1. AEP’s “gridSMART” Project Ohio Roll Out Strategy PUCO Staff Workshop December 13, 2007

2. gridSMART 2 Agenda ● gridSMART Capabilities and Requirements Recap ● AEP Ohio’s Proposed Deployment Strategy ● Cost/Benefit Analysis AEP Ohio AMI Summary ● AEP Ohio Distribution Grid Management Overview ● gridSMART Next Steps

3. gridSMART 3 Distribution Operations of the Future AEP Ohio believes that utilities must begin preparing their businesses for a future state that integrates many technologies not present today, and requires a more advanced state of monitoring, communications & control. Adapted from EPRI source image Distributed Generation & Storage PHEV Distribution Operations Dynamic Systems Control Outage Management Remote Monitoring & Control of Distribution Assets Data Management Customer Portal/Meter Energy Storage Advanced Monitoring, Communications & Control Utility OperationsCustomer Premise Smart End-Use Devices In-home monitoring “Smart” Thermostats Pool Pumps HVAC Systems Advanced Monitoring, Communications & Control

4. gridSMART 4 gridSMART Capabilities & Requirements ● Advanced Meter Infrastructure (AMI) Network Two way communications network with sufficient bandwidth to support AMI and future gridSMART applications Remote connect/disconnect on all residential meters Downloadable firmware in each meter ANSI standard data tables Revenue protection advanced reporting Communication path to a Home Area Network (HAN) Standard protocols used and supported Minimum of 128-bit AES encryption Radio must have upgradeable firmware All meter tables are extractable ● Distribution Operations Monitor and control of AEP’s distribution equipment such as switches, reclosers, faulted circuit indicators, capacitor banks, etc. Outage and restoration reporting Momentary outages on all meters Circuit reporting on exceptions Voltage sag monitoring and steady state voltage alerts on all feeders

5. gridSMART 5 gridSMART Capabilities & Requirements ● Distribution Automation Interface with SCADA systems Automated circuit reconfiguration Distributed and central control automation schemes ● Information Technology Systems Service Oriented Architecture Compatible with AEP’s legacy systems Expandable and scalable Customer Web Portal Meter Data Management System Distribution Management System ● Telecommunications Network Supports IP, SCADA, and meter-based protocols Common communications infrastructure for both AMI and DA Capable of prioritizing data transmissions

6. gridSMART 6 gridSMART-enabled Customer Service Offerings Customer Choice, Customer Control, and Customer Service ● Time of use rates ● Real time pricing/critical peak pricing ● Direct load control ● New and improved self service options Account maintenance Start/Stop service Remittance date selection with electronic bill presentment and payment Outage reporting and restoration notification Prepay metering Energy usage analysis

7. gridSMART 7 AEP Ohio

8. gridSMART 8 AEP Ohio ● AEP Ohio is comprised of three legal entities Columbus Southern Power Ohio Power Wheeling Power (WV) ● AEP Ohio operations are managed by seven district offices Columbus Canton Newark Chillicothe Athens Ohio Valley Western Ohio

9. gridSMART 9 AEP Ohio - Proposed Deployment Strategy ● Overall Plan District by district roll out over a seven year period Capability for 100% remote reconnect/disconnect on all residential meters (200 amp and below) Capability for 100% interval data recording Deployment of Web Portal Deployment of Distribution Management System Deployment of Meter Data Management System Distribution automation projects to follow the same district deployment path SCADA at all distribution stations Automated switches and reclosers for Urban, Large Rural and Medium Rural circuits Small Rural circuits would not be automated at this time Automated capacitor banks for monitoring and control

10. gridSMART 10 AEP Ohio - Proposed Deployment Strategy ● Post-deployment Areas of Focus Home Area Network Equipment Smart thermostats Load controllers In-home displays Customer Information System Replacement/Augmentation AEP’s core CIS to be extended by the addition of integrated components Future pricing models will require new billing capabilities ● Effective Financial Modeling Will Require New Thinking McKinsey Model will be used to assist the PUCO for cost/benefit order of magnitude and utility comparison purposes Results will be based on 20 YR net present value, which may not be appropriate for all investments More appropriate models should be used for regulatory recovery Need to determine how to value the benefits yet to be uncovered Distribution grid management and analytics Reliability improvements T&D efficiency gains

11. gridSMART 11 AEP Ohio Proposed Deployment Strategy ● District Plans Columbus District – 583,160 customers over the first three years Canton District – 189,957 customers in Year 4 Newark District – 150,318 customers in Year 5 Chillicothe District – 120,786 customers in Year 5 Athens District – 143,403 customers in Year 6 Ohio Valley District – 129,350 customers in Year 6 Western Ohio District – 185,836 customers in Year 7

12. gridSMART 12 AEP Ohio AMI Summary ● Estimated Initial Costs Based on RF Deployment Meters – 1,505,414 Capital - $472 million O&M - $4 million ● Estimated Deployment Costs Year 1 - Columbus - $61M Capital, $500K O&M Year 2 – Columbus - $61M Capital, $500K O&M Year 3 – Columbus - $61M Capital, $500K O&M Year 4 – Canton - $60M Capital, $500K O&M Year 5 – Newark & Chillicothe - $85M Capital, $750K O&M Year 6 – Athens & Ohio Valley - $84M Capital, $750K O&M Year 7 – Western Ohio - $60M Capital, $500K O&M District capital investment per meter cost ranges from $299 - $348 Note: Costs are indicative based on vendor estimates

13. gridSMART 13 AEP Ohio – AMI Initial Investment $373 $39 $33 $18 $5 $4 MetersInstall Telecom ITLabor Other Capital Investment ($472M) O&M ($4M) $4 O&M

14. gridSMART 14 AEP Ohio AMI Benefits Benefit Area based on 100% DeploymentAnnual Benefits ($ Million) Safety$0.6 Reduce Manual Meter Reading Cost$11.0 Reduce Disconnect/Reconnect Field Orders$5.6 Eliminate Field Check Read Orders$1.4 Reduce Energy Theft Losses$4.8 Reduce Meter Replacement and Testing Avoidance$3.3 Reduce Bill Exception Processing$0.7 Reduce Usage on Inactive Accounts$0.9 Reduce Power Quality Investigation Costs$0.2 Reliability Improvements$0.1 Reduce Non-interruption Service Calls$1.0 Total$29.6 Note: Benefits are based on current activity levels and best estimates at this time

15. gridSMART 15 AEP Ohio – AMI - McKinsey Model Capital ExpendituresElectricCapital ($M)Per Meter Meters 275.7183.15 Network23.515.63 Installation34.823.09 IT Integration and Software9.96.55 Total Capital$ 343.9$ 228.42 Annual O&M$ 6.8$ 4.50 Annual BenefitsCustomer Service15.210.07 Distribution Operations1.81.20 Revenue Enhancement7.34.86 Avoided Capital1.40.95 Total Benefits$ 25.7$ 17.09 Seven Year Deployment Period, Meters – 1,505,414 Results: 20 YR NPV – ($153.5M) Benefits Cover ~ 55% of Investment

16. gridSMART 16 AEP Ohio – Columbus District – AMI - McKinsey Model Capital ExpendituresElectricCapital ($M)Per Meter Meters 159.6260.13 Network13.622.14 Installation20.132.81 IT Integration and Software46.55 Total Capital$ 197.3$ 321.64 Annual O&M$ 2.3$ 3.75 Annual BenefitsCustomer Service8.313.58 Distribution Operations1.01.60 Revenue Enhancement4.77.64 Avoided Capital0.81.29 Total Benefits$ 14.8$ 24.11 Three Year Deployment Period, Meters – 613,385 Results: 20 YR NPV – ($61.1M) Benefits Cover ~ 69% of Investment Customer Density Matters !!! Customer Density Matters !!!

17. gridSMART 17 AEP Ohio Distribution Grid Management Overview ● Estimated Initial Costs SCADA Installations and Upgrades – $78 million Switches and Reclosers - $100 - 200 million Capacitors - $9 million Engineering - $3 million O&M - $3 million Columbus District would be the recommended area to begin deployment Note: Costs are indicative based on vendor estimates

18. gridSMART 18 AEP Ohio – Distribution Grid Management Overview ● Benefits Operating Cost Benefits Improved safety Less field trips Reduced fuel and vehicle expenses Reduced restoration expenses Capital avoidance due to proactive maintenance Reliability Improvements Reduced customer outage minutes - What is the value? Varying levels of automated system reconfiguration during disruptions Real time knowledge of system performance T&D System Efficiency Improved volt/var management Reduced losses on the distribution system caused by our design practices and how we operate the system Improved capital investment decisions based on system intelligence Distribution technology system design, costs and benefits are still being refined; we don’t know what we don’t know

19. gridSMART 19 AMI’s Initial Capital Outlay Is A Foundation for the Future ● Incremental investments Communications bandwidth Business development capital ● Incremental utility-side capital Programmatic, customer-facing and physical device management systems ● Incremental field capital and knowledge-based applications Sensors & device controllers Distribution operations and automation Information management ● Initial capital outlay Meter functionality Communications infrastructure Head-end and legacy systems modifications Capital Build-Up Expected Value Incremental Capital Commitment Distribution Grid Management Demand Response Extended Utility Roles Incremental Value Capture AMI Illustrative Scenario

20. gridSMART 20 gridSMART Recommended Next Steps City Scale gridSMART Initial Phase AEP Ohio will continue technology evaluations, make initial selection(s), and secure pricing in 2008 AEP Ohio recommends continued dialogue followed by filings that will lead to regulatory approval to install both AMI and distribution automation technology with implementation beginning by early 2009 Evaluate results and determine appropriate pace of future deployments PUCO approves cost recovery for AMI implementation for all of AEP Ohio which will result in all meters being converted to AMI by 2015 Development and regulatory approval of new demand response and tariff offerings in conjunction with the AMI deployment

21. gridSMART 21 gridSMART Implementation Will Be Determined By Regulators Return of and on all investment Appropriate depreciation schedules for technology investments Recovery of costs, net of utility benefits realized Customer and Societal Benefits provide additional value that are not captured by the utility

22. gridSMART 22