The electric utility industry is in the midst of an historic transformation, driven by changing customer needs, evolving public policies, stakeholder demands, demographics, competitive offerings, technologies and commodity prices. AEP is also transforming to be more agile and customer-focused as a valued provider of energy solutions.

AEP has made significant progress in reducing CO2 emissions from its power generation fleet and expects its emissions to continue to decline over the long-term. AEP also expects Scope 1 GHG emissions to vary annually depending on the mix of its own generation and purchased power used to serve customers.

In April 2023, AEP initiated a strategic evaluation for its ownership in Pioneer Transmission, LLC, Prairie Wind Transmission, LLC and Transource Energy. In July 2023, AEP made a decision to initiate a sales process for its investment in Pioneer Transmission, LLC and Prairie Wind Transmission, LLC. In February 2024, AEP management determined it would retain its ownership of its investment in Pioneer Transmission, LLC and Prairie Wind Transmission, LLC.

In 2023, AEP's employee DART rate performance improved to 0.384 as compared to 0.424 in 2022.

In 2023, 94% of our organization participated in the survey, and we continued to improve our performance remaining in the top decile compared to Gallup's overall company database.

In 2023, AEP received the Gallup Exceptional Workplace Award for the fourth consecutive year. This award recognizes organizations with engaged workplace cultures.

AEP's business plan calls for extensive investment in capital improvements and additions, including the construction of additional transmission and renewable generation facilities, modernizing existing infrastructure, installation of environmental upgrades and retrofits as well as other initiatives. If these regulatory commissions do not approve adjustments to the rates charged, affected AEP subsidiaries would not be able to recover the costs associated with their investments.

I&M owns the Cook Plant, which consists of two nuclear generating units...AEP and I&M are, therefore, subject to the risks of nuclear generation, which include the potential harmful effects on the environment and human health due to an adverse incident/event resulting from the operation of nuclear facilities and the storage, handling and disposal of radioactive materials such as SNF.

Results are likely to be affected by differences in the market and transmission structures in various regional power markets. The rules governing the various RTOs, including SPP and PJM, may also change from time to time which could affect costs or revenues.

AEP's vertically integrated public utility subsidiaries compete with self-generation and with distributors of other energy sources...The primary factors in such competition are price, reliability of service and the capability of customers to utilize alternative sources of energy other than electric power. With respect to competing generators and self-generation, the public utility subsidiaries of AEP believe that they currently maintain a competitive position.

Changes in regulatory policies and advances in newer technologies for batteries or energy storage, fuel cells, microturbines, wind turbines and photovoltaic solar cells are reducing costs of new technology to levels that are making them competitive with some central station electricity production.

The ability to maintain relatively low cost, efficient and reliable operations and to provide cost-effective programs and services to customers are significant determinants of AEP's competitiveness.

AEP's strategy for purchasing coal includes layering in supplies over time to help with reducing price volatility. The price impact of this process is reflected in subsequent years when the coal is delivered.

As of December 31, 2023, the Vertically Integrated Utilities' coal inventory was approximately 82 days of full load burn. Inventory levels grew significantly in 2023 due to mild weather conditions, lower demand for electric power and a decline in natural gas prices.

AEP's overall 2023 fossil fuel costs for the Vertically Integrated Utilities decreased 28.3% on a dollar per MMBtu basis from 2022.

At AEP, we are preparing our workforce for the future by providing opportunities to learn new skills and engaging higher education institutions to better prepare the next generation with the skills that we will need.

AEP also provides a broad range of training and assistance that supports lifelong learning and transition development. This is especially important as we move closer toward a digital future that requires a more flexible, innovative and diverse workforce.

In 2023, AEP invested more than $2 million in employee education, supporting approximately 560 employees through our tuition reimbursement program.

AEP's business plan calls for extensive investment in capital improvements and additions, including the construction of additional transmission and renewable generation facilities, modernizing existing infrastructure, installation of environmental upgrades and retrofits as well as other initiatives.

As of December 31, 2023, the State Transcos had $14.2 billion of transmission and other assets in-service, excluding CWIP, with plans to construct approximately $3.4 billion of additional transmission assets through 2026.

Based on the results of the IRPs, management expects emissions to continue to decline over time as AEP diversifies generating sources and operates fewer coal units.

In 2023, AEP also established a Climate Change Executive Group to ensure appropriate management and accountability concerning climate-related impacts, risks and opportunities.

Based on the output of the company's IRPs, in October 2022, AEP announced new intermediate and long-term CO2 emission reduction goals. AEP adjusted its near-term CO2 emission reduction target from a 2000 baseline to a 2005 baseline, upgraded its 80% reduction by 2030 target to include full Scope 1 emissions and accelerated its net-zero goal by five years to 2045 for Scope 1 and Scope 2 emissions.

AEP has made significant progress in reducing CO2 emissions from its power generation fleet and expects its emissions to continue to decline over the long-term.

The consumption and delivery of electric power is generally seasonal which impacts the results of operations of AEP's reportable segments. In many parts of the country, demand for power peaks during the hot summer months, with market prices also peaking at that time.

The market price for coal began 2023 elevated as compared to recent years, but declined and stabilized as the year progressed. Although the price of coal in 2023 was lower as compared to 2021 and 2022, the price of coal in 2023 is still higher than historical prices prior to 2021.

Coal prices are currently projected to remain at these levels due to increased mining costs experienced over the last few years.