AMERICAN ELECTRIC POWER CO INC

Previous wording

AEP’s business plan calls for extensive investment in capital improvements and additions, including the construction of additional transmission and renewable generation facilities, modernizing existing infrastructure, installation of environmental upgrades and retrofits as well as other initiatives. AEP’s public utility subsidiaries currently provide service at rates approved by one or more regulatory commissions. If these regulatory commissions do not approve adjustments to the rates charged, affected AEP subsidiaries would not be able to recover the costs associated with their investments. This would cause financial results to be diminished.

Current wording

AEP’s business plan calls for extensive investment in capital improvements and additions, including the construction or acquisition of additional transmission and generation facilities, modernizing existing infrastructure, installation of environmental upgrades and retrofits as well as other initiatives. AEP’s public utility subsidiaries currently provide service at rates approved by one or more regulatory commissions. If these regulatory commissions do not approve adjustments to the rates charged, affected AEP subsidiaries would not be able to recover the costs associated with their investments. This would cause financial results to be diminished.

Previous wording

If regulated utility earnings exceed the returns established by the relevant commissions, retail electric rates may be subject to review and possible reduction by the commissions, which may decrease future earnings. Additionally, if regulatory bodies do not allow recovery of costs incurred in providing service on a timely basis, it could reduce future net income and cash flows and negatively impact financial condition. Similarly, if recovery or other rate relief authorized in the past is overturned or reversed on appeal, future earnings could be negatively impacted. Any regulatory action or litigation outcome that triggers a reversal of a regulatory asset or deferred cost generally results in an impairment to the balance sheet and a charge to the income statement of the company involved.

Current wording

If regulated utility earnings exceed the returns established by the relevant commissions, retail electric rates may be subject to review and possible reduction by the commissions, which may decrease future earnings. Additionally, if regulatory bodies do not allow recovery of costs incurred in providing service on a timely basis, it could reduce future net income and cash flows and negatively impact financial condition. Similarly, if recovery or other rate relief authorized in the past is overturned or reversed on appeal, future earnings could be negatively impacted. Any legislation, regulatory action or litigation outcome that triggers a reversal of a regulatory asset or deferred cost generally results in an impairment to the balance sheet and a charge to the income statement of the company involved. New legislation could be adopted in any of the states in which we operate that could alter the regulatory framework and prevent us from getting timely recovery of our costs and investments.

Previous wording

The regulated utility businesses, and the energy industry as a whole, have experienced a period of rising costs and investments and an upward trend in spending, especially with respect to infrastructure investments, which is likely to continue in the foreseeable future and could result in more frequent rate cases and requests for, and the continuation of, cost recovery mechanisms, all of which could face resistance from customers and other stakeholders especially in a rising cost environment, whether due to inflation or high fuel prices or otherwise, and/or in periods of economic decline or hardship. Significant increases in costs could increase financing needs and otherwise adversely affect AEP’s business, financial position, results of operation, or cash flows. See Note 4 – Rate Matters included in the 2023 Annual Report for additional information.

Current wording

The regulated utility businesses, and the energy industry as a whole, have experienced a period of rising costs and investments and an upward trend in spending, especially with respect to infrastructure investments, which is likely to continue in the foreseeable future and could result in more frequent rate cases and requests for, and the continuation of, cost recovery mechanisms, all of which could face resistance from customers and other stakeholders especially in a rising cost environment, whether due to inflation, tariffs, high fuel prices or otherwise, and/or in periods of economic decline or hardship. Significant increases in costs could increase financing needs and otherwise adversely affect AEP’s business, financial position, results of operation or cash flows. See Note 4 – Rate Matters for additional information.

Previous wording

AEP Texas collects receivables from the distribution of electricity from REPs that supply the electricity it distributes to its customers. As of December 31, 2023, AEP Texas did business with approximately 124 REPs. Adverse economic conditions, structural problems in the market served by ERCOT or financial difficulties of one or more REPs could impair the ability of these REPs to pay for these services or could cause them to delay such payments. AEP Texas depends on these REPs to remit payments on a timely basis. Applicable regulatory provisions require that customers be shifted to another REP or a provider of last resort if a REP cannot make timely payments. Applicable PUCT regulations significantly limit the extent to which AEP Texas can apply normal commercial terms or otherwise seek credit protection from firms desiring to provide retail electric service in its service territory, and AEP Texas thus remains at risk for payments related to services provided prior to the shift to another REP or the provider of last resort. In 2023, AEP Texas’ two largest REPs accounted for 41% of its operating revenue. Any delay or default in payment by REPs could adversely affect cash flows, financial condition and results of operations. If a REP were unable to meet its obligations, it could consider, among various options, restructuring under the bankruptcy laws, in which event such REP might seek to avoid honoring its obligations, and claims might be made by creditors involving payments AEP Texas had received from such REP.

Current wording

AEP Texas collects receivables from the distribution of electricity from REPs that supply the electricity it distributes to its customers. As of December 31, 2024, AEP Texas did business with approximately 135 REPs. Adverse economic conditions, structural problems in the market served by ERCOT or financial difficulties of one or more REPs could impair the ability of these REPs to pay for these services or could cause them to delay such payments. AEP Texas depends on these REPs to remit payments on a timely basis. Applicable regulatory provisions require that customers be shifted to another REP or a provider of last resort if a REP cannot make timely payments. Applicable PUCT regulations significantly limit the extent to which AEP Texas can apply normal commercial terms or otherwise seek credit protection from firms desiring to provide retail electric service in its service territory, and AEP Texas thus remains at risk for payments related to services provided prior to the shift to another REP or the provider of last resort. In 2024, AEP Texas’ two largest REPs accounted for 40% of its operating revenue. Any delay or default in payment by REPs could adversely affect cash flows, financial condition and results of operations. If a REP were unable to meet its obligations, it could consider, among various options, restructuring under the bankruptcy laws, in which event such REP might seek to avoid honoring its obligations, and claims might be made by creditors involving payments AEP Texas had received from such REP.

Previous wording

•Information technology failure that impairs AEP’s information technology infrastructure or disrupts normal business operations.

Current wording

•Information technology failure, including failure of artificial intelligence technology, that impairs AEP’s information technology infrastructure or disrupts normal business operations.

Previous wording

AEP is subject to income taxation at the federal level and by certain states and municipalities. In determining AEP’s income tax liability for these jurisdictions, management monitors changes to the applicable tax laws and related regulations, including tax incentives and credits designed to support the sale of energy from utility scale renewable energy facilities. While management believes AEP complies with current prevailing laws, one or more taxing jurisdictions could seek to impose incremental or new taxes on the company. In addition, any adverse developments in tax laws, incentives, credits or regulations, including legislative changes, judicial holdings or administrative interpretations, could have a material and adverse effect on financial condition and results of operations.

Current wording

AEP is subject to income taxation at the federal level and by certain states and municipalities. In determining AEP’s income tax liability for these jurisdictions, management monitors changes to the applicable tax laws and related regulations, including tax incentives and credits designed to support the sale of energy from utility scale renewable energy facilities. While management believes AEP complies with current prevailing laws, one or more taxing jurisdictions could seek to impose incremental or new taxes on the company. At the Federal level, management is monitoring the potential for changes in current tax policy, including tax rates, tax credits and incentives. Any adverse developments in tax laws, incentives, credits or regulations, including legislative changes, judicial holdings or administrative interpretations, could have a material and adverse effect on financial condition and results of operations.

Previous wording

AEP relies on access to capital markets as a significant source of liquidity for capital requirements not satisfied by operating cash flows or proceeds from the strategic sale of assets and investments, including subsidiaries or portions thereof, and insurance markets to assist in managing its risk and liability profile. Volatility, increased interest rates and reduced liquidity in the financial markets could affect AEP’s ability to raise capital on reasonable terms to fund capital needs, including construction costs and refinancing maturing indebtedness. In addition, AEP has exposure to international banks, including those in Europe, Canada, and Asia. Disruptions in these markets could reduce or restrict the AEP’s ability to secure sufficient liquidity or secure liquidity at reasonable terms. As of December 31, 2023, approximately 10%, 17%, and 16% of the Registrants’ available credit facilities were with European, Canadian, and Asian banks, respectively.

Current wording

AEP relies on access to capital markets as a significant source of liquidity for capital requirements not satisfied by operating cash flows or proceeds from the strategic sale of assets and investments, including subsidiaries or portions thereof, such as the announced transaction involving a noncontrolling interest in IMTCo and OHTCo. AEP also relies on access to insurance markets to assist in managing its risk and liability profile. Volatility, increased interest rates and reduced liquidity in the financial markets could affect AEP’s ability to raise capital on reasonable terms to fund capital needs, including construction costs and refinancing maturing indebtedness. In addition, AEP has exposure to international banks, including those in Europe, Canada and Asia. Disruptions in these markets could reduce or restrict the AEP’s ability to secure sufficient liquidity or secure liquidity at reasonable terms. As of December 31, 2024, approximately 8%, 25% and 16% of the Registrants’ available credit facilities were with European, Canadian, and Asian banks, respectively.

Previous wording

Our financial position may be adversely impacted if announced dispositions do not occur as planned or if assets under strategic evaluation lose value. (Applies to AEP)

Current wording

Our financial position may be adversely impacted if announced dispositions do not occur as planned. (Applies to AEP)

Previous wording

Any planned sale of assets and investments, including subsidiaries, may not occur for any number of reasons beyond our control, including regulatory approval. If AEP is unable to recover the net book value or carrying value of these assets as part of the sale process, it could reduce future net income and impact financial condition.

Current wording

Any planned sale of assets and investments, including the announced transaction involving a noncontrolling interest in IMTCo and OHTCo, may not occur for any number of reasons beyond our control, including regulatory approval. If the transaction is unable to be completed, it could reduce future expected cash flows and impact financial condition.

Previous wording

Further, deteriorating economic conditions triggered by any cause, including international tariffs, generally result in reduced consumption by customers, particularly industrial customers who may curtail operations or cease production entirely, while an expanding economic environment generally results in increased revenues. As a result, prevailing economic conditions may reduce future net income and cash flows and negatively impact financial condition.

Current wording

Further, deteriorating economic conditions triggered by any cause, including tariffs, generally result in reduced consumption by customers, particularly industrial customers who may curtail operations or cease production entirely, while an expanding economic environment generally results in increased revenues. The current administration has implemented tariffs on certain imported goods and may impose additional tariffs. As a result, prevailing economic conditions may reduce future net income and cash flows and negatively impact financial condition.

Previous wording

Supply chain disruptions and inflation could negatively impact our operations and corporate strategy. (Applies to all Registrants)

Current wording

Supply chain disruptions, tariffs and inflation could negatively impact our operations and corporate strategy. (Applies to all Registrants)

Previous wording

AEP’s operations and business plans depend on the global supply chain to procure the equipment, materials and other resources necessary to build and provide services in a safe and reliable manner. The delivery of components, materials, equipment and other resources that are critical to AEP’s business operations and corporate strategy has been restricted by domestic and global supply chain upheaval. This has resulted in the shortage of critical items. International tensions, including the ramifications of regional conflict, could further exacerbate the global supply chain upheaval. These disruptions and shortages could adversely impact business operations and corporate strategy. The constraints in the supply chain could restrict the availability and delay the construction, maintenance or repair of items that are needed to support normal operations or are required to execute on AEP’s corporate strategy for continued capital investment in utility equipment and impact AEP’s strategy to transition its generation fleet. These disruptions and constraints could reduce future net income and cash flows and possibly harm AEP’s financial condition.

Current wording

AEP’s operations and business plans depend on the global supply chain to procure the equipment, materials and other resources necessary to build and provide services in a safe and reliable manner. The delivery of components, materials, equipment and other resources that are critical to AEP’s business operations and corporate strategy has been restricted by domestic and global supply chain upheaval. This has resulted in the shortage of critical items. International tensions from any source, including the ramifications of regional conflict or increased tariffs, could further exacerbate the global supply chain upheaval. These disruptions and shortages could adversely impact business operations and corporate strategy. The current administration has implemented tariffs on certain imported goods and may impose additional tariffs. The constraints in the supply chain could restrict the availability and delay the construction, maintenance or repair of items that are needed to support normal operations or are required to execute on AEP’s corporate strategy for continued capital investment in utility equipment and impact AEP’s strategy to transition its generation fleet. These disruptions and constraints could reduce future net income and cash flows and possibly harm AEP’s financial condition.

Previous wording

Supply chain disruptions have contributed to higher prices of components, materials, equipment and other needed commodities and these inflationary increases may continue in the future. The economy in the United States has encountered a material level of inflation compared to the recent past and that has contributed to increased uncertainty in the outlook of near-term economic activity, including the level of future inflation and the possibility of a recession. AEP typically recovers increases in capital expenses from customers through rates in regulated jurisdictions. Failure to recover increased capital costs could reduce future net income and cash flows and possibly harm AEP’s financial condition. Increases in inflation raises our costs for labor, materials and services, and failure to secure these on reasonable terms may adversely impact our financial condition.

Current wording

The United States economy has been in an elevated inflationary environment and supply chain disruptions have contributed to higher prices of components, materials, equipment and other needed commodities. A prolonged continuation or a further increase in the severity of supply chain and inflationary disruptions, including increased tariffs, could result in additional increases in the cost of certain goods, services and cost of capital and further extend lead times. AEP typically recovers increases in capital expenses from customers through rates in regulated jurisdictions. Failure to recover increased capital costs could reduce future net income and cash flows and possibly harm AEP’s financial condition. Increases in inflation raises our costs for labor, materials and services, and failure to secure these on reasonable terms may adversely impact our financial condition.

Previous wording

Certain events, such as an aging workforce without appropriate replacements, mismatch of skillset or complement to future needs, or unavailability of contract resources may lead to operating challenges and increased costs. The challenges include potential higher rates of existing employee departures, lack of resources, loss of knowledge and a lengthy time period associated with skill development. In this case, costs, including costs for contractors to replace employees, productivity costs and safety costs, may rise. Failure to hire and adequately train replacement employees, including the transfer of significant internal historical knowledge and expertise to the new employees, or the future availability and cost of contract labor may adversely affect the ability to manage and operate the business. If AEP is unable to successfully attract and retain an appropriately qualified workforce, future net income and cash flows may be reduced.

Current wording

Certain events, such as an aging workforce without appropriate replacements, mismatch of skillset or complement to future needs, or unavailability of contract resources may lead to operating challenges and increased costs. The challenges include potential higher rates of existing employee departures, lack of resources, loss of knowledge and a lengthy time period associated with skill development. In this case, costs, including costs for contractors to replace employees, productivity costs and safety costs, may rise. Failure to hire and adequately train replacement employees, including the transfer of significant internal historical knowledge and expertise to the new employees, or the future availability and cost of contract labor may adversely affect the ability to manage and operate the business. If AEP is unable to successfully attract and retain an appropriately qualified workforce, operations may be negatively impacted and future net income and cash flows may be reduced.

Previous wording

AEP is involved in legal proceedings, claims and litigation arising out of its business operations, the most significant of which are summarized in Note 6 - Commitments, Guarantees and Contingencies included in the 2023 Annual Report. Adverse outcomes in these proceedings could require significant expenditures that could reduce future net income and cash flows and negatively impact financial condition.

Current wording

AEP is involved in legal proceedings, claims and litigation arising out of its business operations, the most significant of which are summarized in Note 6 - Commitments, Guarantees and Contingencies. Adverse outcomes in these proceedings could require significant expenditures that could reduce future net income and cash flows and negatively impact financial condition.

Previous wording

The litigation has been consolidated into a multi-district litigation (MDL) proceeding in Texas state court. The judge overseeing the MDL issued an initial case management order and stayed all proceedings and discovery. Management is unable to predict the course or outcome of these or any future litigation or investigations or their impact, if any, on future results of operations, financial condition and cash flows.

Current wording

The litigation has been consolidated into a multi-district litigation (MDL) proceeding in Texas state court. The judge overseeing the MDL issued an initial case management order and stayed discovery. Two appeals regarding motions to dismiss the plaintiffs’ claims filed in representative cases by AEP Texas and other similarly situated defendants are currently pending; resolution of either of these appeals in favor of AEP Texas would result in dismissal of the plaintiffs’ claims against AEP Texas in those cases. A separate appeal regarding a motion to dismiss filed on behalf of the three formerly AEP-owned wind farms and other similarly situated defendants is also pending; resolution of this appeal in favor of the three wind farms would result in dismissal of the plaintiffs’ claims against the wind farms in those cases. Management is unable to predict the course or outcome of these or any future litigation or investigations or their impact, if any, on future results of operations, financial condition and cash flows.

Previous wording

AEPTCo’s principal transmission service customers are AEP affiliates. Management expects that these affiliates will continue to be AEPTCo’s principal transmission service customers for the foreseeable future. For the year ended December 31, 2023, AEP affiliates were responsible for approximately 79% of the consolidated transmission revenues of AEPTCo.

Current wording

AEPTCo’s principal transmission service customers are AEP affiliates. Management expects that these affiliates will continue to be AEPTCo’s principal transmission service customers for the foreseeable future. For the year ended December 31, 2024, AEP affiliates were responsible for approximately 80% of the consolidated transmission revenues of AEPTCo.

Previous wording

Regulation of greenhouse gas emissions and/or voluntary climate goals could materially increase costs to AEP and its customers or cause some electric generating units to be uneconomical to operate or maintain. (Applies to all Registrants except AEP Texas, AEPTCo and OPCo)

Current wording

Regulation of greenhouse gas emissions could materially increase costs to AEP and its customers or cause some electric generating units to be uneconomical to operate or maintain. (Applies to all Registrants except AEP Texas, AEPTCo and OPCo)

Previous wording

AEP’s results of operations could be materially adversely affected to the extent that new federal or state laws or regulations or voluntary climate goals impose any new greenhouse gas emission limits. Any future limits on greenhouse gas emissions could create substantial additional costs in the form of taxes or emissions allowances, require significant capital investment in carbon capture and storage technology, fuel switching, or the replacement of high-emitting generation facilities with lower-emitting generation facilities and/or could cause AEP to retire generating capacity prior to the end of its estimated useful life. Although AEP typically recovers environmental expenditures, there can be no assurance in the future that AEP can recover such costs which could reduce future net income and cash flows and possibly harm financial condition. Further, real or alleged violations of environmental regulations, including those related to climate change, or an inability to meet AEP’s voluntary climate goals, could adversely impact AEP’s reputation.

Current wording

AEP’s results of operations could be materially adversely affected to the extent that new federal or state laws or regulations impose any new greenhouse gas emission limits. Any future limits on greenhouse gas emissions could create substantial additional costs in the form of taxes or emissions allowances, require significant capital investment in carbon capture and storage technology, fuel switching, or the replacement of high-emitting generation facilities with lower-emitting generation facilities and/or could cause AEP to retire generating capacity prior to the end of its estimated useful life. Although AEP typically recovers environmental expenditures, there can be no assurance in the future that AEP can recover such costs which could reduce future net income and cash flows and possibly harm financial condition. Further, real or alleged violations of environmental regulations, including those related to climate change, or an inability to meet AEP’s voluntary climate aspirations, could adversely impact AEP’s reputation, reduce future net income and cash flows and harm financial condition.

Previous wording

AEP and several nonaffiliated utility companies own OVEC. The Inter-Company Power Agreement (ICPA) defines the rights and obligations and sets the power participation ratio of the parties to it. Under the ICPA, parties are entitled to receive and are obligated to pay for all OVEC capacity (approximately 2,400 MWs) in proportion to their respective power participation ratios. The aggregate power participation ratio of APCo, I&M and OPCo is 43.47%. If a party fails to make payments owed by it under the ICPA, OVEC may not have sufficient funds to honor its payment obligations, including its ongoing operating expenses as well as its indebtedness. As of December 31, 2023, OVEC has outstanding indebtedness of approximately $1.1 billion, of which APCo, I&M, and OPCo are collectively responsible for $465 million through the ICPA. Although they are not an obligor or guarantor, APCo, I&M, and OPCo are responsible for their respective ratio of OVEC’s outstanding debt through the ICPA and if OVEC’s indebtedness is accelerated for any reason, there is risk that APCo, I&M and/or OPCo may be required to pay some or all of such accelerated indebtedness in amounts equal to their aggregate power participation ratio of 43.47%.

Current wording

AEP and several nonaffiliated utility companies own OVEC. The Inter-Company Power Agreement (ICPA) defines the rights and obligations and sets the power participation ratio of the parties to it. Under the ICPA, parties are entitled to receive and are obligated to pay for all OVEC capacity (approximately 2,400 MWs) in proportion to their respective power participation ratios. The aggregate power participation ratio of APCo, I&M and OPCo is 43.47%. If a party fails to make payments owed by it under the ICPA, OVEC may not have sufficient funds to honor its payment obligations, including its ongoing operating expenses as well as its indebtedness. As of December 31, 2024, OVEC has outstanding indebtedness of approximately $997 million, of which APCo, I&M and OPCo are collectively responsible for $433 million through the ICPA. Although they are not an obligor or guarantor, APCo, I&M and OPCo are responsible for their respective ratio of OVEC’s outstanding debt through the ICPA and if OVEC’s indebtedness is accelerated for any reason, there is risk that APCo, I&M and/or OPCo may be required to pay some or all of such accelerated indebtedness in amounts equal to their aggregate power participation ratio of 43.47%.

Previous wording

On March 21, 2022, the SEC proposed new rules relating to the disclosure of a range of climate-related risks. AEP is currently assessing the proposed rule, but at this time AEP cannot predict the costs of implementation or any potential adverse impacts resulting from the rule. To the extent this rule is finalized as proposed, AEP could incur increased costs relating to the assessment and disclosure of climate-related risks. AEP may also face increased litigation risks related to disclosures made pursuant to the rule if finalized as proposed. In addition, enhanced climate disclosure requirements could accelerate the trend of certain stakeholders and lenders restricting or seeking more stringent conditions with respect to their investments in certain carbon-intensive sectors.

Current wording

On March 24, 2024, the SEC adopted new rules relating to the disclosure of a range of climate-related risks. The rules have been challenged in court and are currently stayed. At this time AEP cannot predict the costs of implementation or any potential adverse impacts resulting from the rule as adopted. To the extent these rules or any replacement rules are adopted, AEP could incur increased costs relating to the assessment and disclosure of climate-related risks. AEP may also face increased litigation risks related to disclosures made pursuant to any rules that are implemented. In addition, enhanced climate disclosure requirements could accelerate the trend of certain stakeholders and lenders restricting or seeking more stringent conditions with respect to their investments in certain carbon-intensive sectors.