seiia · 2012. 3. 22. · a) ferc form 1 for each year ending december 31 must be filed by april...
TRANSCRIPT
1 THIS FILING IS
Item 1: An Initial (Original) OR Resubmission No. - Subrnisslon
Exact Legal Name of Respondent (Company) Southwestern Electric Power Company End of -.
YearlPeriod of Report
.I
Form 1 Approved
(Expires 121311201 1) Form l-F Approved
(Expires 1 Z31/201 I ) Form 3-4 Approved
(Expires 1/31/2012)
OMB NO. 1902-0021
OMB NO. 1902-0029
OMB NO. 1902-0205
ARK P U B ~ I ~ SEiia CQMM AUDIT SECTION
FERC FINANCIAL REPORT FERC FORM No. I : Annual Report of
Major Electric Utilities, Licensees and Others and Supplemental
Form 3-Q: Quarterly Financial Report
These regorls are mandatory under the Federal Power A& Sedlons 3.4(a). 304 and 309. and 18 CFR 141 1 and 141.400 Fellure to repon may result In criminal tines. chit ~enaltles and cmer sanctinns as prnvibed by I rw TI?.? Federa! Energy Regulamrj Ccrnrniision does no! cdnslder these reports to be of wnfidenbat naiuie
Deloitteo Deloltte &Touche LW Suite 1400 180 East Broad Street Columbus. OH df2fS-3611 USA
TP~: +I 610 221 t o m fax: + t 6 t 4 2 2 9 U 9 7 r-ssrUel oitt e .corn
Soulu w c r n Elcctric Porter Compan!
M’e hale audited the balance sheet - r q u l a t o p basis d Sourhuestern Electric Poucr Company (the “Cornpan!“) as of Drcembcr 3 I . 20 IO, and the related statements of income - repilator?. basis; rctained earnings - rcgulatoc basis. and cash f low - reylatory basis for the year endcd December 3 I , 1010. irieluded on pages 1 IO through 113 of thc accompan>in& Federal E n e r g Regulator! Commission Form I . These financial statemems are the responsibilip of thc Compan!’s management. Our responsibility is to cspress an opitiion on these financial starements based on our audit
We conducted our audit in accordance niil i Seeneral!\ accepted auditing standards as csiablished b} the Audiring Siandards Board (Unitcd States) and in accordance with the auditins standards of the PubIic Cornpan! Accounting Oversight Board (United States). ‘Those standards rcquire that i’ic p h i and pcrfonn the audit to obtain reasonable assurance about mhetlier tht financial mtcmcnts are free of material misstatrmenr. An audit indudes consideration of inrernal controI over financial reponing as a basis for designing audit procedures that are appropriate in the circumsranccs. but not for the purpose of espressing un opinion on the effectiveness of the Company’s internal control over financial reportins. Accordingl!.. we csprcss no such opinion. An audit also includes esarnining, on a rcst basis. cvidence supporting [he amounrs and disclosures in the financial statemen~s. asscssinz the accountin_g principles used and sigificanr estimates made b~ management, as wcll as evaluating the overall financial statement presentotioti. We believe that our audir provides a reasonable basis for our opinion.
As discussed in Note 1. rhese financial statements were preparcd in accordance u i i h the accounring requirements ofthe Federal E n e r s Regulatory Commission as set forth in its applicable Uniform System of Accounts and published accounting releases. which is a comprehensive basis of accounrin_e other than accounting principles general?\ accepted in the United States of Amcrica.
In our opinion. such regulatorybasis financial statements present fairly. in all marerial respects, the assers. liabilhies. and proprietary capital of Soutlrwestern Electric Power Cornpan). a5 of December 3 1. 2010. and the results of its operations and its cash flows for the p a r ended December 31, 3010, in accordance with the accounting requirements of the Federal E n e r g Repiaton. Commission as set fonh in its applicable Uniform System of Accounts and pubIislied accounting releases.
This rcpon is intended solel: for the information and use of the board of direcrors and management of the Cornpan! and for filing with the Federal Enerp Regutatoq Commission and is not intended to be and should not be used bj an>otie orher than these specified parlies.
Februaq 25.301 1
Member of Oeloine Touche Tohmtsu Lrmnted
INSTRUCTIONS FOR FILING FERC FORM NOS. 1 and 3-42
GENERAL INFORMATION
1. Purpose
FERC Form No. 1 (FERC Form 3 ) is an annual regulatory requirement for Major electric utilities, licensees and others (I 8 C.F.R. 5 141. I ) . FERC Form No. 3-Q ( FERC Form 343s a quarterly regulatory requirement which supptements the annual financial reporting requirement (18 C.F.R. 5 141.400). These reports are designed to collect financial and operational information from electric utilities. licensees and others subject to the jurisdMon of the Federal Energy Regulatory Commission, These reports are also considered to be non-confidentiat public use forms
I t Who Must Submit
Each Major electric utility. licensee, or other. as classified in the Commissian's Uniform System of Accounts Prescribed for Public Utilities and Licensees Subject To the Provisions of The Federal Power Act (18 C.F.R. Part 101). must submit FERC F o n 1 (18 C.F.R. 5 14g.l). and FERC Form 3-Q (18 C.F.R. 5 141.400).
exceeds one of the following: Note: Major means having. in each of the three previous eatendar years. sales or transmission service that
( I ) one million megawatt hours of total annuaI sales. (2) 100 megawatt hours of annual sales for resale, (3) 500 megawatt hours of annual power exchanges delivered. or (4) 500 megawatt hours of annual wheeling for others (deliveries plus losses).
111. What and Where to Submit
(a) Submit FERC Forms 1 and 3 4 electronically through the forms submission sohare. Retain one copy of each report for your files. Any electronic submission must be created by using the forms submission software provided free by the Commission at its web site: http:/lwww.ferc.qov/docs-filinsleformslform-1 /elec-subm-soft.asp. The s o w r e is used to submit the electronic filing to the Commission via the Internet.
(b) The Corporate Officer Certifmbon must be submitted electronidly as part of the FERC Forms 1 and 3-Q filings.
(c) Submit immediately upon publication, by either eFiling or mail, h o (2) copies to the Secretary of the Commission. the latest Annual Report to Stockholders. Unless efiling the Annual Report to Stockholders. maiI the stockholders report to the Secretary of the Commission at:
Secretary Federal Energy Regulatory Commission 888 First Street. NE Washington, DC 20426
(d) applicable to filers classified as Class C or Class D prior to January 1, 1984). The CPA Certification Statement can be either eFited or mailed to the Secretary of the Commission at the address above.
For the CFA Certification Statement, submit within 30 days after filing the FERC Form 1, a tetter OF report (not
FERC FORM 1 8 3-Q (ED3, 03-07) i
The CPA Certification Statement should:
a) Attest to the conformity. in all material aspects, of the below listed (schedules and pages) with the Commission's applicable Uniform System of Accounts (including applicable notes relating thereto and the Chief Accountant's published accounting releases), and
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b) Be signed by independent certified public accountants or an independent licensed public accountant certified or licensed by a regulatory authority of a State or other political subdivision of h e U. S. (See 18 C.F.R. 55 41.1044 . I2 for specific qualifications.)
Reference Schedules Pases
Comparative Balance Sheet 110-1 13 Statement of Income 114-117 Statement of Retained Earnings 118-319
Notes to Financial Statements 122-1 23 Statement of Cash Flqws 120-121
e) The following format must be used for the CPA Certification Statement unless unusual circumstances or conditions, explained in the letter or report. demand that i t be varied. Insert parenthetical phrases only when exceptions are reported.
'In connection with our regular examination of the financial statements cf for the year ended on which we have reported separately under date OF
conformity in all material respects with the requirements of the Federal Energy Regulatory Commission as set forth in its applicable Uniform System of Accounts and published accounting releases. Our review for this purpose included such tests of the accounting records and such other auditing procedures as we considered necessaq in the circumstances.
(except as noted below) conform in all material respects with the accounting requirements of the Federal Energy Regulatory Commission as set forth In its applicable Uniform System of Accounts and published accounting releases.'
The letter or report must state which, if any, of the pages above do not conform io the Commission's requirements. Describe the dkcrepancies that exist.
, we have also reviewed schedules of FERC Form No. 1 for the year filed with the Federal Energy Regulatory Commission, for
Based on our review, in our opinion the accompanying schedules identifed in the preceding paragraph
(r) Filers are encouraged to file their Annual Report to Stockholders, and the CPA Certification Statement using eFiling. To further that effort, new selections. 'Annual Report to Stockholders," and "CPA Certification Staternenr have been added to the dropdown "pick list" from which companies must choose when eFiling. Further instructions are found on the Cornmission's website at htto:llwww.ferc.qovIhel~/how-to.asp.
(9) FERC Form 1 and 3-Q free of charge from http:/lwww.ferc.qov/docs-fiIinqleformsAorm-1 /form-? .pdf and http:llwww.ferc.qovldocs-filinq~eforrns.a~~#3Q-~as .
Federal. State and Local Governments and other authorized users may obtain additional blank copies of
IV. When to Submit:
FERC Foms 1 and 3-Q must be filed by the following schedule:
FERC FORM 1 & 3-9 (ED. 03-07) ii
a) FERC Form 1 for each year ending December 31 must be filed by April 18’h of the following year (1 8 CFR Q 143 .I) , and
b) FERC Form 3-Q for each calendar quarter must be filed within 60 days after the reporting quarter (18 C.F.R. 5 141 -400).
V. Where to Send Comments on Public Reporting Burden.
The public repoFting burden for the FERC Form 1 coltection of information is estimated to average 1,144 hours per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data-needed, and cornpteting and reviewing the col!ection of information. The public reporting burden for the FERC Form 3-P collection of information is estimated to average 150 hours per response.
Send comments regarding these burden estimates or any aspect of Vlese collections of information. including suggestions for reducing burden. to the Federal Energy Regulatory Commission. 888 First Street NE, Washington, DC 20426 (Attention: Information Clearance Officer); and to the Ofke of Information and Regulatory Affairs. Office of Management and 8udgeL Washington. DC 20503 (Attentlon: Desk Officer for the Federal Energy Regulatory Commission). No person shall be subject to any penalty if any collection of information does not display a valid control number (44 U.S.C. 3 351 2 (a)).
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FERC FORM ‘I & 3 U (ED. 03-07) lii
GfNERAL INSTRUCTIONS
1. aIl accounting words and phrases in accordance with the USofA
Prepare this report in conformity with the Uniform System of Accounts (18 CFR Part 101) (USofA). Interpret
II. Enter in whole numbers (dollars or MWH) only, except where othenvise noted. (Enter cents for averages and figures per unit where cents are impcrtant The truncating of cents is allowed except on the four basic financial statements where rounding is required.) The amounts shown on all supporting pages must agree with the amounts entered on the statements that they support When applying thresholds to determine significance for reporting purposes. use for balance sheet accounts the balances at h e end of the current reporting period, and use for statement of income accounts the current yeats year to date amounts.
[ti word "None" where it truly and compIeteIy states the fact.
Cornpieke each question fully and accurately. even if it has been answered in a previous report. Enter the
IV. Applicable" in column (d) on the List of Schedules. pages 2 and 3.
For any page(s) thal is not applicable to the respondent omit the page(s) and enter "NA." "NONE." or "Not
V. Enter the month, day. and year for all dates. Use customary abbreviations. The "Date of Report" incIuded in the header of each page is t o be completed only for resubmksions (see VI!. below).
VI. Generally, except for certain schedules, all numbers. whether they are expected to be debits or credits, must be reported as positive. Numbers having a sign that is different from the expected sign must be reported by enclosing the numbers in parentheses.
VI 1 the reason for the resubmission in a footnote to the data field.
For any resubmissions, submit the electronic filing using the form submission sohare only. Please explain
VIII. except as specifically authorized.
Do not make references to reports of previous periodslyears or to other reports In lieu of required entries.
IX. upon those shown by the report of the previous periodbear. or an appropriate explanation given as to why the different figures were used.
Wherever (schedule) pages refer to figures from a previous penodlyear. the figures reported must be based
Definitions for statistical classifications used for completing schedules for transmission system reporting are as follows:
FNS - Firm Nehhrork Transmission Service for Self. "Firm" means service that can not be interrupted for economic reasons and is intended to remain reliable even under adverse conditions. "Nehuork Service" is Network Tmnsmission Senrice as described in Order NO. 888 and the Open Access Transmission Tariff. "Self' means the respondent
FNO - Firm Network Service for Others. "Firm" means that service cannot be intempted for economic reasons and is intended to remain reliable even under adwrse conditions. "Network Service" is Network Transmission Service as described in Order No. 888 and the Open Access Transmission Tariff.
LFP -for Long-Term firm Point-to-Pcint Transmission Reservations. "Long-Term" means one year or longer and" firm" means that service cannot be intempted for economic reasons and is intended to remain reliable even under adverse conditions. "Point-to-Point Transmission Reservations" are described in Order No. 888 and the Open Access Transmission Tariff. For all transactions identrfied as LFP. provide in a footnote the
FERC FORM 1 & 3-4 (ED. 03-07) iv
termination date of the contract defined as the earliest date either buyer or seller can unilaterally cancel the contract
OLF -Other Long-Term Firm Transmission Service. Report service provided under contracts which do not canform to the terms of the Open Access Transmission Tariff. “Long-Term’’ means one year or longer and ”firm” means that service cannot be interrupted for economic reasons and is intended to remain reliabte even under adverse conditions. For all transactions Identified as OLF. provide in a footnote !he termhation date of the contract defined as the earliest date either buyer or seller can unilaterally get out of the contract
SFP - Short-Term firm Point-to-Point Transmission Reservations. Use this classification for alt firm point-to-point transmission reservations. where the duration of each period of reservation is less than one-year.
NF - Non-Firm Transmission Service. where firm means that service cannot be interrupted for economic reasons and is Intended to remain reliable even under adverse conditions.
OS - Other Transmission Service. Use this classification only for those sewices which a n not be placed in the above-mentioned classifications, such as all other service regardess of the length of the contract and service FERC Form Describe the type of service in a footnote for each entry.
AD - Outsf-Period Adjustments. Use this code for any accounting adjustments or“tme-ups” for service provided in prior reporting periods. Provide an explanation in a footnote for each adjustment
- DEFlNlTlONS I. other Commission. Name the commission whose authohtion ms obtained and give date of the authorization.
Commission Authorization (Comm. Auth.) -The authorization of the Federal Energy Regulatory Commission. or any
It. Respondent - The person. corporation. licensee. agency. authority. or other Legal entity or instFumentaIity in whose behalf the repod is made.
FERC FORM 1 & 3-4 [ED. 03-07) V
EXCERPTS FROM THE LAW
Federal Power Act, 16 U.S.C. 5 791a-825r Sec. 3. The words defined in this section shall have the following meanings for purposes of this Act. to with:
(3) 'Corporation' means any corporation, joint-stock company. partnership. assodation. business h s t . organized group of persons, whether incorporated or not, or a receiver or receivers. trustee or trustees of any of the foregoing. It shall not include 'municipalities, as hereinafter defined:
(4) 'Person' means an individual or a corporation;
(5) 'Licensee, means any person. State. or munlcipaIiiy Licensed under the provisions of section 4 of this Act,
(7) 'municipality means a city. county, irrigation district, drainage district, or other political subdivision or
and any assignee or successor in interest thereof;
agency of a State competent under the Laws thereof to carry and the business of developing, transmitting, unitizing. or distributing power; __.__.
(1 I) "project' means. a complete unit of improvement or development. consisting of a power house. all water conduits, all darns and appudenant works and structures (including navigation structures) which are a part of said unit, and all storage. diverting. or fore bay reservoirs directiy connected therewith, the primary tine or lines transmitting power there from to the point of junction with the distribution system or with the interconnected primary transmission system. alt miscellaneous structures used and useful in connection With said unit or any part thereof. and all water rights. rights-of-way, ditches, dams, reservoirs. Lands. or interest in Lands the use and occupancy of which are necessary or appropriate in the maintenance and operation of such unit;
"See. 4. The Commission is hereby authorized and empowered
(a) To make investigations and to collect and record data concerning the utiliation of the water 'resources of any region to be deveIoped. the water-pwrer industry and its relation to other industries and lo interstate or foreign commerce. and concerning the tocation, capacity. development-costs. and relation to markets of powersites; ... to the extent the Commission may deem necessary or useful for the purposes of this Act"
"Sec. 304. (a) Every Licensee and every public utility shall file with the Commission such annual and other periodic or special' reports as the Commbsion may be rutes and regulations or other prescribe as necessary or appropriate to assist the Commission In the -proper administration of this Act. The Commission may prescribe the manner and FERC Form In which such reports salt be made, and require from such persons specific answers to all questions upon which the Commission may need information. The Commission may require that such reports shalt include. among other things. full information as to assets and Liabilities, capitalhation, net investment, and reduction thereof, gross receipts. interest due and paid, depreciation. and other reserves, cost of project and other facilities, cost of maintenance and operation of the project and other facilities. cost of renewals and replacement of the project works and other faciIiffes. depreciation. generation, transmission, distribution. delivery, use. and sale of electric energy. The Commission may requlre any such person to make adequate provision for currently determining such casts and other facts. Such reports shall be made under oath unless the Commission othewise speeifies*.IO
FERC FORM I a 3 4 (ED. 03-07) vi
"Sec. 309. The Commission shall have power to perform any and all acts. and to prescribe, issue, make. and rescind such orders, rules and regutations as it may find necessary or appropriate to carry out the provisions of this Act Among other things, such rules and regulations may define accounting, technical, and trade terms used in this Act: and may prescribe the FERC Form or F E W Forms of all statements. declarations. applications, and reports to be filed with the Commission, the information which they shall contain, and the time within which they shall be field ..."
General Penalties
The Commission may assess up to %1 million per day per violation of its rules and regulations. See FPA 5 3 16(a) (2005), 16 U.S.C. 5 825o(a).
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FERC FORM t a 3-a (ED. 03-07) vi!
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FERC FORM NO. 1/34:
11 Exact Legal Name of Respondent Southwestern Electric Power Company
REPORT OF MAJOR ELECTRIC UTILITIES. LICENSEES AND OTHER : 02 YearlPeriad of Report
End of 20 1 OIQ4
15 Name of Contact Person Jason M. Johnson
- -1 .- _ _ ~. . .. -
14 Address of Principal Office at End at Period (Street, City. Stale. Zip Code) I Riverside Plaza. Columbus. Ohio 43215-2373
06 Title of Contact Person Accountant
Area Code (6141 716-1000
I (I) Q An Original (2) 0 A Resubmission (Mo. Da. Yr) I I / ANNUAL CORPORATE OFFICER CERIFICATION
%he undersigned officer certifies that
have examined this repon and to the best of my knovfiedge d o n a t i o n . and betief all sfaternents of lac! wntained in !his feplrt are eorreet statemen15 tithe business affatrs of the respindent and the financial statements. and other finandal infoma:ian ecntalned tn this repon. urntom In all materia! espeds tothe Uniform System of Accounts.
FERC FORM N0.113-Q (REV, 02-04) Page 1
/
I
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Name 01 ResFondent Southestern Eledrlc Power Company {2) n A Resubmksim~
Yearperiod of Report End of 20101Q4
I I
?ine Na.
1
Ttk of Schedule Reference Remarks Page No
(a) Ib) (e) General Information 301
2
3
Control Over Respondent 102
Carpamlons Contmlkd by Respondent 103
4
5
14 I Summa0 of Utifity Plant L AcuJrnuIated Provisions for Dep. Arr,ort 8 Dep 1 2m201 1 I
O f k e n 104
Directors 105
6
7
8
Informa6sn on Formula Rates 1 E la)@) Important Changes Ouricg the Year t 051 09
Comparative Balance Sheet 110-1 13
9
10
11
Statement of tnccrnt? for the Year 114-117 Page 116-Nh
Statement of RetaIned Earnings for the Year f i&I 19
Statement of Cash Ftom 120-121
15
16
Nuclear Fuel Materials 202-203 N4
Eledric Plant in Service 204-207
3G I Rewndation of Repart- ad Net Income with T v a b k Inc for Fed Inc Tax I 261 I I
17
18
19
Electric Plant Leased to Others 213 NA Electric Plant Held fer Future Use 214
Cnnatrudion Work in Prcgress-Electric 216
FERC FORM NO. I [ED. 12-96)
20
21 22
Page 2
humdated Provision Icr Depredatiin of Electric UWity Plant
Investment of Substdlarj Companies 224-225
Materials and Suppries 227
219
23
24
25
Allowances 228{abh229(ab)
!&mordinary Property Losses 230 NA Unrecovered Plant and Regulatory Study Cos& 230 NA
I
26
27
28
29
30
Transrnisslon Service and Generation lnterwnnedion Study Cos15 231 t h e
Other Regulatory Assets 232
Mlscei'laneous Deferred Debits 233
Accvrnu!aled Deferred lnmrne Taxes 234
Capital Stock 25&251
31
32 33
Other PaB-IrI Capiial 253 Capital Sock Erpense 25E NA Long-Term Oebt 256-257
35 Taxes Acexued. Prepaid and Charged During the Year
' 36 Accumulated Deferred Investment Tax Credits
262463
266267
ame cf Respondent
outhwes:em Electric Pawer Company
ne ID.
37
This Re ort Is: Dale of Repart YearPerlod of Report (I ) d A n Origtnal (Mo. Oa. Yr) End of 201OIQ4 (21 n A Resubmisslon I I I
Sitle oTSchedul Reference Remarks Page No.
(a) (b) t=) Othpr Deferred Credits 269
. . I I 1 LIST OF SCHEDULES (fbdric UtiliIy) (mntinued)
38
39
40
iter in column (c) the terms "none," "not applicable," or"NA,* as appropriate. where no lnfomtatlon or amounts have been reported for :dah pages. Omit pages where the respondents are "none," "not applicable: or 'MA".
Auxlmulated Deferred lneorne Taxes-Aerzlerated Amortization Property 272-273 NA Accumulated Defend lnwme 'Faxes-Other Property 274-275
Accurnutated Deferred lnmrne Taxer-Other 276-2?7
41
42
~
1 ~~
Other Regulatory liabilities 278
aectiieOperating Revenues 1 3OU-301
~ ~ ~
46 PurchasedPmet
43 I Saks of Electricity by Rate Schedules 1 3M 31 0.31 1
I M I Sales tor Resale
326327 I 45 I fledrtc Operation and Mafntenance Expenses I 320-323 I
51
52
53
Depredation and Amortitatlon d Electtie Plant 33M37
Regdatory Cornmtasion Expenses 350-351
Research, Development and Ownonstration Adivities 352-353
~~
49 I TransmissIan ut El&dty hy Mhea ~ 332
50 I MiscelIaneous General Emenws-Eledric 335 I
55 I Common Uti& Plant and Exnenses 356 NA
56
57
58
Amounts induded tn ISOlRTO Seltkrnent Statements
Purchase and Sale of Anallay Sewlees 398 None
397
Monthly Transmission System Peak Load 400
59
60
61
Monthly [SORT0 Transmission System Peak Load 400a NA
Electric Energy Aceount 401
Monthlv Peaks and Outnut 401
FERC FORM NO. 1 [ED. 32-96)
62
63
W
65
66
Page 3
Steam EIeaSc Generatlng PIant StaUsth 402403
HydrwleMc Generating Plant Slatistics 4 5 5 4 7 NA
Purnpd Storage Geeeraling Plant StatIstlcs 408409 tu Generating Pbnt Statistits Pager 41 M11 NA
Transmission Une Statisties k g e s 422423
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lame of Responden! jouthweslern EIectnc Pcvrer Company
n Original (2) n A Resubmisston
Date of Report Yearmedad of Report (Mo. Oa. Yr) End of 20101Q4 I t
I t 1 I
LIST OF SCHEDULES (Electric USity) (continued)
nter in cobmn (c) the terms *none,* 'not applicable." or "MA." as appropriate. where no information or amounts have been reported for ertain pages. Omit pages where the respondents are "none." "not applicable," or 'NA'.
Substations
TtIe ofschedule Reference Page No
(a) 1 [b)
426427
rransactions vnth kscciated (MIiated) Companies
:ootno!e Data
429
450
Remarks
tc)
FERC FORM NO. 1 (ED. 12-96) Page 4
I
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I
ame of Respondent iuttwes:em Elerne Pcwer 'Campany
This Repart Is: Date of Report YearlPeriod of Report (I) An OriginaI (Mo, Da. YrJ (2) AResubmission I I End of 20101a4
GENERAL INFORMATION
1. Provide name and title of officer having custody of the general corporate books of account and address of Iffice where the general corporate books are kept. and address of office where any other corporate books of account ire kept, if different from that where the general corporate books are kept.
k - b e w 9. R e i s . A S a l a t M t Cant=ollet 212 East S h t h Stmat Tulsa, 0klahm.a 74119
2. Provide the name of the State under the laws of which respondent is incorporated. and date of incorporation. f incorporated under a special law. give reference to such law. If not incorporated. state that fact and give the type >f organization and the date organized. State O f n8hUL-e Yune 29, 19L2
3. If at any time during the year the property of respondent was held by a receiver or trustee. give (a) name of .eceiver or trustee, (b) date such receiver or trustee took possession, (c) the authority by which the receivershlp or mteeship was created. and (d) date when possession by receiver or trustee ceased.
4. State the classes or utility and other services furnished by respondent during the year in each State in which the respondent operated.
Public U t i l i t y engaged in generating, purchasing, transfitting, distributing and selEng efaetrlc anergy. pualified to do businass in Ehe st&tes of Arkansas. L&siar.a. Oklahopa and Texas. The m a n y a ~ n 3 t r a n S z i S l l O n f a c i l f t h s but providea ria electric a e r d c e at r a t d l in O k h h o m a .
5. Have you engaged as the principal accountant to audit your financial statements an accountant who is not the prinelpal accountant for your previous year's certified financial statements?
(1) 0 Yes ... Enter the date when such Independent accountant was initialiy engaged: (21 El NO
F E W FORM No.1 (EO. 12-87) PAGE 101
lame of Respondent iouthwestern Electric Power Company
This Report Is: ( I ) [XJ An Original (2) [7 A Resubmission
Date of Report (Ma. Da. YrJ
Yeartperiod of Report
End of 20fOIQ4 t i
CONTROLOVERRESPONDENT 1. If any copomtion. business Vust. or similar organizatfon or a combination of such organizations JoinUy he!d antrol oyer the repondent at the end of the year. state name of rontroIling aorporation or organiration, manner in uhich codrol was held. and extent of control. If mntrol was in a holding company organization, show the chain If ownership or controt to the main parent company or organization. If control was held by a trustee(s). state lame of LnrsteeIs). name of beneficiary or beneficiearies for whom trust was maintained, and purpose of the trust.
bneriwn EleetricPower Company, Ink. a registered holding company. owns i O O % of the RespondenPs outstanding shares of :omrnon Stock.
FfRC FORM NO. I (ED. 12-96] Page 102
Name of Respmdent This Reoort ts: Da:e ct Report YearlPeriod of Repod
Soulhuestern Eledric Pmer Cernpany (1) An Original {Ma. Da. Yr) End of 2010lc14 (2) n A Resubmisson t I n
1. Report below ihe names of all cerporallms. business trusts, and similar organizations. controfted directly or Indirectly by respondent at any time during the year. If control ceased prior to end of year, give particulars (details) in a footnote. 2. If control was by olher means than a dteel holding of voting rights. state in a footnote the manner in which control vas held. naming any intermediaries Invohed. 3. If control was held jointlyvhth one or more other interests. stale the fact in a footnote and name the other interests.
Line No.
4 I I
Name olCompany Canlrolted Kind of Bmlness Percent Votlng Footnote S!O& am& Ref.
(d) (a) (b)
1
2
3
I 7 I Dole! Hilk Lignae Company IUgniie Mlne Operator I loo I
1M1 I I
AcqulsRition I Aid In Rghl of Way SorrUiwat M a n s a s UtiIides CorpnratSan
. . . . . - -. . __ .. .
Sabine hlinlng Company Lrgaite Mine Operator I 0 2 I
5
6
I.
The AMahorna Conoration Ekdrk Transmission 47.6 I
Ohow Mining Company b n A e Mine Operator 50 3 1 I I
I FaotnaX 1 - IXmership alThe Arklahorna Corporation Is held
.
22
23
I 1oIntlyvtih -mas Power and Ught Company and Oklahoma Gas and EIeeUie Company
I
1 Foolnol@3 - I
- . ... .
I Aeurunting guidanE :or Variable Interest
I Entities. Resoondent contram to t
I I 21 1 purchase 100% of Ihe Lgnite mined. I I 1
24 Ownership of the Oxbm MInIng Company is heM 25 I IoinUv with Clem Power Cornoanv LLC
I I I
27
FERC FORM NO. 1 (ED. 12-96) Page 103
Name of Respondent Southnesiem Eledric P a w r Company
I 1 1 I I OFFICERS
1. Report below the name. l i le and salary for eacb executive oftbrwhose salary is S50,OOO or more. An "executive officer of a respondent indudes its presidenl. secretary, treasurer, and vice president in charge of a principal business unit. division or function (such as sales, administration or finance), and any other person who performs similar policy making functions. 2. If a change was made during the year In the incumbent of any position. show name and total remuneration of the previous incumbent, and the dale the change In lnwmbency was made. Une 1 ltle I Name ot Officer
This Report IS: Da:e of Repod YearlPeriod of Repod (1) ah Original (Mo. Da. Url End of 201tXQ4 (2) mA Resubmlssion i t
~
7 1 I I a l
~
10 11
12 "
~
13 14
15 16
1
.- ~~ ~
17
18 19
20 I 21 I I 22 I I 23 24 25
I 26 I I I
I I
4t
42 I 43
I
i
I
FERC FORM NO. 1 [ED. 12-36) Page 104
Name of Respondent This Report is: (I) X An Original
Souhestem Electric Power Company (2) - A Resubmission
Schedule Page: 104 Cine No,: Column: a
Executive Compensation Table
Date of Report YEarlPeriod of Report (Mo. Da, Yr)
I I 20101Q4
IFERC FORM NO. 1 (ED. 12-87) Prge 450.3 1
Name of Respondent
SouWestern Eledric Power Company
AII Other Compensation 2010
This Report is: Date of Report YearIPeriod of Report (I) XAn OriginaI (Mo, Da. Yr) (2) - A Resubmission I I 201 0144
Robm P. POWErn
10.727 12.745
1I.W
\ cnlu Slcbalar li. T;irl t, McCcIIon.
IUnS Enetlrb Allen
7.678 11.025 10.43 I 5 3 7 14.30 i.787
12.1 I t 9.803 11.149
JDO D.Oo0
t
t
I
IFERC FORM NO. 1 (ED. 12-87) Page 450.9 I
Name of Respondent ThisRe arils: Date o l Re;ort YmdPetizd of Reparl
Souths~skm Electric PPwer Company (1) $ ~ n Original (Mo. DE. Yr) End af 20fWU4
: nnupa usmess ae:ess N O (a) (b)
1 I Mtchael G. Morris. Chalman of the Board and 1 Columbus. Ohia
t DIRECTORS I
5 6 7 8 9
Cad L English. Vice President
0. Michael Miller. Secretzry
Columbus. Ohio
Columbus, Ohio
31 I 4 I Nichohs K Akins. Vice President I Colzmbus. Ohio
10 Roben P. Powers. Vice President Columbus. Ohio I 1 12 Bakata 0. Radous. Vice President Coturnbus. Ohb
13 14 Brian X. Tiemey. Vice President and Columbus. Ohio 15 Chlef FInandal Ofieer 16 17 Susan Tcmasky. Vice Presiden! Cilumbus. Ohio
---
18
22 23 24 25
I
John B. Keane - Secretary Richard E. Munctinslti. Vice Presidcn; Chades R. Pation. Vice Chairman af the Beard and
Columbus. Ohio Columbus. Ohio Columbus. Ohlo
VI= PresIdant I
.- I
19 I Dennis E. Welch. Vice President 20 I 1
1 Columbus. Ohii
I - _ _ . - 27 I 28 1 The Resnondent daes not have an Executive CommlXee. I
1 2 9 I - - I t . ...
30 I 1
I I I I
FERC FORM NO. 1 (ED. 12-95} Page 105
YearPeriod of Repoit b d o f 2010fQ4
Name o l Respondent ThisRe rtls: Southwestern Electric P m r Company
I (118 An Original {2) n A Resubmission I J
'*. 1
2 3 4 5 6
I I I I INFORMATION ON FORMULA WTES
FERC Rate ScheduleFFariff Number FERC Prnceedinp
Yes Ooes the respndent have formula rates?
[3 No
I . Please list the Commission accepled farmula rates indudding FERC Rata Schedule or Tariff Number and FERC prooceeding {i e Docket No) accepting Ihe rate&) or changes In the accep:ed rate.
FERC Rate Schedule or TatiK Number FERC PmceedIng Rate Selledtlla 1 w EROI-5[14-[H10
Rate Schedule 110 ER02-20400
Rate Scileduk I l l ERO 1-2970-00O
h t e Schedute 113 ER01-2298400
Rata ScheduIe 119 ER10-208
Rate Schedule 120 ER03124WW
8
9
10
1 I
12
Rate Schedule 126 ER07-74t-QCO
Rate Schedule 127 EROBISO1M)O
Rate Schedule 128 ERQ986MH) Rate Schedule 129 ERf0-207
I
I ER07-1064 131 SPP FERC ElecVicTaariFfGLh RevlslonVol. No.1.
14 1 Addendum 4 to Attacvnent H, Parts I and 2
151 I
I 9
20
21
22
23
. ..
27
28
29
321 331
34 I
. . .
37 I 38 1
I I
41 I I
FERC FORhl NO. < (NEW. 12-08) Page 106
Name of Respondent Yhis Re oI: Is Date of Report
Southmstem Electric Power Compazy (11 ~n Original (Mo. Da. Yr) (21 n A Resubmis~ion
YearlPetiad cl Repcn E n d d 201*Q4
Name of Respondent
SouthmstemElectri
FERC Rate ScheduIemariff Number FERC Prnceedlng I
YearlPetiad cl Repcn C-A 2010!04
Yhis Re oI: Is I (11rXf An Original
Does Me respondent Ea with the Comrnisslon annual (ct more frequent) fiihgs containing h e injuts to the formula ratels)?
I
2. If yes. provide a lisling of such fitings as wnlained on the Ccmrnission’s eLiNary website
Line I Document Date Sckedule Number or NO. Descriptiea fatifl Number Accession No. 1 filed Date Docket No.
SPP OATT Att. H 4
Formula Rate FERC Rate
AEP SPP 2009 Trans FR UcdaM
I I 200505265302 0512612009 EROS-1198-000
I I Trans FR Uada:e 1 I 1 t I
FERC FORM NO. I (NEW. 1248) Page IOBa
Name o l Respondent
Southwestern Etextic Powet Company I I 1 1 3
1NFORMTION ON FORMULA RATES Formula Rale Variances
YeariPeriod of Report Endof 201UQ4 I l3isRe ?I Date of Report
{I) $" AEOrigtnal (2) A Resubrnbflon I t
(Mo. Da, Yr)
. . . . . . - . .. . . . .. . -~ I If a respondent does not submit such fillngs then indimte lo a foomate to the appIimble Form f schedule where formula rate inpuls differ from
amounts reported in the Form 1. 2. The footnale should provide a narrative deswipbon explaining how the "rate' (or billing) was derived If dikerent from the reparted amount In the
Form 1. 3. She footnote shiuld explain amounts excluded from the ratebase arwhere labor or ather atlocation factor?.. operating expenses. or oUler items
impacting farmuIa rate inputs M e r from amounts tepaCed in Form 1 schedule amounts. 4. Whera the Commksicn has provided guidance on formula rale Inputs. the specific proceeding should be noled in the footnote
Une No.
1
2
Page bh(s) Schedule Column Line No 110.111 Comparative Balance Sheet (C) 57 112-113 Comparative Balance Sheet (c) L16 minus L3
3 4 5 6 7
~ I 5
re I5 zc
112-113 Cumparafive Balance Sheet (c) 13.& 24 20&201 Summary of Milily Plant B Acarmulated Provision (a 33
204.207 Etedric Plant In Sew& I Depredation, Amortization and Depletion
@) 46.49.9.58. 75. 86-92.94-95.97.104
i
I
- - - - . . . . . - . . . - Zf6 Conslrudion Work In Progress - Etedric (b) 1 239 Accurndated Pmviston for Depredatlon of (c) 25-26
I 211 I I I
I I I
I
I 221
Eledric Utiitv Plant I
I I
!I 274-275
' 1 3541355 I
I
i
I I I
23 I I 1
. , . . . . . . . . .
Acwmulated Deferred Income Taxes - IkJ 14 -Other Properly
(b) 28 Olslniution of Salaries and Wages
t
41
52 43 44
FERC FORM NO. $ (NEW. i2-08) PagP 106b
I
1
IMPORTANT CHANGES DURING M E Q U A R E W E A R
jive particuiars (details) concerning Ihe matters Indicated below. Make the slatements explicit and precise. and number them in accordance with the inqulries. Each Inquiry should be answered. Enter "none." "not applicable.' or "NA" where applicable. If nformation which answers an Inquiry Is given elsewhere in the report. make a reference to the schedule In which it appears. I. Changes in and important additions to franchise rights: Descibe Ihe actual consideration given therefore and state from whom the ianchise righls were acquired. If acquired vithout Ihe payment of consideration, state Ihal fact. 2. Acquisilion of ownership in other companies by reorganization. merger, or consolidation with other companies, Give names of :ompanies involved, parliculars concerning the transactions. name of the CommIsslon authorizing !he transaction. and reference to
3. Purchase or sale of an operaling unit or system: Give a brief description of Ihe property. and or Ihe tmnsactions relating thereto. and reference to Commission authorization, if any was required. Glve date journal entries called Tor by the Uniform Sysiem of Accounts Irere submitted to the Commission. $. Important teaseholds (other than leaseholds for natural gas lands) that have been acquired or given. assigned or surrendered: Give affective dates. lengths of terns. names ot parties, rents. and other cnndition. State name of Commbslon authorizing lease and give &renee to such authoriration. 5. Important extension or reduction of transmission or distribution system: State territory added or relinquished and date operations began or ceased and give reference to Commission authorizatlon, if any was required. State also the approximate number of :uslomers added or lost and approximate annual revenues of each class of service. Each natural gas company must also state major new wonlinuing sources of gas made available to it from purchases. development purchase contract or athenvise, glving location and approximate Lotal gas volumes available. period of contracts. and other parties to any such arrangements. etc. 6. Obligations incurred as a result of issuance of securities or assumption of tiabilities or guarantees including issuance of short-term debt and commercial paper having a maturity of one year or less. Give reference to FERC of State Commission authorka8on. a s appropriate. and the amount of obligation or guarantee. 7. Changes in articles of incorpotatlon or amendments to charter: Explain the nature and purpose of such changes or arnendmenls. 8. State the estimated annual effect and nature of any Important wage scale changes during the year. 9. State briefly the stalus of any materially importan1 legal proceedings pending at the end of the year. and the results of any such proceedings culminated during the year. 30. Describe briefly soy rnateria!ly important transadtons of the respondent not dlsctosed elsewhere In thls reporl in which an officer, director. security holder repoded on Page 106. voting trustee. associated company or known associate of any of these persons was a party or in which any such person had a material interest 1 I . (Resewed.) 12. If the important changes during the year relating to the respondent company appearing in the annual report to stockholders are applicable In every respect and furnlsh the data required by lnstiudions 1 to 1 I above, such notes may be included OR thls page. 13. Describe fully any changes in officers. direclors. major security holders and voting powers of the respondent that may have ocwrred during the reporting period. 14. In the event that the respondent participates in a eash management programls) and it5 proprietary mpltal ratio is less than 30 percent please describe the significant events or transactions musing the proprietary capitat ratio to be less than 30 percent. and Ihe extent to which the respondent has amounts loaned or money advanced to its parent, subsidiary, or affiliated companies through a cash management progmm{s). Additionaly. please describe ptans, i f any to regain at least a 30 percent proprietary ratio.
~ornrnission 2UthDrizatiOn.
PAGE 108 INTENTIONALLY LfFT BLANK SEE PAGE 109 FOR REQUIRED INFORMATION
FERC FORM NO. i, (ED. 12-96] Page 101
Name of Respondent This Report is: Date of Report YeadPeriod of Report ( 3 ) X An Original (Mo. Da. Yr)
b r Extended Renewed on January 19.2010
Benewed an May :19,2010 effective June 29,201 0 IRenewed on June .14.2010 effective bune 29,201 0
IRenewed OR May 11 I, 201: o effective dune 29.201 0
pnewed on June 1.2010 effective une 29,201 0
;Renewed on July 1, 201 0
eptember I, 2010
!Renewed on 1December 1,201 0
1. IDate Acquired
I Community I Period of Franchise & Termination 1 Consideration I
City of Bossier, LA Twenty-five (25) Year Franchise I None / Renewal explring Januarj 19,2035 I
TwenQ-Five (25) Year Franchise Renewal expiring June 29.2035
I 1 1 City of Mooringsport, LA
!
j None
1 Town of Benton. LA Fifteen ('E) Year Franchise Renewal I None 4
expiring June 29.2025 I ! I
Fifteen (15) Year Franchise Renewat expiring June 29,2025
None
I I
I
i I
t
expiring on July 1,2020 I
expiring on September 1,2025 1
Fifleen ( I 5) Year Franchise Renewal
I f 1
I Town of Vnrian, LA 1 None
I Town of Stonewall. LA Fifteen (15) Year Franchise Renewal I None I
Town of Anacoco. LA Ten ( I O ) Year Franchise Renewal None
expiring June 29,2025
Ten (IO) Year Franchise Renewal
i Town of Haughton. tA
Town of OiI Clty, LA
expiring on December 1.2010
2. Southwestern Electric Power Company (SWEPCo) completed its purchase of substantially all of the assets and its assumption of substantialIy all of the liabilities of Valley Electric Membership Corporation (a Louisiana Electric Cooperative) on October 1, 2010. The transaction was structured as an asset purchase pursuant to a plan of dissolution of Valley Electric Membership Corporation. The transaction was approved by the Louisiana Public Service Commission (LPSC) {Order No. U-31351).
3. In November 2009, SWEPCo signed a letter of intent to purchase certain transmission and distribution assets of Valley Electric Membership Corporation (VEMCO). SWEPCo entered into a purchase and sale agreement on June 4,201 0 (dated January 30,2010) to purchase substantially all of the net assets of VEMCO. The purchase was finalized on October I, 201 0. SWEPCo filed with the FERC under the requirements of Section 203 on July 30, 2010, supplemented August 5, 201 0. FERC issued Order ECl O-83-000 approving the transaction September 2,201 0. The Louisiana Public Service Commission approved the purchase on September 15,2010 in Docket No. U-31351 and issued the final order on December 16,2010, SWEPCo requested, on March 30, 201 1, FERC approval to record journal entries to clear the balance in account 102 (Electric Plant Purchased or Sold) that represents the book value of the assets purchased and related accumu tated depreciation.
i
IFERG FORM NO. I (ED. 42-46) Pzge 109.1 1
Name of Respondent
Southvxatem Electric Power Company
4.
5.
6.
7.
8.
- 9.
I O .
11.
12.
13.
14.
This Report is: Date of Report YearlPeriod of Report ( I ) X An Original (Mo. Da. Yr) (2) - A Resubmission I 1 2010144
None
Pursuant to SWEPCo’s purchase of substantially all of the assets and assumption of substantially all of the liabilities of Valley Electric Membership Corporation on October 1 I 2010, SWEPCo acquired approximately 30,000 customers and 41,000 meters, approximately 6,900 miles of distribution lines and 100 mites of transmission lines in eight parishes located in nodhwest Louisiana. The approximate non-fuel revenue effect for 201 1 is S24.7M for residential, $3.6M for commercial, and $.5M for other retail. The transaction was approved by the LPSC (Order No. U-31351) on September 15.2010.
FERC Authority (Docket No. ESI 0-1 0-000) S350M. 6.2% Senior Unsecured Notes, Series H, due March 15,2040
553.5M. 3.25% Parish of Desoto Pollution Control Revenue Refunding Bonds (Southwestern Electric Power Company Project), Series 2010, due January 2,2015
S4.4M Letter of Credit issued by American Electric Power Company, Inc. on behalf of SWEPCo to benefit Texas General Indemnity ColCIaim Payments
None
Employees represented by IBEW Locals #329, #386, and #738 were provided with a 2% general wage increase
Please refer to the Notes to Financial Statements Pages 122-1 23
None
(Reserved)
Not Used
Susan E. Higginson resigned as Assistant Controller effective February I. 201 0 Richard E. Munczinski resigned as Director and Vice President effective January 28,2010 Barbara 0. Radous elected as Director and Vice President effective January 28,2010 Charles R. Patton resigned as Director, Vice Chairman of the Board and Vice President effective May 31,2010 Paul Chodak, Ill resigned as President and Chief Operating Officer effective June 30, 201 0 John 8. Keane resigned as Director and Secretary effective June 30,2010 Julie Williams elected Assistant Controller effective May 18, 201 0 Venita McCelton-Allen elected as Chief Operating Officer and President effective July 1, 201 0 D. Michael Miller elected as Director and Secretary effective July I, 2010 Andrew B. Reis elected as Assistant Controller effective December 14, 201 0
Proprietary capital ratio exceeds 30% IFERC FORM NO. 1 (ED. 12-96) Page 109.2 1
Name of Respondent Southweswm Eledric Pmer Compawf
I 3.957.233.3211 3.mn6aa,3i7 I d n
14 15
I Nel Utility Plant (EnterTolal of tines 6 and 13) I 1 U f ih Plant Adtusfrnents [ I 161
This Report Is: Date of Report Yeadperiod of Report [Ma Da. Yr) (1) An Original
End of 2010IQ4
I 16 I Gas Stored Underaround - Noncurrent (1 In I I
tine NO.
Title ofAcwun!
Current Year Prior Year Ref End af 9uaflerMear End Balance
32/31 Pace No. 8alance
m e of Respondent 1 This Report Is: Date of Report (Mo. Da, Yr-
I t uthrvesten EIec!fic Paver Ccnpany
YearlPeriod of Report
End of 2010IQ4 (1) Anoriginat (21 n AResubmission
t 0
as Stored Underground Cunent (lM.1) I 1 0 0
.e$$) Noncurrent Partlon of Allwranres tores E%pensa Undistributed (163) 227 I
1 3.510 0 0
- le I.
,quefied Natural Gas Sloled and Held for Processing (165.2-164.3) repayments (155) dvances fur Gas 1166.1671
S I 4 0 I :2;: ,':,'&j-$$;ag* 11.244.489 I ol 0
9 - 3 1 I
2 3 4
- -
COMPARATIVE BAtANCE SHEET (ASSETS AND OTHER OEEITS]contInued) I Prior Year
fide ot Amount la\
iterest and Dividends Receivable (1711 I t a21.0681 I . m a 6 9 I en& Recervabla (172) I I I .f 15.8561 1.020.509 untd Utilitv Revenues [I731 z5.3ao.s411 26.555.530 IismIlaneous Current and Accrued Assets (174) 1 1 1,270,374 948,559 lerivalive lnslrurnent Assets {175) I I 1.51 S.9Sll 2.959.836 .ess) Lonu-Tern Portion of Derivative Instrument Assets (1751 I I 433.5554 78.699 I
FERC FORM NO. 'I (REV. 12-03) Page 11.I I
1 Name of Respondent I This Report is: I DateofReport I YEarlPeriod of Report 1 Soulhivesiem Eledric Power Company (1) Anoriginal (ma, da. y0
(2) AResubmission I I end of 2010i04
I
I
FERC FORM NO. I (rev, *12-03) Page 112
, -
arne of Respondent iuthweslern Eednc P a w Company
This Report Is: Date of Report YEadPericd of Report Imo, da. yr) (1) An Original
(2) AResubmission end of 201oJuc I
FERC FORM NO. 1 {rev. 12-03] Page VI3
53 E4
66 65
Acarrn. Deferred lnmrne Taxes-Other Property (282) I 550.453.7331 433.7i9.320
TcM Defend Credits (lines 56 through 64) 799.683. f 371 6 o a . 5 7 5 . ~ A w m . Deferred Income Tawes-Other (283) 147.629.1201 101 J80.343
TOTALUABlLtTlES AND STOCKHOLDER EQUITY (lines 16.24.35.54 and 65) I 1.740.71 1.818l 4,157.375.035
Name of Respondent
Southweslem Electric Power Company
1
This Report is: Date of Report Yearperiod of Report (1) An Origlnal (Mo. Da. Yr) (2) - A Resubmission I I 201 OIQ4
I
IFERC FORM NO. 1 (ED. 12-87) Page 450.1 I
Name of Respondent This Report is: Date of Report (Mo. Da, Yr) (1) X_An Original
Southwestern EBpcttic Power Company I(2) - A Resubmission I 1 1 I 20lOlW I YearlPeriod of Report
I FOOYMOYE DATA I
Schedu1gPI;rge: 112 . LIne N 0 : S Column: c
* -
~FERC FORM NO. I (EO. 12-87) Page 450.1
This Re on ts: Date of Report Yearperiod ar Report (1) Original ( M a Da. Yr) I Endof 20 101Q4 I (2) n A ResuSrnisston
Name cf Resposdent
Southwesiem Beclic Paver Company
1 STATEMENT OF INCOME Quarterly 1 Repen In cpIumn (c) the wnent year to date balance. Column (e) equals the total of adding !he data in mIurnn (g) plus !he data In column (I) plus Ihe data In column (k). Report In column (d) simllar data for the previous year. This Information is reported in the annual fihg only. 2. Enter in d u m n (e} the balance for the reportlng quarter and In column (0 the baIance far the same lhna rnnnth period for the prior year. 3. Report in column 19) the quarter I o date arnounls for electric utjlity functjon: in column (9 the q u a m to date amounts for gas utility. and In column (k) the quarter to dale amounts tor other utilky fundon for Iha current year quarter. 4. Report In wlumn {h) the quarter l o date amounts for electric ubiity fundion; In corumn u) the quarter to date amounts for gas utiIity. and in wlurnn (I) thequarter to date amounts for other uti@ function far the prior year quarter. 5 If addilonal wlumns are needed. ptace them in a footnote.
Annual or Quarterly I appIicabfe 5 00 no; repon fourth quarter data in columns (e) and (f)
i
I
I
FERC FORM NO. V3-9 IRW. 02-04) Page 114
YeaflPenad of ReFart End of 201 om4
This Renort Is: (1) mAn Original I (2) m A ResubmI$fian
Nme of Respender,!
Southvies:ern Eledrie Pmm Company
ELECTRlC UntllY Current Year to Dale Previous Year to O a k
(in doltaw) I (in dollars)
I
STATEMENT OF INCOME FOR THE YEAR (Conlinced) E Use page 122 for important notes regardlng h e statement o! tncume for any account thereof.
GAS UTiLlrY OTHER UTILITY Current Year 10 Date PreviounYear tooate CurmtYextoOaz PrmrDYe3rWOale
(in dollars) fin daIlsn) (L1 a*q (in doLars1 NO.
1 i7.291.614 128.155.948
FERC FORM NO. 1 (ED. 12-96) Page 115
THIS PAGE INTENTIONALLY LEFT BLANK
Name olRespondent Date of Report Yearperiod 01 Report SouthweSern Electric P a m Company End of 2or WQ4 n Original (Mo. Da, YO
(2) ITA Resubmissfon I I 1 I
STATEMENT OF RETAINED EAFNNGS
1. Do not report Lines 49-53 on the quarterly version. 2. Report all changes in appropriated retained earnings. unappropriated retained earnings. year to date. and unappropriated undistributed subsidhy earnings far the year. 3. Each credit and debit during the year shouid be idenlified a5 to the relalned earnings account in which recorded (Accounts 433.436 - 439 inclusive). Show the wnlra primary account affected in column (b) 4. Stale the purpose and amount of each resetvation or appropriadon of retained earnings. 5. List first account 439. Adjustments to Retained Earnings. reflecting adjustmenls to the opening balance of retained earnings. Follow by credit, then debit items in that order. 6. Show dividends for each dass and series of capital stock. 7. Show separately the State and Federal income tax effecl of items shown in account 439. Adjustments to Retained Earnings. 8. Explain in a footnote the basis lor determhing the amount reserved of app.mprialed. I f such reservation or appropriation is to be recurrent. state the number and annual amounts to be reserved or appropriated as well as the totals eventually to be accurnuIated. 9. If any notes appearing in the report to stockholders are apptimble to this statement, include them on pages 122-123.
Line No.
Item rai
Current Previous Quarterrnear QuanerMear
Contra primary Year to Da:e Year to Dale w u n t Affeded Balance Balance
lb) IC1 (d 1 . - . . . .
z changes 3 Adjustments to Rgtahed Earnings (Amun! 439) 4 5 6 7 t a I I
10 I I 9 TOTAL Credits to Remined Earnings ( A e d 439)
1 I I I 221 TOTAL Appmptiations of Retained Earnings (Acet 436)
I 261 5 00% Series - 37.665 shares outstandina I I -1 88.355 I
34 I I 35 36 TOTAL Dividends Declared-Common Stoa [Acct 4381 1 t
i
!
I
FERC FORM NO. 113-9 (REV. 02-04] Page 138
Name of Respsndent mi Re orl Is: Date of Report YeadPsriod of Repod Southestern Electric Pcvm Campany (11 &n Original (MO Da.Yt) 20101Q4
(21 n A Resubnlsslon I t of
I 1 1 I 1
STATEMENT OF RETAtNED EARNINGS
1.00 no1 report lines 49-53 on the quarterly version. 2. Report all changes in appropriated retained earnings. unappropriated retained earnings. year to date. and unzppropriated undlstnbuted subsidiary earnings for the year. 3. Each credit and debit during the year should be identified as to the retained earnings account in which recorded (Accounts 433,436 - 439 inclusive). Show !he mnlra prirnarj account affected In column (b) 4. State the purpose and amount of each reservation or appropriation of retained earnings. 5. List first account 439. Adjustmenls lo Retained Earnings. reflecting adjustments to the opening balance of relained earnings. Follow by credit. then debit items In lhat order. 6. Show dividends for each dass and series of capltal stock. 7. Show separately the State and Federal income tax effect of items shown in account 439. Adjustments lo Relained Earnings. 8. Ejrpfain in a foolnote the basis for determblng the amount reserved or appropriated. If such reservation or appropriation is to be recurrent. state the number and annual amounts to be reserved or appropriated as welt as Ihe tofats evenlually lo be accumutated. 9. If any notes appean’ng in the report to stockholders are applicable lo this stalemen!. include them on pages 122-123.
Lrre Item Contra Fnrnary ccounl Meded
cutrent Prevlous Quarternear Year to Date
OuarterPTear Year to Dale
Balance Balance I IC) 1 (d)
40 I I
42 t I I 41
43 Y 45 -
TOTAL Psnroxiated Retalned Eaminas lAcmunl2151
50 Equity in Earnlngs for Year (Credit) { A w u n t 4fB.f) 51 (Less) Dividends Received (Debit) 52 53 BaIane-End of Year (Total lines 49 thru 521
I 2.414.418 1 I
13.935.303( 11.5E.BBi
FERC FORM NO. 1 / 3 4 (REV. 02-04) Page 119
Mama of Respandent ThisRe ortls: Oate of Repr t YearFerisd of Report Sauthwestem Elearic Paver Company 11) $Anoriginal (Ma. Oa. Yr) End of 201 PI04
(21 m A Resubmission I t
39 Ilnvestments in and Advances to Assoc and Subsidlay Companies
I
I
I . . 37 [Proceeds from Disposal of Noncurrent Ass& (d) I I 38 hoceeds from Disposal of Noncurrent &sets - Fixed Asseb I 5.355.743 I
41 (Dlsposbn of Investments in (and Advances to)
I 22 jksodated acd Subsidiarv Carnpanies I I I I 1
---
FERC FORM NO. I (EO. 12-96] Page 120
* -
46 47
This Report Is: Dam cf Repcrt YearlPeripd of Repmi ( I ) RAn Original (Me. Da. Yo End ci 201 QIQ4 I (2) n A Resubmkston
Name cf Res;rmdenl Southwstern Etemc P w e r Cempany
(a) I (b) (Cl Lams Made or Purchased ColIections on b a n s I
~ i n e I No
PescFipfion (See Instructton N3. I far Explanation of Codes]
61 62 63 W 65
65 67 6a 69 70 i l
Cunent Year !o Date Preuicds Year tu Oate I (IvarterPlear 1 Quafierrtear I
Lang-Tern Debt (b) I 403.500.000 Preferred Stotk CmrnonSlo& I
Aquifed Assets Subject l o Capital Leasnbaek Net Increase in Short-Term Oebt (e) Other (provide details in footnote):
Capital ContnWlons from Paren; f42.600.00C Cash Provided by Oublda Sources (Total 61 thm 69) COP.42l.352 144356.681
4105.a13 -1SBQa 1,027,165 9 . a m a t
Other (piovide deialk in footnote): Long-Tern Debt t s s u a m Cuss I
I 76 IMhRr (nruvide datak in foalndel: I I I
48 IEaditv Investment in O x b w tianile Cornnanv I I -t2.872.792 I
I T t l I I I
49 (Net IIncrease) Deuease In Receivables I I
51 1Net llncreasel Decrease fn Allowances Held lor Soeculalinn I 27.265 I 52 INet Intiease LOecreasel in PavaSles and A w e d Exnenses I I I 53 lother [nrcvide delails in foo0otel I I I
-210.239( -51 1 .om -34.4057161 -49.796.683
54 [{Increase) Decrease in Other SFedaI Deposits 1 55 INoies Receivable from Associated ComDanies
57 hotal of Enes 34 thru 55) I -5r17.350.446 I -532,900,962 1
78 !Net Decrease in Shon-Term Debt (c) 79 I I
I .- I I
80 IDividerrds on Preferred Stock I -228,835 I
FERC FORM NO. I (ED. 12-96) Page 121
Name of Respondent
Souhestern Ekdric Power Company
Schedule Page: 120 Line No.: V 8 co1tg-n: a
This Report is: Date of Report YearlPeriod of Report (I) XAn Original {Mo. Da. Yr) (2) - A Resubmission l i 20fWQ4
2010 2009 Cash FIow Cash FIow lncr I (Deer) lncr I [Deer)
I
Utility Plant. Net Property and Investments. Net Prepayments Accrued Utility Revenues, Net Miscellaneous Current and ACCF Assets Unamortized Debt Expense Other Deferred Debits. Net Other Comprehensive Income, Net Unamortized DiscountrPrernium on Long-Term Debt Accumulated Provisions - Misc Current and Accrued LiablItties. Net Other Deferred Credits. Net
Total
5 (10,242.380) S (12,035,663) 9,217,178 (1,632,926) 3,658,751 6.287,405 2,791,716 -
858,546 363,194 1.310,334 1,089,057
(20.772.840) ( I 359,048) 744.344 704.580 291.891 409,890
3,389,719 (22,403,895) 7,778,060 (9,729,277) 5,941,980 6,654,640
$ 4,967,299 $ (31,651,543) I
IFERC FORM NO. I (ED. i2-871 Page 45Q.1 J
Name of Respondent Southwestern Eleetn'e Power Company
PAGE 122 INTENTIONALLY LEFT B U N K SEE PAGE 123 FOR REQUIRED INFORMATION.
Thls Report Is: Date of Report YeaflPeriod of Reporl (I) An Original End of 2 0 1 0 1 ~ 4 (2) A Resubmission I t
FERC FORM NO. 1 (EO. 4 2 4 6 ) Page 122
I
I
Name of Respondent This Report is: Date of Report (Mo. Da, Yr) (1) X An Original
Southwestern Eledric Power Cnrnpany (2) - A Resubmission I t
1 .
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
1;.
1-1.
15.
16.
I
YearlPeriod of Report
2010/Q4
ISIIEX OF NOTES TO FIKANCIAL STATEMEhTS
Glossac of Terms for Notes
Organization and Surnmq of Sigificanr Accounting Policies
Estraordinap Item
Rate Matrers
Effecrs of Reylation
Commirmenrs. Guarantees and Contingencies
Acquisitions
Benefit Plans
Business Segments
Dcriwives and Hedsing
Fair Value Measurements
income Taxes
Leases
Financins Activities
Relared Part?. Transactions
Propew. Plant and Equipment
Cost Reduction Initiatives
IFERC FORM NO. I (EO. 12-88) Page 123.1 1
Name of Respondent This Report is: ( I ) XAn Original
Southwestern Eledrie Power Company (2) - A Resubmission
Term Meaning
Date of Report YearlPeriod of Report (Mo, Da. Yr)
I 1 201 OIQ4
AEP or Parent AEP Credit
AEP East companies AEP Power Pool
AEP System or the System
AEP West companies AEPEP
AEPES AEPSC
AFUDC AOCl APCo APSC CA4 CLECO CQ? CSPCo CS\Y
CSW Operating Agreement
C\WP DHLC
E IS ERCOT ERISA FAC
American Electric Powcr Company, lnc. AEP Credit. Inc., a subsidiq of AEP which factors accounts rcceh ablc and accrued
I
APCo, CSPCo, I&M, KPCo and OPCo. Mernbcrs are APCo. CSPCo. I & M . KPCo and OPCo. The Pool shares the I
I
utilib revenues for affiliated electric utility companies.
genemion, cost of Seneration and resultant wholesale off-system sales of the member companies.
American Elccrric Power Sysrem, an integrated electric utilip system. owned and operated by AEP's electric utility subsidiaries.
PSO, SWEPCo. TCC and TNC. AEP h e r s Panners. Inc.. a subsidiary of AEP dedicated to wholesale marketins
and tradins a s e l manasement and commercial and industrial sales in the dereguIatcd Texas market.
AEP Enera. Services. Inc., a subsidiary of AEP Resources, Inc. American Electric Power Sewice Corporation, a service subsidicq providing
AIIoiance for Funds Used During Construction. Accumulated Other Comprehensive Income. Appalachian Power Cornpan), an AEP electric utili9 subsidiaty. Arkansas Public Senice Commission. Clean Air Act. Cleco Corporation, a nonaffiliated utitic cornpan?. Carbon Dioxide and other greenhouse gases. Columbus Southern Power Cornpan). an AEP electric utili& subsidiary. Central and South \Yes[ Corporation, a wbsidiaq of AEP (Effective JanuaF 21.
1003, the Igal name of Central and South West Corporation uas chanaed to AEP Utilities, Inc.).
Agreement. dated Jmuar?. I . 1997. as amended, b) and amon9 PSO and SiVEPCo Sovcrning generating capaciv allocation, eners pricing and revenues and costs ofthird p a q sales. AEPSC acts as the agent.
rnana_ecment and professional senices to AEP and its subsidiaries.
Consiruction Work in Progess. Dolct Hills Lignite Company. LLC, a wholly-owned lignite rninins subsidiap of
EncrE Insurance Sew'iccs, Inc., a nonaffiliated captive insurance cornpan!, . Electric Reliabilic Council of Tesas. Employee Retirement Income Security Act of 1974. as amended. Fucl Adjustment Clause.
SWEPCO.
IFERC FORM NO. 1 (ED. 12-88) Page 323.2 1
Name of Respondent This Report is: Date of Report YearlPeriod of Report (1) X An Original (Mo. Da, Yr)
Soulhwstem Eledric Power Company (2) - A Resubmission I 1 1 20 1 QIQ4
r NOTES TO FINANCIAL STAlEh4ENTS (Contlnued)
Term
Federal EPX FERC FTR
hirerconnection Agreement
I&M KGPCo KPCo kV LPSC 41 I so MLR
MMBtu MTM M W M\VH
occ OPCo OPEB O X PJM PSO PUCT Risk Managemen? Contmcts
KO,
RTO Sabine
SIA
SPP Stall Unit SWEPCo
SO?
Meaning
United States Environmental Protection Agene?. Federal Enery Rcgulatop Commission. Financial Transmission Righht. a financial instrument that entitlcs thc holder to
receive compensation for cenain congestion-related iransmission charzes that arise when the power grid i s congested resulting in differcnccs in locational prices.
Agreement, dared Jul! 6. 1951- as amended. by and amon2 APCo. CSPCo. I&M. KPCo and OPCo. defininz the sharing of costs and benefits associated with their respective generating planrs.
Indiana Michigan Power Company. an AEP eIectric utiIity subsidian-. KingspoFt Power Company. an AEP electric utility subsidiay. Kenruchy Power Cornpan!. an AEP electric a i l i n . subsidiap. Kilovolt. Louisiana Public Sen-ice Commission. Midwesr Independent Transmission Systea Operntor. Member load ratio. the method used IO allocate AEP Power Pool transactions to its
Million British Thermal h i s . Mark-t o-M arket . bIega\vatt. Megawnhour. Nitrosen oside. Corporation Commission of the State o f Oklahoma. Ohio Power Company, an AEP electric utiliy subsidian.. Other Pastrerirement Benefit Plans. Overtht A ._ PennsFlvania -- ;e\! Jer q Public Service Company or Oklahoma, an AEP electric utilic subsidiaq. Public Utility Commission of Tesas. Tmding and nontrading derivati~es. including those derivatives designated as cash
Rqional Transmission Organization. Sabine Mining Company. a lignite mininz cornpan! rhar is a consolidated variablc
interest enriv. Sytcm Intqaation A_meemenr. Sulfur Dioxide. Southwest Poiver Pool. J. Lamar StaII Unit ar Arsenal Hill Plant. Southwestern Electric Power Company. an AEP eIectric utiliv subsidiap.
members.
'--.land resional transmission organization.
flon and fair value hedges.
[FERC FORM NO. 1 (ED. j2-88) Page 323.3
Name of Respondent
Soulhwestem Electric Power Company
Term Meaning
This Report is: Date of Report YearlPeriod of Repart (I) 3 An Original (2) - A Resubmission I I 201 O I M
(Mo, Da, Yr)
TA Transmission Apxment dated April 1, 1984 b> and among APCo, CSPCo. I&M, KGPCo, KPCo, OPCo, and WPCo which allocates costs and benefits in connection with the operation of transmission assets.
TCC TNC Turk Plant Utilin. Mone!: Pool WPCO
AEP Tesas Central Company, an AEP eiectric utility subsidiary. AEP Texas North Cornpan!. an AEP electric utiIig subsidiaty. John W. Turk, Jr. Plant. AEP System's Utiliry Money Pool. Wheeling Power Company, an AEP electric utilic subsidiary.
IFERC FORM NO. I (ED. 12-88) ?ape 123.4
Name ol Respondent
Southwestern Electric Povm Company
1. ORGANZATION ASD SL31MMARY OF SIGNTFICANT ACCOUNTIXG POLICIES
This Report is: Date of Report YearlPeriod of Report (I) XAn Original (Mo. Da. Ur) (2) I A Resubmission I I 201 OlQ4
ORGAWZATION
As a public utility, SWEPCo engagcs in the generation and purchase of clectric poncr, and tlic subsequcm salc. transmission and distribution of that power to approsimately 520.000 remil cusiomcrs in ils scmicc icrritoc- in northeastern and panhandle OF Texas. nonhes t e rn Louisiana and western Arkansas. SWEPCo sells electric power at wholesale IO other utilities. municipalities and electric cooperatives.
SWEPCo, as a member or the CSM' Operating Ageement. is compensated for encrg dcliwrcd 10 the other inember based upon the delivering membeis incremental cost plus a portion of the sai-ing realized bv [lie purchasing member that avoids the use o f more costl! aliernatives. PSO and SlEPCo share the revenues and COSK for sales to neighboring utilities and poner markctm made b! AEPSC on their behalf based upon the relative mapitude of the cnera each company provides to make such sales. SWEPCo shares these marsins with its customers.
t'ndcr the SM, AEPSC allocaies phxsical and financial revenues and espenses from transactions with neighboring utilities, power marketers and oiher powr and gas risk mana_gement activities based upon the location of such aetii it}-: with margins resulting from tradinz and marketing activities originating in PJM and MISO general!\. accruing to the benefit of the AEP East companies and trading and marketing activities originating in SPP gccncrall?. accruing to the benefit of PSO and SIi,'\:EPCo. Margins resulting from other transactions are allocated among the AEP East companies. PSO and SWEPCo in proportion to the marketing rcalization directly assiped IO each zone for the current month plus rhe precedins clcvcn months.
AEPSC conducts power. -ps, coal and emission allo\vance risk managemcnt activities on SWEPCo's behalf. SWEPCo shares in the revenues and espenses associated widi these risk manasement activities, as described in the prcccdins parazaph, with the AEP East companies and PSO. Power and gas risk managrnent activities are allocated based on the CSW OpeminS Ageement and the SIA. SWEPCo shares in coal and emission allowance risk management activities based on its proportion of fossil fuels burned b> the AEP System. Risk managcmcnt activities prirnaril! involve thc purchase and salc of electricib under physical forward contracts at fixed and variable prices and to a Iesser extent gas. coal and emission aIloiiaances. The electricity, gas, coal and emission allowance contracts include physical transactions. OTC options and financially-settled swaps and eschanse-traded futures and options. AEPSC settles the majority of the physical forward contracts by enterins into offsetting contracts.
S\'r'EPCo is jointly and severall) liable for activib conducted by AEPSC on the behalf of the AEP East companics. PSO and SiYEPCo related to purchase power and sale activity pursuant to the SIA.
IFERC FORM NO, 1 (ED. 12-88) Page 123.5 I
Name of Respondent
Southwestern Eledric Pmrer Company
SUMMARY OF SICXFICANT A C C O W l X G POLICES
This Report is: Date of Report YearlPeriod of Report ('1) &An Original (Mo. Da, Yr) (2) - A Resubmission I t 201 OIQ4
R a m atid Service Regidaiion I
SWEPCo's rates are regdared by the FERC, APSC, LPSC and PUCT. The FERC also regulatcs SWEPCo's affiliated transactions, inchdins AEPSC intercompany senice billing which are generally at costt under the 2005 Public Utiliv Holding Company Act and the Federal Power Act. The FERC also has jurisdiction over thc issuances and acquisitions of securities. thc acquisition or sale of certain ut!liy asscts and rnerzers with another electric utility or holdins company. For non-power goods and sewices, the FERC requires that a nonreplated affiliate can bill an affdiatcd public utilitx company no more than market while a public utifip must bill the higher of cost or market to a nonregulated affiliate. The APSC, LPSC and PUCT also regulate certain intercompany transactions under various orders and affiliate statutes. Both the FERC and m t c rcgulaton; commissions are permined to review and audit thc relevant books and records of companies within a public utility holding company sptem.
The FERC regulates wholesale power markets and wholesale power rrawactions. SWEPCo's wholesale powcr transactions are _eenerally market-based. Wholesale power transactions are cost-based rcgdared when SWEPCo negotiates and files a cost-based contract with rhc FERC or the FERC determines rhat SWEPCo has "rnarkcr powei' in the resion where the transaction occurs. SWEPCo has entered into wholesale power suppl? contracts with various municipalities and coopemtiws that are FERC-replaled, cost-based contracts. These contracts are generally formula rate mechanisms, which are trued up to actual costs annually. SWEPCo's wholesale power transactions in the SPP region are eost-based due to SWEPCo havinz market power in the SPP region.
The APSC, LPSC and PUCT regulate all of the distribution opentions and rates on a cost basis. The!- also regulate thc retail pera~ion'power supply operations and rates. SWEPCo operates in the SPP area which includes a portion o f Tesas. In 2009. the Texas legislature amended its restructuring le_pisladon for thc generation portion of SWEPCo's Te.sas retail jurisdiction to delav indefinitely restructuring requiremenis. As a result, SWEPCo reapplied accountins - euidanee for "Replated Operations" to its Tesas generation operations.
The FERC also regulates SWEPCo's wholesale rransniission operations and rates. The FERC claims jurisdiction over rerail rransmission rates ivhen retail rates are unbundled in conncction with restmcmring. Bundled retail transmission Fares are rezulated, on a con basis, by the APSC. LPSC and PUCT.
In addition, ?he FERC resulates the SIA, the Interconncction Agreement, the CSW Operating Agreement, the Systcrn Transmission Integration AEaement. the Transmission Agreement, the Transmission Coordination Agreement and the AEP System Interim Alloivance A-mement all of which allocate shared system costs and revenues to the companies that are panies to each a-ereement.
I FERC FORM NO. I {ED. 12-88) Page 323.6 1
- Name of Respondent This Report is: Date of Report YearlPeriod of Report
(1) 3 An Original (Mor Da, Yr) Southwestern Eledrlc Foicer Coxpany (2) - A Resubmission I I ZOlOIQ4
NOTES TO FIWCIAL STATEMENTS (Continued)
SiYEPCo's accouiiting is subjcct to the requirements of the APSC. LPSC and PUCT and ihe FERC. Tltc financial statements hare been prepared i i i accordancc with the Uniform System of Accounts prcscribcd by the FERC. Thc principal differences from accounring principles generall> accepted in the Uniwd Sratcs of America (GAAP) include:
Accounting for subsidiaries on an cquit! basis. Thc classification of deferred he1 as noncurrent rather than current. The classification of intcrcst on deferred fuel as Interesr. Accrued rather than dcfcrrcd fucl. The classification of in!etest on deferred fuel as lntercst and Dividends Rcceivable radier ?tian dcfcrrcd Tuel. The requircmcnt to rcport dcfcrrcd tax assets and liabilities separatclj rather than as a single amount.
4 The classification of accrued taxes as a sin& amount rather than as assets and liabilities.
0
0
0
W
The exclusion of currcnt maturities of long-term debt from current liabilities. The accounting for transactions with Sabine Mining Cornpan! as a nonafiliawd cornpony rather than consolidatin2 the entiQ in accordancc with the accountin3 guidance for "Vatiabk Interest Entities." The cIaSsification of accrued non-ARO asset remoyal C O S ~ S 8s accumulated depreciation m h e r than regularoF liabilities. The classification or capital lease payments as operatins actiyities instead of financing nctivitics. The classification of charge in emission allonances heId for speculation as investins activities instead of operating activities. The classification of gains'losses from disposition of allo~ances as utili& operating expenscs rather fhan as operating revenues. The classification of tax assets related IO the accounting Siiidance for "Wncertah& in Income Tases" as a reduction to current linbilities rather than a tax benefit. The dassification of noncurrent my liabilities related to the accounting guidancc for "Uncertain& in Income Taxes'' as a current liabiliv rather than a noncurrent liability. The cIassification of an accrued provision for potential refund as other noncurrent IiabiIiQ rarher than a current liabilit!. The classification of regulaton- assels and liabilities related to the accounting guidancc for "Accounting for Income Taxes" as separate assets and liabilities rather than as a singlc amount. Thc prcsentation of capital leascd assm and their asociated accumulared amonization as a singIe amount instead ofas sepnratc amounts. The classification or factored accounts receivable espense as a nonoperating espensc instead of as an operating cspense. The presentation OF overlunder fuel recoven. in revenue rather than as a component of opcmtion expense. The classification of certain nonoperating revenues as miscellaneous nonopcrating income insiead of as operating revenue. The classification of income tax espense on Set Utili& Operating Income and on Net Oilier Income and Deductions instead of as a singlc net income tas. The classification of interest receivabIe and interest accrued relarcd to federal income m- and state income tax balances as separate current assets and current liabilities rather than as a single net amount.
IFERC FORM NO. 1 (ED. 42-88) Page 123.7
Name of Respondent
Southwestern Electric Pmer Company
The classification of accrued unbiIled revenue as a current and accrued asset rather than netted agiinst accounts payable for affiliared companies. The classification of unamortized loss on reacquired debt in deferred debits rather than in rcgulatoq assets.
e The ctassification of accumulated deferred investment tax credits in deferred crcdits rather than in regulator? liabilities and deferred investment tax credits.
+ The classification of certain odier assets and liabilities as currcnt instead of noncurrcnt. e The classification of certain other assets and liabilities as noncumnr instead ofcurrcnt.
This Report Is: Date of Report YearlPeriod of Report (1) X An Original (Mo. Da, Yr) (2) - A Resubmission I I 201 OIQ4
Accoitrrlin,o for the Eflecis of Cost-Based Kegulutioii
As a rate-regulated etectric public utility company, SWEPCo's financial statements reflect the actions of replators that result in thc recognition of ccnain revenues and cspenses in different rime periods than enterprises that are not ratc-regulated. In accordance with accounting guidance for "Regulated Operations," W'EPCo records regulatory assets (deferred espcnses) and re_pulatov liabilities (future revenue reductions or refunds) to reflect thc economic effects of regkition by matching cspenses with their recovery through regulatcd revenues and income xvith its passage to customers through the reduction of reylated rcvcnues. In 2009, the Texas legislature amended its restructurin_g lesidation for the generation portion of SWEPCo's Tesas retail jurisdiction to delay indefinitely resuucturing requirements. As a resulr, SWEPCo reapplied accounting guidance for "Regulated Opentions" to its Tesas peration operations.
Accounting guidance for "Discontinuation of Rate-Replated Operations*' rcquircs the recoplition of an impairment of stranded net regulatory assets and stranded plant costs if they are no1 recoverable in regulated rates. l n addition. an enterprise is required to eliminate from its balance sheet the effects of any aaions ofreplators that had been recoyized as regulatoIy a5scts and regulator?- Iiabilitics. Such impairments and adjustments are classified as an extraodinq item. Consistent n.ith accounting guidance for '.Discontinualion of Rate-Regulated Opemions," SWEPCo recorded an extraordinary reduction in earnings and shareholder's equiw from the reapplication of "Re~ulated Operationsw accountins guidance in 7009.
Use of Estimnres
The prcparation of these financial statements requires manazcmcnt to make cstirnates and assumptions that affect thc amounts reported in the financial statements and accompanying notes. These estimates include, but are not limited to, inyenran. valuation, allowance for doubtful accounts. l o n g h e d asset impairment: unbil!ed electricit?. revenue, valuation of long-rem energ contracts, the effects of r e g h i o n , long-lived asset recovc~. storm costs. the effects of contin_gencies and certain assumptions made in accountins for pension and postretirement bcnefits. The estimates and assumptions used arc bascd upon manaymcnt's evaluation of the reIwant facts and circunisrances as- of the date of the financial statements. Actuat results could ultimately differ rrom those estimates.
CmIt attd CmA Eqt~ivder~~s
Cash and Cash Equivalents on the Statement of Cash Flows include Cash, Isorking Fund and Tempom? Cash Investmenis on the Comparative Balancc Sheet with original maturities o f three months or less.
[FERC FORM NO. 1 (ED. j2-88) Page 123.8
Name of Respondent
Southvmtem ftectrie Potter Company
Sippkwienmiq Itrfortirriiiorr
2010 2009 (in t housaads) For the Years Ended December 31,
Cash \Yas Paid for: Interest (h'ct of Capitalized Amounts) S 58.548 S 70.946 Income Taxes (Net or Rerunds) 9.411 19.570
Noncash Acquisitions Under Capital Leases 1.59; 2.727
Noncash Construction Expenditures Included in Accounts PaFable 94.836 71A3l At Dcccrnber 31,
Soncash Assumption of Liabilities Related to Acquisiiion of Valle!- E lectric Membership Corponrion 8.400
This Report is: Date of Report YearlPeriod of Report ( I ) & An Origlnal (Mo. Da. Yr) (2) - A Resubmission I t 201 OIQ4
Special Deposits
SpeciaI Deposits include funds held by fru~tees primarily for operation and maintenance expenditures related IO a jointlyotvned facitin. and marsin deposits for risk management activities.
Fossil fuel. maierials and supplies inventories are general!\ carried at average cost.
A ccouttts Receivable
Customer accounts receivable primad! include receivables from whoIesale and retail enerE customers. receivables from energ contract counterpartics related to risk management activities and customer receivables primarily related to other revenue-Seneraring activities.
-
Revenue is recognized from electric power sales when pouer is deliverrd to customers. To the estent that deliveries have occurred bur a bill has not bccn issued. SWEPCo accrues and recognizes, as Accrued Utility Revenues, an estimate of the revenues for e n e r e delivcrcd since the last billing.
AEP Crcdit factors account5 rcceivable on a daily basis. escluding receivables from risk management activities, throuzh purchase ayeemems with SWEPCo. See "Sale of Receivables - AEP Credit" section of Nore 13 for addirionnl information.
Allowtinre for Umolleclible Accoutits
Generally, AEP Credit records bad debt expense related to receivables purchased from SWEPCo under the sale of receivables agreement. For customcr accoun& receivables relating to risk management activities. accounts receilpables arc rcviewed for bad debt resemes at a specific counterpav level basis. For miscelIaneous accounts receivable, bad debt espensc is recorded for all amounts outstandins 180 days or Sreater at 100%, unless specifiealI> identified. Miscellaneous accounts receivable items open Iess rhan 180 day5 may be resemcd usins specific identification for bad debt rescnes.
IFERC FORM NO. 3 {ED. 12-88) Page I23.9 1
Name of Respondent
Soulhrvestem Eledric Power Company
Concetitratioits of Credit Risk nttd S~tiiJcatit Ciatomers
This Report Is: Date of Report YearlPeriod of Report ( I ) X An Original (Mo, Da, Yr) (2) - A Resubmission I I 2QtOIQ4
SWEPCo does not have an! significant customers that comprise 10% or more of its Operatin_p Revenues as of December 31,2010.
SWEPCo monitors credit Icvcls and thc financial condition of its customers on a continuins basis to minimize credit risk. The APSC. LPSC and PUCT allow rccovcy in ntes for a reasonable level of bad deb1 costs. Manapment believes
adequate provision for credit loss has been made in rhe financial sratemenrs.
Etiiissiott AIIo wottces
SWEPCo records emission allowances at cost. inchding the annual 502 and SOx emission alIowance entitlcmcnts received at no cost from the Federal EPA. SWEPCo foIIows the inventory model for these allowmces. These allowances are consumed in the production of energy and are recorded in Operation Espenses at an average cost. Allowances held for speculation are included in Other Investments. Gains or losses on sale of emission allowances held speculatively are recorded in Miscellaneous Nonoperating Income and Other Deductions, respectively. Purchases and sales of allowances are reponed in the Operating Activities section of the Statemem of Cash Flows escept speculative allowance vansactions which are reported in Investing Activities.
Proper&, Plant aiid Equipnien f mid Equity Imlestmencs
Electric utility propeq. plant and equipment for rate-regulated operations are saied at oriSinaI purchase cost. Additions, major replacements and bcrterments are added to the plant accounts. Normal and routine retirements from the plant accounts, net of salvage. are charged to accumulaied depreciation under the ,mup composite method of depreciation. The group composite method of depreciation assumes that on average. asset components are retired at the end of their useful lives and thus there is no gain or loss. The equipment in each prirnaq electric plant account is identified as a separate youp. Under the g o u p composite method of depreciation. continuous interim routine replacements of items such as boiler tubes, pumps. motors, etc. result in the original cost. less salvase, being charged io accumulated depreciation. The depreciation rates that are esrablished take into account the past histoq of interim capital replacements and the amount of salvage received. These rares and the relared lives are subject to periodic review. Removal cost5 are chargd to accumulated depreciation. The costs of labor. materials and overhead incurred to operaic and mainrain plants are included in operatins espenses.
Lonplived aSsetS are required to bc testcd for impairment when it is determined rhat the carqins value of die assets may no longer be recoverable or when the assets meet the criteria under ?he accountins _guidance for "Impairment or Disposal of Long-Lived Assets." Equity investments are required 10 be tested for impairment when it is determined there may be an other-than-temporq loss in value.
The fair value of an asset or invesunent is the amount et \rhieh that assel or investment could be bought or sold in a current transaction bemeen wi l l iq parties, as opposed to a forced or liquidation sale. Quoted market prices in active markets are the best evidence of fair value and are used zs the basis for the measurement, if available. In the absence of quoted prices for identical or similar assets or investments in active markets. fair vaiue i s estimated using various internaI and esternat valuation methods including cash ff 015 analysis and appraisals.
IFERC FORM NO. I (ED. 12-88) Page 123.30 I
Name of Respondent
Southmlem Eledric P w r Company
hivesttiretit hi Sitbsiriiuty Conrpenies
This Report is: Date of Report YearlPeriod of Report (1) X An Original (Mo. Da, Ur) (2) - A Resubmission I I 2010IQ4
SI'L'EPCo has two wholly-o\med subsidiaries. Dolct Hills Lignite Compnny, LLC ( D o h Hills). mhich is engaged in lignite-mining operations and Southwest Arliansa Utilities Corporation, which is ensaged in riglit of waj- acquisition. Investment in the net assets or Dolet Hills is camed at cost: plus equiv in its undistributcd camiiig sincc acquisition. Investment in rhe ncr assets of S o u h e s t Arkansas Utilities Corporation is carricd at cost.
AFUDC rcpresents the estimated cost of b o m w d and equie funds used IO finance construction projects that i s capitalized and recovered rhrough depreciation over rhe senice lifc of regulated clccrric util ic plant. SWEPCo re-applied the accounting guidance for "Regulated Operations" for the generation portion of Tcxas' retail jurisdicrion effective the second quarter of 2009. For nonqulated operations. including _generating asscts in Twas prior to the second quarter of 2009. interest was capitalized during consrruction in accordonce \vith the accounting guidance for -Capitalization of lnterea,'
The book YaIues of Cash, Special Deposits. Working Fund. accouns receivable and accounts payable approsimate fair vnluc because ofthe short-term maturin. of these instruments.
Fair Ydre Measuremenis a f Assets atid Liabilities
The accounting guidance for "Fair Value Measurements and Disclosures" cslablishes a fair value hierarchy thal prioritizes the inputs used to measure fair vaIue, The hierarch> gives the highest priority to unadjusted quoted prices in active markets for identical a s s e ~ or IiabiIities (Level 1 measurement} and the lowest priorit?. to unobsenable inputs (Level 3 measurement). Where obsewable inputs are available for substantially the fi l l term of the asset or liability, the instrument is categorized in Level 7,. When quoted market prices are not available. pricins may be completed using comparable securities, dealer values, operating data and general marker conditions to determine fair value. Valuation models utilize various inputs such as commodib!. inrerest rate and, to a lesser de-me, volatiliv and credit that include quoted prices for similar a s m or liabilities in active markets, quoted prices for identical or similar a s w s or liabilities in inactite markets, market combomzed inputs (Le. inputs derived principally from. or correlated to. obsemablc market data) and other observable inputs for thc asset or Iiabilip.
IFERC FORM NO, 1 (ED. 12-88} Page 123.11 I
Name of Respondent This Report is: (1) &An Original
Southwestern Eledrit Power Company (2) - A Resubmissbn
For commercial activities, exchange traded derivatives, namely futures contracts, are generally fair valucd based on unadjusted quoted priccs in active markers and are classified as LeveI 1. Lcvcl2 inputs primarily consist of OTC broker quotes in moderately active or less active markets, as well as eschaqe traded contncts where there is insufficient market liquidity to warrant inclusion in Level 1. Mmagment verifies price curves using these broker quotes and classifies these fair values within Level 2 when substantiaiIy all of the fair value can be corroborated. Management typically obtains multiple broker quotes, which are non-binding in nature but are based on recent trades in the marketplace. When multiple broker quotes are obtained, thc quoted bid and ask prices are avenged. In certain circumstances, a broker quole may be discarded if it is a clear outlier. Manasement uses a historical correlation analysis benwen the broker quoted location and the illiquid locations and if the points are highly correlated. rhese locations are included within Levcl 2 as xvell. Cemin OTC and bilaarally executed derivative instruments are executed in lcss active markets with a lower availability of pricing information. Longdated and illiquid complex or structured transactions and FTRs can introduce the need for internal@ developed modeIin_g inputs based upon extrapolations and assumptions of obsewablc market data to estimate fair value. When such inputs have a significant impact on the measurement of fair valuc. the instnrment is categorized as Level 3.
Date of Report YearlPeriod of Report (Mo. Oa, Yr)
I 1 20101Q4
AEP utilizes its trustee's esternal pricinz senice to estimate the fair value of the undedying investments held in the benefit plan trusts. AEP's investment managers review and validate h e prices utilized by the trustee IO determine fair value. AEP's investment managers perform their o i n valuation testing to verify the fair values of the securities. AEP receives audit repons of the trustee's operatins controls and valuation processes. The tmstee uses muItiple pricins vendars for thc assets held in the plans.
Assets in the benefits vust are classified using the foIlowin_g methods. Equities arc classificd as Level 1 holdings if they are activel~ traded on exchanges. Items cIassified as Level I arc investmen& in money market funds, fixed income and equity mumal funds and domestic equiiy securities. They are valued based on observable inputs primarily unadjusted quoted prices in active markeis for identical assets. Fixed income securities do nor trade on an eschanze and do not haw an officiai closing price. Pricins vendors calculatc bond vaIuations usins financial modeis and matrices. Fixed incomc securities are ppicalIy classified as Level 2 holdins bccause their valuation inputs are based on observable market data. Observable inputs used for valuing fised income securities are benchmark yields, reponed trades. brokeddealer quotes. issuer spreads. tw-sidcd markets, benchmark securities, bids, offers, reference data and economic events. Other securities with modelderived valuation inputs that arc observable are also classified as Level 2 inuesxmcnts. Investments with unobservable valuarion inputs arc classified as Level 2 in~~strnents. Benefit pIan a s 5 e t ~ included in Level 3 are real esrate and private et& investments ?hat are valued using methods requirins judgment includin_g appraisals.
IFERC FORM NO. 1 (ED. 12-88) Page 123.32 1
Name of Respondent
Scumtestem Electric Power Campany
Items classified as Level 2 arc prirnaril! iniestments in individual fised incoriic sccuritics. Tlicsc fiscd iiicoine securities are valued usins models 1% ith input data as follo~v\.s:
This Report is: Date of Report YearlPeriod of Report (1) &An Original (Mo, Da. Yr) (2) - A Aesubmission I t 2Q1 WQ4
Type of Fixed Income Security t'nited States State and Local
Type of Input Goyernment Corporate Debt Goccmnicnt
Benchmark Yields x X Broker Quotes X X Discount Margins X x Treasuq Market Update X Base Spread x X Corporate Actions X Rating A y c y Lpdarcs X Prepayment Schedule and
Yield Adjustments X Histon.
Deferred Fuel Costs
x x
The cost of he1 and related emission allowances and emission control chemicaldconsurnabtes is charged to expense when the fuel is burned or the allowance or consumable is utilized. Fuel cost over-recoveries (the cscess of fuel revenues billed to customers over applicable fie1 cos& incurred) arc deferred as regulntorl; liabilities and undcr-recoveries (rhc excess of appticablc fuel COSE incurred over fuel revenues bilkd to customers) are deferred as regulatory a~sefs. Tlicse deferrals are amortized when refunded or when billed to customers in later months with the APSC's. LPSC's and PUCT'o review and approval. The amount of an oyer-recoven- or under-recovep can also be affected by actions of the APSC. LPSC and PUCT. On a routine basis. the APSC. LPSC and PUCT review nnd'or audit SM'EPCo's fuel procurement policies and practices, the fuel cost calculations and FAC dcferrals. W h e n a fuel cost disallowance becomes probable. SWEPCo adjusts its FAC defemls and records a provision for cstimatcd refunds to recognize these probable outcomes.
Changes in fud costs, including purchased powcr in Texas. Louisiana and Arkansas, are reflected in rates in a timely manner through the FAC. A portion of profits from off-system sales are shared with customers through rhe FAC and othcr mtc niechanisms in Texas. Louisiana and Arkansas.
R even ire Recognition
The financial statcmcnts reflect the actions of rqulators that can result in the recognition of rewnucS and espcnscs in different time periods dian enterprises that are not rate-regulated. Regulatoq assets (deferred expenses) and regularon. liabilities (deferred revenue rcducrions or refunds) are recorded to reflect the economic eKects of regulation in the samc accountins period by matching espenses with their r e c o v q throuzh regdared revenues and by marching income with its passage to customers in cost-based regulated ratcs.
IFERC FORM NO. 'I (ED. 12-88) Page 123.13 1
Name of Respondent
Southwestern Eledrie P m r Company
I When tegulatoy assets are probable ofrecowry throuzli regulated mtcs, SWEPCo records them as assets on the balance sheet. SWEPCo tests for probability of recowry at each balance shect daw or whenever new cvents occur. €samples of new events includc rhc issuance of n. rcgulatov commission order or passage of new lqislation. I f it is dctcnnined thai recoven. of a re_eularon. asset is no longer probable, SWEPCo \\.rites off that regulatoy asset as a charge against income.
Traditional ElectricirJ. Sttppb atid D d i r q Acikities
SWEPCo reeoy~izees revcnues from retail and whotesale electricity sales and electricin. transmission and distribution delive? senices. SWEPCo recoyizes the revenues in the financial statements upon delivcq of the energy to thc customer and include unbilled as well as billed amounts. III accordance with the applicable state commission regulaton. treatment. SWEPCo does not rccord the fuel portion ofunbilled revenue.
I
I
Thjs Report is: Date of Report YearlPeriod of RepQrt (1) X An Original (Mo. Da, Yr) (2) - A Resubmission t i 2010IQ4
Physical e n e r g purchases arising from nod-derivative contracts are accounted for on a p o s s basis in Operation Espenses on the statements of income. Energ purchases arising from non-trading derivative conmcts are recorded based on the transaction's economic substance. Purchases under non-trading derivatives used to serve accrual based obligations are recorded in Operation Expenses. All other non-trading derivative purchases are recorded net in revenues.
In geneml. SWEPCo rccords espenses upon receipt of purchased electricity and when expenses arc irtcuwd, with the esceprion of certain power purchase conrracts that are dcrivatives and accounted for using MTM accountins where _pencrationlsuppl~ rates arc not cost-based regulated, such as in Tcsas prior to the second quafier of 7,009. In Louisiana, Arkansas and beginnins in the second quarter of 3,009 in Tesas, the unrealized MTM amounts are deferred as replatoq assets (for losses) and rcgulatoq liabilities (for gains),
SWEPCo returned to cost-based rqulation and re-applied the accountins guidance for "Regulated Operations'' for the generation portion of SR'EPCo's Tesas rerail jurisdiction effective the second quaner of 7009.
Energ?. Markcling u d Risk ,Mwtgmwtit Acriifitks
AEPSC. on behalf of SWEPCo. engases in wholesale electricity. coal. natural gas and emission allowarices marketins and risk manqement activities focused o n wholesale markets where the AEP System OWIS assets and on adjacent markets. These activities include the purchase and salc of energy under fonvard contracts at fixed and variabte prices and the buying and sellins of financial energ contracis which include eschangc traded futures and options, a5 well as over-the-counter options and swaps. Cenain energ marketing and risk manascmcnt transactions are with RTOs.
c
SWEPCo recognizes revenues and expenses from wholesale markctins and risk management transactions that are not derivatives upon dcliveq of the comrnodiq.. SWEPCo uses MTM accounting for wholesale marketins and risk management transactions that are derivatives unless the derivative i s designated in a quali%ing cash flow hedge relationship or a normal purchase or sale.
!
(FERC FORM NO. 1 (ED. 12-88] Page 123.14 I
Name of Respondent
Southwestern EIectric P m e t Company
for the T c m portion of SiYEPCo prior to the second quarter of 2009: Unrcalized and realized Sains and losses on wholesale marketing and risk managcmcnt transaclbns hcld for trading purposes where the AEP SFstem owns asscts or in adjacent markets were included in Operatins Re\-enues. Realized Sains and losses for ccnain l e p c y transactions esccuted outside of AEP SFstcm uerc reponcd as Miscellaneous h’onoperating Income. Unrealized and realized _gains and losses on derivativc instruments nor held for tradinz purposes werr included in rcvcnues or espenses depending on the relei-ant facts and circumstances.
This Report is: Date of Report YearlPericd of Report (1) &An Original (Mo. Da. Yr) (2) - A Resubmission ! I 20101P4
For the Arkansas and Louisiana portions of SWEPCo and beginniiig in the second quaner of 2009 for the Tcsas portion of S\l’EPCo:
Realized gains and losses on wholesale marketing and risk management transacrions held for trading purposes where the AEP System onns assets OF in adjaccnt markets are included in Operating Revenues. Realized gains and losses for ceFtain legacy tnnsactions esecuted outside o f AEP System are reported as Misccllancous Konopenting Income. Rcalized gains and losses on derivative insrrurncnis not held far trading purposes arc included in revenues or expenses depending on the relevant facts and circumstances. Unrealized gains and losses for both trading and non-trading derivative instruments arc recorded os a rqulatop asset (for losses) or a regulatory liability (for zains).
Cemin qualibin2 wholesale marketins and risk manqement derivatives rransactions are designated as hedges of variability in future cash flow as a result of forecasted transactions (cash flow hedze). SWEPCo initially records the effective portion of the cash flow hedze’s gain or loss as a component of AOCI. When the forecasted transaction i s realized and affects net income. SWEPCo subsequentl!. reclassifies the gain or loss on the h c d ~ e from AOC? into revenues or expenses within the same financial statement Iine item as the forecasted transaction on its staternem of income. For the Tesas ponion of SWEPCo prior to the second quarter of 7009. the ineffective portion ofthe gain or loss was recopized in revenues or espense in the financial statements immcdiately. In the Arkansas and Louisiana portions of SWEPCo and the Texas ponion of SWEPCo bqinning in the stccond quarter of 2009, the ineffective portion of the gain or loss is deferred as a regulator?. asset (for losses) or a q u l a t o p liabili& (for Fins). Sce “Accountins for Cash Flow Hedging Strategies” section of Note 9.
. -
SWEPCo expenses maintenance costs as incurred. I f it becomes probable that SWEPCo will recover specificallpincurred costs throu@ future rates, a rcgulatoq+ asset is established to match the espensing of those maintenance costs with their recovey in cost-based regulatcd revenues.
SWEPCo uses the liability mcthod of accounting for income taxes. Under the liabiliw method, deFerred income IaSe5 are provided for all temporary diffcrenees between the book and tas basis of assets and liabilities which will result in a fururc tax conscqucnce.
IFERC FORM NO. I (ED. 12-88) Page 123.15 I
Name of FlEspondent
SouVRvestein Eledrie Power Company I(2) - A Resubmission 1 I I 1 2010144
This Report is: Date of Report Yearperiod of Report ( I ) &An Original {Mo. Oa. Yr)
I NOTES TO FlNANClAL STATEMENTS (Cmtinued)
When the flowthrough method of accountins for temporary differences is reflected in regulated revenues (that is, when deferred taxes are not included in the cost of service for determining regulated rates for ekctricity). deferred income taws are recordcd and dated rcgulatov assets and liabilities are established to match the regulated revenues and I ~ Y espense.
lnvestmenr tax credits are accounted for under thc flou-through method except where regulatoy commissions have reflcctcd investment tas credits in the ratemaking process on a deferral basis. Investment tau crcdits that have been dcfcrred are arnortizcd over the life of the plant investment.
SWEPCo accounts for uncertain tax positions in accordance with the accountin_g pidance for "Income Taxes.' SWEPCo classifies interest expense or income related IO uncemin tax positions as interest expense or income as appropriate and classifies penaIties as Penalties.
Excise Tmes
As agents for some state and local governments, S\V€PCo collects from cwsomers certain escise taxes levied by those state OF local governments on customers. SWEPCo does not record these taxes as revenue or espense.
Debt m d PreferredSlocX-
Gains and losses from the reacquisition of debt used IO finance regulated eIecrric uti l i5 pIants are deferred and amonized over the remaining term of the reacquired debt in accordance ivith their rate-making treatment unless the debt is refmanced. If the reacquired debt associated with the regulated business is refinanced, the reacquisirion costs attributable IO the portions of the business that are subject to cost-based regulalory accounting are generally deferred and amonited over the term of the replacement debt consistent with its recover?; in rates. Prior to the second quarter of 2009, the Texas portion of SWEPCo reponed Sains and losses on the reacquisition of debt for operations that wcrc not subject to cost-based mtc regdation.
Debt discount or premium and debt issuance espenses arc deferred and amortized generally utiIizing the straight-Iine method oier the term of the related debt. The straight-line method approsirnates the effective interest method and is consistent with thc treatment in Fates for replatcd operations.
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U'hcrc reflected in rates, redemption premiums paid to reacquire preferred stock are included in paid-in capital and arnodzed to retained earnings commensurate with their recovep m rates. The excess of par value over costs of preferred stock reacquired is credited to paid-in capita1 and reclassified to retained earninF upon the redemption of the entire preferred stock series.
IFERC FORM NO. I (ED. 12-m) Page 123.f6
Name of Respondent
Southwestern Eledric Power Company
AEP has several trust funds wilh siyi f icant investments intended to provide for future payments of pension and OPEB bcnefits. All of the trust fhds' inwmnents are diversified and rnanapd in compIiance wiih all laws and rcgularions. The investment stmtep for trust funds is 10 use a diversified portfolio of investments IO achieve an acccptable rate of return % M e rnanasf,in_g the interest rate sensitivip of the assets relative to the associated liabilities. To minimize invcsrment risk, the tm5f funds are broadly diversified among classes of assets, invesrnient strategies and in\ eamcnt rnanazers. Management regular1) reviews the actual asset alIocation and periodicalI! rebalances rhe investmcnts to tagcrcd allocations when appropriate. Investment poIicies and pidelines allow investment manayrs in appro\ ed stmtegics to use financial derivatives to obrain or manage market esposurcs and to hcdgc zscts and liabilities. Tlic in\-cstmcnts arc reported at fair value under the "Fair Value Measurements and Disclosures'' accountins guidance.
This Report is: Date of Report YearlPeriod of Report (I) & An Original (2) - A Resubmission I I
(Ma Da. Yr) 201QIQ4
-411 bcncfit plan asscrs are invested in accordance with each plan's investment policy. The im esiment po l ig outlines the investment objectives. straiqies and targel asset allocations b> plan.
The investment philosophies for AEP's benefit plans support the allocation of a s e i s to minimkc risk and optimize net mums. Strategies used incIude:
MaintaininS a long-term investment horizon. Dhersifyin_g assers to help control volat i l i~ of mums ai acceptable levels. ManaSing fccs. transaction COS& and tax liabilities to maximize investmeni earning. Usins actite management of investments where appropriate risl;lretum opportunities exist. Keeping portfoIio structure sylc-neutral IO limit volaiilip compared to applicable benchmarks. Using alternative asset classes such as real estate and private equip to maximize return and provide additional portfolio diversification.
. - -
The lar_pet assel alIocation and allocation ranges are as fOllO\vS:
Pension Plan Assets Minimum T3rget 31 ax i m u m Domestic Equie- 30.0 % 35.0 % 40.0 % International nnd Global Equiv 10.0 % 15.0 % 70.0 % Fiscd Income 35.0 YO 39.0 % 45.0 % Real Estate 3.0 Yo 5.0 % 6.0 % Other Investments 1.0 % 5.0 % 7.0 9'0 Cash 0.5 YO 1.0 % 3.0 %
OPEB Plans Assets Minimum Target Maximum Equity 61.0 % 66.0 % 71.0 % Fised Income Cash
79.0 % 2 . 0 % 37.0 Yo 1.0 % L O % 4.0 Yo
IFERC FORM NO. 1 (ED. 12-88) Page 123.1 7 1
Name of Respondent
Scuthwestern Becttic Power CPmp8ny
The investment policy for each benefit plan contains various im'estment limitations, The investment policies establish concentmion limits for securities. Investment policies prohibit the benefit tmt funds from purchsin_p sccuritics issued by AEP (with the esccption of proponionate and immaterial holdings of AEP securities in passive indes strate&). Wowc\-er, the invesment policies do not preclude the benefit trust f h d s from receiving contributions in rhc form of AEP securities. provided that the AEP securities acquired by each plan may not exceed h e limitarions imposed by Iaw. Each invcstment manasets padolio i s compared IO a diversified benchmark indes.
This Report is: Date of Report YearlPeFiod of Report (I} An Original (Mo. Da, Yr) (2) - A Resubmission I f 201WQ4
For equib investments, the limits are as follows:
KO security in esccss of 5% of all equities. Cash equivalents must be less than 10% of an invesment manageI's equity portfolio. IndividuaI stock must be less than 10% of each manager's equity ponfolio. KO investment in excess of 5% of an outsranding class of any company. No securities may be bought or sold on rnar@n or other use o f leverage.
For fised income invesrments, the concentration limits must not exceed:
3% in one issuer
9 5% private placemenrs 5% convertible securities
20% in non-US dollar denominated
60% for bonds rated AA+ or loiyer 50% for bands rakd A+ or lower 10% for bonds rated BBB- or lower
I
For obligitions of non-ovemment issuers the following limitations apply:
0
AAA rated debt: a single issuer should account for no more Ihan 5% of the ponfolio. AW, AA. A4- rated debt: a single issuer should account for no more than 3% of the portfolio. Debt ratted A- or lower: a single issuer shouId accouiit for no more than 2% of the portfolio. KO more rhan 10% of the portfolio may be invested in high yield and ernerzing market deb1 combined at any time.
A portion of h e pension assers i s invested in real estate funds to provide diversification. add return, and hedge against inflation. Real estate properties are illiquid, difficult to value, and not actively traded. The pension plan uses c.utcrnal real exate investment manasem to invest in cornmin_gled finds that hold real estate propenics. To mitigate investment risk in the real estate portfolio, commingled real estate funds are used to ensure that holdings are diversified by region, propew tvpe. and risk classification. Real esfate holdings include core, value-added, and development risk classifications and some investments in Rea1 Estate Investment Tmsts (REITS). which are publicly tmdcd real estate securities classified as Level 1.
~ F E R C FORM NO. I (ED. 12-88) Page 123.18 1
Name of Respondent This Report is: Date of Report (Mo, Da, Yr) (I) 5 An Original
Souhuestem Elecliic Prxw Company (2) - A Resubmission I I
A portion of the pension asscis is inlcstcd in privatc cquity. Private cquity inveslmenu add rtturn and provide diversification and npicall>- require a long-term time horizon to eipaluate investment perfomancc. Private equity is clnssified as an nlternativc investment bccausc i L is illiquid. difficult to value, and not nctivcly traded. 'Thc pcnsion plan uses limited pannerships and comrninzled funds IO invest across Ihc private equity investment spcctruin. The private equity holding are with sis general panners who help monitor the investmenLs and provide invcsrment selection expenise. The hold ing are currently comprised of venmre capital- buFout. and hybrid debt and cquitv jnveslmenr instruments. Commingled private equity funds are used to cnhancc the holdin$ diversity.
YearlPeriad of Report
20tOIQ4
AEP participales in a securities lending program with BKY Mellon to provide incrcmcntal income on idle a5sets and to provide income io offset custody fees and other administrative espcnscs. AEP lends securities to borronFrs approwd by BNY Mellon in eschange for cash collateral. AI1 loans are collateralized b!- at lean 102% of the loaned nsset's markct \due and the cash collateral is invested. The differelice between the rebate owed 10 the borrower and the cash colIareral m e of reIurn determincs the earning on thc loaned securi5. The securities lending propam's abjecthe is providing rnoden incremental income \vith a limited increase in risk.
Trust owed life insurance (TOLI) undensritten b! The Prudential Insurance Cornpan! is held in [he OPEB plan trusts. The strategy for holding life insurancc contracts in the tavablc Voiuntq Employees' 5enciiciaq Associatiori (VEBA) trust is io minimize taws paid on the a55et um~nl~ in the trust. Earninzs on plan assets are ras-defcmd within the TOLI contracf and can be tax-free if held until claims are paid. Life insurance proceeds remain in the mist and are used to fund hturc retiree medical benefit liabilities. With considemion to other investments held in the tmt. the cash value of the TOLI contFacE is invested in hvo diversified funds. A portion is investcd in a commingled fund wit11 underlyinz investments in stocks that are actively traded on major international equie eschanges. The oiher ponion of the TOLf cash value is invested in a diversified, commingled fised income fund with underlying investments in goovernment bonds, corporate bonds and asset-backed securities.
Cash and cash equivalents are held in each trust to provide liquidin. and meel shon-term cash needs. Cash equivalent funds are used 10 proi'ide diversification and presewe principal. The undcrlFing holdings in the cash funds are investment grade money market instruments indudins commercial paper, certificates of deposit, treasury bills and other byes of investment p d e short-term debt securities. The cash funds are valued each business da? and provide dail? liquidib.
Cotnpreltetisive Income (Loss)
Comprehensive income (loss) is defined as rhe chanze in equir) (net assets) of a business emerprisc during a period from transactions and other evcnts and circumstances from nonower sources. It includes all changes in cquity during a period except thosc resulting from investments by o~\fict-s and distributions to owners.
Adjmtmertls IO Snle of Receivables Disclosirre
In the "Sale of Reccivablcs - AEP Credit'' section of Notc 13. thc disclosure was cspanded to reflect certain prior period amounts related to the sale of receivables that were not previously disclosed. These oniissions were not material to the financial statements and had no impact on previously reported net income, chanses in shareholders' equit?, financial position or cash flows.
IFERC FORM NO. I (ED. 12-88} Page 123.19 I
Name of Respondent This Report Is: Date of Report YearlPeriod of Report (I) X An Original (Mo, Da. Yr)
Southwestern EIedric PPrver Company (2) - A Resubmission I t 201 OfU4 NOTES TO F I W C I A L STATEh4ENTS (Continued)
Adjlcsmetrls lo Batefit P h i s Footiwte
In Note 7 - Benefit Plans, the disclosure was espanded to reflect disclosure requircmcnts bascd on participation in the AEP System. These omissions were not material to the financial statements and had no impact on previoudy reponed net income, changes in shareholder's equity, financial position or cash flows.
2. EXTRAORDMARY ITEM
TEWS Resrructurittg
In A u p s t 2006, the PUCT adop1ed a rule cxtcndinz the dcla? in implementation of customer cboicc in SWEPCo's SPP area of Tesas until no sooner than JanuaF I , 201 1. In May 2009, rhe governor of Tesas signed a bill relared to SWEPCo's SPP area of Texas that requires continued cost of sewice reg~lation until certain stases have been completed and approved by the PUCT such tliat fair Competition is available to all Tesas retail cuslomcr classes. Based upon the siping of the bill, SWEPCo reapplied "Regdated Operations" accounting guidance for the generation portion of StVEPCo's Texas rerail jurisdiction effective the second quarter of 2009. Management believes that a wi.itch to competition in the SPP area of Texas will not occur. The reapplication of "RcSulated Opcrations" accounting guidance resulted in an S8 million ($5 million, net of tas) extraordinav toss.
3. mTEmTTERs
SW€PCo is involved in rate and regulatory proceeding at the FERC, APSC, LPSC and PUCT. Rate matters can have a material impact on net income, cash flows and possibI>* financial condition. SWEPCo's recent sipificant rate orders and pending rate fi l inp are addressed in this note.
Turk Piant
SWEPCo is currently constructing the Turk Plan$ a new base load 600 MW pulverized coal ultra-superetitical generating unit in Arkansas. which is cspccted ro be in service in 1017. SWEPCo owns 73% (440 MW) of the Turk Plant and will operate the completed faciliry. The Turk Plant is currently cstirnated IO cost S1.7 billion, cscluding AFUDC, pIus an additional S 125 million for transmission, escluding AFUDC. SWEPCo's share is currently estimated to cost S 1.3 billion, exdudins AFUDC, plus the additional SI 25 million for rransmission, escluding AFUDC. As of December 3 1, 201 0, escluding costs attributable to its joint owners, SWEPCo has capitalized approximately $1 billion of espendirurcs (including AFUDC and capitalized interest of SI27 million and related transmission costs of $66 million). As of December 3 1,2010, the joint ouners and SWEPCo haye contractual construction commitments of approximateI! 532 1 million (inchdins related transmission COSIS of $3 million). SWEPCo's share or the contractud construction commitments i s S735 million. If the plant is cancelled, the joint owners and S\l"EPCo would incur contractual construction cancellation fees, based on construction status as of December 3 I , 2010, of approsimalely SI21 million (induding related transmission cancellation fees of SI million). SWEPCo's share of the contractual construction cancellation fees would be approsimately 589 million.
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IFERC FORM NO. T {ED. 12-88) Page 123.20 I
Name of Respondent
Southwestern EIedtic Power Company
Discussed below are thc significant outs rand in^ unccnainties related to the Turk Plant:
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This Report is: ( I ) 3 An Originat
Datz of Report VkartPeriod of Report (Mo. Da, Yr)
(2) - A Resubmission I 1 2#fOIQ4
The APSC granted approval for S\\'EPCo to build thc Turk Plant by issuing a Ccnif icm of Environmental Compatibilip and Public Kced (CECPN) for tht 88 M W SWEPCo A r k a n s ~ jurisdictional sham of thc Turk Plant. Following an appeaI by certain intewenors. the Arkansas Supreme Coun issued a decision that reversed the APSC's grant of the CECPH. Thc Arkansas Supreme Court ultimaiely concluded that the APSC erred in dctcrminin_p the nccd for additional power suppl? resources in a procceding separate from the proceeding in which the APSC granted thc CECFK. However. the Arkansas Supreme C a m approved the APSC's procedure of granting CECPNs for tmnsmission faciiities in dockets separate from die Turk Plant CECPN procceding. SW€PCo filed a notice w$h the APSC of its intent to proceed wirh construction of the Turk Plant but that SW'EPCo no lonzer intends to pursue a CECPK to seck recovep of thc oriSinally approved 88 MW portion ofTurk Plant costs in Arkansas retail ratcs. In June 20 10. the APSC issued an order I\-hich reversed and set aside the prcviously granted CECFH.
The PUCT issued an order approrins a Certificate of Convenience and Newssin. (CCN) for the Turk Plant with the following conditions: (a) a cap on the recoucrlr. of jurisdictional capital costs for the Turk Plant based on the previous11 estimated SI .522 billion projected construciion cost, excluding AFUDC and relared transmission cosfs. (b) a cap on recoven. of annual CO? emission costs at 518 per ton through the p a r 2020 and (c) a requirement to
hold Tesas ratepqers financial!\ harmless rrom an! adverse impact related i o the Turk Plant not being fully subscribed 10 b! other utilities or wholesale customers. W'EPCo appealed ?he PUCT's order contending the two cost cap restrictions are unlawhl. The Tesas Industrial Enera Consumers filed an appcal contending that thc PUCT's gant of a conditional CCN for the Turk Plant was unnecessac' to sen'e mai l customers. In Februq 1010. the Texas District Court affirmed thc PUCT's order in all respccrs. In March 2010, SWEPCo and the Tesas Indunrial EncrE Consumers appealed this decision to the Tesas Court of Appeals.
The LPSC approved SWEPCo's application to construct the Turk Plant. The Siem Club filed a complaint with the LPSC to begin an investigation into the construction of the Turk Plant. In November 2010, the LPSC dismissed the complainr.
In November 2008. SWEPCo received its required air permit approval from the Arkansas Departmcnt of Environmenral Qualib and commcnccd construction at the site. The Arkansas Pollution ControI and EcoIofi Commission (APCEC) upheld the air permit. The parties who unsucccssMly appealed the air permit IO h e APCEC filed a notice of appeal with the Circuit Coun of Hempstead County, Arkansas. In December 3010, the Circuit Court affirmed thc APCEC. In Januav 20 I 1, the same parties asked the Arkansas Coun of Appeals to overrum the Circuit Court's December 2010 decision. A decision from the Arkansas Court of AppeaIs i s pending.
IFERC FORM NO. I {ED. 12-88) Page 123.21 1
Name of Respondent
Southwestern Eledric Power Company
A n.ctlands permit was issucd by the US. Amy Corps of Engineers in December 2009. In 201 0. the Sierra Club, the Audubon Socieq and others filed a complaint in ;he Federal District Court for the Western District of Arkansas against the US. Arm! Corps of Engineers challcnginz thc process used and the terns of thc pcrmit issued to SWEPCo authorizins certain wetland and stream impacts, and sou@t a preliminary injunction to halt construction and for a ?eniporaIy restminins order. In July 201 0, the Hempstcad Counv Hunting Club also filed a complaint with the Federal District Court for the Wesiern District of Arkansas against SWEPCo, the U.S. Army Corps of Engineers, the W.S. Department of the Interior and the U.S. Fish and Wildlife Service seeking a temporary restrainins order and preliminan. injunction to stop construction of the Turk Plant asserh_p claims of violations of federa1 and state laws. The plaintiffs' fedcral law claims challcn_ge the process used and terms of rhe permit issued to SWEPCo authoritins certain wetland and stream impacts. The plaintiffs' sute law claims ehalIenge S W C o ' s abilirq. to construct the Turk Plant without obtaining a certificate from the APSC. In 2010, the motions for preiiminaQ injunction were partially granted and upheId on appeal pending a hearinz. According to the preliminary injunction, all uncompleted construction work associated with \vetlands, streams or rivers at the Turk Plant must immediately srop. Mitigation measures required by the permit are authorized and ma! be completed. The prel iminv injunction affects portions of the water intake and associated pipins and portions of the transmission lines. A hearing on SWEPCo's appeaI is scheduled for March 201 1. In October 2010, the Federal Districr Court certificd issues relating to the state laa claims to tIie Arkansas Supreme Court, including whether those claims are within the primary jurisdiction of the APSC. The Arkansas Supreme Coun accepted the request.
This Report is: Date of Report YearlPeriod of Report (I) 8 An Original (Mo, Da. Yr) (2) - A Resubmission I 1 201 01Q4
In January 2009, SWEPCo was panted CECPHs by the APSC to build three transmission lines and facilities authorized by the SPP and needed to transmit power from the Turk Plant. lntervenors appealed the CECPK decisions in April 2009 to the Arkansas Coun of Appeals. In July 2010, the Hempstead C o u q Hunting Club and other appellants filed wirh the Arkansas Coun of Appeals emergcncy motions to stay the transmission CECPNs to prohibit SNEPCo from taking ownership of private propew and undertaking construction of the transmission lines. The Arkansas Court of Appeals issued a decision in July 3,010 remandins all transmission line CECPK appeals 10 rhc APSC. As a resuIs a sta! was not ordered and construction continues on the affected transmission Iinrls. In Januaq 201 I , rhc appellants filed requess to withdraw their appeals at the Court of Appeals and the APSC postponed a scheduled hearins pending n rulinz on thosc requests. In Febmact 20 1 1, the Coun of Appeals dismissed the appeals. and the APSC subsequentIy closed the remand docket, finding the CECPN decisions final and non-appealable. A5 previously discussed. the preliminnF injunction issucd by the Federai Districi Court related to the wet1ands permit aIso impacts the uncompIeted consrruction on portions of the transmission lines.
Manazernent espects that SWEPCo a.ill ultirnarel~ be able to complete construction of the Turk PIant and related transmission facilities and place those facilities in senice. However, if SiEPCo is unable to complete the Turk Plant construction, includinz thc rclated transmission facilities, and place the Turk Plant in senvice or if SiV'EPCo cannot recover all of its investmcnt in and espenses d a t e d to the Turk Plant. it would materially reduce future net income and cash flows and materially impact financial condition.
\
IFERC FORM NO. 1 [ED. 12-88) Page 123.22 I
Name of Respondent
Sauthwestm Electri: Ponw Company
SW€PCo constructed the Srall Unit. an intcrmcdiaic load 500 M\Y natural gas-fircd combustion mrbinc combincd ex& Senerating unit. at its esisting Arsenal Hill Plant located in Shreveport, Louisiaiia. The LPSC and thc APSC issued ordcrs cappins S\VEPCo's Stall Unit construction costs ar $495 milIion including AFUDC and cscluding relatcd transmission costs. The Stall Unit was placed in sen ice in June 2010. As of December 3 1. 2010. thc Stall Unit cost applicable to the cap ws $416 million. including S39 million of AFUDC. Management does not cspcct the final costs of the Stall Unit to csceed the ordered cap. In July 2010. the StaiI Unit \vas placed into Arkansas rates. SiYEPCa received CWIP trcatmcnt for a portion of thc Stall Unit in the 2009 Texas Base Rate Filins. See -2009 Tcsas Base Rate Filin_g" section bclow. The Stall Unit !vi11 be phased into Louisiana ram benvccn October 70 10 and October 20 1 1.
This Report is: Date of Report YearlPeriod of Report (1 1 X An Original (Mo. Da, Yr) (2) - A Resubmission I t 201WQ4
Loirisiunn Fitd A djiutttietrt Clause A ridit
Consultans for the LPSC issued their audit repon of SWEPCo's Louisiana retail F.4C. The audit repon included a siyificant recommendation that might result in a financial impact that could be matcrial for SiYEPCo. The audit repon recommended that rile LPSC discontinue SWEPCo's tiered sharins mechanism related to off-system sales margins on a prospcctiw basis and that S\\'EPCo included inappropriate costs in rhe FAC. In September 3010. the LPSC consultanrs filed testimon! supponing their audit repon f ind ing but did not quanti& their recommendations. M a n a p n e n t is unable to predict how ihe LPSC will rule on the recommendations in the audit repon and its financia1 statement impact on net income. cash flows and financial condition.
2009 Tesas Buse Rnfe Filing
In August 1009. SWEPCo filed a rate case lvith the PLjCT to increase its base rates by approsimately S75 million annuail! including a return on common equie of 11.5%. Thc filing included requests for financing cost riders of $32 milIion related to conmetion of the Stall Unit and Turk Plant. a vegetation manaSement rider of S I6 milIion and other requested increases of S17 million. In April 1010. a settlement agreement was approved by the PUCT to increase SllrEPCo's base rates bv appmsimattely Si 5 million annually. effective May 101 0. including a rcmm on common equin. of t 0.5%. which consists of S5 million related to construction of the Stall Unit and SI0 million in other increases. In addition. the settlement agreement decreased annual depreciation espensc by SI 7 million and allowed SWEPCo a SI0 million onc-year surcharze rider IO recover additional vegetation management costs that SWEPCo must spend within nvo years.
. -
Term Fuel Recoitciliation
In Ma) 20i 0, ~arions intcnenors, including the PUCT staff, filed testimonx recommending disallowances ranging from 53 million to $30 million in SWEPCo's $755 million fucl and purchased pa\ver costs reconciliation for the period Januaq 1006 through March 2009. In July 20 IO. Cities Advocatinz Reasonable Deregulation filed wstimony r e p d i n s the 2007 transfer of ERCOT trading contracts to AEPEP. The testimon? included unquantified refund recommendations relating to re-pricing of contract iransactions.
In September 2010, the Administrative Law Judges issued a Proposal for Decision (PFD) that rccommended a disallo~.rance of a sisnificanr portion o f the charges under a ten-Fear 2% transportation ayeement [liar b e y in 2009 for rhe Manison Plant located in northwest Arkansas. In JanuaF 2011, the PUCT issued an order which ovenurned a portion ofthe PFD thal recommended a findins of imprudence on the Mattison gas contract. The impact of this order had an immaterial impact on SjYEPCo's financial statements.
)FERC FORM NO. I (ED. 12-88) Page $23.23
Name of Respondent
Soulhnestem Electric Power Company
Lo frishirrr 2008 Formila Rate Filirig
In April 2008, SWEPCo filed irs first formula rate filing under an approved three-year formula rate plan (FRP). SWEPCo requested an increase in its annual Louisiana retail rates of S 1 1 million to be effective in August 7008 in order IO e m the approved formula return on common equity of 10.565%. In August 7008, DS provided by the FRP, SWEPCo impkmented the FRP rates, subject to rehnd. During 2009, SWEPCo recorded a provision for refund of approximatel> SI million after reaching a sertlement in principle with intervenors. A settlement stipulation \\as reached by the panies and is pending LPSC approval. SWEPCo began refundins customers in August 20 10.
This Report Is: Date of Report YearlPeriod of Report { 1) X_ An Original (Mo. Oa. Yr) (2) -A Resubmission I t 20101Q4
,hriSiRna 2009 Formula Rate Fifittg
In ApriI 2009. SWEPCo filed the second FRP which would increase its annuaI Louisiana retail rates by an additional S4 million effccrive in August 2009. SWEPCo implemented the FRP rate increase as filed in August 2009, subject to refund. In October 2009, consultants for the LPSC objected to certain components of SWEPCo's FRP calculation. In February 2011, a settlement stipulation was reached by the parties and is pending LPSC approval. The settlement stipulation a-ereed to a S7 million refund, which UTE recorded in 2010 as a provision on SWEPCo's balance sheet. If a refund is required, it could reduce future net income and cash flows.
Latrisiana 2010 Fmtiuh Rate Filitg
In April 7010, SWEPCo filed the third FRP which would decrease its annual Louisiana rerail rates by 53 million effective in August 2010 pursuant to the approved FRF, subject to refund. In October 2010, consultants for the LPSC objected to eenain components of SWEPCo's FRP calcuIations. SWEPCo believes the rates as filed are in compliance with the FW merhodoloy previously approved b? the LPSC. If the LPSC disagrees with SWEPCo, it could result in rehnds which could reduce future net income and cash flows.
Thc OCC filed a complainr a1 the FERC alleging that AEP inappropriately allocated off-system sales margins bctwen the AEP East companies and the AEP West companies and did not propcrl? allocate off-system sales margins within the AEP West companies.
In 3009. AEP made a compliance filing n i t h the FERC and the AEP East companies refimded approximately S250 million IO the AEP West companies. Followin_g authorizcd regulatoF treatment. the AEP West companies sharcd a ponion of SlA margins ivith their customers during the period June 3000 to March 1006. In 7008, the AEP We51 companies recorded a provision for refund reflecting the sharinz. Refunds have been or are currently being returned to PSO, SWEPCo and FERC customers. Management betiexes the AEP West companies' provision for refund i s adequate.
IFERC FORM NO. 1 (ED. 12-88) Page 123.24 1
_-
Name of Respondent This Report is: ( I ) li An Original
Southwestern Electric Power Company (2) - A Resubmission
Date of Report YearlPeriod of Report (Mo. Da. Yr)
! I 201 QlQ4
4. EFFECTS OF REGULATIOS
Regulator?- assets and liabilities are comprised of the foIlowin_r items:
Rtrnaining Detcmber 3 I. Rrroirrr
[in thousands) R q d a t o q - hsrcu: 2010 IO09 Pcrind
Reguhtor? assek not yet being recovered pending future prncetdings to determine the rceovev method and timing:
Regulntoq asset5 being recovered:
Peeuhtnn Asxts Currmik Eaminea Return Storm Related Corn Acquisition o f Vdlq Etectric Membership Corpontion Under-mot crcd Fucl Costs
Pension and OPEB Funded Starus En-- E f i e i ~ q PEak Dcmand Reduction Incomc T u rzSscls Cnrealizctl Loss on Fonwd Comiunents Storm Rclatcd Corn R ~ I C Cast Expense Dolrr Hills Drfemd Fuel 0th RcguIaror?. &s*2 Being Rcco\cttd
Rueulaton. Asxts Currcntlv Kat Emine a Rriuiq
Tutal Regulataq Assetf Being Recovered
Total FERC Acrounr 183.3 Regu1a;oq Assets
- -. 1. i>9 1.818
154.830 495
142.908 1.973 4.800 4.606 Liz5
41 1 313,418
S 314.041
5.043
2.761
163.155 I
85.218 73
3.353 960
260.573
S 261.044
IFERC FORM NO. 1 (ED. 12-88) Page 123.25 I
Name of Respondent
Southestern Electric Power Company
Rqttlatoy Liabilities:
R C ~ U I ~ K O V liabilities not y t being p a i d
This Report is: Date of Report YearlPeriod of Report { A ) X An Original (Mo. Da. Yr) (2) - A Resubmission I t 20fOIQ4
Remaining D~errnber31. Refund
2010 2009 Period ( i n thousands]
Rteulaton I.iahi(itie Currtnlh Patine a Return
Rerulatom Liabilitits Cutrenttv Not Parine a Rrturq Refundable Consu-ucdon Financing Costs S 20,139 5
kcas Earning- - (a1 3.167 Other R q u l a ~ & ti3bilitics Kot Yct Bring Paid
R q u l a t o ~ Liabilities Xot Y e t Being Paid
R e g u l a t o ~ liabilities being paid:
Paulaton- Liabiliriq Curno tlv Paving a Rriuq EYCCSS Emins
Orhcr Rqulnloq Linbilitics Bcing Paid
Income T u Liabilitia hcrgy EfficicnqPFal; Demand Rcdunion Vegetation M m e m m t Othcr R c g u [ a l o ~ Liabilitics Being Paid
O \ . c r - ~ o ~ t ~ d Furl COSIS
)lcgu!a!ov Li3h i l i t i~ Currenth Not Pnrine n Rrrurq
ReguIatory Liabilities Being Paid
. , 806 1,006
70.945 4,175
3. I 19ta - 53ysars 16.291 13.372 1 !Car
1.667 2,054 tzriaus
10.790 13.054 2 9 y u s
5-67? 1 ?‘can 1.451 2.914 Various
6.4
38.991 3 1.458
Tot31 FERC Account 254 Regulatoc Liabilities S 59.936 S 35.63 1
5. COMMITMENTS. GUARANTEES AND CONTISGENCIES
SWEPCo is subject to certain claims and Icpl actions arisinz in its ordinar? course of business. In addition, SWEPCo’s business activities are subjcct to estensive governmental regulation relared to public health and the environment. Tile ultimate outcome of such pending or potential lidsation cannot be predicted. For current pmcecdinp no1 specificalIy discussed below, management does not anticipate that the liabilities. if any. arising fmm such prucccding would have a marerial adverse effect on the financial statements.
Co~ts~riictiot~ atid Cmnm irmem
ShTPCo has substantial construction comniitments to support its operations and environmenral investmenis. In managing the ovenll construction proyam and in the normal course of business, SWEPCo conrmctuall~ commits io third-paq consmction vendors for certain material purchases and other construction services. The forecasted construction expenditures cscluding AFUDC and capitalized interest for 20 1 1 are $442 million. SWEPCo purchases fuel, materials, supplies. senices and propeq. plant and equipmcnt under contract as pan of its normal course of business. Cenain supply contracrs contain penale provisions for early termination.
1
IFERC FORM NO. 1 (ED.12-88) Page 123 26
Name of Respondent
Southwestern E M c Paver Company
Thc follor\iug table summarks the actual contractual coinmitmenls at Deccmbcr 3 1.2010:
This Report is: Date of Report YeadPeriod of Report (I) &An Original (2) - A Resubmission I I 2#l om4
(Mo, Da, Ur)
Less Than 1 AftCT 7-3vcars 3 - 5 y t ~ ~ s Sxenrs Totnt Contractual Cornrnitmcnts year .
(in millions) Furl Purchue Contracts (a) S 257.1 S 321.2 5 76.6 S 50.2 S 735.1 Encrgy and Capaeig Purchac Conmcts (b) 19.0 SQ. I 29.2 XJ.9 382.1
S 276.1 S 360.5 S 115.8 S X 5 . 1 S 1.117.3 - 7 Total
(a) Represents conmetual commitmcnts to purchase coal, na~ural gas and other consurnabks as fuel for electric genemion along with reIated mnsportation of the fuei.
(b) Represents contractual commitments for e n e w and capacii? purchasc centnm.
Liabilities for guarantees are rccorded in accordance with the accounting guidance for "Guaranrccs." %There is no collateral held in relation IO any guarantees. In the wen1 an? guarantee is drawn, thcrc is no rccourst to third panies unless specified bclo\i.
Letters of Credit
S\\:EPCo enters into standby Ieners of credit wilh third panics. 'These letters of credit are issued in the ordinar! course of blrsincss and covet items such as insurance programs, securin- dcposits and debt semice reserves.
AEP has two $1.5 billion credit facilitics. of which S750 million may be issued under one credit facilib as lcaers of credit. In June 2010. AEP terminated one of thc S1.5 billion facilities that was scheduled to mature in March 201 1 and replaced it with n ncn S I S billion credit facility which matures in 20 13 and allow for rhc issuance of up to $600 million as letters of credit. At December 31, 7010. SWPCo's masirnuin hmre payments of the letters of credit were 9 . 3 million with a rnamrin. date of June 20 I 1,
. -
As part of the process to receive a renewal of a Tesas Railroad Commission permit for Iiynitc mining, SWEPCo provides guarantees of mine reclanration of approximately S65 milIion. Since SWPCo uses self-bonding. the guarantee provides for SWEPCo to commit to use irs rcsourccs IO comptcte the reclamation in the event thc work is not completed by Sabinc Mining Company (Sabinc). This guarantee ends upon deplerion of rcsewes and compIetion of fina1 reclamation. Based on the h e n stud!, it is estimated the reserves will be depleted in 2036 with final reclamation completed by 2046 a i an estimated cost of approximarel! 558 million. As of December 31, 3010, SW'EPCo has collected approsimntely S49 million thm& a rider for final mine closure and reclamation costs.
Sabine charges SWEPCo, its only customer, all of its COSIS. SWEPCo passes these costs to customers through its fuel clause.
IFERC FORM NO. I (ED. 12-88) Page 123.21 1
Name of Respondent
Sodhweslem Etedric Pawer Company
Cottrracts
This Report is: Date of Report Yeadperiod of Report (1) &An Original (Mo, Da, Yr) (2) - A Resubmission I t 2010144
SWEPCo cnters iiito certain types of cotitract~ nbich rcquire indemnifications. Typically these contracts include, but are not limited to. sale apements. lease ageements, purchasc ayeernents and financing apemcnts. Generally, these agreements may include, but are not limited to, indemnifications around certain tax, contractual and environmental mattcrs. With respect IO sale agreements, csposure generally does not esceed the sale price. Thcrc arc no materia1 liabilities recorded for any indcmnificatiom.
The AEP East companies, PSO and SWEPCo are jointly and severally liable for activin. conducted by AEPSC on behalf of the AEP East companies, PSO and SWEPCo related to power purchasc and sale activity conductcd pursuant to the SlA.
SWEPCo leases cenain equipment under masfcr lease ageemem. See -Master Lease Ageemenrs" and "Railcar Lease" sections ofNote 12 for disclosure of lease residual value _guarantees.
ENVIROXMENTAL COhTLNGEKCIEES
Cirizeii Suit nird Notice of Wolation
In 7005, two special interest groups, Sierra Club and Public Citizen. filed a complaint alleging violations of the CAA at SWEPCo's Welsh PIant. In 2008. a consent decree resolved all claims in the case and in the pending appeal of an altered permit for the Welsh Plant. The consent decree required SWEPCo to instal1 continuous particulate emission monitors at the Welsh Plant, secure 65 MW of renewable enere capaciv, fund $7 million in emission reduction, enerzy efficiency or environmental mitigation projects and pay a ponion of plainriffs' attorneys' fees and costs.
The Federal €PA issued a Notice of VioIation (KOV) based on alleged w ioIations of a percent sulfur in fuel limitation and the heat input values listed h a previous state permit similar to the claims made in rhe citizen suit. The NOV also aIIcges that a permit alteration issued by ?he Tcsas Commission on Environmcnral Qualit\. in 1007 \*its improper. In March 2008, SWEPCo met with the Federal €PA to discuss the alleged violations. The Fcdcml €PA did not object ta the settlement of the citizen suit and has taken no further action. Management is unable to predict the timing of any future action by the Federal EPA. ManaScment is unable IO determine a ranze of potenrial losses that are reasonably possible of occurrins.
In 2004. eight states and the City of New York filed an action in Fedenl District Court for the Southern District of New York against AEP. AEPSC, Cinergy Corp, Xcel EnerE. Southern Company and Tennessee Valley Authoriv. The h'atural Resourccs Defense Council, on behalf of three spccial interest p u p s . filed a similar compIaint aFinst the same defendants. The actions aIk$ that CO2 emissions from the defendants' power plants constitute a public nuisance under federal common law due to impacts of global warmins and sought injunctive relief in the form of specific emission reduction cornmiments from the defendants. The rial court dismissed the lawsuits.
I
~ F E R C FORM NO. I (ED. 12-88) Page 323.28 1
Name of Respondent
Southwestern Electric Pmet Company
In September 2009. the Second Circuit Court or Appeals issued a ruling on appeal rcmanding the cases to the Federa1 District Coun for the Southern District of Kcw Yok. The Second Circuit held that the issues of climate change and global uarminS do not raise political questions and that Conyess' refusal to regulate CO? emissions does not mean that plainiifTs must wait for an initial polici determination b! Congress or the President's administration 10 secure the relief sought in their complaints, Thc COUK stated that Conpcss could enact compreliensive Iegishtion IO regdate CO2 cinissions or that the Federal €PA could replate CO? emissions under existing CAA authorities and that either of thesc actions could overridc an! decision made b: the district court undcr federal common Iw. The Second Circuit did no1 rule on whetlter thc plahtifTs could proceed a i t h h e i r state comnim law nuisance claims. In December 1010. the defendants' petirion for reyierv b! the W.S. Supreme Court w;as grantcd. Briefins is undeniay and the case \rill be heard in April 201 1. Management believes the actions nrc without merit and intends to continue IO defend againsr the claims.
This Report is. Date of Report YearlPeriod of Report (1) X An Original (Ma Oa, Yr) (2) - A Resubmission I 1 20tOIQ4
In October 2009, the Fifih Circuit Cow of AppeaIs reversed a decision b! the Federal District Court for the District o f Mississippi dismissins Statc common lark nuisance claims in a putative class action by Mississippi residents asserting hat CO? emissions esncerbated the effects of Hurricanc Katrina. The Fifth Circuit held that there was no exclusive commitment of rhe common Ian issues raised in plaintiffs' complaint to a coordinate branch of gowrnment and that no initial policy detcnination \vas requircd to adjudicate these claims. The court granted petirions for rehearing. An additional rccusal lefi the Fifth Circuit wirhout a quorum to reconsider the decision and rhe appeal was dismissed. leaving the district court's decision in place. Plaintiffs filed a petition with the U.S. Supreme Court askin2 the court to remand rhe case to the Fifth Circuit and reinstate the panel decision. The petition was denied in January 10 1 I .
Mana_pement is unable to determine a range of potential lasses that are reasanably possible of occurring.
In 2008, the Native Village of K i d n a and the CiQ of Kiialina. Alaska filed a tawsuit in Federal Coun in the Northcrn District of California azainst AEP. AEPSC and 21 other unrelated defendants including oil and sas companies. a coal company and other electric generating companies. The complaint alleges that the defendant9 emissions of CO? contribute IO global warmins and constirurc a public and private nuisance and that the defendants are acting tosether. The complaint further alleges that some of the defendants, including AEP, conspired 10 create a false scientific debate about global warming in order to dcceive the public and perpetuate the allesed nuisance. The plaintiffs also allege rhat the effccts of global it-armins will require the relocation of the villa_ee at an alleged cost of S95 million to $300 million. In October 2009, the judse dismissed plaintiffs' federal common law claim for nuisance, finding the claim barred by the political question doclrine and by plaintiffs' lack of standing IO briq the cIaim. The judge also dismissed plaintiffs' state Iaw cIaims without prejudice to rcfiIing in state coun. The plaintiffs appealed the decision. Briefins is complete and no date has been set for oral argument. The defendanrs requested that the court defer setring this case for oral aryment u d l afrer the Supreme Court issues its decision in the CO? pubIic nuisance case discussed above. Manqement bclieves the acrion is without merit and intends to defend against the claims. Manasement is unable 10 dcrcrmine a range of potential losses that are reasonabl?. possible of occumng.
I FERC FORM NO. 1 (ED. 12-88} Page 113.29 1
Name of Respondent
Southwestern Eledric Pwrer Company
By-products from the _generation of electricity include materials such a5 ash, slag and sludge. Cod combustion by-products. which constitute thc ovcnvhelming percentazc of these materials, are typically treated and deposited in captivc disposal facilities or arc beneficiaIly utilized. In addition, the _genetatins plants and transmission and distribution facilities have used asbestos, polychlorinated biphenyls and other hazardous and nonhazardous materials. SWEPCo currently incurs COSE 10 disposc of lhese substances safely.
This Report is Date of Report YearlPeriod of Report (I) 5 An Original (Mo, Da, Yr) (2) - A Resubmission I I 20’101Q4
Superfund addresses clean-up of hazardous substances that have been released to the environment. The Federal EPA administers the clenn-up p r o p n s . Several states have enacted similar laws. At December 3 1,20 10, there are hvo sites for which SWEPCo has received information requests which could Icad IO Potentially Responsible Party (PRP) designation. SWEPCo has also bccn named potentially liable at two sites under state law. In those instances where WEPCo has been named a PRP or defendant, disposal or recyclin,g activities were in accordance with thc then-applicable laws and rgulations. Superfund does not recognize compliance as a defense, but imposes strict liability on paflies who fall within its broad statutory caqories. Liabilig has been resolved for a number of sites with no significant cffect on net income.
Management evaluates the potential Iiabiliv for each Superfund site separately. but several general statements can be made about potential future liability. Allegations that materials were disposed at a particular site are often unsubstantiated and the quantity of materials deposited ai a site can be small and often nonhazardous. Although Superfund Iiabiliv has been interpreted by the courts a5 joint and several, typically many panies are named as PRPs for each site and several of the parties are financially sound enrerprises. At present, management’s estimates do not anticipate material elemup costs for identified Superfund sites.
OPER4TIOML COirTIXGESCIES
Jrissrmice atid Potentia! Losses
SWEPCo maintains insurance caveray normal and customay for eIecrric utilities, subject to various deductiblcs. Insurance coveray includes all risks of phFsica1 loss or damage to asms. subject to insurance poIicy conditions and esclusions. Covered propem; generally includes power plants. subnations, facilities and inventories. Excluded propeq gencralI_v includes transmission and distribution lines, poles and towers. The insurance pro,ms also SeneFally provide coverage apinsr loss arisine from certain claims made bv third parries and are in excess of retentions absorbed b j SIVEPCo. Coverase i s generally provided by a combination of the protected cell of EiS a d o r various industry mutual andlor commercial insurance carriers.
Some patenrial losses or liabilities ma! not be insurable or the amount of insurance carried ma!: not be suficienr to meet potentia1 losses and liabilities. Future losses or IiabiIities? if die? occur, which are not completely insured, unless recovered from customers. could have a material adverse effect on net income, cash flows and financial condition.
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IFERC FORM NO. i (ED. q2-88) Page 123.30 1
Name of Respondent
Southwestem EIedrjc Power Company
6. ACQUISITIONS
This Report is: Date of Report YearlPeriod of Report (1) L! An Original (Mo, Da. Yr) (2) - A Resubmission I t 201 OiQ4
In h'ovembcr 2009. SWEPCo sizned a lerter of intent to purchase cenain transmission and distribution asscts of Yak>- Electric Membership Corporation (VEMCO). In Oerobcr 20 IO. SWEPCo finatizcd the purchasc for appmsimatci~ S 102 million and began sen ing VE:MCOs 30.000 customers in Louisiana.
Oxbow Lkttite Conrpm~~
On December 29.7009, SIYEPCo purchased 50% of the Oxbow Lignite Cornpan!, LLC (OLC 1 rncmbership interest for 512 million. CLECO acquired the remaining 50% membership interest in the OLC for 513 million. The Osbow Mine is located near Cousharta, Louisiana and will be used as one ofthe fuel sources for SWEPCo's and CLECO's jointlpowncd Doier Hi l ts Generating Station. SM'EPCo will account for O K as at1 equin invcstment.
7. BEhTFIT PLANS
For a discussion of investment strateg. iti\-estrnent limitations. taget asset allocations and the classification of investments within the fair value hierarch!. 5ee "Investmenls Held in Trust for Future Liabilities" and "Fair Value Measurements of Assets and Liabilities? seerions o f Note 1 .
SWEPCo panicipates in an AEP sponsored qualified pension plan and ti% o unfunded nonqudified pension plans. Substantiall) all employees are covered by the qualified plan or both the qualified and a nonqualified pension plan. S\i!EPCo also pankipares in OPEB plans sponsored by AEP 10 provide medical and life insurance benefits for rctircd cmploFees.
SWEPCo recognizes the funded status associated with defined benefit pension and OPEB plans in its balance sheets. Disclosures about the plans are required b! the "Compensation - Retirement Benefits" accounting guidance. SWEPCo recognizes an asset for a pian's ovefinded status or a liabiliv for a plan's underfunded status, and recognize, as a component of other comprehensive income, the changes in rhc funded status of the plan that arise during the gear that are not recqnized as a component of net periodic benefit cos. SWEPCo records a regulatoq asset instead of other comprehensive income for quali@ing benefit costs of regtared operations that for ratemaking purposes are defemd for future recovev. The cumulative funded status adjustment is equal to the remaining unrecognized deferrals for unamonized actuarial losses or gains, prior service costs and rmnsition obligations, such that remaining deferred cons result in an AOCI equip reduction or regulatoq- asset and dehrcd sains resulr in an AOCI equip addition or rquIatoF Iiabi lie.
, -
IFERG FORM NO. I (ED. 12-88) Page 123.31 I
Name of Respondent This Report is: (1 1 21 An Original
Southwstem Ekctn'c Power Company (2) - A Resubmissian
A ctuurid Assrtmp!iom for Ben e f t Obiigatiows
Thc weighted-average assumptions as of December 31 of each year used in thc measurement of benefit obligations are show in the following table:
Date of Report YearlPeriod of Report (Mo. Da, Yr)
I I 2010144
Other Postretircmcnl
AssumptIon 2010 - 2009 2010 2009 Pension PIans Benefit Plans
Discount Rate 5.05 % 5.60 K 5.25 Yo 5.85 ?'a
Rate of Compensation Increase (a) 4.80 K 4.45 % N:A N,A
(a)
N'A Nor Applicable
Ratcs are for base pay only. In addition. an amount i s added to reflect target incentive compensation for esempt employees and overtime and incentive pay for nonexempt empfoyees.
A duration-based method is used to determine the discount rate for the plans. A hypothetical ponfoIio of hi& quality corporate bonds similar to those included in the Moody's Aa bond index is constructed wirh a duration matching the benefit plan Iiabilie. The composite XieId on the hlTothetica1 bond portfolio is used az the discount rate for the plan.
For 2010, the rate of compensation increase assumed varies with the a ~ e ofrhe employee, ranging. from 2.5% per year to 1 1.5% per year, with the averase increase of4.8%.
Actuurial Asstrtrlptioits for Net Periodic Beriefit Costs
The wei@icd-average assumptions as of Januay 1 of each year used in the rneasuremem of benefiit costs arc shown in the following trible:
Other Postretirement
Assumptions 2010 2009 201 0 2009 Pension Plans Benefit PIans
Discount Rare 5.60 YO 6.00 Yo 5.85 Yo 6.10 Yo Expected Return on Plan Assels 8.00 % 8.00 Sb 8.00 Yo 7.75 9b Rate o f Compensation Incrcae 4.45 % 5.75 YO NIA N .'A
N'A Kot Applicablc
The espccted return on plan assets for 2010 \vas deremined by evaluating historical returns, the current investment climate biield on fised income securities and other recent investment market indicators). rate of inflation and current prospects for economic growh.
I
~ F E R C FORM NO. I (ED. iz-88) Page 123.32 I
Name of Respondent
Southwestern Eledris Pn:w Company
The licalth care trend rate assumptions as of January 1 of each year used for OPE8 plans aeasurcaicnt purposes arc ShO\Wl beloiv:
This Report is: Date of Report YearlPeriod of Report (1) 5 An Original (Mo, Da, Yr) (2) - A Resubmission I I 20101Q4
Health Care Trend Rates 2010 2009 Inirial 5.00 Yo 6.50 YO Eltimate 5.00 % 5.00 YO Y car Ultimate Reached 101 6 1012
Assumed health care cost trend ram have a significant effecr on the amounu reponcd for the OPEB health cam plans. A 1% change in assumed hcalth care cost trend rates would h a w rhc folloa-ing effects:
1 % Increase 1 % Dccrcase (in thousands)
Effect on Torat Scwice and Interest Cost Cornpanenu of h'et Periodic Postretiremenl Health Care Benefir Cost s 1,394 s (l.123)
Effect on the Health Care Component of the Accumulated Postreriremcnt Benefit Obligation 15.36 { 12.553)
Significatif Coir crtiiralions of Risk withiti Pimi Assets
In addition to establishins the tarset Bssct allocation of plan assets, thc investment policj also places restricrions on securities to limit siznificant concentrations ivithin plan assets. The investment policy establishes _puideIines thar govern maximum market esposure, securiv restrictions, prohibited asset classes. prohibited pes of transactions, minimum credit quality, average portfolio credit qualiv. portfolio duration and conccntratim limits. The guidelines were established to mitigate the risk of Ioss duc to significant concentrations in any investment. Management moniiors the plans to control security diversification and ensure compliance with the investment policy. At December 31, 2010, the assets were invested in compliance wit11 all investment limits. See "hvestmenfs Held in Trust for Future Liabilities" section of Note 1 for limit details.
- -
IFERC FORM NO. 1 (ED. 12-88) Paw 123.33 I
Name of Respondenl This Report is: Date of Report YearlPeriod of Report (1) 5 An Original (Mo. Da, Ur)
NOTES TO FINANCIAL STATEMENTS [Cantinued)
The followins tables providc a reconciliation of the chanscs in the plans' benefit obligations, fair valuc of plan -sets and funded status as of December 31. The benefit obligtion for the defined bcnefit pension and OPEB plans arc the projccted benefit obligation and the accumulated benefit oblization, respccdvely.
*
Other Postrctircment Pension Plans Benefit Plans
2010 2009 2020 2009 (in thousands) Change in Benefit Obligation
Benefir Obligation at Januac I Service Cost Interest Cost Actuarial (Gain) Loss Plan Amendment Prior Senice Credir Benefit Payments Participant Contributions Medicare Subsidy Benefit Obligation at December 31
S 288,081 S 257,749 7,036 6,757
l5,os)j 15,557 1290 I 4) 23,126
(4 1,000) (15,108) *
-
S 267.206 S 288,081
S 118,571 S 110,689 3,108 2,817 6,940 6.735 1
9,084 2,453 (2,399) (8,125) (6,317)
640 645 S 129,726 S 118,571
1,907 1,579 I
Change in Fair Vatue of PIan Assets Fair Value of Plan Assets at J a n u w I $ 212.626 S 191,816 Actual Gain on Plan Assets Company Contributions Participant Contributions
23.854 31,840 29,138 78
* - B en e i t Pa-m en ts (4 1,000) (15,108) Fair Value of PIao Assets at December 31 $ 224,618 S 212,616
Knderfunded Status at December31 $ (42,jSS) S (75,4551
Amoritits Recogiiized 011 the Balnllce Sf~eets rn of December 31,2010 ntrd 2009
Pension Plans
S 81,940 S 63,498 a. 150 14,035 8,223 10.175 1,907 1,579
(8,125) (6,347) S 93,097 S 82,940
S (36,619) S (35,631)
Other Postretirement Benefit Plans
December 31,
(in thousands) 2010 2009 2010
Miscellaneous Cumni and Accrued Liabilities - Short-rem Benefit LiabiIie S (73) s (75) S -
Accumulated Provision for Pensions and Bcnefiits - Long-term Benefit Liabiliry (42,515) (75,380) (36.629)
Underfundcd Status S (32.588) S (75,4553 S (36,629)
2009
s - (35.63 1 )
S (35,631)
IFERG FORM NO. -I {ED, 12-88) Page 123.34 I
Name of Respondent
Southivestern Electric Pmet krnpany
Aiiroiittts Itdirded hi AOCI ntrd R g u i n t o y rlssers ns of Dccetiihr 3I, 201 0 mid 2009
This Report is: Date of Report YearlPeriod of Report ( I ) 3 An Original (Mo. Da. Yr) (2) - A Resubmission I I 201 OIQ4
Other Pastrctircmcnt Pension Plans Benefit Plans
Dccember31,
Components (in thousands) 2010 2009 2010 2009
Ket ActuariaI Loss S 131.343 S 147.964 S S7.707 S 21.848 Prior Sen ice Credit (235) (1.031) (1.095) Transirion Obligation 2.765
Recorded as RegulatoF Assets 131,108 141,933 23,841 2x77 I Dcfcrred Incomc Taxes * 4.169 4,336 Ket of Tax AOCI 8,30 I 8.05 6
Coinponenrs of the change in arnoun~~ included in AOCI and Replatop Assets during tlic years ended December 3 1. 301 0 and 2009 are as folloirs:
Other Postretirement Pension PIans Benefit Plans
Years Ended December 31.
(in thousands) Components 2010 2009 2010 to09
Actuarial Loss (Gain) During the Ycar S (6.39) S 10.367 S 7,570 S (6,540) Prior Service Credii (2.39) - Arnonization oFAauarial Loss (3.351) (3.5 16) (1.7 1 I ) (2,560) Amortization of Prior Service Cos{ 796 916 Amortization of Transiiion Obligation (1,461) (1,461)
$ (\0,81j) S 7,767 5 999 S (11.5611, Change lor the Year
~ F E R C FORM NO. I (ED. 12-88) Page 123.35 1
Name of Respondent This Report is: Date of Report YearlPeriod of Report (I) X An Original (Mu. Da, Yr)
I
NOTES TO FINANCLAL STATEMENTS (Conllnued) .I Southwestern Ekt r ic P w e r Company l(2) -A Resubmission I I I
The follo~vin~ rable presents the classification of pension plan assets within the fair vahe hierarch) at December 31. 20 I 0:
20101Q4
Year End Asset Class Level I LewI 2 Level 3 Other Total AIiocdtion
(in thousands) Equities:
Domestic s 1 ~ 5 s 160 S * s * S 78.743 35.1 Yo International S.458 * 23,458 10.4 % Real Estate Investment Trusts 6,540 6,510 1.9 Sb Common Collective Trust -
International Subrota1 - Equities
Fixed Incame: United States Government and
Corporate Debt Forcign Debt Statc and Local Government Other - Asset Backed
Subtotal - Fixed Income
Agency Securiries
9.469 9,469 4 2 9'0 rosjm 9.619 * 1182.12 52.6 %
36,914 36.913 16.4 Yo 29,111 59.1 1 1 17.4 %
1323 1.323 0.6 Yo 7,407 7,402 3.3 D;.
2.977 2,977 I3 k 81,727 87,727 59.0 Yo
Real Estate * 4.844 4,814 2.2 Yo
Alternative lnvemnents Securities Lendmg Securities Lending Collateral (a)
7.569 7.569 5.4 Yo 14.806 14,806 6.6 Sb - (16.058) (16.03'8) (XI)%
Cash and Cash Equivalents (b) 7.539 93 7.482 22 9/p Other - Pending Transactions and
Accrued Income (c) 26 36 - Yo
S 108.583 5 119.551 S 17.413 S (15.929) S 224,618 100.0 %
(a) Amounls in "Other" column primarily represen! an obligation to repay cash collateral received as pan of he Securities Lendins P r o p m .
(b) Amounts in "Other" column primarily represent foreign currency holdings. (c) Amounts in "Other" column primarily represent eccrued interest. dividend receivables and transactions pending
scnlement.
(FERC FORM NO. 4 (ED. 12-88) Page 323.35 I
Name of Respondent
Sou!hwestem Electti: Power Company
The folIoi\ing table sets forth a reconciliation of changes in the fair value of real e s t m and alkmmiic investments classified as Level 3 in ilie fair value hierarch) for pension assets:
This Report is: Date of Report YearlPeriod of Report 11 1 X An Original (Mo, Da, Yr) (2) - A Resubmission I t 201OfQ4
BaIanceas of January 1,2010 Actual Return on Plan Assets
Relaling to Assets Still Held as of the Reponing Dare Relaring IO Assets Sold Durins the Period
Purchases and Sales Transfers into L e w l j Transfers OUI of Level 3 Balancc as o~Dee~mber31,ZOlO
Alternative Total Rea1 Estate Investments Lcvel3
(in thou s a n tis) s 1.654 S 6.601 S 12.256
(8101 I56 (65.1) 51 51:
760 760
s 4.84 S 7.569 S 11.4 15
. -
IFERC FORM NO. I (ED. 12-88) Page '123.37 1
Name of Respondent
Southwestern Eiedric Power Company
The following table presents the classification of OPEB plan assets within the fair value hierarch! at December 3 1,20 10:
This Report Is: Dale of Report YearlPeriod of Report (I) &An Original (Mo. Da. Yr) (2) I A Resubmission I I 2010IQ4
Ycar End Asset Class Level 1 Level 2 Level 3 Other Total Allocation
(in thousands) Equities:
Domestic s 37.115 s - s - s - s 57.225 40.0 9 0
International 14,051 I4,05 I 15.1 %
Global 7314 7 3 14 7.9 % Common Collective Trusi -
Subtotal - Equities 5 1 3 6 7.3 14 58.590 63.0 %
Fixed Income: Common ColIective Trust - Debt 3.042 :.&I2 3.3 v4
Corporate Debt 7,014 7.014 7.5 %
State and Local Government 113 I 19; 0.2 %
Unired States Government and Agency Securities 5.97 I 5.97 I 6.4 90
Foreign Debt 1.5S1 1.581 1.7 Yo
Other- Asset Backed Subtotal - Fixed Income
Trust Owned Life Insurance: International Equities United Sutes Bonds
60 60 0.1 To 17.89 1 17,891 19.2 %
3,117 3,127 3.5 To 10.56 1 10,561 11.1 %
Cash and Cash Equivalents (a) 1.307 1,596 55 2,958 j.2 Yo
Accrued Income (b) 170 170 0.1 Yo Orher - Pending Transactions and
Total S 52,SS; S 30,789 S - s 775 S 93,097 100.0 90 ------ (a) h o w & in "Other" column primarily represent foreiy currency holdings. (b) Amounts in "Other" column primarily rcpresenr accrued interest. dividend rcceinbles and tmnwctions pending
senlement.
~FERC FORM NO. i (ED. 12-88) Page I 23-38 1
. -
Name of Respondent This Report is: Date of Report (Mo, Da. Yr) (1) Z An Original
SauVmestem Eledrie Pawet Company (2) - A Resubmission I t
YearlPeriod of Report
20 1 O m
The following table presents the ~lassification of pension plan assets \iidiin the Tair \-due liicnrcl~~ a1 Dcccmbcr 3 I . 2009:
Asset Class
Equities: Domestic Intrmarional Real Ems lnvesrmsnt Tnrsts Common ColIective T w t -
Intematlional Subtotal - Equities
Y c w End Level 1 Level 2 Lerel3 Other Total Ahcat ion
(in thousands)
S 76,100 S - 5 - s - S 76.200 35.8 k 19.988 19,988 9.4 0,b
5.415 5.4 15 2.6 90
10,065 10.06s 4.7 Yo 1 0 1.60: 10,065 - I I I d 6 S 52.5 To
Fised Income: Unired States Government and
Agene?. Securities 14,547 14,547 6.9 ' to
Corponte Debt 5 1 .go9 5 1,909 24.4 9 0
Foreig Debt 10,678 10,678 5.0 ?'o State and Local Gowmment 2.150 2,150 I .O Yo Orher - Asset Backed 1,712 1.712 0.8 9 0
Subtotal - Fised Income 80,996 80,996 X I Yo
Real Estate - 5,654 5.654 2.7 I b
Ahemalive Investments Securirim Lending Securities Lending Collateral (a)
6,602 6,607 5.1 Yo 10.82 1 10.851 5.1 9%
- (13235) (12,235) (5.8)S'O
Cash and Cash Equivalents (b) 7314 151 7.476 3.5 YO Other - Pending Tmsactions and
Accrued Income (c) 1.634 1,634 0.8 %
Total S 101.603 S 109,116 S 1 2 3 6 S (10.349) S 312,626 100.0 Yo -- (a) Amoms in "Other" coIumn primPrily represent an obligation IO repay cash collatcral receivcd as pan of the Sccuritio
Lending Program. (b) Amounts in "Other" column primarily represent foreign currenc? holdings. (c) Amounts in "Olhef' column primarily represent accrued inrerest. dividend receivables and transactions pendins
setdement.
IFERC FORM NO. 1 (ED. 12-88) Page 123.39 1
Name of Respondent
Swlhwestem Electric Power Company
The following table sets forth a reconciliation of changes in the fair value of real estate and alternative investments classified as Level 3 in the fair value hierarchy for pension assets:
This Report is: Date of Report YearlPeriod of Report ( I ) 3 An Original (Mo. Da, Yr) (2) - A Resubmission / I 2010IQ4
Balance as of January 1,2009 Actual R e m on Plan Assets
Relating to Assets Still Held as of the Rcporting Date Relaring to Assets Sold During the Period
Purchases and Sales Transfers in m&or out of Level 3 Balance asof Decembcr3I. 2009
Akernaticc Total Real Estate Investments Level 3
(in thousands) S 8.581 S 6.653 S 15,234
(7.927) (866) (3.793) 16 26 7x9 739
S 5.654 S 6,603 S 11.256
The following table presents the classification o f OPEB plan asseB within the fair value hierarchy ar Dccembcr j 1,7009:
Year End Asset Class Level 1 Level 2 Level 3 Other Total Allocation
(in thausands) Equities:
Domcstic S 11.790 S - s - s - S 21.790 363 ?% International 13.77' 23,771 28.7 Sb Common ColIective Tmt -
Global Subrotal - Equities
5.908 5.908 7.1 Ya 45.562 1,908 5 1 A70 62.0 Yo
Fixed Income; Common Collective Trust - Debt 2.407 3.407 1.9 Yo Unired States Govemmeni and
Agency Securities 3.656 2.656 3.2 Ye Corporate Deb! 8.974 8,974 10.8 Yo Foreign Debt 2.037 1,037 2.4 % State and Local Government ;so 380 0.5 sb Other - Asset Backed 89 89 02 ?o
Subtotal - Fixed Income 16,543 16,543 20.0 Ye
Trust Owed Life Insurance: International Equities United Stales Bonds
4,714 4,724 5 J % 8310 8,310 10.0 9'0
Cash and Cash Equivalents (a) 417 912 63 1,392 1.7 K Other - Pending Transactions and
Accrued Income (b) so I 50 1 0.6 9.0
Total * s 564 S 82,940 100.0 Sb --- S 45.979 S 26,397 S -- (a) ArnounIs in "OheT column prima+ reptescm foreign currency hddings. @) Amounts in "Other" column prirnarilv represent accrued interest, dividcnd rceeivablcs and tmnsae~ions pending
settlement.
~FERC FORM NO. I (ED. 12-88) Page 123.40 I
. -
Name OF Respondent This Report is: Date of Report (Mo. Da, Yr) ( I ) &An Original
Southwestern Eteclrie Power Company (2) - A Resubmission I t
IYearlPerbd of Report
20101P4
The determination of pension espense or income is based On a market-relatcd valuation of assets ~vhich reduccs >ear-to->ear volatilit~. This market-relalcd valuation recogizcs invcstrnent gains or losses o w a five-year pcriod from the year in which the! occur. Investment gains or losses for ibis purpose are the difference bctween the espected return calculated usins rhe market-related value of asscts and the actual return b s c d on the market-reInted value of assets. Since the market-dated value of a s s w rccoznizcs gains or losses over a five-!car period. thc future \due of assets 1% i l l be impacted as previous11 dcferred gains or losses are recorded.
DecernbeAl,
(in thousands) AccumuIatcd Benefit Obligation 2010 2009
Uualificd Pension Plan S 2150.838 S 284.143 &nquaIificd Pension Plans Total
1,135 1.081 S 361.971 S 285,224
For rhe undcrfunbed pension plans that had an accumulated benefit obligation in excess of plan assets. tile projected benefit obligation, nccumulatcd benefit oblization and fair valuc of plan assets o f thesc plans at December 5 I 201 0 and 2009 were as follows:
Projected Bcnefit Obligation
Decembedl, 1010 7009
(in thousands) S 167.206 S 288,081
Accumulated Benefit Obligation S 161,971 S 283,224 Fair Value of Plan Assers 314.6 1 8 1 11.626 Underfunded Accumulated Benefit Obligation '5 (37,3533 s (77398)
Esrriruteii F irtirre BelteJf Puptietits atid Cottttibutiotis
SWEPCo cspects contributions and payments for the pension plans of S7.j million and rhe OPEB plans of S5.5 million during 701 1. The estimated pension benefit paj-ments for the unfunded plan and contributions to the ~mst are at least the minimum amount required bx ERISA plus pqment of unfunded nonqualified benefits For the qualified pension plan, additional discretionary conlributions may be made to the trust to maintain The funded 5tatus of the plan. The contributions to the OPEB plans are pmxdly baed on thc amount of the OPEB plans' periodic bcnefit costs for accounting purposes as provided in agreements with state qu1atory authorities. plus the additionaI discretionay. contribution of the Medicare subsid! receipts.
IFERC FORM NO. I (EO. qz-88) Page 123.41 1
- Name of Respondent This Report is: Date of Report YearPeriod of Report
(1) Z An Original (Mo. Da. Yr) Southwestern Eredric Power Company (2) - A Resubmission I t 201 0144
NOTES TO FINANCIAL STATEMENTS (Continued)
Pension Pay rn ents
701 1 s 19.103 1012 19,550 ?ai3 20,707 2014 20,871 201 5 11,063 Yeats 2016 to 1070, in Total 114.363
Other Postretirement Benefit Plans Benefit' Medicare Subsidy
Payments Receipts ( i n thousands)
S 8,521 s (704) 8,781 (7691 9/74 (830) 9,SS (889)
10.300 (9561 59,052 (5,791)
I
Cortlporients of A'et Periodic Betiefit Cost
The followin2 table provides the components of net periodic benefit cost for the p a r s ended December 31. 2010 and 2009:
Sen'icc Cost Interest Cost Expected Kctum on Plan Asscrs Amonimtion of Transition Obligarion Amortization of Prior Service Cos[ Amonimtion ofNet Actuarial Loss h'et Periodic Benefit Cost Capitalized Ponion
Net Periodic Benefit Cost Rccognizcd as Expense
Other Postrelirement Benefit Plans Pension PIans
Years Ended December 31, 7010 3009 3010 2009
(in thousands) s 7,046 S 6.737 S 3,103 s 2,817
15,093 15,557 6,910 6.735 (1 9,4893 (70.083) (6,646) (5.170)
" 2.46 1 2.46 1 (7961 (9 16) 5242 3,516 1.71 I 2.560 7,096 4,s; 1 7,574 9,453
(2,406) (1,546) (36s) (5.025)
*
S 4.690 S s2s5 5 5.006 S 6,428
IFERC FORM NO. I (ED. 12-88) Page 123.42 1
Name of Respondent This Report is: (1) &An Original
Southwestern Uecthe Power Company (2) - A Resubmission
Estimated amounts expected to be amortized fo ne1 periodic benefii costs and the impaci 701 I are shown it1 the folloa ing table:
the balance sliecr during
Date of Report YearlPeriod of Report (Mo. Da, Yr)
I t 203 OIQ4
Other Post retiremcnt
Pension Benefit PIaas PIans
Components (in thousands) Net Actuarial Loss S 6,701 S 1.960
Total Estimated 2011 Amortization s 5,906 S 1 .XI0 Prior Sewicc Crcdit (793) (90)
Expected to bc Rccorded a5
Re_pulato~y Asset S 5.906 S 1.213 Deferred Income T a w 119 Ne! of Tax AOCI 426 Total S 5-906 S 1.870
Americatr Eieciric Power Sjsfetn Reiirmeni Snvitigs P h i s
SWEPCo panicipates in an AEP sponsored defined contribution retiremem saving plan. the American Electric Power System Retirement Savings Plan, for substantially all employees. This qualified plan offers participants an oppormnirl; Io contribute a portion oftheir pay, inchdes features under Section 401(k) of the Internal Revenue Code and provides for company matching contributions. The marchins contributions to Ehe plan is 100% of the first 1% of eligible employee contributions and 70% of the nest 5% of conuibutions. n e cost: €or conwibutions to the retirement savings plans for the ycars ended December 3 I , 2010 and 2009 IUS S3.9 million and S4.S million. respectively.
8. BUSINESS SEG&EhTS
SW‘EPCa has one reportable se-pent. an elecrricig _genemion. transmission and distribution business. SWEPCo’s other activities are insiyificant.
9. DERIVATIVES A?JJ HEDGKG
OBJECTIVES FOR UTKIZXTIOK OF DERIVATIVE ISSTRUMENTS
S\’r’EPCo i s esposed to certain market risks as a mzjor power producer and marketer or wholesale elcctrici~. coal and emission allowances. Thcse risks include commodig price risk. interest rate risk, credit risk and, to a lesser cstent, foreizn currency exchanse risk. These risks represent the risk or loss that may impact SWEPCo due to changes in rhe undcdyinz market prices or ratcs. AEPSC. on behalf of SWEPCo, manages these risks using derivative instrumenis.
JFERC FORM NO. 1 (ED. 12-88) Page 123.a3
Name of Respondent
Southwestern Bedric Power Company
STRATEGIES FOR UTILUATION OF DEWATWE XNSTRUMEhTS TO ACHIEVE OBJECTIVES
This Report is: Date of Report YearlPeriod of Report (1) An Original (Mo, Da, Yr) (2) - A Resubmission I t 20101Q4
Tmditig Strategies
The stratcg surrounding thc use of dcrivative instmmcnts for tradinz purposes focuses on seizing market opponunitics to create value driven by expected changes in the market prices ofthe commodities in which AEPSC transacts on behalf of SWEPCo.
R i d Murtageri~etrl Strategies
The strate& surroundins the use of derivative innruments focuses on managins risk exposures, future cash floivs and creating \.due utiIizing both economic and formal hed_pin_p strategies. To accomplish these objectives. AEPSC, on behaIf of SWEPCo. primarily employs risk manasement confract~ including physical fonvard purchasc and sale contracts, financial fonvard purchase and sale contracts and financial swap instruments. Not all Fisk rnanazement confracts meei the definition of a derivative under the accounting pidance for "Derivatives and Wedgins." Derivative risk manayement contracts elected normal under the normal purchases and normal sales scope exception are not subject to thc requirements of this accounting guidance.
AEPSC, on behalf of SWEPCo, enters into power, coal, natural y s , interest me and, to a lesser degree, heating oil and - casoline, emission aIlowance and other commodity contracts to manage the risk associated with the energy business. AEPSC, on behalf of SWEPCo, enters into interest rate derivative contracts in order to manage the interest rate exposurc associated with SWEPCo's commodiq portfolio. For disclosure purposes, such risks are _muped as "Commodity," as these risks are relared to mer& risk management acrivities. AEPSC, on behalf of SMWCo, also engases in risk manasement of interest rate risk associated with debt financing and foreign currency risk associated with future purchase obligations denominated in foreign currencies. For discIosure purposes, these risks are grouped as "Interest Rate and Foreign Currency.'' The amount af risk taken is determined by the Commercial Operations and Finance groups in accordance with established risk manazement policies as approved by the Finance Committee of AEP's Board of D i m tors.
The following table represents the gross notional volume of outstanding derivative contracts as of December 3 1. 2010 and 2009
Notional Volume oTDerivatise Instruments December31.1010 and 1009
Primary Risk YoIumes Exposure 2010 2009
(in thousands) Cornmodiy:
Power i.1 17 Coat 8.777 6,790 KmnI Gas 19 Weatins Oil and Gasoline 564 618 Inrerest Rate s 193 S 1.457
Inrerest Rate and Foreign Cumncy
Unit of Measure
M WHs Tons MMBtus GalIons USD
USD
IFERC FORM NO. I [ED. 12-881 Pam 123.44
Name of Respondent
Southwestern Electric Power Company I(2) 1 A Resubmission I I / 1 201 OlQ4
This Report Is: Date of Report YearlPeriod of R~port (1) X An Original (Mo. Da. Yr)
L NOTES TO FIWCIAL STATEMENTS (Continued)
Fair Vt-tliw Hedgiirg Strategies
AEPSC. on behalf of S\\:EPCo. entcrs into interest rate derivative transactions as part of an ovcnll straws! to inanage the mis of fiscd-ntc and floatingme dcbr. Cenain interest m e derivaiivc transactions erfcctivd!. modif?. an esposurc to interest rate risk b) converting a portion of fixed-rate debt to a floarins mc. Provided spccific criteria arc met. these interest rate derivatives are desiFated as fair value hedges.
Cusli Flow Hedgittg Strategies
AEPSC. on behalf of SWEPCo. enters into and designnares as cash flow hedges ccnain dcrivatiw mansnetions for the purchase and sale of power. coal. natural sas and heating oil and gasoline ("Comrnodiy**) in order to manage the variable price risk related IO the forecasted purchase and sale of these commodities. Manasement monitors the potential impacts of cornmodit4 price changes and. where appropriate, enters into derkatit'e transactions to protect prafit margins for n portion of future electricity sales and fuel or eners purchases. SWEPCo does not hcdse all commodity price risk.
S\\:EPCo's vehick fleet is csposed to gasoline and diesel fuel price volatiliv. AEPSC. on behalf of WEPCo. enters into financial hearins oil and gasoline derivative contracts in order to mitisate price risk of future fuel purchascs. For disclosure purposes. these contracts are included with other hedgins activiw as "Commodity." SWEPCo does not hedge all fuel price risk.
AEPSC. on behalf of SIt'EPCo, enters inlo a variety of interest raw derivative transactions in order IO manase interest rate risk esposure. Some interest m e derivative tnnsactions effectivclg modi& exposure to interest ratc risk by convening a portion of floatinprate debt to a fised rare. AEPSC, on behalf of SWEPCo. also enters into interest rate derivative convacts to manage interest rate exposure related to anticipated borrowings of fised-rare debi. The anticipated fixed-ratc debt offerings have a high probabiliq- of occurrence as the proceeds wiIl be used to fund esisting debt maturities and projected capiral espendirures. SWEPCo does not hedge all interest rate exposure.
At times. SWEPCo is csposed to fo re ip current! eschangc rate risks primariI1 \vhen some fixed assets are purchascd from foreig suppliers. In accordance a i t h AEP's risk management policy, AEPSC. on behalf of SWEPCo, ma! enter into foreign current> derivative transactions IO protect apinst thc risk of increased cash outflows rcsulting from a foreign currency's appreciation against the dolIar. SIEPCo does not hedge a11 foreign currcncy exposure.
ACCOUXTISG FOR D E R I J A T M ISSTRURIESTS AND THE IMPACT OS THE: FXN.4NClAL STATE & E N I S
The accounting guidance for '-Derivatives and Hed_eing'_" requires recoznition of all qualifiing derivative instrumeriu as either assets or liabilities on the balance sheet at fair value. The fair values oFdetivative instruments accounred for using MTM accounting or hdse accountin_g are based on eschange prices and broker quotes. If a quoted market price is not availabIe, the estimate o f fair \ d u e is based on the best information wailable including valuation models that cstimate future e n e r s prices based on esisting markc1 and broker quotes, supply and demand market data and assumptions. in order to determine the rcfevant fair values of the derivative insrrurnents, manaserncnt applies valuation adjustrnenrs for discounting. liquidiv and credit qualip-.
(FERC FORM NO. I (ED. 12-88) Page 123.45 1
Name of Respondent
Soutmveskrn Eledric Power Company
Crcdit risk is the risk that a counterpa$ wiI1 fail to perrorm on the contract or fail to pay amounis due. Liquidity risk represents the risk that imperfections in the market will cause the price to t*aq from estimated rair value based upon prevailing market supply and demand conditions. Since energy markets are imperfect and volatile. there are inherent risks related to the underlyins assumptions in models used to fair value risk management contracts. Unforeseen cvcnts may cause reasonable price curves to differ from actual price cumes throusliout a contract's term and at thc timc a contract settles. Consequently, there could be sipificant adverse or favorable effects on future net income and cash flows if market prices are not consistent with management's estimates of current marker consensus for fonvard prices in the current period. This is particularly true for Iongcr tcrm contracts. Cash flows may v a v based on market conditions. marsin requirements and rhe timing of settlement of risk management contracts.
This Report is: Date of Report YearlPeriod of Report (I) 3 An Original (Ma Oa, Yr) (2) - A Resubmission I t 20lOIQ4
Accordins to the accountin_g guidance for "Derivatives and Hedgins'. SWEPCo refleeis the fair values of derivative instruments subject to netting a_mements with the samc counterpnq net of related cash collateral. For certain risk management contracts. SWEPCo is required to post or receive cash collateral based on third p a q contractual a-grements and risk profiles. For the December 3 I , 70 10 and 2009 balance sheets, SWEPCo netted cash collareral received from third parties against short-term and lonptem risk management assets and cash collateral paid to rhird parties against short-term and long-term risk manqernent liabilities as follows:
Dccember31, 20x0 2009
Cash Collateral Cash ColIateral Cash Collateral Cash Collateral Received Paid Received Paid
Netted Against Netted Against Ketted Against Netted Against Risk Management Risk Management Risk Management Risk Management
ASSPtS Liabilities Assets Liabilities (in thousands)
S - s 72 s - s 305
I
IFERC FORM NO. I (ED. 12-881 Paae 123.46 t
* Name of Respondent This Report is:
(1) XAn Original Southwestern Electric P m t Company (2) - A Resubmission
Thc folIowing tablcs rcpresent die gross fair value of dcrivatiie acth il? on thc balance shects as of December 3 I. 30 10 and 7009
Date of Report YearlPeriod of Report (Ma Da, Yr)
I 1 ZIHOlQ4
Fair Value o f Derivative lnstruments Deccmberdl, 2010
Risk Man a gem en t
Contracts Hedging Contracts Interest Rate
Cornmodif? Commodity and Foreign
(in thoussnds) BaIancc Sheet Location (a) (a 1 Currency (a) Other (a) (b) Total
Derivative lnstrumenr Assets S 36.630 S - s - s ( 3 . l l l ) S 1.519
Instrument .45sers j.36 (3.913) 433 Deriva1ir.e Insmment Assets - Hcdges 123 5 118
Insrmmcnt Assets - Hedges 5 5
Long-Tern Portion of Deriratite
LonpTem Portion of Derivative
Der imivc Instrument Liabilities 39,588 (35.183) 4.403 Long-Term Porrion of Derivative
Insmment LiabiIiries i,30 (2.912) 338 Derivative Instrumcnt Liabilities -
Hedges - Long-Tern Ponion of Derivaxive
Instrument Liabilities - Hedges
[FERC FORM NO. 1 (ED. 12-88) Page 123.47 I
~Narne of Respondent
Southwestern Bedtic Power Company
Fair Value o f Dcrivative lnstrirnients December 31,2009
This Report is: Date of Report Yeadperiod of Report (1) 3 An Original (Ma, Oa, Yr) (2) - A Resubmission I t 20 f Om4
Risk Management
Contracts Wedging Contracts Interest Rate
CommodiG Commodity and Foreign
(in thousands) Balance Sheet Location (a1 la) Currency (a) Other (a) ( b ) Total
Derivative Instrument Assets 5 26,991 5 - s * S (24,032) S 2.960 Long-Tern Ponion o f Deriiatiw
Derivative Instrument Assets - Hedges 169 37 (431 17i Long-Term Portion of Deriwtive
Insttument Assm 4.335 (4.066) 79
Instrument AsseE - Hedges 5 5
D e n ' v a h Insuumenr Liabilities 25356 (2437) 1,019
Instrument tiabilities 4,568 (4,; 4 7 ) 221 Long-Tern Ponion of Derivative
Detimtive Insmment Liabilities - Hedges 89 (4; 1 46 Long-Term Portion of Derivative
Instrument Liabilities - Hedges (a) Derivative instrumems within thcse categories are reponed gross. These instruments are subject IO muter nenhs
agcments and are presented on thc balance sheets an a net basis in aceordance with the accounting guidance for "I)erivati\*cs and Hedging" Amounts represent c o u n t e r p w nettins of risk management and hedging coniracts, associated cash collateral in accordance with the accounting guidance for "Derkatives and Hedging" and dedesignated risk management contracts.
(b)
The table below presents the activity of derhwive risk management contracts for the ?ears ended December 3 1,20 IO and 1009:
Amount ofGain (Loss) Recognized OR Risk Management Contracts
Years Ended December 31,2010 and 2009
Location of Gain (Loss) 2010 1009 (in thousands)
Operating Revenues R q u l a m y Assets (a)
s 2357 s 794 (2.902) (73 1
R C ~ U I ~ ~ O ~ ? . Liabilities (a) 35 1 190 Total Gain (Loss) on Risk Management Contracts S (194) S 911
(a) Represents realized and unrealized gains and losses subject to regulatop accounting treatment.
(FERC FORM NO. (ED. 12-88) Page 123.68 I
Name of Respondent This Report is: (I) &An Original
Dakof Report YeadP%d of Report (Mo, Oa. Yr)
SoutfE~estern EIedric Pavier Company (2) - A Resubmission I / 203 OIQ4 - NOTES TO FIWCLAL SATEMEWS (Continued) ..
Ccnain quaIifyin2 derkarive insintmcnB have been desisnated as nomial purchase or normal sale contracts. ils pro\ idcd in the aceouniins pidance for "Derivatiws and Wedging." Dcrivativc contracts that have been designated as norma1 purchases or normal sales undcr that accounting guidance arc not suhject io MTM accounting treatment and are rceognized on the statemcnts of incomc on an accrua1 basis.
The accountin_p for the cbangcs in the fair value of a derivatiw innrumeni Jepcnds on whether it quatifics for and has been desipared as pan of a hedging rclationship and finher. on rhc q p e of hedsing relationship. Depending on rhe esposurc, management designates a hedging instrument as a fair value hedge or a cash flow hedy .
For conmcu that have not been designated a5 part of a hcdging relationship. the accountin_p for chanses in fair value depends on wherher the derivative instrument is held for tradinz purposes. For the Texas portion of SWEPCo generation prior to the second quancr of 2009, unrealized and realized gains and losses on derivative instruments held for trading purposes were included in Operatins Revenues on a net basis on rhe statements of income. For hhe Tcssas ponion of SW'EPCo gencration prior to the second quarter of 2009. unrealized and realizcd gains and losses on deriwiw instruments not held for tradins purposes were included in revenues or expenses on the statements of income dependins on the relevant facis and circumstances. Houever, unrealized and some realized gains and losses for the Arkansas and Louisiana portions of SWEPCo _generation and beginnin2 in the second quarter of 2009 for the Tesas portion of SW'EPCo generation for both trading and non-trading derivative instruments are recorded as rcgulatoq assets (for losses) or rcplatory liabilities (for gains) in accordance with the accounting guidance for "Regulaml Operations.'* SWEPCo re-applied the accounting guidance for "Regulated Opcmtions" for the generation poFtion of S\YEPCo's Tesas retail jurisdiction effective the second quarter of 3009.
. I For fair value hedges (Le. hedzing the esposure to changes in the fair value of an asset, liabilirl, or an identified portion thereof anribulable 10 a panicular risk), the pin or loss on the derivative instrumenr as well as the offsetting gain or loss on the hedged item associated with the hedged risk impacts Net Income duriq the period of chanze.
SIYEPCo rccords realized and unrealized _pains or losses on interest rare swaps That qua l i e for fair valuc hedgc accounting treatment and any offscnin2 changes in the fair value of the debt beins hedzcd in Interest Charges on the sIaIcment5 of income. For the years ended Decernbcr 3 I . 3010 and 2009. SWEPCo did not cmploy any fair Yalue hedging strategies.
A ccoiarhg for Cmlr Fh w Hedgittg Strategies
For cash fiow hcdzes (Le. hedging the esposure 10 variabiliv in expecred furure cash flows that is attributable to a particular risk), SWEPCo initially reports the effective portion of thc p i n or loss on the derivative instrument as a component of Accumulated Other Comprehensive Income on the balance sheets until the period the hedsed item affecls h'et Income. Prior to the second quarter of 7009. SWEPCo recognized hedgc ineffectivencss in Net lncome immediately durinz the period of chmse for its Tc-ns ponion of gencration. For ;IS Arkansas and Louisiana portions oF Seneration and beginnins in the second quarter of 2009 for iff Tesas portion of generation. SWEPCo recorded its hedse incffcctiwness as a regulator?- asset (for losses) or a regulatoq liability (for gains).
(FERC FORM NO. I (ED. 12-88) Page 123.49 1
Name of Respondent This Report is: Date of Report YearlPeriod of Report (I) XAn Originat {Mo, Da. Yr)
Souhmlem Electric Power Company (2) - A Resubmission I t 20101Q4
NOTES TO FINANCIAL STATEMENTS (ConUnued)
Realized Sains and losses on derivative contracts for the purchase and sale of power. coal, natural gas and heating oil and gasoline designated as cash flow hedges are included in Operating Revenues, or Operation Espenses on the statements of income, or in regulaton. assets or regulaton. liabilities on the balance sheets. depending on the specific nature of the risk beins hcdzcd.
I
SWEPCo reclassifies gains and losses on financial fuel derivative contracts designated as cash f f o ~ hedges from Aceurndared Other Cornprehensivc Income on the balance sheets into Opetation Espenses. Maintenance Espenscs or Depreciation Expense. as it relates to capital projects, on the statements o f income. During 2010 and 2009, SWEPCo designatcd heatins oil and -polhe derivatives as cash flow hedges.
SWEPCo reclassifies _gains and losses on interest rate dctivative hedges related to debt financing from Accumulated Other Comprehensive Income into Interest Charges in those periods in which hedged interest payments occur.
The accumulated gains or losses related to foreign currency hedges are reclassified from Accumulated Orher I
Comprehensive Income on the balance sheets into Depreciation Expense on the saternen& of income over the depreciable Iives of the fixed assets that were designated as the hedged items in qualiQin3 foreign currency hedging relationships. During 2010 and 2009, SW'EPCo designated Ibreig currency derivatives as cash flow hedges. I
During 1010 and 2009, hedge ineffectiveness was immaterial or nonexistent for a11 of the hedge strategies discloscd I
above.
The followins tables provide derails on desipated, effective cash flow hedges included in AOCl on the balance sheets and the reasons for changes in cash flow hedges for the yens ended December 3 I, 2010 and 2009. All amounts in the following tables are presented net of related income ta?ies.
Total Accumulated Other Comprehensive Income (Loss) Activity for Cash Flow Hedgcs Year Ended Deteemb~r3?,2010
Balance in AOCI as o~December31,1009 Changcs in Fair Value Recogized in AOCI Amount of (Gain) or toss Reclassified from AOCI to Income
Siatement'within Balance Shcct: Operating Revenucs Operation Expenses Maintenance Espenses Interest on Long-Term Debt Utility Plant Regulatory Assets (a) Regulatory Liabilities (3)
Balance in AOCI as of December 31,3010
Interest Rate and Foreign
Cornmodit: Currency Total contracts Contracts Contracts
(in thousands) s 111 s (5,047) S (4,935)
69 (73) (3
S x7 s (4,172) s (4,190)
IFERC FORM NO. 1 (ED. 12-88) Page 123.50 1
. -
Name of Respondent
Southwestern EIectrfc Povrer Company
This Report is: Date of Report YeadPeriod of Report ( I ) 21 An Original (Mo. Da, Yr) (2) - A Resubmission I t 20101Q4
Total Accumulated Othcr Comprehensive Income (Loss) Actlvlty for Cash Flow Hedges Year Ended December 31,2009
Balance in AOCI as of Dccernber 31,2008 Changes in Fair Value Recosized in AOCI .4mount of (Gain1 or Loss Reclssified from AOCI to Income
Staternent,within Balance Sheer: OpeFatina Revenues Operation Expenses Maintenance Expenses lntercsr on Long-Tern Debt Utility Plant Regdamp Assets (a) ReguIamy Liabilities (3)
BaIance in AOCI as of December31,1009
Cornmodit?. Contracts
s 190
Interest RdtC and Foreign
Current! Contracts
(in thousands) S ( 5.914)
49
818
S 112 S (5.0471
Tatal Contracts
S (5.924) 239
s 14.9351
(a) Represenrs realized and unrealized g i n s and lossa subject to regulatory accounting nearmcnt.
Cash flow hedges included in Accumulated Orher Comprehensive Income on the balance sheets at December 3 1. 20 IO and 1009 were:
Impact of Cash Flow Hedges on the Balance Sheet December 31,2010
Hedging Assets (a) Hedging Liabilities (a) AOCI Loss Ket of Tax Portion Expected 10 be RecIassified to Net Income
During the Next Twelve Months
Interest Rate and Foreign
Commodip Currency TotaI (in thousands)
5 123 s 5 s I28
82 (4.272) (4.190) -
IFERC FORM NO. I {ED. 12-88) Page 123.51 I
Name of Respondent
Soutimestern EIedric Pmer Company
Impact of Cash Flow Hedges on the BaIance Sheet December 31,2009
This Report is: Date of Report YeariPeriod of Report (I) g An Orlginal (Mo. Da, Yr) (2) - A Resubmission I t 201 0144
Interest Ratc and Foreign
(in thousands) I
Commodic Currency Total I
HedSing AsseIs (a) 5 168 S 5 s 173 Hedging Liabilities (a) - (461 (36) AOCl Loss Net of Tas I12 (5.037) (4.935) Portion Espected IO be Reclassified to Net Income
During ?he ?!ea Twelve Months I l l (S39) (7 18)
(a) Hedginz assets and hedging liabilities are included in Derivative Imsrrumcnt Assets - Hedges and Derivative Instrument Liabilities - Hedges on the balance sheets.
I
The actual amounts reclassified from Accumulated Orher Comprehensive Income IO Net income can differ from the estimate above due to market price chases. As of December 31,2OIO, the maximum length of time that SWEPCo i s hedging (with contracts subject to the accounting guidance for "Derivatives and Hedging") esposurc to variabilig in future cash flows related to forecasted transactions is 23 months.
Credit Risk I
AEPSC, on behalf of SWEPCo. limits credit risk in the wholesale marketing and mdinz activities bv assessing h e creditworthiness of potcntial counterparties before enterins into transactions with them and continuing io evaluate their
market-based qualitative and quantitative data as well as financial statemcnrs to assess the financia1 health of counterparties on an ongoin_e basis.
AEPSC. on behalf of SWEPCo, uses srandardized master ayeements which may include coIIateFal requirements. Thcsc master asreemenis facilitate the nettin2 of cash flows associated with a sinslle counterpaw. Cash, Ictters of credit and parenIaYaffiliarc parantees may be obtained as sccurit?. from eountcrpanies in order to mitisatc credit risk- The collateral a p e e m e m require a counterparty to post cash or letters of credit in the event an exposure exceeds the established threshold. The threshold represents an unsecured credit limit which may be supported by a parentaVaffIIiate c euaranv. as determined in accordance with AEP's credit polic,~. In addition, coIIareral ageements alIow for termination and liquidadon of all positions in the event of a failure or inability to post collateral.
I
creditworthiness on an ongoing basis. AEPSC, on behalf of SWEPCo, uses Moody's, Standard and Poor's and currcnt I.
IFERC FORM NO. I (ED. 12-88) Page 123.52 I
Name of Respondent This Report is: Date of Report (Mo, Da, Vr) ( I ) X An Original
Sauthrvertem Electric Power Company (2) - A Resubmission I I
Under rhe tariffs of the RTOs and hdependenr Synem Operators (ISOs) and a limircd number or dcril-ativc nnd non-derivative CoiitractS primarily rclated to compctitivc retail auction loads. SWEPCo is obliyted IO post an additional amount of collatcml if certain credit ratiags declitic below investment zradc. Thc atnount of collatcnl requircd fluctuaLes based on market prices and total esposure. On an ongoing basis. AEP‘s risk ninriapwnt orpmiztation assesses the appropriateness of these collarenl triggering items in contracts. Management does not anticipalc a donmgrade bclow investment grade. The following tnblc represenis: (a) SWEPCo’s agpgatc fair valucs of such derit atiw contracts. (b) the amount of collatcral S\YEPCo would haw been required to post for all derivatiw and noti-deriiative contracts if the credit ratings had declined below investmen1 grade and (c) how much \vas anributablc to RTO and IS0 activities a$ of Deccmber 3 1.101 0 and 1009:
YeariPeriod of Report
201WQC
Liabilities for Amount of Collatcr~l Amount Derivative Contracts S W E P C o Attributable to
with Credit Would Have Been RTO and IS0 Downgrade Triggers Required to Post Activities
(in thousands) Decembcrzl, 1010 S 18 s 2.139 S 1,639 December 3 1.1009 819 3,247 2.477
As of December 2 1.201 0 and 1009. SWEPCo was not required to post any collateral.
In addition. a majority af SWEPCo’s nan-eschanze traded cornmodin. contracts contain cross-default provisions that. if triggered, ivoiitd permit the counterpart?. IO declare a dehult and require senlcmcm of the outstandin2 payable. These cross-default provisions could be trigered if there ivas a non-performance event under outstanding debt in escess of 550 million. On an on_roin_g basis! AEPs risk mana_Eemenr orzanization assesses the appropriateness of these cross-derault provisions in rhc contract~. Mana~emcnt does not anticipate a non-performance cvcm under these prouisions. The following table represents: (a) the fair ialue of these derkativc liabilities subject 10 cross-default provisions prior to consideration of contractual ncaing arrangements. (b) the amount this esposurc has been reduced by cash collateral posted bv SWEPCo and (c) if a cross-default provision would have been triggered. the setdement ainount that would be required after considering SU’EPCo’s contracnral netting amngerncnts a5 of December 3 I , 201 0 and 2009:
. -
Liabilities for Additional Contracts with Cross Settlern eat
DefauIt Provisions Liabilie if Cross Prior to Contractual Amount of Cash Default Pro\*ision
h’etting Arrangcmcats Collateral Posted is Triggered
December 3 1,201 0 S December 3 1.1009
(in thousands) 75 S - 5 37
139 93
IFERC FORM NO. 1 (ED. 12-88) Page 123.53 1
Name of Respondent
Southwestern Elms Power Company I
This Report is: Date of Report YearlPeriod of Report (I) 8 An Original (Mo, Da. YF) (2) I A Resubmission JI 201OfQ4
10. FAIR VALbX MEASUREMENTS
Fair Yuhe Mgasurenletm of Long-term Debt
The fair valucs of Long-term Debt are based on quoted rnarkct priccs, without credit mliancements. for thc same or similar issues and the currenr interest rates offered for instruments with simiIar maturities. These instruments are not marked-lo-market. The estimates presented are not necessarily indicative of the amounts that could be realized in a current market exchange.
The book values and fair values of Long-term Debt as of December 2 1,2010 and 2009 are summarized in the following table:
December 31, 2010 2009
Book Value Fair Value Book Value Fair Value
(in thousands) S 1,724,520 S 1,881,788 S 1,473,278 S 1,498,798
[FERC FORM NO. 1 (ED. 12-88) Page 123.54 I
Name of Respondent
Souhestern Electric Power Company
For a discussion of fair value accountins and thc classification of assets and liabilities within thc fair valuc bier arch^-. SCC
the "Fair Value hleasurcnicnts of Asscts and Liabilities" section ofKote 1.
This Report is: Date of RepoFt YearlPeriod of Report (1) XAn Original (Mo. Da. Yr) (2) - A Resubmission I t 201 OlQ4
The following tables set forth. by level n-ihin the fair value hierarchy. the financial assets and liabilitics that were accounred for at fair y a k on a recurring basis as of Dcccrnber 31, 2010 and 2009. As required b> thc accounting guidance for "Fair Value Measurcmcnts and Disclosures." financial asseu and liabilities arc classified in their entircp based on thc lowcst b e 1 of input that is significant to the fair Xalue mcasuremmt. Management's asssessmcni of the significance of a particular input to die fait value nieasuretnent requires judgment and may affect the valuation of fair d u e assets and liabilities and their placemea within the fair value hicrarchy levels. There have not bccn any siniFicanr changes in managcmcnt's taluation techniques.
Xsscts and Liabilities Measured at Fair Value on a Recurring Basis Deecrnber31,2010
Assets: Level 1 Level 2 Level 3 Other Total
(in thousands)
Dcrivative Instrument ilsscts Risk Mnnayment Commodiw Contracts (a) (b) S - S 36,632 5 3 S (35.113) S 1,519
Derivative Instrument Assets - HedEes Cash Flow Hedges:
. - Cornmodin. 123 1'3
Total Derivative Instrument Assets - Hedgcs 118 118 1 nferest RatdF o re ign Cu rrc n cy 5 5
Total Assets s - S 36,760 S 2 S (35.1 15) S 1,647
LiabiIitics:
Derivative I nstrumcnt Liabilities Risk Manaywi l t Commodib Contracts (a) (b ) 5 - S 39,592 S - S (25,187) S 4.305
IFERC FORM NO. 1 (ED. 12-88) Page 12355 1
Name of Respondent
Southweskrn Electric Power Company
Assets and Limbilities Measured at Fair Value on a Recurring Basis December 31,2009
Thfs Report Is: Date of Report YearlPeriod of Report (I) &An Original (Mo, Da, Yt) (2) I A Resubmission I I 20fWQ4
Assets:
Derivative Instrument tisrets
LcveI 1 Level 2 Level 3 Other Totai (in thousands)
Risk Managemcm Cornrnodiw Contracts (a) S - S 26.943 S 12 S(24,007) S 2,960
Derivativc Instrument Assets -Wedges Cash Flow Hedges - Commodity (a) 716 (33) I73
To tal Assets s - S 27,161 S 22 S(24,050) S 3,133
Liabilities:
Derivative Instrument Liabilities Risk Management Comrnodiv Conrracts {a) 5 - S 25,312 S 19 S(24.212) S 1,019
Derivative Instrument Liabilities - Hedges Cash Florv Hedges - Commodie (a) 89 (43) 46
TotaI Liabilities S - S 25,401 S 19 S(23.359) S 1.065
(a)
(bl
Amounrs in “Othei‘ column primad>- represenr counrerpav nening of risk management and hedgins conrracis and associated cash collateral under the accountin_g guidance for “Derivatives and Hedging,” Substantially comprised of coal contracts.
There have been no rransfers behveen Level 1 and Level 2 during the year ended December 5 1.30 IO.
(FERC FORM NO. I (ED. IZ-SS) Page 123.58
Name of Respondent
Southmtem Eledrie Pmet Company
The folIoniing tables ser ronlr a reconciliation o f clianzes iii tbr fair value of net t rad iq derivahes classified as Le\ el 3 in the fair value hierarch!:
This Report is: Date of Report Yeadperiod of Report (I) &An Original (Mo. Da. Ur) (2) - A Resubmission I / 201 OIQ4
Ycar Ended Decernber31,2OIO
Balance as of December 31,2009 Realizcd Gain (Loss) Included in Kci Income (or Changes in h’ei Assets) (a) tb) Unrealized Gain (Loss) Induded in Ket Income (or Changes in Ket Asse~s) Relating
Realizcd and Unrealized Gains (Losses) Included in Other Comprehensive Income Purchases. Issuances and Settlements (c) Transfcrs into Leiel 3 (d) (h) Tratisfers out of Level 3 (e) (h) Changes in Fair Value .4lloeated to Replated Jurisdictions (g) Baiancc 05 of Dccember 31,2010
to Asseis Still Held a the Reponing Date (a)
Year Ended December31,2009
Balance as of Dcecrnbcr 31,2008 Realized Gain (Loss) Included in h’et Income (or Changes in Ker Assets) (a) (b) Unrealized Gain (Loss) Included in Ket lncome (or Changes in Ket AsseE) Relating
Realizcd and Unrealized Gains (Losses) Included in Other Comprehensive Income Purchases. Issuances and Settlements (c) Transfers in andor out of Level 3 (0 Changs in Fair Value Allocated to Regulaed Jurisdictions (g) 3alance zs of December 31,2009
I -
to ASseE Still Held at the Reporting Date (a)
Set Risk &lam, aement .4sscts (Liabilities)
(in thousands) S 5
7 c
h’et Risk blanagcment Assets (Liabilities)
(in thousands) S (3)
I
6 S 3
(a ) Included in revccnues on the statements o f income. (b) Represents the chan2e in fair mlue between the beSinninS or the reporting period and the scttlcmcnt of the risk
(c) Rcpmcnts the scnlcment of risk management commodib contracts for the reporting period. (d) Represents esisiing assets or liabilities that were previously caregorized as Level 2. (e) Represents esisting a s s m or liabilities rhat werc previously categorized as Level 3. (f, Represents existing assets or liabilities has were either previously caresorized as a higher level for which the
inputs to the model became unobsenable or assets and liabilities that were previously classified as Level 2 for which the lowest significant input became obsenable during the period.
(g) Relates to the net g ins (losses) of ihose contracts that are not refleixed on the statements o f income. Thcse ne1 gains (losses) are recorded as regulatory assetslliabilities.
(h) Transfers arc recognized based on their value at thc bezinnins of thc rcporring period that the transfer occurred.
management comrnodib contract.
[FERC FORM NO. I (ED. 92-88) Page 123.57 I
Name of Respondent
Southwestern Eledric Power Campany
11. J3COME TAXES
This Report is: Date of Repod YearlPeriod of Report (1) X An Original (Mo. Da. Yr) (2) - A Resubmission I t 201 WQ4
The details of income m e 5 before extraordinary loss as reported are as follow: Years Ended Decembcr31.
2010 2009 (in thousands)
Charged (Credited) to Operatins Expenses, Xer: Cumnr S (16,449) S (375) Deferred 80.1 15 26.477 Deferred Iavestmenr T ~ Y Credits
TO!d
Charged (Credited) to Nonopemring Income. Net: Current Deferred
Total Total Income Taxes
(1,484) (3.542) 62.180 77,560
(319) (3.443) 130 (3310)
( 1 89) (7,752) S 61.991 S 14.808
show^ beIow is a reconciliation of the difference benveen the amounts of federal income taw computed by multiplying book income before income taxes by the federal statutoc rate and the amount of income t a e s reported.
Ket lncome EmaordiiaIy Loss Income Taxes Pretax Income
Income Taxes on P r e w Income at SIarurop Rate (55%) Increase (Decrease) in income Taxes resulting from he following items:
Depreciation DepIetion Allonance for Funds Used During Consmmion lnvestmenr Tau Credits. Net Sute and Local lneome Taxes Parent Company Loss Benefit Other
Total Income Taxes
Erective Income Tax Rate
Years Ended December31, 2010 2009
(in thousands) S 141.591 S 114,073
5.324 61.991 14;SOX
S 204.582 S 134.705
S 71.604 S 46.972
5O.jSa I I .O?b
[FERC FORM NO. I (ED. 12-88) Page 123.56 1