Acquisitions and Dispositions	6 Months Ended
Jun. 30, 2021
Acquisitions and Dispositions	ACQUISITIONS AND DISPOSITIONS The disclosures in this note apply to AEP unless indicated otherwise. ACQUISITIONS Dry Lake Solar Project (Generation & Marketing Segment) In November 2020, AEP signed a Purchase and Sale Agreement with a nonaffiliate to acquire a 75% interest in the 100 MW Dry Lake Solar Project (Dry Lake) located in southern Nevada for approximately $114 million. In March 2021, AEP closed the transaction and the solar project was placed in-service in May 2021. Approximately $103 million of the purchase price was paid upon closing of the transaction and the remaining $11 million was paid when the project was placed in-service. In accordance with the accounting guidance for “Business Combinations,” management determined that the acquisition of Dry Lake represents an asset acquisition. Additionally, and in accordance with the accounting guidance for “Consolidation,” management concluded that Dry Lake is a VIE and that AEP is the primary beneficiary based on its power as managing member to direct the activities that most significantly impact Dry Lake’s economic performance. As the primary beneficiary of Dry Lake, AEP consolidates Dry Lake into its financial statements. As a result, to account for the initial consolidation of Dry Lake, management applied the acquisition method by allocating the purchase price based on the relative fair value of the assets acquired and noncontrolling interest assumed. The fair value of the primary assets acquired and the noncontrolling interest assumed was determined using the market approach. The key input assumptions were the transaction price paid for AEP’s interest in Dry Lake and recent third-party market transactions for similar solar generation facilities. The nonaffiliated interest in Dry Lake is presented in Noncontrolling Interests on the balance sheets. Subsequent to close of the transaction, the noncontrolling interest made additional asset contributions of $14 million. As of June 30, 2021, AEP recognized approximately $146 million of Property, Plant and Equipment and approximately $33 million of Noncontrolling Interest on the balance sheets. North Central Wind Energy Facilities (Vertically Integrated Utilities Segment) (Applies to AEP, PSO and SWEPCo) In 2020, PSO and SWEPCo received regulatory approvals to acquire the North Central Wind Energy Facilities (NCWF), comprised of three Oklahoma wind facilities totaling 1,485 MWs, on a fixed cost turn-key basis at completion. PSO and SWEPCo will own undivided interests of 45.5% and 54.5% of the NCWF, respectively. In total, the three wind facilities will cost approximately $2 billion and consist of Traverse (999 MW), Maverick (287 MW) and Sundance (199 MW). Output from the NCWF will serve retail load in PSO’s Oklahoma service territory and both retail and FERC wholesale load in SWEPCo’s service territories in Arkansas and Louisiana. The Oklahoma and Louisiana portions of the NCWF revenue requirement, net of PTC benefit, are recoverable through authorized riders beginning at commercial operation and until such time as amounts are reflected in base rates. The mechanism to recover the Arkansas portion of the NCWF revenue requirement will be addressed in a future regulatory proceeding. The NCWF are subject to various regulatory performance requirements. If these performance requirements are not met, PSO and SWEPCo would recognize a regulatory liability to refund retail customers. In April 2021, PSO and SWEPCo acquired respective undivided ownership interests in the entity that owned Sundance during its development and construction for $270 million, the first of the three NCWF acquisitions. Immediately following the acquisition, PSO and SWEPCo liquidated the entity and simultaneously distributed the Sundance assets in proportion to their undivided ownership interests. Sundance was placed in-service in April 2021. The total investment in Sundance is estimated to be $291 million inclusive of previously capitalized pre-construction costs. In accordance with the guidance for “Business Combinations,” management determined that the acquisition of Sundance represents an asset acquisition. The initial consolidation of Sundance and subsequent distribution of its assets resulted in the recognition and initial measurement of acquisition costs of $123 million and $147 million in Property, Plant and Equipment on the balance sheets of PSO and SWEPCo, respectively. On an ongoing basis, management further determined that PSO and SWEPCo should apply the joint plant accounting model to account for their respective undivided interests in the assets, liabilities, revenues and expenses of Sundance. The Purchase and Sale Agreement (PSA) includes collective interests in numerous land contracts, as originally executed between the nonaffiliated party and the respective owners of the properties as defined in the contracts. These contracts provide for easement and access rights to the land that Sundance was built upon. These interests as lessee in each of the land contracts were transferred to Sundance (and subsequently to PSO and SWEPCo) as a part of the closing of the PSA. As of June 30, 2021, the Noncurrent Obligations Under Operating Leases are $13 million and $15 million on the balance sheets for PSO and SWEPCo, respectively. DISPOSITIONS Conesville Plant (Generation & Marketing Segment) In June 2020, AEP and a nonaffiliated joint-owner executed an Environmental Liability and Property Transfer and Asset Purchase Agreement with a nonaffiliated third-party related to the merchant Conesville Plant site. The purchaser took ownership of the assets and assumed responsibility for environmental liabilities, including ash pond closure, asbestos abatement and decommissioning and demolition of the Conesville Plant site. In consideration of the transfer of the acquired assets to the purchaser and the purchaser’s assumption of liabilities, AEP will pay a total of approximately $98 million over three years, derecognized $106 million in ARO and recorded an immaterial gain on the transaction which is recorded in Other Operation on the statements of income. AEP paid approximately $26 million at closing in June 2020 and made additional payments totaling $28 million in quarterly installments from October 2020 to April 2021. AEP will make additional payments totaling $44 million in quarterly installments from July 2021 to July 2022.

Acquisitions and Dispositions

6 Months Ended

Jun. 30, 2021

ACQUISITIONS AND DISPOSITIONS

The disclosures in this note apply to AEP unless indicated otherwise.

ACQUISITIONS

Dry Lake Solar Project (Generation & Marketing Segment)

In November 2020, AEP signed a Purchase and Sale Agreement with a nonaffiliate to acquire a 75% interest in the 100 MW Dry Lake Solar Project (Dry Lake) located in southern Nevada for approximately $114 million. In March 2021, AEP closed the transaction and the solar project was placed in-service in May 2021. Approximately $103 million of the purchase price was paid upon closing of the transaction and the remaining $11 million was paid when the project was placed in-service. In accordance with the accounting guidance for “Business Combinations,” management determined that the acquisition of Dry Lake represents an asset acquisition. Additionally, and in accordance with the accounting guidance for “Consolidation,” management concluded that Dry Lake is a VIE and that AEP is the primary beneficiary based on its power as managing member to direct the activities that most significantly impact Dry Lake’s economic performance. As the primary beneficiary of Dry Lake, AEP consolidates Dry Lake into its financial statements. As a result, to account for the initial consolidation of Dry Lake, management applied the acquisition method by allocating the purchase price based on the relative fair value of the assets acquired and noncontrolling interest assumed. The fair value of the primary assets acquired and the noncontrolling interest assumed was determined using the market approach. The key input assumptions were the transaction price paid for AEP’s interest in Dry Lake and recent third-party market transactions for similar solar generation facilities. The nonaffiliated interest in Dry Lake is presented in Noncontrolling Interests on the balance sheets. Subsequent to close of the transaction, the noncontrolling interest made additional asset contributions of $14 million. As of June 30, 2021, AEP recognized approximately $146 million of Property, Plant and Equipment and approximately $33 million of Noncontrolling Interest on the balance sheets.

North Central Wind Energy Facilities (Vertically Integrated Utilities Segment) (Applies to AEP, PSO and SWEPCo)

In 2020, PSO and SWEPCo received regulatory approvals to acquire the North Central Wind Energy Facilities (NCWF), comprised of three Oklahoma wind facilities totaling 1,485 MWs, on a fixed cost turn-key basis at completion. PSO and SWEPCo will own undivided interests of 45.5% and 54.5% of the NCWF, respectively. In total, the three wind facilities will cost approximately $2 billion and consist of Traverse (999 MW), Maverick (287 MW) and Sundance (199 MW). Output from the NCWF will serve retail load in PSO’s Oklahoma service territory and both retail and FERC wholesale load in SWEPCo’s service territories in Arkansas and Louisiana. The Oklahoma and Louisiana portions of the NCWF revenue requirement, net of PTC benefit, are recoverable through authorized riders beginning at commercial operation and until such time as amounts are reflected in base rates. The mechanism to recover the Arkansas portion of the NCWF revenue requirement will be addressed in a future regulatory proceeding. The NCWF are subject to various regulatory performance requirements. If these performance requirements are not met, PSO and SWEPCo would recognize a regulatory liability to refund retail customers.

In April 2021, PSO and SWEPCo acquired respective undivided ownership interests in the entity that owned Sundance during its development and construction for $270 million, the first of the three NCWF acquisitions. Immediately following the acquisition, PSO and SWEPCo liquidated the entity and simultaneously distributed the Sundance assets in proportion to their undivided ownership interests. Sundance was placed in-service in April 2021. The total investment in Sundance is estimated to be $291 million inclusive of previously capitalized pre-construction costs.

In accordance with the guidance for “Business Combinations,” management determined that the acquisition of Sundance represents an asset acquisition. The initial consolidation of Sundance and subsequent distribution of its assets resulted in the recognition and initial measurement of acquisition costs of $123 million and $147 million in

Property, Plant and Equipment on the balance sheets of PSO and SWEPCo, respectively. On an ongoing basis, management further determined that PSO and SWEPCo should apply the joint plant accounting model to account for their respective undivided interests in the assets, liabilities, revenues and expenses of Sundance.

The Purchase and Sale Agreement (PSA) includes collective interests in numerous land contracts, as originally executed between the nonaffiliated party and the respective owners of the properties as defined in the contracts. These contracts provide for easement and access rights to the land that Sundance was built upon. These interests as lessee in each of the land contracts were transferred to Sundance (and subsequently to PSO and SWEPCo) as a part of the closing of the PSA. As of June 30, 2021, the Noncurrent Obligations Under Operating Leases are $13 million and $15 million on the balance sheets for PSO and SWEPCo, respectively.

DISPOSITIONS

Conesville Plant (Generation & Marketing Segment)

In June 2020, AEP and a nonaffiliated joint-owner executed an Environmental Liability and Property Transfer and Asset Purchase Agreement with a nonaffiliated third-party related to the merchant Conesville Plant site. The purchaser took ownership of the assets and assumed responsibility for environmental liabilities, including ash pond closure, asbestos abatement and decommissioning and demolition of the Conesville Plant site. In consideration of the transfer of the acquired assets to the purchaser and the purchaser’s assumption of liabilities, AEP will pay a total of approximately $98 million over three years, derecognized $106 million in ARO and recorded an immaterial gain on the transaction which is recorded in Other Operation on the statements of income. AEP paid approximately $26 million at closing in June 2020 and made additional payments totaling $28 million in quarterly installments from October 2020 to April 2021. AEP will make additional payments totaling $44 million in quarterly installments from July 2021 to July 2022.