## 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 

## Basis of Presentation 

The condensed financial information of AEPTCo Parent is required as a result of the restricted net assets of AEPTCo consolidated subsidiaries exceeding 25% of AEPTCo consolidated net assets as of December 31, 2019. AEPTCo Parent is the direct holding company for the seven State Transcos. The primary source of income for AEPTCo Parent is equity in its subsidiaries’ earnings. AEPTCo Parent financial statements should be read in conjunction with the AEPTCo consolidated financial statements and the accompanying notes thereto. For purposes of these condensed financial statements, AEPTCo wholly owned and majority owned subsidiaries are recorded based upon its proportionate share of the subsidiaries’ net assets (similar to presenting them on the equity method). 

## Income Taxes 

AEPTCo Parent joins in the filing of a consolidated federal income tax return with its affiliates in the AEP System. The allocation of the AEP System’s current consolidated federal income tax to the AEP System companies allocates the benefit of current tax losses (“Parent Company Loss Benefit”) to the AEP System companies giving rise to such losses in determining their current tax expense. The consolidated net operating loss of the AEP System is allocated to each company in the consolidated group with taxable losses. The tax benefit of AEP Parent is allocated to its subsidiaries with taxable income. With the exception of the allocation of the consolidated AEP System net operating loss, the loss of the AEP Parent and tax credits, the method of allocation reflects a separate return result for each company in the consolidated group. 

## 2. COMMITMENTS, GUARANTEES AND CONTINGENCIES 

AEPTCo Parent and its subsidiaries are parties to legal matters. For further discussion, see Note 6 - Commitments, Guarantees and Contingencies included in the 2019 Annual Report. 

## 3. FINANCING ACTIVITIES 

For discussion of Financing Activities, see Note 14 - Financing Activities to AEPTCo’s audited consolidated financial statements included in the 2019 Annual Report. 

## 4. RELATED PARTY TRANSACTIONS 

## Payments on Behalf of Subsidiaries 

Due to occasional time sensitivity and complexity of payments, Parent makes certain insurance, tax and other payments on behalf of subsidiary companies. Parent is then fully reimbursed by the subsidiary companies. AEPTCo Parent also makes convenience payments on behalf of its State Transcos. AEPTCo Parent is then fully reimbursed by its State Transcos. 

## Long-term Lending to Subsidiaries 

AEPTCo Parent enters into debt arrangements with nonaffiliated entities. AEPTCo Parent has long-term debt of $3.4 billion and $2.8 billion as of December 31, 2019 and 2018, respectively. AEPTCo Parent uses the proceeds from these nonaffiliated debt arrangements to make affiliated loans to its State Transcos using the same interest rates and maturity dates as the nonaffiliated debt arrangements. AEPTCo Parent has recorded Notes Receivable – Affiliated of $3.4 billion and $2.8 billion as of December 31, 2019 and 2018, respectively. Related to these nonaffiliated and affiliated debt arrangements, AEPTCo Parent has recorded Accrued Interest of $19 million and $16 million as of December 31, 2019 and 2018, respectively. AEPTCo Parent has also recorded Accounts Receivable – Affiliated Companies of $23 million and $17 million as of December 31, 2019 and 2018, respectively. AEPTCo Parent has recorded Interest Income – Affiliated of $124 million, $105 million and $83 million for the years ended December 31, 2019, 2018 and 2017, respectively, related to the Notes Receivable – Affiliated. AEPTCo Parent has recorded Interest Expense of $122 million, $103 million and $82 million for the years ended December 31, 2019, 2018 and 2017, respectively, related to the nonaffiliated debt arrangements. 

