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The Value of Electric Transmission NASUCA Mid-Year Meeting June 25, 2012

The Value of Electric Transmission NASUCA Mid-Year Meeting June 25, 2012. AEP Transmission System Overview. AEP is one of the largest electric utilities in the United States, delivering electricity to more than five million customers in 11 states

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The Value of Electric Transmission NASUCA Mid-Year Meeting June 25, 2012

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  1. The Value of Electric Transmission NASUCA Mid-Year MeetingJune 25, 2012

  2. AEP Transmission System Overview • AEP is one of the largest electric utilities in the United States, delivering electricity to more than five million customers in 11 states • Service territory covers approximately 200,000 square miles in Arkansas, Indiana, Kentucky, Louisiana, Michigan, Ohio, Oklahoma, Tennessee, Texas, Virginia and West Virginia • More than 39,000 line miles of transmission lines, including over 2,100 miles of 765 kV transmission • AEP Transmission is focused on providing low-cost, reliable service to customers • AEP Transmission leads the industry in transmission innovation, safety, efficiency and reliability • Despite the need for new electric transmission infrastructure, transmission continues to be a relatively small component of the overall customer bill • AEP transmission expects its relative impact on AEP customers to remain close to current levels throughout the next decade

  3. PJM Generation Retirements: A Case Study PJM OHIO • A total of ≈ 9 GW of generation retired in PJM in the previous decade • ≈ 16 GW of generation retirements announced in PJM within the next 3-years • ≈ 7 GW retiring in the state of Ohio alone • ≈ 3 GW is retiring on the shores of Lake Erie

  4. Transmission: Bridging the Gap • Historically, PJM had adequately managed small amounts of generation retirements, but is now entering uncharted territory • Transmission system impact of these generation retirements has created reliability concerns, driving the need for transmission solutions • Approximately $2 billion portfolio of transmission projects identified in Ohio will mitigate impact of generation retirements • Retirements have also triggered localized generation deficiency concerns, creating unprecedented increases in capacity prices • Recent Reliability Pricing Model (RPM) auction confirmed the capacity deficiency • Annual resource clearing price in ATSI LDA of $357 per MW-day compared with $136 per MW-day for the RTO • Implications for Consumers • Providing access to lower-cost generation and more diverse generation resources can lower the energy component of customer bills

  5. Future Changes in the Transmission Landscape • FERC Order 1000 eliminates, with certain exceptions, Federal Rights Of First Refusal (ROFRs) contained in FERC-approved tariffs that entitle an incumbent utility to build transmission facilities identified in the regional transmission planning process. Additional Order 1000 reforms include: • Transmission Planning Reforms – consideration of public policy requirements in the transmission planning process • Cost Allocation Reforms – cost allocation roughly commensurate with benefits • Compliance with the Order is being developed on a region-by-region basis, and submitted to FERC via Compliance Plans due October 2012. The order specifically requires that RTOs: • Establish developer qualification criteria to establish eligibility to submit projects into regional plans • Develop a process for submission of proposals • Establish a formal process for evaluation of proposals in a fair and transparent manner • Requires changes to tariffs to enable non-incumbent transmission developers to be eligible for regional cost recovery mechanisms • File compliance filings for inter-regional reforms by April 2013 • States will maintain a significant regulatory role in a post Order 1000 environment • State utility status requirements • Siting and routing requirements • Reporting requirements Open, competitive, and transparent transmission development markets will ultimately precipitate the most efficient and cost-effective transmission solutions

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