Market Efficiency RTEP Proposal Window PJM TEAC 192014

Market Efficiency RTEP Proposal Window PJM TEAC 1/9/2014 – Market Efficiency Presentation PJM© 2014 www. pjm. com

Market Efficiency RTEP Proposal Window Status • Window opened on 8/12/2013 • Closed on 9/26/2013 • 17 individual proposals addressing congestion from Market Efficiency Analysis • 6 entities Project Naming Convention • Project Identification Taxonomy: 2013_1 -1 A RTEP Year RTEP Window Index (within the current year) PJM TEAC 1/9/2014 – Market Efficiency Presentation Project Sponsor index for this window 2 Proposal Index (for multiple proposals from the same Sponsor) PJM© 2014 www. pjm. com

2013 Regional Market Efficiency Proposals: Page 1 of 2 PJM TEAC 1/9/2014 – Market Efficiency Presentation 3 PJM© 2014 www. pjm. com

2013 Regional Market Efficiency Proposals: Page 2 of 2 138 k. V PJM TEAC 1/9/2014 – Market Efficiency Presentation 4 PJM© 2014 www. pjm. com

Market Efficiency Schedule • Post Redacted Proposals: November 2013 • Review Results: December 2013 – January 2014 • Recommendations to PJM Board: February 2014 • Begin 2014/2015 Market Efficiency Cycle: February 2014 PJM TEAC 1/9/2014 – Market Efficiency Presentation 5 PJM© 2014 www. pjm. com

Market Efficiency Results Summary • Detailed results presented at December 2013 TEAC • 17 Proposals submitted to relieve congestion covering many areas in RTO footprint. – • Most project proposals did not pass Benefit/Cost test Three projects passed Benefit/Cost test that relieved congestion on Hunterstown Transformer – Project comparisons performed PJM TEAC 1/9/2014 – Market Efficiency Presentation 6 PJM© 2014 www. pjm. com

Market Efficiency Proposal 2013_2 -4 B • • Description Ø METED Zone Ø Install 2 nd Hunterstown 230/115 k. V transformer; Reconductor Hunterstown Oxford 115 k. V line Project Details: Ø Proposed by: First Energy Ø Expected ISD: 2017 Ø Estimated Project Cost: $8 M Posted constraints targeted: Ø Hunterstown 230/115 k. V Results: Ø Benefit/Cost Ratio = 6. 14 Ø B/C >1. 25 Ø Low cost solution Ø See comparison table with other projects in this area PJM TEAC 1/9/2014 – Market Efficiency Presentation 7 PJM© 2014 www. pjm. com

Market Efficiency Proposal 2013_2 -6 B • • Description Ø METED/PPL Zone Ø Install new Hunterstown - Cumberland 230 k. V line and substation improvements Project Details: Ø Proposed by: Northeast Transmission Development (LS Power) Ø Expected ISD: 2018 Ø Estimated Project Cost: $63. 9 M Posted constraints targeted: Ø Hunterstown 230/115 k. V Transformer; Three Mile Island – Jackson 230 k. V Line Results: Ø Benefit/Cost Ratio = 1. 31 Ø B/C >1. 25 Ø See comparison table with other projects in this area PJM TEAC 1/9/2014 – Market Efficiency Presentation 8 PJM© 2014 www. pjm. com

Market Efficiency Proposal 2013_2 -6 D • • Description Ø PENELEC/METED/APS Zones Ø Install a new 500/138 k. V substation on the existing Conemaugh‐Hunterstown 500 k. V line; Install a new 138 k. V substation: Install a new approximately 6‐mile double‐circuit transmission line connecting these two new substations Project Details: Ø Proposed by: Northeast Transmission Development (LS Power) Ø Expected ISD: 2018 Ø Estimated Project Cost: $61. 7 M Posted constraints targeted: Ø AP South; Hunterstown 230/115 k. V Transformer Results: Ø Benefit/Cost Ratio = 1. 54 Ø B/C >1. 25 Ø See comparison table with other projects in this area PJM TEAC 1/9/2014 – Market Efficiency Presentation 9 PJM© 2014 www. pjm. com

Market Efficiency Proposal Comparison- Hunterstown Area Observations Ø Cost has major impact on results Ø All projects provide benefit Ø Reliability Tests Ø Project 2013_2 -4 B requires new circuit breaker Ø Projects 201_2 -6 D has several reliability violations. If costs exceed $14. 5 million then B/C ratio would fall below 1. 25 threshold PJM TEAC 1/9/2014 – Market Efficiency Presentation 10 PJM© 2014 www. pjm. com

Market Efficiency Proposal Comparison- Hunterstown Area Sensitivity Runs* Ø Project 2013_2 -4 B has highest B/C ratio under all sensitivities Ø All projects pass B/C threshold with future generation scaling removed in local area Ø All projects pass B/C threshold if inservice year delayed one year *Sensitivity runs do not include costs associated with necessary reliability upgrades. PJM TEAC 1/9/2014 – Market Efficiency Presentation 11 PJM© 2014 www. pjm. com

Incremental Project Tests - Hunterstown Area Ø If project 2013_2 -4 B was approved, would either project 2013_2 -6 B or 2013_2 -6 D be beneficial? Ø Not recommended to combine Projects PJM TEAC 1/9/2014 – Market Efficiency Presentation 12 PJM© 2014 www. pjm. com

Project Recommendation • Recommended project: Ø Ø Ø Ø Install 2 nd Hunterstown 230/115 k. V transformer; Reconductor Hunterstown - Oxford 115 k. V line. Cost: $8. 018 Million Builder: First Energy 2017 Expected In-Service Date Benefit/Cost Ratio: 6. 14 Removes congestion on Hunterstown 230/115 k. V Transformer Risk is smaller than other projects Ø Low cost and High Benefit Ø Recommendation to Board in February PJM TEAC 1/9/2014 – Market Efficiency Presentation 13 PJM© 2014 www. pjm. com

2013_2 -4 B Cost Benefit Analysis Project Description • Install 2 nd Hunterstown 230/115 k. V transformer; Annual Energy Market Benefit (Millions) Reconductor Hunterstown - Oxford 115 k. V line. 2017 Expected In-Service Date • Project Costs • $8. 018 Million projected cost • Total revenue requirement during first 15 years of project life is $11. 67 million based on a carrying charge rate of 16. 7% Project Benefits • Cumulative net present value of project benefits during first 15 years of project life is $71. 62 million based on a discount rate of 7. 7% Benefit/Cost Ratio = $71. 62 million/$11. 67 million = 6. 14 PJM TEAC 1/9/2014 – Market Efficiency Presentation 14 Study Year 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 Total NPV Net Load Payment Benefit 4. 3 8. 1 12. 0 15. 9 21. 5 27. 0 32. 6 29. 1 31. 5 33. 8 36. 2 38. 6 41. 0 43. 3 45. 7 $210. 0 Production Cost Benefit 1. 0 0. 7 0. 5 0. 2 0. 7 1. 2 1. 6 1. 7 1. 9 2. 1 2. 3 2. 5 2. 7 3. 0 3. 2 $12. 4 Energy Market Benefit 2. 0 2. 9 3. 9 4. 9 6. 9 8. 9 10. 9 9. 9 10. 8 11. 6 12. 5 13. 3 14. 2 15. 1 15. 9 $71. 6 Total Energy Market Benefit = 0. 7*PC + 0. 3*NLP PJM© 2014 www. pjm. com

2013_2 -4 B Annual Energy Market Benefit PJM TEAC 1/9/2014 – Market Efficiency Presentation 15 PJM© 2014 www. pjm. com

Market Efficiency Next Steps • Recommendation to PJM Board: February 2014 • Begin 2014/2015 Market Efficiency Cycle: February 2014 • Coordinate with Interregional group for Joint PJM/MISO study PJM TEAC 1/9/2014 – Market Efficiency Presentation 16 PJM© 2014 www. pjm. com