Obligation AEP Texas 2.4% ( US00108WAD20 ) en USD

AEP Texas

100 % ▼

Etas-Unis

US00108WAD20 ( en USD )

2.4% par an ( paiement semestriel )

01/10/2022 - Obligation échue

Prospectus brochure de l'obligation AEP Texas US00108WAD20 en USD 2.4%, échue

2 USD

400 USD

00108WAD2

A- ( Qualité moyenne supérieure )

Baa2 ( Qualité moyenne inférieure )

L'Obligation émise par AEP Texas ( Etas-Unis ) , en USD, avec le code ISIN US00108WAD20, paye un coupon de 2.4% par an.
Le paiement des coupons est semestriel et la maturité de l'Obligation est le 01/10/2022

L'Obligation émise par AEP Texas ( Etas-Unis ) , en USD, avec le code ISIN US00108WAD20, a été notée Baa2 ( Qualité moyenne inférieure ) par l'agence de notation Moody's.

L'Obligation émise par AEP Texas ( Etas-Unis ) , en USD, avec le code ISIN US00108WAD20, a été notée A- ( Qualité moyenne supérieure ) par l'agence de notation Standard & Poor's ( S&P ).

Document
424B3 1 aeptexas424b3.htm AEP TEXAS PROSPECTUS SUPPLEMENT
PROSPECTUS
AEP Texas Inc.
Offers to Exchange
$400,000,000 aggregate principal amount of its 2.40% Senior Notes, Series C due 2022 and
$300,000,000 aggregate principal amount of its 3.80% Senior Notes, Series D due 2047,
each of which have been registered under the Securities Act of 1933, as amended,
for any and all of its outstanding
2.40% Senior Notes, Series A due 2022 and
3.80% Senior Notes, Series B due 2047, respectively
We are conducting the Offers to Exchange described above, or Exchange Offers, in order to provide you with an
opportunity to exchange your unregistered outstanding notes referred to above, or Outstanding Notes, for
substantially identical notes of the same series that have been registered under the Securities Act, which we refer to as
Exchange Notes.
The Exchange Offers
·
We will exchange all Outstanding Notes that are validly tendered and not validly withdrawn for an equal principal
amount of Exchange Notes that are registered under the Securities Act.
·
You may withdraw tenders of Outstanding Notes at any time prior to the expiration of the Exchange Offers.
·
The Exchange Offers expire at 5:00 p.m., New York City time, on January 4, 2018, unless extended. We do not
currently intend to extend the Expiration Date.
·
The exchange of Outstanding Notes for Exchange Notes in the Exchange Offers will not be a taxable event to holders
for United States federal income tax purposes.
·
The terms of the Exchange Notes to be issued in the Exchange Offers are substantially identical to the Outstanding
Notes of the respective series, except that the Exchange Notes will be registered under the Securities Act, and do not
have any transfer restrictions, registration rights or additional interest provisions.
Results of the Exchange Offers
·
Except as prohibited by applicable law, the Exchange Notes may be sold in the over-the-counter market, in negotiated
transactions or through a combination of such methods. There is no existing market for the Exchange Notes to be
issued, and we do not plan to list the Exchange Notes on a national securities exchange or market.
·
We will not receive any proceeds from the Exchange Offers.
All untendered Outstanding Notes will remain outstanding and continue to be subject to the restrictions on transfer set forth in
the Outstanding Notes and in the indenture governing the Outstanding Notes. In general, the Outstanding Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. Other than in connection with the Exchange Offers, we do
not currently anticipate that we will register the Outstanding Notes under the Securities Act.
Each broker-dealer that receives Exchange Notes for its own account in the Exchange Offers must acknowledge that it will
https://www.sec.gov/Archives/edgar/data/1721781/000172178117000017/aeptexas424b3.htm[12/4/2017 10:35:30 AM]

Document
deliver a prospectus in connection with any resale of those Exchange Notes. The letter of transmittal states that by so
acknowledging and delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with
resales of Exchange Notes received in exchange for Outstanding Notes where the broker-dealer acquired such Outstanding
Notes as a result of market-making or other trading activities. We have agreed that, for a period of 180 days after the
Expiration Date, we will make this prospectus, as amended or supplemented, available to any broker-dealer for use in
connection with any such resale. See "Plan of Distribution."
See "Risk Factors" beginning on page 7 for a discussion of certain risks that you should consider before participating
in the Exchange Offers.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of
the Exchange Notes to be distributed in the Exchange Offers or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal offense.
The date of this prospectus is December 4, 2017.
In making your investment decision, you should rely only on the information contained in or incorporated by reference
into this prospectus. We have not authorized anyone to provide you with different information. If anyone provides you
with different or inconsistent information, you should not rely on it. We are not making an offer of the Exchange Notes
in any jurisdiction where the offer thereof is not permitted. The information contained in this prospectus speaks only
as of the date of this prospectus.
This prospectus incorporates by reference important business and financial information about us from documents filed
with the SEC that have not been included herein or delivered herewith. Information incorporated by reference is
available without charge at the website that the SEC maintains at http://www.sec.gov, as well as from other sources.
See "Available Information." In addition, you may request a copy of such document, at no cost, by writing or calling
us at the following address or telephone number: Investor Relations, American Electric Power Service Corporation, 1
Riverside Plaza, Columbus, OH 43215; 614-716-1000. In order to receive timely delivery of those materials, you must
make your requests no later than five business days before expiration of the applicable exchange offer, or January 4,
2018, the present expiration date of the exchange offers.
References to "AEP Texas," "Company," "we," "us" and "our" in this prospectus are references to AEP Texas Inc.
specifically or, if the context requires, to AEP Texas Inc. and its subsidiaries, collectively.
TABLE OF CONTENTS

Summary

1
Risk Factors

7
Forward-Looking Statements

16
Use of Proceeds

17
Capitalization

18
Selected Financial Data

19
Management's Discussion and Analysis of Financial Condition and Results of Operations

20
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

49
Business

50
Management

56
https://www.sec.gov/Archives/edgar/data/1721781/000172178117000017/aeptexas424b3.htm[12/4/2017 10:35:30 AM]

Document
Compensation Discussion and Analysis

58
Transactions with Related Persons

91
The Exchange Offers

92
Description of the Exchange Notes

104
Material United States Federal Income Tax Consequences Of The Exchange Offers

112
Plan of Distribution

112
Legal Matters

112
Experts

112
Available Information

113
Index to Financial Statements

114
SUMMARY
This summary highlights certain information concerning the Company and this offering that may be contained elsewhere in
this prospectus. This summary is not complete and does not contain all the information that may be important to you. You
should read this prospectus in its entirety before making an investment decision.
AEP Texas Inc.
Overview
AEP Texas is a wholly owned public utility subsidiary of American Electric Power Company, Inc. ("AEP").
The Company is engaged in the transmission and distribution of electric power to approximately 1,024,000 retail
meters through retail electric providers ("REPs") in its service territory in southern, western and central Texas.
AEP Texas was formed by the merger, effective December 31, 2016, of AEP Texas Central Company ("TCC")
and AEP Texas North Company ("TNC") into AEP Utilities, Inc. The merger preserved the respective rate structures
of the merging entities. AEP Utilities, Inc. changed its name to AEP Texas Inc.
As of December 31, 2016, AEP Texas had approximately 1,500 employees. Among the principal industries
served by AEP Texas are chemical and petroleum refining, chemicals and allied products, oil and natural gas
extraction, food processing, metal refining, plastics and machinery equipment, agriculture and the manufacturing or
processing of cotton seed products, oil products, precision and consumer metal products, meat products and gypsum
products. The territory served by AEP Texas also includes several military installations and correctional facilities. AEP
Texas is a member of the Electric Reliability Council of Texas ("ERCOT"). Currently, the Company's operations are:
·
Electric Distribution - As of December 31, 2016, through REPs owned by third parties, the Company
provides distribution service to approximately 1,024,000 retail meters in west, central and southern Texas.
The Company's service territory includes 92 counties and covers approximately 100,000 square miles.
Distribution services are on a cost-of-service basis at rates approved by the Public Utility Commission of
Texas ("PUCT").
·
Electric Transmission - The Company's electric transmission business provides non-discriminatory
wholesale open access transmission service in ERCOT. The Company provides retail transmission service
on a cost-of-service basis at rates approved by the PUCT and wholesale transmission service under tariffs
approved by Federal Energy Regulatory Commission ("FERC") consistent with PUCT rules.
·
Electric Generation - Under Texas Restructuring Legislation, the Company's utility predecessors exited the
https://www.sec.gov/Archives/edgar/data/1721781/000172178117000017/aeptexas424b3.htm[12/4/2017 10:35:30 AM]

Document
generation business and ceased serving retail load. AEP Texas continues to own part of the Oklaunion Plant
operated by Public Service Company of Oklahoma, an affiliate of AEP Texas ("PSO"). AEP Texas has
leased its entire portion of the output of the Oklaunion Plant through 2027 to a non-utility affiliate pursuant
to a purchase power agreement ("PPA"). AEP Texas is evaluating strategic alternatives for its interest in the
Oklaunion Plant. Potential alternatives may include, but are not limited to, continued ownership, early
termination of the current lease or the sale of its interest in the plant. Management has not made a decision
regarding the potential alternatives, nor have they set a specific time frame for a decision. Certain of these
alternatives could result in a loss or could reduce future net income and cash flows.
1
The Exchange Offers
In September 2017, we issued the Outstanding Notes in transactions not subject to the registration requirements of the
Securities Act of 1933, as amended, or "Securities Act". The term "2022 Exchange Notes" refers to the 2.40% Senior Notes,
Series C due 2022 and the term "2047 Exchange Notes" refers to the 3.80% Senior Notes, Series D due 2047, each as
registered under the Securities Act, and all of which collectively are referred to as the "Exchange Notes." The term "Notes"
collectively refers to the Outstanding Notes and the Exchange Notes.
General
In connection with the issuance of the Outstanding Notes, we entered into a registration rights
agreement with representatives of the initial purchasers of the Outstanding Notes pursuant to
which we agreed, among other things, to deliver this prospectus to you and to use commercially
reasonable efforts to complete the Exchange Offers within 315 days after the date of original
issuance of the Outstanding Notes. You are entitled to exchange in the Exchange Offers your
Outstanding Notes for the respective series of Exchange Notes that are identical in all material
respects to the Outstanding Notes except:
Y
the Exchange Notes have been registered under the Securities Act and, therefore,
will not be subject to the restrictions on transfer applicable to the Outstanding
Notes (except as described in "The Exchange Offers-Resale of Exchange Notes"

and "Description of the Exchange Notes-Form; Transfers; Exchanges");
Y
the Exchange Notes are not entitled to any registration rights which are applicable
to the Outstanding Notes under the registration rights agreement, including any
rights to additional interest for failure to comply with the registration rights

agreement; and

Y
the Exchange Notes will bear different CUSIP numbers.
The Exchange Offers
We are offering to exchange:
Y
$400,000,000 aggregate principal amount of 2.40% Senior Notes, Series C due
2022 that have been registered under the Securities Act for any and all of our

existing 2.40% Senior Notes, Series A due 2022 and
Y
$300,000,000 aggregate principal amount of 3.80% Senior Notes, Series D due
2047 that have been registered under the Securities Act for any and all of our

existing 3.80% Senior Notes, Series B due 2047.
You may only exchange Outstanding Notes in minimum denominations of $2,000 and integral
multiples of $1,000 in excess thereof. Any untendered Outstanding Notes must also be in a

minimum denomination of $2,000.
Resale
Based on an interpretation by the staff of the Securities and Exchange Commission, or SEC, set
forth in no-action letters issued to third parties, we believe that the Exchange Notes issued
pursuant to the Exchange Offers in exchange for the Outstanding Notes may be offered for
resale, resold and otherwise transferred by you (unless you are our "affiliate" within the meaning
of Rule 405 under the Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that:

Y
you are acquiring the Exchange Notes in the ordinary course of your business; and
https://www.sec.gov/Archives/edgar/data/1721781/000172178117000017/aeptexas424b3.htm[12/4/2017 10:35:30 AM]

Document
Y
you have not engaged in, do not intend to engage in, and have no arrangement or
understanding with any person to participate in, a distribution of the Exchange

Notes.

Any holder of Outstanding Notes who:

Y
is our affiliate;

Y
does not acquire Exchange Notes in the ordinary course of its business; or
Y
tenders its Outstanding Notes in the Exchange Offers with the intention to

participate, or for the purpose of participating, in a distribution of Exchange Notes
2
cannot rely on the position of the staff of the SEC enunciated in the staff's no-action letters to
Morgan Stanley & Co. Incorporated (available June 5, 1991) and Exxon Capital Holdings
Corporation (available May 13, 1988), as interpreted in Shearman & Sterling (available July 2,
1993), or similar no-action letters and, in the absence of an exemption therefrom, must comply
with the registration and prospectus delivery requirements of the Securities Act in connection
with any resale of the Exchange Notes.
If you are a broker-dealer and receive Exchange Notes for your own account in exchange for
Outstanding Notes that you acquired as a result of market-making activities or other trading
activities, you must acknowledge that you will deliver this prospectus in connection with any
resale of the Exchange Notes and that you are not our affiliate and did not purchase your
Outstanding Notes from us or any of our affiliates. See "Plan of Distribution."
Our belief that the Exchange Notes may be offered for resale without compliance with the
registration or prospectus delivery provisions of the Securities Act is based on interpretations of
the SEC for other exchange offers that the SEC expressed in some of its no-action letters to other
issuers in exchange offers like ours. We have not sought a no-action letter in connection with the
Exchange Offers, and we cannot guarantee that the SEC would make a similar decision about our
Exchange Offers. If our belief is wrong, or if you cannot truthfully make the representations
mentioned above, and you transfer any Exchange Note issued to you in the Exchange Offers
without meeting the registration and prospectus delivery requirements of the Securities Act, or
without an exemption from such requirements, you could incur liability under the Securities Act.

We are not indemnifying you for any such liability.
Expiration Date
The Exchange Offers will expire at 5:00 p.m., New York City time, on January 4, 2018, unless
extended by us. We do not currently intend to extend the Expiration Date.
Withdrawal
You may withdraw the tender of your Outstanding Notes at any time prior to the expiration of the
Exchange Offers. We will return to you any of your Outstanding Notes that are not accepted for
any reason for exchange, without expense to you, promptly after the expiration or termination of
the Exchange Offers.
Conditions to the
Each Exchange Offer is subject to customary conditions. We reserve the right to waive any
Exchange Offers
defects, irregularities or conditions to exchange as to particular Outstanding Notes. See "The
Exchange Offers-Conditions to the Exchange Offers."
Procedures for Tendering If you wish to participate in any of the Exchange Offers, you must either:
Outstanding Notes
Y
complete, sign and date the applicable accompanying letter of transmittal, or a
facsimile of the letter of transmittal, in accordance with the instructions contained in
this prospectus and the letter of transmittal, and mail or deliver such letter of
transmittal or facsimile thereof, together with the Outstanding Notes to be
exchanged for Exchange Notes, and any other required documents, to the Exchange
Agent at the address set forth on the cover page of the letter of transmittal;
or
Y
if you hold Outstanding Notes through The Depository Trust Company, or "DTC",
https://www.sec.gov/Archives/edgar/data/1721781/000172178117000017/aeptexas424b3.htm[12/4/2017 10:35:30 AM]

Document
comply with DTC's Automated Tender Offer Program procedures described in this

prospectus, by which you will agree to be bound by the letter of transmittal.
By signing, or agreeing to be bound by, the letter of transmittal, you will represent to us that,

among other things:
Y
any Exchange Notes received by you will be acquired in the ordinary course of

your business;
Y
you have no arrangements or understanding with any person to participate in the

distribution of the Exchange Notes within the meaning of the Securities Act;
Y
if you are a broker-dealer, you will receive Exchange Notes for your own account
in exchange for Outstanding Notes that were acquired as a result of market-making
activities or other trading activities, and you will deliver a prospectus in connection

with any resale of such Exchange Notes.
3
Special Procedures for
If you are a beneficial owner of Outstanding Notes that are registered in the name of a broker,
Beneficial Owners
dealer, commercial bank, trust company or other nominee, and you wish to tender those
Outstanding Notes in any of the Exchange Offers, you should contact the registered holder
promptly and instruct the registered holder to tender those Outstanding Notes on your behalf. If
you wish to tender on your own behalf, you must, prior to completing and executing the letter of
transmittal and delivering your Outstanding Notes, either make appropriate arrangements to
register ownership of the Outstanding Notes in your name or obtain a properly completed bond
power from the registered holder. The transfer of registered ownership may take considerable
time and may not be able to be completed prior to the Expiration Date.
Guaranteed Delivery
If you wish to tender your Outstanding Notes and your Outstanding Notes are not immediately
Procedures
available, or you cannot deliver your Outstanding Notes, the letter of transmittal or any other
required documents, or you cannot comply with the procedures under DTC's Automated Tender
Offer Program for transfer of book-entry interests prior to the Expiration Date, you must tender
your Outstanding Notes according to the guaranteed delivery procedures set forth in this
prospectus under "The Exchange Offers-Guaranteed Delivery Procedures."
Effect on Holders of
As a result of the making of, and upon acceptance for exchange of all validly tendered
Outstanding Notes
Outstanding Notes pursuant to the terms of, the Exchange Offers, we will have fulfilled a
covenant under the registration rights agreement. Accordingly, we will not be required to pay
additional interest on the Outstanding Notes under the circumstances described in the registration
rights agreement. If you do not tender your Outstanding Notes in any of the Exchange Offers,
you will continue to be entitled to all the rights and subject to all the limitations applicable to the
Outstanding Notes as set forth in the Indenture (as defined below), except we will not have any
further obligation to you to provide for the exchange and registration of untendered Outstanding
Notes under the registration rights agreement. To the extent that Outstanding Notes are tendered
and accepted in the Exchange Offers, the trading market for Outstanding Notes that are not so
tendered and accepted could be adversely affected.
Consequences of Failure All untendered Outstanding Notes will remain outstanding and continue to be subject to the
to Exchange
restrictions on transfer set forth in the Outstanding Notes and in the Indenture. In general, the
Outstanding Notes may not be offered or sold unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. Other than in connection with the Exchange Offers, we do not
currently anticipate that we will register the Outstanding Notes under the Securities Act.
United States Federal
The exchange of Outstanding Notes in the Exchange Offers will not be a taxable event to holders
Income Tax
for United States federal income tax purposes. See "Material United States Federal Income Tax
Consequences
Consequences Of The Exchange Offers."
Use of Proceeds
We will not receive any proceeds from the issuance of the Exchange Notes in the Exchange
Offers. See "Use of Proceeds."
Exchange Agent
The Bank of New York Mellon Trust Company, N.A. is the Exchange Agent for the Exchange
https://www.sec.gov/Archives/edgar/data/1721781/000172178117000017/aeptexas424b3.htm[12/4/2017 10:35:30 AM]

Document
Offers. Any questions and requests for assistance with respect to accepting or withdrawing from
the Exchange Offers, requests for additional copies of this prospectus or of the letter of
transmittal and requests for the notice of guaranteed delivery should be directed to the Exchange
Agent. The address and telephone number of the Exchange Agent are set forth in the section
captioned "The Exchange Offers-Exchange Agent."
4
The Exchange Notes
The summary below describes the principal terms of the Exchange Notes. Certain of the terms and conditions described below
are subject to important limitations and exceptions. The "Description of the Exchange Notes" section of this prospectus
contains more detailed descriptions of the terms and conditions of the Outstanding Notes and Exchange Notes. The Exchange
Notes will have terms identical in all material respects to the respective series of Outstanding Notes, except that the Exchange
Notes will not contain certain terms with respect to transfer restrictions, registration rights and additional interest for failure
to observe certain obligations in the registration rights agreement.
Issuer

AEP Texas Inc.
The Exchange Notes
$400,000,000 principal amount of 2.40% Senior Notes, Series C due 2022
and $300,000,000 principal amount of 3.80% Senior Notes, Series D due

2047.
Maturity
October 1, 2022 for 2022 Exchange Notes and October 1, 2047 for 2047

Exchange Notes.
Interest Rate
2.40% per annum for 2022 Exchange Notes and 3.80% per annum for 2047

Exchange Notes.
Interest Payment Dates

April 1 and October 1 of each year, beginning on April 1, 2018.
Ranking
The Exchange Notes are our senior unsecured obligations and will rank
equally in right of payment with all our other senior unsecured obligations
and will be effectively subordinated to all of our secured debt, of which we

have none outstanding as of November 1, 2017.
Optional Redemption
At any time prior to September 1, 2022, we may redeem the 2022 Exchange
Notes at any time, in whole or in part, at a "make whole" redemption price
equal to the greater of (1) the principal amount being redeemed or (2) the
sum of the present values of the remaining scheduled payments of principal
and interest on the 2022 Exchange Notes being redeemed that would be due
if such 2022 Exchange Notes matured on September 1, 2022, discounted to
the redemption date on a semi-annual basis (assuming a 360-day year
consisting of twelve 30-day months) at the Treasury Rate (as defined herein),
plus 10 basis points, plus in each case accrued and unpaid interest to the
redemption date.
At any time prior to April 1, 2047, we may redeem the 2047 Exchange Notes
at any time, in whole or in part, at a "make whole" redemption price
calculated by us equal to the greater of (1) the principal amount being
redeemed or (2) the sum of the present values of the remaining scheduled
payments of principal and interest on the 2047 Exchange Notes being
redeemed that would be due if such 2047 Exchange Notes matured on April
1, 2047, discounted to the redemption date on a semi-annual basis (assuming
a 360-day year consisting of twelve 30-day months) at the Treasury Rate (as
defined herein), plus 20 basis points, plus in each case accrued and unpaid
interest to the redemption date.

https://www.sec.gov/Archives/edgar/data/1721781/000172178117000017/aeptexas424b3.htm[12/4/2017 10:35:30 AM]

Document
At any time on or after September 1, 2022, we may redeem the 2022
Exchange Notes in whole or in part at 100% of the principal amount of the
2022 Exchange Notes being redeemed, plus accrued and unpaid interest
thereon to but excluding the date of redemption. At any time on or after
April 1, 2047, we may redeem the 2047 Exchange Notes in whole or in part
at 100% of the principal amount of the 2047 Exchange Notes being
redeemed, plus accrued and unpaid interest thereon to but excluding the date

of redemption.
Covenants
The Indenture (as defined herein) limits our ability to incur Liens (as defined
herein) and limits our ability to merge, consolidate or sell all or substantially
all of our assets as an entirety.
These limitations are subject to a number of important qualifications and

exceptions. For more information, see "Description of the Exchange Notes."
5
Absence of Established Market for the
We do not plan to have the Exchange Notes listed on any securities exchange
Exchange Notes
or included in any automated quotation system. There is no existing trading
market for the Exchange Notes, and there can be no assurance regarding any
future development of a trading market for the Exchange Notes, the price at
which holders of the Exchange Notes may be able to sell their Exchange

Notes or the ability of such holders to sell their Exchange Notes at all.
Form of Notes
The Exchange Notes will be issued in fully registered book-entry form and
each series of Exchange Notes will be represented by one or more global
certificates, which will be deposited with or on behalf of DTC and registered
in the name of DTC's nominee. Beneficial interests in global certificates will
be shown on, and transfers thereof will be effected only through, records
maintained by DTC and its direct and indirect participants, and your interest
in any global certificate may not be exchanged for certificated Notes, except
in limited circumstances described herein. See "Description of the Exchange

Notes-Book-Entry Only Issuance-The Depository Trust Company."
Trustee

The Bank of New York Mellon Trust Company, N.A.
Governing Law
The Indenture is, and the Exchange Notes will be, governed by, and

construed in accordance with, the laws of the State of New York.
6
RISK FACTORS
An investment in the Notes, including a decision to tender your Outstanding Notes in the Exchange Offers, involves a
number of risks. Risks described below should be carefully considered together with the other information included in this
prospectus. Any of the events or circumstances described as risks below could result in a significant or material adverse
effect on our business, results of operations, cash flows or financial condition, and a corresponding decline in the market
price of or our ability to repay, the Notes. The risks and uncertainties described below may not be the only risks and
uncertainties that we face. Additional risks and uncertainties not currently known may also result in a significant or material
adverse effect on our business, results of operations, cash flow or financial condition.
Risks Related to Our Business
We may not be able to recover the costs of our substantial planned investment in capital improvements and additions.
https://www.sec.gov/Archives/edgar/data/1721781/000172178117000017/aeptexas424b3.htm[12/4/2017 10:35:30 AM]

Document
Our business plan calls for extensive investment in capital improvements and additions including the construction of
additional transmission facilities, modernizing and restoring existing infrastructure as well as other initiatives. We currently
provide service at rates approved by the PUCT and FERC. If these regulatory commissions do not approve adjustments to the
rates we charge, we would not be able to recover the costs associated with our planned extensive investment. This would
cause our financial results to be diminished.
Our regulated electric revenues, earnings and results are dependent on the regulation that may limit our ability to
recover costs and other amounts.
The rates we collect for the distribution and transmission of electricity are subject to approval by the PUCT and
FERC. If our regulated utility earnings exceed the returns established by our regulators, retail electric rates may be subject to
review and possible reduction, which may decrease our future earnings. Additionally, if our regulators do not allow recovery
of costs incurred in providing service on a timely basis, it could reduce future net income and cash flows and impact financial
condition. Similarly, if recovery or other rate relief authorized in the past, even on an interim basis, is not approved or is
overturned or reversed on appeal, our future earnings could be negatively impacted. Any regulatory action or litigation
outcome that triggers a reversal of a regulatory asset or deferred cost generally results in an impairment to the balance sheet
and a charge to the income statement.
As of September 30, 2017, AEP Texas' cumulative revenues from interim base rate increases from 2008 through
2017, subject to review, are estimated to be $697 million. A base rate review could produce a refund if AEP Texas incurs a
disallowance of the transmission or distribution investment on which an interim increase was based. Management is unable to
determine a range of potential losses, if any, that are reasonably possible of occurring. A revenue decrease, including a refund
of interim transmission and distribution rates, could reduce future net income and cash flows and impact financial condition.
We may not recover costs incurred to begin construction on projects that are canceled.
Our business plan for the construction of new projects involves a number of risks, including construction delays,
nonperformance by equipment and other third party suppliers, and increases in equipment and labor costs. To limit the risks
of these construction projects, we enter into equipment purchase orders and construction contracts and incur engineering and
design service costs in advance of receiving necessary regulatory approvals and/or siting or environmental permits. If any of
these projects is canceled for any reason, including our failure to receive necessary regulatory approvals and/or siting or
environmental permits, we could incur significant cancellation penalties under the equipment purchase orders and construction
contracts. In addition, if we have recorded any construction work or investments as an asset we may need to impair that asset
in the event the project is canceled.
7
Disruptions at power generation facilities owned by third parties could interrupt our sales of transmission and
distribution services.
We transmit and distribute electric power that the REPs obtain from power generation facilities owned by third
parties. If power generation is disrupted or if power generation capacity is inadequate, our sales of transmission and
distribution services may be diminished or interrupted, and our results of operations, financial condition and cash flows could
be adversely affected.
Our financial performance may be adversely affected if we are unable to successfully operate our facilities or perform
certain corporate functions.
Our financial performance is highly dependent on the successful operation of our transmission and distribution
facilities. Operating these facilities involves many risks, including:
·
operator error and breakdown or failure of equipment or processes.
·
operating limitations that may be imposed by regulatory requirements.
·
compliance with mandatory reliability standards, including mandatory cyber security standards.
https://www.sec.gov/Archives/edgar/data/1721781/000172178117000017/aeptexas424b3.htm[12/4/2017 10:35:30 AM]

Document
·
information technology failure that impairs our information technology infrastructure or disrupts normal
business operations.
·
information technology failure that affects our ability to access customer information or causes us to lose
confidential or proprietary data that materially and adversely affects our reputation or exposes us to legal
claims.
·
catastrophic events such as fires, earthquakes, explosions, hurricanes, tornados, ice storms, terrorism
(including cyber-terrorism), floods or other similar occurrences.
Hostile cyber intrusions could severely impair our operations, lead to the disclosure of confidential information and
damage our reputation.
We own assets deemed as critical infrastructure, the operation of which is dependent on information technology
systems. Further, the computer systems that run our facilities are not completely isolated from external networks. Parties that
wish to disrupt the U.S. bulk power system or our operations could view our computer systems, software or networks as
targets for cyber attack. In addition, our business requires that we collect and maintain sensitive customer data, as well as
confidential employee and shareholder information, which is subject to electronic theft or loss.
A successful cyber attack on the systems that control our transmission, distribution or other assets could severely
disrupt business operations, preventing us from serving customers or collecting revenues. The breach of certain business
systems could affect our ability to correctly record, process and report financial information. A major cyber incident could
result in significant expenses to investigate and repair security breaches or system damage and could lead to litigation, fines,
other remedial action, heightened regulatory scrutiny and damage to our reputation. In addition, the misappropriation,
corruption or loss of personally identifiable information and other confidential data could lead to significant breach
notification expenses and mitigation expenses such as credit monitoring. We maintain cyber insurance to cover liabilities and
losses directly arising from a potential cyber event. We also maintain property and casualty insurance that may cover certain
resultant physical damage or third-party injuries caused by potential cyber events. However, damage and claims arising from
such incidents may exceed the amount of any insurance available and other damage and claims arising from such incidents
may not be covered at all. For these reasons, a significant cyber incident could reduce future net income and cash flows and
impact financial condition.
In an effort to reduce the likelihood and severity of cyber intrusions, we have a comprehensive cyber security program
designed to protect and preserve the confidentiality, integrity and availability of data and systems. In addition, we are subject
to mandatory cyber security regulatory requirements. However, cyber threats continue to evolve and adapt, and, as a result,
there is a risk that we could experience a successful cyber-attack despite our current security posture and regulatory
compliance efforts.
8
A substantial portion of our receivables is concentrated in a small number of REPs, and any delay or default in
payment could adversely affect our cash flows, financial condition and results of operations.
Our receivables from the distribution of electricity are collected from REPs that supply the electricity we distribute to
our customers. As of December 31, 2016, we did business with approximately one hundred REPs. Adverse economic
conditions, structural problems in the market served by ERCOT or financial difficulties of one or more REPs could impair the
ability of these REPs to pay for our services or could cause them to delay such payments. We depend on these REPs to remit
payments on a timely basis. Applicable regulatory provisions require that customers be shifted to another REP or a provider of
last resort if a REP cannot make timely payments. Applicable PUCT regulations significantly limit the extent to which we can
apply normal commercial terms or otherwise seek credit protection from firms desiring to provide retail electric service in our
service territory, and we thus remain at risk for payments related to services provided prior to the shift to another REP or the
provider of last resort. The PUCT revised its regulations in 2009 to (i) enhance the financial qualifications required of REPs
that began selling power after January 1, 2009, and (ii) authorize utilities to defer bad debts resulting from defaults by REPs
for recovery in a future rate case. In 2016, AEP Texas' largest REP accounted for 18% of its operating revenue, its second
largest REP accounted for 18% of its operating revenue and its third largest REP accounted for 10% of its operating revenue.
https://www.sec.gov/Archives/edgar/data/1721781/000172178117000017/aeptexas424b3.htm[12/4/2017 10:35:30 AM]

Document Outline

#1">
- #1">