Need for Transmission Investment

2010 Mid-American Regulatory Conference

AEP

47% of Nation’s GenerationInterconnection Queue

Renewable Energy DevelopmentRenewable Energy Development

Cost Allocation: Comparison to Other RTO’s

RTO Cost Allocation*

PJM Reliability and Economic upgrades at voltages of 500 kV and above, including any facilities below 500 kV needed to support the 500 kV and above upgrades, are allocated 100% to load based on each zone’s share of zonal non-coincident peak load.

ISO NE Reliability Transmission Upgrades that includes transmission at voltages of 115 kV and above are 100% allocated to all load across ISO-NE based on monthly zonal coincident peak loads.

ERCOT PUCT-approved transmission costs, without regard to reliability or economic drivers, are allocated 100% to load based on the average monthly coincident peak over the months of June through September. Costs allocated regionally to load and to power exports from ERCOT region, based on load-ratio share.

CAISO The costs of all reliability or economically-driven upgrades 200 kV and above approved by the CAISO are allocated to all transmission customers on a megawatt-hour (MWh) basis across all load in the CAISO.

NYISO Costs allocated based on beneficiary pays

SPP** Cost of upgrades at or above 300 kV are allocated regionally. For upgrades between 100KV to 300KV 1/3rd of the costs would be allocated regionally and 2/3rd to the zones where the transmission is being built. For upgrades below 100KV 100% of the costs would be allocated to the zones where the transmission would be built.

MISO Upgrades at or above 345 kV are allocated 100% to load. 20 percent of costs are allocated based on average monthly coincident peaks across the entirety of MISO. The remaining 80 percent of costs are allocated through flow-based methods.

Obtained from the PJM report titled “A Survey of Transmission Cost Allocation Issues, Methods and Practices” issued March 2010** Proposed methodology approved by SPP Board and pending FERC approval

Components of Electricity Price

Left Graph: Source Milken institute Report titled “Financial Innovations for Energy Infrastructure. The Grid, Renewables and Beyond”Right Graph: Obtained from the PJM report titled “A Survey of Transmission Cost Allocation Issues, Methods and Practices” issued March 2010

Transmission 7%

Distribution 26%

Generation 67%

RTO Transmission Investment

RTO Transmission Investment Annual Future

Investment

Transmission Line (miles)

Wind[7] Capacity

(MW)

Total Gen

Capacity (MW)

ISO New England

Actual 2007 spend of $500MM

Expected 2008-2012 spend of $4.2B[1]

$800MM 8,000 200 33,700

MISO Actual investment of $1.67B in 2006 and 2007

Future spend of $4.3B between 2009-2013 [3].

$900MM 111,000 7,200 138,556

New York ISO

Expected 2007-2012 spend of $2B $400MM 10,900 1,275 38,000

PJM 2009-2014 spend of $6B in reliability projects[2].

$1B 56,350 2,500 165,000

ERCOT Actual spend of $1.3B since 2008 and Future 2009-2015 spend of $8.2B [4]

$1.2B 40,327 9,000 80,000

CAISO Future Spend of $5B between 2009-2013 $1B 25,000 3,000 49,000[6]

SPP Future spend of $4.2B between 2010-2019[5] $420MM 50,575 4,000 66,0001 Obtained from RTO report card published 2009 by Christensen Associates and National Rural Electric Cooperation Association2 Obtained from PJM 2009 RTEP report 3 Obtained from MISO 2009 MTEP report4 Obtained from 2009 ERCOT Constraints and needs report5 Obtained from 2009 SPP’s STEP report and does not include priority projects6 Does not include 10,000MW of imports7 Reflects existing wind capacity