12. LEASES

Leases of property, plant and equipment are for periods up to 60 years and require payments of related property taxes, maintenance and operating costs. The majority of the leases have purchase or renewal options and will be renewed or replaced by other leases.

Lease rentals for both operating and capital leases are generally charged to Other Operation and Maintenance expense in accordance with rate-making treatment for regulated operations. Additionally, for regulated operations with capital leases, a capital lease asset and offsetting liability are recorded at the present value of the remaining lease payments for each reporting period. Capital leases for nonregulated property are accounted for as if the assets were owned and financed. The components of rental costs are as follows:

	Years Ended December 31,
Lease Rental Costs	2012		2011		2010
	(in millions)
Net Lease Expense on Operating Leases	$	346	$	343	$	343
Amortization of Capital Leases		73		72		97
Interest on Capital Leases		29		32		26
Total Lease Rental Costs	$	448	$	447	$	466

The following table shows the property, plant and equipment under capital leases and related obligations recorded on the balance sheets. Capital lease obligations are included in Other Current Liabilities and Deferred Credits and Other Noncurrent Liabilities on the balance sheets.

	December 31,
Property, Plant and Equipment Under Capital Leases	2012		2011
	(in millions)
Generation	$	117	$	104
Other Property, Plant and Equipment		495		485
Total Property, Plant and Equipment Under Capital Leases		612		589
Accumulated Amortization		173		137
Net Property, Plant and Equipment Under Capital Leases	$	439	$	452

Obligations Under Capital Leases
Noncurrent Liability	$	375	$	384
Liability Due Within One Year		74		74
Total Obligations Under Capital Leases	$	449	$	458

Future minimum lease payments consisted of the following as of December 31, 2012:

				Noncancelable
Future Minimum Lease Payments		Capital Leases		Operating Leases
		(in millions)
2013		$	95	$	302
2014			79		275
2015			65		257
2016			59		233
2017			63		219
Later Years			244		1,034
Total Future Minimum Lease Payments			605	$	2,320
Less Estimated Interest Element			156
Estimated Present Value of Future Minimum
	Lease Payments	$	449

Master Lease Agreements

We lease certain equipment under master lease agreements. Under the lease agreements, the lessor is guaranteed a residual value up to a stated percentage of either the unamortized balance or the equipment cost at the end of the lease term. If the actual fair value of the leased equipment is below the guaranteed residual value at the end of the lease term, we are committed to pay the difference between the actual fair value and the residual value guarantee. Historically, at the end of the lease term the fair value has been in excess of the unamortized balance. As of December 31, 2012, the maximum potential loss for these lease agreements was approximately $19 million assuming the fair value of the equipment is zero at the end of the lease term. Obligations under these master lease agreements are included in the future minimum lease payments schedule earlier in this note.

Rockport Lease

AEGCo and I&M entered into a sale-and-leaseback transaction in 1989 with Wilmington Trust Company (Owner Trustee), an unrelated, unconsolidated trustee for Rockport Plant Unit 2 (the Plant). The Owner Trustee was capitalized with equity from six owner participants with no relationship to AEP or any of its subsidiaries and debt from a syndicate of banks and securities in a private placement to certain institutional investors.

The gain from the sale was deferred and is being amortized over the term of the lease, which expires in 2022. The Owner Trustee owns the Plant and leases it equally to AEGCo and I&M. The lease is accounted for as an operating lease with the payment obligations included in the future minimum lease payments schedule earlier in this note. The lease term is for 33 years with potential renewal options. At the end of the lease term, AEGCo and I&M have the option to renew the lease or the Owner Trustee can sell the Plant. AEP, AEGCo and I&M have no ownership interest in the Owner Trustee and do not guarantee its debt. The future minimum lease payments for this sale-and-leaseback transaction as of December 31, 2012 are as follows:

Future Minimum Lease Payments	AEGCo		I&M
	(in millions)
2013	$	74	$	74
2014		74		74
2015		74		74
2016		74		74
2017		74		74
Later Years		369		369
Total Future Minimum Lease Payments	$	739	$	739

Railcar Lease

In June 2003, AEP Transportation LLC (AEP Transportation), a subsidiary of AEP, entered into an agreement with BTM Capital Corporation, as lessor, to lease 875 coal-transporting aluminum railcars. The lease is accounted for as an operating lease. In January 2008, AEP Transportation assigned the remaining 848 railcars under the original lease agreement to I&M (390 railcars) and SWEPCo (458 railcars). The assignment is accounted for as operating leases for I&M and SWEPCo. The initial lease term was five years with three consecutive five-year renewal periods for a maximum lease term of twenty years. I&M and SWEPCo intend to renew these leases for the full lease term of twenty years via the renewal options. The future minimum lease obligations are $14 million for I&M and $15 million for SWEPCo for the remaining railcars as of December 31, 2012. These obligations are included in the future minimum lease payments schedule earlier in this note.

Under the lease agreement, the lessor is guaranteed that the sale proceeds under a return-and-sale option will equal at least a lessee obligation amount specified in the lease, which declines from approximately 84% under the current five-year lease term to 77% at the end of the 20-year term of the projected fair value of the equipment. I&M and SWEPCo have assumed the guarantee under the return-and-sale option. I&M's maximum potential loss related to the guarantee is approximately $12 million and SWEPCo's is approximately $13 million assuming the fair value of the equipment is zero at the end of the current five-year lease term. However, we believe that the fair value would produce a sufficient sales price to avoid any loss.

Sabine Dragline Lease

During 2009, Sabine, an entity consolidated in accordance with the accounting guidance for “Variable Interest Entities,” entered into capital lease arrangements with a nonaffiliated company to finance the purchase of two electric draglines to be used for Sabine's mining operations totaling $47 million. The amounts included in the lease represented the aggregate fair value of the existing equipment and a sale-and-leaseback transaction for additional dragline rebuild costs required to keep the dragline operational. These capital lease assets are included in Other Property, Plant and Equipment on our December 31, 2012 and 2011 balance sheets. The short-term and long-term capital lease obligations are included in Other Current Liabilities and Deferred Credits and Other Noncurrent Liabilities on our December 31, 2012 and 2011 balance sheets. The future payment obligations are included in our future minimum lease payments schedule earlier in this note.

I&M Nuclear Fuel Lease

In December 2007, I&M entered into a sale-and-leaseback transaction with Citicorp Leasing, Inc. (CLI), an unrelated, unconsolidated, wholly-owned subsidiary of Citibank, N.A. to lease nuclear fuel for I&M's Cook Plant. In December 2007, I&M sold a portion of its unamortized nuclear fuel inventory to CLI at cost for $85 million. The lease had a variable rate based on one month LIBOR and was accounted for as a capital lease with lease terms up to 60 months. This lease was terminated with the March 2012 refueling.

Leases

11. LEASES

Leases of property, plant and equipment are for periods up to 60 years and require payments of related property taxes, maintenance and operating costs. The majority of the leases have purchase or renewal options and will be renewed or replaced by other leases.

Lease rentals for both operating and capital leases are generally charged to Other Operation and Maintenance expense in accordance with rate-making treatment for regulated operations. Additionally, for regulated operations with capital leases, a capital lease asset and offsetting liability are recorded at the present value of the remaining lease payments for each reporting period. Capital leases for nonregulated property are accounted for as if the assets were owned and financed. The components of rental costs are as follows:

Year Ended December 31, 2012	APCo		I&M		OPCo		PSO		SWEPCo
	(in thousands)
Net Lease Expense on Operating Leases	$	15,633	$	95,509	$	59,836	$	5,283	$	5,797
Amortization of Capital Leases		7,429		8,429		10,906		3,839		14,793
Interest on Capital Leases		1,782		1,738		3,307		815		9,041
Total Lease Rental Costs	$	24,844	$	105,676	$	74,049	$	9,937	$	29,631

Year Ended December 31, 2011	APCo		I&M		OPCo		PSO		SWEPCo
	(in thousands)
Net Lease Expense on Operating Leases	$	13,488	$	94,317	$	59,983	$	6,532	$	5,990
Amortization of Capital Leases		7,880		8,762		13,118		4,438		12,694
Interest on Capital Leases		1,898		2,115		3,753		1,098		9,651
Total Lease Rental Costs	$	23,266	$	105,194	$	76,854	$	12,068	$	28,335

Year Ended December 31, 2010	APCo		I&M		OPCo		PSO		SWEPCo
	(in thousands)
Net Lease Expense on Operating Leases	$	18,034	$	91,973	$	62,887	$	2,649	$	5,877
Amortization of Capital Leases		7,002		31,178		12,069		3,992		11,742
Interest on Capital Leases		1,598		2,298		3,132		1,057		9,892
Total Lease Rental Costs	$	26,634	$	125,449	$	78,088	$	7,698	$	27,511

The following table shows the property, plant and equipment under capital leases and related obligations recorded on the Registrant Subsidiaries' balance sheets. For SWEPCo, current and long-term capital lease obligations are included in Obligations Under Capital Leases on SWEPCo's balance sheets. For all other Registrant Subsidiaries, current capital lease obligations are included in Other Current Liabilities and long-term capital lease obligations are included in Deferred Credits and Other Noncurrent Liabilities on the balance sheets.

December 31, 2012		APCo		I&M		OPCo		PSO		SWEPCo
		(in thousands)
Property, Plant and Equipment Under
	Capital Leases:
Generation		$	11,798	$	19,102	$	39,080	$	3,624	$	27,745
Other Property, Plant and Equipment			20,944		22,697		35,666		15,614		154,166
Total Property, Plant and Equipment			32,742		41,799		74,746		19,238		181,911
Accumulated Amortization			10,282		13,154		27,513		6,738		50,440
Net Property, Plant and Equipment
	Under Capital Leases	$	22,460	$	28,645	$	47,233	$	12,500	$	131,471

Obligations Under Capital Leases:
Noncurrent Liability		$	16,375	$	22,842	$	36,381	$	8,864	$	114,161
Liability Due Within One Year			6,085		5,803		14,707		3,636		17,599

Total Obligations Under Capital Leases		$	22,460	$	28,645	$	51,088	$	12,500	$	131,760

December 31, 2011		APCo		I&M		OPCo		PSO		SWEPCo
		(in thousands)
Property, Plant and Equipment Under
	Capital Leases:
Generation		$	11,712	$	16,100	$	36,689	$	3,617	$	20,453
Other Property, Plant and Equipment			25,201		27,712		36,264		16,441		145,273
Total Property, Plant and Equipment			36,913		43,812		72,953		20,058		165,726
Accumulated Amortization			9,886		12,779		22,075		5,196		38,163
Net Property, Plant and Equipment
	Under Capital Leases	$	27,027	$	31,033	$	50,878	$	14,862	$	127,563

Obligations Under Capital Leases:
Noncurrent Liability		$	19,293	$	23,117	$	40,152	$	11,101	$	112,802
Liability Due Within One Year			7,734		7,916		14,096		3,761		15,058

Total Obligations Under Capital Leases		$	27,027	$	31,033	$	54,248	$	14,862	$	127,860

Future minimum lease payments consisted of the following as of December 31, 2012:

Capital Leases		APCo		I&M		OPCo		PSO		SWEPCo
		(in thousands)
2013		$	6,988	$	6,827	$	13,669	$	4,222	$	25,706
2014			4,596		5,649		10,371		3,149		23,702
2015			3,849		4,279		7,383		1,921		21,585
2016			3,372		3,504		6,743		1,636		18,728
2017			2,809		3,344		6,322		1,646		20,103
Later Years			3,748		11,781		17,905		1,709		60,112
Total Future Minimum Lease
	Payments		25,362		35,384		62,393		14,283		169,936
Less Estimated Interest Element			2,902		6,739		11,305		1,782		38,176
Estimated Present Value of Future
	Minimum Lease Payments	$	22,460	$	28,645	$	51,088	$	12,501	$	131,760

Noncancelable Operating Leases		APCo		I&M		OPCo		PSO		SWEPCo
		(in thousands)
2013		$	15,693	$	98,719	$	58,968	$	2,383	$	5,893
2014			13,959		98,673		55,261		1,858		4,279
2015			11,054		97,266		52,287		1,524		3,672
2016			10,270		89,872		46,002		1,231		3,030
2017			9,819		84,142		42,678		1,048		2,681
Later Years			47,613		423,279		68,094		1,723		10,297
Total Future Minimum Lease
	Payments	$	108,408	$	891,951	$	323,290	$	9,767	$	29,852

Master Lease Agreements

The Registrant Subsidiaries lease certain equipment under master lease agreements. Under the lease agreements, the lessor is guaranteed a residual value up to a stated percentage of either the unamortized balance or the equipment cost at the end of the lease term. If the actual fair value of the leased equipment is below the guaranteed residual value at the end of the lease term, the Registrant Subsidiaries are committed to pay the difference between the actual fair value and the residual value guarantee. As of December 31, 2012, the maximum potential loss by Registrant Subsidiary for these lease agreements assuming the fair value of the equipment is zero at the end of the lease term is as follows:

	Maximum
Company	Potential Loss
	(in thousands)
APCo	$	3,463
I&M		2,432
OPCo		4,003
PSO		1,171
SWEPCo		2,405

Historically, at the end of the lease term the fair value has been in excess of the unamortized balance.

Leases

11. LEASES

Leases of property, plant and equipment are for periods up to 60 years and require payments of related property taxes, maintenance and operating costs. The majority of the leases have purchase or renewal options and will be renewed or replaced by other leases.

Lease rentals for both operating and capital leases are generally charged to Other Operation and Maintenance expense in accordance with rate-making treatment for regulated operations. Additionally, for regulated operations with capital leases, a capital lease asset and offsetting liability are recorded at the present value of the remaining lease payments for each reporting period. Capital leases for nonregulated property are accounted for as if the assets were owned and financed. The components of rental costs are as follows:

Year Ended December 31, 2012	APCo		I&M		OPCo		PSO		SWEPCo
	(in thousands)
Net Lease Expense on Operating Leases	$	15,633	$	95,509	$	59,836	$	5,283	$	5,797
Amortization of Capital Leases		7,429		8,429		10,906		3,839		14,793
Interest on Capital Leases		1,782		1,738		3,307		815		9,041
Total Lease Rental Costs	$	24,844	$	105,676	$	74,049	$	9,937	$	29,631

Year Ended December 31, 2011	APCo		I&M		OPCo		PSO		SWEPCo
	(in thousands)
Net Lease Expense on Operating Leases	$	13,488	$	94,317	$	59,983	$	6,532	$	5,990
Amortization of Capital Leases		7,880		8,762		13,118		4,438		12,694
Interest on Capital Leases		1,898		2,115		3,753		1,098		9,651
Total Lease Rental Costs	$	23,266	$	105,194	$	76,854	$	12,068	$	28,335

Year Ended December 31, 2010	APCo		I&M		OPCo		PSO		SWEPCo
	(in thousands)
Net Lease Expense on Operating Leases	$	18,034	$	91,973	$	62,887	$	2,649	$	5,877
Amortization of Capital Leases		7,002		31,178		12,069		3,992		11,742
Interest on Capital Leases		1,598		2,298		3,132		1,057		9,892
Total Lease Rental Costs	$	26,634	$	125,449	$	78,088	$	7,698	$	27,511

The following table shows the property, plant and equipment under capital leases and related obligations recorded on the Registrant Subsidiaries' balance sheets. For SWEPCo, current and long-term capital lease obligations are included in Obligations Under Capital Leases on SWEPCo's balance sheets. For all other Registrant Subsidiaries, current capital lease obligations are included in Other Current Liabilities and long-term capital lease obligations are included in Deferred Credits and Other Noncurrent Liabilities on the balance sheets.

December 31, 2012		APCo		I&M		OPCo		PSO		SWEPCo
		(in thousands)
Property, Plant and Equipment Under
	Capital Leases:
Generation		$	11,798	$	19,102	$	39,080	$	3,624	$	27,745
Other Property, Plant and Equipment			20,944		22,697		35,666		15,614		154,166
Total Property, Plant and Equipment			32,742		41,799		74,746		19,238		181,911
Accumulated Amortization			10,282		13,154		27,513		6,738		50,440
Net Property, Plant and Equipment
	Under Capital Leases	$	22,460	$	28,645	$	47,233	$	12,500	$	131,471

Obligations Under Capital Leases:
Noncurrent Liability		$	16,375	$	22,842	$	36,381	$	8,864	$	114,161
Liability Due Within One Year			6,085		5,803		14,707		3,636		17,599

Total Obligations Under Capital Leases		$	22,460	$	28,645	$	51,088	$	12,500	$	131,760

December 31, 2011		APCo		I&M		OPCo		PSO		SWEPCo
		(in thousands)
Property, Plant and Equipment Under
	Capital Leases:
Generation		$	11,712	$	16,100	$	36,689	$	3,617	$	20,453
Other Property, Plant and Equipment			25,201		27,712		36,264		16,441		145,273
Total Property, Plant and Equipment			36,913		43,812		72,953		20,058		165,726
Accumulated Amortization			9,886		12,779		22,075		5,196		38,163
Net Property, Plant and Equipment
	Under Capital Leases	$	27,027	$	31,033	$	50,878	$	14,862	$	127,563

Obligations Under Capital Leases:
Noncurrent Liability		$	19,293	$	23,117	$	40,152	$	11,101	$	112,802
Liability Due Within One Year			7,734		7,916		14,096		3,761		15,058

Total Obligations Under Capital Leases		$	27,027	$	31,033	$	54,248	$	14,862	$	127,860

Future minimum lease payments consisted of the following as of December 31, 2012:

Capital Leases		APCo		I&M		OPCo		PSO		SWEPCo
		(in thousands)
2013		$	6,988	$	6,827	$	13,669	$	4,222	$	25,706
2014			4,596		5,649		10,371		3,149		23,702
2015			3,849		4,279		7,383		1,921		21,585
2016			3,372		3,504		6,743		1,636		18,728
2017			2,809		3,344		6,322		1,646		20,103
Later Years			3,748		11,781		17,905		1,709		60,112
Total Future Minimum Lease
	Payments		25,362		35,384		62,393		14,283		169,936
Less Estimated Interest Element			2,902		6,739		11,305		1,782		38,176
Estimated Present Value of Future
	Minimum Lease Payments	$	22,460	$	28,645	$	51,088	$	12,501	$	131,760

Noncancelable Operating Leases		APCo		I&M		OPCo		PSO		SWEPCo
		(in thousands)
2013		$	15,693	$	98,719	$	58,968	$	2,383	$	5,893
2014			13,959		98,673		55,261		1,858		4,279
2015			11,054		97,266		52,287		1,524		3,672
2016			10,270		89,872		46,002		1,231		3,030
2017			9,819		84,142		42,678		1,048		2,681
Later Years			47,613		423,279		68,094		1,723		10,297
Total Future Minimum Lease
	Payments	$	108,408	$	891,951	$	323,290	$	9,767	$	29,852

Master Lease Agreements

The Registrant Subsidiaries lease certain equipment under master lease agreements. Under the lease agreements, the lessor is guaranteed a residual value up to a stated percentage of either the unamortized balance or the equipment cost at the end of the lease term. If the actual fair value of the leased equipment is below the guaranteed residual value at the end of the lease term, the Registrant Subsidiaries are committed to pay the difference between the actual fair value and the residual value guarantee. As of December 31, 2012, the maximum potential loss by Registrant Subsidiary for these lease agreements assuming the fair value of the equipment is zero at the end of the lease term is as follows:

	Maximum
Company	Potential Loss
	(in thousands)
APCo	$	3,463
I&M		2,432
OPCo		4,003
PSO		1,171
SWEPCo		2,405

Historically, at the end of the lease term the fair value has been in excess of the unamortized balance.

Rockport Lease

AEGCo and I&M entered into a sale-and-leaseback transaction in 1989 with Wilmington Trust Company (Owner Trustee), an unrelated, unconsolidated trustee for Rockport Plant Unit 2 (the Plant). The Owner Trustee was capitalized with equity from six owner participants with no relationship to AEP or any of its subsidiaries and debt from a syndicate of banks and securities in a private placement to certain institutional investors.

The gain from the sale was deferred and is being amortized over the term of the lease, which expires in 2022. The Owner Trustee owns the Plant and leases it equally to AEGCo and I&M. The lease is accounted for as an operating lease with the payment obligations included in the future minimum lease payments schedule earlier in this note. The lease term is for 33 years with potential renewal options. At the end of the lease term, AEGCo and I&M have the option to renew the lease or the Owner Trustee can sell the Plant. AEP, AEGCo and I&M have no ownership interest in the Owner Trustee and do not guarantee its debt. I&M's future minimum lease payments for this sale-and-leaseback transaction as of December 31, 2012 are as follows:

Future Minimum Lease Payments	I&M
	(in millions)
2013	$	74
2014		74
2015		74
2016		74
2017		74
Later Years		369
Total Future Minimum Lease Payments	$	739

Railcar Lease

In June 2003, AEP Transportation LLC (AEP Transportation), a subsidiary of AEP, entered into an agreement with BTM Capital Corporation, as lessor, to lease 875 coal-transporting aluminum railcars. The lease is accounted for as an operating lease. In January 2008, AEP Transportation assigned the remaining 848 railcars under the original lease agreement to I&M (390 railcars) and SWEPCo (458 railcars). The assignment is accounted for as operating leases for I&M and SWEPCo. The initial lease term was five years with three consecutive five-year renewal periods for a maximum lease term of twenty years. I&M and SWEPCo intend to renew these leases for the full lease term of twenty years via the renewal options. The future minimum lease obligations are $14 million for I&M and $15 million for SWEPCo for the remaining railcars as of December 31, 2012. These obligations are included in the future minimum lease payments schedule earlier in this note.

Under the lease agreement, the lessor is guaranteed that the sale proceeds under a return-and-sale option will equal at least a lessee obligation amount specified in the lease, which declines from approximately 84% under the current five-year lease term to 77% at the end of the 20-year term of the projected fair value of the equipment. I&M and SWEPCo have assumed the guarantee under the return-and-sale option. I&M's maximum potential loss related to the guarantee is approximately $12 million and SWEPCo's is approximately $13 million assuming the fair value of the equipment is zero at the end of the current five-year lease term. However, management believes that the fair value would produce a sufficient sales price to avoid any loss.

I&M Nuclear Fuel Lease

In December 2007, I&M entered into a sale-and-leaseback transaction with Citicorp Leasing, Inc. (CLI), an unrelated, unconsolidated, wholly-owned subsidiary of Citibank, N.A. to lease nuclear fuel for I&M's Cook Plant. In December 2007, I&M sold a portion of its unamortized nuclear fuel inventory to CLI at cost for $85 million. The lease had a variable rate based on one month LIBOR and was accounted for as a capital lease with lease terms up to 60 months. This lease was terminated with the March 2012 refueling.

Leases

11. LEASES

Leases of property, plant and equipment are for periods up to 60 years and require payments of related property taxes, maintenance and operating costs. The majority of the leases have purchase or renewal options and will be renewed or replaced by other leases.

Lease rentals for both operating and capital leases are generally charged to Other Operation and Maintenance expense in accordance with rate-making treatment for regulated operations. Additionally, for regulated operations with capital leases, a capital lease asset and offsetting liability are recorded at the present value of the remaining lease payments for each reporting period. Capital leases for nonregulated property are accounted for as if the assets were owned and financed. The components of rental costs are as follows:

Year Ended December 31, 2012	APCo		I&M		OPCo		PSO		SWEPCo
	(in thousands)
Net Lease Expense on Operating Leases	$	15,633	$	95,509	$	59,836	$	5,283	$	5,797
Amortization of Capital Leases		7,429		8,429		10,906		3,839		14,793
Interest on Capital Leases		1,782		1,738		3,307		815		9,041
Total Lease Rental Costs	$	24,844	$	105,676	$	74,049	$	9,937	$	29,631

Year Ended December 31, 2011	APCo		I&M		OPCo		PSO		SWEPCo
	(in thousands)
Net Lease Expense on Operating Leases	$	13,488	$	94,317	$	59,983	$	6,532	$	5,990
Amortization of Capital Leases		7,880		8,762		13,118		4,438		12,694
Interest on Capital Leases		1,898		2,115		3,753		1,098		9,651
Total Lease Rental Costs	$	23,266	$	105,194	$	76,854	$	12,068	$	28,335

Year Ended December 31, 2010	APCo		I&M		OPCo		PSO		SWEPCo
	(in thousands)
Net Lease Expense on Operating Leases	$	18,034	$	91,973	$	62,887	$	2,649	$	5,877
Amortization of Capital Leases		7,002		31,178		12,069		3,992		11,742
Interest on Capital Leases		1,598		2,298		3,132		1,057		9,892
Total Lease Rental Costs	$	26,634	$	125,449	$	78,088	$	7,698	$	27,511

The following table shows the property, plant and equipment under capital leases and related obligations recorded on the Registrant Subsidiaries' balance sheets. For SWEPCo, current and long-term capital lease obligations are included in Obligations Under Capital Leases on SWEPCo's balance sheets. For all other Registrant Subsidiaries, current capital lease obligations are included in Other Current Liabilities and long-term capital lease obligations are included in Deferred Credits and Other Noncurrent Liabilities on the balance sheets.

December 31, 2012		APCo		I&M		OPCo		PSO		SWEPCo
		(in thousands)
Property, Plant and Equipment Under
	Capital Leases:
Generation		$	11,798	$	19,102	$	39,080	$	3,624	$	27,745
Other Property, Plant and Equipment			20,944		22,697		35,666		15,614		154,166
Total Property, Plant and Equipment			32,742		41,799		74,746		19,238		181,911
Accumulated Amortization			10,282		13,154		27,513		6,738		50,440
Net Property, Plant and Equipment
	Under Capital Leases	$	22,460	$	28,645	$	47,233	$	12,500	$	131,471

Obligations Under Capital Leases:
Noncurrent Liability		$	16,375	$	22,842	$	36,381	$	8,864	$	114,161
Liability Due Within One Year			6,085		5,803		14,707		3,636		17,599

Total Obligations Under Capital Leases		$	22,460	$	28,645	$	51,088	$	12,500	$	131,760

December 31, 2011		APCo		I&M		OPCo		PSO		SWEPCo
		(in thousands)
Property, Plant and Equipment Under
	Capital Leases:
Generation		$	11,712	$	16,100	$	36,689	$	3,617	$	20,453
Other Property, Plant and Equipment			25,201		27,712		36,264		16,441		145,273
Total Property, Plant and Equipment			36,913		43,812		72,953		20,058		165,726
Accumulated Amortization			9,886		12,779		22,075		5,196		38,163
Net Property, Plant and Equipment
	Under Capital Leases	$	27,027	$	31,033	$	50,878	$	14,862	$	127,563

Obligations Under Capital Leases:
Noncurrent Liability		$	19,293	$	23,117	$	40,152	$	11,101	$	112,802
Liability Due Within One Year			7,734		7,916		14,096		3,761		15,058

Total Obligations Under Capital Leases		$	27,027	$	31,033	$	54,248	$	14,862	$	127,860

Future minimum lease payments consisted of the following as of December 31, 2012:

Capital Leases		APCo		I&M		OPCo		PSO		SWEPCo
		(in thousands)
2013		$	6,988	$	6,827	$	13,669	$	4,222	$	25,706
2014			4,596		5,649		10,371		3,149		23,702
2015			3,849		4,279		7,383		1,921		21,585
2016			3,372		3,504		6,743		1,636		18,728
2017			2,809		3,344		6,322		1,646		20,103
Later Years			3,748		11,781		17,905		1,709		60,112
Total Future Minimum Lease
	Payments		25,362		35,384		62,393		14,283		169,936
Less Estimated Interest Element			2,902		6,739		11,305		1,782		38,176
Estimated Present Value of Future
	Minimum Lease Payments	$	22,460	$	28,645	$	51,088	$	12,501	$	131,760

Noncancelable Operating Leases		APCo		I&M		OPCo		PSO		SWEPCo
		(in thousands)
2013		$	15,693	$	98,719	$	58,968	$	2,383	$	5,893
2014			13,959		98,673		55,261		1,858		4,279
2015			11,054		97,266		52,287		1,524		3,672
2016			10,270		89,872		46,002		1,231		3,030
2017			9,819		84,142		42,678		1,048		2,681
Later Years			47,613		423,279		68,094		1,723		10,297
Total Future Minimum Lease
	Payments	$	108,408	$	891,951	$	323,290	$	9,767	$	29,852

Master Lease Agreements

The Registrant Subsidiaries lease certain equipment under master lease agreements. Under the lease agreements, the lessor is guaranteed a residual value up to a stated percentage of either the unamortized balance or the equipment cost at the end of the lease term. If the actual fair value of the leased equipment is below the guaranteed residual value at the end of the lease term, the Registrant Subsidiaries are committed to pay the difference between the actual fair value and the residual value guarantee. As of December 31, 2012, the maximum potential loss by Registrant Subsidiary for these lease agreements assuming the fair value of the equipment is zero at the end of the lease term is as follows:

	Maximum
Company	Potential Loss
	(in thousands)
APCo	$	3,463
I&M		2,432
OPCo		4,003
PSO		1,171
SWEPCo		2,405

Historically, at the end of the lease term the fair value has been in excess of the unamortized balance.

Leases

11. LEASES

Leases of property, plant and equipment are for periods up to 60 years and require payments of related property taxes, maintenance and operating costs. The majority of the leases have purchase or renewal options and will be renewed or replaced by other leases.

Lease rentals for both operating and capital leases are generally charged to Other Operation and Maintenance expense in accordance with rate-making treatment for regulated operations. Additionally, for regulated operations with capital leases, a capital lease asset and offsetting liability are recorded at the present value of the remaining lease payments for each reporting period. Capital leases for nonregulated property are accounted for as if the assets were owned and financed. The components of rental costs are as follows:

Year Ended December 31, 2012	APCo		I&M		OPCo		PSO		SWEPCo
	(in thousands)
Net Lease Expense on Operating Leases	$	15,633	$	95,509	$	59,836	$	5,283	$	5,797
Amortization of Capital Leases		7,429		8,429		10,906		3,839		14,793
Interest on Capital Leases		1,782		1,738		3,307		815		9,041
Total Lease Rental Costs	$	24,844	$	105,676	$	74,049	$	9,937	$	29,631

Year Ended December 31, 2011	APCo		I&M		OPCo		PSO		SWEPCo
	(in thousands)
Net Lease Expense on Operating Leases	$	13,488	$	94,317	$	59,983	$	6,532	$	5,990
Amortization of Capital Leases		7,880		8,762		13,118		4,438		12,694
Interest on Capital Leases		1,898		2,115		3,753		1,098		9,651
Total Lease Rental Costs	$	23,266	$	105,194	$	76,854	$	12,068	$	28,335

Year Ended December 31, 2010	APCo		I&M		OPCo		PSO		SWEPCo
	(in thousands)
Net Lease Expense on Operating Leases	$	18,034	$	91,973	$	62,887	$	2,649	$	5,877
Amortization of Capital Leases		7,002		31,178		12,069		3,992		11,742
Interest on Capital Leases		1,598		2,298		3,132		1,057		9,892
Total Lease Rental Costs	$	26,634	$	125,449	$	78,088	$	7,698	$	27,511

The following table shows the property, plant and equipment under capital leases and related obligations recorded on the Registrant Subsidiaries' balance sheets. For SWEPCo, current and long-term capital lease obligations are included in Obligations Under Capital Leases on SWEPCo's balance sheets. For all other Registrant Subsidiaries, current capital lease obligations are included in Other Current Liabilities and long-term capital lease obligations are included in Deferred Credits and Other Noncurrent Liabilities on the balance sheets.

December 31, 2012		APCo		I&M		OPCo		PSO		SWEPCo
		(in thousands)
Property, Plant and Equipment Under
	Capital Leases:
Generation		$	11,798	$	19,102	$	39,080	$	3,624	$	27,745
Other Property, Plant and Equipment			20,944		22,697		35,666		15,614		154,166
Total Property, Plant and Equipment			32,742		41,799		74,746		19,238		181,911
Accumulated Amortization			10,282		13,154		27,513		6,738		50,440
Net Property, Plant and Equipment
	Under Capital Leases	$	22,460	$	28,645	$	47,233	$	12,500	$	131,471

Obligations Under Capital Leases:
Noncurrent Liability		$	16,375	$	22,842	$	36,381	$	8,864	$	114,161
Liability Due Within One Year			6,085		5,803		14,707		3,636		17,599

Total Obligations Under Capital Leases		$	22,460	$	28,645	$	51,088	$	12,500	$	131,760

December 31, 2011		APCo		I&M		OPCo		PSO		SWEPCo
		(in thousands)
Property, Plant and Equipment Under
	Capital Leases:
Generation		$	11,712	$	16,100	$	36,689	$	3,617	$	20,453
Other Property, Plant and Equipment			25,201		27,712		36,264		16,441		145,273
Total Property, Plant and Equipment			36,913		43,812		72,953		20,058		165,726
Accumulated Amortization			9,886		12,779		22,075		5,196		38,163
Net Property, Plant and Equipment
	Under Capital Leases	$	27,027	$	31,033	$	50,878	$	14,862	$	127,563

Obligations Under Capital Leases:
Noncurrent Liability		$	19,293	$	23,117	$	40,152	$	11,101	$	112,802
Liability Due Within One Year			7,734		7,916		14,096		3,761		15,058

Total Obligations Under Capital Leases		$	27,027	$	31,033	$	54,248	$	14,862	$	127,860

Future minimum lease payments consisted of the following as of December 31, 2012:

Capital Leases		APCo		I&M		OPCo		PSO		SWEPCo
		(in thousands)
2013		$	6,988	$	6,827	$	13,669	$	4,222	$	25,706
2014			4,596		5,649		10,371		3,149		23,702
2015			3,849		4,279		7,383		1,921		21,585
2016			3,372		3,504		6,743		1,636		18,728
2017			2,809		3,344		6,322		1,646		20,103
Later Years			3,748		11,781		17,905		1,709		60,112
Total Future Minimum Lease
	Payments		25,362		35,384		62,393		14,283		169,936
Less Estimated Interest Element			2,902		6,739		11,305		1,782		38,176
Estimated Present Value of Future
	Minimum Lease Payments	$	22,460	$	28,645	$	51,088	$	12,501	$	131,760

Noncancelable Operating Leases		APCo		I&M		OPCo		PSO		SWEPCo
		(in thousands)
2013		$	15,693	$	98,719	$	58,968	$	2,383	$	5,893
2014			13,959		98,673		55,261		1,858		4,279
2015			11,054		97,266		52,287		1,524		3,672
2016			10,270		89,872		46,002		1,231		3,030
2017			9,819		84,142		42,678		1,048		2,681
Later Years			47,613		423,279		68,094		1,723		10,297
Total Future Minimum Lease
	Payments	$	108,408	$	891,951	$	323,290	$	9,767	$	29,852

Master Lease Agreements

The Registrant Subsidiaries lease certain equipment under master lease agreements. Under the lease agreements, the lessor is guaranteed a residual value up to a stated percentage of either the unamortized balance or the equipment cost at the end of the lease term. If the actual fair value of the leased equipment is below the guaranteed residual value at the end of the lease term, the Registrant Subsidiaries are committed to pay the difference between the actual fair value and the residual value guarantee. As of December 31, 2012, the maximum potential loss by Registrant Subsidiary for these lease agreements assuming the fair value of the equipment is zero at the end of the lease term is as follows:

	Maximum
Company	Potential Loss
	(in thousands)
APCo	$	3,463
I&M		2,432
OPCo		4,003
PSO		1,171
SWEPCo		2,405

Historically, at the end of the lease term the fair value has been in excess of the unamortized balance.

Leases

11. LEASES

Leases of property, plant and equipment are for periods up to 60 years and require payments of related property taxes, maintenance and operating costs. The majority of the leases have purchase or renewal options and will be renewed or replaced by other leases.

Lease rentals for both operating and capital leases are generally charged to Other Operation and Maintenance expense in accordance with rate-making treatment for regulated operations. Additionally, for regulated operations with capital leases, a capital lease asset and offsetting liability are recorded at the present value of the remaining lease payments for each reporting period. Capital leases for nonregulated property are accounted for as if the assets were owned and financed. The components of rental costs are as follows:

Year Ended December 31, 2012	APCo		I&M		OPCo		PSO		SWEPCo
	(in thousands)
Net Lease Expense on Operating Leases	$	15,633	$	95,509	$	59,836	$	5,283	$	5,797
Amortization of Capital Leases		7,429		8,429		10,906		3,839		14,793
Interest on Capital Leases		1,782		1,738		3,307		815		9,041
Total Lease Rental Costs	$	24,844	$	105,676	$	74,049	$	9,937	$	29,631

Year Ended December 31, 2011	APCo		I&M		OPCo		PSO		SWEPCo
	(in thousands)
Net Lease Expense on Operating Leases	$	13,488	$	94,317	$	59,983	$	6,532	$	5,990
Amortization of Capital Leases		7,880		8,762		13,118		4,438		12,694
Interest on Capital Leases		1,898		2,115		3,753		1,098		9,651
Total Lease Rental Costs	$	23,266	$	105,194	$	76,854	$	12,068	$	28,335

Year Ended December 31, 2010	APCo		I&M		OPCo		PSO		SWEPCo
	(in thousands)
Net Lease Expense on Operating Leases	$	18,034	$	91,973	$	62,887	$	2,649	$	5,877
Amortization of Capital Leases		7,002		31,178		12,069		3,992		11,742
Interest on Capital Leases		1,598		2,298		3,132		1,057		9,892
Total Lease Rental Costs	$	26,634	$	125,449	$	78,088	$	7,698	$	27,511

The following table shows the property, plant and equipment under capital leases and related obligations recorded on the Registrant Subsidiaries' balance sheets. For SWEPCo, current and long-term capital lease obligations are included in Obligations Under Capital Leases on SWEPCo's balance sheets. For all other Registrant Subsidiaries, current capital lease obligations are included in Other Current Liabilities and long-term capital lease obligations are included in Deferred Credits and Other Noncurrent Liabilities on the balance sheets.

December 31, 2012		APCo		I&M		OPCo		PSO		SWEPCo
		(in thousands)
Property, Plant and Equipment Under
	Capital Leases:
Generation		$	11,798	$	19,102	$	39,080	$	3,624	$	27,745
Other Property, Plant and Equipment			20,944		22,697		35,666		15,614		154,166
Total Property, Plant and Equipment			32,742		41,799		74,746		19,238		181,911
Accumulated Amortization			10,282		13,154		27,513		6,738		50,440
Net Property, Plant and Equipment
	Under Capital Leases	$	22,460	$	28,645	$	47,233	$	12,500	$	131,471

Obligations Under Capital Leases:
Noncurrent Liability		$	16,375	$	22,842	$	36,381	$	8,864	$	114,161
Liability Due Within One Year			6,085		5,803		14,707		3,636		17,599

Total Obligations Under Capital Leases		$	22,460	$	28,645	$	51,088	$	12,500	$	131,760

December 31, 2011		APCo		I&M		OPCo		PSO		SWEPCo
		(in thousands)
Property, Plant and Equipment Under
	Capital Leases:
Generation		$	11,712	$	16,100	$	36,689	$	3,617	$	20,453
Other Property, Plant and Equipment			25,201		27,712		36,264		16,441		145,273
Total Property, Plant and Equipment			36,913		43,812		72,953		20,058		165,726
Accumulated Amortization			9,886		12,779		22,075		5,196		38,163
Net Property, Plant and Equipment
	Under Capital Leases	$	27,027	$	31,033	$	50,878	$	14,862	$	127,563

Obligations Under Capital Leases:
Noncurrent Liability		$	19,293	$	23,117	$	40,152	$	11,101	$	112,802
Liability Due Within One Year			7,734		7,916		14,096		3,761		15,058

Total Obligations Under Capital Leases		$	27,027	$	31,033	$	54,248	$	14,862	$	127,860

Future minimum lease payments consisted of the following as of December 31, 2012:

Capital Leases		APCo		I&M		OPCo		PSO		SWEPCo
		(in thousands)
2013		$	6,988	$	6,827	$	13,669	$	4,222	$	25,706
2014			4,596		5,649		10,371		3,149		23,702
2015			3,849		4,279		7,383		1,921		21,585
2016			3,372		3,504		6,743		1,636		18,728
2017			2,809		3,344		6,322		1,646		20,103
Later Years			3,748		11,781		17,905		1,709		60,112
Total Future Minimum Lease
	Payments		25,362		35,384		62,393		14,283		169,936
Less Estimated Interest Element			2,902		6,739		11,305		1,782		38,176
Estimated Present Value of Future
	Minimum Lease Payments	$	22,460	$	28,645	$	51,088	$	12,501	$	131,760

Noncancelable Operating Leases		APCo		I&M		OPCo		PSO		SWEPCo
		(in thousands)
2013		$	15,693	$	98,719	$	58,968	$	2,383	$	5,893
2014			13,959		98,673		55,261		1,858		4,279
2015			11,054		97,266		52,287		1,524		3,672
2016			10,270		89,872		46,002		1,231		3,030
2017			9,819		84,142		42,678		1,048		2,681
Later Years			47,613		423,279		68,094		1,723		10,297
Total Future Minimum Lease
	Payments	$	108,408	$	891,951	$	323,290	$	9,767	$	29,852

Master Lease Agreements

The Registrant Subsidiaries lease certain equipment under master lease agreements. Under the lease agreements, the lessor is guaranteed a residual value up to a stated percentage of either the unamortized balance or the equipment cost at the end of the lease term. If the actual fair value of the leased equipment is below the guaranteed residual value at the end of the lease term, the Registrant Subsidiaries are committed to pay the difference between the actual fair value and the residual value guarantee. As of December 31, 2012, the maximum potential loss by Registrant Subsidiary for these lease agreements assuming the fair value of the equipment is zero at the end of the lease term is as follows:

	Maximum
Company	Potential Loss
	(in thousands)
APCo	$	3,463
I&M		2,432
OPCo		4,003
PSO		1,171
SWEPCo		2,405

Historically, at the end of the lease term the fair value has been in excess of the unamortized balance.

Railcar Lease

In June 2003, AEP Transportation LLC (AEP Transportation), a subsidiary of AEP, entered into an agreement with BTM Capital Corporation, as lessor, to lease 875 coal-transporting aluminum railcars. The lease is accounted for as an operating lease. In January 2008, AEP Transportation assigned the remaining 848 railcars under the original lease agreement to I&M (390 railcars) and SWEPCo (458 railcars). The assignment is accounted for as operating leases for I&M and SWEPCo. The initial lease term was five years with three consecutive five-year renewal periods for a maximum lease term of twenty years. I&M and SWEPCo intend to renew these leases for the full lease term of twenty years via the renewal options. The future minimum lease obligations are $14 million for I&M and $15 million for SWEPCo for the remaining railcars as of December 31, 2012. These obligations are included in the future minimum lease payments schedule earlier in this note.

Under the lease agreement, the lessor is guaranteed that the sale proceeds under a return-and-sale option will equal at least a lessee obligation amount specified in the lease, which declines from approximately 84% under the current five-year lease term to 77% at the end of the 20-year term of the projected fair value of the equipment. I&M and SWEPCo have assumed the guarantee under the return-and-sale option. I&M's maximum potential loss related to the guarantee is approximately $12 million and SWEPCo's is approximately $13 million assuming the fair value of the equipment is zero at the end of the current five-year lease term. However, management believes that the fair value would produce a sufficient sales price to avoid any loss.

Sabine Dragline Lease

During 2009, Sabine, an entity consolidated in accordance with the accounting guidance for “Variable Interest Entities,” entered into capital lease arrangements with a nonaffiliated company to finance the purchase of two electric draglines to be used for Sabine's mining operations totaling $47 million. The amounts included in the lease represented the aggregate fair value of the existing equipment and a sale-and-leaseback transaction for additional dragline rebuild costs required to keep the dragline operational. These capital lease assets are included in Other Property, Plant and Equipment on SWEPCo's December 31, 2012 and 2011 balance sheets. The short-term and long-term capital lease obligations are included in Obligations Under Capital Leases on SWEPCo's December 31, 2012 and 2011 balance sheets. The future payment obligations are included in SWEPCo's future minimum lease payments schedule earlier in this note.