American Electric Power (AEP) Risk Factor Changes

•AEP is exposed to changes in the price and availability of emission allowances.

•AEP is exposed to changes in the price and availability of diesel, the primary fuel used in transporting coal by barge.

their ability to fulfill their obligations under contracts, changes in the scope and timing of projects, poor quality initial cost estimates from contractors, the inability to raise capital on favorable terms, changes…

AEP’s capacity obligations are subject to a number of factors including load growth, requirements that can be imposed by the states, RTOs and other jurisdictions in which it operates or participates as a member and th…

Regulation of GHG emissions could materially increase costs to AEP and its customers or cause some electric generating units to be uneconomical to operate or maintain.

AEP’s operations are subject to extensive federal, state and local environmental statutes, rules and regulations relating to air quality, water quality, waste management, natural resources and health and safety.

Business activities of electric utilities and related companies are heavily regulated, primarily through national and state laws and regulations of general applicability, including laws and regulations related to work…

AEP Texas and OPCo transmit and distribute electric power obtained from power generation facilities owned by third-parties or affiliates.

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.

Electricity poses hazards for AEP’s workforce and the general public in the event that either comes in contact with electrical current or equipment, including through energized downed power lines or through equipment…

More frequent and severe drought conditions, extreme swings in amount and timing of precipitation, changes in vegetation, unseasonably warm temperatures, very low humidity, stronger winds and other factors have increa…

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 c…

Growth in customer accounts and growth of customer usage each directly influence demand for electricity and the need for additional power generation and delivery facilities.

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.

AEP and AEPTCo are holding companies and have no operations of their own.

The credit ratings agencies periodically review AEP’s capital structure and the quality and stability of earnings and cash flows.

In the past, certain sources of insurance and debt and equity capital have expressed unwillingness to provide insurance for or to invest in companies, such as AEP, that rely on fossil fuels.

AEP relies on access to capital markets as a significant source of liquidity for capital requirements not satisfied by operating cash flows.

If AEP is unable to access capital markets or insurance markets on reasonable terms, for any reason, including negative publicity, it could reduce future net income and cash flows and negatively impact financial condi…

AEP’s operations are dependent upon the proper functioning of its internal systems, including the information technology systems that support underlying business processes.

•Catastrophic events such as extreme weather, fires, earthquakes, explosions, hurricanes, tornadoes, winter storms, terrorism (including cyber-terrorism), floods or other similar occurrences.

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

AEP Texas collects receivables from the distribution of electricity from REPs that supply the electricity it distributes to its customers.

Owners and operators of the bulk power transmission system are subject to mandatory reliability standards promulgated by the NERC and enforced by the FERC.

The NRC has broad authority under federal law to impose licensing and safety-related requirements for the operation of nuclear generation facilities.

AEP primarily generates electricity at large central facilities and delivers that electricity over its transmission and distribution facilities to customers usually situated within an exclusive franchise.

AEP owns, develops, constructs, manages and operates electric generation, transmission and distribution facilities.

AEP provides transmission service under rates regulated by the FERC.

Certain elements of AEP’s transmission formula rates have been challenged, which could result in lowered rates and/or refunds of amounts previously collected.

A significant portion of AEP’s earnings is derived from transmission investments and activities.

AEP’s transmission investment strategy and execution are dependent on federal and state regulatory policy and implementation by RTOs.

The AEP regulated utility businesses have large customer and stakeholder bases and, as a result, could be subject to public criticism or adverse publicity focused on issues including the operation and maintenance of t…

Regulatory proceedings relating to rates and other matters typically involve multiple parties seeking to limit or reduce rates.

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, wh…

The rates customers pay to AEP regulated utility businesses are subject to approval by the FERC and the respective state utility commissions of Arkansas, Indiana, Kentucky, Louisiana, Michigan, Ohio, Oklahoma, Tenness…

AEP’s business and capital investment plans call for extensive investment in capital improvements and additions, including the construction or acquisition of additional transmission and generation facilities, installa…

On March 24, 2024, the SEC adopted new rules relating to the disclosure of a range of climate-related risks.

New climate disclosure rules proposed by the U.S.

The FERC has issued electric transmission initiatives that require electric transmission services to be offered unbundled from commodity sales.

AEP’s GHG reduction efforts are predicated on the combined preferences of the eleven states that we operate in.

AEP is committed to providing reliable affordable power to its customers.

AEPTCo’s principal transmission service customers are AEP affiliates.

AEPTCo depends on AEP affiliates for a substantial portion of its revenues.

damage, and may result in suspension of operations and the imposition of civil or criminal penalties.

AEP operations are subject to the usual hazards associated with high-voltage electricity transmission, including explosions, fires, inclement weather, natural disasters, mechanical failure, unscheduled downtime, equip…

Hazards associated with high-voltage electricity transmission may result in suspension of AEP’s operations or the imposition of civil or criminal penalties.

The litigation has been consolidated into a multi-district litigation (MDL) proceeding in Texas state court.

AEP Parent and AEP Texas are named in approximately 100 lawsuits alleging multiple claims of wrongful death, personal injury, property damage and other injuries and damages.

As a result of the February 2021 severe winter weather in Texas which caused a shortage of electric generation, ERCOT instructed AEP Texas and other Texas electric utilities to initiate power outages to avoid a sustai…

Management is unable to predict the course, results or impact, if any, of current or future litigation or investigations relating to the severe winter weather in Texas in February 2021.

Management cannot predict the outcome of the legal proceedings relating to AEP’s business activities.

allowances available through either EPA original issuance or market purchases to cover projected needs for the next two years and beyond.

AEP is exposed to changes in the price and availability of purchased power and fuel (including the cost to procure coal and gas) and the price and availability to transport fuel.

Certain regulatory and legislative bodies have introduced or are considering requirements and/or incentives to further reduce energy consumption.

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.

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 product…

Electric power consumption is generally seasonal.

AEP’s operating results may fluctuate on a seasonal or quarterly basis and with general economic and weather conditions.

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…

Our financial position may be adversely impacted if announced dispositions do not occur as planned.

AEP’s operations are dependent upon the proper functioning of its internal systems, including the information technology systems that support our underlying business processes.

AEP is subject to standards enacted by the North American Electric Reliability Corporation and enforced by FERC regarding protection of critical infrastructure assets required for operating North America's bulk electr…

AEP and its third-party vendors have been subject, and will likely continue to be subject, to attempts to gain unauthorized access to their technology systems and confidential data or to attempts to disrupt utility an…

A security breach of AEP or its regulated utility businesses’ physical assets or information systems, interconnected entities in RTOs, or regulators could impact the operation of the generation fleet and/or reliabilit…

AEP and its regulated utility businesses face physical security and cybersecurity risks as the owner-operators of generation, transmission and/or distribution facilities and as participants in commodities trading.

AEP’s business plan for the construction of new projects, including providing service to new large load customers, involves a number of risks, including incomplete or inaccurate forecasting, planning and procurement,…

AEP may not recover costs incurred to begin construction on projects that are canceled.

modular reactors and photovoltaic solar cells are reducing costs of new technology to levels that are making them competitive with some central station electricity production and delivery.

increases in costs could increase financing needs and otherwise adversely affect AEP’s business, financial position, results of operation or cash flows.

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.

The impact of new laws, regulations and policies and the related interpretations, as well as changes in enforcement practices or

Adverse outcomes in AEP’s material legal proceedings could materially and adversely affect AEP’s results of operations and financial condition.

mitigation efforts, regulatory recovery risk, litigation risk, and the potential for a credit downgrade and subsequent additional costs to access capital markets.

While AEP typically recovers such fuel-related expenses pursuant to rate recovery mechanisms in regulated jurisdictions, the failure to recover these costs could reduce future net income and cash flows and possibly ha…

•The inability to procure fuel at costs that are economical could cause AEP to retire generating capacity prior to the end of its useful life.

•AEP is exposed to changes in the price and availability of fuel, including coal, natural gas and uranium, as existing contracts for the supply of such fuel end or are not honored.

AEP is exposed to changes in the price and availability of purchased power and fuel (including the cost to procure coal and gas) and the price and availability to transport fuel.

Difficulties in sustaining leadership continuity could negatively impact AEP’s business and financial condition.

impact financial condition.

If sources of capital for AEP are reduced, capital costs could increase materially.

Executive actions have been taken and additional measures proposed that are intended to alter the U.S.

Changes in U.S.

If a material physical or cybersecurity breach or disruption were to occur, AEP’s reputation could be negatively affected, customer confidence in AEP could be diminished and AEP could be subject to legal claims, regul…

AEP has not identified any cybersecurity incidents that have materially affected or are reasonably likely to materially affect its business strategy, results of operation or financial condition.

A security breach of AEP’s physical assets or information systems, or those of AEP’s competitors, vendors, business partners and interconnected entities (including RTOs) could materially impact AEP by, among other thi…

Risks from cybersecurity and physical threats to energy infrastructure are increasing.

FERC on its own initiative.

AEP is subject to negative publicity.

Regulatory bodies may not allow recovery of costs incurred on a timely basis.

Regulators have initiated and may initiate additional proceedings to investigate the prudence of costs in the AEP regulated utility businesses.

Regulated electric revenues and earnings are subject to prudency review.

•Any legislation, regulatory action or litigation outcome that triggers a reversal of a regulatory asset or deferred cost or establishment of a regulatory liability.

•The overturning or reversal on appeal of previously authorized recovery; and

•If regulated utility earnings exceed the return established by a relevant commission, that commission could reduce future rates;

Meeting the significant increase in electricity demand from new data centers and other large‑load customers will require substantial investment in new generation and transmission facilities.

AEP’s business and capital investment plans for the construction of new projects, including providing service to new data centers and other large load customers, involve execution risks that could adversely affect AEP…

The business and capital investment plans of AEP are subject to execution risks.

AEP is experiencing current and projected load demands that exceed historical experience, creating a business need for new power generating resources and transmission facilities.

The business and capital investment plans of AEP depend, in part, on the continued growth and viability of data centers and large load customers interconnecting with the AEP System.