Workshop O - AEP Ohio Rates and Tariffs

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Workshop O AEP Ohio:

ESP III - Electric Rates & Tariffs, Shopping Opportunities for

Customers, PJM Capacity Auction, Demand Response, Ohio Energy

Efficiency & Peak Demand Reduction Updates and CBP Auction

Tuesday, February 16, 2016 3:15 p.m. to 4:30 p.m.

Biographical Information

Andrea E. Moore, Director – Regulatory Services, AEP Ohio 850 Tech Center Drive Gahanna, Ohio 43230

[email protected]

Andrea Moore is the Director of Regulatory Services for Ohio Power Company (AEP Ohio) in Gahanna, Ohio. In this role she directs the preparation and presentation of regulatory matters to management as well as regulatory bodies. She plans, organizes and directs the development and support of pricing structures, rider and true-up filings, tariff maintenance, pilot programs, special contracts and other pricing initiatives. Prior to joining AEP, Andrea was a Staff Accountant for Mills Pride. Andrea received a Bachelor of Science degree in accounting with a finance minor from The University of Rio Grande. She also obtained a Master of Business Administration degree from Franklin University.

David B. Weiss, Manager- Regulated Commodity Sourcing, AEP Ohio 850 Tech Center Drive Gahanna, Ohio 43230

614-883-6800 [email protected]

David Weiss is the Manager of Regulated Commodity Sourcing for Ohio Power Company, Inc. (AEP Ohio). In this role, he manages all aspects of the electric distribution utility’s obligations to meet its standard service offer (SSO) to customers: work on auction issues and planning with the third party auction manger, coordinate with company personnel to address issues that arise in connection with auction, preparation of responses to supplier questions or issues, develop strategies and processes related to SSO auctions and represents the company in regulatory proceedings and/or stakeholder processes. Cumulatively, David has been with AEP for 15 years. Before taking his current position, David worked for the American Electric Power Service Corporation, Inc. in various accounting and regulatory roles. Prior to AEP, he was an internal auditor and accountant for the Columbia Gas System Service Corporation (Nisource) for a total of nine years. He was a Certified Public Accountant (inactive). He is a graduate of the School of Business at The Ohio State University.

Andy McCabe, Manager, Business Programs, EE/PDR, AEP Ohio 850 Tech Center Drive, Gahanna, OH 43230 614.883.7876 [email protected]

Andrew McCabe manages Energy Efficiency and Peak Demand Reduction Programs for the commercial and industrial customers served by AEP Ohio. He has a BSEE from Polytechnic Institute of Brooklyn and an MSEE from Polytechnic Institute of New York. In his prior experience, Andrew worked in engineering for AEP Transmission, marketing and sales management for AEG Electric Power Systems, GEC Alsthom, and Alstom, and commercial management with Areva T&D. Andrew has published eight papers on transmission technology and looks forward to making contributions in the energy efficiency business.

Biographical Information

Joseph G. Bowser, Technical Specialist, McNees Wallace & Nurick LLC 21 East State Street 17th Floor, Columbus, Ohio 43215

614-719-2852 [email protected] Joe Bowser is a Technical Specialist in the Columbus, Ohio office of McNees Wallace & Nurick LLC. In this role he focuses on helping clients address issues that affect the price and availability of utility services. As part of his responsibilities, he also provides clients with assistance in evaluating and acting upon opportunities to secure value for their demand response and other capabilities in the base residual auction (“BRA”) and incremental auctions conducted by PJM Interconnection LLC (“PJM”) as part of the Reliability Pricing Model (“RPM”). Prior to joining McNees Wallace & Nurick LLC, Joe worked with the Ohio Consumers’ Counsel as Director of Analytical Services. There he managed the analysis of financial, accounting, and ratemaking issues associated with utility regulatory filings, and assisted in policy development and strategy. Joe also spent ten years at Northeast Utilities, where he held positions in the Regulatory Planning and Accounting departments of the company. He provided litigation support in regulatory hearings and assisted in the preparation of the financial/technical documents filed with state and federal regulatory commissions. Joe began his career with the Federal Energy Regulatory Commission (FERC), where he lead and conducted audits of gas and electric utilities in the Eastern and Midwestern regions of the United States. Joe is a member of the American Institute of Certified Public Accountants, and received a Bachelor of Science degree in Accounting from Clarion State College. He also obtained a Master of Science degree in Finance from Rensselaer Polytechnic Institute.

Customer Information Session

MEC Conference February 16, 2016

Generation Transmission Distribution Customer

Electricity Services


Electricity Services

Supply Delivery

We deliver the electricity to heat and light your home and to power your community and business.

We no longer own power plants.


Charges

Supplier AEP Ohio

We report costs to the Public Utilities Commission of Ohio (PUCO) and bill you those costs only when they have been audited and approved.

Costs are market‐based. We bill you those costs but keep no money.

Suppliers

Supplier charges come from 1 of 2 places:

AEP Ohio obtains your supply

‐An independent third party holds an auction to line up suppliers

‐Suppliers bid into the auction and the lowest price wins

‐The third party tells us the winning auction price and is approved by the Commission‐We bill you the auction price

‐We send the money on to the auction winners

‐AEP Ohio makes $0 on supply

You choose an alternate supplier

‐You sign a contract with the supplier

‐The contract outlines the charges

‐The supplier tells us the contract charges

‐We bill you the supplier charges

‐We send the money on to the supplier

‐AEP Ohio makes $0 on supply

2015 and Beyond


Maintain over 8,000 miles of transmission lines

Maintain over 45,000 miles of distribution lines

Provide service to over 1.4 million customers in 61 of Ohio’s 88 counties

Ways to Save

• Price to Compare • Apples to Apples Link on Public Utility

Commission of Ohio website• AEP Ohio bill calculation spreadsheets for

line by line breakdown of your bill• Energy Efficiency products and services

Visit the newly‐redesigned AEPOhio.com for more info

9

AEP OhioCompetitive Bidding Process

David Weiss, Manager Regulated Commodity Sourcing- AEP Ohio

20th Annual Ohio Energy Management Conference

February 16, 2016

Ohio Power Company d/b/a AEP Ohio

10

Outline for Today’s Presentation

Competitive Bid Process.(CBP)

Regulatory History

Auction Overview

Rate Design

Questions

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Regulatory History

The State of Ohio required a transition from the cost-based to market-based pricing for power.

Customer could choose to contract with a supplier for electricity or use default service provided by local distribution company.• Default service called “Standard Service Offer” or SSO load.

AEP-Ohio proposed a transitional plan from cost-based to market-based service in their second Electric Service Plan (ESP II) filing made in case 11-1346-EL-SSO, et. al. • Plan initially required procuring only energy from an auction, and subsequent

expansion of the auction to include full requirements.

In the final ESP II order issued on August 8, 2012, the PUCO ordered AEP-Ohio to file an application for a Competitive Bidding Process (CBP) to procure energy to serve non-shopping customers.

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Regulatory History

In Case No. 12-3254-EL-UNC, filed on 12/20/2012, AEP-Ohio proposed auction rules to govern procurement of SSO Load.

Commission opinion issued 11/23/2013 approved CBP Auction Rules for auctions help during ESP II and subsequent ESP periods.

During 2014, AEP-Ohio held four energy only auctions as ordered in ESP II opinion. By January 1, 2015, 100% of the energy used to serve SSO load had been sourced via the auction process.

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Regulatory History

Completion of transition to full requirements service was addressed in the application for AEP-Ohio’s ESP III filing, Case No. 13-2385-EL-SSO.

• Full requirements service for AEP Ohio SSO Load includes energy, capacity, ancillary services, and other market-based services required by PJM.

In the ESP III order issued February 23rd, 2015, the Commission approved the SSO’s transition to an auction based full requirements offer effective June 1, 2015 though May 31, 2018.

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Auction Overview

Order in CBP case issued in 2013 set Auction Rules.

NERA Economic Consulting was designated Auction Manager.

Auctions are held twice year, in November and March. There will be six auctions during the ESP III period.

Auction load is a “Slice-of-System”• Load is divided into 100 Tranches, each is one percent of SSO load.

• Not differentiated by customer class. • Tranches are further defined as “products”, indicating the length of time the tranche

is in effect (12, 24 or 36 months).• Suppliers accept risk or benefit of SSO load migration to/from CRES providers.

AEP-Ohio, PUCO Staff, and the Staff’s independent consultant attend auction as observers.

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Auction Overview

On-line Auction Participants are unknown to other bidders. Multiple bidding rounds. Starts with a price determined by Auction Manager.

• Prior to auction, bidders provide how many tranches they’d serve at that opening price (the indicative bid).

Descending Clock auction format.• Each round starts at a lower prices then the previous round.

Each decrement is defined by NERA.• Bidders compete by bidding lower prices during each round.

As prices drop, bidders withdraw tranches as price descends below their self-determined threshold at which they believe they can participate profitably.

Once a tranche is withdrawn, it cannot be reinserted back into the bidding pool.

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Auction Overview

Auction continues until bids offered meets tranche target.• Continuous downward pressure on bid prices in each round will

cause bidders to withdraw, ensuring most competitive bidders remain.

• Eventually, the price drop will compel bidders to withdraw enough tranches to leave the remaining number of bid tranches lower then the number available.

• At this point, the auction will end. • The Auction clearing price is the exit price of the last bidder to

withdraw tranches.

The Commission has the opportunity to accept or reject the clearing price within two days after the day of the auction. • If Commission doesn’t issue an order in two day time frame results

are automatically accepted.

Rate Design For SSO Costs

– To recover SSO costs, three riders were established, and went into effect on June 1, 2015. All three riders are billed to SSO customers as a per kWh charge.

• GEN-C Rider: recovers generation capacity costs incurred to provide SSO service. Capacity is based on RPM price.

• GEN-E Rider: recovers generation energy costs incurred to provide SSO Service. Energy is average price of all tranches lest Capacity

recovered in GEN-C Rider.• Auction Cost Recover Rider (ACRR): Recovers the

administrative overhead related to the auctions.

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18

Questions

Thank you for your interest

Questions?

Ohio Energy Efficiency & Peak Demand Updates –AEP Ohio

20th Annual Ohio Energy Management Conference

Available EE Programs• Prescriptive-Lighting and Variable Speed Drives• Custom- Process Improvements• Self-Direct-Mercantile; 3year look-back on projects• Bid4Efficiency- Energy Auction for large projects• Continuous Energy Improvement- Low cost/ no

cost operational energy improvements• New Construction-New facilities/Major renovation• Data Center-Upgrade of IT/cooling infrastructure• Retro-commissioning-Building System Tune-up

Custom ParticipationA significant amount of Custom program savings comes from manufacturing process improvementYear Program Achievement2012 39%2013 91%2014 126%2015* 78% (29% pending)* preliminary results

Bid4Efficiency

• Energy Auction for market based incentives on large projects

• Most projects Custom industrial process improvement

• 2015 auction produced 61 projects with 51 GWh in savings*

*Preliminary results

2015 CEI Results

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37 Industrial Participants

Cohorts 1‐4

complete second year

54.7 Million kWh saved in second

year

130% above our target savings

Paid $1,094,300 incentives

(35% increase from first year)

2015 CEI ResultsIncreased Savings ‐ 2nd Year

2016 CEI Continuation

• Small to Large Industrials

• Start: Jun 2015 End: Jun 2016

• Small to Large Industrials

• Start: Apr 2015 End: Apr 2016

• Universities and Hospitals

• Start: Feb 2015 End: Apr 2016

• Large Industrials

• Start: Nov 2014 End: May 2016

Cohort5

Cohort 6

Cohort8

Cohort

2016 CEI Status Report

‐ Manufacturers ‐ Hospitals ‐ Universities

Cohorts 1‐437 CompaniesProjecting58 GWh

Cohorts 5‐863 CompaniesProjecting 47 GWh

Projecting 105 GWh Savings

100 Total Participants

Cohort 7 Small Manufacturer• 6 Million kWh annual usage• 135,000 ft² plant, 185 employees• 5 people on Energy Team • Strong Executive Sponsor support • Current savings

– 905,000 kWh through low/no cost projects– 91,000 kWh through capital projects

• Projecting 21% total energy savings by 5/1/16

Cohort 7 Small Manufacturer

CEI Conclusions• Manufacturers, universities, and hospitals

increased savings through the AEP Ohio CEI and Custom programs in 2015

• CEI Energy Model provides a valuable graphic showing overall plant performance

• Great opportunity for operational energy savings for manufacturers

E-Motor Rewind Pilot• Large motors above 100HP are

frequently rewound on failure instead of replacement

• Motor rewinds can lose up to 1.5% efficiency during a rewind if not rewound with efficiency requirements

• Pilot – Advanced Energy certified motor rewind facilities assuring post-repair efficiency

E-Motor Rewind PilotProgram Advantages• Rewind less expensive than purchase of new large

motors• Cooler operation of efficient rewind results in longer life• Estimated annual energy savings from 1,974 kWh to

116,000 kWh depending on size and hours of operation• Motors from 100HP to 5000HP • Prescriptive incentives – Customer - $2/HP, Service

Facility - $1/HP

E-Motor Rewind PilotCertified Facilities• Hannon Electric – Canton• Electric Motor &Service – Zanesville• Kentucky Service Company - Lexington

Education & Training• June 2015- Advanced Energy presented

Motors and Drives Training for 100 customers at Columbus State

• November 2015- Energy Industries of Ohio presented Chiller Training for 40 customers at OSU

• All 4 IOU’s have sponsored Energy Industries of Ohio training throughout Ohio over the past several years

© 2016 McNees Wallace & Nurick LLC www.mwn.com

AEP‐Ohio ESP III– Electric Rates & Tariffs, Shopping Opportunities for Customers, PJM Capacity Auctions and Demand Response Update, Ohio Energy Efficiency & Peak

Reduction Update, and CBP Auction Update

AEP‐Ohio (“Ohio Power”)

20TH Annual Ohio Energy Management ConferenceFebruary 16, 2016

Joe Bowser ‐Technical Specialist

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Outline for Today’s Presentation

ESP III Proceeding – June 2015 thru May 2018 Rider PPA Proposed Settlement PJM Capacity Auctions/Demand Response Opportunities

Additional information included in your slides: Significant Regulatory Proceedings Update Generation Supply Shopping Energy Efficiency/Peak Demand Reduction Programs Senate Bill 310

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ESP III – Case No. 13‐2385 Case filed on December 30, 2013 ESP for the period June 1, 2015 through May 31, 2018 PUCO Order issued February 25, 2015 Provides for full transition to market Standard Service Offer (SSO) rate will be based on competitive bid

auctions that procure energy and capacity for periods synchronized to the PJM planning year (June through May)

Company requested Power Purchase Agreement (PPA) Rider (N/B)– to include the net benefit or cost to AEP‐Ohio from its 440 MW OVEC entitlement – PUCO approved the PPA rider but as a placeholder rider at a rate of zero – PUCO prescribed the issues to be addressed in a separate application, for it to consider allowing cost recovery – related case for other generation units – PPA Case 14‐1693 – filed October 3, 2014

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ESP III Continued . . . Issues to be addressed in separate PPA application, per 2/25/15 Order: Financial need of the generating plant Necessity of the generating facility in light of future reliability concerns Description of how the gen. plant is compliant with all pertinent

environmental regulations and plan for compliance with pending environmental regulations

Impact that a closure of gen. plant would have on electric prices and effect on economic development in the state

Proposal must provide for rigorous PUCO oversight of the rider, including a proposed process for a periodic substantive review and audit

Commit to full information sharing with the PUCO and Staff Include an alternative plan to allocate the rider’s financial risk between the

Company and ratepayers Include a severability provision that recognizes that all other ESP provisions

will continue in the event that the PPA rider is invalidated in whole or in part by a court of competent jurisdiction

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ESP III Continued…New Riders

Several new riders were approved: Basic Transmission Cost Recovery Rider (BTCR)– to recover

non‐market based costs of transmission service – N/B Generation Energy and Generation Capacity Riders – to

replace the base generation charges and Fuel adjustment clause (FAC) rates – B

Auction Cost Reconciliation Rider (ACR) – to reconcile differences between billings to SSO customers and costs of the auctions, including costs associated with the CBP process – B

Bad Debt Rider – to recover incremental bad debt expense since the last distribution rate case – N/B

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Proposed ESP III Continued . . .

Elimination of Existing Riders/Rate Schedules: Existing Transmission Cost Recovery Rider (TCRR) – subject to final

true‐up, and non‐market based transmission costs will now be recovered through new BTCR – B

Fuel Adjustment Clause (FAC) – subject to final true‐up and was replaced by auction cost reconciliation rider

Interruptible Power Rate Schedule (IRP‐D), Stand‐By‐Service Rate Schedule, Time‐of‐Use Rate Schedule – PUCO denied the request to eliminate these rate schedules – IRP‐D was modified to be available to both shopping and non‐shopping customers. In rehearing, PUCO modified the IRP‐D to be available to only existing non‐shopping customers already on the rate

39


Proposed ESP III Continued . . .

PPA Rider Update – Stipulation in PPA case (14‐1693) dated 12/14/15 provided that a filing would be made by 4/30/2016 to extend the ESP III term through 5/31/2024 – the filing is to include:

1) Proposal to extend riders/tariffs related to the expanded ESP term, including Rider DIR (Distribution Investment Rider)

2) Extend the CBP process for SSO procurement3) Analysis of the statutory MRO v. ESP test4) The additional issues under the ESP statute relating to the expanded ESP term5) AEP‐Ohio agreed to propose the following:

a) provision to extend IRP tariff and credit for expanded ESP term for current IRP customers and an additional 250 MW of interruptible load –expanded to include shopping customers

b) GS‐3 and GS‐4 customers to have opportunity to opt‐in to a pilot mechanism under the new rider BTCR based on each customer’s transmission CP demand

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ESP III continued . . .

Other Terms:

6) Nothing in the stipulation constitutes an amendment of the existing EE/PDR plan for SB 310 (Changes to renewable energy, peak demand, and energy efficiency mandates), nor a customer’s opt‐out right under Section 4928.6612 of the Ohio Revised Code

7) IRP customers can opt‐out of the opportunity to get benefits from the EE/PDR and to not be subject to the EE/PDR rider costs

8) Company will not renew proposals for riders/tariffs that were rejected in the ESP III order (e.g. the NERC Compliance and Cybersecurity Rider, Sustained and Skilled Workforce Rider)

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Application for New Affiliate Power Purchase Agreement (PPA) (Case No. 14‐1693‐EL‐RDR)

Application made October 3, 2014 To include the net benefit or cost to AEP‐Ohio of these coal‐ fired

generating units: (approx. 2,670 MW)A. Cardinal 1*B. Conesville 4, 5, and 6C. Zimmer 1D. Stuart 1, 2, 3, and 4

* AEP‐Ohio will also receive additional power from Cardinal units 2, 3, and 4 to sell into the market to the extent that this generation exceeds the Buckeye Power obligation

42


Affiliate PPA Agreement Continued . . . Affiliate agreement between Ohio Power and AEP Generating Resources (AEPGR)

PPA will only be executed if retail cost recovery is approved through inclusion in the PPA Rider (proposed in the ESP III case)

Life‐of‐unit contract under FERC jurisdiction This case started out on a parallel path with the ESP III case, in which the net cost

or benefit of OP’s OVEC entitlement was sought to be recovered through Rider PPA

OVEC entitlement was added to this case in 5/15/2015 Amended Application Non‐bypassable recovery of costs and a return “on” and “of” the generating unit

assets Return on net book value of assets, with a hypothetical 50‐50 debt/equity capital

structure and an initial return on equity component of 11.23% Hearings held in September – November 2015

43


Affiliate PPA Agreement Continued . . .

Joint stipulation filed in the case on December 14, 2015 Key points of the Joint Stipulation:

1) PPA rider term of 8 years (through 5/31/2024)2) OVEC entitlement will be included in the PPA3) Additional PPA rider credit commitment – if in any of the last 4 years the

unadjusted rider results in a charge to customers, or a credit less than the amounts below, then additional credits up to these amounts will be provided:1) 2020‐2021 $10 million2) 2021‐2022 $20 million3) 2022‐2023 $30 million4) 2023‐2024 $40 million

4) The initial PPA rider rate will be based on a $4 million credit for 2016 (annualized) subject to reconciliation

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Affiliate PPA Agreement Continued . . .

5) PPA rider credits/charges will be allocated to rates/voltages based on their PJM 5 CPs for the prior year, and billed to customers through a per‐kWh charge for each rate/voltage level

6) Annual compliance reviews by the PUCO7) AEP to file for extension of ESP III term through 5/31/2014 – see the ESP

slides8) 50% of Rider EE/PDR costs for transmission/sub‐transmission voltage

customers will be transferred to Rider EDR through 5/31/20249) 50% of costs of Rider IRP credits will be transferred to Rider EDR through

5/31/202410) Hearings were held on the Stipulation in January 2016

45


PJM Capacity and Demand Response

PJM procures its reliability requirement through its RPM (Reliability Pricing Model) auctions

Clearing prices form the basis for customers’ capacity costs PJM permits demand resources (demand response) to be

counted like a capacity resource (i.e. demand resources can be bid into the auctions)

Customers may commit their interruptible load into PJM’s load management program as emergency or pre‐emergency resources

Several recent developments that will affect PJM capacity and demand response

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The Polar Vortex

In January 2014, a “once in 20 years” record cold snap (Polar Vortex) resulted in PJM loads far exceeding normal loads for that time of year

PJM declared 2 emergency events on Tuesday, January 7 for the entire PJM RTO – one for the morning peak and the other for the late afternoon peak

PJM declared emergency events for portions of the PJM RTO on January 22, 23, and 24, 2014

PJM report identified the unavailability of generation as the chief cause of the need to call emergency events

PJM demand response voluntarily responded to the emergency events, avoiding involuntary curtailments for other customers

47


PJM Capacity/Demand Response Continued . . .

December 2014 ‐ PJM application to FERC requesting approval of a new product – “Capacity Performance” (partly in response to the Polar Vortex) that would apply to supply side and demand side products

“Capacity Performance” generation would be a product that must be capable of sustained, predictable operation that allows the resource to be available to provide energy during both summer and winter peak‐load conditions

“Capacity Performance” DR must be capable of providing load reduction over all capacity performance compliance hours during any day in the summer and winter

For the 2018‐19 Base Residual Auction, PJM would target 80% of the capacity as “capacity performance”, and the remaining 20% as “base capacity”

48


PJM Capacity/Demand Response continued . . .

“Base capacity” demand response would be required to perform in the summer months only and be available for an unlimited number of interruptions between the hours of 10:00 a.m. and 10:00 p.m.

“Base Capacity” generation must have a startup and notification time of less than 48 hours and must have operational availability of a minimum of 100 hours/year

PJM also proposed to phase‐in the capacity performance product by incorporating it into the 2016‐17 and 2017‐18 delivery years by way of “transitional auctions”

June 9, 2015 – FERC issued an order accepting PJM’s proposal with minor modifications

49


Changes to PJM’s Capacity Auctions (RPM)

The 2018‐19 Base Residual Auction, normally conducted in May, was instead conducted in August 2015 – procuring the Capacity Performance (CP) and Base Capacity (BC) products

2018‐2019 Base Residual Auction clearing prices: Load $162.44/MW‐day CP $164.77/MW‐day BC $149.98/MW‐day

PJM also conducted two “transitional auctions” in August and Sept. 2015 to procure CP resources for the 2016‐17 and 2017‐18 delivery years

The purpose of the transitional auctions was to facilitate the transition to a fully implemented CP resource model beginning in June 2020

PJM also held PJM targeted to procure CP for 60% of its overall reliability requirement for 2016‐17 and 70% of the reliability requirement for 2017‐18, and both targets were achieved in the transitional auctions

50


Changes to PJM Auctions Continued . . .

Load that cleared previously for the delivery year was permitted to bid into the transitional auctions as CP as long as it can meet the CP requirements

Final prices were blended for the cleared CP resources with the previously cleared load prices to determine the delivery year prices

PJM targeted to procure CP for 60% of its overall reliability requirement for 2016‐17 and 70% of the reliability requirement for 2017‐18, and both targets were achieved in the transitional auctions

The transitional auction clearing prices for CP were: 2016‐17 $134.00/MW‐day 2017‐18 $151.50/MW‐day

51


PJM Auctions Continued

The transitional auctions resulted in increases to the 2016‐17 and 2017‐18 capacity prices

Transitional auction clearing prices for CP were: 2016‐17 $134.00/MW‐day (63% increase) 2017‐18 $151.50/MW‐day (23% increase)

Resulting blended prices for load as a result of the transitional auctions was: 2016‐17 $98.29/MW‐day 2017‐18 $147.50/MW‐day The prices for load before the transitional auctions was: 2016‐17 $60.13/MW‐day 2017‐18 $119.81/MW‐day

52


PJM Demand Response Legal Update – FERC v. EPSA

D.C. Circuit Court of Appeals Opinion issued May 23, 2014 in the Electric Power Supply Association (EPSA) vs. FERC Case (11‐1486) ‐ found that FERC lacked jurisdiction over retail demand response (DR) participation in RTO energy markets (Federal Energy Regulatory Commission (FERC) Order 745)

September 17, 2014 – D.C. Circuit issued orders denying all petitions for rehearing en banc, of its May 23 opinion vacating FERC Order 745 (focused on DR participation in RTO energy markets, where PJM currently pays DR resources market clearing prices); Court stayed mandate until Supreme Court addressed requests for review of D.C. Circuit Court’s decision

On September 22, 2014 FirstEnergy files an amended complaint at the FERC, seeking an order to reverse the authorization of PJM to include DR as a capacity product in the last base residual auction, claiming FERC lacks jurisdiction for DR as DR is retail and outside the wholesale jurisdiction of the FERC

10/14/15 – Oral argument in FERC vs. EPSA took place at U.S. Supreme Court

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FERC v. EPSA, U.S. Sup. Ct. Case No. 14‐840

U. S. Supreme Court reversed DC Circuit decision in an Opinion issued January 25, 2016

Federal Power Act provides FERC with the authority to regulate wholesale market operators’ compensation of demand response bids

Practices at issue directly affect wholesale rates FERC did not regulate retail sales Paying the same price as that paid to generators was not arbitrary and

capricious

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PJM Demand Response Programs Wrap‐Up

Beginning with the 2018‐19 delivery year, PJM demand response will be either CP or BC

The current plan is that beginning with the 2020‐2021 delivery year, all demand response must be CP

PJM also has Economic Load Reduction Programs (ELRP), that provide for compensation based on load reductions scheduled a day‐ahead, or when dispatched by PJM

Demand resources may participate in PJM DR programs by utilizing a Curtailment Service Provider (CSP)

End of live presentation

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OP’s CBP Auction to Establish SSO Prices For the ESP III

Auctions for ESP III conducted in April 2015, May 2015 and November 2015 to date

To procure energy, capacity, and market based transmission and transmission ancillary services

Future auctions scheduled for March/November 2016 and March 2017 Three delivery periods are covered:

Blended Price June 2015 thru May 2016 $54.87/MWH June 2016 thru May 2017 $53.63/MWH (83%) June 2017 thru May 2018 $53.30/MWH (49%)

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AEP‐Ohio(Percent of Electric Load Shopping)

AEP‐OHIO Sept. 30, 2015 Sept. 30, 2014 Sept. 30, 2013

Residential Sales 35.1% 32.5% 27.1%

Commercial Sales 85.7% 84.2% 78.8%

Industrial Sales 88.1% 79.9% 74.5%

Total Sales 69.9% 66.3% 60.6%

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Shopping For Your Electric Generation Supply?

Price to Compare (PTC) – your avoidable charges if you shop, typically expressed in cents/kWh – PTC includes:

Generation Energy Rider (Rider GEN‐E) Auction Cost Reconciliation Rider (Rider ACCR) Generation Capacity Rider (Rider GEN‐C) Rider AER (Alternative Energy Rider) charges Transmission Cost Recovery Rider (Rider TCRR) This rider is in

process of final true‐up (expected to terminate about June 2016)

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Integrated Gasification Combined Cycle Electric Generating Facility (IGCC) (Case No. 05‐376)

Application filed March 2005 for authority to recover costs of at least one 600 MW IGCC facility in Meigs County, through a 3‐phase recovery

Order issued April 10, 2006 ‐ PUCO authorized recovery of Phase I costs (approx. $24 million) through a bypassable surcharge as the IGCC proposal would potentially provide ancillary services necessary to support the distribution function, as opposed to providing a competitive generation service.

PUCO ordered Company to refund all Phase I charge collected for expenditures on items that may be utilized in projects at other sites if the Company has not commenced a continuous course of construction of the proposed facility within 5 years of April 2006.

February 2009 – AEP‐Ohio files an update that it had not commenced construction but it continued to believe there were substantial reasons to pursue construction

59


IGCC Continued . . .

June 2011 – several parties file a joint motion at the Commission requesting that the Commission proceed in the case and the Company be required to refund $24 million with interest

Settlement submitted to PUCO on 12/22/2014 PUCO Order issued on February 11, 2015 approving the settlement ‐ $13

million refunded to customers in first billing month after the PUCO order

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Transmission Rates

Prior to ESP III, market‐based and non market‐based transmissioncosts recovered through the bypassable Transmission CostRecovery Rider (TCRR)

TCRR is in process of final true‐up and is expected to terminate inMay 2016

New Basic Transmission Cost Rider (BTCR) effective June 1, 2015recovers non‐market based transmission costs and is a non‐bypassable rider

For SSO customers, market‐based transmission costs are includedin the CBP bids, effective 6/1/15

Transmission Under‐Recovery Rider (TURR) – non‐bypassable riderrecovering a prior period transmission cost under‐recovery is expectedto terminate in early 2016

61


Transmission Rates continued . . . Update to Rider BTCR – Case No. 15‐1105

Filed June 15, 2015 to be effective Sept. 2015 PUCO Order issued on 8/26/2015 approving the requested rates Average reduction in the rates of 5.2% compared to the previous Rider

BTCR rates

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Energy Efficiency/Peak Demand Response and Renewable Resources

EE/PDR SB 221: scope of programs and opt out SB 310: expansion of opt out opportunities Energy Mandates Study Committee recommendations

Renewable energy opportunities

63


Rider EE‐PDR (Energy Efficiency and Peak Demand Reduction Cost Recovery Rider)

AEP‐Ohio recovers costs it incurs to comply with Ohio’s energy efficiency and peak demand portfolio requirements through Rider EE‐PDR.

Current Rider EE‐PDR rates as of January 2016 are: GS‐2 and GS‐3 $0.0033390/kWh GS‐4 $0.0009533/kWh

Mercantile customers may be eligible for an exemption from the Rider EE‐PDR charge.

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Mercantile Customer Exemption

A "mercantile customer" is a commercial or industrial customer if the electricity consumed is for non‐residential use and the customer consumes more than 700,000 kilowatt‐hours per year or is part of a national account involving multiple facilities in one or more states.

Qualifying for an exemption requires a demonstration that the mercantile customer has implemented energy efficiency and/or peak demand reductions at a level comparable to the electric distribution companies’ benchmarks.

The exemption requires the approval of the PUCO.

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Senate Bill 310 – Changes to Renewable Energy, Peak Demand, and Energy Efficiency Mandates

Senate Bill 310 was signed into law on June 13, 2014 and became effective on September 12, 2014

Legislation revises the energy mandates for energy efficiency/peak demand reduction and renewable energy that were established in SB 221 SB 310 paused the compliance requirements for 2015 and 2016 at

2014 levels The impacts of the mandates are to be studied by the Energy

Mandates Study Committee created in SB 310, which is required to submit a report to the Ohio General Assembly by September 30, 2015

Legislation prompted by changes in the energy and economic landscape

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Senate Bill 310 Continued . . . If the Ohio General Assembly does nothing further to modify Ohio’s

electricity mandates, the escalation in compliance requirements will resume toward existing targets with full implementation required by 2027

An EDU has two options regarding its current energy efficiency mandate compliance plans Continue to implement plan with no amendments through the end of 2016 Amend plan by submitting an amendment to the Commission no later than 30 days

after the effective date of SB 310 Streamlined opt‐out of EE/PDR benefits and costs available to eligible

customers Eligible customers are defined as those that receive service above primary voltage

or a commercial or industrial customer that receives more than 45 million KWh at a single location and have made a written request to self‐assess the KWh tax

For eligible customers served by an EDU that amends its plan, the streamlined opt‐out can begin on January 1, 2015

For eligible customers served by an EDU that does not amend its plan, the opt‐out can begin on January 1, 2017

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Renewable Energy Opportunities A mercantile customer‐sited advanced energy resource or

renewable energy resource committed toward the EDU’s portfolio obligation can be used to satisfy the benchmarks A resource that reduces the use of reactive power A resource that makes efficient use of waste heat or other

thermal capabilities owned or controlled by a mercantile customer

Storage technology Electric generation equipment owned or controlled by a

mercantile customer that uses an advanced energy resource or renewable energy resource

Any advanced energy resource that an electric distribution company could directly rely upon

Resources can be new or existing

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Takeaways

Opportunities to reduce your electric bills by obtaining service from competitive suppliers of generation service

Additional opportunities to reduce your bill by implementing energy efficiency measures

Current ability to participate in PJM demand response programs for customers with curtailable load – changes are in the works

Reducing your electric bill requires customers to be proactive To learn more, contact:

Joe Bowser [email protected]

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Questions?

Useful Web Sites:

AEP www.aep.com PUCO www.puco.ohio.gov PJM www.pjm.com IEU-Ohio www.ieu-ohio.org FERC www.ferc.gov

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Workshop O - AEP Ohio Rates and Tariffs

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