TRANSMISSION COSTS DRIVERS SOURCE: BRATTLE PRESENTATION AND AMP INTERNAL DATA

1

3

Historical Circuit-Mile Additions Document Aging Grid

4

Replacing and Upgrading Aging Transmission Will Require

Significant Investments

5

Historical and Projected Transmission Investments

PJM TRANSMISSION PROJECT

TYPES AND APPROVAL PROCESS

6

Baseline Projects

7

• Baseline upgrades are those that resolve a system reliability criteria violation. This can be planning criteria from PJM, North American Reliability Corporation (NERC), ReliabilityFirst or transmission owners.

• Network upgrades are new or upgraded facilities required primarily to eliminate reliability criteria violations caused by proposed generation, merchant transmission or long term firm transmission service requests, but can also include certain direct connection facilities required to interconnect proposed generation projects.

Baseline Projects are reviewed and approved through the PJM Regional Transmission Expansion Plan (RTEP)

8

Regional Transmission Expansion Plan (RTEP)

Over a 15 year planning horizon, PJM’s Regional Transmission Expansion Plan

(RTEP) identifies transmission system additions and improvements needed to

keep electricity flowing to the millions of people throughout PJM’s region.

In an annual report, PJM describes transmission study input data, processes and

results, as well as PJM Board-approved transmission projects and process changes

during the previous year. Periodically, PJM publishes white papers that present

study input parameters and address transmission planning topics of current

stakeholder interest.

PJM’s RTEP process encompasses a comprehensive assessment of system

compliance with the thermal, reactive, stability and short-circuit NERC Standards.

The RTEP process also examines market efficiency to identify transmission

enhancements that relieve congested facilities, allowing lower cost power to flow

to consumers.

RTEP 24-month process

9

PJM’s RTEP process encompasses a two-year cycle.

Completed in coordination with the PJM Transmission Expansion Advisory Committee (TEAC), subregional RTEP committees and PJM Planning Committee.

The process includes two 12-month cycles (which examine the near-term needs) and one 24-month cycle (which examines the long-term, 15 years forward needs).

Supplemental Projects

10

Supplemental Projects are:

• not required for compliance with system reliability, operational performance or economic criteria, as determined by PJM.

• reviewed by PJM only insofar as to ensure that they do not introduce other reliability criteria violations.

• not subject to PJM Board approval

• have been used to address such drivers as:• Aging infrastructure – to replace, retire or rebuild equipment

• Underlying system reinforcements – to add new distribution substations or delivery points to serve lower voltage systems

• Customer load connections – to extend transmission to serve new large customer facilities

• Infrastructure resilience – (e.g., storm hardening)

• introduced to the PJM regional planning process through PJM’s TEAC and subregional RTEP committees.

• not subject to regional cost allocation; the incumbent TO zone customers pay 100% of their cost.

Baseline vs. Supplemental - SummaryBaseline Projects Supplemental Projects

What are

they?

Transmission projects required for:

System Reliability

Operational performance or economic

criteria

Pursuant to a PJM determination

State public policy

Transmission projects NOT required for:

Reliability

Market efficiency

Operational performance

Public policy criteria

Who has

regulatory

oversight?

State regulatory commissions may have

siting authority

PJM has specific project approval authority

FERC has ultimate project approval

authority

State regulatory commissions may have

siting authority

FERC has ultimate authority through

transmission rate cases

What is the

approval

process?

24 month, PJM-driven stakeholder process

PJM Board approval

FERC approval

Introduced by the TO in the stakeholder

process

Included in rate base once in-service

Where do the

costs show

up?

Recovered through PJM’s Transmission

Enhancement Charge (OATT Schedule 12) –

a separate charge that customers pay in

accordance with zonal cost responsibility

allocations based on their network service

peak load share in that zone

Folded into TO revenue requirements once

in-service and so become part of base rates

paid for through PJM’s network integration

transmission service (NITS) – that

customers pay based on their peak load

contribution of the applicable zone 11

12

Survey of PJM Transmission Rates and Charges

Transmission Study for

American Municipal Power, Inc. (AMP)

Ken Rose

September 21, 2017

Summary of Findings• Revenue Requirement and Transmission Rates for PJM

increased considerably in a short amount of time—from 2009 to 2017

• 12 TOs had a 20% or more increase in revenue requirement• 11 TOs had better than 20% increases in Network

Integration Transmission (NIT) Rate• Not all TOs in PJM had such increases—several had modest

or no change in NIT rate

• Transmission enhancement charges for some TOs have also increased during that same time period

• Total Annual Revenue Requirement for transmission enhancement increased by 294.5% from 2011 to 2017

Ken Rose 14

Summary of Findings (continued)• While there are many legitimate drivers for this increased investment

(aging infrastructure, distributed generation, etc.), there has been a marked increase in facilities not needed to meet any established reliability, market efficiency or operational performance criteria. These Supplemental Projects are proposed by individual Transmission Owners (TOs) outside of the PJM planning process and beyond any established criteria TOs may have. Supplemental Projects are also exempt from the competitive transmission requirements of Order 1000.

• Through 2012, there was approximately $21.3 billion of PJM in-service or planned baseline and network upgrades, as opposed to $6.8 billion of TOI/Supplemental Projects

• After 2012, there was approximately $11.6 billion of PJM in-service or planned baseline and network upgrades as opposed to approximately $12.7 billion of Supplemental Projects

• With the exception of 2016, the amount of Supplemental Projects has steadily increased each year

Ken Rose 15

Ken Rose 16

PJM’s Network Integration Transmission Service

• From PJM’s description:• Network customers pay daily demand charges to

PJM transmission owners using the applicable zonal or non-zone Network Integration Transmission Service rates.

• Charges: Daily demand charges calculated as network customers’ daily network service peak load contribution times 1/365th of the applicable zonal rate(s) for the zone(s) in which the network load is located

Ken Rose 17

Ken Rose 18

0.0%

0.0%

0.0%

33.1%

0.0%

75.1%

45.6%

21.8%

27.3%

64.7%

107.0%

109.2%

147.8%

300.4%

0.0%

0.0%

0.0%

25.6%

22.5%

66.8%

73.5%

6.2%

38.5%

70.0%

71.5%

38.0%

60.8%

75.3%

109.8%

44.1%

0.0%

0.0%

0.0%

63.1%

66.8%

86.0%

101.7%

107.1%

118.3%

127.3%

232.8%

266.7%

419.8%

476.8%

AP (APS)

Dayton (DAY)

PE (PECO)

ATSI (2015 to 2017)

Duquesne (DLCO)

Rockland (RECO)

Duke (DEOK)

PEPCO (PEPCO)

BC (BGE)

AE (AECO)

AEP (AEP)

DPL, ODEC (DPL)

PPL, AECoop, UGI (PPL)

Dominion (DOM)

PS (PSEG)

TrAILCo

Transmission Revenue Requirement Increases by Transmission Owner

2009 to 2017

2013 to 2017

2009 to 2013

*Note: TrAIL Co is not a PJM transmission zone with load.

Ken Rose 19

0.0%

0.0%

0.0%

23.0%

75.9%

14.4%

44.1%

59.8%

32.2%

109.8%

107.1%

152.1%

0.0%

0.0%

0.0%

21.7%

54.7%

33.8%

79.1%

8.4%

78.6%

46.9%

37.6%

77.9%

68.4%

72.7%

124.1%

0.0%

0.0%

54.7%

64.6%

90.7%

104.3%

111.7%

119.8%

135.1%

253.4%

257.6%

465.1%

Dayton (DAY)

AP (APS)

PE (PECO)

ATSI (2015 to 2017)

Rockland (RECO)

Duquesne (DLCO)

Duke (DEOK)

PEPCO (PEPCO)

AE (AECO)

BC (BGE)

DPL, ODEC (DPL)

AEP (AEP)

PPL, AECoop, UGI (PPL)

Dominion (DOM)

PS (PSEG)

Transmission Rate Increases by Transmission Owner

2009 to 2017

2013 to 2017

2009 to 2013

Ken Rose 20

$10,000

$30,000

$50,000

$70,000

$90,000

$110,000

$130,000

Jun

-09

Sep

-09

Dec

-09

Mar

-10

Jun

-10

Sep

-10

Dec

-10

Mar

-11

Jun

-11

Sep

-11

Dec

-11

Mar

-12

Jun

-12

Sep

-12

Dec

-12

Mar

-13

Jun

-13

Sep

-13

Dec

-13

Mar

-14

Jun

-14

Sep

-14

Dec

-14

Mar

-15

Jun

-15

Sep

-15

Dec

-15

Mar

-16

Jun

-16

Sep

-16

Dec

-16

Mar

-17

Jun

-17

Transmission Rates by Transmission Owner, 2009 to 2017 ($/MW-year)

AE (AECO)

AEP (AEP)

Dominion (DOM)

DPL, ODEC (DPL)

Duquesne (DLCO)

PEPCO (PEPCO)

PPL, AECoop, UGI (PPL)

PS (PSEG)

Ken Rose 21

$0.00 $5,000.00 $10,000.00 $15,000.00 $20,000.00 $25,000.00

Baseline_Planned

TOI-Suppl_Planned

Network_Planned

Baseline_ISPostDec2005

TOI-Suppl_ISPostDec2005

Network_ISPostDec2005

Baseline_ISPreJan2006

TOI-Suppl_ISPreJan2006

Network_ISPreJan2006

Transmission Construction Cost by Category and Time Period, though September 2017 (millions of dollars)

Ken Rose 22

TOI-Suppl, $19,484.18,

37%Baseline and

Network, $32,871.17,

63%

Total Transmission Construction Estimated Cost by Category, through September 2017 (millions of

dollars)

Ken Rose 23

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

Total Baseline and Network and TOI-Supplemental Projects by Year (millions of dollars)

Baseline and Network TOI/Supplemental

Ken Rose 24

$0

$5,000

$10,000

$15,000

$20,000

$25,000

Cumulative Total of TOI-Supplemental Projects (millions of dollars)

The Cumulative Total of TOI-Supplemental Projects Increased by 185.5% from 2012 to 2017

Ken Rose 25

$0

$5,000

$10,000

$15,000

$20,000

Before 2007 2007 to 2012 2013 to 2017

Transmission Project Estimated Cost by Year (millions of dollars)

Total Baseline and Network Total TOI-Supplemental

PJM’s Transmission Enhancement(OATT Schedule 12)

• PJM’s description:• All network customers and merchant transmission owners

pay transmission owners for required transmission enhancement projects in accordance with zonal cost responsibility allocations

• Charges: All network customers serving load in a responsible zone pay for that zone’s applicable projects’ revenue requirements in proportion to their network service peak load share in that zone, and responsible merchant transmission owners also pay their share of applicable revenue requirements

Ken Rose 27

Ken Rose 28

$4,468,936.72

$6,587,322.67

$12,271,184.01

$12,504,160.83

$21,409,622.00

$39,271,469.95

$41,381,371.00

$42,202,037.27

$54,423,634.00

$99,754,428.00

$196,951,133.45

$242,658,196.81

$272,626,368.82

$483,133,849.51

Delmarva

Mid-Atlantic Interstate Transmission, LLC

Atlantic Electric

Jersey Central Power & Light

Potomac-Appalachian Transmission Highline, L.L.C. (PATH)

PEPCO

Commonwealth Edison Company

Duquesne Light Company

Baltimore Gas and Electric Company

PPL Electric Utilities Corp. dba PPL Utilities

AEP East Operating Companies , AEP Transmission…

Dominion Virginia Power

Trans-Allegheny Interstate Line Company (TrAILCo)

PSE&G

Transmission Enhancement Charges by Project, July 2017

*Note: TrAIL Co is not a PJM transmission zone with load.

Ken Rose 29

$0

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

$30,000,000

Allocated shares of monthly transmission enhancement charges by zone and year, 2011 to 2017

May-11 Jun-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17

Ken Rose 30

0

200,000,000

400,000,000

600,000,000

800,000,000

1,000,000,000

1,200,000,000

1,400,000,000

1,600,000,000

1,800,000,000

May

-11

Au

g-1

1

No

v-1

1

Feb

-12

May

-12

Au

g-1

2

No

v-1

2

Feb

-13

May

-13

Au

g-1

3

No

v-1

3

Feb

-14

May

-14

Au

g-1

4

No

v-1

4

Feb

-15

May

-15

Au

g-1

5

No

v-1

5

Feb

-16

May

-16

Au

g-1

6

No

v-1

6

Feb

-17

May

-17

Total Annual Revenue Requirement for transmission enhancement, 2011 to 2017

Annual Revenue Requirement Increased by 294.5% during this period