This report made by AEP and its Registrant Subsidiariesthe Registrants contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934.  Many forward-looking statements appear in “Item 7 -– Management’s Discussion and Analysis of Financial Condition and Results of Operations,” but there are others throughout this document which may be identified by words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “will,” “should,” “could,” “would,” “project,” “continue” and similar expressions, and include statements reflecting future results or guidance and statements of outlook.  These matters are subject to risks and uncertainties that could cause actual results to differ materially from those projected.  Forward-looking statements in this document are presented as of the date of this document.  Except to the extent required by applicable law, we undertakemanagement undertakes no obligation to update or revise any forward-looking statement.  Among the factors that could cause actual results to differ materially from those in the forward-looking statements are:

AEP was incorporated under the laws of the State of New York in 1906 and reorganized in 1925. It is a public utility holding company that owns, directly or indirectly, all of the outstanding common stock of its public utility subsidiaries and varying percentages of other subsidiaries.

The service areas of AEP’s public utility subsidiaries cover portions of the states of Arkansas, Indiana, Kentucky, Louisiana, Michigan, Ohio, Oklahoma, Tennessee, Texas, Virginia and West Virginia. The transmission facilities of AEP’s public utility subsidiaries are interconnected and their operations are coordinated. Transmission networks are interconnected with extensive distribution facilities in the territories served. The public utility subsidiaries of AEP have traditionally provided electric service, consisting of generation, transmission and distribution, on an integrated basis to their retail customers. Restructuring laws in Michigan, Ohio and the ERCOT area of Texas have caused AEP public utility subsidiaries in those states to unbundle previously integrated regulated rates for their retail customers.  In Ohio, AEP’s regulated utility operates its distribution and transmission assets while its former generation assets are owned and operated by a competitive generation affiliate.affiliates.

The member companies of the AEP System have contractual, financial and other business relationships with the other member companies, such as participation in the AEP System savings and retirement plans and tax returns, sales of electricity and transportation and handling of fuel. The companies of the AEP System also obtain certain accounting, administrative, information systems, engineering, financial, legal, maintenance and other services at cost from a common provider, AEPSC.

As of December 31, 2014,2016, the subsidiaries of AEP had a total of 18,52917,634 employees. Because it is a holding company rather than an operating company, AEP has no employees. The material subsidiaries of AEP are:

Organized in Virginia in 1926, APCo is engaged in the generation, transmission and distribution of electric power to approximately 959,000957,000 retail customers in the southwestern portion of Virginia and southern West Virginia, and in supplying and marketing electric power at wholesale to other electric utility companies, municipalities and other market participants. APCo owns 7,877 MW6,640 MWs of generating capacity.  APCo uses its generation to serve its retail and other customers.  As of December 31, 2014,2016, APCo had 1,9021,845 employees. Among the principal industries served by APCo are paper, rubber, coal mining, textile mill products and stone, clay and glass products. APCo is a member of PJM.  APCo is part of AEP’s Vertically Integrated Utilities segment.

Organized in Indiana in 1907, I&M is engaged in the generation, transmission and distribution of electric power to approximately 588,000592,000 retail customers in northern and eastern Indiana and southwestern Michigan, and in supplying and marketing electric power at wholesale to other electric utility companies, rural electric cooperatives, municipalities and other market participants.  I&M owns or leases 4,518 MW3,539 MWs of generating capacity, which it uses to serve its retail and other customers.  As of December 31, 2014,2016, I&M had 2,5512,475 employees. Among the principal industries served are primary metals, transportation equipment, electrical and electronic machinery, fabricated metal products, rubber and chemicals and allied products, rubber products and transportation equipment.  I&M is a member of PJM.  I&M is part of AEP’s Vertically Integrated Utilities segment.

Organized in Kentucky in 1919, KPCo is engaged in the generation, transmission and distribution of electric power to approximately 171,000169,000 retail customers in eastern Kentucky, and in supplying and marketing electric power at wholesale to other electric utility companies, municipalities and other market participants.  KPCo owns 1,858 MW1,060 MWs of generating capacity.  KPCo uses its generation to serve its retail and other customers.  As of December 31, 2014,2016, KPCo had 595550 employees. Among the principal industries served are petroleum refining, coal mining and chemical production.  KPCo is a member of PJM.  KPCo is part of AEP’s Vertically Integrated Utilities segment.

Organized in Virginia in 1917, KGPCo provides electric service to approximately 47,00048,000 retail customers in Kingsport and eight neighboring communities in northeastern Tennessee. KGPCo does not own any generating facilities and is a member of PJM. It purchases electric power from APCo for distribution to its customers. As of December 31, 2014,2016, KGPCo had 4953 employees. KGPCo is part of AEP’s Vertically Integrated Utilities segment.

Organized in Ohio in 1907 and re-incorporated in 1924, OPCo is engaged in the transmission and distribution of electric power to approximately 1,466,0001,472,000 retail customers in Ohio.  Following corporate separation of OPCo's generation assets in December 2013, OPCo purchases energy and capacity at auction to serve generation service customers.  As of December 31, 2014,2016, OPCo had 1,5161,582 employees.  Among the principal industries served by OPCo are primary metals, chemicals and allied products, health services, electronic machinery, petroleum refining, and rubber and plastic products. OPCo is a member of PJM.  OPCo is part of AEP’s Transmission and Distribution Utilities segment.

Organized in Oklahoma in 1913, PSO is engaged in the generation, transmission and distribution of electric power to approximately 542,000548,000 retail customers in eastern and southwestern Oklahoma, and in supplying and marketing electric power at wholesale to other electric utility companies, municipalities, rural electric cooperatives and other market participants.  PSO owns 4,436 MW3,940 MWs of generating capacity, which it uses to serve its retail and other customers.  As of December 31, 2014,2016, PSO had 1,1331,110 employees. Among the principal industries served by PSO are paper manufacturing, and timber products, natural gas and oil extraction, transportation, non-metallic mineral production, oil refining, health care and steel processing.aerospace. PSO is a member of SPP.  PSO is part of AEP’s Vertically Integrated Utilities segment.

Organized in Delaware in 1912, SWEPCo is engaged in the generation, transmission and distribution of electric power to approximately 528,000533,000 retail customers in northeastern and panhandle of Texas, northwestern Louisiana and western Arkansas and in supplying and marketing electric power at wholesale to other electric utility companies, municipalities, rural electric cooperatives and other market participants. SWEPCo owns 5,779 MW5,225 MWs of generating capacity, which it uses to serve its retail and other customers.  As of December 31, 2014,2016, SWEPCo had 1,4681,486 employees. Among the principal industries served by SWEPCo are natural gas and oil production, petroleum refining, manufacturing of pulp and paper, chemicals, food processing and metal refining. The territory served by SWEPCo also includes several military installations, colleges and universities. SWEPCo also owns and operates a lignite coal mining operation. SWEPCo is a member of SPP.  SWEPCo is part of AEP’s Vertically Integrated Utilities segment.

Organized in West Virginia in 1883 and reincorporated in 1911, WPCo provides electric service to approximately 41,000 retail customers in northern West Virginia. AsWPCo owns 780 MWs of December 31, 2014, WPCo did not own any generating facilities. On January 31, 2015, WPCo acquired an interest in a 780 MW generating unit owned by AGR.capacity which it uses to serve its retail and other customers. WPCo is a member of PJM. Prior to acquiring the 780 MW generating unit interest, WPCo purchased electric power from AGR for distribution to its customers. As of December 31, 2014,2016, WPCo had 5357 employees.  WPCo is part of AEP’s Vertically Integrated Utilities segment.

Organized in Ohio in 1982, AEGCo is an electric generating company. As of December 31, 2016 AEGCo owned 2,496 MWs of generating capacity.  AEGCo sold a 1,186 MW natural gas-fired generating unit to an unaffiliated party in a transaction that closed in January 2017. As a result of the sale, AEGCo owns 2,496 MW1,310 MWs of generating capacity. AEGCo sells power at wholesale to AGR, I&M and KPCo. As of December 31, 2014,2016, AEGCo had 7066 employees.  AEGCo is part of AEP’s Vertically Integrated Utilities segment.

Organized in Delaware in 2011, AGR is a competitive generation company that generates power and sells it into the market.  AGR also engages in power trading activities.  Pursuant to a Power Supply Agreement (PSA) between AGR and OPCo, AGR suppliessupplied capacity for OPCo’s switched and non-switched retail load for the period January 1, 2014 through May 31, 2015.  As of December 31, 2016, AGR also supplied the energy needs of OPCo’s non-switched retail load that was not acquired through auctions in 2014 under the PSA.  Following the transfer to WPCo of the 780MW generating unit interest on January 31, 2015, AGR owns 9,159 MWowned 6,875 MWs of generating capacity, with rights to an additional 1,186 MWMWs pursuant to a unit power agreement with AEGCo through 2017. AGR sold three generating units totaling 4,143 MWs to an unaffiliated party in a transaction that closed in January 2017. As a result of the sale, AGR owns 2,732 MWs of generating capacity. As of December 31, 2014,2016, AGR had 917 employees.842 employees (536 employees following the sale of generation).  AGR is part of AEP’s Generation & Marketing segment.

Organized in Delaware in 2012, AEPTHCo is a holding company for AEP’s transmission operations joint ventures.ventures (Transmission Joint Ventures).  AEPTHCo also owns AEPTCo, a holding company for seven FERC-regulated transmission-only electric utilities, each of which is geographically aligned with our existing utility operating companies.the State Transcos. The transmission companiesState Transcos develop and own new transmission assets that are physically connected to AEP’s system.the AEP System.  Individual transmission companiesState Transcos (a) have obtained the approvals necessary to operate in Indiana, Kentucky, Michigan, Ohio, Oklahoma and West Virginia, subject to any applicable siting requirements, and(b) are authorized to submit projects for

AEP also owns a service company subsidiary, AEPSC. AEPSC provides accounting, administrative, information systems, engineering, financial, legal, maintenance and other services at cost to the AEP affiliated companies.subsidiaries. The executive officers of AEP and certain of its public utility subsidiaries are employees of AEPSC. As of December 31, 2014,2016, AEPSC had 5,5695,805 employees.

The following table illustrates certain regulatory information with respect to the states in which the public utility subsidiaries of AEP operate:

The principal classes of service from which the public utility subsidiaries of AEP derive revenues and the amount of such revenues during the years ended December 31, 2014, 20132016, 2015 and 20122014 are as follows:

Companies within the AEP System generally use short-term debt to finance working capital needs.  Short-term debt may also be used to finance acquisitions, construction and redemption or repurchase of outstanding securities until such needs can be financed with long-term debt.  In recent history, short-term funding needs have been provided for by cash on hand borrowing under AEP's revolving credit agreements and AEP’s commercial paper program.  Funds are made available to subsidiaries under the AEP corporate borrowing program.  Certain public utility subsidiaries of AEP also sell accounts receivable to provide liquidity.  See Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in the 20142016 Annual Reports, under the heading entitled Financial Condition for additional information concerning short-term funding and our access to bank lines of credit, commercial paper and capital markets.

AEP’s revolving credit agreements (which backstop the commercial paper program) include covenants and events of default typical for this type of facility, including a maximum debt/capital test.  In addition, the acceleration of AEP’s payment obligations, or the obligations of certain of ourits major subsidiaries, prior to maturity under any other agreement or instrument relating to debt outstanding in excess of $50 million, would cause an event of default under these credit agreements. As of December 31, 2014,2016, AEP was in compliance with its debt covenants.  With the exception of a voluntary bankruptcy or insolvency, any event of default has either or both a cure period or notice requirement before

termination of the agreements.  A voluntary bankruptcy or insolvency of AEP or one of its significant subsidiaries would be considered an immediate termination event.  See Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in the 20142016 Annual Reports, under the heading entitled Financial Condition for additional information with respect to AEP’s credit agreements.

AEP’s subsidiaries have also utilized, and expect to continue to utilize, additional financing arrangements, such as securitization financings and leasing arrangements, including the leasing of coal transportation equipment and facilities.

AEP’sAEP subsidiaries are currently subject to regulation by federal, state and local authorities with regard to air and water-quality control and other environmental matters, and are subject to zoning and other regulation by local authorities.  The environmental issues that we believemanagement believes are potentially material to the AEP systemSystem are outlined below.

Our operationsOperations for AEP subsidiaries are subject to the Federal Clean Water Act, which prohibits the discharge of pollutants into waters of the United States except pursuant to appropriate permits, and regulates systems that withdraw surface water for use in our power plants.  In 2014, the Federal EPA issued a final rule setting forth standards for existing power plants that is intended to reduce mortality of aquatic organisms pinned against a plant’s cooling water intake screen (impingement) or entrained in the cooling water.  The standards affect all plants withdrawing more than two million gallons of cooling water per day and establish specific intake design and intake velocity standards meant to allow fish to avoid or escape impingement.  Compliance with this standard is required within eight years of the effective date of the final rule.  The standard for entrainment for existing facilities requires a site-specific evaluation of the available measures for reducing entrainment.  Challenges to this final rule have been consolidated in the U.S. Court of Appeals for the Second Circuit, and additional changes could be made to this rule as a result of review by the court.

TheIn November 2015, the Federal EPA is also engaged in rulemakingissued a final rule to update the technology-based standards that govern discharges from new and existing power plants under the Clean Water Act’s National Pollutant Discharge Elimination System program.  These standards were last updated over 20 years ago, and the Federal EPA proposed revised standards in 2013.  A final rule is expected in September 2015. For additional information, see Management’s Discussion and Analysis of Financial Condition and Results of Operations under the headings entitled Environmental Issues.

OurAEP’s operations produce a number of different coal combustion products, including fly ash, bottom ash, gypsum and other materials.  In December 2008, the breach of a dike at the Tennessee Valley Authority’s Kingston Station resulted in a spill of several million cubic yards of ash into a nearby river and onto private properties, prompting federal and state reviews of ash storage and disposal practices at many coal-fired electric generating facilities, including ours.  AEP operates 37 ash ponds, and we manage these ponds in a manner that complies with state and local requirements, including dam safety rules designed to assure the structural integrity of these facilities.  We also operate a number of dry disposal facilities in accordance with state standards, including ground water monitoring and other applicable standards.  In December 2014,Effective October 2015, the Federal EPA signedadopted a rule to regulate the disposal and beneficial re-use of coal combustion residuals, including fly ash and bottom ash generated at coal-fired electric generating units.  The final rule requires certain standards for location, groundwater monitoring and dam stability to be met at landfills and certain surface impoundments at operating facilities on a schedule spanning approximately four years after publication of the final rule in the Federal Register. If existing disposal facilities cannot meet these standards, they will be required to close, but the time frame for closure may be extended if adequate alternative disposal options are not available. Extensions are available for completion of certain activities. For additional information regarding the Federal EPA action taken to regulate the disposal and beneficial re-use of coal combustion residuals and the potential impact on our operations, see Management’s Discussion and Analysis of Financial Condition and Results of Operations under the headings entitled Environmental Issues-Coal Combustion Residual Rule.

Clean Air Act Requirements

The CAA establishes a comprehensive program to protect and improve the nation’s air quality and control mobile and stationary sources of air emissions.  The major CAA programs affecting ourAEP’s power plants are described below.  The states implement and administer many of these programs and could impose additional or more stringent requirements.

The CAA requires the Federal EPA to review the available scientific data for criteria pollutants periodically and establish a concentration level in the ambient air for those substances that is adequate to protect the public health and welfare with an extra safety margin.  The Federal EPA also can list additional pollutants and develop concentration levels for them.  These concentration levels are known as national ambient air quality standards (NAAQS).

As a result of the 1990 Amendments to the CAA, the Federal EPA investigated hazardous air pollutant (HAP) emissions from the electric utility sector and submitted a report to Congress, identifying mercury emissions from coal-fired power plants as warranting further study.  In 2011, the Federal EPA issued a final rule setting Maximum Achievable Control Technology (MACT) standards for new and existing coal and oil-fired utility units and New Source Performance Standards (NSPS) for emissions from new and modified power plants.  Petitions for review of the MACT standards were denied by the U.S. Court of Appeals for the D.C. Circuit, but in 2014 the U.S. Supreme Court granted certiorari to determine whetherdetermined that Federal EPA should have consideredacted unreasonably in refusing to consider costs in determining if it was appropriate and necessary to regulate hazardous air pollutant emissions from electric generating units. Federal EPA has issued a supplemental finding and the rule remains in effect. For additional information regarding MACT, see Management’s Discussion and Analysis of Financial Condition and Results of Operations under the headings entitled Environmental Issues-Clean Air Act Requirements.

The CAA establishes visibility goals for certain federally designated areas, including national parks, and requires states to submit SIPs that will demonstrate reasonable progress toward preventing impairment of visibility in these areas (Regional Haze program).  In 2005, the Federal EPA issued its Clean Air Visibility Rule (CAVR), detailing how the CAA’s best available retrofit technology requirements will be applied to facilities built between 1962 and 1977 that emit more than 250 tons per year of certain pollutants in specific industrial categories, including power plants.

PSO executed a settlement with the Federal EPA and the State of Oklahoma to comply with Regional Haze program requirements in Oklahoma, and the settlement is now codified in the Oklahoma SIP. PSO is in the process of implementing a settlement with the requirements of the SIP. Federal EPA in order to comply withhas disapproved portions of the Regional Haze program requirements in Oklahoma. Federal EPA is likely to issueArkansas and Texas SIPs, and finalized a Federal Implementation Plan for Arkansas in 2015.2016.  For additional information regarding CAVR and the Regional Haze program requirements, see Management’s Discussion and Analysis of Financial Condition and Results of Operations under the headings entitled Environmental Issues-Clean Air Act Requirements.

We expect ourManagement expects emissions to continue to decline over time as we diversify ourAEP diversifies generating sources and operateoperates fewer coal units.  The projected decline in coal-fired generation is due to a number of factors, including the ongoing cost of operating older units, the relative cost of coal and natural gas as fuel sources, increasing environmental regulations requiring significant capital investments and changing commodity market fundamentals.  OurManagement’s strategy for this transformation includes diversifying ourAEP’s fuel portfolio and generating more electricity from natural gas, increasing energy efficiency and investing in renewable resources, where there is regulatory support.

Some of theThe states we serveAEP serves, other than Kentucky, West Virginia and Tennessee, have established mandatory or voluntary programs to increase the use of energy efficiency, alternative energy, or renewable energy sources (Arkansas, Indiana, Louisiana, Michigan, Ohio, Oklahoma, Texas, Virginia and West Virginia).  During 2014 in support of our goals or requirements, our operating companies procured rights to an additional 199 MW of wind power and atsources.

At the end of 2014 our2016, the AEP operating companies had long-term contracts for 2,183 MW2,630 MWs of wind and 10 MWMWs of solar power.power delivering renewable energy to the companies’ customers. In addition, the Indiana Utility Regulatory Commission has approved I&M's proposal for a self-build&M completed construction of four solar projects that make up I&M’s 14.7 MW Clean Energy Solar Pilot Project (15.7 MW).  When(CESPP) that was approved by the additional projects under construction and/or pending regulatory approval are addedIndiana Utility Regulatory Commission. This resulted in a total of 2,655 MWs of wind and netted against one wind contract that is expiring at the end of 2015, the total renewable portfolio will be 2,715 MW to serve oursolar in-service serving AEP’s regulated operating company customers.  Weutilities. Management actively manage ourmanages AEP’s compliance position and areis on pace to meet the relevant requirements or benchmarks in each applicable jurisdiction.

I&M has made commitments to meet the current nuclear fuel requirements of the Cook Plant.  I&M has made and will make purchases of uranium in various forms in the spot, short-term and mid-term markets.  I&M also continues to lease a portion of its nuclear fuel.

For purposes of the storage of high-level radioactive waste in the form of spent nuclear fuel, I&M completed modifications to its spent nuclear fuel storage pool more than 10 years ago.  I&M entered into an agreement to provide for onsite dry cask storage of spent nuclear fuel to permit normal operations to continue.  I&M is scheduled to conduct further dry cask loading and storage projects on an ongoing periodic basis.  I&M completed its initial loading of spent nuclear fuel into the dry casks in 2012, which consisted of 12 casks (32 spent nuclear fuel assemblies contained within each).  The second loading of spent nuclear fuel into dry casks was completed in 2015, which consisted of 16 casks. The third dry cask loading is expected to be completedoccur in 2015.2018.