VARIABLE INTEREST ENTITIES

9 Months Ended

Sep. 30, 2025

Equity Method Investments and Joint Ventures [Abstract]

The disclosures in this note apply to AEP unless indicated otherwise.

The accounting guidance for “Variable Interest Entities” is a consolidation model that considers if a company has a variable interest in a VIE. A VIE is a legal entity that possesses any of the following conditions: the entity’s equity at risk is not sufficient to permit the legal entity to finance its activities without additional subordinated financial support, equity owners are unable to direct the activities that most significantly impact the legal entity’s economic performance (or they possess disproportionate voting rights in relation to the economic interest in the legal entity), or the equity owners lack the obligation to absorb the legal entity’s expected losses or the right to receive the legal entity’s expected residual returns. Entities are required to consolidate a VIE when it is determined that they have a controlling financial interest in a VIE and therefore, are the primary beneficiary of that VIE, as defined by the accounting guidance for “Variable Interest Entities.” In determining whether AEP is the primary beneficiary of a VIE, management considers whether AEP has the power to direct the most significant activities of the VIE and is obligated to absorb losses or receive the expected residual returns that are significant to the VIE. Management believes that significant assumptions and judgments were applied consistently.

AEP holds ownership interests in businesses with varying ownership structures. Partnership interests and other variable interests are evaluated to determine if each entity is a VIE, and if so, whether or not the VIE should be consolidated into AEP’s financial statements. AEP has not provided material financial or other support that was not previously contractually required to any of its consolidated VIEs. AEP’s interests in non-consolidated VIEs are accounted for under the equity method of accounting.

Consolidated Variable Interest Entities

Cost Recovery Funding (Applies to AEP)

In June 2025, Cost Recovery Funding was formed for the sole purpose of issuing and servicing securitization bonds related to plant retirement costs, deferred storm costs related to 2020, 2021, 2022 and 2023 major storms, deferred purchased power expenses, under-recovered purchased power rider costs and issuance-related expenses, including KPSC advisor expenses. Management concluded that KPCo is the primary beneficiary of Cost Recovery Funding because KPCo has the power to direct the most significant activities of the VIE and KPCo’s equity interest could potentially be significant. Therefore, KPCo is required to consolidate Cost Recovery Funding. As of September 30, 2025, $16 million of the securitized bonds was included in Long-term Debt Due Within One Year and $452 million was included in Long-term Debt on the balance sheet. Cost Recovery Funding’s securitized assets were $465 million as of September 30, 2025, which was presented separately on the face of the balance sheet.

The securitized assets represent the right to impose and collect KPCo recovery charges from KPCo’s customers. The securitization bonds are payable only from and secured by the securitized assets. The bondholders have no recourse to KPCo or any other AEP entity. KPCo acts as the servicer for Cost Recovery Funding’s securitized assets and remits all related amounts collected from customers to Cost Recovery Funding for interest and principal payments on the securitization bonds and related costs. See the tables below for the classification of Cost Recovery Funding’s assets and liabilities on the balance sheet.

The 2024 Annual Report includes a detailed discussion of AEP’s and Registrant Subsidiaries’ other consolidated VIEs.

The balances below represent the assets and liabilities of AEP’s and Registrant Subsidiaries’ consolidated VIEs. These balances include intercompany transactions that are eliminated upon consolidation.




	September 30, 2025

	Consolidated VIEs
	SWEPCo Sabine		I&M DCC Fuel		AEP Texas Restoration Funding			APCo Appalachian Consumer Rate Relief Funding			SWEPCo Storm Recovery Funding		KPCo Cost Recovery Funding			AEP Credit		Protected Cell of EIS		Transource Energy
	(in millions)
ASSETS
Current Assets	$	2.0	$	86.7	$	12.5		$	9.7		$	9.1	$	14.2		$	1,640.7	$	227.2	$	63.7
Net Property, Plant and Equipment	—		152.2		—			—			—		—			—		—		633.0
Other Noncurrent Assets	92.9		76.4		104.6		(a)	86.2		(b)	315.3		465.0		(c)	10.9		0.5		6.6
Total Assets	$	94.9	$	315.3	$	117.1		$	95.9		$	324.4	$	479.2		$	1,651.6	$	227.7	$	703.3

LIABILITIES AND EQUITY
Current Liabilities	$	18.1	$	86.5	$	30.3		$	30.2		$	18.4	$	24.1		$	1,529.6	$	64.7	$	31.2
Noncurrent Liabilities	76.8		228.8		85.4			63.8			304.3		452.7			1.0		94.2		339.8
Equity	—		—		1.4			1.9			1.7		2.4			121.0		68.8		332.3
Total Liabilities and Equity	$	94.9	$	315.3	$	117.1		$	95.9		$	324.4	$	479.2		$	1,651.6	$	227.7	$	703.3

(a)Includes an intercompany item eliminated in consolidation of $4 million.

(b)Includes an intercompany item eliminated in consolidation of $1 million.

(c)Includes an intercompany item eliminated in consolidation of $16 million.




	December 31, 2024

	Consolidated VIEs
	SWEPCo Sabine		I&M DCC Fuel		AEP Texas Restoration Funding			APCo Appalachian Consumer Rate Relief Funding			SWEPCo Storm Recovery Funding		AEP Credit		Protected Cell of EIS		Transource Energy
	(in millions)
ASSETS
Current Assets	$	6.0	$	79.3	$	21.3		$	14.2		$	3.4	$	1,118.3	$	218.5	$	40.2
Net Property, Plant and Equipment	—		132.3		—			—			—		—		—		598.3
Other Noncurrent Assets	110.8		63.6		121.9		(a)	109.6		(b)	331.4		10.5		—		3.5
Total Assets	$	116.8	$	275.2	$	143.2		$	123.8		$	334.8	$	1,128.8	$	218.5	$	642.0

LIABILITIES AND EQUITY
Current Liabilities	$	20.1	$	79.2	$	30.7		$	30.5		$	24.4	$	1,068.8	$	54.7	$	57.2
Noncurrent Liabilities	96.3		196.0		111.2			91.4			308.7		1.0		96.0		274.3
Equity	0.4		—		1.3			1.9			1.7		59.0		67.8		310.5
Total Liabilities and Equity	$	116.8	$	275.2	$	143.2		$	123.8		$	334.8	$	1,128.8	$	218.5	$	642.0

(a)Includes an intercompany item eliminated in consolidation of $5 million.

(b)Includes an intercompany item eliminated in consolidation of $1 million.

Non-Consolidated Significant Variable Interests

The 2024 Annual Report includes a detailed discussion of AEP’s and Registrant Subsidiaries’ significant variable interests in non-consolidated VIEs.

Equity Method Investment in Unconsolidated Entities

Gigawatt AI (Applies to AEP)

In August 2025, AEP and Gigawatt AI, Inc. (GWAI), a recently formed privately held company, entered into a new commercial arrangement. GWAI is focused on developing AI-centric operating systems and applications that optimize utility operations and infrastructure. AEP invested $100 million for a 10% ownership interest in the common stock and received a warrant for the option to acquire an additional 5% of GWAI’s common stock for $50 million. Contingent upon GWAI’s achievement of defined performance-based milestones, AEP will invest up to an additional $100 million for up to an additional 10% of GWAI’s common stock. In connection with AEP’s equity interest, AEP was granted the right to designate one of the three members of GWAI’s board of directors, which position is currently held by an officer of AEP. All other equity interests and representation on the board of directors are held by the founders of GWAI. Accordingly, the investment represents a related-party transaction. AEP also acquired a perpetual software license for software developed by GWAI.

The $100 million equity interest is accounted for as an equity method investment due to AEP’s ability to exercise significant influence over certain GWAI policies. As of September 30, 2025, AEP’s carrying value of the investment in GWAI was $100 million, which was initially recognized at cost in Deferred Charges and Other Noncurrent Assets on the balance sheet. AEP’s proportionate share of GWAI’s earnings or losses were immaterial for the three and nine months ended September 30, 2025.

The common stock warrant meets the definition of a derivative instrument and is therefore required to be carried at fair value on a recurring basis. The fair value of the common stock warrant and AEP's acquired perpetual software license were immaterial as of September 30, 2025. GWAI’s successful development of new, substantive software functionality that can feasibly be deployed and implemented by the Registrants may give rise to an impairment trigger for other internal-use software assets in future reporting periods.

The 2024 Annual Report includes a detailed discussion of AEP’s and Registrant Subsidiaries’ other equity method investments.