Financing Activities

9 Months Ended

Sep. 30, 2023

Financing Activities

FINANCING ACTIVITIES

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

Common Stock (Applies to AEP)

At-the-Market (ATM) Program

In 2020, AEP filed a prospectus supplement and executed an Equity Distribution Agreement, pursuant to which AEP may sell, from time to time, up to an aggregate of $1 billion of its common stock through an ATM offering program, including an equity forward sales component. The compensation paid to the selling agents by AEP may be up to 2% of the gross offering proceeds of the shares. There were no issuances under the ATM program for the nine months ended September 30, 2023.

Long-term Debt Outstanding (Applies to AEP)

The following table details long-term debt outstanding, net of issuance costs and premiums or discounts:

Type of Debt	September 30, 2023		December 31, 2022
	(in millions)
Senior Unsecured Notes	$	32,881.6	$	30,174.8
Pollution Control Bonds	1,771.0		1,770.2
Notes Payable	141.5		269.7
Securitization Bonds	407.0		487.8
Spent Nuclear Fuel Obligation (a)	296.3		285.6
Junior Subordinated Notes (b)	2,386.6		2,381.3
Other Long-term Debt	1,605.1		1,431.6
Total Long-term Debt Outstanding	39,489.1		36,801.0
Long-term Debt Due Within One Year	2,773.6		2,486.4
Long-term Debt	$	36,715.5	$	34,314.6

(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 SNF 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 $345 million and $330 million as of September 30, 2023 and December 31, 2022, respectively, and are included in Spent Nuclear Fuel and Decommissioning Trusts on the balance sheets.

(b)See “Equity Units” section below for additional information.

Long-term Debt Activity

Long-term debt and other securities issued, retired and principal payments made during the first nine months of 2023 are shown in the following tables:

		Principal		Interest
Company	Type of Debt	Amount (a)		Rate	Due Date
Issuances:		(in millions)		(%)
AEP	Senior Unsecured Notes	$	850.0	5.63	2033
AEPTCo	Senior Unsecured Notes	700.0		5.40	2053
AEP Texas	Pollution Control Bonds	60.0		4.25	2030
AEP Texas	Senior Unsecured Notes	450.0		5.40	2033
APCo	Other Long-term Debt	200.0		Variable	2024
I&M	Senior Unsecured Notes	500.0		5.63	2053
OPCo	Senior Unsecured Notes	400.0		5.00	2033
PSO	Senior Unsecured Notes	475.0		5.25	2033
SWEPCo	Senior Unsecured Notes	350.0		5.30	2033
Non-Registrant:
KPCo	Pollution Control Bonds	65.0		4.70	2026
Transource Energy	Other Long-term Debt	14.0		Variable	2025
Total Issuances		$	4,064.0

(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.

		Principal		Interest
Company	Type of Debt	Amount Paid		Rate	Due Date
Retirements and Principal Payments:		(in millions)		(%)
AEP	Senior Unsecured Notes	$	600.0	Variable	2023
AEP Texas	Pollution Control Bonds	60.0		0.90	2023
AEP Texas	Senior Unsecured Notes	125.0		3.09	2023
AEP Texas	Securitization Bonds	31.5		2.85	2024
AEP Texas	Securitization Bonds	23.5		2.06	2025
APCo	Securitization Bonds	9.7		2.01	2023
APCo	Securitization Bonds	16.8		3.77	2028
I&M	Senior Unsecured Notes	250.0		3.20	2023
I&M	Notes Payable	1.8		Variable	2023
I&M	Notes Payable	3.7		Variable	2024
I&M	Notes Payable	13.8		Variable	2025
I&M	Notes Payable	12.0		0.93	2025
I&M	Notes Payable	20.6		3.44	2026
I&M	Notes Payable	20.5		5.93	2027
I&M	Other Long-term Debt	1.7		6.00	2025
OPCo	Other Long-term Debt	0.6		1.15	2028
PSO	Other Long-term Debt	0.4		3.00	2027
SWEPCo	Notes Payable	25.0		6.37	2024
SWEPCo	Notes Payable	30.9		4.58	2032
SWEPCo	Other Long-Term Debt	38.2		4.68	2028
Non-Registrant:
KPCo	Pollution Control Bonds	65.0		2.35	2023
Transource Energy	Senior Unsecured Notes	2.6		2.75	2050
Total Retirements and Principal Payments		$	1,353.3

Long-term Debt Subsequent Event

In October 2023, I&M retired $4 million of Notes Payable related to DCC Fuel.

In October 2023, Transource Energy issued $3.5 million of variable rate Other Long-term Debt due in 2025.

In November 2023, AEP retired $450 million of Senior Unsecured Notes.

Equity Units (Applies to AEP)

2020 Equity Units

In August 2020, AEP issued 17 million Equity Units initially in the form of corporate units, at a stated amount of $50 per unit, for a total stated amount of $850 million. Net proceeds from the issuance were approximately $833 million. The proceeds were used to support AEP’s overall capital expenditure plans.

Each corporate unit represents a 1/20 undivided beneficial ownership interest in $1,000 principal amount of AEP’s 1.30% Junior Subordinated Notes due in 2025 and a forward equity purchase contract which settled after three years in August 2023. In June 2023, AEP successfully remarketed the Junior Subordinated Notes on behalf of holders of the corporate units. AEP did not receive any proceeds from the remarketing which were used to purchase a portfolio of treasury securities that matured on August 14, 2023. On August 15, 2023, the proceeds from the treasury portfolio were used to settle the forward equity purchase contract with AEP. The interest rate on the Junior Subordinated Notes was reset to 5.699% with the maturity remaining in 2025. In August 2023, AEP issued 10,048,668 shares of AEP common stock and received proceeds totaling $850 million under the settlement of the forward equity purchase contract. AEP common stock held in treasury was used to settle the forward equity purchase contract. The proceeds were used to pay down debt balances and support AEP’s overall capital expenditure plans.

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 0.9% of consolidated tangible net assets as of September 30, 2023. 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 requirement that prohibits the payment of dividends out of capital accounts in certain circumstances; payment of dividends is generally allowed out of retained earnings. The Federal Power Act also creates a reserve on earnings attributable to hydroelectric generation plants. Because of their ownership of such plants, this reserve applies to 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 all 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 its agreement filed with the FERC. The amounts of outstanding loans to (borrowings from) the Utility Money Pool as of September 30, 2023 and December 31, 2022 are included in Advances to Affiliates and Advances from Affiliates, respectively, on the Registrant Subsidiaries’ balance sheets. The Utility Money Pool participants’ activity and corresponding authorized borrowing limits for the nine months ended September 30, 2023 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		September 30, 2023		Limit
	(in millions)
AEP Texas	$	477.5		$	42.0	$	250.4	$	42.0	$	42.0	$	500.0
AEPTCo	471.3			309.4		134.3		76.0		7.2		820.0		(a)
APCo	388.6			19.8		280.8		19.0		(183.2)		500.0
I&M	475.3			112.2		126.0		49.3		21.2		500.0
OPCo	485.7			64.7		207.1		40.2		(113.3)		500.0
PSO	375.0			121.5		106.3		53.9		9.2		400.0
SWEPCo	401.6		(b)	25.8		165.3		16.5		(48.9)		400.0

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

(b)    SWEPCo’s maximum borrowings from the Utility Money Pool exceeded the authorized short-term borrowing limit by $1.6 million on March 15, 2023. On March 16, 2023, SWEPCo’s borrowings from the Utility Money Pool were reduced below the $400 million authorized limit and borrowings have continued to remain below the authorized limit.

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, LLC participate in the Nonutility Money Pool. The amounts of outstanding loans to the Nonutility Money Pool as of September 30, 2023 and December 31, 2022 are included in Advances to Affiliates on the subsidiaries’ balance sheets. The Nonutility Money Pool participants’ activity for the nine months ended September 30, 2023 is described in the following table:

		Maximum Loans		Average Loans		Loans to the Nonutility
		to the Nonutility		to the Nonutility		Money Pool as of
Company		Money Pool		Money Pool		September 30, 2023
	(in millions)
AEP Texas		$	7.0	$	6.9	$	7.0
SWEPCo		2.7		2.3		2.7

AEP has a direct financing relationship with AEPTCo to meet its short-term borrowing needs. The amounts of borrowings from AEP as of September 30, 2023 and December 31, 2022 are included in Advances from Affiliates on AEPTCo’s balance sheets. AEPTCo’s direct borrowing and lending activity with AEP and corresponding authorized borrowing limit for the nine months ended September 30, 2023 are described in the following table:

Maximum

Maximum

Average

Average

Borrowings from

Loans to

Authorized

Borrowings

Loans

Borrowings

Loans

AEP as of

AEP as of

Short-term

from AEP

to AEP

from AEP

to AEP

September 30, 2023

September 30, 2023

Borrowing Limit

(in millions)

$

37.9

$

158.1

$

3.0

$

67.5

$

33.4

$

—

$

50.0

(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 are summarized in the following table:

	Nine Months Ended September 30,
	2023		2022
Maximum Interest Rate	5.81	%	3.39	%
Minimum Interest Rate	4.66	%	0.10	%

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 for Funds				Average Interest Rate for Funds
	Borrowed from the Utility Money Pool				Loaned to the Utility Money Pool
	for Nine Months Ended September 30,				for Nine Months Ended September 30,
Company	2023		2022		2023		2022
AEP Texas	5.44	%	0.90	%	5.70	%	1.82	%
AEPTCo	5.29	%	1.03	%	5.52	%	2.14	%
APCo	5.47	%	1.39	%	5.47	%	2.13	%
I&M	5.13	%	1.38	%	5.54	%	1.46	%
OPCo	5.37	%	1.81	%	5.60	%	1.22	%
PSO	5.48	%	1.70	%	5.24	%	0.75	%
SWEPCo	5.25	%	1.67	%	5.72	%	0.55	%

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

Nine Months Ended September 30, 2023

Nine Months Ended September 30, 2022

Maximum

Minimum

Average

Maximum

Minimum

Average

Interest Rate

Interest Rate

Interest Rate

Interest Rate

Interest Rate

Interest Rate

for Funds

for Funds

for Funds

for Funds

for Funds

for Funds

Loaned to

Loaned to

Loaned to

Loaned to

Loaned to

Loaned to

the Nonutility

the Nonutility

the Nonutility

the Nonutility

the Nonutility

the Nonutility

Company

Money Pool

Money Pool

Money Pool

Money Pool

Money Pool

Money Pool

AEP Texas

5.81

%

4.66

%

5.47

%

3.39

%

0.46

%

1.51

%

SWEPCo

5.81

%

4.66

%

5.49

%

3.39

%

0.46

%

1.52

%

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
Nine Months	for Funds		for Funds		for Funds		for Funds		for Funds		for Funds
Ended	Borrowed		Borrowed		Loaned		Loaned		Borrowed		Loaned
September 30,	from AEP		from AEP		to AEP		to AEP		from AEP		to AEP
2023	5.81	%	4.53	%	5.81	%	4.53	%	5.43	%	5.46	%
2022	3.39	%	0.46	%	3.37	%	0.46	%	1.56	%	1.38	%

Short-term Debt (Applies to AEP and SWEPCo)

Outstanding short-term debt was as follows:

		September 30, 2023				December 31, 2022
		Outstanding		Interest		Outstanding		Interest
Company	Type of Debt	Amount		Rate (a)		Amount		Rate (a)
		(dollars in millions)
AEP	Securitized Debt for Receivables (b)	$	900.0	5.60	%	$	750.0	4.67	%
AEP	Commercial Paper	1,826.5		5.64	%	2,862.2		4.80	%
AEP	Term Loan	—		—	%	150.0		5.17	%
AEP	Term Loan	—		—	%	125.0		5.17	%
AEP	Term Loan	—		—	%	100.0		5.23	%
AEP	Term Loan	—		—	%	125.0		4.87	%
SWEPCo	Notes Payable	3.9		7.67	%	—		—	%
	Total Short-term Debt	$	2,730.4			$	4,112.2

(a)Weighted-average rate as of September 30, 2023 and December 31, 2022, respectively.

(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 $900 million from bank conduits to purchase receivables. The agreement was amended in August 2023 to increase the commitment from $750 million and expires in September 2025. As of September 30, 2023, the affiliated utility subsidiaries were in compliance with all requirements under the agreement.

Accounts receivable information for AEP Credit was as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
	(dollars in millions)
Effective Interest Rates on Securitization of Accounts Receivable	5.55		%	2.25		%	5.23		%	1.16		%
Net Uncollectible Accounts Receivable Written-Off	$	8.8		$	9.5		$	22.9		$	23.1

	September 30, 2023		December 31, 2022
	(in millions)
Accounts Receivable Retained Interest and Pledged as Collateral Less Uncollectible Accounts	$	1,257.0	$	1,167.7
Short-term – Securitized Debt of Receivables	900.0		750.0
Delinquent Securitized Accounts Receivable	59.5		44.2
Bad Debt Reserves Related to Securitization	42.2		39.7
Unbilled Receivables Related to Securitization	301.8		360.9

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

Securitized Accounts Receivables – AEP Credit (Applies to all 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 Subsidiary’s receivables. APCo does not have regulatory authority to sell its West Virginia accounts receivable. KPCo ceased selling accounts receivable to AEP Credit in the first quarter of 2022, based on the expected sale to Liberty. As a result, in the first quarter of 2022, KPCo recorded an allowance for uncollectible accounts on its balance sheet for those receivables no longer sold to AEP Credit. In the third quarter of 2023, KPCo resumed selling accounts receivable to AEP Credit, due to the termination of the sale to Liberty, and the balance in KPCo’s allowance for uncollectible accounts was transferred to AEP Credit. 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	September 30, 2023		December 31, 2022
	(in millions)
APCo	$	170.5	$	194.4
I&M	176.2		166.9
OPCo	479.3		478.6
PSO	211.5		155.5
SWEPCo	210.2		194.0

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

	Three Months Ended September 30,				Nine Months Ended September 30,
Company	2023		2022		2023		2022
	(in millions)
APCo	$	4.1	$	2.8	$	13.3	$	5.6
I&M	4.4		2.8		12.2		6.5
OPCo	7.4		7.3		22.3		22.2
PSO	4.6		2.4		11.3		4.6
SWEPCo	5.2		3.2		13.9		6.0

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

	Three Months Ended September 30,				Nine Months Ended September 30,
Company	2023		2022		2023		2022
	(in millions)
APCo	$	451.6	$	360.4	$	1,372.7	$	1,114.9
I&M	553.3		558.5		1,575.9		1,574.3
OPCo	850.3		874.1		2,518.6		2,284.0
PSO	633.8		588.5		1,510.3		1,380.4
SWEPCo	558.4		593.6		1,456.5		1,425.3