AEP Sustainability - Environmental Performance

Environmental Regulations & Compliance

At AEP, noncompliance with environmental rules and regulations is not an option. Our goal is zero violations of environmental regulations or laws and zero enforcement actions. We are committed to complying with all applicable environmental regulations and being good stewards of natural resources. To help us continue to achieve operational excellence, we push ourselves toward developing and digitizing data collection processes and projects to make them more reliable, consistent and trackable.

One way we check on our own compliance is through internal audits which provide additional focus on controlling risks and providing assurance.

Throughout the pandemic, COVID-related restrictions required us to work with state environmental agencies to temporarily adjust some of our compliance requirements. Regardless, we continued to meet our environmental obligations during the pandemic, experiencing no pandemic-related noncompliance events during 2020.

We are subject to various federal statutes including the Clean Air Act, Clean Water Act, Resource Conservation and Recovery Act, Endangered Species Act and Safe Drinking Water Act. Environmental regulations developed under these laws are revised periodically and it is critical that we stay current with changes to remain in compliance. As the scope and stringency of environmental regulations evolve, we face technical, operational and financial challenges that are common for our industry. These challenges include uncertainties with timing, scope and impact of future environmental regulations, which influence our decisions to upgrade or retire generating units. They also affect the planning process for new generation and transmission projects across our system.

We actively participate in the development of regulations at the federal, state and local levels to ensure that new requirements are achievable, based on sound science, consistent with statutory authority and balanced with other rulemakings. New requirements should also consider the cost of compliance for customers and allow sufficient time to comply.

Long after we retire fossil-fueled power plants, our responsibility to environmental compliance at AEP-owned properties continues. This includes many existing federal and state environmental requirements, in particular those related to the management of water and coal-combustion residuals. We continue to work closely with regulators and our local communities as we move through the fossil generation decommissioning process.

For additional disclosure on regulations affecting AEP, please read our SEC Form 10-K.

Environmental Compliance

We participate in routine environmental inspections through scheduled and unannounced visits. During these visits, regulators inspect physical facilities and/or operations and monitor our compliance with regulatory requirements, permit limits and recordkeeping obligations. If an agency identifies a concern, we work with them to address the issue in a timely fashion. This could include identifying and implementing corrective measures to mitigate future risks.

One way we check our own compliance is through internal environmental audits. Audits provide additional focus on managing risks and provide assurance that robust compliance processes are developed and implemented systemwide. In 2020, we conducted 20 audits of environmental compliance, which included inspections of 31 locations.

Environmental audits may reveal potential gaps in performance that are related to regulatory requirements and company procedures or policies. These could include areas such as recordkeeping, inspection criteria, training topics and equipment configuration. Auditors also recognize practices that go beyond regulatory requirements to bring about robust and sustained compliance. Although reports are site-specific, we aggregate and share results and best practices across our entire system to improve performance across AEP.

Environmental Performance

We tie a portion of the funding for short-term incentive compensation for all employees to environmental stewardship, which is measured based on the number of environmental enforcement actions with significant fines that are resolved during the year, if any. In addition, our Generation business unit has long used metrics to encourage self-reporting of events and to improve environmental performance. Our Environmental Performance Index (EPI) includes annual goals related to opacity, water discharge permits and oil and chemical spills. The EPI helps keep prevention front of mind, encourages sharing of best practices, and drives us to be more proactive in protecting the environment. Reinforcing its importance, we tie our Generation group’s incentive compensation to EPI performance. Since 2015, the number of EPI events has decreased each year, demonstrating the continuous improvement of Generation’s overall environmental performance.

We set annual targets focusing on continuous improvement as we strive for zero enforcement actions and zero events. In addition, AEP’s Generation organization instituted an Environmental Good Catch program, similar in manner to our Safety and Health Good Catch program. A “Good Catch” is an observation or recognition of a condition that could lead to a reportable environmental event and the subsequent actions taken by employees to correct the situation, preventing the event from occurring. A “Good Catch” can also be behaviors or conditions that represent a best practice. This demonstrates our commitment to an engaging and accountable culture – using knowledge sharing and lessons learned to prevent future non-compliance events.

Environmental compliance is a high priority for the lifecycle of every project we undertake. In our Transmission business, where a great deal of construction is taking place, project teams must complete a mandatory environmental compliance-training program. Our environmental specialists and engineers also provide support to ensure we achieve full compliance with environmental permit requirements and we are always striving for improvement.