XML 63 R17.htm IDEA: XBRL DOCUMENT v3.24.1.u1
Income Taxes
 3 Months Ended
Mar. 31, 2024
Income Taxes INCOME TAXES
The disclosures in this note apply to all Registrants unless indicated otherwise.

Effective Tax Rates (ETR)

The Registrants’ interim ETR reflect the estimated annual ETR for 2024 and 2023, adjusted for tax expense associated with certain discrete items. In the first quarter of 2024, I&M, PSO, and SWEPCo recorded tax benefits of $61 million, $49 million, and $114 million, respectively, related to the reduction of a regulatory liability associated with the IRS PLRs received, driving a reduction to the interim ETR resulting in AEP’s tax rate of (16.5)% as shown below.

The ETR for each of the Registrants are included in the following tables:

Three Months Ended March 31, 2024
AEPAEP TexasAEPTCoAPCoI&MOPCoPSOSWEPCo
U.S. Federal Statutory Rate21.0 %21.0 %21.0 %21.0 %21.0 %21.0 %21.0 %21.0 %
Increase (decrease) due to:
State Income Tax, net of Federal Benefit
2.1 %0.2 %2.6 %2.4 %3.9 %1.0 %3.7 %1.7 %
Tax Reform Excess ADIT Reversal
(2.3)%(1.3)%0.2 %(13.4)%(0.5)%(6.0)%(2.0)%4.6 %
Remeasurement of Excess ADIT(29.7)%— %— %— %(58.2)%— %(263.3)%(224.7)%
Production and Investment Tax Credits
(6.8)%(0.2)%— %(0.1)%(1.1)%— %(49.6)%(23.8)%
Flow Through
— %0.1 %0.3 %(0.3)%(2.8)%0.6 %0.2 %0.6 %
AFUDC Equity
(1.2)%(1.5)%(1.8)%(0.4)%(0.7)%(1.0)%(1.3)%(1.3)%
Discrete Tax Adjustments
0.2 %— %— %— %— %— %0.9 %1.3 %
Other
0.2 %0.5 %— %0.1 %— %0.2 %1.2 %(0.8)%
Effective Income Tax Rate(16.5)%18.8 %22.3 %9.3 %(38.4)%15.8 %(289.2)%(221.4)%

Three Months Ended March 31, 2023
AEPAEP TexasAEPTCoAPCoI&MOPCoPSOSWEPCo
U.S. Federal Statutory Rate21.0 %21.0 %21.0 %21.0 %21.0 %21.0 %21.0 %21.0 %
Increase (decrease) due to:
State Income Tax, net of Federal Benefit
1.9 %0.3 %2.6 %2.4 %3.6 %1.0 %3.2 %(0.4)%
Tax Reform Excess ADIT Reversal
(6.2)%(1.5)%0.3 %(4.6)%(7.9)%(6.8)%(18.7)%(3.8)%
Production and Investment Tax Credits
(9.7)%(0.2)%— %— %(1.1)%— %(55.7)%(26.4)%
Flow Through
0.1 %0.2 %0.3 %0.6 %(1.8)%0.5 %0.3 %0.5 %
AFUDC Equity
(1.4)%(1.5)%(1.6)%(0.7)%(0.5)%(0.8)%(1.4)%(0.8)%
Discrete Tax Adjustments(3.2)%— %— %3.2 %1.8 %— %— %— %
Other
0.1 %0.1 %0.1 %— %— %— %(2.0)%(0.8)%
Effective Income Tax Rate2.6 %18.4 %22.7 %21.9 %15.1 %14.9 %(53.3)%(10.7)%

Federal and State Income Tax Audit Status

The statute of limitations for the IRS to examine AEP and subsidiaries originally filed federal return has expired for tax years 2016 and earlier. AEP has agreed to extend the statute of limitations on the 2017-2020 tax returns to May 31, 2025, to allow time for the current IRS audit to be completed including a refund claim approval by the Congressional Joint Committee on Taxation.

The current IRS audit and associated refund claim evolved from a net operating loss carryback to 2015 that originated in the 2017 return. AEP has received and agreed to immaterial IRS proposed adjustments on the 2017 tax return. The IRS exam is complete, and AEP is currently waiting on the IRS to submit the refund claim to the Congressional Joint Committee on Taxation for resolution and final approval.
AEP and subsidiaries file income tax returns in various state and local jurisdictions. These taxing authorities routinely examine the tax returns, and AEP and subsidiaries are currently under examination in several state and local jurisdictions. Generally, the statutes of limitations have expired for tax years prior to 2017. In addition, management is monitoring and continues to evaluate the potential impact of federal legislation and corresponding state conformity.

Federal Legislation

In August 2022, President Biden signed H.R. 5376 into law, commonly known as the Inflation Reduction Act of 2022, or IRA. Most notably this budget reconciliation legislation creates a 15% minimum tax on adjusted financial statement income (Corporate Alternative Minimum Tax or CAMT), extends and increases the value of PTCs and ITCs, adds a nuclear and clean hydrogen PTC, an energy storage ITC and allows the sale or transfer of tax credits to third parties for cash. As further significant guidance from Treasury and the IRS is expected on the tax provisions in the IRA, AEP will continue to monitor any issued guidance and evaluate the impact on future net income, cash flows and financial condition.

AEP and subsidiaries are applicable corporations for purposes of the CAMT in 2024. CAMT cash taxes are expected to be partially offset by regulatory recovery, the utilization of tax credits and additionally the cash inflow generated by the sale of tax credits. The sale of tax credits are presented in the operating section of the statements of cash flows consistent with the presentation of cash taxes paid. AEP presents the loss on sale of tax credits through income tax expense.

In June 2023, the IRS issued temporary regulations related to the transfer of tax credits. In 2023, AEP, on behalf of PSO, SWEPCo and AEP Energy Supply, LLC, entered into transferability agreements with nonaffiliated parties to sell 2023 generated PTCs resulting in cash proceeds of approximately $174 million with $102 million received in 2023, $62 million received in the first quarter of 2024 and the remaining $10 million was received in April 2024. AEP expects to continue to explore the ability to efficiently monetize its tax credits through third party transferability agreements.
I&M’s Cook Plant qualifies for the transferable Nuclear PTC, which is available for tax years beginning in 2024 through 2032. The Nuclear PTC is calculated based on electricity generated and sold to third-parties and is subject to a “reduction amount” as the facility’s gross receipts increase above a certain threshold. Due to lack of guidance and uncertainty surrounding the computation of gross receipts, AEP and I&M are unable to estimate the amount of the Nuclear PTCs earned as of March 31, 2024 and have not included any Nuclear PTCs in the annualized effective tax rate for the first quarter of 2024.