PJM© Market Efficiency RTEP Proposal Window PJM TEAC 1/9/2014 – Market Efficiency Presentation

PJM© Market Efficiency RTEP Proposal Window Status Window opened on 8/12/2013 Closed on 9/26/ individual proposals addressing congestion from Market Efficiency Analysis 6 entities Project Naming Convention Project Identification Taxonomy: 2013_1-1A RTEP Year RTEP Window Index (within the current year) Project Sponsor index for this window Proposal Index (for multiple proposals from the same Sponsor) PJM TEAC 1/9/2014 – Market Efficiency Presentation

PJM© Regional Market Efficiency Proposals: Page 1 of 2 PJM TEAC 1/9/2014 – Market Efficiency Presentation

PJM© Regional Market Efficiency Proposals: Page 2 of 2 PJM TEAC 1/9/2014 – Market Efficiency Presentation 138 kV

PJM© Market Efficiency Schedule Post Redacted Proposals: November 2013 Review Results: December 2013 – January 2014 Recommendations to PJM Board:February 2014 Begin 2014/2015 Market Efficiency Cycle: February 2014 PJM TEAC 1/9/2014 – Market Efficiency Presentation

PJM© Market Efficiency Results Summary Detailed results presented at December 2013 TEAC 17 Proposals submitted to relieve congestion covering many areas in RTO footprint. –Most project proposals did not pass Benefit/Cost test Three projects passed Benefit/Cost test that relieved congestion on Hunterstown Transformer –Project comparisons performed PJM TEAC 1/9/2014 – Market Efficiency Presentation

PJM© Market Efficiency Proposal 2013_2-4B PJM TEAC 1/9/2014 – Market Efficiency Presentation Description  METED Zone  Install 2nd Hunterstown 230/115 kV transformer; Reconductor Hunterstown - Oxford 115 kV line Project Details:  Proposed by: First Energy  Expected ISD: 2017  Estimated Project Cost: $8 M Posted constraints targeted:  Hunterstown 230/115 kV Results:  Benefit/Cost Ratio = 6.14  B/C >1.25  Low cost solution  See comparison table with other projects in this area

PJM© Market Efficiency Proposal 2013_2-6B PJM TEAC 1/9/2014 – Market Efficiency Presentation Description  METED/PPL Zone  Install new Hunterstown - Cumberland 230 kV line and substation improvements Project Details:  Proposed by: Northeast Transmission Development (LS Power)  Expected ISD: 2018  Estimated Project Cost: $63.9 M Posted constraints targeted:  Hunterstown 230/115 kV Transformer; Three Mile Island – Jackson 230 kV Line Results:  Benefit/Cost Ratio = 1.31  B/C >1.25  See comparison table with other projects in this area

PJM© Market Efficiency Proposal 2013_2-6D PJM TEAC 1/9/2014 – Market Efficiency Presentation Description  PENELEC/METED/APS Zones  Install a new 500/138 kV substation on the existing Conemaugh ‐ Hunterstown 500 kV line; Install a new 138 kV substation: Install a new approximately 6 ‐ mile double ‐ circuit transmission line connecting these two new substations Project Details:  Proposed by: Northeast Transmission Development (LS Power)  Expected ISD: 2018  Estimated Project Cost: $61.7 M Posted constraints targeted:  AP South; Hunterstown 230/115 kV Transformer Results:  Benefit/Cost Ratio = 1.54  B/C >1.25  See comparison table with other projects in this area

PJM© Market Efficiency Proposal Comparison- Hunterstown Area PJM TEAC 1/9/2014 – Market Efficiency Presentation Observations  Cost has major impact on results  All projects provide benefit  Reliability Tests  Project 2013_2-4B requires new circuit breaker  Projects 201_2-6D has several reliability violations. If costs exceed $14.5 million then B/C ratio would fall below 1.25 threshold

PJM© Market Efficiency Proposal Comparison- Hunterstown Area PJM TEAC 1/9/2014 – Market Efficiency Presentation Sensitivity Runs*  Project 2013_2-4B has highest B/C ratio under all sensitivities  All projects pass B/C threshold with future generation scaling removed in local area  All projects pass B/C threshold if in- service year delayed one year *Sensitivity runs do not include costs associated with necessary reliability upgrades.

PJM© Incremental Project Tests - Hunterstown Area PJM TEAC 1/9/2014 – Market Efficiency Presentation  If project 2013_2-4B was approved, would either project 2013_2-6B or 2013_2-6D be beneficial?  Not recommended to combine Projects

PJM© Project Recommendation Recommended project:  Install 2nd Hunterstown 230/115 kV transformer; Reconductor Hunterstown - Oxford 115 kV line.  Cost: $8.018 Million  Builder: First Energy  2017 Expected In-Service Date  Benefit/Cost Ratio: 6.14  Removes congestion on Hunterstown 230/115 kV Transformer  Risk is smaller than other projects  Low cost and High Benefit  Recommendation to Board in February PJM TEAC 1/9/2014 – Market Efficiency Presentation

PJM© _2-4B Cost Benefit Analysis Project Description Install 2nd Hunterstown 230/115 kV transformer; Reconductor Hunterstown - Oxford 115 kV line Expected In-Service Date Project Costs $8.018 Million projected cost Total revenue requirement during first 15 years of project life is $11.67 million based on a carrying charge rate of 16.7% Project Benefits Cumulative net present value of project benefits during first 15 years of project life is $71.62 million based on a discount rate of 7.7% Benefit/Cost Ratio = $71.62 million/$11.67 million = 6.14 PJM TEAC 1/9/2014 – Market Efficiency Presentation Annual Energy Market Benefit (Millions) Study Year Net Load Payment Benefit Production Cost Benefit Energy Market Benefit Total NPV$210.0$12.4$71.6 Total Energy Market Benefit = 0.7*PC + 0.3*NLP

PJM© PJM TEAC 1/9/2014 – Market Efficiency Presentation 2013_2-4B Annual Energy Market Benefit

PJM© Market Efficiency Next Steps Recommendation to PJM Board:February 2014 Begin 2014/2015 Market Efficiency Cycle: February 2014 Coordinate with Interregional group for Joint PJM/MISO study PJM TEAC 1/9/2014 – Market Efficiency Presentation