v3.24.0.1
Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Taxes INCOME TAXES
The disclosures in this note apply to all Registrants unless indicated otherwise.

Income Tax Expense (Benefit)

The details of the Registrants’ Income Tax Expense (Benefit) as reported are as follows:
Year Ended December 31, 2023AEPAEP TexasAEPTCoAPCoI&MOPCoPSOSWEPCo
(in millions)
Federal:
Current$(116.7)$19.8 $93.9 $62.2 $93.2 $46.6 $(60.8)$(88.1)
Deferred115.9 63.5 52.3 (60.5)(56.9)2.8 2.9 59.9 
Total Federal(0.8)83.3 146.2 1.7 36.3 49.4 (57.9)(28.2)
State and Local:
Current69.0 2.7 9.1 6.3 21.1 (0.3)0.3 1.0 
Deferred(13.6)(0.1)(8.2)6.2 1.2 5.2 4.0 (6.1)
Total State and Local55.4 2.6 0.9 12.5 22.3 4.9 4.3 (5.1)
Income Tax Expense (Benefit)$54.6 $85.9 $147.1 $14.2 $58.6 $54.3 $(53.6)$(33.3)

Year Ended December 31, 2022AEPAEP TexasAEPTCoAPCoI&MOPCoPSOSWEPCo
(in millions)
Federal:
Current$113.1 $29.0 $98.0 $(61.0)$43.4 $(27.0)$(3.3)$(32.3)
Deferred(88.8)41.4 46.0 86.6 (51.3)73.3 (50.5)13.4 
Total Federal24.3 70.4 144.0 25.6 (7.9)46.3 (53.8)(18.9)
State and Local:
Current26.6 2.2 8.8 (0.4)10.9 (0.3)— (1.8)
Deferred(45.5)— 16.3 (7.0)1.2 (1.8)4.6 (4.5)
Total State and Local(18.9)2.2 25.1 (7.4)12.1 (2.1)4.6 (6.3)
Income Tax Expense (Benefit)$5.4 $72.6 $169.1 $18.2 $4.2 $44.2 $(49.2)$(25.2)

Year Ended December 31, 2021AEPAEP TexasAEPTCoAPCoI&MOPCoPSOSWEPCo
(in millions)
Federal:
Current$(27.8)$(1.2)$69.8 $5.0 $26.9 $6.8 $(109.6)$(16.7)
Deferred182.6 40.5 54.1 14.9 (35.5)25.2 105.6 26.2 
Total Federal154.8 39.3 123.9 19.9 (8.6)32.0 (4.0)9.5 
State and Local:
Current6.0 3.0 5.8 2.2 (0.6)(3.1)— 0.4 
Deferred(45.3)0.8 14.4 — (1.4)5.5 8.1 (10.5)
Total State and Local(39.3)3.8 20.2 2.2 (2.0)2.4 8.1 (10.1)
Income Tax Expense (Benefit)$115.5 $43.1 $144.1 $22.1 $(10.6)$34.4 $4.1 $(0.6)
The following are reconciliations for the Registrants between the federal income taxes computed by multiplying pretax income by the federal statutory tax rate and the income taxes reported:

Year Ended December 31, 2023AEPAEP TexasAEPTCoAPCoI&MOPCoPSOSWEPCo
(in millions)
Net Income$2,212.6 $370.4 $614.2 $294.4 $335.9 $328.2 $208.8 $223.8 
Less: Equity Earnings (1.4)— — — — — — (1.4)
Income Tax Expense (Benefit)54.6 85.9 147.1 14.2 58.6 54.3 (53.6)(33.3)
Pretax Income$2,265.8 $456.3 $761.3 $308.6 $394.5 $382.5 $155.2 $189.1 
Income Taxes on Pretax Income at Statutory Rate (21%)
$475.8 $95.8 $159.9 $64.8 $82.8 $80.3 $32.6 $39.7 
Increase (Decrease) in Income Taxes Resulting from the Following Items:
Reversal of Origination Flow-Through26.0 0.6 2.4 9.9 6.4 2.6 0.4 2.1 
Investment Tax Credit Amortization(50.3)(0.7)— — (1.6)— (1.4)(0.2)
Production Tax Credits(175.2)— — (0.1)— — (64.3)(67.1)
State and Local Income Taxes, Net43.7 2.1 0.7 9.9 17.5 3.9 3.5 (4.0)
Removal Costs(22.0)— — (5.1)(11.8)— — — 
AFUDC(39.8)(6.0)(17.5)(5.5)(2.3)(3.6)(1.8)(2.4)
Tax Reform Excess ADIT Reversal(151.1)(6.0)1.7 (17.3)(30.0)(28.9)(23.3)(12.6)
Remeasurement of Excess ADIT(46.0)— — (46.0)— — — — 
Federal Return to Provision— (0.1)— 3.4 (2.5)(0.4)0.6 1.0 
Disallowance Cost — — — — — — — 12.0 
Other(6.5)0.2 (0.1)0.2 0.1 0.4 0.1 (1.8)
Income Tax Expense (Benefit)$54.6 $85.9 $147.1 $14.2 $58.6 $54.3 $(53.6)$(33.3)
Effective Income Tax Rate2.4 %18.8 %19.3 %4.6 %14.9 %14.2 %(34.5)%(17.6)%
Year Ended December 31, 2022AEPAEP TexasAEPTCoAPCoI&MOPCoPSOSWEPCo
(in millions)
Net Income$2,305.6 $307.9 $594.2 $394.2 $324.7 $287.8 $167.6 $294.3 
Less: Equity Earnings(1.4)— — — — (0.6)— (1.4)
Income Tax Expense (Benefit)5.4 72.6 169.1 18.2 4.2 44.2 (49.2)(25.2)
Pretax Income$2,309.6 $380.5 $763.3 $412.4 $328.9 $331.4 $118.4 $267.7 
Income Taxes on Pretax Income at Statutory Rate (21%)
$485.0 $79.9 $160.3 $86.6 $69.1 $69.6 $24.9 $56.2 
Increase (Decrease) in Income Taxes Resulting from the Following Items:
Reversal of Origination Flow-Through17.1 — — 4.7 2.9 3.0 — 2.3 
Investment Tax Credit Amortization(14.3)— — — (3.1)— (1.6)— 
Production Tax Credits(197.1)— — — — — (47.7)(57.1)
State and Local Income Taxes, Net(14.0)1.7 19.8 (5.9)9.6 (1.6)4.3 (4.9)
Removal Costs(26.5)— — (9.8)(12.4)— — — 
AFUDC(29.3)(4.1)(14.8)(3.7)(2.1)(2.9)— — 
Tax Reform Excess ADIT Reversal(214.5)(5.5)— (50.9)(54.0)(27.5)(25.4)(14.8)
Federal Return to Provision(17.4)— — (2.8)(6.2)3.5 (3.7)— 
Other16.4 0.6 3.8 — 0.4 0.1 — (6.9)
Income Tax Expense (Benefit)$5.4 $72.6 $169.1 $18.2 $4.2 $44.2 $(49.2)$(25.2)
Effective Income Tax Rate0.2 %19.1 %22.2 %4.4 %1.3 %13.3 %(41.6)%(9.4)%

Year Ended December 31, 2021AEPAEP TexasAEPTCoAPCoI&MOPCoPSOSWEPCo
(in millions)
Net Income$2,488.1 $289.8 $591.7 $348.9 $279.8 $253.6 $141.1 $242.1 
Less: Equity Earnings (3.4)— — — — — — (3.4)
Income Tax Expense (Benefit)115.5 43.1 144.1 22.1 (10.6)34.4 4.1 (0.6)
Pretax Income$2,600.2 $332.9 $735.8 $371.0 $269.2 $288.0 $145.2 $238.1 
Income Taxes on Pretax Income at Statutory Rate (21%)
$546.0 $69.9 $154.5 $77.9 $56.5 $60.5 $30.5 $50.0 
Increase (Decrease) in Income Taxes Resulting from the Following Items:
Reversal of Origination Flow-Through25.9 — — 11.7 3.5 2.2 — 1.8 
Investment Tax Credit Amortization(22.0)— — — (6.4)— (1.8)— 
Production Tax Credits(98.8)— — — — — (6.0)(7.2)
State and Local Income Taxes, Net39.4 2.4 19.8 2.1 (1.3)— 6.4 (8.0)
Removal Costs(20.0)— — (7.3)(9.7)— — — 
AFUDC(30.6)(4.5)(14.1)(4.6)(2.7)(2.3)— — 
Parent Company Loss Benefit— (3.2)(18.3)— (2.8)— — — 
Tax Adjustments (a)(55.1)— — 4.5 — 8.9 — — 
Tax Reform Excess ADIT Reversal(255.6)(21.3)— (60.5)(46.3)(32.6)(25.4)(31.1)
Federal Return to Provision(1.6)— — (1.6)(0.6)(1.2)0.7 — 
Other(12.1)(0.2)2.2 (0.1)(0.8)(1.1)(0.3)(6.1)
Income Tax Expense (Benefit)$115.5 $43.1 $144.1 $22.1 $(10.6)$34.4 $4.1 $(0.6)
Effective Income Tax Rate4.4 %12.9 %19.6 %6.0 %(3.9)%11.9 %2.8 %(0.3)

(a)2021 amount represents an out of period adjustment related to Deferred Income Taxes and Income Tax Expense (Benefit). Management concluded the misstatement and subsequent correction was not material to the 2021 or prior period financial statements.
Net Deferred Tax Liability

The following tables show elements of the net deferred tax liability and significant temporary differences for each Registrant:
Year Ended December 31, 2023AEPAEP TexasAEPTCoAPCoI&MOPCoPSOSWEPCo
(in millions)
Deferred Tax Assets$3,216.1 $173.6 $188.1 $473.0 $1,014.1 $271.4 $282.3 $441.5 
Deferred Tax Liabilities(12,631.8)(1,401.4)(1,335.8)(2,484.9)(2,184.0)(1,424.1)(1,113.5)(1,620.8)
Net Deferred Tax Liabilities $(9,415.7)$(1,227.8)$(1,147.7)$(2,011.9)$(1,169.9)$(1,152.7)$(831.2)$(1,179.3)
Property Related Temporary Differences$(7,779.7)$(1,227.1)$(1,134.6)$(1,556.0)$(298.1)$(1,162.1)$(817.2)$(1,087.2)
Amounts Due to Customers for Future Income Taxes900.1 109.3 119.0 143.4 103.2 104.5 88.6 142.5 
Deferred State Income Taxes(1,222.8)(41.5)(155.4)(308.4)(238.1)(68.8)(122.6)(238.6)
Securitized Assets(79.9)(45.6)— (29.2)— (5.1)— — 
Regulatory Assets(768.9)(57.6)(7.6)(257.4)32.3 (83.5)(83.8)(143.4)
Accrued Nuclear Decommissioning(776.5)— — — (776.5)— — — 
Net Operating Loss Carryforward148.0 — 3.9 — — 2.6 25.3 47.5 
Tax Credit Carryforward321.9 13.7 — 0.1 7.2 41.0 53.8 68.6 
Operating Lease Liability131.1 16.6 0.3 15.1 10.8 14.6 23.6 26.3 
Investment in Partnership(293.1)— — (0.1)— (0.7)— (1.3)
All Other, Net4.1 4.4 26.7 (19.4)(10.7)4.8 1.1 6.3 
Net Deferred Tax Liabilities $(9,415.7)$(1,227.8)$(1,147.7)$(2,011.9)$(1,169.9)$(1,152.7)$(831.2)$(1,179.3)

Year Ended December 31, 2022AEPAEP TexasAEPTCoAPCoI&MOPCoPSOSWEPCo
(in millions)
Deferred Tax Assets$3,567.4 $177.0 $165.0 $510.3 $933.7 $218.8 $225.0 $374.9 
Deferred Tax Liabilities(12,464.3)(1,321.2)(1,221.5)(2,502.5)(2,090.7)(1,319.9)(1,013.6)(1,464.6)
Net Deferred Tax Liabilities $(8,896.9)$(1,144.2)$(1,056.5)$(1,992.2)$(1,157.0)$(1,101.1)$(788.6)$(1,089.7)
Property Related Temporary Differences$(7,788.1)$(1,130.7)$(1,081.5)$(1,509.8)$(398.0)$(1,133.8)$(763.3)$(1,053.8)
Amounts Due to Customers for Future Income Taxes962.7 111.0 118.5 163.0 114.3 112.6 96.0 146.2 
Deferred State Income Taxes(1,049.3)(36.6)(108.1)(318.5)(227.0)(59.6)(81.9)(208.7)
Securitized Assets(98.9)(65.0)— (33.9)— — — — 
Regulatory Assets(865.2)(48.9)(1.1)(301.2)(29.5)(57.6)(140.2)(114.1)
Accrued Nuclear Decommissioning(632.7)— — — (632.7)— — — 
Net Operating Loss Carryforward132.4 — 5.5 — — — 25.8 42.7 
Tax Credit Carryforward612.0 — 0.2 — — — 54.3 66.0 
Operating Lease Liability142.9 20.3 0.3 15.6 13.6 15.5 — — 
Investment in Partnership(338.9)— — — — — — — 
Valuation Allowance(28.2)— (0.1)— — — — — 
Deferred Revenues7.1 — — — — — — — 
Postretirement Benefits2.5 — — — — — — — 
All Other, Net44.8 5.7 9.8 (7.4)2.3 21.8 20.7 32.0 
Net Deferred Tax Liabilities $(8,896.9)$(1,144.2)$(1,056.5)$(1,992.2)$(1,157.0)$(1,101.1)$(788.6)$(1,089.7)
Federal and State Income Tax Audit Status

The statute of limitations for the IRS to examine AEP and subsidiaries originally filed federal return has expired for tax years 2016 and earlier. AEP has agreed to extend the statute of limitations on the 2017-2019 tax returns to October 31, 2024, to allow time for our refund claim to be approved by the Congressional Joint Committee on Taxation. The statute of limitations for the 2020 return is set to naturally expire in October 2024 as well.

The current IRS audit and associated refund claim evolved from a net operating loss carryback to 2015 that originated in the 2017 return. AEP has received and agreed to immaterial IRS proposed adjustments on the 2017 tax return. The IRS exam is complete, and AEP is currently waiting on the IRS to submit the refund claim to the Congressional Joint Committee on Taxation for resolution and final approval.

AEP and subsidiaries file income tax returns in various state and local jurisdictions. These taxing authorities routinely examine the tax returns, and AEP and subsidiaries are currently under examination in several state and local jurisdictions. Generally, the statutes of limitations have expired for tax years prior to 2017. In addition, management is monitoring and continues to evaluate the potential impact of federal legislation and corresponding state conformity.

Net Income Tax Operating Loss Carryforward

As of December 31, 2023, AEP, OPCo, PSO and SWEPCo have state net income tax operating loss carryforwards as indicated in the table below:
State Net Income
 Tax Operating LossYears of
CompanyState/MunicipalityCarryforwardExpiration
(in millions)
AEPArkansas$259.3 2024-2033
AEPColorado80.8 2041
AEPIllinois54.4 2039-2041
AEPKentucky204.1 2030-2037
AEPLouisiana629.2 NA
AEP Michigan45.6 2030-2032
AEPOhio Municipal1,954.8 2024-2028
AEPOklahoma877.9 2037
AEPPennsylvania47.8 2030-2043
AEPTennessee47.7 2032-2038
OPCoOhio Municipal152.3 2024-2028
PSOOklahoma947.1 2037
SWEPCoArkansas258.9 2024-2033
SWEPCoLouisiana619.1 NA
NA    Not applicable.

Tax Credit Carryforward

Federal and state net income tax operating losses sustained in 2017, 2019 and 2021 resulted in unused federal and state income tax credits.  As of December 31, 2023, the Registrants have federal tax credit carryforwards and AEP and PSO have state tax credit carryforwards as indicated in the table below.  If these credits are not utilized, federal general business tax credits will expire in the years 2036 through 2041 and state tax credits will remain available indefinitely.
Total FederalTotal State
Tax CreditTax Credit
CompanyCarryforwardCarryforward
(in millions)
AEP$321.9 $40.0 
AEP Texas13.7 — 
APCo0.1 — 
I&M7.2 — 
OPCo41.0 — 
PSO53.8 40.0 
SWEPCo68.6 — 

The Registrants anticipate future federal taxable income will be sufficient to realize the tax benefits of the federal tax credits before they expire unused.
Valuation Allowance

AEP assesses the available positive and negative evidence to estimate whether sufficient future taxable income of the appropriate tax character will be generated to realize the benefits of existing deferred tax assets. When the evaluation of the evidence indicates that it is more-likely-than-not that AEP will not be able to realize the benefits of existing deferred tax assets, a valuation allowance is recorded to reduce existing deferred tax assets to the net realizable amount. Objective evidence evaluated includes whether AEP has a history of recognizing income, future reversals of existing temporary differences and tax planning strategies.

Valuation allowance activity for the years ended December 31, 2023, 2022 and 2021 were not material.

Uncertain Tax Positions

The amount and activity of unrecognized tax benefits was not material for the Registrants for the years ended December 31, 2023, 2022 and 2021. Management believes that there will be no significant net increase or decrease in unrecognized benefits within 12 months of the reporting date.  The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate for AEP as of December 31, 2023, 2022 and 2021 were $13 million, $23 million, and $14 million, respectively.

Federal Tax Legislation

In August 2022, President Biden signed H.R. 5376 into law, commonly known as the Inflation Reduction Act of 2022, or IRA. Most notably this budget reconciliation legislation creates a 15% minimum tax on adjusted financial statement income (Corporate Alternative Minimum Tax or CAMT), extends and increases the value of PTCs and ITCs, adds a nuclear and clean hydrogen PTC, an energy storage ITC and allows the sale or transfer of tax credits to third parties for cash. As further significant guidance from Treasury and the IRS is expected on the tax provisions in the IRA, AEP will continue to monitor any issued guidance and evaluate the impact on future net income, cash flows and financial condition.

In December 2022, the IRS released Notice 2023-7, which provided initial CAMT guidance that AEP can begin to rely on in 2023. Notably, the interim guidance in Notice 2023-7 confirmed the CAMT depreciation adjustment includes tax depreciation that is capitalized to inventory under §263A and recovered as part of cost of goods sold, providing significant relief to AEP’s potential CAMT exposure. In September 2023, the IRS released Notice 2023-64, which clarifies and supplements items in Notice 2023-7 and stated that additional guidance in the form of proposed regulations is expected. AEP will continue to monitor and assess any additional guidance.

AEP and subsidiaries expect to be applicable corporations for purposes of the CAMT beginning in 2023. CAMT cash taxes are expected to be partially offset by regulatory recovery, the utilization of tax credits and additionally the cash inflow generated by the sale of tax credits. The sale of tax credits are presented in the operating section of the statements of cash flows consistent with the presentation of cash taxes paid. AEP presents the loss on sale of tax credits through income tax expense.

In June 2023, the IRS issued temporary regulations related to the transfer of tax credits. In the third and fourth quarter of 2023, AEP, on behalf of PSO, SWEPCo and AEP Energy Supply, LLC, entered into transferability agreements with nonaffiliated parties to sell 2023 generated PTCs resulting in cash proceeds of approximately $102 million received in the fourth quarter of 2023 and an additional $76 million expected in early 2024. AEP expects to continue to explore the ability to efficiently monetize its tax credits through third party transferability agreements.