer
							TCC			Phase-in-			Rate
	SWEPCo		I&M		AEP		Transition			Recovery			Relief			Protected Cell
	Sabine		DCC Fuel		Credit		Funding			Funding			Funding			of EIS
ASSETS
Current Assets	$	67	$	118	$	935	$	232		$	23		$	6		$	143
Net Property, Plant and Equipment		157		157		-		-			-			-			-
Other Noncurrent Assets		51		60		1		1,918	(a)		252	(b)		378	(c)		3
Total Assets	$	275	$	335	$	936	$	2,150		$	275		$	384		$	146

LIABILITIES AND EQUITY
Current Liabilities	$	33	$	108	$	827	$	312		$	37		$	14		$	39
Noncurrent Liabilities		242		227		1		1,820			237			368			66
Equity		-		-		108		18			1			2			41
Total Liabilities and Equity	$	275	$	335	$	936	$	2,150		$	275		$	384		$	146

(a) Includes an intercompany item eliminated in consolidation of $82 million.

(b) Includes an intercompany item eliminated in consolidation of $116 million.

(c) Includes an intercompany item eliminated in consolidation of $4 million.

DHLC is a mining operator that sells 50% of the lignite produced to SWEPCo and 50% to CLECO. SWEPCo and CLECO share the executive board seats and voting rights equally. Each entity guarantees 50% of DHLC's debt. SWEPCo and CLECO equally approve DHLC's annual budget. The creditors of DHLC have no recourse to any AEP entity other than SWEPCo. As SWEPCo is the sole equity owner of DHLC, it receives 100% of the management fee. SWEPCo's total billings from DHLC for the three months ended March 31, 2014 and 2013 were $2 million and $18 million, respectively. We are not required to consolidate DHLC as we are not the primary beneficiary, although we hold a significant variable interest in DHLC. Our equity investment in DHLC is included in Deferred Charges and Other Noncurrent Assets on the condensed balance sheets.

Our investment in DHLC was:

	March 31, 2014				December 31, 2013
	As Reported on		Maximum		As Reported on		Maximum
	the Balance Sheet		Exposure		the Balance Sheet		Exposure
	(in millions)
Capital Contribution from SWEPCo	$	8	$	8	$	8	$	8
Retained Earnings		2		2		1		1
SWEPCo's Guarantee of Debt		-		85		-		61

Total Investment in DHLC	$	10	$	95	$	9	$	70

We and FirstEnergy Corp. (FirstEnergy) have a joint venture in Potomac-Appalachian Transmission Highline, LLC (PATH). PATH is a series limited liability company and was created to construct, through its operating companies, a high-voltage transmission line project in the PJM region. PATH consists of the “West Virginia Series (PATH-WV),” owned equally by subsidiaries of FirstEnergy and AEP, and the “Allegheny Series” which is 100% owned by a subsidiary of FirstEnergy. Provisions exist within the PATH-WV agreement that make it a VIE. The “Allegheny Series” is not considered a VIE. We are not required to consolidate PATH-WV as we are not the primary beneficiary, although we hold a significant variable interest in PATH-WV. Our equity investment in PATH-WV is included in Deferred Charges and Other Noncurrent Assets on our condensed balance sheets. We and FirstEnergy share the returns and losses equally in PATH-WV. Our subsidiaries and FirstEnergy's subsidiaries provide services to the PATH companies through service agreements. The entities recover costs through regulated rates.

In August 2012, the PJM board cancelled the PATH Project, our transmission joint venture with FirstEnergy, and removed it from the 2012 Regional Transmission Expansion Plan. In September 2012, the PATH Project companies submitted an application to the FERC requesting authority to recover prudently-incurred costs associated with the PATH Project. In November 2012, the FERC issued an order accepting the PATH Project's abandonment cost recovery application, subject to settlement procedures and hearing. The parties to the case have been unable to reach a settlement agreement. In March 2014, the settlement judge recommended termination of the settlement proceedings and this case is expected to proceed to a hearing.

Our investment in PATH-WV was:

	March 31, 2014					December 31, 2013
	As Reported on			Maximum		As Reported on		Maximum
	the Balance Sheet			Exposure		the Balance Sheet		Exposure
			(in millions)
Capital Contribution from AEP	$	19		$	19	$	19	$	19
Retained Earnings		6			6		6		6

Total Investment in PATH-WV	$	25		$	25	$	25	$	25

As of March 31, 2014, our $25 million investment in PATH-WV is included in Deferred Charges and Other Noncurrent Assets on the condensed balance sheet. If we cannot ultimately recover our investment related to PATH-WV, it could reduce future net income and cash flows.

Variable Interest Entities

12. VARIABLE INTEREST ENTITIES

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

SWEPCo is the primary beneficiary of Sabine. I&M is the primary beneficiary of DCC Fuel. OPCo is the primary beneficiary of Ohio Phase-in-Recovery Funding. APCo is the primary beneficiary of Appalachian Consumer Rate Relief Funding. SWEPCo holds a significant variable interest in DHLC. Each of the Registrant Subsidiaries hold a significant variable interest in AEPSC. I&M and OPCo each hold a significant variable interest in AEGCo.

Appalachian Consumer Rate Relief Funding was formed for the sole purpose of issuing and servicing securitization bonds related to APCo's under-recovered ENEC deferral balance. Management has concluded that APCo is the primary beneficiary of Appalachian Consumer Rate Relief Funding because APCo has the power to direct the most significant activities of the VIE and APCo's equity interest could potentially be significant. Therefore, APCo is required to consolidate Appalachian Consumer Rate Relief Funding. The securitized bonds totaled $380 million and $380 million as of March 31, 2014 and December 31, 2013, respectively, and are included in current and long-term debt on the condensed balance sheets. Appalachian Consumer Rate Relief Funding has securitized assets of $365 million and $369 as of March 31, 2014 and December 31, 2013, respectively, which are presented separately on the face of the condensed balance sheets. The phase-in recovery property represents the right to impose and collect WV deferred generation charges from customers receiving electric transmission, distribution and generation service from APCo under a recovery mechanism approved by the WVPSC. In November 2013, securitization bonds were issued. The securitization bonds are payable only from and secured by the securitized assets. The bondholders have no recourse to APCo or any other AEP entity. APCo acts as the servicer for Appalachian Consumer Rate Relief Funding's securitized assets and remits all related amounts collected from customers to Appalachian Consumer Rate Relief Funding for interest and principal payments on the securitization bonds and related costs.

The balances below represent the assets and liabilities of Appalachian Consumer Rate Relief Funding that are consolidated. These balances include intercompany transactions that are eliminated upon consolidation.

APPALACHIAN POWER COMPANY AND SUBSIDIARIES
VARIABLE INTEREST ENTITIES
March 31, 2014 and December 31, 2013
(in thousands)
	Appalachian Consumer
	Rate Relief Funding
ASSETS	2014		2013
Current Assets	$	15,981	$	5,891
Other Noncurrent Assets (a)		373,521		378,029
Total Assets	$	389,502	$	383,920

LIABILITIES AND EQUITY
Current Liabilities	$	27,682	$	14,000
Noncurrent Liabilities		359,919		368,018
Equity		1,901		1,902
Total Liabilities and Equity	$	389,502	$	383,920

(a) Includes an intercompany item eliminated in consolidation as of March 31, 2014 of and December 31, 2013 of $4 million and $4 million, respectively.

AEPSC provides certain managerial and professional services to AEP's subsidiaries. AEP is the sole equity owner of AEPSC. AEP management controls the activities of AEPSC. The costs of the services are based on a direct charge or on a prorated basis and billed to the AEP subsidiary companies at AEPSC's cost. AEP subsidiaries have not provided financial or other support outside of the reimbursement of costs for services rendered. AEPSC finances its operations through cost reimbursement from other AEP subsidiaries. There are no other terms or arrangements between AEPSC and any of the AEP subsidiaries that could require additional financial support from an AEP subsidiary or expose them to losses outside of the normal course of business. AEPSC and its billings are subject to regulation by the FERC. AEP subsidiaries are exposed to losses to the extent they cannot recover the costs of AEPSC through their normal business operations. AEP subsidiaries are considered to have a significant interest in AEPSC due to their activity in AEPSC's cost reimbursement structure. However, AEP subsidiaries do not have control over AEPSC. AEPSC is consolidated by AEP. In the event AEPSC would require financing or other support outside the cost reimbursement billings, this financing would be provided by AEP.

Total AEPSC billings to the Registrant Subsidiaries were as follows:


	Three Months Ended March 31,
Company	2014		2013
	(in thousands)
APCo	$	50,136	$	39,040
I&M		31,969		27,498
OPCo		39,049		54,069
PSO		24,439		18,161
SWEPCo		33,023		27,480

The carrying amount and classification of variable interest in AEPSC's accounts payable are as follows:


	March 31, 2014				December 31, 2013
	As Reported on the		Maximum		As Reported on the		Maximum
Company	Balance Sheet		Exposure		Balance Sheet		Exposure
	(in thousands)
APCo	$	19,304	$	19,304	$	20,191	$	20,191
I&M		12,040		12,040		12,864		12,864
OPCo		14,046		14,046		31,425		31,425
PSO		9,330		9,330		10,596		10,596
SWEPCo		12,833		12,833		13,520		13,520

Variable Interest Entities

12. VARIABLE INTEREST ENTITIES

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

SWEPCo is the primary beneficiary of Sabine. I&M is the primary beneficiary of DCC Fuel. OPCo is the primary beneficiary of Ohio Phase-in-Recovery Funding. APCo is the primary beneficiary of Appalachian Consumer Rate Relief Funding. SWEPCo holds a significant variable interest in DHLC. Each of the Registrant Subsidiaries hold a significant variable interest in AEPSC. I&M and OPCo each hold a significant variable interest in AEGCo.

I&M has nuclear fuel lease agreements with DCC Fuel II LLC, DCC Fuel IV LLC, DCC Fuel V LLC and DCC Fuel VI LLC (collectively DCC Fuel). DCC Fuel was formed for the purpose of acquiring, owning and leasing nuclear fuel to I&M. DCC Fuel purchased the nuclear fuel from I&M with funds received from the issuance of notes to financial institutions. Each entity is a single-lessee leasing arrangement with only one asset and is capitalized with all debt. Each is a separate legal entity from I&M, the assets of which are not available to satisfy the debts of I&M. Payments on the leases for the three months ended March 31, 2014 and 2013 were $25 million and $26 million, respectively. The leases were recorded as capital leases on I&M's balance sheet as title to the nuclear fuel transfers to I&M at the end of the respective lease terms, which do not exceed 54 months. Based on I&M's control of DCC Fuel, management concluded that I&M is the primary beneficiary and is required to consolidate DCC Fuel. The capital leases are eliminated upon consolidation. In October 2013, the lease agreements ended for DCC Fuel LLC and DCC Fuel III LLC. See the table below for the classification of DCC Fuel's assets and liabilities on I&M's condensed balance sheets.

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

INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES
VARIABLE INTEREST ENTITIES
March 31, 2014 and December 31, 2013
(in thousands)
	DCC Fuel
ASSETS	2014		2013
Current Assets	$	109,374	$	117,762
Net Property, Plant and Equipment		129,013		156,820
Other Noncurrent Assets		44,853		60,450
Total Assets	$	283,240	$	335,032

LIABILITIES AND EQUITY
Current Liabilities	$	100,141	$	107,815
Noncurrent Liabilities		183,099		227,217
Total Liabilities and Equity	$	283,240	$	335,032

AEPSC provides certain managerial and professional services to AEP's subsidiaries. AEP is the sole equity owner of AEPSC. AEP management controls the activities of AEPSC. The costs of the services are based on a direct charge or on a prorated basis and billed to the AEP subsidiary companies at AEPSC's cost. AEP subsidiaries have not provided financial or other support outside of the reimbursement of costs for services rendered. AEPSC finances its operations through cost reimbursement from other AEP subsidiaries. There are no other terms or arrangements between AEPSC and any of the AEP subsidiaries that could require additional financial support from an AEP subsidiary or expose them to losses outside of the normal course of business. AEPSC and its billings are subject to regulation by the FERC. AEP subsidiaries are exposed to losses to the extent they cannot recover the costs of AEPSC through their normal business operations. AEP subsidiaries are considered to have a significant interest in AEPSC due to their activity in AEPSC's cost reimbursement structure. However, AEP subsidiaries do not have control over AEPSC. AEPSC is consolidated by AEP. In the event AEPSC would require financing or other support outside the cost reimbursement billings, this financing would be provided by AEP.

Total AEPSC billings to the Registrant Subsidiaries were as follows:


	Three Months Ended March 31,
Company	2014		2013
	(in thousands)
APCo	$	50,136	$	39,040
I&M		31,969		27,498
OPCo		39,049		54,069
PSO		24,439		18,161
SWEPCo		33,023		27,480

The carrying amount and classification of variable interest in AEPSC's accounts payable are as follows:


	March 31, 2014				December 31, 2013
	As Reported on the		Maximum		As Reported on the		Maximum
Company	Balance Sheet		Exposure		Balance Sheet		Exposure
	(in thousands)
APCo	$	19,304	$	19,304	$	20,191	$	20,191
I&M		12,040		12,040		12,864		12,864
OPCo		14,046		14,046		31,425		31,425
PSO		9,330		9,330		10,596		10,596
SWEPCo		12,833		12,833		13,520		13,520

AEGCo, a wholly-owned subsidiary of AEP, is consolidated by AEP. AEGCo owns a 50% ownership interest in Rockport Plant, Unit 1, leases a 50% interest in Rockport Plant, Unit 2 and owns 100% of the Lawrenceburg Generating Station. AEGCo sells all the output from the Rockport Plant to I&M and KPCo. AEGCo has a Unit Power Agreement associated with the Lawrenceburg Generating Station which was assigned by OPCo to AGR effective January 1, 2014. AEP has agreed to provide AEGCo with the funds necessary to satisfy all of the debt obligations of AEGCo. I&M is considered to have a significant interest in AEGCo due to these transactions. I&M is exposed to losses to the extent it cannot recover the costs of AEGCo through its normal business operations. In the event AEGCo would require financing or other support outside the billings to I&M and KPCo, this financing would be provided by AEP. For additional information regarding AEGCo's lease, see “Rockport Lease” section of Note 12 in the 2013 Annual Report.

Total billings from AEGCo were as follows:


	Three Months Ended March 31,
Company	2014		2013
	(in thousands)
I&M	$	70,422	$	58,535
OPCo		-		38,711

The carrying amount and classification of variable interest in AEGCo's accounts payable are as follows:

	March 31, 2014				December 31, 2013
	As Reported on		Maximum		As Reported on		Maximum
Company	the Balance Sheet		Exposure		the Balance Sheet		Exposure
	(in thousands)
I&M	$	24,364	$	24,364	$	23,916	$	23,916
OPCo		-		-		12,810		12,810

Variable Interest Entities

12. VARIABLE INTEREST ENTITIES

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

SWEPCo is the primary beneficiary of Sabine. I&M is the primary beneficiary of DCC Fuel. OPCo is the primary beneficiary of Ohio Phase-in-Recovery Funding. APCo is the primary beneficiary of Appalachian Consumer Rate Relief Funding. SWEPCo holds a significant variable interest in DHLC. Each of the Registrant Subsidiaries hold a significant variable interest in AEPSC. I&M and OPCo each hold a significant variable interest in AEGCo.

Ohio Phase-in-Recovery Funding was formed for the sole purpose of issuing and servicing securitization bonds related to Phase-in recovery property. Management has concluded that OPCo is the primary beneficiary of Ohio Phase-in-Recovery Funding because OPCo has the power to direct the most significant activities of the VIE and OPCo's equity interest could potentially be significant. Therefore, OPCo is required to consolidate Ohio Phase-in-Recovery Funding. The securitized bonds totaled $267 million and $267 million as of March 31, 2014 and December 31, 2013, respectively, and are included in current and long-term debt on the condensed balance sheets. Ohio Phase-in-Recovery Funding has securitized assets of $127 million and $132 million as of March 31, 2014 and December 31, 2013, respectively, which are presented separately on the face of the condensed balance sheets. The phase-in recovery property represents the right to impose and collect Ohio deferred distribution charges from customers receiving electric transmission and distribution service from OPCo under a recovery mechanism approved by the PUCO. In August 2013, securitization bonds were issued. The securitization bonds are payable only from and secured by the securitized assets. The bondholders have no recourse to OPCo or any other AEP entity. OPCo acts as the servicer for Ohio Phase-in-Recovery Funding's securitized assets and remits all related amounts collected from customers to Ohio Phase-in-Recovery Funding for interest and principal payments on the securitization bonds and related costs.

The balances below represent the assets and liabilities of Ohio Phase-in-Recovery Funding that are consolidated. These balances include intercompany transactions that are eliminated upon consolidation.

OHIO POWER COMPANY AND SUBSIDIARIES
VARIABLE INTEREST ENTITIES
March 31, 2014 and December 31, 2013
(in thousands)
	Ohio Phase-in-
	Recovery Funding
ASSETS	2014		2013
Current Assets	$	35,958	$	23,198
Other Noncurrent Assets (a)		241,814		251,409
Total Assets	$	277,772	$	274,607

LIABILITIES AND EQUITY
Current Liabilities	$	59,590	$	36,470
Noncurrent Liabilities		216,845		236,800
Equity		1,337		1,337
Total Liabilities and Equity	$	277,772	$	274,607

(a) Includes an intercompany item eliminated in consolidation as of March 31, 2014 and December 31, 2013 of $112 million and $116 million, respectively.

AEPSC provides certain managerial and professional services to AEP's subsidiaries. AEP is the sole equity owner of AEPSC. AEP management controls the activities of AEPSC. The costs of the services are based on a direct charge or on a prorated basis and billed to the AEP subsidiary companies at AEPSC's cost. AEP subsidiaries have not provided financial or other support outside of the reimbursement of costs for services rendered. AEPSC finances its operations through cost reimbursement from other AEP subsidiaries. There are no other terms or arrangements between AEPSC and any of the AEP subsidiaries that could require additional financial support from an AEP subsidiary or expose them to losses outside of the normal course of business. AEPSC and its billings are subject to regulation by the FERC. AEP subsidiaries are exposed to losses to the extent they cannot recover the costs of AEPSC through their normal business operations. AEP subsidiaries are considered to have a significant interest in AEPSC due to their activity in AEPSC's cost reimbursement structure. However, AEP subsidiaries do not have control over AEPSC. AEPSC is consolidated by AEP. In the event AEPSC would require financing or other support outside the cost reimbursement billings, this financing would be provided by AEP.

Total AEPSC billings to the Registrant Subsidiaries were as follows:


	Three Months Ended March 31,
Company	2014		2013
	(in thousands)
APCo	$	50,136	$	39,040
I&M		31,969		27,498
OPCo		39,049		54,069
PSO		24,439		18,161
SWEPCo		33,023		27,480

The carrying amount and classification of variable interest in AEPSC's accounts payable are as follows:


	March 31, 2014				December 31, 2013
	As Reported on the		Maximum		As Reported on the		Maximum
Company	Balance Sheet		Exposure		Balance Sheet		Exposure
	(in thousands)
APCo	$	19,304	$	19,304	$	20,191	$	20,191
I&M		12,040		12,040		12,864		12,864
OPCo		14,046		14,046		31,425		31,425
PSO		9,330		9,330		10,596		10,596
SWEPCo		12,833		12,833		13,520		13,520

AEGCo, a wholly-owned subsidiary of AEP, is consolidated by AEP. AEGCo owns a 50% ownership interest in Rockport Plant, Unit 1, leases a 50% interest in Rockport Plant, Unit 2 and owns 100% of the Lawrenceburg Generating Station. AEGCo sells all the output from the Rockport Plant to I&M and KPCo. AEGCo has a Unit Power Agreement associated with the Lawrenceburg Generating Station which was assigned by OPCo to AGR effective January 1, 2014. AEP has agreed to provide AEGCo with the funds necessary to satisfy all of the debt obligations of AEGCo. I&M is considered to have a significant interest in AEGCo due to these transactions. I&M is exposed to losses to the extent it cannot recover the costs of AEGCo through its normal business operations. In the event AEGCo would require financing or other support outside the billings to I&M and KPCo, this financing would be provided by AEP. For additional information regarding AEGCo's lease, see “Rockport Lease” section of Note 12 in the 2013 Annual Report.

Total billings from AEGCo were as follows:


	Three Months Ended March 31,
Company	2014		2013
	(in thousands)
I&M	$	70,422	$	58,535
OPCo		-		38,711

The carrying amount and classification of variable interest in AEGCo's accounts payable are as follows:

	March 31, 2014				December 31, 2013
	As Reported on		Maximum		As Reported on		Maximum
Company	the Balance Sheet		Exposure		the Balance Sheet		Exposure
	(in thousands)
I&M	$	24,364	$	24,364	$	23,916	$	23,916
OPCo		-		-		12,810		12,810

Variable Interest Entities

12. VARIABLE INTEREST ENTITIES

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

SWEPCo is the primary beneficiary of Sabine. I&M is the primary beneficiary of DCC Fuel. OPCo is the primary beneficiary of Ohio Phase-in-Recovery Funding. APCo is the primary beneficiary of Appalachian Consumer Rate Relief Funding. SWEPCo holds a significant variable interest in DHLC. Each of the Registrant Subsidiaries hold a significant variable interest in AEPSC. I&M and OPCo each hold a significant variable interest in AEGCo.

AEPSC provides certain managerial and professional services to AEP's subsidiaries. AEP is the sole equity owner of AEPSC. AEP management controls the activities of AEPSC. The costs of the services are based on a direct charge or on a prorated basis and billed to the AEP subsidiary companies at AEPSC's cost. AEP subsidiaries have not provided financial or other support outside of the reimbursement of costs for services rendered. AEPSC finances its operations through cost reimbursement from other AEP subsidiaries. There are no other terms or arrangements between AEPSC and any of the AEP subsidiaries that could require additional financial support from an AEP subsidiary or expose them to losses outside of the normal course of business. AEPSC and its billings are subject to regulation by the FERC. AEP subsidiaries are exposed to losses to the extent they cannot recover the costs of AEPSC through their normal business operations. AEP subsidiaries are considered to have a significant interest in AEPSC due to their activity in AEPSC's cost reimbursement structure. However, AEP subsidiaries do not have control over AEPSC. AEPSC is consolidated by AEP. In the event AEPSC would require financing or other support outside the cost reimbursement billings, this financing would be provided by AEP.

Total AEPSC billings to the Registrant Subsidiaries were as follows:


	Three Months Ended March 31,
Company	2014		2013
	(in thousands)
APCo	$	50,136	$	39,040
I&M		31,969		27,498
OPCo		39,049		54,069
PSO		24,439		18,161
SWEPCo		33,023		27,480

The carrying amount and classification of variable interest in AEPSC's accounts payable are as follows:


	March 31, 2014				December 31, 2013
	As Reported on the		Maximum		As Reported on the		Maximum
Company	Balance Sheet		Exposure		Balance Sheet		Exposure
	(in thousands)
APCo	$	19,304	$	19,304	$	20,191	$	20,191
I&M		12,040		12,040		12,864		12,864
OPCo		14,046		14,046		31,425		31,425
PSO		9,330		9,330		10,596		10,596
SWEPCo		12,833		12,833		13,520		13,520

Variable Interest Entities

12. VARIABLE INTEREST ENTITIES

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

SWEPCo is the primary beneficiary of Sabine. I&M is the primary beneficiary of DCC Fuel. OPCo is the primary beneficiary of Ohio Phase-in-Recovery Funding. APCo is the primary beneficiary of Appalachian Consumer Rate Relief Funding. SWEPCo holds a significant variable interest in DHLC. Each of the Registrant Subsidiaries hold a significant variable interest in AEPSC. I&M and OPCo each hold a significant variable interest in AEGCo.

Sabine is a mining operator providing mining services to SWEPCo. SWEPCo has no equity investment in Sabine but is Sabine's only customer. SWEPCo guarantees the debt obligations and lease obligations of Sabine. Under the terms of the note agreements, substantially all assets are pledged and all rights under the lignite mining agreement are assigned to SWEPCo. The creditors of Sabine have no recourse to any AEP entity other than SWEPCo. Under the provisions of the mining agreement, SWEPCo is required to pay, as a part of the cost of lignite delivered, an amount equal to mining costs plus a management fee. In addition, SWEPCo determines how much coal will be mined each year. Based on these facts, management concluded that SWEPCo is the primary beneficiary and is required to consolidate Sabine. SWEPCo's total billings from Sabine for the three months ended March 31, 2014 and 2013 were $39 million and $44 million, respectively. See the tables below for the classification of Sabine's assets and liabilities on SWEPCo's condensed balance sheets.

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

SOUTHWESTERN ELECTRIC POWER COMPANY CONSOLIDATED
VARIABLE INTEREST ENTITIES
March 31, 2014 and December 31, 2013
(in thousands)
	Sabine
ASSETS	2014		2013
Current Assets	$	61,675	$	66,478
Net Property, Plant and Equipment		153,928		157,274
Other Noncurrent Assets		50,140		51,211
Total Assets	$	265,743	$	274,963

LIABILITIES AND EQUITY
Current Liabilities	$	29,257	$	32,812
Noncurrent Liabilities		236,142		241,673
Equity		344		478
Total Liabilities and Equity	$	265,743	$	274,963

DHLC is a mining operator which sells 50% of the lignite produced to SWEPCo and 50% to CLECO. SWEPCo and CLECO share the executive board seats and voting rights equally. Each entity guarantees 50% of DHLC's debt. SWEPCo and CLECO equally approve DHLC's annual budget. The creditors of DHLC have no recourse to any AEP entity other than SWEPCo. As SWEPCo is the sole equity owner of DHLC, it receives 100% of the management fee. SWEPCo's total billings from DHLC for the three months ended March 31, 2014 and 2013 were $2 million and $18 million, respectively. SWEPCo is not required to consolidate DHLC as it is not the primary beneficiary, although SWEPCo holds a significant variable interest in DHLC. SWEPCo's equity investment in DHLC is included in Deferred Charges and Other Noncurrent Assets on SWEPCo's condensed balance sheets.

SWEPCo's investment in DHLC was:

	March 31, 2014				December 31, 2013
	As Reported on		Maximum		As Reported on		Maximum
	the Balance Sheet		Exposure		the Balance Sheet		Exposure
	(in thousands)
Capital Contribution from SWEPCo	$	7,643	$	7,643	$	7,643	$	7,643
Retained Earnings		1,910		1,910		1,600		1,600
SWEPCo's Guarantee of Debt		-		85,190		-		61,348

Total Investment in DHLC	$	9,553	$	94,743	$	9,243	$	70,591

AEPSC provides certain managerial and professional services to AEP's subsidiaries. AEP is the sole equity owner of AEPSC. AEP management controls the activities of AEPSC. The costs of the services are based on a direct charge or on a prorated basis and billed to the AEP subsidiary companies at AEPSC's cost. AEP subsidiaries have not provided financial or other support outside of the reimbursement of costs for services rendered. AEPSC finances its operations through cost reimbursement from other AEP subsidiaries. There are no other terms or arrangements between AEPSC and any of the AEP subsidiaries that could require additional financial support from an AEP subsidiary or expose them to losses outside of the normal course of business. AEPSC and its billings are subject to regulation by the FERC. AEP subsidiaries are exposed to losses to the extent they cannot recover the costs of AEPSC through their normal business operations. AEP subsidiaries are considered to have a significant interest in AEPSC due to their activity in AEPSC's cost reimbursement structure. However, AEP subsidiaries do not have control over AEPSC. AEPSC is consolidated by AEP. In the event AEPSC would require financing or other support outside the cost reimbursement billings, this financing would be provided by AEP.

Total AEPSC billings to the Registrant Subsidiaries were as follows:


	Three Months Ended March 31,
Company	2014		2013
	(in thousands)
APCo	$	50,136	$	39,040
I&M		31,969		27,498
OPCo		39,049		54,069
PSO		24,439		18,161
SWEPCo		33,023		27,480

The carrying amount and classification of variable interest in AEPSC's accounts payable are as follows:


	March 31, 2014				December 31, 2013
	As Reported on the		Maximum		As Reported on the		Maximum
Company	Balance Sheet		Exposure		Balance Sheet		Exposure
	(in thousands)
APCo	$	19,304	$	19,304	$	20,191	$	20,191
I&M		12,040		12,040		12,864		12,864
OPCo		14,046		14,046		31,425		31,425
PSO		9,330		9,330		10,596		10,596
SWEPCo		12,833		12,833		13,520		13,520