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v3.23.3

Income Taxes | 9 Months Ended
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Sep. 30, 2023
Income Taxes | INCOME TAXES The disclosures in this note apply to all Registrants unless indicated otherwise. Effective Tax Rates (ETR) The Registrants’ interim ETR reflect the estimated annual ETR for 2023 and 2022, adjusted for tax expense associated with certain discrete items. The Registrants include the amortization of Excess ADIT not subject to normalization requirements in the annual estimated ETR when regulatory proceedings instruct the Registrants to provide the benefits of Tax Reform to customers over multiple interim periods. Certain regulatory proceedings instruct the Registrants to provide the benefits of Tax Reform to customers in a single period (e.g. by applying the Excess ADIT not subject to normalization requirements against an existing regulatory asset balance) and in these circumstances, the Registrants recognize the tax benefit discretely in the period recorded. The annual amount of Excess ADIT approved by the Registrant’s regulatory commissions may not impact the ETR ratably during each interim period due to the variability of pretax book income between interim periods and the application of an annual estimated ETR. The ETR for each of the Registrants are included in the following tables:
|  | Three Months Ended September 30, 2023
|  | AEP |  | AEP Texas |  | AEPTCo |  | APCo |  | I&M |  | OPCo |  | PSO |  | SWEPCo
U.S. Federal Statutory Rate |  | 21.0 | % |  | 21.0 | % |  | 21.0 | % |  | 21.0 | % |  | 21.0 | % |  | 21.0 | % |  | 21.0 | % |  | 21.0 | %
Increase (decrease) due to: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
State Income Tax, net of Federal Benefit |  | 1.4 | % |  | 0.5 | % |  | 2.8 | % |  | 2.2 | % |  | 2.1 | % |  | 0.8 | % |  | 3.0 | % |  | (4.3) | %
Tax Reform Excess ADIT Reversal |  | (5.7) | % |  | (1.3) | % |  | (0.2) | % |  | (5.3) | % |  | (8.5) | % |  | (6.8) | % |  | (17.0) | % |  | (6.2) | %
Production and Investment Tax Credits |  | (5.1) | % |  | 0.1 | % |  | — | % |  | (0.1) | % |  | (0.7) | % |  | — | % |  | (46.9) | % |  | (25.5) | %
Flow Through |  | 0.1 | % |  | 0.2 | % |  | 0.3 | % |  | 1.8 | % |  | 0.7 | % |  | 0.8 | % |  | 0.3 | % |  | (0.2) | %
AFUDC Equity |  | (1.4) | % |  | (1.4) | % |  | (2.4) | % |  | (1.5) | % |  | (0.5) | % |  | (0.8) | % |  | (1.6) | % |  | (0.8) | %
Discrete Tax Adjustments |  | (4.1) | % |  | — | % |  | — | % |  | — | % |  | — | % |  | — | % |  | — | % |  | — | %
Other |  | 0.1 | % |  | (0.5) | % |  | (1.0) | % |  | 0.7 | % |  | (3.5) | % |  | 1.3 | % |  | (0.2) | % |  | 0.2 | %
Effective Income Tax Rate |  | 6.3 | % |  | 18.6 | % |  | 20.5 | % |  | 18.8 | % |  | 10.6 | % |  | 16.3 | % |  | (41.4) | % |  | (15.8) | %
|  | Three Months Ended September 30, 2022
|  | AEP |  | AEP Texas |  | AEPTCo |  | APCo |  | I&M |  | OPCo |  | PSO |  | SWEPCo
U.S. Federal Statutory Rate |  | 21.0 | % |  | 21.0 | % |  | 21.0 | % |  | 21.0 | % |  | 21.0 | % |  | 21.0 | % |  | 21.0 | % |  | 21.0 | %
Increase (decrease) due to: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
State Income Tax, net of Federal Benefit |  | (0.8) | % |  | 0.5 | % |  | 2.6 | % |  | (6.2) | % |  | 2.7 | % |  | 0.7 | % |  | 3.0 | % |  | (5.3) | %
Tax Reform Excess ADIT Reversal |  | (9.7) | % |  | (2.0) | % |  | 0.3 | % |  | (8.6) | % |  | (13.3) | % |  | (6.2) | % |  | (21.9) | % |  | (4.6) | %
Production and Investment Tax Credits |  | (12.0) | % |  | (0.4) | % |  | — | % |  | — | % |  | — | % |  | — | % |  | (43.7) | % |  | (24.1) | %
Flow Through |  | (0.3) | % |  | 0.2 | % |  | 0.3 | % |  | (0.7) | % |  | (1.5) | % |  | 0.4 | % |  | 0.4 | % |  | (1.3) | %
AFUDC Equity |  | (1.4) | % |  | (1.2) | % |  | (1.9) | % |  | (0.4) | % |  | (0.6) | % |  | (0.8) | % |  | (0.4) | % |  | (0.2) | %
Discrete Tax Adjustments |  | (0.2) | % |  | — | % |  | — | % |  | — | % |  | — | % |  | — | % |  | — | % |  | — | %
Other |  | 1.0 | % |  | 0.2 | % |  | 0.2 | % |  | — | % |  | (0.5) | % |  | 0.2 | % |  | 0.2 | % |  | (0.2) | %
Effective Income Tax Rate |  | (2.4) | % |  | 18.3 | % |  | 22.5 | % |  | 5.1 | % |  | 7.8 | % |  | 15.3 | % |  | (41.4) | % |  | (14.7) | %
|  | Nine Months Ended September 30, 2023
|  | AEP |  | AEP Texas |  | AEPTCo |  | APCo |  | I&M |  | OPCo |  | PSO |  | SWEPCo
U.S. Federal Statutory Rate |  | 21.0 | % |  | 21.0 | % |  | 21.0 | % |  | 21.0 | % |  | 21.0 | % |  | 21.0 | % |  | 21.0 | % |  | 21.0 | %
Increase (decrease) due to: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
State Income Tax, net of Federal Benefit |  | 1.7 | % |  | 0.5 | % |  | 2.7 | % |  | 2.4 | % |  | 2.3 | % |  | 0.9 | % |  | 2.8 | % |  | (2.9) | %
Tax Reform Excess ADIT Reversal |  | (6.0) | % |  | (1.3) | % |  | 0.1 | % |  | (4.8) | % |  | (7.6) | % |  | (7.3) | % |  | (17.1) | % |  | (5.3) | %
Production and Investment Tax Credits |  | (7.4) | % |  | — | % |  | — | % |  | (0.1) | % |  | (0.6) | % |  | — | % |  | (48.9) | % |  | (26.7) | %
Flow Through |  | (0.2) | % |  | 0.2 | % |  | 0.3 | % |  | 0.1 | % |  | (1.7) | % |  | 0.8 | % |  | 0.3 | % |  | (0.3) | %
AFUDC Equity |  | (1.4) | % |  | (1.2) | % |  | (2.0) | % |  | (1.2) | % |  | (0.4) | % |  | (0.8) | % |  | (1.5) | % |  | (0.5) | %
Discrete Tax Adjustments |  | (2.8) | % |  | — | % |  | — | % |  | 1.5 | % |  | 0.7 | % |  | — | % |  | — | % |  | — | %
Other |  | 0.3 | % |  | (0.2) | % |  | (0.5) | % |  | 0.4 | % |  | (1.2) | % |  | 0.5 | % |  | (0.2) | % |  | 0.2 | %
Effective Income Tax Rate |  | 5.2 | % |  | 19.0 | % |  | 21.6 | % |  | 19.3 | % |  | 12.5 | % |  | 15.1 | % |  | (43.6) | % |  | (14.5) | %
|  | Nine Months Ended September 30, 2022
|  | AEP |  | AEP Texas |  | AEPTCo |  | APCo |  | I&M |  | OPCo |  | PSO |  | SWEPCo
U.S. Federal Statutory Rate |  | 21.0 | % |  | 21.0 | % |  | 21.0 | % |  | 21.0 | % |  | 21.0 | % |  | 21.0 | % |  | 21.0 | % |  | 21.0 | %
Increase (decrease) due to: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
State Income Tax, net of Federal Benefit |  | 0.7 | % |  | 0.5 | % |  | 2.7 | % |  | (0.8) | % |  | 1.3 | % |  | 0.8 | % |  | 3.2 | % |  | (1.5) | %
Tax Reform Excess ADIT Reversal |  | (7.8) | % |  | (2.0) | % |  | 0.3 | % |  | (10.3) | % |  | (15.7) | % |  | (7.3) | % |  | (20.8) | % |  | (4.8) | %
Production and Investment Tax Credits |  | (8.7) | % |  | (0.4) | % |  | — | % |  | — | % |  | (1.4) | % |  | — | % |  | (39.5) | % |  | (22.5) | %
Flow Through |  | — | % |  | 0.2 | % |  | 0.3 | % |  | 0.2 | % |  | (1.6) | % |  | 0.5 | % |  | 0.3 | % |  | (0.8) | %
AFUDC Equity |  | (1.1) | % |  | (1.2) | % |  | (1.9) | % |  | (0.8) | % |  | (0.8) | % |  | (0.7) | % |  | (0.4) | % |  | (0.4) | %
Discrete Tax Adjustments |  | (0.2) | % |  | — | % |  | — | % |  | (1.8) | % |  | — | % |  | — | % |  | — | % |  | 0.3 | %
Other |  | 0.6 | % |  | 0.1 | % |  | 0.1 | % |  | — | % |  | 0.2 | % |  | 0.1 | % |  | 0.2 | % |  | — | %
Effective Income Tax Rate |  | 4.5 | % |  | 18.2 | % |  | 22.5 | % |  | 7.5 | % |  | 3.0 | % |  | 14.4 | % |  | (36.0) | % |  | (8.7) | %
Federal and State Income Tax Audit Status The statute of limitations for the IRS to examine AEP and subsidiaries originally filed federal return has expired for tax years 2016 and earlier. AEP has agreed to extend the statute of limitations on the 2017-2019 tax returns to October 31, 2024, to allow time for the current IRS audit to be completed including a refund claim approval by the Congressional Joint Committee on Taxation. The statute of limitations for the 2020 return is set to naturally expire in October 2024 as well. The current IRS audit and associated refund claim evolved from a net operating loss carryback to 2015 that originated in the 2017 return. AEP has received and agreed to immaterial IRS proposed adjustments on the 2017 tax return. The exam is nearly complete, and AEP is currently working with the IRS to submit the refund claim to the Congressional Joint Committee on Taxation for resolution and final approval. AEP and subsidiaries file income tax returns in various state and local jurisdictions. These taxing authorities routinely examine the tax returns, and AEP and subsidiaries are currently under examination in several state and local jurisdictions. Generally, the statutes of limitations have expired for tax years prior to 2017. In addition, management is monitoring and continues to evaluate the potential impact of federal legislation and corresponding state conformity. Federal Legislation In August 2022, President Biden signed H.R. 5376 into law, commonly known as the Inflation Reduction Act of 2022, or IRA. Most notably this budget reconciliation legislation creates a 15% minimum tax on adjusted financial statement income (Corporate Alternative Minimum Tax or CAMT), extends and increases the value of PTCs and ITCs, adds a nuclear and clean hydrogen PTC, an energy storage ITC and allows the sale or transfer of tax credits to third parties for cash. As further significant guidance from Treasury and the IRS is expected on the tax provisions in the IRA, AEP will continue to monitor any issued guidance and evaluate the impact on future net income, cash flows and financial condition. In December 2022, the IRS released Notice 2023-7, which provided initial CAMT guidance that AEP can begin to rely on in 2023. Notably, the interim guidance in Notice 2023-7 confirmed the CAMT depreciation adjustment includes tax depreciation that is capitalized to inventory under §263A and recovered as part of cost of goods sold, providing significant relief to AEP’s potential CAMT exposure. In September 2023, the IRS released Notice 2023-64, which clarifies and supplements items in Notice 2023-7 and stated that additional guidance in the form of proposed regulations is expected. AEP will continue to monitor and assess any additional guidance. AEP and subsidiaries expect to be applicable corporations for purposes of the CAMT beginning in 2023. CAMT cash taxes are expected to be partially offset by regulatory recovery, the utilization of tax credits and additionally the cash inflow generated by the sale of tax credits. The sale of tax credits are presented in the operating section of the statements of cash flows consistent with the presentation of cash taxes paid. AEP presents the loss on sale of tax credits through income tax expense. In June 2023, the IRS issued temporary regulations related to the transfer of tax credits. In the third quarter of 2023, AEP, on behalf of PSO and SWEPCo, entered into a transferability agreement with a nonaffiliated party to sell PTCs resulting in cash proceeds of approximately $80 million expected in the fourth quarter of 2023. AEP expects to continue to explore the ability to efficiently monetize its tax credits through third party transferability agreements.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 946 -SubTopic 20 -Name Accounting Standards Codification -Section 50 -Paragraph 13 -Publisher FASB -URI https://asc.fasb.org//1943274/2147480990/946-20-50-13 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 235 -SubTopic 10 -Name Accounting Standards Codification -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480678/235-10-S99-1 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//740/tableOfContent Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 14 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482685/740-10-50-14 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 21 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482685/740-10-50-21 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 270 -Name Accounting Standards Codification -Section 50 -Paragraph 1 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482526/740-270-50-1 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 17 -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147482685/740-10-50-17 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 10 -Name Accounting Standards Codification -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -Publisher FASB -URI https://asc.fasb.org//1943274/2147479360/740-10-S99-1 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 10 -Name Accounting Standards Codification -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -Publisher FASB -URI https://asc.fasb.org//1943274/2147479360/740-10-S99-2 Reference 10: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 30 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (a) -Publisher FASB -URI https://asc.fasb.org//1943274/2147482603/740-30-50-2 + Details
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