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Derivatives and Hedging | 6 Months Ended
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Jun. 30, 2024
Derivatives and Hedging | DERIVATIVES AND HEDGING The disclosures in this note apply to all Registrants unless indicated otherwise. For the periods presented, AEPTCo did not have any derivative and hedging activity. OBJECTIVES FOR UTILIZATION OF DERIVATIVE INSTRUMENTS AEPSC is agent for and transacts on behalf of certain AEP subsidiaries, including the Registrant Subsidiaries. AEPEP is agent for and transacts on behalf of other AEP subsidiaries. The Registrants are exposed to certain market risks as major power producers and participants in the electricity, capacity, natural gas, coal and emission allowance markets. These risks include commodity price risks which may be subject to capacity risk, interest rate risk and credit risk. These risks represent the risk of loss that may impact the Registrants due to changes in the underlying market prices or rates. Management utilizes derivative instruments to manage these risks. STRATEGIES FOR UTILIZATION OF DERIVATIVE INSTRUMENTS TO ACHIEVE OBJECTIVES Risk Management Strategies The strategy surrounding the use of derivative instruments primarily focuses on managing risk exposures, future cash flows and creating value utilizing both economic and formal hedging strategies. The risk management strategies also include the use of derivative instruments for trading purposes which focus on seizing market opportunities to create value driven by expected changes in the market prices of the commodities. To accomplish these objectives, the Registrants primarily employ risk management contracts including physical and financial forward purchase-and-sale contracts and, to a lesser extent, OTC swaps and options. Not all risk management contracts meet the definition of a derivative under the accounting guidance for “Derivatives and Hedging.” Derivative risk management contracts elected normal under the normal purchases and normal sales scope exception are not subject to the requirements of this accounting guidance. The Registrants utilize power, capacity, coal, natural gas, interest rate and, to a lesser extent, heating oil, gasoline and other commodity contracts to manage the risk associated with the energy business. The Registrants utilize interest rate derivative contracts in order to manage the interest rate exposure associated with the commodity portfolio. For disclosure purposes, such risks are grouped as “Commodity,” as these risks are related to energy risk management activities. The Registrants also utilize derivative contracts to manage interest rate risk associated with debt financing. For disclosure purposes, these risks are grouped as “Interest Rate.” The amount of risk taken is determined by the Commercial Operations, Energy Supply and Finance groups in accordance with established risk management policies as approved by the Finance Committee of the Board of Directors. The following tables represent the gross notional volume of the Registrants’ outstanding derivative contracts:
|  | Notional Volume of Derivative Instruments
|  | June 30, 2024 |  | December 31, 2023
Primary Risk Exposure |  | AEP |  | AEP Texas |  | APCo |  | I&M |  | OPCo |  | PSO |  | SWEPCo |  | AEP |  | AEP Texas |  | APCo |  | I&M |  | OPCo |  | PSO |  | SWEPCo
|  | (in millions)
Commodity: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Power (MWhs) |  | 339.4 |  |  | — |  |  | 51.5 |  |  | 12.6 |  |  | 2.1 |  |  | 11.5 |  |  | 9.8 |  |  | 246.8 |  |  | — |  |  | 16.8 |  |  | 5.9 |  |  | 2.2 |  |  | 4.1 |  |  | 2.9 |
Natural Gas (MMBtus) |  | 170.7 |  |  | — |  |  | 47.5 |  |  | — |  |  | — |  |  | 48.0 |  |  | 19.9 |  |  | 151.6 |  |  | — |  |  | 37.3 |  |  | — |  |  | — |  |  | 34.9 |  |  | 17.9 |
Heating Oil and Gasoline (Gallons) |  | 6.0 |  |  | 1.5 |  |  | 0.8 |  |  | 1.0 |  |  | 1.0 |  |  | 0.6 |  |  | 0.7 |  |  | 6.5 |  |  | 1.8 |  |  | 1.0 |  |  | 0.6 |  |  | 1.2 |  |  | 0.7 |  |  | 0.9 |
Interest Rate (USD) |  | $ | 69.6 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 80.1 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Interest Rate on Long-term Debt (USD) |  | $ | 1,350.0 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 1,300.0 |  |  | $ | 150.0 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Fair Value Hedging Strategies (Applies to AEP) Parent enters into interest rate derivative transactions as part of an overall strategy to manage the mix of fixed-rate and floating-rate debt. Certain interest rate derivative transactions effectively modify exposure to interest rate risk by converting a portion of fixed-rate debt to a floating-rate. Provided specific criteria are met, these interest rate derivatives may be designated as fair value hedges. Cash Flow Hedging Strategies The Registrants utilize cash flow hedges on certain derivative transactions for the purchase and sale of power (“Commodity”) in order to manage the variable price risk related to forecasted purchases and sales. Management monitors the potential impacts of commodity price changes and, where appropriate, enters into derivative transactions to protect profit margins for a portion of future electricity sales and purchases. The Registrants do not hedge all commodity price risk. The Registrants utilize a variety of interest rate derivative transactions in order to manage interest rate risk exposure. The Registrants also utilize interest rate derivative contracts to manage interest rate exposure related to future borrowings of fixed-rate debt. The Registrants do not hedge all interest rate exposure. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND THE IMPACT ON THE FINANCIAL STATEMENTS The accounting guidance for “Derivatives and Hedging” requires recognition of all qualifying derivative instruments as either assets or liabilities on the balance sheets at fair value. The fair values of derivative instruments accounted for using MTM accounting or hedge accounting are based on exchange prices and broker quotes. If a quoted market price is not available, the estimate of fair value is based on the best information available including valuation models that estimate future energy prices based on existing market and broker quotes and other assumptions. In order to determine the relevant fair values of the derivative instruments, the Registrants apply valuation adjustments for discounting, liquidity and credit quality. Credit risk is the risk that a counterparty will fail to perform on the contract or fail to pay amounts due. Liquidity risk represents the risk that imperfections in the market will cause the price to vary from estimated fair value based upon prevailing market supply and demand conditions. Since energy markets are imperfect and volatile, there are inherent risks related to the underlying assumptions in models used to fair value risk management contracts. Unforeseen events may cause reasonable price curves to differ from actual price curves throughout a contract’s term and at the time a contract settles. Consequently, there could be significant adverse or favorable effects on future net income and cash flows if market prices are not consistent with management’s estimates of current market consensus for forward prices in the current period. This is particularly true for longer term contracts. Cash flows may vary based on market conditions, margin requirements and the timing of settlement of risk management contracts. According to the accounting guidance for “Derivatives and Hedging,” the Registrants reflect the fair values of derivative instruments subject to netting agreements with the same counterparty net of related cash collateral. For certain risk management contracts, the Registrants are required to post or receive cash collateral based on third-party contractual agreements and risk profiles. AEP netted cash collateral received from third-parties against short-term and long-term risk management assets in the amounts of $155 million and $46 million as of June 30, 2024 and December 31, 2023, respectively. There was no cash collateral received from third-parties netted against short-term and long-term risk management assets for the Registrant Subsidiaries as of June 30, 2024 and December 31, 2023. The amount of cash collateral paid to third-parties netted against short-term and long-term risk management liabilities was immaterial for the Registrants as of June 30, 2024 and December 31, 2023. Location and Fair Value of Derivative Assets and Liabilities Recognized In the Balance Sheet The following tables represent the gross fair value of the Registrants’ derivative activity on the balance sheets. The derivative instruments are disclosed as gross. They are subject to master netting agreements and are presented on the balance sheets on a net basis in accordance with the accounting guidance for “Derivatives and Hedging.” Unless shown as a separate line on the balance sheets due to materiality, Current Risk Management Assets are included in Prepayments and Other Current Assets, Long-term Risk Management Assets are included in Deferred Charges and Other Noncurrent Assets, Current Risk Management Liabilities are included in Other Current Liabilities and Long-term Risk Management Liabilities are included in Deferred Credits and Other Noncurrent Liabilities on the balance sheets.
|  | June 30, 2024
|  | AEP |  | AEP Texas |  | APCo |  | I&M |  | OPCo |  | PSO |  | SWEPCo
Assets: |  | (in millions)
Current Risk Management Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Management Contracts - Commodity |  | $ | 590.6 |  |  | $ | — |  |  | $ | 72.8 |  |  | $ | 34.8 |  |  | $ | — |  |  | $ | 49.8 |  |  | $ | 38.6 |
Hedging Contracts - Commodity |  | 48.6 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Hedging Contracts - Interest Rate |  | 10.3 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total Current Risk Management Assets |  | 649.5 |  |  | — |  |  | 72.8 |  |  | 34.8 |  |  | — |  |  | 49.8 |  |  | 38.6 |
Long-term Risk Management Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Management Contracts - Commodity |  | 549.6 |  |  | — |  |  | 0.8 |  |  | — |  |  | — |  |  | 0.9 |  |  | — |
Hedging Contracts - Commodity |  | 86.9 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Hedging Contracts - Interest Rate |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total Long-term Risk Management Assets |  | 636.5 |  |  | — |  |  | 0.8 |  |  | — |  |  | — |  |  | 0.9 |  |  | — |
Total Assets |  | $ | 1,286.0 |  |  | $ | — |  |  | $ | 73.6 |  |  | $ | 34.8 |  |  | $ | — |  |  | $ | 50.7 |  |  | $ | 38.6 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Current Risk Management Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Management Contracts - Commodity |  | $ | 403.0 |  |  | $ | — |  |  | $ | 15.5 |  |  | $ | 6.7 |  |  | $ | 6.0 |  |  | $ | 19.5 |  |  | $ | 9.8 |
Hedging Contracts - Commodity |  | 3.6 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Hedging Contracts - Interest Rate |  | 43.3 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total Current Risk Management Liabilities |  | 449.9 |  |  | — |  |  | 15.5 |  |  | 6.7 |  |  | 6.0 |  |  | 19.5 |  |  | 9.8 |
Long-term Risk Management Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Management Contracts - Commodity |  | 468.1 |  |  | — |  |  | 5.1 |  |  | — |  |  | 37.2 |  |  | 4.6 |  |  | 1.7 |
Hedging Contracts - Commodity |  | 0.3 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Hedging Contracts - Interest Rate |  | 53.4 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total Long-term Risk Management Liabilities |  | 521.8 |  |  | — |  |  | 5.1 |  |  | — |  |  | 37.2 |  |  | 4.6 |  |  | 1.7 |
Total Liabilities |  | $ | 971.7 |  |  | $ | — |  |  | $ | 20.6 |  |  | $ | 6.7 |  |  | $ | 43.2 |  |  | $ | 24.1 |  |  | $ | 11.5 |
Total MTM Derivative Contract Net Assets (Liabilities) Recognized |  | $ | 314.3 |  |  | $ | — |  |  | $ | 53.0 |  |  | $ | 28.1 |  |  | $ | (43.2) |  |  | $ | 26.6 |  |  | $ | 27.1 |
|  | December 31, 2023 |  |
|  | AEP |  | AEP Texas |  | APCo |  | I&M |  | OPCo |  | PSO |  | SWEPCo
Assets: |  | (in millions) |  |
Current Risk Management Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Management Contracts - Commodity |  | $ | 555.1 |  |  | $ | — |  |  | $ | 24.6 |  |  | $ | 30.1 |  |  | $ | — |  |  | $ | 19.7 |  |  | $ | 12.0 |
Hedging Contracts - Commodity |  | 56.7 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Hedging Contracts - Interest Rate |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total Current Risk Management Assets |  | 611.8 |  |  | — |  |  | 24.6 |  |  | 30.1 |  |  | — |  |  | 19.7 |  |  | 12.0 |
Long-term Risk Management Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Management Contracts - Commodity |  | 468.8 |  |  | — |  |  | 0.3 |  |  | 12.0 |  |  | — |  |  | — |  |  | 0.5 |
Hedging Contracts - Commodity |  | 86.8 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Hedging Contracts - Interest Rate |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total Long-term Risk Management Assets |  | 555.6 |  |  | — |  |  | 0.3 |  |  | 12.0 |  |  | — |  |  | — |  |  | 0.5 |
Total Assets |  | $ | 1,167.4 |  |  | $ | — |  |  | $ | 24.9 |  |  | $ | 42.1 |  |  | $ | — |  |  | $ | 19.7 |  |  | $ | 12.5 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Current Risk Management Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Management Contracts - Commodity |  | $ | 588.0 |  |  | $ | 0.2 |  |  | $ | 18.5 |  |  | $ | 5.4 |  |  | $ | 6.9 |  |  | $ | 29.7 |  |  | $ | 14.9 |
Hedging Contracts - Commodity |  | 8.2 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Hedging Contracts - Interest Rate |  | 50.5 |  |  | 2.7 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total Current Risk Management Liabilities |  | 646.7 |  |  | 2.9 |  |  | 18.5 |  |  | 5.4 |  |  | 6.9 |  |  | 29.7 |  |  | 14.9 |
Long-term Risk Management Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Management Contracts - Commodity |  | 377.6 |  |  | — |  |  | 6.9 |  |  | 0.2 |  |  | 43.9 |  |  | 1.0 |  |  | 1.7 |
Hedging Contracts - Commodity |  | 2.2 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Hedging Contracts - Interest Rate |  | 56.9 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total Long-term Risk Management Liabilities |  | 436.7 |  |  | — |  |  | 6.9 |  |  | 0.2 |  |  | 43.9 |  |  | 1.0 |  |  | 1.7 |
Total Liabilities |  | $ | 1,083.4 |  |  | $ | 2.9 |  |  | $ | 25.4 |  |  | $ | 5.6 |  |  | $ | 50.8 |  |  | $ | 30.7 |  |  | $ | 16.6 |
Total MTM Derivative Contract Net Assets (Liabilities) Recognized |  | $ | 84.0 |  |  | $ | (2.9) |  |  | $ | (0.5) |  |  | $ | 36.5 |  |  | $ | (50.8) |  |  | $ | (11.0) |  |  | $ | (4.1) |
Offsetting Assets and Liabilities The following tables show the net amounts of assets and liabilities presented on the balance sheets. The gross amounts offset include counterparty netting of risk management and hedging contracts and associated cash collateral in accordance with accounting guidance for “Derivatives and Hedging.” All derivative contracts subject to a master netting arrangement or similar agreement are offset on the balance sheets.
|  | June 30, 2024
|  | AEP |  | AEP Texas |  | APCo |  | I&M |  | OPCo |  | PSO |  | SWEPCo
Assets: |  |  |  | (in millions)
Current Risk Management Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gross Amounts Recognized |  | $ | 649.5 |  |  | $ | — |  |  | $ | 72.8 |  |  | $ | 34.8 |  |  | $ | — |  |  | $ | 49.8 |  |  | $ | 38.6 |
Gross Amounts Offset |  | (326.8) |  |  | — |  |  | (5.1) |  |  | (6.7) |  |  | — |  |  | (0.4) |  |  | (0.4) |
Net Amounts Presented |  | 322.7 |  |  | — |  |  | 67.7 |  |  | 28.1 |  |  | — |  |  | 49.4 |  |  | 38.2 |
Long-term Risk Management Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gross Amounts Recognized |  | 636.5 |  |  | — |  |  | 0.8 |  |  | — |  |  | — |  |  | 0.9 |  |  | — |
Gross Amounts Offset |  | (381.1) |  |  | — |  |  | (0.8) |  |  | — |  |  | — |  |  | (0.9) |  |  | — |
Net Amounts Presented |  | 255.4 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total Assets |  | $ | 578.1 |  |  | $ | — |  |  | $ | 67.7 |  |  | $ | 28.1 |  |  | $ | — |  |  | $ | 49.4 |  |  | $ | 38.2 |
Liabilities: |  |  |  |
Current Risk Management Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gross Amounts Recognized |  | $ | 449.9 |  |  | $ | — |  |  | $ | 15.5 |  |  | $ | 6.7 |  |  | $ | 6.0 |  |  | $ | 19.5 |  |  | $ | 9.8 |
Gross Amounts Offset |  | (294.9) |  |  | — |  |  | (6.5) |  |  | (6.7) |  |  | — |  |  | (0.4) |  |  | (0.4) |
Net Amounts Presented |  | 155.0 |  |  | — |  |  | 9.0 |  |  | — |  |  | 6.0 |  |  | 19.1 |  |  | 9.4 |
Long-term Risk Management Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gross Amounts Recognized |  | 521.8 |  |  | — |  |  | 5.1 |  |  | — |  |  | 37.2 |  |  | 4.6 |  |  | 1.7 |
Gross Amounts Offset |  | (260.4) |  |  | — |  |  | (0.8) |  |  | — |  |  | — |  |  | (0.9) |  |  | — |
Net Amounts Presented |  | 261.4 |  |  | — |  |  | 4.3 |  |  | — |  |  | 37.2 |  |  | 3.7 |  |  | 1.7 |
Total Liabilities |  | $ | 416.4 |  |  | $ | — |  |  | $ | 13.3 |  |  | $ | — |  |  | $ | 43.2 |  |  | $ | 22.8 |  |  | $ | 11.1 |
Total MTM Derivative Contract Net Assets (Liabilities) |  | $ | 161.7 |  |  | $ | — |  |  | $ | 54.4 |  |  | $ | 28.1 |  |  | $ | (43.2) |  |  | $ | 26.6 |  |  | $ | 27.1 |
|  | December 31, 2023
| AEP |  | AEP Texas |  | APCo |  | I&M |  | OPCo |  | PSO |  | SWEPCo
Assets: |  |  |  | (in millions)
Current Risk Management Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gross Amounts Recognized |  | $ | 611.8 |  |  | $ | — |  |  | $ | 24.6 |  |  | $ | 30.1 |  |  | $ | — |  |  | $ | 19.7 |  |  | $ | 12.0 |
Gross Amounts Offset |  | (394.3) |  |  | — |  |  | (2.2) |  |  | (2.3) |  |  | — |  |  | (0.7) |  |  | (0.4) |
Net Amounts Presented |  | 217.5 |  |  | — |  |  | 22.4 |  |  | 27.8 |  |  | — |  |  | 19.0 |  |  | 11.6 |
Long-term Risk Management Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gross Amounts Recognized |  | 555.6 |  |  | — |  |  | 0.3 |  |  | 12.0 |  |  | — |  |  | — |  |  | 0.5 |
Gross Amounts Offset |  | (234.4) |  |  | — |  |  | (0.3) |  |  | (0.2) |  |  | — |  |  | — |  |  | (0.5) |
Net Amounts Presented |  | 321.2 |  |  | — |  |  | — |  |  | 11.8 |  |  | — |  |  | — |  |  | — |
Total Assets |  | $ | 538.7 |  |  | $ | — |  |  | $ | 22.4 |  |  | $ | 39.6 |  |  | $ | — |  |  | $ | 19.0 |  |  | $ | 11.6 |
Liabilities: |  |  |  |
Current Risk Management Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gross Amounts Recognized |  | $ | 646.7 |  |  | $ | 2.9 |  |  | $ | 18.5 |  |  | $ | 5.4 |  |  | $ | 6.9 |  |  | $ | 29.7 |  |  | $ | 14.9 |
Gross Amounts Offset |  | (417.1) |  |  | (0.2) |  |  | (2.6) |  |  | (3.4) |  |  | (0.1) |  |  | (0.8) |  |  | (0.5) |
Net Amounts Presented |  | 229.6 |  |  | 2.7 |  |  | 15.9 |  |  | 2.0 |  |  | 6.8 |  |  | 28.9 |  |  | 14.4 |
Long-term Risk Management Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gross Amounts Recognized |  | 436.7 |  |  | — |  |  | 6.9 |  |  | 0.2 |  |  | 43.9 |  |  | 1.0 |  |  | 1.7 |
Gross Amounts Offset |  | (194.9) |  |  | — |  |  | (0.3) |  |  | (0.2) |  |  | — |  |  | — |  |  | (0.5) |
Net Amounts Presented |  | 241.8 |  |  | — |  |  | 6.6 |  |  | — |  |  | 43.9 |  |  | 1.0 |  |  | 1.2 |
Total Liabilities |  | $ | 471.4 |  |  | $ | 2.7 |  |  | $ | 22.5 |  |  | $ | 2.0 |  |  | $ | 50.7 |  |  | $ | 29.9 |  |  | $ | 15.6 |
Total MTM Derivative Contract Net Assets (Liabilities) |  | $ | 67.3 |  |  | $ | (2.7) |  |  | $ | (0.1) |  |  | $ | 37.6 |  |  | $ | (50.7) |  |  | $ | (10.9) |  |  | $ | (4.0) |
The tables below present the Registrants’ amount of gain (loss) recognized on risk management contracts: Amount of Gain (Loss) Recognized on Risk Management Contracts
|  | Three Months Ended June 30, 2024
Location of Gain (Loss) |  | AEP |  | AEP Texas |  | APCo |  | I&M |  | OPCo |  | PSO |  | SWEPCo
|  | (in millions)
Vertically Integrated Utilities Revenues |  | $ | 4.3 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Generation & Marketing Revenues |  | (53.0) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Electric Generation, Transmission and Distribution Revenues |  | — |  |  | — |  |  | — |  |  | 4.3 |  |  | — |  |  | — |  |  | — |
Purchased Electricity, Fuel and Other Consumables Used for Electric Generation |  | 0.7 |  |  | — |  |  | 0.7 |  |  | 0.1 |  |  | — |  |  | — |  |  | — |
Other Operation |  | 0.3 |  |  | 0.1 |  |  | — |  |  | 0.1 |  |  | — |  |  | — |  |  | — |
Maintenance |  | 0.5 |  |  | 0.1 |  |  | 0.1 |  |  | 0.1 |  |  | 0.1 |  |  | — |  |  | 0.1 |
Regulatory Assets (a) |  | 31.7 |  |  | 0.1 |  |  | 15.2 |  |  | 4.6 |  |  | (3.1) |  |  | 8.9 |  |  | 0.2 |
Regulatory Liabilities (a) |  | 92.5 |  |  | (0.2) |  |  | 12.6 |  |  | 7.1 |  |  | — |  |  | 33.8 |  |  | 34.6 |
Total Gain (Loss) on Risk Management Contracts |  | $ | 77.0 |  |  | $ | 0.1 |  |  | $ | 28.6 |  |  | $ | 16.3 |  |  | $ | (3.0) |  |  | $ | 42.7 |  |  | $ | 34.9 |
|  | Three Months Ended June 30, 2023
Location of Gain (Loss) |  | AEP |  | AEP Texas |  | APCo |  | I&M |  | OPCo |  | PSO |  | SWEPCo
|  | (in millions)
Vertically Integrated Utilities Revenues |  | $ | 17.0 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Generation & Marketing Revenues |  | (141.8) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Electric Generation, Transmission and Distribution Revenues |  | — |  |  | — |  |  | — |  |  | 17.0 |  |  | — |  |  | — |  |  | — |
Purchased Electricity, Fuel and Other Consumables Used for Electric Generation |  | 1.3 |  |  | — |  |  | 1.3 |  |  | 0.1 |  |  | — |  |  | — |  |  | — |
Other Operation |  | (0.1) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Maintenance |  | (0.3) |  |  | (0.1) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Regulatory Assets (a) |  | (12.4) |  |  | (0.1) |  |  | 5.9 |  |  | (1.6) |  |  | (12.8) |  |  | (2.3) |  |  | (0.9) |
Regulatory Liabilities (a) |  | 102.0 |  |  | — |  |  | 17.4 |  |  | 3.6 |  |  | — |  |  | 42.4 |  |  | 33.6 |
Total Gain (Loss) on Risk Management Contracts |  | $ | (34.3) |  |  | $ | (0.2) |  |  | $ | 24.6 |  |  | $ | 19.1 |  |  | $ | (12.8) |  |  | $ | 40.1 |  |  | $ | 32.7 |
|  | Six Months Ended June 30, 2024
Location of Gain (Loss) |  | AEP |  | AEP Texas |  | APCo |  | I&M |  | OPCo |  | PSO |  | SWEPCo
|  | (in millions)
Vertically Integrated Utilities Revenues |  | $ | (21.4) |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Generation & Marketing Revenues |  | (97.7) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Electric Generation, Transmission and Distribution Revenues |  | — |  |  | — |  |  | 0.1 |  |  | (21.5) |  |  | — |  |  | — |  |  | — |
Purchased Electricity, Fuel and Other Consumables Used for Electric Generation |  | 1.7 |  |  | — |  |  | 1.6 |  |  | 0.1 |  |  | — |  |  | — |  |  | — |
Other Operation |  | 0.3 |  |  | 0.1 |  |  | — |  |  | 0.1 |  |  | — |  |  | — |  |  | — |
Maintenance |  | 0.6 |  |  | 0.1 |  |  | 0.1 |  |  | 0.1 |  |  | 0.1 |  |  | — |  |  | 0.1 |
Regulatory Assets (a) |  | 45.2 |  |  | 0.3 |  |  | 15.1 |  |  | 3.0 |  |  | 5.5 |  |  | 7.7 |  |  | 5.1 |
Regulatory Liabilities (a) |  | 145.2 |  |  | — |  |  | 25.7 |  |  | 9.3 |  |  | — |  |  | 52.1 |  |  | 49.6 |
Total Gain (Loss) on Risk Management Contracts |  | $ | 73.9 |  |  | $ | 0.5 |  |  | $ | 42.6 |  |  | $ | (8.9) |  |  | $ | 5.6 |  |  | $ | 59.8 |  |  | $ | 54.8 |
|  | Six Months Ended June 30, 2023
Location of Gain (Loss) |  | AEP |  | AEP Texas |  | APCo |  | I&M |  | OPCo |  | PSO |  | SWEPCo
|  | (in millions)
Vertically Integrated Utilities Revenues |  | $ | 11.7 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Generation & Marketing Revenues |  | (289.2) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Electric Generation, Transmission and Distribution Revenues |  | — |  |  | — |  |  | — |  |  | 11.7 |  |  | — |  |  | — |  |  | — |
Purchased Electricity, Fuel and Other Consumables Used for Electric Generation |  | 2.0 |  |  | — |  |  | 1.9 |  |  | 0.1 |  |  | — |  |  | — |  |  | — |
Other Operation |  | (0.1) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Maintenance |  | (0.2) |  |  | (0.1) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Regulatory Assets (a) |  | (37.2) |  |  | (0.5) |  |  | (1.2) |  |  | (2.1) |  |  | (25.1) |  |  | (3.5) |  |  | (2.4) |
Regulatory Liabilities (a) |  | 100.5 |  |  | — |  |  | (8.8) |  |  | 4.8 |  |  | — |  |  | 60.4 |  |  | 45.5 |
Total Gain (Loss) on Risk Management Contracts |  | $ | (212.5) |  |  | $ | (0.6) |  |  | $ | (8.1) |  |  | $ | 14.5 |  |  | $ | (25.1) |  |  | $ | 56.9 |  |  | $ | 43.1 |
(a)Represents realized and unrealized gains and losses subject to regulatory accounting treatment recorded as either current or noncurrent on the balance sheets. Certain qualifying derivative instruments have been designated as normal purchase or normal sale contracts, as provided in the accounting guidance for “Derivatives and Hedging.” Derivative contracts that have been designated as normal purchases or normal sales under that accounting guidance are not subject to MTM accounting treatment and are recognized on the statements of income on an accrual basis. The accounting for the changes in the fair value of a derivative instrument depends on whether it qualifies for and has been designated as part of a hedging relationship and further, on the type of hedging relationship. Depending on the exposure, management designates a hedging instrument as a fair value hedge or a cash flow hedge. For contracts that have not been designated as part of a hedging relationship, the accounting for changes in fair value depends on whether the derivative instrument is held for trading purposes. Unrealized and realized gains and losses on derivative instruments held for trading purposes are included in revenues on a net basis on the statements of income. Unrealized and realized gains and losses on derivative instruments not held for trading purposes are included in revenues or expenses on the statements of income depending on the relevant facts and circumstances. Certain derivatives that economically hedge future commodity risk are recorded in the same line item on the statements of income as that of the associated risk being hedged. However, unrealized and some realized gains and losses in regulated jurisdictions for both trading and non-trading derivative instruments are recorded as regulatory assets (for losses) or regulatory liabilities (for gains) in accordance with the accounting guidance for “Regulated Operations.” Accounting for Fair Value Hedging Strategies (Applies to AEP) For fair value hedges (i.e. hedging the exposure to changes in the fair value of an asset, liability or an identified portion thereof attributable to a particular risk), the gain or loss on the derivative instrument as well as the offsetting gain or loss on the hedged item associated with the hedged risk impacts net income during the period of change. AEP records realized and unrealized gains or losses on interest rate swaps that are designated and qualify for fair value hedge accounting treatment and any offsetting changes in the fair value of the debt being hedged in Interest Expense on the statements of income. The following table shows the impacts recognized on the balance sheets related to the hedged items in fair value hedging relationships:
|  | Carrying Amount of the Hedged Liabilities |  | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Liabilities
|  | June 30, 2024 |  | December 31, 2023 |  | June 30, 2024 |  | December 31, 2023
|  | (in millions)
Long-term Debt (a) (b) |  | $ | (876.8) |  |  | $ | (878.2) |  |  | $ | 70.4 |  |  | $ | 68.4 |
(a)Amounts included within Noncurrent Liabilities line item Long-term Debt on the Balance Sheet. (b)Amounts include $(26) million and $(30) million as of June 30, 2024 and December 31, 2023, respectively, for the fair value hedge adjustment of hedged debt obligations for which hedge accounting has been discontinued. The pretax effects of fair value hedge accounting on income were as follows:
| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2024 |  | 2023 |  | 2024 |  | 2023
| (in millions)
Gain (Loss) on Interest Rate Contracts: |  |  |  |  |  |  |
Fair Value Hedging Instruments (a) | $ | 18.2 |  |  | $ | (4.2) |  |  | $ | 1.8 |  |  | $ | 2.7 |
Fair Value Portion of Long-term Debt (a) | (18.2) |  |  | 4.2 |  |  | (1.8) |  |  | (2.7) |
(a)Gain (Loss) is included in Interest Expense on the statements of income. Accounting for Cash Flow Hedging Strategies (Applies to AEP, AEP Texas, APCo, I&M, PSO and SWEPCo) For cash flow hedges (i.e. hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the Registrants initially report the gain or loss on the derivative instrument as a component of Accumulated Other Comprehensive Income (Loss) on the balance sheets until the period the hedged item affects net income. Realized gains and losses on derivative contracts for the purchase and sale of power designated as cash flow hedges are included in Total Revenues or Purchased Electricity, Fuel and Other Consumables Used for Electric Generation on the statements of income or in Regulatory Assets or Regulatory Liabilities on the balance sheets, depending on the specific nature of the risk being hedged. During the three and six months ended June 30, 2024 and 2023, AEP applied cash flow hedging to outstanding power derivatives and the Registrant Subsidiaries did not. The Registrants reclassify gains and losses on interest rate derivative hedges related to debt financings from Accumulated Other Comprehensive Income (Loss) on the balance sheets into Interest Expense on the statements of income in those periods in which hedged interest payments occur. During the three months ended June 30, 2024 and 2023, AEP and AEP Texas applied cash flow hedging to outstanding interest rate derivatives and the other Registrant Subsidiaries did not. During the six months ended June 30, 2024, AEP and AEP Texas applied cash flow hedging to outstanding interest rate derivatives and the other Registrant Subsidiaries did not. During the six months ended June 30, 2023, AEP, AEP Texas, I&M, PSO and SWEPCo applied cash flow hedging to outstanding interest rate derivatives and the other Registrant Subsidiaries did not. For details on effective cash flow hedges included in Accumulated Other Comprehensive Income (Loss) on the balance sheets and the reasons for changes in cash flow hedges, see Note 3 - Comprehensive Income. Cash flow hedges included in Accumulated Other Comprehensive Income (Loss) on the balance sheets were:
|  | Impact of Cash Flow Hedges on the Registrants’ Balance Sheets
|  | June 30, 2024 |  | December 31, 2023
|  |  |  |  |  | Portion Expected to |  |  |  |  |  | Portion Expected to
|  | AOCI |  | be Reclassed to |  | AOCI |  | be Reclassed to
|  | Gain (Loss) |  | Net Income During |  | Gain (Loss) |  | Net Income During
|  | Net of Tax |  | the Next Twelve Months |  | Net of Tax |  | the Next Twelve Months
|  | Commodity |  | Interest Rate |  | Commodity |  | Interest Rate |  | Commodity |  | Interest Rate |  | Commodity |  | Interest Rate
|  |  |  | (in millions)
AEP |  | $ | 103.7 |  |  | $ | 9.3 |  |  | $ | 35.5 |  |  | $ | 4.3 |  |  | $ | 104.9 |  |  | $ | (8.1) |  |  | $ | 38.3 |  |  | $ | 3.2 |
AEP Texas |  | — |  |  | 6.6 |  |  | — |  |  | 0.7 |  |  | — |  |  | 0.5 |  |  | — |  |  | 0.2 |
APCo |  | — |  |  | 5.5 |  |  | — |  |  | 0.8 |  |  | — |  |  | 5.9 |  |  | — |  |  | 0.8 |
I&M |  | — |  |  | (5.3) |  |  | — |  |  | (0.4) |  |  | — |  |  | (5.5) |  |  | — |  |  | (0.4) |
PSO |  | — |  |  | (0.2) |  |  | — |  |  | — |  |  | — |  |  | (0.2) |  |  | — |  |  | — |
SWEPCo |  | — |  |  | 1.2 |  |  | — |  |  | 0.3 |  |  | — |  |  | 1.3 |  |  | — |  |  | 0.3 |
As of June 30, 2024 the maximum length of time that AEP is hedging its exposure to variability in future cash flows related to forecasted transactions is 81 months. The actual amounts reclassified from Accumulated Other Comprehensive Income (Loss) to Net Income can differ from the estimate above due to market price changes. Credit Risk Management mitigates credit risk in wholesale marketing and trading activities by assessing the creditworthiness of potential counterparties before entering into transactions with them and continuing to evaluate their creditworthiness on an ongoing basis. Management uses credit agency ratings and current market-based qualitative and quantitative data as well as financial statements to assess the financial health of counterparties on an ongoing basis. Master agreements are typically used to facilitate the netting of cash flows associated with a single counterparty and may include collateral requirements. Collateral requirements in the form of cash, letters of credit and parental/affiliate guarantees may be obtained as security from counterparties in order to mitigate credit risk. Some master agreements include margining, which requires a counterparty to post cash or letters of credit in the event exposure exceeds the established threshold. The threshold represents an unsecured credit limit which may be supported by a parental/affiliate guaranty, as determined in accordance with AEP’s credit policy. In addition, master agreements allow for termination and liquidation of all positions in the event of a default including a failure or inability to post collateral when required. Credit-Risk-Related Contingent Features Credit Downgrade Triggers (Applies to AEP, APCo, I&M, PSO and SWEPCo) A limited number of derivative contracts include collateral triggering events, which include a requirement to maintain certain credit ratings. On an ongoing basis, AEP’s risk management organization assesses the appropriateness of these collateral triggering events in contracts. The Registrants have not experienced a downgrade below a specified credit rating threshold that would require the posting of additional collateral. The total exposure of AEP’s derivative contracts with collateral triggering events in a net liability position was immaterial as of June 30, 2024 and December 31, 2023. The Registrant Subsidiaries had no derivative contracts with collateral triggering events in a net liability position as of June 30, 2024 and December 31, 2023. Cross-Acceleration Triggers Certain interest rate derivative contracts contain cross-acceleration provisions that, if triggered, would permit the counterparty to declare a default and require settlement of the outstanding payable. These cross-acceleration provisions could be triggered if there was a non-performance event by the Registrants under any of their outstanding debt of at least $50 million and the lender on that debt has accelerated the entire repayment obligation. On an ongoing basis, AEP’s risk management organization assesses the appropriateness of these cross-acceleration provisions in contracts. AEP had derivative contracts with cross-acceleration provisions in a net liability position of $97 million and $107 million and no cash collateral posted as of June 30, 2024 and December 31, 2023, respectively. If a cross-acceleration provision would have been triggered, settlement at fair value would have been required. The Registrant Subsidiaries’ derivative contracts with cross-acceleration provisions outstanding as of June 30, 2024 and December 31, 2023 were not material. Cross-Default Triggers (Applies to AEP, APCo, I&M, PSO and SWEPCo) In addition, a majority of non-exchange traded commodity contracts contain cross-default provisions that, if triggered, would permit the counterparty to declare a default and require settlement of the outstanding payable. These cross-default provisions could be triggered if there was a non-performance event by Parent or the obligor under outstanding debt or a third-party obligation that is $50 million or greater. On an ongoing basis, AEP’s risk management organization assesses the appropriateness of these cross-default provisions in the contracts. AEP had derivative contracts with cross-default provisions in a net liability position of $233 million and $242 million and no cash collateral posted as of June 30, 2024 and December 31, 2023, respectively, after considering contractual netting arrangements. If a cross-default provision would have been triggered, settlement at fair value would have been required. APCo, PSO and SWEPCo had derivative contracts with cross-default provisions in a net liability position of $13 million, $23 million and $10 million, respectively, and no cash collateral posted as of June 30, 2024. APCo, PSO and SWEPCo had derivative contracts with cross-default provisions in a net liability position of $22 million, $29 million and $15 million, respectively, and no cash collateral posted as of December 31, 2023. The other Registrant Subsidiaries had no derivative contracts with cross-default provisions outstanding as of June 30, 2024 and December 31, 2023.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//815/tableOfContent + Details
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