FINANCING ACTIVITIES

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

Long-term Debt Outstanding (Applies to AEP)

The following table details long-term debt outstanding:



Type of Debt	June 30, 2018		December 31, 2017
	(in millions)
Senior Unsecured Notes	$	17,461.1	$	16,478.3
Pollution Control Bonds	1,643.4		1,621.7
Notes Payable	263.2		260.8
Securitization Bonds	1,258.7		1,416.5
Spent Nuclear Fuel Obligation (a)	270.8		268.6
Other Long-term Debt	1,134.8		1,127.4
Total Long-term Debt Outstanding	22,032.0		21,173.3
Long-term Debt Due Within One Year	2,281.4		1,753.7
Long-term Debt	$	19,750.6	$	19,419.6

(a)

Pursuant to the Nuclear Waste Policy Act of 1982, I&M, a nuclear licensee, has an obligation to the United States Department of Energy for spent nuclear fuel disposal. The obligation includes a one-time fee for nuclear fuel consumed prior to April 7, 1983. Trust fund assets related to this obligation were $314 million and $312 million as of June 30, 2018 and December 31, 2017, respectively, and are included in Spent Nuclear Fuel and Decommissioning Trusts on the balance sheets.

Long-term Debt Activity

Long-term debt and other securities issued, retired and principal payments made during the first six months of 2018 are shown in the tables below:



Company	Type of Debt	Principal Amount (a)		Interest Rate	Due Date
Issuances:		(in millions)		(%)
AEP Texas	Senior Unsecured Notes	$	500.0	3.95	2028
APCo	Pollution Control Bonds	104.4		2.625	2022
I&M	Other Long-term Debt	200.0		Variable	2021
I&M	Notes Payable	55.5		Variable	2022
I&M	Pollution Control Bonds	100.0		3.05	2025
I&M	Senior Unsecured Notes	350.0		3.85	2028
OPCo	Senior Unsecured Notes	400.0		4.15	2048
SWEPCo	Senior Unsecured Notes	450.0		3.85	2048

Non-Registrant:
Transource Energy	Other Long-term Debt	8.7		Variable	2020
WPCo	Pollution Control Bonds	65.0		3.00	2022
Total Issuances		$	2,233.6


(a)	Amounts indicated on the statements of cash flows are net of issuance costs and premium or discount and will not tie to the issuance amounts.



Company	Type of Debt	Principal Amount Paid		Interest Rate	Due Date
Retirements and Principal Payments:		(in millions)		(%)
AEP Texas	Securitization Bonds	$	70.0	5.17	2018
AEP Texas	Senior Unsecured Notes	30.0		5.89	2018
AEP Texas	Securitization Bonds	27.6		1.976	2020
AEP Texas	Securitization Bonds	26.5		5.306	2020
APCo	Securitization Bonds	11.7		2.008	2023
I&M	Other Long-term Debt	200.0		Variable	2018
I&M	Pollution Control Bonds	100.0		1.75	2018
I&M	Notes Payable	2.1		Variable	2019
I&M	Notes Payable	8.7		Variable	2019
I&M	Notes Payable	11.8		Variable	2020
I&M	Notes Payable	13.5		Variable	2021
I&M	Notes Payable	14.2		Variable	2022
I&M	Notes Payable	1.3		Variable	2022
I&M	Other Long-term Debt	0.8		6.00	2025
OPCo	Senior Unsecured Notes	350.0		6.05	2018
OPCo	Securitization Bonds	22.9		2.049	2019
PSO	Other Long-term Debt	0.2		3.00	2027
SWEPCo	Pollution Control Bonds	81.7		4.95	2018
SWEPCo	Senior Unsecured Notes	300.0		5.875	2018
SWEPCo	Other Long-term Debt	0.1		3.50	2023
SWEPCo	Other Long-term Debt	0.1		4.28	2023
SWEPCo	Notes Payable	1.6		4.58	2032

Non-Registrant:
WPCo	Pollution Control Bonds	65.0		Variable	2018
Total Retirements and Principal Payments		$	1,339.8

As of June 30, 2018, trustees held, on behalf of AEP, $574 million of their reacquired Pollution Control Bonds. Of this total, $345 million relates to OPCo.

Long-term Debt Subsequent Events

In July 2018, AEP Texas retired $78 million of Securitization Bonds.

In July 2018, I&M retired $4 million of Notes Payable related to DCC Fuel.

In July 2018, OPCo retired $24 million of Securitization Bonds.

Debt Covenants (Applies to AEP and AEPTCo)

Covenants in AEPTCo’s note purchase agreements and indenture limit the amount of contractually-defined priority debt (which includes a further sub-limit of $50 million of secured debt) to 10% of consolidated tangible net assets. AEPTCo’s contractually-defined priority debt was 2.5% of consolidated tangible net assets as of June 30, 2018. The method for calculating the consolidated tangible net assets is contractually defined in the note purchase agreements.

Dividend Restrictions

Utility Subsidiaries’ Restrictions

Parent depends on its utility subsidiaries to pay dividends to shareholders. AEP utility subsidiaries pay dividends to Parent provided funds are legally available. Various financing arrangements and regulatory requirements may impose certain restrictions on the ability of the subsidiaries to transfer funds to Parent in the form of dividends.

All of the dividends declared by AEP’s utility subsidiaries that provide transmission or local distribution services are subject to a Federal Power Act restriction that prohibits the payment of dividends out of capital accounts without regulatory approval; payment of dividends is allowed out of retained earnings only. Additionally, the Federal Power Act creates a reserve on earnings attributable to hydroelectric generation plants. Because of their ownership of such plants, this reserve applies to AGR, APCo and I&M.

Certain AEP subsidiaries have credit agreements that contain covenants that limit their debt to capitalization ratio to 67.5%. The method for calculating outstanding debt and capitalization is contractually defined in the credit agreements.

The Federal Power Act restriction does not limit the ability of the AEP subsidiaries to pay dividends out of retained earnings.

Parent Restrictions (Applies to AEP)

The holders of AEP’s common stock are entitled to receive the dividends declared by the Board of Directors provided funds are legally available for such dividends. Parent’s income primarily derives from common stock equity in the earnings of its utility subsidiaries.

Pursuant to the leverage restrictions in credit agreements, AEP must maintain a percentage of debt to total capitalization at a level that does not exceed 67.5%. The method for calculating outstanding debt and capitalization is contractually defined in the credit agreements.

Corporate Borrowing Program - AEP System (Applies to Registrant Subsidiaries)

The AEP System uses a corporate borrowing program to meet the short-term borrowing needs of AEP’s subsidiaries. The corporate borrowing program includes a Utility Money Pool, which funds AEP’s utility subsidiaries; a Nonutility Money Pool, which funds certain AEP nonutility subsidiaries; and direct borrowing from AEP. The AEP System Utility Money Pool operates in accordance with the terms and conditions of the AEP System Utility Money Pool agreement filed with the FERC. The amounts of outstanding loans to (borrowings from) the Utility Money Pool as of June 30, 2018 and December 31, 2017 are included in Advances to Affiliates and Advances from Affiliates, respectively, on each of the Registrant Subsidiaries’ balance sheets. The Utility Money Pool participants’ money pool activity and corresponding authorized borrowing limits for the six months ended June 30, 2018 are described in the following table:



	Maximum				Average				Net Loans to
	Borrowings		Maximum		Borrowings		Average		(Borrowings from)			Authorized
	from the		Loans to the		from the		Loans to the		the Utility Money			Short-term
	Utility		Utility		Utility		Utility		Pool as of			Borrowing
Company	Money Pool		Money Pool		Money Pool		Money Pool		June 30, 2018			Limit
	(in millions)
AEP Texas	$	390.6	$	106.9	$	265.6	$	60.5	$	19.0		$	500.0
AEPTCo	371.3		123.9		235.5		17.6		(142.8		)	795.0		(a)
APCo	295.5		23.7		224.3		23.5		(149.3		)	600.0
I&M	322.1		124.2		257.6		34.3		92.3			500.0
OPCo	234.0		225.0		135.7		189.4		(213.9		)	500.0
PSO	193.7		—		149.4		—		(118.4		)	300.0
SWEPCo	200.1		296.5		164.2		273.2		(119.9		)	350.0


(a)	Amount represents the combined authorized short-term borrowing limit the State Transcos have from FERC or state regulatory commissions.

The activity in the above table does not include short-term lending activity of certain AEP nonutility subsidiaries. AEP Texas’ wholly-owned subsidiary, AEP Texas North Generation Company LLC and SWEPCo’s wholly-owned subsidiary, Mutual Energy SWEPCo, LP are participants in the Nonutility Money Pool. The amounts of outstanding loans to the Nonutility Money Pool as of June 30, 2018 and December 31, 2017 are included in Advances to Affiliates on each subsidiaries’ balance sheets. The Nonutility Money Pool participants’ money pool activity for the six months ended June 30, 2018 is described in the following table:

Maximum

Average

Loans to the

Nonutility

Money Pool as of

Company

Money Pool

June 30, 2018

(in millions)

AEP Texas

8.4

8.1

SWEPCo

2.0

AEP has a direct financing relationship with AEPTCo to meet its short-term borrowing needs. The amounts of outstanding loans to (borrowings from) AEP as of June 30, 2018 and December 31, 2017 are included in Advances to Affiliates and Advances from Affiliates, respectively, on AEPTCo’s balance sheets. AEPTCo’s direct borrowing and lending activity with AEP for the six months ended June 30, 2018 is described in the following table:

Maximum

Average

Borrowings from

Loans to

Authorized

Borrowings

Loans

Borrowings

Loans

AEP as of

Short-term

from AEP

to AEP

from AEP

to AEP

June 30, 2018

Borrowing Limit

(in millions)

1.1

104.7

1.1

48.4

1.1

30.0

75.0

(a)


(a)	Amount represents the combined authorized short-term borrowing limit the State Transcos have from FERC or state regulatory commissions.

The maximum and minimum interest rates for funds either borrowed from or loaned to the Utility Money Pool were as follows:



	Six Months Ended June 30,
	2018		2017
Maximum Interest Rate	2.52	%	1.44	%
Minimum Interest Rate	1.83	%	0.92	%

The average interest rates for funds borrowed from and loaned to the Utility Money Pool are summarized for all Registrant Subsidiaries in the following table:



	Average Interest Rate				Average Interest Rate
	for Funds Borrowed from				for Funds Loaned to
	the Utility Money Pool for the				the Utility Money Pool for the
	Six Months Ended June 30,				Six Months Ended June 30,
Company	2018		2017		2018		2017
AEP Texas	2.28	%	1.18	%	2.28	%	—	%
AEPTCo	2.30	%	1.25	%	2.06	%	0.99	%
APCo	2.23	%	1.17	%	2.23	%	1.22	%
I&M	2.16	%	1.20	%	2.37	%	1.18	%
OPCo	2.24	%	1.31	%	2.47	%	0.98	%
PSO	2.24	%	1.23	%	—	%	—	%
SWEPCo	2.34	%	1.20	%	1.88	%	0.98	%

Maximum, minimum and average interest rates for funds loaned to the Nonutility Money Pool are summarized in the following table:

Six Months Ended June 30, 2018

Six Months Ended June 30, 2017

Maximum

Minimum

Average

Maximum

Minimum

Average

Interest Rate

for Funds

Loaned to

the Nonutility

Company

Money Pool

AEP Texas

2.52

1.83

2.23

1.44

—

1.17

SWEPCo

2.52

1.83

2.23

1.44

—

1.17

AEPTCo’s maximum, minimum and average interest rates for funds either borrowed from or loaned to AEP are summarized in the following table:



	Maximum		Minimum		Maximum		Minimum		Average		Average
	Interest Rate		Interest Rate		Interest Rate		Interest Rate		Interest Rate		Interest Rate
Six Months	for Funds		for Funds		for Funds		for Funds		for Funds		for Funds
Ended	Borrowed		Borrowed		Loaned		Loaned		Borrowed		Loaned
June 30,	from AEP		from AEP		to AEP		to AEP		from AEP		to AEP
2018	2.52	%	1.83	%	2.52	%	1.83	%	2.23	%	2.23	%
2017	1.44	%	0.92	%	1.44	%	0.92	%	1.18	%	1.21	%

Short-term Debt (Applies to AEP and SWEPCo)

Outstanding short-term debt was as follows:



		June 30, 2018				December 31, 2017
Company	Type of Debt	Outstanding Amount		Interest Rate (a)		Outstanding Amount		Interest Rate (a)
		(in millions)				(in millions)
AEP	Securitized Debt for Receivables (b)	$	750.0	1.95	%	$	718.0	1.22	%
AEP	Commercial Paper	1,814.0		2.41	%	898.6		1.85	%
SWEPCo	Notes Payable	25.2		3.35	%	22.0		2.92	%
	Total Short-term Debt	$	2,589.2			$	1,638.6


(a)	Weighted average rate.


(b)	Amount of securitized debt for receivables as accounted for under the “Transfers and Servicing” accounting guidance.

Credit Facilities

For a discussion of credit facilities, see “Letters of Credit” section of Note 5.

Securitized Accounts Receivables – AEP Credit (Applies to AEP)

AEP Credit has a receivables securitization agreement with bank conduits. Under the securitization agreement, AEP Credit receives financing from the bank conduits for the interest in the receivables AEP Credit acquires from affiliated utility subsidiaries. These securitized transactions allow AEP Credit to repay its outstanding debt obligations, continue to purchase the operating companies’ receivables and accelerate AEP Credit’s cash collections.

AEP Credit’s receivables securitization agreement provides a commitment of $750 million from bank conduits to purchase receivables and expires in June 2019.

Accounts receivable information for AEP Credit is as follows:



	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
	(dollars in millions)
Effective Interest Rates on Securitization of Accounts Receivable	2.16		%	1.17		%	1.95		%	1.09		%
Net Uncollectible Accounts Receivable Written Off	$	5.3		$	5.3		$	9.4		$	11.2



	June 30, 2018		December 31, 2017
	(in millions)
Accounts Receivable Retained Interest and Pledged as Collateral Less Uncollectible Accounts	$	1,101.4	$	925.5
Short-term – Securitized Debt of Receivables	750.0		718.0
Delinquent Securitized Accounts Receivable	55.2		41.1
Bad Debt Reserves Related to Securitization	32.0		28.7
Unbilled Receivables Related to Securitization	332.8		303.2

AEP Credit’s delinquent customer accounts receivable represent accounts greater than 30 days past due.

Securitized Accounts Receivables – AEP Credit (Applies to Registrant Subsidiaries, except AEP Texas and AEPTCo)

Under this sale of receivables arrangement, the Registrant Subsidiaries sell, without recourse, certain of their customer accounts receivable and accrued unbilled revenue balances to AEP Credit and are charged a fee based on AEP Credit’s financing costs, administrative costs and uncollectible accounts experience for each Registrant Subsidiaries’ receivables. APCo does not have regulatory authority to sell its West Virginia accounts receivable. The costs of customer accounts receivable sold are reported in Other Operation expense on the Registrant Subsidiaries’ statements of income. The Registrant Subsidiaries manage and service their customer accounts receivable, which are sold to AEP Credit. AEP Credit securitizes the eligible receivables for the operating companies and retains the remainder.

The amount of accounts receivable and accrued unbilled revenues under the sale of receivables agreements were:



Company	June 30, 2018		December 31, 2017
	(in millions)
APCo	$	138.6	$	136.2
I&M	166.3		136.5
OPCo	420.4		367.4
PSO	159.1		115.1
SWEPCo	188.9		138.2

The fees paid to AEP Credit for customer accounts receivable sold were:



	Three Months Ended June 30,				Six Months Ended June 30,
Company	2018		2017		2018		2017
	(in millions)
APCo	$	1.6	$	1.3	$	3.3	$	2.7
I&M	2.2		1.6		4.3		3.1
OPCo	6.0		4.7		11.6		10.4
PSO	1.9		1.7		3.7		3.2
SWEPCo	2.1		1.8		4.0		3.4

The proceeds on the sale of receivables to AEP Credit were:



	Three Months Ended June 30,				Six Months Ended June 30,
Company	2018		2017		2018		2017
	(in millions)
APCo	$	344.9	$	324.2	$	745.1	$	693.9
I&M	444.2		390.7		903.3		809.0
OPCo	671.7		493.1		1,351.7		1,125.4
PSO	383.7		328.7		716.4		615.5
SWEPCo	454.5		404.6		852.0		745.8