WEST PENN POWER COMPANY(dba ALLEGHENY POWER)

REQUEST FOR PROPOSALS FORFULL REQUIREMENTS WHOLESALE ELECTRIC

POWER SUPPLY

PRE-BID INFORMATIONAL WEBINAR

March 25, 2009

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Welcome

Bob Reeping– General Manager, Electric Supply

Helen Taylor– Specialist, Electric Supply– RFP Coordinator

Frank Mossburg– Boston Pacific– Independent Monitor / Technical Consultant

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GoToWebinar Attendee Interface1. Viewer Window 2. Control Panel

West Penn Power Company RFP Pennsylvania Default Service - Pre-bid Webinar

Date:Wednesday, March 25, 2009

Time:1:00 PM - 3:00 PM EDT

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Conference Objectives

Gain a better understanding of the context in which the Request for Proposal (“RFP”) is being conducted

Inform interested wholesale electric suppliers of the power supply process for West Penn Power

Review the bid structure Review aspects of the Supply Master Agreement

(“SMA”) which will govern the terms and conditions of all transactions resulting from the RFP

Answer questions on all of the above topics

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Background

In accordance with the Electricity Generation Customer Choice and Competition Act and with a series of Commission Orders extending a majority of West Penn Power’s (“WPP” or “Company”) generation rate caps, the Company’s generation rate caps are scheduled to expire on December 31, 2010

In October 2007, in accordance with Commission regulations WPP filed with the Commission its Default Service and Competitive Procurement Plan (“DSP”) at Commission Docket P-00072342. The DSP contained the Company’s plans to procure generation service for its default service customers who do not subscribe for generation service from a third-party supplier

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Background

Approximately 16 parties participated in the proceeding Hearings and briefing were conducted in the Spring of

2008 with the Commission entering its Order approving the DSP on July 25, 2008

On September 23, 2008, WPP filed its compliance filing to update the DSP documents to comport with the Commission’s July 25th Order

In January 2009 WPP filed updated RFP pages associated with the procurement schedule per the Commission’s December 22, 2008 Order

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Background

On February 6, 2009, WPP filed a request with the Commission to advance the initial procurement for residential service from June 2009 to April 2009

At the March 12, 2009 Public Meeting, the Commission approved the Company’s request

On March 20, 2009 the Commission issued its Order On March 23, 2009, WPP filed its updated compliance

filing based upon the issuance of the Commission’s March 20th Order

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RFP – Supply Requirements Overview

The RFP we will be discussing today is for the procurement of full requirements supply to serve WPP’s Pennsylvania default service customers for the 29-month term from January 1, 2011 through May 31, 2013

The full requirements service herein will be made available to those retail customers who:

– Do not affirmatively select an alternative supplier;– Are unable to obtain service from an alternative supplier; or – Have contracted with an alternative supplier who fails to

perform

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RFP – Supply Requirements Overview

Full requirements service generally includes energy, capacity, ancillary services, losses and renewable portfolio requirements; excludes network transmission

Supplier’s obligation will be in terms of a fixed percentage for a specific service type of retail load

Wholesale supply will be at fixed prices based upon the awarded winning bids for the Base Load. The Incremental Load, if applicable, will be supplied by buyer at a variable price (PJM spot market). Base and Incremental loads are defined by Volume Risk Mitigation (VRM) mechanism (SMA 6.2)

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RFP – Supply Requirements Overview

Suppliers will have to qualify only once for this multi-procurement process, however if changes occur that materially affect supplier’s financial condition or its status with PJM or FERC, supplier is responsible for notifying WPP

– Credit ratings– PJM membership in good standing– FERC authorization for market based rates

Suppliers are eligible to qualify throughout the multi-procurement process

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RFP – Load Overview

Service Type Eligible PLC as of 3/4/09

Type 10 (Schedule 10) 1,530

Type 20 (Schedules 20, 22, 23, 24 and Street Lighting Schedules 51, 52, 53, 54, 55,

56, 57, 58 & 71)603

Type 30 (Schedule 30 < 500kW demand) 375

Type 40 (Schedule 30 > or = 500kW demand, Schedules 40, 41, 44, 46, 86 &

Tariff 37)1,139

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RFP – Load Overview

Type Term Apr-09 Jun-09 Oct-09 Jan-10 Jun-10 Oct-10 Jan-12 Apr-12 Total

10 17-month 1/1/11 - 5/31/12 3 3 3 2 2 2     15

  29-month 1/1/11 - 5/31/13 2 2 2 1 1 1     9

  12-month 6/1/12 - 5/31/13             8 7 15

  Spot                 6

                     

20 17-month 1/1/11 - 5/31/12 0 1 2 2 2 1     8

  29-month 1/1/11 - 5/31/13 0 0 0 1 1 1     3

  12-month 6/1/12 - 5/31/13             4 4 8

  Spot                 1

                     

30 17-month 1/1/11 - 5/31/12 0 1 1 2 2 2     8

  12-month 6/1/12 - 5/31/13             4 4 8

  Spot                 1

                     

40 12-month 1/1/11-12/31/11           23     23

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RFP – Load Overview

Service Type 10– 50% 17 and 12-month agreements– 30% 29-month agreements– 20% spot– 17-month term = 1/1/11 to 5/31/12– 12-month term = 6/1/12 to 5/31/13

17-Month 29-Month 12-Month Spot

PLC 765 459 765 306

Block % 3.33% 3.33% 3.33% 3.33%

Block MW 51 51 51 51

Block # 15 9 15 6

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RFP – Load Overview

Service Type 20– 64% 17 and 12-month agreements– 27% 29-month agreements– 9% spot– 17-month term = 1/1/11 to 5/31/12– 12-month term = 6/1/12 to 5/31/13

17-Month 29-Month 12-Month Spot

PLC 386 163 386 54

Block % 8% 9% 8% 9%

Block MW 48.25 54.33 48.25 54

Block # 8 3 8 1

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RFP – Load Overview

Service Type 30– 88% 17 and 12-month agreements– 12% spot– 17-month term = 1/1/11 to 5/31/12– 12-month term = 6/1/12 to 5/31/13

17-Month 12-Month Spot

PLC 330 330 45

Block % 11% 11% 12%

Block MW 41.25 41.25 45

Block # 8 8 1

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RFP – Load Overview

Service Type 40 has approximately 1,139 MW of eligible load ST40 customers are required to express an interest in the fixed

price option prior to the solicitation (9/17/2010) WPP will then conduct a single solicitation for the fixed price

service (10/18/2010) ST40 customers who expressed an interest in the fixed price

option will be advised of the resulting price and given thirty-one (31) days after the PUC’s acceptance of the ST 40 bids to opt-in to the fixed price option for the term January 1, 2011 through December 31, 2011

Customers that do not affirmatively elect the fixed price option shall receive hourly price service

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RFP - Supplier Eligibility Criteria

Submittal of the Expression of Interest Form Execution of the Confidentiality Agreement Submittal of PJM qualification and FERC authorization

– Qualified market buyer and seller in good standing with PJM

– FERC authorization to make sales of energy, capacity and ancillary services at market based rates

Submittal of Credit Application & related financial information – For supplier or financial guarantor– Unsecured credit requires a rating of unsecured senior

long-term debt by S&P, Moody’s or Fitch Submittal of Binding Bid Agreement

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RFP - Eligibility Overview

Confidentiality Agreement April 1 Credit Application and financial information April 1 Alternative Letter of Credit Form(s) April 1 Alternative Form of Performance Assurance April 1 PJM and FERC qualifications April 1 Executed Binding Bid Agreement April 1 Issue applicants' eligibility status April 8

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RFP - Bid Assurance Collateral

$300,000 per bid block is required from the supplier with each bid

Form of collateral must be either cash or Letter of Credit (LC)

A Bid Assurance LC form acceptable to AP has been provided as Appendix 6 in the RFP

Bid assurance collateral will be returned to the supplier upon execution of contract(s) or rejection of bid(s)

Bid assurance collateral will be forfeited in the event that the supplier does not execute contract(s) on its awarded bid(s)

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RFP - Alternate Forms of Bid Assurance Letter of Credit

Suppliers that wish to propose an alternative Bid Assurance LC form or some other form of security may do so by the April 1st eligibility requirements due date

Acceptance of such alternative forms of collateral is at AP’s discretion, and will be communicated to the supplier by the April 8th eligibility notification due date

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RFP - Bid Form Spreadsheets

All bids must be submitted using the appropriate Bid Form Spreadsheet

Contained within the Bid Form Spreadsheet, and fully transparent to the supplier, is the transformation of the supplier’s price offer into a “Discounted Average Term Price” to be used as the only parameter to rank bids

All of the fields within the Bid Form Spreadsheet that require the supplier’s input must be completed in order for the bid to be conforming; e.g., if it is the supplier’s intent to submit a zero price for any component of the pricing structure, the supplier must enter the numeric value of zero, rather than leaving the field blank

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RFP - Bid Submission & Validation

Conforming Bids Must Be: Submitted by the due date and due time Accompanied by the appropriate amount of bid

assurance collateral Submitted using the Bid Form Spreadsheet(s),

completed in full and without modification Submitted by an eligible supplier Submitted by fax to 724-830-7805

– Electronic submissions by email are non-conforming– Faxes sent to other company machines are non-conforming

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RFP - Evaluation of Bids

Discounted Average Term Price calculated on each Bid Form Spreadsheet will be the single parameter used to compare all offers

Each Service Type and term will be evaluated independently

Winning suppliers will be paid their offer prices, not the Discounted Average Term Price

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RFP – Bid-Week Outline

The typical bid week will look like the following:– Monday: Bids due by 4:30 pm– Monday: Bids awarded by midnight (award as early as possible)– Tuesday: WPP forwards partially executed contracts to supplier– Wednesday: Supplier forwards fully executed contracts to WPP by

2:00 pm– Wednesday: WPP files executed contracts with PUC– Friday: Commission rules on contracts

Bids expire the earlier of rejection notice or midnight of bid award day

Awarded transactions are contingent upon the Pennsylvania PUC and any necessary FERC approvals (SMA 16.13)

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SMA - Transaction Confirmation

One SMA will be executed under which multiple transactions can be executed

Should the SMA need to be updated during the procurement cycle the new SMA will be executed with winning bidders from that point forward

Prior executed SMAs will be unaffected by future SMA changes (prospective only)

Each awarded bid will be a transaction

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SMA - Transaction Confirmation

A transaction confirmation will specify, among other details, the following:– delivery period– number of bid blocks– percentage of load equivalent to each bid block– monthly on-peak and off-peak energy quantities to be

used in determining the MtM exposure

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SMA- Full Requirements Service Obligations

Seller must provide all services (other than network transmission) to meet its share of the load obligation as accounted for by PJM

Seller’s obligations include, but are not limited to the following: – Energy– Capacity– Transmission other than network transmission– Ancillary services– Renewable energy resource requirements– Transmission & distribution energy losses– Congestion management costs– New PJM charges, other than the Regional Transmission

Expansion Plan (RTEP) and Transition Market Expansion Charges (TMEC) exceptions

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SMA - Full Requirements Service Obligations (continued)

Buyer’s obligations include the following:– Network integration transmission service– Future PJM charges assessed to network

transmission customers for PJM-required transmission system enhancements pursuant to the PJM Regional Transmission Expansion Plan (RTEP)

– Future PJM charges assessed to network transmission customers for the transition costs related to the elimination of through-and-out transmission rates (TMEC)

– Distribution service

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SMA - PJM Declaration of Authority

An agreement between Buyer and Seller for the benefit of PJM to appropriately account for the respective obligations contained within the SMA

Required by PJM Executed by both Buyer and Seller at the time of

SMA execution Copy of Declaration has been provided as Exhibit I

in the SMA

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SMA - Scheduling & Forecasting

Seller is responsible for all scheduling with PJM to meet the obligation

Seller is responsible for monthly settlements with PJM pertaining to their obligations

Buyer will provide to the Seller on a reasonable efforts basis:– On each business day after execution, Buyer’s

estimation of Seller’s capacity PLC for the seventh following day for each service type

– On each business day of the delivery period, Buyer’s estimation of Seller’s energy and capacity obligation as is provided to PJM for settlement purposes for each service type

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SMA - Determination of Delivered Quantities

All historical load profile data provided for this RFP is at the generation level, i.e. includes distribution and transmission losses, unadjusted for marginal losses

Daily load responsibilities will be determined at the generation level and posted on a day-ahead basis to our web-site respective to each awarded Supplier

WPP will pay Suppliers for load as quantified at the generation level

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SMA - Billing and Settlement

Buyer will develop and deliver the invoice to the Seller on or before the 6th business day of each month for load quantities delivered in the previous month

Buyer will pay Seller by electronic funds transfer by 12:00 p.m. on the day PJM settles

Seller is responsible for its settlements with PJM for its awarded load obligations

Should PJM change to weekly billings, as anticipated, the billing and payment provisions hereunder will be adjusted accordingly

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SMA - Congestion Management

Seller is responsible for all congestion management costs

Buyer will transfer to Seller its congestion revenue rights in proportion to the Seller’s share of the load, i.e., revenue rights will follow the load

The nominations for congestion revenue rights for the PJM planning year will be made by the entity recognized by PJM as having the right to make such nominations, i.e., the supplier who has the load obligation effective June 1, the first day of the planning period

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SMA – Alternative Energy Portfolio Standard Obligation

Compliance Period Tier 1 Photovoltaic Tier 2

1/1/2011 to 5/31/2011 3.0% 0.0203% 6.2%

6/1/2011 to 5/31/2012 3.5% 0.0325% 6.2%

6/1/2012 to 5/31/2013 4.0% 0.0510% 6.2%

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SMA – Volumetric Risk Mechanism

An “increment/decrement” concept to mitigate volume risk associated with customer migration:

– The Base Bid Block Size is established on the first day of power flow

– Thresholds for the difference between the daily block size and Base Bid Block Size: inc = +5MW, dec = -3MW

– Upon trigger of an inc, inc load = load above Base Bid Block Size + 5MW

– Upon trigger of a dec, Base Bid Block Size is ratcheted down in increments of 3MW with more then one reduction per day allowed.

Buyer has the increment load obligation

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Condition Seller’s Price• Load anywhere All load @ bid price within dead band

• Load above 55 MW @ bid price dead band 2 MW @ Buyer’s obligation (e.g. 57 MW)

• Load reaches All load @ bid price lower band (e.g. 47 MW)

dead band50 MW base load

47 MW

55 MW

52 MW

47 MW base load

44 MW

Bid Block

Bid Block

dead band

• Base load adjusted down to 47 MW and new dead band established

Base Load and Increment Load Example

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SMA - Performance Assurance

Security against Seller’s default Nominally represents Buyer’s exposure above Seller’s unsecured credit

limit Formulaic and transparent methodology for determining Buyer’s exposure Forms of performance assurance are cash and LC Calculation done daily:

– Each transaction with a Seller is marked to market & the exposures are netted

– If Buyer is exposed, the exposure is reduced by the value of the amount delivered but not yet paid

– If Buyer is still exposed the exposure is compared to the Seller’s unsecured credit amount

– If the exposure exceeds the unsecured credit amount by at least $500k, a call is made on performance assurance

In the event of a Buyer’s Downgrade Event the Seller may request weekly payments

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SMA - Performance Assurance

The MtM exposure will equal the change in the PJM western hub forward energy prices relative to initial forward prices for each forward month times the estimated forward monthly energy quantities

Estimated forward energy quantities will be derived from the quantities stated on each Transaction Confirmation associated with 50 MWs of PLC. The quantities will be scaled for the current size of each contract

The forward prices used at the western hub will be the on-peak prices

The forward off-peak prices will be derived using an historic ratio of the day-ahead off-peak and on-peak prices

An independent pricing agent will be retained by AP to provide the forward prices

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SMA - Unsecured Credit

Initially determined from financial data provided by supplier in the pre-bid qualification process

Reviewed daily for changes in credit rating Based on Seller’s financial parameters, or Seller’s guarantor’s

financial parameters– Form of guaranty is non-negotiable and can be found as Exhibit F

in the SMA Seller’s unsecured credit will be the lower of:

– Seller’s (or Seller’s guarantor) unsecured credit cap– Seller’s (or Seller’s guarantor) relevant tangible net worth– Guaranty amount from Seller’s guarantor

Seller’s unsecured credit cap will based on Seller’s lowest credit rating (see chart on page 27 of the SMA)

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Important Upcoming Dates

Confidentiality Agreement April 1 Credit Application and financial information April 1 Alternative Letter of Credit Form(s) April 1 Alternative Form of Performance Assurance April 1 PJM and FERC qualifications April 1 Executed Binding Bid Agreement April 1 Issue applicants' eligibility status April 8 Bid Assurance Collateral April 13 Bid Form Spreadsheets April

13

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RFP Website

All materials associated with the RFP can be found on the Company’s website at www.alleghenypower.com/rfp

– RFP and exhibits– PUC Orders– Q&A forum– Historic load profiles– PLC and NSPL data– Customer counts– Loss factors– RFP coordinator contact information

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Independent Monitor

Boston Pacific Company (“BP”) has been selected as the independent monitor and technical consultant for the solicitation

BP’s activities hereunder will include:– The monitoring and review of all pre-bid activities between

WPP and the bidders– Monitoring the bid day processes to assure conformance

with the bid plan– Evaluation of bid results– Present bid results to the PUC as part of their evaluation

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Questions