Workshop O Ohio Power Company (AEP Ohio): Significant Developments Impacting Electric Rates

Tuesday, February 18, 2020 3:15 p.m. to 4:30 p.m.

Biographical Information

Sherry Hubbard, C.E.M., C.C., R.E.A EE & Consumer Programs Manager, Distribution Technology & Innovation AEP Ohio, 700 Morrison Road, Gahanna, OH 43230 614-552-1128 [email protected]

Sherry joined AEP Ohio in August, 2009 and currently works as AEP Ohio’s liaison to Smart Columbus. Her prior responsibilities included developing pilots to examine technologies and program designs for potential incorporation into AEP Ohio’s energy efficiency portfolio. Before joining AEP Ohio, Sherry served as the Ohio Energy Office Chief for the Ohio Department of Development. Ms. Hubbard is a graduate of The Ohio State University with an MBA, and a BSBA in Production and Operations Management and is certified in Distance Learning from the University of Wisconsin-Madison. She’s also a 2014 graduate of Leadership Ohio and in her free time enjoys playing banjo and competing in dog agility with her All-American shelter rescue, Benny – though not both at the same time.

Angie Rybalt, Outreach Manager, Energy Efficiency Programs 700 Morrison Road, Gahanna, OH 43230 614-883-6902 [email protected]

Mrs. Rybalt is the Outreach Manager for the AEP Ohio Energy Efficiency Programs. Angie’s team is responsible for AEP Ohio Business Incentive program participation across multiple sectors of Solution Providers and customers. Angie spent the first part of her career in financial sales and with the belief that EE is financial sale she naturally shifted to energy efficiency sales.

She has supported the AEP Ohio energy efficiency programs for over a decade. Her key strengths are the deep relationships she has made and understanding the sales process surrounding energy efficiency amongst different customer segments.

Mrs. Rybalt currently serves on the board of the local chapter of Association of Energy Engineers and has a BA in Business from The Ohio State University. Angie’s true passions are yoga and spending time with her charming and chaotic little family.

Biographical Information

Joseph G. Bowser, Technical Specialist, McNees Wallace & Nurick LLC 21 East State Street 17th Floor, Columbus, Ohio 43215 614-719-2852 [email protected]

Joe Bowser is a Technical Specialist in the Columbus, Ohio office of McNees Wallace & Nurick LLC. In this role he focuses on helping clients address issues that affect the price and availability of utility services. As part of his responsibilities, he also provides clients with assistance in evaluating and acting upon opportunities to secure value for their demand response and other capabilities in the base residual auction (“BRA”) and incremental auctions conducted by PJM Interconnection LLC (“PJM”) as part of the Reliability Pricing Model (“RPM”).

Prior to joining McNees Wallace & Nurick LLC, Joe worked with the Ohio Consumers’ Counsel as Director of Analytical Services. There he managed the analysis of financial, accounting, and ratemaking issues associated with utility regulatory filings, and assisted in policy development and strategy. Joe also spent ten years at Northeast Utilities, where he held positions in the Regulatory Planning and Accounting departments of the company. He provided litigation support in regulatory hearings and assisted in the preparation of the financial/technical documents filed with state and federal regulatory commissions. Joe began his career with the Federal Energy Regulatory Commission (FERC), where he led and conducted audits of gas and electric utilities in the Eastern and Midwestern regions of the United States.

Joe is a member of the American Institute of Certified Public Accountants, and received a Bachelor of Science degree in Accounting from Clarion State College. He also obtained a Master of Science degree in Finance from Rensselaer Polytechnic Institute.

It is extremely important you get applications and projects in Q1 & Q2 of 2020.

We don’t know when the 17.5% will be reached. Non‐Residential Customer Engagement Solution

• Recent enhancements to customer’s MyAccount allows them to explore energy usage and insights through various interactive graphs in the following areas: – Usage/Demand Overview* – Billing Insights – Facility Insights Facility Insights – Profile Questions Billing Insights – Compare Charges s1

NEW Energy Usage Analysis Tool

Utilizes Weather Multivariable Production Regression Analysis

Occupancy

Predicted Energy Intensity Slide 6 s1 s210590, 1/31/2020 NEW Energy Usage Analysis Tool

• Primarily for Continuous Improvement Participants

• Subscription available for a limited number of customers upon request.

Energy Savings Energy Advisors

Gail Mullett ENERGY Efficient Products EFFICIENCY Bid4Efficiency Network Lighting Controls Process Efficiency Data Center New Construction & Major Renovation Combined Heat & Power Incentive NOW E-Motor Rewind Energy Efficient Financing Express Program Continuous Energy Improvement Automated Benchmarking Automated Benchmarking

Easy to understand and manage your energy use. Get started at https://www.benchmarking.energy Instant rebates are available for AEP Ohio customers on qualified LED commercial grade lamps and fixtures only from participating distributors.

No paperwork and no waiting––your rebate is automatically deducted from the purchase price. List of Distributors aepohio.com/save/business/programs/IncentiveNow

Click on one of these links to take you to the current list Incentive Now – measure list

• HVAC • Agriculture – Unitary & Splits AC – Swine Heat Mats – Room AC <2tons – Low‐pressure – VRF AC Nozzles – VRF Heat Pumps – High Speed Fans – PTACS – HVLS Fans – Sprinkler Incentive Now ‐ measures

• Food Service & Refrigeration Misc. & Industrial – Pre‐rinse sprayer • HF Battery chargers – Steam cooker • Intelligent surge protector – Combo ovens • Plug Load occupancy sensors – Hot holding cabinets • UPS – Beverage machine controls • Energy Star – Snack machine controls – Electric hot water heaters – – Energy star Ice makers Commercial washer – Ultra‐low temp freezers – Q sync Motor (8”, 10”, 12”) AEP Ohio Network Lighting Controls Incentives

Low Lumen / High Density High Lumen / Low Density • $.75 sq./ft • $.30 sq./ft • Offices, Classrooms, • Warehouses, Gyms, etc etc LAST CHANCE VFD bonus

VARIABLE FREQUENCY DRIVES New Construction Paths

Early Design

My Prescriptive Solutions New Construction

Whole Custom Building

17 Data Center Program

Our program incentivizes measures to improve the overall performance of Server Rooms

Looking to Save Energy with IT equipment?

Considering moving Your Data Center? Mercantile Opt Out

• Effective January 1, 2020, mercantile customers as defined in Section 4928.01 of the ORC are also eligible to opt out.

• Customers who opt out of AEP Ohio’s EE/PDR programs will not be charged AEP Ohio’s EE/PDR Rider, which is the part of AEP Ohio’s electric rates that recovers the cost of EE/PDR programs. However, customers who opt out will be prohibited from participating in or benefiting from any of AEP Ohio’s EE/PDR programs. What Can You Do?

 Contact your Energy advisor or Customer service rep

 Push your projects up to early 2020

 Conduct a walkthrough opportunity assessment with AEP Ohio EE team

COLUMBUS - A SMART CITY

78 APPLIED • COLUMBUS WON

$40 MILLION $10 MILLION With SMART Columbus from the start

EV Charger Incentives Launched

Energy Efficiency Microgrid 1st $10M – Vulcan Plan 2017‐2020 Electric Security Exploring LED Demo Project Columbus Wins Approved Plan/SCR Approved Smart Lighting Identified Pilots

Q2 Q4 Q1 Q4 Q2 Q3 Q4 Q2 Q3 Q4 Q1 2016 2016 2017 2017 2018 2018 2018 2019 2019 2019 2020

Smart Columbus Renewable RFP Microgrid Agreement Issued Demo RFP Executed Issued EV Charger Experience Center Incentives Subscribed GridSmart Ph2 Approval Opened Smart Columbus Scorecard

Initiative Strategy Goal Performance Comments thru 12/31/2019 Clean Energy Research $500 K $500 K Complete

Decarbonization New Distr Gen Customers 300 707 Ongoing

Energy Efficiency (EE) 480 GWH 431 GWH Ongoing As of 12/31/2018 Smart City Research $200 K $0 Under consideration Grid Mod & EE AMI Deployment‐Meters 528,000 544,976 Ongoing

Microgrids & Battery 1 0 First project Storage selected

Level 2 ‐ Charging Stations 300 283 Stations* 164 Applications Stations* 105* Activated $3.6 M reserved Charging Infrastructure DC Fast ‐ Charging Stations 75 Stations 89 Stations 54 Applications 13 Activated $5.6 M reserved DECARBONIZATION

Distributed Generation Energy Efficiency Interconnections in SMART Committed 480 GWh savings Columbus footprint = 707 through EE programs for all customers

• 2020 • Near East • Milo‐Grogan Linden • University/Italian Village

Franklinton REPLACE THE PHOTO GRID MODERNIZATION

Distribution Automation Circuit Reconfiguration Volt Var Optimization

AMI Meters AMI‐enabled Customer Engagement

MY ACCOUNT

IT’S YOUR POWER REPLACE THE PHOTO

ELECTRIFICATION Interestingly…

Fisker’s Ocean SUV Smart Charging Enables EVs to Provide Grid Benefits AEP Ohio Promotes EV Market Development AEP Ohio Promotes EV Market Development

AEP Ohio Service Territory Map . 10% required to be sited in low income communities in AEP Ohio’s service territory . As defined by census tracts where 50% of households have income less than two times the federal poverty threshold (2011 – 2015 American Community Survey) . About 15% actually sited in low income communities

LEVEL 2 FAST CHARGER ~18% ~11% Still the Question of Density

Deployed Infrastructure

Ohio: 277

AEP Ohio Territory: 222

Smart Columbus: 156

Station Location Source: http://www.afdc.energy.gov/locator/stations/

Existing infrastructure is inadequate to promote greater EV adoption 33 Staying SMART

 Continued opportunities to convene and innovate

 Continued learning

 Staying aligned with a future focused on sustainable prosperity

 Collaborate, collaborate, collaborate AEP-Ohio (“Ohio Power”)

Priceless Insights into Developments Affecting Electric Rates in AEP-Ohio’s Service Territory, including Rates & Tariffs, Savings Opportunities, Demand Response, PJM Capacity Auction Update, energy efficiency, Smart Grid, and Impacts of the Tax Cuts and Jobs Act of 2017

24th Annual Ohio Energy Management Conference

Joseph Bowser - Technical Specialist February 18, 2020

. ESP III – Extension . Recent Rate Developments . Tax Cuts and Jobs Act of 2017 . Transmission Rates . Proposed Solar Energy Projects . PJM Capacity Auctions/Demand Response Opportunities/Peak Shaving . Generation Supply Shopping/Standard Service Offer Prices . HB6/Energy Efficiency

Rates effective June 1, 2018 . The extended ESP runs through May 31, 2024 . Company to file a base distribution rate case by June 1, 2020 . Continues Rider DIR with increased revenue caps . Approved a placeholder rider for the Renewable Generation Rider (RGR) . Status quo recovery of OVEC costs through the non-bypassable PPA rider is retained by the Company through the extended ESP term absent legislation that provides for alternative recovery (the PPA rider provides that the net costs or credits of the Company’s contractual entitlement in OVEC generation is reflected in the PPA (the passage of HB 6 provides an alternative recovery mechanism in which charges will be capped at no more than $1,500/month for non- residential customers)

. Rider DTR is withdrawn, and a new rider (Smart City Rider) is established to fund micro grid costs, electric vehicle rebates, and research & development costs. The rider will sunset after 4 years. . Power Forward Rider is established for the term of the extended ESP at an initial rate of zero. Rider to be activated based on PUCO findings and directives in its Power Forward initiative. . Rider IRP continued for term of Extended ESP, with existing customers’ credit beginning June 2018 at $9/kW-month, and new customers’ credit is equal to 0.7 times the PJM base residual auction clearing price. IRP credit expanded to up to 160 additional MW of load for existing AEP customers and up to 120 MW for new industry

. The non-bypassable retail stability rider (RSR) terminated with the first billing cycle of August 2019, after fully collecting deferred capacity costs authorized in ESP II, arising from non- fuel generation revenues uncollected as a result of customer switching to CRES providers . The non-bypassable phase-in recovery rider (PIRR) terminated with the first billing cycle of February 2019 (only applied to customers in the Ohio Power rate zone-not the Columbus Southern rate zone). The PIRR recovered regulatory asset deferrals that resulted from the first ESP bill caps. Recovery started in September 2012 . Effective January 2020, the non-bypassable Legacy Generation Rider (LGR) replaced the PPA rider for collection of OVEC costs. For non-residential customers the charge applies only to the first 833,000 kWh per month. Maximum monthly charge under the initial rates are approximately $670 per month. Rates will be updated semi-annually

39 © 2019 McNees Wallace & Nurick LLC www.mcneeslaw.com Tax Cuts and Jobs Act of 2017 (TCJA) . Among other provisions, the TCJA reduced the corporate federal income tax rate from 35% to 21%, effective January 1, 2018 . Commission opened a COI (Commission Ordered Investigation) case in January 2018 . Utilities were to reserve a regulatory liability on their books as of January 1, 2018 for the amount they will need to reduce rates by . Several riders have been adjusted to reflect the lower federal income tax rate (estimated to provide over $65 million in tax savings to customers annually) that was effective January 1, 2018:

 Rider BTCR  Rider DIR  Rider ESRR  gridSMART rider  EE/PDR rider (shared savings)

. Ohio Power established a Tax Savings Credit Rider (TSCR) effective 11/1/18 at a credit rate for non-residential customers of $0.00111/kWh and expected to run through 12/31/19. The TSCR rate to be effective 1/1/2020 is $0.000903/kWh . The main components of the TSCR are the impacts of the reduction in the federal income tax rate to 21% commencing 1/1/18, and the amortization of unprotected excess deferred taxes over 6 ¼ years . The amortization of protected excess deferred taxes over approximately 30 years as a reduction to Rider DIR (Distribution Investment Rider)

. Retail transmission costs and rates have generally been escalating over the last several years due largely to rapidly increasing investment in transmission facilities, and high returns on equity permitted by the FERC for setting wholesale transmission rates . PUCO held a transmission meeting on 7/15/2019 with PJM and other stakeholders to begin a dialogue and lead to a plan that will bring more transparency and accountability to the process of investment and the operation of the transmission network that is subject to federal regulation, including PJM supervision of planning for supplemental projects . Supplemental projects are those projects that individual transmission owners elect on their own without thorough vetting through other stakeholders. FERC has recently required a more transparent stakeholder process for such projects.

. Ohio Power retail recovery of transmission costs is thru the BTCR rider . New retail BTCR rates are based in part on the FERC Formula Rates . Filing made in early 2019 for revised BTCR rates effective April 1, 2019 . Proposed BTCR rates were decreases from the current rates – due mainly to a large prior period BTCR rider over-recovery . FERC Formula rate update filed 10/31/19 for NITS rate to be effective 1/1/2020. NITS rate is increasing from $65,923/MW-year to $80,366/MW-year. The main drivers of the higher NITS rate was increase plant in service and related expenses such as depreciation, property taxes, and operation & maintenance. . For retail rates, the NITS increase will be reflected in the next BTCR rider update to be effective 4/1/2020.

. Filing made in early 2020 for BTCR rates effective 4/1/2020 . Proposed BTCR rates were increases from the current rates – due mainly to a large decrease in the over-recovery from the prior period BTCR rider, along with the NITS increase that was effective 1/1/20

. What is it? A program in which customers receive compensation in exchange for agreeing to curtail load if asked to do so by PJM. A request to curtail load is called an “event” . How is compensation determined? . Compensation is based on the auction clearing prices for the demand resource type times the customer’s curtailment commitment. Example: assume a 2MW commitment at a clearing price of $164.77/MW-day gross compensation = 164.77 x 2 x 365 days = approx. $120,000 . Is there any other compensation available? . Yes, participants may also be eligible for emergency energy compensation if PJM calls an event and the participant curtails load during the event . Can I participate in Load Management on my own? . Participation is required to be through a Curtailment Service Provider (CSP). Any PJM member can act as a CSP, and EDCs, LSEs and retail customers that are PJM members may take on the role of a CSP *A listing of CSPs is published on the PJM website.

PRODUCT 2017-18 2018-19 2019-20 2020-21 2021-22 Limited $106.02 N/A N/A N/A N/A Extended Summer $120.00 N/A N/A N/A N/A Annual $120.00* N/A N/A N/A N/A Base N/A $149.98 $80.00 N/A N/A CP $151.50(1) $164.77 $100.00 $76.53 $140.00 AEP Load Price $119.81 $162.44 $96.77 $76.53 $140.53

(1) CP cleared in the 2017-18 Transition Auction

*Annual gross revenues per MW = $120.00 x 365 days = $43,800 2022-23 PJM BRA auction delayed until late 2020 (normal date would have been May 2019)

46 © 2019 McNees Wallace & Nurick LLC www.mcneeslaw.com PJM Load Management . How does PJM determine when to dispatch load management? . PJM will dispatch when expected to be short on reserves. Typically means that most of the economic generation available has been dispatched and load management is expected to be needed to meet system load and reserves to avoid loading maximum emergency generation or taking other emergency actions. For a typical capacity shortage, PJM will deploy the 120 minute lead time resources first and stagger the amount dispatched so that the load reductions are ramped-in as system conditions materialize. The 30 minute lead time resources are expected to be used for unexpected system issues, when capacity is needed immediately. . Typically, load management is dispatched by zone unless there is a more localized issue, when PJM may dispatch by subzone. . What happens if a customer fails to reduce load in a PJM event for all or part of its kW commitment? . Under-compliance charges are assessed depending on the degree of the underperformance and the particular DR type – i.e. Limited, Base, CP, etc.

DELIVERY YEAR NUMBER OF (June 1 – May 31) EVENTS 2001—2002 4 2002—2003 3 2003—2004 0 2004—2005 0 2005—2006 2 2006—2007 2 Since the 2009—2010 Delivery Year, load 2007—2008 1 management has averaged 97+% performance when called on to curtail load. 2008—2009 0 2019-2020 DY – one event called on October 2 – 2009—2010 1 for 120-minute lead time demand resources, from 2010—2011 7 2:00 p.m. to 4:00 p.m. in AEP zone 2011—2012 1 2012—2013 2 2013—2014 14* 2014—2015 0 2015—2016 0 2015—2017 0 2017—2018 0 48 2018—2019 0 © 2019 McNees Wallace & Nurick LLC www.mcneeslaw.com OP’s CBP Auctions to Establish SSO Prices For the ESPs

. Several auctions have been conducted to date . To procure energy, capacity, and market-based transmission and transmission ancillary services . Delivery periods: Blended Price . June 2015 thru May 2016 $54.87/MWH . June 2016 thru May 2017 $52.37/MWH (100%) . June 2017 thru May 2018 $51.14/MWH (100%) . June 2018 thru May 2019 $49.35/MWH (100%) . June 2019 thru May 2020 $47.38/MWH (83%) . June 2020 thru May 2021 $44.12/MWH (66%)

Residential 45.8% 35.3% 35.0% 34.1% 35.1% 32.5% Sales

Commercial 86.9% 86.1% 85.9% 86.0% 85.7% 84.2% Sales

Industrial 97.5% 97.4% 97.9% 97.5% 88.1% 79.9% Sales

Total Sales 75.2% 74.7% 74.9% 71.5% 69.9% 66.3%

. Price to Compare (PTC) – your avoidable charges if you shop, typically expressed in cents/kWh – PTC includes: . Generation Energy Rider (Rider GEN-E) . Auction Cost Reconciliation Rider (Rider ACRR) . Generation Capacity Rider (Rider GEN-C) . Rider AER (Alternative Energy Rider) charges

51 © 2019 McNees Wallace & Nurick LLC www.mcneeslaw.com Practical Implications of House Bill 6 . Jan. 1, 2020 – the renewable mandate ends for customer who self- assess the Ohio State kWh tax and opt-out reporting requirements end for customers who elected the streamlined opt-out (customers served at primary or higher voltage, or self-assessors of the kWh tax) . Jan. 1, 2020 – the EE mandate opt-out expands to mercantile customers . Jan. 1, 2020 – New non-bypassable OVEC charges begin thru Legacy Generation rider and are capped at $1,500/month for non-residential customers. Rider PPA terminated 12/31/2019. The charges will extend through December 31, 2030 . Dec. 31, 2020 – the peak demand reduction (PDR) mandate permanently ends and the EE mandate ends when EDUs have collectively achieved a 17.5% reduction in kWh sales (as of 12/31/2019, the reduction is estimated to be 17.38%) . Jan. 1, 2021 – non-bypassable charges to provide support for Ohio nuclear plants begin and will end Dec. 31, 2027. Charges for largest customers are capped at $2,400/month for non-residential customers – charges extend thru 2027. 52 © 2019 McNees Wallace & Nurick LLC www.mcneeslaw.com Ohio Power Energy Efficiency/Peak Demand Reduction Rider (EE‐PDR) rates at 12/31/2019

. General Service Demand Metered . $0.0005533/kWh, plus . $0.79/kW

. General Service Non‐Demand Metered . $0.0005533/kWh, plus . $2.97/bill

53 © 2019 McNees Wallace & Nurick LLC www.mcneeslaw.com Takeaways . Opportunities to reduce your electric bills by obtaining service from competitive suppliers of generation service . Current ability to participate in PJM demand response programs for customers with curtailable load – the programs may, and usually do change . Peak shaving is another option for reducing electric bills . Reducing your electric bill requires customers to be proactive . To learn more, contact: McNees Wallace & Nurick

Useful Web Sites:

. AEP www.aep.com . PUCO www.puco.ohio.gov . PJM www.pjm.com . IEU-Ohio www.ieu-ohio.org . FERC www.ferc.gov