Leases

12 Months Ended

Dec. 31, 2015

Leases

LEASES

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

Leases of property, plant and equipment are for remaining periods up to 34 years and require payments of related property taxes, maintenance and operating costs.  The majority of the leases have purchase or renewal options and will be renewed or replaced by other leases.

Lease rentals for both operating and capital leases are generally charged to Other Operation and Maintenance expense in accordance with rate-making treatment for regulated operations.  Additionally, for regulated operations with capital leases, a capital lease asset and offsetting liability are recorded at the present value of the remaining lease payments for each reporting period.  Capital leases for nonregulated property are accounted for as if the assets were owned and financed.  The components of rental costs are as follows:

Year Ended December 31, 2015	AEP			APCo		I&M		OPCo		PSO		SWEPCo
	(in millions)
Net Lease Expense on Operating Leases	$	292.6		$	16.4	$	88.3	$	7.6	$	5.4	$	6.7
Amortization of Capital Leases	108.5			5.6		40.7		3.9		3.5		13.7
Interest on Capital Leases	25.1			0.8		3.3		0.6		0.7		6.2
Total Lease Rental Costs	$	426.2	(a)	$	22.8	$	132.3	$	12.1	$	9.6	$	26.6

Year Ended December 31, 2014	AEP			APCo		I&M		OPCo		PSO		SWEPCo
	(in millions)
Net Lease Expense on Operating Leases	$	303.9		$	18.3	$	93.4	$	6.6	$	3.2	$	5.5
Amortization of Capital Leases	109.4			5.5		44.4		5.7		4.2		14.9
Interest on Capital Leases	26.1			1.0		2.8		1.2		0.7		7.4
Total Lease Rental Costs	$	439.4	(a)	$	24.8	$	140.6	$	13.5	$	8.1	$	27.8

Year Ended December 31, 2013	AEP			APCo		I&M		OPCo		PSO		SWEPCo
	(in millions)
Net Lease Expense on Operating Leases	$	326.6		$	17.5	$	95.6	$	57.8	$	4.1	$	6.3
Amortization of Capital Leases	73.9			6.3		11.3		7.8		4.1		15.5
Interest on Capital Leases	28.3			1.4		1.9		4.1		0.8		8.1
Total Lease Rental Costs	$	428.8	(a)	$	25.2	$	108.8	$	69.7	$	9.0	$	29.9

(a) Amounts include lease expenses related to AEPRO that have been classified as Other Operation Expense from Discontinued Operations on the statements of income in the amounts of $89 million, $96 million and $103 million for the Years Ended December 31, 2015, 2014 and 2013, respectively. See “AEPRO (Corporate and Other)” section of Note 7 for additional information.

The following table shows the property, plant and equipment under capital leases and related obligations recorded on the Registrants’ balance sheets.  Unless shown as a separate line on the balance sheets due to materiality, current capital lease obligations are included in Other Current Liabilities and long-term capital lease obligations are included in Deferred Credits and Other Noncurrent Liabilities on the Registrants’ balance sheets.

December 31, 2015	AEP		APCo		I&M		OPCo		PSO		SWEPCo
	(in millions)
Property, Plant and Equipment Under Capital Leases:
Generation	$	128.2	$	43.4	$	14.5	$	—	$	9.6	$	34.5
Other Property, Plant and Equipment	439.3		17.6		68.2		23.4		18.6		165.1
Total Property, Plant and Equipment	567.5		61.0		82.7		23.4		28.2		199.6
Accumulated Amortization	214.1		15.6		19.7		10.2		13.6		91.3
Net Property, Plant and Equipment Under Capital Leases	$	353.4	$	45.4	$	63.0	$	13.2	$	14.6	$	108.3
Obligations Under Capital Leases:
Noncurrent Liability	$	247.3	$	39.1	$	30.2	$	9.3	$	10.9	$	75.6
Liability Due Within One Year	96.2		6.3		32.8		3.9		3.7		21.9
Total Obligations Under Capital Leases	$	343.5	$	45.4	$	63.0	$	13.2	$	14.6	$	97.5

December 31, 2014	AEP			APCo		I&M		OPCo		PSO		SWEPCo
	(in millions)
Property, Plant and Equipment Under Capital Leases:
Generation	$	104.4		$	14.1	$	18.7	$	—	$	9.6	$	35.4
Other Property, Plant and Equipment	683.0			19.4		100.4		22.6		16.5		159.5
Total Property, Plant and Equipment	787.4			33.5		119.1		22.6		26.1		194.9
Accumulated Amortization	240.0			14.0		15.9		8.0		11.8		80.1
Net Property, Plant and Equipment Under Capital Leases	$	547.4	(a)	$	19.5	$	103.2	$	14.6	$	14.3	$	114.8
Obligations Under Capital Leases:
Noncurrent Liability	$	440.4		$	14.4	$	61.1	$	11.0	$	10.9	$	91.0
Liability Due Within One Year	111.4			5.1		42.1		3.6		3.4		17.6
Total Obligations Under Capital Leases	$	551.8	(a)	$	19.5	$	103.2	$	14.6	$	14.3	$	108.6

(a) Amounts include Net Property Under Capital Leases that have been classified as Assets from Discontinued Operations in the amount of $179 million and Total Obligations Under Capital Leases that have been classified as Liabilities from Discontinued Operations in the amount of $189 million on the December 31, 2014 balance sheet. See “AEPRO (Corporate and Other)” section of Note 7 for additional information.

Future minimum lease payments consisted of the following as of December 31, 2015:

Capital Leases	AEP		APCo		I&M		OPCo		PSO		SWEPCo
	(in millions)
2016	$	112.9	$	9.8	$	36.6	$	4.4	$	4.3	$	26.1
2017	76.2		9.4		12.1		4.0		4.1		18.2
2018	54.9		8.4		6.5		3.1		2.9		12.7
2019	38.7		6.4		3.0		1.0		1.6		11.4
2020	27.7		5.7		2.7		0.6		1.0		9.7
Later Years	110.7		26.5		20.3		1.4		2.6		40.3
Total Future Minimum Lease Payments	421.1		66.2		81.2		14.5		16.5		118.4
Less Estimated Interest Element	77.6		20.8		18.2		1.3		1.9		20.9
Estimated Present Value of Future Minimum Lease Payments	$	343.5	$	45.4	$	63.0	$	13.2	$	14.6	$	97.5
Noncancelable Operating Leases	AEP		APCo		I&M		OPCo		PSO		SWEPCo
	(in millions)
2016	$	239.1	$	15.6	$	92.7	$	8.8	$	4.8	$	6.3
2017	228.7		15.2		90.9		8.3		3.9		5.3
2018	219.9		13.8		89.7		6.9		3.5		4.8
2019	211.2		12.4		88.5		5.4		2.9		4.5
2020	202.8		11.8		85.1		4.5		2.4		4.2
Later Years	452.3		36.0		173.8		20.2		4.7		16.5
Total Future Minimum Lease Payments	$	1,554.0	$	104.8	$	620.7	$	54.1	$	22.2	$	41.6

Master Lease Agreements

The Registrants lease certain equipment under master lease agreements.  Under the lease agreements, the lessor is guaranteed a residual value up to a stated percentage of either the unamortized balance or the equipment cost at the end of the lease term.  If the actual fair value of the leased equipment is below the guaranteed residual value at the end of the lease term, the Registrants are committed to pay the difference between the actual fair value and the residual value guarantee.  Historically, at the end of the lease term the fair value has been in excess of the unamortized balance.  As of December 31, 2015, the maximum potential loss by the Registrants for these lease agreements assuming the fair value of the equipment is zero at the end of the lease term is as follows:

Company	Maximum Potential Loss
	(in millions)
AEP	$	33.4
APCo	4.8
I&M	3.2
OPCo	5.3
PSO	2.8
SWEPCo	3.4

Rockport Lease (Applies to AEP and I&M)

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

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

Future Minimum Lease Payments	AEP (a)		I&M
	(in millions)
2016	$	147.8	$	73.9
2017	147.8		73.9
2018	147.8		73.9
2019	147.8		73.9
2020	147.8		73.9
Later Years	295.0		147.5
Total Future Minimum Lease Payments	$	1,034.0	$	517.0

(a) AEP’s future minimum lease payments includes equal shares from AEGCo and I&M.

Railcar Lease (Applies to AEP, I&M and SWEPCo)

In June 2003, AEP Transportation LLC (AEP Transportation), a subsidiary of AEP, entered into an agreement with BTM Capital Corporation, as lessor, to lease 875 coal-transporting aluminum railcars.  The lease is accounted for as an operating lease.  In January 2008, AEP Transportation assigned the remaining 848 railcars under the original lease agreement to I&M (390 railcars) and SWEPCo (458 railcars).  The assignment is accounted for as operating leases for I&M and SWEPCo.  The initial lease term was five years with three consecutive five-year renewal periods for a maximum lease term of twenty years.  I&M and SWEPCo intend to renew these leases for the full lease term of twenty years via the renewal options.  The future minimum lease obligations are $10 million and $11 million for I&M and SWEPCo, respectively, for the remaining railcars as of December 31, 2015.  These obligations are included in the future minimum lease payments schedule earlier in this note.

Under the lease agreement, the lessor is guaranteed that the sale proceeds under a return-and-sale option will equal at least a lessee obligation amount specified in the lease, which declines from 83% of the projected fair value of the equipment under the current five-year lease term to 77% at the end of the 20-year term.  I&M and SWEPCo have assumed the guarantee under the return-and-sale option.  The maximum potential losses related to the guarantee are $9 million and $10 million for I&M and SWEPCo, respectively, as of December 31, 2015, assuming the fair value of the equipment is zero at the end of the current five-year lease term.  However, management believes that the fair value would produce a sufficient sales price to avoid any loss.

AEPRO Boat and Barge Leases (Applies to AEP)

In October 2015, AEP signed a Purchase and Sale Agreement to sell its commercial barge transportation subsidiary, AEPRO, to a nonaffiliated party. The sale closed in November 2015. See “AEPRO (Corporate and Other)” section of Note 7. Certain of the boat and barge leases acquired by the nonaffiliated party are subject to an AEP guarantee in favor of the lessor, ensuring future payments under such leases with maturities up to 2026. As of December 31, 2015, the maximum potential amount of future payments required under the guaranteed leases was $94 million. In certain instances, AEP has no recourse against the nonaffiliated party if required to pay a lessor under a guarantee, but AEP would have access to sell the leased assets in order to recover payments made by AEP under the guarantee. As of December 31, 2015, AEP’s boat and barge lease guarantee liability was $16 million.

Sabine Dragline Lease (Applies to AEP and SWEPCo)

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

I&M Nuclear Fuel Lease (Applies to AEP and I&M)

In November 2013, I&M entered into a sale-and-leaseback transaction with IMP 11-2013, a nonaffiliated Ohio trust, to lease nuclear fuel for I&M’s Cook Plant.  In November 2013, I&M sold a portion of its unamortized nuclear fuel inventory to the trust for $110 million.  The lease has a variable rate based on one month LIBOR and is accounted for as a capital lease with lease terms up to 54 months.  The future payment obligations of $35 million are included in I&M’s future minimum lease payments schedule earlier in this note.  The net capital lease asset is included in Other Property, Plant and Equipment on the balance sheets.  The short-term capital lease obligations are included in Other Current Liabilities on AEP’s balance sheets and in Obligations Under Capital Leases on I&M’s balance sheets.  The long-term capital lease obligations are included in Deferred Credits and Other Noncurrent Liabilities on the balance sheets.  The future minimum lease payments for the sale-and-leaseback transaction as of December 31, 2015 are as follows, based on estimated fuel burn:

Future Minimum Lease Payments	I&M
	(in millions)
2016	$	26.9
2017	5.8
2018	2.4
Total Future Minimum Lease Payments	$	35.1

Appalachian Power Co [Member]

Leases

LEASES

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

Leases of property, plant and equipment are for remaining periods up to 34 years and require payments of related property taxes, maintenance and operating costs.  The majority of the leases have purchase or renewal options and will be renewed or replaced by other leases.

Lease rentals for both operating and capital leases are generally charged to Other Operation and Maintenance expense in accordance with rate-making treatment for regulated operations.  Additionally, for regulated operations with capital leases, a capital lease asset and offsetting liability are recorded at the present value of the remaining lease payments for each reporting period.  Capital leases for nonregulated property are accounted for as if the assets were owned and financed.  The components of rental costs are as follows:

Year Ended December 31, 2015	AEP			APCo		I&M		OPCo		PSO		SWEPCo
	(in millions)
Net Lease Expense on Operating Leases	$	292.6		$	16.4	$	88.3	$	7.6	$	5.4	$	6.7
Amortization of Capital Leases	108.5			5.6		40.7		3.9		3.5		13.7
Interest on Capital Leases	25.1			0.8		3.3		0.6		0.7		6.2
Total Lease Rental Costs	$	426.2	(a)	$	22.8	$	132.3	$	12.1	$	9.6	$	26.6

Year Ended December 31, 2014	AEP			APCo		I&M		OPCo		PSO		SWEPCo
	(in millions)
Net Lease Expense on Operating Leases	$	303.9		$	18.3	$	93.4	$	6.6	$	3.2	$	5.5
Amortization of Capital Leases	109.4			5.5		44.4		5.7		4.2		14.9
Interest on Capital Leases	26.1			1.0		2.8		1.2		0.7		7.4
Total Lease Rental Costs	$	439.4	(a)	$	24.8	$	140.6	$	13.5	$	8.1	$	27.8

Year Ended December 31, 2013	AEP			APCo		I&M		OPCo		PSO		SWEPCo
	(in millions)
Net Lease Expense on Operating Leases	$	326.6		$	17.5	$	95.6	$	57.8	$	4.1	$	6.3
Amortization of Capital Leases	73.9			6.3		11.3		7.8		4.1		15.5
Interest on Capital Leases	28.3			1.4		1.9		4.1		0.8		8.1
Total Lease Rental Costs	$	428.8	(a)	$	25.2	$	108.8	$	69.7	$	9.0	$	29.9

(a) Amounts include lease expenses related to AEPRO that have been classified as Other Operation Expense from Discontinued Operations on the statements of income in the amounts of $89 million, $96 million and $103 million for the Years Ended December 31, 2015, 2014 and 2013, respectively. See “AEPRO (Corporate and Other)” section of Note 7 for additional information.

The following table shows the property, plant and equipment under capital leases and related obligations recorded on the Registrants’ balance sheets.  Unless shown as a separate line on the balance sheets due to materiality, current capital lease obligations are included in Other Current Liabilities and long-term capital lease obligations are included in Deferred Credits and Other Noncurrent Liabilities on the Registrants’ balance sheets.

December 31, 2015	AEP		APCo		I&M		OPCo		PSO		SWEPCo
	(in millions)
Property, Plant and Equipment Under Capital Leases:
Generation	$	128.2	$	43.4	$	14.5	$	—	$	9.6	$	34.5
Other Property, Plant and Equipment	439.3		17.6		68.2		23.4		18.6		165.1
Total Property, Plant and Equipment	567.5		61.0		82.7		23.4		28.2		199.6
Accumulated Amortization	214.1		15.6		19.7		10.2		13.6		91.3
Net Property, Plant and Equipment Under Capital Leases	$	353.4	$	45.4	$	63.0	$	13.2	$	14.6	$	108.3
Obligations Under Capital Leases:
Noncurrent Liability	$	247.3	$	39.1	$	30.2	$	9.3	$	10.9	$	75.6
Liability Due Within One Year	96.2		6.3		32.8		3.9		3.7		21.9
Total Obligations Under Capital Leases	$	343.5	$	45.4	$	63.0	$	13.2	$	14.6	$	97.5

December 31, 2014	AEP			APCo		I&M		OPCo		PSO		SWEPCo
	(in millions)
Property, Plant and Equipment Under Capital Leases:
Generation	$	104.4		$	14.1	$	18.7	$	—	$	9.6	$	35.4
Other Property, Plant and Equipment	683.0			19.4		100.4		22.6		16.5		159.5
Total Property, Plant and Equipment	787.4			33.5		119.1		22.6		26.1		194.9
Accumulated Amortization	240.0			14.0		15.9		8.0		11.8		80.1
Net Property, Plant and Equipment Under Capital Leases	$	547.4	(a)	$	19.5	$	103.2	$	14.6	$	14.3	$	114.8
Obligations Under Capital Leases:
Noncurrent Liability	$	440.4		$	14.4	$	61.1	$	11.0	$	10.9	$	91.0
Liability Due Within One Year	111.4			5.1		42.1		3.6		3.4		17.6
Total Obligations Under Capital Leases	$	551.8	(a)	$	19.5	$	103.2	$	14.6	$	14.3	$	108.6

(a) Amounts include Net Property Under Capital Leases that have been classified as Assets from Discontinued Operations in the amount of $179 million and Total Obligations Under Capital Leases that have been classified as Liabilities from Discontinued Operations in the amount of $189 million on the December 31, 2014 balance sheet. See “AEPRO (Corporate and Other)” section of Note 7 for additional information.

Future minimum lease payments consisted of the following as of December 31, 2015:

Capital Leases	AEP		APCo		I&M		OPCo		PSO		SWEPCo
	(in millions)
2016	$	112.9	$	9.8	$	36.6	$	4.4	$	4.3	$	26.1
2017	76.2		9.4		12.1		4.0		4.1		18.2
2018	54.9		8.4		6.5		3.1		2.9		12.7
2019	38.7		6.4		3.0		1.0		1.6		11.4
2020	27.7		5.7		2.7		0.6		1.0		9.7
Later Years	110.7		26.5		20.3		1.4		2.6		40.3
Total Future Minimum Lease Payments	421.1		66.2		81.2		14.5		16.5		118.4
Less Estimated Interest Element	77.6		20.8		18.2		1.3		1.9		20.9
Estimated Present Value of Future Minimum Lease Payments	$	343.5	$	45.4	$	63.0	$	13.2	$	14.6	$	97.5
Noncancelable Operating Leases	AEP		APCo		I&M		OPCo		PSO		SWEPCo
	(in millions)
2016	$	239.1	$	15.6	$	92.7	$	8.8	$	4.8	$	6.3
2017	228.7		15.2		90.9		8.3		3.9		5.3
2018	219.9		13.8		89.7		6.9		3.5		4.8
2019	211.2		12.4		88.5		5.4		2.9		4.5
2020	202.8		11.8		85.1		4.5		2.4		4.2
Later Years	452.3		36.0		173.8		20.2		4.7		16.5
Total Future Minimum Lease Payments	$	1,554.0	$	104.8	$	620.7	$	54.1	$	22.2	$	41.6

Master Lease Agreements

The Registrants lease certain equipment under master lease agreements.  Under the lease agreements, the lessor is guaranteed a residual value up to a stated percentage of either the unamortized balance or the equipment cost at the end of the lease term.  If the actual fair value of the leased equipment is below the guaranteed residual value at the end of the lease term, the Registrants are committed to pay the difference between the actual fair value and the residual value guarantee.  Historically, at the end of the lease term the fair value has been in excess of the unamortized balance.  As of December 31, 2015, the maximum potential loss by the Registrants for these lease agreements assuming the fair value of the equipment is zero at the end of the lease term is as follows:

Company	Maximum Potential Loss
	(in millions)
AEP	$	33.4
APCo	4.8
I&M	3.2
OPCo	5.3
PSO	2.8
SWEPCo	3.4

Rockport Lease (Applies to AEP and I&M)

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

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

Future Minimum Lease Payments	AEP (a)		I&M
	(in millions)
2016	$	147.8	$	73.9
2017	147.8		73.9
2018	147.8		73.9
2019	147.8		73.9
2020	147.8		73.9
Later Years	295.0		147.5
Total Future Minimum Lease Payments	$	1,034.0	$	517.0

(a) AEP’s future minimum lease payments includes equal shares from AEGCo and I&M.

Railcar Lease (Applies to AEP, I&M and SWEPCo)

In June 2003, AEP Transportation LLC (AEP Transportation), a subsidiary of AEP, entered into an agreement with BTM Capital Corporation, as lessor, to lease 875 coal-transporting aluminum railcars.  The lease is accounted for as an operating lease.  In January 2008, AEP Transportation assigned the remaining 848 railcars under the original lease agreement to I&M (390 railcars) and SWEPCo (458 railcars).  The assignment is accounted for as operating leases for I&M and SWEPCo.  The initial lease term was five years with three consecutive five-year renewal periods for a maximum lease term of twenty years.  I&M and SWEPCo intend to renew these leases for the full lease term of twenty years via the renewal options.  The future minimum lease obligations are $10 million and $11 million for I&M and SWEPCo, respectively, for the remaining railcars as of December 31, 2015.  These obligations are included in the future minimum lease payments schedule earlier in this note.

Under the lease agreement, the lessor is guaranteed that the sale proceeds under a return-and-sale option will equal at least a lessee obligation amount specified in the lease, which declines from 83% of the projected fair value of the equipment under the current five-year lease term to 77% at the end of the 20-year term.  I&M and SWEPCo have assumed the guarantee under the return-and-sale option.  The maximum potential losses related to the guarantee are $9 million and $10 million for I&M and SWEPCo, respectively, as of December 31, 2015, assuming the fair value of the equipment is zero at the end of the current five-year lease term.  However, management believes that the fair value would produce a sufficient sales price to avoid any loss.

AEPRO Boat and Barge Leases (Applies to AEP)

In October 2015, AEP signed a Purchase and Sale Agreement to sell its commercial barge transportation subsidiary, AEPRO, to a nonaffiliated party. The sale closed in November 2015. See “AEPRO (Corporate and Other)” section of Note 7. Certain of the boat and barge leases acquired by the nonaffiliated party are subject to an AEP guarantee in favor of the lessor, ensuring future payments under such leases with maturities up to 2026. As of December 31, 2015, the maximum potential amount of future payments required under the guaranteed leases was $94 million. In certain instances, AEP has no recourse against the nonaffiliated party if required to pay a lessor under a guarantee, but AEP would have access to sell the leased assets in order to recover payments made by AEP under the guarantee. As of December 31, 2015, AEP’s boat and barge lease guarantee liability was $16 million.

Sabine Dragline Lease (Applies to AEP and SWEPCo)

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

I&M Nuclear Fuel Lease (Applies to AEP and I&M)

In November 2013, I&M entered into a sale-and-leaseback transaction with IMP 11-2013, a nonaffiliated Ohio trust, to lease nuclear fuel for I&M’s Cook Plant.  In November 2013, I&M sold a portion of its unamortized nuclear fuel inventory to the trust for $110 million.  The lease has a variable rate based on one month LIBOR and is accounted for as a capital lease with lease terms up to 54 months.  The future payment obligations of $35 million are included in I&M’s future minimum lease payments schedule earlier in this note.  The net capital lease asset is included in Other Property, Plant and Equipment on the balance sheets.  The short-term capital lease obligations are included in Other Current Liabilities on AEP’s balance sheets and in Obligations Under Capital Leases on I&M’s balance sheets.  The long-term capital lease obligations are included in Deferred Credits and Other Noncurrent Liabilities on the balance sheets.  The future minimum lease payments for the sale-and-leaseback transaction as of December 31, 2015 are as follows, based on estimated fuel burn:

Future Minimum Lease Payments	I&M
	(in millions)
2016	$	26.9
2017	5.8
2018	2.4
Total Future Minimum Lease Payments	$	35.1

Indiana Michigan Power Co [Member]

Leases

LEASES

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

Leases of property, plant and equipment are for remaining periods up to 34 years and require payments of related property taxes, maintenance and operating costs.  The majority of the leases have purchase or renewal options and will be renewed or replaced by other leases.

Lease rentals for both operating and capital leases are generally charged to Other Operation and Maintenance expense in accordance with rate-making treatment for regulated operations.  Additionally, for regulated operations with capital leases, a capital lease asset and offsetting liability are recorded at the present value of the remaining lease payments for each reporting period.  Capital leases for nonregulated property are accounted for as if the assets were owned and financed.  The components of rental costs are as follows:

Year Ended December 31, 2015	AEP			APCo		I&M		OPCo		PSO		SWEPCo
	(in millions)
Net Lease Expense on Operating Leases	$	292.6		$	16.4	$	88.3	$	7.6	$	5.4	$	6.7
Amortization of Capital Leases	108.5			5.6		40.7		3.9		3.5		13.7
Interest on Capital Leases	25.1			0.8		3.3		0.6		0.7		6.2
Total Lease Rental Costs	$	426.2	(a)	$	22.8	$	132.3	$	12.1	$	9.6	$	26.6

Year Ended December 31, 2014	AEP			APCo		I&M		OPCo		PSO		SWEPCo
	(in millions)
Net Lease Expense on Operating Leases	$	303.9		$	18.3	$	93.4	$	6.6	$	3.2	$	5.5
Amortization of Capital Leases	109.4			5.5		44.4		5.7		4.2		14.9
Interest on Capital Leases	26.1			1.0		2.8		1.2		0.7		7.4
Total Lease Rental Costs	$	439.4	(a)	$	24.8	$	140.6	$	13.5	$	8.1	$	27.8

Year Ended December 31, 2013	AEP			APCo		I&M		OPCo		PSO		SWEPCo
	(in millions)
Net Lease Expense on Operating Leases	$	326.6		$	17.5	$	95.6	$	57.8	$	4.1	$	6.3
Amortization of Capital Leases	73.9			6.3		11.3		7.8		4.1		15.5
Interest on Capital Leases	28.3			1.4		1.9		4.1		0.8		8.1
Total Lease Rental Costs	$	428.8	(a)	$	25.2	$	108.8	$	69.7	$	9.0	$	29.9

(a) Amounts include lease expenses related to AEPRO that have been classified as Other Operation Expense from Discontinued Operations on the statements of income in the amounts of $89 million, $96 million and $103 million for the Years Ended December 31, 2015, 2014 and 2013, respectively. See “AEPRO (Corporate and Other)” section of Note 7 for additional information.

The following table shows the property, plant and equipment under capital leases and related obligations recorded on the Registrants’ balance sheets.  Unless shown as a separate line on the balance sheets due to materiality, current capital lease obligations are included in Other Current Liabilities and long-term capital lease obligations are included in Deferred Credits and Other Noncurrent Liabilities on the Registrants’ balance sheets.

December 31, 2015	AEP		APCo		I&M		OPCo		PSO		SWEPCo
	(in millions)
Property, Plant and Equipment Under Capital Leases:
Generation	$	128.2	$	43.4	$	14.5	$	—	$	9.6	$	34.5
Other Property, Plant and Equipment	439.3		17.6		68.2		23.4		18.6		165.1
Total Property, Plant and Equipment	567.5		61.0		82.7		23.4		28.2		199.6
Accumulated Amortization	214.1		15.6		19.7		10.2		13.6		91.3
Net Property, Plant and Equipment Under Capital Leases	$	353.4	$	45.4	$	63.0	$	13.2	$	14.6	$	108.3
Obligations Under Capital Leases:
Noncurrent Liability	$	247.3	$	39.1	$	30.2	$	9.3	$	10.9	$	75.6
Liability Due Within One Year	96.2		6.3		32.8		3.9		3.7		21.9
Total Obligations Under Capital Leases	$	343.5	$	45.4	$	63.0	$	13.2	$	14.6	$	97.5

December 31, 2014	AEP			APCo		I&M		OPCo		PSO		SWEPCo
	(in millions)
Property, Plant and Equipment Under Capital Leases:
Generation	$	104.4		$	14.1	$	18.7	$	—	$	9.6	$	35.4
Other Property, Plant and Equipment	683.0			19.4		100.4		22.6		16.5		159.5
Total Property, Plant and Equipment	787.4			33.5		119.1		22.6		26.1		194.9
Accumulated Amortization	240.0			14.0		15.9		8.0		11.8		80.1
Net Property, Plant and Equipment Under Capital Leases	$	547.4	(a)	$	19.5	$	103.2	$	14.6	$	14.3	$	114.8
Obligations Under Capital Leases:
Noncurrent Liability	$	440.4		$	14.4	$	61.1	$	11.0	$	10.9	$	91.0
Liability Due Within One Year	111.4			5.1		42.1		3.6		3.4		17.6
Total Obligations Under Capital Leases	$	551.8	(a)	$	19.5	$	103.2	$	14.6	$	14.3	$	108.6

(a) Amounts include Net Property Under Capital Leases that have been classified as Assets from Discontinued Operations in the amount of $179 million and Total Obligations Under Capital Leases that have been classified as Liabilities from Discontinued Operations in the amount of $189 million on the December 31, 2014 balance sheet. See “AEPRO (Corporate and Other)” section of Note 7 for additional information.

Future minimum lease payments consisted of the following as of December 31, 2015:

Capital Leases	AEP		APCo		I&M		OPCo		PSO		SWEPCo
	(in millions)
2016	$	112.9	$	9.8	$	36.6	$	4.4	$	4.3	$	26.1
2017	76.2		9.4		12.1		4.0		4.1		18.2
2018	54.9		8.4		6.5		3.1		2.9		12.7
2019	38.7		6.4		3.0		1.0		1.6		11.4
2020	27.7		5.7		2.7		0.6		1.0		9.7
Later Years	110.7		26.5		20.3		1.4		2.6		40.3
Total Future Minimum Lease Payments	421.1		66.2		81.2		14.5		16.5		118.4
Less Estimated Interest Element	77.6		20.8		18.2		1.3		1.9		20.9
Estimated Present Value of Future Minimum Lease Payments	$	343.5	$	45.4	$	63.0	$	13.2	$	14.6	$	97.5
Noncancelable Operating Leases	AEP		APCo		I&M		OPCo		PSO		SWEPCo
	(in millions)
2016	$	239.1	$	15.6	$	92.7	$	8.8	$	4.8	$	6.3
2017	228.7		15.2		90.9		8.3		3.9		5.3
2018	219.9		13.8		89.7		6.9		3.5		4.8
2019	211.2		12.4		88.5		5.4		2.9		4.5
2020	202.8		11.8		85.1		4.5		2.4		4.2
Later Years	452.3		36.0		173.8		20.2		4.7		16.5
Total Future Minimum Lease Payments	$	1,554.0	$	104.8	$	620.7	$	54.1	$	22.2	$	41.6

Master Lease Agreements

The Registrants lease certain equipment under master lease agreements.  Under the lease agreements, the lessor is guaranteed a residual value up to a stated percentage of either the unamortized balance or the equipment cost at the end of the lease term.  If the actual fair value of the leased equipment is below the guaranteed residual value at the end of the lease term, the Registrants are committed to pay the difference between the actual fair value and the residual value guarantee.  Historically, at the end of the lease term the fair value has been in excess of the unamortized balance.  As of December 31, 2015, the maximum potential loss by the Registrants for these lease agreements assuming the fair value of the equipment is zero at the end of the lease term is as follows:

Company	Maximum Potential Loss
	(in millions)
AEP	$	33.4
APCo	4.8
I&M	3.2
OPCo	5.3
PSO	2.8
SWEPCo	3.4

Rockport Lease (Applies to AEP and I&M)

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

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

Future Minimum Lease Payments	AEP (a)		I&M
	(in millions)
2016	$	147.8	$	73.9
2017	147.8		73.9
2018	147.8		73.9
2019	147.8		73.9
2020	147.8		73.9
Later Years	295.0		147.5
Total Future Minimum Lease Payments	$	1,034.0	$	517.0

(a) AEP’s future minimum lease payments includes equal shares from AEGCo and I&M.

Railcar Lease (Applies to AEP, I&M and SWEPCo)

In June 2003, AEP Transportation LLC (AEP Transportation), a subsidiary of AEP, entered into an agreement with BTM Capital Corporation, as lessor, to lease 875 coal-transporting aluminum railcars.  The lease is accounted for as an operating lease.  In January 2008, AEP Transportation assigned the remaining 848 railcars under the original lease agreement to I&M (390 railcars) and SWEPCo (458 railcars).  The assignment is accounted for as operating leases for I&M and SWEPCo.  The initial lease term was five years with three consecutive five-year renewal periods for a maximum lease term of twenty years.  I&M and SWEPCo intend to renew these leases for the full lease term of twenty years via the renewal options.  The future minimum lease obligations are $10 million and $11 million for I&M and SWEPCo, respectively, for the remaining railcars as of December 31, 2015.  These obligations are included in the future minimum lease payments schedule earlier in this note.

Under the lease agreement, the lessor is guaranteed that the sale proceeds under a return-and-sale option will equal at least a lessee obligation amount specified in the lease, which declines from 83% of the projected fair value of the equipment under the current five-year lease term to 77% at the end of the 20-year term.  I&M and SWEPCo have assumed the guarantee under the return-and-sale option.  The maximum potential losses related to the guarantee are $9 million and $10 million for I&M and SWEPCo, respectively, as of December 31, 2015, assuming the fair value of the equipment is zero at the end of the current five-year lease term.  However, management believes that the fair value would produce a sufficient sales price to avoid any loss.

AEPRO Boat and Barge Leases (Applies to AEP)

In October 2015, AEP signed a Purchase and Sale Agreement to sell its commercial barge transportation subsidiary, AEPRO, to a nonaffiliated party. The sale closed in November 2015. See “AEPRO (Corporate and Other)” section of Note 7. Certain of the boat and barge leases acquired by the nonaffiliated party are subject to an AEP guarantee in favor of the lessor, ensuring future payments under such leases with maturities up to 2026. As of December 31, 2015, the maximum potential amount of future payments required under the guaranteed leases was $94 million. In certain instances, AEP has no recourse against the nonaffiliated party if required to pay a lessor under a guarantee, but AEP would have access to sell the leased assets in order to recover payments made by AEP under the guarantee. As of December 31, 2015, AEP’s boat and barge lease guarantee liability was $16 million.

Sabine Dragline Lease (Applies to AEP and SWEPCo)

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

I&M Nuclear Fuel Lease (Applies to AEP and I&M)

In November 2013, I&M entered into a sale-and-leaseback transaction with IMP 11-2013, a nonaffiliated Ohio trust, to lease nuclear fuel for I&M’s Cook Plant.  In November 2013, I&M sold a portion of its unamortized nuclear fuel inventory to the trust for $110 million.  The lease has a variable rate based on one month LIBOR and is accounted for as a capital lease with lease terms up to 54 months.  The future payment obligations of $35 million are included in I&M’s future minimum lease payments schedule earlier in this note.  The net capital lease asset is included in Other Property, Plant and Equipment on the balance sheets.  The short-term capital lease obligations are included in Other Current Liabilities on AEP’s balance sheets and in Obligations Under Capital Leases on I&M’s balance sheets.  The long-term capital lease obligations are included in Deferred Credits and Other Noncurrent Liabilities on the balance sheets.  The future minimum lease payments for the sale-and-leaseback transaction as of December 31, 2015 are as follows, based on estimated fuel burn:

Future Minimum Lease Payments	I&M
	(in millions)
2016	$	26.9
2017	5.8
2018	2.4
Total Future Minimum Lease Payments	$	35.1

Ohio Power Co [Member]

Leases

LEASES

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

Leases of property, plant and equipment are for remaining periods up to 34 years and require payments of related property taxes, maintenance and operating costs.  The majority of the leases have purchase or renewal options and will be renewed or replaced by other leases.

Lease rentals for both operating and capital leases are generally charged to Other Operation and Maintenance expense in accordance with rate-making treatment for regulated operations.  Additionally, for regulated operations with capital leases, a capital lease asset and offsetting liability are recorded at the present value of the remaining lease payments for each reporting period.  Capital leases for nonregulated property are accounted for as if the assets were owned and financed.  The components of rental costs are as follows:

Year Ended December 31, 2015	AEP			APCo		I&M		OPCo		PSO		SWEPCo
	(in millions)
Net Lease Expense on Operating Leases	$	292.6		$	16.4	$	88.3	$	7.6	$	5.4	$	6.7
Amortization of Capital Leases	108.5			5.6		40.7		3.9		3.5		13.7
Interest on Capital Leases	25.1			0.8		3.3		0.6		0.7		6.2
Total Lease Rental Costs	$	426.2	(a)	$	22.8	$	132.3	$	12.1	$	9.6	$	26.6

Year Ended December 31, 2014	AEP			APCo		I&M		OPCo		PSO		SWEPCo
	(in millions)
Net Lease Expense on Operating Leases	$	303.9		$	18.3	$	93.4	$	6.6	$	3.2	$	5.5
Amortization of Capital Leases	109.4			5.5		44.4		5.7		4.2		14.9
Interest on Capital Leases	26.1			1.0		2.8		1.2		0.7		7.4
Total Lease Rental Costs	$	439.4	(a)	$	24.8	$	140.6	$	13.5	$	8.1	$	27.8

Year Ended December 31, 2013	AEP			APCo		I&M		OPCo		PSO		SWEPCo
	(in millions)
Net Lease Expense on Operating Leases	$	326.6		$	17.5	$	95.6	$	57.8	$	4.1	$	6.3
Amortization of Capital Leases	73.9			6.3		11.3		7.8		4.1		15.5
Interest on Capital Leases	28.3			1.4		1.9		4.1		0.8		8.1
Total Lease Rental Costs	$	428.8	(a)	$	25.2	$	108.8	$	69.7	$	9.0	$	29.9

(a) Amounts include lease expenses related to AEPRO that have been classified as Other Operation Expense from Discontinued Operations on the statements of income in the amounts of $89 million, $96 million and $103 million for the Years Ended December 31, 2015, 2014 and 2013, respectively. See “AEPRO (Corporate and Other)” section of Note 7 for additional information.

The following table shows the property, plant and equipment under capital leases and related obligations recorded on the Registrants’ balance sheets.  Unless shown as a separate line on the balance sheets due to materiality, current capital lease obligations are included in Other Current Liabilities and long-term capital lease obligations are included in Deferred Credits and Other Noncurrent Liabilities on the Registrants’ balance sheets.

December 31, 2015	AEP		APCo		I&M		OPCo		PSO		SWEPCo
	(in millions)
Property, Plant and Equipment Under Capital Leases:
Generation	$	128.2	$	43.4	$	14.5	$	—	$	9.6	$	34.5
Other Property, Plant and Equipment	439.3		17.6		68.2		23.4		18.6		165.1
Total Property, Plant and Equipment	567.5		61.0		82.7		23.4		28.2		199.6
Accumulated Amortization	214.1		15.6		19.7		10.2		13.6		91.3
Net Property, Plant and Equipment Under Capital Leases	$	353.4	$	45.4	$	63.0	$	13.2	$	14.6	$	108.3
Obligations Under Capital Leases:
Noncurrent Liability	$	247.3	$	39.1	$	30.2	$	9.3	$	10.9	$	75.6
Liability Due Within One Year	96.2		6.3		32.8		3.9		3.7		21.9
Total Obligations Under Capital Leases	$	343.5	$	45.4	$	63.0	$	13.2	$	14.6	$	97.5

December 31, 2014	AEP			APCo		I&M		OPCo		PSO		SWEPCo
	(in millions)
Property, Plant and Equipment Under Capital Leases:
Generation	$	104.4		$	14.1	$	18.7	$	—	$	9.6	$	35.4
Other Property, Plant and Equipment	683.0			19.4		100.4		22.6		16.5		159.5
Total Property, Plant and Equipment	787.4			33.5		119.1		22.6		26.1		194.9
Accumulated Amortization	240.0			14.0		15.9		8.0		11.8		80.1
Net Property, Plant and Equipment Under Capital Leases	$	547.4	(a)	$	19.5	$	103.2	$	14.6	$	14.3	$	114.8
Obligations Under Capital Leases:
Noncurrent Liability	$	440.4		$	14.4	$	61.1	$	11.0	$	10.9	$	91.0
Liability Due Within One Year	111.4			5.1		42.1		3.6		3.4		17.6
Total Obligations Under Capital Leases	$	551.8	(a)	$	19.5	$	103.2	$	14.6	$	14.3	$	108.6

(a) Amounts include Net Property Under Capital Leases that have been classified as Assets from Discontinued Operations in the amount of $179 million and Total Obligations Under Capital Leases that have been classified as Liabilities from Discontinued Operations in the amount of $189 million on the December 31, 2014 balance sheet. See “AEPRO (Corporate and Other)” section of Note 7 for additional information.

Future minimum lease payments consisted of the following as of December 31, 2015:

Capital Leases	AEP		APCo		I&M		OPCo		PSO		SWEPCo
	(in millions)
2016	$	112.9	$	9.8	$	36.6	$	4.4	$	4.3	$	26.1
2017	76.2		9.4		12.1		4.0		4.1		18.2
2018	54.9		8.4		6.5		3.1		2.9		12.7
2019	38.7		6.4		3.0		1.0		1.6		11.4
2020	27.7		5.7		2.7		0.6		1.0		9.7
Later Years	110.7		26.5		20.3		1.4		2.6		40.3
Total Future Minimum Lease Payments	421.1		66.2		81.2		14.5		16.5		118.4
Less Estimated Interest Element	77.6		20.8		18.2		1.3		1.9		20.9
Estimated Present Value of Future Minimum Lease Payments	$	343.5	$	45.4	$	63.0	$	13.2	$	14.6	$	97.5
Noncancelable Operating Leases	AEP		APCo		I&M		OPCo		PSO		SWEPCo
	(in millions)
2016	$	239.1	$	15.6	$	92.7	$	8.8	$	4.8	$	6.3
2017	228.7		15.2		90.9		8.3		3.9		5.3
2018	219.9		13.8		89.7		6.9		3.5		4.8
2019	211.2		12.4		88.5		5.4		2.9		4.5
2020	202.8		11.8		85.1		4.5		2.4		4.2
Later Years	452.3		36.0		173.8		20.2		4.7		16.5
Total Future Minimum Lease Payments	$	1,554.0	$	104.8	$	620.7	$	54.1	$	22.2	$	41.6

Master Lease Agreements

The Registrants lease certain equipment under master lease agreements.  Under the lease agreements, the lessor is guaranteed a residual value up to a stated percentage of either the unamortized balance or the equipment cost at the end of the lease term.  If the actual fair value of the leased equipment is below the guaranteed residual value at the end of the lease term, the Registrants are committed to pay the difference between the actual fair value and the residual value guarantee.  Historically, at the end of the lease term the fair value has been in excess of the unamortized balance.  As of December 31, 2015, the maximum potential loss by the Registrants for these lease agreements assuming the fair value of the equipment is zero at the end of the lease term is as follows:

Company	Maximum Potential Loss
	(in millions)
AEP	$	33.4
APCo	4.8
I&M	3.2
OPCo	5.3
PSO	2.8
SWEPCo	3.4

Rockport Lease (Applies to AEP and I&M)

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

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

Future Minimum Lease Payments	AEP (a)		I&M
	(in millions)
2016	$	147.8	$	73.9
2017	147.8		73.9
2018	147.8		73.9
2019	147.8		73.9
2020	147.8		73.9
Later Years	295.0		147.5
Total Future Minimum Lease Payments	$	1,034.0	$	517.0

(a) AEP’s future minimum lease payments includes equal shares from AEGCo and I&M.

Railcar Lease (Applies to AEP, I&M and SWEPCo)

In June 2003, AEP Transportation LLC (AEP Transportation), a subsidiary of AEP, entered into an agreement with BTM Capital Corporation, as lessor, to lease 875 coal-transporting aluminum railcars.  The lease is accounted for as an operating lease.  In January 2008, AEP Transportation assigned the remaining 848 railcars under the original lease agreement to I&M (390 railcars) and SWEPCo (458 railcars).  The assignment is accounted for as operating leases for I&M and SWEPCo.  The initial lease term was five years with three consecutive five-year renewal periods for a maximum lease term of twenty years.  I&M and SWEPCo intend to renew these leases for the full lease term of twenty years via the renewal options.  The future minimum lease obligations are $10 million and $11 million for I&M and SWEPCo, respectively, for the remaining railcars as of December 31, 2015.  These obligations are included in the future minimum lease payments schedule earlier in this note.

Under the lease agreement, the lessor is guaranteed that the sale proceeds under a return-and-sale option will equal at least a lessee obligation amount specified in the lease, which declines from 83% of the projected fair value of the equipment under the current five-year lease term to 77% at the end of the 20-year term.  I&M and SWEPCo have assumed the guarantee under the return-and-sale option.  The maximum potential losses related to the guarantee are $9 million and $10 million for I&M and SWEPCo, respectively, as of December 31, 2015, assuming the fair value of the equipment is zero at the end of the current five-year lease term.  However, management believes that the fair value would produce a sufficient sales price to avoid any loss.

AEPRO Boat and Barge Leases (Applies to AEP)

In October 2015, AEP signed a Purchase and Sale Agreement to sell its commercial barge transportation subsidiary, AEPRO, to a nonaffiliated party. The sale closed in November 2015. See “AEPRO (Corporate and Other)” section of Note 7. Certain of the boat and barge leases acquired by the nonaffiliated party are subject to an AEP guarantee in favor of the lessor, ensuring future payments under such leases with maturities up to 2026. As of December 31, 2015, the maximum potential amount of future payments required under the guaranteed leases was $94 million. In certain instances, AEP has no recourse against the nonaffiliated party if required to pay a lessor under a guarantee, but AEP would have access to sell the leased assets in order to recover payments made by AEP under the guarantee. As of December 31, 2015, AEP’s boat and barge lease guarantee liability was $16 million.

Sabine Dragline Lease (Applies to AEP and SWEPCo)

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

I&M Nuclear Fuel Lease (Applies to AEP and I&M)

In November 2013, I&M entered into a sale-and-leaseback transaction with IMP 11-2013, a nonaffiliated Ohio trust, to lease nuclear fuel for I&M’s Cook Plant.  In November 2013, I&M sold a portion of its unamortized nuclear fuel inventory to the trust for $110 million.  The lease has a variable rate based on one month LIBOR and is accounted for as a capital lease with lease terms up to 54 months.  The future payment obligations of $35 million are included in I&M’s future minimum lease payments schedule earlier in this note.  The net capital lease asset is included in Other Property, Plant and Equipment on the balance sheets.  The short-term capital lease obligations are included in Other Current Liabilities on AEP’s balance sheets and in Obligations Under Capital Leases on I&M’s balance sheets.  The long-term capital lease obligations are included in Deferred Credits and Other Noncurrent Liabilities on the balance sheets.  The future minimum lease payments for the sale-and-leaseback transaction as of December 31, 2015 are as follows, based on estimated fuel burn:

Future Minimum Lease Payments	I&M
	(in millions)
2016	$	26.9
2017	5.8
2018	2.4
Total Future Minimum Lease Payments	$	35.1

Public Service Co Of Oklahoma [Member]

Leases

LEASES

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

Leases of property, plant and equipment are for remaining periods up to 34 years and require payments of related property taxes, maintenance and operating costs.  The majority of the leases have purchase or renewal options and will be renewed or replaced by other leases.

Lease rentals for both operating and capital leases are generally charged to Other Operation and Maintenance expense in accordance with rate-making treatment for regulated operations.  Additionally, for regulated operations with capital leases, a capital lease asset and offsetting liability are recorded at the present value of the remaining lease payments for each reporting period.  Capital leases for nonregulated property are accounted for as if the assets were owned and financed.  The components of rental costs are as follows:

Year Ended December 31, 2015	AEP			APCo		I&M		OPCo		PSO		SWEPCo
	(in millions)
Net Lease Expense on Operating Leases	$	292.6		$	16.4	$	88.3	$	7.6	$	5.4	$	6.7
Amortization of Capital Leases	108.5			5.6		40.7		3.9		3.5		13.7
Interest on Capital Leases	25.1			0.8		3.3		0.6		0.7		6.2
Total Lease Rental Costs	$	426.2	(a)	$	22.8	$	132.3	$	12.1	$	9.6	$	26.6

Year Ended December 31, 2014	AEP			APCo		I&M		OPCo		PSO		SWEPCo
	(in millions)
Net Lease Expense on Operating Leases	$	303.9		$	18.3	$	93.4	$	6.6	$	3.2	$	5.5
Amortization of Capital Leases	109.4			5.5		44.4		5.7		4.2		14.9
Interest on Capital Leases	26.1			1.0		2.8		1.2		0.7		7.4
Total Lease Rental Costs	$	439.4	(a)	$	24.8	$	140.6	$	13.5	$	8.1	$	27.8

Year Ended December 31, 2013	AEP			APCo		I&M		OPCo		PSO		SWEPCo
	(in millions)
Net Lease Expense on Operating Leases	$	326.6		$	17.5	$	95.6	$	57.8	$	4.1	$	6.3
Amortization of Capital Leases	73.9			6.3		11.3		7.8		4.1		15.5
Interest on Capital Leases	28.3			1.4		1.9		4.1		0.8		8.1
Total Lease Rental Costs	$	428.8	(a)	$	25.2	$	108.8	$	69.7	$	9.0	$	29.9

(a) Amounts include lease expenses related to AEPRO that have been classified as Other Operation Expense from Discontinued Operations on the statements of income in the amounts of $89 million, $96 million and $103 million for the Years Ended December 31, 2015, 2014 and 2013, respectively. See “AEPRO (Corporate and Other)” section of Note 7 for additional information.

The following table shows the property, plant and equipment under capital leases and related obligations recorded on the Registrants’ balance sheets.  Unless shown as a separate line on the balance sheets due to materiality, current capital lease obligations are included in Other Current Liabilities and long-term capital lease obligations are included in Deferred Credits and Other Noncurrent Liabilities on the Registrants’ balance sheets.

December 31, 2015	AEP		APCo		I&M		OPCo		PSO		SWEPCo
	(in millions)
Property, Plant and Equipment Under Capital Leases:
Generation	$	128.2	$	43.4	$	14.5	$	—	$	9.6	$	34.5
Other Property, Plant and Equipment	439.3		17.6		68.2		23.4		18.6		165.1
Total Property, Plant and Equipment	567.5		61.0		82.7		23.4		28.2		199.6
Accumulated Amortization	214.1		15.6		19.7		10.2		13.6		91.3
Net Property, Plant and Equipment Under Capital Leases	$	353.4	$	45.4	$	63.0	$	13.2	$	14.6	$	108.3
Obligations Under Capital Leases:
Noncurrent Liability	$	247.3	$	39.1	$	30.2	$	9.3	$	10.9	$	75.6
Liability Due Within One Year	96.2		6.3		32.8		3.9		3.7		21.9
Total Obligations Under Capital Leases	$	343.5	$	45.4	$	63.0	$	13.2	$	14.6	$	97.5

December 31, 2014	AEP			APCo		I&M		OPCo		PSO		SWEPCo
	(in millions)
Property, Plant and Equipment Under Capital Leases:
Generation	$	104.4		$	14.1	$	18.7	$	—	$	9.6	$	35.4
Other Property, Plant and Equipment	683.0			19.4		100.4		22.6		16.5		159.5
Total Property, Plant and Equipment	787.4			33.5		119.1		22.6		26.1		194.9
Accumulated Amortization	240.0			14.0		15.9		8.0		11.8		80.1
Net Property, Plant and Equipment Under Capital Leases	$	547.4	(a)	$	19.5	$	103.2	$	14.6	$	14.3	$	114.8
Obligations Under Capital Leases:
Noncurrent Liability	$	440.4		$	14.4	$	61.1	$	11.0	$	10.9	$	91.0
Liability Due Within One Year	111.4			5.1		42.1		3.6		3.4		17.6
Total Obligations Under Capital Leases	$	551.8	(a)	$	19.5	$	103.2	$	14.6	$	14.3	$	108.6

(a) Amounts include Net Property Under Capital Leases that have been classified as Assets from Discontinued Operations in the amount of $179 million and Total Obligations Under Capital Leases that have been classified as Liabilities from Discontinued Operations in the amount of $189 million on the December 31, 2014 balance sheet. See “AEPRO (Corporate and Other)” section of Note 7 for additional information.

Future minimum lease payments consisted of the following as of December 31, 2015:

Capital Leases	AEP		APCo		I&M		OPCo		PSO		SWEPCo
	(in millions)
2016	$	112.9	$	9.8	$	36.6	$	4.4	$	4.3	$	26.1
2017	76.2		9.4		12.1		4.0		4.1		18.2
2018	54.9		8.4		6.5		3.1		2.9		12.7
2019	38.7		6.4		3.0		1.0		1.6		11.4
2020	27.7		5.7		2.7		0.6		1.0		9.7
Later Years	110.7		26.5		20.3		1.4		2.6		40.3
Total Future Minimum Lease Payments	421.1		66.2		81.2		14.5		16.5		118.4
Less Estimated Interest Element	77.6		20.8		18.2		1.3		1.9		20.9
Estimated Present Value of Future Minimum Lease Payments	$	343.5	$	45.4	$	63.0	$	13.2	$	14.6	$	97.5
Noncancelable Operating Leases	AEP		APCo		I&M		OPCo		PSO		SWEPCo
	(in millions)
2016	$	239.1	$	15.6	$	92.7	$	8.8	$	4.8	$	6.3
2017	228.7		15.2		90.9		8.3		3.9		5.3
2018	219.9		13.8		89.7		6.9		3.5		4.8
2019	211.2		12.4		88.5		5.4		2.9		4.5
2020	202.8		11.8		85.1		4.5		2.4		4.2
Later Years	452.3		36.0		173.8		20.2		4.7		16.5
Total Future Minimum Lease Payments	$	1,554.0	$	104.8	$	620.7	$	54.1	$	22.2	$	41.6

Master Lease Agreements

The Registrants lease certain equipment under master lease agreements.  Under the lease agreements, the lessor is guaranteed a residual value up to a stated percentage of either the unamortized balance or the equipment cost at the end of the lease term.  If the actual fair value of the leased equipment is below the guaranteed residual value at the end of the lease term, the Registrants are committed to pay the difference between the actual fair value and the residual value guarantee.  Historically, at the end of the lease term the fair value has been in excess of the unamortized balance.  As of December 31, 2015, the maximum potential loss by the Registrants for these lease agreements assuming the fair value of the equipment is zero at the end of the lease term is as follows:

Company	Maximum Potential Loss
	(in millions)
AEP	$	33.4
APCo	4.8
I&M	3.2
OPCo	5.3
PSO	2.8
SWEPCo	3.4

Rockport Lease (Applies to AEP and I&M)

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

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

Future Minimum Lease Payments	AEP (a)		I&M
	(in millions)
2016	$	147.8	$	73.9
2017	147.8		73.9
2018	147.8		73.9
2019	147.8		73.9
2020	147.8		73.9
Later Years	295.0		147.5
Total Future Minimum Lease Payments	$	1,034.0	$	517.0

(a) AEP’s future minimum lease payments includes equal shares from AEGCo and I&M.

Railcar Lease (Applies to AEP, I&M and SWEPCo)

In June 2003, AEP Transportation LLC (AEP Transportation), a subsidiary of AEP, entered into an agreement with BTM Capital Corporation, as lessor, to lease 875 coal-transporting aluminum railcars.  The lease is accounted for as an operating lease.  In January 2008, AEP Transportation assigned the remaining 848 railcars under the original lease agreement to I&M (390 railcars) and SWEPCo (458 railcars).  The assignment is accounted for as operating leases for I&M and SWEPCo.  The initial lease term was five years with three consecutive five-year renewal periods for a maximum lease term of twenty years.  I&M and SWEPCo intend to renew these leases for the full lease term of twenty years via the renewal options.  The future minimum lease obligations are $10 million and $11 million for I&M and SWEPCo, respectively, for the remaining railcars as of December 31, 2015.  These obligations are included in the future minimum lease payments schedule earlier in this note.

Under the lease agreement, the lessor is guaranteed that the sale proceeds under a return-and-sale option will equal at least a lessee obligation amount specified in the lease, which declines from 83% of the projected fair value of the equipment under the current five-year lease term to 77% at the end of the 20-year term.  I&M and SWEPCo have assumed the guarantee under the return-and-sale option.  The maximum potential losses related to the guarantee are $9 million and $10 million for I&M and SWEPCo, respectively, as of December 31, 2015, assuming the fair value of the equipment is zero at the end of the current five-year lease term.  However, management believes that the fair value would produce a sufficient sales price to avoid any loss.

AEPRO Boat and Barge Leases (Applies to AEP)

In October 2015, AEP signed a Purchase and Sale Agreement to sell its commercial barge transportation subsidiary, AEPRO, to a nonaffiliated party. The sale closed in November 2015. See “AEPRO (Corporate and Other)” section of Note 7. Certain of the boat and barge leases acquired by the nonaffiliated party are subject to an AEP guarantee in favor of the lessor, ensuring future payments under such leases with maturities up to 2026. As of December 31, 2015, the maximum potential amount of future payments required under the guaranteed leases was $94 million. In certain instances, AEP has no recourse against the nonaffiliated party if required to pay a lessor under a guarantee, but AEP would have access to sell the leased assets in order to recover payments made by AEP under the guarantee. As of December 31, 2015, AEP’s boat and barge lease guarantee liability was $16 million.

Sabine Dragline Lease (Applies to AEP and SWEPCo)

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

I&M Nuclear Fuel Lease (Applies to AEP and I&M)

In November 2013, I&M entered into a sale-and-leaseback transaction with IMP 11-2013, a nonaffiliated Ohio trust, to lease nuclear fuel for I&M’s Cook Plant.  In November 2013, I&M sold a portion of its unamortized nuclear fuel inventory to the trust for $110 million.  The lease has a variable rate based on one month LIBOR and is accounted for as a capital lease with lease terms up to 54 months.  The future payment obligations of $35 million are included in I&M’s future minimum lease payments schedule earlier in this note.  The net capital lease asset is included in Other Property, Plant and Equipment on the balance sheets.  The short-term capital lease obligations are included in Other Current Liabilities on AEP’s balance sheets and in Obligations Under Capital Leases on I&M’s balance sheets.  The long-term capital lease obligations are included in Deferred Credits and Other Noncurrent Liabilities on the balance sheets.  The future minimum lease payments for the sale-and-leaseback transaction as of December 31, 2015 are as follows, based on estimated fuel burn:

Future Minimum Lease Payments	I&M
	(in millions)
2016	$	26.9
2017	5.8
2018	2.4
Total Future Minimum Lease Payments	$	35.1

Southwestern Electric Power Co [Member]

Leases

LEASES

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

Leases of property, plant and equipment are for remaining periods up to 34 years and require payments of related property taxes, maintenance and operating costs.  The majority of the leases have purchase or renewal options and will be renewed or replaced by other leases.

Lease rentals for both operating and capital leases are generally charged to Other Operation and Maintenance expense in accordance with rate-making treatment for regulated operations.  Additionally, for regulated operations with capital leases, a capital lease asset and offsetting liability are recorded at the present value of the remaining lease payments for each reporting period.  Capital leases for nonregulated property are accounted for as if the assets were owned and financed.  The components of rental costs are as follows:

Year Ended December 31, 2015	AEP			APCo		I&M		OPCo		PSO		SWEPCo
	(in millions)
Net Lease Expense on Operating Leases	$	292.6		$	16.4	$	88.3	$	7.6	$	5.4	$	6.7
Amortization of Capital Leases	108.5			5.6		40.7		3.9		3.5		13.7
Interest on Capital Leases	25.1			0.8		3.3		0.6		0.7		6.2
Total Lease Rental Costs	$	426.2	(a)	$	22.8	$	132.3	$	12.1	$	9.6	$	26.6

Year Ended December 31, 2014	AEP			APCo		I&M		OPCo		PSO		SWEPCo
	(in millions)
Net Lease Expense on Operating Leases	$	303.9		$	18.3	$	93.4	$	6.6	$	3.2	$	5.5
Amortization of Capital Leases	109.4			5.5		44.4		5.7		4.2		14.9
Interest on Capital Leases	26.1			1.0		2.8		1.2		0.7		7.4
Total Lease Rental Costs	$	439.4	(a)	$	24.8	$	140.6	$	13.5	$	8.1	$	27.8

Year Ended December 31, 2013	AEP			APCo		I&M		OPCo		PSO		SWEPCo
	(in millions)
Net Lease Expense on Operating Leases	$	326.6		$	17.5	$	95.6	$	57.8	$	4.1	$	6.3
Amortization of Capital Leases	73.9			6.3		11.3		7.8		4.1		15.5
Interest on Capital Leases	28.3			1.4		1.9		4.1		0.8		8.1
Total Lease Rental Costs	$	428.8	(a)	$	25.2	$	108.8	$	69.7	$	9.0	$	29.9

(a) Amounts include lease expenses related to AEPRO that have been classified as Other Operation Expense from Discontinued Operations on the statements of income in the amounts of $89 million, $96 million and $103 million for the Years Ended December 31, 2015, 2014 and 2013, respectively. See “AEPRO (Corporate and Other)” section of Note 7 for additional information.

The following table shows the property, plant and equipment under capital leases and related obligations recorded on the Registrants’ balance sheets.  Unless shown as a separate line on the balance sheets due to materiality, current capital lease obligations are included in Other Current Liabilities and long-term capital lease obligations are included in Deferred Credits and Other Noncurrent Liabilities on the Registrants’ balance sheets.

December 31, 2015	AEP		APCo		I&M		OPCo		PSO		SWEPCo
	(in millions)
Property, Plant and Equipment Under Capital Leases:
Generation	$	128.2	$	43.4	$	14.5	$	—	$	9.6	$	34.5
Other Property, Plant and Equipment	439.3		17.6		68.2		23.4		18.6		165.1
Total Property, Plant and Equipment	567.5		61.0		82.7		23.4		28.2		199.6
Accumulated Amortization	214.1		15.6		19.7		10.2		13.6		91.3
Net Property, Plant and Equipment Under Capital Leases	$	353.4	$	45.4	$	63.0	$	13.2	$	14.6	$	108.3
Obligations Under Capital Leases:
Noncurrent Liability	$	247.3	$	39.1	$	30.2	$	9.3	$	10.9	$	75.6
Liability Due Within One Year	96.2		6.3		32.8		3.9		3.7		21.9
Total Obligations Under Capital Leases	$	343.5	$	45.4	$	63.0	$	13.2	$	14.6	$	97.5

December 31, 2014	AEP			APCo		I&M		OPCo		PSO		SWEPCo
	(in millions)
Property, Plant and Equipment Under Capital Leases:
Generation	$	104.4		$	14.1	$	18.7	$	—	$	9.6	$	35.4
Other Property, Plant and Equipment	683.0			19.4		100.4		22.6		16.5		159.5
Total Property, Plant and Equipment	787.4			33.5		119.1		22.6		26.1		194.9
Accumulated Amortization	240.0			14.0		15.9		8.0		11.8		80.1
Net Property, Plant and Equipment Under Capital Leases	$	547.4	(a)	$	19.5	$	103.2	$	14.6	$	14.3	$	114.8
Obligations Under Capital Leases:
Noncurrent Liability	$	440.4		$	14.4	$	61.1	$	11.0	$	10.9	$	91.0
Liability Due Within One Year	111.4			5.1		42.1		3.6		3.4		17.6
Total Obligations Under Capital Leases	$	551.8	(a)	$	19.5	$	103.2	$	14.6	$	14.3	$	108.6

(a) Amounts include Net Property Under Capital Leases that have been classified as Assets from Discontinued Operations in the amount of $179 million and Total Obligations Under Capital Leases that have been classified as Liabilities from Discontinued Operations in the amount of $189 million on the December 31, 2014 balance sheet. See “AEPRO (Corporate and Other)” section of Note 7 for additional information.

Future minimum lease payments consisted of the following as of December 31, 2015:

Capital Leases	AEP		APCo		I&M		OPCo		PSO		SWEPCo
	(in millions)
2016	$	112.9	$	9.8	$	36.6	$	4.4	$	4.3	$	26.1
2017	76.2		9.4		12.1		4.0		4.1		18.2
2018	54.9		8.4		6.5		3.1		2.9		12.7
2019	38.7		6.4		3.0		1.0		1.6		11.4
2020	27.7		5.7		2.7		0.6		1.0		9.7
Later Years	110.7		26.5		20.3		1.4		2.6		40.3
Total Future Minimum Lease Payments	421.1		66.2		81.2		14.5		16.5		118.4
Less Estimated Interest Element	77.6		20.8		18.2		1.3		1.9		20.9
Estimated Present Value of Future Minimum Lease Payments	$	343.5	$	45.4	$	63.0	$	13.2	$	14.6	$	97.5
Noncancelable Operating Leases	AEP		APCo		I&M		OPCo		PSO		SWEPCo
	(in millions)
2016	$	239.1	$	15.6	$	92.7	$	8.8	$	4.8	$	6.3
2017	228.7		15.2		90.9		8.3		3.9		5.3
2018	219.9		13.8		89.7		6.9		3.5		4.8
2019	211.2		12.4		88.5		5.4		2.9		4.5
2020	202.8		11.8		85.1		4.5		2.4		4.2
Later Years	452.3		36.0		173.8		20.2		4.7		16.5
Total Future Minimum Lease Payments	$	1,554.0	$	104.8	$	620.7	$	54.1	$	22.2	$	41.6

Master Lease Agreements

The Registrants lease certain equipment under master lease agreements.  Under the lease agreements, the lessor is guaranteed a residual value up to a stated percentage of either the unamortized balance or the equipment cost at the end of the lease term.  If the actual fair value of the leased equipment is below the guaranteed residual value at the end of the lease term, the Registrants are committed to pay the difference between the actual fair value and the residual value guarantee.  Historically, at the end of the lease term the fair value has been in excess of the unamortized balance.  As of December 31, 2015, the maximum potential loss by the Registrants for these lease agreements assuming the fair value of the equipment is zero at the end of the lease term is as follows:

Company	Maximum Potential Loss
	(in millions)
AEP	$	33.4
APCo	4.8
I&M	3.2
OPCo	5.3
PSO	2.8
SWEPCo	3.4

Rockport Lease (Applies to AEP and I&M)

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

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

Future Minimum Lease Payments	AEP (a)		I&M
	(in millions)
2016	$	147.8	$	73.9
2017	147.8		73.9
2018	147.8		73.9
2019	147.8		73.9
2020	147.8		73.9
Later Years	295.0		147.5
Total Future Minimum Lease Payments	$	1,034.0	$	517.0

(a) AEP’s future minimum lease payments includes equal shares from AEGCo and I&M.

Railcar Lease (Applies to AEP, I&M and SWEPCo)

In June 2003, AEP Transportation LLC (AEP Transportation), a subsidiary of AEP, entered into an agreement with BTM Capital Corporation, as lessor, to lease 875 coal-transporting aluminum railcars.  The lease is accounted for as an operating lease.  In January 2008, AEP Transportation assigned the remaining 848 railcars under the original lease agreement to I&M (390 railcars) and SWEPCo (458 railcars).  The assignment is accounted for as operating leases for I&M and SWEPCo.  The initial lease term was five years with three consecutive five-year renewal periods for a maximum lease term of twenty years.  I&M and SWEPCo intend to renew these leases for the full lease term of twenty years via the renewal options.  The future minimum lease obligations are $10 million and $11 million for I&M and SWEPCo, respectively, for the remaining railcars as of December 31, 2015.  These obligations are included in the future minimum lease payments schedule earlier in this note.

Under the lease agreement, the lessor is guaranteed that the sale proceeds under a return-and-sale option will equal at least a lessee obligation amount specified in the lease, which declines from 83% of the projected fair value of the equipment under the current five-year lease term to 77% at the end of the 20-year term.  I&M and SWEPCo have assumed the guarantee under the return-and-sale option.  The maximum potential losses related to the guarantee are $9 million and $10 million for I&M and SWEPCo, respectively, as of December 31, 2015, assuming the fair value of the equipment is zero at the end of the current five-year lease term.  However, management believes that the fair value would produce a sufficient sales price to avoid any loss.

AEPRO Boat and Barge Leases (Applies to AEP)

In October 2015, AEP signed a Purchase and Sale Agreement to sell its commercial barge transportation subsidiary, AEPRO, to a nonaffiliated party. The sale closed in November 2015. See “AEPRO (Corporate and Other)” section of Note 7. Certain of the boat and barge leases acquired by the nonaffiliated party are subject to an AEP guarantee in favor of the lessor, ensuring future payments under such leases with maturities up to 2026. As of December 31, 2015, the maximum potential amount of future payments required under the guaranteed leases was $94 million. In certain instances, AEP has no recourse against the nonaffiliated party if required to pay a lessor under a guarantee, but AEP would have access to sell the leased assets in order to recover payments made by AEP under the guarantee. As of December 31, 2015, AEP’s boat and barge lease guarantee liability was $16 million.

Sabine Dragline Lease (Applies to AEP and SWEPCo)

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

I&M Nuclear Fuel Lease (Applies to AEP and I&M)

In November 2013, I&M entered into a sale-and-leaseback transaction with IMP 11-2013, a nonaffiliated Ohio trust, to lease nuclear fuel for I&M’s Cook Plant.  In November 2013, I&M sold a portion of its unamortized nuclear fuel inventory to the trust for $110 million.  The lease has a variable rate based on one month LIBOR and is accounted for as a capital lease with lease terms up to 54 months.  The future payment obligations of $35 million are included in I&M’s future minimum lease payments schedule earlier in this note.  The net capital lease asset is included in Other Property, Plant and Equipment on the balance sheets.  The short-term capital lease obligations are included in Other Current Liabilities on AEP’s balance sheets and in Obligations Under Capital Leases on I&M’s balance sheets.  The long-term capital lease obligations are included in Deferred Credits and Other Noncurrent Liabilities on the balance sheets.  The future minimum lease payments for the sale-and-leaseback transaction as of December 31, 2015 are as follows, based on estimated fuel burn:

Future Minimum Lease Payments	I&M
	(in millions)
2016	$	26.9
2017	5.8
2018	2.4
Total Future Minimum Lease Payments	$	35.1