Schedule J (10Q 2nd Qtr 2016)

PUC Docket No. 46449 Schedule J (10Q 2nd Qtr 2016)

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fixed income securities and cash equivalent funds. Fixed income securities generally do not trade on exchanges and do not have an official closing price but their valuation inputs are based on observable market data. Pricing vendors calculate bond valuations using financial models and matrices. The models use observable inputs including yields on benchmark securities, quotes by securities brokers, rating agency actions, discounts or premiums on securities compared to par prices, changes in yields for U.S. Treasury securities, corporate actions by bond issuers, prepaynient schedules and histories, economic events and, for certain securities, adjustments to yields to reflect changes in the rate of inflation. Other securities with model-derived valuation inputs that are observable are also classified as Level 2 investments. Investments with unobserVable valuation inputs are classified as Level 3 investments.

Fair Value Measurements of Long-term Debt

The fair values of Long-term Debt are based on quoted market prices, without credit enhancements, for the same or similar issues and the current interest rates offered for instruments with similar maturities classified as Level 2 measurement inputs. These instruments are not marked-to-market. The estimates presented are not necessarily indicative of the amounts that could be realized in a current market exchange.

The book values and fair values of Long-term Debt for the Registrants as of June 30, 2016 and December 31, 2015 are summarized in the following table:

June 30, 2016 December 31; 2015 Company Book Value Fair Value Book Value , Fair Value

(in millions) AEP $ 19,543.7 $ 22,443.2 $ 19,572.7 $ 21,201.3 APCo 4,044.5 4,910.6 3,930.7 4,416.7 I&M 2,430.3 2,745.8 2,000.0 2,193.6 OPCo 1,786.0 2,220.0 2,157.7 2,472.7 PSO 1 1,286.4 1,481.8 1,286.1 1,402.9 SWEPCo 2,272.8 2,555.0 2,273.5 2,417.2

Fair Value Measurements of Other Temporary Investments (Applies to AEP)

Other Temporary Investments include funds held by trustees primarily for the payment of securitization bonds and securities available fdr sale, including marketable securities that management intends to hold for less than one year and investments by its protected cell of EIS.

The following is a summary of Other Temporary Investments:

June 30, 2016 Gross Gross

Unrealized Unrealized Fair Other Temporary Investments

Cost

Gains Losses Value

Restricted Cash (a) $ 188.5 (in millions)

$ — $ 188.5 Fixed Income Securities — Mutual Funds 91.8 0.5 — 92.3 Equity Securities — Mutual Funds 14.0 12.1 26.1 Total Other Temporary Investments $ 294.3 $ 12.6 $ $ 306.9

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Decembeir 31, 2015 Gross Gross

Unrealized Unrealized Fair Other Temporary Investments Cost Gains Losses Value

Restricted Cash (a) $ 271.0 (in millions)

$ — $ — $ .271.0 Fixed Income Securities - Mutual Funds 91.1 — (0.7) 90.4 Equity Securities - Mutual Funds 13.7 11.7 — 25.4 TOtal Other Temporary Investments $ 375.8 $ 11.7 $ (0.7) $ 386.8

(a) Primarily represents amounts held for the repayment of debt.

The following table provides the activity for fixed income and equitY securities within Other Temporary Investments for the three and six months ended June 30, 2016 and 2015:

Three Months Ended June 30, • Six Months Ended June 30, 2016 2015 2016 2015

Proceeds from Investinent Sales Purchases of Investments Gross Realized Gains on Investment Sales Gross Realized Loss6 on Investment Sales

$ 0.6

(in millions) — $

0.4 $

1.0 0.8

As of June 30, 2016 and December 31, 2015, AEP had no Other Temporary Investments with an unrealized loss position. As of June 30, 2016, fixed income securities were primarily debt based mutual funds with short and intermediate maturities. Mutual funds may be sold and do not contain maturity dates.

For details of the reasons for changes in Securities Available for Sale included in Accumulated Other Comprehensive Income (Loss) for the three and six months ended June 30, 2016 and 2015, see Note 3.

Fair Value Medsurements of Trust Assets for Decommissioning and SNF Disposal (Applies to AEP and MM.)

Nuclear decommissioning and spent nuclear fuel trust funds represent furlds that regulatory commissions allow I&M to collect through rates to fund future decommissioning and spent nuclear fuel disposal liabilities. By rules or orders, the IURC, the MPSC and the FERC established investment limitations and general risk management guidelines. In general, limitations include:

• Acceptable investments (rated investment grade or above when purchased). • Maximum percentage invested in a specific type of investment. • Prohibition of investment in obligations of AEP, I&M or their affiliates. • Withdrawals permitted only for payment of decommissioning costs and trust expenses.

I&M maintains trust records for each regulatory jurisdiction. Regulatory approval is required to withdraw decommissioning funds. These funds are managed by external investment managers who must comply with the guidelines and rules of the applicable regulatory authorities. The trust,assets are invested to optimize the net of tax earnings of the trust giving consideration to liquidity, risk, diversification and other prudent investment objectives.

I&M records securities held in these trust funds in Spent Nuclear Fuel and Decommissioning Trusts on its balance sheets. Icklvl records these securities at fair value. I&M classifies securities in the trust funds as available-for-sale due to their long-term purpose. Other-than-temporary impairments for investments in both debt and equity securities are considered realized losses as a result of securities being managed by an external investment management firm. The external investment management firm makes specific investment decisions regarding the debt and equity investments held in these trusts and generally intends to sell debt securities in an unrealized loss position as part of a tax optimization strategy. Impairments reduce the cost basis of the securities which will affect any future unrealized

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gain or realized gain or loss due to the adjusted cost of investment. 1841V1 records unrealized gains and other-than-temporary impairments from securities in these trust funds as adjustments to the regulatory liability account for the nuclear decommissioning trust funds and to regulatory assets or liabilities for the SNF disposal trust funds in accordance with their treatment in rates. Consequently, changes in fair value of trust assets do not affect earnings or AOCI.

The following is a summary Of- nuclear trust fund investments as ofJune 30, 2016 and December 31, 2015:

Cash and Cash Equivalents Fixed Income Securities:

June 30, 2016 December 31, 2015

Fair Value

Gross Unrealized

Gains

Other-Than- Temporary

Impairments Fair

Value

Gross Unrealized

Gains

Other-Than- Temporary

Impairments

18.6 $ $ (in millions) - $ 168.3 $ - $

United States Government 748.9 62.2 (2.1) 731.1 35.9 (2.6) Corporate Debt 66.0 6.3 (1.0) 57.9 3.2 (1.1) State and Local Govemment 181.0 0.9 (0.7) 22.2 1.1 (0.3)

Subtotal Fixed Income Securities 995.9 69.4 (3.8) 811.2 40.2 (4.0) Equity Securities - Domestic 1,181.5 605.5 (78.1) 1,126.9 571.6 (79.3) Spent Nuclear Fuel and

Decommissioning Trusts $ 2,196.0 $ 674.9 $ (81.9) $ 2,106.4 $ 611.8 $ (83.3)

The following table provides the securities activity within the decommissioning and SNF trusts for the three and six - months ended June 30, 2016 and 2015:

Three Months Ended June 30, Six Months Ended June 30, 2016 2015 , 2016 2015

(in millions) Proceeds from Investment Sales $ 639.3 $ 287.6 $ 1,777.0 $ 515.8 Purchases of Investments 644.8 294.9 1,796.4 540.7 Gross Realized Gains on Investment Sales .12.2 7.6 28.0 18.8 Gross Realized Losses on Investment Sales 7.9 5.9 15.7 9.7

The adjusted cost of fixed income securities was $927 million and $771 million as ofJune 30, 2016 and December 31, 2015, respectively. The adjusted cost of equity securities was $576 million and $555 million as ofJune 30, 2016 and December 31, 2015, respectively.

The fair value of fixed income securities held in the nuclear trust funds, summarized by contractual maturities, as of June 30, 2016 was as follows:

Fair Value of Fixed Income Securities

(in millions) Within 1 year 169.7 1 year - 5 years 378.2 5 years - 10 years 193.3 After 10 years 254.7 Total 995.9

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Fair Value Measurements of Financial Assets and Liabilities

The following tables set forth, by level within the fair value hierarchy, the Registrants financial assets and liabilities that Were accounted for at fair value on a recurring basis as ofJune 30, 2016 and December 31, 2015. As required by the accounting guidance for "Fair Value Measurements and Disclosures," financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Management's assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. There have riot been anY significant changes in management's valuation techniques.

AEP

Assets and Liabilities Measured at Fair Value on a Recurring Basis June 30, 2016

Assets: Level I Level 2 Level 3 Other Total

(in millions)

Cash and Cash Equivalents (a) $ 11.0 $ 4.4 $ - $ 231.4 $ 246.8

Other Temporary Investments ,. Restricted Cash (a) 144.1 10.4 - 34.0 188.5 Fixed Income Securities -Mutual Funds 923 - - 92.3 Equity Securities - Mutual Funds (b) 26.1 - 26.1 Total Other Temporary Investments - 262.5 10.4 34.0 306.9

Risk Management Assets Risk Management Commodity Contracts (c) (d) 9.3 430.8 188.3 (248.2) 380.2 Cash Flow Hedges:

Commodity Hedges (c) 8.9 25.0 (5.6). 28.3 Fair Value Hedges - 1.1 - - 1.1 Total Risk Management Assets 9.3 440.8 • 213.3 (253.8) 409.6

Spent Nuclear Fuel and Decommissioning Trusts Cash and Cash Equivalents (e) 8.1 10.5 18.6 Fixed Income Securities:

United States Government 748.9 - - 748.9 Corporate Debt 66.0 - 66.0 State and Local Government - 181.0 - 181.0

Subtotal Fixed Income Securities 995.9 995.9 Equity Securities -Domestic (b) 1,181.5 1,181.5 Total Spent Nuclear Fuel and Decommissioning Trusts 1,189.6 995.9 10.5 2 196.0

Total Assets $ .1 472 4 $ 1 451 5 $ 213.3 $ 22.1 $ 3 159.3

Liabilities:

Risk Management Liabilities Risk Management Commodity Contracts (c) (d) $ 13.7 $ 415.1 $ 57.1 $ (258.9) $ 227.0 Cash Flow Hedges:

Commodity Hedges (c) - 24.0 6.9 (5.6) 25.3 Interest Rate/Foreign Currency Hedges 0.2 - - 0.2

Total Risk Management Liabilities $ 13.7 $ 439.3 $ 64.0 $ (264.5) $ 252.5

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AEP

Assets and Liabilities Measured at Fair Value on a Recurring Basis December 31, 2015

Assets: Level 1 Level 2 Level 3 Other Total

(in millions)

Cash and Cash Equivalents (a) $ 3.9 $ 4.3 $ - $ 168.2 $ 176.4

Other Temporary Investments Restricted Cash (a) 230.0 7.7 33.3 271.0 Fixed Income Securities - Mutual Funds 90.4 90.4 Equity Securities -Mutual Funds (b) 25.4 25.4 Total Other Temporary Investments 345.8 7.7 33.3 386.8

Risk Management Assets Risk Management Commodity Contracts (c) (f) 11.5 495.0 219.7 (287.7) 438.5 Cash Flow Hedges:

Commodity Hedges (c) 15.9 1.0 0.7 17.6 Fair Value Hedges 0.1 0.1 Total Risk Management Assets 11.5 510.9 220.7 (286.9) 456.2


United States Government - 731.1 - 731.1 Corporate Debt 57.9 - - 57.9 State and Local Government - 22.2 - - 22.2

Subtotal Fixed Income Securities 811.2 811.2. Equity Securities - Domestic (b) 1,126.9 1 126.9 Total Spent Nuclear Fuel and Decommissioning Trusts 1,287.4 811.2 7.8 2,106.4

Total Assets $ 1 648.6 $ 1,334.1 $ 220.7 $ (77.6) $ 3,125.8

Liabilities:

Risk Management Liabilities Risk Management Commodity Contracts (c) (f) $ 24.1 $ 471.5 $ 67.3 $ (326.3) $ 236.6 Cash Flow Hedges: .

Commodity Hedges (c) - 18.9 6.5 0.7 26.1 Interest Rate/Foreign Currency Hedges 0.4 - - 0.4

Fair Value Hedges - 3.0 - 0.1 3.1 Total Risk Management Liabilities $ 24.1 $ 493.8 $ 73.8 $ (325.5) $ '266.2

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APCo


Level 1 Level 2 Level 3 Other Total Assets: (in millions)

Restricted Cash for Securitized Funding (a) $ 15.0 $ - $ - $ 0.1 $ 15.1

Risk Management Assets - Nonaffiliated and Affiliated Risk Management Commodity Contracts (c) (g) 13.9 3.1 (11.6) 5.4

Total Assets: $ 15.0 $ 13.9 $ 3.1 $ (11.5) $ 20.5

Liabilities:

Risk Management Liabilities - Nonaffiliated Risk Management Commodity Contracts (c) (g) $ - $ 14.0 $ 16.0 $ (11.2) $ 18.8

APCo



(in millions)

Restricted Cash for Securitized Funding (a)

Risk Management Assets - Nonaffiliated and Affiliated

$ 14.8 $ - $ - $ 0.1 $ 14.9

Risk Management Commodity Contracts (c) (g) 0.2 13.9 12.2 (10.6) 15.7

Total Assets:

Liabilities:

Risk Management Liabilities - Nonaffiliated

$ 15.0 $ 13.9 $ 12.2 $ (10.5) $ 30.6

Risk Management Commodity Contracts (c) (g) 0.2 $ 17.8 $ 0.5 $ (13.6) $ 4.9

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I&M

• Assets and Liabilities Measured at Fair Value on a Recurring Basis June 30, 2016

Assets:

Risk Management Assets - Nonaffili'ated and Affiliated

Level 1 Level 2 Level 3 Other Total (in millions),

Risk Management Commodity Contracts (c) (g) $ - $ 14.9 $ 3.8 $ (9.4) $ 5.3


United States Government - 748.9 - 748.9 Corporate Debt 66.0 - - 66.0 State and Local Government 181.0 - - 181.0

Subtotal Fixed Income Securities 995.9 995.9 Equity Securities - Domestic (b) 1,181.5 1 181.5 Total Spent Nuclear Fuel and DecOmmissioning Trusts 1,189.6 995.9 10.5 2,196.0

Total Assets $ 1,189.6 $ 1,006.8 $ 3.8 $ 1.1 $ 2,201.3

Liabilities:

Risk Management Liabilities - Nonaffiliated Risk Management Conimodity Contracts (c) (g) $ - $ 13.7 $ 0.3 $ (10.0) $ 4.0

I&M



Risk Management Assets - Nonaffiliated and Affiliated Risk Management Commodity Contracts (c) (g) $ 0.1 $ 17.0 $ 6.3 $ (11.1) $ 12.3

Spent Nuclear Fuel and Decommissioning Trusts Cash and Cash Equivalents (e) 160.5 - 7.8 168.3 Fixed Income Securities:

United States Government 731.1 - 731.1 Corporate Debt - 57.9 - 57.9 State-and Local Government 22.2 - - 22.2

Subtotal Fixed Income Securities - 811.2 - 811.2 Equity Securities - Domestic (b) 1 126.9 - - - 1,126.9 Total Spent Nuclear,Fuel and Decommissioning Trusts 1,287.4 811.2 7.8 2,106.4

Total Assets $ 1,287.5 $ 828.2 $ 6.3 $ (3.3) $ 2,118.7

Liabilities:

Risk Management Liabilities - Nonaffiliated Risk Management Commodity Contracts (c) (g) $ 0.1 $ 17.5 $ 2.0 $ (11.7) $ 7.9

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OPCo


Assets:

Restricted Cash for Securitized Funding (a)

Risk Management Assets

Level 1 Level 2 Level 3 Other • Total

$ — $ —

(in millions)

$ — $ - 27.2 $ 27.2

Risk Management Commodity Contracts (c) (g) — 0.1 — — 0.1

Total Assets

Liabilities:

Risk Management Liabilities

$ — $ 0.1 $ — $ 27.2 $ 27.3

Risk Management Commodity Contracts (c) (g) $ — $ 0.2 $ 14.6 $ (0.1) $ 14.7

OPCo

Assets and Liabilities Meisured at Fair Value on a Recurring Basis December 31, 2015


(in millions)

Restricted Cash for Securitized Funding (a) $ — $ — $ — $ 27.7 $ 27.7

Risk Management Assets Risk Management Commodity Contracts (c) (g) — 16.0 3.2 19.2

Total Assets $ — $ — $ 16.0 $ . 30.9 $ 46.9

Liabilities:

Risk Management Liabilities Risk Management Commodity Contracts (c) (g) $ — $ 0.8 $ 0.1 $ 2.7 $ 3.6

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PSO


Assets:

Risk Management Assets

Level 1 Level 2 Level 3 Other Total (in millions)

Risk Management Commodity Contracts (c) (g)

Liabilities:

Risk Management Liabilities

$ — $ 0.1 $ 1.2 $ (0.1) $ 1.2

Risk Management Commodity Contracts (c) (g) $ — $ 0.1 $ 0.1 $ (0.2Y $

PSO

Assets and Liabilities Measured at Fair Value on a Recurring Basis December 31, 2015 '

Level 1 Level 2 Level 3 Other Total Assets:

(in millions)

Risk Management Assets Risk Management Commodity Contracts (c) (g) $ — $ — $ 0.7 $ (0.1) $ 0.6

Liabilities:

Risk Management Liabilities Risk Management Commodity Contracts (c) (g) $ 0.5 $ 0.1 $ (0.4) $ 0.2

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SWEPCo



Cash and Cash Equivalents (a) $ 10.8 $ - $ - $ 3.2 $ 14.0

Risk Management Assets Risk Management Commodity Contracts (c) (g) - 0.1 1.5 (0.2) 1.4

Total Assets $ 10.8 $ 0.1 $ 1.5 $ 3.0 $ 15.4

Liabilities:

Risk Management Liabilities Risk Management Commodity Contracts (c) (g) $ - $ 2.9 $ 0.1 $ (0.3) $ 2.7

SWEPCo



(in millions)

Cash and Cash Equivalents (a) $ 3.6 $ $ $ 1.6 $ 5.2

Risk Management Assets Risk Management Commodity Contracts (c) (g) 0.9 (0.1) , 0.8

Total Assets $ 3.6 $ $ 0.9 $ 1.5 $ 6.0

Liabilities:

Risk Management Liabilities Risk Management Commodity Contracts (c) (g) $ - $ 5.5 $ 0.1 $ (0.4) $ 5.2

(a) Amounts' in "Other" column primarily represent cash deposits in bank accounts with financial institutions or with third parties. Level 1 and Level 2 amounts primarily represent investments in money market funds.

(b) Amounts represent publicly traded equity securities and equity-based mutual funds. (c) Amounts in "Other" column primarily represent counterparty netting of risk management and hedging contracts and

associated cash collateral under the accounting guidance for "Derivatives and Hedging." (d) The June 30, 2016 maturity of the net fair value of risk management contracts prior to cash collateral, assets/(liabilities),

is as follows: Level 1 matures $(5) million in periods 2017-2019; Level 2 matures $5 million in 2016, $9 million in periods 2017-2019 and $2 million in periods 2020-2021; Level 3 matures $5 million in 2016, $30 million' in periods 2017-2019, $20 million in periods 2020-2021 and $76 million in periods 2022-2032. Risk management commodity cOntracts are substantially comprised of power contracts.

(e) Amounts in "Other" column primarily represent accrued interest receivables from financial institutions. Level 1 amounts primarily represent investments in money market funds.

(0 The December 31, 2015 maturity of the net fair value of risk management contracts prior to cash collateral, assets/ (liabilities), is as follows: Level 1 matures $(9) million in 2016 and $(4) million in periods 2017-2019; Level 2 matures $2 million in 2016, $18 million in periods 2017-2019 and $4 million in periods 2020-2021; Level 3 matures $28 million in 2016, $29 million in periods 2017-2019, $19 million in periods 2020-2021 and $76 million in periods 2022-2032. Risk management commodity contracts are substantially comprised of power contracts.

(g) Substantially comprised of power contracts for the Registrant Subsidiaries.

There were no transfers between Level 1 and Level 2 during the three and six months ended June 30, 2016 and 2015.

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The following tables set forth a reconciliation of changes in the fair value of net trading derivatives classified as Level 3 in the fair value hierarchy:

Three Months Ended June 30, 2016 AEP APCo (a) I&M (a) OPCo PSO SWEPCo (in millions)

Balance as of March 31, 2016 , $ 141.3 $ 2.6 $ 3.7 $ (10.9) $ 0.6 $ 0.7 Realized Gain (Loss) Included in Net Income

(or Changes in Net Assets) (b) (c) 16.0 8.6 3.5 (0.2) (0.4) 2.7 Unrealized Gain (Loss) Included in Net

Income (or Changes in Net Assets) Relating to Assets Still Held at the Reporting Date (b) 2.9 -

Realized and Unrealized Gains (Losses) Included in Other Comprehensive Income 17.3 - - -

Purchases, Issuances and Settlements (d) (17.5) (6.8) (4.6) " 1.7 (0.2) (3.5) Transfers into Level 3 (e) (f) 8.2 - - - Changeš in Fair Value Allocated to Regulated

Jurisdictions (h) (18.9) (17.3) 0.9 (5.2) 1.1 1.5 Balance as of June 30, 2016 $ 149.3 $ (12.9) $ 3.5 $ (14.6) $ ' 1.1 $ 1.4

Three Months Ended June 30, 2015 AEP APCo I8/111 OPCo PSO SWEPCo (in millions)

Balance as of March 31, 2015 $ 130.6 $ 6.0 $ 5.6 $ 45.9 $ (0.7) $ (1.2) Realized Gain (Loss) Included in Net Income

(or Changes in Net Assets) (b) (c) 2.2 (1.4) (0.8) 0.7 0.8 4.2 Unrealized Gain (Loss) Included in Net

Income (or Changes in Net Assets) Relating to Assets Still Held at the Reporting Date (b) 12.4 - - - -

Purchases, Issuances and Settlements (d) (15.9) (1.6) (2.3) (1.7) (0.1) (3.0) Transfers into Level 3 (e) (f) 41.6 - - Trarisfers out of Level 3 (f) (g) (1.8) 1.2 0.8 - Changes in Fair Value Allocated to Regulated

Jurisdictions (h) 34.0 29.6 8.5 (7.2) 1.7 2.0 Balance as of June 30, 2015 $ 203.1 $ ‘ 33.8 $ 11.8 $ 37.7 $ 1.7 $ 2.0 '

Six Months Ended June 30, 2016 , AEP APCo (a) I&M (a) OPCo PSO SWEPCo (in millions)

Balance as of December 31, 2015 $ 146.9 $ 11.7 $ 4.3 $ 15.9 $ 0.6 $ 0.8 Realized Gain (Loss) Included ini\let Inconie

(or Changes in Net Assets) (b) (c) 41.3 25.1 6.7 (1.4) (1.0) 7.7 Unrealized Gain (Loss) Included in Net

Income (or Changes in Net Assets) Relating to Assets Still Held at the Reporting Date (b) 24.8 - - - -

Realized and Unrealized Gains (Losses) Included in Other Comprehensive Income 18.8 - - -

Purchases, Issuances and Settlements (d) (60.0) (34.5), (9.2) 3.1 0.4 (8.4) Transfers into Level 3 (e) (0 8.1 - ' - - Transfers out of Level 3 (f) (g) 10.9 0.1 0.1 - - Changes in Fair Value Allocated to Regulated

Jurisdictions (h) (41.5) (15.3) 1.6 (32.2) 1.1 1.3 Balance as of June 30, 2016 $ 149.3 $ (12.9) $ 3.5 $ (14.6) $ 1.1 $ 1.4

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PSO SWEPCo (in millions)

Balance as of December 31, 2014 $ 150.8 $ 15.8 $ 14.7 $ 48.4 $ (0.3) $ (0.5) Realized Gain (Loss) Included in Net Income

(or Changes in Net Assets) (b) (c) 11.8 1.2 (0.9) 1.6 (0.2) 9.2 Unrealized Gain (Loss) Included in Net

Income (or Changes in Net Assets) Relating to Assets Still Held at the Reporting Date (b) 51.4

Realized and Unrealized Gains (Losses) Included in Other Comprehensive Income (1.9) - - - -

Purchases, Issuances and Settlements (d) (54.1) (15.0) (11.3) (8.4) 0.5 (8.7) Transfers into Level 3 (e) (f) 20.8 - - - - Transfers out of Level 3 (f) (g) (14.1) 1.2 0.8 - - Changes in Fair Value Allocated to Regulated

Jurisdictions (h) 38.4 30.6 8.5 (3.9) 1.7 2.0 Balance as ofJune 30, 2015 $ 203.1 $ 33.8 $ 11.8 $ 37.7 ' $ 1.7 $ , 2.0

Includes both affiliated and nonaffiliated transactions. Included in revenues on the statements of income. Represents the change in fair value between the beginning Ofthe reporting period and the settlement of the risk management commodity contract. Represents the settlement of risk management commodity contracts for the reporting period. Represents existing assets or liabilities that were previously categorized as Level 2. Transfers are recognized based on their value at the beginning of the reporting period that the transfer occurred. Represents existing assets or liabilities that were previously categorized as Level 3. Relates to the net gains (losses) of those contracts that are not reflected on the statements of incorne. These net gains (losses) are recorded as regulatory liabilities/assets.

The following tables quantify the significant unobseriiable inputs used in developing the fair value of Level 3 positions as of June 30, 2016 and December 31, 2015:

1

Significant Unobservable Inputs June 30, 2016

AEP

Fair Value Valuation Technique

Significant UnObservable

Input

Input/Range

Low Weighted

High Average Assets Liabilities (in millions)

Energý Discounted Forward Market Contracts $ 206.6 $ 44.2 Cash Flow Price (a) $ 9.32 $ 162.36 $ 46.01

Counterparty Credit Risk (b) 172 437 NA

Discounted Forward Market FTRs 6.7 19.8 Cash Flow Price (a) $ (7.12) $ 7.75

ry $ 0.71

$ 213.3 $ 64.0 Total

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Significant Unobservable Inputs December 31, 2015

AEP

Significant Fair Value Valuation Unobservable

Input/Range

Low High Weighted Average Assets Liabilities Technique Input

(in millions) Discounted Forward Market

Energy Contracts $ 212.3 $ 70.3 Cash Flow Price (a) $ 9.69 $165.36 $ 36.35 Counterparty

Credit Risk (b) 670 Discounted Forward Market

FTRs 8.4 3.5 Cash Flow Price (a) $ (6.99) $ 10.34 $ 1.10 Total $ 220.7 $ 73.8


APCo

Significant Forward Price Range Fair Value Valuation Unobservable Weighted

Assets Liabilities Technique Input (a) Low High Average (in millions)

Discounted Forward Market Energy Contracts $ 3.0 $ 0.4 Cash Flow Price $ 10.20 $ 50.27 $ 35.25

Discounted Forward Market FTRs 0.1 15.6 Cash Flow Price (0.18) 7.63 1.85 Total $ 3.1 $ L6.0


' APCo

Significant Forward Price Range Fair Value Valuation Unobservable Weighted

Assets Liabilities Technique Input (a) Low High Average (in millions)

Discounted Forward Market Energy Contracts $ 7.9 $ 0.2 Cash Flow Price $ 12.61 $ 47.24 $ 32.38

Discounted Forward Market FTRs 4.3 0.3 Cash Flow Price (6.96) 8.43 1.34 Total $ 12.2 $ 0.5

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Valuation Technique

Unobservable Weighted Input (a) Low High Average

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I&M

Significant Forward Price Range

- (in millions) Discounted Forward Market

Energy Contracts $ 2.0 $ 0.2 Cash Flow Price $ 10.20 $ 50.27 $ 35.25 Discounted Forward Market

FTRs 1.8 0.1 Cash Flow Price (7.12) 7.63 0.82 Total $ 3.8 $ 0.3


I&M

Significant Forward Price Range. Fair Value Valuation Unobservable Weighted

Assets Liabilities Technique

Input (a) Low High Average (in Millions)

Dikounted Forward Market Energy Contracts $ 6.0 $ 0.2 Cash Flow Price $ 12.61 $ 47.24 $ 32.38

Discounted Forward Market FTRs 0.3 1.8 Cash Flow Price (6.96) 8.43 1.34 Total $ 6.3 $ 2.0


OPCo

Significant Unobservable

Input

Forward Price Range Fair Value Valuation Weighted

Low High Average Assets Liabilities Technique (in millions)

Energy Contracts $ - $ 14.6 Discounted

Cash Flow Forward Market

Price (a) Counterparty

Credit Risk (b)

$ 28.26 $ 162.36 $ 83.20

172

Total $ 14.6

Significant Unobservable Inputs Decembei 31, 2015

OPCo

Significant Forward Price Range

Fair Value Valuation Unobservable Weighted Input (a) Low High Average


(in millions)

Discounted

Forward Market Energy Contracts $ 16.0 $ 0.1

Cash Flow

Price $ 41.61 $ 165.36 $ 6.84

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PSO

Fair Value Valuation Assets Liabilities Technique

(in millions)

Significant Unobserva ble

Input (a)

Forward Price Range Weighted

Low High Average

FTRs $ 1.2 $ 0.1 Discounted


Price $ (7.10) $ 0.22 $ (0.34)


PSO

Significant Unobserva ble

Input (a)

Forward Price Range

Fair Value Valuation Weighted Low High Average


(in millions)

Discounted

Forward Market FTRs

$ 0.7 $ 0.1

Cash Flow

Price $ (6.96) $ 8.43 $ 1.34


SWEPCo

Significant Unobservable

Input (a)

Forward Price Range

Fair Value Valuation Technique

Weighted Low High Average

Assets Liabilities (in millions)

FTRs Discounted


Price $ (7.10) $ 0.22 $ (0.34)


SWEPCo

Fair Value Valuation Significant Forward Price Range

Unobservable Weighted Input (a) Low High Average


$ (6.96) $ 8.43 $ 1.34

Represents market prices in dollars per MWh. Represents average price of credit default swaps used to calculate counterparty credit risk, reported in basis points. Not applicable.

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FTRs

(a) (b)

NA

(in millions) Discounted

Forward Market 0.9 $ 0.1

Cash Flow

Price

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The following table provides sensitivity of fair value measurements to increases (decreases) in significant unobservable inputs related to Energy Contracts and FTRs for the Registrants as of June 30, 2016 and December 31, 2015:

Sensitivity of Fair Value Measurements

Significant Unobservable Input Position Change in Input Impacion Fair Value

Measurement Forward Market Price Buy Increase (Decrease) Higher (Lower) Forward Market Price Sell Increase (Decrease) Lower (Higher) Counterparty Credit Risk Loss Increase (Decrease) Higher (Lower) Counterparty Credit Risk Gain Increase (Decrease) Lower (Higher)

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11. INCOME TAXES

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

AEP System Tax Allocation Agreement

AEP and subsidiaries join in the filing of a consolidated federal income tax return. The allocation of the AEP System's current consolidated federal income tax to the AEP System companies allocates the benefit of current tax losses to the AEP System companies giving rise to such losses in determining their current tax expense. The tax benefit of the Parent is allocated to its subsidiaries with taxable income. With the exception of the loss of the Parent, the method of allocation reflects a separate return result for each company in the consolidated group.

Valuation Allowa.nce (Applies to AEP)

AEP assesses available positive and negative evidence to estimate whether sufficient future taxable income of the appropriate tax'character will be generated to realize the benefits of existing deferred tax assets. When the evaluation of the evidence indicates that AEP will not be able to realize the benefits of existing deferred tax assetš, a valuation allowance is recorded to reduce existing deferred tax assets to the net realizable amount. Objective negative evidence, evaluated includes whether AEP has a history of recognizing income of the character which can be offset by capital loss carryforwards. Other objective negative evidence evaluated is the impact recently enacted federal tax legislation will have on future taxable income and on AEP's ability to benefit from the carryforward of charitable contribution deductions. On the basis of this evaluation, AEP recorded a change in the valuation allowance in ihe second quarter of 2016. The change related to the reversal of a $56 million unrealized capital loss valuation allowance where AEP effectively settled ä 2011 audit issue with the IRS. A $62 million decrease in AEP'sUnrecognized tax benefit associated with this transaction was also recorded in the second quarter of 2016.

Ayaluation allowance of $75 million has been recorded against AEP's deferred tax asset balance as ofJune 30,2016. The valuation allowance reflects management's assessment of the amount of deferred tax assets that are more likely than not to be realized. The amount of the deferred tax assets realizable; however, could be•adjusted if estimates of future taxable income are materially impacted during the carryforward period.

Federal and State Income TaxAudit Status

AEP and subsidiaries are no longer subject to U.S. federal examination for years before 2011. The IRS examination of years 2011, 2012 and 2013 started in April 2014. AEP and subsidiaries received a Revenue Agents Report in April 2016, completing the 2011 through 2013 audit cycle indicating an agreed upon audit. However, the audit is awaiting final approval by.the Congressional Joint Committee on Taxation. Although the outcome of tax audits are uncertain, in management's opinion, adequate provisions for federal income taxes have been made for potential liabilities resulting from such matters. In addition, the Registrants accrue interest on these uncertain tax positions. Management is not aware of any issues for open tax years that upon final resolution are expected to materially impact net income.

AEP and subsidiaries file income tax returns in various state, local or foreign jurisdictions. These taxing authorities routinely examine the tax returns. AEP and subsidiaries are currently under examination in several state and local jurisdictions. However, it is possible that previously filed tax returns have positions that may be challenged by these tax authorities. Management believes that adequate provisions for income taxes have been made for potential liabilities resulting from such challenges and that the ultimate resolution of these audits will not materially impact net income. The Registrants are no longer subject to state, local or non-U.S. income tax examinations by tax authorities for years before 2009.

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State Tax Legislation (Applies to AEI; PSO and SWEPCo)

In March 2016, the Texas Comptroller of Public Accounts issued clarifying guidance regarding the treatment of transmission and distribution expenses included in the computation of taxable income for purposes of calculating the Texas gross margins tax. The guidance clarified which specific transmission and distribution expenses are included in the computation of the cost of goods sold deduction. This guidance resulted in a net favorable adjustment to net income of $21 million, $2 million and $9 million during the first six months of 2016 for AEP, PSO and SWEPCo, respectively.

In March 2016, Louisiana enacted several tax bills impacting income taxes, franchise taxes and sales taxes. The income tax provisions limit the use of Louisiana net operating losses and the sales tax provisions increase the sales tax rate and suspend or eliminate certain exemptions. The legislation is not expected to materially impact net income or cash flows. '

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12. FINANCING ACTIVITIES


Long-term Debt Outstanding (Applies to AEP)

The following table details long-term debt outstanding as of June 30, 2016 and December 31, 2015:

Type of Debt June 30, 2016 December 31, 2015 (in millions)

Senior Unsecured Notes $ 13,679A $ 13,629.1 Pollution Control Bonds 1,724.2 1,784.8 Notes Payable 297.1 ,. 264.7 Securitization Bonds 1,837.0 2,024.0 Spent Nuclear Fuel Obligation (a) 265.9 265.6 Other Long-term Debt 1,740.1 1,604.5 Total Long-term Debt Outstanding 19,543.7 19,572.7 Long-term Debt Due Within One Year 2,006.3 1,831.8

, Long-terM Debt $ 17,537.4 $ 17,740.9

(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 $309 million and $309 million as ofJune 30, 2016 and December 31, 2015, 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 2016 are shown in the tables below:

Company Type of Debt Principal

Amount (a) Interest

Rate Due Date Issuances: (in millions) (%) APCo Pollution Control Bonds 125.3 Variable 2016 APCo Other Long-term Debt 125.0 Variable 2019 I&M Senior Unsecured Notes 400.0 4.55 2046 I&M Notes Payable 87.9 Variable 2020

Non-Registrant: Transource Missouri Other Long-term Debt 11.5 Variable 2018 Total Issuances 749.7

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

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Company Type of Debt Principal

Amount Paid

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Interest Rate Due Date

Retirements and Principal (in millions) (%) Payments:

APCo Pollution Control Bonds $ 125.3 Variable 2016 APCo Securitization Bonds 11.2 2.008 2024 I&M Notes Payable 0.8 Variable 2016 I&M Nötes Payable 0.5 2.12 2016 I&M Notes Payable 10.9 Variable 2017 I&M Notes Payable 19.3 Variable 2019 I&M Notes Payable 21.3 Variable 2019 I&M Other Long-term Debt 0.7 6.00 2025 OPCo Securitization Bonds 22.8 0.958 2018 OPCo Senior Unsecured Notes 350.0 6.00 2016 PSO Other Long-term Debt 0.2 3.00 2027 SWEPCo Notes Payable 1.6 , 4.58 2032

Non-Registrant: AEGCo Senior Unsecured Notes 3.7 6.33 2037 AEP Subsidiaries Notes Payable • 1.0 Variable 2017 AGR Pollution Control Bonds 60.0 Variable 2016 TCC Securitization Bonds 44.2 6.25 2016 TCC Securitization Bonds 83.7 5.17 2018 TCC Securitization Bonds 26.9 0.88 2017 Total Retirements and

Principal Payments 784.1

In July 2016, PSO issued $50 million of 3.05% Senior Unsecured Notes due in 2026 and $100 million of 4.11% Senior Unsecured Notes due in 2046.

In July 2016, I&M retired $9 million of Notes Payable related to DCC Fuel.

In JulY 2016, OPCo retired $23 million of Securitization Bonds.

In July 2016, TCC retired $65 million of Securitization Bonds.

In July 2016, TCC retired its variable rate $100 million Other Long-term Debt'due in 2016 and issued $125 million of variable rate Other Long-term Debt due in 2019.

In July 2016, TNC retired its variable rate $75 million Other LongItenn Debt due in 2016 and issued $75 million of variable rate Other Long-term Debt due in 2019.

As of June 30, 2016, trustees held, on behalf of AEP, $614 million of their reacquired Pollution Control Bonds. Of this total, $40 million and $345 million related to I&M and OPCo, respectively.

Dividend Restrictions

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 Tunds are legally available for such dividends. Parent's income primarily derives from common stock equity in the earnings of its utility subsidiaries.

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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 payment of cash dividends indirectly results in an increase in the percentage of debt to total capitalization of the company distributing the dividend. The method for calculating outstanding debt and capitalization is Contractually defined in the credit agreements. As of June 30, 2016, none of AEP's retained earnings were restricted for the purpose of the payment of dividends.

Utility Subsidiaries ' Restrictions

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.

Certain AEP subsidiaries have credit agreements that contain a covenant that limits their debt to capitalization ratio to 67.5%.

The Federal Power Act prohibits the utility subsidiaries from participating "in the making or paying of any dividends of such public utility from any funds properly included in capital account." 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. As of June 30, 2016, these restrictions did not limit the ability of the subsidiaries to pay dividends out of retained earnings.

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, and a Nonutility Money Pool, which funds certain AEP nonutility subsidiaries. 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, 2016 and December 31, 2015 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 their corresponding authorized borrowing limits for the six months ended June 30, 2016 are described in the following table:

Maximum Borrowings Maximum ,

from the Loans to the Utility Utility

Company Money Pool Money Pool '

Average Borrowings

from the Utility

Money Pool

Average Loans tõ the

Utility Money Pool

Net Loans to (Borrowings from) the Utility Money

Pool as of June 30, 2016

Authorized Short-term Borrowing

Limit (in millions)

APCo $ 286.9 $ 25.7 $ 198.1 $ 25.1 $ (121.3) $ 600.0 I&M 369.1 97.6 171.7 25.6 1.0 500.0 OPCo 216.9 379.2 184.0 265.5 (177.1) 400.0 PSO 9.6 91.0 5.1 32.1 33.5 300.0 SWEPCo 249.4 181.9 (155.1) 350.0

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The activity in the above table does not include short-term lending activity of SWEPCo's wholly-owned subsidiary, Mutual Energy SWEPCo, LLC, which is a participant in the Nonutility Money Pool. The amounts of outstanding loans to the Nonutility Money Pool as ofJune 30, 2016 and December 31, 2015 are included in Advances to Affiliates on SWEPCo's balance sheets. For the six months ended June 30, 2016, Mutual Energy SWEPCo, LLC had the following aCtivity in the Nonutility Money Pool:

Maximum Loans

to the Nonutility Money Pool

Average Loans

to the Nonutility Money Pool

Loans to the Nonutility Money Pool as of

June 30, 2016, (in millions)

2.0 $ 2.0

2.0

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, 2016 2015

MaXimum Interest Rate 0.84% 0.59% Minimum Interest Rate 0.69% 0.39%

The average interest rates for funds borrowed from and loaned to the Utility Money Pool for the six months ended June-30, 2016 and 2015 are summarized for all Registrant Subsidiaries in the following table:

Average Interest Rate for Funds Borrowed

from the Utility Money Pool for Six Months Ended June 30,

Average Interest Rate for Funds Loaned

to the Utility Money Pool for Six Months Ended June 30,

Company 2016 2015 2016 , 2015 APCo 0.75% 0.45% 0.75% 0.46% I&M 0.72% 0.47% 0.75% 0.47% OPCo 0.79% —% 0.74% 0.47% PSO 0.76% 0.49% 0.73% 0.47% SWEPCo 0.75% 0.46% 0.49%

Maximum, minimum and average interest rates for funds loaned to the Nonutility Money Pool for the six months ended June 30, 2016 are summarized for Mutual Energy SWEPCo, LLC in the following table:

Maximum Interest Rate

for Funds Loaned to

the Nonutility Money Pool

0.84%

Minimum Interest Rate

for Funds Loaned to


0.69% "

Average Interest Rate

for Funds Loaned to


0.75%

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Short-term Debt (4plies (o AEP)

Outstanding short-term debt was as follows:

June 30, 2016 December 31, 2015

Type of Debt Outstanding Interest Outstanding Interest

Amount Rate (a) Amount Rate (a) (in millions) (in millions)

Securitized Debt for Receivables (b) $ 651.0 0.61% $ 675.0 0.30% Commercial Paper 1,409.3 0.84% 125.0 0.81% Total Short-term Debt $ 2,060.3 $ ' 800.0

(a) Weighted average rate. (b) Amount of securitized debt for receivables as accounted for under the "Transfers and Servicine accounting

guidance.

Credit FaCilities

For a discussion of credit facilities, see "Letters of Credir section of Note 5.

Sale of Receivables —AEP Credit (Applies (o 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 2018.

Accounts receivable information for AEP Credit is as follows:

Three Months Ended Six Months Ended June 30, June 30,

2016 2015 2016 2015

Effective Interest Rates on Securitization of Accounts Receivable

Net Uncollectible Accounts Receivable Written Off

(dollars in millions)

0.63% 0.7% 0.61% 0.27% $ 4.1 $ 6.3 $ 9.8 $ 12.9

Accounts Receivable RetainedInterest and Pledged as Collateral

June 30, 2016 December 31, 2015 (in millions)

Less Uncollectible Accounts 963.2 $ 924.8 Total Principal Outstanding 651.0 675.0 Delinquent Securitized Accounts Receivable 45.0 48.3 Bad Debt Reserves Related to Securitization of Accounts Receivable 25.8 17.5 Unbilled Receivables Related to Securitization of Accounts

Receivable 372.5 357.8

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

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Sale of Receivable's -AEP Credit (Applies to Registrant Subsidiaries)

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 mot 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 tOAEP 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 agreement for each Registrant Subsidiary as of June 30, 2016 and December 31, 2015 was as follows:

Company June 30, 2016 December 31, 2015 (in millions)

APCo 125.0 $ 135.4 I&M 140.4 134.8 OPCo 364.0 351.4 PSO 137.5 116.1 S WEPCo 167.2 151.8

The fees paid by the Registrant Subsidiaries to AEP Credit for customer accounts receivable sold were:

Company Three Months Ended June 30,

2016 2015 Six Months Ended June 30,

2016 2015 (in millions)

APCo 2.0 $ 1.6 $ 3.8 $ 4.0 I&M 1.7 2.1 3.6 4.4 OPCo 7.4 6.7 15.3 14.7 PSO 1.5 1.3 2.9 2.7 SWEPCo 1.7 1.6 3.2 3.3

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


2016 2015 Six Months Ended June 30,

2016 2015 . (in millions)

APCo $ 325.5 $ 330.6 $ 709.9 $ 760.2 I&M 384.1 371.1 772.2 790.6 OPCo 613.7 563.4 1,260.3 1,278.4, PSO 309.2 311.9 581.3 614.4 SWEPCo 387.4 381.1 723.5 754.3

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13. VARIABLE INTEREST ENTITIES


The accounting guidance forVariable Interest Entities" is a consolidation model that considers if a company has a controlling firiancial interest in a VIE. A controlling financial interest will have both (a) the power to direct the activities of a VIE that most significantly impact the VIE's economic performance and (b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. Entities are required to consolidate a VIE when it is determined that they have a controlling financial interest in a VIE and therefore, are the primary beneficiary of that VIE, as defined by the accounting guidance for "Variable Interest Entities." In determining whether AEP is the primary beneficiary of a VIE, management cónsiders factors such as equity at risk, the amount of the VIE's variability AEP absorbs, guarantees of indebtedness, voting rights including kick-out rights, the power to direct the VIE, variable interests held by related parties and other factors. Management believes that significant assumptions and judgments were applied consistently.

AEP is the primary beneficiary of Sabine, - DCC 'Fuel, Transition Funding, Ohio Phase-in-Recovery Funding, Appalachian Consumer Rate Relief Funding, AEP Credit, a protected cell of EIS and Transource Energy. In addition, AEP has not provided material financial or other support to any of these entities that was not previously contractually required. AEP holds a significant variable interest in DHLC and Potomac-Appalachian Transmission Highline, LLC West Virginia Series (West Virginia Series).

Consolidated Variable Interests Entities

Sabine is a mining operator providing mining services to SWEPCo. SWEPCo has no equity investment in Sabine but is Sabine's only customer. SWEPCo guarantees the debt obligations and lease obligationsnf Sabine. Under the terms of the note agreements, substantially all assets are pledged and all rights under the lignite mining agreement are assigned to SWEPCo. The creditors of Sabine have no recourse to any AEP entity other than SWEPCo. Under the provisions of the mining agreement, SWEPCo is required to pay, as a part of the cost of lignite delivered, an amount equal to mining costs plus a management fee. In addition, SWEPCo determines how much coal will be mined each year. Based on these facts, management concluded that SWEPCO is the primary beneficiary and is required to consolidate Sabine. SWEPCo's total billings from Sabine for the three months ended June 30, 2016 and 2015 were $44 million and $41 million, respectively, and for the six months ended June 30, 2016 and 2015 were $85 million and $83 million, respectively. See the tables below for the classification of Sabine's assets and liabilities on SWEPCo's balance sheets.

I&M has nuclear fuel lease agreements with DCC Fuel, which was formed for the purpose of acquiring, owning and leasing nuclear fuel to I&M. DCC Fuel purchased the nuclear fuel from I&M with funds received from the issuance of notes to financial institutions. Each DCC Fuel entity is a single-lessee leasing arrangement with only one asset and is capitalized with all debt. Each is a separate legal entity.from I&M, the assets of which are not available to satisfy the debts of I&M. Payments on the leases for the three months ended June 30, 2016 and 2015 were $25 million and $34 million, respectively, and for the six months ended June 30, 2016 and 2015 were $54 million and $57 million, respectively. The leases were recorded as capital leases on I&M's balance sheet as title to the nuclear fuel transfers to I&M at the end of the respective lease terms, which do not exceed 54 months. Based on I&M's control of DCC Fuel, management concluded that I&M is the primary beneficiary and is required to consolidate DCC Fuel. The capital leases are eliminated upon consolidation. See the tables below for the classification of DCC Fuel's assets and liabilities on I&M's balance sheets.

Transition Funding was formed for the sole purpose of issuing and servicing securitization bonds related to`Texas Restructuring Legislation. Management has concluded that TCC is the primary beneficiary of Transition Funding because TCC has the power to direct the most significant activities of the VIE and TCC's equity interest could potentially be significant. Therefore, TCC is required to consolidate Transition Funding. The securitized bonds totaled $1.3 billion and $1.5 billion as ofJune 30, 2016 and December 31, 2015, respectively, and are included in Long-term Debt Due Within One Year - Nonaffiliated and Long-term Debt - Nonaffiliated on the balance sheets. Transition Funding has securitized transition assets of $1.2 billion and $1.3 billion as ofJune 30, 2016 and December 31, 2015, respectively,

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which are presented separately on the face of the balance sheets. The securitized transition assets represent the right , to impose and collect Texas true-up costs from customers receiving electric transmission or distribution service from TCC under recovery mechanisms approved by the PUCT. The securitization bonds are payable only from and secured by the securitized transition assets. The bondholders have no recourse to TCC or any other AEP entity. TCC acts as the servicer for Transition Funding's securitized transition assets and remits all related amounts collected from customers to TransitiOn Funding for interest and principal payments on the securitization bonds and related costs. See the tables below for the classification of Transition Funding's assets and liabilities on the balance sheets.

Ohio Phase-in-Recovery Funding was formed for the sole purpose of issuing and servicing securitization bonds related to phase-in recovery property. Management has concluded that OPCo is the primary beneficiary of Ohio Phase-in-Recovery Funding because OPCo has the power to direct the most significant activities of the VIE and OPCo's equity interest could potentially be significant. Therefore, OPCo is required to consolidate Ohio Phase-in-Recovery Funding. The securitized bonds totaled $163 million and $185 million as of June 30, 2016 and December 31, 2015, respectively, and are included in Long-term Debt Due Within One Year - Nonaffiliated and Long-term Debt - Nonaffiliated on the balance sheets. Ohio Phase-in-Recovery Funding has securitized assets of $74 million and $86 million as of June 30, 2016 and December 31, 2015, respectively, which are presented separately on the face of the balance sheets. The phase-in recovery property represents the right to impose and collect Ohio deferred distribution charges from customers receiving electric transmission and distribution service from OPCo under a recovery mechanism approved by the PUCO. In August 2013, securitization bonds were issued. The securitization bonds are payable only from and secured by the securitized assets. The bondholders have no recourse to OPCo or any other AEP entity. OPCo acts as the servicer for Ohio Phase-in-Recovery Funding's securitized assets and remits all related amounts collected from customers to Ohio Phase-in-Recovery Funding for interest and principal payments on the securitization bonds and related costs. See the tables below for the classification of Ohio Phase-in-Recovery Funding's assets and liabilities on OPCo's balance sheets.

Appalachian Consumer Rate Relief Funding was formed for the sole purpose of issuing and servicing securitization bonds related to APCo's under-recovered ENEC deferral balance. Management has concluded that APCo is the primary beneficiary of Appalachian Consumer Rate Relief Funding because APCo has the power to direct the most significant activities of the VIE and APCo's equity interest could potentially be significant. Therefore, APCo is required to consolidate Appalachian Consumer Rate Relief Funding. The securitized bonds totaled $331 million and $342 million as of June 30, 2016 and December 31, 2015, respectively, and are included in Long-term Debt Due Within One Year - Nonaffiliated and Long-term Debt - Nonaffiliated on the balance sheets. Appalachian Consumer Rate Relief Funding has securitized assets of $317 million and $328 million as of June 30, 2016 and December 31, 2015, respectively, which are presented separately on the face of the balance sheets. The phase-in recovery property represents the right to impose and collect West Virginia 'deferred generation charges from customers receiving electric transmission, distribution and generation service from APCo under a recovery mechanism approved by the WVPSC. In November 2013, securitization bonds were issued. The securitization bonds are payable only from and secured by the securitized assets. The bondholders have no recourse to APCo or any other AEP entity. APCo acts as the servicer for Appalachian Consumer Rate Relief Funding's securitized assets and remits all related amounts collected from custoniers to Appalachian Consumer Rate Relief Funding for interest and principal payments on the securitization bonds and related costs. See the tables below for the classification of Appalachian Corisumer Rate Relief Funding's assets and liabilities on APCo's balance sheets.

AEP Credit is a wholly-owned subsidiary of Parent. AEP Credit purchases, without recourse, accounts receivable from certain utility subsidiaries of AEP to reduce working capital requirements. AEP provides a minimurn of 5% equity and up to 20% of AEP Credit's short-term borrowing needs in excess of third party'financings. Any third party financing of AEP Credit only has recourse to the receivables securitized for such financing. Based on AEP's control of AEP Credit, management concluded that AEP is the primary beneficiary and is required to consolidate AEP Credit. See the tables below for the classification of AEP Credit's assets and liabilities on the balance sheets. See "Sale of

.Receivables - AEP Credit" section of Note 12.

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AEP's subsidiaries Orticipate in one protected cell of EIS for approximately ten lines of insurance. EIS has multiple protected cells. Neither AEP nor its subsidiaries have an equity investment in EIS. The AEP System is essentially this EIS cell's only participant, but allows certain third parties access to this insurance. AEP's subsidiaries and any allowed third parties share in the insurance coverage, premiums and risk of loss from claims. Based ori AEP's control and the structure of the protected cell of EIS, managernent concluded that AEP is the primary beneficiary of the protected cell and is required to consolidate the protected cell of EIS. The insurance premium expense to the protected cell for the three months ended June 30, 2016 and 2015 was $147 thousand and $167 thousand, respectively, and for the six months ended June 30, 2016 and 2015 was $13 million and $14 million, respectively. See the tables below for the classification of the protected cell's assets and liabilities on the balance sheets. The amount reported as equity is the protected cell's policy holders surplus.

Transource Energy was formed for the purpose of investing in utilities which develop, acquire, construct, own and operate transmission facilities in accordance with FERC-approved rates. AEP has equity and voting ownership of 86.5% with the other owner having 13.5% interest. Management has concluded that Transource Energy is a VIE and that AEP is the primary beneficiafy because AEP has the pOwer to direct the most significant activities of the entity and AEP's equity interest could potentially be significant. Therefore, AEP is required to consolidate Transource Energy. In January 2014, Transource Missouri (a wholly-owned subsidiary of Transource Energy) acquired transmission assets from the non-controlling owner and issued debt and received a capital contribution to fund the acquisition. The majority of Transource Energy's activity resulted from the asset acquisition, construction projects, debt issuance and capital contribution. AEP has provided capital contributions to Transource Energy of $26 million and $47 million during the six months ended June 30, 2016 and the year ended December 31, 2015, respectively. AEP and the other owner of Transource Energy are required to ensure a specific equity level in Transource Missouri upon completion of projects or if a project is abandoned by the RTO. See the tables below for the classification of Transource Energy's assets and liabilities on the balance sheets.

The balances below represent the assets and liabilities of the VIEs that are consolidated. These balances include intercompany transactions that are eliminated upon consolidation.

AMERICAN ELECTRIC POWER COMPANY, MC. AND SUBSIDIARY COMPANIES VARIABLE INTEREST ENTITIES

June 30, 2016

Registrant Subsidiaries Other Consolidated VIEs

ASSETS

SWEPCo Sabine

I&M DCC Fuel

OPCo Ohio

Phase-in- Recovery Funding

APCo Appalachian Consumer Rate Relief

Funding

(in millions)

AEP Credit

TCC Transition Funding

Protected Cell

of EIS Transource

Energy

Current Assets $ 59.9 $ 108.0 $ 30.1 $ 18 9 $ 964 3 $ 177.1 $ 167.9 $ 15.6 Net Property, Plant and Equipment 136.9 193.8 - t, - - - - 278.6 Other Noncurrent Assets 63.5 103.0 139.2 (a) 320.5 (b) 9.6 1 271 2 (c) 1.3 5.7 Total Assets $ 260.3 $ 404.8 $ 169 3 $ 339 4 $ 973.9 $ 1.448 3 $ 169.2 $ 299.9

LIABILITIES AND EQUITY Current Liabilities $ 34.9 $ 96.2 $ 46.9 $ 27.2 $ 873.6 $ 244.9 $ 41.6 $ 38 4 Noncurrent Liabilities 225.0 308.6 121.1 310.9 0 5 1,185.3 82.6 125.7 Equity 0.4 - 1.3 1 3 99.8 18 1 45.0 135 8 Total Liabilities and Equity $ 260.3 $ 404 8 $ 169 3 $ 339.4 $ 973 9 $ 1 448 3 $ 169 2 $ 299.9

(a) Includes an intercompany item eliminated in consolidation of $65.4 million. (b) Includes an intercompany item eliminated in consolidation of $3.8 million. (c) Includes an intercompany item eliminated in consolidation of $64.9 million.

194

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Page 210 of 216

AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES VARIABLE INTEREST ENTITIES

December 31, 2015

Registrant Subsidiaries Other Consolidated VIEs

ASSETS

SWEPCo Sabine

I&M DCC Fuel

OPCo Ohio

Phase-in- Recovery Funding

APCo Appalachian

Consumer Rate Relief

Funding

(in millions)

AEP Credit

TCC Transition Funding

Protected Cell

of EIS Transource

Energy

Current Assets $ 61.7 $ 91.1 $ 31.2 $ 18.5 $ 925.7 $ 234 1 $ 165 3 $ 10.8 Net Property, Plant and Equipment 147.0 159.9 - - - - _ 227.2 Other Noncurrent Assets 61 8 84.6 162.0 (a) 332.0 (b) 6.4 1 365 7 (c) 1 9 5.5 Total Assets $ 270 5 $ 335.6 $ 193.2 $ 350.5 $ 932.1 3 1 599 8 $ 167.2 $ 243.5

LIABILITIES AND EQUITY Current Liabilities $ 47 7 $ 84.8 $ 47 3 • $ 27 1 $ 855.1 $ 291.7 $ 41.8 $ - 36.6 Noncurrent Liabilities 222 3 250.8 144 6 321.5 0 3 1,290.0 83.9 113.0 Equity 0.5 1 3 1.9 76 7 18.1 41.5 93 9 Total Liabilities and Equity $ 270.5 $ 335.6 $ 193.2 $ 350.5 $ _932.1 $ 1.599.8 $ 167.2 $ 243 5

(a) Includes an intercompany item eliminated in consolidation of $76 1 million (b) Includes an intercompany item eliminated in consolidation of $4.0 million. (c) Includes an mtercompany item eliminated in consolidation of $68 2 million.

Non-Consolidated Significant Variable Interests

DHLC is a mining operator which sells 50% of the lignite produced to SWEPCo and 50% to CLECO. SWEPCo and CLECO share the executive board seats and voting rights equally. Each entity guarantees 50% of DHLC's debt. SWEPCo and CLECO equally approve DHLC's annual budget. The creditors of DHLC have no recourse to any AEP entity other than SWEPCo. As SWEPCo is the sole equity owner of DHLC, it receives 100% of the management fee. SWEPCo's total billings from DHLC for the three months ended June 30, 2016 and 2015 were $13 million and $15 million, respectively, and for the six months ended June 30, 2016 and 2015 were $28 million and $29 million, respectively. SWEPCo is not required to consolidate DHLC as it is not the primary beneficiary, although SWEPCo holds a significant variable interest in DHLC. SWEPCo's equity investment in DHLC is included in Deferred Charges and Other Noncurrent Assets on SWEPCo's balance sheets.

,SWEPCo's investment in DHLC was:

June 30, 2016 , December 31, 2015 As Reported on Maximum As Reported on Maximum

the Balance Sheet Exposure the Balance Sheet Exposure (in millions)

Capital Contribution from SWEPCo $ 7.6 $ 7.6 $ 7.6 $ 7.6 Retained Earnings 9.9 9.9 7.7, 7.7 SWEPCo's Guarantee of Debt 86.5 82.9 Total Investment in DIILC 17.5 $ 104.0 $ 15.3 $ 98.2

AEP and FirstEnergy Corp. (FirstEnergy) have a joint venture in Potomac-Appalachian Transmission Highline, LLC (PATH). PATH is a series limited liability company and was created to construct, through its operating companies, a high-voltage transmission line project in the PJM region. PATH consists of the "West Virginia Series (PATH-WV)," owned equally by subsidiaries ofFirstEnergy and AEP, and the "Allegheny Series" which is 100% owned by a subsidiary of FirstEnergy. Provisions exist within the PATH-WV agreement that make it a VIE. AEP has no interest or control in the "Allegheny Series". AEP is not required to consolidate PATH-WV as AEP is not the primary beneficiary, although AEP holds a significant variable interest in PATH-WV. AEP's equity investment in PATH-WV is included in Deferred Charges and Other Noncurrent Assets on the balance sheets. AEP and FirstEnergy share the returns and losses equally in PATH-WV. AEP's subsidiaries and FirstEnergy's subsidiaries provide services to the PATH companies through service agreements. The entities recover costs through regulated rates.

195

3927


Page 211 of 216

In August 2012, the PJM board cancelled the PATH Project, the transmission project that PATH was intended to develop and removed it from the 2012 Regional Transmission Expansion Plan. In September 2012, the PATH Project companies submitted an application to the FERC requesting authority to recover prudently-incurred costs associated with the PATH Project. In November 2012, the FERC issued an order accepting the PATH Project's abandonment cost recovery application, subject to settlement procedures and hearing. The parties to the case have been unable to reach a settlement agreement and in March 2014, settlement judge procedures were terminated. Hearings at FERC were held in March and April 2015. In April 2015, PATH filed a stipulation agreement with the FERC that agreed to a 50% debt and 50% equity capital structure and a 4.7% cost of long-term debt for the entire amortization period. In September 2015, the Administrative Law Judge who conducted the hearings issued an Initial Decision, which if adopted by the FERC, would deem certain costs not recoverable. The Initial Decision has no binding effect. Additional briefing was submitted during the fourth quarter of 2015. The case is currently pending before FERC. Depending on the outcome of this proceeding, PATH-WV may be required to refund certain amounts that have been collected under its formula rate. Management believes its financial statements adequately address the potential impact of this proceeding.

AEP's investment in PATH-WV was:

June 30, 2016 December 31, 2015 As Reported pn Maximum As Reported on Maximum

the Balance Sheet Exposure the Balance Sheet Exposure (in millions)

Capital Contribution from AEP 18.8 $ 18.8 $ 18.8 $ 18.8 Retained Earnings 2.2 2.2 2.2 2.2 Total Investment in PATH-WV $ 21.0 $ -21.0 $ 21.0 $ 21.0

As of June 30, 2016, AEP's $21 million investment in PATH-WV was included in Deferred Charges and ' Other Noncurrent Assets on the balance sheet. If AEP cannot ultimately recover the investment related to PATH-WV, it could reduce future net income and cash flows.

AEPSC provides certain managerial and professional services to AEP's subsidiaries. Parent is the sole equity owner of AEPSC. AEP management controls the activities of AEPSC. The costs of the services are based on a direct charge or on a prorated basis and billed to the AEP subsidiary companies at AEPSC's cost. AEP subsidiaries have not provided financial or other support outside of the reimbursement of costs for services rendered. AEPSC finances its operations through cost reimbursement from other AEP subsidiaries. Thereare no other terms or arrangements between AEPSC and any of the AEP subsidiaries that could require additional financial support from an AEP subsidiary or expose them to losses outside of the normal course of business. AEPSC and its billings are subject to regulation by the FERC. AEP subsidiaries are exposed to losses to the extent they, cannot recover the costs of AEPSC through their normal business operations. AEP subsidiaries are considered to have a significant interest in AEPSC due to their activity in AEPSC's cost reimbursement structure. However, AEP subsidiaries do not have control over AEPSC. AEPSC is consolidated by AEP. In the event AEPSC would require financing or other support outside the cost reimbursement billings, this financing would be provided by AEP.

Total AEPSC billings to the Registrant Subsidiaries were as follows:


2016 2015 Six Months Ended June 30, 2016 2015

(in millions) APCo 53.9 $ 52.7 $ 110.4 $ 101.0 I&M 30.1 31.1 65.0 64.6 OPCo 39.4 40.9 83 .8 80.1 PSO 25.0 24.4 53 .5 48.0 SWEPCo 33.0 31.9 69.8 63.4

196

3928

PUG Docket No. 46449 Schedule J (10Q 2nd Qtr 2016)

Page 212 of 216

The carrying amount and classification of variable interest in AEPSC's accounts payable are as follows:

June 30, 2016 December 31, 2015

Company As Reported on the

Balance Sheet Maximum Exposure

As Reported on the Balance Sheet

Maximum Exposure

..

(in millions) APCo $ 19.5 $ 19.5 $ 25.8 $, 25.8 I&M 11.1 11.1 16.6 16.6 OPCo 14.4 14.4 23.3 23.3 PSO 9.0 9.0 12.6 ' 12.6 SWEPCo 12.5 12.5 16.4 16.4

k

AEGCo, a wholly-owned subsidiary of AEP, is consolidated by AEP. AEGCo owns a 50% ownership interest in Rockport Plant, Unit l , leases a 50% interest in Rockport Plant, Unit 2 and owns 100% of the Lawrenceburg Generating Station. AEGCo sells all the output from the Rockport Plant to I&M and KPCo. AEGCo has,a Unit Power Agreement associated with the Lawrenceburg Generating Station which was assigned by OPCo to AGR effective January 1, 2014. AEP has agreed to provide AEGCo with the funds necessary to satisfy all of the debt obligations ofAEGCo. I&M is considered to have a significant interest in AEGCo due to these transactions. 1&M is exposed to losses to the extent it cannot recover the costs of AEGCo through its normal business operations. In the event AEGCo would require financing or other support outside the billings to I&M and KPCo, this financing would be provided by AEP. Total billings to I&M from AEGCo for the three months ended June 30, 2016 and 2015 were $56 million and $60 million, respectively, and for the six months ended June 30, 2016 and 2015 were $101 million and $115 million, respectively. The carrying amount of I&M's liabilities associated with AEGCo as of June 30, 2016 and December 31, 2015 was $18 million and $17 million, respectively. Management estimates the maximum exposure of loss to be equal to the amount of such liability. For additional information iegarding AEGCos lease, see "Rockport Lease" section of Note 13 in the 2015 Annual Report.

197

3929

PUC Docket No. 46449 .SChedule J (10Q 2nd Qtr 2016)

Page 213 of 216

CONTROLS AND PROCEDURES

During the second quarterof 2016, management, including the principal executive officer and principal financial officer Of each of the Registrants, evaluated the Registrants disclosure controls and procedures. Disclosure controls and procedures are defined as controls and other procedures of the Registrants that are designed to ensure that information required to be disclosed by the Registrants in the reports that they file or submit under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forins. Disclosure controls and prodedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Registrants in the reports that they file or submit under the Exchange Act is accumulated and communicated to the Registrants' management, including the principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. As of June 30, 2016, these officers concluded that the disclosure controls and procedures in place are effective and provide reasonable assurance that the disclosure controls and procedures accomplished their objectives.

There was no change in the Registrants' internal control over financial reporting (as such term is defined in Rule 13a-15 (f) and 15d-15(f) under the Exchange Act) during the second quarter of 2016 that materially affected, or is reasonably likely to materially affect, the Registrants' internal control over financial reporting.

198

3930


Page 214 of 216

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

For a discussion of material legal proceedings, see "Commitments, Guarantees and, Contingencies," of Note 5 incorporated herein by reference.

ftem 1A. Risk Factors

The Annual Report on Form 10-K for the year ended December 31, 2015 includes a detailed discussion of risk factors. As of June 30, 2016, the risk factors appearing in the 2015 Form 10-K under the headings set forth below are supplemented and updated as follows:

AEP' s financial performance may be adversely affected f the merchant generation fleet is not profitable or loses value. (Applies to AEP)

Management is evaluating strategic alternatives for AEP's merchant generation fleet, which primarily consists ofAGR's generation fleet which operates in PJM. Management-has not made a decision regarding the potential alternatives, which may include, but are not limited to, continued ownership of the merchant generation fleet or a sale of the merchant generation fleet. In March 2016, AEP initiated a process to explore the sale of Darby, Gavin, Lawrenceburg and Waterford Plants totaling 5,326 MWs. Management has not made a decision regarding the potential alternatives for the remaining 2,732 MW's of the merchant fleet, nor have they set a specific time frame for a decision. These alternatives could result in a loss which could reduce future net income and cash flow and harm financial condition.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 4. Mine Safety Disclosures

The Federal Mine Safety and Health Act of 1977 (Mine Act) imposes stringent health and safety standards on various mining operations. The Mine Act and its related regulations affect numerous aspects of mining operations, including training of mine Personnel, mining procedures, equipment used in mine emergency procedures; mine plans and other matters. SWEPCo, through its ownership of DHLC was subject to the provisions of the Mine Act foi the quarter ended June 30, 2016. AGR and KPCo, through their former joint ownership of the Conner Run fly ash impoundment, were subject to the proviSions of the Mine Act for the quarter ended March 31, 2016. AGR and KPCo are no longer subject to the provisions of the Mine Act for the quarter ended June 30, 2016 as Conner Run's ownership was transferred to Consolidation Coal Company in the fourth-quarter of 2015 and the federal 'mine identification number was transferred in the first quarter of 2016.

The Dodd-Frank Wall Street Reform and Consumer Protection Act and its related regulations require companies that operate mines to include in their periodic reports filed with the SEC, certain mine safety information covered by the Mine Act. Exhibit 95 contains the notices of violation and proposed assessments received by DHLC and Conner Run under the Mine Act for the quarter ended June 30, 2016.

Item 5. Other Information

None

199

3931


Page 215 of 216

Item 6. Exhibits

4(c) — Fourth Amended and Restated Credit Agreement dated June 30, 2016

4(d) — Third Amended and Restated Credit Agreement dated June 30, 2016

12 — Computation of Consolidated Ratio of Earnings to Fixed Charges

31(a) — Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31(b) — Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32(a) —Certification of Chief Executive Officer Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code

32(b) — Certification of Chief Financial Officer Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code

95 — Mine Safety Disclosures

101.INS — XBRL Instance Document 101.SCH — XBRL Taxonomy Extension Schema 101.CAL — XBRL Taxonomy Extension Calculation Linkbase 101.DEF — XBRL Taxonomy EXtension Definition Linkbase 101.LAB — XBRL Taxonomy Extension Label Linkbase 101.PRE — XBRL Taxonomy Extension Presentation Linkbase

200

3932

PUC Docket No. 46449 Schedule J (100 2nd Qtr 2016)

Page 216 of 216

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature for each undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof.

AMERICAN ELECTRIC POWER COMPANY, INC.

By: /s/ Joseph M. Buonaiuto Joseph M. Buonaiuto Controller and Chief Accounting Officer

APPALACHIAN POWER COMPANY INDIANA MICHIGAN POWER COMPANY

OHIO POWER COMPANY PUBLIC SERVICE COMPANY OF OKLAHOMA

SOUTHWESTERN ELECTRIC POWER COMPANY

By: /s/ Joseph M. Buonaiuto Joseph M. Buonaiuto Controller and Chief Accounting Officer

Date: July 28, 2016

3933

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3939

PUC Docket No. 46449 Schedule K-4

Page 1 of 1 SOUTHWESTERN ELECTRIC POWER CONSOLIDATED NOTES PAYABLE OUTSTANDING AS OF June 30, 2016

Description

Maturity

Principal

% of Total Interest Weighted Date

Amount

Principal Rate Average Cost

$0

0%

Notes Payable Outstanding Last Two Years:

Quarter ending June 30, 2014

$0' Quarter ending September 30, 2014

$0

Quarter ending December 31, 2014

$0 Quarter ending March 31, 2015

$0


$0 Quarter ending September 30, 2015

$0

Quarter ending December 31, 2015

$0 Quarter ending March 31, 2016

$0


$0

The Company does not anticipate any changes to Notes Payable in 2016

Sponsored by: Renee Hawkins

3940

PUC Docket No.46449 Schedule K-5

Non-Cbnfidential

SOUTHWESTERN ELECTRIC POWER COMPANY SECURITY ISSUANCE RESTRICTIONS

Schedule K-5 contains Highly Sensitive information.

The in'formation responsive to this request is HIGHLY SENSITIVE under the terms of the Protective Order. The Highly Sensitive information is available for review at the Austin offices of American Electric Power Company (AEP), 400 West 15th Street, Suite 1520, Austin, Texas, 78701, (512) 481-4562, during norMal business hours.

3941

PUCT Docket No. 46449 Schedule K-5 Attachment I

Page 1 of 1


For the Test Year Ended Rine 30, 2016

Schedule K-5 Attachment 1 contains Highly Sensitive information.

The information responsive to this request is HIGHLY SENSITIVE under the terms of the Protective Order. The Highly Sensitive inforrnation is available for review at the Austin offices of Arnerican Electric Power,Company (AEP), 400 West 15th Street, Suite 1520, Austin, Texas, 78701, (512) 481-4562, during normal business hours.

Sponsored By: Renee Hawkins

3942

PUC Docket No. 46449 Schedule K-5 Attachment 2

Page 1 of 5 20151020-3030 FERC PDF (Unofficial) 10/20/2015

153 FERC ¶ 62,036

UNITED STATES OF AMERICA FEDERAL ENERGY REGULATORY COMMISSION

‘AEP Generating Company AEP Texas North Company AEP Texas Central Company Appalachian Power Company Indiana Michigan Power Cornpany Kingsport Power Company Public Service Company of Oklahorna Southwestern Electric Power Company Wheeling Power Cornpany

In Reply Refer to: Docket Nos. ES15-39-000

• ES15-49-000 ESI5-50-000 ES15-51-000 ES15-52000 ES15-54-000 ES15-55-000 ES15-56-000 ES15-57-000

October 20, 2015

Attention: Renee V. Hawkins Assistant Treasurer 1 Riverside Plaza Colurnbus, Ohio 43215

Dear Ms. Hawkins:

OnJuly 24, 2015, as arnended on August 31, 2015, you filed an application pursuant to section 204 of the Federal Power Act, 16 U.S.C. § 824e (2012) requesting that,the Commission authorize AEP Generating Company (AEP Generating), AEP Texas North Company (AEP Texas North), AEP Texas Central Company (AEP Texas Central), Appalachian Power Cornpany (Appalachian Power), Indiana Michigan Power Cornpany, (Indiana Michigan), Kingsport Power Company (Kingsport), Public Service Coinpany of Oklahorna (PSC Oklahorna), Southwestern Electric Power Company (SWEPCo) and Wheeling Power Cornpany (Wheeling) (collectively, ApPlicants) to issue Short-Terrn Debt having varying maturities not to exceed one year.

The Short-Term Debt will in the form of commercial paper, promissdry notes, and other evidences of short-term indebtedness, provided that the aggregate amount outstanding will not exceed the following arnounts for each Applicant: AEP Generating - $200 million, AEP Texas North - $250 million, AEP Texas Central - $250 million, Appalachian Power - $600 million, Indiana Michigan - $500 million, Kingsport - $50 million, PSC Oklahoma - $300 million, SWEPCo - $350 million, and Wheeling - $150 million; The interest rate of the Short-Term Debt will not exceed the 30-day London

3943

PUG Docket No. 46449 Schedule K-5 Attachment 2

Page 2 of 5

20151020-3030 FERC PDF (Unofficial) 10/20/2015

Docket No. ES15-39-000 et al. - 2 -

Interbank Bank Offered Rate (LIBOR) as referenced in The Wall Street Journal at http://online.wsj.corn in effect at the time of borrowing, plus up to 400 basis points. Your request is granted as detailed in the authorization section of this letter order.

Applicants state that, on October 21, 2014, in Docket No. ES14-47-000, the Comrnission authorized Wheeling to issue $150 million in short-term debt and $350 million hi long-terrn debt through October 31, 2016 (the Existing Authority). Applicants request that, upon authorization of the $50 million in Short-Term Debt requested by Wheeling herein, Wheeling's Existing Authority as to the $150 million in short-terni debt be superseded. Applicants state that Wheeling's Existing Authority as to the $350 rnillion in long-term debt should remain unaffected by the authorizations issued in this docket.

Applicants also request authorization to issue its Short-Terrn Debt through their participation in the AEP Utility Money Pool.'

Notices of the filings were published in the Federal Register., with protests or interventions due on or before August 14, 2015 and September 21, 2015. None were filed.

Authorization:

On February 21, 2003, the Commission issued an order announcing four restrictions on all future public utility issuances of secured and unsecured debt.2 First, public utilities seeking authorization to issue debt backed by a utility asset must use the proceeds of the debt for utility purposes. Second, if any utility assets that secure debt issuances are divested or "spun off," the debt must follow the asset and also be divested or "spun off." Third, if any of the proceeds from unsecured debt are used for non-iitility purposes, the debt must follow the non-utility assets. Specifically, if the non-utility assets are divested or "spun-off," then a proportionate share of the debt rnust follow the divested

FERC-regulated entities are required to file their cash management agreenlents with the Commission. The information provided is used to aid the Cornmission in monitoring cash management prograrns. The rule is not in the nature of a regulation governing participation in cash management programs. Therefore, this order does not address any request for authorization to participate in a cash rnanagernent program. See Regulation of Cash Management Practices, 105 FERC ¶ 61,098 (2003).

2 Westar Energy, Inc., 102 FERC 1161,186, order on reh'g, 104 FtRC ¶ 61,018 (2003),( 'Vesta?).

3944


Page 3 of 5


Docket No. ES15-39-000 et al. - 3 -

.n

or "spun-off non-utility asset. Finally, if utility assets financed by unsecured debt are divested or "spun-off' to another entity, then a proportionate share of the debt must also be divested or "spun off."

Applicants are authorized to issue Short-Term Debt, provided that the aggregate amount outstanding will not exceed the following arnounts for each. Applicant: AEP Generating - $200 million, AEP Texas North - $250 million, AEP Texas Central - $250 million, Appalachian Power - $600 million, Indiana Michigan - $500 million, Kingsport - $50 million, PSC Oklahoma - $300 million, SWEPCo - $350 rnillion, and Wheeling - $150 million. The interest rate of the Short-Terin Debt shall not exceed the 30-day LIBOR as referenced in The Wall Street Journal at http://online.wsj.corn in effect at the time of borrowing, plus up to 400 basis points. This authorization is based upon the terrns and conditions and for the purposes specified in the application subject to the following conditions:

This authorization is effective November 1, 2015 through Noyember 2, 2017.

This authorization supersedes the Existing Authority as to the $150 million in short-term debt granted to Wheeling Power in Docket No. ES14-47-000, on October 21, 2014. The Existing Authority as to the $350 million in long-term debt is unaffected by this Order.

The securities are subject to the Commission's restrictions on sect:wed and unsecured debt as outlined above and in Westar.

This authorization is without prejudice to the authority of the Commission or any other regulatory body with respect to rates, service, accounts, valuation, estimate's or determination of cost or any Other matter whatsoever now pending or which may corne before this Commission.

3945


Page 4 of 5

20151020-3030 FERC PDF (Unofficial) '10/20/2015

Docket"No. ES15-39-000 et al. - 4 -

Nothing in this letter order shall be construed to imply any guarantee or obligation on the part of the United States with respect to any security tci which this letter order relates.

Authority to act on this rnatter is delegated to the Director, Division of Electric Power Regulation — West, under 18 C.F.R. § 375.307 (2015). This order constitutes final agency action. Requests for rehearing by the Cornrnission rnay be filed within thirty (30) days ofthe date of issuance of this order, pursuant to 18 C.F.R. § 385.713 (2015).

Sincerely,

Steve P. Rodgers, Director Division of Electric Power Regulation - West

3946

PUC Docket No. 46449 Schedule K-5. Attachrnent 2

Page 5 of 5


Document Content(s)

ES15-39-000.DOC ...:1-4

3947

PUCT Docket No. 46449 Schedule K-5 Attachment 3

Page 1 of 1


For the Test Year Ended June 30, 2016

Schedule K-5 Attachment 3 contains Highly Sensitive information.

The information responsive to this request is HIGHLY SENSITIVE under the terrns of the Protective Order. The Highly Sensitive inforniation is available for review at the Austin offices of American Electric Power Cornpany (AEP), 400 West 15th Street, Suite 1520, Austin, Texas, 78701, (512) 481-4562, during normal business hours.

Sponsored By: Renee Hawkins

3948

PUC Docket No.46449 Schedule K-6

Non-Confidential

SOUTHWESTERN ELECTRIC POWER COMPANY FINANCIAL RATIOS

Schedule K-6 contains Highly Sensitive information

The information responsive to this request is HIGHLY SENSITIVE under the terme of the Protective Order. The Highly Sensitive information is available for review at the Austin offices of American Electric Power Company (AEP), 400 West 15th Street, Suite 1520, Austin, Texas, 78701, (512) 481-4562, during normal business hours.

3949


Non-Confidential

SOUTHWESTERN ELECTRIC POWER COMPANY CAPITAL REQUIREMENTS AND ACQUISITION PLAN

Schedule K-7 contains Highly Sensitive information.

The information responsive to this request is HIGHLY SENSITIVE under the terms of the Protective Order. The Highly,Sensitive information is available for review at the Austin offices of American Electric Power Company (AEP), 400 West 151h Streei, Suite 1520, Austin, Texas, 78701, (512) 481-4562, during normal business hours.

3950

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PUG Docket No. 46449 Schedule K-9 Page 1 of 20

Southwestern Electric Power Company Vertically integrated electric utility subsidiary of AEP

Summary Rating Rationale Southwestern Electric Power Company'S (SWEPCo) Baa2 rating reflects its position as a

vertically integrated electric utility company operating in relatively supportive regulatory

environments with financial metrics that are supportive of the rating. SWE PCo's coal and

lignite fleets have incurred sizeable amounts of environmental capex in recent years, which

has caus'ed an increase in debt burden and resulted in negative free cash flow. However, due

in part to the formulaic recovery mechanisms available in most of its jurisdictions, as well

as the continued Cash flow benefits of bonus depreciation, credit metrics have remained.

appropriate for the rating.

romiit 1 Historical CFO Pre-WC, Total Debt and CFO Pre-W/C to Debt ($ in millions)

21.•

CREDIT OPINION 21 September 2016

101 fah:1Tc

P.ATINGS

Southwestern Electric Power Company

9ue.'epurr.„ touisien,i; ..'" — • • • Oiled Stud ; :L. :••

tonrenn Reims 0332

;LI IssucrectIng,:z '

Outlook StaLte

Please see the ratings sectson at the ends/ Ma report

for more information The ratings and outlook shoun

rtflect inforrnaoon as of the publication date

At salyst Contacts

Laura Schumachei

212-553-3853

W-Sr s7redn Wpm

Lura solumasimrqiiiondis (OM

Michael G . Haggerty

212-553-7172

A- tow! frirni,ttyng

LVerror

mic)sael ti,u;,-2zr11,,,,,noodys corn

prn Hempstead

212-553-4318 tate i fanagn g

brects •

lame, Qns

$.1324

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- DO. • VIC ICAO

Source Moody's Investors Serke

Credit Strengths

Diversified and relatively supportive regulatory jurisdictions

» Appropriate financial metrics

Credit Challenges

» Arkansas 88 MW portion of the Turk coal plant is exposed to competitive markets

» Capital spending will remain elevated

3956

PUC Docket No, 46449 Schedule K-9 Page 2 of 20

-.4eg_13 1k

Rating Outlook SWEPCo's stable rating outlook reflects the cornpany's diversified service territory, relatively supportive regulatory jurisdictions and

appropriate financial rnetrics. The outlook incorporates our expectation that the company will continue to receive timely expense

recovery, and that the environmental and other capital expenditures will be timely recovered via riders or base rates.

Factors that Could Lead to an Upgrade

• Interest coverage above 4 Sx and cash flow pre-working capital (CFO pre-W/C) to debt above 19%, on a sustainable basis

• Continued progress in fuel diversification

Factors that Could Lead to a Downgrade

» A deterioration in the regulatory environrnent resulting in greater regulatory tag

• A material decline in key financial credit metrics including CFO pre-W/C to Debt below 13%, on a sustained basis.

Key Indicators

Exhibit ? 4

KEY INDICATORS


12/31/2012 12/31/2013 12/31/2014 12/31/2015 6/30/2016(1.) CFO pre-WC 4- Interest / Interest 5.1x 4.2x 5.0x 3.7x 4.0x

CFO pre-WC / Debt 24.6% 18.4% 22.6% 14.9% 16.1%

CFO pre-WC - Dividends / Debt 24.5% 13.0% 18,3% 10 1% 11.3%

Debt / Capitalization 43.5% 41.3% 41.4% 41.9% 41.2%

111All rams are based on 'Adjusted financial data and Incorporate Moody's Global Standard Adjustments for Non-Fmaneal Corporations Szace bloody's lnirstors Service

Detailed Rating Considerations Diversity and overall supportiveness of regulatory jurisdictions

SWEPCo's operations are spread across Louisiana, Arkansas and Texas and the company also supplies energy to wholesale customers

under Federal Energy Regulatory Commission (FERC) regulated contracts. We view all of these jurisdictions as relatively credit

supportive Of the three state regulatory jurisdictions, we consider Louisiana to be the most constructive due to its formula rate base

(FRE3) process and a comprehensive suite of recovery mechanisms Arkansas provides an annual fuel cost pass-through and suite of

recovery mechanisms, while Texas provides fuel cost recovery three times a year, a less prescriptive suite of recovery mechanisms,

and has exhibited greater regulatory lag. Vertically integrated utilities operating in Texas have generally experienced less favorable

regulatory treatment than transmission and distribution utilities. On balance, our rating assumes a continuation of reasonable rate

treatment across SWEPCo's various jurisdictions

The service territories in which SWEPCo operates are all substantially exposed to industries that are impacted by energy prices such

as mining, natural resources, and energy-related manufacturing According to Moody's Economy.com, overall, Louisiana's economy

will be slow to recover, as low oil and gas prices curb mining, shipping and state government. Arkansas' slowdown is also expected to

continue, with meaningful improvement unlikely before 2017, while Texas will avoid a recession, but growth is expected to be slow for

another year There is a bright spot however, in the Fayetteville Arkansas region where employment is centered in professional services,

food manufacturing and healthcare, and the area is flourishing.

• • ' linbikiwisirti‘s,espetaidertnio act?c,n.itirartyP,rili .nr.aei-te,:ZItted !1;:•:(1,1)1. bred, ft.cf:‘; c Ti.fer.ACIP 9"11*Ic:dcrienl4 pa- •

••••-•••••v•-iodfs soul for thiftirdevatt••,1 cr..) rratiblicrihirdn-olitkin " , % • " s ••• • C• • • • • , • •A. ,

Li Scptci iw, 7b16 SouiliNestcrn Electroc Sc.w, Coinp_my Vel •iitegt.ud electric

3957


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- 111,4*-Te 01.3j,k500c

Arkansas portion of Turk plant exposed to competitive markets

The 600 Iv,/ Turk plant, an ultra-supercritical Coal generating facility located in Arkansas, began commercial operation in December

2012 with a total capitalized cost of about 51.7 billion for SWEPCo's 73% (440 MW) share While approximately 80% of the Turk

investment is recovered under cost-based rate recovery in Texas (142 MW) and Louisiana (133 MW), and through SWEPCo's wholesale

custome?s under FERC-based rates (75 MW), such is not the case in Arkansas.

The Arkansas Public Service Commission (ARPSC) granted approval for SWEPCo to build the Turk plant by issuing a certificate of

environment compatibility and pubtic need for the Arkansas jurisdiction share of the plant (approximately 20%). However, the

Arkansas Supreme Court reversed the certificate grant following an appeal by certain interveners, resulting in the ARPSC's reversal of its

order in June 2010. In response, SWEPCo filed notice to the ARPSC stating that the 88 MW not being recovered in retail rates would be

available for market-based sales and FERC-regulated wholesale sales. To date, none of these megawatts have been contracted which

means the entire Arkansas portion is exposed to the merchant market which, given low gas prices, is unlikely to permit full recovery of

capital costs.

Capital program is moderating, but will remain substantial

For the past few years, SWEPCo has been spending heavily on environmental capital expenditures primarily to bring its coal-plants

into compliance with the US Environmental Protection Agency's Mercury Air Toxics Standards (MATS), with total annual capital

expenditures averaging about $500 million per year. In 2016, SWEPCo completed modifications to the 528 MW Units 1 and 3 of

the Welsh coat plant, and closed the similarly sized Unit 2 in accordance with its compliance plan. As of June 30, 2016, SWEF;Co had

incurred costs of $389 million (including AFUDC), relating to the Welsh environmental projects, and had remaining construction

obligations of $20 million SWEPCo wilt recover the Louisiana and Arkansas components of these costs via formula/rider recovery and

will seek approval for Texas and FERC jurisdictional portions of the investment through regular rate proceedings

Over the next few years capital expenditures are expected to moderate somewhat with plans for about $400 million per year focused

primarily on transmission and distribution projects. SWEPCo estimates approximately $450 million of additional environmental

compliance spending will be needed at Welsh to meet proposed more stringent environmental regulations expected by 2025, however

the bulk of this investment would likely begin around 2023,

Appropriate financial metrics

For the twelve months ending June 30, 2016, we calculate SWEPCds ratio of CFO pre-W/C to debt as 161%, as of year-end 2015, the

ratio was 14.9% The ratio of CFO pre-W/C plus interest to interest (interest coverage) during the same two periods were 4.0x and

3.7x, respectively These ratios fall comfortably fall in the "Baa" scoring range for these factors indicated in our rating methodology for

regulated electric and gas utilities under the standard grid. As of June 30, 2016, SWEPCo generated a three year average CFO pre-W/C

to debt metric of 18 5% and a thrqe year average interest coverage ratio of 4 Sx

Going forward we anticipate SWEPCo's metrics will remain appropriate for the rating with CFO pre-W/C to debt in the mid-teens and

interest coverage in the low 4x range.

Liquidity Analysis

Given its large capital expenditure program and upcoming debt maturities, SWEPCo's liquidity profile is currently below average in

2015, the company generated about 5428 million of cash from operations, invested about $541 in capital expenditures and paid $124

million in dividends, resulting in a negative free cash flow of about $237 million fhe shortfall was primarily funded with long-term

debt proceeds and use of intercompany borrowings. Going forward, we anticipate capital expenditures will moderate to about $400

million per year resulting in modest negative free cash flow that will continue to be funded via a combination of internal and external

borrowings.

The AEP family uses a corporate borrowing program to meet the ‘short-tern-i borrowing needs of all the subsidiaries, which includes a

utility money pool SWEPCO participates in the money pool with a FERC authorized borrowing limit of 5350 million As of June 30,

2016, SWEPCO had approximately $14 million of cash and 5155 million in net loans from the money pool SWEPCo's next maturity is

21Septernbc, 2016 Šputh,,,tein Po...“ Company Vcrti,ally intepralcci 111.111y .obmiOly of

•

3958

PUC Docket No. 46449 Schedule K-9 Page 4 of 20

kkticilf

ts.

in January 2017, when 5250 million in senior notes are due as wet( as in July 2017, when a $100 rnillion senior unsecured term loan is

due. We expect SWEPCo will look to refinance these maturities comfortably in advance of their due dates

Corporate Profile

Southwestern Electric Power Company (SWEPCo, Baa2 ftab(e) is a vertically integrated electric utility, and a wholly owned subsidiary

of American Electric Power Company, Inc. (AEP, Baal stable). SWEPCo's retail operations are regulated by the Louisiana Public Service

Commission (LAPSC), the Arkansas Public Service Commission (ARPSC), and the Public Utility Commission of Texas (PUCT). The

company also sells wholesale power under contracts regulated by the Federal Energy Regulatory Commission (FERC) As of 2Q 2016,

SWEPCo represented roughly 15% ($4.8 billion) of AEP's jurisdictional rate base.

SWEPCo serves approximately 530,000 retail customers in northwestern and central Louisiana, western Arkansas, East Texas and the

panhandle area of North Texas. As of December 2015, SWEPCo owned or contracted for approximately 6.2 GW of generating capacity

and supplies wholesale electric power to other electric utility companies, municipalities, rural electric cooperatives and other market

participants within the region. Its generating capacity is a mix of 46% coal/lignite, 37% natural gas, 9% therrnal PPA, 7% wind (469 MW under long-term contracts) and 1% demand response. In 2015, vie estimate approximately 59% of SWEPCo's delivered energy

was supplied by its coal plants

Rating Methodology and Scorecard Factors

Exhibit 3

P.atin3 Factors


Regulated Electric and Gas Utilities Industry Grid OR)

Factor 1 : Regulatory Framework (25%)

a) legislative and Judicial Underpinnings of the Regulatory Framework

b) Consistency and Predictability of Regulation

Factor 2 : Ability to Recover Costs and Earn Returns (25%)

a) Timeliness of Recovery of Operating and Capital Costs

b) Sufficiency of Rates and Returns

Factor 3 • Diversification (10%)

a) Market Position

b) Generation and Fuel Diversity

Factor 4 : Financial Strength (40%)

a) CFO pre-WC +Interest / Interest (3 Year Avg)

b) CFO pre-WC / Debt (3 Year Avg)

c) CFO pre-WC -Dividends / Debt (3 Year Avg)

d) Debt / Capitalization (3 Year Avg)

Rating:

Grid-Indicated Rating Before Notching Adjustment

HoldCo Structural Subordination Notching

a) Indicated Rating from Grid

b) Actual Rating Assigned

Current

LTM 6/30/2016

Moody's 12-18 Month Forward View

As of Date Published (31

Measure Score Measure Score

A A A A

Baa Baa Baa Baa

Baa Baa Baa Baa

Baa Baa • Baa Baa

Baa Baa Raa Baa

Ba Ba Ba Ba

4.5x Baa 4x - 4.5x Baa

18.5% Baa 15% - 20% Baa

13.9% Baa 11% - 16% Baa

42 2% A 39% - 44% A

Baa2 Baa2

Baa2 Baa2

Baa2 Baa2

MAI( ratios are based on 'Adjusted financial data and mcorporate Moody s Global Standard Adjustments for Non Financial Corporations 121As 0 6/30/2016(L) 131 This represents Moody's forward view, not the view ol the issuir, and unless noted in the text, does not incorporate significant acquisitions and divestitures Source Moorys hwenors Servke

121111111111111111111111111ft

4 21 Srpvtonbyr 20 16 South el, e n Cluct. PO,e, Company Vert,r;Ily totry,f.tred ict,ir ut.Nly ,,trsichaty of MP

3959

PUC Docket No 46449 Schedule K-9 Page 5 of 20

NVPROitat PqrsiCiNQ

',A0,0/4MSFINYAST0F1

Ratings

E Alba 4

Ca te.ory

Moody's Eating

SOUTHWESTERN ELECTRIC POWER COMPANY

Outlook

Stable

Issuer Rating

Baa2

Senior Unsecured

Baa2

PARENT: AMERICAN ELECTRIC POWER COMPANY,

INC.

Outlook

Stable

Senior Unsecured Baal

Jr Subordinate Shelf (P)Baa2

Cornmercial Paper P-2 Source M000Ys Investors Serv,ce

September 1016 Southwestern Elect; u Pow, Compmay, V..t;tatli latLyetcd dt,d, uiiil y ‘ubspi.try of ACP

3960

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PUG Docket No. 46449 Schedule K-9

Page 6 of 20

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3961


S&P Global Ratings

RatingsDirect

Research Update:

American Electric Power Co. Inc. Ratings Raised And Placed On Watch Positive On Sale Of Merchant Generation Assets Primary Credit Analyst: Dirnitri Nikes, New York (I) 212-438-7807; [email protected]

Secondary Contact: iv1ichael Pastrich, New York 212-438-0604; [email protected]

Table Of Contenis

Overview

Rating Action

Rationale

CreditWatch

Related Criteria And Research

Ratings List

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17r4G12 lSRC00483

3962


Research Update:

American Electric Power Co. Inc. Ratings Raised And Placed On Watch Positive On Sale Of Merchant Generation Assets

Overview

• American Electric Power Co. Inc. (AEP) has agreed to sell 5,200 MW of merchant generation capacity for $2.217 billion with the transaction expected to close in first-quarter 2017. • We are raising the issuer credit rating on AEP and its

subsidiaries--Appalachian Power Co., Indiana Michigan Power Co., Kentucky Power Co., Ohio Power Co., Public Service Co. of Oklahoma, Southwestern Electric Power Co., AEP Texas Central Co., and AEP Texas North Co.--to 'BBB+, from 'BBB and placing the ratings on CreditWatch with positive implications. • We are revising the comparable rating analysis assessment on AEP to

positive from neutral, reflecting our view that the company's business .risk profile is at the higher end of the strong business risk profile category. This incorporates our view that the proposed transaction demonstrates AEP's efforts t'o focus on regulated utility operations, strengthening the company's business risk profile. • The CreditWatch with positive implications reflects the possibility for

higher ratings upon the close of the sale of the 5,200 MW of merchant generation capacity.

Rating Action

On Sept. 16, 2015, S&P Global Ratings raised its issuer credit ratings on American Electric Power Co. Inc. (AEP) and its subsidiaries--Appalachian Power Co., Indiana Michigan Power Co., Kentucky Power Co., Ohio Power Co., Public Service Co. of Oklahoma, Southwestern Electric Power Co:, AEP Texas Central Co., and AEP Texas North Co.--to 'BBB+' from 'BBB' and placed the'ratings on CreditWatch with positive implications. In addition, we are raising the senior unsecured debt ratings at AEP and its subsidiaries by one notch, and placing the ratings on CreditWatch with positive implications.

Rationale

The rating action reflects the reduced contribution of AEP's merchant generation operation overall along management's strategy to grow the company primarily through lower-risk reg'ulated utility operations..Additionally, the potential for higher ratings is dependent upon the successful close of the sale of about 5,200 MW of the company's merchant generation capacity, which

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SEPTEMBER 16, 2016 2

1712t,I2 Wor)00,1,43

3963


Research Update: American Electric Power Co, Inc. Ratings Raised And Placed Ott Watch Positive On Sale Of

Merchant Generation Assets

could lead to an improved business risk profile.

The ratings on AEP reflect our assessments of the company's currently strong business and significant financial risk profilei. Moreover, the ratings on AEP reflect our view that the company's business risk profile is improving, given the declining contribution of the merchant assets, management's explicit strategy to primarily grow through lower-risk regulated utility operations and plans to eliminate the remaining merchant generation exposure.

We expect AEP's financial risk profile ib remain robust and well within the significant financial risk profile category. Under our base-case scenario, which assumes that the asset sale closes in first-quarter 2017, generating about $1.6 billion of cash after tax, but before any debt repayments, we expect that AEP will achieve funds from operations (FFO) to debt of about 18% and debt to EBITDA of consistently below 4.5x, with both measures readily supporting the company's significant financial risk profile asSessment.

Liquidity We assess AEP's liquidity as adequate to cover its needs over the next 12 months. We expect that the company's liquidity sources will exceed its uses by 1.1x or more, the minimum threshold for an adequate designation under our criteria, and that the company will also meet our other criteria for such a designation. AEP benefits from the preponderance of regulated utility operations that provide for stable cash flow generation. Moreover, we expect that liquidity should benefit from the company's likely ability to absorb high-impact, low-probabilicy events without the need for refinancing,' well-established and solid relationships with banks, and its satisfactory standing in the credit markets.

AEP has $3.5 billion in revolving' credit facilities with $3 billion maturing in 2021 and $500 million maturing in 2018.

Principal liquidity sources: • FF0 of about $4.6 billion annually; • Credit facility availability of $3.5 billion; and • After tax proceeds from pending asset sale of about $1.6 billion in next

12 months.

Principal Liquidity uses: • Projected maintenance capital spending of about $3.4 billion; • Debt maturities and outstanding commercial of about $4.1 billion as of

June 30, 2016; and 4`.

• Dividends of about $1.1' billion annually.

CreditWatch

The CreditWatch listing with positive implications on AEP and its subsidiaries reflects the potential for higher ratings in the next three to six months upon the close of the sale of 5,200 MW of merchant generation capacity that would

MINVINSFANDARDANDPOORŠ.COM/MMIOSDIRECT SEPTEMBERIG,U16 3

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3964


Research Update: American Electric Power Co. Inc. Ratings Raised And Placed On Watch Positive On Sale Of Merchant Generation Assets

lead co an improvement of the company's business risk profile, while the company maintains FFO to'debt of about 18%,

We could affirm the ratings if AEP's business risk remains unchanged while its financial risk profile remains toward the middle of the significant category, with FF0 to debt of 15t-201. Alternatively, we could affirm the ratings if the business risk profile improves but FFO to debt consistently weakens to below 15%.

Upon the close of the transadtion, expected in the next three to six months, we could raise the issuer credit rating on AEP and its subsidiaries by one notch, reflecting improvement in business risk stemming from the sale Of a portion of its merchant generation assets while the company maintains FFO to debt of,about 18% or consistent with the middle of the range for the significant financial risk profile category.


Related Criteria • Criteria - Corporates - General: Methodology And Assumptions: Liquidity

Descriptors For Global Corporate Issuers, Dec. 16, 2014 • Criteria - Corporates - Industrials: Key Credit Fac'tors For The

Unregulated Power And Gas Industry, March 28, 2014 • Criteria - Corporates - Utilities: Key Credit Factors For The Regulated

Utilities Industry, Nov. 19, 2013 • General Criteria: Methodology: Industry Risk, Nov. 19, 2013 • General Criteria: Country Risk Assessment Methodology And Assumptions,

Nov. 19, 2013 • Criteria - Corporates - General: Corporate Methodology: Ratios And

Adjustments, Nov. 19, 2013 • Criteria - Corporates - General: Corporate Methodology, Nov, 19, 2013 • General Criteria: Methodology For Linking Short-Term And Long-Term

Ratings For Corporate, Insurance, And Sovereign Issuers, May 7, 2013 • General Criteria: Methodology: Management And Governance Credit Factors

For Corporate Entities And Insurers, Nov, 13, 2012 • Criteria - Corporates - General: Methodology: Business Risk/Financial

Risk Matrix Expanded, Sept. 18, 2012 • General Criteria: Use Of CreditWatch And Ouilooks, Sept. 14, 2009 • criteria - Corporates - General: 2008 Corporate Criteria: Rating Each

Issue, April 15, 2008

Ratings List

Upgraded; CreditWatch/Outlook Action To From

AEP Texas Central Co. Wheeling Power Company Southwestern Electric Power Co.

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Researcb Update: American Electric Power Co, Inc. Ratings Raised And Placed On Watch PositWe. On Sak Of Merchant Generation Assets

RGS (IWO Funding Corp.

RGS (AEGCO) Funding Corp. Public Service Co. of Oklahoma Ohio Power Co, Kentucky Power Co. Indiana Michigan Power Co. AEP Texas North Co.

Corporate Credit Rating

American Electric Power Co. Inc.

Senior Unsecured

AEP Texas Central Co. Senior Unsecured

Appalachian Power Co. Senior Unsecured

Indiana Michigan Power Co.

Senior Unsecured

Kentucky PoWer Co. Senior Unsecured

* Ohio Power Co. Senior Unsecured

Public Service Co. of Oklahoma Senior Unsecured

RGS (AEGCO) Funding Corp.

Senior Unsecured

RGS (I&M) Funding Corp. Senior Unsecured

Southwestern Electric Power Co. Senior Unsecured

BBB+/Watch Pos/-- BBB/Positive/--

'BBB/Watch Pos BBB-

BBB+/Watch Pos BBB

BBB+/Watch Pos BBB

BBB+/Watch Pos BBB

BBB+/Watch Pos BBB

BBB+/Watch Pos BBB

BBB+/Watch Pos BBB

BBB/Watch Pos BBB-

BBB/Watch Pos BBB-

BBB+/Watch Pos BBB

Upgraded; CreditWatch/Outlook Action; Ratings Affirmed

To From American Electric Power Co. Inc. Appalachian Power Co. Corporate Credit Rating

Ratings Affirmed

American Electric Power Co. Inc. Commercial Paper

BBB+/Watch Pos/A-2 BBB/Positive/A-2

A-2

Certain terms used- in this report, particularly certain adjectives used to-

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3966

PUG 'Docket No. 0449 Schedule K-9

Page 12 of 20

Researcb Update: American Electric Power Co. Inc. Ratings Ratsed ilittlPlaced On Watch Positive On Sale Of Merchant Generation Assets

express our view on.rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction,with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information., Complete ratings information is available to subscribers of RatingsDirect at www.globalcreditportal.com and at www.spcapitaliq.com. All ratings affected by this rating action can be found onIthe S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column.

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Page 13 of 20

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STANDARD &POOR'S RATINGS SERVICES McCRAWHIllfltiANCIAL

Research

Summary:

Southwestern Electric Power Co. Primary Credit Analyst: Gerrit W Jepsen, CFA, New York (I) 212-438-2529; gerrit [email protected]

Secondary Contact: Dimitn Nikas, New York (1) 212-438-7807; [email protected]

'rable Of Contents

Rationale

Outlook

Standard & Poor's Base-Case Scenario

Business Risk-

Financial Risk

Liquidity

Other Modifiers

Group Influence

Ratings Score Snapshot

Relited Criteria And Research

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1.3113126 l 300-12511

perrnt.ton See Terms of Use/liscl.umer on the last Nge.

3969

PUG Docket No 46449 Schedule K-9 Page 15 of 20

Summary:

Southwestern Electric Power Co.

Business Risk: STRONG

Vulnerable Excellent

CORPORATE CREDIT RATING

bbb

o bbb bbb

0

BBB/Stable/-

1

1

Financial Risk: SIGNIFICANT

Highly leveraged Mtniraal

Anchor Modifiers Group/Gov't

Rationale

• Vertically-integrated regulated utility that is sole provider of electricity service

• Part of a large electric utility company that is geographically diverse with a large customer base

• Mostly credit-supportive regulation

• Large capital expenditures • Discretionary cash flow to rernain negative • 'Exposure to environmental regulations could

pressure financial measures

• Net cash flow to capital spending to remain less

than 100%

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3970


Suitunary: Southwestern Electric Power Co.

crti1:144-s,

C.A4

The stable rating outlook on parent Arnerican Electric Power Co. inc. and subsidiary Southwestern Electric Power

Co. (SWEPCO) reflects our expectation that management will focus on its regulated utilities and will not expand

unregulated operations beyond the existing level. We expect the company will not incur any increased business

risk by reaching regulatory outcomes that provide timely recovery of rate base investments and operating

expenses. The outlook also reflects our expectations that cash flow protection and debt leverage measures will

continue to remain at the currently robust le'Vels. Our base case forecast includes adjusted funds from operations

(FFO) to total debt of about 20%t, supplemented by cash flow from operations (CFO) to debt of about 19%. We

expect debt to EBITDA to be approximately 9x.

Downside scerfarió

We could lower the ratings if the business risk profile materially weakened or financial measures fall short of our

bale forecast on a sustained basis including not maintaining FFO to total debt above 13% or CFO to debt above

11%.

Upside scenario

We could raise the ratings if the business risk profile improves through groWth in the utility operations in

combination with financial measures in line with our base case tbrecast. We could also raie the ratings if the

company maintains its current business risk profile and fmancial measures strengthen to the "intermediate"

fmancial risk profile category.

Standard & Poor's Base-Case Scenario

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3971


Sununah: Southwestern Electric Power Co.

-

• Economic conditions in the companys service territories are improving, which will likely increase customer usage

• EBITDA growth consisting of revenue increases and customer growth is likely to be about the same as in recent years

• Capital spending and dividend payouts lead to negative discretionary cash flow, indicating external funding needs

In our base case, we expect SWEPCO's key adjusted

financial measures to approximate historical

performance during the next few years. We expect

FFO to debt to be about 21%, which isin the

"significanr category under our medial volatility

benchmarks. We forecast debt to EB1TDA to be under

4.5x, indicating debt leverage in line with the

"significant" category benchmark range. We forecast

the supplemental ratio of CFO to debt to be about

22%. Within the "intermediate category benchmark

range. We expect discretionary cash flow to remain

negative over the next few years, reflecting capital

spending and dividend payments to parent company

AEP, indicating external funding needs. Beyond our

base case forecast, we expect to see similar financial

measures.

Business Risk: Strong

We base our a.ssessment of SWEPCO's business risk profile on the companys "satisfactory" competitive position, "very

low'' industry nsk derived from the regulated utility industry, and the "very low" country risk of the U.S. where the

utility operates. The competitive position assessment incorporates the strengths of a vertically integrated and mostly

regulated electric utility that provides service in northeastern Texas, northwestern Louisiana, and western Arkansas. It

participatd in the AEP West Power Pool, sharing the revenues and costs of pool sales to utilities and power marketers,

and also sells directly at wholesale to utilities, municipalities, and electric cooperatives. Operations are integrated with

the AEP West system.

Financial Risk: Significant

Based on the medial volatility financial ratio benchmarks,. our assessment of SWEPCO's financial risk profile is

"significanr, reflecting the recurring cash flow from being a fully-regulated vertical-integrated electric utility. Capital

spending is necessary for maintenance purposes and new projects. Recovery of costs has generally been adequate. WE

expect financial measures to remain about the same as existing levels. We expect discretionary cash flow to remain

negative over the forecast period, indicating an external funding need. Measures could improve if spending is lower

than expected or cost recovery is higher than expected. Steady cost recovery through the regulatory process will be

required to maintain cash flow coverages. For 12 months ended Dec. 31, 2013, FF0 to debt was 18%, CFO to debt

was 18%, and debt to EBITDA was 4.3x. Our baseline forecast includes financial measures roughly the same as these

WWW.STANDARDANDPODRS.COM MAY 5, 2014 4

Sidnd.rd & Pocr's AO oghts raerved. No icpont or rillsernmallon vasot 5..andard & Pa:4's peortiss;on See TerniS of Ile/asclaimer on the last psge.31012a 30151209Z


Summary: Southwestern Eleartc Power Co.

rneasures and at the high end of the intermediate financial ratio benchrnarks.

Liquidity: Adequate

SWEPCO's liquidity reflects that of parent AEP, which we consider "adequate, as our criteria defmes the term. We

believe the cOmpany's liquidity sources are likely to cover its uses by more than 1.1x over the next 12 rnonths and to

meet cash outflows even with a 10% decline in EB1TDA.

There are large debt maturities over the next three years and we expect the company to refinance these given its

satisfactory standing in the credit markets.

Principal Liquiditk Stitirce.

• Cash on hand of roughly $500 million in 2014 " • FF0 of roughly $4.2 billion in 2014

• Credit facility availability of about $2.5 billion in 2014

• Working capital of about $350 million in 2014

PrinelPal Liquidity UšestZ

• Debt maturities of about $1.5 billion in 2014

• Capital spending of about $4.3 billion in 2014

• Dividends of`about $970 million in 2014

P.f.f4

Other Modifiers

Other modifiers have no impact on the rating outcome.

Group Influence

The SACP of bbb for SWEPCO reflects its business risk and financial risk profiles; the same as the GCP for AEP.

which is currently 'bbb'. Under our group rating methodology, we consider SWEPCO to be core subsidiary of the AP

group and therefore, the ICR for SWEPCO is equal to the AEP GCP.

Ratings Score Snapshot f

Corporate Credit Rating

BBB/Stable/—

Business risk: Strong

• Country risk: Very low

• Industry risk: Very low

• Competitive position: Satisfactory

Financial risk: Significant

• Cash flow/Leverage: Siknificant

WWW.STANDARDANDPOORS.COM MAY 5, 2014 5

tItStandard & Podr's All nghts moused N3 repnnt or cl_ss,zmnatton wtthout Standard & Poor't. perrntss'on See Terms of Ust/Dtsealmer on ilts lazt met 310 lir 1 10.Th 1 2tS92

3973


Summary: Southwestern Electric Power Co,

Anchor: bbb

Modifiers

• Diversification/Portfolio effect: Neutral (no impact)

• Capital structure: Neutral (no impact)

• Liquidity: Adequate (no irnpact)

• Financial policy: Neutral (no impact)

• Management and governance: Satisfactory (no impact)

• Comparable rating analysis: Neutral (no impact)

Stand-alone credit profile : bl:;b

• Group credit profile: bbb

• Entity status within group: Core (no impact)


• Criteria - Corporates - General: Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers,

Jan. 2, 2014

• Criteria - Corporates - Utilities: Key Credit Factors For The Regulated Utilities Industry, Nov. 19, 2013

• General Criteria: Group Rating Methodology, Nov. 19. 2013

• General Criteria Methodology: Industry Risk, Nov. 19, 2013 • Criteria - Corporates - General: Corporate Methodology, Nov. 19, 2013

• Criteria - Corporates - General: Corporate Methodology: Ratios And Adjustments, Nov. 19, 2013

• General Criteria: Methodology For Linking Short-Term And Long-Terrn Ratings For Corporate, Insurance. And

Sovereign Issuers, May 7, 2013

• General Criteria Methodology: Management And Governance Credit Factors For Corporate Entities And Insurers,

Nov. 13, 2012

• General Criteria Stand-Alone Credit Profiles: One Cornponent Of A Rating, Oct. 1, 2010

• 2008 Corporate Criteria: Rating Each Issue. April 15, 2008 • 2008 Corporate Criteria: Commercial Paper, April 15, 2008 • Criteria - Corporates - Utilities: Notching Of U.S. Investment-Grade Investor-Owned Utility Unsecured Debt Now

Better Reflects Anticipated Absolute Recovery, Nov. 10, 2008

Financial Risk Profile

Businen Risk Profile Minimal Modest Interrnediaie Significant Aggressive Highly leveraged

Excellent , 1 aaa/ao+ a+/a bbb bbb-/bb+

Strong ,_..,1./Z2- 4+14 &-ittb&+ bbb Itr+ bb

Satisfactory zia- Mb+ ktb/bbbe ksW/bb+ teb b+

Fair bbb/bbb- bhe trb+ tab tb- b

Weak bb+ bb+ bb bb- b+ b/b-

Vulnerable bb- bb- bb-/b+ b+ b b-

WWW.STANDARDANDPOORS.COM MAY 5, 2014 6

S,andard & Poor's All nghu reserved tio repnnt or &I.:emir:0On wIthout Stanclard & Poor's perter_t<eon See Terms of Use/IXtelanner on the last pagd.11012/ I rht6-120D2

3974


Copyright 0 201 4 by Standard & Poor's Financial Services LLC (S&P), a subsidiary of The McGraw-Hill Companies, Inc All rights reserved.

No content (including ratings. credit-related analyses and data. model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered. reproduced or distributed in any form by any means, or stored ui a database or retrieval system, without the prior wntten pernussion of SAP The Content shall not be used for any unlawful or unauthonzed purposes. S&P, its affiliates. and any

third-party providers, as well as their directors. officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availabilay of the Content S&P Parties are not responsible for any errors or omissions, regardless of the cause, tor the

results obtained from the use of the Content. or for the security or maintenance of any data input by the user. The Content is provided on an "as is" basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES. INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT'S FUNCTIONÍNG WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION In no event shall S&P Parties be liable to any party for any direct. indirect. incidental. exemplary.

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and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P's opinions and analyses do not address the suitability of any security. S&P does not act as a fiduciaty or an investment advisor. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent

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S&P may receive compen.sation for us ratings and certain credit-related analyses, normally from issuers or underwriters of securities or from obligors S&P reserves the right to disseminate its opinions and analyses. S&Ps public ratings and analyses are made available on its Web sites,

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WWW.STANDAADANDPOORS.COM

MAY 5, 2014 7

its, i i01e.12

3975

PUC Docket No. 46449 Schedule L

SOUTHWESTERN ELECTRIC POWER COMPANY Financial Information (River Authorities) For the Test Year Ended June 30, 2016

Schedules L-1 through L-9 are not applicable to Southwestem Electric Power Company

3977

••••

-

PUC Docket No. 46449 Schedule M

SOUTHWESTERN ELECTRIC POWER COMPANY Nuclear Plant Decommissioning For the Test Year Ended June 30, 2016

Schedule M:1 and M-2 is not applicable to Southwestem Electric Power Company

3979

PUC Docket No. 46449 Schedule N

SOUTHWESTERN ELECTRIC POWER COMPANY Energy Efficiency Plan For the Test Year Ended June 30, 2016

The N schedules are not applicable to Southwestem Electric Power Company because the Company does not recover energy efficiency costs through base rates.

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Page 8 of 18

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3999

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