1. ALLIANCE RTO 1 The Alliance RTO Rate Plan Presented to SPP RTWG Meeting at DFW Airport Hyatt The Alliance RTO Rate Plan Presented to SPP RTWG Meeting at DFW Airport Hyatt February 1, 2001 Dennis W. Bethel AEP Service Corporation

2. ALLIANCE RTO - 2 - September 2000 Filing Goals  Comply with Alliance Order II  Satisfy Order 2000 Requirements  Accommodate State Restructuring  Support a Viable Independent Transmission Business

3. ALLIANCE RTO - 3 - Why a TRANSCo? The Alliance RTO Partners Conclude that the Independent Transmission Company or TRANSCo Model Provides the Best Opportunity to Create a Regional Transmission Organization to Best Serve the Interests of All Stakeholders: Customers, Investors, Employees and Regulators.  Owner/Operator: It’s the American Way!  Appropriately Aligns Risk and Reward  Consistent with Limited RTO Roll in Markets

4. ALLIANCE RTO - 4 - Topics Covered Transmission Pricing Plan Transmission Pricing Plan Real Power Losses Real Power Losses Ancillary Services Schedules 1 - 6 Ancillary Services Schedules 1 - 6 RTO Administrative Fee RTO Administrative Fee Congestion Management Congestion Management Inter- RTO Cooperation Inter- RTO Cooperation

5. ALLIANCE RTO - 5 - Transmission Pricing Plan Zonal License Plate Rates Inside Zonal License Plate Rates Inside 3Initial Zones Based on Present Transmission Provider Areas 3Same Alliance Charge for all generators to reach any load 3Zonal Rate Includes Revenue Neutral Transition Charge Region-Wide Through & Out Rate Region-Wide Through & Out Rate 3Revenue Neutral Design Mitigates Cost Shifting, and Revenue Loss from Eliminating Pancakes 3Level Playing Field: Same Alliance Charge for all generators to reach any Interface

6. ALLIANCE RTO - 6 - Real Power Losses Seasonal Time-of-Day Network Losses Seasonal Time-of-Day Network Losses 3Summer,Winter and Shoulder Seasons, On & Off-Peak Periods 3e-Scheduling System will Identify Losses for Each Schedule 3Recognizes Flows on all Alliance Control Areas from POR to POD 3Power Flow Distribution Factors Updated Seasonally, as needed 3Zonal Loss Rate Only if Source & Sink are in One Zone 3Preserves Customer’s Option to Provide Energy for Losses 3Can be Cash Settled via Energy Markets

7. ALLIANCE RTO - 7 - Ancillary Services: Schedule 1 Scheduling System Control and Load Dispatch Scheduling System Control and Load Dispatch 3Zonal License Plate Rates for Delivery Zone 3Single Rate for Through & Out Transactions 3Same Charge for any Generator to any Load or Interface 3Charge Assessed per Schedule, i.e.,# of e-Tags. 3Charges Apply to all

8. ALLIANCE RTO - 8 - Ancillary Services: Schedule 2 Reactive Supply & Voltage Control From Generation Sources Service Reactive Supply & Voltage Control From Generation Sources Service 3Charges Assessed Per MWh, based on Scheduled Energy Flows 3Recognizes Flows on all Alliance Control Areas from POR to POD 3Zonal Charge Only if Source & Sink are in One Zone 3Power Flow Distribution Factors Updated Seasonally, as needed 3e-Scheduling System Shows Charge for Each Schedule

9. ALLIANCE RTO - 9 - Ancillary Services: Schedule 4 Energy Imbalance Service Energy Imbalance Service 3Alliance RTO will Ensure that Imbalance Market is Developed in the Alliance Region for Day-One, per Order 2000 3RTO will Specify the Overall Market Structure and Protocols 3Independent Market Operator (IMO) will Accept Bids and Post Prices for Short Time Intervals, e.g., 5 or 10 Minute 3Imbalance Prices can also be used to Settle for Losses 3Alliance Market Monitor will Review Market Performance 3Alliance Interested in Super-Regional Markets and Monitoring

10. ALLIANCE RTO - 10 - Ancillary Services: Schedules 3, 5 & 6 Regulation and Operating Reserves Regulation and Operating Reserves 3Control Area Specific Services & Cost-Based Rates, Day-One 3RTO Will Facilitate Supply by All Willing Generators that Meet Certification and Performance Standards 3Alliance will Facilitate and, if Necessary, Take Action to Develop Markets for these Add’l Services, per Order 2000 3Alliance Will Seek Widest Possible Market Participation to Ensure Workable Competition and Adequate Supplies

11. ALLIANCE RTO - 11 - RTO Administrative Fee Alliance Administrative Fee Charged to All Alliance Administrative Fee Charged to All Two-Part Charge: Two-Part Charge: 3Per Schedule Charge for Scheduling-Related Costs that tend to vary with transaction volumes (number of delivery schedules evaluated, coordinated, etc.). 3Per MW Charge on PTP Reservations and Network Load for Other “Fixed” Costs that do not vary with transaction volumes (probably majority of costs).

12. ALLIANCE RTO - 12 - Congestion Management Alliance is proceeding to define and expects to implement a hybrid approach to congestion management that combines Flow-Gate Transmission Rights (to help insure that congestion does not hinder forward market development), and nodal/zonal location-based differential transmission pricing to deal with congestion in the real-time/spot-market arena. Alliance is proceeding to define and expects to implement a hybrid approach to congestion management that combines Flow-Gate Transmission Rights (to help insure that congestion does not hinder forward market development), and nodal/zonal location-based differential transmission pricing to deal with congestion in the real-time/spot-market arena. If the hybrid approach is not available on Day-One, Alliance will employ Re-dispatch and TLR to maintain Firm Transmission, and assist customers making “New” requests to arrange “Firming” transactions. If the hybrid approach is not available on Day-One, Alliance will employ Re-dispatch and TLR to maintain Firm Transmission, and assist customers making “New” requests to arrange “Firming” transactions.

13. ALLIANCE RTO - 13 - Inter- RTO Cooperation Alliance Has Been Working With Other Regions Alliance Has Been Working With Other Regions Pro-Forma Inter-RTO Cooperation Agreement 2B Filed Pro-Forma Inter-RTO Cooperation Agreement 2B Filed 3Cooperating RTOs Commit to Coordinate Super-Regional Operations and Seasonal and Longer Transmission and Operational Planning 3Take Leadership to Develop Protocols and Formats for Data Exchange to Coordinate Planning, Security, Operations, ATC, Loop Flows, etc.. 3Improve Infrastructure and Share Savings (e.g., Load Flow Models for Planning and ATC, Integration of OASIS, Tagging and EM Systems) 3Develop Capability to Recognize and Manage Loop Flow Impacts on Reservation, Scheduling, Congestion Clearing and Cost Responsibility

14. ALLIANCE RTO - 14 - Inter- RTO Cooperation (Cont.) Pro-Forma Inter-RTO Cooperation Agreement (Cont.) Pro-Forma Inter-RTO Cooperation Agreement (Cont.) 3Develop Protocols to Facilitate Reserve Sharing In & Between RTOs 3Multi-Faceted Short-Run Approach to Congestion Management, With Support for Industry Initiatives, NERC MIC, LEER, MRD and TLR 3Commitment to Develop Comprehensive Market-Oriented Congestion Management Solution That Minimizes Effects of RTO Boundaries 3Development of Common Generation Interconnection Agreement 3Super-Regional Market Monitoring Framework 3One-Stop Shopping and Coordinated Discounting (or Reciprocity) 3ADR and Whatever Else Makes Sense

15. ALLIANCE RTO 15 Questions?

16. ALLIANCE RTO 16 Thank You!!