ALJ Recommended Disallowance

  
  
ETT Rate Matters (Applies to AEP)  
ETT Interim Transmission Rates  
AEP has a 50% equity ownership interest in ETT. Predominantly all of ETT’s revenues are based on interim rate changes that can be filed twice annually and are subject to review and possible true-up in the next base rate proceeding. Through June 30, 2022, AEP’s share of ETT’s cumulative revenues that are subject to review is approximately $1.4 billion. A base rate review could produce a refund if ETT incurs a disallowance of the transmission investment on which an interim increase was based. A revenue decrease, including a refund of interim transmission rates, could reduce future net income and cash flows and impact financial condition. Management is unable to determine a range of potential losses, if any, that are reasonably possible of occurring. ETT is required to file for a comprehensive rate review no later than February 1, 2023, during which the $1.4 billion of cumulative revenues above will be subject to review.  
I&M Rate Matters (Applies to AEP and I&M)  
Michigan Power Supply Cost Recovery (PSCR) Reconciliation  
In April 2022, an Administrative Law Judge (ALJ) issued a Proposal for Decision (PFD) for I&M’s PSCR reconciliation for the 12-month period ending December 31, 2020, recommending the MPSC disallow approximately $8 million of purchased power costs that I&M incurred under the Inter-Company Power Agreement with OVEC and the Unit Power Agreement with AEGCo. In May 2022, I&M submitted exceptions to the ALJ’s PFD related to the recommended disallowance of purchased power costs described above. I&M anticipates that the MPSC will issue a final decision in the second half of 2022. Management is unable to predict the impact, if any, that the MPSC’s final decision may have on future results of operations, financial condition and cash flows.   
Indiana Earnings Test Filings  
I&M is required by Indiana law to submit an earnings test evaluation for the most recent one-year and five-year periods as part of I&M’s semi-annual Indiana FAC filings. These earnings test evaluations require I&M to include a credit in the FAC factor computation for periods in which I&M earned above its authorized return for both the one-year and five-year periods. The credit is determined as 50% of the lower of the one-year or five-year earnings above the authorized level. In the third quarter of 2022, I&M will submit its FAC filing and earnings test evaluation for the period ended May 2022. As of June 30, 2022, I&M’s financial statements adequately reflect the estimated impact of I&M’s upcoming Indiana earnings test filings. If it is determined that I&M’s over-earnings exceed what has been recorded, it could reduce future net income and cash flows and impact financial condition.  
2022 Michigan Integrated Resource Plan (IRP) Filing  
In February 2022, I&M filed a request with the MPSC for approval of its 2022 IRP. Included in that filing were requests for approval and deferral of costs associated with resources commencing construction within three years of the Commission’s order in the filing. These resources include the new generation resources expected to be in-service by 2028, and demand-side resources, including load management programs and conservation voltage reduction investments. I&M is also requesting MPSC approval of I&M’s Rockport Unit 2 transition plan consistent with that approved by the IURC, including certain cost recovery related to remaining net book value of investments made during the term of the Rockport Unit 2 lease and future use of Rockport Unit 2 as a capacity resource. In addition, I&M has made requests for approval of a financial incentive on certain power purchase agreements and load management programs.   
In June 2022, intervening parties recommended various adjustments to I&M’s proposals, including the process I&M would use to receive approval of new generation resources, changes to or denial of requested financial incentives and requests for deferral and pre-approval of costs. Specific to I&M’s Rockport Unit 2 transition plan, certain intervening parties recommended that the MPSC order I&M to credit back to Michigan ratepayers the jurisdictional 161
