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Energy Committee October 24, 2012

Table of Contents Page# Agenda

3

Bio

4

OMA Policy Report

5

OMA Counsel Report

7

OMA News & Analysis

37

OMA Energy Legislation Update

42

Supplemental Materials

Michelle Bloodworth, Vice President of State Affairs and Business Development, America's Natural Gas Alliance - Natural Gas: Smarter Power Today Presentation

47

Andrew Ott, Sr. Vice President, Markets, PJM

Interconnection - PJM and Its Markets Presentation

64

Steve Herling, Vice President Planning, PJM Interconnection – PJM Regional Transmission Expansion Plan (RTEP) Overview Presentation

82

The OMA Energy Group’s Motion to Intervene and Objections

91

DTE Energy signs MoU to develop NEXUS gas transmission system

101

Kurt Waninger, Columbia Gas of Ohio, Natural Gas/Energy Update

102

2013 Energy Committee Calendar Thurs., Feb 21, 2013 Wed., May 22, 2013 Wed., Aug. 14, 2013 Wed., Nov. 6, 2013

OMA Energy Committee Meeting Sponsor:

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OMA Energy Committee Agenda October 24, 2012

Welcome and Introductions

Brad Belden, Belden Brick Company

Public Policy Report & Counsel Report

Ryan Augsburger, OMA Staff Thomas Siwo, Bricker & Eckler, LLP

Guest Presentations

Kerry Stroup, PJM Interconnection Mark Bering, Nexus Gas Transmission

Natural Gas Report

Kurt Waninger, Columbia Gas

Lunch

Meeting sponsored by:

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Mr. Stroup represents PJM and coordinatesaffairs with the state regulatory and legislativebodies in Kentucky, Ohio and West Virginia.

Prior to joining PJM, Mr. Stroup was AssociateDirector with the National Regulatory ResearchInstitute. Throughout most of his career, Mr.Stroup worked in the state utility regulatoryarena at the Public Utilities Commission of Ohio,where he administered the Divisions ofTelecommunications and Electricity beforebecoming Director of the Utilities Department.

Mr. Stroup received a bachelor of arts degreefrom The College of Wooster, and a master’sdegree in public policy and doctorate in culturalanthropology from The Ohio State University.

Mr. Stroup is an adjunct professor at The OhioState University and co-teaches an annualseminar at the Moritz College of Law.

PJM Interconnection, founded in 1927, ensuresthe reliability of the high-voltage electric powersystem serving 54 million people in all or partsof Delaware, Illinois, Indiana, Kentucky,Maryland, Michigan, New Jersey, NorthCarolina, Ohio, Pennsylvania, Tennessee,Virginia, West Virginia and the District ofColumbia. PJM coordinates and directs theoperation of the region’s transmission grid,which includes 6,038 substations and 56,500miles of transmission lines; administers acompetitive wholesale electricity market; andplans regional transmission expansionimprovements to maintain grid reliability andrelieve congestion.

Kerry Stroup is manager – Regulatory and Legislative Affairs of PJM Interconnection.

Kerry Stroup

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To: OMA Energy Committee From: Ryan Augsburger Re: Energy Public Policy Report Date: October 24, 2012 Overview Policy shifts in 2012 have transitioned Ohio from a state that governs electric rates based on state regulation towards a competitive pricing model where prices are set by market auction. The OMA Energy Group has been especially active in steering intervention efforts before the Public Utilities Commission of Ohio (PUCO). At the same time policymakers have acted on law changes to facilitate exploration and production of Ohio’s shale gas resources. Electricity Rates The PUCO approved a modified AEP rate plan in August. This decision described in detail on the attached memo by counsel, paves the way for unlimited shopping while compensating the utility for the transition. Manufactures will be required to pay transition costs. The OMA Energy Group intervened in all cases to advocate for policies to protect the manufacturing sector as a whole and has filed appeals on many fronts, many of which are still pending. While their rate plan was previously approved and in effect, Duke Energy recently filed to change (increase) capacity pricing, emulating the AEP decision. The AEP cases considered together with Duke and FirstEnergy signals a sea change in the way Ohio regulates and prices electricity for all customer classes. Electricity Transmission Constraints Around Cleveland In early September Steve Herling, Vice President, Planning, for PJM Interconnection described to the OMA Energy Group the significant transmission constraints facing the greater Cleveland region. The constraints will require some combination of costly investments in new transmission lines and new generation. If you have operations in the region, you’ll want to pay attention to this issue. See attached presentation materials by PJM Interconnect. Shale Gas Ohio continues to be hub for shale development. While natural gas market prices are forecast to remain low for years, Ohio’s abundant Utica shale is expected to continue to drive growth in the sector. The Utica shale is thought to contain vast reserves of gas and gas liquids that command a premium above other shale plays. Shale related policy highlights include:

Ohio Department of Natural Resources and the Public Utilities Commission have been implementing law changes contained in Senate Bill 315 to facilitate production and transportation of gas and gas liquids. The OMA has held talks with industry leaders of the American Natural Gas Association. They are working to promote policies to increase demand and usage of natural gas. Possible areas for expanded utilization: power generation, transportation propulsion, fuel cell, fleet transportation. ANGA organized and hosted a natural gas vehicles summit in October to discuss options to promote natural gas as a fuel source for cars and trucks. See ANGA presentation materials attached.

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Severance tax revision is among the most controversial issues being discussed around capitol square. In March the Governor proposed a new severance tax structure largely intended to levy a competitive tax on horizontal drilling. The new revenue would be used to fund personal income tax reductions. The General Assembly took a dim view of the Governor’s proposal and stripped it from the mid-biennium review, HB 487. Many members of the General Assembly have signed a pledge against any form of new taxes. Nonetheless, Governor Kasich presses onward with a revamped severance tax structure. HB 559 is expected to advance in the post-election session. The bill requires oil and gas producers to report to ODNR the country of origin of steel pipe and related material used down-hole. The bill is intended to ensure public protection from inferior pipe sourced from overseas. Oil and Gas industry groups have opposed the legislation. The Senate already passed a similar bill and awaits action by the House. Two rounds of pipeline infrastructure upgrades and investment have been announced over the past few months. Billions of dollars of system upgrades are literally in the pipeline to serve the abundant new supply. See presentation on NEXUS pipeline project.

Governor’s Energy Bill and Combined Heat and Power Before lawmakers left for the summer, the General Assembly concluded work on the Governor’s energy bill, Senate Bill 315 (Jones, R-Springboro). The bill was the vehicle for many of the oil and gas regulation updates, but it also contained language intended to encourage more broad utilization of waste energy recovery and combined heat and power. A detailed analysis of SB 315 by counsel was included in the June 6 meeting materials. Contact staff for another copy. CHP as an energy efficiency tool, is a focus for OMA advocacy. John Seryak presented at a PUCO workshop on CHP challenges and opportunities for manufacturers. Ohio House 21st Century Manufacturing Task Force The General Assembly has convened a task force to learn about manufacturing and make policy recommendations. Four hearings have been held onsite at manufacturing facilities so far. Energy is a topic of frequent discussion. Upcoming meetings will be held on Nov 15 in Columbus, on Nov 26 in Cleveland, and on Dec 7 in Cincinnati. The meetings are open to the public. Members are encouraged to attend a hearing near you.

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http://www.legislature.state.oh.us/bills.cfm?ID=129_SB_315

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COLUMBUS I CLEVELAND CINCINNATI-DAYTON

BRICKER & ECKLER LLP 100 South Third Street Columbus, Ohio 43215-4291 MAIN: 614.227.2300 FAX: 614.227.2390

www.bricker.com [email protected]

Thomas J. O'Brien 614.227.2335 [email protected] Matthew W. Warnock 614.227.2388 [email protected] J. Thomas Siwo 614.227.2389 [email protected]

OMA ENERGY COMMITTEE

COUNSEL’S REPORT

Thomas O’Brien, Matthew Warnock, J. Thomas Siwo

Bricker & Eckler LLP, Counsel to the OMA

October 24, 2012

ADMINISTRATIVE ACTIONS: Electric and Gas Proceedings

1. AEP-Ohio’s Electric Security Plan (“ESP”) Case No. 11-346-EL-

SSO et al.

This case involves the default or Standard Service Offer (“SSO”) pricing for

customers who do not shop in AEP-Ohio’s service territory for the years

2012-2015. In January 2011, AEP-Ohio filed an application for a 29-month

ESP beginning on January 1, 2012, based upon a quasi-cost based default

rate. A new market-based rate settlement offer emerged in August 2011. On

September 7, 2011, 22 of the parties agreed to a settlement framework.

While the PUCO initially adopted the settlement with some changes, on

February 23, 2012, the PUCO reversed itself and rejected the settlement.

The result of the PUCO’s rejection of the settlement is that each of the cases

that were consolidated revert back to the point at which the consolidation

occurred on their own. Additionally, AEP-Ohio was required to make a new

ESP filing. On March 30, 2012, AEP-Ohio filed its revised ESP proposal

(“Revised ESP”) and supporting testimony.

AEP-Ohio’s Revised ESP would begin upon PUCO approval (estimated late

summer 2012) and end on June 1, 2015. Under the plan, there would be

limited base generation rate increases but there is the addition of a non-by-

passable “Retail Stability Rider” and new distribution rate increases that

combine to increase rates on average 4.5% in the first year, and then, with the

addition of the Phase In Recovery Rider in the second year, the rates increase

an incremental 3.77% on average, and finally, increase an additional 0.25%

in year three. However, AEP-Ohio’s estimates of individual customer rate

increases varied greatly and could be significantly higher than reflected by

the average. There was also limited shopping pursuant to a queuing process.

AEP-Ohio also proposed to terminate the AEP Pool agreement and hold an

energy only auction for 5% of its load immediately upon approval of the

Revised ESP and corporate separation plan, an energy only auction for 100%

of its load in January 2015, and a competitive bidding process (auction) for

capacity and energy for June 1, 2015. Finally, the Revised ESP would

maintain the rate design from 2011 and did not include any load factor

provision or market transition rider.

On August 8, 2012, the PUCO approved AEP-Ohio’s ESP with

modifications. The PUCO’s decision has multiple moving parts and creates

significant costs for future recovery. Generally, the base generation rates

remain frozen, and, given that the capacity costs for shopping customers are

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Bricker & Eckler A T T O R N E Y S A T L A W

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based upon the PJM RPM auction prices, there are opportunities for customers to shop at

favorable generation rates. However, the PUCO increased the non-by-passable charges

that will appear on the distribution portion of customers’ bills by increasing the Retail

Stability Rider and adding immediate deferred capacity cost recovery. Additionally, the

Phase-in Recovery Rider cost recovery will begin. Also, several new cost categories

have been created where AEP-Ohio is accumulating costs and carrying charges for future

recovery that have not and cannot be quantified. In other words, when market costs are

projected to increase, the recovery of costs currently being deferred will begin.

On August 22, 2012, the PUCO approved the new rates and tariffs proposed by AEP-

Ohio. Accordingly, the new rates took effect in the first billing cycle of September.

On September 7, 2012, AEP-Ohio, the OMA Energy Group (“OMAEG”), and several

other parties filed applications for rehearing requesting that the PUCO reverse or clarify

numerous parts of its August 8, 2012 decision on AEP-Ohio’s ESP. Among other things,

AEP-Ohio requested that the PUCO limit the applicability of the state compensation

mechanism (which essentially permits AEP-Ohio to recover $189/MW-D from shopping

customers for capacity costs) to shopping customers only. Conversely, the OMAEG

requested that the PUCO reduce AEP-Ohio’s base generation rates for non-shopping

customers to $189/MW-D to prohibit discriminatory capacity pricing.

On October 3, 2012, the PUCO granted the applications for rehearing filed by several

parties, including, the OMAEG/OHA, AEP-Ohio, Kroger, Ormet, OEG, FES, IEU-Ohio,

Ohio Schools, and OCC/APJN for further consideration of the matters specified in the

applications for rehearing. This essentially gives the PUCO indefinitely more time to

issue a substantive rehearing.

2. AEP-Ohio’s Cost of Capacity Case (Case No. 10-2929-EL-UNC)

This case establishes the price that competitive retail electric service (“CRES”) providers

must pay AEP-Ohio for using its capacity to serve shopping customers by establishing a

state compensation mechanism for AEP-Ohio. This case was consolidated with the ESP

but was separated back out when the PUCO rejected the ESP settlement (discussed

above).

In the Entry on Rehearing on the ESP, the PUCO approved AEP-Ohio’s requested two-

tier capacity pricing scheme until May 31, 2012, under which the first 21% of each

customer class (residential, commercial and industrial) that shopped on or before

September 7, 2011, was entitled to receive the market capacity price. For all other

shopping customers, the second-tier charge for capacity was $255.00/MW-day.

As for the long-term state compensation mechanism to set the capacity price for shopping

customers, a full hearing was conducted at the end of April 2012. AEP-Ohio argued that

the PUCO does not have jurisdiction to establish a wholesale capacity cost recovery rate

and that requiring AEP-Ohio to only recover the market rate would be financially

devastating and confiscatory. Intervening parties, including the OMAEG, argued, among

other things, that authorizing AEP-Ohio to recover its full embedded capacity costs is not

authorized by PJM (the regional transmission and reliability organization), not

recoverable under Ohio law, and does not properly reflect AEP-Ohio’s offsetting

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revenues. The intervenors universally recommended rejecting AEP-Ohio’s proposal to

recover cost-based rates as unreasonable and unlawful and having a negative impact on

shopping customers and competition generally.

On July 2, 2012, the PUCO issued an order on the merits of AEP-Ohio’s request to

charge shopping customers its fully embedded cost of generating capacity. The PUCO

determined that the state compensation mechanism should be cost-based and, thus, AEP-

Ohio is entitled to recover its costs of capacity at $188.88/MW-D. However, the PUCO

also determined that AEP-Ohio is permitted to charge competitive suppliers only the PJM

RPM price, and authorized AEP-Ohio to defer the difference between the $188.88/MW-

D and the PJM RPM price plus carrying costs for future recovery.

On July 20, 2012, AEP-Ohio filed an application for rehearing, regarding the PUCO’s

July 2, 2012 Opinion and Order. The OMA, among others, filed a memorandum contra

AEP-Ohio’s application for rehearing. The OMA argued that the PUCO’s decision to

allow AEP-Ohio to recover the PJM RPM auction price is in no way confiscatory or an

unconstitutional taking. The OMA also argued that all shopping customers should be

eligible for the PJM RPM price, not just a limited population as AEP-Ohio suggested.

Additionally, numerous parties filed applications for rehearing of the PUCO’s decision,

including the OMA. The OMA argued that the PUCO’s decision to permit AEP-Ohio to

recover only the PJM RPM auction price was appropriate but the PUCO’s decision to

permit AEP-Ohio to defer for future recovery the delta between $188.88/MW-Day (the

PUCO-determined cost of AEP-Ohio’s capacity) and the PJM RPM auction price was

unreasonable and unlawful.

On September 4, 2012, IEU-Ohio filed a direct action to the Ohio Supreme Court, called

a writ of prohibition. Specifically, the complaint seeks to prohibit the PUCO from

applying a cost-based ratemaking methodology to increase AEP-Ohio’s compensation for

generation capacity service available to CRES providers. Additionally, the complaint

seeks an order prohibiting the PUCO from authorizing non-by-passable charges to

recover amounts not collected from CRES providers for generation capacity service. The

PUCO must still rule on the pending applications for rehearing, including the OMAEG’s

application, and the normal appellate process will still apply. The writ is an extreme

measure that has not historically been particularly successful.

On October 17, 2012 the PUCO issued an entry on rehearing granting in part and denying

in part the applications for rehearing. The PUCO granted rehearing for the “limited

purpose” of making two clarifications. First the PUCO clarified that all customers that

were shopping as of September 7, 2012 should have continued to receive RPM-based

capacity pricing during the period in which the interim state compensation mechanism

was in effect. Therefore, AEP-Ohio was directed to make the necessary adjustments to

CRES billings that occurred during the interim period consistent with the PUCO’s

clarification. Secondly the PUCO clarified the fact that the PUCO is authorized, pursuant

to R.C. Sections 4905.26, 4905.04, 4905.05, and 4905.06, to issue the Capacity Order.

Other than two clarifications, the PUCO denied the applications for rehearing. In

particular, the PUCO denied OMAEG’s argument that AEP-Ohio’s proposal to increase

and extend AEP-Ohio’s interim capacity pricing was not supported by the record. The

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PUCO further denied OMAEG’s request to establish an escrow account in which AEP-

Ohio would deposit the difference between the two-tiered interim relief and the RPM-

based capacity price. Finally the PUCO found that it was unnecessary to address the

arguments raised by OMAEG and the other intervenors regarding the deferral recovery

mechanism, and thus denied the requests for clarification and rehearing.

3. Turning Point Solar Need Case (Case No. 10-501-EL-FOR)

This case is about AEP-Ohio’s demonstration that it needs the Turning Point solar project

to meet its solar benchmarks through AEP-Ohio’s long term forecast process.

Specifically, on April 15, 2010, AEP-Ohio filed their 2010 long-term forecast report

(“LTFR”), which contains information on AEP-Ohio's energy demand, peak loads, and

reserves, as well as a resource plan that AEP-Ohio can implement to meet anticipated

demand. On December 20, 2010, AEP-Ohio filed a supplement to its LTFR to offer

supporting information concerning its intent to enter a capital leasing arrangement for a

total of 49.9 MW of solar energy resources, known as the Turning Point project, to

facilitate compliance with its solar energy benchmarks. On January 12, 2011, PUCO

Staff filed a motion for a hearing in these cases, and the PUCO determined that as the

addition of over 49 MW of solar energy resources was a significant addition in generating

facilities, a hearing was required and scheduled for March 2011. On November 21, 2011,

AEP-Ohio and Staff filed a settlement that would resolve all of the issues raised in these

proceedings. A hearing on the reasonableness of the settlement was held in March 2012,

with FirstEnergy Solutions and IEU-Ohio opposing the settlement.

On September 5, 2012, the PUCO issued an Entry finding that additional information is

necessary. Therefore, the PUCO reopened the record for the limited purpose of

permitting additional briefing on only: (1) how the PUCO should properly determine

there is a need for the Turning Point project (limited to energy and capacity only, or

compliance with the RPS as well); and, (2) whether the PUCO, in evaluating the need for

the Turning Point project, should solely consider AEP-Ohio’s need for the project, or

whether the PUCO should look beyond the need of AEP-Ohio or its service territory.

Initial briefs for the sole purpose of addressing these issues are due by October 3, 2012,

and reply briefs by October 17, 2012.

While a decision has yet to be issued by the PUCO, even if the PUCO determines that

AEP-Ohio needs the Turning Point facility, there will still be an additional case to

determine whether a non-by-passable rider to recover the costs is appropriate.

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4. Ormet Deferral Request (Case No. 09-119-EL-AEC)

On October 12, 2012, Ormet Primary Aluminum Corporation (“Ormet”) filed a Motion

with the PUCO requesting approval of a modification to its existing Unique Arrangement

with AEP-Ohio. In its Motion, Ormet requested that the PUCO approve a modification to

its existing Unique Arrangement to permit a deferral of the amount billed by AEP to

Ormet for October and November 2012 billing periods (due in November and

December). Ormet states that it will pay those bills in the twelve months of 2014 and the

first five months of 2015 in equal monthly installments equal to 1/17th

(or 5.88235

percent) of the cumulative amount of those two bills. Ormet alleged “its immediate cash

flow problem” as the basis for its request for expedited treatment of its request. Ormet

cites the current market conditions for the price of raw aluminum and the economic

conditions of Monroe County as further support for its request.

On October 17, 2012, the PUCO approved Ormet’s expedited request for payment

deferrals, subject to a $20 million cap. The OMAEG was the single party to submit

objections to Ormet’s plan, arguing that Ormet’s request “will impose an additional cost

on ratepayers in the event that Ormet defaults on the repayment of the deferral” and that it

“gives [Ormet] every incentive to default because AEP-Ohio is held harmless, as a result,

the ratepayers will not have standing to sue Ormet in the event of default.” Therefore,

automatic recovery should not be treated as delta revenues.

5. AEP's Corporate Separation Docket (Case Nos. 11-5333-EL-UNC and 12-1126-EL-

UNC)

AEP-Ohio needed corporate separation approval from the PUCO prior to pricing its

standard service offer through an auction process so that it can use its generating assets to

compete against other suppliers.

On January 23, 2012, the PUCO issued an Order approving the proposed corporate

separation subject to several conditions. However, when the PUCO rejected the ESP

stipulation, AEP-Ohio withdrew its corporate separation plan as unnecessary.

Shortly after AEP-Ohio filed its modified ESP proposal in March 2012, AEP-Ohio filed a

new, separate corporate separation plan. On May 29, 2012, the PUCO issued an entry

ordering that consideration of AEP-Ohio's amendments to its corporate separation plan be

suspended until the PUCO specifically orders otherwise.

Several parties submitted comments regarding AEP-Ohio’s corporate separation plan,

including the OMA Energy Group. Essentially, most parties’ comments addressed the

fact that AEP-Ohio failed to provide enough information and evidence to support the

reasonableness of its application; therefore, requesting that the PUCO direct AEP-Ohio to

file the net book and market value of the generating assets and set the matter for hearing.

Nonetheless, on October 17, 2012, the PUCO approved AEP-Ohio’s plan to separate its

electricity generating assets from its distribution infrastructure.

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6. Duke Electric Distribution Rate Case (Case No. 12-1682-EL-AIR)

On July 9, 2012, Duke filed an application for increase of its natural gas rates in which it

seeks an increase in the amount of $44.6 million. Duke is currently earning a 4.9% rate

of return and is seeking an 8.13% rate of return. Duke proposes that the increases take

effect in January 2013. The proposed rate increases (on average, depending on usage and

not including the cost of gas) are as follows:

GS-S (General Service-Small): 3%-41%

GS-L (General Service-Large): 20%-31%

FT-S (Firm Transportation-Small): 3%-41%

FT-L (Firm Transportation-Large): 20%-31%

IT (Interruptible Transportation): 14%

Duke proposes to continue its Accelerated Main Replacement Program (“AMRP”). This

program was initiated in 2001 to replace bare steel and cast iron mains that were installed

many years ago and have high leak and breakage levels. Duke proposes to also use the

AMRP to continue replacing risers that are prone to fail and to move inside meters

outside. Duke anticipates spending $211 million between 2012 and 2015 to complete this

program.

Duke also is proposing a new program, the Accelerated Service Replacement Program

(“ASRP”), to replace both pre-1971 coated steel main-to-curb and curb-to-meter service

lines and other unprotected metallic service lines that are not covered under the AMRP.

Duke expects to spend $307 million between 2013 and 2022 on the ASRP program. The

estimated annual average amount of this revenue increase (not rate increase) per customer

class is: $20.3 million average annual for residential customers, and; $1.8 million average

annual for general service and firm transportation customers.

Additionally, Duke plans to continue its Advanced Utility (“AU”) rider, which recovers

costs of grid modernization, including Advanced Metering Infrastructure (“AMI”). Duke

expects to spend $31 million between 2012 and 2014 to complete this program. The

OMA filed a motion to intervene on September 14, 2012 and is monitoring the case.

7. Duke Gas Distribution Rate Case (Case No. 12-1685-GA-AIR)

Similarly to Duke’s gas distribution case, Duke filed an application for increase of its

electric rates in which it seeks an increase in the amount of $86.6 million. Duke is

currently earning a 3.18% rate of return and is requesting an 8.13% rate of return. Duke

proposes that the electric rate increases also take effect in January 2013. The proposed

rate increases (on average and depending on usage and season) are as follows:

DS (Distribution at Secondary Voltage): 3%-6%

DM (Secondary Distribution Service-Small): 1%-9%

DP (Primary Voltage): 4%-9%

TS (Transmission Voltage Primary): less than 1%

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8. Duke Capacity Cost Case (Case No. 12-2400-EL-UNC)

Over the last few years, Duke has switched regional transmission organizations (“RTO”)

from the Midwest Independent System Operation (“MISO”) to PJM. PJM’s auctions to

set the capacity prices take place three years ahead of the delivery date. Thus, when Duke

switched to PJM, it was out of cycle on the auction processes and needed to hold Duke-

only capacity auctions until it could participate in the base residual auctions as a

reliability pricing model (“RPM”) entity and get back onto the normal PJM cycle. In the

meantime, Duke was considered a fixed resource requirement (“FRR”) entity, which

essentially means that Duke has its own, off-cycle auctions. Pursuant to the electric

security plan (“ESP”) that was recently finalized by a near-unanimous settlement, until

June 1, 2015, when Duke will be a RPM entity, for its capacity, Duke receives an auction-

based final zonal capacity price (“FZCP”) in its territory – not Duke’s actual costs of

capacity.

AEP-Ohio is also an FRR entity for a different reason. AEP-Ohio elected the FRR status

because it operates its utilities as a group under a nearly 60-year old pooling agreement

where, if one utility is capacity long, it sells to other AEP utilities that are capacity short

at cost. In other words, AEP self-supplies capacity to its utilities and does not use the

PJM capacity auction.

The PUCO recently issued a decision on AEP-Ohio’s request to establish a “state

compensation mechanism” that allows AEP-Ohio to charge CRES providers its actual

cost of capacity, rather than using the PJM auction results as a proxy as the market prices

for capacity are currently very low. The PUCO held that, while FRR entities may only

charge CRES providers the PJM auction price for capacity, FRR entities are entitled to

defer the difference between the low market price and actual costs and ultimately recover

their actual costs of capacity from all Ohio retail customers.

Based upon the PUCO’s AEP-Ohio capacity cost decision, on August 29, 2012, Duke

filed an application to defer the difference between its costs and the market price for

capacity and to establish a cost-based charge, pursuant to Ohio’s newly adopted state

compensation mechanism. Duke seeks approval of a new tariff designated as Rider

Deferred Recovery – Capacity Obligation (“Rider DR-CO”), which will enable it to

collect the deferred difference between the FZCP and its costs, like what the PUCO just

authorized AEP-Ohio to do. Specifically, Duke requests to defer over $259 million per

year for the next three years.

The OMA filed a motion to intervene on September 13, 2012 and opposed Duke’s

application. On October 3, 2012, the attorney examiner issued an entry establishing a

passive procedural schedule. Accordingly, the schedule provides as follows: 1) deadline

for filing comments on the application is January 2, 2013; 2) deadline for all parties to file

reply comments is February 1, 2013; 3) deadline for Duke to file testimony is March 1,

2013; 4) deadline for PUCO Staff to file testimony is March 19, 2013; and, 5) the hearing

is scheduled to commence on April 2, 2013, at 10:00a.m. at the PUCO. A joint group of

intervenors, including the OMAEG, filed a joint motion to dismiss for the PUCO to deny

Duke’s request for cost-based capacity pricing. As you may know, if the PUCO grants

our joint motion to dismiss, then the case will not proceed.

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9. The Dayton Power and Light Company’s ESP (Case No. 12-426-EL-SSO)

This case involves the default or Standard Service Offer (“SSO”) pricing for customers

who do not shop in DP&L’s service territory for the years 2013 and beyond. The ESP

currently in effect through the end of 2012 provided that the parties would file a new ESP

application by March 31, 2012.

On March 30, 2012, DP&L filed a market rate offer (“MRO”) as its next SSO plan for the

period January 1, 2013 through May 31, 2018.

After several months of negotiations, on September 7, 2012, DP&L officially withdrew

its MRO filing and announced that it intended to file a new ESP plan that would likely

seek some assurance that DP&L has the opportunity to hit a return on equity target of

between 7-11%, which would reflect language in the PUCO’s AEP ESP decision. DP&L

filed a motion to set a procedural schedule for its ESP, which is very aggressive and

includes a hearing over the Thanksgiving holiday.

As it is unlikely that the PUCO will approve a new ESP prior to the end of 2012, the

PUCO will likely have to determine how DP&L’s current rate plan will continue in the

interim. Specifically, DP&L’s current rate plan includes a substantial non-by-passable

rate stabilization charge that is scheduled to expire at the end of 2012, regardless of

whether a new plan has been approved. If a new plan cannot be put into effect prior to

January 1, 2013, DP&L will likely argue that the non-by-passable charge continues.

At the close of business on Friday, October 5, 2012, DP&L filed its application for

approval of an ESP. DP&L’s plan seeks the following:

Proposed plan covers a 5-year period beginning January 1, 2013 and ending

December 31, 2017;

Blends existing SSO with competitive market-based auction price to derived blended

SSO;

o Initial auction of 10% of load to supply SSO in 2013

o 40% in 2014

o 70% in 2015

o 100% in 2016

Proposed Service Stability Rider (SSR) of $120 million per year through the end of

the term.

Also, DP&L has proposed an extremely accelerated schedule requiring that all Intervenor

testimony be filed by October 29, 2012 and that all discovery be completed by November

5, 2012. DP&L further proposes a six-day hearing commencing November 13, 2012, that

all post-hearing briefing be completed within less than two weeks after the abbreviated

hearing concludes, and that a PUCO decision be issued by December 17, 2012.

Accordingly, a group of joint intervenors filed a memorandum contra to DP&L’s new

proposed procedural schedule. On October 22, 2012, the attorney examiner issued an

entry setting the prehearing conference for November 9, 2012, at 10:00am at the PUCO.

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10. FirstEnergy’s ESP (Case No. 12-1230-EL-SSO)

This case involves the default or Standard Service Offer (“SSO”) pricing for customers

who do not shop in FirstEnergy’s (Ohio Edison, Cleveland Electric Illuminating and

Toledo Edison, collectively, FirstEnergy or “FE”) service territory for the years 2014-

2016.

On April 13, 2012, FE filed an application for a two-year extension of its current ESP and

a stipulation and recommendation. Further, FirstEnergy requested that the PUCO set an

expedited procedural schedule for the stipulated ESP because, if approved by May 2,

2012, the plan includes provisions to allow FirstEnergy to bid demand response resources

and energy efficiency resources into the 2015/2016 PJM base residual auction on May 7,

2012, or, if approved by June 20, 2012, to permit adequate time to implement changes to

the bidding schedule to capture a greater amount of generation at lower prices for the

benefit of customers.

The plan was contested and the parties opposing the settlement argued that the ESP does

not pass the test for approval as it is not more favorable in the aggregate than the expected

results of an MRO.

On July 18, 2012, the PUCO issued an order approving the ESP.

On August 17, 2012, several parties filed applications for rehearing regarding the

PUCO’s July 18 Order, including: OCC; The Sierra Club; RESA, Direct Energy Services,

and Direct Energy Business; NOPEC; IGS; and, the Environmental Law & Policy Center.

On September 12, 2012, the PUCO granted itself indefinitely more time to consider the

issues on rehearing.

11. FirstEnergy’s 3% Compliance with Alternative Energy Requirement Case (Case

No. 11-5201-EL-RDR; related to Case No. 11-2479-EL-ACP)

This case is to determine whether FirstEnergy exceeded the 3% cost cap in complying

with Ohio’s renewable energy portfolio requirements. This case will also establish the

method for determining the 3% cost cap, which is the bright-line customer protection

provision from excessive costs associated with renewable energy mandate compliance.

On August 15, 2012, external auditor reports were filed with the PUCO, which evaluated

whether or not FirstEnergy complied with the 3% cost cap mandate under Ohio law.

Specifically, although each utility making sales to retail Ohio customers must ultimately

achieve 12.5% of sales from renewable energy resources by 2025, the utilities are excused

from the requirements if the reasonably expected cost of that compliance exceeds its

reasonably expected cost of otherwise producing or acquiring the requisite electricity by

3% or more. The audits of FirstEnergy’s process of acquiring renewable energy credits

(“RECs”) to achieve its goals found that, while FirstEnergy technically complied with

Ohio law, FirstEnergy paid “unreasonably high prices” for RECs that it purchased in

comparison to prices paid by other utility companies anywhere in the country. The

expenses FirstEnergy incurred by overpaying for its RECs were passed on to customers

through the alternative energy resource rider (“Rider AER”), in addition to interest

payments. Accordingly, the audit reports recommend that the PUCO consider not

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allowing FirstEnergy to pass on the excessive costs to customers. This case was

scheduled to go to hearing in November; however, FirstEnergy has requested a

continuance under January 2013. The PUCO should soon issue a decision as to whether

the case will be postponed.

12. Energy Efficiency/Peak Demand Reduction (“EE/PDR”) Portfolio Plan Case (Case

No. 12-2190-EL-POR)

On July 31, 2012, FirstEnergy filed an application for approval of its three-year energy

efficiency and peak demand reduction program portfolios, as well as for approval of its

respective benchmark compliance reports. FirstEnergy filed its plan for the 2013-2015

period for the purpose of complying with mandates established in Amended Substitute

Senate Bill 221 (“SB 221”). In general, FirstEnergy states that its proposed plans include

virtually all components contained in its existing plans, but also aims to provide

customers with more opportunities for energy and related cost savings. FirstEnergy’s

target customer sectors, include: (1) residential-low income; (2) residential-other; (3)

small enterprise; (4) mercantile-utility; and, (5) governmental. Specific to small

enterprise programs and mercantile-utility programs, FirstEnergy seeks to expand its C&I

Energy Efficient Equipment Program with respect to its HVAC sub-program, LED,

halogen, and other EE lighting technologies in the lighting sub-program, but removed

rebates for motors up to and over 200HP although it will consider rebates for motors in

their custom equipment sub-program.

FirstEnergy also requests modification to its demand reduction program to allow it “to

count for purposes of peak demand reduction compliance, demand resources participating

in the PJM market for the applicable delivery year, without the need to contract for these

resources separately.” Finally, FirstEnergy states that regarding cost recovery, it does not

seek to modify their Riders DSE in his proceeding; however, the revenues received

through the PJM capacity auctions and any shared savings from the incentive mechanism

included in the proposed plans will pass through the riders.

On August 16, 2012, the Attorney Examiner issued an entry setting forth the procedural.

OMAEG filed a motion to intervene and objections on September 12, 2012. On

October 5, 2012, OMAEG filed the testimony of John Seryak, consultant to the OMA.

Mr. Seryak’s testimony highlights the OMAEG’s initial objections and recommendations

with respect to: (1) program offerings; (2) technical assistance for manufacturers; (3)

quality in technical assistance; (4) bidding energy efficiency resources into the PJM

market; (5) a shared savings cap; and, (6) prescriptive measures for manufacturers. In the

meantime, we will continue to participate in the collaborative process and attempt to

come to an agreement with FirstEnergy regarding the OMAEG’s issues and

recommendations. The hearing began Monday, October 22, 2012.

13. FirstEnergy’s Securitization (Case No. 12-1465-EL-ATS)

In FirstEnergy’s 2009 SSO order, the PUCO authorized CEI to defer and recover as a

regulatory asset its power costs and related carrying charges through a Deferred

Generation Cost Recovery Rider (Rider DGC). The rider was for recovery of uncollected

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purchase power costs for the time frame January 1, 2009, through May 31, 2009. Full

recovery of the deferred costs associated with this rider is expected to occur by

approximately 2021. In its May 25, 2011, Order in Case No. 10-176-EL-ATA, the PUCO

authorized Ohio Edison and CEI to defer and recover as a regulatory asset the costs and

associated carrying charges associated with the transition of all electric customers toward

market pricing beginning in 2011. This recovery was to be accomplished through a

Residential Electric Heating Recover Rider (Rider "RERl") with full recovery of the

deferred costs associated expected by approximately June 2014.

On May 3, 2012, as amended, FirstEnergy filed an application seeking authority to

recover Phase-In Costs and financing costs, issue PIR Bonds, and impose and collect

Phase-In-Recovery Charges. Through the application, FirstEnergy requested authority to

establish a new Phase-In-Recovery Rider (Rider PIR) in order to recover securitized costs

associated with its existing riders (i.e., DFC, DGC, and RERl). Once the Rider PIR is

approved and effective, Riders RERl, DGC, and DFC will be withdrawn. All of these

existing riders for which there are uncollected balances constitute Phase-In Costs to be

financed through the proposed securitization in this case. FirstEnergy also requested

authority to develop a revenue requirement for Rider PIR based on the securitization costs

of each company’s special purpose entity (SPE). The allocated revenue requirement is to

be divided by the expected kWh sales in order to arrive at proposed Rider PIR rates.

Once approved, the rates will be included in the EDUs tariff and will remain in effect

until the next scheduled update. On October 17, 2012, the PUCO approved the

securitization finding that such securitization will result in a cost savings of

approximately $104M. Customers will have an estimated Phase In Recovery Charge of

0.3851¢/kWh for CEI, .3198¢/kWh for Ohio Edison, and .0250¢/kWh for Toledo Edison.

14. Columbia Gas SCO Stipulation (Case No. 12-2637-GA-EXM)

Late in 2009, the PUCO authorized Columbia Gas of Ohio (“Columbia”), Inc. to hold an

auction to secure natural gas supplies, initially through a standard service offer (SSO)

structure and, subsequently, through a standard choice offer (SCO) structure. The PUCO

extended the SCO program by order issued in 2011. On October 4, 2012, Columbia, a

group of marketers and the Staff filed a joint motion to modify the 2009 and 2011 orders

along with a Stipulation. The Stipulation modifies the current SCO program and provides

for the complete exit of Columbia from the merchant function. It also establishes a

threshold of 70% shopping for both commercial and residential customers respectively

along with different timelines for when that will occur. The term of this new Stipulation

will run from April 1, 2013 through March 31, 2018. The current SCO program will

continue in effect until the CHOICE program meets or exceeds 70% of choice eligible

non-residential customers for three consecutive months. The Stipulation further

establishes a process whereby Columbia may file an application for authority to exit the

merchant function for residential customers similar to that proposed for non-residential

customers. An entry has been issued setting forth a procedural schedule. The deadline to

intervene and file comments is November 5, 2012 with a hearing scheduled for December

3, 2012.

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MEMORANDUM

TO: The OMA Energy Group FROM: Lisa McAlister DATE: August 10, 2012 RE: Summary of the Public Utilities Commission of Ohio’s (“PUCO”) Order

Approving AEP-Ohio’s Revised Electric Security Plan (“ESP”), Case No. 11-346-EL-SSO et al.

I. PURPOSE The purpose of this memorandum is to summarize the PUCO’s Opinion and Order issued on August 8, 2012, approving, with modifications, AEP-Ohio’s ESP application. This memorandum also provides a summary of the lengthy history of this and related proceedings for context. II. BACKGROUND In January 2011, AEP-Ohio filed an application for a 29-month ESP beginning on January 1, 2012, based upon a quasi-cost based default rate. A new, market-based rate settlement offer emerged in August 2011. The settlement would have resolved multiple related cases that became consolidated with the ESP. On September 7, 2011, 22 of the parties agreed to a settlement framework under which AEP-Ohio would have merged its operating companies and transitioned to full market for generation by June 1, 2015. During the transition (1/1/2012 – 6/1/2015) the rate structure would have had fixed generation rate increases and limited shopping available at the low market capacity price (21% of AEP-Ohio’s load in 2012; 31% in 2013; 41% in 2014 and 100% in June 2015). On December 14, 2011, the PUCO adopted the settlement with several significant modifications. However, on January 23, 2012, the PUCO issued an Entry that modified the shopping allowances (originally set at 21% of AEP’s load for 2012) by allowing any municipal aggregation program approved in November 2011 or earlier to exist outside of the shopping caps. Additionally, industrial customers who are located within a community that approved an aggregation program could opt-into the aggregation programs and be outside of the shopping cap. Preliminary estimates pegged the potential increase in the shopping cap at 20% (or a combined 41% if all municipal programs and customers exercise their right to aggregate). On February 23, 2012, the PUCO issued a unanimous Entry on Rehearing that reversed its initial Order and rejected the ESP stipulation in its entirety. The ESP settlement rejection had the effect of splitting apart the consolidated cases and restarting them where they left off prior to the ESP settlement. Additionally, the PUCO directed AEP-

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Ohio to file new tariffs by February 28, 2012, that reset the rates back to those that were in effect in 2011 with several exceptions. On February 27, 2012, AEP-Ohio filed a Motion for Relief and Expedited Ruling. In the Motion, AEP-Ohio stated that if the PUCO’s Entry on Rehearing stands without modification, it would have a significant financial impact on AEP-Ohio. AEP-Ohio requested interim relief that maintained the two-tiered capacity pricing that limited the pool of customers eligible for PJM reliability pricing model (“RPM”) capacity to 21% of AEP-Ohio’s total load that shopped prior to September 7, 2011. All other shopping customers would receive capacity at $255/Megawatt-day (“MW-D”). On March 7, 2012, the PUCO approved AEP-Ohio’s tariffs that reverted standard service offer (“SSO”) rates for non-shopping customers back to the rates, terms and conditions that were in effect prior to the rejection of the ESP settlement. Additionally, the PUCO granted AEP-Ohio the interim relief it requested (maintaining the two-tiered capacity cost structure) until the PUCO issued a substantive order on the capacity cost case. On March 30, 2012, AEP-Ohio filed its revised ESP proposal (“Revised ESP”) and supporting testimony. The Revised ESP is described below.

A. Summary of the Revised ESP as filed by AEP-Ohio AEP-Ohio’s Revised ESP would begin upon PUCO approval (estimated late summer 2012) and end on June 1, 2015. Under the plan, there would be no base generation rate increases but AEP-Ohio created a host of new, nonbypassable charges and limited shopping, among other things. The specific components of the Revised ESP are outlined below. 1. SSO Generation Rates

Non-Fuel Generation Rates: AEP-Ohio proposed to freeze the non-fuel portion of the generation rates through 2014 and the Environmental Investment Carrying Charge Rider (“EICCR”) would be bundled into the base generation rates. FAC: The Fuel Adjustment Clause (“FAC”) rider would continue but would separate out the renewable energy credits (“RECs”) for renewable fuel and recover those costs through a new Alternative Energy Rider (“AER”). Further, bundled purchased power products would be divided into the REC and non-REC components. The REC component would be recovered through the AER and the non-REC component would be recovered through the FAC. AEP-Ohio proposed to combine the FAC for the operating companies into one FAC as of June 1, 2013. Combining the FAC would raise the fuel cost for OP customers and lower it for CSP customers. However, AEP-Ohio was also seeking to delay the implementation of the Phase In Recovery Rider (“PIRR”) to recover the costs of deferred fuel from 2009-2011 until June 1, 2012, and recover the PIRR as one rate for OP and CSP, which would lower the cost for OP

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customers and raise the rate for CSP customers. Together, the combination of these two riders is almost a wash for both companies. Generation Resource Rider: The Generation Resource Rider (“GRR”), is a nonbypassable placeholder to recover the costs of renewable and alternative capacity additions approved by the PUCO. The Turning Point solar project will be the first capacity resource recovered under the GRR if approved. First, the PUCO would have to determine that the project is needed and, second, the PUCO would have to approve the level of the cost recovery and authorize AEP-Ohio to begin its collection. Interruptible Service Rates: AEP-Ohio would continue the interruptible service but not as a rate schedule – it would be a rider (Rider IRP-D) that provides a credit to offset firm service rates. The IRP-D credit would be the base generation rate demand charge discount adjusted upward for the roll-in of the EICCR. However, if the Retail Stability Rider (“RSR”, discussed below) was approved, AEP-Ohio would increase the credit to $8.21 per KW-month. The difference would be recovered through the RSR. Additionally, AEP-Ohio would modify its other interruptible service offerings by permitting customers to participate in PJM demand response programs. AEP-Ohio would eliminate the Rider Emergency Curtailable Service (“ECS”) and Rider Price Curtailable Service (“PCS”) from Case Nos. 10-343-EL-ATA and 10-344-EL-ATA. However, customers with reasonable arrangements that provide a demand response incentive and whose demand response clears in the PJM auction must commit the demand response to AEP-Ohio at no extra cost. Capacity Costs: As discussed below, AEP-Ohio had a separate case before the PUCO (Case No. 10-2929-EL-UNC) where it requested a $355/MW-D capacity rate for all shopping customers. However, AEP-Ohio proposed in its Revised ESP proposal that if the total Revised ESP package and the corporate separation case are adopted without modification, AEP-Ohio would implement a two-tiered capacity cost approach (even if it was successful in obtaining authorization for a $355/MW-D capacity charge in the 10-2929 case). Under the Revised ESP proposal, the capacity pricing would be:

Period Tier 1 Rate Tier 2 Rate 2012 21% of all load by

customer class PLUS all governmental aggregation customers

$146/MW-D All others

$255/MW-D

2013 31% of all load by customer class including all NON-


$255/MW-D

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MERCANTILE governmental aggregation customers

2014-May 31, 2015

41% of all load by customer class including all NON-MERCANTILE governmental aggregation customers


$255/MW-D

Under this proposal, a queuing process would still be required, based upon a first-come, first-served process controlled by AEP-Ohio. AEP-Ohio offered an alternative proposal whereby competitive retail electric service (“CRES”) providers are charged $355/MW-D for all shopping customers. Under this alternative, AEP-Ohio would not request any base generation rate increase for SSO customers, would not request the RSR, and would provide a “meaningful” shopping credit. Retail Stability Rider (“RSR”): The RSR is a nonbypassable rider that is intended to stabilize AEP-Ohio’s earnings by replacing a portion of AEP-Ohio’s lost generation revenues resulting from customers shopping at “discounted” capacity pricing. The rider is designed to collect $284.1 million over the ESP period. However, the rider amount will fluctuate and may increase or decrease depending on a number of other factors, like the price that AEP-Ohio is permitted to recover for its capacity costs. The RSR will be first allocated to customer classes based upon the class average contribution to peak and then on a kWh basis. This results in the following rates:

Residential Commercial (GS-1) GS-2, GS-3 and GS-4 $0.0026578/kWh $0.001707/kWh $0.0016948/kWh

Transition to Market: AEP-Ohio plans to be fully separated into a wires company and spin off its generating assets by June 1, 2015. If AEP-Ohio’s Interconnection Agreement (aka the “AEP Pool”) can be terminated and its corporate separation plan is approved early, AEP-Ohio will conduct an auction for 100% of its SSO load for service beginning on January 1, 2015. AEP-Ohio also stated that it is willing to conduct an energy-only auction for 5% of its SSO load before January 2015 on the express condition that it is made whole. The energy-only auction could be for service beginning six months after the PUCO approves its ESP and corporate separation case without modification through December 2014.

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Corporate Separation: AEP-Ohio filed a separate application in Case No. 12-1126-EL-UNC to spin off its generating assets at net book value. AEP-Ohio made clear that two of its units will be transferred to affiliated distribution companies who will put them in rate base, rather than bid them into the PJM RPM market. Also, AEP-Ohio will dissolve the AEP East Pooling Agreement with an estimated date of January 1, 2015. If the costs to AEP-Ohio of the AEP pool exceed $35 million, AEP-Ohio would have a pool termination rider that would recover 100% of the costs.

2. Transmission Rates

AEP-Ohio proposed to unify the OP and CSP transmission cost recovery rider (“TCRR”) but otherwise maintain it as is.

3. Distribution Rates

Distribution Investment Rider (“DIR”): This rider was intended to provide capital funding for distribution assets for increased capacity and continued implementation of advanced technologies. The amount of revenue the DIR would be scheduled to collect is $86 million in 2012; $104 million in 2013; $124 million in 2014; and $51.7 million in 2015 (1/2 year). It would expire on June 1, 2015. Phase In Recovery Rider (“PIRR”): As noted above, AEP-Ohio would defer recovery of the PIRR until June 1, 2013 with the end date remaining as of December 31, 2018, while continuing to accrue a weighted average cost of capital carrying charge during the continued deferral period (from now until May 31, 2013). GridSmart, Energy Efficiency/Peak Demand Reduction Rider, Economic Development Rider and Enhanced Service Reliability Riders: These rider rates would be unified but otherwise remain the same.

4. Rate design

In order to avoid the pitfalls of the prior ESP settlement, AEP-Ohio would maintain the current rate structure with only the minor modifications to the IRP described above. Also, there would be neither a load factor provision nor a market transition rider. However, AEP-Ohio indicated that it may need to examine and modify the rate design prior to going to a competitive bidding process for SSO load in 2015.

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5. Tariff, Terms and Conditions of Service

AEP-Ohio would add customers’ peak load contribution (“PLC”) and network service peak load (“NSPL”) to the Master Customer List provided to CRES providers. They would eliminate the 90-day notice requirement to shop. On January 1, 2015, AEP-Ohio would eliminate the 12-month stay for customers who shop and return to SSO service.

6. Other

Customers who shop and return to AEP-Ohio would pay the SSO rate, rather than a market rate. B. Summary of AEP-Ohio’s Cost of Capacity Case (Case No. 10-2929-

EL-UNC) As noted above, this case was consolidated with the AEP ESP case until the PUCO rejected the ESP settlement, at which time this case proceeded on its own. The purpose of this case was to establish the price that CRES providers must pay AEP-Ohio for using its capacity to serve shopping customers by establishing a state compensation mechanism for AEP-Ohio. AEP-Ohio requested permission from the PUCO to charge CRES providers AEP-Ohio’s fully embedded cost of capacity at $355/MW-D for all shopping customers, which is significantly higher than the PJM RPM price for capacity that otherwise would apply. As discussed above, until the PUCO issued a substantive decision on the capacity cost compensation mechanism, the PUCO approved AEP-Ohio’s requested two-tier capacity pricing scheme. In other words, the first 21% of each customer class (residential, commercial and industrial) that shopped on or before September 7, 2011, was entitled to receive capacity at $146/MW-D, while all other shopping customers were required to pay $255/MW-D. By comparison, the PJM RPM auction price, which bottomed out this PJM planning year, is $20/MW-D. On July 2, 2012, the PUCO issued an order on the merits of AEP-Ohio’s request to charge shopping customers its fully embedded cost of generating capacity. The PUCO struck a middle ground between the positions of AEP-Ohio and its customers and CRES providers by holding that AEP-Ohio’s costs of generating capacity are not as high as what AEP-Ohio stated and are actually $188.88/MW-D. The PUCO found that the state compensation mechanism should be cost based and, thus, AEP-Ohio is entitled to recover its costs of capacity at $188.888. However, in order to stabilize the market and encourage shopping, the PUCO found that AEP-Ohio is permitted to charge competitive suppliers only the PJM RPM price, which is currently $20/MW-D. The PUCO authorized AEP-Ohio to defer the difference between the $188.88/MW-D and the PJM RPM price plus carrying costs for future recovery. This total deferred amount is dependent on the number of customers who shop, or switch to a CRES provider. The PUCO indicated that the deferral would be addressed in AEP-Ohio’s ESP case. PUCO Chairman Snitchler said that permitting AEP-Ohio to recover the difference would help stabilize

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the market and AEP-Ohio’s transition to market. The new capacity charge will take effect on August 8, 2012. Commissioners Porter and Slaby issued a separate, concurring opinion. Commissioner Roberto issued a partial dissent. She stated that she agrees with the $188.88/MW-D and permitting AEP-Ohio to charge only the auction-based prices. However, she disagreed with the deferral of the difference and believes that deferring costs “is an unnecessary, ineffective, and costly intervention into the market that [she] cannot support.” III. SUMMARY OF THE PUCO ORDER ON AEP-OHIO’S REVISED ESP On August 8, 2012, the PUCO issued its order on AEP-Ohio’s Revised ESP approving the plan with modifications.

1. SSO Generation Rates

Non-Fuel Generation Rates: The PUCO approved AEP-Ohio proposal to freeze the non-fuel portion of the generation rates. However, as several parties identified that there may be a disproportional rate impact on some customers as a result of class rates being set by auction, the PUCO directed the attorney examiners (administrative law judges) to open a new docket to consider means to mitigate any potential adverse rate impacts for customers upon rates being set by auction. The PUCO also reserved the right to change the base generation rate design any time during the ESP, on a revenue neutral basis. FAC: The PUCO approved AEP-Ohio’s proposal to maintain the FAC. However, the PUCO rejected AEP-Ohio’s proposal to merge the FAC into one FAC and directed AEP-Ohio to maintain two separate FACs by rate zone. The PUCO also approved AEP-Ohio’s proposal to separate out the RECs for renewable fuel and recover those costs through a new AER. Generation Resource Rider: The Commission approved the GRR that will serve as a nonbypassable placeholder to recover the costs of the Turning Point solar project. The PUCO rejected arguments that it must determine need for the project in this case. There is a separate case pending before the PUCO on need for the project. Additionally, the PUCO noted that the GRR is set at zero and in order to begin recovering costs through this rider, AEP-Ohio must seek PUCO permission through yet another case. Interruptible Service Rates: The PUCO adopted AEP-Ohio’s proposal to continue interruptible service as a rider (Rider IRP-D) that provides a credit to offset firm service rates. Further, the PUCO held that the credit amount should be $8.21/kW-month and that it should not be tied to the RSS. The PUCO found that Staff’s proposal to reduce the credit to $3.34/kW-month understated the value that interruptible service provides to AEP-Ohio and its customers.

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Capacity Costs: As noted above, the PUCO held in the capacity cost case that AEP-Ohio’s fully embedded capacity costs are $189/MW-D but AEP-Ohio may only recover the PJM RPM price from CRES providers for shopping customers. However, AEP-Ohio was authorized to defer the difference for future recovery. Accordingly, in this case, the PUCO held that AEP-Ohio’s two-tiered capacity cost approach was moot. The PUCO did address the deferral of the delta between AEP-Ohio’s fully embedded cost of capacity at $189/MW-D and the PJM RPM cost that it is permitted to recover from CRES providers for shopping customers in this Order. As the deferral amount is necessarily based upon actual customer shopping, the full amount of the deferral will not be known until the end of the ESP period (May 31, 2015). Nonetheless, the PUCO held that AEP-Ohio should begin recovering the deferral through the RSR immediately. The PUCO directed AEP-Ohio to begin recovering the deferral through the RSR at a recovery amount of $1.00/MWh for the term of the ESP. In the meantime, AEP-Ohio should file its actual monthly shopping statistics in this docket. At the conclusion of the ESP term (May 31, 2015), the PUCO will determine the deferral amount and make adjustments based upon AEP-Ohio’s actual shopping statistics. If there is still a balance on May 31, 2015, it will be amortized and recovered over three years. Retail Stability Rider (“RSR”): The PUCO made several modifications to the RSR and approved it. Ultimately, the PUCO’s changes lock in the RSR total amount for recovery, but increase it from AEP-Ohio’s proposed amount (which was subject to fluctuation). AEP-Ohio’s proposed amount would have recovered $284.1 million over the three year term. The PUCO’s Order increases the amount to $508 million over the same term. First, the PUCO held that the RSR is statutorily justified under the ESP statute that permits an ESP to include terms, conditions or charges that have the effect of stabilizing retail electric service or provide certainty regarding retail electric service. In other words, the PUCO agreed with AEP-Ohio that having the RSR allows AEP-Ohio to freeze base generation rates and allows customers to shop for generation. The PUCO said that it understands that the nonbypassable charge will result in additional costs to customers but the effects are mitigated by the stabilization of non-fuel base generation rates and the promise that AEP-Ohio will base SSO prices on auction results in less than three years. Second, the PUCO found that the RSR should not serve as a decoupling mechanism. Thus, the RSR target amount will be static. Third, the PUCO held that it is not appropriate to provide a guaranteed return to AEP-Ohio. Rather, it is more appropriate to establish a revenue target that will allow AEP-Ohio the opportunity to earn a reasonable rate of return between 7% and 11%. The PUCO found that a total revenue target of $826 million, rather than AEP-Ohio’s

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proposed target of $929 million, more appropriately reflected the opportunity to earn a reasonable rate of return. Finally, the PUCO also found that AEP-Ohio’s shopping estimates, upon which the RSR was based, were too high. The PUCO reduced the shopping estimates to 52% in 2012, 62% in 2013 and 72% in 2015. When the shopping assumptions and the revenue target are modified, the effect is to actually increase the RSR amount as follows:

Planning Year 2012/13



AEP Total

PUCO Total

AEP PUCO AEP PUCO AEP PUCO AEP PUCO Retail Non-Fuel Generation Revenues

$403 $528 $310 $419 $182 $308 $895 $1,255

CRES Capacity Revenues

$391 $32 $413 $65 $400 $344 $1,204 $441

Credit for Shopped Load

$91 $75 $103 $89 $120 $104 $314 $268

Subtotal $885 $636 $826 $574 $792 $757 $2,503 $1,967 Revenue Target

$929 $826 $929 $826 $929 $826

Retail Stability Rider Amount

$44 $189 $103 $251 $137 $68 $284 $508

The PUCO directed AEP-Ohio to begin recovering an RSR amount of $2.50/MWh through May 31, 2014 and $3.00/MWh between June 1, 2014 and May 31, 2015. Given that the capacity deferral amount is also to be recovered through the RSR immediately, the total RSR amount is $3.50/MWh through May 31, 2014 and $4.00/MWh from June 1, 2014 through May 31, 2015. The PUCO directed the RSR to be collected as a nonbypassable rider to recover charges per kWh by customer class. Thus, this rider will not be avoided by any customers, shopping, under a reasonable arrangement or otherwise. Transition to Market: As the first step in AEP-Ohio’s transition to market, AEP-Ohio proposed to conduct an energy-only auction for 5% of its SSO load before January 2015 on the express condition that it is made whole. The PUCO directed AEP-Ohio to conduct an energy-only auction for 10% of its SSO load with service to commence 6 months after the PUCO approves AEP-Ohio’s corporate separation plan. Also, the PUCO directed AEP-Ohio to hold an energy-only auction for 60% of its SSO load for service beginning on June 1, 2014, and 100% beginning on January 1, 2015. AEP-Ohio will then price the energy and capacity for 100% of its SSO load beginning on June 1, 2015. AEP-Ohio or any of its affiliates may bid into any of the auctions.

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Pool Termination Rider: The PUCO approved AEP-Ohio’s proposal to create a placeholder rider that could ultimately be used to recover any costs associated with the termination of the AEP East Pooling Agreement. If and when AEP-Ohio seeks to recover any costs, there will be a separate case where AEP-Ohio must demonstrate that the costs were prudent and reasonable and benefitted Ohio customers. Corporate Separation: The PUCO did not approve AEP-Ohio’s corporate separation plan in this case as AEP-Ohio filed a separate application in Case No. 12-1126-EL-UNC to spin off its generating assets at net book value. However, the PUCO noted that the primary issue to be considered in this case is how the divesture of the generation assets and the agreement between AEP-Ohio and the newly proposed generation company (“GenCo”) will impact SSO rates. The PUCO noted that although AEP-Ohio proposed to enter into a contract with GenCo for GenCo to provide AEP-Ohio with capacity at $255/MW-D, AEP-Ohio will not receive any more than the state compensation capacity charge of $189/MW-D from Ohio customers during the term of the ESP. Although Staff raised concern with the implementation of corporate separation whereby AEP-Ohio does not transfer all debt and intercompany notes to GenCo, the PUCO still approved AEP-Ohio’s requests to retain the pollution control bonds contingent on a filing with the PUCO demonstrating that AEP-Ohio ratepayers have not and will not incur any costs associated with the cost of servicing the associated debt. Additionally, the PUCO holds that, once corporate separation is effective, it is appropriate for most revenues to pass-through AEP-Ohio to the GenCo. Thus, the PUCO essentially approved the corporate separation plan but said it will review any remaining issues in the corporate separation case.

2. Transmission Rates The PUCO approved AEP-Ohio’s proposal to unify the OP and CSP TCRR.

3. Distribution Rates Distribution Investment Rider (“DIR”): The PUCO approved AEP-Ohio’s DIR as proposed with two modifications. First, the DIR may not include any gridSmart costs, which must be separate and apart from DIR projects. Second, the PUCO directed AEP-Ohio to reduce the amount of the DIR to account for accumulated deferred income taxes (“ADIT”), as it is not appropriate to establish the DIR rate mechanism in a manner that provides AEP-Ohio with the benefit of ratepayer supplied funds. AEP-Ohio is directed to work with PUCO Staff to develop a plan to focus spending on where it will have the greatest impact on maintaining and improving reliability for customers. AEP-Ohio must file a separate plan by December 1, 2012. Phase In Recovery Rider (“PIRR”): As delaying the recovery of the PIRR until June 1, 2013 with the end date remaining as of December 31, 2018, while continuing to accrue a weighted average cost of capital carrying charge during the continued deferral period (from now until May 31, 2013), would have the effect of increasing the amount

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due by $40-$70 million, the PUCO directs AEP-Ohio to begin recovering the PIRR, by separate rate zone, immediately. Also, the PUCO directs AEP-Ohio to securitize the balance to reduce the total amount as quickly as possible. GridSmart, Energy Efficiency/Peak Demand Reduction Rider, Economic Development Rider and Enhanced Service Reliability Riders: The PUCO approved AEP-Ohio’s proposal to move forward with phase 2 of the gridSmart project by filing a new application. However, only the integrated voltage variation control (“IVVC”) costs shall be recovered through the DIR rider. Any other costs will need to be recovered through a new rider on an “as spent” basis. The PUCO also approved AEP-Ohio’s proposed merger of the rate zones and the continuation of the Enhanced Service Reliability Rider (“ESSR”) through the term of the ESP over Staff’s recommendation to end the ESSR in 2014. The PUCO approved the merger of the rate zones and the continuation of the Energy Efficiency/Peak Demand Reduction Rider (“EE/PDR”). As noted above, the IRP-D credit will be collected through the EE/PDR rider. Finally, the PUCO rejected OCC’s request to change the Economic Development Rider (“EDR”) to shift costs away from residential customers. The PUCO approved the merger of the rate zones and continuation of the EDR as a nonbypassable rider. Finally, the PUCO directed AEP-Ohio to reinstate the Ohio Growth Fund with shareholder dollars at $2 million per year for economic development projects, to attract new investment and improve job growth in Ohio. Storm Damage Recovery Mechanism: AEP-Ohio sought to recover $5 million per year for incremental storm damage recovery. However, AEP-Ohio did not demonstrate how recovery of the deferred asset would work or when it would occur. Thus, the PUCO authorized AEP-Ohio to begin deferral of any incremental distribution expenses above or below $5 million per year so long as AEP-Ohio maintains a detailed accounting of all storm expenses within its storm deferral account and provide the information annually for Staff to audit. If AEP-Ohio experiences unexpected, large scale storms, AEP-Ohio must file a new case by December of the same year for incremental costs. 4. Tariff, Terms and Conditions of Service The PUCO directed AEP-Ohio to develop an electronic system to provide CRES providers access to pertinent customer data including, but not limited to, customers’ peak load contribution (“PLC”) and network service peak load (“NSPL”), no later than May 31, 2014. AEP-Ohio had committed to eliminating the 90-day notice requirement to shop. The PUCO did not address this issue, thus, it is unclear whether the 90-day notice remains.

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5. Significantly Excessive Earnings Test (“SEET”) The PUCO established a SEET threshold of 12% for AEP-Ohio. 6. Customer Rate Impact Cap In order to mitigate any customer rate changes, the PUCO instituted a cap on customer rate increases at 12 percent over the current ESP rates for the entire term of the ESP. The cap is to be determined not by overall customer rate classes, but on an individual customer by customer basis. The cap does not include any changes that arise as a result of past proceedings, including the distribution rate case that recently went into effect, the PIRR, or subsequent proceedings (like the Pool Termination Rider). Any amounts that exceed the 12% cap should be deferred for future recovery. AEP-Ohio must file a detailed accounting of its deferral impact created by the 12% cap on May 31, 2013, at which time the PUCO will determine whether to adjust the 12% cap. 7. Outstanding FERC Requests The PUCO noted that AEP-Ohio still has several requests for the Federal Energy Regulatory Commission (“FERC”) to take action on its capacity cost case. The PUCO stated that, in the event that FERC takes action that significantly alters the balance of this Order, the PUCO will make appropriate adjustments as necessary.

8. Is the ESP more favorable in the aggregate than the expected results of an MRO?

In order for the PUCO to approve an ESP, it must be more favorable in the aggregate than the expected results of a market rate offer (“MRO”, or an auction process). AEP-Ohio argued that the greatest financial benefit of the proposed ESP was the “discount” on capacity from AEP-Ohio’s claimed cost of $355/MW-D to its two-tiered approach of $255 or $146/MW-D. Nearly all parties argued that the “benefit” was illusory at best and that the MRO was more favorable by far when the “discount” is removed. The PUCO held that on quantifiable price alone, when substituting $189/MW-D for either AEP-Ohio’s claimed “discount” or other parties’ PJM RPM price for capacity, the ESP is more favorable than the MRO by $9.8 million over from June 1, 2013 through June 1, 2015. However, when the GRR and the RSR are added to the ESP, the ESP is less favorable than the MRO by $386 million. In spite of this nearly $400 million deficit, the PUCO holds that there are non-quantifiable benefits of the ESP, specifically, going to market faster than an MRO would allow, that make the ESP more favorable in the aggregate than the MRO.

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9. Roberto’s dissent Commissioner Roberto issued a lone dissent that simply said that the non-quantifiable benefits cannot overcome a $386 million deficit and, thus, she does not believe that the ESP is more favorable in the aggregate than the expected results of an MRO. IV. CONCLUSION The Commission’s decision has multiple moving parts and creates significant costs for future recovery. Generally, the base generation rates remain frozen, and, given that the capacity costs for shopping customers are based upon the PJM RPM auction prices, there are opportunities for customers to shop at favorable generation rates. However, the PUCO increased the nonbypassable charges that will appear on the distribution portion of customers’ bills by increasing the RSR and adding immediate deferred capacity cost recovery. Additionally, the PIRR cost recovery will begin. Also, several new cost categories have been created where AEP-Ohio is accumulating costs and carrying charges for future recovery that have not and cannot be quantified. In other words, when market costs are projected to increase, the recovery of costs currently being deferred will begin. We are in process of developing sample bill impacts to demonstrate the impact for varying customer types of the Order and will provide them as quickly as possible. In the meantime, please do not hesitate to contact us if you have any questions regarding this matter. Thank you.

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PUCO Gives Ormet $20 Million Electricity Break

October 19, 2012

The Public Utilities Commission of Ohio (PUCO) this week approved a request from Ormet Primary Aluminum Corporation (a smelter located in eastern Ohio) to defer its October and November electricity bills from AEP until 2014 and 2015. Ormet said that a combination of the recent PUCO-approved AEP rate increases and a declining metals market has put the company’s future in jeopardy. A key and troubling provision in the order holds AEP harmless in the event of a default by Ormet, up to a cap of $20 million. If Ormet defaults, AEP ratepayers will pay that bill through a rider. In its order, the commission noted that Ormet is currently benefiting from a multi-year “unique arrangement.” Said the commission: “The 10-year unique arrangement provided for unprecedented subsidies, other ratepayers assuming the delta of $60 million per year for 2010 and 2011 and $54 million for 2012, with the delta being reduced by $10 million per year thereafter.” The commission’s order concluded: “(T)he Commission expects that any further relief requested by Ormet will be accompanied by a detailed business plan confirming its long-term ability to exist without ratepayer support.” The OMA had filed in opposition to the hold harmless provision: “This request by Ormet gives it every incentive to default because AEP is held harmless, as a result, the ratepayers will not have standing to sue Ormet in the event of default. This is a significant change to the terms and conditions of the existing unique arrangement, approved in 2009. For this reason alone, approval of automatic recovery is improper.”

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http://www.ohiomfg.com/communities/energy/archive/2012/puco-gives-ormet-20-million-electricity-break.php

http://www.informz.net/ohiomfg/data/images/ormetentry.pdf

http://www.informz.net/ohiomfg/data/images/motioninterveneormetproceedingcaseno09-119-el.pdf

BEFORE

THE PUBLIC UTILITIES COMMISSION OF OHIO

In the Matter of the Application of Ormet Primary Aluminum Corporation for Approval of a Unique Arrangement with Ohio Power Company and Columbus Southern Power Company.

Case No. 09-119-EL-AEC

ENTRY

The Commission finds:

(1) By opinion and order issued on July 15, 2009, the Commission modified and approved the amended application of Ormet Primary Aluminum Corporation (Ormet) for a unique arrangement with Columbus Southern Power Company and Ohio Power Compcxiy (jointly, AEP-Ohio) for electric service to Orm(;t's aluminum-producing facility located in Hannibal, Ohio.^

(2) On October 12, 2012, Ormet filed a motion for expedited approval of payment deferral, pursuant to Section 4905.31, Revised Code, and Rules 4901-1-12(C) and 4901:l-38-05fB), Ohio Admirustrative Code (O.A.C.). Specifically, Oriliet seeks approval of a modification to its unique arrangement with AEP-Ohio, such that Ormet would be authorized to defer payment of its billed amounts for October and November 2012, which would otherwise be due in November and December 2012, respectively. Ormet proposes to pay the deferred amounts over the 12 months of 2014 and the first five months of 2015 in equal monthly installment payments that are equal to 1/17, or 5.88235 percent, of the cumulative amount of the two bills. Ormet notes that its recommended deferred payment arrangement is short in duration and does not substantively change the terms of its unique arrangement with AEP-Ohio. Ormet further requests that the

^ By entry issued on March 7, 2012, the Commission approved and confirihed Columbus Southern Power Company into Ohio Power Company, effective the Matter of the Application of Ohio Power Company and Columbus Southern Authority to Merge and Related Approvals, Case No. 10-2376-EL-UNC.

the merger of 31,2011. In

Power Company for Detember

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Commission direct that, if Ormet fails to make a scheduled payment, the amount of the niissed payment may be treated as delta revenue.

(3) In support of its motion, Ormet states that the recfent approval of AEP-Ohio's electric security plan^ resulted] in an increase to Ormet's electricity bill of approximately $20 million per year, beginning with its bill for September 2012. Ormet notes that, due to a declirung metals market and an overabundance of supply, Ormet exhausted its rate discount for 2012 within the first nine months of the year. Ormet explains that its operations have been strained by outstanding debt obligations, increased electric rates, ind the market surplus of aluminum, which have caused an immediate cash flow problem for Ormet. Ormet adds that it is located in an economically depressed region of the state and that its contribution as an employer, taxpayer, and purchaser of goods and services is vital to the area's economy. Ormet believes that the deferred payment arrangement is vital to protect thousands of Ohio jobs. Finally, Ormet notes that AEP-Ohio consents to the relief requested in the motion.

(4) Additionally, Ormet requests an expedited ruling on its motion. To facilitate an expedited ruling, Ormet also requests waivers of Rules 4901:l-38-05(B)(2) and (F), O.A.C. Ormet explains that Rule 4901:l-38-05(B)(2), O.A.C., requires the filing of an affidavit from a company official as to the veracity of the information provided iri an application for a unique arrangement. Ormet states th^t it will file the required affidavit as a late-filed exhibit wiljhin seven days of the filing of its motion. With respect to Rule 4901:l-38-05(F), O.A.C., which provides for a 20-fiay comment period following the filing of an application for a unique arrangement, Ormet explains that the nature of the relief requested and the need for an expedited ruling have prompted Ormet to request a waiver of the rules.

2 In the Matter of the Application of Columbus Southern Power Company and Ohil Power Company for Authority to Establish a Standard Service Offer, Case No. 11-346-EL-SSO, et flZ.,j Opinion and Order (August 8, 2012).

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(5) Initially, the Commission finds, pursuant to Rule 490i-l-12(F), O.A.C., that an expedited ruling is appropriate in this matter, without the filing of memoranda, and that an expedited ruling will not adversely affect a substantial right of any party. Further, we find that Ormet's request for a deferred payment arrangement is reasonable and should be granted to the extent set forth in this entry. Specifically, the Commission grants Ormet's request to modify the terms of its unique arrangement with AEP-Ohio, such that Ormet may defer payment of its bills for October and November 2012, with payment to occur in 2014 and the first five months of 2015, in monthly installments that are equal to 1/17, or 5.88235 percent^ of the cumulative amount of the two bills, as proposed in Ormet's motion. The Commission finds that AEP-Qhio should be authorized to modify its accounting procedures, pursuant to Section 4905.13, Revised Code, to deiei incurred costs not recovered from Ormet's billings for October and November 2012 not to exceed $20 million. With regard to Ormet's request that any missed deferred payment be treated as delta revenue, we grant the request, subject to the $20 million cap. Therefore, we find that any amounts, up to $20 million, that are not timely paid by Ormet under the deferred payment schedule approved today shall be considered as foregone revenue under Section 4905.31, Revised Code, and shall be recovered by AEP-Ohio through its Economic Development Rider. Finally, pursuant to Rule 4901:l-38-02(B), O.A.C., the Commission grants Ormet's request for waivers of Rules 4901:l-38-05(B)(2) and (F), O.A.C., and directs Ormet to file the affidavit required by Rule 4901:l-38-05(B)(2), O.A.C. by October 19,2012.

The Commission finds that the relief granted i a sufficiently reasonable and properly constrained mean^ to address Ormet's cash flow problem, while considering the interests of AEP-Ohio and its other ratepayers. We emphasize that the relief granted to Ormet is limited to approval of the deferral of no more than the two payments specified in this entry, and should not be extended to o|:her payments. Although the Commission grants Orniet's request for payment deferral, we are concerned by the

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financial risk being incurred by AEP-Ohio's ratepayers, and find that the recent history of cases involving Ormet's generation prices is relevant and must be recognized.

On November 8, 2006, in Case No. 05-1057-EL-CSS, the Commission approved a stipulation that set a generation rate below the market and below the tariff rate for like customers at that time, and provided a means for AEP-Ohio to recover an agreed to difference, or delta, that was anticipated to be at least $56 million over two years.^ On July 15, 2009, in the present case, the Commission approved a unique arrangement, whereby Ormet's price for generation would be linked to the world price for aluminum.'* The 10-year unique arrangement provided for unprecedented subsidies, other ratepayers assuming the delta of $60 million per year for 2010 and 2011 and $54 million for 2012, with the delta being reduced by $10 million per year thereafter.

The record in these cases documents the benefits that Ormet brings to Monroe County, the region, and the siate of Ohio. The Commission's approval of the unicjue arrangement was predicated on an effort to keep Ormet and its hundreds of jobs viable, and to reduce over time and eventually eliminate Ormet's dependency on the delta revenue. In the present year, $54 million has not been enough to sustain Ormet. We nevertheless approve Ormet's request for relief in order to provide continuity to the employees and businesses that are dependent on Ormet. However, the Commission expects that any further relief requested by Orniet will be accompanied by a detailed business plan confirming its long-term ability to exist without ratepayer support.

In the Matter of the Complaint of Ormet Primary Aluminum Corporation and Opnet Aluminum Mill Products Corporation v. South Central Power Company and Ohio Power Company, Case No. 05-1057-EL-CSS, Supplemental Opinion and Order (November 8, 2006). In the Matter of the Application of Ormet Primary Aluminum Corporation for Approval of a Unique Arrangement with Ohio Power Company and Columbus Southern Power Company, pase No. 09-119-EL-AEC, Opinion and Order 0uly 15, 2009).

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It is, therefore,

ORDERED, That Ormet's motion for expedited approval of payment deferral and request for waivers be granted to the extent set forth herein. It is, further,

ORDERED, That AEP-Ohio be authorized to defer incurred co^ts not recovered from Ormet's billings for October and November 2012 not to exceed $20 million. It is, further.

case

ORDERED, That a copy of this entry be served upon all parties of record in this


Cheryl L. Roberto Lynn Slaby y y

SJP/sc

Entered in the Journal

( 0 1 7 2011

Barcy F. McNeal Secretary

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Energy

OMA Energy Group Files Recommendations for FE Energy Efficiency

John Seryak, CEO of Go Sustainable Energy, filed direct testimony on behalf of the OMA Energy Group in the FirstEnergy energy efficiency case last week. He suggested specific improvements for FirstEnergy’s program, including developing a “Track and Tune” or “Operations and Maintenance” program that “incents capturing energy savings from changes in equipment operations,” increasing the cap for financing energy audits for larger facilities, and developing pilot programs for financing “industrial insulation, cogged V-belts and venture compressed air nozzles” projects.

10/12/2012

Natural Gas Vehicles Summit Held

The American Natural Gas Alliance (ANGA) hosted a summit on natural gas vehicles (NGV's) this week in Columbus. Governor Kasich delivered a keynote address encouraging businesses with fleets

to evaluate options for converting to natural gas fuel. Visit the ANGA website for more information on NGV's in Ohio.

10/12/2012

U.S. Geological Survey Releases First Utica Shale Estimate

Releasing its first estimate of the Utica Shale, the U.S. Geological Survey (USGS) finds a huge amount of natural gas and oil in the geologic formation. USGS calculated the shale formation holds about 38 trillion cubic feet of "undiscovered, recoverable" natural gas, 940 million barrels of oil and 9 million barrels of natural gas liquids, such as ethane and propane. The estimates are expected to increase as exploration expands. For example, the USGS estimated last year that the eight-state Marcellus

region contains some 84 trillion cubic feet of undiscovered, recoverable natural gas, far more than its 2002 assessment of just 2 trillion. The Marcellus Shale is the largest unconventional gas basin USGS has assessed. This is followed closely by the Greater Green River Basin in southwestern Wyoming.

10/12/2012

Claim Incentives for 2009 - 2012 Energy Projects

FirstEnergy and AEP Ohio mercantile customers that have completed energy savings projects within the last three years, but have not claimed incentives from their utility, may be eligible for a cash rebate or an exemption from a rider. Mercantile customers are commercial or industrial entities that consume at least 700,000 kWh per year (or that are part of a national account that includes multiple facilities in one or more states). Completed qualifying projects might include any equipment upgrade that reduced electricity consumption. This includes, but is not limited to, compressed air upgrades, chiller upgrades, VFD installations on pumps and fans, energy efficient lighting retrofits, energy efficient motors, high efficiency HVAC equipment, automatic controls, and improvements in process/production line efficiencies. Let us know about your completed projects and we'll make every effort to qualify you for a cash incentive or rider exemption. OMA has engineering resources available to help you complete and submit applications. Email OMA’s John Laughman or call him at (800) 662-4463.

10/05/2012

Ormet Says It Can’t Withstand AEP Increase

Ormet, a smelter of aluminum and employer of approximately 1,000 workers, is AEP’s largest customer in the state, with demand of more than 300 megawatts. The company has reported that it cannot absorb a $20 million increase in costs from AEP.

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http://angangvsummit.eventbrite.com/

http://www.ohiochannel.org/MediaLibrary/Media.aspx?fileId=137243

http://www.anga.us/media-room/blog/2012/5/9/ngvs-in-the-buckeye-state

http://www.usgs.gov/newsroom/article.asp?ID=3419&from=rss_home#.UHhp9q7W51w

http://www.ohiomfg.com/firstenergy/mercantile-customer-program-has-incentives.php

http://www.ohiomfg.com/american-electric-power/article-page.php

mailto:[email protected]?subject=Energy%20project%20exemptions

According to the Columbus Dispatch: Ormet also has the largest discount on its electricity costs of any company, a subsidy that has provided $150 million in savings since it started in 2009. The cost of the discount gets paid by all other AEP customers, leading to $2.58 per month in extra charges for a typical Columbus household, according to the PUCO. Concerned Ormet workers and citizens have appealed to the governor and the PUCO for relief.

09/28/2012

OMA Suggests Improvements to FirstEnergy Energy Efficiency Program

In a filing before the Public Utilities Commission of Ohio, the OMA laid out suggested improvements to the energy efficiency filing of FirstEnergy. Said the OMA: “FirstEnergy’s energy efficiency incentive programs are insufficient and cumbersome for manufacturers to adopt. For manufacturing, maintaining costs are extremely important and tools for controlling costs through energy efficiency are vital for maintaining and enhancing competitiveness. Innovation has transformed manufacturing products and processes, and as a part of that, energy efficiency is an increasingly important competitiveness strategy as Ohio transitions to market.”

09/21/2012

FirstEnergy Energy Efficiency Plans Insufficient for Manufacturers

FirstEnergy has filed with the Public Utilities Commission of Ohio (PUCO) an application for approval of its 2013-2015 energy efficiency and peak demand reduction program portfolios for the purpose of complying with energy reduction mandates established in Senate Bill 221. The OMA Energy Group has intervened in the case to complain that energy efficiency incentive programs for manufacturers are insufficient and cumbersome to adopt. If you have firsthand knowledge of using or attempting use a FirstEnergy energy efficiency incentive program,

please share your experience with us to inform OMA advocacy in the case.

09/14/2012

OMA Advocates for Combined Heat and Power Improvements

OMA energy engineering consultant, John Seryak, this week shared manufacturing concerns at a PUCO workshop on combined heat and power (CHP) and the effect of standby power rates. View John’s presentation (he is the third speaker). Energy efficiency and CHP will be discussed in detail at the October 24 OMA Energy Committee meeting.

09/14/2012

New $1.5 Billion Pipeline to Move Utica Gas to Markets

Last week three energy companies announced plans to construct a new pipeline in northern Ohio. The pipeline project will transport gas supplied from the Ohio Utica shale to markets in Ohio, Michigan and Ontario. The system will include 250 miles of large diameter pipe and is expected to transport one billion cubic feet per day of natural gas. The project is expected to serve local distribution companies, power generators and industrial users in these markets.

09/14/2012

Workshop Set for Combined Heat and Power

The Public Utilities Commission of Ohio (PUCO) will conduct a workshop designed to help industrial boiler operators learn how combined heat and power (CHP) can help them meet changing U.S. EPA Clean Air Act regulations. The “CHP & Standby Rates Workshop” is scheduled for September 13 at 9:30 a.m. and will explore barriers to entry for CHP facilities posed by standby power rates and provide a forum for discussion regarding potential regulatory and market solutions. Interested members should contact the OMA’s Ryan Augsburger.

09/07/2012

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http://www.informz.net/ohiomfg/data/images/omaeg-objectionstofirstenergyee-pdr.pdf

mailto:[email protected]

http://www.puco.ohio.gov/puco/index.cfm/industry-information/industry-topics/combined-heat-and-power-in-ohio/

http://www.puco.ohio.gov/apps/Webcast/viewer.cfm?recordID=188

http://www.hydrocarbons-technology.com/news/newsdte-energy-signs-mou-to-develop-nexus-gas-transmission-system/

http://www.hydrocarbons-technology.com/news/newsdte-energy-signs-mou-to-develop-nexus-gas-transmission-system/

http://www.puco.ohio.gov/puco/index.cfm/industry-information/industry-topics/combined-heat-and-power-in-ohio/



September 18 Conference for Energy Info Seekers

On September 18 in Columbus, the Ohio University Voinovich School’s Consortium for Energy, Economics & the Environment will host the full-day event: Energy Choices for Ohio: Impacts of Efficiency, Technology and Carbon Management. The event has attracted keynote speaker Thomas E. Kiser, known as “America’s Energy Coach.” Ohioans will be interested to note that Kiser’s firm, PSI Energy Solutions, LLC, has teamed up with Ohio based metals manufacturing company, Worthington Industries, Inc. Registration is just $25.

09/07/2012

Ohio Grid Operator Talks about Regional Markets

The OMA Energy Group, developing strategies for Ohio manufacturers in the emerging Ohio market-based electric generation system, heard from Andrew Ott, Sr. Vice President, Markets, PJM Interconnection, this week. PJM is the regional transmission operator for Ohio, Pennsylvania, New Jersey, Maryland, and parts of a few other states. As the regulator of the region’s wholesale electricity market and provider of various cost-saving services, PJM’s relevance to Ohio manufacturers will grow as Ohio moves to fully competitive markets for generation. PJM and the OMA Energy Group plan regular meetings to exchange information.

09/07/2012

Cleveland Facing Power Constraints and Costs

Steve Herling, Vice President, Planning, for PJM Interconnection described to the OMA Energy Group the significant transmission constraints facing the greater Cleveland region. The constraints will require some combination of costly investments in new transmission lines and new generation.

If you have operations in the region, you’ll want to pay attention to this issue. Contact Ryan Augsburger to become engaged in it.

09/07/2012

Duke Follows Seeks Increased Cost Recovery for Capacity

Following the PUCO’s recent decision granting AEP-Ohio capacity prices above market rates, Duke filed an application to establish a deferral for the difference between its costs and the market price for capacity. Duke seeks approval of a new tariff ("Rider Deferred Recovery") which will enable it to collect the deferred costs. This is what the PUCO just authorized AEP-Ohio to do. Specifically, Duke requests to defer more than $258 per year for the next three years. The OMA will contest the application in a filing before the PUCO. Join the OMA Energy Group to impact utility rate design.

09/07/2012

OU Builds Oil & Gas Supply Chain Database – How to Enter Your Company

The Ohio University Voinovich School’s Consortium for Energy, Economics & the Environment (CE3) is currently developing the Shale Energy Supply Chain Database which will identify current and potential regional shale energy companies and promote their unique capabilities. The project utilizes a Geographic Information System (GIS) to visually represent and map supply chain opportunities for buyers and suppliers in the shale energy industry. According to Scott Miller, Director of Energy and Environmental Programs at the Voinovich School, “By completing the supply chain survey, your business can increase its chance for business- to- business connectivity and growth.” For more information contact Scott at (740) 593-0827.

08/24/2012

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http://www.informz.net/ohiomfg/data/images/tomkiser_short_bio.pdf

http://www.informz.net/ohiomfg/data/images/ohiomanufacturersassnsept512ottedits2.pdf

http://www.informz.net/ohiomfg/data/images/herling_slides.pdf



http://www.dispatch.com/content/stories/business/2012/09/04/duke-wants-same-deal-aep-got.html

http://www.ohiomfg.com/products/oma-energy-group/

http://map.ohioshaleenergy.com/

http://www.ohioshaleenergy.com/default.aspx

mailto:[email protected]?subject=OMA%20Leadership%20Briefing%20Article%20regarding%20Oil%20

FirstEnergy’s Costs for Alternative Energy Questioned

Last week, an external auditor filed a report with the PUCO finding that FirstEnergy overcharged customers for renewable energy generation. Under Ohio law, each utility must achieve 12.5% of sales from renewable energy resources by 2025. The utilities need not comply with the requirement if the reasonably expected cost of that compliance exceeds, by 3% or more, its reasonably expected cost of otherwise producing or acquiring the requisite electricity. The audits of FirstEnergy’s process of acquiring renewable energy credits (RECs) to achieve its goals found that, while FirstEnergy technically complied with Ohio law, FirstEnergy paid “unreasonably high prices” for RECs that it purchased in comparison to prices paid by other utility companies. The expenses FirstEnergy incurred by overpaying for its RECs were passed on to customers through the alternative energy resource rider (Rider AER), in addition to interest payments. Accordingly, the audit reports recommend that the PUCO consider not allowing FirstEnergy to pass on the excessive costs to customers. The OMA Energy Group is monitoring this case.

08/24/2012

And What Did AEP Think of the PUCO’s Order?

In its statement about the August 8 Public Utilities Commission of Ohio (PUCO) order on AEP-Ohio’s Electric Security Plan (ESP), AEP acknowledged that the decision grants many of the components necessary to address distribution reliability, economic development, and energy efficiency; however, the company reported key issues remain unresolved. Chief among them is that the PUCO did not rule on the company’s proposal to corporately separate its generation and wires assets in Ohio. The company “is concerned that the Commission did not decide corporate separation, but ordered AEP Ohio to double the

competitive auction amount in 2013 and significantly advance the timing of subsequent auctions (as it transitions to market). The company’s proposed modified ESP also included significant additional revenues that the Commission denied.” Nicholas K. Akins, AEP president and chief executive officer: “We are disappointed that the overall value in the Commission’s order falls short of the reasonable proposal the Company offered.”

08/10/2012

AEP-Ohio Case Concludes with a Mixed Bag of Costs

This week the Public Utilities Commission of Ohio (PUCO) issued a decision on AEP-Ohio’s high profile electric security plan (ESP) that approves the ESP with modifications. A detailed summary of the case, and related relevant cases, has been prepared by OMA energy counsel, Lisa McAlister of Bricker & Eckler LLP. She concludes: The PUCO decision has multiple moving parts and creates significant costs for future recovery. Generally, the base generation rates remain frozen, and, given that the capacity costs for shopping customers are based upon the PJM RPM auction prices, there are opportunities for customers to shop at favorable generation rates. However, the PUCO increased the nonbypassable charges that will appear on the distribution portion of customers’ bills by increasing the Rate Stability Rider (RSR) and adding immediate deferred capacity cost recovery. Additionally, the Phase In Recovery Rider (PIRR) cost recovery will begin. Also, several new cost categories have been created where AEP-Ohio is accumulating costs and carrying charges for future recovery that have not and cannot be quantified. In other words, when market costs are projected to increase, the recovery of costs currently being deferred will begin. Among the many moving parts in the case are these provisions: 1) Customer rate increases are capped at 12% over the current rate plan bill for the entire term of the ESP. The cap is determined on an

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individual customer basis, not by class. Any overages will be put into a deferral bucket and dealt with in a future proceeding. 2) On AEP-Ohio’s transition to market, the PUCO directs AEP-Ohio to hold an energy-only auction for 10 percent of its Standard Service Offer (SSO) load right away, for 60 percent of the SSO load for service starting on June 1, 2014 and 100 percent of its load on June 1, 2015, when pricing will be 'fully market.' 3) PUCO grants AEP-Ohio its Retail Stability Rider (RSR) but reduces the resulting target revenue level and fixes the amount to ensure that AEP-Ohio earns a return of at least 7 percent but no more than 11 percent. OMA is in process of developing sample bill impacts of the order to demonstrate the impact on varying customer types, and we will be reporting on our findings.

08/10/2012

PUCO Authorizes AEP Fuel Cost Recovery

The Public Utilities Commission of Ohio (PUCO) authorized AEP-Ohio to begin collection of fuel costs incurred from 2009 to 2011. This implements a previous PUCO action in AEP-Ohio’s 2009 electric security plan (ESP). AEP will collect the costs on a non-bypassable basis (meaning customers cannot “shop” around the charges) through the end of 2018. The new rates will take effect upon the completion of AEP-Ohio’s pending ESP case.

08/03/2012

OMA Files for Rehearing of AEP Capacity Case

Together with the Ohio Hospital Association (OHA), the OMA this week asked the Public Utilities Commission of Ohio (Commission) to rehear it recent decision on the AEP capacity case. The request says: “The Commission’s authorization for AEP-Ohio to defer for future recovery the difference between $189/megawatt-day and the then-current PJM reliability pricing model (“RPM”) auction price is

unlawful and unreasonable and substantially harms Ohio manufacturers, hospitals and other customers. Additionally, the Commission’s finding that an 11.15% return on equity was appropriate was unjust and unreasonable.” The OMA and OHA “respectfully request that the Commission grant rehearing and revoke the deferral authority granted to AEP-Ohio.”

08/03/2012

PJM Transmission Grid to Be Improved: OMA to Monitor Cost Allocation to Industry

High heat, wind storms, and a slow economic recovery are all revealing weaknesses in Ohio’s electricity grid. The Columbus Dispatch recently reported that PJM, the regional grid operator, called on its “demand response” customers to shut down when the temperatures soared. ("Demand response" refers to an arrangement whereby an electric customer voluntarily agrees to shut down operations or reduce usage when the grid becomes strained due to high demand.)

Recent wind storms showed what mother nature can do to old transmission lines. And, due to ever-tightening EPA regulations, power plants are scheduled for shut down. In response to these factors, PJM announced it has approved $2 billion in upgrades to its 13-state system. The $2 billion will go to some 130 projects to replace old equipment, install new lines, and upgrade old lines. How the cost will flow to your bill will be determined through processes involving PJM and the Federal Energy Regulatory Commission (FERC).

The OMA Energy Group will be monitoring the process to protect manufacturers' interests. Contact John Laughman at the OMA to find out how to participate.

07/27/2012

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http://www.informz.net/ohiomfg/data/images/jointappforrehearing.pdf

http://www.dispatch.com/content/stories/local/2012/07/18/electricity-demand-triggers-power-cut-order-to-some-businesses.html

http://pjm.com/~/media/about-pjm/newsroom/2012-releases/20120517-Two-billion-dollars-of-upgrades-to-power-grid.ashx

mailto:[email protected]?subject=PJM%20Transmission%20Grid

Energy Legislation Prepared by: The Ohio Manufacturers' Association

Report created on October 22, 2012

HB51 MUNICIPAL UTILITIES (SNITCHLER T) To require a municipal utility supplying surplus electricity to nonresidents to provide written notice of termination one year before terminating the service.

Current Status: 2/1/2011 - Referred to Committee House Public Utilities

More Information: http://www.legislature.state.oh.us/bills.cfm?ID=129_HB_51

HB73 TRANSPORTATION OF NUCLEAR MATERIALS (YOUNG R) To require payment of only the cost of police escort services for the highway transportation of limited amounts of certain nuclear materials.

Current Status: 3/2/2011 - REPORTED OUT, House Transportation, Public

Safety and Homeland Security, (Third Hearing)


HB95 NATURAL GAS RATES (STAUTBERG P) To permit certain rate-calculation adjustments for natural gas companies, eliminate public notice requirements for rate cases, and for natural gas companies, to make other regulatory changes concerning audits, alternative rate plans, and forecast reports, and allowing applications for natural gas company capital expenditure programs.

Current Status: 6/2/2011 - SIGNED BY GOVERNOR; Eff. 9/9/2011


HB133 OIL AND GAS LEASING/DRILLING ON STATE LAND (ADAMS J) To create the Oil and Gas Leasing Board and to establish a procedure by which the Board may enter into leases for oil and gas production on land owned or under the control of a state agency for the purpose of providing funding for capital and operating costs for the agency.



HB204 ADVANCED ENERGY FUND (FOLEY M) To reimburse the Advanced Energy Fund revenue rider on retail electric distribution service rates and to clarify how Advanced Energy Fund grant amounts are to be determined.

Current Status: 5/25/2011 - House Public Utilities, (Second Hearing)


HB297 MOTOR FUEL QUALITY TESTING (WEDDINGTON C, FENDE L) To require the Department of Agriculture to establish a motor fuel quality testing program under which county auditors may conduct such testing.

Current Status: 4/18/2012 - House Agriculture and Natural Resources, (First

Hearing)


HB304 LAKE ERIE OIL/NATURAL GAS (ANTONIO N) To ban the taking or removal of oil or natural gas from and under the bed of Lake Erie.


Hearing)

More Information: http://www.legislature.state.oh.us/res.cfm?ID=129_HB_304

HB306 BUILDING STANDARDS (PILLICH C) To require a building or structure constructed using

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state capital budget moneys to adhere to certain energy efficiency and building standards and to encourage the use of Ohio-produced products.

Current Status: 9/13/2011 - Referred to Committee House State Government

and Elections

More Information: http://www.legislature.state.oh.us/res.cfm?ID=129_HB_306

HB310 ELECTRIC VEHICLE SALES TAX REDUCTION (GOODWIN B) To reduce the amount of sales tax due on the purchase or lease of a qualifying electric vehicle by up to $2,000.

Current Status: 11/16/2011 - House Ways and Means, (Second Hearing)


HB345 STIMULATION OF OIL AND GAS WELLS (DRIEHAUS D, HEARD T) Establishes a moratorium on horizontal stimulation of oil and gas wells until the USEPA publishes a report containing the results of a study of the relationship of hydraulic fracturing to drinking water resources and the Chief of the Division of Oil and Gas Resources Management issues a report analyzing how Ohio's rules address issues raised in the USEPA report.


Hearing)


HB351 WELL STIMULATION/BRINE DISPOSAL (ANTONIO N, FEDOR T) To establish requirements governing well stimulation, brine disposal and water that is used in the drilling/operation of oil and gas wells, including a requirement that oil and gas permitees pay a seven per cent overriding royalty for each well that is stimulated.

Current Status: 11/9/2011 - Referred to Committee House Agriculture and

Natural Resources


HB364 SECURITIZATION COSTS STANDARDS-ELECTRIC UTILITIES (ROEGNER K, DUFFEY M) To establish standards for the securitization of costs for electric distribution utilities.



HB418 FRACKING MORATORIUM (HAGAN R) To establish a moratorium until January 1, 2015, on the disposal by injection into an underground formation of brine and other waste substances associated with the exploration or development of oil and gas resources.


Hearing)


HB443 RENEWABLE ENERGY RESOURCE (CONDITT M) To include cogeneration technology using waste or byproduct gas from an air contaminant source as a renewable energy resource.

Current Status: 3/28/2012 - House Public Utilities, (Fourth Hearing)


HB464 WELL STIMULATION REQUIREMENTS (FOLEY M) To prohibit well stimulation unless all methane gas released as a result of the proposed stimulation of the well is captured by the owner of the well or the owner's authorized representative and to revise other requirements governing well stimulation.

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Hearing)


HB528 OIL-GAS LEASES (CARNEY J, OKEY M) To require the lessee of an oil and gas lease to provide monthly oil and gas production statements, to specify the minimum information that must be included in a monthly statement, and to establish procedures and requirements in accordance with which a lessor may conduct an audit of the lessee's records and documents related to production or post-production costs under the lease.

Current Status: 5/8/2012 - Referred to Committee House Agriculture and Natural

Resources


HB537 SAFETY STANDARDS ENFORCEMENT-OIL AND GAS DRILLING (HAGAN R) To authorize a political subdivision to enact and enforce health and safety standards for oil and gas drilling and exploration, and to revise the setback requirements in the Oil and Gas Law.

Current Status: 5/8/2012 - Referred to Committee House Agriculture and Natural

Resources


HCR3 HEALTH COVERAGE TAX CREDIT (O'BRIEN S) To request the members of the United States Congress to reauthorize and continue the Health Coverage Tax Credit (HCTC) enhancements including provisions related to the monthly reimbursement program, the qualified family members program, and Voluntary Employee Beneficiary Associations (VEBAs).

Current Status: 2/10/2011 - Referred to Committee House Finance and

Appropriations

More Information: http://www.legislature.state.oh.us/res.cfm?ID=129_HCR_3

HCR4 URANIUM ENRICHMENT (ROSENBERGER C) To urge the President of the United States to direct the United States Department of Energy to ensure the continuation of the uranium enrichment work being developed by USEC, Inc. at its Piketon, Ohio plant by granting USEC's application for a federal loan guarantee and to direct the Secretary of Energy to strongly consider providing federal funding assistance for the Clean Energy Park Demonstration Project.

Current Status: 4/12/2011 - Referred to Committee Senate State & Local

Government & Veterans Affairs

More Information: http://www.legislature.state.oh.us/res.cfm?ID=129_HCR_4

HCR12 ENCOURAGE DOMESTIC PRODUCTION OF COAL (THOMPSON A) To urge the Administration of President Barack Obama to reconsider proposals to increase taxes on producers of coal, natural gas, and petroleum and instead commit to adopting policies that encourage domestic production of these important resources.

Current Status: 6/15/2011 - Referred to Committee Senate Agriculture,

Environment & Natural Resources

More Information: http://www.legislature.state.oh.us/bills.cfm?ID=129_HCR_12

HR97 TRANSCANADA KEYSTONE XL PIPELINE PROJECT (SEARS B) To urge Congress to support the continued and increased importation of oil derived from Canadian oil sands and urge Congress to ask the U.S. Secretary of State to approve the TransCanada Keystone XL pipeline project from Alberta to Oklahoma.

Current Status: 6/15/2011 - ADOPTED BY HOUSE; Vote 92-0

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HR305 OIL AND GAS EXPLORATION (DOVILLA M) To urge the Administration of President Barack Obama to allow oil and natural gas production off the northern coast of Alaska, to grant permits for oil and natural gas exploration in the Gulf of Mexico on a timely basis, and to grant a presidential permit to allow the construction of the Keystone XL pipeline project.

Current Status: 5/24/2012 - ADOPTED BY HOUSE; Votes 60-36

More Information: http://www.legislature.state.oh.us/bills.cfm?ID=129_HR_305

SB75 ELECTRICITY CUSTOMER DISCOUNTS (PATTON T) To restore discounts for customers using electricity to heat their homes and for electric, load-management programs, to specify that those discounts run with the land and may be transferred, to provide for refunds to customers whose rate discounts were modified or discounted, and to declare an emergency.

Current Status: 9/27/2011 - Senate Energy & Public Utilities, (First Hearing)

More Information: http://www.legislature.state.oh.us/bills.cfm?ID=129_SB_75

SB78 NATURAL GAS LAKE ERIE (SKINDELL M) To ban the taking or removal of oil or natural gas from and under the bed of Lake Erie.




SB108 OIL & GAS LEASING (JORDAN K) To create the Oil and Gas Leasing Board and to establish a procedure by which the Board may enter into leases for oil and gas production on land owned or under the control of a state agency for the purpose of providing funding for capital and operating costs for the agency.

Current Status: 3/29/2011 - Senate Agriculture, Environment & Natural

Resources, (Third Hearing)


SB188 ALTERNATIVE FUEL FACILITY (PATTON T) To allow a credit against the personal income tax or commercial activity tax for the installation of an alternative fuel facility.

Current Status: 9/22/2011 - Senate Ways & Means & Economic Development,

(First Hearing)


SB198 MOTOR FUEL QUALITY TESTING PROGRAM (TAVARES C) To require the Department of Agriculture to establish a motor fuel quality testing program under which county auditors may conduct such testing.




SB209 ELECTRIC VEHICLE SALES TAX REDUCTION (HITE C, TURNER N) To reduce the amount of sales tax due on the purchase or lease of a qualifying electric vehicle by up to $2,000.

Current Status: 9/22/2011 - Senate Ways & Means & Economic Development,

(First Hearing)


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SB242 RENEWABLE ENERGY CREDITS (PATTON T) To specify that renewable energy resources do not have to be converted to electricity to receive renewable energy credits.

Current Status: 3/28/2012 - Senate Energy & Public Utilities, (First Hearing)


SB248 ELECTRIC DISTRIBUTION UTILITIES (BALDERSON T) To establish standards for the securitization of costs for electric distribution utilities.

Current Status: 1/24/2012 - Referred to Committee House Public Utilities


SB289 COGENERATION TECHNOLOGY (COLEY W) To include cogeneration technology using waste or byproduct gas from an air contaminant source as a renewable energy resource.



SB296 OIL & GAS INDUSTRY JOB TRAINING (BALDERSON T) To establish state funding for job training related or ancillary to the oil and gas industry and to make an appropriation.

Current Status: 2/14/2012 - Referred to Committee Senate Finance


SB315 MBR-MID-BIENNIUM REVIEW - ENERGY (JONES S) To make changes to the energy and natural resources laws and related programs of the state.

Current Status: 6/11/2012 - SIGNED BY GOVERNOR; Eff. 9/10/2012 Other

Sections Eff. 6/11/2012


SCR4 URANIUM ENRICHMENT (DANIELS D) To urge the President of the United States to direct the United States Department of Energy to ensure the continuation of the uranium enrichment work being developed by USEC, Inc. at its Piketon, Ohio plant by granting USEC's application for a federal loan guarantee and to direct the Secretary of Energy to strongly consider providing federal funding assistance for the Clean Energy Park Demonstration Project.

Current Status: 6/15/2011 - ADOPTED BY HOUSE; Vote 87-6

More Information: http://www.legislature.state.oh.us/res.cfm?ID=129_SCR_4

SR69 TRANSCANADA KEYSTONE COAST EXPANSION PROJECT (WAGONER M) To urge Congress to support the continued and increased importation of oil derived from Canadian oil sands and urge Congress to take the U.S. Secretary of State to approve the TransCanada Keystone Coast Expansion pipeline project.

Current Status: 1/18/2012 - ADOPTED BY SENATE; Vote 25-7

More Information: http://www.legislature.state.oh.us/res.cfm?ID=129_SR_69

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Natural Gas OMA 21st Century Manufacturing Task Force “What gas means to Ohio manufacturing” Circleville, OH • October 18, 2012 Michelle Bloodworth Vice President of State Affairs and Business Development

Smarter Power Today

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ANGA Members

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The Shale Gas Revolution

Source: EIA Annual Energy Outlook, 2008 to 2012

Haynesville

Fayetteville

New Albany

Floyd-Neal

Marcellus/

Devonian/Utica

Woodford

Barnett-

Woodford

Eagle Ford

Barnett

Lewis

Cody

Niobrara

Mulky

Bakken

Antrim

Baxter-Mancos

Mowry

Gammon

Mancos

Pierre

EIA: 2012

542 TCF shale

2,203TCF total

38% INCREASE in just four years

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$0

$2

$4

$6

$8

$10

$12

2000 2005 2010 2015 2020 2025 2030 2035

Long-Term Price Stability Henry Hub Spot Natural Gas Price

($2010 / MMBtu)

Source: EIA Annual Energy Outlook: 2012 (Early Release), 2011, 2010, and 2009 Henry Hub Spot prices (EIA reported actual prices included 2000 to 2010)

Historic Projected

AEO 2012

AEO 2010

AEO 2011

2010$/MMBtu

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Low Natural Gas Prices Mean Economic Benefits

• Lower inflation • Higher disposable incomes (for all consumers) • Higher GDP • Higher employment / lower unemployment • Stronger and faster economic recovery • Reduction of electricity costs nationwide • Higher industrial production • Chemical production will thrive as they use natural gas as a fuel

source and feedstock • Savings from lower gas prices will add an annual average of $926

per year in disposable household income between 2012 and 2015 • Gas-generation plants will have a stronger competitive position

against coal Source: IHS Global Insight , THE ECONOMIC AND EMPLOYMENT CONTRIBUTIONS OF SHALE GAS IN THE UNITED STATES; December 2011: http://anga.us/media/235626/shale-gas-economic-impact-dec-2011.pdf 5

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2017 Expected Costs

Plant Type Capacity Factor (%)

Total System Levelized Cost

(¢ per KWH) Natural Gas – Combined Cycle 87 6.55 Natural Gas – Conventional 87 6.86 Natural Gas – Combined Cycle with CCS 87 9.28 Coal – Conventional 85 9.96 Coal – Advanced 85 11.22 Coal – Advanced with CCS 85 14.07 Wind – Onshore 34 9.68 Wind – Offshore 27 33.06 Solar – PV 25 15.69 Solar – Thermal 20 25.10 Biomass 83 12.02 Nuclear 90 11.27

Levelized Cost of New Generating Technologies – Entering Service in 2017

Source: Institute for Energy Research, using data from EIA Annual Energy Outlook 2012. All ¢/KWH in 2010 dollars.

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Pipeline System Extensive and Expanding at Record Pace

• Between 2000 and 2010, the FERC approved more than 16,000 miles of new interstate pipeline, with capacity to move an additional 113 Bcf per day

• Pipeline system connects U.S. with Canada and Mexico

• Storage capacity grew 22% from 2006 - 2010

• Half of new storage is flexible high-turnover salt dome and is closer to customers

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Ohio Natural Gas Infrastructure

*

*

Ohio Natural Gas Interstate and Intrastate Pipelines

* Intrastate

Pipelines Sized by Diameter (inches)

<

8 Source: Navigant; Velocity Suite of 106

INDUSTRIAL & MANUFACTURING

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Natural Gas: An Industrial Renaissance

• The abundance of stable priced natural gas has provided many American companies to revitalize their workforce and bring manufacturing operations back to America.

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Combined Heat and Power (CHP)

• CHP provides an opportunity to better utilize the conversion heat generated from fossil-fired power generation sources.

• Attractive opportunities exist for industrial, commercial, institutional and agricultural customers

• Market Drivers: – Growing recognition of CHP benefits by state and federal

policymakers – Emissions regulations impacting non-utility boilers – Upward pressure on electricity prices – Favorable natural gas outlook

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CHP for Power Generation

• There are 43 GW of CHP installed in the electric power sector, representing 4% of total U.S. generating capacity

• New generators proposed for 2013-2016 include more than 3,700 MW of additional CHP

• CHP plants in the electric power sector typically have an arrangement with a neighboring industrial facility to purchase the waste heat.

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Outside the Electric Generation Sector

• Industrial Applications (25 GW Installed) – Plants with constant thermal and electricity demands – Energy-intensive manufacturing, especially those that generate

combustible byproducts – Chemicals, petroleum refining, pulp and paper – Food – Primary metals

• Commercial Applications (2 GW Installed) – Building heating and air conditioning – College campuses – Hospitals – Hotels

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CHP Technology Fills an Important Energy Niche

14

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EPA CHP Partnership

• Voluntary program seeking to reduce the environmental impact of power generation by promoting the use of CHP

• Works closely with energy users, the CHP industry, state and local governments, and other clean energy stakeholders to facilitate the development of new projects and to promote their environmental and economic benefits

• Available tools: – CHP help line – Available technology catalog – Initial assessment/qualifier – Emissions calculator – Funding database

• Visit www.epa.gov/chp for more information

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ANGA’s Role in Ohio

• Public Education about Safe and Responsible Development

• Earned Media Advocacy • Policymaker and Regulator Outreach • Workforce Development Guidance • Electric Utility Outreach • Policy Research Assistance • NGV Education • Organizing and Implementing Field Tours

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www.anga.us twitter @ANGAus

Michelle Bloodworth Vice President of State Affairs and Business Development

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PJM©2012

An Introduction to PJM: Focus on its Markets, Planning, and

Their Implications for Ohio for

The Ohio Manufacturers’ Association

PJM and Its MarketsAndrew Ott

Sr. Vice President, Markets

PJM Interconnection

September 5, 2012

S

PJM©20122

What is a Regional Transmission Organization?

• An independent entity that is responsible for:– Operating competitive wholesale markets

– Administering transmission tariff

– Safe and reliable operation of regional power grid

– Ensuring competitive open access to transmission where no member or member group has undo influence

• RTO owns no transmission or generation assets and has no financial interest in the wholesale market or in any of the market participants

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PJM’ Role

www.pjm.com

PJM operates the regional transmission grid to ensure reliability in a cost-effective manner and operates the world’s largest competitive wholesale electricity market.PJM’s long-term Regional Transmission Planning Process ensures reliability and economic benefits on a system wide basis.

Vision: To be the electric industry leader – today and tomorrow – in reliable operations, efficient wholesale markets, and infrastructure development.

PJM©20124

Elements of A Regional Transmission Organization

www.pjm.com

Independent Governance

Wholesale Electric Markets

Regional Reliability

Market Monitoring

Information Resource

Transmission Planning

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PJM Wholesale Electric Power Market

KEY STATISTICSPJM member companies 800millions of people served 60 peak load in megawatts 163,848MWs of generating capacity 185,600miles of transmission lines 62,591GWh of annual energy 832,331generation sources 1,365square miles of territory 214,000area served 13 states + DCInternal/external tie lines 142

• 26% of power generation in Eastern Interconnection

• 28% of electric demand in Eastern Interconnection

• 19% of transmission assets in Eastern Interconnection

21% of U.S. GDP produced in PJM

As of 6/2012

PJM©20126

The History of PJM

www.pjm.com

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PJM 10-Year Growth

www.pjm.com

PJM©20128

Markets and Regional Planning Mesh with Real Time Operations

8

Market Operation• Energy• Capacity• Ancillary Services

Regional Planning• 15-Year Outlook

Reliability• Grid Operations• Supply/Demand Balance• Transmission monitoring

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Organized Competitive Wholesale Markets

Lower costs

Broaden access to diverse power technology

Increase reliability

PJM©201210

Organized Competitive Wholesale Markets Provide Access to Diverse Power Technology

Demand-response programs

Facilitation of Alternative Resources

Generation Attributes Tracking System (GATS)

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Regional Market Benefits

Reliability –resolving constraints and economic efficiency– from $470 million to $490 million in annual savings

Generation investment –decreased need for infrastructure investment – from $640 million to $1.2 billion in annual savings

Energy production cost –efficiency of centralized dispatch over a large region –from $340 million to $445 million in annual savings

Grid services –cost-effective procurement of synchronized reserve, regulation – from $134 million to $194 million in annual savings

$2.2 billion in annual savings

PJM©201212

Market Benefits

• Information and price transparency

• Seams elimination– Elimination of pancaking

• Reduced prices

• Operational efficiency

• Market liquidity

• Increased system reliability

• Regional transmission planning– Transmission investment

– Generation investment

• Increased demand response

• Support innovation and renewable energy development

www.pjm.com

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Market Evolution

• Day-Ahead Energy Market

• Real-Time Energy Market

• Capacity Market

• Financial Transmission Rights Auctions

• Gas/Electric Market Coordination

Ancillary Services Markets

– Regulation

– Synchronized Reserves

– Day-ahead Scheduling Reserves

– Black Start Services

– Reactive Services

www.pjm.com

PJM©201214

Industry Evolution

www.pjm.com

Evolution of Supply

• Traditional resources

Less flexible

• Renewable resources

Intermittent

• Less capability to provide power grid services

Evolution of Demand

• Technology enabled flexibility

• Alternative resource growth

• Enhanced capability to provide grid services

Market Evolution

• Improvement in optimization and control systems

• More real-time markets to reward consumer

flexibility

•Development of Forward Demand Response Control

Signals

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Evolution of Alternative Resources

• Storage – Stationary Battery

• Ancillary Service supply

• Integration with intermittent resources

– Water Heaters

– Compressed Air

– Electric Vehicles

• Integrated renewable resource and building management systems

• Integrated distributed resources

www.pjm.com

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PJM LMP vs. Composite Fuel Price Index(70% Coal, 25% Natural Gas, 5% Petroleum; March 2008=100)

PJM Electricity Composite Fuel Price Index

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Henry Hub

PJM©201218

PJM Load-Weighted Fuel Cost-Adjusted LMP

$0

$10

$20

$30

$40

$50

$60

$70

$80

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012*

Referenced to 1999 Fuel Prices

Load Weighted LMP

Fuel Cost Adjusted LMP

*Through May

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PJM©201219

Capacity vs. Energy

Capacity, energy & ancillary services revenues are expected, in the long term, to meet the fixed and variable costs of generation resources to ensure that adequate generation is maintained for

reliability of the electric grid.

Capacity • A commitment of a resource to

provide energy during PJM emergency.

• Capacity revenues paid to committed resource whether or not energy is produced by resource.

• Long-term commitment• Daily product

Energy• Generation of electric power

over a period of time• Energy revenues paid to

resource based on participation in Day-Ahead or Real-Time energy market

• Daily / hourly commitment• Hourly or real-time product• $1000 / MWh offer cap

PJM©201220

PJM Capacity Market

PJM Capacity Market is designed to ensure adequate availability of resources that can be called upon to ensure

the reliability of the electric grid.

PJM Capacity Market

Reliability Pricing Model (RPM)

PJM secures capacity on behalf of Load Servers to satisfy

capacity obligations not satisfied through self-supply.

Fixed Resource Requirement Alternative (FRR) (self-supply)

Load Server secures capacity to satisfy their load obligation.

80% 20%

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PJM©201221

Foundation for RPM Structure

Resource Adequacy

Requirement

Locational Constraints

RPM Structure

• Auction Structure

• Market Power Mitigation

• Performance Requirements

• Self-Supply Alternative (FRR Option)

Forward Procurement

PJM©201222

RPM Structure

Base Residual Auction

Delivery Year

3 Years

Second Incremental Auction

Third Incremental Auction

June May

3 months

10 months

First Incremental Auction

20 months

EFORdFixed

Ongoing Bilateral Market

May

Feb.

July

Sept

ConditionalIncremental Auction

May be scheduled at any time prior to DY

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PJM©201223

Locational Constraints

Constrained AreaRCP = $198.42/ MW-day

Unconstrained Locational Delivery

Area (LDA)RCP = $16.46/MW-day

Resources in the unconstrained area can help meet the Reliability Requirement of the constrained area

In the event the import limit is reached, more expensive capacity located within the constrained area needs to be committed to meet the local Reliability RequirementImport

The amount of resources in the unconstrained area that can help meet the constrained area is limited by the actual transfer limit as calculated by PJM Planning Engineers.

PJM©201224

2015/2016 Base Residual AuctionClearing Prices ($/MW-Day)

RTO MCP = $136

MAAC MCP = $167.46

ATSI MCP = $357

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PJM©201225

Reliability Pricing Model Auction Results for PJM

$0.00

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

$140.00

$160.00

$180.00

$200.00

115,000

120,000

125,000

130,000

135,000

140,000

145,000

150,000

155,000

2007/2008 2008/2009 2009/2010 2010/2011 2011/2012 2012/2013 2013/2014** 2014/2015

Do

llar

s

Me

ga

wa

tts

Cleared MW

Clearing Price

PJM©201226

Capacity Resources

• Generation

• Transmission

• Demand Response (DR)

• Energy Efficiency

www.pjm.com

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PJM©201227

Offers of Demand-Side Resources as Capacity in PJM by Delivery Year

New Capacity Market (RPM)

www.pjm.com

PJM©201228

DR and EE Participation for 2014/2015

www.pjm.com

Demand (Cleared MW) EE (Cleared MW) Total (Cleared MW)

Total 14,118 822 14,940

ComEd - 2,082

AEP - 1,644

PECO - 837

MetEd - 403

PSEG - 969

Dominion - 1,412

BGE - 1,460

Dayton - 236

APS - 892

PPL - 1,309

PEPCO - 936

JCPL - 446

DPL - 398

PENELEC - 441

Duquesne - 225Rockland - 31

AEC - 206

ATSI - 958

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PJM©201229

Demand Resources in the Capacity Market-2015/2016

www.pjm.com

PJM©201130

Changing Fuel Mix in PJM Market

PJM Unforced Capacity Offered and Cleared MWs

Gas

Coal

Demand Response

0

10,000

20,000

30,000

40,000

50,000

60,000

2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16Delivery Year

OfferedCleared

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PJM©201131

PJM Forward Capacity Market, 2007 - 2015 Demand Resource Additions

Cumulative Generator Capacity Additions

MW

PJM©201232

Current Opportunities for Demand Side Response

www.pjm.com

Forward Capacity Sales

Day-Ahead Energy Sales

Real-Time/Spot Energy Sales

Energy & Capacity

Payment for Emergencies

Day-Ahead Scheduling Reserves

Synchronized Reserves

Regulation

Opportunities in PJM Markets

Demand Side Response

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PJM©201233

PJM Demand Response

www.pjm.com

EMERGENCY ECONOMIC

Designed to provide an incentive to customers or curtailment service providers to reduce consumption when PJM LMP prices are high.

Designed to provide a method by which end-use customers may be compensated by PJM for reducing load during an emergency event.

Load Response = Demand Side Response (DSR)

PJM©201234

Demand ResponseEvolving Revenue Streams

• Nearly 25% of synchronous reserves are provide by DR

• DR revenues grew from around $1.4 million in 2002 to over $500 million annually

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PJM©201235

Categories of Demand Response Interactions

www.pjm.com

Direct Wholesale Resource Participation

Aggregated Resource Participation

Price Responsive Demand

Offers

Control signals & feedback

Meter reading

Offers Offers

Control & feedback Control & feedback

Settlement information Settlement information

Wholesale prices

Wholesale prices Wholesale prices

Aggregator or Utility

Aggregator or Utility

Small Demand Resource

ISO/RTO

ISO/RTO

ISO/RTO

PriceResponsiveRetail Demand

Dispatchable Resource

PJM©201236

$0

$50

$100

$150

$200

$250

$300

$350

HR1HR2

HR3HR4

HR5HR6

HR7HR8

HR9HR10

HR11HR12

HR13HR14

HR15HR16

HR17HR18

HR19HR20

HR21HR22

HR23HR24

Wholesale Price (Hourly LMP)

Responding to Wholesale Prices or Emergency Conditions

Retail Rate

Will an End Use Customer reduce consumption when wholesale prices are high or when PJM initiates emergency procedures?

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PJM©2012

An Introduction to PJM: Focus on Markets, Planning, and

Their Implications for Ohio for

The Ohio Manufacturers’ Association

PJM Regional Transmission Expansion Plan (RTEP) Overview

Steve HerlingVice President, PlanningPJM InterconnectionSeptember 5, 2012

PJM©20122713500

Scope - PJM Backbone Transmission System

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PJM©20123713500

Ongoing and cyclical

15 year planning horizon

Comprehensive and Holistic

RTEP Process Characteristics

Collaborative

NERC, RFC, PJM compliance

FERC-approved

PJM©2012

LDA Evaluation – Cleveland Area

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PJM©20125713500

Existing ASTI LDA

PJM©20126713500

Approximate Cleveland Reactive Operational Interface

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PJM©20129713500

Generation Retirements

PJM©201210713500

Generator Deactivation Process

Generator provides PJM with a notice of their intent to deactivate

Within 30 days of the deactivation notification

PJM notifies the generation owner if

deactivating the unit will adversely effect reliability

Within 60 days the generation owners

notifies PJM if they will operate beyond their intended deactivation

date

Within 75 days PJM provides an updated estimate of when the required transmission

upgrades will be completed

Within 90 days PJM posts a report on the web

Covered under Part V of the PJM tariff

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PJM©201211713500

Deactivation Status

UnitTransZone

Requested Deactivation Date PJM Reliability Status

Chesapeake 1 & 2, Yorktown 1 DOM 12/31/2014

Reliability Analysis complete. Impacts identified. Upgrades expected to be completed by June 2015.

Chesapeake 3 & 4 DOM 12/31/2015

Reliability Analysis complete. Impacts identified. Upgrades expected to be completed by June 2016.

Bergen 3; Burlington 8; National Park 1; Mercer 3; Sewaren 6 PSEG 6/1/2015

Reliability Analysis Complete. Impacts identified and expected to be resolved in three - four years. Working with affected TO tofinalize upgrade schedule.

Armstrong 1 & 2; Bayshore2-4; Eastlake 4-5; R Paul Smith 3 & 4 ATSI/AP 9/1/2012

Reliability analysis complete.Impacts identified and expected to be resolved by June 2016. Further refinement of the reliability analysis, required upgrades, and generator deactivation schedule continues. Unit will deactivate as scheduled. See posting - FE Generator Deactivation Study Results and Required Upgrades.

Ashtabula 5; Eastlake 1-3; Lake Shore 18 ATSI 9/1/2012

Reliability analysis complete. Impacts identified and expected to be resolved by June 2016. Further refinement of the reliability analysis, required upgrades, and generator deactivation schedule continues. Unit will continue to operate as upgrades to transmission system are constructed - estimated till June 1, 2015. See posting - FE Generator Deactivation Study Results and Required Upgrades

Walter C Beckjord 1 DEOK 5/1/2012 Reliability Analysis complete - no impacts identified.

Walter C Beckjord 2-6 DEOK 4/1/2015

Reliability Analysis complete - impacts identified - upgrades scheduled to be completed by June 2014

PJM©201212713500

Deactivation Status

UnitTransZone


Albright 1-3; Rivesville 5 & 6; Willow Island 1 & 2 APS 9/1/2012

Reliability Analysis complete - impacts identified - upgrades scheduled to be completed by May 2013. Thus generator can be allowed to deactivate as scheduled on 9/1/2012 assuming all upgrades are still on track to be completed as scheduled.

New Castle 3-5; New Castle Diesels A & B ATSI 4/16/2015

Reliability Analysis complete - impacts identified - upgrades scheduled to be completed by June 2015. Thus generator can be allowed to deactivate as scheduled.

Portland 1 & 2; Glen Gardner CT 1-8

MetEd 1/7/2015

Reliability Analysis complete - impacts identified - upgrades and operating procedures expected to be in place by May 2015 to allow generators to deactivate as scheduled.

Elrama 1-3 DUQ 6/1/2012

Reliability Analysis complete - impacts identified - upgrades scheduled to be completed by June 2014. Unit deactivated on June 1, 2012.

Elrama 4 DUQ 6/1/2012

Reliability Analysis complete - impacts identified - upgrades scheduled to be completed by June 2014. Evaluating options. Unit to be kept in service until October 1, 2012, pending analysis of outages required to implement required system upgrades

Shawville 1-4; Titus 1-3 PenElec 4/16/2015

Reliability Analysis complete - impacts identified - upgrades and operating procedures expected to be in place by May 2015 to allow generators to deactivate as scheduled.

Niles 1 ATSI 6/1/2012

Reliability Analysis complete - impacts identified - upgrades scheduled to be completed by June 2014. Evaluating options. Unit to be kept in service until October 1, 2012, pending analysis of outages required to implement required system upgrades

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PJM©201213713500

Deactivation StatusUnit

TransZone


Niles 2 ATSI 6/1/2012

Reliability Analysis complete - impacts identified - upgrades scheduled to be completed by June 2014. Unit deactivated on June 1, 2012.

Fisk Street 19, Crawford 7& 8 ComEd 12/31/2012 Reliability Analysis Complete. No impacts identified.

Conesville 3 AEP 12/31/2012

Reliability Analysis complete - impacts identified - upgrades scheduled to be completed by June 2014. PJM continues to finalize details of required upgrades and completion dates.

Big Sandy 1; Clinch River 3; Glen Lyn 5 & 6; Kammer 1-3; Kanawha River 1 & 2; Muskingum River 1-4; Pickway 5; Sporn 1-4; Tanner Creek 1-3 AEP 6/1/2015

Reliability Analysis complete - impacts identified - upgrades scheduled to be completed by June 2015.

Avon Lake 7 & 9 ATSI 4/16/2015

Reliability Analysis complete - impacts identified - upgrades scheduled to be completed by May 2015

Sewaren 1-4 PSEG 6/1/2015

Reliability Analysis complete. No impacts expected with PSEG contemplating re-use of Capacity Rights for a new generation project

Cedar 1 & 2; Deepwater 1 & 6; Missouri Ave CT B, C & D AE 5/31/2015

Reliability Analysis complete - impacts identified - upgrades scheduled to be completed by May 2015

Hutchings 1 & 2 Dayton 6/1/2015 Reliability Analysis complete. No impacts identified

Smart Paper (St. Clair) DEOK 8/10/2012 Reliability Analysis complete. No impacts identified

Hutchings 4 Dayton 6/1/2013 Reliability Analysis Underway

PJM©2012

PJM Board Approved – New Lines

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PJM©201217713500

ATSI Transmission Zone Summary

• Significant thermal and reactive problems (39 projects)

• Required upgrades include new 345 kV lines, new 345/138 kV substations, reactive

• Eastlake 1-5 and Lakeshore 18 converted to synchronous condensers

• RMR for Eastlake 1-3, Ashtabula 5 and Lake Shore 18

• Niles and Elrama

PJM©201218713500

ATSI Transmission Zone Reinforcement

• Load Deliverability

• Create a new Northfield Area 345 kV switching station by looping in the Eastlake – Juniper 345 kV line and the Perry - Inland 345 kV line.

• Estimated Project Cost: $37.5M

• Build a new Mansfield - Northfield Area 345 kV line.

• 115 miles - ~80 miles will use open position on a DCTL, remaining line to follow existing 345 kV line on new DCTL structures


• Projected in-service date: 6/1/2015.

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PJM©201219713500

ATSI Transmission Zone Reinforcement• Build new Toronto 345/138 kV

substation by looping in the Sammis – Wylie Ridge 345 kV line and tie in four 138 kV lines


• Build a new Toronto-Harmon 345kV line

• ~56 miles; all new ROW



PJM©201220713500

ATSI Transmission Zone Reinforcement• N-1-1 Thermal: Loss of

Allen Junction-Lulu 345kV + Lemoyne-Five Points 345kV results in 102% overload on Lemoyne-BG Tap 138kV

• Build new Allen Junction -Midway - Lemonye 345kV line (48 miles of open tower position)


• Proposed in-service date: 6/1/2016

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PJM©201221713500

ATSI Transmission Zone Reinforcement• Build a new Leroy Center

345/138 kV substation by looping in the Perry – Harding 345 kV line.

• Estimated Project Cost: $46 M


• Two new 345 kV lines from Leroy Center to Mansfield / Beaver Valley area under consideration

• ~115 miles; all new ROW

• Estimated cost $393 million

PJM©201222713500

Retirement Upgrade Alternative Analysis

• Marysville – South Amherst 765 kV

– Also includes 2-5 miles of 345 kV from South Amherst – Beaver 345 kV

• Trivalley – South Amherst 765 kV

– Trivalley will intersect Kammer –Vassell 765 kV near Conesville 345 kV

– Also includes 2-5 miles of 345 kV from South Amherst – Beaver 345 kV

• Conesville – Beaver 345 kV

• Conesville – Harmon 345 kV

• Beaver Valley - Leroy Center 345kV + Mansfield –Leroy Center 345kV line

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PJM©201223713500

AEP Deactivations

Conesville 3

Requested deactivation date: 12/31/2012

Big Sandy 1; Clinch River 3; Glen Lyn 5 & 6; Kammer 1-3; Kanawha River 1 & 2; Muskingum River 1-4; Pickway 5; Sporn 1-4; Tanner Creek 1-3

Requested deactivation date: 6/1/2015

PJM©201224713500

AEP Transmission Zone• Overload on Waterford –

Muskingum River 345 kV line in generation deliverability and N-1-1 analysis involving a combination of outages including loss of Belmont –Kammer 765 kV and/or Marysville – Flatlick 765 kV line

• Proposed Solution: Reconductor or rebuild Sporn – Waterford – Muskingum River 345 kV line

• Estimated Project Cost: $200M

• Expected in-service date: 6/1/2015

AEP Deactivations - Conesville 3; Big Sandy 1; Clinch River 3; Glen Lyn 5 & 6; Kammer 1-3; Kanawha River 1 & 2; Muskingum River 1-4; Pickway 5; Sporn 1-4; Tanner Creek 1-3

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PJM©201225713500

• Address several overloads for various contingencies under generation deliverability and N-1-1 analysis including:

– Carbondale – Carbondale Tap 138 kV

– Amos – Dalewood 138 kV

– Chemical #1 – Ortin 138 kV

– Amos – Poca 138 kV

– Chemical #1 – Ortin 138 kV

– Amos – Tackett Creek 138 kV

– Cabin Creek – South Ridge 138 kV

– Capitol – Chemical #2

– Amos – Turner #2

• Proposed Solution: Rebuild Amos – Kanawah River 138 kV corridor

• Estimated Project Cost: $150M

• Expected in-service date: 6/1/2015

AEP Deactivations - Conesville 3; Big Sandy 1; Clinch River 3; Glen Lyn 5 & 6; Kammer 1-3; Kanawha River 1 & 2; Muskingum River 1-4; Pickway 5; Sporn 1-4; Tanner Creek 1-3

AEP Transmission Zone

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5813757v1

BEFORE


In the Matter of the Application of Ormet Primary

Aluminum Corporation for Approval of a Unique

Arrangement with Ohio Power Company

)

)

) Case No. 09-119 -EL-AEC

THE OMA ENERGY GROUP’S MOTION TO INTERVENE AND OBJECTIONS

Pursuant to Ohio Revised Code Section (“R.C.”) 4903.221 and Ohio Administrative

Code (“OAC”) Rule 4901-1-11, the OMA Energy Group (“OMAEG”) hereby respectfully

moves for leave to intervene in the above-captioned proceeding. The Public Utilities

Commission of Ohio (“Commission”) should grant the motion to intervene because the OMAEG

has a real and substantial interest in this proceeding, and the Commission’s disposition of this

proceeding may impair or impede the OMAEG’s ability to protect that interest. OMAEG

believes that its participation will not unduly prolong or delay this proceeding and that OMAEG

will significantly contribute to the full development and equitable resolution of the issues in this

proceeding. Additionally, OMAEG’s interests will not be adequately represented by other

parties to this proceeding. Accordingly, for these reasons and as set forth in the Memorandum in

Support attached hereto and incorporated herein, OMAEG respectfully requests that the

Commission grant this Motion to Intervene.

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Respectfully submitted on behalf of

THE OMA ENERGY GROUP

Thomas J. O’Brien

J. Thomas Siwo

BRICKER & ECKLER LLP

100 South Third Street

Columbus, OH 43215-4291

Telephone: (614) 227-2300

Facsimile: (614) 227-2390

E-mail: [email protected]

[email protected]

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5813757v1 3

BEFORE


In the Matter of the Application of Ormet Primary

Aluminum Corporation for Approval of a Unique

Arrangement with Ohio Power Company

)

)

) Case No. 09-119 -EL-AEC

MEMORANDUM IN SUPPORT

October 12, 2012, Ormet Primary Aluminum Corporation (“Ormet”) filed a Motion with

the Commission requesting approval of a modification to its existing Unique Arrangement with

AEP-Ohio. The members of the OMAEG will be affected by the Commission’s determination

Ormet’s Motion and the OMAEG should be permitted to intervene in the above-captioned

proceeding.

The OMAEG is a non-profit entity created by the Ohio Manufacturers’ Association for

the purpose of educating and providing information to energy consumers, regulatory boards and

suppliers of energy; advancing energy policies to promote adequate, reliable and efficient supply

of energy at reasonable prices; and, advocating in critical cases before the Commission. The

OMAEG’s members are all members of the Ohio Manufacturers’ Association. The OMAEG

members purchase electric power services from AEP-Ohio, and will be affected by the

Commission’s determination in this matter. Accordingly, the OMAEG should be permitted to

intervene in the above-captioned proceeding.

Consistent with the requirements of R.C. 4903.221, and OAC Rule 4901-1-11(B), the

OMAEG submits that: it is a real party in interest herein; its interest is not now represented, or

adequately addressed, by existing parties; it will contribute to the just and expeditious resolution

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4

of the issues and concerns set forth in this proceeding; and its participation in this proceeding

will not cause undue delay or unjustly prejudice any existing party. Accordingly, the OMAEG

respectfully requests the Commission grant its Motion to Intervene pursuant to R.C. 4903.221

and OAC Rule 4901-1-11.

OBJECTIONS

The OMAEG strongly objects to certain aspects of Ormet’s request for expedited

approval of payment deferral. The OMAEG does not take dispute with the deferral, but objects

to the issue of delta recovery in the event that Ormet defaults. First, Ormet’s filing will impose

an additional cost on ratepayers in the event that Ormet defaults on the repayment of the deferral.

Ormet’s contention that its filing does not “impose additional costs upon ratepayers” is flatly

inconsistent with its request that the Commission approve a modification to its existing Unique

Arrangement to provide that if Ormet fails to make a scheduled repayment, such amount may be

treated as delta revenues. This request by Ormet gives it every incentive to default because

AEP-Ohio is held harmless, as a result, the ratepayers will not have standing to sue Ormet in the

event of default. This is a significant change to the terms and conditions of the existing unique

arrangement, approved in 2009. For this reason alone, approval of automatic recovery is

improper.

For the reasons set forth above, the OMAEG respectfully requests that the Commission

deny Ormet’s request “that if Ormet fails to make a scheduled repayment, such amount may be

treated as delta revenues.”1

1 Ormet Application, Pg. 3.

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5813757v1 5

Respectfully submitted on behalf of

THE OMA ENERGY GROUP

Thomas J. O’Brien

J. Thomas Siwo

BRICKER & ECKLER LLP

100 South Third Street

Columbus, OH 43215-4291

Telephone: (614) 227-2300

Facsimile: (614) 227-2390

E-mail: [email protected]

[email protected]

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5813757v1

6

CERTIFICATE OF SERVICE

The undersigned hereby certifies that a copy of the foregoing Motion to Intervene was

served upon the parties of record listed below this 16th

day of October 2012 via electronic mail.

Thomas J. O’Brien

Steven T. Nourse

Matthew J. Satterwhite

American Electric Power Service Corporation

1 Riverside Plaza, 29th Floor

Columbus, OH 43215

[email protected]

[email protected]

Clinton A. Vince

Dan Barnowski

SNR Denton US LLP

1301 K Street, NW, Suite 600, East Tower

Washington, DC 20005

[email protected]

[email protected]

David F. Boehm, Esq.

Michael L. Kurtz, Esq.

Boehm, Kurtz & Lowry

36 East Seventh Street, Suite 1510

Cincinnati, OH 45202

[email protected]

[email protected]

Samuel C. Randazzo

McNees Wallace & Nurick LLC

21 East State Street, 17th Floor

Columbus, OH 43215

[email protected]

Maureen Grady

Office of the Ohio Consumers' Counsel

10 West Broad Street, Suite 1800

Columbus, Ohio 43215-3485

[email protected]

Mark S. Yurick, Esq.

Tafit Stettinius & Hollister LLP

65 East State Street, Suite 1000

Columbus, Ohio 43215-4213

[email protected]

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5 September 2012

DTE Energy announced theexecution of a memorandum ofunderstanding (MoU) to developthe NEXUS Gas Transmission(NGT) system in the US, inpartnership with Enbridge andSpectra Energy.

The pipeline project will start innortheastern Ohio transportinggas supplied from the Ohio Uticashale to markets in the US

Midwest, including Ohio and Michigan and Ontario, Canada.

The NGT system will include 250 miles of large diameter pipe and isexpected to transport one billion cubic feet per day of natural gas.

The pipeline will utilise the existing Vector Pipeline system to reach themarket in Ontario and follow existing utility corridors to an interconnectin Michigan.

Spectra Energy will become a 20% owner in Vector Pipeline oncompletion of the project; Vector Pipeline is a joint venture betweenDTE Energy and Enbridge.

The new pipeline will include interconnects with Michigan ConsolidatedGas, Consumers Energy and, through the Vector Pipeline, the EnbridgeTecumseh Gas Storage facility and Union Gas' Dawn Hub, which areboth in Ontario.

The project is expected to cater to local distribution companies, powergenerators and industrial users in the Ohio, Michigan and Ontariomarkets.

Expressions of interest for a significant level of firm capacity have beenreceived; an open season for the project is planned later in 2012.

The NGT system is targeted to be in service by November 2015, basedon final market demand and commitments.

Image: DTE Energy headquarters in Detroit located in the US state ofMichigan. Photo: Magnus Manske.

DTE Energy signs MoU to develop NEXUS gas transmission system - Hy... http://www.hydrocarbons-technology.com/news/newsdte-energy-signs-mo...

1 of 1 10/22/2012 11:30 AM

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1

1

Natural Gas/Energy UpdateOMA Energy Committee

Kurt WaningerNiSource

October 24, 2012

2

Agenda

• Weather– National– Columbia Gas of Ohio Degree Days

• National Storage• Gas Prices

– NYMEX Prompt Month History– NYMEX Gas Futures

• Drilling Rig Count

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3

National Weather Review

4

NiSource LDC Degree Days

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3

5

Degree Day Comparison

6

SummaryWorking gas in storage was 3,776 Bcf as of Friday, October 12, 2012, according to EIA estimates. This represents a net increase of 51 Bcf from the previous week. Stocks were 181 Bcf higher than last year at this time and 249 Bcf above the 5-year average of 3,527 Bcf. In the East Region, stocks were 51 Bcf above the 5-year average following net injections of 24 Bcf. Stocks in the Producing Region were 155 Bcf above the 5-year average of 1,071 Bcf after a net injection of 19 Bcf. Stocks in the West Region were 44 Bcf above the 5-year average after a net addition of 8 Bcf. At 3,776 Bcf, total working gas is above the 5-year historical range. Working gas stocks in the Producing Region, for the week ending October 12, 2012, totaled 1,226 Bcf, with 271 Bcf in salt cavern facilities and 955 Bcf in nonsalt cavern facilities. Working gas stocks increased 11 Bcf in the salt cavern facilities and increased 8 Bcf in the nonsalt cavern facilities since October 5. An historical series of the salt and nonsalt subtotals of the Producing Region is available for download at: wngsr_producing_region_salt.xls.

Note: The shaded area indicates the range between the historical minimum and maximum values for the weekly series from 2007 through 2011. Source: Form EIA-912, "Weekly Underground Natural Gas Storage Report." The dashed vertical lines indicate current and year-ago weekly periods

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7

NYMEX Settlement Futures

8

Henry Hub Futures

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5

BAKER HUGHES – OCTOBER 5, 2012

9

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energy page# committee - ohio manufacturers' association · intended to levy a competitive tax...

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