Need for Transmission Investment 2010 Mid-American Regulatory Conference AEP

47% of Nation’s Generation Interconnection Queue Renewable Energy Development

Cost Allocation: Comparison to Other RTO’s RTOCost Allocation* PJMReliability 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 NEReliability 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. ERCOTPUCT-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. CAISOThe 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. NYISOCosts allocated based on beneficiary pays SPP**Cost of upgrades at or above 300 kV are allocated regionally. For upgrades between 100KV to 300KV 1/3 rd of the costs would be allocated regionally and 2/3 rd 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. MISOUpgrades 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 RTOTransmission InvestmentAnnual Future Investment Transmission Line (miles) Wind [7] Capacity (MW) Total Gen Capacity (MW) ISO New England Actual 2007 spend of $500MM Expected spend of $4.2B [1] $800MM8, ,700 MISOActual investment of $1.67B in 2006 and 2007 Future spend of $4.3B between [3]. $900MM111,0007,200138,556 New York ISO Expected spend of $2B$400MM10,9001,27538,000 PJM spend of $6B in reliability projects [2]. $1B56,3502,500165,000 ERCOTActual spend of $1.3B since 2008 and Future spend of $8.2B [4] $1.2B40,3279,00080,000 CAISOFuture Spend of $5B between $1B25,0003,00049,000 [6] SPPFuture spend of $4.2B between [5] $420MM50,5754,00066,000 1 Obtained from RTO report card published 2009 by Christensen Associates and National Rural Electric Cooperation Association 2 Obtained from PJM 2009 RTEP report 3 Obtained from MISO 2009 MTEP report 4 Obtained from 2009 ERCOT Constraints and needs report 5 Obtained from 2009 SPP’s STEP report and does not include priority projects 6 Does not include 10,000MW of imports 7 Reflects existing wind capacity