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

2. PJM©2014 www.pjm.com 2 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_1-1A RTEP Year RTEP Window Index (within the current year) Project Sponsor index for this window Proposal Index (for multiple proposals from the same Sponsor) PJM TEAC 1/9/2014 – Market Efficiency Presentation

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

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

5. PJM©2014 www.pjm.com 5 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

6. PJM©2014 www.pjm.com 6 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

7. PJM©2014 www.pjm.com 7 Market Efficiency Proposal 2013_2-4B PJM TEAC 1/9/2014 – Market Efficiency Presentation Description  METED Zone  Install 2nd Hunterstown 230/115 kV transformer; Reconductor Hunterstown - Oxford 115 kV line Project Details:  Proposed by: First Energy  Expected ISD: 2017  Estimated Project Cost: $8 M Posted constraints targeted:  Hunterstown 230/115 kV Results:  Benefit/Cost Ratio = 6.14  B/C >1.25  Low cost solution  See comparison table with other projects in this area

8. PJM©2014 www.pjm.com 8 Market Efficiency Proposal 2013_2-6B PJM TEAC 1/9/2014 – Market Efficiency Presentation Description  METED/PPL Zone  Install new Hunterstown - Cumberland 230 kV line and substation improvements Project Details:  Proposed by: Northeast Transmission Development (LS Power)  Expected ISD: 2018  Estimated Project Cost: $63.9 M Posted constraints targeted:  Hunterstown 230/115 kV Transformer; Three Mile Island – Jackson 230 kV Line Results:  Benefit/Cost Ratio = 1.31  B/C >1.25  See comparison table with other projects in this area

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

10. PJM©2014 www.pjm.com 10 Market Efficiency Proposal Comparison- Hunterstown Area PJM TEAC 1/9/2014 – Market Efficiency Presentation Observations  Cost has major impact on results  All projects provide benefit  Reliability Tests  Project 2013_2-4B requires new circuit breaker  Projects 201_2-6D has several reliability violations. If costs exceed $14.5 million then B/C ratio would fall below 1.25 threshold

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

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

13. PJM©2014 www.pjm.com 13 Project Recommendation Recommended project:  Install 2nd Hunterstown 230/115 kV transformer; Reconductor Hunterstown - Oxford 115 kV line.  Cost: $8.018 Million  Builder: First Energy  2017 Expected In-Service Date  Benefit/Cost Ratio: 6.14  Removes congestion on Hunterstown 230/115 kV Transformer  Risk is smaller than other projects  Low cost and High Benefit  Recommendation to Board in February PJM TEAC 1/9/2014 – Market Efficiency Presentation

14. PJM©2014 www.pjm.com 14 2013_2-4B Cost Benefit Analysis Project Description Install 2nd Hunterstown 230/115 kV transformer; Reconductor Hunterstown - Oxford 115 kV 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 Annual Energy Market Benefit (Millions) Study Year Net Load Payment Benefit Production Cost Benefit Energy Market Benefit 20174.31.02.0 20188.10.72.9 201912.00.53.9 202015.90.24.9 202121.50.76.9 202227.01.28.9 202332.61.610.9 202429.11.79.9 202531.51.910.8 202633.82.111.6 202736.22.312.5 202838.62.513.3 202941.02.714.2 203043.33.015.1 203145.73.215.9 Total NPV$210.0$12.4$71.6 Total Energy Market Benefit = 0.7*PC + 0.3*NLP

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

16. PJM©2014 www.pjm.com 16 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